澳洲Australia property Foreign lenders fear Australia's


在澳大利亚 The pool at of an IP needs to be resurfaced (or so the pool doctor says), the cost was estimated to be $10K ($10,000), after recoverying from my impresssion of a cat coughing up a fur ball, it just seems far too much. Its just a standard poo I need some advice regarding a property purchase. Property - semi-detached house Bedrooms - 2 Condition - average needs internal reno to modernise Street - one of the best in suburb Location - excellent Close to schools - yes Transport - 50m


Official figures show Australian banks now owe overseas investors a record $352.7 billion, equivalent to 27 per cent of the country's entire economic output.

The extraordinary figure, contained in data from the Australian Bureau of Statistics, is fuelling concerns Australia's financial system is becoming over-stretched.

Global fund managers are already getting nervous about Australia's overheating property market - a fact that could lead them to charge a higher interest rate for money they lend to our banks - or withdraw funding all together.

check out the Herald Sun article here Foreign lenders get the property jitters

Interesting days indeed

cheers  

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Hey you better watch out man, that one dude is gonna start crying again.  

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Is hard to envisage what will impact prices the most - the funding sources pulling their funding/lifting their rates or the booming economy.  

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Ausprop said: ↑
Is hard to envisage what will impact prices the most - the funding sources pulling their funding/lifting their rates or the booming economy.Click to expand...
What booming economy. Apart from the mining sector, the rest of the economy is far from booming.  

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agreed, but the make up of the economy is another issue. expect non-mining industries to get a lot worse  

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johntaps said: ↑
Global fund managers are already getting nervous about Australia's overheating property marketClick to expand...
Overheating?
This must be old news  

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Ausprop said: ↑
agreed, but the make up of the economy is another issue. expect non-mining industries to get a lot worseClick to expand...
And, I don't care what the experts say about mining being Australia's economic saviour.
When the rest of the economy tanks, it won't matter. Mining, while it makes a a larger portion of exports, it is dwarfed when you look at the percentage of employment (I'll give you max 15% of employment with the multiplier effect factored in).

I suspect there will be a rise in cost of funds in the next 2yrs, and that property will be affected. We are not different. We are not in control of our own destiny, but subject to the world conditions. And when the world reduces the easy credit pipeline, we will be like all other countries with property.  

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bluestorm said: ↑
And, I don't care what the experts say about mining being Australia's economic saviour.
When the rest of the economy tanks, it won't matter. Mining, while it makes a a larger portion of exports, it is dwarfed when you look at the percentage of employmentClick to expand...
Bluestorm
If what you say does happen the RBA will bring interest rates down so stop dreaming about house prices falling.
It just won't happen.  

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BV said: ↑
Bluestorm
If what you say does happen the RBA will bring interest rates down so stop dreaming about house prices falling.
It just won't happen.Click to expand...
We shall see.
One this is for sure. I'd love to have a job, RBA, BA, etc, where accuracy is not important. Where crystal balling is part of the job, and more often than not, they call it wrong.

Rising commodity prices threaten global economy

In October, the Reserve Bank said it expected prices received in the December quarter to fall. It revised this view in November, saying it now expected them to start falling from a higher peak in the March quarter.

Last week's minutes of the December board meeting noted rising spot prices for coal and iron ore and said contract prices might rise in the March quarter.

"This was a stronger outcome than the staff had been expecting and suggested upside risks to the forecasts for the terms of trade," the minutes said.Click to expand...
I have so much confidence in what the "experts" say.  

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BV said: ↑
Bluestorm
If what you say does happen the RBA will bring interest rates down so stop dreaming about house prices falling.
It just won't happen.Click to expand...
If that happens the Australian dollar will possibly drop a lot as it is being held up carry traders who are relying on yield (difference between US interest rates and Australian rates) and leverage to make money. If commodity prices are as high or even higher this will raise prices especially of petrol.

Moreover the Reserve Bank dropping interest rates will likely be seen from international investors as a sign of the economy weakening and hence they will push even harder on the Australian banks, increasing their cost of funding.

The thing is governments are not Gods. It is not a case of if they do X, Y will happen. It is a case of doing X which will set off a chain of events which hopefully will include Y and hopefully not too many unpleasant unforeseen side effects. The reliance of Australia on foreign lender just makes it harder for the Reserve Bank to fully control things. In this day and age central banks are increasingly finding it more difficult to control monetary policy anyway. For example one of the stated reasons for QE2 is to decrease mortgage rates. However the rates in the US are actually increasing despite all the Fed is trying to do. We have the ECB, the Fed all trying to keep interest rates low and slowly failing in a war of attrition. Why should we expect the small Australian Reserve Bank to be successful when the largest central banks in the world are failing? It doesn't make sense. What the Reserve Bank will find is that the current global environment is one where raising interest rates is easy and lowering interest rates means a struggle. And the battlefield of this struggle will be the banks and the currency. The question is who has more liquidity - the Australian Reserve Bank or the international hedge funds.  

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But wouldn't a weakening of the Australian dollar help our exports? Surely if our exporters can recover more $$ for the same amount of product (whatever that is - materials, services, etc) then our economy stands to benefit? This in turn assists with employment which is, of course, a huge stabilising factor.  

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According to Wikipedia, mining accounts for about 5.6% of Australia's GDP.

The much maligned services sector accounts for 77.9% of GDP according to this report.

People tend to lose perspective. I remember at the time of the financial crisis figuring out that manufacturing in London alone was a similar proportion of the economy to the City.  

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"The Australian Services Roundtable is the peak business body for the services industries in Australia"

who would have figured that these guys would be blowing the trumpet of the service sector? ;)  

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Graemsay said: ↑
According to Wikipedia, mining accounts for about 5.6% of Australia's GDP.

The much maligned services sector accounts for 77.9% of GDP according to this report.

People tend to lose perspective. I remember at the time of the financial crisis figuring out that manufacturing in London alone was a similar proportion of the economy to the City.Click to expand...
here is the key bit:

"Of the developed countries, perhaps only in Canada and Norway does mining play as significant a part in the economy"

with mining being such a key contributor to export earnings - and set to increase very significantly - it is what pays the bills. Everyone can walk around on Lygon St serving cappuccinos to each other but there has to be some hard currency to pay for real goods like aircraft, cars, computers, intellectual property etc  

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VYBerlinaV8 said: ↑
But wouldn't a weakening of the Australian dollar help our exports? Surely if our exporters can recover more $$ for the same amount of product (whatever that is - materials, services, etc) then our economy stands to benefit? This in turn assists with employment which is, of course, a huge stabilising factor.Click to expand...
Yes it would. In fact that is exactly why I doubt the Reserve Bank won't lift a finger to stop it at first.

However you also have to ask - if lower currency results in more exports why did the Reserve Bank step in to make sure it didn't go too low during the GFC?

There are several issues here. The first is that an increase in exports will most benefit those in the mining sector. There is not a real efficient mechanism to distribute it to those outside. As the tough times in Brisbane and Perth are showing, not even those in the same city are necessarily benefiting fully.

However the price increases in commodities (especially oil) and imports will affect everyone regardless of whether they are in the mining sector or not. At some point the damage to everyone else is likely to outweigh the benefit to the mining sector.

The second issue is foreign debt. For example in central and eastern europe and iceland a lot of people have mortgages in swiss francs. Why? Because of high interest rates or cost of money in their own countries. When their currencies went down the cost of their mortgages in their own currency increased greatly. Now in Australia individual householders don't own foreign debt. However the banks, for the same reason as the people of Eastern europe, high local cost of money, went overseas for funding to the extent that 30% of their funding is from overseas.

Now the banks are highly likely to hedge this so currency movements are unlikely to have an immediate effect. However this is short term debt. They will have to go back overseas to roll it over. Let's say they borrowed US$100 when the Australian dollar was at parity so it cost AUD$100. Now let's say the Australian dollar goes down to 70c US. Then assuming they don't start charging higher interest rates (a possibility) rolling over US$100 of debt will cost more in Australian dollars. The banks will have to find the money from elsewhere which means likely cuts in lending.

If the currency goes down too much and too quickly it may put the banks themselves in jeopardy. The worse case scenario would be a Northern Rock style run by foreign investors.

Here are some articles from the UK.

http://www.ft.com/cms/s/0/8658a586-e3b4-11dd-8274-0000779fd2ac.html

Further action is likely to be needed on interest rates, fiscal stimulus and support for the banking system to enable the economy to recover from a unique recession combined with a banking crisis, Sir John Gieve, deputy governor of the Bank of England, said on Friday.

...

Sir John described how the banking system’s reliance on foreign funding, which had fuelled domestic borrowing, had appeared sustainable until summer 2007. “But once the music stopped, those leveraged balance sheets were very vulnerable,” he said, “and adjusting them is proving very painful”.Click to expand...
http://www.telegraph.co.uk/finance/economics/3834810/Sterling-slide-is-worst-since-1931.html

Although some are warning of a full-blown sterling crisis, the Bank believes that the fall in the pound, provided it does not accelerate, could benefit the economy by pushing up exports and boosting UK revenues in the coming years.

It may also prevent rates from having to fall to zero, since a weaker currency tends to generate inflation. Importantly, investors are not shunning UK government bonds, indicating that they have not yet lost faith in the authorities' ability to deal with the economic crisis.

However, Simon Ward, economist at New Star, warned that the depreciation would not necessarily be the boon politicians hoped. Although the economy recovered significantly in the wake of the ERM exit in 1992, he warned that this time around the UK banking sector's reliance on foreign funding could prove an Achilles heel.

If the pound's fall triggers an exodus of investors from the financial sector, he said, the UK could find itself in a similar position to Thailand, which had to submit to the IMF after the baht collapsed in 1997.Click to expand...
Now this was written in 2008 and obviously the UK financial system hasn't collapsed. However it did suffer from some hairy times with foreign funding such as Northern Rock which required nationalisation to survive.

However the UK is a much larger economy than Australia with deeper pockets. And even then it did suffer some hairy times. Other targets such as Korea, South Africa, and Brazil have already battened down the hatches and built up their defences against an attack or even just wild fluctuations in their currencies.

Australia has several weaknesses that means I doubt it will survive as well as the UK. The AUD has skyrocketed, the Reserve Bank doesn't seem to have a clue and have implemented no controls over hot money and I doubt any defences against sudden outflows (besides "she'll be right mate") and Australia is a very small economy without deep pockets and no big backers. There is no one really who would lose out too much if Australia were to go down and people who have a lot to gain (they can buy our resources on the cheap).

It is possible that if we survive the lower currency and our commodity exports could help us recover. However you have to understand the time scales that these sort of foreign lending crises happen is very fast - a couple of months or less. I'm not sure the existence or otherwise of commodities would help too much. In fact a short term drop in commodity prices could help fan the flames. It would largely be about more faster moving things such as the exodus of carry traders if interest rates drop and fears of a housing bubble burst. Let's say it is combined with some of the banks having to roll over short-term debt at the wrong time...The whole reason for the fear in the UK, Korea, South Africa and Brazil is the sheer speed of the likely exodus of foreign money.

Of course this is a worse case scenario. Whether or not it is likely to happen will probably be more clear as 2011 proceeds.  

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Ausprop, I don't have recent figures, but this pie chart shows a breakdown of the broad categories of Australian exports for 2003 to 2004.

[​IMG]

Assuming that the economy's make-up hasn't changed significantly in the last few years, that would put manufacturing, services and mining as contributing roughly equally to the country's balance of payments.

My point was more that it's a matter of perspective. Mining won't bail out Oz if it goes pear-shaped, but having that extra 3 - 4% of GDP coming in might mean the difference between slow economic growth and a full blown recession.  

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BV said: ↑
Bluestorm
If what you say does happen the RBA will bring interest rates down so stop dreaming about house prices falling.
It just won't happen.Click to expand...
cos just lowering the cash rate stops markets from dropping....

let me guess "our market is different", we cant fall, right?

Its gonna be interesting watching the asset rich baby boomers all hit the panic switch WHEN the market drops (not crash)  

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whitegoodman said: ↑
let me guess "our market is different", we cant fall, right?Click to expand...
Australia is not the only country doing well. From: http://www.smh.com.au/business/australia-leads-world-in-house-price-rises-20101228-1998u.html

A survey by Canada's Scotiabank on price movements in a dozen advanced countries ranked Australia as the ''clear front-runner'' for house price increases, with a gain of 9.4 per cent year-on-year for the September quarter on an inflation adjusted basis.

That put Australia ahead of France (6.8 per cent gain), Sweden (5.6 per cent), Switzerland (4.7 per cent) and Britain (4.4 per cent).Click to expand...
 

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whitegoodman said: ↑
cos just lowering the cash rate stops markets from dropping....

let me guess "our market is different", we cant fall, right?

Its gonna be interesting watching the asset rich baby boomers all hit the panic switch WHEN the market drops (not crash)Click to expand...
I think this will be the factor as well, as well as over-geared investors. The boomers already saw a bit of a reduction in their retirement funds in GFC1 (with the share market fall, and super fall). When we have another dip, and 3yrs more closer to retirement, the boomers won't sit by and watch their assets reduce further. They will begin to crystalise their large capital gains in property by selling up and moving to cash. Slowly, but then as more sell up, and the market falls, more will sell up.  

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whitegoodman said: ↑
cos just lowering the cash rate stops markets from dropping....

let me guess "our market is different", we cant fall, right?

Its gonna be interesting watching the asset rich baby boomers all hit the panic switch WHEN the market drops (not crash)Click to expand...
Ofcourse our markets can fall and have done so before and in recent times as well (btw some eg some parts of QLD are still falling)
Price adjustments up and down are a normal part of the cycle and investors know that.

However, lowering the cash rate generally increases buying activity and makes our loans more affordable.
For example, a year ago,
renting in some areas would have been more expensive than a loan repayment. So having a low cash rate prompts some renters to buy their own place.

What panic button are you talking about?
Mature people don't react on what they see on "Current affair" and Property isn't as liquid as shares and has selling and buying costs plus the seller would be liable for capital gains tax.

So my suggestion to you would be to buy your first property when you can afford to and to ignore misleading posts from people like bluestorm  

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