A study has revealed that big banks have used the global financial crisis as an excuse to gouge customers while boosting staff pay packets and posting record profits for shareholders.

The University of Canberra study has found banks are overcharging customers through bigger profits on mortgages, higher fees and lower savings rates compared to before the global financial crisis, News Ltd newspapers say.

The study says official statistics prove banks have been lying to the public about their financial health.

“They (Westpac, the Commonwealth, NAB and ANZ) have been crying poor throughout the global financial crisis and yet official data shows that they have been misleading, to put it mildly,” said Milind Sathye, professor of banking and finance at the University of Canberra.

The university has used statistics from the Australian Prudential Regulatory Authority (APRA) to monitor the banks’ financial well-being.

“This means our conclusions can be openly scrutinised,” Professor Sathye said. “The banks, on the other hand, make their arguments based on data that only they can see. And on that basis, they can argue almost anything.”

The most recent APRA data shows that, far from cutting back during the crisis, banks actually increased remuneration for management and staff from $14 billion to $16 billion a year - a healthy 14.2 per cent increase - all while millions of ordinary workers were suffering pay freezes or reduced hours.

Banks have also slashed the rates they pay to savers, sometimes by almost half.

australia property market,australia property market news,Australia Stock Market

Forced sales hit property market

HOMEOWNERS coaxed into reinvesting the equity in their homes are facing bankruptcy as falling property values and rising interest rates stretch them beyond breaking point.

These duped mortgage-holders, many of them baby boomers preparing for retirement, are among an increasing number of people facing eviction across the country.

The number of eviction notices served in New South Wales surged more than 50 per cent in the year to June, with the fallout most pronounced in Sydney, where some agents have as many as 18 mortgagee sales listed on their books.

According to the NSW Attorney-General, there were 5316 eviction orders lodged last financial year, up a massive 52per cent on the 3495 the year before. Although many of those struggling owners bought at the peak of Sydney’s property boom in 2003, agents are reporting distressed owners who have used surging property values to borrow against their homes.

Patricia Maynard, 65, and husband Richard, 75, face losing their $1.2 million Coogee home in Sydney’s east after they were talked into withdrawing $960,000 from the property they originally paid off in 1986.

Ms Maynard said the couple were approached by a group in late 2002 who offered to help them unlock the equity in their home to reinvest and fund their retirement.

“In February 2003, we went and got the bank cheques and we thought, ‘Great, we don’t need Centrelink payments any more, we can be self-funded retirees’,” she said.

“We were so naive, we’d paid off our house in 1986 and we were just retirees on a pension.”

The company has been placed into liquidation, the couple now owe $1.1 million on their house and Ms Maynard has been forced to return to work.

“I thought there was no way something like this could happen in 2006 in Australia, that these people could get away with something like this,” she said.

Ethical real estate campaigner Neil Jenman said the number of people who had lost the equity in their homes and were seeking help had “at least doubled” in the past six months and the problem was expected to worsen.

He said most of the people losing money were driven by a fear of being poor in retirement rather than greed.

“It’s not greed, it’s fear driving people into these things,” Mr Jenman said. “They are in their 50s and they say to themselves, ‘I haven’t got my finances in order so I’d better fast-track it’.

“It should be against the law for unsophisticated investors — that is, anyone with a net worth of under $5 million — to mortgage their home and go into any scheme without first receiving independent legal advice.” Although there are reports of increasing mortgagee sales across Sydney, outer-western suburbs such as Liverpool, Kellyville and Ingleburn have been hardest hit by the downturn.

Many owners in these suburbs who have borrowed against their homes now have mortgages bigger then the value of their properties — and the banks are moving in.

Real estate agent Essam Eskaros, of PRDnationwide in Liverpool, said that of the 19 properties the group had listed for sale this month, 18 were mortgagee sales.

Ian Carroll, of agents Century 21 Carroll Combined in Blacktown, said about one in five properties were forced sales instigated by banks.

“We’ve had one unit that we sold in 2003 for $319,000 that just resold for $240,000,” Mr Carroll said.

“We’ve also had a development site that was bought for $670,000 and which just resold for $365,000.”

Auction clearance rates remain low in the eastern capitals, with less than half those properties auctioned in Sydney being sold.

Over the weekend, the auction clearance rate was 49.8 per cent for Sydney and 56 per cent for Melbourne, according to Australian Property Monitors.

Despite the weakness in the market, high house prices continue to lock families out of home ownership — a problem the Howard Government blames on the states.

“The stubborn refusal of state and territory governments to release enough land for new homes is forcing the price of house and land packages beyond the means of many hardworking Australians,” John Howard said yesterday.

It retold the story how our hero, Treasury Secretary Ken Henry’s mum asked Ken if she should take all her cash out of the bank when markets started to meltdown late last year.

Rather than give you the answer, see if you can guess how Emperor Ken responded.

Did he:

a) Tell his dear old mum to withdraw every last cent from the bank,

b) Tell his dear old mum that Australia’s banks are the safest in the world due to their strong balance sheets, tough regulation and sound management, or

c) Tell the Fairy Ruddfather to put the taxpayers on the hook for billions of dollars by introducing the retail and wholesale bank guarantees, and handing out $10.4 billion of other people’s money as ’stimulus cheques’, so Emperor Ken’s dear old mum could get a good night’s sleep.

You’re getting good at this.

That’s right, the correct answer is ‘c’.

Apparently, the following is what Emperor Ken said to the Fairy Ruddfather. According to Ken anyway:

“I think you [Rudd] need to do something and I think you need to do it very quickly and it needs to be big.”

It’s the kind of comment you’d expect from someone so delusional about their own ability. Clearly the King Poo-Bah of pen pushers knows exactly how to ‘fix’ an economy.

It’s just a shame that after billions of dollars have been poured into the economy, it’s not worked one jot.

But we knew that. And the reason is simple…

In order for the government to pour billions of dollars into the economy it had to withdraw billions of dollars from the same economy.

And of course the main problem is that the dollars that have been ripped off from taxpayers have been spent on things nobody wanted - school buildings, hospital buildings, roads, bridges, etc…

“How can you say that nobody wanted them? Everyone wants school buildings, blah, blah” the stimulus lovers will claim.

Well that’s simple. If people really wanted them or even needed them, then the same people would have voluntarily funded them. The fact the money needed to be ripped off from taxpayers is proof school buildings are low down the priority list.

Instead, the population has something higher up the priority list.

And that brings us to today’s Money Morning.

Because we could hardly come to the investment property capital of Australia - the Gold Coast - without looking at the property market.

But even before we got here we took a few minutes to check out real estate on the Gold Coast.

And if we base the results of our research on the first twenty apartment sales we came across, then six out of thirty, or three in fifteen, or one in five apartments in Surfers Paradise are subject to mortgagee auctions or where the vendor “must sale.”

Maybe that’s just how it is up here. Perhaps mortgagee auctions are just par for the course.

The Ray White Real Estate sales shop on Cavill Mall proudly announced on a sandwich board:

“Apartment, $179,500 Cash Flow Positive!! Mortgagee auction.”

As I say maybe that’s how it is up here.

No pain, no gain. You’ve got to be in it to win it.

Don’t believe a word of it.

Despite what the property spruikers will tell you, the housing market is in desperate trouble.

And it’s not surprising these properties are getting repossessed by the banks.

As we took a stroll round the corner we looked in the shop window of 21st Century Real Estate.

And that gave us all the reasons why so many properties end up on the books of the banks.

From what we could see, a property investor up here isn’t going to get much change out of ten grand a year in rates and body corporate charges. Add on other maintenance fees and loan interest charges and the investor is well under water - not just as a one-off, but every year.

It’s not just the big priced properties either. The apartments being sold under mortgagee auctions were low-end properties too - some priced at no more than $120,000.

Clearly if an investment property is up for a mortgagee auction then it is not cash flow positive.

Not when you take into account all the fees and the mortgage repayments.

Anyway, we plugged in the numbers for a $120,000 investment loan. The repayments are about $760 per month. That’s a decent sized repayment amount.

Maybe not if that’s your only mortgage commitment. But if that’s in addition to the mortgage against your home then it’s a fair chunk on top.

But then we’re told by the spruikers that due to the tax breaks and the rental income that the “taxman will fund your rental property.”

Obviously that’s not the case.

With so many investment properties on market as mortgagee auctions and new building projects a dime a dozen here on the Gold Coast, talk of an undersupply in housing is just a downright lie.

Rather than there being a shortage, it’s merely the case that due to the tax deductibility of investment properties, resources are being misallocated into investment properties rather than owner occupier properties.

Everyone wants to be a property investor. Everyone wants to be a landlord.

Simple logic will tell you that not everyone can be a landlord. There have to be tenants to rent the properties out to.

The number of mortgagee auctions of investment properties tells you there are plenty of investment properties where the tax man isn’t paying off the mortgage. Where the tenant isn’t paying the mortgage…

And where the total costs of holding a property are so oppressive that investors have no other option than to be forced sellers.

Maybe another investor can take advantage of this and buy the property. But that isn’t the point.

The point is the numbers don’t stack up. Property investors are being suckered into buying apartments where the numbers just don’t stack up.

As I mentioned before, the real problem is that this is creating a massive misallocation of resources.

Debt is being used to buy and build what are largely unproductive assets.

Assets which once built just create a drain on the finances of those unlucky enough to buy them. Assets which produce no income or growth for anyone apart from the builders and property managers.

Builders and property managers who just build and manage more unproductive properties, creating an even bigger misallocation of resources.

It’s easy to see why property investors don’t make money.

When you’re buying an investment property you’re paying the retail price for it. Just the same as if you pay the retail rate for anything else. There’s no way for the investor to mark up the property for resale unless they spend money on improvements.

Even then, those improvements have to be made for below the retail cost otherwise again there is no mark up opportunity.

How can the property investor do that? Well, they can do the work themselves of course.

But that means sacrificing something else. They either have to devote less time to their ‘day job’ or they have to sacrifice some of their free time. The so-called profits from investment properties don’t just happen from buying at the retail price, waiting a few years and then selling at the retail price.

That just doesn’t happen, even though the spruikers will try and claim property investing is a guaranteed and simple way to make money.

All this debt that’s being poured into the cesspit of property investment means funds not being invested in real productive businesses and industries. Businesses and industries that could provide genuine income and growth.

And so tomorrow, if interests rates do rise, that’s more interest dollars going to the banks, more dollars that can’t be spent or invested elsewhere, and the closer the property market moves to its ultimate collapse.

A
Auction is the best way for buyers to know they are purchasing a property for its true market value. However, the auction process itself can be a little intimidating for some buyers, so it’s advised to go into the auction with a firm idea of what you are willing to pay for the property in question and seek the advice of a professional.

B
Buyers Agents work on your behalf, as a buyer, to find you the perfect property and negotiate to achieve the perfect price. Relationships with real estate agents ensure that your buyer’s agent has access to properties that are fresh on the market and sometimes have not even been advertised yet.

C
Conveyancing is the process by which real property is legally transferred from one person to another. It involves gathering information concerning a property and preparing the documents for the transference of the property. Remember to ask your solicitor to conduct searches for flooding, as some areas are especially prone to this problem in high rain and storms.

D
Deposit is often not required to form a legally binding contract but it can show the seller that you are a serious buyer.

E
Equity in your home will ensure you can build your investment portfolio when the time comes. Put simply, equity is the difference between the market value of a property and the claims held against it.

 
Finance and the acquiring of it is an essential part of the home buying process. A finance broker has access to a range of lenders and will source the best loan for your individual situation

G
Genuine Savings are demonstrated where supporting records in the name of the applicant(s) confirm the applicant(s) has accumulated a minimum of 5% of the purchase price (3% for first home buyers) by way of progressive and regular savings over a period of not less than three months prior to the time of application for a mortgage. Since the credit crunch, banks have become stricter in the requirement of genuine savings.

H
House, apartment or land, there are a number of different options to choose between when deciding upon your home, depending on your requirements and budget. There are also a great number of places to find them - from real estate agents to online ones. Your buyer’s agent will have access to them all, and more, to save you the running around!

I
Inspections (open houses) are an important way of educating yourself about what is currently available on the market and what the asking prices are.

J
Journey as opposed to the destination. The process of buying a home, whether it is your first or thirty-first, should indeed be considered a journey, and an enjoyable one at that.

K
Keep Perspective - get used to tuning out to the (well meaning) advice of the “industry experts” including your neighbours, current affairs media, the taxi driver and your in-laws. Rather consult with, and trust, a true professional who is familiar with your individual situation and has their finger on the pulse of the local market.

L
Listing Types - including open listings, online, silent, tenders and auctions - can become confusing and confronting for buyers, as each needs its own strategy to ensure you receive the best price for the property. Buyer’s agents have experience in all buying conditions and with each listing type, so are able to negotiate the best result for you, on your behalf.

M
Mortgage Brokers can source the best finance solutions for you, due to independent access to a range of lenders.

N
Negotiation is key to achieving the best price, and a real estate agent’s job is to achieve the best price for the seller, leaving the buyer to negotiate on their own behalf in unfamiliar territory. Buyers who are not used to regular property negotiations are best advised to work with a buyer’s agent.

O
Orientation refers to the way the house is facing and the impact of the sun. Check whether the orientation of the property would best make use of the winter sun and minimise the impact of the heat of the summer sun.

P
Price is often what makes the ultimate decision between whether or not you will buy a particular house. However, how do you know if what you have offered, or the asking price, is indeed true market value? A market professional, such as a buyer’s agent, will be able to provide all the facts and figures to ensure you make the right decision.

Q
Qualifying Buyers for finance is often a very individual process, depending on the lending institution in question. While one lender may not qualify a buyer due to one particularity, another may well differ, making it all the more important to consult with a finance broker, who can source a lender right for you.

R
Real estate agents act on behalf of the seller - achieving the best price for them. Real estate agents are very useful places to source and view property, but if you want your own interests represented professionally to the seller, work with a buyer’s agent.

S
Sales contract is an agreement by which the buyer and seller agree to the terms and conditions of a sale. In many cases, a licensed real estate agent can prepare a contract, but a buyer should always seek independent legal advice before signing a contract.

T
Title is the term used whereby one has just and full possession of real property - in other words, it’s yours and you can move straight in!

U
Under Contract is the term describing when a property for which a purchase offer has been accepted by the seller..Often a buyer will have specific conditions that allow them specific time to obtain finance approval, arrange building and pest inspection and conduct other investigations. During that time, the seller cannot accept offers from other buyers.

V
Valuation is the estimated worth of a property, and is carried out by a qualified property valuer. If you are remortgaging, or considering purchasing an investment property, your home will be valued.

W
Wants versus needs - sometimes you will need to weigh them both up when determining the right home for you. And consider your future needs as well, such as an expanding family.

X
Xclusive opportunities are often provided to clients of buyer’s agents, as often real estate agents and owners contact them directly if they have a new property listing or are considering placing their home on the market.

Y
Yield is a measure of investment performance of an investment property, gauging the percentage return on each dollar invested. It is also known as a rate of return.

Z
Zoning is a method of regulating use of real estate by dividing a city or other area into zones and designating which uses may be permitted for land in each zone.

The residential property market used to be considered bulletproof, but the last 12 months have proven that property prices can fall – and recover – in uncertain times.

Most economists admit Australian housing is entering a new cycle, one which will be driven by high population growth and changing demographics of ageing baby boomers, more babies being born and higher immigration.

All of these changes will drive new and surprising property trends that will drive future property price growth in ways we perhaps never imagined.

Read on …

WALKABILITY: Trend one

Property within walking distance of amenities such as schools, parks and shopping aren’t only more convenient but can be worth more money than homes in neighborhoods where driving is the rule.
An American study has find that in 13 out of 15 real estate markets, homes within an easy walk of facilities have higher values than those reliant on cars – and Australian real estate agents agree it’s likely to be the same here.

As big cities like Brisbane and Sydney become more choked with traffic, the ability to leave a car parked at home and use our own legs to get places becomes more sought after and desirable.
There are environmental and health benefits from living in a place where the car can stay parked, with lower levels of obesity and higher levels of “social capital” in places where the locals walk to streets and connect with each other.

WORKABILITY: Trend two

With petrol prices as up and down as Paris Hilton’s skirt, commuting to work guzzles a greater share of take-home pay.That’s why homes located close to growing new work nodes – which are no longer in the central business districts of large cities – will become more valuable. BIS Shrapnel have discovered that suburbs where middle managers in businesses in outerlying commercial areas are growing in value as more professionals stay away from long commuting times and value time with their family.

Economist Jason Anderson says Sydney suburbs like Marsden Park grew strongly in value while other nearby suburbs languished in price, thanks to managers choosing to buy affordable family homes within an easy commute of new work districts in the north-west.

Studies show that households located in areas far away from work nodes will spend more of their income on petrol and cars than those who live in well-located positions close to employment.
Americans can spend up to 25% of a household’s income if they live in car-dependent suburbs while Europeans spend 9% because they tend to live in properties with easy access to rail and subways.
Study up on your city’s new and emerging commercial districts to see if you can find affordable, well-located family suburbs that could grow on the back of this trend.

SCHOOLABILITY: Trend three

With the highest birth rate since 1971, Australia is having a mini baby boom which will see more families flee the inner city to be close to good schools and facilities for their children.

Schools have always been a strong driver of property values, but with more children being born there will be more of a scramble to live close to quality private and public schools – especially those on train lines or with good public transport access. Expect houses that cater for families and located close to parks, hospitals and other amenities besides schools to grow in value.

With the federal government introducing new school reporting systems from next year so parents can compare schools, it will be interesting to keep an eye on the schools that perform well and watch what property in the catchment areas do.

ENERGY EFFICIENCY: Trend four

With energy bills skyrocketing across Australia, buyers will be more conservative about purchasing homes with obsolete energy-guzzling fixtures like electric hot water systems or old air-conditioning systems. Every state in Australia has committed to implementing a star-rating system for homes, so that by 2011 every residential property that is sold will be rated up to six stars for energy consumption.

Climate change, the emissions trading scheme and aging energy infrastructure means industry experts estimate electricity prices to rise by more than 30 per cent in the next three years – possibly even higher after that. Homes that are insulated, small, have energy-efficient appliances and good orientation will be chosen over older homes that require more electricity to remain comfortable.

MULTICULTURAL ARCHITECTURE: Trend five

Demographer and KPMG partner Bernard Salt believes high levels of Chinese and Indian immigration into Australia will begin to alter the architectural styles of Australian homes.

He says we will see more Asian influences in our homes, such as tiled floors and perhaps multi-family dwellings as Australia’s immigrants build their wealth through property.

Salt says immigrants tend to work hard to accumulate property and after 10 or 20 years will show it off with home improvements and renovations that reflect their cultural diversity.

Why a Small Deficit is Just The Tip of a Big Deficit Iceberg

You already know what the big news of today is going to be so we’ll skip that and comment on it tomorrow.

Of course the other big news is rumoured to be that two million households will get ceiling insulation funded by the government. It is almost too crazy to think about. We don’t know for a fact whether it’s true, but that seems to be the gossip. Your editor’s brain just does not compute why the federal government is diversifying into the household insulation business.

Maybe there is good money in it. We don’t know. But what we do know is that whether you like it or not, you will be buying someone, somewhere, some ceiling insulation. Perhaps the government could pass on your name to those that take the government up on the offer so they can send you a ‘thank you’ card.

But we won’t write about that either. Wayne Swan is due to release details of the latest ’stimulus package’ at 12.30 (AEDT) today. Nothing we write will be able to compete with the entertainment of seeing housing insulation touted as the saviour of the economy.

Instead we’ll take a bash at the “Budget’s $115bn black hole” and the impending “small” deficit that the government is about to plunge us into.

If you’ve been reading Money Morning or the Daily Reckoning over the last few years you’ll know that your editor has argued against the build-up of government profits - or as they and the mainstream press like to term it, government surpluses.

Our argument has always been that the government should not be a for-profit entity. That if it is drawing in surplus revenue it should stop and give it back.

By the same token the government is now signaling that it is about to go into deficit. And unsurprisingly public funded organizations such as the IMF and World Bank are suggesting that going into deficit is a good move as it will help to power the economy out of recession.

Again unsurprisingly, most economists, business groups and welfare groups are also urging the government move into deficit.

But if you thought the ceiling insulation initiative was madness then you’ll love some of the comments about prior surpluses and the soon to be realized deficit.

Apparently, according to most of the talking heads we’ve seen on television and heard on the radio, it is good that the government had built up a $20 billion-plus surplus because otherwise the economy would be in worse shape and the deficit would be even higher.

And they say it with a straight face. It is like saying to a gambler, “It’s a good job you won all that money last year because now you’ve lost it all. Imagine if you hadn’t won, you would have been even worse off now.”

It gets even better than that. ABC radio interviewed Joshua Gans, professor of economics at the University of Melbourne, he said:
“If there’s a free lunch out there where we can reduce taxes and increase tax revenues, we should definitely take it. But I don’t know how that free lunch has appeared right now.

No we wouldn’t. The idea is that not only do you cut taxes but that you cut spending as well. It’s not rocket science, and you don’t need to be a professor to work that one out. Anyway, Professor Gans continued:
“Ronald Reagan, he tried this. He had this theory, it did not show up. They dropped taxes; all they got was a bigger deficit for a decade. I don’t see any possibility of this occurring here in Australia right here, right now. And even if did, the last thing we would necessarily want to be doing is taking more in total dollar taxes out of the economy and making a bigger government.”

OK, he’s getting the idea, don’t raise taxes and keep the government small. But then unfortunately the Prof goes askew again:
“It’s probably time to bring forward the big ticket infrastructure expenditure items that the Governments might have put off for some years because the time wasn’t right.”

In other words, government spending! But it’s not just Professor Gans who is all over the shop on his economic theory. In the same story the ABC interviewed another boffin, Professor Raja Junankar from the University of Western Sydney.

He is also against giving taxpayers money back to taxpayers. He also thinks that government knows how to spend your money better than you do. This is what he said when asked whether broad-based tax cuts were a good idea:
“I think there’s no evidence to support that kind of view. In fact, after a moment, because the economy is in a recession or getting into a much worse recession over the next few years, next few months, that cutting taxes probably is not going to stimulate any extra activity. The only thing that’s going to stimulate more activity is if you can increase aggregate demand in economy, which means increasing spending on infrastructure, on hospitals, on schools, on roads and those kind of big expenditure patterns that we want to increase.”

Again, we’re not sure that we need to repeat again our view on throwing more money into the black hole of state funded health and education.

But this is surely what will happen. And it is why the mooted small deficit will sooner rather than later turn into a big deficit. Simply because one-off spending on these big white elephant projects will only lead to even bigger recurrent expenditure in future years.

The economists and mainstream press seem to forget that the only way to deliver a stimulus to the economy is to give more money back to taxpayers. This will lead them to either spend it, or more likely they will save it.

If they save it in a bank then it adds to the banks’ capital base which then allows them to lend money as consumer or business lending.

Paying for ceiling insulation and encouraging every to spend, spend, spend may have a short term positive impact for some businesses, but in the long run the increase in government debt will only have the effect of drawing money away from the private sector towards the public sector as the government refinances its own debt.

The bank’s have already loaned out as much as they can, rather than trying to patch things up with government guarantees and a ‘Rudd Bank’ the government should just cut taxes and let people save. This will naturally recapitalize the banks and it won’t cost the taxpayer a cent.

Instead, the deficit will continue to grow and grow, and because it has been in profit until recently, the Australian government has the ability to borrow much more relative to the size of the economy than the US and the UK.

Other Stuff on the Markets

Everything seemed to fall last night, the Dow Jones, Crude Oil, Gold and the Aussie Dollar. The Aussie may come under further pressure if the RBA cuts by more than 100 basis points today.

The market continues to build in a 100 basis point cut. In fact, according to the implied yields there are bets that the RBA could cut even further.

Business lobby groups are keeping up the pressure on government to spend your money. The Australian Chamber of Commerce and Industry wants the government to spend up to $25 billion. No doubt to prop up the businesses of its members.

Gold Coast property tycoon Jim Raptis has seen his company collapse with debts of around $1 billion. Is this the sort of over-leveraged property investment that the new property bail out would have financed?