[LINK] Aussies rolling in dough, figures show

Adam Todd link at todd.inoz.com
Thu Oct 19 13:42:22 AEST 2006

Remember too, the statistics are slured.

The secret to all this "property" wealth is not owning property outright, 
but having huge mortgages.

These people with 40 - 130 properties aren't actually liquid.  If the 
lenders called in the debts most would be bankrupt within days.

Most of these people have "Interest Only" loans.  So on the $1 million 
property they are paying only the monthly interest and never actually 
paying any principal.

Now this is somewhat OK if property values INCREASE.  But like currency, 
values increase and decrease, all be it a lot slower.

Still right now, we're in a drop in property values. So people who 
purchased their investment interest only properties earlier this year for 
$800,000 are paying interest in an $800K loan for a property now worth only 
$720,000.  That's an $80,000 liability they can't cover if the debt is 
called in.

Unfortunately most people wear rose coloured glasses and don't balance the 
books to the finite degree.

I'd have thought this kind of borrowing would have ended in the 1990's when 
Big Business investors (who shall remain nameless) used borrowings as 
liquidity to borrow more.  The interest always gets you in the end.

The only time you want to have interest only loans is if you have the 
ability to pay out the ENTIRE loan in cash, but want to keep your cash 
handy and just pay the interest as a deductible cost.

I don't know too many of these 40+ property "magnates" that have cash to 
pay out on all loans.

At 12:03 PM 19/10/2006, Martin Barry wrote:
>$quoted_author = "Deus Ex Machina" ;
> >
> > Total private sector wealth hit $7,100 billion in the June quarter,
> > equating to $348,493 for every man, woman and child.
> >
> > The total wealth of Australians is up from $6,900 billion in the March
> > quarter, which equated to $337,049 a head.
>how are these figures in any way meaningful to the "average" australian?
>the reality is that the wealth growth is restricted to those who:
>a) owned shares in most anything but telstra
>b) owned property in high demand areas (think mosman and paddington, not
>    bankstown and mount druitt)
>c) leveraged their already significant wealth in business deals
>perhaps it should also be prefaced with a different perspective:
>"Australia's total household debt is currently approximately $650 billion,
>about $32,500 for every man, woman and child." [0]
>[0] http://dollarsandsense.com.au/BorrowingAndLending/australians_and_debt.asp
>Can't buy what I want because it's free.
>Can't be what they want because I'm me.
>"Corduroy" - Pearl Jam
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