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Friday, March 6, 2015

Foreign property investors might face fees when entering Australian residential real estate

Australian PM Tony Abbot
Australian Prime Minister Tony Abbott announced the government’s intentions of levelling the playing field when it comes to Australian residential business and real estate. Consequently, possible fees might be enforced to foreign investors attempting to enter the market, as the government will begin to propose a variety of civil fees and penalties connected to foreign investment in the real estate sector.

Real estate market threatened by speculative foreign investors

Soaring house prices paired with the massive numbers of Chinese buyers has caused Australia to roll up the welcome mat for foreign investors by tightening up pre-existing rules and considering additional fees. And while foreign investors face such difficulties, real estate investment start-up companies are attempting to push investors towards acquiring properties. BrickX, for instance, has begun enabling its investors to acquire real estate by trading $66 “Bricks”. Start-up companies experience a difficult time as it is with the pressures of entering such a tight market, so consider Regus when setting up your office space so that you’re off to the best possible start.

According to BrickX’s CEO, Darren Paterson, the company aims to allow investors to buy and sell property in a fluid manner, so they can both acquire and dispose of their assets if ever and whenever they choose.

On the other hand, in cities such as Sydney and Melbourne, foreign investors, especially Chinese ones, are a force to be reckoned with. And while the government is attempting to tighten the market for Chinese cash, low interest rates as well as massive bank lending is encouraging foreign investors to keep seeking profitable deals. As figures provided by Australia’s Foreign Investment Review Board show, during the first nine months of the financial year which ended June 2014, a total of A$24,8 billion were approved for foreign investment purposes. This whopping figure, which ended up flowing into the residential property market, surpassed last year’s amount by 44 per cent. And of those foreign investors, Chinese nationals represented by far the largest group.

Price increases stave off Australian citizens from acquiring property

The issue of property prices has become a hot topic in Australia, especially since this increasing foreign interest in real estate has caused an artificial increase in Australian home prices. Prime Minister Abbot has also considered negative gearing rules, which may account for property price increases, however he decided against reviewing them at this point.

These new fees that the government is now analysing would have foreign investors pay application fees of approximately $5,000 when they intend to buy properties worth less than A$1 million. When properties exceed this A$1 million limit, the fee would add $10,000 for every additional million dollars in the property’s value. There is a maximum fee, of course, in the case of properties valued at more than A$1 billion. In this case, applicants would pay a fee of A$100,000.

And while such figures may seem large at first, they surely aren’t a major deterrent for those foreign investors attempting to find a safe haven for their money.

Levelling the playing field

As Prime Minister Abbott explains, Australians should be given the opportunity of operating on “a level playing field” with the foreign investors attempting to enter the property market. And while the government has been attempting to increase the country’s housing stock, the integrity of Australia’s foreign investment policy for residential real estate has been threatened by the lack of both compliance and enforcement of the rules.

Currently, the country has restrictions in place preventing foreign investors from acquiring newly built property or underdeveloped land. Yet these rules are easily bent, it seems, as widespread evidence shows that international buyers often purchase properties that are off-limits. As a result, foreign investors identified as not complying with these rules will face hefty fines. They could face penalties of up to 25% of the value of their investment and may even be forced to sell the acquired property. Curiously enough, since 2006, no foreigner has received any penalty for bending the rules, the parliamentary committee concluded.

"This government is determined to ensure that the aspirational people of our country get the fairest possible go," Prime Minister Abbott insisted, hinting that young Australian citizens are often boxed out of the real estate market because of clever and speculative international investors.

However, even these efforts are believed to not be enough to deter big investors from continuing to purchase Australian properties, especially since they can easily afford the fees. Hong Kong and Singapore also made significant efforts to prevent Chinese investors from flooding their real estate market, however, even here, the government’s efforts had little if any impact. "These measures are a significant step in protecting Australia's national interests and in giving the community greater confidence in our foreign investment regime,” Mr. Abbott mentioned.

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Financial news: March 6, 2015

Reuters: A NY appellate court upheld an $8.5B BofA mortgage fraud settlement
CNN: Government sanctioned debt collectors bypass consumer protection laws 
CNBC: The Georgia Inst. of Technology has a 12.5% ROI per Payscale
Zero Hedge: Current U.S. manufacturing data is a recessionary indicator
Bloomberg: A low-end Rolls Royce costs $263,000; low-rate leases are more practical
MarketWatch: Utility stocks are under-performing relative to other sectors 
BI: Oil futures in Contango account for storage costs not paid by contract holder
BBC: The Brazilian central bank raised interest rates to 12.75% to lower inflation
AP: The ECB raised the Eurozone GDP growth forecast to 1.5% for 2015
NYT: Institutional & structural problems are a growth obstacle for China's economy

Thursday, March 5, 2015

Australian central banker calls for global forex reforms

Dr. Guy Debelle
Opinions on Forex trading remain split as to their safety and while this makes sense in the rather complex post-recession financial world, it seems as though some central bankers will do their best to make sure they can restrict such activities.

While the security of Forex trading is as important for a safe trading institution like Vantage FX as it is for its investors, the assistant governor of the Reserve Bank of Australia seems to take a different stand on this issue. Dr Guy Debelle, recently named at the helm of a global report that seeks to investigate benchmark rates for foreign exchange markets, expects trading institutions that dabble in foreign exchange to implement reforms – or else. In today’s post, we take a closer look at what Debelle stated on this topic in mid-February and at how justified his concerns really are.

RBA assistant governor demands reforms

Guy Debelle took part in a conference regarding the conclusions and recommendations of the global-level report he is leading on Thursday, February 12. He told those attending that he has “strong expectations” for the implementation of the recommendations made in the report whose leading author he was. Debelle made a thinly veiled threat of sorts, by saying that, should Forex trading banks disregard the report’s recommendation, a “regulatory response” will be virtually inevitable. And, of course, such a response will come with consequences for the current state of the foreign exchange trading market, as it will leave it “in not as good as position as it would like”.

Debelle took the floor at a conference organized by the Forex industry. At the event, he presented a cursory outline of his global report and its findings. These findings were brought before a global organism called the Financial Stability Board. All of Australia’s major banks and its banking industry regulating agencies are part of this board. The report came in the wake of revelations regarding the benchmark interest and foreign exchange rates on the market. Specifically, consistent evidence had been revealed, pointing to the fact that several banking institutions acted toward manipulating these benchmarks. Both interest rate and Forex rate benchmarks are generally viewed as an arcane, obscure, difficult to comprehend segments of the market. However, their importance in the ecosystem of the financial market cannot be denied, which made it essential for consumer trust to be restored. The Reserve Bank of Australia thus decided to call for a global investigation report.

Does the Aussie Forex market require more regulations?

Speaking at the Forex industry conference in February, Dr Debelle was quick to point out that the foreign exchange market is virtually unregulated. Though this is not entirely true, it does draw attention to the fact that Australia’s FX market has, as Debelle put it, “securities regulators in different jurisdictions with varying degrees of appetite for enforcement”. Some of the recommendations that the benchmark report listed include:

  • Amending the time frame to source prices, according to which daily Forex trading benchmark rates are established. Also, the report pointed to a need for more diversity in sourcing prices. Both these changes were almost immediately introduced and have been in effect from mid-February in Australia.

  • Separating market benchmark desks from general Forex desks within the structure of the same bank. The report also called for the introduction of transparency in the pricing of fee-based trading activities. The system in place at the time when the report was conducted was based on secret bids for spreads, which did invite misconduct and a lack of transparency. At the FX industry conference, Debelle did acknowledge that such a reform will come with a high price tags for the bank – however, he expressed his belief that the benefits will outweigh the expenses for the trading institutions, in the long run. He also asserted that they would come to benefit the market as a whole.

  • Debelle’s report also called for the reform of conduct codes. Yet, at the same time, he warned against a potential risk to redrafting behavior codes on the market. He told audiences that such codes should not be made to formal; if they are, actors within the industry might be tempted to find a way to bend the rules in their favor.

  • Lastly, the report was critical of asset managers and providers of indexes who fail to understand how the industry works.
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Wealth growing investment strategies

It is often said, risk is required to make a great deal of money. While this justification for higher risk investments has some truth to it, this is not always the case. Sometimes, steady and consistent investment habits are all that a required to build a large amount of wealth. It may take a little longer, but it is often the safer and more secure route to take.

The following infographic points out  a few key ways to growth wealth including keeping financial services expenses low and diversification. This is because investment management fees eat away at net return on investment or ROI and diversification of investment assets helps reduce risk, which lower the chance of capital loss. Other investment techniques that help build wealth and increase yield include dollar-cost-averaging, alternative investing and retirement plan matching programs.

investing tips to grow wealth
4 Investment Strategies to Grow Wealth – An infographic by the team at Motif Investing.