Mortgaging our children’s future: Aussie ticking time bomb sparks fears should new GFC hit

AUSTRALIAN households are sitting on a ticking time bomb of debt, exposing the economy to risks in the event of another financial crisis, according to new analysis.

The Australian reports household debt in Australia is equal to 130 per cent of GDP, compared with an average across the advanced world of 78 per cent, according to Barclays chief economist Kieran Davies.

Household debt was at 116 per cent of GDP before the global financial crisis and held steady until 2013, when the property boom set it rising again.

Mr Davies said Australia’s debt levels were rising when those of other countries were falling, and the predicted rate cuts were likely to push borrowing even higher.

Reserve Bank governor Glenn Stevens warned of the dangers of taking on excessive debt last year, saying “we would surely be asking for trouble if we see a big step up from where we are”.

“The tricky thing for the Reserve Bank is that promoting leverage is the key channel for the transmission of lower interest rates through to the rest of the economy,” Mr Davies said.

The high popularity of real estate investment in Australia compared with other countries is being driven by the availability of negative gearing tax concessions and favourable capital gains tax treatment.

The level of household debt is higher now than at any other time in Australia’s history, with records going back to the 1850s. The level of bank lending as a share of GDP is now more than double the share of the previous peak, which was during the 1890s land boom.

BHP Defends Iron Strategy as Good for Australia Amid Surplus

BHP Defends Iron Strategy as Good for Australia Amid Surplus


BHP Billiton Ltd., the world’s largest mining company, defended its strategy of boosting iron ore supplies at a time of falling prices, saying a focus on raising output and efficiency was aiding Australia’s competitiveness.

Production from its operations in Western Australia was a record 124 million metric tons in the first half, and may reach 245 million tons in the 2015 financial year, BHP said in a statement on Tuesday as Jimmy Wilson, head of its iron ore business, addressed a conference in Perth. The company is on track to achieve unit cash costs below $20 a ton, BHP said.

“With this strategy, we are maintaining Australia’s competitive position in the global market and providing the revenue, royalties, employment and innovation that is so important for this country’s future,” said Wilson.

Iron ore sank 47 percent in 2014 and extended losses this year as surging low-cost supplies from BHP, Rio Tinto Group and Fortescue Metals Group Ltd., Australia’s top producers, outpaced demand growth, spurring a surplus just as China slowed. The slump hurt government revenues in Australia, the world’s biggest shipper, while squeezing smaller producers. Iron ore may find a floor at about $50 a ton, Citigroup Inc. told the conference.

“We have no major projects in execution and our growth pathway will be achieved by continuing to make our existing infrastructure more productive,” said Wilson. BHP anticipated the increased supply of seaborne ore and approved the last of its major capital investments in the Pilbara in 2011, it said.

Lower Prices

Ore with 62 percent content at Qingdao fell 1.5 percent to $58.58 a dry ton on Monday, declining for a fifth day, according to data from Metal Bulletin Ltd. That’s the lowest price since at least May 2008, when Metal Bulletin started compiling weekly prices. The commodity is 18 percent lower this year.

“Is there any chance the major producers will reassess and downgrade their plans, given where the price is? We think not,” Laura Brooks, a senior consultant at CRU Group, told the conference. “One reason for this is that competitive pressure is driving producers to seek cost reductions, and volume is critical if unit costs are to be cut.”

Rio Chief Executive Officer Sam Walsh said last month that if his company reduced output, forfeited supply would be made up by higher-cost competitors, adding that producers made decisions independently. The London-based company, which mines in the ore-rich Pilbara region, is on track to deliver 330 million tons of output by 2015 and 350 million tons by 2017, Iron Ore Chief Executive Andrew Harding said at the at conference.

Rio’s View

“The broader Pilbara shows that from January 2011 to December 2014 inclusive, 248 million new tons entered the market from Rio Tinto, BHP Billiton and FMG,” Harding said. Of that increase, “Rio Tinto accounted for 63 million tons, or 25 percent. As you know, some would like you to believe that Rio Tinto has had the largest volume increase in that time. But as you can see, this is simply not the case.”

The global surplus will surge to 437 million tons in 2018 from 184 million tons this year, Morgan Stanley said on Feb. 22. Global seaborne supply is projected to increase 4.6 percent in 2015, topping the 3 percent growth in demand, according to the bank, which sees iron ore averaging $79 a ton this year.

There’s a floor for prices at about $50 a ton, Citigroup Iron Ore & Steel Head Mark Lyons said at the conference. At current prices, an estimated 38 percent of global output isn’t generating cash, according to CRU

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Three Rare Coins Sell For Nearly $900k

Three rare Australian coins have fetched almost $900,000 at auction - taking out two records in the process.

Australia's first coin, known as the 'Hannibal Head' Holey Dollar, sold for $410,000, while the first gold coin, an 1852 Adelaide pound, netted $370,000.

Both coins fetched record prices for coins of their type sold at auction, with the pound eclipsing the previous record by $240,000.

The coins went under the hammer in Melbourne on Monday night along with an 1813 Colonial Dumps coin, which had a less impressive result, selling for half the estimated price at $100,000.
Coinworks managing director Belinda Downie said it was an exciting auction result.

'It was a win-win. The vendor's happy. I saw really beautiful quality coins sell for very exciting prices, so, from a Coinworks perspective, and an industry perspective, there are no complaints,' she told AAP.

The top selling Holey Dollar is the only one of its type in private hands, with the only other known example housed in the NSW State Library.

'This one is unique for private buyers,' Ms Downie said.

'The quality of the coin is superior to most. It's got a really gorgeous history.'

The Holey Dollar was created from 40,000 Spanish coins acquired by Governor Lachlan Macquarie to alleviate Australia's coin shortage.

Governor Macquarie enlisted the services of convicted forger William Henshall to cut a hole in the centre of each dollar and later to stamp each with the words New South Wales and a five shilling value.

The rare coin gained notoriety after being found in 1881 as part of a bushranger's hoard and was later owned by the Tasmanian governor, Ms Downie said.

'Right from the onset this particular coin has always enjoyed publicity,' she said.

Aussie Banks Worth More Than Europe's Combined

FOR the first time in history the value of Australian banks are now worth more than the Eurozone. 
 
The Commonwealth Bank made a net profit of almost $7.1 billion, the biggest ever reported by an Australian bank. That boils down to a daily profit of almost $19.5 million or more than $13,000 a minute.

 ANZ  posted a $4.4 billion profit for the nine months to June, an increase of 10 per cent.

CBA chief executive Ian Narev told the Adelaide Advertiser that he is “proud and not embarrassed” by the massive profit surge. He said the results boil down to strong Australian economy and the confidence of their shareholders.

“The people who own this group. . . 60 per cent of them are Australian households directly, that's 800,000 Australian families, “Another 20 per cent of our shareholders are Australians who own them directly through their pension funds.

“So the shareholders who we are doing well for are millions and millions of Australian households,” said Mr Narev.

ANZ's Australian, New Zealand and Asian operations, chief executive Mike Smith told news.com.au the group attributes their success to effective management of ongoing funding and competitive pressures. He also said ANZ had picked up market share in deposits, mortgages and business lending

Other financial analysts have said the massive profits can be explained by the fact that unlike European and American banks, Australia have not loaded up on subprime debt, bad real estate loans or “piles of dodgy foreign debt”.

Home Owners Forced to Take Super - Australia Mortgage

HOME owners have raided their superannuation funds of a record $100 million in last-ditch bids to avoid foreclosure, new government figures have shown.

The surge in mortgage-holders seeking emergency access to their savings has alarmed housing and social welfare groups, who warn many families are still struggling to meet loan repayments despite steep cuts in the interest rate

With distressed owners receiving an average of $15,250 each, there are also concerns some super accounts could be drained of more than a third of their value. The number of households in serious financial trouble has worsened despite mortgage lending rates falling about 1 per cent in the past six months and nearly 3 per cent since their peak in mid-2008.

Figures obtained by The Sun-Herald showed 6500 home owners were given emergency access to their super last financial year to prevent an imminent foreclosure.

A Commonwealth Department of Human Services report found $99.38 million was released, up 25 per cent on 2010-11 and well above the disbursements in the aftermath of the global financial crisis.
It also marks the third year in a row that the number of people applying for, and being granted access to, their nest-egg has increased.

A campaign manager for Australians for Affordable Housing, Sarah Toohey, said years of house price growth had seen debt balloon and forced households to devote an unsustainable amount of income to meeting mortgage repayments.

''It's alarming and it shows that housing affordability is about more than just interest rates,'' she said.
''The sheer size of what people have to borrow to get into the housing market now really puts household finances under strain.'

Online Orders Surge As Retailers Lag - Online Shopping Australia

The number of online orders to Australian businesses increased by almost a third during the 2010-11 financial year.

The Australian Bureau of Statistics research released on Tuesday showed that local businesses received online orders worth $189 billion in the 12 months to June 30, 2011, an increase of $46 billion, or 32 per cent, on the previous corresponding period.

However, the data also showed that only 28 per cent of business said they had received orders via the internet, a mere 13 per cent increase on the previous year.

In contrast, more than half of businesses in Australia, 51 per cent, reported placing orders for goods and services on the internet in last financial year, up nine per cent in the previous year, ABS data showed.

In another troubling sign, just below 40 per cent of business reported ‘‘some form of innovative activity’’ in 2010-11, the ABS said, with 66 per cent of large businesses reporting activities to boost efficiency and lower costs. Only 30 per cent of companies with four employees or less reported the same, the ABS said.

The gap between businesses receiving orders online and those placing them highlighted the demand for changes by local industries and the constraints that many businesses in Australia work under. The slow pace of innovation in Australia has held back the nation’s overall productivity, an area of concern for the central bank and economists.

RBA forecasts of economic growth routinely factor in improvements in productivity to achieve the expansion, yet productivity in Australia has lagged in recent years.

RBA governor Glenn Stevens recently urged politicians to follow the suggestions of the productivity commission in order to boost the the efficiencies and lower the cost in the economy.

Australia’s economy, while expanding by 1.3 per cent in the first quarter, has been riven by disparities in performance between mining and non-mining states and industries.

Macquarie senior economist Brian Radican said that internet usage in Australia is lower than in the comparable economies of the US or UK.

Yet, the distances in Australia suggest that the internet usage for commerce could have a larger benefit locally.

“A deeper embrace of its use by Australian business could arguably have a bigger benefit here than it would in other regions,” he said.

Across all sectors 40 to 43 per cent of businesses had a website.
But while 97 per cent of large business had a website, only a third of small businesses reported having one.

“If firms can drive some of the costs out of businesses, they can produce more for less,” he said.
However, Mr Radican cautioned that Australia’s weaker productivity was also driven by industrial relations challenges and other factors.

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Sydney's Housing Market to Continue to Grow

Sydney is Australia's most populous city and its housing sector offers investors unique opportunities with the security that comes with investing in a large and rapidly expanding market.

Property prices in Sydney have increased 25 per cent in the last four years, during which many other housing markets around the world have stagnated or even gone backwards.

The reason that Sydney's housing prices have continued to rise is simple - more people want to live there. Famous for its landmark Harbour Bridge and Opera House, Sydney is the business and financial capital of Australia, with an ideal climate and a relaxed yet cosmopolitan lifestyle.

Sydney has nearly five million residents and its annual population growth rate of 1.6 per cent is higher than the Australian average. It is also higher than that of any major western city outside Australia, yet less than half of this increase comes from births.

Most new Sydneysiders are overseas arrivals who come to Australia to start a new or better life, seeking employment or education opportunities for themselves or their children. They have created a steady demand for around 30,000 more dwellings each year, pushing up prices and making Sydney the most expensive city in Australia to buy a house.

The median price of a Sydney house is now around A$620,000 (S$786,740) and it is rising. Landed properties can be purchased on the outskirts of Sydney for around half this amount, but they are located far from the city centre. Sydney's idyllic harbour side location brings problems, as much of the land is locked away in parks or reserves and there is less available for housing. The urban footprint has spread as far south, north and west as there is land available.

It is almost impossible for overseas arrivals to buy a home until they settle and establish themselves, which can take many years. This has led to a rise in Sydney's rents, which are higher than any other major city in Australia.

High rents and prices have changed Sydney's landscape. They have led to the abandonment of the dream of a landed home for many young Sydneysiders and led to a boom in apartment living. Over half of Sydney's dwellings are apartments or "home units" as the locals call them.

The new medium and high-rise apartment blocks contain gymnasiums, swimming pools and garden barbecue areas. The units are fitted out to attract renters, while their design lowers maintenance costs for investors. Many of the suburbs where this transformation is occurring - such as Pyrmont, Ultimo, Camperdown, Double Bay and Broadway - are located close to the central business district and in the urban centre itself.

What makes these dwellings ideal for investors is that prices for home units are still less than 70 per cent of those of similar sized houses.

The Sydney inner urban market is unique because there are fewer development projects in the pipeline than there are in other cities such as Melbourne even as the rental demand is far higher. Rents in these areas are escalating as a result and housing investors from Singapore can buy off-the-plan units with confidence, knowing that both the rental yield and the value of their investment are likely to rise in the coming years.