Each day passes with policy enhancing the never ending Great Australian land bubble. Three of note include:
- the recent sale of $500m in Australian sub-prime loans by non-bank lender Pepper (AFR, paywalled), bundled together as Residential Mortgage Backed Securities. Moody’s gave the thumbs up to the sale, despite 44.5% of loans being of sub-prime nature. US investors played a prominent role in snapping up the sale, which was achieved with low yields of just 1.1% over the bank rate. Despite the lessons of the GFC, it seems we are destined to see more RMBS sales. The AFR reports that $30billion in RMBS finance was raised in 2013. Independent but unconfirmed sources report the level of transparency in such derivatives are still very low.
- the Significant Investment Visa program is definantly one to watch – the program has attracted $1 billion in foreign investment this month and $2.6bn is awaiting in applications. It requires a minimum $5 million investment and if maintained for four years, one can jump the queue. NSW operates a similar investment scheme. This visa does not allow direct investment in real estate, instead channeling money into managed funds that do. In sum, a good win for the FIRE (finance, insurance and real estate) sector. This money will find its way into real estate as it is lowly taxed and delivers high returns for little risk. Canada recently removed a similar policy tool due to its overheated housing (read land) market. This is part of a visa stream called Business Innovation and Investment. The list of compliant investment activities is broad. There is however, a limit to the number of places in the Business Innovation and Investment stream of 7,260, of which the Significant Investment Visa component is located. Will this be increased over time?
- Addendum – check this humourous(?) story of Chinese millionaire headhunters utilising the Significant Investment Visa program.
- 40 – 50 year mortgages. Yes that’s right, one can now attain a 40+ year mortgage. Coming up next? Multi-generational mortgages. China already has three-generation mortgages. No politician has questioned this extension, an immense money making vehicle with 40 year mortgages to deliver millions in banking profits. Spreading payments over such a long period of time delivers the illusion of affordable repayments.