I found this article in the Australian Financial Review dated December 7 2002.
This is a little more evidence to be cautious. Lucky for me I was.
Deposit bonds lure unwary: Macfarlane
Reserve Bank of Australia governor Ian Macfarlane warned on Friday that investors using deposit bonds to buy units or apartments might face losses when they eventually took possession of their property.
Mr Macfarlane said deposit bonds - which are sold by insurance companies - made it easy for people to enter the market by buying off the plan with a much smaller outlay.
"Now you can go along to an insurance company [and] buy a deposit bond for hundreds of dollars, not thousands of dollars [for a deposit]," he said.
"The insurance company will then guarantee the developer that the deposit will be paid upon completion and you just sit back and wait for 18 months. The cost to you is negligible.
"Then suddenly in 18 months, when you take possession, then you've got to get the full finance and that may be a point you start having regrets about what you did 18 months ago, which was so easy to do."
Mr Macfarlane's renewed concern about an overheated investment property market came at Friday's semi-annual appearance by the RBA before the House of Representatives economics committee.
It followed data showing strong growth in building approvals for higher-density property in October and continued growth in house prices in the September quarter.
Deposit bonds have become popular among property investors because they enable people to delay putting down a 10 per cent deposit.
The deposit bonds, which cost about $700, effectively let people enter the market without a deposit.
Mr Macfarlane said the reduced amount needed to enter the property market was one of the reasons for the housing boom.
"People can actually make these investments on almost 100 per cent gearing," he told the committee.
"It is so accessible that people on very modest incomes are being persuaded by the big seminars that are run by the property development companies that they can get rich too by buying these apartments.
"If the investor is quite wealthy and has their own home with a lot of equity in their own home, they just tighten their belt.
"If something happens, if they lose their job or there's a divorce, then they actually could conceivably realise quite a big loss."
Earlier this year the RBA forecast that the housing market would cool this year. However, after recent strong data, it now expects that the market will not slow until 2003.
Figures released this week showed building approvals surged by a record 69 per cent in October.
Mr Macfarlane described the latest approvals data as "bizarre" and said it was unlikely most of the new projects would be built because some developers were already shelving projects.
Regards
Eco....
This is a little more evidence to be cautious. Lucky for me I was.
Deposit bonds lure unwary: Macfarlane
Reserve Bank of Australia governor Ian Macfarlane warned on Friday that investors using deposit bonds to buy units or apartments might face losses when they eventually took possession of their property.
Mr Macfarlane said deposit bonds - which are sold by insurance companies - made it easy for people to enter the market by buying off the plan with a much smaller outlay.
"Now you can go along to an insurance company [and] buy a deposit bond for hundreds of dollars, not thousands of dollars [for a deposit]," he said.
"The insurance company will then guarantee the developer that the deposit will be paid upon completion and you just sit back and wait for 18 months. The cost to you is negligible.
"Then suddenly in 18 months, when you take possession, then you've got to get the full finance and that may be a point you start having regrets about what you did 18 months ago, which was so easy to do."
Mr Macfarlane's renewed concern about an overheated investment property market came at Friday's semi-annual appearance by the RBA before the House of Representatives economics committee.
It followed data showing strong growth in building approvals for higher-density property in October and continued growth in house prices in the September quarter.
Deposit bonds have become popular among property investors because they enable people to delay putting down a 10 per cent deposit.
The deposit bonds, which cost about $700, effectively let people enter the market without a deposit.
Mr Macfarlane said the reduced amount needed to enter the property market was one of the reasons for the housing boom.
"People can actually make these investments on almost 100 per cent gearing," he told the committee.
"It is so accessible that people on very modest incomes are being persuaded by the big seminars that are run by the property development companies that they can get rich too by buying these apartments.
"If the investor is quite wealthy and has their own home with a lot of equity in their own home, they just tighten their belt.
"If something happens, if they lose their job or there's a divorce, then they actually could conceivably realise quite a big loss."
Earlier this year the RBA forecast that the housing market would cool this year. However, after recent strong data, it now expects that the market will not slow until 2003.
Figures released this week showed building approvals surged by a record 69 per cent in October.
Mr Macfarlane described the latest approvals data as "bizarre" and said it was unlikely most of the new projects would be built because some developers were already shelving projects.
Regards
Eco....
