RBA Monetary Policy Statement

[MarkB]

A summary would be:

- Since the last Statement, the case for easing interest rates has eased

- the economy has been growing well and will continue to grow, albeit at a reduced pace

- there remains concerns over the strength of the international economy

- the RBA is also increasingly concerned about the rapid growth of credit, particularly for lending on property - "this is not untypical of a prolonged bull market, and could cause a good deal of distress to the economy when the housing price cycle turns"

A precis of the statement (plus the full statement) can be found at:

http://www.rba.gov.au/PublicationsA...onetaryPolicy/statement_on_monetary_0803.html

MB

 

[D.T.]

Hi,

It seems to me that they cant decide between lowering the interest rate for international reasons and increaseing the interest rate for domestic reasons. This has caused them to be worried about the property boom, and is probably why i heard some liar on the radio today say "negative gearing will be removed".

-my 2c

Dave

 

[Jean]

Governments love to fiddle with interest rates, especially when the Govt represents the big end of town.

But I'd like to hear Govt saying they'll act to improve accounting standards and the accountability of those senior sods in big companies who are making off with investors' money. Y'know, something a little more concrete than John Howard saying Tsk, Tsk when CEOs go out of their way to make pigs of themselves.

Board and senior management arrogance and lack of real accountability continue to drive $s into private property investment. Unlike the reported assets of a company, it is most unusual for a house to disappear over night without trail.

 

[MarkB]

Jean

Are you implying that the current interest rate stance in some way favours the big end of town over the rest of us?

Mark

 

[XBenX]

Originally posted by Jean
Governments love to fiddle with interest rates, especially when the Govt represents the big end of town.

But I'd like to hear Govt saying they'll act to improve accounting standards and the accountability of those senior sods in big companies who are making off with investors' money. Y'know, something a little more concrete than John Howard saying Tsk, Tsk when CEOs go out of their way to make pigs of themselves.

Board and senior management arrogance and lack of real accountability continue to drive $s into private property investment. Unlike the reported assets of a company, it is most unusual for a house to disappear over night without trail.

If thats the case then I hope the "big end of town" continue acting like asses .... the more money going into the property market the better.

 

[Jean]

The Treasurer would like to have a squeeze on credit to reduce borrowing for property investment. So IMHO the Govt is informally persuading lending institutions to tighten up on approvals. Because the usual blunt weapon of increasing interest rates is not 'on' at present for various reasons and because loan criteria are too easy to comply with.

I don't agree that the more money flowing into property the better, because a big upswing can be followed by a larger correction and a longer plateau. Would you say we are more than two years into this upswing? Based on previous cycles two years was about tops. If some think the surge could last into 2004 or longer, then this cycle would be very dissimilar to previous cycles. What new factors are there and will the fundamentals be there to support a much higher peak in prices?

What has been puzzling me is why investors in IPs are accepting new 'benchmark' lows in rental returns. Local advice is that vacancy factors (expressed as weeks to let) are increasing and developers are offering incentives to rent unsold units.

 

[MarkB]

Jean

Fiddling with interest rates and informally persuading lending institutions to change their policies are two different things.

The Government does a little of the former (not much), but there are reasons for that - see:

http://www.somersoft.com/forums/showthread.php?s=&threadid=10866

I do not believe they do much of the latter (other than through the usual channels, eg. APRA standards).

Interestingly, as recently as a couple of weeks back the RBA released a discussion paper which essentially showed that the RBA wasn't too concerned about the leverage ratio of households:

http://www.rba.gov.au/PublicationsAndResearch/RDP/RDP2003-09.html

However, it is also a matter of public record that the RBA is keen to avoid the boom-bust cycle of the late 80's / early 90's and, as such, are playing a very straight bat when it comes to Monetary Policy.

MP is a blunt weapon and if rates took a hike it would kill off the economy. Why? Because the first form of lending which stops is lending for business investment. This does not mean that the big end of town is being treated my favourably than anyone else.

But suppose for a minute it did mean that the Big End of town was being spoon fed? If that was the case, then we should all be grateful - for it is a major reason for keeping rates at the low levels to which we have become accustomed in recent years.

If lending institutions are, as you say, tightening up on loan approvals I am 99.99% sure it is because they too are keen to avoid boom-bust. In this country we don't need any more formal (or informal) regulation of the financial sector, even of the type you refer to.

We have one of the strongest, most competitive and well organised financial systems in the world. Recent events (ie. HIH) have only served to strengthen the resolve of both the financial services industry and the regulator (APRA).

HIH was not without its pain, I don't deny that for a moment, but it has been a great lesson for corporate Australia.

Mark

 

[Jean]

Mark
Points taken, thank you for the explanation
What about lower rental yields and longer vacancy factors? These usually indicate a poor time to purchase. Are you still buying and what are your yardsticks?

 

[MarkB]

Jean

I'm actually not a good person to answer your questions with a great deal of authority.

I am new to property investment (but experienced at economics).

There are some EXTREMELY experienced and succesful property investors on this forum - as yet I cannot claim to be one of them!

It is true that in many areas rental yields have fallen significantly in the face of rapid capital growth. The low levels of inflation that we have had during this period have only exascerbated this phenomenon (higher CPI > higher growth in rents).

Some of the other threads on matters such as:

- the age old capital growth vs. cash flow argument

http://www.somersoft.com/forums/showthread.php?s=&threadid=10677

- those who have followed Jan's advice to the letter

http://www.somersoft.com/forums/showthread.php?s=&threadid=10673

- Number of properties required to retire

http://www.somersoft.com/forums/sho...759&highlight=capital+growth+versus+cash+flow

- If you had a chance to start all over again

http://www.somersoft.com/forums/showthread.php?s=&threadid=10784

may be of interest to you.

Kind regards

Mark

 

[MarkB]

Jean

And another good thread:

Investment Strategies

http://www.somersoft.com/forums/showthread.php?s=&threadid=6810

The search function on this forum is awesome.

Mark