Paul Clitheroe

Money Magazine Australia - - CONTENTS - Paul Clitheroe is Money’s chair­man and chief com­men­ta­tor. He is also chair­man of the Aus­tralian gov­ern­ment’s Fi­nan­cial Lit­er­acy Board and a best-sell­ing au­thor.

Ihad a good chuckle re­cently when I was in­tro­duced at a con­fer­ence as an “in­dus­try vet­eran”. Feel­ing fit and healthy and full of vim and vigour at age 63, I pon­dered de­bat­ing the “vet­eran” de­scrip­tion but it is the truth – not only when I look in the mir­ror but in re­al­ity.

It is even more so when I look back to start­ing ipac in 1983 with my four won­der­ful part­ners, who are still dear friends. The reve­la­tions from the royal commission are pretty ugly but go back 35 years and the fi­nan­cial ser­vices in­dus­try was more like the wild west: zero li­cens­ing, man­aged funds with en­try fees of over 8% and undis­closed on­go­ing man­age­ment fees of over 3%, no con­sumer re­course for shock­ing advice ex­cept via our ex­pen­sive court sys­tem, mainly re­tirees dev­as­tated by the col­lapse of fund man­agers such as Es­tate Mort­gage, Telford Trust and Pyra­mid Build­ing So­ci­ety.

This is no ex­cuse for bad be­hav­iour to­day but be­ing an in­dus­try di­nosaur does also give me the ben­e­fit of liv­ing through a whole bunch of mar­ket cy­cles. Sure, nearly four decades is not a big deal in the long his­tory of money but I’ve seen a fair bit.

Apart from rogues and var­i­ous other char­ac­ters, I also watched with amaze­ment the sud­den share­mar­ket col­lapse of late 1987, with prices fall­ing well over 50%. I didn’t see that com­ing. But for those in­vestors who hung on, shares re­cov­ered with sur­pris­ing speed. It was the same in 2009 as the col­lapse of Lehman Brothers started the GFC. I knew not to sell but to see the col­lapse of blue-chip shares such as CBA, which went from over $60 to around $23, was quite amaz­ing. Of course, a few years later CBA was back above $60. The point here? We won’t pick the big down­turns but as they hap­pen we should not be sell­ers.

This takes me to prop­erty, our favourite topic. I’ve seen long, flat pe­ri­ods, huge rises and some big falls. My mort­gage hit 18.75% in early 1990 and prop­erty be­came un­saleable. What a time for buy­ers!

A pot­ted his­tory may in­ter­est you. Vicki and I bought a semi close to Syd­ney city in 1983 for $90,000. We lucked out and hit a huge up­turn, sell­ing for three times that price in 1987, and bought in the same area for $370,000. We took a loss on this one in 1993 when we bought a big­ger house in the same area for $503,000. This one sold well in 1997.

From there the cy­cle con­tin­ues. The house we bought in 1997 and sold in 2014 was OK. The num­bers be­tween pur­chase and sale look good. But add in in­fla­tion and ren­o­va­tion costs, plus stamp duty and sale costs, and the truth is it only kept pace with in­fla­tion over the 17 or so years. As so many of the age­ing baby boomers are do­ing, we down­sized to a sub­urb very close to the city a few years ago. Price is more an is­sue for our kids than us, as this will be our fi­nal home. We’ll see how that one goes. With pop­u­la­tion growth, I sus­pect it will do bet­ter than in­fla­tion.

To­day I am watch­ing the new “down” prop­erty cy­cle with in­ter­est. It is about time. I may not know much but I have learnt enough not to be a seller in this fall­ing mar­ket un­less I have to be. It is fine to sell if you are buy­ing some­thing else but in this cy­cle, which I think will get worse, I would not be buy­ing with­out sell­ing first and hav­ing a very strong let­ter guar­an­tee­ing my fi­nance.

The peo­ple I am most de­lighted for are first home buy­ers. It is about time they got a break. Sure, we are go­ing to see some pain. As the old say­ing goes, “You only see who is swim­ming naked when the tide goes out”. Sadly, some of those im­pacted will be quite in­no­cent vic­tims but the ag­gres­sively geared risk tak­ers may dis­cover the price of risk. Some lesser cap­i­talised de­vel­op­ers will go broke.

The long-term out­look for prop­erty is, as ever, all about sup­ply and de­mand. Here I am san­guine. Australia's pop­u­la­tion is pro­jected to be 35 mil­lion in the next 30 or so years. Both Syd­ney and Mel­bourne are pro­jected to have over 8 mil­lion peo­ple. Those able to buy in this down­turn are likely to see a con­tin­u­a­tion of the past. Wealth and pop­u­la­tion are grow­ing rapidly. This will drive the next up­turn in years to come.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.