If you are talking about the enquiry done by the Reserve Bank, then it was released a couple of weeks ago.

In it, it basically says that the current property boom is being driven by investors in a way not really seen in Australia, or any other part of the world, before.

The increased spending is not in line with the increased purchasing power provided by deregulation of the finance industry, or the current low interest rates.

It actually calls the boom a bubble which is a fairly extreme statement for something as conservative as the RBA.

The over riding direction of the report is to say that the bubble has caused a dramatic shift in the make up of the Australian property market, making it almost impossible for new home buyers to enter the market, even with the FHOG, and that it is becoming top heavy with investors.

It also says that tax concessions allowable on property investment are basically the most favourable in the world, and suggests that this needs review by the ATO, as it is outside the area of expertise of the RBA.

What do I think it means?

Short term, the RBA will raise interest rates again, maybe by up to .5%, but that as the housing market cools, this will come down again.

Their is growing pressure on the ATO from many areas to review the tax concessions on property investment. This will be done, making it more difficult to negatively gear property thus helping to drive investors away from the market.

Also as a side effect, it is possible that laws regarding property investment seminars will be tightened, and there also seems to be a growing push to either make “Wraps” illegal all together, or at least substantially tighten controls on “wrapers”.

From my point of view, I couldn’t care less about any of it.

Driving investors away from the market, thereby lowering prices and making it easier to find genuine investment properties at reasonable prices.

Interest and tax rate changes will have minimal effect if you buy property that is genuinely a good investment, not just a property that you turned into one by some fancy accounting.

It may be more than 10 or more years before we get another boom, but I don’t care because it is only icing on the cake, and not part of my investing strategy.

Dino

“If you don’t know where you are going, every road will take you there.”

Many people still remember the >15% interest rates of the late 1980’s, but it is unlikley that rates will ever go that high again due to de-regulation of the banking industry.

Previously, the major banks added about 7% to the official rate, but this has now come down to about 2%, due to substantial competition from other lenders (Thanks Aussie!)

For mortgage rates to reach 10%, the Reserve bank will need to lift the cash rate to 8%, or 60% above what it is now.

The RBA’s primary reason for the current increases seems to be to reduce investor spending in real estate. This is already happening.

I’d also suggest that a desire to curb the annual credit splurge for Xmas had a part in the latest rise as well (two birds with one stone).

With continuing long term low interest rates in the US, it is unlikely Australia will lift it’s rate much highter.

Lenders will not lift their rates too much further above the RBA rate unless property becomes a riskier investment (ie too many investors caught out in the curent boom defaulting on their loans).

All the above comes from press reports and published articles easilly available on the web, and is not necessarily my own view.

IMO therefore, rate rises of more that 0.5% are unlikely, and I would guess that they may even come down again within 12 months, assuming the level of investor spending in real estate decreases substantiatlly in the coming months.

Dino

“If you don’t know where you are going, every road will take you there.”

“Women,
Can’t live with ’em,
Pass the beer nuts.”

Norm – Cheers.

Dino

“If you don’t know where you are going, every road will take you there.”

Fair value of property is something I ‘ve had a little bit to do with in the past couple of years.

Last year I bought a house for less than the owner paid for it only 12 months before, which was less than the previous owners had paid 7 years before that.

The person I purchased from came from out of town and paid above what I believed the place was worth, which is why I didn’t purchase it then. He was forced to sell due to a marriage break down.

The people he bought it from had bought at the peak of the previous cycle, and had committed themselves to upgrading. They got the best price they could.

Now only 16 months latter the house has increased in value 50%, putting it well above all previous purchase prices.

I do not feel guilty at all. I believe both previous owners purchased at above current value. That was their choice.

I purchased at the low end, but it really was the absolute maximum of what I could afford, and at what I considered to be a reasonable price anyway.

I certainly didn’t predict that prices would jump 50% in a year.

I am now selling my previous home. I have received a price that is at what I consider to currently be fair market value, but definately well below maximum possible price. Market value may drop in the next couple of years, but I have no doubt that the purchaser will never have to sell at a loss, unless their circumsatnces create a need for a “fire” sale.

I am more than happy.

Yes, there are some people that will probably be better off financially than me in the long term, but I will have no doubts about how I acheived anything, and will certainly not feel guilty that I may have taken advantage of some one elses misfortune, or inexperience.

If you are concerned about buying houses at “firesale” prices, offer what you consider to be fair value. It doesn’t have to be full value, but neither does it need to be so low that you feel the seller is being taken advantage of.

I beleive in karma – what goes around, comes around. I may be a bit naive, but I think deal fairly with others, and you will get a feel for when others are dealing fairly with you.

Some people may think that my above reasoning is a little bit contradictory, but I certainly do not. I do not believe that I have taken advantage of any one. The poeple that were taken advantage of were the previous buyers of my current house, when they originally purchased.

If it doesn’t feel right, don’t do it.

Dino

“If you don’t know where you are going, every road will take you there.”

Sorry, I just couldn’t bite my tongue any longer.

“People are poor because they choose to be poor”

“I worked hard at school, so I deserve to earn more money than some one who didn’t”

What a load of crap!

Most people are poor because they don’t know how, and don’t have the skills to be anything different, and have no real reason to change. Yes there are dole bludgers out there, but in my opinion most stay on the dole because of the way the system works.

I was on the dole a couple of years ago. To keep the house I owned and feed my family, I needed to find a permanent job that paid a minimum of $30k per year. I was prepared to find temporary work in the meantime, but this meant two things.

1. Working for minimum wage meant that I would bring home, after tax, about a maximum of $2.50 per hour over and above my Centerlink payments, assuming of course I could find full time work. Would you work 38 hours per week for $2.50 per hour?

2. Working for any reasonable amount of time for minimum wage substantially hampered my efforts to find a $30k per year job. It is also extremely difficult to find any sort of job if your prospective employer thinks you are likely to take off at the first opportunity

In the end, I found that it was far better not to work, but to keep looking for suitable employment.

Asking how people on welfare can afford cigarettes or alcohol just misses the point entirely. Why not ban them from having kids? This would certainly keep their costs down and help them to get ahead in the long term. (Oh wait, some people want those kids to grow up, get jobs, and pay taxes to help support them to do nothing when they retire, so better cancel that idea.)

People on welfare learn to live on welfare, but don’t learn how to get off of it. The system keeps them, and their families trapped in the system, with very little hope of ever getting out, because the reward of getting out in most cases does not measure up to the effort involved in doing so. How they spend their money has absolutely no bearing on how they spend their lives, and very little bearing on how they can get out of the welfare trap.

The reason I was unemployed in the first place was that the business my farther had started and operated for 35 years, and that he had intended to pass over to me, went broke due to one poor business decision. This left my chosen career path at some what of a dead end.

My father works as hard as anyone else I have ever met. He left school at age 12, started working the next day and has worked very hard every day ever since. He opened his own business. After 35 years working at least 50 hours per week, 50 weeks of the year, he never earned more than an equivalent today of $50k per year, and most years it was a lot less. Now he has to work for someone else. Is he worth less than a university graduate with a couple of years experience?

It is a fact of life that if you are good at something you tend to spend time doing it, if you are not so good, you do something else. To suggest that because as a child you were better at school than some one else, you therefore have a God given right to earn more money is absolutely ridiculous.

I’ve been a Uni student on and off for periods longer than I care to admit. One thing I know for sure, not all, but most people at university wouldn’t know what hard work was if it jumped up and bit them on the bum. Yet the majority of them pass and then expect to get high paying jobs, because they worked “hard” for three years.

I work hard now, 45 hours per week, 48 weeks of the year, or 2160 hours per year. A typical uni course is 4 units per semester, 16 to 18 weeks per semester, two semesters per year. For someone at Uni to work as “hard” as I do means that they will need to do at least 15 hours per week per unit, every week of the course, or 60 hours per week for four units. I have never met a student who does even close to this.

People at all levels of income work hard for their money. Effort does not necessarily correspond with reward.

The main gripes in this topic seem to be that people are upset either because they “work hard” to support all the dole bludgers who do nothing but smoke and drink the money away, they pay more tax than some one else, or they pay too much tax full stop.

How can these be overcome?

Reduce the amount of cash people on welfare receive, but replace it with other things to maintain a minimum standard of living. This at least increases the perception of the difference between the advantages of working and staying on welfare.

Reduce tax on low income earners so that there is a real difference between welfare and minimum wage income.

Reduce taxes, charges, and interest rates on small business to encourage growth and employment.

Leave personal tax rates like they are, but increase tax concessions for local expenditure and business investment.

In other words, give people more reason to get off welfare, more reason to earn more money, and more reason to spend that money in the Australian economy, but not necessarily for consumer spending where a significant part of the money flows back to overseas companies.

Dino

“If you don’t know where you are going, every road will take you there.”

I live in an area that was listed as a “hot spot” on one of the major news services.

I put a house on the market and sold it in 2 hours! (Did I sell it too cheap?)

Thing is, my friendly real estate agent told me a local bank manager was expecting a slow down very soon in our area.

Why?

Two months ago he had 15+ loan applications on his desk awaiting approval. Three weeks ago, even before the interest rate rise, he had none.

I have noticed in my own area, house were selling in less than two weeks max only a couple of months ago. Today there are three that are 3+ weeks.

Is the market slowing, or are people just getting too greedy?

Dino

“If you don’t know where you are going, every road will take you there.”

TV does influence public opinion. For years it has been telling us there is a property boom, not just in the news, but through the multitude of life style and real estate programs on air.

TV may not have started the boom, but it has certainly thrown a lot of fuel on the fire.

Now it is suggesting that the boom may be over. Rates are rising, markets are “softening”, people are over extended.

TV did not make these things up, just like they didn’t make up the stories about the boom in the first place.

Is there one person on this forum who doesn’t look into their crystal ball and wonder about these exact same things?

If you think you are “smart enough” to see through these TV reports, or that they have no bearing on you, then you are fooling yourself.

To me, suggesting that it is just ratings hype, or poor journalism, misses the point entirely.

You may be smart enough to see through individual stories, but the real message comes from what they say as a group.

Everyone who has invested their money has doubts and fears. This is only natural. These stories will start to reinforce those doubts. The more stories that start to appear, the more doubt will be created, and the more people will listen to their fears.

If the media is starting to suggest that the boom may be over, than I for one will take that warning very seriously.

As the saying goes, there’s no smoke with out fire, and the media is very good at finding smoke.

Dino

“If you don’t know where you are going, every road will take you there.”

Sorry, forgot to mention in reply to the original email.

Yes the 11 second rule only applies where interest rates are substantially below 10%, since it only represents a gross income of 10% of the loan value.

If interest rates rise to 8% or more than you will have substantially less of your gross income to cover all other expenses.

Dino

“If you don’t know where you are going, every road will take you there.”

Is it just me, or are the judges trying to throw the result in Guy’s favour, and IMO deservedly so?

He is in a different class than the other two, and last night proved it once again.

The judge’s can see it, the studio audience obviously see it, every one I speak to see’s it, yet he almost got ousted last week.

Cossima’s phone bill must be huge. How else is she still on the show?

Idol is not a talent contest. It is a popularity contest. This is why it lacks credibility.

Melbear asked about the ratings – number one show in Australia last week (more than 2,000,000 viewers), and top twenty for some time.

Dino

“If you don’t know where you are going, every road will take you there.”

People have asked – what’s in it for Bill?

I don’t really know, but I would like to relay the following story. This really happened to me, and it has changed my life for the better, even if only in a small way.

Ten years ago, I was backpacking through Europe. A friend and I decided to take a bicycle tour for the day, and met another guy on the tour. Turns out he was in town on business, a regular part of his job, and we ended up spending the afternoon in one of the local bars.

We eventually decided to get dinner at a nearby restaurant. Being on a limited budget, my friend and I lumped for the cheapest thing on the menu. This other guy though, whose name I can no longer remember, insisted we eat whatever we liked. He paid for the whole lot. He claimed that our company for the afternoon had been great, since he usually spent his free time sitting in his motel room, watching TV. He would take no payment from us, not even a free beer.

His only request was that, in the future, could we repeat his kindness to others we may meet during our lives.

I have done so many times since, only ever asking the same thing in return, and always felt better for it.

If Bill wants to give away his time and knowledge for free, I say good on him. He has his own reasons for doing so, and I for one will not think less of the man simply because he gets something out of it that other people can’t see.

Dino

“If you don’t know where you are going, every road will take you there.”