April 2008 Newsletter
Welcome to the McCarthy Group
eNewsletter
It’s all about Attitude!
As we ended the first quarter of 2008 we were delighted to host over
400 clients and friends of the McCarthy Group family to our celebratory
“Dinner with Attitude” at the Star City ballroom in Sydney.
The occasion marked the 9th birthday of McCarthy Group, but what struck
me the most about the evening was the feeling that my long-dreamed goal
of creating a family of like-minded investors united in the common goal
of building their family assets is steadily becoming a reality.
In discussions through the evening we heard wonderful ‘case studies of
success’* that makes it all worthwhile, and with the growing strain on
the property rental market, it feels good that collectively we are
doing something about it, and securing our futures along the way.
*Some of these were recorded during the evening, and will appear as
“Testimonials” on our website www.mccarthygroup.com.au
The absolute highlight was the riveting and entertaining speech of our
guest speaker, Justin Herald, successful businessman, speaker, and
author of “Would You Like Attitude With That?” Between the ages of 25
(when he had just $1.25 to his name) and 31 (when he was able to
retire), Justin’s simple philosophy was, and still is, that we all have
the potential to make it in life – we just have to believe in
ourselves, and have the right attitude.
I know that Justin’s message struck a chord with all of our guests, as
so many of you have done just that. McCarthy Group’s client base (or
“family of investors” as it seems to be fast becoming) is heavily
weighted towards everyday working Australians who had the opportunity
to make a property investment decision, weighed it up, and dived in. It
is the Attitude that has made the difference for so many of us, and
aside from the hilarious moments in his speech, Justin’s message hit
home in a way that I am sure made many people simply feel good in terms
of saying to themselves, “Yeah, I know what you mean by Attitude! That
reminds me a bit about myself”.
The economic fundamentals in Australia are
sound
In times of uncertainty it is always good to reflect on the
fundamentals that are driving our economy and that will have the most
influence on our prospects in the year ahead.
-
Our proximity to the growth engines of China and India and the hunger for raw materials means that we have a solid under-pinning to our
exports. Even if the business and consumer economy in China were to slow, there is still almost endless demand in the form of government
infrastructure investment that will call for our resources.
- Employment continues to hold up strongly, with unemployment at historic lows of under 4%.
- The migration to Australia continues unabated – which brings with it the demand for new accommodation, as well as additional people to drive GDP.
- Our government system is strong and stable – and witness the positive reception to Kevin Rudd on his world tour that underlines both his own political skill as well as the respect Australia commands on the world
stage.
- Our Reserve Bank has shown prudent management of the inflation risk,and despite the tightness of the situation for so many Australians, a conservative approach has meant that the reins have been held tightly with one positive spin-off being the strength of the Australian Dollar(unless you are an exporter).
- On a cautionary note, business and consumer optimism has dipped this year, but that is understandable given the events on the world stage,and the belt-tightening interest rates hike at home that are beginning to bite.
Rentals forecast to rise 50% in next 4 years*
The Australian Property Monitors March quarterly report has found that
rentals in capital cities have increased by double digits in the past
12 months, with the scary (for renters) prediction that rentals could
increase by up to 50% over the next 4 years due to a shortage in
housing. We are not surprised.
We are seeing a decline in the number of houses offered for sale, a
steady increase in interest rates that is simply pushing the prospects
of home ownership away from more and more Australians, and continuing
growth in the numbers of people migrating to this country and looking
for a home in which to live. Not to mention the ongoing domestic demand
due to normal social demographic forces.
What’s the solution? In an effort to address the estimated 150 000 home
backlog, that grows by approximately 30 000 per year, the government
has announced plans to support the construction of 30 000 lower-priced
homes to assist those hardest hit by the current shortage. Housing
minister Tanya Plibersek also confirmed that there was no likelihood of
negative gearing being withdrawn.
We are sympathetic to the plight of so many people who are experiencing
the full impact of the term “Housing Stress”. However, instead of doing
nothing about it, it is true to say that, collectively, investment
property owners are contributing to the solution and deserve the
capital and rental returns that have resulted.
* Source: Australian Property Monitors
Interest rates on hold
Homeowners and renters alike will have breathed a collective sigh of
relief at the news that the Reserve Bank of Australia did not increase
the official bank rate at their April meeting. However, it is being
said in some circles that the actions of the commercial banks in
progressively increasing lending rates over and above the official
increases is doing part of the RBA’s job for it in terms of curbing
inflationary trends.
Be prepared as well for the scenario that has emerged in the UK, where
official reductions in the prime lending rate have not been followed by
the banks. As for the net result, you will see our domestic banks
announce profits of billions of dollars over the next few weeks. It
seems that they win in good times, and win even more in uncertain
times! That’s the price we pay for leverage.
Opes Prime
Spare a thought for the thousands of wealthy investors (including
companies) drawn in by the lure of Opes Prime and now trapped in its
financial wreckage. The numbers are impressive; $1.5 billion of shares
invested through Opes Prime; $1.1 billion owed to financial
institutions, including $650 million to ANZ Bank, who are taking a
battering as a result.
It seems there is little sympathy for investors who participated in the
high risk model that was Opes Prime. In essence, borrowing to invest in
shares outside the ASX100, using financial instruments exposed to
margin calls, and, amazingly, an agreement that despite purchasing the
share assets, that share ownership did not subsequently vest with the
investor.
An analogy would be borrowing to invest in risky property, outside the
housing areas that banks would comfortably lend into, where property
title would not transfer to the purchaser, and where the sale of the
asset could be triggered by a fall in valuations of properties in
surrounding areas. At which point all assets are returned to the bank!
Amidst all the court action now underway, here is something worth
remembering courtesy of Graham Bradley, Chairman of Stockland, as
reported in the Sydney Morning Herald, April 5/6 2008:
“You get education when you read the fine print, experience when you
don’t.”
McCarthy Group Family
Portrait
This is a reminder to those who were at our ‘Attitude’ dinner, and an
invitation to those who weren’t, to send us some of your favourite
images as either a family portrait or a special shot of your investment
property. We are going to assemble them all into one huge collage that
will form an image, when completed, of a typical “lifestyle” scene of
the type that we all aspire to retire into.
Please email your image(s) to events@mccarthygroup.com.au
In conclusion
The Financial Review Market Quarterly dated 1 April 2008 references the
“Worst Quarter in 20 Years” on the financial and stock markets. The
feedback from our family of investors at our celebratory “Attitude”
dinner did not echo that sentiment. We at McCarthy Group like to
believe, even in the most uncertain times that we have seen in recent
memory, that our investment property model is working well for those of
us who had the right Attitude to buy into it.
Happy investing,
Stephen McCarthy
CEO
