Ultan Mooney • There wont be any return to “boom” times for a long while. This is because the one ingredient that is essential to big growth is no longer occurring; credit expansion. During the 15 years of record capital growth between 1987-2002, we have heard about the importance of everything else; location, infrastructure, population, demographics. All fine discussion points, but they mean very little without an aggressively expanding credit environment.
Yet amazingly, the role of credit is not discussed as it should be – as the single most important ingredient required for growth. We went from 80% LVR to 90% LVR in the late 80′s and early 90′s and it transformed people’s capacity to speculate in a property market where neg gearing and CGT laws encouraged it post 1987. Suddenly, borrowing capacity doubled. If you had 50K available as a deposit when the maximum loan LVR was 80%, your budget was 250K. But when LVR’s expended to 90%, the same 50K represented a 500K budget at 90% LVR. Then we went from 90% LVR to 95% LVR by the late 90′s, transforming the same 50K into a $1mil budget! And then came the 100% loans by the end of the 90′s. Adding fuel to the fire, during the mid 90′s we also added Lo Doc and No Doc and Non Genuine Savings policies. Then we added Family Guarantee loans. And during all of this, we saw new innovative approaches to allowing negative gearing, addbacks and depreciation to be used on many bank servicing calculators, so that people could keep borrowing more, and investors could keep speculating.
The result ?, It worked like magic for 15 years. More and more people were able to get more and more money, over and over again, more and more easily. And all of this happened during a decade when rates dropped from 17% to 7% People made fortunes. But it was only able to happen because banks could fund the loans. Institutional investors the world over seemed happy to buy just about any Mortgage Backed Securities, on just about any kind of product, and so the cheap easy money flowed. But its over now. There is nowhere left for LVR’s to go. There are no new and innovative servicing calculators, and there are no new products to bring previously excluded participants to the market- our generation won’t get to see the introduction of low doc or no doc’s. And even if some clever person could build something innovative and new- there’s no way for the banks to fund it. In this post GFC environment, the banks can only secure funding for clean, vanilla, straightforward deals. It’s why you’ve seen lending criteria get tighter. It’s why you’ve seen most lenders abandon no doc and lo doc lending. It’s why we are seeing that even in the lowest interest rate period in decades, borrowing capacity and credit approvals are at their lowest since the 80′s. It’s not really credit rationing , because if the banks ever used those words, we’d have mass panic.
But really, it is a kind accredit rationing. The result? We need to accept that there just wont be any great growth until there is another credit boom , and that cant happen until the US and Europe have resolved their giant financial mess. Banks need to be able to get easy, cheap money to fund credit growth, and they just can’t get it as readily as they used to be able to get it. No amount of under supply, fancy infrastructure or population boom changes that fact. Nor does it change the fundamental fact that if there are now much greater limits to what people can borrow, prices simply can’t boom.
Well written and explained and i agree 100% on the money flow aspect that is required back into the country and the rest of the posting However every day away from October 2008 is putting the crash behind us little published fact that 1860 developers /building companies have gone into receivership /bankruptcy in the last 3 years source media Aust Financial review paper 4 months ago so it would have grown since then However my take is also that developers will have to rethink and repackage the projects to make them more attractive to buyers and to get sales along with a change of government this year to get more confidence back into the Australian markets along with the local banking system support which is about to happen I believe as investors are property risk adverse at present and have a look at those big four banking profits last year 6 billion- 4 billion etc etc And Can anybody out there tell me what’s wrong with having a deficit if you have it balanced against your forward income correctly so to supply stimulus in a down market to the Australian nation and small to medium businesses who are just hanging on and forgotten by this current government There was a old saying look after the pennies and the pounds will follow I believe look after the small business and national prosperity will follow as well However emerging Nations is where the growth is and which are outstripping traditional markets % returns on investment dollars also niche marketing /investing is the key for investors and SMSF s this means you as a investor you just have to start thinking outside the square for your higher % returns as does the whole of the Northern Hemisphere So without being political just being a realist bring on this election and let us all get back on the property game board again i am willing to bet that there will be a massive swing towards the liberals and we might see a recovery next year 2014 with stimulus spending from day one to encourage buy Australian
In 1687, English mathematician and natural philosopher Isaac Newton published a groundbreaking scientific work about the three basic axioms which govern the mechanics of the world around us. Today we call them the Laws of Motion. Colloquially, the First Law of Motion states that an object at rest (or in motion) will stay at rest (or in motion) unless acted upon by an external force. In physics, this is known as inertia. It’s a physical property that exists in all matter– rocks, trees, air molecules, etc. will all maintain their current states of being until something else comes along to force a change. If you think we are not all sitting on our hands here look at Brazil GDP figures and remember the brakes that were put on this country when the mining tax was first floated our problem is with the top management in this country not at the bottom in Australia fix the top and watch all markets take off !!!!!!
Just some points from 35 years of real estate development its called the kiss principle I said this would be a interesting post but I am back to basic signs in the market i may be too one direction for you all but……. HSBC Bank in England this week has just dropped deposits to 10% for purchases ok not here but its a sign the banks WILL and they have to help keep the money flow flowing and driving around Sydney over the last 2 months there are construction starts on many sites dormant for 3 to 4 years recovery is starting I believe New banking should appear soon in Australia Macquarrie bank is opening up again with a loan book for residential demand is pent up people are paying off mortgages there will be a attempt for a national fifth pillar bank soon that will loan on residential lead by a successful player from the last financial constriction I believe Harry Trigaboff Sydney’s biggest unit builder or one of them had just spent 200 million buying near city sites for units i know herd thinking but its a industry educated herd. Rule of thumb in Australia Sydney went off the boil first when Sydney works we have the return of the ripple effect Nationally our mining states are starting to work again record iron ore exports on the horizon We are in an election year the end of Labor rule is near in Australia this current Government is a dead duck walking Investors have to feel confident before spending under labor its hard labor well documented now over many years Whitlam, Keating, Hawke, Rudd& Gillard will as the others leave office with enormous debt left for the new government to reduce Fix the top management and the middle will start working again Our market generally has held up well in the residential market however developers have been Hit big time and taken the losses a development site specialist value’r told me a week ago that from all the commercial work he does only one developer is left standing and not gone into receivership he’s talking 15 developers out of 16 so the bottom of the market is here as far as developers are concerned It’s called the lemon effect one lemon over 10 pieces of fish last guy does not get a drop when all lemons gone you have to wait for new trees to bear fruit Development is normally 2 years ahead of residential so my bet is that 2014 is recovery year not boom year Take it as you may nothing happen”s with out certainty ,confidence and control new government gives us all some new confidence and control of what is being done in Australia The rest of the world will recover when it does people still go on holidays, move to greener pastures, start families demand returns mean while emerging nations are emerging and are offering higher returns for educated investors So my bet is this 2013 /14 it will be interesting to see in if i am right and all this concept detail discussion is helpful but my associates in development are starting to advertise again after 3 years of planning and tending to wounds See you all at the top !
Kelvin Gough • As a residential property developer in Berwick, I agree with all your comments, Richard. Concept detail is one thing, but hands on experience, in whatever field of investment onespecialises in, is another – called experience in ‘wealth drivers’. Humbly, that’s why I am multi millionaire. Others can go off on other tangents, at theirs and others peril or criticism.