Author Archives: Steve

Helicopter Money, will it happen

Helicopter money has been mentioned once in a while over the years but lately more and more people have started to propose helicopter money as an alternative to Quantitative Easing (QE). The expression was first used by Milton Friedman in The Optimum Quantity of Money, published in 1969.

For Friedman, helicopter money was unique event, never to be repeated, which would allow debt reduction and raise aggregate demand. The money would be distributed directly to the people to avoid problems associated with money creation by private banks. Another result of helicopter money is higher inflation, which is desired in many parts of the world at the moment. Or maybe one should say some countries are in desperate need of inflation.

Central banks have tried ZIRP (Zero Interest Rate Policy), NIRP (Negative Interest Rate Policy) and QE but the results have been limited. Can helicopter money solve the problems? A very interesting question but as usual, things are more complicated than most people think. Obviously, the helicopter is just a methaphor. Most likely banks would be used for the distribution of
helicopter money. The money would just magically appear in people’s bank accounts.

But this very simple approach is unlikely to do much good in most countries. A lot of people would use it for consumption, buying goods made in China. It would be good for China, and other countries that export a lot of consumer products but for countries like the US which imports a lot of cheap goods, the benefits would be limited. In order to raise inflation in countries such as the US, multiple drops of helicopter money would be required. But this could very easily get out of control, undermining the trust in the currency and leading to hyperinflation.

Therefore economists have suggested various variations of helicopter money. In some cases helicopter money has been suggested as source for funding government investment programs rather than be given directly to the people. One problem with helicopter money is that it has never been tested, so no one can be sure what the outcome will be. It is very easy to find opponents to any form of helicopter money. But given that QE has not managed to solve the problems, more and more economists have started to talk about helicopter money as a possible solution.

Here it is worth pointing out one important difference between QE and helicopter money. QE, at least if you believe central bankers, increases the money supply temporarily while helicopter money increases it permanently.

So will helicopter money actually happen? Most experts believe the answer is no. At least not yet, maybe further down line. A more likely solution is to try to combine conventional fiscal stimulus and QE. This combination should have the same effect at helicopter money but not being as controversial. Fiscal stimulus would mean that government debt would increase but given that most governments can borrow cheaply this is in most cases not really a problem. That a lot of people like to call it a big problem is another thing. Given that QE can be seen as suspension of government debt, QE would actually make such discussions irrelevant.

Australian Property Market Status 2015

The Australian property market is always a popular topic in media. Unfortunately, a lot of what is said in media has very little to do with reality. Many new investors have learned that property does not always go up in price. Even worse, it is actually possible to lose money if you haven’t done your homework before you buy.

First, it is important to point out that there is not one single real estate market in Australia. This is quite obvious from the fact that only Sydney has shown strong price growth over the past year, around 13%. But also Sydney is made up of a number of different property markets. The same is true for all the major cities.

As mentioned, Sydney has been the star performer the last 12 months. But also in Sydney, one has to be careful. At the moment, a lot of units are being built. This is unlikely to cause any big problems given the almost chronic housing shortage in Sydney. But it is best to avoid buying apartments in areas with a lot of upcoming supply. Houses in Sydney are a safe investment but the prices are high and the yields are poor. Additionally, many believe that price growth in the future will be limited. In other words, although Sydney is a good place for property investments, it is best to be careful and be prepared for slower price growth.

Melbourne unit prices have defied gravity for a long time but the oversupply is just getting worse. The prudent investor should avoids apartments in inner Melbourne. According to recent figures, more than 24% of inner city units were sold at loss, despite that the average holding time was more than 6 years. It is safest to stick to houses in Melbourne, but prices are high and yields are low. The price growth in Melbourne for the last 12 months was 4.7%, not bad given the low inflation and interest rates. But it was mainly houses that experienced price growth, not units. Unless you really know what you are doing, Sydney looks like a safer choice than Melbourne.

Like Melbourne, Brisbane is suffering from an oversupply of inner city units. Despite that, the average price growth in Brisbane has been 3.9% over the last 12 months. Given the high prices in Sydney and the oversupply in Melbourne, many experts are recommending Brisbane. But it is best to stay clear of units, especially close to the CBD. Apart from that, Brisbane can be a good place to invest in. But don’t expect any tremendous growth the next couple of years.

Perth seems to be heading for tougher times. The property boom in Perth has quite clearly come to an end, property prices have fallen slightly during the last 12 months. It will be interesting to see what happens next. The future for units looks bad, plenty of units are being built at the same time as the vacancy rate is getting towards 5%. For houses things look slightly better but quite clearly there is no hurry to buy property in Perth. It is likely that prices will continue to fall.

Adelaide has been a bit of backwater for a long time. With 2.5% growth the last 12 months, property in Adelaide seems to be relatively stable, no spectacular growth but neither much risk of major price falls.

Property prices in Canberra have increased with 3.0% over the last 12 months. It is a little bit of a surprise given that many had warned that the cuts in the budget would create problems for property in Canberra.

If you are thinking of buying a home, it is probably best to take advantage of the low interest rates and try to find your dream home as soon as possible. If history is anything to go by, waiting for prices to fall is a high risk strategy. Obviously, you should bargain hard, especially if you are looking for something outside Sydney. But be careful with apartments in central Melbourne, Brisbane and Perth, the huge oversupply could very well result in significant losses for many. The same goes for Gold Coast, which seems to be heading for an oversupply of apartments once again.

If you are thinking of investing in property, it is very important do your research before you buy. Quite clearly, central Melbourne and central Brisbane are not good places for investments. Despite all the hype, the oversupply often makes it difficult to just find tenants and rents are rather going down than up. Perth looks even worse with a high vacancy rate which is likely to get even higher, meaning that rents are likely to plummet. On the whole, investors need to be very careful with units. In many places, overpriced off-the-plan projects targeting foreigners and gullible people are creating oversupply. Houses are a safer bet but be aware that in large parts of Australia, house prices have not increased much despite record low interest rates. In essence, less than 10% of the available properties are good investments. You need to make sure that you find one of the good investments, buying the wrong property could very well become a financially painful experience.

The Gordon Growth Equation

The Gordon Growth Equation is named after Myron Gordon who introduced it in the 1950s. It is a simplified model but it has turned out to be reasonably accurate over longer periods of time. The Gordon Growth Equation calculates the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate.

The Gordon Equation can be simplified in order to avoid some mathematical hurdles. Without going into the details, it is possible to rewrite the Gordon Equation as Price = Dividend / (Expected Return – Dividend Growth Rate). This can also be rewritten as Expected Return = (Dividend / Price) + Dividend Growth Rate. Which is the same as Return = Dividend Yield + Dividend Growth Rate.

Obviously, the dividend and the price of share are easy to find out. But the dividend growth rate is tougher. Also note that the Gordon Equation assumes that the dividend growth rate is constant. This is very seldom true in the real world. It is quite clear that the Gordon Equation does not work very well for growth stocks, they seldom pay any dividend at all. It works better for mature companies that have a long history of dividend payments. But it has turned out that the Gordon Equation also works well for indices, such as the S&P 500 index.

But even for indices, the markets are often very volatile. Despite that, over time, the Gordon Equation works fine for indicies. S&P has paid roughly 2.5% in dividend and the real growth of the dividend has been almost 1.5%. This gives a real return of about 4%. This is reasonably close to the real world. Note that we are talking about real returns, removing inflation makes the return less impressive.

But it is worth remembering that the dividend yield has changed a lot over the years. It was at it highest during the depression in the 1930s, reaching an amazing 14%. But few wanted or dared to buy shares during the depression. On the other hand, the yield reached an all time low towards the end of the 20th century during the Internet boom, staying just a little bit above one percent. At that time, everyone and their dog wanted to buy shares in companies with no customers, no revenue and no profits, regardless of the price.

Needless to say, the Gordon Equation has been very useful during booms and busts. During the depression, it was a very good time to buy shares. Exactly as predicted by the Gordon Equation, mainly thanks to the high dividend yield. On the other hand, it was not a good time to buy shares towards the end of the Internet hype. The Gordon Equation made this very clear as well.

Thus, don’t ignore the Gordon Equation when planning your investment strategies. Over the long run, it is amazingly accurate despite its simplicity. It can also help you make the right decisions when most others are either panicking or buying everything they can get hold of. On the other hand, if you want to invest in growth stocks, you’d better find another valuation method.

Bitcoin Overview

Bitcoin has become very popular. But sometimes you also hear negative things about Bitcoin. Is is really secure? Why is the price of Bitcoin going up and down? Here is an overview of Bitcoin.

Bitcoin is a relatively new phenomenon. It was created in 2008 by Satoshi Nakamoto, which is believed to be a pseudonym. It is the first widespread distributed digital currency.

Explaining how Bitcoin works is not easy, an understanding of cryptography, software engineering, economics and some other areas is required if one wants to dig deeper into how Bitcoin works. A couple of terms that are good to know are the following:

Wallet: Software which is used to store bitcoins, can be online or offline. Note that bitcoins can also be stored in paper wallets
Bitcoin Exchanges: Market place where users sell and buy bitcoins.
Mining: Bitcoins are created by solving mathematical puzzles, this is called mining.
Cryptocurrency: A form of currency based on mathematics alone.

First of all, Bitcoin is based on open source. Everyone can download the source code and have a look at it. This has the advantage that it allows users to check that the code does not contain any backdoors or security vulnerabilities. That said, this requires not just programming skills but also advanced skills in cryptography.

Currencies are typically controlled by a central authority, Bitcoin on the other hand is a distributed currency. It lives in a peer-to-peer network, there is no central control of Bitcoin. Being an electronic currency means also that there are no coins or banknotes. Not that far ago, a digital currency would have been very odd. Nowadays, it is not that strange. But Bitcoin has a number of strange features compared to normal currencies such as the US dollar or the euro.

Despite being a digital product, there will be a finite supply of Bitcoins. This may sound odd, since it is very easy to make perfect copies of digital products, both quickly and cheaply. But the Bitcoin generation algorithm has limited the supply to a maximum of 21,000,000 bitcoins. In order to prevent people creating their own bitcoins, several sophisticated technical features have been used in the Bitcoin algorithm.

The heart of Bitcoin is a distributed database, this means that each participant in the network keeps a copy of it. Traditional financial systems have one central database, which means that the users are trusting the operator of the database with their money. In order to get a distributed database to work, a number of problems had to be overcome. The solution is very elegant, in essence all financial information flowing through the Bitcoin network is public. The only exception are the identities behind the transactions.

One thing to be aware is that while Bitcoin may be anonymous, it is possible to follow the flow of transactions. If you paid someone, you can find out what he or she spent the money on.

The Bitcoin distributed database is known as the blockchain. This is due to the fact that transactions are grouped in blocks, which are recorded in the database in a chain of blocks. By itself this is not a very efficient way of storing database records. But thanks to the chain, transactions are linked so that they create a history of all transactions which can not be altered. The links between the blocks are based on cryptographic algorithms which can not be forged unless an attacker has enormous computational resources.

The identities of the owners of bitcoins is not used in the Bitcoin system. Bitcoin addresses are used to identify funds. The software which helps a bitcoin owner to manage his funds is called a wallet. The wallet is protected by a cryptographic key, if the owner loses or forgets the key, the funds in the wallet are lost. Or more exactly, the funds are still there but without the key there is no possibility of using the funds.

Is Bitcoin really money? This is hotly debated, there is no clear answer. Most economists agree that Bitcoin is a medium of exchange, one of the main three characteristics of money. Additionally, money is supposed to be a store of value. Here Bitcoin gets a little bit in trouble. Yes, Bitcoin is a store of value but with a very high volatility, which makes it less useful as a store of value. The high volatility also makes Bitcoin a poor unit of account which is the third characteristics of money. Few goods or services have their price quoted in bitcoins.

All in all, understanding how Bitcoin works requires a fair bit of skills in several areas. But you can use Bitcoins without knowing the details how it works. Bitcoin is reasonably safe but you must know how to keep your funds secure. One of the main problems with Bitcoin is the high volatility. Bitcoin was for a long time worth about $10, then it increased quickly to more than $100 and then skyrocketed to more than $1,000. But after that the value of Bitcoin has kept on dropping, at the moment is a bit above $200.

Quite clearly, Bitcoin is a risky investment. The currency itself may be safe but its high volatility makes it possible to lose a lot of money quickly. It is also worth remembering that Bitcoin works outside government regulations. This has some advantages but also makes it more risky. It is worth remembering that governments may crack down on Bitcoin, many governments are fond of keeping their currency under strict control and don’t like competition.

Stock Market Performance 2014

Before looking at the stock markets, it is worth pointing out that the rise of the dollar complicates the picture. For the first time since the burst of the Internet Bubble, the US dollar rose in value against all major currencies. The greenback has gained 11% against the euro, 14% against the yen and 5% against the pound. The dollar index, which weights the US currency against a basket of major trading counterparts, has risen 13% during 2014. The rise of the dollar started after mid-year and is likely to continue. Investors expect US interest rates to start to rise and are moving money into the US.

The US stock markets had a reasonable year, Dow Jones went up 7%, S&P 500 11% and Nasdaq 13%. It was not as good year as 2013 but still quite a good year for many stocks. And for investors outside the US, the strong dollar made the gains significantly larger. Most experts seem to believe that US stocks will continue their upward journey but it is prudent to remember that share prices are increasing faster than profits. According to the Shiller P/E data, US shares are 64% higher valued than the historical mean value.

The Japanese stock market went up 7% during 2014, very modest compared with plus 27% in 2012 and 52% in 2013. But if the fall of the yen is taken into account, investors counting their assets in dollars, lost about 7% on Japanese stocks. The Japanese economy is likely to continue limping along, Abenomics seems to have hit the wall. This is likely to mean that the yen will continue fall which will help many Japanese companies to increase their profits. But is questionable if the increase in share prices will be enough to offset currency losses for international investors.

Europe managed to avoid disasters, the Euro did not fall apart and the crisis in Ukraine did not spread into Europe. Unfortunately, no breakthroughs were made during 2014. ECB has still not got started on quantitative easing and hasn’t done anything else which could significantly boost growth in Euroland. The politicians seem to be unable to try expansionary fiscal policies, large government debts and Brussels insisting on austerity are the main two reasons for this.

The main stock markets in Europe moved in tandem, the German, French and Italian stock markets managed all to produce slight gains. But for investors counting their returns in dollars, the returns on all three stock markets were negative, due to the falling euro. The FTSE in the UK lost two percent during 2014. In dollars, the loss was even larger.

Looking at other markets, the Danish stock market increased 21% and Indian shares with 34%. At the other end, Russian and Greek shares have taken a severe beating lately, and both markets may very well continue further south over the next couple of weeks.

How well did the experts predict the outcome of 2014? US stocks did not manage to reach the most optimistic forecasts but many predictions were relatively close to the target. Japanese stocks did not manage to live up to the expectations but after two strong years some people had expected gains to be smaller. A year ago, many experts were bullish about European stocks but the economies in Euroland still have big problems to generate growth. This also meant that many companies are struggling which can be seen in the poor performance of many European stock markets.

Is there a housing shortage in Australia

The Australian real estate market has been doing very well. According to some this is due to a housing shortage in Australia. But in reality, there is no housing shortage in Australia. Yes, in the places where most people really would like to live, demand often exceeds supply. But that is true all over the world.

Reports about housing shortages in Australia pop up all the time. Most of them are created by organizations representing developers and they are very good at spreading their message. But you don’t have to look very deep before you start to see that the shortage is mostly a myth. Outside the cities, the problem is often too much supply, rather than the opposite. Australia after all does certainly not have a shortage of land.

But what about the cities? Melbourne is going down a dangerous path. Far too many apartments have been built in the inner city and even more is being built. At the same time, far too many detached houses have been built on the outskirts of Melbourne. Despite that developers are just continuing building. The politicians love it, the building boom creates a lot of jobs.

Southbank is probably the last place in Australia that needs more high-rise buildings. Official vacancy rates are generally a little bit below ten percent, already a very high figure. This does not prevent both politicians and developers from proudly present new projects in Southbank which will add thousands of new units. When looking at the water consumption, the official vacancy rate in Melbourne, which has been slightly below 3% lately, may not give a true picture. For example, 17% of the properties in Docklands are not using any water at all, a strong indication that the properties are empty. Many other suburbs also have significantly higher number of properties not using any water at all than what the official vacancy rate indicates.

Brisbane has similar problems as Melbourne, albeit on a smaller scale. Oversupply of apartments in the inner city has been a problem for years and it looks like it will just get worse. Perth has been the star performer when it comes to capital growth but lately things have changed drastically. A slower economy has put prices and rents under pressure at the same time as more properties are being built.

The last 18 months, the Sydney market has become hot. This after ten years of very slow house price growth and relatively low building activity. But now developers have started to build on an unprecedented scale, overtaking Melbourne in number of properties being built. One reason for this is that developers from Asia have started to build in Sydney (as well in Melbourne). It looks like also Sydney will soon have an oversupply of apartment.

The Gold Coast may be the prime example of how the Australian property market will function in the future. The area has just started to recover from a huge oversupply but developers are already getting started on new projects. It looks quite clear that the Gold Coast will soon have a huge oversupply of apartments again. The same thing seems to happen in Melbourne, Brisbane, Canberra and Perth. Sydney and Darwin are not far behind.

So why all these reports about a chronic housing shortage? It looks like the answer is very simple. They are created by the housing industry who of course want to build as much as possible. Together with the report about a housing shortage are suggestions how to increase the supply. Typically all the suggestions are highly beneficial to developers.

Next time you spot an article about housing shortage in Australia, look for any facts backing up the claim. Often there are no facts what so ever or in best case something along the lines of that the population is growing so more housing is needed. The fact that many places in Australia suffer from oversupply is never mentioned.

Street Smart Financial Basics

It is not easy to make money but often it can be even harder to keep the money you have.

The old saying is still true, if it sounds too good to be true, it probably is. It is always good to remember the old saying when dealing with people you don’t know. It is good to be optimistic but being naive can be very bad for your financial well being.

Plenty of scams are being promoted, that by itself is nothing new. The scams change from time to time but the promotion methods are often the same. Technology has opened new ways for promoters to find potential victims, email, social media and SMS are just some of the new ways.

Often you are invited to a free seminar which is supposed to be full of useful information. But it turns out to be sales presentation, although generally disguised to be an educational seminar. It is generally prudent to be wary of free seminars, unless it is being arranged by a non-profit organization. Companies do arrange free sales promotions but they make it clear that they will be promoting their services or products, not trying to disguise the event as an educational seminar.

Seminars to avoid are those which talk a lot about how cool it is to be financially free, show a lot of pictures of luxury items and is presented by someone who claims to be very successful. Typically, the presenter has a rags to riches story to tell. He was in big problems but when he stumbled on the solution and become successful. Now everyone can do what he has done. All you need to do, is to sign up for a training, offered at a special price but only today. Most common offers are about trading, property and Internet business but almost everything under the sun has been promoted this way.

Here are some of the typical warning signals to watch out for. High pressure sales, you have to sign up (and pay) today in order to get the special deal. Promises about getting rich quick, no experience required and no risk. Sometimes secret solutions or magic software are mentioned, without getting into any details. In essence, the message could more or less be summarized with the statement, just give me your money and I will make you rich.

Before signing or paying for anything, make sure that you understand exactly what is being offered. Especially solutions that are supposed to lower your tax are often presented in a way which is impossible to understand. But you get plenty of promises, the scheme is said to be approved by the taxation authorities, has been vetted by top accountants, no risk despite that the complexity of the scheme and much more promises which all sound very good, at least until you start to look deeper. Make sure that you get all the information and ask an independent tax account for advice. Very often, an experienced tax account will tell you that it is a scam, or call it a high risk scheme, which pops up every now and then, with huge losses for the victims. It seems to work fine in the beginning but once the taxman starts to investigate the scheme, things fall quickly apart.

Trading training and software are being promoted a lot worldwide. Obviously, it you want to try trading, you should make sure that you learn as much as possible before you start trading with large amounts of money. It is well known that there is no secret way of consistently making money or software which will automatically pick winning trades most of the time. Watch out for promoters who claim to have such solutions. How much would software which consistently pick winners be worth? It would of course be worth millions. Why would anyone sell it for two thousands or less?

The number of free property seminars skyrockets when property prices start to increase. Typically, these seminars either offer expensive weekend training or off-the-plan apartments. Or possible both but that has become illegal in several countries. Before paying big money for training, ask yourself if you have any guarantees that you will get more information than what you can get by buying two or three books about property investments. Unfortunately, it has often turned out that expensive 2-3 day property investment training includes less information than can be found in a book for a fraction of the price.

Be very careful with promotions of off-the-plan properties. If you want to be a successful property investor, less than ten percent of all properties are what we could call investor grade. Good off-the-plan project are typically sold out on the first day. Poor off-the-plan project are typically sold with rental guarantees. Unfortunately, this is added to the price paid by the buyer. Worse is that many off-the-plan projects are high-density buildings which are flooding many markets, creating an oversupply which often takes years to get rid of. But the promoters make a lot of money on each property they managed to sell. Unfortunately, the buyers often lose money.

Always be careful when you seem to get free advice from a promoter. It is seldom unbiased information, it may not be information, rather pure sales talk. In most cases, the promoter makes a commission if you buy so some of them may be tempted to stretch the truth. It is prudent to work out who pays the promoter. If he or she is getting paid on a commission basis, you should always get independent advice before paying or signing anything.

It can also be worth thinking about why someone who is supposed to be very successful or have excellent investments opportunities is looking for new clients. Surely the old clients would be coming back as well as tell their friends and relatives about such golden opportunities. Why would there be a need to try to find new clients? Why would such people send unsolicited emails and SMS messages to new people? Could the truth be so simple as that there are no happy old customers?

Is it worth paying 2000 for a weekend course

Weekend training courses have become a world-wide industry. You can find courses about almost anything but the most common are about property investing, trading and Internet business.

One of the best investments you can make is in yourself. You have probably heard it a lot of times, especially people who are selling training are fond using that phrase. But it is certainly true, learning new skills can make you more productive and it may also be possible to make more money as well. There is just one thing that you must be fully aware of, not all training is worth paying for.

Every now and then you can read horror stories about people who paid 2,000 or more to attend a property investment course. Typically the training is short, just two or three days. Sometimes it was also possible to buy off-the-plan units during the training. The problem was that the training was virtually worthless, the whole idea was to sell investment properties and get generous commissions from the developers. Unfortunately, for those who invested in the properties, the investments had typically been chosen because they got the promoter the biggest commission. For the investors, such properties often meant huge losses.

The training was aimed at beginners who did not know anything about property investments. In most cases, you could learn much more about property investments by buying a book for fraction of the price of the training course. Worst of all was that often the training was more of a sales pitch than eduction. The message was simple, property investing is an easy way of getting rich, just invest in our off-the-plan properties.

Since property is not as hot as it used to be and banks are not as generous with lending as before the financial crisis, real estate training has become less popular. But you can find the same kind of “training” in many other areas, for example trading and Internet business. There is plenty of money for those who hold seminars or promote them. Often, useless training are sold at free seminars, the people behind the free seminar typically gets 30% or so of the training fee.

Of course not all expensive training is poor but it can often be difficult to tell the difference between good and bad training courses. Poor trading courses are relatively easy to spot. There are no magic methods or software which will always pick winners. But there are plenty of people who are selling trading courses or software which are supposed to more or less automatically turn you into millionaire. All you need to do is to pay for the training, if you sign up today you get a generous discount, only 2,000 but only today, the ordinary price is much higher. The sales pitch is very simple, it is cool being a millionaire and everyone can become a successful trader. Even better, no experience is required, you just need two or three days of training.

Unfortunately, some people believe the hype and sign up for the training. You don’t need to know much about trading to know that there is no method which is guaranteed to be profitable. Virtually all studies show that most traders lose money, even if the market is going up. It is not impossible making money as a trader but that takes much more than a weekend training course or some magic software.

Even worse is that the expensive training is often worse than worthless. Since only people who know nothing about trading are likely to sign up, the training seldom contains much useful information. The training may just be a lot of talk about how easy it is making money, using some random examples as proof. A good book about trading for a fraction of the price often contains much more useful information.

Internet business is another popular target for scams. Running a profitable Internet business has many advantages but the competition is tough. It takes much more than a weekend training to build a successful Internet business. But you can find people who have simple solutions for you, you just pay for their magic software or training which will reveal a secret way of making money on the Internet. Once again, the price is very often two thousand dollars, euros or pounds, but only today and they throw in bonuses which are supposed to be worth tens of thousands. A fantastic bargain, or?

When it comes to Internet business, it is a little bit more difficult to spot scams but there are plenty of warning bells if you pay a little bit of attention. The best way is to try to understand what kind of people the presenter is targeting. Is it mostly about how cool it is to be a Internet millionaire, secret methods or magic software? Is the target audience beginners without any knowledge about Internet business?

Unfortunately, expensive Internet business training aimed at beginners can often do more harm than good. It takes time to build a business and software which after a few clicks creates a profitable web site does not exist. If you can sell ghost canes for $50,000 or hot dogs for $40 on ebay, you would get rich quickly but what is the likelihood of such things happening on a regular basis?

Another trick which is good to remember is that getting twice your money back if the course did not live up to expectations is generally a warning bell. Obviously, such a money back guarantee is not unconditional. Gilette may be reliable but for expensive training, you may easily find out that you will only get your money back if you can prove that the training is worthless. Something which may very well require a lot of time and money. And even if you can prove that the training is worthless, don’t be too surprised if you have trouble getting your money back.

Don’t be afraid of investing in yourself but don’t be naive and waste your money. It is always a good idea to start with a book or two to understand the basics. You can find plenty of information on the Internet for free, just make sure that it is not just a sales pitch disguised as information. Once you know the basics, you can much easier judge what training is worth paying for and what is just waste of time and money.

Property Investment in Melbourne – A Potential Financial Disaster

Property investments in Australia have, with a few exceptions, been very profitable. Real estate prices have kept on going up and up. But there has a few exceptions, sometimes the developers have become too ambitious and built far too much. Gold Coast is one recent example of this. But the biggest bubble may be Melbourne and a collapse could spell financial disaster for many investors.

Melbourne has just got new residential zones. It looks like the new zoning will make it even more important to invest in the right parts of Melbourne. Most of the attractive suburbs in the middle ring, the area 5 to 20 kilometers from the CBD, have banned high-rise buildings. Actually, many of the expensive suburbs have limited almost all of their areas to two-storey buildings or lower.

This means that high-rise buildings are mainly limited to CBD and the inner suburbs, within 5 kilometers of the CBD. In essence, exactly the places there high-rise buildings have been developed the last few years.

Developers in Australia, and especially in Melbourne, have found a very profitable game, develop high-rise buildings with plenty of apartments and sell them off-the-plan abroad. In order to maximize profits, many are cutting corners, building small low quality apartments. Small is sometimes an understatement, some units have become extremely small with bedrooms without windows (which strictly speaking are not allowed to be called bedrooms) and mini-kitchens in hallways.

Docklands and Southbank have been well known traps for investors with enormous numbers of high-rise buildings and more high-rise buildings are in the pipeline despite that vacancy rates are getting towards ten percent. But many of the inner suburbs are now heading down the same path with plenty of new high rise buildings coming.

In the good old days, boom-and-bust cycles did happen but once developers noticed that it became difficult to sell new apartments they stopped building and after a while the oversupply had disappeared. Now the game has changed, some large developers have realized that they can sell off-the-plan apartments overseas. Needless to say, a huge market like China is very difficult to saturate. This has lead to a building boom in Melbourne.

It is a pity that projects with small low quality units are not stopped now when inner Melbourne has enough with apartments. The authorities are happy, after all a construction boom creates jobs and boosts the economy. Soon inner Melbourne may have a huge surplus of apartments.

The building boom in inner Melbourne has been going on for a few years. So far, the growing population has managed to absorb most of the new apartments but lately rents have started to move downwards. And more apartments are coming so it could very well end badly for investors with units in inner Melbourne. Already many of the inner suburbs are dominated by investors, in some suburbs investors make up more 70% of the owners of units. Most of the areas are in the inner ring of Melbourne as well as CBD itself.

Remember that it is home owners that push prices upwards, not investors, so suburbs dominated by investors typically perform below average. With gross rental yields just above 4% and sinking, you need a handsome price growth to justify investing in a unit in Melbourne.

But price growth seems unlikely given the huge number of units being developed. More likely is that prices and rents will start to decrease due to huge oversupply of units. This is nothing unusual, the same thing has happened on the Gold Coast and the Sunshine Coast. Developers simply built too much and the market more less collapsed.

But things could get much worse in Melbourne. Developers are still building, they can sell units to overseas buyers, for example in China. This means that the oversupply in Melbourne could very well become enormous, especially in inner Melbourne.

A prudent investors should be very careful with units in Melbourne, and avoiding units in inner Melbourne. If you don’t own any units in Melbourne, now is not the time to get started, even if you can get a nice discount. The risk of chronic oversupply is simply far too high.

Australian Property Market Status 2014

The Australian property has been very hot the lately, mainly thanks to low interest rates. Sydney has been the star performer, prices have increased 21 percent over the last 18 months. But the last few weeks, the prices have started to stall and even fall in some places. Is it just a temporary pause or has the market peaked?

Australians have been very fond of property investments and prices are high, in many places very high. That property prices are expensive in the cities is not much of the surprise. Outside the cities, house prices used to be low but that started to change just after the turn of the century. Prices in rural Australia started to outpace prices in the cities. In some places this was due to the mining boom but for whatever reason, prices in virtually all of Australia started to increase significantly. Ironically, there was just one exception, Sydney. Property prices in Sydney have increased pretty much in line with inflation since 2003, except for the boom the last 18 months. The reason for this is that real estate in Sydney had become too expensive in 2003, the market cooled because fewer people could afford to buy a property in Sydney. Even with the 21 percent increase during the last 18 months, the average house price in Sydney has only increased with a little bit over 3% per year over the last ten years. In other words, not a very exciting return and rental yields are low, and getting even worse since prices are increasing much faster than rents.

Despite the recent increase in Sydney, the poor ROI the last ten years and the poor rental yields, Sydney still looks like one of the safest places for property investors. Prices are high but so is demand, developers have plenty of projects coming up but it looks much worse in Melbourne and Brisbane, also Perth is looking worse than Sydney.

Melbourne has been a big surprise, property prices have gone up ten percent over the last 12 months and have now reached the previous peak set back in 2010. Why prices in Melbourne have gone up is difficult to explain. One reason could be the enormous amount of off-the-plan units sold to people overseas who are fooled paying well above market prices, creating an artificial price increase on paper. Another reason can be that the current rules for self-managed super funds make it possible to lower your tax by lending your SMSF money which might explain the increased buying by SMSFs. Quite clearly, it is not first time buyers that are pushing up the prices. On the contrary, they are being squeezed out of the market. There are also rumours that financial advisers are being offered generous commissions by some developers to persuade non-savvy investors to buy expensive off-the-plan units.

On the whole, central Melbourne has been a no-go area for prudent investors the last few years and things don’t seem to get any better in the near future. Prices and rents have been surprisingly resistant given the huge amount of units that has been flooding the market in central Melbourne. There are a few explanations that help to understand this paradox, a lot of the units have been sold overseas at inflated prices, many of the developers have deep pockets and have refused to drop prices and the population has been growing strongly the last couple of years. But unfortunately, developers have stepped up the pace and are now building almost everywhere in Melbourne. Docklands and Southbank are well known traps but extreme care is recommended for the whole of Melbourne. Unless you really know what you are doing, stay out of Melbourne. There are some signs that reality is starting to catch up, prices have stalled and in some cases dropped slightly lately. Rents have also started to drop slightly in some areas. It is too early to say if this is the beginning of a painful adjustment to reality or if it is just a temporary slowdown.

Brisbane is being recommended by many property experts and gurus, price growth has not been as strong as in Sydney and Melbourne the last 18 months and rental yields are higher than in any other major city. For houses, gross rental yields are a little bit below 5% while for units the yield is a little bit above 5%. But there are certainly big risks for beginners in Brisbane. Developers are building a lot in central Brisbane and much more is in the pipeline. Central Brisbane has been a horrible place for property investors and given all the upcoming developments, it looks like things are getting even worse. Given that Brisbane is not growing as quickly as Melbourne, central Brisbane may actually be even worse than central Melbourne for property investors. It is also worth pointing out that the Gold Coast is not a good place for property investors. Developers built far too much some years ago, things have improved since then but once again developers have started to build and oversupply is quite clearly becoming a problem. The Sunshine Coast is slightly better, after years of oversupply things are looking a little bit better, but caution is recommended.

Perth has delivered fantastic gains for property investors the last 12 years but lately the market has cooled down. Actually, it has come to a standstill. Also in central Perth, developers are building far too much, at the same time as the local economy is slowing down. In essence, investors should be extremely careful with property investments in central Perth. Prices are high but rental demand is weak, the result is that rental yields are going down, towards Sydney levels which are the second lowest in Australia, only Melbourne is worse. On the whole, unless you already know the Perth market inside out, stay away.

Adelaide has been a little bit of backwater for many years. The property market is likely to stay cool but at least the developers are not building as much as in the other major capital cities. Rental yields are not great but look far more stable as in the other major cities. The main drawback with Adelaide is that the city is not growing much. Canberra looks risky at the moment. The government has announced severe budget cuts, which generally translates to job losses in Canberra. Looking at the last ten years, Canberra has not been a great place for property investors and it does not look like things are going to change for the better in the near future.

Rural Australia is best avoided, unless you know what you are doing. As mentioned earlier, for whatever reason, property prices outside the big cities have gone up a lot the last ten years. But rental demand is difficult to predict and prices could drop if the economy slows down.

Given the relatively gloomy outlook, what should a property investor do? Firstly, remember that sooner or later interest rates will go up. And this is likely to happen long before rents start to go up. Make sure that you are not too heavily geared, it may be prudent to pay down on your debt before buying new investment properties. Where should you buy? Quite clearly it is best to avoid the CBDs of Melbourne, Brisbane and Perth. Most investors should also be careful with Sydney CBD. Melbourne is best avoided all together, new projects are being started almost everywhere in Melbourne. Some parts of Brisbane could be of interest. On the whole, Sydney is the safest choice, just make your homework before you invest. Prices are high, rental yields are low but at least demand is stable.