Will the strenghts of Sydneys economy outpreform APRA's effort?

Discussion in 'Property Market Economics' started by Illusivedreams, 15th Dec, 2017.

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  1. radson

    radson Well-Known Member

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    interest rates went up and down between 2010 and 2015

    upload_2017-12-22_14-21-15.png
     
  2. euro73

    euro73 Well-Known Member Business Member

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    The cash rate is low enough already... I agree it would be prudent if it stayed low - and I believe it is likely to stay low for a good while yet, but it doesnt need to be any lower than now ...today's cash rate is plenty low and plenty stimulatory. Reducing it further just removes whatever little "contingency" the RBA has up its sleeve in case of disaster. Going to 0% gives them no safety net whatsoever, and we simply dont need it. The AUD dollar will very likely come off a little more anyway (without reducing the cash rate) as the US Fed lifts rates as a result of the Trump Tax plan driving inflation through 2019 and beyond. Why would the RBA use up the last of their "rainy day" powder when the outcome they want is almost certainly already assured?


    It is already allowed. More so than in most nations around the world. But there should be a premium paid for non residents acquiring resi property and it should only be allowed on new stock - ie the current arrangements are balanced and reasonable already. I personally think there's real merit in exploring charging more on the way in or the way out, to be frank. I think we could learn a lot from other Asian nations- Singapore especially. Or HK. Or Indonesia ( oops you cant OWN in Indonesia, you can only lease) And ever tried buying into the US? Good luck accessing loans... you will need to be a cash buyer in most cases. Yet here, in our "punishing" environment, non residents can access 80% LVR. In my view it is far from a "punishing" environment. Between the very accommodating foreign ownership laws and the straightforward availability of non resident lending, Australia is by world standards an out and out utopia for ease of resi investing when compared to most other nations . Let me assure you non residents dont have it this good in very many other places at all.

    There is no IO rate increase. There is an IO quota that has resulted in some repricing of IO rates temporarily in order to meet the quota - we are already seeing the "gap" get slimmer. There are very sensible and prudent reasons for the IO quota and every investor in this country really ought to be supportive of it, because without it the risk of portfolios ending up worthless or worth less is very real.

    RE P&I rates . They are the lowest they have ever been. If people cant handle P&I repayments at these low low levels, they probably have no business borrowing as much as they do...

    With all due respect...just about the worst idea of 2017
     
  3. Iamnumber5

    Iamnumber5 Well-Known Member

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    @euro73 Just to give you an update, as of late 2016 foreigners can buy brand new residential property in Indonesia both landed and apartment.

    Conditions apply.
     
  4. euro73

    euro73 Well-Known Member Business Member

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    My comments related specifically to non residents purchasing resi INV property....

    Here are the conditions under which a purchase is possible;

    Expats who reside in Indonesia can purchase property under the 'right-of-use' category. However, there are several requirements and rights related to this purchase:
    • Expats can only buy property in Indonesia at a fixed minimum price that is determined per region (see table below).
    • Expats can only purchase property in Indonesia directly from the developer
    • Expats are not allowed to rent out property in Indonesia to a third-party
    • When the expat leaves Indonesia to reside in another country, he/she needs to release or transfer the right-of-use to another person who meets all requirements to own property in Indonesia (this can be another foreigner or an Indonesian citizen) within one year after his/her departure from Indonesia.
    • Expats can buy a landed house in Indonesia for an initial period of 30 years. This can be extended twice, once by another period of 30 years and then by a 20-year period (hence foreign ownership can reach a total of 80 years).
    Foreigners Can Buy Property in Indonesia, But Will They? | Indonesia Investments

    So as an Australian who is non resident in Indonesia - in other words as a "foreign investor" I cannot purchase. I would need to be resident in Indonesia and even then I can only purchase "right of use" , and I cannot rent the property out ....

    There are also price barriers and developer barriers and mortgage barriers as the article highlights. All in all it's still a convoluted basket case. Shame really, because Australian resi investors would pour money into areas like Lombok or Bali or Jakarta if it was easier, I suspect... Airbnb for example would turn a villa in Nusa Dua or Seminyak or Kuta into quite the cash cow...

    Perhaps there will be more work done on this after the Aus Indonesia Free Trade Agreement is finalised.

    In any event, its just one example that illustrates how utopian the Australian resi environment is for non residents, and why they wont abandon places like Sydney. No one should ever doubt that we lay a red carpet out for foreign investors when compared to almost every other nation on earth... and its why we should ask for more. ie higher IN costs and higher OUT costs - just like Singapore does.
     
    Last edited: 22nd Dec, 2017
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  5. Tenex

    Tenex Well-Known Member

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    The rainy day is now, in fact very soon.

    Check retail sales, retail sales are lower than last same time and we are talking about Christmas sales.

    When the GFC happened, smart countries dropped their rate down to 0%. US rates by federal reserves which was a great idea.

    Australia got a bit too cocky with it's mining boom and then the property boom and our politicians (including the ones at the RBA) threw their hand in the air and said "ah well we probably dont need it" and got on with it.

    Right now as the rest of the world and in particular US is recovering, we are realizing the effects of this.

    IF the cash rate is not dropped to 0% AND we see further cooling of property, a recession will be a guarantee.

    Of course it is allowed, the problem is that "premium" way of thinking. For farm lands that produce food which we use and sell, I agree we must stop selling it to foreigners with or without premium.

    But if you are selling them land, brick and mortar, you are basically selling them goods and services. Why on earth do you want them pay a premium for something that you can easily replace and make more of?

    Yes there is. I dont care what you want to call it but IO loans are paid at a higher rate than they were before as a measure of "cooling off" investment.

    With due respect thats your opinion.

    By the way you had predicted several interest rate rises this year and more to come next year. Are you still going with that? because the first part was incorrect.
     
  6. euro73

    euro73 Well-Known Member Business Member

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    Where did I do that?
    I had predicted IO rate increases as banks rushed to meet their IO quota's. That happened. The spreads between PI and IO loans reached 75-85bpts throughout 2017 and while it is now closing a little ( also as predicted) the gap in pricing will remain for a while yet, as the PI v IO rebalancing continues.
    I had predicted cost of funds increases could occur if and when Basel 4 was implemented, depending on whether the RBA believed the upper or lower limits of Basel 4 should be adopted. I said that if the RBA felt banks Tier 1 ratios were adequate, we may see little or no change, but that if the RBA wanted to increase those ratios further we may see increases. This hasnt happened yet, and may not happen, as it could be that the RBA is comfortable with current levels. Or it could be that they are waiting for the regulatory changes to wash through the system before they re-stress test the banks and make a recommendation... But Basel 4 hasnt gone away.
    I dont recall predicting several cash rate increases. In fact, I have argued that the RBA was less likely to raise the cash rate because the regulatory intervention had effectively done that job for them for @50% of mortgages. ie IO . I had also argued that while IO rates had been repriced as a result of regulatory intervention, PI rates may fall. This also happened.

    These arguments are a little too simplistic. APRA told the banks to meet an IO quota. It was a measure designed to rebalance the PI v IO ratios on banks balance sheets, as it had reached an imbalance. Historical levels in the range of of 65/35 or 70/30 had become extremely imbalanced by the time APRA Round 1 occurred in 2015. IO lending had reached 53% of all lending. As our banks rely very heavily on securitised funding from global wholesale markets, this represented an unacceptable risk in the event of another credit crunch. So it wasnt about cooling off investment per se. It was about ensuring banks RMBS remained saleable and refinanceable under stressed conditions ( a credit crunch) Which ultimately means it was about protecting retail depositors and protecting Government from having to bail out Australia's banks in a worst case scenario. It may well have had the consequence of cooling investors borrowing power, but no one has banned investment or introduced laws restricting investment. There is no agenda to cool investment activity per se. There is an agenda to have less debt being borrowed on IO terms, in order to reduce risk to the system. There is an agenda to have more debt paid down. These are different things.

    The countries that did that also happen to be the countries whose Governments bought out all of the junk debt held by their banking sector. ie Europe, UK and US. It was a measure used to try and force banks to start lending again because their credit "engines" had stalled... Australia's banks didnt require a bailout and didnt have difficulty accessing credit .. and you know why? Because they had high quality RMBS with no NINJA loans , full recourse and low levels of delinquency and a 65/35 (ish) PI v IO ratio - exactly what APRA is trying to ensure we get back to.... It's APRA's true end game.



    So you want to empower one Govt agency to control cash rates and lending regulations? You want to remove their independence from each other and from Govt of the day? Gee...lets imagine how that might play out in Australia's populist political culture.... Pollies turning rates on and off as it suits their short term political needs... no thanks. Our central bank is the best in the world or close to it. APRA's intervention has been extremely well implemented. These things are possible because they have independence and there are NO POLITICS.



    Where I do agree with you is that the cash rate probably needs to stay low for longer... that's a very reasonable position. RBA can afford to keep rates stimulatory now that the regulator framework means that it doesnt inflate housing prices any longer. Only a break out in inflation from wage growth could really justify cash rate increases at this point. But even with low rates, Australia has to go through a decade of deleveraging and its banks need to get back to safe, healthy balances of PI v IO. Sorry... no avoiding it. If that means some property investors have to start accepting less growth fueled by less IO credit availability, so be it. Id rather a well managed decade or so of adjustment/recalibration that a banking sector where 15-20 x debt to income could be extracted from servicing calcs and IO loans represent more than half our debt to the world - especially when the whole house of cards is run on a loss making basis. I would have less concerns if more investors held higher yields... but we have vast amounts of lending out there which is secured by assets yielding 3-4% and being run on IO . Its a disaster in the making if its not nipped in the you know what.
     
    Last edited: 23rd Dec, 2017
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  7. Tenex

    Tenex Well-Known Member

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    I remember it slightly differently from one of your earlier posts where you had predicted a few interest rate rises (not just IO) and you had mentioned you anticipate 6% to be a norm by the end of 2018.


    When we have RBA, APRA and the federal as well as state politicians that each have direct impact on the state of the economy, its like having 3 chefs in the kitchen cooking the same meal.

    We have enough legislators to regulate the system. We don't need more legislators but rather we need better expertise.

    The very fact that APRA initially asked the banks nicely to do X and they laughed at it and did Y instead shows the very existence of APRA is a joke.

    The buying of debt was due to sub-prime mortgage crisis. They couldn't distinguish good debts from bad debts, no private enterprise had the cash or willingness to take over so the governments had to step in.

    The dropping of cash rate was a result of the impact that crisis had on consumer confidence.

    Put very simply, if what RBA did here, that they didnt reduce the cash rate to 0% had actually worked then they should have already risen the interest rate. The fact that they are not and in each of their reports they express that inflation isn't getting up means they made wrong decisions Period What more proof would anyone want to see that their decisions didnt work?

    Think about it we enjoyed a big mining boom as well as a huge property boom, if anything we should be right ahead of everyone else in rising interest rates. Why arn't we?

    Conversely countries that did drop the cash rate are now having a better outlook and raising the cash rate.

    It's not about empowering, Its about making one expert (expert being the keyword here) decision maker the single source of truth rather than a a circus of clowns each turning a separate trick.

    A different version of it has already been done successfully. For example in the US the federal reserve chairman is chosen by the president, the guidelines by which the federal reserve determines the cash rate are set by congress and the board reports to congress twice a year on why it has made certain decisions.

    In Australia on the other hand we have an old british way of doing things that even the british dont like any more.

    In Australia the governing body wait for the crap to hit the fan and they then launch a royal commission to see why it happened. Thats how we get things done here and if people are happy then so be it right?
     
  8. euro73

    euro73 Well-Known Member Business Member

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    Fairly right wing views/ideology. Never mind we have a financial system and economy that's the envy of the world... You should have a show on FOX. :)
     
    Last edited: 24th Dec, 2017
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  9. Noobieboy

    Noobieboy Well-Known Member

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    Uh-oh, with all due respect... The only countries that don't have a fully independent monetary system are either dictatorships or economically struggling. Yes, there are some small island countries such as the Federated States of Micronesia or the economic powerhouse of Zimbabwe (Trilemma) that do not have a and independent authority, but even if you count them, more than 99.9% of the population of the world still lives in a country that has a central bank.

    If anything APRA has been fundamental in ensuring our Financial system sailed through GFC better than any other system. APRA is now used as a model in Financial supervision internationally. I personally prefer to see APRA tighten the rules every now and then to accommodate risks, then see economy crashing and taxpayer bailouts as we seen elsewhere.

    I believe, this is usually called framework based supervision. As opposed to prescriptive supervision, you make a rule. You see what outcome it produces. You adjust the rule to get a better outcome. In issues like economy and consumer behavior it is extremity hard to know the end outcome. The policy needs to be constantly adjusted. I think this is why it is better to have an independent agency that concentrates on one job, rather than a whole portfolio (as the case with Ministries/Departments).
     
    Last edited: 24th Dec, 2017
  10. Tenex

    Tenex Well-Known Member

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    Please share, where APRA is used as a "model" in financial supervision "internationally"

    I personally prefer to eat a lot of Christmas pudding and not put on weight but unfortunately the world doesnt spin based on our personal preferences.

    Not sure how you came to that conclusion but you have missed the point.

    I am not saying we don't need a body to regulate, I am saying we need to ensure that the regulatory body has the right expertise AND it is the only decision maker that impacts the economy.

    The fact that policy needs to be up date is entirely a different matter and yes it should be incorporated.

    IF APRA is this model to look up to, as you have suggested above, then all the things that are happening now, including the concerns around excessive debt, the over-reaction that is massive tightening of lending and the overall monetary policy where RBA doesnt know whether to raise the rates or reduce, would not have happened in the first place.

    APRA may work like another independent private enterprise except, most of it's employees (largely due to the salaries they pay) are the ones who couldn't secure a better job at a private company and this was the only other alternative. It's all about filling seats with bums and thats that.

    I am not sure given the current circumstances of worry around excessive debt, how anyone would use APRA's decision making internationally as a model. Maybe if you wanted to have 2 major booms and yet enter a place where you are wondering whether you are coming or going then you want to use APRA as a model.
     
  11. Illusivedreams

    Illusivedreams Well-Known Member

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    NSW CLEARED 81%
    HAHAHAH

    I know I'm taking a **** I can See the numbers.

    I'm. Surprised their. Were Even auctions this. Late.
     
  12. mues

    mues Well-Known Member

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    Terrible idea. Give one regulatory body too much power and you risk them having too much direct ability for meddling in the market. I like the idea that it takes multiple market forces along with bodies to ignite or cool a market. It makes things more stable.

    Kinda how I tell my wife, we wouldn’t need a democracy if we had a good king who listened to the people and took care of them. But sadly that’s not the case, so some checks and balances help.
     
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  13. HGM

    HGM Well-Known Member

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    Even then only half of them returned results so the actual completion rate could be around 50% (like it was last week)...
     
  14. Illusivedreams

    Illusivedreams Well-Known Member

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    Anything could happen. Could even stay.
    As long as Santa comes tomorrow I don't give
     
  15. HGM

    HGM Well-Known Member

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    Nah, you'll have to wait until 2026 when the reindeer can land at Badgerys Creek... ;)
     
  16. sumterrence

    sumterrence Well-Known Member

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    Lol this sound just like communism. It could work in certain countries, but not in Australia.