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Australia six weeks from a housing collapse us report warns


EXCLUSIVE

AUSTRALIA has roughly six weeks to prevent a housing market collapse caused by the banks crackdown on foreign investor lending, a US defence think tank has warned.

In an article titled Australia Risks Strategic Setback From a Significant Foreign Direct Investment Drop Due to Changes in Bank Policies, the Washington-based International Strategic Studies Association warns that Australia may be entering a significant phase of its economic-strategic development.

It argues changes in local banking policies could see foreign direct investment in the property sector decline markedly. This will profoundly impact the Australian governments ability to fund major programs in the defence and civil sectors, it said.

The article is contained in the ISSAs latest Global Information System newsletter, described as a strategic intelligence service for use only by governments.

The Royal Australian Navys submarine acquisition program, budgeted at $50 billion, may be the first major defence casualty, the article said.

However, the government itself seems unaware that the anticipatory caution on the part of Australian banks may accelerate a decline in the Australian economy.

ISSA president, West Australian-born Gregory Copley AM, told news.com.au the banks caution is precipitating the market collapse.

We estimate that Australia has about six weeks or so to turn this situation around, otherwise there would be a massive hit on property valuations and the building trades, he said.

The urgency is, I believe, based on the fact that this is about how long it will take for the banks policies to start switching off a lot of existing and planned contracts for Australian properties.

The banks clearly believe Australian real estate values will decline, so they are attempting to avoid that risk. Theyve learned from the US collapse that seizing real estate collateral is a no-win scenario when the volume is great and the market slow.

In so doing, they precipitate the market collapse but are less exposed to it.

It comes after Australias richest man, billionaire property developer Harry Triguboff, warned that a very significant number of Chinese buyers were now failing to settle their off-the-plan units and urgent action was needed.

But Mr Triguboff, founder of Australias biggest apartment builder Meriton, warned the real risk was looming in the new wave of developments. As apartment price growth stalls or goes backwards, the risk of buyers walking away from their deposits grows.

Earlier, broker CLSA predicted a looming apartment crisis that would be kicked off by a wave of defaults forcing smaller developers into receivership, pushing down prices and potentially causing wider contagion that could lead to a recession.

The ISSA described moves by Australian banks from July this year to restrict or even withdraw funding to foreign property investors as almost cartel-like policies.

The policies, now in place by all major Australian banks, were instituted in anticipation of an economic downturn internationally and domestically, but which, in fact, actually trigger or exacerbate such a downturn, the article said.

The piece quotes a leading Australian property source warning that by cutting off the foreign buyer sector completely, it is much more likely to be a self-fulfilling prophesy by depressing demand, creating oversupply and putting downward pressure on prices, thereby creating paper losses at the settlement date which would tempt buyers to walk away.

It will likely also have a broader impact of depressing housing prices across the whole economy. It is a kneejerk response to fraud concerns, the source was quoted as saying.

To my understanding the fraudulent activity has been linked mainly to one significant group, which has historically managed about 3000 sales into Australia each year.

And notwithstanding the doctoring of supporting documentation, the actual settlement rates had remained high. That one property group needs to be taken to task, not the whole industry.

NAB chief economist Alan Oster described the ISSAs prediction of an imminent collapse as garbage, adding that the CLSA report was very poor analysis.

One of the big problems of apartments is most of them, we dont know whos funding them, he said. If the big banks dont know whos funding them, then the bottom line is, basically the main risk is somewhere else.

What the banks were trying to do with the tightening of apartment lending, particularly to foreigners, was make sure that if people were having trouble offshore they didnt end up in the Australian banking system.

According to NABs surveys of property developers, foreign buyers make up around 20 per cent of off-the-plan purchases, but that figure is significantly higher in Sydney and Melbourne CBDs.

Mr Oster said the issue of settlement risk was probably further down the track in 2017-18. The idea that the banks, who might own 20 to 30 per cent max of these apartments, will somehow crash the market is silly, he said.

To get any sort of problem youve really got to have something going wrong in China and then everybody selling their apartments at the same time. If they do that then its not an Australian problem, thats a global problem.

ANZ economist Daniel Gradwell said while there was definitely a risk of rising defaults, from our discussions with developers in the industry we are feeling a little bit like where theres a will theres a way.

There is still an incredible amount of demand coming from these Chinese buyers, he said. If theyre not getting finance from the major banks, it seems there are other options out there including non-bank financing.

Its worth remembering there is still a lot of money out there searching for a home or somewhere to invest.

Commonwealth Bank said concerns about a peaking in the residential construction cycle look overdone and it wasnt expecting any significant contraction until late 2017 and early 2018.

A renewed lift in lending to build dwellings and good growth in lending to buy vacant blocks of land point to an extended top in new construction, a Commonwealth Bank spokesman said.

Rising lending for alterations and additions means renovations could make a significant contribution to economic growth.

New construction activity is running ahead of demographically driven demand. The stockpile of unmet demand that built up during the earlier period of underbuild is eroding rapidly.

CBA estimates of the apartment construction pipeline point to a significant lift in supply that will ultimately weigh on new construction. That point still seems some way off.

Westpac declined to comment.

Australians are becoming more open and honest about their finances a choosi report says




REVEALING finances to family and friends has become the new norm and it’s now trendy to be financially savvy, a new report has found.

Exclusive research from The Choosi Dollar Report found three in four Aussies admit they are now more comfortable discussing their finances with those around them, and a majority also believe they are better money managers.

However contrary to this, many people concede they are not good savers.

Choosi spokeswoman Katrina Foster said it was promising to see from the report that Aussies are becoming more open and honest about their financial situations.

RELATED: How to discuss money with your friends

Money is no longer taboo, we are breaking down those financial barriers and we can have an open and frank discussion about saving hacks and investment options,’ she says.

However, many people remained tight-lipped on their salaries or how much money is in their bank account but are more open to talking broadly about their finances.

And nearly seven in 10 people believe its become trendier to be good at managing money.

The report explored dozens of money-making views of more than 1000 Australians by delving into how people handle their finances and found one in two people taught themselves how to successfully do it.

Parents knowledge can also help, with 34 per cent using what their folks taught them.

However, when it comes to saving cash, many of us are not good at it.

About 37 per cent deem themselves as a superstar saver, while 37 per cent say they are an average saver and 26 per admit they are terrible at stashing cash.

The biggest roadblock to tucking away savings is having a lack of money to put aside in the first place.

Personal finance expert Heidi Armstrong says rather than burying your head in the sand when it comes to setting up a successful savings, taking baby steps can be the best place to start.

Set more realistic, attainable shorter-term goals, for example when youre saving for a house deposit that could take four to five years and feel so overwhelming,’ she says.

If you break it down and say this year Im going to forego an annual overseas holiday and put away $15,000, that can be much more positive.

Theres no denying many of us worry about money at least half are concerned about it on a daily, weekly or monthly basis while the other half are not concerned about their finances much at all.

@sophieelsworth