ABC Story on Negative Gearing

@Redom assuming the Syd market (which my estimate is based upon) has already taken a 7-8% then by the time anything is actually put into place it’s not unrealistic to think that we may hit the 15% by say mid next year?
As you know their is nothing putting the breaks on just yet?

My theory is that if they introduce NG changes on top of this then it will adjust by another 10-15 (10 probably being a lot more realistic though).

No doubt a 2% interest rate and reduced assessment rates will work in a recovery. But in your honest opinion what is the likelihood this will happen? And if it did how long will it take to work?

 

Likelihood? Very very low. don't think what you're saying will actually play out so there'll be no need for extreme responses. In fact, I think the way negative gearing changes are likely to be designed may indeed support an investor recovery in its initial phase (grandfathered changes with time to buy, similar to accelerated depreciation changes for business, it will bring forward demand). I can imagine the response of a lot of our own client base - they'd be bringing forward demand to buy investments and lock in tax benefits rather than waiting.

If what you are saying does actually play out, than the likelihood of a response (may differ in design) like what I've mentioned is very very high.

Impact of a drop in rates & assessment rate increases? Much much larger than negative gearing changes. It's far more impactful than tax policy. It literally puts billions of dollars of liquidity straight into the market, lowers everyones repayments substantially, puts more money in consumers pockets, drives credit growth & this naturally flows to housing. We've already seen this play out too. The largest driver of the 2013-2016 boom is two changes. Dramatic interest rate falls & effective assessment rate falls (which is how investors borrowed a fortune for a temporary period).

 

If he is wrong, he is wrong on the percentage assigned to hardwork at 80%. What does that really mean? No one knows the actual percentage but he is certainly not saying that it is entirely hardwork. He should not be entirely wrong?

 

As per CL index 'sydney house price' peaked at 182 and will be close to 163 by end of nov18

that's a fall from peak of close to 10.4% by end of this month.

rate of fall this month has accelerated extrapolated close to yearly 14%

I would say we are very likely to see a CL index for Sydney house price drop to 154 by mid 2019, that would be a fall of 15% from peak.

@Redom ,
Australian overall debt has not come down even by 5% yet, A major chunk of IO loans are still on banks books in-spite of penalising IO rates, its still close to 380bn+ existing loan and 85bn new loans excluding the preemptive closures to be expired in next 3/4 yrs.

why do you think APRA did what it did 3/4 years ago?
Is it a shock to them that credit tightening has resulted in the price falls? was it not intentional?

Why go around doing all the hard work enforcing tightening just to loosen it up all again at the slightest hit of meaningful deleverage(intentional)?

 

Because the high IQ is a precondition. And no one has any say in what their IQ is. Going back to the original discussion, that is why there is a natural justice in those who have more paying more ( progressive taxation).


If you’re brother had an IQ of 80 he could have been the hardest working man in the world and never become a heart surgeon.


Put another way, try and find any heart surgeon who doesn’t have a high IQ. It’s a precondition.

 

@TheSackedWiggle:

1. IO stock of debt is falling below 30%, comfortable level. I don't think they really care too much if it falls much lower (ideal, but not systemic risk). This risk is relatively small too, won't be a supply drag & the expiry terms will be generous vs the origination terms (rates are 100-150bps lower than origination timing where rates begun with a 5 not a 3).

2. Why would they do it: 15-20%+ falls move from orderly to chaotic after a point. They don't want this. It threatens the broader economy too much. It's bad for everyone (maybe not opportunistic investors, but bad for the economy, bad for financial stability & bad for consumption). Its also a sign that credit tightening has gone too far, they're already signalling this.

In short, i'd go so far as saying a 30% price fall in Sydney & Melbourne is near on impossible with Aussie regulators & policymakers & the supposed state of play with the economy in 2019/2020. Simply, they won't allow it to happen. When the economy is going well and people are in jobs, they can pretty much control it too by altering the supply of credit (and thereby the amount of liquidity).

All of the above is extreme scenario analysis.

I think the base case is likely to play out. I don't think the regulators will need to do much really. Truth be told, the savvy investors are already at the early stages of gearing up (brokers are involved here) & getting prepared to pounce, so are first home buyers & upgraders. Standard increase in demand and recovery is the most likely scenario as buyers flock back in with a large price fall, less supply, etc. The same standard cycle behaviour playing out.

 

I will only start to get concerned if the Xmas Sales figures “fall off a cliff”.

 

I have not said anything about opposing the progressive tax system or the Newstart which you have raised. I have merely said that it is symptomatic of government failure when healthy people cannot live a productive healthy life, such that governments have resorted to redistribution on an ongoing permanent basis. This is still a valid state of affairs but honest metrics have to be kept to ensure government accountability. I recognise that it is a great undertaking to achieve the ideal state and it would take years to create excellence in governance, but there are examples of success in both Eastern and Western countries.

In defence of brother's quote, it should be unnecessary to state the obvious that hard work is not the entire reason for the success of any individuals. Someone said that attitude is more important than facts (Einstein?) My brother nominated a figure of 80% hard work for success. For some people in other countries it may be cumulatively even more, such as the example below:

The Story of Juliet Wu Shihong – one of China’s first-generation professional managers, who gained success by working her way up the ranks from a cleaner, a nurse, a marketing executive, through self-education and learning on the job.

How one woman rose from cleaning staff to CEO - The Sauce

 

Does 15% fall from peak make sydney/melb attractive to investors in the light of NG/CGT reforms?

Let see how it plays out,
I will keep a close eye on credit growth figures.

 

My first CEO started as a “stamp boy” in the mail room of a major insurance company in Melbourne.

This was in 1977. I believe he would agree with you @Francesco

 

@Redom what are your thoughts on when the current correction will stabilize?

And also what are your thoughts on if NG is introduced? In terms of market growth/decline?

 

The point is being missed spectacularly here.


Anyone can work hard and improve their life.


But very little can be done to improve a person’s IQ.


I bet you $1000 none of those “mailroom to boardroom” stories involve anyone who didn’t have a high IQ to begin with.


They made the best with that they had. And what they had was a much better ticket in the birth lottery than many others.

 

The point is being missed spectacularly here.

Anyone can BUT not many do.

 

You have absolutely no way of knowing how many do. But we absolutely do know how IQ translates into cognitive ability and consequently the ability to do jobs that require high cognitive ability. Again, no amount of hard work is going to make someone with an IQ under 90 a CEO or heart surgeon but that’s about thirty percent of the population.

 

Good riddance to negative gearing, a market distortion that hurts almost everyone except speculators in the long run. And really at current low interest rates, if you are losing significant money something is wrong. Depreciation is not free, you pay for it eventually. Carry forward the losses to offset against future property profits or sales, a much better policy.

 

I have a friend without a high IQ as he was basically written off by conventional teaching and dropped out from studies. He got his break by introduction to IT and learn it on the job. He now has a disposable income of $100k annually.

All this talk about IQ, next luck - anything but hard work and diligence, shows a bias to deny that it is the most significant factor for success.

Perhaps, degradation of people who work hard to achieve something could be reflecting a lack of respect of others, significantly boomers, and entitlement to a free pass or leg up.

 

Life outcomes depend on intelligence, luck and hard work. Two of those things are outside of your control.

 

The funny thing being intelligence is last on that list of requirements.

 

I don’t believe I am intelligent ...

I don’t feel I have been lucky ...

I know I have worked bloody hard ...

I have had more success in life that I ever planned or thought possible.

Am I the only one in this world in this situation?

Edit: ... and I worked in IT from 1977 to 2010

 

Many IT jobs don't require high IQ, and 100K is average and for some skills below average salary. However certain IT jobs require very high IQ and many many years of education. Those jobs are with high salary, like 150K+. People with low IQ simply won't be able to pass congnitive tests that are required for those jobs in many companies.

IQ is still very important if you don't want to rely on luck, chance and right relationships with certain people