Category: Property Market

The Foreign Investment Review Board says the new rules about foreign property buyers are already yielding results.

According to Treasurer Joe Hockey, the actual FIRB is investigating 195 cases.

It’s not clear how many offenders there are. Mr Hockey said that the actual FIRB has ‘identified one foreign investor who appears to be linked to more than 10 properties ranging from a $300,000 unit to a home worth $1.4 million.‘ Still, that’s 195 properties that the federal government could force those traders to sell.

The tough new rules

It’s almost a month since the strict brand new rules were announced. On Budget Night, Hockey said ‘We are making changes to strengthen Australia’s foreign investment framework by presenting a new fee regime, much better enforcement and stricter penalties. This will deliver $735 million of revenue to the Budget.’

The fee regime he’s referring to is the application fee potential investors will have to pay to have their FIRB application looked at. The penalty is a significant $135,000 or three years in jail. Or for properties valued at more than $1 million, the penalty may be the capital gain or 25% from the value of the property — whichever is bigger.

And businesses could have it much worse. A 500% mark-up applies on penalties for companies.

Source: budget.gov.au
[Click to enlarge]

The thing that’s going to net the most bogus investors is the ATO’s data coordinating program. The program will cross-reference ATO data on FIRB applications, with info from the Department of Immigration and Border Protection, the Australian Transactions Reports as well as Analysis Centre (AUSTRAC), and other related agencies. The idea is that it will reveal patterns that show a possibly dodgy property transaction.

How effective is it really?

Hockey said that, from the 195 cases, ‘24 are foreign traders who have voluntarily come forward to identify that they may have breached the international investment rules‘, and 40 more were from people who experienced dobbed on dodgy deals with the FIRB’s compliance reporting form or hotline.

So really, only 131 cases come from the data matching program. Which may be impressive, if it only covered the period Budget Evening to today. But based on the ATO website, it’s everything from This summer 2010: ‘The collection of data below this program protocol is expected to occur in May 2015 (for historical data) and then periodically throughout 2015-16 for prospective data.’

And the FIRB gets ‘25,000 to 30,000 applications by foreign investors seeking to acquire residential or even agricultural land in Australia every year.’

So of the 135,000 odd applications that have been through information matching, only 131 of them have been discovered to be dodgy.

And then, there is the purchases that have been made without a FIRB application. According to official and private sources, around 500,000 residential properties change ownership each year.

Some sources, including real estate agents, accountants and lawyers, say that most foreign buyers transfer funds to a trustee, shelf company, or perhaps a relative who has permanent post degree residency or citizenship. Last year, FIRB chair John Wilson said ‘The properties can be bought in a variety of ways: they can be bought through individuals; they can be bought through trustees, disclosed or not; they can be purchased by corporations; they can be purchased by friends, family members, family members, solicitors, etc.’ And of course, some developments get pre-approval to sell to foreign investors. So there aren’t any separate applications to tell all of us how many apartments in a new building are being bought through foreign investors.

He also noticed that nowhere along the transactional chain will anyone check for residency status. Real estate agents aren’t obliged in order to report anything at all. Neither tend to be accountants or lawyers that set up shell companies for foreigners to buy properties along with. And as Wilson said, ‘The only state land titles office which has a foreign or domestic mark in it is Queensland. None of the others do‘.

Then there’s the fact that the actual FIRB doesn’t actually have that many staff. Wilson said ‘The Foreign Investment Review Board on residential real estate has eight staff.‘ Although the number may have risen since that time, it’s still not what you’d want to monitor the issue.

There’s no army of people looking through all legally available data sets. It is simply eight folks in a room relying on applications and data in the ATO.

Things will have to change a lot for the government to catch a significant number of dodgy sales.

What does it imply for local property investors?

The difficult new rules include an amnesty time period. Until November 30, foreign investors can voluntarily come forward and say they believe they might have broken the guidelines. If they have broken the rules, they’re going to have up to 12 months to sell the property. After November 30, they will face the same quick divestment and criminal penalties as everyone else.

So up to the end of November, you can see a few more properties on the market. Properties in strategically chosen areas. The Treasurer said that ‘The worth of the properties in question range from the prestige market to real estate in the suburbs of our capital cities.A So there’ll be a few more of these mega mansions, like Villa del Mare. But there will also be a few suburban houses and apartments.

If you can’t ‘wait and see’ to add to your own portfolio, there are other ways you can acquire exposure to residential property without overinvesting. In his report ‘The Three Best Investments in Australia for 2015 and Beyond’, Kris Sayce shows you how you can buy into property on the Aussie stock market. Click here to find out how to get your free duplicate.

Eva Mellors,
Contributor, Money Morning

Last Friday, Infrastructure Australia released its first ever Australian Infrastructure Audit report.

It’s the first audit of its kind in Australia. Covering locations from the drivers of development to transport and communication, it’s full of insight for both the private and public sectors. The Audit report made 81 findings. These bits of information will be turned into a long term infrastructure plan, after a public discussion period.

The Audit drew data from a wide range of sources. Everybody from the World Economic Discussion board to the IMF and of course the Ab muscles got a look in.

And they didn’t have the ability to nice things to say.

What did the report say?

One of the strongest points was that infrastructure is not meeting Australians’ anticipations. And it’s going to get worse, because of population growth. The first two points of the Audit findings said:

‘Australians expect their infrastructure networks to support a high quality, first world standard of living. They expect infrastructure to improve their quality of life in the future, notwithstanding significant population growth and major economic, social and environmental change […]

‘There tend to be grounds for concern that Australia’s facilities networks and the systems to which they are managed are not conference these expectations‘

So basically, things are already quite bad, and they’re going to get worse as our population grows.

And ‘grounds for concern‘ is putting it really lightly. Just look at just how much attention and activity Aussies give to all kinds of infrastructure, from roads and public transport to the internet. For example, here in Melbourne, there’s been more than ‘grounds for concern‘ over exactly how awful Myki is, and how individuals feel about the East Western Link, or Doncaster trains. The federal government saying that infrastructure might not be meeting your expectations could really feel a bit exasperating.

Points five to 12 covered future demand for infrastructure. They said:

‘Population growth will generate a significant rise in the demand for infrastructure services … Australia’s population is projected to develop from 22.3 zillion in 2011 to 30.5 million in 2031. Almost three-quarters of the growth … is projected to be in … Sydney, Melbourne, Queensland and Perth.’

Source: infrastructureaustralia.gov.au
[Click to enlarge]

That’s a lot of people flooding into capital cities. Cities which are already feeling the touch in many areas. Not least which is property prices.

How is that this going to affect property prices?

Generally, infrastructure spending is based on population stats. So often, the population of an area has to change dramatically before the government will build what the locals need. Infrastructure spending and new tasks don’t grow at the same period as the population. And infrastructure certainly isn’t built in anticipation associated with demand.

This can mean that interest in housing is concentrated in the places that there are already lots of roads, public transport, and utilities.

For example, the report says that greater Sydney is going to get roughly Eighty,000 extra people a year. That’s taking into account people who leave, too. So that’s 80,000 extra people that will require somewhere to stay.

According to the final census, there are 2.7 individuals per household in the higher Sydney area. Let’s assume that individuals coming in to Sydney may have roughly the same household or even family composition as they perform now. That means Sydney will require an extra 29,630 new dwellings per year. At the moment, there are only 22,750 a year. That’s a deficiency of nearly 25%.

And that’s not actually counting the trend towards apartment living. A trend which has been boosted, unsurprisingly, by insufficient infrastructure meaning people desire to be close to the city centre. Apartments made up 65.5% of new homes completed in Sydney last year. The majority of those were 1-2 bedroom flats. So Sydney would need even more apartments to keep up with demand.

With need growing so much faster than supply, prices will develop dramatically. Even more than they are actually.

Some analysts predict that, as Sydney gets denser, the marketplace will be split more distinctly than ever between apartments and houses. The premium that Sydneysiders pay for standalone houses will explode.

It’s possible that the Quarterly report apartment construction boom will continue for a long time to come. A number of firms are poised benefit from this. Including certain listed designers who hold the rights to critical areas of the harbourside town. And producers of building materials, fixtures and amenities.

The report also said that the government need to look at ways to boost development in other cities. It asserted ‘Adelaide, Canberra, Hobart and Darwin ? are projected to grow in total by slightly more than 0.5 million individuals or 26.7 percent. Given this, it is worth considering exactly what steps could be taken to foster greater long-term growth in those metropolitan areas, which may moderate the consequential infrastructure challenges in the larger cities.’ So those metropolitan areas, which are already very liveable, might get a bigger slice of the infrastructure funding pie. This could imply that developments — and property prices — in those cities, ramp up.

What about infrastructure companies?

Point Ten of the audit findings asserted ‘The infrastructure sectors projected to grow faster than GDP tend to be transport, ports, telecommunications, gas pipelines and airports. The actual sectors projected to grow reduced than GDP are water, petroleum, electricity, non-urban roads and non-urban rail.’

So after the property boom, companies that build or own those first five sectors could benefit.

There are several listed companies that achieve this. For example, a few of the major telcos own their own infrastructure, and rent it to other providers. Some airport corporations have the rights to expand, or to build new airports, in their respective cities.

How to get involved

At the moment, Infrastructure Australia is taking suggestions and recognized submissions on the findings from the report. They say that these will be used to inform the development of a 15 year plan. Which plan is due out later around. If you’d like to have your say, send an email to AIA@infrastructure.gov.au.

If you’re just looking for expense clues, you’ll have to wait until the plan comes out.

Eva Mellors,
Contributor, Money Morning

PS: Not all populace growth related investment opportunities depend on the upcoming infrastructure plan. There are lots of stocks which are already set to profit thanks to existing strong housing need.

In his report, ‘The Five Best ASX Stocks for 2015’, Kris Sayce covers a stock he believes is set to profit from the construction boom. Read this report, and you’ll also find out how rising consumer confidence could see one Aussie retailer bounce back. And how a low oil price could do wonders for an Aussie household name stock.

Click here to find out how to get your own free copy.

On Monday, Westpac CEO Brian Hartzer made an announcement about investor lending. He said Westpac will make it tougher for people to borrow money for home.

Westpac used to assess borrowers’ long term ability to pay back their loan by seeing whether they’d cope in the event that rates went up to 6.8%. To get a loan, you had to show that you could afford repayments at that rate as well as the current price. From now on, they’ll test whether applicants could afford 7.1% curiosity. Even if interest rates are reduce further, investors will have to show they can afford 7.1%.

There aren’t any estimates on how many investors this could cut out of the market. An extra 0.3% on the test doesn’t sound like much. But it can often mean the difference between a sustainable home market, and one that’s fuelled by a credit boom.

Hartzer said that ‘A stimulus to the economy through an interest rate cut has the danger of exacerbating in investor property or particular areas, the possibility of a speculative rise in housing prices [so you] try to restrict that, because nobody wants to see a housing bubble‘.

So exactly what prompted them to make this alter? It’s the Australian Prudential Regulation Expert. They’ve been talking to banks and lenders whatsoever levels. Hartzer added, ‘We’re all on the same page here. Nobody wants to fuel a speculative credit boom.’

What APRA said

The Reserve Bank associated with Australia has been worried about the housing bubble for a while. In his statement on April 7, Glenn Stevens said that ‘Dwelling prices continue to rise strongly in Sydney, though trends have been more diverse in a number of other cities. The financial institution is working with other government bodies to assess and contain dangers that may arise from the housing market‘. For several months, they’ve been dealing with APRA to see how to do this.

APRA offers told the banks that they need to cut credit growth below 10%. At the begining of December, they said that ‘portfolio growth materially above a threshold of 10 % will be an important risk sign for APRA supervisors in considering the need for further action‘. Westpac’s is currently Eleven.5%.

They gave details on how they believe lenders should do this:

‘In APRA’s view, these should incorporate mortgage loan buffer of at least 2 percent above the loan product rate, along with a floor lending rate with a minimum of 7 per cent, when assessing borrowers’ ability to service their loans. Good practice would be to maintain a buffer and floor rate comfortably above these levels.’

The 2% and the 7% figures were based on past rate rises, market forecasts, as well as international standards.

It seems that, within raising their floor rate to 7.1%, Westpac has given within.

Other banks haven’t made any kind of similar announcements yet. It is possible that Westpac were targeted by APRA. In late March, APRA chair Wayne Byres said that they were ‘targeting those that are pursuing the most aggressive financing strategies‘.

Who’s going to benefit from this?

It’s possible that some owner-occupiers will benefit. APRA said it wants to limit higher risk mortgages. This includes loans with very long conditions, and interest-only loans. But there might be fewer investors in the market because conditions get stricter. This could ease house price development.

Already have investment properties? You might want to keep an eye on the way lending problems affect prices. If you’re a risky investor, your capital increases may suffer.

Eva Mellors
Contributor, Money Morning

PS: Have you been planning to buy an investment property to boost your retirement wealth? The good thing is there are things you can do to boost your own wealth that aren’t affected by mortgage rules. ‘5 Things You Can Do To Boost Your own Retirement Pot’ by Kris Sayce will tell you:

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If you invest in the markets you can’t escape the bombardment of noise from the financial press. And a lot of it is unfavorable.

That makes it hard to consider jeopardizing your money by buying shares.

It’s even worse when ‘expert’ fund supervisors add the weight of their opinion to the negativity.

But there’s 1 odd thing about all this…the stock market itself is actually saying good things about the actual economy.

Today I’ll show you why, over at Cycles, Trends and Forecasts,we’lso are very positive, and the reason why we think you should be too…

Today’utes news is old news towards the market

Ever since the mining boom turned down in Australia, the Reserve Bank of Australia has said they want the housing market to drive growth in the actual economy.

Now, we’re no excellent fans of the work the RBA do. In general, listening to them for financial wisdom is a lost cause (and that’s the kind way to say it). But they will do everything in their power to steer the economy in the direction they want it to go.

If that means cutting interest rates to make it cheaper in order to take on debt, they’ll get it done.

Just look back over the past four years. The actual RBA has cut rates nine occasions since 2011.

But how do we know if it’s working?

Well, you could ask your financial advisor. You could listen to a mainstream economist within the press. You could ask the mate down at the pub.

But, for my money, I don’t do any of those things

So, what do I do?

I let the stock market tell me.

Stocks ‘discount the future’. That means investors as well as analysts are constantly looking ahead to work out whether or not they think a business can grow it’s earnings.

That’s very important to comprehend. The share market is a study of which companies are growing, and the reason why.

Here’s the part that’utes a bit more tricky.

Share prices rise before the ‘good news’, driving in the share price before this news becomes mainstream and widely known. That price motion will tell us whether don’t be surprised good news or bad news to come.

So, take a look at a particular industry and find out how stocks have performed for the reason that group.

Our subscribers knew construction stocks were a purchase

From the low in mid The month of january this year Brickworks Ltd [ASX:BKW], a bricks and building materials company, has operate from $11.52 to the recent top of $14.90 in early April. That’s a rise from bottom to top of over 29%.

From the low in mid October last year Boral Ltd [ASX:BLD], a cement and construction materials company, has run through $4.68 to the recent leading of $6.66 in early April. That’s a rise from base to top of over 29% once again.

From the low in mid Oct last year James Hardie Industries [ASX:JHX], a residential and commercial building materials company, has run from $11.16 to the recent top last week of $16.Nineteen. That’s a rise from bottom to top of over 45%.

And from the low in mid October last year Adelaide Brighton [ASX:ABC], a cement and concrete masonry organization, has run from $3.Twelve to the recent top at the begining of April of $4.71. That’s an increase from bottom to surface of over 50%.

From the low in early Dec last year Fletcher Building Ltd [ASX:FBU], that has a bigger footprint in Nz than Australia, has operate from $7.40 to the recent top of $8.70 in mid March; a rise from bottom in order to top of over 17%. A more moderate rise, but a rise nonetheless.

Finally, from the low in mid Oct last year Dulux Group Ltd [ASX:DLX], the paint company, has operate from $5.11 to a top of $6.88 at the day of composing; a rise from bottom to surface of over 34%.

I don’t know about you, however i expect to hear good news around earnings season coming up in 06 for these companies.

Nice gains to have in your portfolio if you’deb bought, right? These are large-cap shares, and they have presented investors with good capital gains during recent several weeks.

Here’s the thing that’s a bit mystifying to me. If you want to know when stocks related to real estate are going to run ahead — as the above have done — doesn’t it seem sensible to study the real estate cycle?

Of course it does. Yet very few investors actually do this in a meaningful way.

It’s their reduction. Because real estate can tell you a lot about other industries too.

A main example is the Australian banks. If we have rising real estate, the banks will make more earnings because most of their lending is actually directed against real estate.

Higher real estate Equals higher loans = higher bank profits is a simple way of thinking of it.

The banks are also essential because they make up a huge proportion from the value of Australian shares — and in all likelihood your super fund.

Whether you get richer or poorer will be based a lot on what happens to bank shares.

That’s one reason why over at Cycles, Trends and Forecasts there exists a clock that can guide you to why real estate will move, and when.

And when I say ‘when’, I mean it’utes dated quite literally for you.

That puts you in a position to know when certain stocks tend to be a buy or a sell, based on where we are in the property cycle.

In fact, the beauty of this particular analysis is that you don’t have to take what we say upon faith. All you need to do is actually relate what we say to the appropriate stocks, and the stock market will tell you whether we are right or wrong.

At that point, you don’t have to care what anyone else says — you’ll have the ability to decide for yourself.

Learn what you need to know by starting here.

Terence Duffy,
Guide Researcher, Cycles, Trends and Forecasts

From the Port Phillip Publishing Library

Special Report: You’re about to discover a radically different way to build wealth. It’s the same change market veteran Matt Hibbard made after 30 years battling away in the actual financial markets. These days he life a relaxed, comfortable life on Victoria’s Bellarine Peninsula…happier and more financially secure than he or she ever was before. So when you finish watching his brand new video, you’ll be on that road too.

Deutsche Bank has a positive outlook on housing starts. Their forecast could have positive implications for companies that make building items.

What Deutsche Bank are forecasting

Deutsche Bank expert Emily Smith says housing starts for this financial 12 months, ending June 30, will be 203,200. She estimates First thererrrs 205,600 starts in between then and June 2016.

Her optimism is dependant on two main things. First, there’s low interest rates. The RBA reduce official rates in Feb. Although it didn’t cut all of them again in April, governor Glenn Stevens suggested that there might be cuts later in the year. ABS data shows that low interest rates have already boosted lending for new homes. From The month of january 2015 to February 2015, the number of financial loans for construction of new houses went up 0.6%.

Second, there’s migration. According to the latest government forecasts, net overseas migration should remain strong up to 2018.

Source: Department of Immigration and Border Protection
[Click to enlarge]

Strong migration often drives demand for new houses. Some migrants buy their own new houses. Investors, responding to powerful rental markets, also purchase new houses.

Foreign investment guidelines also have an impact. Aside from 1 established property per person, temporary residents can only buy new properties. Even if you don’t count visitors, students and dealing holiday makers, there are still tens of thousands of short-term residents coming in who might want to buy second homes or investment properties.

Many of these new properties are apartments. Foreign buyers tend to value fairly affordable inner city boltholes, regardless of whether they’re looking for a home or perhaps an investment.

This fits in with the forecasted strength of apartment construction. DB expects that just under 1 / 2 of all new housing starts is going to be apartments. In the past, apartment starts have only made up an average of 29% of recent housing starts.

What others say

Most other housing industry bodies aren’t because optimistic. The average of all predictions is 187,000 new starts for the year up to 06 30, and 184,000 for that financial year 2015-2016. They’re actually predicting that new creating will slow down.

Source: AFR
[Click to enlarge]

The Housing marketplace of Australia is the minimum optimistic. Their latest statement says that:

‘We retain the view that the 2014/15 year is likely to represent the peak in the current cycle, although the heightened uncertainty that comes with breaking records means further growth shouldn’t be ruled out […] Our central forecast shows that after three sequential years of strong growth, home commencements are set to decline by 5.7 per cent in 2015/16 by a further 4.7 percent in 2016/17‘

The Master Builders’ Association includes a slightly more bullish outlook. In December 2014, MBA chief economist Peter Jones said ‘At the national level, we expect dwelling begins to average 195,000 over the next four years, rising above 200,000 until the next cyclical downturn unfolds‘. In other words, they disagree using the HIA’s view that housing begins have peaked already.

BIS Shrapnel believes that new starts may drop after next year as well. They believe there’s going to be the glut in new flats, and not enough new unattached houses. In March, their own associate director Dr Kim Hawtrey said ‘We’re probably building too many apartments and not sufficient detached houses and we could find we have an unbalanced result in a couple of years’ time. We need to increasingly re-orientate the actual housing recovery to build much more detached houses and fewer connected dwellings.’ He pointed out that this would be because local and international investors are investing mainly in apartments in high-rise structures. Although that wouldn’t be good for the building sector, there’s a minimum of a little positive news for buyers. In Melbourne, for instance, BIS Shrapnel predicts apartment prices may drop by around 10% over the next three years.

Source: AFR from BIS Shrapnel data
[Click to enlarge]

Commercial building also good

The Australian Performance of Construction Index measures general construction activity in Australia. It looks at factors including orders for building materials, shipping of materials to sites, and employment in the construction industry.

The March PCI, released on the 9 of April, demonstrated an increase in house building activity. The index went up Ten.4 points to 55.8 in March. This ended three months of contraction. It had been the strongest expansion since Oct last year.

General commercial construction had been down by 1.5 points to 41.2. But new orders in the commercial building sector actually went up. Complete new orders went up Twelve.1 points to 50.8. This is good news for companies which make building materials. It seems those orders are actually being filled too. Deliveries went up Three.9 points to 50.6.

Which stocks could be affected?

The Deutsche Bank forecast also included a few inventory predictions. They’re saying investors should buy Boral [ASX:BLD], hold CSR [ASX:CSR] buy Fletcher Building [ASX:FBU], hold Adelaide Brighton [ASX:ABC], buy James Hardie [ASX:JHX], hold GWA Group [ASX:GWA], and buy Brickworks [ASX:BKW]. They are saying ‘We believe Boral […] is in a powerful position to benefit from a robust housing environment given Twenty-eight per cent?of Boral sales relate to Australian housing‘.

Credit Suisse agrees with DB about Boral. They have an ‘outperform’ rating on Boral, meaning Credit Suisse think Boral will outperform their own projections.

There are lots of other stocks on the ASX that could be affected. Many of the companies on the ASX 200 Materials index and the ASX 200 Industrials index specialise in building supplies or components.

It’s important to note that not all companies that sell creating materials will be more profitable because of higher construction activity. Some might also have high expenses in other areas. For example, early this year some analysts were saying that GWA Group had a lot of brands to run, and that had been affecting their margins.

Eva Mellors,
Contributor, Money Morning

PS: Searching for ASX stocks with strong potential for growth in 2015? You won’t want to skip our editor Kris Sayce’s free statement, ‘The Five Best Performing ASX Stocks for 2015’. Inside you’ll learn:

• How rising consumer confidence could see 1 underperforming Aussie retailer bounce back in 2015
• Why a low oil price might do wonders for a certain household stock
• How one big miner could take off on the back of the recovering iron ore price

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The foreign money is still coming into Australian real estate. In fact, overseas investors account for one in six residential purchases, according to a survey the Australian Financial Evaluation reported on this morning. If you’ng been following the DR you know the reason: a lower Australian dollar, and the security associated with Australia’s property rights.

This overseas money is flowing primarily into Quarterly report and Melbourne. The AFR says:

‘The figures confirmed anecdotal proof that foreign investors are relatively modest investors and are not accountable for price surges, with 41 per cent spending in between $500,000 to $1 million on houses and almost a third spending less compared to $500,000. Only 5 per cent bought property costing more than $5 million.’

Maybe. What the article doesn’t make clear is how many properties each buyer owns. And just because you buy in a modest price point doesn’t mean you are a modest investor.

Perhaps I’m quibbling. Maybe they are the notorious ‘mum and dad’ investors everyone loves to spruik about here. I don’t know. The potential is certainly there.

The OECD is forecasting that the global middle class will more than double to 4.9 billion by 2030. That’utes a lot of demand that could still filter into our metropolitan areas.

Of course, there’s plenty of need right now. Real estate buyer’s advocate Catherine Cashmore, who was on The Daily Reckoning Podcast recently, was at an auction in Victoria on Saturday. The property sold with regard to half a million dollars above the book.

The suburbs where Asian migrant communities are flourishing are sizzling. That’s one reason NAB chief economist Alan Oster calls the demand from Asia a ‘Sydney and Melbourne tale.’ But it’s not so accurate for the rest of the country. For all the speak of a housing boom, most of the nation is fairly flat. Anyone in Perth right now can attest to which.

That’s a dilemma for the RBA with regards to monetary policy. One side of the debate wants to cut rates additional to foster demand. The other doesn’t want to spark the speculative frenzy in the housing market.

The transmission of great interest rate cuts to the rest of the economy is not as clear cut because the mainstream media and economic experts would have you believe. It’s not an accelerator. You can’t simply push down rates watching the economy rev up.

If price cuts did act like this, popular economists would have a much easier time explaining Japan. The Bank of Japan cut interest rates a dozen times in the 1990s and the economy still stagnated. This gave rise to Japan’s ‘lost decade’ (now actually 30 years) and is still a traditional mystery to mainstream economists. They keep pushing their own foot down on the gas, and expect Japan to go quicker.

The most important factor to watch in an economy is not the interest rate, but the level of credit creation. That’s because the private banking program creates 97% of the money supply. If credit is rising, the economy will expand.

But there’s an important distinction to be made right here that very few people comprehend. When the commercial banks produce credit, that credit may either be used for productive expense or speculation. It’s fundamental to know which is happening.

If a person follow the indicators mainstream economic experts use, you’ll never know. This really is one reason they miss the build up of risks in the economy that bring on busts such as 2008.

One example is GDP. Gross domestic product is a totally flawed way to measure the value of transactions in the economy. Here’utes the problem: it totally disregards asset transactions, not to mention funds gains. That includes the majority of real estate buying and selling.

If you take out a company loan and buy tools, it’ll show up in nominal Gross domestic product growth. If you take out a mortgage to invest in property, it won’capital t.

The world’s premier banking expert, Richard Werner, put out a document in 2012 explaining why, as an buyer, you need to be aware of this. He wrote at the time:

‘The proven fact that asset prices are in aggregate determined by bank credit creation yields another important insight: the extension of credit for non-GDP transactions, if large and continual enough, will produce a Ponzi scheme, whereby early entrants (those buying the assets that are driven up by bank credit score creation) have a chance to exit with profits, while the past due entrants (usually the broader public, buying at close to the peak of an asset bubble, because the media comes to focus on the extraordinary profits made by earlier newcomers) will lose.
‘The reason why credit for non-GDP transactions must be a Ponzi scheme is that only GDP transactions — as national income an accounting firm know – generate the worth added that can yield income streams to service and pay back loans.’

This is why over at Cycles, Trends and Forecasts we created our own indicator to track this. As far as we all know, no one else in the world does this. You know when to be in the market and out of it. It should be upon every investor’s dashboard. Put it on yours here.

Regards,

Callum Newman,
Contributing Editor, Money Morning

From the Port Phillip Publishing Library

Special Report: You’lso are about to discover a radically different way to develop wealth. It’s the same change market veteran Matt Hibbard created after 30 years battling away in the financial markets. These days he or she lives a relaxed, comfy life on Victoria’s Bellarine Peninsula…happier and more financially secure than he ever was before. And when you finish watching his brand new video, you’ll be on that road too.

How much do you have in savings?

Is it enough that you could live off the income in retirement?

If you’re like most people, it’s not.

Most folks aspire to rely on two other things for any retirement income.

They say they’ll rely on their super, as well as their house.

Maybe you think the same thing. That’s nice. But what if neither of these assets can provide the income you’ll need?

What will you do after that?

It’s a thorny question. But there’s no point ignoring this. If you act now, there’s nevertheless enough time to build an entirely individual source of income…

Last week all of us wrote to you about the idea of a ‘Retirement Plan B’.

But to be honest, that’s not nearly good enough.

You should also have a ‘Retirement Strategy C’…and ‘Retirement Plan D’…oh yea, and a Plan E, F and G too.

More, if you like.

If you’re only relying on one income stream for retirement, you’re leaving yourself wide open for years of misery.

More busybodies don’t want you to have your money

We know that may sound blunt.

But there’s no point sugarcoating this.

You know our view on the actual superannuation system. If you’re below 45, it certainly won’capital t exist in the form that you know this today by the time you retire. And if we’re right about the future of super, it won’t exist at all…even 5 years from now.

If you’re between 45 and 55, there’s probably only a 50% chance that you’ll ever see your super. And if you’re older than 55, but haven’t yet upon the market, you may only have a 75% possibility of ever seeing your extremely.

We’ve taken a lot of flak with regard to saying this, but we say it with good reason. Every day the actual mainstream press reports upon someone else who says that you shouldn’t have access to your super.

Take this particular from the Age:

‘Looking at the recommendations of the Murray inquiry and the findings of the actual 2015 intergenerational report together, the debate more than whether to ban lump sum payments from superannuation is a live problem, said Antoinette Elias, EY Oceania’s mind of wealth and asset management.

‘“The big question is if the government should act to avoid lump sum payouts,” the lady said.’

Ms Elias isn’t the only one in order to back a ban on lump sums. As The Age also notes:

‘[Deloitte’s head of superannuation, Russell Mason] supports the idea of banning access to super balances in a lump sum retirement, so long as the reform is well-implemented and an exemption is defined in place for people with small amounts.’

If you still don’t think they’re coming to take your super, awaken. It’s happening.

That’s why you ought to create alternate sources of earnings. Odds are your super won’t be there when you retire. The government will nationalise it and then pay you a pittance as a pension.

Plans D through H

So if superannuation is your ‘Plan A’, forget about it. What about Plan B? For many people, that means relying on your home as an income source in pension.

Many like the idea of a reverse mortgage loan. The major problem is that the banks is only going to lend you around 20% from the value of the home, because they know that interest fees will eat away in the home’s equity in a short time period.

Alternatively, you could sell your home. However where would you live? Pension home fees aren’t cheap. And is that somewhere you really want to go?

What about downsizing? Perhaps. Unfortunately, downsizing from a four-bedroom house to some one-bedroom house doesn’t mean that it will only cost you a quarter from the proceeds from selling your larger home.

Quite often, the difference from a smaller house and a bigger house in the same area is just marginal. That’s usually because of the fact that most of the value is in the property.

We’re not saying that you should completely forget about the potential to use your home being an income stream. But we are saying that it perhaps isn’capital t the best solution that most individuals think.

So, what are your solutions?

This is the importance of creating several income streams outside of your superannuation. Our new income specialist Matt Hibbard is all over this.

As part of the launch of his new investment advisory, Total Income, Matt has pinpointed six potential earnings streams for investors to look at now (if you like, these are plans C through H).

Keep adding those income streams

The bottom line is that, along with interest rates at record lows and expected to stay there for a long time, you need to completely rethink what it means to earn a passive income.

It means making the most of your ‘active’ income (income), and even looking at the potential to work with longer, or part time, or perhaps in contract work…or even doing local ‘odd jobs’ for cash.

If you can find an ‘active’ income that you enjoy performing, great. Not only will it provide you earnings, but it will keep you energetic and keep the ‘grey matter’ ticking over.

But we also know that you don’capital t want to work forever. You want to enjoy your life in retirement. That’s why it’s vital that you have a reliable, steady, and sustainable passive income.

Start small. Create one income stream. After that another. And another. Build as many as you can comfortably manage.

This is important. Remember everything we’ng told you about the future of superannuation — there isn’t any future to superannuation. Start building those passive income streams now.

Cheers,
Kris

We spent most of 2008 through to 2011 wailing about a housing crash.

We forecast that Aussie home prices could fall by 40%.

It was a bold call.

It seemed to be the wrong call.

House prices fell, but they didn’t crash (aside from in the Gold Coast and Western Australia).

Since then, we’ve seen exactly what the power of low interest rates and money publishing can do to house prices along with other asset prices.

Are Aussie home prices high? Yes. They’lso are among the highest in the world. Might Aussie house prices crash? Of course they could. All asset prices can fall in value.

In that case, why do we say which Aussies should have the right to buy a house using their superannuation money? We should be insane, right?

Well, maybe not…

Most of the mainstream has gone right into a fit at the thought of anyone utilizing their super savings to buy a house.

The mainstream press is (mainly) up in arms.

The opposition events are breathless with disapproval.

And not surprisingly, the funds management industry is having a coronary over the idea.

The thought that someone should get to invest their savings on whatever they such as is causing no end of uproar.

Remember, it’s YOUR money

But, the simple fact is that the money saved in your super fund isn’t special. There’s no mystery to it.

The profit your superannuation fund is just like the money in your bank account. The only difference is that the government stops you against using your super money in the way you’d like.

It’s foolish.

Super money is simply deferred earnings. It’s money that you could make use of today if the government didn’t forcibly quarantine it.

But what about the concept that if you could access the cash today that it would cause a large house price bubble.

It seems as though that could be true, however it’s not necessarily therefore.

Yes, it would mean that a bunch of individuals would have access to a new supply of savings. They could then use that money as a deposit to buy a house.

But it’s also true to say that there would be a lot more people who would be able to use their own super money to pay off a current mortgage.

If those folks could take $300,000 out of their super to pay for off a big debt, it would mean 1000s of dollars per year that they’re conserving in interest costs.

And it seems we’ng found an unlikely friend in this argument in Peter Martin through The Age. As he noted yesterday:

‘Can all of us give Joe Hockey a break? He says he is prepared to think about allowing us to dip into our super to buy houses. Exactly what on earth could be wrong with that? A house is far more useful in retirement than superannuation. Just ask anyone who has tried to survive without one.

‘When the Harmer pension plan review examined the question some time ago it found only Three per cent of home-owning single pensioners were in severe poverty compared as much as one quarter of those who rented.

‘Rent eats income. It’s why houses are important in retirement. They relieve us of the need to pay rent.’

To us, this is purely ideological. It’s immoral for any government to force an employer to quarantine 9.5% of your income. It’s the ‘nanny state’. It’s treating grown adults as kids — ‘We can’t believe in you to look after your own cash.’

But the government already takes away an adequate amount of your wages in taxes and other levies, without depriving you of some other big chunk of your money.

So any policy that places more money back in your pocket with regard to you to do with as you wish, is fine by us.

However, do we think this insurance policy will actually happen? No, not a chance. There are far too many powerful vested interests at work…

Powerful forces nipping at your super

You’ve seen the press (aside from Peter Martin).

And you’ve seen the outrage from the trade union movement and the funds management industry.

The very last thing they want is for you to convey more control over your own money. Because for them, allowing you to use your super to buy a house is just the slim edge of the wedge.

Once the doorway is prised open, folks will receive a taste for it. They’ll reception for more exemptions until before you know it the official super ‘pot’ is dried out.

Rather than the funds management business automatically getting hold of 9.5% of everyone’s wages, they’ll have to work for their fees. The horror!

The funds management firms really are a powerful lobby group, as well as so are the trade unions.

They’lmost all fight the proverbial tooth-and-nail to ensure that you never get your hands on your super cost savings.

This is why talk of the federal government allowing early access to super will turn out to be a cruel laugh. The real scenario (which is exactly what the unions and fund managers are pushing for) is the efficient confiscation of super funds.

That’s why they’re lobbying so hard. Instead of let you access your money, they’d rather make sure you never get it. The longer the money remains tied up in super, the longer they get to siphon off their fees.

It may sound odd for us to back the use of extremely to buy houses. Especially as we predicted a major Aussie home price crash.

But the simple fact is that we’d rather you had treatments for your money instead of the government.

Cheers,
Kris

PS. Absolutely nothing would please us more to be proven wrong on this subject. It would be great if the government really would allow you to access super to buy a house, or better still, to save or spend the proceeds as you wish. But it just won’t happen. Full blown confiscation is their ultimate plan. The current information stories are simply a diversionary strategy. Don’t fall for it. Prepare for the coming wealth grab when you can. Details here.