Australian residential land developer Australand Property Group Ltd says a mortgage interest rate rise in August would have little impact on its business, as the company had avoided projects likely to be affected by such a change.
Australand reported a 34 per cent lift in first half profit, saying it is on track to record an improvement in annual earnings.
The diversified property group made a net profit of $119.596 million for the first six months of calendar 2007, up from $89.256 million in the same period last year.
The result was mainly driven by strong performances in its commercial, industrial property and investment property divisions.
However, the residential development business did record a small increase in pre-tax earnings, as it weathered mixed fortunes in housing markets across Australia.
The residential division's pre-tax profit rose five per cent to $34.3 million.
Asked if a rate rise later this year would affect the company, acting chief executive John Thomas said Australand had shielded itself against such an increase, in particular, by distancing itself from the first-home buyer market.
A rise of 25 basis points to 6.50 per cent has been predicted by many economists after last week's surprisingly strong inflation figures.
"From Australand's perspective, the markets that we are focussed on are unlikely to be affected significantly by interest rates," Mr Thomas said.
"The first home owners market is not where our focus has been. Our focus in on ... quality projects with existing underlying demand, fundamentally from the people who still have plenty of money.
"People in Sydney, for instance, in the eastern suburbs, on the North Shore, likely to be less affected by an interest rate rise.
"Interest rates will really have an effect in the longer term on affordability, particularly in the first home owner market, and those markets that are not performing strongly are the ones we've been pretty careful to keep ourselves out of."
Housing affordability, however, remained a concern for the company, said executive general manager residential, Peter Bourke.
"We still have affordability concerns in Perth and in Sydney, where it takes about 39 per cent of a weekly earnings to service a mortgage," he said.
"That is far too high, especially when you're talking Melbourne at about 28 per cent."
Mr Bourke attributed the affordability problems and spiralling rents in part to a lack of apartment construction, particularly in NSW.
"We have got a lack of apartment construction and some land constraints, and that is adding pressure on the demand supply relationship," he said.
"Apartment construction in the eastern states has basically stalled."
At 1218 AEST, Australand securities had fallen three cents to $2.27.
Source: AAP
Monday, July 30, 2007
ABN AMRO pulls back from Barclays bid
Major World and Dutch bank ABN AMRO has withdrawn its backing of a takeover bid from Barclays and said it was no longer formally recommending offers from the British bank or a Royal Bank of Scotland-led consortium.
The Netherlands' biggest bank, which faces competing offers of 65.6 billion euros ($A105.56 billion) from Barclays and 71 billion euros ($A114.25 billion) from the consortium of RBS, Fortis of Belgium and Spain's Santander, also reported a 7.1 per cent decline in quarterly net profit.
ABN originally backed Barclays when announcing a deal to merge with it in April.
But it has now effectively withdrawn its recommendation even after Barclays sweetened its offer to buy ABN last week to include more cash.
ABN's boards - the supervisory board and managing board - said they were currently not in a position to recommend the offers from Barclays or the consortium.
"ABN AMRO will further engage with both parties with the aim of continuing to ensure a level playing field and minimising any of the uncertainties currently associated with the offers with a view to optimising the attractive alternatives available to ABN AMRO's shareholders," ABN said in a statement.
Barclays' offer is formally conditional on a recommendation from ABN, but sources have told Reuters that it was unlikely to pull out of the race as a result of the move, and could instead revise that requirement.
ABN's fate would be decided by shareholders, who would tender their shares to either bidder after formal offers are launched.
The RBS-led offer, which would result in a break-up of ABN, is more than 90 per cent in cash and adds up to 38.1 euros per ABN share at current market prices - against Barclays' bid at 34.7 euros per share.
Barclays sweetened its offer with a cash portion, as China Development Bank and Singapore's Temasek took stakes in the bank, but its offer remains mostly in shares, and therefore vulnerable to recent market turbulence.
ABN reported a net profit of 1.13 billion euros ($A1.82 billion) in the second quarter, compared with 1.216 billion euros ($A1.96 billion) a year earlier and the 1 billion euros average forecast in a Reuters survey of five analysts. The figures excluded discontinued operations.
Source: AAP and Reuters
The Netherlands' biggest bank, which faces competing offers of 65.6 billion euros ($A105.56 billion) from Barclays and 71 billion euros ($A114.25 billion) from the consortium of RBS, Fortis of Belgium and Spain's Santander, also reported a 7.1 per cent decline in quarterly net profit.
ABN originally backed Barclays when announcing a deal to merge with it in April.
But it has now effectively withdrawn its recommendation even after Barclays sweetened its offer to buy ABN last week to include more cash.
ABN's boards - the supervisory board and managing board - said they were currently not in a position to recommend the offers from Barclays or the consortium.
"ABN AMRO will further engage with both parties with the aim of continuing to ensure a level playing field and minimising any of the uncertainties currently associated with the offers with a view to optimising the attractive alternatives available to ABN AMRO's shareholders," ABN said in a statement.
Barclays' offer is formally conditional on a recommendation from ABN, but sources have told Reuters that it was unlikely to pull out of the race as a result of the move, and could instead revise that requirement.
ABN's fate would be decided by shareholders, who would tender their shares to either bidder after formal offers are launched.
The RBS-led offer, which would result in a break-up of ABN, is more than 90 per cent in cash and adds up to 38.1 euros per ABN share at current market prices - against Barclays' bid at 34.7 euros per share.
Barclays sweetened its offer with a cash portion, as China Development Bank and Singapore's Temasek took stakes in the bank, but its offer remains mostly in shares, and therefore vulnerable to recent market turbulence.
ABN reported a net profit of 1.13 billion euros ($A1.82 billion) in the second quarter, compared with 1.216 billion euros ($A1.96 billion) a year earlier and the 1 billion euros average forecast in a Reuters survey of five analysts. The figures excluded discontinued operations.
Source: AAP and Reuters
Australia becoming a 2 tier real estate market as Melbourne's one million dollar median home price suburbs double to seventeen
Melbourne now has seventeen one million-dollar suburbs, more than double the number at the start of the year.
The booming housing market means the likes of Balwyn and Surrey Hills are joining the property elite of Toorak and Brighton as having median price tags of more than $1 million.
Real Estate Institute of Victoria figures show that sales in the three months to the end of June produced nine more million-dollar suburbs, compared with eight in the first quarter of this year.
REIV chief Enzo Raimondo said the middle and the top end of the Melbourne homes market were going strong.
"I don't remember the $500,000-and-up market being this strong," Mr Raimondo said.
While housing affordability continues to worsen, especially for those trying to enter the market, it seems there is plenty of money to spend on property in eastern and beach suburbs of Melbourne.
The median value of Hampton homes jumped 23.8 per cent to put it in the $1 million bracket in the June quarter.
A renovated, four-bedroom clinker brick home in Littlewood St sold on Saturday for $1.855 million, stunning agent Stephen Wigley, of Hodges in Sandringham.
With a starting price of $1.35 million, Mr Wigley expected to secure a sale close to the reserve of $1.5 million.
"But a gentleman... started the bidding at $1.5 million," he said.
The Hampton area had been undervalued for some time and the quality of homes and its location would ensure more high prices would continue, Mr Wigley said.
Kay and Burton managing director Gerald Delaney said it had been the busiest winter for sales.
In the past year, the estate agent had sold properties worth at least $1 million in 23 suburbs, Mr Delaney said.
On Saturday, Kay and Burton sold a four-bedroom townhouse in Glen Eira Rd, Elsternwick, for $1.195 million.Source: Herald Sun
The booming housing market means the likes of Balwyn and Surrey Hills are joining the property elite of Toorak and Brighton as having median price tags of more than $1 million.
Real Estate Institute of Victoria figures show that sales in the three months to the end of June produced nine more million-dollar suburbs, compared with eight in the first quarter of this year.
REIV chief Enzo Raimondo said the middle and the top end of the Melbourne homes market were going strong.
"I don't remember the $500,000-and-up market being this strong," Mr Raimondo said.
While housing affordability continues to worsen, especially for those trying to enter the market, it seems there is plenty of money to spend on property in eastern and beach suburbs of Melbourne.
The median value of Hampton homes jumped 23.8 per cent to put it in the $1 million bracket in the June quarter.
A renovated, four-bedroom clinker brick home in Littlewood St sold on Saturday for $1.855 million, stunning agent Stephen Wigley, of Hodges in Sandringham.
With a starting price of $1.35 million, Mr Wigley expected to secure a sale close to the reserve of $1.5 million.
"But a gentleman... started the bidding at $1.5 million," he said.
The Hampton area had been undervalued for some time and the quality of homes and its location would ensure more high prices would continue, Mr Wigley said.
Kay and Burton managing director Gerald Delaney said it had been the busiest winter for sales.
In the past year, the estate agent had sold properties worth at least $1 million in 23 suburbs, Mr Delaney said.
On Saturday, Kay and Burton sold a four-bedroom townhouse in Glen Eira Rd, Elsternwick, for $1.195 million.Source: Herald Sun
Sunday, July 29, 2007
Housing affordability, scarcity and mortgage interest rates to get worse
Housing affordability will get worse before it gets any better, with mortgage interest rates more likely to rise over the next year or so, the federal opposition's housing summit was told today.
Financial markets are already betting the Reserve Bank of Australia will need to raise interest rates next month to kerb renewed signs of price pressures.
Any rise will compound already stretched household budgets after last year's three interest rate rises.
More than 100 experts in finance, economy and politics have joined federal and state Labor politicians at Parliament House in Canberra to find solutions to the housing affordability crisis.
ANZ Bank chief economist Saul Eslake told the conference that high interest rates were the cause of the last housing crisis in the late 1980s, which was later countered by low interest rates.
But this time the problem was also rising house prices, which would be “a problem for sometime to come,'' Mr Eslake said.
Lower mortgage rates would help, and authorities should aim to put downward pressure on interest rates, and “saving more from the resources boom than the present government,'' he said.
Young are the victims
The conference was told that the main victims in the current housing crisis are under the age of 35 that typically borrowed too much during the 2000-2004 housing boom.
This group is now suffering from rising interest rates, and in some cases are having to take on a second job to meet repayments.
NSW Planning Minister Frank Sartor said the cost of building houses was accelerating, and needed to be countered with a quicker turnaround in housing permits.
But he disagreed with the federal government's solution to the housing problem that it was just a question of releasing more land for housing and cutting state housing related taxes.
Mr Sartor said cutting taxes would just lift house prices by the amount of the tax cut. This is a similar argument the government uses for not raising the $7,000 First Time Home Owners Grant.
But in any case, the conference was told that the value of the grant has been hugely diminished due to the rise in house prices.
The Government is undertaking a national land audit to find suitable areas to build new housing, and continues to press states and territories to cut land taxes as part of the GST agreement.
Infrastructure is key
Australian Local Government Association president Paul Bell says it is not just a question of building new houses, but building them where people wanted to live, with proper services and infrastructure.
”Housing supply has to be where the housing demand is,'' he said.
Housing Industry Association managing director Ron Silberberg says states will suffer a $50 billion shortfall over the next 10 years as they try and keep up with new infrastructure needs.
He said there should be a residential infrastructure fund, similar to Auslink and the government's new roads initiative, to allow for a synchronised roll-out of infrastructure with new home building.
Another problem for new home buyers is they are competing with investors who can gain tax benefits from investing in property, and are driving up house prices.
But Mr Eslake said saving initiatives to help fund the deposit for a new home, such as a superannuation-type scheme, should be aimed at buying a new property rather than inflating the price of an existing home.
Financial markets are already betting the Reserve Bank of Australia will need to raise interest rates next month to kerb renewed signs of price pressures.
Any rise will compound already stretched household budgets after last year's three interest rate rises.
More than 100 experts in finance, economy and politics have joined federal and state Labor politicians at Parliament House in Canberra to find solutions to the housing affordability crisis.
ANZ Bank chief economist Saul Eslake told the conference that high interest rates were the cause of the last housing crisis in the late 1980s, which was later countered by low interest rates.
But this time the problem was also rising house prices, which would be “a problem for sometime to come,'' Mr Eslake said.
Lower mortgage rates would help, and authorities should aim to put downward pressure on interest rates, and “saving more from the resources boom than the present government,'' he said.
Young are the victims
The conference was told that the main victims in the current housing crisis are under the age of 35 that typically borrowed too much during the 2000-2004 housing boom.
This group is now suffering from rising interest rates, and in some cases are having to take on a second job to meet repayments.
NSW Planning Minister Frank Sartor said the cost of building houses was accelerating, and needed to be countered with a quicker turnaround in housing permits.
But he disagreed with the federal government's solution to the housing problem that it was just a question of releasing more land for housing and cutting state housing related taxes.
Mr Sartor said cutting taxes would just lift house prices by the amount of the tax cut. This is a similar argument the government uses for not raising the $7,000 First Time Home Owners Grant.
But in any case, the conference was told that the value of the grant has been hugely diminished due to the rise in house prices.
The Government is undertaking a national land audit to find suitable areas to build new housing, and continues to press states and territories to cut land taxes as part of the GST agreement.
Infrastructure is key
Australian Local Government Association president Paul Bell says it is not just a question of building new houses, but building them where people wanted to live, with proper services and infrastructure.
”Housing supply has to be where the housing demand is,'' he said.
Housing Industry Association managing director Ron Silberberg says states will suffer a $50 billion shortfall over the next 10 years as they try and keep up with new infrastructure needs.
He said there should be a residential infrastructure fund, similar to Auslink and the government's new roads initiative, to allow for a synchronised roll-out of infrastructure with new home building.
Another problem for new home buyers is they are competing with investors who can gain tax benefits from investing in property, and are driving up house prices.
But Mr Eslake said saving initiatives to help fund the deposit for a new home, such as a superannuation-type scheme, should be aimed at buying a new property rather than inflating the price of an existing home.
Housing supply research and data collection proposed
A housing supply research council would be established if Labor wins power in the upcoming Federal election, a summit in Canberra was told today.
"The whole objective there is simply to provide better data for us all because we think that is the best way which you can shape public policy into the future," Labor Leader Kevin Rudd told the ALP-organised meeting.
The council would include representatives from state and territory governments, local government, Treasury, Reserve Bank, the housing property and finance sectors, welfare and community housing sector, as well as relevant research institutes.
"We want the best brains around to get the total data picture right," Mr Rudd said.
He said he did not want the summit to become an opportunity to blame the Government for problems in housing affordability.
"We would like to try and do what we can, through this summit today, to get the housing affordability question right," he said.
Property experts, economists, academics and business leaders joined state housing ministers at the conference inside parliament house today.
"Most of us accept the proposition that we do have a housing affordability crisis in the country," Mr Rudd said.
Mr Rudd said those attending the summit had to consider both demand and supply factors that were affecting housing affordability.
Supply issues included the impact of taxes, charges and levies.
Other factors included local government infrastructure for new housing developments, streamlining development approval processes, attracting investors to the affordable housing sector, and dealing with other cost pressures such as the skills shortage.
"On the demand side, of course interest rates are the topic of the day," Mr Rudd said.
The summit will also consider the best way to help first-home buyers enter the market, including a proposal for a deposit scheme.
Mr Rudd said more than one million households were in housing stress through rent and mortgages.
The number of first-home buyers as a proportion of all property purchasers had fallen from 22 per cent in 1996 to about 17 per cent today.
"All these indicators ... point to the fact that we have an emerging housing affordability crisis," Mr Rudd said.
The crisis was exacerbated by the 187,000 people on public housing waiting lists, he said.
Acting NSW Housing Minister Linda Burney she said issues like negative gearing needed to be considered but there were other more pressing issues.
"The more important thing for us today is to make it very clear that the way in which state and commonwealth relations have operated over the past 10 or 11 years is unsatisfactory," she said.
The Victorian and Northern Territory ministers agreed negative gearing should be discussed at the meeting.
"There are a number of proposals that have been floated around tax treatment, both negative gearing and some incentives for superannuation funds to get involved," Victorian Housing Minister Richard Wynne said.
"Those options should be considered."
Source: AAP
"The whole objective there is simply to provide better data for us all because we think that is the best way which you can shape public policy into the future," Labor Leader Kevin Rudd told the ALP-organised meeting.
The council would include representatives from state and territory governments, local government, Treasury, Reserve Bank, the housing property and finance sectors, welfare and community housing sector, as well as relevant research institutes.
"We want the best brains around to get the total data picture right," Mr Rudd said.
He said he did not want the summit to become an opportunity to blame the Government for problems in housing affordability.
"We would like to try and do what we can, through this summit today, to get the housing affordability question right," he said.
Property experts, economists, academics and business leaders joined state housing ministers at the conference inside parliament house today.
"Most of us accept the proposition that we do have a housing affordability crisis in the country," Mr Rudd said.
Mr Rudd said those attending the summit had to consider both demand and supply factors that were affecting housing affordability.
Supply issues included the impact of taxes, charges and levies.
Other factors included local government infrastructure for new housing developments, streamlining development approval processes, attracting investors to the affordable housing sector, and dealing with other cost pressures such as the skills shortage.
"On the demand side, of course interest rates are the topic of the day," Mr Rudd said.
The summit will also consider the best way to help first-home buyers enter the market, including a proposal for a deposit scheme.
Mr Rudd said more than one million households were in housing stress through rent and mortgages.
The number of first-home buyers as a proportion of all property purchasers had fallen from 22 per cent in 1996 to about 17 per cent today.
"All these indicators ... point to the fact that we have an emerging housing affordability crisis," Mr Rudd said.
The crisis was exacerbated by the 187,000 people on public housing waiting lists, he said.
Acting NSW Housing Minister Linda Burney she said issues like negative gearing needed to be considered but there were other more pressing issues.
"The more important thing for us today is to make it very clear that the way in which state and commonwealth relations have operated over the past 10 or 11 years is unsatisfactory," she said.
The Victorian and Northern Territory ministers agreed negative gearing should be discussed at the meeting.
"There are a number of proposals that have been floated around tax treatment, both negative gearing and some incentives for superannuation funds to get involved," Victorian Housing Minister Richard Wynne said.
"Those options should be considered."
Source: AAP
Home construction surges 8 percent in Victoria
Home construction activity in Victoria has surged seven per cent in 2006-07, figures show.
Building permit activity in the financial year to June 30 hit a record $16.7 billion, up from $15.6 billion in 2005-06, Building Commission data has revealed.
Victorian Planning Minister Justin Madden said the figures reflected the state's booming growth. "Given our growing population, it is reassuring news that we will have a strong supply of new homes to ensure Victoria continues to have more affordable housing than the national average,'' Mr Madden said.
Building permit activity in metropolitan Melbourne was up 9.4 per cent, while outer Melbourne rose five per cent and regional Victoria remained solid.
In Melbourne, almost 40 per cent of activity was recorded in the inner suburbs while outer Melbourne comprised 36.8 per cent and regional Victoria, 23.4 per cent.
Statewide, permits for home construction jumped 7.9 per cent in the last financial year, while permits to build apartments fell 12.8 per cent.
Commercial permit activity rose 13.1 per cent, retail increased by 9.1 per cent and industrial permit activity surged 7.9 per cent.
There were 97 permits issued where building work was valued at more than $10 million, 10 of which were in regional Victoria. Share this article
Building permit activity in the financial year to June 30 hit a record $16.7 billion, up from $15.6 billion in 2005-06, Building Commission data has revealed.
Victorian Planning Minister Justin Madden said the figures reflected the state's booming growth. "Given our growing population, it is reassuring news that we will have a strong supply of new homes to ensure Victoria continues to have more affordable housing than the national average,'' Mr Madden said.
Building permit activity in metropolitan Melbourne was up 9.4 per cent, while outer Melbourne rose five per cent and regional Victoria remained solid.
In Melbourne, almost 40 per cent of activity was recorded in the inner suburbs while outer Melbourne comprised 36.8 per cent and regional Victoria, 23.4 per cent.
Statewide, permits for home construction jumped 7.9 per cent in the last financial year, while permits to build apartments fell 12.8 per cent.
Commercial permit activity rose 13.1 per cent, retail increased by 9.1 per cent and industrial permit activity surged 7.9 per cent.
There were 97 permits issued where building work was valued at more than $10 million, 10 of which were in regional Victoria. Share this article
Government urged to take heat out of housing market
The Northern Territory Chamber of Commerce says rising house prices are contributing to Darwin's high inflation rate.
The latest consumer price index (CPI) shows Darwin's inflation rate this year is 3.7 per cent, 2 per cent more than Sydney and Adelaide.
Chamber of Commerce spokesman Chris Young says a shortage of available land for development is not helping.
"We're asking the Government to accelerate the release," he said.
"They've got a number of planned releases over the next couple of years.
"Our concerns are that they maybe need to accelerate those a little bit to try and take a little bit of heat out of the market."
Source: ABC
The latest consumer price index (CPI) shows Darwin's inflation rate this year is 3.7 per cent, 2 per cent more than Sydney and Adelaide.
Chamber of Commerce spokesman Chris Young says a shortage of available land for development is not helping.
"We're asking the Government to accelerate the release," he said.
"They've got a number of planned releases over the next couple of years.
"Our concerns are that they maybe need to accelerate those a little bit to try and take a little bit of heat out of the market."
Source: ABC
Thursday, July 26, 2007
Adelaide mortgage business hits the skids with debts of AU $10 million
A South Australian mortgage business has been placed in voluntary administration.
John West and Associates, based at Campbelltown in Adelaide, has debts of more than $9.5 million.
More than 50 investors are affected.
Administrator Austin Taylor, from Meertens Chartered Accountants, says the collapse is the latest in a series of high-profile property-related mortgage scheme failures, which have included Westpoint and Fincorp.
"This company was borrowing money from investors on the basis of promissory notes and it was then using that money and lending it out to people at a higher interest rate usually secured with mortgages," he said.
Hope of some return for mortgage investors.
Mr Taylor says, at this stage, it appears there will be some return for mortgage investors.
"But it's far too early to say exactly what that might be," he said.
"It's going to really depend upon the state of the mortgage loans, the underlying security that they're secured against and the capacity of borrowers to repay.
"That's going to be a process that will take a little while to get through."
Company director John West says he is confident that, given time, all the money will be recovered for investors.
"There are a number of mums and dads who are currently hurting from this particular freezing of funds, where they depend on those funds," he said.
"The majority of funds would be with larger, more sophisticated investors but I think it's irrelevant whether a person is a small investor or a large investor. The reality is they've trusted somebody."
John West and Associates is also being prosecuted by the Australian Securities and Investments Commission for alleged breaches of the Corporations Act.
Source: ABC
John West and Associates, based at Campbelltown in Adelaide, has debts of more than $9.5 million.
More than 50 investors are affected.
Administrator Austin Taylor, from Meertens Chartered Accountants, says the collapse is the latest in a series of high-profile property-related mortgage scheme failures, which have included Westpoint and Fincorp.
"This company was borrowing money from investors on the basis of promissory notes and it was then using that money and lending it out to people at a higher interest rate usually secured with mortgages," he said.
Hope of some return for mortgage investors.
Mr Taylor says, at this stage, it appears there will be some return for mortgage investors.
"But it's far too early to say exactly what that might be," he said.
"It's going to really depend upon the state of the mortgage loans, the underlying security that they're secured against and the capacity of borrowers to repay.
"That's going to be a process that will take a little while to get through."
Company director John West says he is confident that, given time, all the money will be recovered for investors.
"There are a number of mums and dads who are currently hurting from this particular freezing of funds, where they depend on those funds," he said.
"The majority of funds would be with larger, more sophisticated investors but I think it's irrelevant whether a person is a small investor or a large investor. The reality is they've trusted somebody."
John West and Associates is also being prosecuted by the Australian Securities and Investments Commission for alleged breaches of the Corporations Act.
Source: ABC
US subprime mortgage crisis spills over into 2nd Australian hedge fund
As defaults in risky US subprime mortgages grow the fallout is damaging the US mortgage market as a whole, and now its affecting Australian Investment funds.
A second Australian hedge fund has been hit by the escalating subprime mortgage crisis gripping the United States.
The boutique company Absolute Capital has suspended two funds worth around $200 million that are exposed to defaults in the risky mortgages, and admits it is worried about the state of the debt market in the US.
Absolute's suspension comes a week after another fund, Basis Capital, told investors their investments were in jeopardy.
The local developments comes amid renewed fears that the US mortgage crisis will spill over into other parts of the world's biggest economy.
Absolute Capital describes itself as a specialised structured credit fund manager, playing the usual tactical game of balancing high risk with high return.
It has two funds worth around $200 million that are exposed to the crumbling subprime mortgage market in the United States.
In a letter to investors last night, Absolute said its portfolio was diversified and it had not engaged in risky end of the market.
Managing director Deon Joubert said although the subprime exposure was less than 5 per cent, the funds had to be closed to protect investors.
"Absolute Capital believes a temporary closure of the funds is the best defensive measure to protect the longer-term interests of our investors and to ensure equity amongst all investors as we manage any withdrawal requests, given the current illiquid nature of the funds' investments," he said in a letter.
But Mr Joubert warns Absolute investors that any rush to withdraw their money could be even more problematic, given the number of bigger players already unwinding their positions.
"Given the reduced market liquidity Absolute Capital believes the funds are not placed to adequately satisfy or price withdrawal requests," the letter said.
Absolute says the funds' performance is down 4 to 6 per cent for July, and the processing of withdrawal requests could be delayed until late October.
Despite the subprime exposure, Mr Joubert remains optimistic.
"We are expecting that markets will settle over the next few months, in which case investors in the funds may be able to benefit from these opportunities and improved market conditions," he said in the letter.
The suspension of Absolute follows a similar but higher-stakes story for Basis Capital, which has two funds worth more than $1 billion that are exposed.
Basis has hired the private equity group Blackstone to help defend a fire sale, and the global rating group Standard & Poors has been criticised for failing to detect the fund's fragility.
Distress in US
Meanwhile, Wall Street bounced back this morning after yesterday's heavy losses were fuelled by concerns that subprime defaults were spreading to more traditional mortgages.
But the signs of distress remain, with sales of existing homes falling for the fourth straight month, taking the US housing slump to its lowest level since 2002.
Real estate analyst Mike Larson agrees with yesterday's prediction from the major US mortgage lender Countrywide that subprime uncertainty means a recovery might not be seen until 2009.
"We've seen a real deterioration in the mortgage finance industry," he said.
"A lot more loans are going sour and a lot more lenders are cutting back on the types of loans they'll make.
"We'll probably see a continued weak market for the rest of this year and into next year with relatively weak sales and stagnant to falling home prices."
The mortgage instability in the US is being compounded in Australia by another collapse in the risky property sector.
South Australian private mortgage firm John West and Associates has been placed in voluntary administration with debts of almost $10 million.
Source: ABC
A second Australian hedge fund has been hit by the escalating subprime mortgage crisis gripping the United States.
The boutique company Absolute Capital has suspended two funds worth around $200 million that are exposed to defaults in the risky mortgages, and admits it is worried about the state of the debt market in the US.
Absolute's suspension comes a week after another fund, Basis Capital, told investors their investments were in jeopardy.
The local developments comes amid renewed fears that the US mortgage crisis will spill over into other parts of the world's biggest economy.
Absolute Capital describes itself as a specialised structured credit fund manager, playing the usual tactical game of balancing high risk with high return.
It has two funds worth around $200 million that are exposed to the crumbling subprime mortgage market in the United States.
In a letter to investors last night, Absolute said its portfolio was diversified and it had not engaged in risky end of the market.
Managing director Deon Joubert said although the subprime exposure was less than 5 per cent, the funds had to be closed to protect investors.
"Absolute Capital believes a temporary closure of the funds is the best defensive measure to protect the longer-term interests of our investors and to ensure equity amongst all investors as we manage any withdrawal requests, given the current illiquid nature of the funds' investments," he said in a letter.
But Mr Joubert warns Absolute investors that any rush to withdraw their money could be even more problematic, given the number of bigger players already unwinding their positions.
"Given the reduced market liquidity Absolute Capital believes the funds are not placed to adequately satisfy or price withdrawal requests," the letter said.
Absolute says the funds' performance is down 4 to 6 per cent for July, and the processing of withdrawal requests could be delayed until late October.
Despite the subprime exposure, Mr Joubert remains optimistic.
"We are expecting that markets will settle over the next few months, in which case investors in the funds may be able to benefit from these opportunities and improved market conditions," he said in the letter.
The suspension of Absolute follows a similar but higher-stakes story for Basis Capital, which has two funds worth more than $1 billion that are exposed.
Basis has hired the private equity group Blackstone to help defend a fire sale, and the global rating group Standard & Poors has been criticised for failing to detect the fund's fragility.
Distress in US
Meanwhile, Wall Street bounced back this morning after yesterday's heavy losses were fuelled by concerns that subprime defaults were spreading to more traditional mortgages.
But the signs of distress remain, with sales of existing homes falling for the fourth straight month, taking the US housing slump to its lowest level since 2002.
Real estate analyst Mike Larson agrees with yesterday's prediction from the major US mortgage lender Countrywide that subprime uncertainty means a recovery might not be seen until 2009.
"We've seen a real deterioration in the mortgage finance industry," he said.
"A lot more loans are going sour and a lot more lenders are cutting back on the types of loans they'll make.
"We'll probably see a continued weak market for the rest of this year and into next year with relatively weak sales and stagnant to falling home prices."
The mortgage instability in the US is being compounded in Australia by another collapse in the risky property sector.
South Australian private mortgage firm John West and Associates has been placed in voluntary administration with debts of almost $10 million.
Source: ABC
Wespac Boss says the big banks need scale to compete globally
Wespac Banking Corp chief executive David Morgan says Australia' so-called 'four pillars' banking policy is a 'woolly mammoth" that is creating a problem for the domestic economy.
Dr Morgan says it's time for the federal government to abolish the policy, which prevents the top four banks - Westpac, ANZ, National Australia Bank and Commonwealth Bank of Australia - from merging.
"While everyone else is getting on with life in the marketplace, the banks are commanded forever to be blocks of concrete or marble - or salt," he said.
"It's the 'Lot's life' banking policy," Dr Morgan added, referring to the story of Lot in the Bible.
"Set against banking consolidation worldwide and the globalisation of services, the policy is an anachronism, a woolly mammoth dug from the Siberian tundra and shipped still frozen to Australia as a structure for banking."
Mr Morgan said the banks were arteries of the Australian economy.
"And who wants pillars for arteries," he said.
"To put it bluntly, the Australian majors need scale to compete with global banks that are a growing presence here."
Dr Morgan, who will retire from the bank later this year, was speaking at a Trans-Tasman Business Circle lunch in Sydney.
To a question from the audience, Dr Morgan said he was more confident than he had ever been that the four pillars policy would be abolished.
"I think there is a reasonable chance that in the life of the next parliament, that policy will be relaxed," he said.
Dr Morgan was a senior official of the Federal Treasury before joining Westpac.
Source: AAP
Dr Morgan says it's time for the federal government to abolish the policy, which prevents the top four banks - Westpac, ANZ, National Australia Bank and Commonwealth Bank of Australia - from merging.
"While everyone else is getting on with life in the marketplace, the banks are commanded forever to be blocks of concrete or marble - or salt," he said.
"It's the 'Lot's life' banking policy," Dr Morgan added, referring to the story of Lot in the Bible.
"Set against banking consolidation worldwide and the globalisation of services, the policy is an anachronism, a woolly mammoth dug from the Siberian tundra and shipped still frozen to Australia as a structure for banking."
Mr Morgan said the banks were arteries of the Australian economy.
"And who wants pillars for arteries," he said.
"To put it bluntly, the Australian majors need scale to compete with global banks that are a growing presence here."
Dr Morgan, who will retire from the bank later this year, was speaking at a Trans-Tasman Business Circle lunch in Sydney.
To a question from the audience, Dr Morgan said he was more confident than he had ever been that the four pillars policy would be abolished.
"I think there is a reasonable chance that in the life of the next parliament, that policy will be relaxed," he said.
Dr Morgan was a senior official of the Federal Treasury before joining Westpac.
Source: AAP
August rate hike tipped due to increased inflation and housing sales increases
Mortagge rates could be on the way up again as soon as August, presenting Prime Minister John Howard with fresh political problems as housing affordability takes a tumble.
New inflation figures released yesterday came in at a higher than expected 1.2 per cent for the June quarter, sparking fears of an imminent rise. Annual inflation sits at 2.1 per cent, which is toward the bottom of the Reserve Bank's target range.
But the size of the increase - caused mainly by higher petrol and food prices, as well as rising rents - was likely to concern the bank's board.
Most economists agreed the price volatility would prompt a rates rise at the RBA's August meeting.
Mr Howard, who today celebrates his 68th birthday, suggested there was no need for an increase.
"What I'm saying to you and what is obvious is that it (inflation) is still well within that range,'' he said.
Home Buyer affordability to decline
A quarter of a percentage rise would push up the monthly loan repayment on a $300,000 mortgage by $50.
The increase would also be expected to flow through to the rental market .
Shadow treasurer Wayne Swan seized on the new inflation figures to warn householders were under growing financial pressure and the future was looking bleak.
"Apart from the possible implications for interest rates, mums and dads around the country will be concerned that the cost of the basics are going up and up,'' Mr Swan said.
The new inflation figures show in the three months to the end of June petrol prices rose 9 per cent, vegetables 6 per cent, rent 1.6 per cent while the cost of travel and computers fell.
The broad inflation rate of 1.2 per cent for the June quarter, and the core rate of 0.9 per cent, was well beyond market predictions.
Pain in the mortgage belt.
A rate hike could not come at a worse time for the Government as it struggles to peg back Labor's runaway lead in the polls.
Labor has made political capital out of declining affordability, including in the private rental market, and from the increasing cost of living.
Rental prices increased across all capital cities by 1.6 per cent, driven by continuing low vacancy rates.
Renewed speculation of an imminent interest rates rise dovetails conveniently with Opposition Leader Kevin Rudd's housing summit in Canberra today.
Labor remained tight-lipped yesterday on the possible outcomes of the meeting, which it says will examine the factors leading to higher prices and a lack of affordable rental housing.
Call to slash stamp duty
Treasurer Peter Costello called on the states to cut stamp duties on homes and release more land.
"Young homebuyers are paying more (stamp duty) than ever before . . . I expect an agreement to come out tomorrow from the Labor states to cut stamp duty,'' Mr Costello said.
Source: The Advertiser and The Courier-Mail
New inflation figures released yesterday came in at a higher than expected 1.2 per cent for the June quarter, sparking fears of an imminent rise. Annual inflation sits at 2.1 per cent, which is toward the bottom of the Reserve Bank's target range.
But the size of the increase - caused mainly by higher petrol and food prices, as well as rising rents - was likely to concern the bank's board.
Most economists agreed the price volatility would prompt a rates rise at the RBA's August meeting.
Mr Howard, who today celebrates his 68th birthday, suggested there was no need for an increase.
"What I'm saying to you and what is obvious is that it (inflation) is still well within that range,'' he said.
Home Buyer affordability to decline
A quarter of a percentage rise would push up the monthly loan repayment on a $300,000 mortgage by $50.
The increase would also be expected to flow through to the rental market .
Shadow treasurer Wayne Swan seized on the new inflation figures to warn householders were under growing financial pressure and the future was looking bleak.
"Apart from the possible implications for interest rates, mums and dads around the country will be concerned that the cost of the basics are going up and up,'' Mr Swan said.
The new inflation figures show in the three months to the end of June petrol prices rose 9 per cent, vegetables 6 per cent, rent 1.6 per cent while the cost of travel and computers fell.
The broad inflation rate of 1.2 per cent for the June quarter, and the core rate of 0.9 per cent, was well beyond market predictions.
Pain in the mortgage belt.
A rate hike could not come at a worse time for the Government as it struggles to peg back Labor's runaway lead in the polls.
Labor has made political capital out of declining affordability, including in the private rental market, and from the increasing cost of living.
Rental prices increased across all capital cities by 1.6 per cent, driven by continuing low vacancy rates.
Renewed speculation of an imminent interest rates rise dovetails conveniently with Opposition Leader Kevin Rudd's housing summit in Canberra today.
Labor remained tight-lipped yesterday on the possible outcomes of the meeting, which it says will examine the factors leading to higher prices and a lack of affordable rental housing.
Call to slash stamp duty
Treasurer Peter Costello called on the states to cut stamp duties on homes and release more land.
"Young homebuyers are paying more (stamp duty) than ever before . . . I expect an agreement to come out tomorrow from the Labor states to cut stamp duty,'' Mr Costello said.
Source: The Advertiser and The Courier-Mail
Hot property areas as housing market heats up with mortgage business surge ahead of the election.
Melbourne and Canberra were the hot property standout performers in a mixed bag of capital city housing price increase results for the June quarter while home unit and apartment prices are improving nationwide.
Melbourne house prices jumped 6.5 per cent to a median of $398,217, the strongest growth in six years, according to researcher Australian Property Monitors.
But it was a different story in other capitals.
Prices in Hobart falling 1.6 per cent and Perth's housing bubble deflating at a rate of 0.2 per cent.
Sydney inched along with growth of 1.1 per cent, though apartments turned in a better result with prices rising 2.2 per cent.
"Melbourne, Canberra and Brisbane property markets are booming," APM general manager Michael McNamara said.
Prime property is hot
The growth is being driven by the premium end of the market while many outer suburban areas suffer, particularly in Sydney.
Canberra recorded the best growth of all, with 7.4 per cent for the quarter and a surge of 17.6 per cent over the year, taking the median price to $319,587, according to APM.
In Brisbane, prices jumped four per cent for the quarter, or 12.8per cent for the year.
In Melbourne's inner urban area, which includes suburbs such as Malvern, Port Melbourne and St Kilda, prices grew 10.7 per cent for the quarter.
Prahran recorded a massive 22 per cent jump based on 63 sales, Mr McNamara said.
Inner-city heats up
Melbourne's inner south market was also on the boil, with 11.5 per cent growth in house prices, for the quarter.
"It's difficult to see that this heat will be as sustained as in the first three years of this decade," Mr McNamara said.
"It's more likely a six to 12-months phenomenon," he said.
"Low stock levels mean that more cashed-up buyers are competing fiercely for a smaller pool of available properties on the market.
"First-home buyers are also competing with investors trying to take advantage of increasing gross rental yields."
Clearance rates improving
JP Morgan chief economist Stephen Walters said auction clearance rates - about 80 per cent in the past few weekends - pointed to better fortunes in Melbourne.
Mr Walters said investors were likely to be a major factor in the price growth with Melbourne's median price still about $100,000 lower than Sydney.
Adrian Fini, executive director, development, for Mirvac Group, one of Australia's largest apartment developers, said Melbourne residential prices and turnover had been recovering throughout the first half of this year.
While the Sydney market, apart from the strong top end, had been flat, the beginnings of a turnaround were expected later this year, Mr Fini said.Source: The Australian
Melbourne house prices jumped 6.5 per cent to a median of $398,217, the strongest growth in six years, according to researcher Australian Property Monitors.
But it was a different story in other capitals.
Prices in Hobart falling 1.6 per cent and Perth's housing bubble deflating at a rate of 0.2 per cent.
Sydney inched along with growth of 1.1 per cent, though apartments turned in a better result with prices rising 2.2 per cent.
"Melbourne, Canberra and Brisbane property markets are booming," APM general manager Michael McNamara said.
Prime property is hot
The growth is being driven by the premium end of the market while many outer suburban areas suffer, particularly in Sydney.
Canberra recorded the best growth of all, with 7.4 per cent for the quarter and a surge of 17.6 per cent over the year, taking the median price to $319,587, according to APM.
In Brisbane, prices jumped four per cent for the quarter, or 12.8per cent for the year.
In Melbourne's inner urban area, which includes suburbs such as Malvern, Port Melbourne and St Kilda, prices grew 10.7 per cent for the quarter.
Prahran recorded a massive 22 per cent jump based on 63 sales, Mr McNamara said.
Inner-city heats up
Melbourne's inner south market was also on the boil, with 11.5 per cent growth in house prices, for the quarter.
"It's difficult to see that this heat will be as sustained as in the first three years of this decade," Mr McNamara said.
"It's more likely a six to 12-months phenomenon," he said.
"Low stock levels mean that more cashed-up buyers are competing fiercely for a smaller pool of available properties on the market.
"First-home buyers are also competing with investors trying to take advantage of increasing gross rental yields."
Clearance rates improving
JP Morgan chief economist Stephen Walters said auction clearance rates - about 80 per cent in the past few weekends - pointed to better fortunes in Melbourne.
Mr Walters said investors were likely to be a major factor in the price growth with Melbourne's median price still about $100,000 lower than Sydney.
Adrian Fini, executive director, development, for Mirvac Group, one of Australia's largest apartment developers, said Melbourne residential prices and turnover had been recovering throughout the first half of this year.
While the Sydney market, apart from the strong top end, had been flat, the beginnings of a turnaround were expected later this year, Mr Fini said.Source: The Australian
Wednesday, July 25, 2007
Has the Reserve Bank and the Liberal Government conspired to caused high rents make families homeless?
With the RBA delivering 6 rate increases, it has to take part of the blame for the current housing shortage, especially rental property, which became unattractive with the cost of financing due to these mortgage rate increases on top of GST costs. As a result Australian's that have missed the prosperity boom are facing the prospect of homelessness, says the St Vincent de Paul Society.
A report by the society says that over the past five years there has been a 30 per cent increase in the number of families with children needing assistance from homelessness services across Australia.
It says the pressure on the services "has never been greater'', mainly due to the desperate state of the private rental market.
About half of the families seeking help had rented their homes from private landlords, even though private renters make up only 23 per cent of Australian households.
The report says the focus of housing affordability has too long been on ownership, while the plight of low-income renters has been ignored.
"It's time proper attention was paid to the private rental market and decisive action was taken to improve access to affordable housing for low-income private renters living under sometimes crushing financial pressure,'' the report says.
It also says that half of all low income households in the private rental market are in housing stress, meaning they pay more than 30 per cent of their income in rent, and a third of those are in housing crisis, meaning they pay more than 50 per cent of their income in rent.
St Vinnies is calling for a direct $1.33 billion investment in low-income housing by the federal government to address the current crisis.
"We believe that the answer lies in switching the thrust of government policy to supply-side measures, namely, direct investment to increase the supply of the very best form of housing for low-income families - public and social housing,'' the report says.
St Vinnies also wants the issue to be at the top of the agenda at the next Council of Australian Governments (COAG) meeting.
The report says the rental crisis is having a devastating impact on children.
"Most of the children in homeless assistance services are under 12 years of age - a crucial period of their development - and homelessness has a serious impact on their health, education and well-being, often causing high rates of anxiety, emotional and behavioural problems and mental illness,'' the report says. Source: AAP
A report by the society says that over the past five years there has been a 30 per cent increase in the number of families with children needing assistance from homelessness services across Australia.
It says the pressure on the services "has never been greater'', mainly due to the desperate state of the private rental market.
About half of the families seeking help had rented their homes from private landlords, even though private renters make up only 23 per cent of Australian households.
The report says the focus of housing affordability has too long been on ownership, while the plight of low-income renters has been ignored.
"It's time proper attention was paid to the private rental market and decisive action was taken to improve access to affordable housing for low-income private renters living under sometimes crushing financial pressure,'' the report says.
It also says that half of all low income households in the private rental market are in housing stress, meaning they pay more than 30 per cent of their income in rent, and a third of those are in housing crisis, meaning they pay more than 50 per cent of their income in rent.
St Vinnies is calling for a direct $1.33 billion investment in low-income housing by the federal government to address the current crisis.
"We believe that the answer lies in switching the thrust of government policy to supply-side measures, namely, direct investment to increase the supply of the very best form of housing for low-income families - public and social housing,'' the report says.
St Vinnies also wants the issue to be at the top of the agenda at the next Council of Australian Governments (COAG) meeting.
The report says the rental crisis is having a devastating impact on children.
"Most of the children in homeless assistance services are under 12 years of age - a crucial period of their development - and homelessness has a serious impact on their health, education and well-being, often causing high rates of anxiety, emotional and behavioural problems and mental illness,'' the report says. Source: AAP
Tuesday, July 24, 2007
Former Queensland property marketeer is broke
Former property marketing tsar Chris Bilborough has been declared bankrupt after a tussle with the Australian Taxation Office.
Mr Bilborough, 41, was a key figure in the Gold Coast property industry in the late 1990s – but had run-ins with regulators and politicians.
He has recently been linked to a property deal involving a company of former Australian Test cricketer Craig McDermott.
He said he had been hit with a $1.2 million bill from an initial $350,000 tax assessment.
He said he offered a $500,000 compromise. "They rejected it," he said.
A federal court in May ruled against attempts to seek a review of the ATO's rejection of the compromise for a bill stemming from a 1997 tax assessment.
In August, the ATO rejected the compromise for reasons including a lack of information to support his claims of an inability to fully repay tax debts.
Mr Bilborough was a director of companies, including National Asset Planning Corporation and Markfair (trading as Investlend Australia), which were involved in property sales to interstate investors. Markfair offered financial advice.
He was named in Parliament several times since 1998, on one occasion accused of being behind "scams".
Fair Trading Minister Margaret Keech said last December her office had recovered $240,000 from Mr Bilborough.
Mr Bilborough yesterday pointed out one of his critics – former fair trading minister Merri Rose – had been jailed over blackmail but he would not answer queries about other politicians' comments.
He has fought some actions by regulators. He previously said he was "cleared of selling any overpriced properties" in a federal case.
In 2005, The Courier-Mail revealed his involvement in a firm promoting a planned Warwick estate.
The Courier-Mail on Saturday reported Markfair was named in a 2004 court action over the sale of a property from McDermott Projects (Nut Tree Grove) Pty Ltd, in which Mr McDermott was a director.
The documents contained allegations from the buyers' lawyers of unconscionable conduct, and that Markfair and/or marketeers Asset Management Group were agents and/or joint venture partners for McDermott Projects.
Mr McDermott said he was unaware of the case, or any link with Markfair or Asset Management Group. No defence was filed and the action was abandoned.
Source: Courier Mail
Mr Bilborough, 41, was a key figure in the Gold Coast property industry in the late 1990s – but had run-ins with regulators and politicians.
He has recently been linked to a property deal involving a company of former Australian Test cricketer Craig McDermott.
He said he had been hit with a $1.2 million bill from an initial $350,000 tax assessment.
He said he offered a $500,000 compromise. "They rejected it," he said.
A federal court in May ruled against attempts to seek a review of the ATO's rejection of the compromise for a bill stemming from a 1997 tax assessment.
In August, the ATO rejected the compromise for reasons including a lack of information to support his claims of an inability to fully repay tax debts.
Mr Bilborough was a director of companies, including National Asset Planning Corporation and Markfair (trading as Investlend Australia), which were involved in property sales to interstate investors. Markfair offered financial advice.
He was named in Parliament several times since 1998, on one occasion accused of being behind "scams".
Fair Trading Minister Margaret Keech said last December her office had recovered $240,000 from Mr Bilborough.
Mr Bilborough yesterday pointed out one of his critics – former fair trading minister Merri Rose – had been jailed over blackmail but he would not answer queries about other politicians' comments.
He has fought some actions by regulators. He previously said he was "cleared of selling any overpriced properties" in a federal case.
In 2005, The Courier-Mail revealed his involvement in a firm promoting a planned Warwick estate.
The Courier-Mail on Saturday reported Markfair was named in a 2004 court action over the sale of a property from McDermott Projects (Nut Tree Grove) Pty Ltd, in which Mr McDermott was a director.
The documents contained allegations from the buyers' lawyers of unconscionable conduct, and that Markfair and/or marketeers Asset Management Group were agents and/or joint venture partners for McDermott Projects.
Mr McDermott said he was unaware of the case, or any link with Markfair or Asset Management Group. No defence was filed and the action was abandoned.
Source: Courier Mail
Former Queensland property marketeer is broke
Former property marketing tsar Chris Bilborough has been declared bankrupt after a tussle with the Australian Taxation Office.
Mr Bilborough, 41, was a key figure in the Gold Coast property industry in the late 1990s – but had run-ins with regulators and politicians.
He has recently been linked to a property deal involving a company of former Australian Test cricketer Craig McDermott.
He said he had been hit with a $1.2 million bill from an initial $350,000 tax assessment.
He said he offered a $500,000 compromise. "They rejected it," he said.
A federal court in May ruled against attempts to seek a review of the ATO's rejection of the compromise for a bill stemming from a 1997 tax assessment.
In August, the ATO rejected the compromise for reasons including a lack of information to support his claims of an inability to fully repay tax debts.
Mr Bilborough was a director of companies, including National Asset Planning Corporation and Markfair (trading as Investlend Australia), which were involved in property sales to interstate investors. Markfair offered financial advice.
He was named in Parliament several times since 1998, on one occasion accused of being behind "scams".
Fair Trading Minister Margaret Keech said last December her office had recovered $240,000 from Mr Bilborough.
Mr Bilborough yesterday pointed out one of his critics – former fair trading minister Merri Rose – had been jailed over blackmail but he would not answer queries about other politicians' comments.
He has fought some actions by regulators. He previously said he was "cleared of selling any overpriced properties" in a federal case.
In 2005, The Courier-Mail revealed his involvement in a firm promoting a planned Warwick estate.
The Courier-Mail on Saturday reported Markfair was named in a 2004 court action over the sale of a property from McDermott Projects (Nut Tree Grove) Pty Ltd, in which Mr McDermott was a director.
The documents contained allegations from the buyers' lawyers of unconscionable conduct, and that Markfair and/or marketeers Asset Management Group were agents and/or joint venture partners for McDermott Projects.
Mr McDermott said he was unaware of the case, or any link with Markfair or Asset Management Group. No defence was filed and the action was abandoned.
Source: Courier Mail
Mr Bilborough, 41, was a key figure in the Gold Coast property industry in the late 1990s – but had run-ins with regulators and politicians.
He has recently been linked to a property deal involving a company of former Australian Test cricketer Craig McDermott.
He said he had been hit with a $1.2 million bill from an initial $350,000 tax assessment.
He said he offered a $500,000 compromise. "They rejected it," he said.
A federal court in May ruled against attempts to seek a review of the ATO's rejection of the compromise for a bill stemming from a 1997 tax assessment.
In August, the ATO rejected the compromise for reasons including a lack of information to support his claims of an inability to fully repay tax debts.
Mr Bilborough was a director of companies, including National Asset Planning Corporation and Markfair (trading as Investlend Australia), which were involved in property sales to interstate investors. Markfair offered financial advice.
He was named in Parliament several times since 1998, on one occasion accused of being behind "scams".
Fair Trading Minister Margaret Keech said last December her office had recovered $240,000 from Mr Bilborough.
Mr Bilborough yesterday pointed out one of his critics – former fair trading minister Merri Rose – had been jailed over blackmail but he would not answer queries about other politicians' comments.
He has fought some actions by regulators. He previously said he was "cleared of selling any overpriced properties" in a federal case.
In 2005, The Courier-Mail revealed his involvement in a firm promoting a planned Warwick estate.
The Courier-Mail on Saturday reported Markfair was named in a 2004 court action over the sale of a property from McDermott Projects (Nut Tree Grove) Pty Ltd, in which Mr McDermott was a director.
The documents contained allegations from the buyers' lawyers of unconscionable conduct, and that Markfair and/or marketeers Asset Management Group were agents and/or joint venture partners for McDermott Projects.
Mr McDermott said he was unaware of the case, or any link with Markfair or Asset Management Group. No defence was filed and the action was abandoned.
Source: Courier Mail
Wide Bay Building Society makes offer to buy MacKay Permanent Building Society
Building society Wide Bay Australia has launched a $46 million takeover offer for MacKay Permanent Building Society.
Wide Bay is offering Mackay shareholders $7.20 cash per share plus a fully franked dividend of 80 cents, or 0.6 of a Wide Bay share plus the 80 cent dividend.
"The combination of Wide Bay with Mackay Permanent would enhance our position as the largest financial institution based in fast growing Wide Bay, Central and North Queensland," Wide Bay chairman John Pressler said.
Bundaberg-based Wide Bay said it had already secured approval for its takeover proposal from 14.07 per cent of Mackay's shareholders.
In addition, Wide Bay currently has a 1.58 per cent holding in Mackay.
The acquisition is expected to be earnings per share accretive in the first year, Wide Bay said, and will be funded through existing facilities.
Wide Bay currently has 36 branches, with 34 of them in Queensland, and has total assets of $1.7 billion.
By 1036 AEST, Wide Bay shares were up 16 cents to $12.45. Mackay shares resume trading at 1100 AEST on Tuesday, having last traded at $7.
Source: AAP
Wide Bay is offering Mackay shareholders $7.20 cash per share plus a fully franked dividend of 80 cents, or 0.6 of a Wide Bay share plus the 80 cent dividend.
"The combination of Wide Bay with Mackay Permanent would enhance our position as the largest financial institution based in fast growing Wide Bay, Central and North Queensland," Wide Bay chairman John Pressler said.
Bundaberg-based Wide Bay said it had already secured approval for its takeover proposal from 14.07 per cent of Mackay's shareholders.
In addition, Wide Bay currently has a 1.58 per cent holding in Mackay.
The acquisition is expected to be earnings per share accretive in the first year, Wide Bay said, and will be funded through existing facilities.
Wide Bay currently has 36 branches, with 34 of them in Queensland, and has total assets of $1.7 billion.
By 1036 AEST, Wide Bay shares were up 16 cents to $12.45. Mackay shares resume trading at 1100 AEST on Tuesday, having last traded at $7.
Source: AAP
Brisbane's investment property shortgage means fewer vacancies, and soaring rents
Brisbane rental market is reaching crisis point, with new figures revealing fewer vacancies and rent rises of more than $100 per week.
Rents across the city have jumped 50 per cent in five years and reports of prospective tenants bidding for their rental properties have increased.
The Residential Tenancy Authority figures revealed inner-city and Fortitude Valley area rents spiked 38 per cent from $275 in June 2002 to $380 in June 2007.
South Brisbane rents rose from $210 to $310 in five years.
Queensland University of Technology president Daniel Doran said a ‘‘massive amount’’ of students had complained of having to bid for rent to secure a dwelling.
‘‘This doesn’t help students with already high levels of HECS debt, and as a result we’ve noticed a rise in emergency food vouchers,’’ he said.
Raine & Horne principal Darren Dollimore said young adults, particularly students living in inner-city areas, were being hit hardest, with rates rising $10-$60 every three months.
Housing Minister Robert Schwarten said escalating rents and a shortage of properties meant rent-bidding was a concern.
A report released today by industry analyst BIS Shrapnel said the demand for 44,000 new houses last year had not been met, with only 39,000 being built.
Get your free copy of mX at public transport hotspots around Brisbane city and Fortitude ValleySource: MX
Rents across the city have jumped 50 per cent in five years and reports of prospective tenants bidding for their rental properties have increased.
The Residential Tenancy Authority figures revealed inner-city and Fortitude Valley area rents spiked 38 per cent from $275 in June 2002 to $380 in June 2007.
South Brisbane rents rose from $210 to $310 in five years.
Queensland University of Technology president Daniel Doran said a ‘‘massive amount’’ of students had complained of having to bid for rent to secure a dwelling.
‘‘This doesn’t help students with already high levels of HECS debt, and as a result we’ve noticed a rise in emergency food vouchers,’’ he said.
Raine & Horne principal Darren Dollimore said young adults, particularly students living in inner-city areas, were being hit hardest, with rates rising $10-$60 every three months.
Housing Minister Robert Schwarten said escalating rents and a shortage of properties meant rent-bidding was a concern.
A report released today by industry analyst BIS Shrapnel said the demand for 44,000 new houses last year had not been met, with only 39,000 being built.
Get your free copy of mX at public transport hotspots around Brisbane city and Fortitude ValleySource: MX
Monday, July 23, 2007
Will mortgage rates rise after the election? Home buyers think so.
Home buyers are jumping in ahead of the election in order to buy before a perceived mortgage rate increase would put a home beyond their reach. Also the Liberal Government suggestion of making people save for a 20 percent deposit has paniced many first time home buyers to act now.
Political debate about housing affordability, and promises to lure first homebuyer votes, are also weighing heavily on would-be homeowners.
Woodards real estate group chief John Piccolo said the election's impact on interest rates were also a consideration. "There seems to be a bit of frenzy among house hunters at the moment, and that may be because of the perception that after the election, the interest rates are more likely to go up than down," Mr Piccolo said. "I think that's creating some pent-up demand." Prime Minister John Howard is yet to name an election date for this year. Election to 'clam' marketReal Estate Institute of Victoria chief Enzo Raimondo said an election would usually calm the market right down. "Historically, what happens before an election is announced is everything stops,"
Mr Raimondo said. "People want to know the outcome before they spend their money." But Mr Piccolo believes first-time buyers are taking a "better the devil you know" approach. Affordability hurdleHousing Industry Association chief Caroline Lawrey said would-be first homebuyers were certainly watching the affordability debate closely. "If there's one party suggesting the first homeowner's grant might double, then you could understand why a young person would want to wait until after the election to buy," Ms Lawrey said. This month, Opposition Leader Kevin Rudd proposed a range of affordability initiatives. The initiatives included tax breaks for investors who build affordable housing, a tax-free savings account for first homebuyers, and increasing the first homeowners' grant for low-income earners. Treasurer Peter Costello responded with a proposal to release Commonwealth land for housing, calling on states to do the same. But State Planning Minister Justin Madden is keen to argue Victoria doesn't have a problem. Property prices risingOver the weekend, Mr Madden launched new figures on property price growth during 2006. He said the 6 per cent rise in Victoria's median price showed the market had returned to "sustainable levels of growth". But Mr Raimondo said he didn't believe affordability improved last year. He predicted house prices would rise well above the 6 per cent this year.
Source: The Herald
Political debate about housing affordability, and promises to lure first homebuyer votes, are also weighing heavily on would-be homeowners.
Woodards real estate group chief John Piccolo said the election's impact on interest rates were also a consideration. "There seems to be a bit of frenzy among house hunters at the moment, and that may be because of the perception that after the election, the interest rates are more likely to go up than down," Mr Piccolo said. "I think that's creating some pent-up demand." Prime Minister John Howard is yet to name an election date for this year. Election to 'clam' marketReal Estate Institute of Victoria chief Enzo Raimondo said an election would usually calm the market right down. "Historically, what happens before an election is announced is everything stops,"
Mr Raimondo said. "People want to know the outcome before they spend their money." But Mr Piccolo believes first-time buyers are taking a "better the devil you know" approach. Affordability hurdleHousing Industry Association chief Caroline Lawrey said would-be first homebuyers were certainly watching the affordability debate closely. "If there's one party suggesting the first homeowner's grant might double, then you could understand why a young person would want to wait until after the election to buy," Ms Lawrey said. This month, Opposition Leader Kevin Rudd proposed a range of affordability initiatives. The initiatives included tax breaks for investors who build affordable housing, a tax-free savings account for first homebuyers, and increasing the first homeowners' grant for low-income earners. Treasurer Peter Costello responded with a proposal to release Commonwealth land for housing, calling on states to do the same. But State Planning Minister Justin Madden is keen to argue Victoria doesn't have a problem. Property prices risingOver the weekend, Mr Madden launched new figures on property price growth during 2006. He said the 6 per cent rise in Victoria's median price showed the market had returned to "sustainable levels of growth". But Mr Raimondo said he didn't believe affordability improved last year. He predicted house prices would rise well above the 6 per cent this year.
Source: The Herald
Mortgage interest rate saving ideas
Home mortgage interest rates are at a six-year high and could rise even more. Home buyers and homeowners need to consider these steps to reduce home loan interest rate costs.
Step 1: Check other offers.
You can negotiate or renogotiate with bank and non bank lenders and some mortgage brokers and mortgage lenders as the big banks are undercutting each other on interest rates to win your business.
So if you're after a home loan, check all mortgage lenders and ask them for a discounted interest rate.
At the moment, the big banks advertise standard discount of 70 basis points to 7.37 per cent if you borrow larger amounts, usually more than $250,000, but banks are having to offer bigger discounts becuase the non bank mortgage lenders are gaining ground.
Step 2: Increase your mortgage repayments
This won't reduce your mortgage interest rate, but will cut the term and that can mean massive savings in total interest paid.
Step 3: Compare basic loans interest rates
Mortgage lenders have basic home loans at reduced mortgage interest rates.
Check these out but they may have no savings over the heavily discounted standard home loans that are fully featured.
Step 1: Check other offers.
You can negotiate or renogotiate with bank and non bank lenders and some mortgage brokers and mortgage lenders as the big banks are undercutting each other on interest rates to win your business.
So if you're after a home loan, check all mortgage lenders and ask them for a discounted interest rate.
At the moment, the big banks advertise standard discount of 70 basis points to 7.37 per cent if you borrow larger amounts, usually more than $250,000, but banks are having to offer bigger discounts becuase the non bank mortgage lenders are gaining ground.
Step 2: Increase your mortgage repayments
This won't reduce your mortgage interest rate, but will cut the term and that can mean massive savings in total interest paid.
Step 3: Compare basic loans interest rates
Mortgage lenders have basic home loans at reduced mortgage interest rates.
Check these out but they may have no savings over the heavily discounted standard home loans that are fully featured.
Credit Card record highs of no concern say credit card suppliers and retailers.
Credit card debt is at its highest level ever for the average Australian credit card holder, but spending is being driven by retail purchases, rather than cash advances by families trying to make ends meet.
Figures released by the Reserve Bank yesterday showed total credit card debt topped $40 billion.
The average debt also rose, climbing by 7.2 per cent to $2990 in May, 2007.
Total value of cash advances fell to $1.086 billion in May from $1.135 billion at the same time last year.
CommSec economist Martin Arnold said the strength of the Australian economy had provided some of the impetus for the rise in credit debt, with the data pointing to continued resilience on the part of the consumer in the face of talk of rising inflation and lower affordability for housing.
"With the jobs market so robust and household income rising, we're going to see continued strength in consumer spending," Mr Arnold said.
It follows upbeat profit announcements by furniture and consumer electronics retailer Harvey Norman, reporting a 16.5 per cent sales gain, and David Jones predicting a 34.2 per cent increase in its profit forecast.
Australian National Retailers Association CEO Margy Osmond said yesterday the full effects on spending behaviour of the tax cuts in the recent federal Budget could sustain strength in retail spending.
"This is positive news considering the May retail sector figures showed some signs of a slowdown in spending. Clearly consumer sentiment is still high and consumers are comfortably splashing out on the latest gadgets and home entertainment goods," she said.
For young newlyweds, Juan Ostos and Francy Perilla, positive career prospects and affordable prices meant the time was ripe to set up everything they need for a new home.
The couple were happy to splash out on a second laptop and new dryer in a day, at a cost of over $1500.
Ms Perilla, 29, who works as a sales consultant, said she and her husband, an electrical engineer, were now in a comfortable financial position.
"We are better off financially than we were one year ago," she said.
"We are in the process of buying all those things we need."
Cashback offers and interest-free options meant forking out the money did not trouble the pair.
"We will pay a percentage now, and then pay the bulk of (the item's price) in one year, " Mr Ostos said.
Earlier in the year the couple also decided to upgrade their car.
With both working full time, the couple said they share the cost of all their new buys, paying half each.
"We split everything, " he said.Source: Dalily Telegraph
Figures released by the Reserve Bank yesterday showed total credit card debt topped $40 billion.
The average debt also rose, climbing by 7.2 per cent to $2990 in May, 2007.
Total value of cash advances fell to $1.086 billion in May from $1.135 billion at the same time last year.
CommSec economist Martin Arnold said the strength of the Australian economy had provided some of the impetus for the rise in credit debt, with the data pointing to continued resilience on the part of the consumer in the face of talk of rising inflation and lower affordability for housing.
"With the jobs market so robust and household income rising, we're going to see continued strength in consumer spending," Mr Arnold said.
It follows upbeat profit announcements by furniture and consumer electronics retailer Harvey Norman, reporting a 16.5 per cent sales gain, and David Jones predicting a 34.2 per cent increase in its profit forecast.
Australian National Retailers Association CEO Margy Osmond said yesterday the full effects on spending behaviour of the tax cuts in the recent federal Budget could sustain strength in retail spending.
"This is positive news considering the May retail sector figures showed some signs of a slowdown in spending. Clearly consumer sentiment is still high and consumers are comfortably splashing out on the latest gadgets and home entertainment goods," she said.
For young newlyweds, Juan Ostos and Francy Perilla, positive career prospects and affordable prices meant the time was ripe to set up everything they need for a new home.
The couple were happy to splash out on a second laptop and new dryer in a day, at a cost of over $1500.
Ms Perilla, 29, who works as a sales consultant, said she and her husband, an electrical engineer, were now in a comfortable financial position.
"We are better off financially than we were one year ago," she said.
"We are in the process of buying all those things we need."
Cashback offers and interest-free options meant forking out the money did not trouble the pair.
"We will pay a percentage now, and then pay the bulk of (the item's price) in one year, " Mr Ostos said.
Earlier in the year the couple also decided to upgrade their car.
With both working full time, the couple said they share the cost of all their new buys, paying half each.
"We split everything, " he said.Source: Dalily Telegraph
Thursday, July 19, 2007
Mortgage and other debts explosion sparks enquiry
An inquiry into home lending practices is to be launched as new research reveals a sharp jump in the number of households going into debt or drawing on their savings to make ends meet.
The financial divide is growing between those struggling under debts and those with the resources to pay off their home, according to Melbourne Institute research.
Rising interest rates and the drought have led to an increase - from 10.8 per cent to 15.1 per cent over the past year - in the number of people running into debt or drawing on their savings.
The parliamentary inquiry, which will report before the election, responds to concerns that lenders are breaching the banking code in their tough treatment of people in financial difficulties.
Leader of the inquiry, Liberal Bruce Baird, said it would also look at declining credit standards and the level of home loan defaults.
"Given comments by the governor of the Reserve Bank and a recent report by the banking ombudsman, we wanted to see if there were issues in the approaches taken by the various banks," he said.
Negative equity in focus
Labor committee member Craig Emerson said parliamentarians were particularly concerned about western Sydney and the Illawarra region where many people now owe more on their mortgages than their homes are worth.
"Committee members support the deregulation of the financial system but one consequence has been that existing and new entrants into the market have sought to capture market share as a top priority and that has led to very aggressive lending practices," he said.
The Melbourne Institute research shows that the number of people devoting more than half their salary to debt has increased from 5.9 to 7.5 per cent over the past year.
Rural stress
Financial stress is greatest in rural districts, where the number of people running into debt or drawing on savings has soared from 9.9 to 20.8 per cent.
But there has also been an increase in metropolitan areas. The number of people succeeding in saving some of their income in metropolitan districts has dropped from 57.7 per cent to 50.7 per cent in the past year.
The study confirms Reserve Bank research showing that people with the highest debt service burdens are generally those with higher incomes.
More than 80 per cent of people earning less than $40,000 a year spend less than 10 per cent of their income on debt. Most are either in the rental market or, in the case of age pensioners, have a fully paid-off home.
The survey nevertheless found that 28.8 per cent of the people who spend more than half their income on debt service earn $50,000 or less.
Source: The Australian
The financial divide is growing between those struggling under debts and those with the resources to pay off their home, according to Melbourne Institute research.
Rising interest rates and the drought have led to an increase - from 10.8 per cent to 15.1 per cent over the past year - in the number of people running into debt or drawing on their savings.
The parliamentary inquiry, which will report before the election, responds to concerns that lenders are breaching the banking code in their tough treatment of people in financial difficulties.
Leader of the inquiry, Liberal Bruce Baird, said it would also look at declining credit standards and the level of home loan defaults.
"Given comments by the governor of the Reserve Bank and a recent report by the banking ombudsman, we wanted to see if there were issues in the approaches taken by the various banks," he said.
Negative equity in focus
Labor committee member Craig Emerson said parliamentarians were particularly concerned about western Sydney and the Illawarra region where many people now owe more on their mortgages than their homes are worth.
"Committee members support the deregulation of the financial system but one consequence has been that existing and new entrants into the market have sought to capture market share as a top priority and that has led to very aggressive lending practices," he said.
The Melbourne Institute research shows that the number of people devoting more than half their salary to debt has increased from 5.9 to 7.5 per cent over the past year.
Rural stress
Financial stress is greatest in rural districts, where the number of people running into debt or drawing on savings has soared from 9.9 to 20.8 per cent.
But there has also been an increase in metropolitan areas. The number of people succeeding in saving some of their income in metropolitan districts has dropped from 57.7 per cent to 50.7 per cent in the past year.
The study confirms Reserve Bank research showing that people with the highest debt service burdens are generally those with higher incomes.
More than 80 per cent of people earning less than $40,000 a year spend less than 10 per cent of their income on debt. Most are either in the rental market or, in the case of age pensioners, have a fully paid-off home.
The survey nevertheless found that 28.8 per cent of the people who spend more than half their income on debt service earn $50,000 or less.
Source: The Australian
Credit Card debt average now over $3,000
Australia's reliance on credit cards has continued with the total outstanding balance on Australian credit cards surging above $40 billion for the first time, new data shows.
The total credit card balance rose by $4.3 billion to $40.2 billion compared to $35.9 billion a year ago, figures released today by the Reserve Bank of Australia (RBA) revealed.
The value of repayments rose by 3.5 per cent to $17 billion compared to $16.5 billion a year ago.
The average debt on Australian credit cards has also risen, climbing by 7.2 per cent to $2990 in May 2007.
Consumer coping with credit card debt
However, CommSec economist Martin Arnold said while the number of purchases and transactions continues to rise, the value of cash advances as a proportion of the total balance has fallen.
“People are continuing to use their credit cards more effectively ... for any purchases really and then making repayments within the interest free period ... using the interest free period more effectively,'' Mr Arnold said.
The total value of cash advances fell to $1.086 billion, compared to $1.135 billion at the same time last year.
”Rather than showing people are struggling, using cash advances to make ends meet, it suggests consumers are doing quite well,'' Mr Arnold said.
Mr Arnold said the strength of the Australian economy had provided some of the impetus for the rise in credit debt, with the data pointing to continued resilience on the part of the consumer in the face of talk of rising inflation and lower affordability for housing.
”With the jobs market so robust and household income rising, we're going to see continued strength in consumer spending.''
Source: AAP
The total credit card balance rose by $4.3 billion to $40.2 billion compared to $35.9 billion a year ago, figures released today by the Reserve Bank of Australia (RBA) revealed.
The value of repayments rose by 3.5 per cent to $17 billion compared to $16.5 billion a year ago.
The average debt on Australian credit cards has also risen, climbing by 7.2 per cent to $2990 in May 2007.
Consumer coping with credit card debt
However, CommSec economist Martin Arnold said while the number of purchases and transactions continues to rise, the value of cash advances as a proportion of the total balance has fallen.
“People are continuing to use their credit cards more effectively ... for any purchases really and then making repayments within the interest free period ... using the interest free period more effectively,'' Mr Arnold said.
The total value of cash advances fell to $1.086 billion, compared to $1.135 billion at the same time last year.
”Rather than showing people are struggling, using cash advances to make ends meet, it suggests consumers are doing quite well,'' Mr Arnold said.
Mr Arnold said the strength of the Australian economy had provided some of the impetus for the rise in credit debt, with the data pointing to continued resilience on the part of the consumer in the face of talk of rising inflation and lower affordability for housing.
”With the jobs market so robust and household income rising, we're going to see continued strength in consumer spending.''
Source: AAP
HIgh costs of mortgage debt consolidation
Lumping all your debts into one may not be the best way out of trouble [but it may be the onle way as well].
People are putting their homes at risk over relatively minor debts such as credit card balances because they don't fully appreciate the difference between secured and unsecured debt.
"People are taking small, unsecured debts and refinancing them onto their mortgage, which is secured debt," says the co-ordinator of the NSW Consumer Credit Legal Centre, Karen Cox. "But if they create the situation whereby they can't pay their mortgage, they risk losing their house over a small credit card debt basically." [If they don't pay their credit card debt, they will eventually put their home at risk because the creditor can chase the debtor to bankruptcy. The difference is that the consolidated debt can be thousands of dollars cheaper per month than the debts separately, and this is why people can't manage the debt in the first place. The problem is that many mortgage brokers add fees and the Government takes mortgage duty and sometimes even stamping duty, and these extra fees contribute to debt bloat.]
Cox says not every borrower is aware of the difference between secured and unsecured debt or fully appreciates that their consumer debt becomes secured debt when consolidated into a home loan: "We've had comments from a number of consumers who say, 'I didn't know I'd done that and I wish I hadn't, because I'm now struggling to pay my mortgage and I could lose my house."'
Financial counsellor Jan Pentland, of Melbourne's Eastern Access Community Health, says such refinancing is being actively promoted by finance brokers. "But while it seems like an easy and sensible thing to do, there are implications that may not be considered," she says.
Unsecured loans - such as the money a credit card company lends you - don't require any form of security to back the loan in the event you default. The lender relies solely on its judgment that you'll be able to pay in full.
Secured loans are backed by some form of collateral - in the case of a home loan, by the house or unit. In this case, the bank, after following certain preliminary steps, is entitled to repossess your home, sell it and use the proceeds to fulfil the debt obligation.
Cox says it is possible for creditors to take enforcement action on unsecured debts - seeking a writ for levy against property or making you bankrupt and forcing asset sales - but says it's a longer process with opportunities along the way to negotiate.
The Consumer Credit Legal Centre generally advises people to stick with their smaller debts and try to negotiate a revised payment schedule with their original lenders to resolve the problem.
Cox says people in financial stress can be vulnerable to making bad decisions based on poor advice in this regard.
"You've got people specialising in debt consolidation and - while not all these people are necessarily bad - it's an area in which some form of exploitation is quite rife," she says.
In extreme cases, people are charged large fees and commissions - totalling perhaps $30,000 on a $200,000 loan - that are added onto the new loan.
"At the really sticky end", Cox says, a large slice of the loan might be on, say, 12 per cent while the remainder of the debt goes to another lender at 16 to 18 per cent.
"The worst-case scenario for those people who are already in significant trouble on either their credit cards or their mortgage and who then consolidate or refinance into another loan is that it actually turns out to be a lot more expensive than the one they've got," she says.
"So it hasn't solved their issues at all. It might postpone enforcement proceedings but that's about it. A lot of those people go under in a fairly short time anyway and they've lost a whole lot of their equity [in their home]."
Pentland says finance brokers being paid by commission have a vested interest in promoting such loans. "They're not an independent voice and, ultimately, the outcome can be that people eat away at the equity in their homes."
In the middle are people refinancing what should be short-term debt - such as credit card balances - on long-term loans so that their repayments drop, perhaps easing their immediate burden. But the result is that they pay much more over the term of the loan, Cox says.
"Some people make that decision because they're facing enforcement proceedings on the credit card, but it's something they really need to be aware of. It might well be that, if they get advice, they'll manage to make some sort of arrangement with the original creditor on the credit card."
Also in that middle zone are people whose lenders won't let them consolidate their debts in their existing, standard-rate home loan. Some of those people might move to lenders offering "sub-prime" home loans, which come at higher interest rates based on the perceived higher risk for the lender.
Such borrowers need to take care that the saving from lowering the rate on the credit card portion of their debt isn't wiped out by the higher rate on the - almost certainly much larger - home loan portion of their debt, Cox says.
"People have to be very careful to get advice from an independent source before they do anything - particularly if they're under pressure from existing creditors," she says.
The Australian Securities and Investments Commission provides details of free, independent counselling services at its consumer website, http://www.fido.asic.gov.au/ (search for "financial counselling"). Pentland says the calculators available on many financial websites allow borrowers to do their own sums on possible outcomes.
Cox says some people will have to ask themselves whether, in the end, it would be better to sell their home.
"It's a really hard decision, but when you're being offered finance on really bad terms, once you get to that point, it's better to think, 'I'm going to make a strategic retreat here ... If I sell up now at least I'm going to walk away with some cash.' If you keep refinancing, there are people out there who, literally, are out to strip you of your equity.
"You're only going to end up worse off in the long run, because if you lose your house and your equity too that's just devastating."
Selling up is an extreme solution but a valid one if you've done a thorough assessment of your overall financial position and it just doesn't add up, Pentland says.
"You have to do some serious thinking - if you were to refinance, is that going to resolve the problem, or is it just putting off the day when you're going to have to face this?"
THE SNOWBALL EFFECTConventional wisdom says you should pay off your most expensive, non-deductible debt first. In other words, you should apply any extra money to your credit card debt first, ahead of a personal loan or home loan and definitely before an investment loan on which you can claim the interest expense as a tax deduction.
However, if personal debts have got out of hand another strategy is to pay off your smallest debts first.
The strategy involves paying the minimum required on all of your debts, then finding an extra amount to apply to the smallest of those debts. Once you've paid that first debt off, you apply its minimum repayment and the extra amount to the next smallest debt and so on.
The idea is that the amount you pay on the next debt in line snowballs each time a payment is made.
Plus there's a psychological benefit in actually seeing the debts being knocked off one by one, rather than having one large, consolidated debt hanging over your head for what seems like forever.
Asked what she thinks of the snowball strategy, named by US finance author David Ramsey, financial counsellor Jan Pentland says she thinks it does have psychological value.
"It cuts across the notion of paying the most expensive debt first but there's an effect when people see themselves making some progress," she says. "And that encourages them to do more."Source: The Age
People are putting their homes at risk over relatively minor debts such as credit card balances because they don't fully appreciate the difference between secured and unsecured debt.
"People are taking small, unsecured debts and refinancing them onto their mortgage, which is secured debt," says the co-ordinator of the NSW Consumer Credit Legal Centre, Karen Cox. "But if they create the situation whereby they can't pay their mortgage, they risk losing their house over a small credit card debt basically." [If they don't pay their credit card debt, they will eventually put their home at risk because the creditor can chase the debtor to bankruptcy. The difference is that the consolidated debt can be thousands of dollars cheaper per month than the debts separately, and this is why people can't manage the debt in the first place. The problem is that many mortgage brokers add fees and the Government takes mortgage duty and sometimes even stamping duty, and these extra fees contribute to debt bloat.]
Cox says not every borrower is aware of the difference between secured and unsecured debt or fully appreciates that their consumer debt becomes secured debt when consolidated into a home loan: "We've had comments from a number of consumers who say, 'I didn't know I'd done that and I wish I hadn't, because I'm now struggling to pay my mortgage and I could lose my house."'
Financial counsellor Jan Pentland, of Melbourne's Eastern Access Community Health, says such refinancing is being actively promoted by finance brokers. "But while it seems like an easy and sensible thing to do, there are implications that may not be considered," she says.
Unsecured loans - such as the money a credit card company lends you - don't require any form of security to back the loan in the event you default. The lender relies solely on its judgment that you'll be able to pay in full.
Secured loans are backed by some form of collateral - in the case of a home loan, by the house or unit. In this case, the bank, after following certain preliminary steps, is entitled to repossess your home, sell it and use the proceeds to fulfil the debt obligation.
Cox says it is possible for creditors to take enforcement action on unsecured debts - seeking a writ for levy against property or making you bankrupt and forcing asset sales - but says it's a longer process with opportunities along the way to negotiate.
The Consumer Credit Legal Centre generally advises people to stick with their smaller debts and try to negotiate a revised payment schedule with their original lenders to resolve the problem.
Cox says people in financial stress can be vulnerable to making bad decisions based on poor advice in this regard.
"You've got people specialising in debt consolidation and - while not all these people are necessarily bad - it's an area in which some form of exploitation is quite rife," she says.
In extreme cases, people are charged large fees and commissions - totalling perhaps $30,000 on a $200,000 loan - that are added onto the new loan.
"At the really sticky end", Cox says, a large slice of the loan might be on, say, 12 per cent while the remainder of the debt goes to another lender at 16 to 18 per cent.
"The worst-case scenario for those people who are already in significant trouble on either their credit cards or their mortgage and who then consolidate or refinance into another loan is that it actually turns out to be a lot more expensive than the one they've got," she says.
"So it hasn't solved their issues at all. It might postpone enforcement proceedings but that's about it. A lot of those people go under in a fairly short time anyway and they've lost a whole lot of their equity [in their home]."
Pentland says finance brokers being paid by commission have a vested interest in promoting such loans. "They're not an independent voice and, ultimately, the outcome can be that people eat away at the equity in their homes."
In the middle are people refinancing what should be short-term debt - such as credit card balances - on long-term loans so that their repayments drop, perhaps easing their immediate burden. But the result is that they pay much more over the term of the loan, Cox says.
"Some people make that decision because they're facing enforcement proceedings on the credit card, but it's something they really need to be aware of. It might well be that, if they get advice, they'll manage to make some sort of arrangement with the original creditor on the credit card."
Also in that middle zone are people whose lenders won't let them consolidate their debts in their existing, standard-rate home loan. Some of those people might move to lenders offering "sub-prime" home loans, which come at higher interest rates based on the perceived higher risk for the lender.
Such borrowers need to take care that the saving from lowering the rate on the credit card portion of their debt isn't wiped out by the higher rate on the - almost certainly much larger - home loan portion of their debt, Cox says.
"People have to be very careful to get advice from an independent source before they do anything - particularly if they're under pressure from existing creditors," she says.
The Australian Securities and Investments Commission provides details of free, independent counselling services at its consumer website, http://www.fido.asic.gov.au/ (search for "financial counselling"). Pentland says the calculators available on many financial websites allow borrowers to do their own sums on possible outcomes.
Cox says some people will have to ask themselves whether, in the end, it would be better to sell their home.
"It's a really hard decision, but when you're being offered finance on really bad terms, once you get to that point, it's better to think, 'I'm going to make a strategic retreat here ... If I sell up now at least I'm going to walk away with some cash.' If you keep refinancing, there are people out there who, literally, are out to strip you of your equity.
"You're only going to end up worse off in the long run, because if you lose your house and your equity too that's just devastating."
Selling up is an extreme solution but a valid one if you've done a thorough assessment of your overall financial position and it just doesn't add up, Pentland says.
"You have to do some serious thinking - if you were to refinance, is that going to resolve the problem, or is it just putting off the day when you're going to have to face this?"
THE SNOWBALL EFFECTConventional wisdom says you should pay off your most expensive, non-deductible debt first. In other words, you should apply any extra money to your credit card debt first, ahead of a personal loan or home loan and definitely before an investment loan on which you can claim the interest expense as a tax deduction.
However, if personal debts have got out of hand another strategy is to pay off your smallest debts first.
The strategy involves paying the minimum required on all of your debts, then finding an extra amount to apply to the smallest of those debts. Once you've paid that first debt off, you apply its minimum repayment and the extra amount to the next smallest debt and so on.
The idea is that the amount you pay on the next debt in line snowballs each time a payment is made.
Plus there's a psychological benefit in actually seeing the debts being knocked off one by one, rather than having one large, consolidated debt hanging over your head for what seems like forever.
Asked what she thinks of the snowball strategy, named by US finance author David Ramsey, financial counsellor Jan Pentland says she thinks it does have psychological value.
"It cuts across the notion of paying the most expensive debt first but there's an effect when people see themselves making some progress," she says. "And that encourages them to do more."Source: The Age
Mortgage brokers and the mortgage industry targeted as the problem behind home loan defaults
Innovative MortgageBrokers, Mortgage Funders and the mortgage industry generally seem to be targets of a Howard Government inquiry, with recommenadations that home buyers be required to put up a deposit of 20 per cent. This would mean the end of first home buyers.
The parliamentary economics committee has called the snap inquiry into home lending as the number of people defaulting on mortgages continues to rise.
Despite low unemployment figures, economic growth and high consumer confidence, personal bankruptcies went up by 17 per cent in the 2006-07 financial year.
The chair of the committee, Bruce Baird, today said the inquiry would bring together banks, the Australian Securities and Investment Commission, the Reserve Bank of Australia (RBA), the banking regulator and consumer groups. [But no mortagge managers or mortgage brker groups who make up a growing part of the distribution of home loans.]
Discussions would focus on discovering the extent of the problem, the role of mortgage brokers and whether fierce competition between the banks was eroding prudent lending practices, Mr Baird said.
One outcome could be tighter controls on mortgage brokers, he said.
"Also some requirement there is adherence to a degree of equity, it's normally 20 per cent equity but if that's being eroded stricter controls can be brought in,'' Mr Baird said.
He said the inquiry would also consider whether the root of the problem lay with consumer attitudes.
"There's also the question of whether we have just normal greed coming in, where people want their McMansions.''
The RBA had been concerned for some time about the ease of securing home loan credit and the abandonment of the normal prudential requirement of 20 per cent equity, he said.
"We are seeing that eroded and we are seeing more of a 100 per cent of the value of a house being borrowed,'' he said.
Falling house prices in areas such as western Sydney left many homeowners with negative equity, saddling them with a debt if they were forced to sell due to financial shocks such as job loss or pregnancy, he said.
Debt explosion
The financial divide is growing between those struggling under debts and those with the resources to pay off their home, according to research by the Melbourne Institute.
Rising interest rates and the drought have led to an increase - from 10.8 per cent to 15.1 per cent over the past year - in the number of people running into debt or drawing on their savings.
The Melbourne Institute research also shows that the number of people devoting more than half their salary to debt has increased from 5.9 to 7.5 per cent over the past year.
Rural stress
Financial stress is greatest in rural districts, where the number of people running into debt or drawing on savings has soared from 9.9 to 20.8 per cent.
But there has also been an increase in metropolitan areas. The number of people succeeding in saving some of their income in metropolitan districts has dropped from 57.7 per cent to 50.7 per cent in the past year.
The study confirms Reserve Bank research showing that people with the highest debt service burdens are generally those with higher incomes.
More than 80 per cent of people earning less than $40,000 a year spend less than 10 per cent of their income on debt. Most are either in the rental market or, in the case of age pensioners, have a fully paid-off home.
The survey nevertheless found that 28.8 per cent of the people who spend more than half their income on debt service earn $50,000 or less.
Source: AAP
The parliamentary economics committee has called the snap inquiry into home lending as the number of people defaulting on mortgages continues to rise.
Despite low unemployment figures, economic growth and high consumer confidence, personal bankruptcies went up by 17 per cent in the 2006-07 financial year.
The chair of the committee, Bruce Baird, today said the inquiry would bring together banks, the Australian Securities and Investment Commission, the Reserve Bank of Australia (RBA), the banking regulator and consumer groups. [But no mortagge managers or mortgage brker groups who make up a growing part of the distribution of home loans.]
Discussions would focus on discovering the extent of the problem, the role of mortgage brokers and whether fierce competition between the banks was eroding prudent lending practices, Mr Baird said.
One outcome could be tighter controls on mortgage brokers, he said.
"Also some requirement there is adherence to a degree of equity, it's normally 20 per cent equity but if that's being eroded stricter controls can be brought in,'' Mr Baird said.
He said the inquiry would also consider whether the root of the problem lay with consumer attitudes.
"There's also the question of whether we have just normal greed coming in, where people want their McMansions.''
The RBA had been concerned for some time about the ease of securing home loan credit and the abandonment of the normal prudential requirement of 20 per cent equity, he said.
"We are seeing that eroded and we are seeing more of a 100 per cent of the value of a house being borrowed,'' he said.
Falling house prices in areas such as western Sydney left many homeowners with negative equity, saddling them with a debt if they were forced to sell due to financial shocks such as job loss or pregnancy, he said.
Debt explosion
The financial divide is growing between those struggling under debts and those with the resources to pay off their home, according to research by the Melbourne Institute.
Rising interest rates and the drought have led to an increase - from 10.8 per cent to 15.1 per cent over the past year - in the number of people running into debt or drawing on their savings.
The Melbourne Institute research also shows that the number of people devoting more than half their salary to debt has increased from 5.9 to 7.5 per cent over the past year.
Rural stress
Financial stress is greatest in rural districts, where the number of people running into debt or drawing on savings has soared from 9.9 to 20.8 per cent.
But there has also been an increase in metropolitan areas. The number of people succeeding in saving some of their income in metropolitan districts has dropped from 57.7 per cent to 50.7 per cent in the past year.
The study confirms Reserve Bank research showing that people with the highest debt service burdens are generally those with higher incomes.
More than 80 per cent of people earning less than $40,000 a year spend less than 10 per cent of their income on debt. Most are either in the rental market or, in the case of age pensioners, have a fully paid-off home.
The survey nevertheless found that 28.8 per cent of the people who spend more than half their income on debt service earn $50,000 or less.
Source: AAP
Tuesday, July 17, 2007
Real estate investors to get tax breaks for providing cheaper rental stock
Australian Labor Party will consider giving tax breaks or even cash to property investors who invest in cheaper rental housing to create more housing stock and thus ease Australia's housing crisis.
Labor's housing spokeswoman Tanya Plibersek said that while Labor will not tamper with negative gearing, its flaw is that it delivers only expensive rental properties as owners seek to maximise tax advantages.
Ms Plibersek said she wanted to push for Labor to adopt the policy where investors received tax incentives or tax credits for providing housing at cheaper than market rent rates.
"Anything we do should actually increase housing stock, we have to build more houses if we want to do something about housing affordability so I'm particularly interested in measures that increase the supply of houses," Ms Plibersek said.
Two weeks ago, Labor leader Kevin Rudd released a paper in Brisbane entitled New Directions for Affordable Housing, which canvasses various proposals to end the crisis and also proposes a July 26 housing summit.
Ms Plibersek said that of the various options, she favoured a rental incentive scheme.
That would provide a subsidy to developers or community housing providers to build affordable accommodation.
The subsidy would apply for as long as owners rented properties out at affordable rental levels.
"They will be able, some time down the track, to rent them out at market rates," she said. "But while they get the subsidy, they will be renting it at below market rental.
"It might not be cash, it might be reduced taxation, but it's a fixed amount of benefit - in many instances, the way you'd do it is reduced tax or tax credits so they can use it in other areas of their business or they might pay less capital gain over time".
Ms Plibersek said many people were investing in housing but were most likely to invest in high cost properties.
"The tax treatment in many ways privileges that type of investment," she said.
"If there are other ways of privileging investment at the more affordable end of the rental market ... that is something that I'm enthusiastic about."
Her comments came as Peter Costello revealed he had written to state governments, the housing industry and land developers to begin an audit to identify land able to be released for housing.
The Treasurer, who blames high housing costs on land shortages that could be eased if states released more public land, said it was essential to identify land that is available for housing so that demand from a growing population does not put extra pressure on house prices.
"The Federal Government recognises that housing affordability is a complex issue, and there are many aspects that govern it on both the demand and the supply side," he said.
Source: The Australian
Labor's housing spokeswoman Tanya Plibersek said that while Labor will not tamper with negative gearing, its flaw is that it delivers only expensive rental properties as owners seek to maximise tax advantages.
Ms Plibersek said she wanted to push for Labor to adopt the policy where investors received tax incentives or tax credits for providing housing at cheaper than market rent rates.
"Anything we do should actually increase housing stock, we have to build more houses if we want to do something about housing affordability so I'm particularly interested in measures that increase the supply of houses," Ms Plibersek said.
Two weeks ago, Labor leader Kevin Rudd released a paper in Brisbane entitled New Directions for Affordable Housing, which canvasses various proposals to end the crisis and also proposes a July 26 housing summit.
Ms Plibersek said that of the various options, she favoured a rental incentive scheme.
That would provide a subsidy to developers or community housing providers to build affordable accommodation.
The subsidy would apply for as long as owners rented properties out at affordable rental levels.
"They will be able, some time down the track, to rent them out at market rates," she said. "But while they get the subsidy, they will be renting it at below market rental.
"It might not be cash, it might be reduced taxation, but it's a fixed amount of benefit - in many instances, the way you'd do it is reduced tax or tax credits so they can use it in other areas of their business or they might pay less capital gain over time".
Ms Plibersek said many people were investing in housing but were most likely to invest in high cost properties.
"The tax treatment in many ways privileges that type of investment," she said.
"If there are other ways of privileging investment at the more affordable end of the rental market ... that is something that I'm enthusiastic about."
Her comments came as Peter Costello revealed he had written to state governments, the housing industry and land developers to begin an audit to identify land able to be released for housing.
The Treasurer, who blames high housing costs on land shortages that could be eased if states released more public land, said it was essential to identify land that is available for housing so that demand from a growing population does not put extra pressure on house prices.
"The Federal Government recognises that housing affordability is a complex issue, and there are many aspects that govern it on both the demand and the supply side," he said.
Source: The Australian
Monday, July 16, 2007
Mortgage and personal credit slowdown tipped as Australians are at "debt capacity" according to the Commonwealth Bank
Commonwealth Bank chief Ralph Norris says Australia's debt-laden household sector had reached its capacity for debt and a slowdown in borrowing is expected for personal finance, including credit cards, persoanl loans and mortgage home loans.
Mr Norris said hopes his business banking division will counter an expected slowdown in personal lending over the next year.
Speaking at a business lunch in Melbourne yesterday, Mr Norris said Australia's debt-laden household sector had reached its capacity for personal loans.
"If you look at the capacity for people to borrow, it's obviously getting to very high levels of capacity and I think there will be a tempering of demand in regard to personal lending," he said. "We have reached capacity for people to borrow which would see them start to reduce their appetite for additional borrowing.
"So we'll see a slowing in growth for personal lending and an increase in growth for business lending."
Since Mr Norris took over the reins of the bank in September 2005, one of his priorities has been to improve CBA's share of the business-lending market.
Rival major banks and niche lenders have eroded CBA's business customer market share from 22 per cent to 13 per cent in the last decade.
One of the big changes Mr Norris has made has put business bankers back into branches.
Despite the bearish outlook , the Australian Bureau of Statistics yesterday released data showing that personal finance commitments rose by 2.2 per cent in May.
On a seasonally adjusted basis, the value of personal lending reached $6.7 billion -- slightly above the trend figure of $6.6 billion.
The ABS said the rise was driven by a 5.6 per cent increase in revolving credit, which included credit cards and overdrafts, offsetting a 1.4 per cent decline in fixed-term loans.
CommSec equities economist Martin Arnold said the rise in personal finance indicated that consumers still had confidence in their financial position.
He noted monthly changes in lending finance figures were often volatile and best viewed over a longer period.
He said the rise in personal finance in May consolidated falls in the previous months.
Personal finance commitments dropped by about 0.5 per cent in April and 0.6 per cent in March.
Mr Arnold said commercial finance picked up during May as the robust business environment encouraged companies to invest in construction projects and the property market.
"Business lending makes up over 60 per cent of total lending, so it is an encouraging sign for future growth that businesses continue to expand their working capacity," he said.
Source: AAP
Mr Norris said hopes his business banking division will counter an expected slowdown in personal lending over the next year.
Speaking at a business lunch in Melbourne yesterday, Mr Norris said Australia's debt-laden household sector had reached its capacity for personal loans.
"If you look at the capacity for people to borrow, it's obviously getting to very high levels of capacity and I think there will be a tempering of demand in regard to personal lending," he said. "We have reached capacity for people to borrow which would see them start to reduce their appetite for additional borrowing.
"So we'll see a slowing in growth for personal lending and an increase in growth for business lending."
Since Mr Norris took over the reins of the bank in September 2005, one of his priorities has been to improve CBA's share of the business-lending market.
Rival major banks and niche lenders have eroded CBA's business customer market share from 22 per cent to 13 per cent in the last decade.
One of the big changes Mr Norris has made has put business bankers back into branches.
Despite the bearish outlook , the Australian Bureau of Statistics yesterday released data showing that personal finance commitments rose by 2.2 per cent in May.
On a seasonally adjusted basis, the value of personal lending reached $6.7 billion -- slightly above the trend figure of $6.6 billion.
The ABS said the rise was driven by a 5.6 per cent increase in revolving credit, which included credit cards and overdrafts, offsetting a 1.4 per cent decline in fixed-term loans.
CommSec equities economist Martin Arnold said the rise in personal finance indicated that consumers still had confidence in their financial position.
He noted monthly changes in lending finance figures were often volatile and best viewed over a longer period.
He said the rise in personal finance in May consolidated falls in the previous months.
Personal finance commitments dropped by about 0.5 per cent in April and 0.6 per cent in March.
Mr Arnold said commercial finance picked up during May as the robust business environment encouraged companies to invest in construction projects and the property market.
"Business lending makes up over 60 per cent of total lending, so it is an encouraging sign for future growth that businesses continue to expand their working capacity," he said.
Source: AAP
Becton Property Group to buy real estate assets of failed real estate investment group Fincorp
BectonProperty Group will acquire the property portfolio of collapsed funds manager and property investment firm Fincorp, after its offer was accepted by administrators KordaMentha.
Becton will acquire nine of the 10 Fincorp properties and invest up to $170 million to acquire a 10-year development pipeline, valued at more than $470 million.
The portfolio includes residential, retirement and commercial development sites and assets.
It includes the high profile Mernda town centre development site, 18 kilometres north of Melbourne.
The Sydney-based Fincorp went into administration in March owing its investors $201 million and its bank lenders a further $95 million.
The investment firm has more than 8,000 investors, whose average age is around 60.
As part of Becton deal, Fincorp investors will have the right to a cash out price of approximately 50 cents for each $1.00 originally invested in Fincorp.
They will also have the right to reinvest those proceeds in Becton's Office Fund at an effective price of approximately 55 cents for each $1.00.
The fund is a passive fund holding completed office properties.
In March, the administrators told aggrieved investors they could only expect to claw back 30 cents in the dollar.
Becton chief executive Hamish Macdonald said he hoped Fincorp investors would remain with the managed office fund.
"We believe that our offer provides significantly more value to Fincorp investors than would have been otherwise available from a straight liquidation,'' Mr Macdonald said.
"In this case, we were able to offer a significant 10 per cent premium to Fincorp first ranking/secured noteholders and have also provided a three-year capital guarantee if they choose to reinvest in the Becton Office Fund.''
The Fincorp portfolio includes two retirement village sites under development with a total of 379 dwellings in Hervey Bay and Mackay, Queensland.
As well, in Victoria, the portfolio holds a shopping centre site, the mixed-use site in Mernda and a completed bulky-goods property in Warrnambool.
Mr Macdonald said the acquisition will be earnings accretive for Becton from year one.
"The earnings accretion will be generated by the incremental increase in recurring earnings,'' he said.
"The development profits from the acquisition will strongly support our stated objective of producing $25 million of earnings before interest and tax per annum from our development and construction business.''
AAP
Becton will acquire nine of the 10 Fincorp properties and invest up to $170 million to acquire a 10-year development pipeline, valued at more than $470 million.
The portfolio includes residential, retirement and commercial development sites and assets.
It includes the high profile Mernda town centre development site, 18 kilometres north of Melbourne.
The Sydney-based Fincorp went into administration in March owing its investors $201 million and its bank lenders a further $95 million.
The investment firm has more than 8,000 investors, whose average age is around 60.
As part of Becton deal, Fincorp investors will have the right to a cash out price of approximately 50 cents for each $1.00 originally invested in Fincorp.
They will also have the right to reinvest those proceeds in Becton's Office Fund at an effective price of approximately 55 cents for each $1.00.
The fund is a passive fund holding completed office properties.
In March, the administrators told aggrieved investors they could only expect to claw back 30 cents in the dollar.
Becton chief executive Hamish Macdonald said he hoped Fincorp investors would remain with the managed office fund.
"We believe that our offer provides significantly more value to Fincorp investors than would have been otherwise available from a straight liquidation,'' Mr Macdonald said.
"In this case, we were able to offer a significant 10 per cent premium to Fincorp first ranking/secured noteholders and have also provided a three-year capital guarantee if they choose to reinvest in the Becton Office Fund.''
The Fincorp portfolio includes two retirement village sites under development with a total of 379 dwellings in Hervey Bay and Mackay, Queensland.
As well, in Victoria, the portfolio holds a shopping centre site, the mixed-use site in Mernda and a completed bulky-goods property in Warrnambool.
Mr Macdonald said the acquisition will be earnings accretive for Becton from year one.
"The earnings accretion will be generated by the incremental increase in recurring earnings,'' he said.
"The development profits from the acquisition will strongly support our stated objective of producing $25 million of earnings before interest and tax per annum from our development and construction business.''
AAP
Sunday, July 15, 2007
Platinum credit cards are top of the line
Perks such as celebrity golf outings, free travel insurance, priority reservations at top restaurants and emergency access to a doctor in a remote area can be yours with a platinum credit card.
Introduced by credit card innovators American Express as a charge card and now offered by most financial institutions, platinum has taken over from gold in the premium credit card stakes to become the essential wallet accessory for the well-to-do and upwardly mobile.
And it's never been easier to go platinum as many financial institutions no longer apply annual income limits, to the point where the average Joe is likely to qualify if his credit rating is up to scratch.
But with annual fees ranging from $89 to $395 a year (or $900 a year in the case of Amex's platinum charge - as opposed to credit - card), are these credit cards good value for money or simply a piece of plastic with which to stroke one's ego?
VALUE FOR BIG SPENDERS WHO USE CREDIT CARDS
The best way to assess whether it is worth upgrading to platinum is to weigh up the value of the perks on offer against the annual fee being charged. Interest rates vary, but it's the "extras" that make platinum credit cards different.
But comparing perks isn't that easy. How much you spend on your card each year and the lifestyle you lead have a huge bearing on whether you can take full advantage of the rewards or benefits on offer.
The latest credit card survey by financial researcher Cannex shows the best value-for-money platinum cards for big spenders (categorised as those who spend up to $60,000 a year on their credit card but are able to pay off their balance each month) are offered by StGeorge, Citibank, Commonwealth Bank, HSBC and Westpac.
LOW FEES SUIT LOW SPENDERS
If your annual expenditure is unlikely to exceed more than about $12,000 a year or $1000 a month, then it may be better to choose a low-fee, service-oriented card where you don't have the pressure of having to rack up points to take advantage of a reward program.
While it also rates well for high spenders, the low-fee platinum card offered by St George offers a concierge service (see breakout), free international travel insurance and other benefits, but little in the way of a rewards program. Consumers weighing up the benefits of this card have to ask themselves if they are prepared to pay $89 a year to access a concierge service and the other benefits.
For many the answer is yes, says Sabina Zeljko, senior manager, credit cards, for StGeorge, who says its platinum concierge service is the same as most concierge services because MasterCard and Visa mandate a level of service that all card issuers have to meet.
Zeljko says while only a small percentage of St George platinum cardholders have taken advantage of the concierge service (the card was only launched in December), she expects numbers to grow.
Madeline O'Connor, head of cards marketing for Citibank, says those that have used the Citibank's concierge service once tend to become regular users.
WITH PLATINUM CREDIR CARDS
Compared with weighing up the merit of a concierge service, it's a much more tricky exercise to work out the true value of the rewards-based programs. "You need to know yourself and know the product," says Cannex financial analyst Harry Senlitonga.
He agrees that this is more easily said than done. For a start, the amount you need to spend to gain frequent flyer points varies, as does the value of frequent flyer points with different airlines.
Moreover, Reserve Bank reforms allowing merchants to apply surcharges to credit-card transactions have diluted the value of some programs, and some point systems have expiry dates.
But, importantly for those considering upgrading to platinum from gold, some platinum programs are more generous than the gold and the extra points you earn may compensate for paying a higher annual fee.
Cannex figures show American Express offers the most generous platinum reward program for free air travel. Not only do holders of an Amex platinum credit card qualify for a free domestic flight each year, but they (and holders of the Westpac Altitude Platinum Amex card) also need spend only $10,667 to qualify for a Sydney or Melbourne return trip to London on Qantas.
This compares with an annual expenditure of about $16,000 required by most gold cards, as well as most of the other platinum cards for free domestic Qantas flights.
Meanwhile, Amex platinum cardholders wanting to qualify for a free overseas trip need only rack up an annual expenditure of $85,333, compared with more than $120,000 for most of the other cards.
INSTANT GRATIFICATION WITH PLATINUM CREDIT CARDS
When it comes to "instant" benefits, such as free travel insurance, going platinum starts to look like a smart move for those who travel overseas at least once a year.
A recent study by Cannex found that cardholders could save hundreds of dollars a year by using the travel insurance packages on offer. "Most people used to assume that the travel insurance offered by credit card companies was inferior to the stand-alone product, but we found that the platinum cards were very competitive in this area," Senlitonga says.
That said, there are significant differences between the travel insurance offered by the various platinum cards. Senlitonga says to carefully read the fine print.
So what card does Senlitonga carry? "For me, gold is good enough until I spend more than my current expenditure of about $1000 a month."
You can see the cannex web site for a more detailed comparison of credit cards.
$900 a year gets jacket from Paris.
Despite forking out about $4500 in fees since he became an American Express platinum charge card holder in 2002, Giang Nguyen (pictured) is convinced the card offers excellent value for money.
An IT executive who frequently travels overseas, he uses the card's complimentary concierge service at least once a week.
The 34-year-old single Melburnian has called on the service to arrange tickets for a Cirque de Soleil performance in Las Vegas, ringside seats at the Australian Tennis Open, entry to London nightclubs and flower deliveries to overseas hotel rooms.
"There doesn't seem to be anything the concierges can't do," says Nguyen, who has come to rely on the service in the same way many executives rely on their personal assistants.
Nguyen uses the concierge team for personal shopping - they recently organised for a Hermes jacket to be sent from Paris when his size was unavailable in Australia. Nguyen says these services coupled with the Amex rewards program means he can justify paying the card's annual fee of $900.
He carries other credit cards to overcome the problem of the Amex card being less widely accepted than MasterCard and Visa.
And he isn't fazed when some merchants charge him an additional transaction fee (which on occasions is as high as three per cent).
"This is a small inconvenience," he says.
Source: The AGE
Introduced by credit card innovators American Express as a charge card and now offered by most financial institutions, platinum has taken over from gold in the premium credit card stakes to become the essential wallet accessory for the well-to-do and upwardly mobile.
And it's never been easier to go platinum as many financial institutions no longer apply annual income limits, to the point where the average Joe is likely to qualify if his credit rating is up to scratch.
But with annual fees ranging from $89 to $395 a year (or $900 a year in the case of Amex's platinum charge - as opposed to credit - card), are these credit cards good value for money or simply a piece of plastic with which to stroke one's ego?
VALUE FOR BIG SPENDERS WHO USE CREDIT CARDS
The best way to assess whether it is worth upgrading to platinum is to weigh up the value of the perks on offer against the annual fee being charged. Interest rates vary, but it's the "extras" that make platinum credit cards different.
But comparing perks isn't that easy. How much you spend on your card each year and the lifestyle you lead have a huge bearing on whether you can take full advantage of the rewards or benefits on offer.
The latest credit card survey by financial researcher Cannex shows the best value-for-money platinum cards for big spenders (categorised as those who spend up to $60,000 a year on their credit card but are able to pay off their balance each month) are offered by StGeorge, Citibank, Commonwealth Bank, HSBC and Westpac.
LOW FEES SUIT LOW SPENDERS
If your annual expenditure is unlikely to exceed more than about $12,000 a year or $1000 a month, then it may be better to choose a low-fee, service-oriented card where you don't have the pressure of having to rack up points to take advantage of a reward program.
While it also rates well for high spenders, the low-fee platinum card offered by St George offers a concierge service (see breakout), free international travel insurance and other benefits, but little in the way of a rewards program. Consumers weighing up the benefits of this card have to ask themselves if they are prepared to pay $89 a year to access a concierge service and the other benefits.
For many the answer is yes, says Sabina Zeljko, senior manager, credit cards, for StGeorge, who says its platinum concierge service is the same as most concierge services because MasterCard and Visa mandate a level of service that all card issuers have to meet.
Zeljko says while only a small percentage of St George platinum cardholders have taken advantage of the concierge service (the card was only launched in December), she expects numbers to grow.
Madeline O'Connor, head of cards marketing for Citibank, says those that have used the Citibank's concierge service once tend to become regular users.
WITH PLATINUM CREDIR CARDS
Compared with weighing up the merit of a concierge service, it's a much more tricky exercise to work out the true value of the rewards-based programs. "You need to know yourself and know the product," says Cannex financial analyst Harry Senlitonga.
He agrees that this is more easily said than done. For a start, the amount you need to spend to gain frequent flyer points varies, as does the value of frequent flyer points with different airlines.
Moreover, Reserve Bank reforms allowing merchants to apply surcharges to credit-card transactions have diluted the value of some programs, and some point systems have expiry dates.
But, importantly for those considering upgrading to platinum from gold, some platinum programs are more generous than the gold and the extra points you earn may compensate for paying a higher annual fee.
Cannex figures show American Express offers the most generous platinum reward program for free air travel. Not only do holders of an Amex platinum credit card qualify for a free domestic flight each year, but they (and holders of the Westpac Altitude Platinum Amex card) also need spend only $10,667 to qualify for a Sydney or Melbourne return trip to London on Qantas.
This compares with an annual expenditure of about $16,000 required by most gold cards, as well as most of the other platinum cards for free domestic Qantas flights.
Meanwhile, Amex platinum cardholders wanting to qualify for a free overseas trip need only rack up an annual expenditure of $85,333, compared with more than $120,000 for most of the other cards.
INSTANT GRATIFICATION WITH PLATINUM CREDIT CARDS
When it comes to "instant" benefits, such as free travel insurance, going platinum starts to look like a smart move for those who travel overseas at least once a year.
A recent study by Cannex found that cardholders could save hundreds of dollars a year by using the travel insurance packages on offer. "Most people used to assume that the travel insurance offered by credit card companies was inferior to the stand-alone product, but we found that the platinum cards were very competitive in this area," Senlitonga says.
That said, there are significant differences between the travel insurance offered by the various platinum cards. Senlitonga says to carefully read the fine print.
So what card does Senlitonga carry? "For me, gold is good enough until I spend more than my current expenditure of about $1000 a month."
You can see the cannex web site for a more detailed comparison of credit cards.
$900 a year gets jacket from Paris.
Despite forking out about $4500 in fees since he became an American Express platinum charge card holder in 2002, Giang Nguyen (pictured) is convinced the card offers excellent value for money.
An IT executive who frequently travels overseas, he uses the card's complimentary concierge service at least once a week.
The 34-year-old single Melburnian has called on the service to arrange tickets for a Cirque de Soleil performance in Las Vegas, ringside seats at the Australian Tennis Open, entry to London nightclubs and flower deliveries to overseas hotel rooms.
"There doesn't seem to be anything the concierges can't do," says Nguyen, who has come to rely on the service in the same way many executives rely on their personal assistants.
Nguyen uses the concierge team for personal shopping - they recently organised for a Hermes jacket to be sent from Paris when his size was unavailable in Australia. Nguyen says these services coupled with the Amex rewards program means he can justify paying the card's annual fee of $900.
He carries other credit cards to overcome the problem of the Amex card being less widely accepted than MasterCard and Visa.
And he isn't fazed when some merchants charge him an additional transaction fee (which on occasions is as high as three per cent).
"This is a small inconvenience," he says.
Source: The AGE
Mortgage Funds top $22 billion
Is there such a thing as too much money? Most of us would think not, but when large chunks of money are competing for a home, investors are often forced to take on more risk.
One area where this has happened in recent years is the mortgage fund market.
While mortgage funds don't have the sex appeal of share and property funds, they have captured a fair slice of the investment pool.
Australians are estimated to have more than $22 billion invested in mortgage funds, with the largest retail funds having assets of close to $2 billion.
The appeal of mortgage funds is simple. They provide a steady, regular income and should deliver a better long-term return than cash investments.
But traditional mortgage funds have been lagging the cash rate and the better returns are being generated by funds that pack more punch but also carry greater risks.
Morningstar performance figures for the past financial year show returns ranging from 5.19 per cent (Colonial First State's Bricks and Mortar Fund) to 9.46 per cent (Mirvac's AQUA High Income Fund).
The median return is 6.58 per cent. But comparing funds at the top and bottom of the ladder is more like comparing chop suey with mangos than apples with apples.
If a fund is showing returns of 9 per cent or more, says Morningstar's Anthony Serhan, it is almost certainly lending against construction and development. Borrowers don't pay higher interest rates because they want to; they do it because lenders charge them a higher rate to reflect the loan's higher risk.
It's a point that was lost on many investors who bought debentures and unsecured notes with groups like Fincorp, Australian Capital Reserve and Bridgecorp, and inevitably some mortgage fund investors will miss it too.
This isn't to say that mortgage funds fall into the same basket as these collapsed property lenders. Investors in these schemes often put their money into unsecured or secondary securities that rank behind secured lenders.
Most mortgage funds insist on first mortgage security, and while they may be creditors of the collapsed groups, Standard and Poor's fund analyst, Peter Ward, says they should get out relatively unscathed without causing losses to their investors.
The fact that mortgage funds are generally well diversified and don't put big slabs of their money with one borrower, also helps.
But you still need to understand just how much risk your mortgage fund is taking on and what protections it has in place.
Standard and Poor's has just completed a report on 52 mortgage funds and found big differences in what's on offer.
The report says conventional mortgage funds have been suffering from "milking the same cow" as the banks. Competing for loans has led to lower margins and, in some cases, lower credit standards.
Morningstar's Serhan says smaller mortgage players, especially, can't compete on price when the banks decide to buy market share.
They may be able to compete by establishing better relationships with borrowers, but some have chosen to move up the chain - to look at loans less fiercely contested by the banks.
At the same time, traditional mortgage funds have been showing less than spectacular returns.
S&P's report found they have increasingly underperformed bank bills, and Serhan says they have lost ground to newer listed debt investments (many of which are also a step or more up the risk scale).
Traditional funds still make up the bulk of the market, but the number of higher yield or higher risk products is growing to adapt to these market forces.
So is it a case of once bitten, twice shy? Take a lesson from Fincorp et al and avoid the higher yield mortgage funds like the plague?
Not necessarily. S&P gave four-star ratings to four high yield mortgage funds and said they should generate better short- to medium-term performance than the traditional funds. But you need to do your homework.
Ward says some of the more dubious practices in the industry (and these can occur in both higher yield and traditional funds) include lending against the "on completion" value of development projects (which includes the developers' profit) rather than the cost of the project, plus related party loans, insufficient liquidity within the fund, and high gearing levels. He says funds should be well diversified (geographically, across sectors and across borrowers), have a stable management team, and effectively manage arrears and defaults.
You also need to understand what the fund invests in. Ward says some mortgage funds have become hybrids and invest in fixed interest securities as well as mortgages, and there has been a rise in the number of residual product loans where mortgage funds lend against unsold units when a development is completed, in anticipation of the units being sold. As with development loans, interest on these loans is usually capitalised and represents higher risk.
S&P found widespread use of mezzanine finance (where higher geared loans are split, with the senior lender taking a first mortgage and other lenders providing additional finance) and some funds specialised in areas such as low-or no-doc lending.
If understanding all that sounds like hard work, you're right. Mortgage funds have become more complex and investors are further hampered by poor or inconsistent disclosure.
While he believes mortgage funds have a role in investors' portfolios, Serhan says they should provide standardised disclosure so that investors can compare risks between funds and understand measures such as the level of a fund's arrears. They may still not be comparing applies with apples, but at least it would look a bit less like chop suey.
One area where this has happened in recent years is the mortgage fund market.
While mortgage funds don't have the sex appeal of share and property funds, they have captured a fair slice of the investment pool.
Australians are estimated to have more than $22 billion invested in mortgage funds, with the largest retail funds having assets of close to $2 billion.
The appeal of mortgage funds is simple. They provide a steady, regular income and should deliver a better long-term return than cash investments.
But traditional mortgage funds have been lagging the cash rate and the better returns are being generated by funds that pack more punch but also carry greater risks.
Morningstar performance figures for the past financial year show returns ranging from 5.19 per cent (Colonial First State's Bricks and Mortar Fund) to 9.46 per cent (Mirvac's AQUA High Income Fund).
The median return is 6.58 per cent. But comparing funds at the top and bottom of the ladder is more like comparing chop suey with mangos than apples with apples.
If a fund is showing returns of 9 per cent or more, says Morningstar's Anthony Serhan, it is almost certainly lending against construction and development. Borrowers don't pay higher interest rates because they want to; they do it because lenders charge them a higher rate to reflect the loan's higher risk.
It's a point that was lost on many investors who bought debentures and unsecured notes with groups like Fincorp, Australian Capital Reserve and Bridgecorp, and inevitably some mortgage fund investors will miss it too.
This isn't to say that mortgage funds fall into the same basket as these collapsed property lenders. Investors in these schemes often put their money into unsecured or secondary securities that rank behind secured lenders.
Most mortgage funds insist on first mortgage security, and while they may be creditors of the collapsed groups, Standard and Poor's fund analyst, Peter Ward, says they should get out relatively unscathed without causing losses to their investors.
The fact that mortgage funds are generally well diversified and don't put big slabs of their money with one borrower, also helps.
But you still need to understand just how much risk your mortgage fund is taking on and what protections it has in place.
Standard and Poor's has just completed a report on 52 mortgage funds and found big differences in what's on offer.
The report says conventional mortgage funds have been suffering from "milking the same cow" as the banks. Competing for loans has led to lower margins and, in some cases, lower credit standards.
Morningstar's Serhan says smaller mortgage players, especially, can't compete on price when the banks decide to buy market share.
They may be able to compete by establishing better relationships with borrowers, but some have chosen to move up the chain - to look at loans less fiercely contested by the banks.
At the same time, traditional mortgage funds have been showing less than spectacular returns.
S&P's report found they have increasingly underperformed bank bills, and Serhan says they have lost ground to newer listed debt investments (many of which are also a step or more up the risk scale).
Traditional funds still make up the bulk of the market, but the number of higher yield or higher risk products is growing to adapt to these market forces.
So is it a case of once bitten, twice shy? Take a lesson from Fincorp et al and avoid the higher yield mortgage funds like the plague?
Not necessarily. S&P gave four-star ratings to four high yield mortgage funds and said they should generate better short- to medium-term performance than the traditional funds. But you need to do your homework.
Ward says some of the more dubious practices in the industry (and these can occur in both higher yield and traditional funds) include lending against the "on completion" value of development projects (which includes the developers' profit) rather than the cost of the project, plus related party loans, insufficient liquidity within the fund, and high gearing levels. He says funds should be well diversified (geographically, across sectors and across borrowers), have a stable management team, and effectively manage arrears and defaults.
You also need to understand what the fund invests in. Ward says some mortgage funds have become hybrids and invest in fixed interest securities as well as mortgages, and there has been a rise in the number of residual product loans where mortgage funds lend against unsold units when a development is completed, in anticipation of the units being sold. As with development loans, interest on these loans is usually capitalised and represents higher risk.
S&P found widespread use of mezzanine finance (where higher geared loans are split, with the senior lender taking a first mortgage and other lenders providing additional finance) and some funds specialised in areas such as low-or no-doc lending.
If understanding all that sounds like hard work, you're right. Mortgage funds have become more complex and investors are further hampered by poor or inconsistent disclosure.
While he believes mortgage funds have a role in investors' portfolios, Serhan says they should provide standardised disclosure so that investors can compare risks between funds and understand measures such as the level of a fund's arrears. They may still not be comparing applies with apples, but at least it would look a bit less like chop suey.
Are property prices, demand and mortgages to be driven by DIY superannuation?
Far from depressing the property market, the changes to super might just spur it along.
Already real estate is picking up in Brisbane, Melbourne and even in the inner city and top end parts of Sydney, a victim of past excesses, and also a growth in mortgage loans.
As far as I can gather, DIY super funds were being topped up as much by flicking share portfolios as flogging investment properties. In any case, if the super changes really were a problem for property, they won't be after Saturday.
The question is no longer when property prices will recover but how high they'll go. That alos applies for mortgages.
Is this the start of a new boom? Not if you believe economists. But I'm not so sure. Perhaps they need to look at the recent speech by the governor of the Reserve Bank, Glenn Stevens. You would have heard all about his hint of an interest rate rise in a few months, but it was his comment about the property market that was the real eye-opener.
He said: "The number of dwellings being built looks to be below what is normally thought to be underlying demand arising from population growth and household formation."
In Reservespeak, they're fighting words. He's saying there's a shortage of housing and developers should get on with it.
Demand is outstripping supply because of soaring wages, job growth and a pick-up in immigration.
Stevens went on to explain how difficult this shortage of housing will be to fix because the economy is running at full capacity: labour and materials to build houses will have to come from mining or infrastructure.
The point is for that to happen, construction costs would soar, which can only boost the value of existing properties.
Meanwhile, rents are rising because vacancy rates are the lowest in a lifetime, and the sharemarket is distinctly pricey, so all those cashed-up DIY super funds would have to be running the ruler over real estate.
Source: Sydney Morning Herald
Already real estate is picking up in Brisbane, Melbourne and even in the inner city and top end parts of Sydney, a victim of past excesses, and also a growth in mortgage loans.
As far as I can gather, DIY super funds were being topped up as much by flicking share portfolios as flogging investment properties. In any case, if the super changes really were a problem for property, they won't be after Saturday.
The question is no longer when property prices will recover but how high they'll go. That alos applies for mortgages.
Is this the start of a new boom? Not if you believe economists. But I'm not so sure. Perhaps they need to look at the recent speech by the governor of the Reserve Bank, Glenn Stevens. You would have heard all about his hint of an interest rate rise in a few months, but it was his comment about the property market that was the real eye-opener.
He said: "The number of dwellings being built looks to be below what is normally thought to be underlying demand arising from population growth and household formation."
In Reservespeak, they're fighting words. He's saying there's a shortage of housing and developers should get on with it.
Demand is outstripping supply because of soaring wages, job growth and a pick-up in immigration.
Stevens went on to explain how difficult this shortage of housing will be to fix because the economy is running at full capacity: labour and materials to build houses will have to come from mining or infrastructure.
The point is for that to happen, construction costs would soar, which can only boost the value of existing properties.
Meanwhile, rents are rising because vacancy rates are the lowest in a lifetime, and the sharemarket is distinctly pricey, so all those cashed-up DIY super funds would have to be running the ruler over real estate.
Source: Sydney Morning Herald
Easy credit card and cash loans ands easy mortgages are driving more to insolvency
Taking advantage of fast easy credit cards and cash loans are increasing debt and insolvency.
Despite low unemployment figures, economic growth and high consumer confidence, personal bankruptcies went up by 17 per cent in the 2006-07 financial year.
David Tennant, chairman of the Australian Financial Counselling and Credit Reform Association, said more ordinary Australians were finding it difficult to make ends meet.
Over the last six months his Care Financial Counselling Service has recorded a ten per cent rise in people needing assistance.
"The debt explosion is not because people are necessarily leading an extravagant lifestyle it is because it has become much harder for ordinary households to make ends meet, so they use credit cards and payday loans to bridge the gap.
"The deeply disturbing trend ... is a subtle shift from low-income to now medium-low income households simply not having enough money to have the basic lifestyle."
Mr Tennant said it was a relief that housing affordability was now a national issue because his group had been trying to draw attention to it for years.
A spokeswoman from consumer advocacy group CHOICE said a drop in house prices also had inadvertently put borrowers in the red.
"It's very disturbing when people sell their house and still can't reach payments for the outstanding mortgage," she said.
"There is a huge amount of individual responsibility required but it is also very hard when people are presented with all these finance opportunities. People don't think something bad is going to happen and then someone falls ill or a car repair is required.
"Australian consumers are under a lot of pressure to buy homes, to have a family home. They are told they can have a dream home. It is good to have confidence but you can't extend yourself."
The spokeswoman said there were grave concerns with fast loans when there was only limited testing of borrowers' ability to pay.
Bob Cruickshanks, deputy officer receiver for the Insolvency and Trustee Service Australia, said financial institutions were relaxing their means tests because of greater competition.
"Super funds are awash with cash and when you look around in Sydney there aren't really big projects absorbing it, so there is more money available and greater competition for the smaller finance companies to compete for borrowers.
"But the Department of Fair Trading has been like a hawk stamping out dodgy credit companies," he said.
Source: AAP
Despite low unemployment figures, economic growth and high consumer confidence, personal bankruptcies went up by 17 per cent in the 2006-07 financial year.
David Tennant, chairman of the Australian Financial Counselling and Credit Reform Association, said more ordinary Australians were finding it difficult to make ends meet.
Over the last six months his Care Financial Counselling Service has recorded a ten per cent rise in people needing assistance.
"The debt explosion is not because people are necessarily leading an extravagant lifestyle it is because it has become much harder for ordinary households to make ends meet, so they use credit cards and payday loans to bridge the gap.
"The deeply disturbing trend ... is a subtle shift from low-income to now medium-low income households simply not having enough money to have the basic lifestyle."
Mr Tennant said it was a relief that housing affordability was now a national issue because his group had been trying to draw attention to it for years.
A spokeswoman from consumer advocacy group CHOICE said a drop in house prices also had inadvertently put borrowers in the red.
"It's very disturbing when people sell their house and still can't reach payments for the outstanding mortgage," she said.
"There is a huge amount of individual responsibility required but it is also very hard when people are presented with all these finance opportunities. People don't think something bad is going to happen and then someone falls ill or a car repair is required.
"Australian consumers are under a lot of pressure to buy homes, to have a family home. They are told they can have a dream home. It is good to have confidence but you can't extend yourself."
The spokeswoman said there were grave concerns with fast loans when there was only limited testing of borrowers' ability to pay.
Bob Cruickshanks, deputy officer receiver for the Insolvency and Trustee Service Australia, said financial institutions were relaxing their means tests because of greater competition.
"Super funds are awash with cash and when you look around in Sydney there aren't really big projects absorbing it, so there is more money available and greater competition for the smaller finance companies to compete for borrowers.
"But the Department of Fair Trading has been like a hawk stamping out dodgy credit companies," he said.
Source: AAP
Labor promises housing relief for home buyers in its election platform
Australia's Labor Party has promised to work with state and local government to cut red tape for home buyers, reducing delays in the real estate development application process, if it wins the upcoming federal election.
Australia's hopeful "Government in waiting" says industry bodies like the NSW Urban Taskforce has found that delays cost up to $4 billion a year alone in the state, and in some local council areas development applications are taking at least 12 months.
Holding costs and delays can add up to 15 per cent to a project's overall cost, it says.
“These delays add unnecessary cost burdens to the home buyers and this is significant to first time home buyers on limited budgets,” Labor leader Kevin Rudd said in a joint statement with treasury spokesman Wayne Swan and housing spokeswoman Tanya Plibersek.
Labor's national housing affordability summit on July 26 will consider how to roll out a national online real estate land development application tracking website that would be uniform across all states, territories and local government planning departments.
“This would allow all home buyers, including first time home buyers to check the status of their approval at any time of the day,” Mr Rudd said.
“It would also save local councils time and money. A similar scheme known as the Application Tracking Online Service is already operating in northern Sydney at Pittwater Council.”
Labor says the process of complying minor housing projects – such as extensions – also needs streamlining in local government councils.
Source: AAP
Australia's hopeful "Government in waiting" says industry bodies like the NSW Urban Taskforce has found that delays cost up to $4 billion a year alone in the state, and in some local council areas development applications are taking at least 12 months.
Holding costs and delays can add up to 15 per cent to a project's overall cost, it says.
“These delays add unnecessary cost burdens to the home buyers and this is significant to first time home buyers on limited budgets,” Labor leader Kevin Rudd said in a joint statement with treasury spokesman Wayne Swan and housing spokeswoman Tanya Plibersek.
Labor's national housing affordability summit on July 26 will consider how to roll out a national online real estate land development application tracking website that would be uniform across all states, territories and local government planning departments.
“This would allow all home buyers, including first time home buyers to check the status of their approval at any time of the day,” Mr Rudd said.
“It would also save local councils time and money. A similar scheme known as the Application Tracking Online Service is already operating in northern Sydney at Pittwater Council.”
Labor says the process of complying minor housing projects – such as extensions – also needs streamlining in local government councils.
Source: AAP
Saturday, July 14, 2007
Rising home costs means changes to Australian dream in an election year
home prices and location and convenience are forcing Australians to redefine the dream.
One of the hardiest perennials in the political garden is the "home affordability crisis". As is often the case in an election year, a lot of fertiliser is being spread about at the moment on the issue. While some of the policy ideas have merit, our politicians are too often focusing on the wrong parts of the problem and thus coming up with wrong, or at least inadequate, "solutions".
A big crop of new housing proposals has sprung up recently.
Australia's housing ministers are talking about a national shared-equity scheme where government becomes an equity partner in purchasing a home aimed at low and moderate-income households, as well as a revamped first home owners grant.
Federal Labor leader Kevin Rudd is proposing low-tax home deposit savings accounts, an overhaul of local government funding to rein in rising infrastructure charges on developers and home buyers, a shared-equity scheme and tax credits that can be offset against tax liability for investors who agree to charge below-market rents as a way of encouraging the supply of low-income rental housing. All will be considered at a national housing summit in Canberra later this month.
Federal Treasurer Peter Costello wants an audit of government land that could be released for development, while resisting Coalition backbench calls for that most hardy of all perennials in this debate - a doubling of the first home owners grant from $7000 to $14,000.
And Prime Minister John Howard has taken the opportunity to get stuck into the states for what he says is the key source of the problem - their failure to release enough land for residential development on the periphery of our cities.
Some of these approaches attack the problem of falling home affordability from the demand side and some from the supply side.
Demand-side solutions tend to be self-defeating. For example, government first-home buyer grants intended to make buying a house more affordable can, perversely, push up prices as sellers simply absorb the handout into their asking price especially in an overheated market. With no increase in supply, bumping the grant from $7000 to $14,000 would simply mean the going price would rise, more or less, by $7000. Likewise for the suggestion to scrap stamp duty.
And while Rudd's idea for tax-preferred savings vehicles would make it easier for people to gather a deposit (albeit with a cost to the budget), it would do nothing to restrain house prices and may actually add to them for similar reasons.
More broadly, what is happening here is simply a case of constrained supply meeting increasing demand, as incomes rise and housing finance has become relatively cheaper and more accessible .
If there is more money available (higher incomes providing the capacity to service bigger loans on offer) at a relatively low price (low interest rates) chasing a limited amount of housing (because there are only so many places people can, or want, to live), prices can only go one way - up.
Prices have also been pushed higher by cashed-up property investors chasing a limited stock of existing housing, assisted by easier finance and the tax system through negative gearing, depreciation allowances and the halving of the capital gains tax in 1999.
A supply-side policy approach is more likely to succeed, although many of the solutions offered have tended to be simplistic and inadequate.
As both the Productivity Commission and Macquarie Bank analyst Rory Robertson have pointed out (and the federal Treasury seems to agree), it is simply not enough to say that homes are now unaffordable for many first-time buyers because state governments have not released enough new land on the edges of the big cities.
The heart of the problem is that prices are being pushed up by competition for housing in the places in which people actually want to live - big homes close to the centre of cities and to the coast, with short commuting times to work and access to the entertainment, educational and cultural amenities that these places offer.
"The issue of location, location, location dominates the housing-affordability problem," Robertson notes. "Would-be home buyers on average incomes (or less) have been pushed towards the periphery of our cities and beyond, 'priced out' of the market for well-located family homes. Indeed, the extremely high price of land 'close to the action' leaves most of us struggling with that never-satisfying compromise between proximity maximising work, educational and leisure opportunities, while minimising travel time and the size of our houses and yards.
"In Australia . . . average home prices generally are much lower inland, or near the coast but well away from 'the action'.
"Unfortunately, all six of Australia's state capitals where most of us tend to live are high-demand coastal centres, and so are prone to be relatively expensive."
This demands a different sort of supply-side policy solution effectively shrinking distances in our cities through better transport and decentralisation and increasing housing supply closer to the city centres through more medium and high-density development.
The most promising approaches involve improving transport infrastructure, to reduce commuting times and effectively increase the quantity of "well located homes". It also involves creating jobs closer to plentiful lower-cost housing land by promoting suburban and regional economic development and encouraging decentralisation of major employers in both the public and private sectors.
And there needs to be new approaches to planning regulation and a change in expectations among some home buyers themselves especially accepting the new reality of apartment living instead of a house on a quarter-acre block.
As Robertson concludes: "The harsh reality for most of our younger generation (and others left behind) is that the housing-affordability horse has bolted and it ain't coming back.
"For those would-be home buyers priced out of the market for well-located family homes, the best practical advice remains to look further afield or to start thinking about apartments. These days, that never-satisfying trade-off between proximity and house and yard sizes simply is a fact of life.
"The Great Australian Dream has been downsized."
Source: The Age
One of the hardiest perennials in the political garden is the "home affordability crisis". As is often the case in an election year, a lot of fertiliser is being spread about at the moment on the issue. While some of the policy ideas have merit, our politicians are too often focusing on the wrong parts of the problem and thus coming up with wrong, or at least inadequate, "solutions".
A big crop of new housing proposals has sprung up recently.
Australia's housing ministers are talking about a national shared-equity scheme where government becomes an equity partner in purchasing a home aimed at low and moderate-income households, as well as a revamped first home owners grant.
Federal Labor leader Kevin Rudd is proposing low-tax home deposit savings accounts, an overhaul of local government funding to rein in rising infrastructure charges on developers and home buyers, a shared-equity scheme and tax credits that can be offset against tax liability for investors who agree to charge below-market rents as a way of encouraging the supply of low-income rental housing. All will be considered at a national housing summit in Canberra later this month.
Federal Treasurer Peter Costello wants an audit of government land that could be released for development, while resisting Coalition backbench calls for that most hardy of all perennials in this debate - a doubling of the first home owners grant from $7000 to $14,000.
And Prime Minister John Howard has taken the opportunity to get stuck into the states for what he says is the key source of the problem - their failure to release enough land for residential development on the periphery of our cities.
Some of these approaches attack the problem of falling home affordability from the demand side and some from the supply side.
Demand-side solutions tend to be self-defeating. For example, government first-home buyer grants intended to make buying a house more affordable can, perversely, push up prices as sellers simply absorb the handout into their asking price especially in an overheated market. With no increase in supply, bumping the grant from $7000 to $14,000 would simply mean the going price would rise, more or less, by $7000. Likewise for the suggestion to scrap stamp duty.
And while Rudd's idea for tax-preferred savings vehicles would make it easier for people to gather a deposit (albeit with a cost to the budget), it would do nothing to restrain house prices and may actually add to them for similar reasons.
More broadly, what is happening here is simply a case of constrained supply meeting increasing demand, as incomes rise and housing finance has become relatively cheaper and more accessible .
If there is more money available (higher incomes providing the capacity to service bigger loans on offer) at a relatively low price (low interest rates) chasing a limited amount of housing (because there are only so many places people can, or want, to live), prices can only go one way - up.
Prices have also been pushed higher by cashed-up property investors chasing a limited stock of existing housing, assisted by easier finance and the tax system through negative gearing, depreciation allowances and the halving of the capital gains tax in 1999.
A supply-side policy approach is more likely to succeed, although many of the solutions offered have tended to be simplistic and inadequate.
As both the Productivity Commission and Macquarie Bank analyst Rory Robertson have pointed out (and the federal Treasury seems to agree), it is simply not enough to say that homes are now unaffordable for many first-time buyers because state governments have not released enough new land on the edges of the big cities.
The heart of the problem is that prices are being pushed up by competition for housing in the places in which people actually want to live - big homes close to the centre of cities and to the coast, with short commuting times to work and access to the entertainment, educational and cultural amenities that these places offer.
"The issue of location, location, location dominates the housing-affordability problem," Robertson notes. "Would-be home buyers on average incomes (or less) have been pushed towards the periphery of our cities and beyond, 'priced out' of the market for well-located family homes. Indeed, the extremely high price of land 'close to the action' leaves most of us struggling with that never-satisfying compromise between proximity maximising work, educational and leisure opportunities, while minimising travel time and the size of our houses and yards.
"In Australia . . . average home prices generally are much lower inland, or near the coast but well away from 'the action'.
"Unfortunately, all six of Australia's state capitals where most of us tend to live are high-demand coastal centres, and so are prone to be relatively expensive."
This demands a different sort of supply-side policy solution effectively shrinking distances in our cities through better transport and decentralisation and increasing housing supply closer to the city centres through more medium and high-density development.
The most promising approaches involve improving transport infrastructure, to reduce commuting times and effectively increase the quantity of "well located homes". It also involves creating jobs closer to plentiful lower-cost housing land by promoting suburban and regional economic development and encouraging decentralisation of major employers in both the public and private sectors.
And there needs to be new approaches to planning regulation and a change in expectations among some home buyers themselves especially accepting the new reality of apartment living instead of a house on a quarter-acre block.
As Robertson concludes: "The harsh reality for most of our younger generation (and others left behind) is that the housing-affordability horse has bolted and it ain't coming back.
"For those would-be home buyers priced out of the market for well-located family homes, the best practical advice remains to look further afield or to start thinking about apartments. These days, that never-satisfying trade-off between proximity and house and yard sizes simply is a fact of life.
"The Great Australian Dream has been downsized."
Source: The Age
Credit card debt reduction always a good idea
With the average credit card balance at its highest ever and households handing over a record proportion of their income in interest payments, people are starting to talk about turning back the clock on debt.
Some researchers are seeing a change in attitude to indebtedness among the under-25s in particular - a harking back to the financial caution exercised by their grandparents and great-grandparents.
Members of the internet generation may be more inclined to take a back-to-basics approach to consumption, says social and economic commentator Phil Ruthven, saving for the goods they want, rather than racking up credit card debt and personal loans.
"I think we will begin to see some more financial sanity emerging," Ruthven says of emerging consumers.
"The [net generation isn't] terrified of debt to the extent our parents and grandparents might have been, saving up for everything," he says.
"We're not going to move back that far - but I think the net generation are likely to be much more prudent and savvy with their finances."
This will be in reaction to witnessing debt cause stress among family and friends, but also part of the personality of this particular generation.
"The net generation is a 'civics' generation, which comes around every four generations," Ruthven says. "You could describe it as a little less materialistic - they see material things as a means to an end, rather than an end in themselves."
Social researcher Mark McCrindle, of McCrindle Research, says generation Y - teenagers to those aged in their mid-20s - has grown up with credit cards and never known a recession, so this age group tends to have high consumer expectations.
"But there's light at the end of the tunnel," he says. "They are the most materially endowed generation ever but they've found that doesn't satisfy them - that there's got to be something more. So there's a 'live slow' movement, a 'buy slow' movement - there's some little glimpse of what might change."
For now, financial advisers say that even clients on good incomes are experiencing stress over the level of their borrowing. It may not be enough to tip them over the edge financially but they are nevertheless feeling less than comfortable.
In lower-income communities, debt counsellors are seriously concerned about the prospect of an interest rate rise in coming months and outright dismayed by speculation there could two to three rate rises in the next 12 months.
Trading on the bond market indicates that an official rate rise of a quarter of a percentage point is an even bet for August and a certainty by November, with another rise priced into bonds for the first half of next year.
Rory Robertson, an interest rate analyst at Macquarie Bank, says the Australian Bureau of Statistics's inflation report, due out on July 25, will "make or break" the case for a rate rise as early as August.
By his reckoning, if the consumer price index trend figure is above 0.5 per cent, the Reserve Bank will act.
Advisers say such circumstances make it more important than ever to go back to the basics: budgeting, saving, and being disciplined about repaying any debts.
"The two words I use are planning and discipline," says Laura Menschik, the managing director of WLM Financial Services.
"People have to understand the difference between buying something right now and doing it a bit later, when they've been disciplined and saved for it - or even going without because they may not need it."
Menschik rolls off some examples: if you use the redraw facility on your mortgage to buy things, be disciplined about repaying that money over a couple of years rather than 25 years; leave a buffer for unexpected events such as the car breaking down or your roof blowing off; pay more than the bare minimum on your cards and loans.
And think about cutting up your cards. Menschik isn't alone in seeing people set about getting their finances in order - often by consolidating their debts in their mortgage or a personal loan at a lower rate - only to fall off the wagon and run their credit cards up again.
Karen Cox, the co-ordinator of the NSW Consumer Credit Legal Centre, says people don't always address the underlying problem that got them into debt in the first place, "which is that they're just living beyond their means".
"I don't say that in a judgemental way - I know a lot of people are struggling just to meet everyday expenses," Cox says. "But having debt doesn't help. It just makes it worse."
Financial planner Suzanne Baldry, of Baldry Financial Group, says a budget should be the foundation of any financial strategy.
Budgets might be considered boring and old-hat, but they work, she says - as long as they're the right way round.
"You've got to work out what your commitments are before you work out what you're going to spend - not the other way around," she says.
"It's not a case of 'what have I got left over for my debt repayments'."
Lisa Armstrong, the head of consumer advocacy for mortgage broker Resi, says people tend to fall back into old patterns if they don't change something about their spending behaviour.
She suggests reducing the limits on your credit cards - and resisting offers to move them higher. You should be able to pay off your card debt every month, she says.
Even better, switch to a debit card that has the convenience of a credit card but uses your own money.
Heaven forbid, you might even consider using cash again.
"It's just not an emotional transaction when you hand over a card - it has no meaning to us," Armstrong says. "But when you hand over your hard-earned cash, out of your wallet, you can see what [that purchase] has just cost you."
Money asked the experts to tell us what works and what doesn't when it comes to modern-day debt.
Mortgage redraw
Rather than running up credit card debt at interest rates of 16 or 17 per cent, many people now use their mortgages to fund consumption - a practice that financial planner Suzanne Baldry says is turning mortgages into "residential ATMs".
People draw on the equity in their home, or redraw extra payments they've already made, for spending such as renovations, holidays, clothes, cars and flat-screen TVs.
Alternatively, they consolidate more expensive debts by rolling them into their mortgage.
Baldry says this is fine so long as you're disciplined about repaying that money quickly, rather than spreading it over 25 or so years.
"Not increasing payments to cover this is bad news," she says.
Denis Orrock, of researcher InfoChoice, agrees. He says that doing so spreads a debt that would normally be paid off in three or five years across two decades, adding thousands of dollars in interest charges despite the lower rate (see table, above right).
"Putting debt into the mortgage is a great idea, but you have to pay more," says Lisa Montgomery of Resi.
"You have to pay a lot like you were paying before [when the debt was on your credit cards]."
Personal loans
Orrock says personal loans may be more costly than home loans but they have the advantage of instilling discipline in borrowers.
"Some people do need the discipline of a certain payment every month for a set period to pay things off," he says. "There's a lot to be said for that."
St George Bank's head of consumer lending, Ed Box, says personal loans are much more flexible these days - they can be fixed or variable rate, and some now allow early repayments. He advises tailoring your personal loan to suit your circumstances - for instance, by having the repayment periods set weekly, fortnightly or monthly, in line with when you receive your pay.
Credit cards
A lower rate may not mean you're better off when it comes to credit cards. The consumer group Choice says whether you're better off will depend on the way the interest on overdue amounts is calculated.
You could be worse off if the card charges daily interest on the full, original purchase amount even if some of the balance was repaid on time, or if interest is charged right back to the original purchase date rather than from due date or statement date. Also, you might lose your interest-free period for new purchases if any debt is carried over from the previous month.
Interest-free deals
It's tempting to take advantage of "buy now, pay later" deals but Karen Cox says the Consumer Credit Legal Centre sees a lot of people struggling with very-high-interest debt that started out as interest-free debt. Sometimes no repayments are required at all for the interest-free period, and people take the optimistic view that they'll be able to pay for the goods after the one-, two-or even four-year period.
But that may not happen, or their circumstances may even be worse, Cox says, and the debt ticks over onto a very high rate of interest.
"Others require regular repayments but the repayment you're told to make is based on the standard minimum credit card payment and has nothing to do with paying it off in the interest-free period," she says. "People think they're paying it off but they're actually not. You make a fairly small hole in it on some of them."
Retailer David Jones provides two figures for interest-free options when it sends out its monthly store card statement: the minimum payment due and the amount "payable to minimise further interest charges".
The minimum payment is lower than the amount that would "minimise" interest charges.
Cox says some lenders don't even provide this level of information.
For all those reasons, consumers should think twice before flashing their plastic.
Source: Sydney Morning Herald
Some researchers are seeing a change in attitude to indebtedness among the under-25s in particular - a harking back to the financial caution exercised by their grandparents and great-grandparents.
Members of the internet generation may be more inclined to take a back-to-basics approach to consumption, says social and economic commentator Phil Ruthven, saving for the goods they want, rather than racking up credit card debt and personal loans.
"I think we will begin to see some more financial sanity emerging," Ruthven says of emerging consumers.
"The [net generation isn't] terrified of debt to the extent our parents and grandparents might have been, saving up for everything," he says.
"We're not going to move back that far - but I think the net generation are likely to be much more prudent and savvy with their finances."
This will be in reaction to witnessing debt cause stress among family and friends, but also part of the personality of this particular generation.
"The net generation is a 'civics' generation, which comes around every four generations," Ruthven says. "You could describe it as a little less materialistic - they see material things as a means to an end, rather than an end in themselves."
Social researcher Mark McCrindle, of McCrindle Research, says generation Y - teenagers to those aged in their mid-20s - has grown up with credit cards and never known a recession, so this age group tends to have high consumer expectations.
"But there's light at the end of the tunnel," he says. "They are the most materially endowed generation ever but they've found that doesn't satisfy them - that there's got to be something more. So there's a 'live slow' movement, a 'buy slow' movement - there's some little glimpse of what might change."
For now, financial advisers say that even clients on good incomes are experiencing stress over the level of their borrowing. It may not be enough to tip them over the edge financially but they are nevertheless feeling less than comfortable.
In lower-income communities, debt counsellors are seriously concerned about the prospect of an interest rate rise in coming months and outright dismayed by speculation there could two to three rate rises in the next 12 months.
Trading on the bond market indicates that an official rate rise of a quarter of a percentage point is an even bet for August and a certainty by November, with another rise priced into bonds for the first half of next year.
Rory Robertson, an interest rate analyst at Macquarie Bank, says the Australian Bureau of Statistics's inflation report, due out on July 25, will "make or break" the case for a rate rise as early as August.
By his reckoning, if the consumer price index trend figure is above 0.5 per cent, the Reserve Bank will act.
Advisers say such circumstances make it more important than ever to go back to the basics: budgeting, saving, and being disciplined about repaying any debts.
"The two words I use are planning and discipline," says Laura Menschik, the managing director of WLM Financial Services.
"People have to understand the difference between buying something right now and doing it a bit later, when they've been disciplined and saved for it - or even going without because they may not need it."
Menschik rolls off some examples: if you use the redraw facility on your mortgage to buy things, be disciplined about repaying that money over a couple of years rather than 25 years; leave a buffer for unexpected events such as the car breaking down or your roof blowing off; pay more than the bare minimum on your cards and loans.
And think about cutting up your cards. Menschik isn't alone in seeing people set about getting their finances in order - often by consolidating their debts in their mortgage or a personal loan at a lower rate - only to fall off the wagon and run their credit cards up again.
Karen Cox, the co-ordinator of the NSW Consumer Credit Legal Centre, says people don't always address the underlying problem that got them into debt in the first place, "which is that they're just living beyond their means".
"I don't say that in a judgemental way - I know a lot of people are struggling just to meet everyday expenses," Cox says. "But having debt doesn't help. It just makes it worse."
Financial planner Suzanne Baldry, of Baldry Financial Group, says a budget should be the foundation of any financial strategy.
Budgets might be considered boring and old-hat, but they work, she says - as long as they're the right way round.
"You've got to work out what your commitments are before you work out what you're going to spend - not the other way around," she says.
"It's not a case of 'what have I got left over for my debt repayments'."
Lisa Armstrong, the head of consumer advocacy for mortgage broker Resi, says people tend to fall back into old patterns if they don't change something about their spending behaviour.
She suggests reducing the limits on your credit cards - and resisting offers to move them higher. You should be able to pay off your card debt every month, she says.
Even better, switch to a debit card that has the convenience of a credit card but uses your own money.
Heaven forbid, you might even consider using cash again.
"It's just not an emotional transaction when you hand over a card - it has no meaning to us," Armstrong says. "But when you hand over your hard-earned cash, out of your wallet, you can see what [that purchase] has just cost you."
Money asked the experts to tell us what works and what doesn't when it comes to modern-day debt.
Mortgage redraw
Rather than running up credit card debt at interest rates of 16 or 17 per cent, many people now use their mortgages to fund consumption - a practice that financial planner Suzanne Baldry says is turning mortgages into "residential ATMs".
People draw on the equity in their home, or redraw extra payments they've already made, for spending such as renovations, holidays, clothes, cars and flat-screen TVs.
Alternatively, they consolidate more expensive debts by rolling them into their mortgage.
Baldry says this is fine so long as you're disciplined about repaying that money quickly, rather than spreading it over 25 or so years.
"Not increasing payments to cover this is bad news," she says.
Denis Orrock, of researcher InfoChoice, agrees. He says that doing so spreads a debt that would normally be paid off in three or five years across two decades, adding thousands of dollars in interest charges despite the lower rate (see table, above right).
"Putting debt into the mortgage is a great idea, but you have to pay more," says Lisa Montgomery of Resi.
"You have to pay a lot like you were paying before [when the debt was on your credit cards]."
Personal loans
Orrock says personal loans may be more costly than home loans but they have the advantage of instilling discipline in borrowers.
"Some people do need the discipline of a certain payment every month for a set period to pay things off," he says. "There's a lot to be said for that."
St George Bank's head of consumer lending, Ed Box, says personal loans are much more flexible these days - they can be fixed or variable rate, and some now allow early repayments. He advises tailoring your personal loan to suit your circumstances - for instance, by having the repayment periods set weekly, fortnightly or monthly, in line with when you receive your pay.
Credit cards
A lower rate may not mean you're better off when it comes to credit cards. The consumer group Choice says whether you're better off will depend on the way the interest on overdue amounts is calculated.
You could be worse off if the card charges daily interest on the full, original purchase amount even if some of the balance was repaid on time, or if interest is charged right back to the original purchase date rather than from due date or statement date. Also, you might lose your interest-free period for new purchases if any debt is carried over from the previous month.
Interest-free deals
It's tempting to take advantage of "buy now, pay later" deals but Karen Cox says the Consumer Credit Legal Centre sees a lot of people struggling with very-high-interest debt that started out as interest-free debt. Sometimes no repayments are required at all for the interest-free period, and people take the optimistic view that they'll be able to pay for the goods after the one-, two-or even four-year period.
But that may not happen, or their circumstances may even be worse, Cox says, and the debt ticks over onto a very high rate of interest.
"Others require regular repayments but the repayment you're told to make is based on the standard minimum credit card payment and has nothing to do with paying it off in the interest-free period," she says. "People think they're paying it off but they're actually not. You make a fairly small hole in it on some of them."
Retailer David Jones provides two figures for interest-free options when it sends out its monthly store card statement: the minimum payment due and the amount "payable to minimise further interest charges".
The minimum payment is lower than the amount that would "minimise" interest charges.
Cox says some lenders don't even provide this level of information.
For all those reasons, consumers should think twice before flashing their plastic.
Source: Sydney Morning Herald
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