War Stories, Property Punting, Interest Rates

By: U.d. Pemberton

WAR STORIES
Beat up the Brokers!
I can understand why there is a general disdain for mortgage brokers at present. They have left a dirty stain on the carpet in the USA and a bad smell in the littlest room in the house - but to blame them for the global financial meltdown is a bit rich. Australia is, I believe, already a very over regulated country and the financial services industry is the most regulated of all. What happened in the States could never happen here. Yes there are some cowboys out there who have no qualms about hyping up the property market so they can overextend gullible people into investment property. Yes it is risky for people to access all the equity in their homes and then invest it in other things but that is a choice for the individual. Of course some people are going to get burned if its not well managed. As in the recent Four Corners program on the ABC which focused on some people who were not the sharpest tools in the shed who made some bad decisions - but it is not worth regulating the industry even more for the minority who need protection from them selves.
Margin Games
However there is one new regulation being talked about that I do agree with. You may have heard in the news about the high-flying directors of publicly listed companies who have been wiped out by margin calls on the stock market. In many cases this has been unfair as they are a victims of a nasty game (that has been imported from the States of course). What happens is that traders or hedge funds target directors who have margined their stock (i.e. used their stock as collateral for debt). The hedge funds 'short' the stock (buy puts betting the stock will fall) and then circulate rumours and negative reports (from dodgy financial journalists) that the stock is in trouble. Even big company directors can't find the sums required to cover their stock at short notice so it is sold from under them causing the stock price to plummet. The only winners are the devious short sellers who laugh to the bank.
Woolworths
Obviously I am an advocate of the free market and think a boycott of Woolworths in Mullumbimby is not going to work. I see both sides of this debate and think there may be a solution.

Anyone who has spent time in the States can see what a disaster rampant mall development has been to small towns. Also Woolworths have openly adopted the corporate strategy of Wal-Mart who are the "Attila the Hun take-no-prisoners" of retail. But they operate within the law and can set up wherever they want. The problem is that a mall complex surrounded by car park sucks business from a town centre changing its architecture and culture. I was recently in Canberra and they have new developments that include Woolworths and Coles but still maintain a streetscape with shop fronts. The supermarkets are upstairs and the car parking is out the back. This can happen on Station Street and then this development can just become and extension of the town and not competition to it. It is a middle way that can work.
East Of Everything
The program may have its faults but the series "East of Everything" on ABC on Sunday nights will be a boon to the shire - as if we needed it. To me the acting and script take a second place to the real star of this series which is the natural environment. Filmed on the back lots of the Byron Beach Resort - soon to be the Becton redevelopment site - it looks fantastic and I can imagine people over the world watching it and thinking what a great place to live. Apparently this is what happened to Barwon Heads in Victoria where 'Sea Change' was filmed some years ago. It saw a huge influx of visitors and people wanting to move there after it was screened.
PROPERTY PUNTING
Even though the property market has moved out of a complete stall I don't see a rapid rush back in just yet. As they say - cash is king in times of uncertainty and many punters will be keeping chips off the table. But also it is said that times of uncertainty are also times of opportunity. I can see that more people have been putting properties on the market so there are some good buys out there.
But a part of me is happy that the expected property run did not happen. I know that may sound strange coming from a person who can benefit from property speculating. But I am not alone in thinking that ongoing escalating property prices in this country can do be damaging to the society. It will be interesting to watch how the powers that be make the effort to help first homebuyers and a rental blow out. At present there is the scheme giving developers a $6000 per dwelling tax write off to build low cost housing. That is a good move.
They also have an idea to provide funds for first homebuyers to equal funds that are being saved for a home deposit. I think that is a bit lame but better than nothing. But watch out renters - stories are out there rents are going to increase 50% in the next 4 years. To me one easy, but unpopular way to keep house prices under control is to re introduce Capital Gains Tax on any sales over $1 Million. This is the main reason why top end property is consistently strong as owners of exclusive property can live in their home for a couple of years and pocket an extra mil or two when the move up.
INTEREST RATES
The share market may have bottomed and interest rates may have topped. Don't rely on my opinion on these things. It is such a volatile situation, but most pundits predict just one more rise this year to put the inflation genie back in the bottle and then it may recede over time. With the look of the global economy going into recession rates may drop quite quickly as the best device a reserve bank has to stimulate an economy is to lower interest rates.
At present the standard variable rate with CBA is 9.44% (after their recent rise of .14%) but the average loan rate sits at 8.93%. But the best best rate on offer from us (Lawfund) is either 8.57% or 8.67% (depending on the bank) - this is after a discount and NOT a honeymoon rate. Most fund providers are offering some kind of discount to attract new customers and keep the old ones. If your rate is over 9% and your bank won't give you a rate cut and your exit fees are not too onerous, I will be happy to take your call and see if we can help.

Resources:
www.byronpropertysearch.com.au
www.realestate.com.au

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