First Time Poster

Only a small percentage of lawyers make good money. Most of them earn below $70,000 a year. Using that income with suitable gearing will definately improve anyones situation. Some diversity across different asset classes will also reduce any risk.

I think Matt is on a great thing. Good stuff!

Robert Bou-Hamdan
Mortgage Adviser

http://www.mortgagepackaging.com.au

Investor Links

had a half hour chat with a lawyer the other day, got a bill for $2500. rang to ask what it was for and she said she had no idea. then i got a message later saying that she had got a bit carried away and would knock $600 off. makes me feel much better. I would hate to see a lawyer if they were being paid a lot!!

Extensive list of ‘Off The Plan’ property available for sale in Perth.

John – 0419 198 856

John, some lawyers work in free legal centres and for corporations as compliance officers or in other much lesser paid roles. I think a solution to your over-billing problem might be rectified by a quick letter to the Law Society. Your lawyer is ripping you off at $1,900 (after negotiation) for a half hour phone conversation. They have to follow rules as well.

dmichie, it never ceases to amaze me what I read on these forums. What sort of rubbish is it to say that property invetors make no contribution to the productive capacity of the economy. Have you ever considered the money they spend on things like solicitors, conveyancers, building inspections, depreciation schedules, renovations, property management, real estate salespeople, and the list goes on and on.

Each of the people paid by property investors will then go out and spend money on this, that and the other. The amount of employment directly attributable to demand of property is a huge chunk of Australia’s workforce.

House prices go up and down regularly and have been doing so since the dawn of time. Like shares, they generally trend upwards in areas where population numbers are increasing like Australia.

I think you need to do a little more research before making such comments.

By the way, John Symond does not have a degree and he pays the wages of hundreds of staff plus commissions for another 500 or so brokers. He was the one most people believe was responsible for the decreasing interest rates we all benefited from since the early 90s which fueled the most recent property boom. I think he would be considered very productive.

Have you ever considered that the internet might also be responsible for many other things like accessibility of information enabling investors to buy property outside their own backyard?

Robert Bou-Hamdan
Mortgage Adviser

http://www.mortgagepackaging.com.au

Investor Links

The ultra-low interest rates of recent years has created the greatest mis-allocation of investment in human history, and you think this is a good thing?!

Will property speculation solve our current account deficit problems? Hmmm, I think not. No, all it has done is create massive indebtedness, debt that serves no good purpose other than to fill the pockets of real estate speculators.

You cannot run an economy like this forever. Huge amounts of money that would otherwise be invested in productive enterprises is being absorbed by real estate. We cannot sell our absurdly overpriced houses to other countries. Its a giant house of cards that must eventually come crashing down, just as the dot com bubble did.

Look at some of the charts in the link in my previous post. Do you really think current house prices are sustainable? Do you really believe house prices can keep growing at a much faster pace than incomes?

https://www.gmo.com/NR/rdonlyres/E5E95346-EA7F-4583-9A8B-9939A9789615/460/JGLetter_1Q05_ALL.pdf

BTW, this comment had me laughing out loud:
“Have you ever considered the money they spend on things like solicitors, conveyancers, building inspections, depreciation schedules, renovations, property management, real estate salespeople…”
Hmmm, those professions sound like the foundation for a productive, internationally-competitive economy (not)

dmichie,

I never said anything about something being a good thing. I have not looked into the allocation of resources sufficently enough to comment.

Regarding our current account deficit, I do not see it as a major problem. Everyone who gears has debts including countries. How do you figure that all debt is bad and that the current account deficit is lining the pockets of real estate speculators?

The economy is doing ok as far as I am concerned. I think Howard and the boys are doing a very good job (excluding some domestic areas). Inflation has been at great levels for a while, unemployment is fairly low, the Aussie dollar is doing well, the free trade agreements should do well for us and many other factors make me feel comfortable with the way the economy is operating. I don’t know why you have a major problem with the economy.

Why is it that you think property investing is not a productive enterprise? It is relatively a very solid investment around the world. By the way, it is not as big as you make it out to be in your doom and gloom ‘bubble burst’ posts.

Australia has many international investors buying property. Luckily, they are restricted to Foreign Investment Review Board approved properties or prices would be almost double what they are now. I think this was a smart initiative by the Government.

I think you are an easily influenced person who picks up on media hype and catch phrases. The Dot Com bubble bursting occurred because those companies were not supported by tangible assets. They were backed by intellectual property and ideas or hot air. A house is a tangible asset.

I also never suggested current house prices are sustainable as I believe they have corrected themselves sufficiently to remain flat for about 18 months before starting to grow at affordable levels yet again. Regarding prices growing at faster levels than income, I don’t believe this is sustainable and don’t think it has occurred since 2003.

I am glad I could make you laugh but you obviously missed the point. I also suggested all other professions. Everything is inter-related and is commonly known as the circular flow of money. Go and look it up and you might realise that money poured into one sector will flow back through another sector and so on and so on.

A few questions…

Why are you in a property investng forum if you are so against property investors?

Are you jealous because you cannot afford to buy any property or do not have the knowledge to find a way?

Robert Bou-Hamdan
Mortgage Adviser

http://www.mortgagepackaging.com.au

Investor Links

Who cares about a “Canary in a coalmine”. There is no need to keep posting the same link over and over in the same thread. We do have the ability to read here and only need to see it once.

Why don’t you ask me how much weight I give to an article written by a North American Investment Firm as evidence of the problems faced by the Australian economy?

Just because it is at a record high does not mean it is doom and gloom for the economy. It is sustainable and reducible. There is pressure on interest rates and exporters are not competitive for many reasons including the dollar but other figures (eg: low unemployment, low inflation, etc) indicate the economy can work through this without major catastrophe. We came through the Asia crisis and the last world recession relatively strong. Nothing is going to burst.

If you are going to paint a picture, provide the whole canvas instead of a small piece of it.

I think Matt has been advised enough regarding the dangers of units in CBD areas and will learn himself as he seems educated enough to check things out before jumping in.

I also wish you would stop using American information to prove your arguments regarding Australia. If you want to talk about something that will burst, look at the American economy. Now that is unsustainable!!!

By the way, read your famous article properly…

“The official numbers confirm that Sydney prices are well off their highs, although as yet far from a real bust.”

Please note the comment about ‘FAR FROM A REAL BUST’. I don’t think current economic indicators support any major corrections in the near future and the RBA seems to support this by not increasing rates rapidly.

Prices decreased substantially during 2003 and appear to have steadied. This was a more sustainable correction than the late 80s which led to a rescession. See the graph you mentioned.

By the way, the writer is only making reference to Sydney prices. Australia is bigger than Sydney. Find some more supportive articles and I may listen to you more attentively.

Robert Bou-Hamdan
Mortgage Adviser

http://www.mortgagepackaging.com.au

Investor Links

Welcome to the forum Matt.

Now, let’s get back off-topic.

Here’s a quick rundown of our current situation as I see it.
The US is in strife, and they are under great pressure to support their dollar at any price. This is done by raising interest rates (note that this is less damaging to US homeowners due to the prevalence of 25+ year fixed interest loans and PPOR interest being tax deductible). Rising US rates reduce the IR differential between US and AU, making the $AU and AU investments less attractive and causing the AUD to fall unless the reserve bank raises the overnight cash rate.
Should the AUD fall, exporters will benefit, but inflation will rise as consumer goods and oil become more expensive. This will force the RBA to hike interest rates if their sole purpose remains to control inflation.

So how will the domestic economy handle higher interest rates? How will home owners and investors handle higher interest rates*? How much higher will they go*?

First it is helpful to understand where the inflationary pressures (both local and global) have come from. The simple answer is debt. Interest rates were lowered worldwide after the Tech bubble burst in 2000, then again after S11 2001 in an attempt to prevent recessions by encouraging consumers to continue… well, consuming. What the reserve banks either failed to notice, or hid from the public and politicians was that rather than look around and say “Hey, things aren’t as dire as we thought, business as usual!”, those consumers took the opportunity to encumber themselves with unprecedented levels of debt. Why not? After all, debt was cheap, and house prices were rising. Any additional debt could be repaid out of future increases in house prices, after all they rise at a faster rate than interest.

Here’s the crunch – every dollar borrowed brings a new dollar into circulation. Every dollar added to the total money supply reduces the purchasing power of every other existing dollar. This is inflation in it’s genesis. Here in Australia, the total monetary supply has increased by something in the order of 50% in the last 4 years. In contrast the CPI measure of inflation has increased by around 15% over the same period (I should clarify that these figures are very approximate and scraped from the back of my mind as best estimates). So why have consumer prices not risen 50% in line with the creation of all this extra money? People sure aren’t saving it – household saving rates have fallen to below zero, so they must be spending it. If people are spending 50% more money, the added demand should drive up the prices of the consumed goods.

There are a few simple answers. Firstly, obviously and simply the majority of this extra money has been spent on houses. House prices are not included in the official CPI measure of inflation. Oddly, they are ignored.
Secondly, changes in consumer behaviour generally take 18-24 months to fully reveal themselves. For example, when interest rates are hiked, consumers have less to spend on other items. The producers of such items face reduced demand and reduced profits, so they may downsize, and will also order less of the components of their products from their suppliers. The suppliers are similarly effected. All this takes time, but eventually it shows up at the other end as falling GDP, falling employment and smaller budgets for the government.
Finally, many imported items have remained cheap or gotten cheaper due to China’s policy of pegging their currency to the US dollar and the US dollar falling about 30%. Remember when the $AUD was around fifty US cents? This has offset rises in other costs.

The bank economists, housing lobby groups and government are all urging the RBA tonight to hold interest rates, claiming the economy and house prices cannot handle a rise and is already slowing. At the same time, the US Fed Reserve have made it very clear that their recent string of rate rises is just the beginning. Now what is the RBA to do? Act in the interests of the government, banks and REIs or do the job they were instated to do – to keep inflation within it’s target range?
We will see.

Cheers, F. [cowboy2]

*Ok, so I didn’t answer either of these questions. So sue me..

It seems a rather long post of mine was removed by some over-zealous moderator. The target must be back on my forehead AGAIN.

Anyway, I hope some of the doom and gloomers took note of the lack of interest rate increase today and the positive comments regarding the short to medium term economic outlook. If properties were to drop a further 45%, I think interest rates would need to increase more often than 2 times in over a year by 0.25% each time.

As for exporter competitiveness, the US cash rate is now 4% and it has been indicated that it would continue increasing. Does it not follow that the decreasing interest rate differential would make Aussie exporters more competitive without a need to increase interest rates further?

Robert Bou-Hamdan
Mortgage Adviser

http://www.mortgagepackaging.com.au

Investor Links