APRA Property Boom Continues...

Over a year ago we predicted that APRA’s attack on investors was ill founded, short sighted and would lead to a shortage of supply. Basic economics then tells us from the shorter supply the rising population, we get rising prices! Low and behold latest figures show that in a 3 months to September National values appreciated 2.7 per cent giving us 11.2 per cent annual rate of capital growth. This is HUGE given that we have inflation sitting at around 1 per cent. Given that we have banks dropping their rewards to those foolish enough to put cash on deposit with them. In addition, us believers in bricks and water are also picking up about a 5 per cent rent return. If we had bought 10 years ago this is more like a 10 per cent return on our money plus the capital growth.

“What has caused this property boom?” The media are asking and coming up with the wrong answer. “It’s the interest rate cuts this year by the RBA!” others “It’s the influx of cashed up Chinese buyers”. These media are directly or indirectly employed by our banking monopoly and it is in their interest to have high rates. These give higher margins and higher profits without any extra work.

What are the facts though?

The chart shows the boom from 2001-2004. High rates lead to higher prices. Low rates are not the villain; Chinese buyers are not the villain…

The above chart shows that the prices rose higher in the previous boom. Interest rates then were higher than now and there were no Chinese buyers to blame. Now in fact, we have lower rates than the Chinese yet we have a lower boom. But, now we have the APRA EFFECT keeping up property prices! That’s right Wayne Byers in attacking investors 18 months ago is now being proved a fool. As you can see from the last property boom it cooled via the rule of supply vs demand. Builders were attracted to the high prices and flooded the market with new supply. New supply is funded by investors buying off the plan. The banks demanded then 20 per cent to 30 per cent of the planned construction be so funded. So the investors came into the market with more supply and cooled the boom. There was no panic action from the RBA. Then no rush for the lime light by the APRA Chairman.

Now we have the RBA and APRA exposed as incompetent, in my opinion. How long will it take them to reverse their attack on investors? These are paid public servants with no coal face experience and as a result are not getting any coal face pain. They are looking forward to retirement on your money via their fat pensions. They are not risking their future out in the market place that they are hurting.

What will change their stance?

Unfortunately it is political agitation and questioning of Byres and the new RBA Governor. I say unfortunately because our politicians don’t see the economy as important as social issues that are exciting the journalists in the closeted Canberra. Perhaps this is a good item for our man in Canberra ex MP Pat Farmer to comment on. o the RBA and APRA will ultimately have to reverse their illogical and ill-conceived ban on investor lending. Banks will ultimately be forced to reduce their interest rate penalty on these investors. Until then, the APRA PROPERTY BOOM will continue.

It’s all about the price of bananas really!

Happy Investing,

I Love Property!

Kevin Young