Any more

Any more

What a tumultuous week! World financial markets experienced an absolute hiding and at the end of the day as the debris is removed, the message that resonates most strongly is that, “cash is still King”. Superannuation is not exactly as bankable as most were led to believe despite that in the June quarter of 2007, superannuation funds received record net inflows of $A49 billion. It should also be noted that during this same period, household debt had a record increase too, as investors borrowed against the home to participate in this “once in a lifetime opportunity”. Fifteen months later, their investment has halved (it will strengthen – but it could take a while). When compulsory superannuation took effect in 1992 many argued that older superannuants were at a disadvantage hence the “super – duper” tax free inducement last year by the Howard government.

With the benefit of hindsight, it’s a case of “too many eggs in the one basket” given that superannuation is a long term hold and deadly, if you have a short term exit strategy. Last year, at or about the time that investors were busily transferring monies into their respective funds, I argued (suggested) that property should also be included in the equation. We were in the middle of a property rental crisis, so investors should also be encouraged to buy an investment property specially as after you hold the asset for ten years it is not liable for any capital gains tax whilst it is held in a superannuation fund. Individual super funds would be a lot healthier today if real estate had been included along with the other three growth strategies of geared funds, warrants and alternative investments.

Whilst the Rudd government is in overdrive with rhetoric, confirming that the Australian economy and our financial system are in excellent shape, the same can’t be said for small business owners. This week an iconic Mosman business, “Berny’s”, closed the doors after 39 years of business. There would not be that many Mosman households that have not purchased whitegoods or televisions from this company. The reserve Bank of Australia (RBA) advised this week that the financial belts are tightening, with annual credit growth in August at its slowest pace for six years. Housing lending is growing at its slowest pace in 25 years.

The political canvas at present resembled more of a blank canvas, when the Council of Australian Government’s (COAG) met in Perth this week. Prime Minister Kevin Rudd stated “what we do also in a whole range of areas, including investing in the nation’s future infrastructure.” No doubt he would have been refreshed when NSW Premier Nathan Rees announced that the government of the day is struggling to keep Sydney running. It emerged that Sydney will need almost 900,000 extra homes by 2031 – a third more than estimated three years ago. Sydney is currently welcoming (so to speak) 1,500 new arrivals each week.

“Camp Chaos” better known as the State government is faced with a $1 billion shortfall from the downturn in the property market plus GST revenue declines of $400 million. And just as important, is that this week , it withdrew all support from the Rudd election promise of computers for every school pupil in NSW, the out tray of failed policy promises is mounting.

Which explains why “Camp Chaos” is holding back on releasing a report about Sydney’s new housing market that identifies that the number of lots released in Sydney has fallen to fewer than 3,000 a year since 2004, which is down from the peak of 9,000 lots, eight years ago.

The financial crisis of the US sub-prime crisis is contributing to Australia’s housing shortage as builders claim that they presently are having loan applications refused by banks. Master Builders Australia chief executive Wilhelm Harnisch said, that many builders were being turned away by lenders, which meant fewer homes were being built.

The gallery gasped this week when news broke that Kevin ‘747’ Rudd was contemplating becoming the first Prime Minister in more than twelve years to take on net debt. The Howard government when elected in 1996, started paying off $96 billion in inherited debt and on April 21, 2006 the former Treasurer Peter Costello declared that the government was debt free, ending interest payments of $8.4 billion a year.

Maybe offering Australians tax free capital gains on an investment property in their superannuation funds is a smarter idea , given that they are not that excited about playing in the shock market for the time being. More investment actually reduces the rental crisis ignites building activity and more importantly it is done by using other people’s money.

Although I’m still not sure what part(s) the politicians keep missing about property given that everybody wants it except them!

Cheers ^__^

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