Monthly Archives: August 2013

SMSF SHARKS CIRCLING

Had an old client call me the other day.  He’d been to a “Seminar” (here we go I thought) where he was going to buy an “investment property” in his Self Managed Superannuation Fund (SMSF).  Alarm bells started going off everywhere.

I asked who ran the seminar – didn’t take more than a couple of phone calls to discover this person’s “history”.  Mm – yet another angle by a desperado low on sales and high on his own debt levels.

As I’ve written in the past, there is no substitute for “educating yourself” about the pitfalls and successes of buying and managing real estate.  If you hand your life, wealth and SMSF over to these clowns you will enter a World of Pain and grief and more than likely lose everything.

For a start, these guys are treading a very fine line as you have to be a licensed financial adviser to talk in any depth about SMSF – these idiots certainly aren’t licensed. Even if some of them sprout that they do hold a financial advisers licence, do some checking – you may well find that the license is being “rented” from one of the dodgier groups out there – oh yes, hiring of licenses does happen.  In fact I’ve been asked if my license is “for rent” for quite a sum offered mind you.  In turn I would’ve had no access to the Trust Account (are you kidding me?) and I would have had to leave 20 signed but blank Trust Account Receipts and Cheques in case I wasn’t available.  mmmm – that took about a nano-seconds to say NO to.

So please, if you have a SMSF or are thinking of starting one up do not try and buy an investment property in it unless you have rock solid advice from an accountant who specialises in SMSFs.

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AMERICA SNEEZES – AUSTRALIA GETS A COLD

For as long as I’ve been travelling to and from the USA and across its many States I’ve seen trends, gadgets, ways of doing things, styles, fashions and music all impact on Australia one way or another.  Some of the impacts are immediate (especially today with the all pervasive internet) but many take a little time.

So it seems yet again.  Interest rates on the way down (seriously down) here in Australia and rates on the rise (dangerously so it would seem) in the USA.

The news is bad for Australia’s fragile economy.  Any hope for a recovery in house prices is gone as far as I’m concerned.  For one, as I’ve sprouted for years, we are still dangerously overpriced and have quite a way to go to rock bottom.  If our interest rates turn again, the market will be shot with a cannon.

In the USA, as reported today, the rate at which new homes sold across the United States in July fell 13.4 percent compared with the previous month, the biggest decline in more than three years, according to US government statistics.

Whilst we can’t get a fixed rate 30 year mortgage here in Australia, you can in the USA.  When I was there a couple of months ago, 30 year mortgages were on offer for 3.5%.  Today there are approaching 4.6%, a huge and frightening jump in such a short time.

USA May 2013

The rubber band is being stretched and it won’t be long before Australia finds itself in the same position as the USA.  Our diving interest rates have not been reflected in a rapid rise in house prices and the whole market remains in the doldrums.  Watch this space…

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MARKET UPDATE – 22 AUGUST 2013

Good Morning from sunny Queensland where everything is rosy.  Oops sorry, gotta take those party glasses off!  Mmmm – the weather is fantastic, its election season and the air reeks of bullshit.

A continuing line of rubbish from realtors and bankers as to how things are so great – no change there.

But read about BORAL – just Google BORAL in Google News and you’ll see for yourself how this bellwether stock is the canary in the coalmine for the Australian building industry – no recovery anytime soon they say – they’re in a bunker and will stay there for a while yet.

Also search in the same area for recent news and announcements from Wells Fargo (and add Wall Street Journal). For those of you who don’t know, Wells Fargo is the largest mortgage company in America.  They are shedding jobs and have announced that the whole mortgage market is in the toilet over there.

Anyway – read this and weep – http://online.wsj.com/article/SB10001424127887323980604579027332197868924.html  

 

 

MARKET UPDATE – 17 AUGUST 2013

More information that tells us that things are not good out there.

A former leading commercial agent here has swapped sides and is now helping struggling business ‘reset’ their leases so they can keep their doors open.

At first blush it appeared that this may have been an exercise in Landlord baiting or holding Landlords to ransom but in reality it’s a REALITY CHECK.

A local restaurant was paying about $120,000 a year rent and threatening to close it’s doors.  Following an ‘adjustment’ the business owners now pay closer to $71,000 a year, significantly reducing their outgoings and enabling them to stay afloat.

Is this a good or bad thing for the owners of the property?  Only time will tell.  Reduce your rent and keep ‘some’ cash flow or stick to your guns and risk being VACANT for some time.

Of course, one effect not mentioned in the article was the dramatic capital loss that a 50 percent rent reduction brings with it.  Assuming an 8 percent return I would say the leased property that may have been worth up to $1,500,000.00 is now ‘reset’ to something approaching $880,000.00.  That’s a big OUCH.  Further complication – what if the Ban loan is over a million dollars, which it quite possibly could be – the Bank will ask for a top up of funds as the property is now below loan value – significantly below.

The former agent goes on to be quoted as saying the typical ‘reset’ is in the order of 30 to 50 percent which is in line with the fall in retail-outlet leasing values.

Things are not happy in Main Street Australia no matter what the Spin Doctors try and tell you.

Happy Days folks….

MARKET UPDATE – 16 AUGUST 2013

Well, well, well. As newspapers continue to spin their lies about a massive recovery in the marketplace, the truth is hidden away in real articles about real companies having to reveal their real dilemmas to their real shareholders.  And oh how real the pain.

Stockland is a very large residential developer (Aussie’s largest I think) and boy are they in a mess.  What did they have to report to shareholders, who demand to know exactly what’s going on with “their” company?  Well, profit fell off a cliff, down 80 percent. Settlements were down nearly 45% in Victoria, whilst nationally, they fell 14%.  It was reported that underlying profit, which doesn’t include one-off costs, was down  27 percent but net profit on a statutory basis was down, as I said, 80 percent.  Residential profit fell from $198m to just $60m.  It’s having to sell stock it owns in other companies to raise capital (possibly worse result in 2014? Who knows but they’re not saying – at least until they absolutely have to I guess).  From a share price near $8.50 at the peak of the market, to a depth of near $2.50, its struggling to gain traction at near $3.60.

Says it all…

MARKET UPDATE 12 AUGUST 2013

And so it goes. Interest rates at an all time low and still the real estate market refuses to budge.  Why?  Because it’s still overpriced to the moon!

Read the main newspapers and capital city prices are “on the move”, up 2.5% this month alone.  Wow at that rate, houses will be 30% higher by this time next year (compound of course).  What  a load of crap.  Drill into the data and again all you see is a median being thrown around by the odd very high priced property skewing the result.

And real estate agents are telling porkies as well.  Reading in a local paper today, an article that’d give you the impression the place is literally on fire and if we don’t get in quick we’ll be left behind.  Here we go again!  The article mentioned particular addresses and their amazing results!

$1.235 million – Wow – what a sale price in “this market” they say.  the ill educated reader will think that the market really is on fire.  Mmmm – let’s see what it last sold for and when.

2003 – 10 years ago – now, to make a profit one would think you’d probably have paid about $600,000 for it, maybe a little more.  Nope – $1.17 million.  Brilliant!  Effective loss after ten years – what a fabulous investment.  So – the market is blazing along is it?

Next property – $1.2 million.  Originally advertised at $1.7 million so again, another great result for the sellers – NOT!  It was also subject to a major refurbishment so I have no idea what they made, or probably LOST on this sale.

And last but not least a speculative (spec) home – the land cost them $700,000 7 years ago and the house cost a mint.  Sold for $1.3 million.  Not happy.  See, they thought the crazy price rises that were still happening in 2006 would keep going and they got caught.

Do not believe anything you read in the mainstream press about this market.  I’ve been chatting to some Bankers and the number of people coming to them suffering Mortgage Stress is soaring, but the Banks will never release a statement saying so as they want to keep it all on the level and not upset the apple cart.

With interest rates at all time lows, this market should be soaring but it isn’t and it won’t until AFFORDABILITY returns.

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