One week away and the world goes crazy! From the AFR, PIMCO’s …Saumil Parikh, a senior member of Pimco’s global investment committee, joins the rousing chorus warning against letting house prices run:
“If the only impact from stimulatory policy elsewhere in the world is to inflate our residential property prices, it’s a disaster,” he said.
“All it does is inflate other assets without generating growth and we would argue that’s happening in the equity market, to the extent that there is a hunt for income and corporations would rather pay out dividends rather than invest for future growth.”
Parikh goes on:
“The liquidity out of the US dollar under Yellen will be quite significant – so the Reserve Bank will have to work harder to combat [the impact]…He said Ms Yellen’s approach to monetary policy implied that with growth levels still well below the desired range, US stimulus would remain in place.
“For most other global currencies that are freely floating the pressure is going to increase,” he said.
This matters. PIMCO is a big investor in Australian bank bonds. That is, it funds Australian mortgages. If it is concerned about the combined effects of lower rates and a higher dollar, as it should be, then so is Australia’s global funding tap.
Also over the weekend the AFR continued its good coverage of the property bubble by digging into the SMSF industry partially driving it:
…The Australian Taxation Office and Australian Securities and Investments Commission, which regulates financial products, last week warned advisers about inappropriately recommending self-managed super funds, which are becoming a favourite sales tool for flogging real estate with promises of income and capital growth.
…“Wealth disasters are rarely the result of one big mistake,” says Andrew Baker, managing partner of Tria Investment Partners, a financial services and investment consultancy.
…“The introduction of gearing brings real estate within reach of the average SMSF. Then you keep real estate exempt from financial advice regulations and property developers can offer huge commissions to distributors. The scene is set,” he says.
Statistics from Multiport, a SMSF trustee and subsidiary of AMP, provide a snapshot of what is likely to be happening in the sector. In the past two years the percentage of property held in their clients’ schemes has increased from about half to 80 per cent. Financial assets, typically shares and fixed income, has slipped back to 20 per cent. The number of clients with some form of gearing rose from about 13 per cent to 15.5 per cent.
…Anecdotal evidence from property developers along the east coast of Australia suggests more intense activity, particularly among those setting up the funds to purchase property. From Queensland’s Gold Coast to Melbourne’s Docklands, developers claim off-the-plan purchases using limited recourse borrowing arrangements account for up to 90 per cent of sales, a four-fold increase in two years.
Tim Mackay, a Sydney-based financial adviser and accountant, says “loud alarm bells are ringing” and the incoming government should “seriously consider having ASIC regulate property more closely”.
…“A co-ordinated industry of inter-related businesses, mortgage brokers, real estate agents, lawyers and planners are encouraging consumers into over-priced, leveraged property deals,” he says.
“In some instances in a single day a spruiker will have a consumer set up a SMSF, borrow heavily, and invest in a property off the plan, which has been bought from related parties. Often it’s initiated with a cold call and then a high pressure seminar.”
…“Property investment through SMSFs is adding to the fire,” says RateCity chief executive Alex Parsons. He says last month there was a 20 per cent jump in applications from investors for finance.
Actually, I’ve got no problem letting folks buy off-the-plan apartments in two minutes if that’s what they want to do. But the same in existing dwellings is complete madness.
