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BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide.  Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years.  For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams.  She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.


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BFCSA: Ignore The Bank Crapomatics - Housing Bubble is Real - Ian Verrender THE DRUM

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Ignore the banks, the housing bubble is real

The Drum

By Ian Verrender

Posted Mon at 7:55amMon 29 Sep 2014, 7:55am

A raft of executives and chief economists from almost every major bank have screamed their message that there's no housing bubble, so that has to be true, right? Well, not quite, writes Ian Verrender.

It's official! There is no real estate bubble.  The stratospheric trajectory of residential property prices in Sydney and Melbourne during the past two years is nothing more than market forces at work and, if anything, is evidence of the efficient operation of the Australian housing market.  How do we know this? Because a raft of senior executives and the chief economists from almost every major bank have told us so, screaming their message, occasionally in unison, from the rooftops in recent weeks.

Forget the concerns of the Reserve Bank, the Bank for International Settlements and even the International Monetary Fund, all of which are now either suggesting or threatening drastic action to bring Australian real estate back to earth.  Even the Treasurer Joe Hockey has joined the naysayers, dismissing all the bubble talk as nothing more than "lazy analysis".  "I don't see at the moment any substantial risk," he said a fortnight ago.  And, hey, according to the Australian Bankers Association, even if there was a problem, implementing the kind of controls imposed by the Kiwi Reserve Bank could make things worse by excluding first home buyers.

That, of course, leads to all this talk about housing affordability, which, if you believe the Housing Industry Association, is completely wrong. And who wouldn't?  The HIA, in conjunction with Australia's biggest mortgage lender, the Commonwealth Bank, debunked that hoary old chestnut earlier this year when it found that Australian housing was now at its most affordable level since 2002, a claim even the most gullible amongst us had difficulty digesting.  The increasingly shrill defensive chorus from those with deep conflicts of interest in the property market is evidence enough that, not only do we have a problem, Houston, but that urgent action is needed.

Superficially - and that is the extent of most of their arguments - they are correct. The boom in Sydney and Melbourne real estate is purely down to market forces. Demand is outstripping supply.  But the fallacy of their arguments is that the problem is not one of supply shortages, which usually is fingered as the main culprit by the industry.  The primary cause for two decades of rapidly escalating housing prices is that demand has been artificially turbo-charged by a cocktail of tax breaks that discriminate against younger Australians in favour of older, established citizens with higher incomes.

They are tax breaks that are costing the budget dearly - between $2 billion and $4 billion in net revenue annually - and that are driving a wedge through the notion, or perhaps the myth, of Australian egalitarianism.  Home ownership has long been a central tenet of Australian society and its sacrosanct position has seen the family home removed from any form of tax.  As the only tax free investment, and the biggest investment most Australians make, that move enshrined demand for a largely unproductive asset.

But it was the 1980s that changed everything. Financial deregulation opened the floodgates. Cash, which had always been heavily rationed, suddenly was in ready supply. But it took the Black Monday stock market crash of 1987 to really open the floodgates.  The collapse of entrepreneurs such as Alan Bond, that left both Westpac and ANZ on the verge of bankruptcy, prompted the major banks to turn their attention to housing. Boring it may be. But it was dependable. Unlike entrepreneurs, home owners would do almost anything to avoid default.

As the 1990s recession faded, our banks discovered wholesale debt markets, imported cash by the container load and doled it out to budding home buyers.  They more they lent, the higher housing prices rose. And the more prices rose, the more home owners borrowed. For bankers, it was a thing of pure beauty, a virtuous circle.  According to credit rating agency Moody's, home loans now comprise about 65 per cent of Australian banks' total loan books. That's far greater than any other developed nation and makes them uniquely vulnerable to a housing market meltdown.

Adding fuel to that fire was the tax enticement. For almost half a century, from 1936, the Tax Act specifically quarantined investment losses from other forms of income. You couldn't use losses on property or share investment to reduce your personal income or business tax.  Paul Keating changed that in 1985 when he introduced negative gearing as a sweetener to help counter potential opposition to his proposed capital gains tax.  Within months, however, he unwound it only to come up against a barrage of vested property interests pounding exactly the same arguments as today, that limiting negative gearing would reduce property investment in new housing and ultimately cause an increase in rental costs. It didn't.  Two years later, however, negative gearing was reintroduced. And in 1999, Peter Costello simplified capital gains tax by halving the tax paid for anyone who'd held an asset for more than 12 months.

The end result? Investors have piled into real estate in the past couple of decades. Investors now account for almost 40 per cent of new home loans. If you exclude refinancing from existing home owners, the figure jumps to 47 per cent, up from 17 per cent back in 1992.  The problem is, the overwhelming bulk of investors buy established houses rather than invest in new housing stock. That simply drives up existing housing prices and does nothing to reduce rental costs.  As RBA governor Glenn Stevens noted last week when he warned lending restrictions may be implemented if the property boom continued, housing and mortgage markets were becoming unbalanced.  "New lending to investors (is) out of proportion to rental housing's share of the housing stock," he said.

So what is to be done about all this? Given most of our politicians are property owners and many own multiple investment properties to reduce their taxable income, don't count on an unwinding of the current tax system any time soon.  A potential solution would be to maintain negative gearing, but only for investment in new property, to ensure increased supply. Again, our politicians seem unwilling to countenance even that.  That leaves the heavy lifting, as Hockey likes to put it, to regulators like the Reserve Bank and the Australian Prudential Regulatory Authority.

It also makes life politically difficult for the RBA and its boss, Glenn Stevens, who for years has repeatedly dismissed the idea of rationing credit - known as macro-prudential controls - and has been dragged kicking and screaming to the cause.  While it has become something of a cause celebre among economists of late, credit rationing - either through stricter income tests, an insistence on larger deposits or greater loan buffers - really only treats the symptoms rather than the root cause of the problem.  There is also the danger that an overly harsh crackdown on lending may trigger the very meltdown in property prices the Reserve Bank fears.

But Stevens, who once dismissed such controls as "a fad", has few options. The only other tool at his disposal is to hike interest rates. But with the mining investment boom rapidly winding down and our terms of trade plunging with falling commodity prices, he is loathe to even consider that.  Ultimately, though, the Australian property market is likely to remain amongst the most expensive in the world.

Only two things will deflate that bubble. One is if our politicians unravel the tax advantages that favour rich and established property owners, a prospect that is highly unlikely.  The other is an external shock, such as a meltdown in China, causing corporate collapses, a severe recession and mass unemployment that forces mortgage defaults and undermines our banking and financial system.  It is Stevens' worst nightmare.

Ian Verrender is the ABC's business editor. View his full profilehere.


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