Welcome to 2008
Happy New Year! May this be another memorable year for all our valued customers as you progress towards your goal of achieving financial independence through building family assets. US Subprime Impact Deepens The big news on the economic front is the continuing and unfolding impact of the subprime housing loans on the US economy and on financial institutions worldwide. There is no doubt that confidence in the financial sector has been shaken to the core, with banks being reluctant or unwilling to lend even to each other as they store their cash reserves. The losses due to bad mortgage loans are estimated at anywhere between US$150 billion (Ben Bernanke) and US$400 (Deutsche Bank)1, but the jury is still out on where this figure will finally end up. While the subprime crisis has already hit the financial sector, and while many US homeowners are about to feel the effect of re-priced mortgages, the slowdown in the construction industry is of further concern. With rising fuel prices, and a dramatic slump in consumer confidence, the fragile state of the American economy holds centre stage as 2008 gets underway. The impact on Australia has been fairly contained, with Centro being a recent casualty due to the extent of its re-financing needs at higher interest rates coupled with an anticipated slowdown in US retailing. What is clear is that credit in general will be harder to come by as financial institutions take preventive measures to shore themselves up during a period of global financial unease. Fortunately the incidence of poor quality mortgages granted in Australia has been extremely limited in comparison to the US. Outlook for Interest Rates The strength of the Australian economy has been under-pinned by the explosion of demand for resources, particularly from China. The outlook for the Australian economy is that it will remain strong, with GDP growth in the region of 3.5% (vs 4.4% est in 2007). The impact of interest rate hikes in 2007 coupled with the tightening of credit should serve to slow the recent increases in inflation, enabling the Reserve Bank of Australia to leave interest rates on hold at least through the early part of the year. Whether the RBA can maintain this strategy through 2008 remains to be seen. The move by NAB to lift its interest rates (followed by ANZ and CBA) is the first time in a decade where a financial institution has “uncoupled” itself from the RBA pattern. While this serves to partially do the RBA’s job for it, it is nonetheless a concern that homeowners are now exposed to mortgage cost increases on two fronts. And the new Treasurer, Mr Swan, is not happy about it either! Strong Returns for the Housing Market Australian property prices rose strongly through 2007, averaging more than 12 per cent in the year to November. However, the growth varied widely between capital markets, with Perth slowing and Sydney showing a modest gain of 8.23% compared to the 18.47% posted by Melbourne. The Queensland economy remains in top gear, fuelled by the demand for resources and the continuing influx of people in response to the strong employment conditions and lifestyle opportunities in that state. Unlike other states, building approvals in Queensland were up by almost 17% over the 18 months to June 2007. An extract from the REIA June 2007 Market Facts2 reveals the sustained power of the Queensland market, stating that, "From Cairns and Townsville to Brisbane and the Gold Coast, the health of the Queensland property market continues to be reflective of the State's robust economic position. North Queensland continues to be one of the standout performers of (the) residential property market. Since the June quarter 2006, Townsville has recorded an increase of 33.7% in its median house price to $374,250, as well as price growth of 12.6% to $269,000 for other dwellings. The Cairns market also experienced very good growth of 20.0% and 18.7% for houses and other dwellings respectively over the same period.” Townsville a Stand-out Performer The economic activity in Townsville is diverse and has been growing steadily at 12.4% for the past five years, making it a hotspot for both residential and commercial development. The region’s property market is set to strengthen further with the expected arrival in 2010 of a new Battalion, which will result in an extra 1,500 soldiers, support staff and their families. Add to this the solid commercial yields of between 7.5% and 9% and a strong construction sector that is undersupplying new residential dwellings, and the potential for strong growth is clear. With the strong tenancy demand, the resources boom, local construction industry growth and increasing household incomes, Townsville is poised for enormous development activity in the years to come. Capital growth of over 80% has been experienced in some quality properties purchased just two years ago. While it is unlikely that such exceptional growth rates can be replicated, the conditions of tight supply and robust demand will ensure that property values will continue to escalate well into the future. While the undersupply of housing relative to demand is a growing national trend, Townsville seems destined to one of the cities where the imbalance will be felt the hardest by prospective renters, which of course spells good news for both capital and rental returns for landlords. This is one market not to be missed in 2008. A Party With “Attitude” By now you will have received your invitation to our Dinner Party with Attitude as we celebrate our 9’th birthday. This fun-filled event at Star City is a night not to be missed, with the highlight being our star speaker, Justin Herald, the best-selling author of “Would You Like Attitude With That?” Justin is one of Australia’s most influential speakers and the author of six international best-selling books. In 1995 he began to build his multi-million-dollar empire from just $50! He has now turned his passion to helping others achieve their business and personal goals. His speeches are witty, entertaining and unique so make sure you don’t miss out. Our last event in Parramatta with Chris Anderson as guest speaker was a sell-out success, and places are filling fast for our “Dinner Party With Attitude”. So don’t miss out, and RSVP to Michelle and the McCarthy Group team on (02) 9687 3601, or email to events@mccarthygroup.com.au. Please let us know if you would like to bring a friend or colleague as limited places for guests are still available. See you there! Tax Tip As seasoned investors you will be aware that a core component of your investment returns are the contributions that come to you courtesy of the Australian Government. This is just a reminder to ensure that you have completed the necessary income tax variations to ensure that you are not missing out on this vital piece of the action. Our Christmas Cruise On Monday 24 December the Sydney-based members of the McCarthy Group team spent a great day out on Sydney Harbour reflecting on the year that was and looking forward to the year that will be. A highlight was a brief foray into Rushcutter’s Bay to see many of the Sydney to Hobart yachts in their final phase of preparation at the CYCA. The cruise brought the curtain down on what has been one of the most successful years ever for McCarthy Group, and I would like to take this opportunity to thank you most sincerely for the role that you played in our growth.
Please accept our very best wishes for the year ahead. Good investing, and many happy returns. Kind regards
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