Government's plan: Banks to co-own homes

[charliey]

Hi all,

Just want to get some views on this from today's news (MX in Melbourne):

A radical plan to allow home buyers and their financial institution to share home ownership is being considered by the Federal Government.
Under the scheme, people would buy a share in a house through a mortgage rather than taking on the entire risk and cost of home of home ownership.
The remining share would be owned by the bank or financial institution.
When the property is sold, the home buyer and the bank would share in the profit or loss, effectively allowing families to hedge their exposure to any volatility in the real estate market.
The scheme also aims to bridge the gap between renting and buying, reduce up-front deposits and boost disposable income.
The plan is to be detailed in a report at the Liberal Party's national convention in Adelaide this week.

Cheers
Charliey

[Jakk]

G'Day all,

Somebody actually posted something about this on the forum about a year ago. I will await the full details before commenting any further on this one.
(....as if the banks aren't making enough already)

regards

[Ross Sneddon]

Hi

I heard something like this on the radio a couple of months ago in Sydney.

I don't recall the detail but I seem to recall a pollie, of whatever colour, suggesting this as an alternative to the Government expending millions in taxpayers funds, building and renting public housing to the less affluent in the community.

If the banks were encouraged (for a good dollar no doubt) to be co owner/lenders in this type of venture, then the owners, who would otherwise be public sector housing renters, would have a greater interest in "their home" and look after it better, and in so doing, save the taxpayer a lot of money.

I have recently looked at public housing rented to the less affluent on the basis of purchasing these properties, renovating them and putting them back on the market or renting them to tenants. The Department wants to be rid of the problems.

I have seen this type of housing on a number of occassions in the past and still shake my head in wonder at the deliberate wanton destruction inflicted on these properties, for no apparent reason.

The alternative of giving more people the opportunity to have home ownership, even if shared with a bank, may have some merit. It is worth considering at least.

Regards

Ross

[Gordon Gekko]

More people "owning" properties, less people renting??

Less renters? Less IP's? Less chance on me making my millions ?:confused:

[WillG]

The banks own most fo the properties now anyway - They look after the title for us. This sort of scheme gives them more control. Is this a good thing ?

Almost sounds like the government is privatising public housing.

The finer details should be a facinating.

[Ross Sneddon]

Hi Gordon

The Dept of Housing renters still occupy the same dwelling. The only thing that has changed is the form of ownership. Instead of the Dept of housing owning the dwelling, and the tenant paying rent to the Department, the bank and renter as co owners, now jointly own the dwelling and the same person now pays a repayment for the property equal to the original rent. The bank pays the balance.

Still the same number of potential low income people and still the same number of more affluent tenants out there to rent your property, so your opportunity to own IP's is still the same. You can still become a millionaire if you wish.

It has taken about a decade to drop the ratio of owners to tenants by a couple of points. I wouldn't let it worry you.

Regards

Ross

[Gordon Gekko]

Ross,

My understanding on what Charliey was taking about was people buying a property and the banks going in 50/50. Not the "Dept of Housing renters" buying the placers that they now live in but for them to go out and buy a new place and going 50/50.

In this case, we would have less renters. Good for low income earners bad for IP owners:rolleyes:

[NickM]

I await the finer details.

What risk for the bank ?

lend 50%
Owner improves property as they would normally do at their expense
Owner pays all outgoings

Owner sells and half the gain goes to the bank.

Sounds like a good business to be in.

We should ask Rene what he thinks will happen to bank stocks if this gets thru



;)

[PT_Bear]

This could be a good thing for IP owners. If buyers have to come up with less money, housing affordability goes up. This is followed by an increase in demand, pushing prices up to match.

Can you imagine the crash if this occured for a few years and then the banks got cold feet?

[rambada]

This has been discussed on the forum before but has been inconclusive and not well discussed. It certainly will be. There is a report available from the Menzies centre. John Howard is very very keen on it and is driving it vigorously, look at the loaded committee at the think tank.
The concept is that the finance provider has a share of the said propery, ie 50%. The vendor can do any and all changes to the property as it 'belongs' to them. The bank is a silent partner.
On selling they get their share of the sale and you yours.
For the elderly who has a freehold primary residence and no cash, they can 'sell' part of the home to the bank for cash and then buy an annuity.
For initial buyers, they find it easier to get into homes and its a leg up.
What will it do? Large debate with every one having different opinions.
From supply and demand, initially there must be a huge increase in prices - bulk demand, limited supply. A large block of first home owners have already moved. Are there that many more who want to buy? Don't know bt if there is easier money, there will be increased demand.
Inflationary - you bet. So will high % rates then follow from a nervous RBA? This is the ultimate property boom buster.
The other thing in relation to the elderly is that it will restrict their estate for their kids - a problem?
Also as a home owner paying a mortgage on a property of which I only own 50%, I would find this less than ideal. I think Aussies don't trust banks or pollies and though they may use it as a leg up initially, ther will be resistance later.
Sorry for the long post but it is an area I am interested in. I hate govt medling, it stuffs up everything and RE is the last bastion of free trade.

[Sam_H]

Hi guys
I've read (with interest) a few times the Sydney papers have told this story

The question I have is-why would the bank want to help us?

Why would they lend say $300k in half a share of a $600k house?
What return would they get over the say 15yrs a co-owner lived in the house?
Surely it would make more sense for the banks to simply buy the $600k house outright and gain an income (rent) !!

It sounds to good to be true.....imagine the demand if all of a sudden the average bloke can goto a bank and instead of borrowing say $700k for a house.....he can now afford $1.4mill !!!
-property prices would go through the roof!

Cheers

Sam

[Aceyducey]

My question is where would all the money come from?

Why would the government want to tie up millions in real estate?

Shouldn't it be spent on services for the community at large?

More likely that part ownership will be considered as an incentive for property investors :)

But you can do part ownership now.....buy a property using a unit trust (one trust per property) - sell units in the trust to the 'home owner' up to the value they own in it.

Just have to figure out financing arrangements - perhaps the other unit holder/s could wrap the 'owner' component or call it vendor finance & the trust lends the money to the 'owner' to buy units in the trust.....

Must be other ways to do it today legally as well....

Why has no-one done it??? Either there hasn't proven to be the demand, there hasn't been enough profit in it (compared to other investment options) or no-one has thought of it.....

Cheers,

Aceyducey

[Ross Sneddon]

Hi

I'd like to be in the line up with Sam to borrow funds to purchase a $1.4M home but somehow I can't see the bank's or Government will agree and I will not see this happening for me.

The Government currently allows an offset of expenses against income now. Negative gearing, depreciation of Fittings, building allowances and all that of which we are well aware. We all use the facilities available to now.

This saves the Government a moxa of taxpayer dollars each year in public housing in which they don't have to be involved.

The thing is that, as it is tied to our incomes, we are in effect restricted by our incomes from all sources which imposes limits in property values in which we can become involved. I would guess, and it is only a guess, that the Government's suggested new scheme would similarly restrict the lending through banks to a ratio of income to repayment contributions towards the initial borrowings.

This by implication will only allow the purchase of low priced housing. Now add to that a requirement that only one loan may be thus arranged at a time and the recipient is required to live in the dwelling and the total value and numbers of loans will be at least modest in the early years.

But if it reduces the government taxpayer contribution to housing and the cost of managment, repairs and maintenance of these houses, then the taxpayer should be the beneficiery (well theoretically Ha).

Regards

Ross

[Lissy]

I always get nervous when governments get involved in an area which is essentially a free market.
Why? Because they start out doing things which are supposed to help people, and usually end up causing more people to suffer because they didn't see the consequences.
But then again, maybe I'm just feeling cynical this morning....

[Ross Sneddon]

Maybe you are cynical this morning Lissy but I agree with your comments and believe that you have every right to be cynical.

What may start out as a sound idea is usually stuffed up by interference from all political parties who have to stick a paddle into the argument

Regards

Ross

[Nicholas H]

now if they removed negative gearing (not going to happen) .. would not be good for renters as people would be selling these negative geared properties (just owned for tax). Would decrease number of properties for rent. But prices would drop, make it easier to buy houses.

Now make prices cut in half cause you can borrow more .. ok for the next 10 years cheaper to buy a house .. prices go up to basically the same level .. just as hard .. and a potentially bigger crash .. if they leave it alone then you will get ups and downs .. but it would be so much less effect.

[Ross Sneddon]

Can you cast your mind back to the early 1980's when the Government of the day decided that only "rich" people invested in rental properties and the name "Landlord" was to be shunned.

The Government stopped people from offsetting legitimate business expenses (from investment property) against their incomes. i.e. they stopped the then form of negative gearing.

What happened?

Within six months there was a noticeable drop in new house construction, initially an increase in rentable housing for sale as some property investors bailed out, and then a shortage as new house construction drastically diminished and the subsequent doubling of rents in under a year. Loss of work within the building industry and associated industries, and a flow on effect elsewhere.

The lower socio-economic sector (the battlers) suffered the most as they found it increasingly difficult to find or afford to rent a home. As house numbers decreased, prices rose (new home owner demand) and within a couple of years the Government had to kick start the housing industry again.

A new building allowance system at 4% per annum was introduced which was later dropped to today's rate of 2.5%

It can happen again but I think that any future Government would do well to look at history before they introduce abolition of today's system. Tweak it, vary it, even change it a little, but ?

Regards

Ross

[XBenX]

IMHO i feel this was just a vote winning campaign - it cant see it happening - the current government hardly has a reputation for regulating markets where a market failure does not exist.... I cant see them going against this...

But then again polliticans decisions are hardly logical (esp if/when their head is on the chopping block)

[Ross Sneddon]

I agree but

If a pollies head is on the chopping block, anything is logical

Regards

Ross

[Tibor]

Hi everyone,

As I read the entire garbage last year and put some comments to it, here is the thread for your viewing.

http://www.somersoft.com/forums/showthread.php?s=&threadid=4096


My view (opinion) is unchanged on the subject


Cheers,


Tibor

[mitch]

Gday All,

you must be talking about a new different type of bank to the ones lve had dealings with over the years.

Ive heard and read many stories ( as well as my own difficulties ) over the years how thinking people with equity,plans,other forms of income etc have been made to jump through hoops for finance by the all mighty banks.

Now these same (?) banks are going to go 50/50 with people who
cant afford/dont have/cant get access to a 10% or so deposit ?

Would you be a silent partner for the type of buyer that may wish to use this service,and some people ( politicians ) think banks will?

MITCH

[Jas]

One problem I see is that the bank will start to buy and sell the mortgages, meaning that house prices will move faster and act more like listed trusts.

Not an idea I like...

Jas

[CAD Guy]

and in the meantime, what happens to your increased equity as time goes on? You buy a house for $500K and the bank has a $250K share. X years on the house is worth $1m. Who owns the $500k increase?

[plainsong]

I wonder who pays for upkeep of the dwelling-will the bank pay for half a tap and half a shower screen? half the rates-or will the tenant pay for all that and the bank pocket their half of the profit without any of the expenses? I guess it will all come out in the fine print, eventually.

[see_change]

The one thing I can see this proposal doing is pushing up prices further , so it will maintain the property market , and all of the building industry with it.

This will keep theAustralian economy moving , and will help Liberal win the next election....

Maybe it's that simple

see change

[michaelg]

Hi,

It's like watching somebuilt a house of cards.

Opps, 4% building write off

Opps, 2.5% building write off but steady

Opps, HomeFund, CRASH!, start again

Opps, FHOG @ $7k

Opps, FHOG @ $14k

Opps, FHOG back to $7k (pulled a card from the bottom, put it on top JENGA!)

Opps, consider $10k fund for debt relief, wobbly now

Opps, lender equity share proposal, now don't breathe!

I wonder what the next Ace up the sleve they will pull out to place on top?

Just a thought
Michael G

[see_change]

Michael

Don't give them ideas or they may start wrapping ....

see change

[strangep]

Hi guys

Just a thought (as he pulls another gem from his hatfull of stupid questions :D).....

What effect would a proposal like this, if implemented, have on the wrapping industry??

Cheers

Paul

[coffee]

http://www.apr.com.au/publish/article_163.shtml

Just came across this jun 6th

Geoff

[Savanna100]

Like Tibor, i read the whole document on this when It first came out.

I feel it would damage our interests as investors and therefore do not support it. As for who owns the increased equity...the answer is both you and the lender own the increase in proportion to the amount originally decided...eg you and lender own 50% each then 50% of the increase goes to each.

Savanna

[Les]

G'day all,

One point that struck me about this "scheme" is - "How does it work if you want to spend a bit on your property? Does your 50% partner kick in half?" (I'm thinking here of adding value to the property - add a DLUG, landscaping, extra room, new kitchen, etc.)

And if they DON'T kick in half the cost, then does YOUR investment then alter the ratio to (say) 60:40 rather than 50:50 ?

It wouldn't be fair for them to gain 50% of added value if only YOU were putting up the cash to do, would it???

Thoughts? Or does someone actually KNOW the answer? (I don't - it's just a thought ....)

Regards,

[bundy1964]

Originally posted by Les
It wouldn't be fair for them to gain 50% of added value if only YOU were putting up the cash to do, would it???

Hi Les

I think you get those joys for not paying rent on the banks 50% :rolleyes:

My ? is how will the banks fund all this untill the properties have sold?

Isn't the average length of time in a home 7 years?

bundy

[Will1]

Unlike many, I see this as positive. To respond to a few issues;


Short term this adds buyers to a market and increases prices. LT yields drop, renters buy equity, investors feel some pain.

(compare FHOG...what a system, a country where we give welfare to people who can afford to buy real property!)


Why would institutions do it? A new asset class! Securitised residential real estate in the super funds of Australia with investment bankers clipping the ticket on the way through. Portfolio theory suggests that this will reduce volatility in portfolios as resi RE moves differently to other asset classes.

Will1

[Tibor]

In today's SMH (and the website) the following article appeared


Costello snubs Howard-sponsored home plan
By Cosima Marriner
June 7 2003





The federal Treasurer, Peter Costello, will not recommend a plan for cheaper housing drawn up by the Prime Minister's Home Ownership Taskforce.

The plan, which was presented to to the Liberal Party's national convention in Adelaide yesterday, would allow Australians to sell equity in their homes to the bank, helping them own their own homes sooner.

A spokesman for John Howard said yesterday that the Government welcomed the report and would study the findings. However, Mr Costello said he thought most Australians would prefer to own their home outright, rather than sell a portion to a bank.

"For most Australians I don't think they would find it attractive," he said.

"I wouldn't promote it."


The taskforce was commissioned by Mr Howard last September to report on the burgeoning problem of housing affordability.

Mr Costello said that despite his misgivings, he would not oppose the introduction of such a scheme.

"If an individual wants to sell 50 per cent of their property off to a bank, I suppose they should be entitled to do so," he said.

"I am not recommending this as a type of investment, but if there are people who think it is a kind of investment that would suit them - provided that they don't get into trouble maintaining their payments - that is a matter for them to decide."

The Liberal Party think tank the Menzies Research Centre, which supervised the taskforce, estimates the cost of owning a home might be cut by 30 per cent if the plan was adopted.

The plan's co-author, Cambridge University economist Christopher Joye, said there was a "very, very significant number of Australians" willing to sell equity in their homes to the banks.

Tibor

[foxysilvers]

Will1.....absolutely agree with you!

A new asset class added to a very dull equity market.

Reverse mortgages and annuities for RE rich cash poor oldies.

A bigger and more stable RE market with an influx of OS money and migrants.

If this idea gets up it will be bigger than Kim Beazleys gut or Simon Creans whining.

It could be the winning goal from the Man of Steel.

Cheers

[mort the frog]

I bet my bottom dollar that if you were in co ownership witnh the bank at say 50/50 and the house dropped in value that the bank would have some tiny print in the contract that made the person liable for any loss in the transaction. I can not see any bank going halves in a loss. Can you.

[foxysilvers]

Mort........Banks write off losses from mortgage loans quite often and Im sure they hate it even if it has been factored.

If this scheme gets off the ground it will be interesting just what lending criteria the banks put in place. Surely it would have to be flexible and maybe similar to current LVR ratios.

It would be hard to see the same deal done for prime Melb/Syd residential against investment grade hirise or small rural towns.

I think you are correct about the banks attitude but they are more likely to victimise the property than the punter......the results the same but the PR is better.

Cheers