WAYNE Swan has conceded that his budget is under enormous pressure as floods in the Queensland coal fields subtract 0.4 per cent from growth in the December quarter.

The Treasurer said the full impact of the more extensive flooding in southeast Queensland and the effects of Cyclone Yasi would be felt in the March quarter.

“They will take a heavy toll on output and will take a heavy toll on our budget,” Mr Swan said, adding that company tax revenue would be likely to fall short of Treasury’s forecast of rapid growth.

National accounts released yesterday showed that a 0.7 per cent rise in growth in the final three months of last year lifted the year’s GDP by 2.7 per cent. Although in line with the Reserve Bank’s latest forecast, it is well below the economy’s long-term trend of 3.5 per cent and below the even faster growth that might be expected given the strength of Australia’s resource revenue.

“Housing activity and household spending are clearly much weaker than would be expected for an economy basking in the sunshine of the highest level of its terms of trade since the 1950s,” said Westpac chief economist Bill Evans.

Households saved almost 10c of every dollar they earned, a massive turnaround from the pre-financial crisis period, when as little as 1.5c in every dollar was being put aside. More than half the growth in household income since the financial crisis has gone into savings.

Spending on new housing fell by 1 per cent while lower turnover in the housing market resulted in a 9 per cent fall in real estate agent fees and other housing transfer costs. Partly due to weaker consumer spending, business profits have been depressed, despite the mining boom.

Excluding the banks, business profit rose by only 0.6 per cent in the December quarter following a flat result in the September quarter.

“Lower corporate profitability will probably mean lower company tax revenue,” Mr Swan said.

The mid-year budget update tipped rises of about 20 per cent in company tax revenue this year and in 2011-12.

Although the mining boom means that investment in new plant is growing strongly, rising 5.1 per cent in the quarter, other business spending remains soft.

Non-residential construction fell by 3.7 per cent in the quarter and is still 30 per cent below its level before the financial crisis.

The winding down of the Building the Education Revolution is also slowing the economy, subtracting 0.3 per cent from growth in the final quarter and about 1 per cent over the course of last year. Returns from the mining industry were hit by flooding in Queensland coal fields, with output down 3.7 per cent in the quarter.

Mr Swan said the floods would subtract a full percentage point from growth in the March quarter, while reconstruction activity would start providing a boost to the economy from the June quarter onwards.

The Treasurer has previously canvassed the possibility that the economy may contract in the March quarter.

He said that despite the recent headwinds, the continued upgrading of forecast commodity revenue would bring long-term gains to the budget and the economy.

Story by David Uren, Economics correspondent www.theaustralian.com.au

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What would you do if you found out your home sits on a contaminated site?

That was the news that 2000 residents of Adelaide woke up to last week when they found out – mostly via the media – that under their homes the groundwater was awash with poisons that had been leaching from a sizeable chunk of land formerly owned by Hills Industries, the makers of – among other things – Australia’s iconic clotheslines.

Worse still, authorities had known about the situation for years but had sat on it as they worked out whether it was really a problem.

Some of the chemicals that are present (at least one of which is known to cause cancer) can actually vaporise from sprayed water, become air-borne and then concentrate in confined spaces in houses.

The affected area is pure ’50s working class, with lots of brick homes, neat blockwork or chainmesh fences and tidy front lawns. It never was wealthy and still isn’t.

Many of the people who laboured at the former Hills site when it set up business sometime around 1945 probably whistled as they walked to work from some of those homes.

There are 33 registered household bores in the affected suburbs. In oven-hot South Australian summers many people draw water from their bores to nurture vegie patches and fruit trees, and even to drink.

Understandably many of the young families who live in the suburbs affected are very concerned about their health, and more particularly, that of their kids.

Families like Susan and Ben Prosser, a couple in their 30s who have three young children under six.

Their eldest son was so worried about what he heard on television that when Ben and Susan suggested a quick hit of cricket at the local school grounds, he refused to go. “But mummy, isn’t that where the toxic water is?” he asked.

There’s also another dark cloud hanging over these families’ heads – how will the situation affect the price of their homes?

It might sound trite compared to health worries, but if you’ve got a mortgage and you want to move, you’re going to have to sell at a price big enough to at least pay out your lender and have a deposit to get you into the next home.

Bill Waterhouse, an Adelaide director of valuation company Herron Todd White, says it’s a “really serious issue” that will definitely be on the radar of sellers, buyers and lenders.

Until more is known about the contamination in terms of how bad it is and if and when it might be cleaned up, Waterhouse tips that “houses in those affected areas won’t transact, or those that do may have to transact at a lower level”.

Financiers also could be very reluctant to lend for properties in the area because they “stay away from contamination issues at all cost”.

However, the Environmental Protection Agency South Australia disagrees.  On its website it notes: “The EPA’s experience in managing other similar incidents is that property values were not affected.”

Nevertheless, the Real Estate Institute of South Australia was quick to issue an email to agents reminding them of their obligations to fully disclose all known facts when selling a property.

The institute also noted that while the Environment Protection Authority had only “flagged” the Hills Industries site’s certificate of title of due to the potential contamination, “it is expected that properties surrounding the Hills Industry site may be ‘flagged’ over the coming weeks and months”.

Even if the situation did impact on property prices, it could be very difficult and expensive for home owners to seek any form of compensation, says lawyer Richard Abbott from Holding Redlich. Abbott is a commercial lawyer who has acted for companies that own contaminated land, and in other cases, those buying it.

“They’re massively difficult cases to run,” Abbott says.

Aside from the fact litigation can cost hundreds of thousands of dollars, there’s also the difficulty in proving a direct relationship between decades-old contamination and house prices. “It’s not as straightforward as saying ‘I’m 30 per cent down in value,’” explains Abbott. “The factory could say ‘well what about the fact that house prices have gone down because of the GFC?”

Factory owners could also argue other factories have contributed to the issue, and that developments in the area could have affected the flow of the groundwater.

There are cases of similar contamination – for example the Orica industrial site near Botany Bay in Sydney. After issues of dangerous plumes of chemicals leaking into the groundwater from the eastern suburbs site, Orica was ordered to clean up the groundwater in 2003 and has spent millions trying to do so.

There remains a large swathe of surrounding suburbs where groundwater cannot be used for domestic bores.

Many of the areas in Sydney’s bore water exclusion zone such as Alexandria and Erskineville have increased strongly in price since 2003 and there does not seem to be a measurable effect on house prices (although, I’d be interested to hear from anyone living in those areas closer such as Pagewood and Matraville with their thoughts).

As Waterhouse notes, in the Adelaide case, testing of the contamination from the 7.78 hectare property (which Hills offloaded in 2007 but is still communicating with the EPA about) is still underway.

Waterhouse points out there is the potential that the contamination might not turn out to be as bad as it first seems “but we’ll certainly have to be flagging it in terms of refinances and all of that sort of thing in that area”.

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It was a case of steadying the ship as expected when the Reserve Bank met today and decided to keep interest rates on hold at 4.75 per cent.

The move comes on the back of comments by the Reserve Bank Governor Glenn Stevens last month that rates would stay on hold in the near future.

Each 0.25 per cent interest rate rise adds another $60 to the monthly cost of an average Australian mortgage.

The official interest rate is currently 4.75 per cent. Mortgage holders on variable interest rates are being charged a standard variable rate of about 7.83 per cent by their lenders.

By keeping rates on hold the Reserve Bank has presented borrowers with an opportunity to beat their lenders at their own game, and pay more off their mortgages before the next rate rise, which is now expected to be quite late in the year.

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Coming out of the Christmas holiday period and landing straight into natural disasters the property market has taken a hit over the last two months. Consumer sentiment is low* and interest rates somewhat uncertain. But it appears the last week has produced a more optimistic outlook. With more properties on the market, could we be entering a “Buyer’s Market”?

Market Activity Index, which is RP Data’s measure of pre-listing activity by property professionals, has continued to record a strong increase over the last week and is back to similar levels as those recorded prior to the Christmas / New Year slowdown.

The higher level of market activity suggests that an increasing number of properties are likely to enter the market in the coming weeks. Higher listing numbers will not bode well for vendors as there are currently relatively few active buyers and already a significant volume of stock to choose from. It will be interesting to see whether or not vendors start removing their properties from the market due to the increased competition amongst vendors creating a challenging selling environment.

The number of newly advertised properties for sale increased by 33.0% last week however, volumes remain 9.6% lower than the 12 month average. Total property advertisements increased by 5.2% last week and are 6.9% higher than the 12 month average.

The weighted average capital city auction clearance rate increased from 43.4% the previous week to 45.8% last week. Despite the increase, the volume of auctions remains fairly low with just over 500 capital city auctions taking place last week. Auction clearance rates in Melbourne increased to 59.0% last week from 54.8% the previous week. In Sydney, clearance rates fell to 50.0% last week from 69.0% the previous week.

Number of homes for sale
Residential property listings advertised for sale over the month ending 06/02/2011
Note that sales listings are based on a rolling monthly count of unique properties that have been advertised for sale.

* Westpac and the Melbourne Institute released the results of their monthly Consumer Sentiment Survey results this week. The Consumer Sentiment Index was recorded at 106.6 points for February 2011. The latest result shows that the Index has increased by 1.9% after falling by -5.7% in January. The Index is
currently -8.9% lower than it was at the same time last year however, with interest rates at much higher levels it is no surprise to see that the consumer outlook has fallen over the year.

Article and statistics supplied by RPData. www.realestate.com.au

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Shopping centres are positioning themselves to capitalise on the success of online retail and customers ordering items for parcel delivery, it has been suggested.

Speaking at a Property Council of Australia event in Sydney last week, Australian chief executive of real estate firm Lend Lease Rod Leaver said his company was researching the possibilities of internet-based retail, the Australian reports.

“It is, without question, one of the biggest headwinds facing the sector. How do you make retail centres relevant? They have to reinvent themselves,” he explained.

His comments come after Westfield Group – the world’s largest shopping mall owner – launched its own online offering, signing up 50 retailers with another 50 to come soon.

Westfield joint managing director Peter Lowy remarked that the internet is just another way in which shopping centres are set to compete.

Recent figures from Data Driven Marketing Asia found web-based purchasing is growing rapidly in China, with ten per cent of sales in Shanghai made via the internet last year.

Story by Paul Burn

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The Reserve Bank of Australia (RBA) is unlikely to raise the cash rate until May, as the nation fully assesses and recovers from damaging floods earlier in the year.

All 11 economists surveyed by AAP said they weren’t expecting the central bank to take the cash rate above its current 4.75 per cent when its board meets next Tuesday.

Nomura Australia chief economist Stephen Roberts said the bank would be reluctant to raise rates so soon after the floods that swept Queensland in late December and early January.

“It is too close after the flood events and natural disaster events. It’s a little too soon to be raising rates,” he said.

“The inflation rates were very benign. Some the other data has been firmer, but it doesn’t outweigh the (inflation rate) yet.

“There’s definitely hints that more rate hikes are coming, but it’s the timing of those hikes.”

Mr Roberts said without the floods, the central bank may have had cause to raise the cash rate sooner than May in anticipation of pressures soon expected to hit the economy.

One such pressure comes from the jobless rate, which fell to five per cent in January, close to a two-year low.

A jobless rate below five per cent, called full employment, is a traditional inflation trigger.

However, the floods are also estimated to have harmed some sectors of industrial output, such as coal mining.

In the minutes of its February statement, the RBA said it estimated a 15 per cent drop in coal production in the first quarter of the year due to flooding across Queensland’s mines.

But the bank also forecast the effects to be short term, with the economy expected to have fully recovered by the June quarter.

Meanwhile, inflation, the traditional interest rate trigger, was lower than expected in the last quarter.

Australia’s annual underlying rate of inflation was around 2.25 per cent in the year to December, safely within the RBA’s target of two to three per cent.

Commonwealth Bank economist John Peters said the bank was managing a different set of economic circumstances than most global economies.

The RBA was the first G20 central bank to lift its cash rate from historic lows amid the global financial crisis as Australia’s economy appeared to pick up steam faster than its G20 partners.

In response, between October 2009 and November 2010 the cash rate went from a 49-year low of three per cent to its current rate.

“It’s a matter of the Reserve Bank managing prosperity, in sharp contrast to … the rest of the advanced world still worrying about toppling into a deflationary spiral,” Mr Peters said.

HSBC chief economist Paul Broxham didn’t expect the RBA to raise rates as much as they should in the near term, given the strength in the economy.

Mr Broxham, a former RBA economist, said while the RBA has been reluctant to raise the cash rate in recent meetings, strong domestic economic growth in 2011 could make future rate hikes inevitable.

“Inflation was held down in the tail-end of last year by the large exchange rate appreciation, which we don’t expect to be repeated,” he said.

“The cautious consumer has also held down inflation to some degree – at least that’s the RBA’s view. Again, we don’t think that will persist either.”

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MORE than a third of young, potential home buyers are saving 20 per cent of their pay packet to get on the property ladder, a new survey has found.

The latest Bankwest/Mortgage and Finance Association of Australia (MFAA) Home Finance Index found that nearly a third of first-time buyers were less worried about job security, while a third felt their financial situation had improved in the past year.

“For those with job security, a flattening in house prices and competitive mortgage deals are increasingly spurring first-time buyer intention in the real estate market,” MFAA CEO Phil Naylor said.

Of the survey’s 1100 respondents, 32 per cent were worried about losing their job – down from 41 per cent in July 2010.

Fifty-nine per cent said they were changing their behaviour and trying to save more money.

“The national savings rate has pushed through 10 per cent and it seems that young buyers putting money aside for a home deposit are part of this trend,” Bankwest head of specialist banking Ian Rakhit said.

“This could be one of the reasons for current sluggish consumer spending trends.”

While the survey found that fewer people were putting off buying a home due to the economic situation, it also found many aspiring property owners were struggling to get into the market.
Nearly three-quarters of respondents were worried about the level of debt a property purchase would commit them to, while 36 per cent didn’t think they would ever get to buy a property.

Only 25 per cent thought the Federal Government was doing enough to help them.

“Given that prices are higher and government grants lower, it may be a while yet before these extra savings match the level of first-time buyer activity seen in 2009,” Mr Rakhit said.

“However, the signs are more positive for this segment of the market.”

Story by Colin Brinsden www.news.com.au

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Home and contents insurance has jumped 30 per cent over the past three years.

Premiums for home insurance will rise by an average 8 per cent this year, after going up by an average of 11 per cent last year and 10 per cent in 2009.

As insurers pay out big claims for storms, floods and fires – they pass a lot of their increased costs back to home owners. Car insurance premiums are also on the rise, although not as much as those for home and contents.

Car insurance premiums rose by an average of 4 per cent last year, after increasing 5 per cent in 2009, and are expected to go up by about 3 per cent this year.

Many consumers stick with their established insurer because they want to hang on to no-claim bonuses and multi-product discounts.

But an increase in home insurance premiums of 30 per cent over three years has negated much of the benefit of those discounts.

It may be time to shop around for a better deal.

The figures quoted above were presented in the annual Deloitte JP Morgan general insurance industry survey, which was released last month.

Deloitte actuarial partner Elaine Collins says the increases are bad news for consumers but the good news is that there was considerable variation in pricing among insurers.

”When we asked insurers how much they expected their home and contents premium prices to rise in 2011 the average was 8 per cent but the distribution was between zero and 20 per cent,” Collins says.

”When we asked about motor insurance, the average increase expected this year was 3 per cent but the range was from 1 per cent to 10 per cent.”

Wide variation

Shopping around for insurance is time-consuming and made difficult by the fact that different insurers have different features and policy conditions.

But consumer groups such as Choice recommend that consumers do some comparison shopping by getting several quotes at renewal time each year.

The task has been made somewhat easier by the appearance, over the past couple of years, of insurance comparison sites. When the consumer finance website Infochoice was putting its car insurance comparison site together last year, it did some research on pricing.

The group’s financial services analyst, David Lalich, says he found pricing variations as wide as 30 per cent to 40 per cent. In one scenario, a consumer was offered policy prices that ranged from $1200 a year at the high end down to $750 at the low end – a difference of 37 per cent.

When looking at competitive offers, consumers have to factor in any loyalty discounts they might have with an existing insurer if they have multiple policies and also any no-claim bonuses they might lose if they switch.

Who is best?

Choice reported on car insurance earlier this month. It says the standout is Apia, which received the highest score for features, a high satisfaction rating and ”some of the lowest premiums”.

Apia is a specialist insurer for the over-50s. Shannons, another specialist insurer, performed well on price, customer satisfaction and features.

Like Apia, Shannons places some restrictions on who it will insure; its target market is car enthusiasts who make limited use of classic and collectable cars.

Choice says AAMI performed strongly, including its cover for drivers who made a claim but otherwise have a relatively good driving history. Two banks, ANZ and St George, also offered good value.

Choice says that NRMA, SGIO, SGIC, RACV, Allianz and Budget Direct all performed poorly.

Budget Direct scored well on price but not on policy features. Choice says much of the extra coverage that comes standard with top-rated insurers is sold as an optional extra by Budget Direct.

The insurer’s customer satisfaction score was low.

It highlights the importance of consumers reading policy documents very carefully before deciding which insurer to go with.

Case-by-case basis

A principal of the actuarial consulting firm Finity, Colin Brigstock, says it is important to shop around because no one insurer is consistently cheap or expensive across all product types, customer groups and regions.

”As the risk characteristics change – the age of the policy holder, the suburb they live in, the type of car they drive or house they live in – insurers assess all those risks differently based on their claims data,” he says.

”What is important to recognise is that in some cases, the big insurers can be the price leaders and in others, the challenger brands are the price leaders. Insurance is something you look at on a case-by-case basis and, for that reason, it is worth getting quotes from a wide range of insurers when renewing your policy.”

Choice recommends that consumers take the following steps when renewing their insurance.

Get quotes from at least four different insurers.

Pay attention to car insurance excess rates, which may be high in cases where the premium is cheap. Some insurers offer a flexible excess.

Check your insurer’s quote online. It may be cheaper than the premium quoted in the renewal notice. If that is the case you may be able to negotiate the cheaper online rate.

Story by John Kavanagh www.domain.com.au

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Interest rates are on hold for now but economists expect the next move to be up.

Home buyers are turning to fixed-rate mortgages in response to the steady rise in interest rates last year and predictions that rates will go higher this year.

Mortgage broker AFG publishes a monthly mortgage index, which shows that the proportion of fixed-rate mortgages increased from just 2 per cent of its total new lending at the start of last year to 3.4 per cent in July and then 12.6 per cent in December.

With one-, two- and three-year fixed rates about the same level as (or lower than) variable rates, borrowers have little to lose by opting for fixed rates.

However, they need to recognise that fixed-rate loans have different characteristics to variable-rate loans and may not suit their needs (see box).

The general manager of sales at AFG, Mark Hewitt, says the rise in the popularity of fixed-rate home loans reflects increasing consumer concern about the future of interest rates.

For another big broker, Mortgage Choice, the level of demand for fixed rates has been even higher, reaching 15.2 per cent of its approvals in December. A spokeswoman for the group, Kristy Sheppard, says it was the biggest take-up of fixed rates in almost three years.

”Much has been said about the cautious approach Australians are taking to their finances and our figures reflect this,” Sheppard says.

The Reserve Bank cash rate reached a low point of 3 per cent in April 2009 and started rising six months later. Since then it has gone up to 4.75 per cent, with the most recent change last November.

A trend noted by the Reserve Bank has been the marked increase in the range of interest rates offered for similar products. In the RBA’s view, this may reflect the move by some lenders to compete on non-price criteria.

Whatever the reason, it makes it more important than ever for borrowers to keep track of rate changes.

One-year fixed rates start at 6.74 per cent for the Better Option Fixed Rate Home Loan. Lenders with one-year rates under 7 per cent include NAB, Gateway Credit Union, CUA, Homeside, QuickDirect, Laiki Bank, Heritage Building Society, HSBC and RAMS.

Two-year rates start at 6.99 per cent for the AMO Fixed Rate Home Loan and RESI Pro (Fixed). Lenders with two-year rates under 7.2 per cent include Bank of Queensland, Heritage, HSBC, Police Credit, Teachers Credit Union, Nationwide Mortgage, Gateway, IMB, MECU and Newcastle Permanent.

Three-year rates start at 7 per cent for Better Option. Lenders with three-year rates under 7.3 per cent include AMP, ANZ, Citibank, CUA, Heritage, HSBC, MECU, Teachers and IMB.

The variable home loan rates offered by the big banks start with NAB at 7.67 per cent. ANZ and St George’s variable mortgage rates are 7.8 per cent, Commonwealth’s is 7.18 per cent and Westpac’s is 7.86 per cent.

Many borrowers who have sourced their loans from a big bank will be receiving a package discount of about 0.6 of a per cent. A number of smaller lenders also offer these discounts.

So, how will rates move in 2011?

ANZ’s forecast is for the Reserve Bank’s cash rate to rise from the current level of 4.75 per cent to 5.5 per cent by the end of this year. Commonwealth Bank also says the cash rate will reach 5.5 per cent by year end. Westpac is forecasting only one rate rise this year (but not saying how big it thinks that rise will be). NAB is forecasting 5.25 per cent by the end of the year.

If the economists at the big banks are right, the worst-case scenario for borrowers this year is Reserve Bank rate increases of 0.75 of a per cent – then there is the possibility that lenders will add something on top.

One issue to consider is how lenders will respond to further Reserve Bank increases in the cash rate this year. Canstar Cannex reported that only five out of 99 lenders it surveyed kept their variable home loan rate increases at the levels set by the Reserve Bank last year.

The rest all increased by more. In November, when the Reserve Bank put up rates by 0.25 of a per cent, the average home loan rate increase was 0.32 of a per cent. A home owner with a $300,000 mortgage on a 25-year term would pay an extra $150 a month if rates went up by 0.75 of a per cent to 8 per cent.

Repayments on a $500,000 loan would go up by $245 a month.

With fixed rates for two- and three-year terms so close to current variable rates, fixing is a low-risk strategy.

Borrowers have to pay a new establishment fee but may end up with a fixed-rate loan that is lower than the variable rate they are paying now.

If rates do move this year they will be ahead.

Fixed rates are different

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QUEENSLAND’S natural disasters could be good news for the state’s property market, says property analyst Michael Matusik.

Addressing members of the Property Council of Australia Queensland division, the Matusik Property Insights director said the recent floodings and cyclone were acting to break the malaise that the state’s property market has found itself in.

“The rebound will be strong, as to how strong no one can say,’’ Mr Matusik said.

He was also unsure as to how property growth would be affected in the future.

“Brisbane prices over the last 10 years have increased by 10.6 per cent per annum, and 6.5 per cent per annum over the last five years,’’ he said.

“Anybody saying that prices will fall by 35 per cent in 12 months time… I don’t know where that figure is coming from.’‘

Mr Matusik said that out of the 26,000 Brisbane homes affected by the floods, only 5400 were damaged substantially.

“Now we have to change our message and say that we are open for business, and that not everything is flooded,’’ he said.

Mr Matusik predicted interest rates could fall by more than a quarter of a per cent.

“I think it’s very logical, and I wouldn’t be surprised if they do,’’ Mr Matusik said.

“The worst case scenario is that they don’t move much this year and maybe into next year, and that will be a good thing for our businesses.

“The undersupply will be brought forward and infrastructure will be rebuilt, creating a stronger market.’‘

Mr Matusik was keen to emphasise a more positive take on the aftermath of the Queensland floods, referring to recent statistics from Realestate.com.au which showed that buying interest was still high, with the website hosting an online traffic increase of 11 per cent on last year.

Story by Ben Johnson http://city-news.whereilive.com.au

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A STRONG Australian dollar and the weak US housing market mean a growing number of us can afford to invest in overseas property, but the risks can be high.

Steve McKnight, author of From 0 to 130 Properties in 3.5 Years, says if you have “time, money and risk appetite”, investing overseas holds potentially lucrative opportunities.

“On the other hand, Australian property, although less glamorous, is an easier and safer option for more passive investors or those looking for capital growth,” he says.

McKnight, who has bought more than 50 properties in the US over the past 18 months, says one of the main risks is currency fluctuations.

“When buying overseas property, you must pay with foreign currency,” he says.

“The risk is that you suffer an adverse currency movement as exchange rates change, resulting in a loss because you will receive less Aussie dollars back than you sent over.”

He says potential investors should always travel to the country in which they’re considering investing to get a feel for the area and create a trusted “on-the-ground” management team’.

“Your overseas team needs to be your eyes, ears, arms and legs,” he says.

Mortgage Choice broker and franchisee Russell Crook says potential overseas property investors also need to be familiar with local laws.

He says in some countries foreigners aren’t even allowed to own property, and titles can also work very differently in many places so uninformed investors may find themselves leasing a property rather than owning it outright.

Crook also suggests getting local, independent legal advice.

“The other factor is simply that no mainstream lenders in Australia will lend against the property you’re purchasing in another country,” he says.

Crook says potential investors can borrow against a property they own in Australia and use that money to buy overseas. But if they can’t raise enough they may have to borrow in the country in which they’re investing which poses even more risks.

AMP financial planner Mark Borg says that when investing in places like the US, where councils and rental tribunals function completely differently than in Australia, it is vital people are familiar with all legislation that impacts them.

He says insurance products are also vastly different in the US, and there will be tax implications involved with earning money in another country. “Different country, different laws it’s all just different,” he says.

Borg says with all the added risks, investors should expect high returns from an overseas property purchase. But he says they need to accept that most things will be different.

“You can then pay the money to seek advice and take appropriate action and sometimes the best decisions are not to go ahead,” he says.

Story by Nhada Larkin http://www.heraldsun.com.au

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Interest rates are likely to remain in hold for a while as the economy experiences a rare terms of trade bonanza, Reserve Bank governor Glenn Stevens says.

Mr Stevens said lending rates for borrowers were slightly higher than the average of the past 15 years.

The average rate for a standard variable mortgage is 7.8 per cent, according to RBA data.

“It is about right for where they are given we have a once-in-a-century terms of trade event that is very expansionary and all the things that flow from that,” Mr Stevens told the committee.

“It would be surprising if you didn’t have policy a bit on the tight side of normal in that event.

“Taking account of the fact that of course the exchange rate is doing a fair bit of work for us.”

The Australian dollar shed nearly half a cent to $US1.0001 after the speech, as the likelihood of a rate rise in the next months shrinks. The dollar has been around or above $US1 for the past two months, its highest levels since the currency floated in December 1983.

Mr Stevens also said the effects of serious floods and Cyclone Yasi, which caused widespread damage and dealt a major blow to some crops, would not permanently scar the economy.

“We do not think the effects on activity of these events will derail the expansion. Nor should the price effects pose a serious threat to the achievement of the medium-term goal for inflation, provided the community can understand their temporary nature and expectations of ongoing inflation remain well-anchored,” he said.

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National Australia Bank pledges to pay the mortgage exit fees of customers of its two biggest rivals.

A pledge by the National Australia Bank to pay the mortgage exit fees of its two biggest rivals could be the nail in the coffin for such fees, consumer group Choice says.
NAB today vowed to reimburse $700 to customers who switch to NAB from Westpac or the Commonwealth Bank.

ANZ and NAB are the only two big banks to have abolished mortgage exit fees.
Choice spokesman Christopher Zinn said the move threw “fat on the fire” of competition between banks.

“NAB saying they will do this is really the nail in the coffin of exit fees,” Mr Zinn told AAP on Saturday.

But he urged customers to do the numbers before switching their home loan to ensure any move would save money in the long term.

“If you really crunch the numbers you may well find that there may be another offer (from another bank or credit union), that in fact, even if you pay an exit fee, over the life of the loan would save you money.”

Mr Zinn said while the allure of not having to pay a $700 exit fee was very attractive, it could lock customers into a contract that may not save them in the long term.

But the offer of $700 would be attractive to many people in looking for a short term fix, he said.
In a statement on Saturday, NAB Group Executive of Personal Banking Lisa Gray confirmed the bank’s move.

“We believe that no bank customer should be disadvantaged if they want to access NAB’s lower standard variable rate,” she said in the statement.

Asked if ANZ would follow suit, a spokesman for the bank said it was content for now with its move to dump its own mortgage exit fees.

The NAB’s move looms as the most dramatic shake-up to the market in years and follows the Commonwealth Bank’s vow this week to fight back in the home loan sector after losing pace over the past year.

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DEVELOPERS have attacked the NSW government in a report showing Sydney ranks last of all capital cities for the amount of land released for housing projects.

The report, by the Urban Development Institute of Australia, backs the opposition’s plan released this week to increase the supply of land on Sydney’s fringes and to scale back the construction of flats in existing suburbs.

The report says the lack of land being released is a key reason why the number of new dwellings in Sydney is falling short of government targets.

The NSW chief executive of the institute, Stephen Albin, said that while there was a shortage of housing supply across Australia, ”the real concern is Sydney, where we’re producing fewer new homes in new release areas than Adelaide, but with four times the population”.

Levies also made new blocks more expensive than in other capital cities. “Developers see NSW as a risk,” he said.

The report criticises the government attempt last year to cap at $20,000 the levies councils impose on developers to pay for infrastructure.

”[The] decision could be described as the manifestation of some of the worst aspects of public policy development – a complete lack of communication between the agencies writing the policy and those responsible for implementation, a failure to consult with industry and local government beforehand, significant delays which stalled private and public sector investment, and a humiliating backdown in the interests of political expediency.”

A spokesman for the Planning Minister, Tony Kelly, rejected the findings of the report and said the institute ranking ”fails to take into account the much smaller share that greenfield housing makes to Sydney’s housing mix, compared to other capital cities”.

The government’s aim of containing Sydney’s footprint was ”a responsible response to the social, environmental and substantial infrastructure costs associated with development on the city’s fringes”.

A conservation group attacked commitments by the Opposition Leader, Barry O’Farrell, to increase from 30 per cent to about 50 per cent the share of housing built on the city’s fringe.

Harry Triguboff, the chief executive of the Meriton development group, said building on the fringes would require investment in infrastructure.

”People want to live closer and closer to the centre of the city and near existing infrastructure, and this is what we will continue to concentrate on,” Mr Triguboff said.

”If Mr O’Farrell wants to encourage people to live further out – and outside Sydney – that will be fine too. The first thing that will need to be done is to provide the transport and infrastructure for those homes, and this will indirectly help infill development as well.”

The Australian Conservation Foundation condemned Mr O’Farrell’s plan to increase city fringe development and backed the government’s focus on developing land near existing transport links.

”People who live in these far-flung suburbs will be condemned to a worse quality of life because of inadequate public transport and the need to commute for hours to get to jobs and services,” a spokeswoman for the foundation said.

Story by Matthew Moore and Sean Nicholls www.domain.com.au

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Hundreds of thousands of new homes across the country are not performing at their promised energy efficiency rating.

The result is residents are using up to double the predicted energy required for heating and cooling, industry officials say.

Research by air-tightness testing company Air Barrier Technologies has shown that air leakage in new homes is five to 10 times worse than expected under the star-rating scheme.

This means that an average five-star home is likely to perform only to a three-star level, potentially doubling expected energy bills for residents.

The Victorian Building Commissioner says builders who deliver homes that have not been properly sealed or insulated to meet the set star rating could be sued by buyers.

About 40,000 homes are built in Victoria each year. All must meet the five-star standard. This will rise to six stars from May.

But a group of industry players, including Henley Homes, who have been lobbying state and federal government and building regulators to crack down on the air leakage problem, say unless more action is taken, customers cannot be confident their homes meet the stated star rating.

”At the moment there’s an assumption that houses are built to a far tighter standard than what we believe they are,” Adam Selvay, Henley Homes energy and sustainability specialist, said.

The question of builder liability was raised in a meeting with the Federal Department of Climate Change and Energy Efficiency and the Australian Building Codes Board in April last year.

Following that meeting, Terry Mahoney, president of the Air Infiltration and Ventilation Association of Australia, emailed other attendees, as well as federal government ministers and senior public servants, criticising officials for failing to respond to the issues discussed.

”It became apparent that no amount of scientific evidence, poor global best practice comparisons or safety and health risk concerns raised by the visiting group, would engender any action or urgency, ” he wrote.

He noted the attendees’ view that there is ”overwhelming evidence” that the current star rating method ”proves grossly inaccurate when constructed homes are performance tested”.

Housing Industry Association building and environment director Kristin Brookfield said the association was not aware of specific research on air leakage, but said energy efficiency was affected by poor sealing.

Bruce Rowse, of building efficiency consultants CarbonetiX, called for inspections to include checks on sealing and insulation installation.

Victorian Building Commissioner Tony Arnel said an auditing process had consistently demonstrated that new homes complied with regulations but admitted that research had shown more work needed to be done with the industry on ”draughts and gaps”.

Story by Michael Green www.domain.com.au

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