Prosper Australia

photo credit: chauromano

Ahh the Age beats us to the story! Australian Real Estate Investment Trusts are down 73% year on year. Michael West covers this in Property Not So Safe After All

One of the “leading lights” of the sector, Goodman Group, handed down a $450 million half-year loss this morning: a shocker. Greg Goodman, while a net buyer of Goodman stock over the past 10 years, disposed of 78 million shares after a margin call last year at far higher prices than the 26.5¢ the shares were recently fetching.

The staggering destruction of wealth — principally brought about by the herd-like decision by managers across the sector to expand aggressively over the past few years by increasing their gearing (a decision that has now brought about “Rudd bank”, so the taxpayers can bail them out) — is sadly ironic in light of the property sector’s appeal to those who wanted to take on less risk.

Mum and Dad investors who have lost 73% of their investment must lie awake at night wondering if the multifarious REIT’s, often run as sub-branches of many property development companies, were used as risk taking vehicles for one branch to sell to the other. Or keeping things at arms length, sold perhaps to their colleague’s company.

Now that prices have peaked and fire-sales abound, would the parent company be buying the asset back for a steal? A more subtle version of insider trading, let’s hope someone puts the magnifying glass onto the issue at large.

photo credit: pgpdesign (paul)

The trend continues. EU membership comes concomitant with lower foreign investment rules, bringing a wave of speculation in real estate as rent seekers invest early to sit and wait until marginal rents bump up to the European average.

Is such speculation contributing productively to the economy? With no mention of any land bounty captured for the public in Romania’s tax mix, speculators are guaranteed a free ride. Some new buildings will be funded by foreigners, but these benefits will be drowned out by the rising rents, strangling small business and pushing greater concentration of ownership amongst the top echelon (as hinted below).

Romania has become a new hotspot for real estate sharks as they have no property taxes. The speculative invasion will build up steam as hot money leaves cold western markets. The other new EU member, Bulgaria, collects some land rents via poorly implemented property taxes. Other recent members such as Czechoslovakia also have property based taxation. However, like many others, they have adopted the US model of taxing land and buildings, rewarding land bankers over home builders. The payback for political cronies in Romania will be a swathe of EU funded infrastructure projects.

Romania: A European Property Frontier

Now that it has joined the European Union, there is no question that Romania has been discovered both by a growing number of tourists and property investors.
(more…)

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

photo credit: woodleywonderworks

The Oligarchs’ Escape Plan – at the Treasury’s Expense

By Prof. Michael Hudson
see the original article and the growing list of comments on Information Clearinghouse

The financial “wealth creation” game is over. Economies emerged from World War II relatively free of debt, but the 60-year global run-up has run its course. Finance capitalism is in a state of collapse, and marginal palliatives cannot revive it. The U.S. economy cannot “inflate its way out of debt,” because this would collapse the dollar and end its dreams of global empire by forcing foreign countries to go their own way. There is too little manufacturing to make the economy more “competitive,” given its high housing costs, transportation, debt and tax overhead. A quarter to a third of U.S. real estate has fallen into Negative Equity, so no banks will lend to them. The economy has hit a debt wall and is falling into Negative Equity, where it may remain for as far as the eye can see until there is a debt write-down.

February 18, 2009 “Global Research” — – Mr. Obama’s “recovery” plan based on infrastructure spending will make real estate fortunes for well-situated properties along the new public transport routes, but there is no sign of cities levying a windfall property tax to save their finances. Their mayors would rather keep the cities broke than to tax real estate and finance. The aim is to re-inflate property markets to enable owners to pay the banks, not to help the public sector break even. So state and local pension plans will remain underfunded while more corporate pension plans go broke.

One would think that politicians would be willing to do the math and realize that debts that can’t be paid, won’t be. But the debts are being kept on the books, continuing to extract interest to pay the creditors that have made the bad loans. The resulting debt deflation threatens to keep the economy in depression until a radical shift in policy occurs – a shift to save the “real” economy, not just the financial sector and the wealthiest 10% of American families.

There is no sign that Mr. Obama’s economic advisors, Treasury officials and heads of the relevant Congressional committees recognize the need for a write-down. After all, they have been placed in their positions precisely because they do not understand that debt leveraging is a form of economic overhead, not real “wealth creation.” But their tunnel vision is what makes them “reliable” to Wall Street, which doesn’t like surprises. And the entire character of today’s financial crisis continues to be labeled “surprising” and “unexpected” by the press as each new surprisingly pessimistic statistic hits the news. It’s safe to be surprised; suspicious to have expected bad news and being a “premature doomsayer.” One must have faith in the system above all. And the system was the Greenspan Bubble. That is why “Ayn Rand Alan” was put in charge in the first place, after all.
(more…)

Hat tips to Magnifico, with further analysis

It heats up at 2.10 into the clip.

photo credit: Goose frabaaa

Steven Spadijer in Online Opinion today writes a superbly researched piece on why government’s must consider our policy position. Stop rolling the dice and go with the odds:

Exactly 100 years ago Winston Churchill and Lloyd George introduced a radical budget even by today’s standards. The budget introduced a high land tax, while severely reduced all other taxes. However, it was rejected by the House of Lords (or rather Landlords) for obvious reasons. I argue that a 100 per cent betterment levy with income, GST, capital gains, superannuation taxes, tariffs, dividends and corporate taxes, all abolished, or at least severely reduced, can simultaneously cure unemployment and budget deficits. This levy, sometimes called a “Mills tax” was formulated by John Stuart Mill, the great liberal philosopher of the 19th century.

photo credit: Passetti

Doug Noland is fast becoming a popular online analyst, focusing in particular on monetary policy. He releases a weekly report that summarises global policy developments and market movements in rapid fire succession. Essential reading, very handy for podcasters!. Doug says:

But I would argue that this unfolding bubble dynamic has greater potential to engulf the entire world than even US -style mortgages and derivatives did starting back around 2002. Welcome to the new world of synchronized stimulus, deficits, and reflationary policymaking. I don’t believe true systemic deflation (as opposed to collapsing asset bubbles) is a high probability scenario as long as the government finance bubble is rapidly inflating. All bets are off, however, if confidence in government debt falters. The worst case scenario – that should be avoided at all costs – is a massive inflation of government claims that sets the stage for a devastating bust.

Read More
Planet Wall Street quotes him in A reflated bubble still bursts

One day the Noland’s will understand the Putland’s and land price inflation will be seen as the bug bear that must be addressed over and above banking regulation and printing presses.

Land speculation equates to gambling on the less fortunate’s human right to a roof over their head.

It is the exploitation of this principal human need for a place on this planet that enshrouds us in the invisible chains that record mortgage payments dictate.

photo credit: pyjama

People often grasp our message through simple examples. Imagine a friend buys one of these pictured beach boxes for $12,000 in 1994. Meanwhile, you work hard, doing overtime, saving money, being a solid citizen.

During the middle of Victoria’s worst day on record (last Saturday reached 46 degrees celcius) your friend decides to sell his beachbox. It’s just a wooden box on crown land. However, it is situated in an exclusive location.

He sells it for $171,000!

This results in a staggering $149,000 gross profit. Over a few drinks that night he tells you “My accountant can do backflips through this tax system! I pay only 12% in capital gains tax, so this bottle of Dom Perignon is just a drop in the ocean compared to the windfall profit of $120,000 I just ‘made’.”

You look deep into your glass as you total up your hard earned savings of barely $20,000.

Natalie Craig reports that this is what happened last weekend. A property speculator made more profit than two hard working aussie battlers on average wages do in a year – just by shuffling paper. This is what our tax system prefers. Buying and selling rather than hard work and saving.

Will governments and the loose tax policy that benefits speculators be put under the spotlight? Will this tax policy be held responsible for it’s role in drowning the global economy in the GFC? Or will they allow banks to take the hit for them? Let’s get to the source of the problem before many more bailouts occur.

We yearn for the day when people can look after themselves due to the cheap access to land and a simplified tax system. Then any creative person can quickly make their contribution to society. The $120,000 windfall profit should see the vast majority of it going to the government to fund the abolition of damaging taxes like payroll, GST and income tax. By charging a 10% Site Rental on all land we can quickly ensure this happens.

Fred Harrison and the Motherlode team discuss the importance of capturing land rents to avoid future financial catastrophes. All this and more amongst the momentous backdrop of the 100 year anniversary of the People’s Budget! Forward this onto your friends. Thousands must see it!

Make sure you check Fred’s extensive list of clips too.

photo credit: cobalt123

An occasional commentary (for Australia’s federal politicians) #5

2nd February, 2008

Bryan Kavanagh LVRG, AAPI

Early this morning Australian time, the BBC featured a well-credentialed panel in Davos discussing the world economic meltdown. As usual, none had workable solutions. None ‘saw the cat’, the real estate bubble, painted in camouflage within the global economic picture. Each of them nevertheless provided some useful insights: Nouriel Roubini merited a congratulatory pat on the back for having called the downturn; similarly, Laura Tyson, an advisor to Barack Obama, for suggesting that it’s pointless to seek scapegoats when there’s a systemic problem that needs to be urgently addressed. But there were no answers, because participants couldn’t get down to the root causes of the unfolding economic depression.

It was accepted that central banks failed us by not turning back the credit spigot before the real estate bubble began developing. And, golly, if only we had our time over again, this wouldn’t have happened! Nonsense! Easy credit may have exacerbated the real estate bubble, but it didn’t create it, and it would have occurred even under a tighter credit regime – because that’s where the capital gains and tax advantages were to be found, the cost of money notwithstanding.

The real problem is our double standard on real estate speculation. Although property bubbles precede and underpin each and every crash, politicians know that many of us get a warm inner glow when our property values increase, so they’re certainly not going to interfere by telling us there’s a line to be drawn on the increase in land price until it self-corrects in a recession. After all, a man’s house is his castle, isn’t it? So, it seems that real estate speculation and rampantly escalating land price increases are only ever to be condemned after the event by politicians and economists. But, even then, nothing must be put into place to ensure that these events can never happen again!

It is not only politicians and economists who can still praise land price escalation as one of the ‘benefits’ of the private ownership of land whilst condemning the lack of affordable housing out the other side of their mouths. Even at law, real estate has come to be regarded as ‘private property’, and charges thereon as something approaching some sort of aberrant nonsense – although this flies in the face of well-established dicta that even freehold land is distinguished from ‘private property’ and that ‘quit rents’ used to be payable on freehold titles. So, speculative accretion in land values are rarely questioned or condemned from within the law either.

These vagaries about the role and responsibility of holding land in modern society are supported by the theory of real estate valuation having been written out of the study of economics – so that we never become too condemnatory about excesses in real estate markets, nor the recurrent economic busts that inevitably flow from them. These cycles of boom bust are far from ‘the essence of capitalism’, as is often portrayed.

It is not generally understood that the value of a piece of real estate may be established by capitalizing its net rent at the yield (or rate), indicated by the market. Were valuation theory widely understood, it would be seen immediately that a ‘market’ yield of 3% and less (that is, greater than 33 years’ purchase!) on residential property is entirely speculative. It follows therefore that a bursting has to follow the bubble, so that yields can return to commercial levels.

In valuing real estate for 38 years it has often struck me that more than a few real estate agents and many valuers develop a feeling for impending economic recession well before economists do. And, no doubt, real estate agents and valuers, amongst others, will have had a derisory chuckle at last week’s announcements from Access Economics and the IMF that economic growth might tail off during the course of 2009. Some ‘forecast’!

The ludicrous state of affairs exists that economists can only ‘forecast’ after the event because, whereas property professionals do understand the theory of valuation, economists don’t – because it’s not part of their neo-classical economic training.

But so long as real estate professionals’ fees are based upon a property’s value, they’re not going ‘to blow the whistle’ on the damaging effects of real estate bubbles on the economy, either – even though it may surely be argued that an ongoing healthy and vibrant real estate market is preferable to one characterised by repetitive booms and busts. They defensively pose the question whether it’s the role of real estate agents and valuers to second-guess economic analysts, anyway? And “surely it’s not for real estate agents’ or valuers’ institutions to get ‘political’ [read ‘honest’] on the role of real estate within the economy?” Thus has the science of political economy been reduced to a standing joke by the contrived separation of real estate from the economy.

Until policy makers can assert that real estate speculation destroys economies, the chances of remedying the current economic depression are zero. On the other hand, we’ll know we’re back on track when framers of public policy do acknowledge the need to capture more publicly-generated land rent and less taxation to the public purse. It’s beyond time that they did so, because taxing thrift and industry and inflating land price bubbles have obviously proven antithetical to healthy economies for more than 200 years now.

To corroborate that we’re exceedingly slow learners, we’ve only got to listen to the many irrational and contradictory ‘solutions’ analysts are now promoting in response to the meltdown, Chaos rules, in the name of developing ‘a global solution’.

Even though the one thing necessary for a swift recovery from the financial collapse is a simple fiscal adjustment to our revenue systems, it seemed a remote possibility when I listened to the BBC this morning. So, we’d better batten down for the long haul, and trust that ‘The Powers That Be’ don’t prefer again to wage war rather than to make this simple adjustment, as they did 100 years ago.