Rates down 0.25% again

[Michael Croft]

From: Michael Croft


Hi all,

I am seriously interested in your opinions.

So what does the rate cut mean to you? Will the latest rates cut influence your buying decisions? Are you aware that another cut is mooted and does this influence you more?

Any and all responses appreciated.

Michael Croft

 

[jayhunter2000]

Reply: 1
From: Jay Hunter


It will not influence my decision to buy or sell but I think it might influence international investors...

With interest rates going down here, in the US and UK/Europe of recent times and outlook for more... I think it shows a positive future for Australian property.

Australian dollar goes up marginally each time RBA drops the rate but than two weeks later the Aus dollar seems to be struggling again.

If you ask me - I think some people do not realise we are now in a global economy and the shift of wealth between individual investors is now on a GLOBAL basis.

If I was earning pounds, Swiss francs, US dollars I would be jumping at the cheap Australian properties. Remember a $300,000 Aus property is about 120,000 pounds and there are plenty of jobs in the uk where you earn above 80,000 pounds or more (avg out about 22% tax - much less than here) do the sums...

I'm rambling a bit but my point is: money has always moved hands but now it moves across borders in our global economy... and what may seem expensive to us in Australia looks very cheap to people in other countries. If you look at some of the more quality properties of late... who are you competing with ??? 1) OS investors, 2)Aussies coming back to aus after earning a wad OS, UK & English return holiday makers who plan to return on a more perm basis...

I can see the headlines now when people realise that its not normal Avg Australians buying the quality properties.

just a thought.
jay

 

[IanF]

Reply: 1.1
From: Ian Findlay


I think the recent interest rate cuts will do the job they are supposed to -
encourage people to spend and that includes house buying. It becomes cheaper
to borrow money, so for the same outlay people can buy upwards and outwards.

One disadvantage in the housing field though is that lower interest rates
and the $7k and $14k grants encourage typical renters to buy thus depleting
the rental pool - not good if you are looking for tenants. Personally we are
seeing this already, a unit that is normally snapped up is still on the
market for a tenant a week later! The advantage though is limited housing
stock which drives prices up especially noticeably in Brisbane.

Disagree that there are plenty of UK jobs earning more than £80k per year
(thats nearly a quarter of a million Aus dollars) per annum. Last year the
average salary in the UK was about £18k ($54 AUD) - big jump to £80k. Also
at £80k the marginal tax rate is 40% (even avg tax out tax still takes it to
about 30%), then on top of that is 17% VAT (VAT) on almost everything.
Prices are much more expensive over there too - 85p per litre of petrol
($2.55 litre) etc, etc

I do agree that what seems expensive to us seems cheap to everybody else. I
am more concerned that we are being construed as a third world country:
cheap to live in, low salaries, dependant on tourism and primary industries.
Although it encourages companies to come here for cheap labour costs, we
don't want to go down that route of being considered 2nd class.

Ian


> From: "Jay Hunter" <jayhunter2000@hotmail.com>
>
> It will not influence my decision to buy or sell but I think it might
influence international investors...
>
> With interest rates going down here, in the US and UK/Europe of recent
times and outlook for more... I think it shows a positive future for
Australian property.
>
> Australian dollar goes up marginally each time RBA drops the rate but than
two weeks later the Aus dollar seems to be struggling again.
>
> If you ask me - I think some people do not realise we are now in a global
economy and the shift of wealth between individual investors is now on a
GLOBAL basis.
>
> If I was earning pounds, Swiss francs, US dollars I would be jumping at
the cheap Australian properties. Remember a $300,000 Aus property is about
120,000 pounds and there are plenty of jobs in the uk where you earn above
80,000 pounds or more (avg out about 22% tax - much less than here) do the
sums...
>
> I'm rambling a bit but my point is: money has always moved hands but now
it moves across borders in our global economy... and what may seem expensive
to us in Australia looks very cheap to people in other countries. If you
look at some of the more quality properties of late... who are you competing
with ??? 1) OS investors, 2)Aussies coming back to aus after earning a wad
OS, UK & English return holiday makers who plan to return on a more perm
basis...
>
> I can see the headlines now when people realise that its not normal Avg
Australians buying the quality properties.
>
> just a thought.
> jay
>
>
>
> To reply: mailtoropertyforum.12566@bne003w.webcentral.com.au
> To start a new topic: mailtoropertyforum@bne003w.webcentral.com.au
> To login: http://bne003w.webcentral.com.au:80/~wb013
>

 

[adaran01]

Reply: 1.1.1
From: Adam Randall


Hello
I am very tempted to off-load the property I don't really want anymore (to far from town and no capital gain), I cannot see a better time than now, unless rates drop again before they take away the FHBG, If I don't sell by the end of the year I will probably never sell. As far as the earnings in the U.K I know for a fact that for what I do (IT) the average wage in London is about the equivalent to what I earn in pounds as what I earn in dollars here, although due to the down turn/increase in skilled people, wages in IT are no longer as high as they were (there was a time about a year or two ago when you could earn 3 to 4 times that of a doctor). The average hourly rate for contract work has gone from about 40 pounds an hour to about 25 - 30 pounds an hour, this has been offset a bit by the continuing decline of the Australian dollar.
I am going to Thailand at christmas for 3 weeks my thoughts are as long the $AUS is worth more than the Thai Baht things cannot be to bad, if that happens Indonesia may find boat loads of Australians landing at their front door.

 

[WebBoard]

Reply: 1.1.1.1
From: Sergey Golovin


Michael, it is good question.

Lets have look at fundamentals. Why did they drop interest rate again?
Well, maybe because economy is not doing well...

Corporate profits down, people get laid off, etc.

Yes property market is strong at present time but this is only small part of the economy. We still have - share market (corporate - manufacturing and services), small business/farmers, government (hospitals, telecommunication, police, army, public transport, environment/parks, etc.), house wives/husbands, volunteers (unpaid labour), unemployed & homeless, churches and community, etc. They all do contribute or consume one way or the other and if let say they are not able (whatever the reason) to be part of the economy, well, gets bit hard for all of us.

I think.

Serge.

 

[Les]

Reply: 1.1.1.2
From: Les .



G'day Michael,

What a question !!! (and I am being very serious in saying that) As a relative newbie, I am finding myself more and more torn between two sayings:-

R Kiyosaki - "Crisis is a Chinese word - it means both problems and opportunity" and I don't have the original quote in front of me, so forgive me if it is not verbatim. So, despite the current world stage and its antics, opportunities are still all around us - perhaps more so, as others are tightening their belts and getting worried.

????? - "Most adults will see two major recessions and one depression in their lifetime - in depression times, cash is King"


Every time the rates notch down yet again, the latter phrase gains impetus.

And yet, my natural demeanour is one of optimism - so, right at the moment, my mind is struggling. I know there will still be "deals" out there, but, more and more, my thoughts are turning away from "buy and hold" and more toward "trading". Create a bit more of the folding stuff in preference to gaining yet another mortgage. A more "softly softly" approach, rather than a "fill up while they're cheap" one.

Certainly, I won't be looking to increase my mortgages without a HUGE guarantee of success.

I am also, (for the very first time) looking VERY seriously at Fixed Mortgages for my current properties (but only for those "diamonds" that I really want to keep into the future). It is also (I feel) a good time to re-appraise the portfolio - get rid of any "not making it", and get leaner and meaner (metaphorically only, of course - I'll still be the same sweet guy I've always been ;^)

And, speaking of Fixed, my thoughts are that an 80/20 or 75/25 Fixed/Variable ratio is not such a bad idea. Thoughts here are that if all is Fixed (and portable), it is only portable to another IP of similar or greater value. But, at 80/20, a portable Fixed loan would be able to be utilised on an IP of 80% of this one's value without having to pay break costs. Makes a bit of sense if times REALLY get tough and one must go .... (jeez I HATE this kind of talk ...)

A mixture of thoughts, as you can see - and not as optimistic as my usual self. But then, "reality is the way it is, not the way you'd like it to be"

I would certainly like to hear others thoughts on this one, too - let me know I'm not alone (sob ... ;^)

Regards,

Les


- "Eschew Obfuscation" - ;^)

PS - I hope you will be giving us the benefit of your thoughts on this one too, Michael.

 

[Ric1]

Reply: 1.1.1.2.1
From: Ric1 .


The cheap money (combined with poor share performance) will encourage investment in real estate now, but this may rebound on those with marginal servicing ability when the rates go up again, as inevitably they will a year or so down the track. Then, we may find some competitively-priced real estate on the market......

Ric

 

[Michael Croft]

Reply: 1.1.1.2.2
From: Michael Croft


Hi Les,

I'm still forming an opinion on this one myself, and as you may have guessed I'm writing an article on the subject.

I too swing from a naturally optimistic state to one of covering my rear at the moment. As you know I'm not highly geared but I think I'll be locking about 80% after the December cut (if it happens) around the 6% mark for 5 years. The remaining 20% will be in standby via LOC and liquid assets - can't bring myself to hold cash even at 4.5% ;^)

I see lots of nasties happening on the horizon, all well intended I'm sure. Things like the Australia card is back on the agenda, a wealth tax on property is planned in WA and various other "forces for good" are planned.

The property wealth tax is interesting, only on properties worth over a million, only affects the rich they say. How long before the median price of large parts of Sydney and Melbourne are over the $1M mark? Property doubles every 7-11 years, so one more cycle. At the 2% proposed rate it will cost more to administer the scheme than it collects.

Anyway I digress, the original questions were posed because every pollster has a consumer confidence index/measure. But I am not interested in the average person on the street; I want to know what the small percentage of IP investors is thinking. Hell, I'd like to know what I'm thinking!

Just (9.20pm) spoke to friend in Sydney who caught the tail end of an interview with an agent. The agent claimed close to 90% clearance rates (88 out of 100)! That's still a boom in my book, but they might only be home buyers not IP investors.

So please budding and experienced alike - give me your two bobs worth. I'm in the process of formulating an IP consumer sentiment index and your thoughts do count.

regards, Michael Croft

 

[WebBoard]

Reply: 1.1.1.2.2.1
From: John Holmes


Well Michael here's my two bob's worth. I currently hold my own home and one IP. The IP I have had for 3½ years with about a 100% CG. I have substantial debt on my own home (purchase and renovation) that contributes to a tight cash flow. Some months I wouldn't survive without the LOC.

The plan was to hold the IP until net gain would pay out the entire personal debt. I have decided to sell at the end of this month. My rationale.....I have done well with the IP, the market is still booming, no-one seems to know how long it will last (hopefully until the end of October), I anticipate a slow down in activity just prior to the election and I figure when the market does cool it could be flat for an extended time. In which case if I hold I am left with a tight cashflow for an extended time.

I want to be on the offensive. Ease my own lifestyle and be in a position to move in when the opportunities arise as expect they will. I hope I'm not being too cocky but as time passes the better I feel with my decision.

Cheers.

 

[Les]

Reply: 1.1.1.2.2.2
From: Les .



G'day Michael,

And thanks for your thoughts in reply - I hadn't expected such a quick response from you (figuring that you would probably not want to "show your hand" before seeing a bunch of other replies) - I will be very interested in your final output.

An interesting comment from you -
"The property wealth tax is interesting, only on properties worth over a million, only affects the rich they say."
Les> Yeah, right - and half the soon-to-be retired "asset rich, cash poor" Mums and Dads out there.


"How long before the median price of large parts of Sydney and Melbourne are over the $1M mark? Property doubles every 7-11 years, so one more cycle.
Les> With a Sydney overall median greater than $300k, what is the median for (say) within 25Km of Sydney CBD? Nearer $600 - $800k? Hell, with the way the current "boom" is going, there's a very good chance that $1m median could be reached THIS cycle in those closer suburbs.

But, if not, then next cycle will do it for the overall Sydney median (reported $320k median at beginning of 2001, $640k by 2008, $1m by 2011 or 2012). So, yeah, HALF of the home-owners in Sydney will be considered to be "wealthy" within 10 years (through no fault of their own ..... ;^0 ) and will be Taxed accordingly.

Brisbane will be looking REAL GOOD to a lot of Southerners by then, I reckon. Probably Dubbo will have found a new lease of life, too, as many people vote with their feet.


"At the 2% proposed rate it will cost more to administer the scheme than it collects."

Les> This sounds like an episode out of "Yes, Minister!" - with a GO/NOGO check on our Rates notice, wouldn't it be a simple (read inexpensive) matter to charge an extra 2% of appraised value? And, are you talking here of 2% of appraised value (or Govt. Valuation) of a $1m property? That's $20k per year - MORE THAN THE PENSION !!!

Now THAT would be a real impost for the average retiree, not to mention the average worker / parent ....

Michael, please, say it ISN'T SO !!!!

Les


- "Eschew Obfuscation" - ;^)

 

[Michael Croft]

Reply: 1.1.1.2.2.2.1
From: Michael Croft


Les,

It isn't so .......... yet!

The admin. costs will be in the appeals, exemptions, deferments and other suggestions which = technocrats at work! Yes minister - absolutely.

 

[WebBoard]

Reply: 1.1.1.2.2.2.2
From: Dave


Great question Mike and good to hear from you. Is it just me or were you
away for a while?

My thoughts in brief.

The rate cut wasn't needed, the economy was already quite strong.
Especially in relative terms when looking at the global economy.
Residential loan approvals were already up by 50%. What now? More buyers
enter the market, pushing prices up further. I reckon there's another 12
months before we hit the peak, at least. People I've spoken to that got
worried a few months back and cashed up, have told me they missed out on
some of the most rapid capital gains their properties have seen in many
years - just in the space of a few months!

There is caution in the air by some investors, although developers that I've
spoken to don't seem to be concerned at all. In fact, they see nothing but
clear skies for another 12 months at least.

Another person said that Australian property prices are still relatively
cheap compared to o/seas. I agree. The great Australian Dream will become
less achievable for many as prices continue to increase. The rate cut and
increased demand WILL put increased upward pressure on property prices.
However, this will slow, but when it does, I don't think there will be a
drop in prices. They may just stay put for a while.

Is there still opportunity to find good deals in this market? Hell yeah!
SOME are getting nervous and abandoning ship. I just negotiated a 7
apartments at way under sworn valuation in a blue chip suburb in Melbourne's
east - a mortgagee sale. Thanks Mr. Doom and Gloom - your fear was my gain.

Cheers,

Dave


{Life's short...play hard}



----- Original Message -----
From: propertyforum Listmanager <listmanager@bne003w.webcentral.com.au>
To: <Recipients of 'propertyforum' suppressed>
Sent: Wednesday, October 03, 2001 10:19 PM
Subject: Re: Rates down 0.25% again


> From: "Les ." <lezzo35@hotmail.com>
>
>
> G'day Michael,
>
> And thanks for your thoughts in reply - I hadn't expected such a quick
response from you (figuring that you would probably not want to "show your
hand" before seeing a bunch of other replies) - I will be very interested in
your final output.
>
> An interesting comment from you -
> "The property wealth tax is interesting, only on properties worth over a
million, only affects the rich they say."
> Les> Yeah, right - and half the soon-to-be retired "asset rich, cash
poor" Mums and Dads out there.
>
>
> "How long before the median price of large parts of Sydney and
Melbourne are over the $1M mark? Property doubles every 7-11 years, so one
more cycle.
> Les> With a Sydney overall median greater than $300k, what is the median
for (say) within 25Km of Sydney CBD? Nearer $600 - $800k? Hell, with the
way the current "boom" is going, there's a very good chance that $1m median
could be reached THIS cycle in those closer suburbs.
>
> But, if not, then next cycle will do it for the overall Sydney median
(reported $320k median at beginning of 2001, $640k by 2008, $1m by 2011 or
2012). So, yeah, HALF of the home-owners in Sydney will be considered to
be "wealthy" within 10 years (through no fault of their own ..... ;^0 ) and
will be Taxed accordingly.
>
> Brisbane will be looking REAL GOOD to a lot of Southerners by then, I
reckon. Probably Dubbo will have found a new lease of life, too, as many
people vote with their feet.
>
>
> "At the 2% proposed rate it will cost more to administer the scheme
than it collects."
>
> Les> This sounds like an episode out of "Yes, Minister!" - with a
GO/NOGO check on our Rates notice, wouldn't it be a simple (read
inexpensive) matter to charge an extra 2% of appraised value? And, are you
talking here of 2% of appraised value (or Govt. Valuation) of a $1m
property? That's $20k per year - MORE THAN THE PENSION !!!
>
> Now THAT would be a real impost for the average retiree, not to
mention the average worker / parent ....
>
> Michael, please, say it ISN'T SO !!!!
>
> Les
>
>
> - "Eschew Obfuscation" - ;^)
>
>
>
> To reply: mailtoropertyforum.12624@bne003w.webcentral.com.au
> To start a new topic: mailtoropertyforum@bne003w.webcentral.com.au
> To login: http://bne003w.webcentral.com.au:80/~wb013
>
>

 

[WebBoard]

Reply: 1.1.1.2.2.2.2.1
From: Sergey Golovin


http://www.smh.com.au/news/0110/04/national/national9.html


Interest rate down, inflation is up.

Serge.

 

[Lissy]

Reply: 2
From: Felicity W.


Hi
Personally, it won't make any difference to me, except to lower the interest payments every month!
Right now I'm in a cashflow generating situation using shares, and property isn't part of my plan again for a bit longer yet. So I figure by the time it is, the current boom will probably be over.
I hope to be ready in time for the inevitable problems caused when interest rates start to rise again, and people who were just coping at low rates start to sell again.
sad, but true.
Keep smiling
Felicity

 

[Rolf Latham]

Reply: 3
From: Rolf Latham


Hi

I must agree with David T.

The last two rate cuts throw fuel onto an already raging fire.


Rolf

 

[simonjulie]

Reply: 3.1
From: Simon and Julie M


Hi Michael
That old saying "the winners are the ones still playing"or something like that.
If one has a strategy to "hang on", for any of the rides the economy may take us on, at least one will still be there at the other end.
Thanks for the question, it has started me thinking about stuff like that.
Simon

 

[WebBoard]

Here's Warren's View..

Reply: 4
From: Anonymous


Not so much to do with rates, but certainly has to do with the economy in general:

http://www.berkshirehathaway.com/manager.html

MEMO



TO: Berkshire Hathaway Managers ("The All-Stars")

FROM: Warren E. Buffett

DATE: September 26, 2001



The last few weeks have been tough times for all of us in our personal lives and for many of us in our business activities.

At Berkshire we have estimated our September 11 insurance loss was $2.2 billion. We’ve labeled this a "guess" because that’s all it is. It will be many years before we can tell the world within a narrow range what the true figure was.

A very high percentage of the loss occurred in our U.S. insurance companies, with the balance in German and U.K. entities. Because we have regularly paid very large amounts of U.S. income taxes, we will bear 65% of the cost applicable to the U.S. operations; the government will bear 35%. Many insurers will not have their loss mitigated in this manner and some may not survive. Though much of our loss will be paid very soon, significant payments in the liability area will take a considerable time to settle.

Even with tax recoveries, our loss is huge. Nevertheless, it’s one Berkshire can easily bear. We have long been in the super-cat business and we have been prepared, both financially and psychologically, to handle them when they occur. This won’t be our last hit, though we fervently hope disasters in the future arise from natural causes, rather than be man-made. (We also would hope they would be of lesser magnitude.)

What should you be doing in running your business? Just what you always do: Widen the moat, build enduring competitive advantage, delight your customers, and relentlessly fight costs. With the exception of insurance pricing and coverages, almost all operating decisions that made sense a month ago make sense today.

For my part, I’ll keep looking for sensible acquisitions and continue to manage our resources so that Berkshire remains a financial Rock of Gibraltar. I’m sure we are in a recession, probably a relatively deep and extended one, but they are part of business life and we are prepared.

In short, you do the managing and I’ll do the worrying. That’s a division of labor that’s worked for us in the past, and it will continue to work well in the future.

Thanks, as always, for the great job all of you do that, in turn, makes my job so easy.


Warren

P.S. If you wish, share this message with any of your associates.