Is there a safe investment today?
Written on the 23 September 2015 by James Cagney
We have all heard the saying "As safe as houses" - never a true word said. We have the governor of the Reserve Bank, Glen Stevens, saying that the property in Australia is now unaffordable so the banks have to tighten up the lending criteria on investment property. So the Australian Prudential Regulation Authority (APRA) put the screws on the banks to do this and the banks have done just that BUT also increased interest rates on investment property as well. Typical of the greedy BANKS who have seized another opportunity to make more money for themselves.
This will not stop seasoned investors from creating more wealth for themselves and their family! Seasoned investors will claim part of this increased interest back from the Australian Tax Office (ATO) ....... and the banks make more profit.......and the investors build their property portfolios........ and renters pay more in rent as investors increase rent to cover the balance of the interest rate increase. WELL DONE .....Glenn Stevens you have made investors richer and renters poorer and that is why you are paid $1 million per year. Not only this but if investors baulk against the uncalled for and unethical interest rate hikes by the greedy banks and they do not invest in property the ones that will suffer once again are the renters. Less rental houses are built and demand exceeds supply and rents go up. Worse laborers win the residential construction will lose their jobs. What I can't understand how politicians and economists do not learn from their mistakes. This happened when the Labour government stopped negative gearing. People started losing their jobs and rents started to dramatically increase. The labour had to reverse their decision and bring back negative gearing. They have not worked it out that you learn nothing from the 2nd kick of a donkey.
The truth is that property is not unaffordable throughout Australia. It is confined to specific suburbs in four major cities i.e. Sydney, Melbourne, Darwin and Perth. So Glen Stevens and APRO's knee jerk reaction will adversely effect renters living in all other areas in Australia paying higher rents and making it more difficult for them to save money to pay a deposit on their own home. WELL DONE ......Glenn Stevens and APRA. Unfortunately COMMON SENSE is not that common at the Reserve Bank and at APRA.
So let's do what the Government wants you to do ........ salary sacrifice and invest more into your Superannuation (Super). Well before you do that ask yourself ....... "How long does it take to change the direction of a large ocean liner (Superannuation)". If you said a long time ..... you would be right. As most of Super is invested in the share-market, when the Global Financial Crises (GFC) occurred the Super companies (the Titanic) could not change course quick enough, whilst those who own investment properties (speedboats) could easily change direction whenever they needed to i.e. refinance, borrow, invest again or sell. Besides why should the "captains' of Super funds (mostly owned by the banks and Insurance companies), who make billions of dollars every year, whether you make money in your Super or not, be concerned in any way. After all the government compels business to pay 9% of your salary / wages into Super and the Super companies want that to be higher (going up to 12%) so they can make billions of dollars more every year - even if your Super fund goes down. Why would the "fat cats" (upper management of Superannuation companies) who earn huge salaries worry they get paid even if the even if their funds do not perform. They can always use the excuse "We can't control the stock market and the economy of the country'. Great excuse whilst they are skimming billions off your Super every year.
If another stock market crash occurs like the GFC your money will disappear again and it may take years again to come back. Good luck if you are about to retire because you won't be able to afford to do so. you are just going to have to work longer. From November 2007 to October 2008 the share market lost $650 billion and it took until February 2013. ...nearly five years later. So if you don't learn from the past you will never be able to predict the future.
Last month on the 24th August 2015, the share market in Australia lost $64 billion. On the 10th September 2015 the Australian market lost $30 billion and another $40 billion on the 21st September 2015. The banks, broking companies make money every time the share market goes up and down and they love it. Their response to this is "Investors need to get use to overreaction as the new norm".
I suggest that investors go for the safe option like residential property. When the GFC hit people did not rush out and sell their homes. After all they live there with their families and they know property follows a cycle and will increase in value over time. Therefore "you do not wait to buy a property - you buy a property and wait".
The Australian Investment Property Network (AIPN) is an organisation that will assist you to invest in residential property that will help you to provide for your financial future instead of relying solely on your Super. Call James Cagney on 0416 137 645 or go to www.jamescagney.com.au.
Author: James Cagney