Tag Archives: liars


I’m copying all of this excellent article from the ABC’s Alan Kohler.  Read into it what you will, but really, “are you kidding me?”… Do we never learn?  The Perfect Storm I’ve written about already is now definitely upon us.  This rise, if you will, may be rapid in some sectors of the market but when interest rates inevitably rise, the fallout will be catastrophic.  Here’s the article from ABC News Online  17 April 2014

The mortgage-backed securities market is booming and bodes well for bank competition. But it’s driving house prices higher and making it even harder for first homebuyers, writes Alan Kohler.

After five years of near death, the residential mortgage-backed securities (RMBS) market in Australia is roaring back to life, which is both good and scary.

Good because the banks might finally get some competition from non-bank lenders again; scary because the resurgent supply of prime and subprime mortgage money from yield-hungry investors is not being matched by the supply of new land to lend against, so it’s just driving house prices higher.

We are seeing two quite different markets being mixed together: one for credit that is active and plentiful (call this one nitro) and one for land that is short (call it glycerin).

In 2013, $26 billion worth of RMBS were issued in Australia, which was the most anywhere in the world, according to Deloitte partner Graham Mott. So far in 2014 the market in mortgage securities is still active, with big issues from AMP, AFG, Pepper Home Loans, Heritage Bank and Liberty.

In a speech to the Economic Society yesterday, Assistant Governor (Financial Markets) of the Reserve Bank of Australia, Guy Debelle, said: “Deal sizes have increased, especially for RMBS issued by the major banks, where the average size has increased to $2.5 billion.”

He added that issuance has picked up for the major banks as well as regional banks and non-banks (i.e. credit unions and mortgage originators), with “a number of smaller issuers returning to the market after an absence of several years”.

“RMBS … spreads, over the last year or so, have remained at their lowest level since mid 2007, despite the significantly larger volume that has been brought to market.”

A large and growing proportion of the securities are backed by non-conforming, or sub-prime loans, paying higher yields. These are about half “low doc” (not much detail on the borrower) and half to borrowers with bad credit ratings.

According to one issuer I spoke to this week, the buyers are apparently church funds, health insurance companies and state treasuries that prefer the risk/return equation of sub-prime mortgages.

But most of the RMBS being issued are AAA securities and, surprisingly, a lot of them are being bought by banks, which are, in effect, funding their competitors.

They are doing it because the furious competition, and therefore high interest rates, for retail deposits has filled their coffers and there isn’t enough demand for credit to soak it up. Buying AAA-rated mortgage securities is an easy way to make a return, even if you don’t know the end customer and can’t sell them insurance or super.

Money has been pouring into bank deposits for a few years, and now, once again, it’s pouring into the arms of “shadow banks” at lower interest rates, reminiscent of the non-bank lending boom from 2003-2007.

The typical AAA-rated RMBS issue is at 105-120 basis points above the bank bill swap rate, which is 2.7 per cent at present.

That puts the wholesale cost of funds at 10-50 basis points below retail deposit rates, and is allowing the non-bank lenders, as well as smaller banks, to gnaw away at the massive market shares of major banks.

The only problem with this idyllic scene is that all the money and lending competition is only pushing up real estate prices.

There simply isn’t enough land being released in Australia to match either the demand for housing or the supply of credit.

Bob Day, the Family First Senator-elect and one of Australia’s biggest home builders, calls it the “Baptist/bootlegger” problem.

The Baptists and the bootlegger were both in favour of prohibition for different reasons: one for misguided morality, the other to make money. He says that about 15 years ago a similar (non-collusive) coalition of environmentalists and developers formed in Australia to restrict land release.

The result, says Day, is that while the cost of building a house has come down, getting land to put it on is hard and expensive. He says that 20-30 years ago the price of a block of land was about 40 per cent of the cost of a house; now the land cost is 2-3 times the cost of a house.

The result is that instead of being three times the average wage as it used to be, the cost of housing in Australia is 6-10 times the average income. First homebuyers are now totally excluded from home ownership unless their parents support them.

It’s not a bubble – yet – because it’s merely the true forces of supply and demand working (which is the definition of a non-bubble).

Supply is restricted (of land, not houses) and demand is being fuelled by immigration and the plentiful supply of credit to investors looking to take advantage of negative gearing.

And the rejuvenation of the RMBS market will only increase the supply of credit even further and lower its price.

Next: perhaps a recommendation from the Financial System Inquiry chaired by David Murray that retirees be forced to take at last part of their super payout as a pension rather than a lump sum (so they can’t blow it on a world trip before reverting to the aged pension – which would also help take the pressure off the government-funded aged pension).

That would give another boost to the RMBS market because mortgage-backed securities are perfect investments for private annuities and pensions.

In other words, the supply of credit for mortgages, both prime and subprime, is only going in one direction – up – and it wouldn’t take another subprime mortgage bubble to produce a glut of cash available to be lent against real estate.

By the far best solution would be a big increase in the supply of serviced land in the outer suburbs of Sydney and Melbourne, but it would be slow and the infrastructure would be expensive – too expensive for the first homebuyers themselves to pay, or for governments for that matter.

Will the Coalition Government regulate the supply of credit or restrict negative gearing? Unlikely.

So it looks like your super will have to go towards buying the kids a house: they’ll never be able to afford one.

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The commercial market is a great indicator of what’s going on as not only is it ‘property’ but it’s business too, as businesses (mostly) need an office or factory to carry on their business.  Why is it then, that the majority of advertisements I’m seeing, are distressed sales?  The Receivers, Mortgagee In Possession, Expressions of Interest due to divorce, bankruptcy of some related party or plain Bank pressure advertisements and results of my phone enquiries are not falling away.  I don’t think they’re getting worse (at least not at the moment) but they’re not going away either.

The vacancy rate near my place is still astronomical at above 50%.  FOR LEASE and FOR SALE signs on some shops where the windows face the western sun are so old they are cracking, peeling, fading and falling off the inside of the window.  That in itself is indicative of the poor quality of Agents acting for these distressed sellers and lessors – too damned lazy to change and update the signage so that they places don;t have that run-down, no-hoper look about them.  A decent agent will also pressure their sellers and lessors to clean the windows and inside the premises on a regular basis and clear the mail.  often the mail is easily readable and it’s quite obvious that letters are from Collection Agencies, Banks and others looking for money!

Leases are being renegotiated by struggling lessees as business conditions, especially in retail, continue to deteriorate.  Lower lease payments have an immediate effect on capital values. large anchor tenants have been holding lessors to ransom and some deals I’ve heard the intimate details of recently would make your hair curl.  I dare not reveal them as some of the parties are not-so-nice!

However, those in the public domain can be talked about and I refer to the recent sale of Ashmore City Shopping Centre which was bought in 2003 for $37 million. I’ve visited this centre many times over the last ten years and watched tenancies come and go, vacancies appear, some really shitty shops open, and close soon afterwards.  it used to be a reasonable place to go – now, not so much.  it was offloaded for a tad under $38 million.  That is really NO PROFIT after 8 years of ‘ownership’ and reflects, in real time, what’s happening in retail.

The whole real estate market is undergoing fundamental structural change.  I cannot believe some of the decisions being made by large fund managers who manage YOUR MONEY, probably your Superannuation, plowing half a billion dollars into Shopping Centres in the vain hope of turning them into “destinations”.  HELLO!  We’ve already tried that – it didn’t work.  Gangs of feral teenagers take over Shopping Centres and make them not nice places to be.  Desperate leasing agents lease space to what can only be called “Gypsie Traders”, you know, the ones selling hair styling products who all but crash tackle you to the ground as you walk past.  Shopping Centres are no longer “Nice Places” nor are they destinations, no matter how many rides and gimmicks you fill them with.  My local large shopping centre, Robina Town Centre, is no longer a nice place to be.  its now officially TOO BIG, the car parking a nightmare and you have to walk MILES to get things done.  The old fashioned strip shops along a street are enjoying a resurgence.  I know I’m quite happy to pay a little more from a smaller shop where they know your name, sometimes see you coming and have your coffee half made before you get there. Awesome.  We are sick to death of Mega Malls – they are a dying breed in the USA and will surely follow suite here.  The nongs who are about to spend squillions on Pacific Fair will fail in their efforts (my humble prediction) and it will be over run with ferals and demanding, grubby-end-of-the-market tourists.  The centre will fill with cheap and nasty touristy stores and it will become an altogether unpleasant place to be, despite the hanging gardens of babylon, pools and waterfalls they’ve promised in the glossy brochures.

Its all changing so fast and some of these dinosaurs continue browsing in the same place, unaware or ignoring the dramatic change about to hit them…

Oh well – we can only wait and see.

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I refer to the ‘guff’ written in today’s Australian Financial Review about a building boost being credited to continuing low interest rates and Brisbane leading home price rises, not to forget a drastic cut in the number of days on market for properties in all capital city markets.

I made a few phone calls today, mostly out of sheer boredom, but it had to be done.  Building approvals ‘spiked’ as various approving authorities finally pulled their collective fingers out and ‘rubber-stamped’ quite a few major developments.  So the figures were skewed, yet again.  Maybe there was some top-down political interference along the lines of ‘for goodness sake get some good news out there, we’re drowning here’ or maybe that’s just too fanciful to consider?  Maybe… Continue reading

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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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ACE #1

ACE (Aspect, Contour and Elevation)…amongst other things!

This post will be broken into 2, 3 or more parts and is a rambling recollection of issues I’ve encountered over the years.

Many of the points I’ll raise are still the cause of much grief as people fail to ask, heed or properly interpret professional advice and rely far too much on advertising, promotional blurb and spin.

Talk to your future neighbours.  Don’t be shy. They know what’s going on.

Continue reading

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Many years ago I lost $250,000.  I’m not stupid, merely as trusting of professionals as most lay people. My life savings were stolen by a group of Company Directors, Accountants, Solicitors, Valuers, Financial Advisers, so-called Consultants and Real Estate Agents, working together in such a way as to totally confuse and bewilder even the most experienced investor or business person.  Since then more Accountants, calling themselves Receivers this time, more Solicitors and more Advisers and Consultants have taken whatever was left after properties were sold and proceeds distributed.  Fellow investors and I advanced $2 million on a land valuation of $3 million supplied by a well-known firm. When the scheme collapsed, the land sold for just $220,000.00! The Receiver’s costs were $270,000!  One fellow investor died from the stress of it all.

Continue reading

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