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  1. #131
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    Quote Originally Posted by witherwings View Post
    If you read the article, it doesn't compare property to a Ponzi scheme, it compares the practice of parents lending their children money to buy properties that they can't afford, and then suffering when the children have to "foreclose".

    They describe this as a classic Ponzi scheme but it is nothing like a Ponzi scheme.

    We are really going off into tangent territory here, but a Ponzi scheme is when a fund manager sets up an investment vehicle that promises investors a particular return, but instead of paying out the returns out of actual returns, the manager pays investors returns out of new investors' capital proceeds.

    I can't see any parallel between this sort of scheme and parents lending their kids money to buy property. I also can't see how anyone could describe "property as a Ponzi scheme".

    Anyway, back to the topic at hand...
    Ponzi in this regard - pyramid schemes / bubbles...
    "Minsky developed a theory called the ‘financial instability hypothesis,’ theorising that financial markets are not very efficient and continually misallocate substantial amounts of credit into asset markets, creating pyramid schemes or bubbles (Minsky called them Ponzi schemes, named after the fraudster Charles Ponzi).

    He defined three types of finance: hedge, speculative and Ponzi. Hedge finance: income flows from an asset are sufficient to pay down both principal and interest on the debt used to finance the asset purchase, and asset prices are based upon fundamental or intrinsic value. Speculative finance: income flows cover only interest repayments, not loan principal, requiring debt to be continually rolled over from the current time period to the next. Businesses or individuals may experience financial stress, but it is not widespread and fundamentals valuations are kept largely in check. Ponzi finance: income flows cover neither principal nor interest repayments. This leaves asset owners completely reliant upon escalating capital values in order to realize substantial capital gains at sale to meet the cost of principal and interest. Prices are completely delinked from fundamental valuations at this stage, resulting in an asset bubble.

    Simply put, if gross rental income pays down neither interest nor principal repayments of mortgage debt on aggregate (including other property-related costs) and is sustained over a number of years, a housing bubble exists by this definition. Even better, there is plenty of evidence to show that the residential property market is currently experiencing said bubble."

    Have you really never heard anyone compare the Australian housing bubble to a Ponzi scheme?

  2. #132
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    Quote Originally Posted by Freyamum View Post

    Have you really never heard anyone compare the Australian housing bubble to a Ponzi scheme?
    Never.

  3. #133
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    Quote Originally Posted by witherwings View Post
    If it's negatively geared, it won't be "highly taxed". It won't be taxed at all. But you won't get a tax benefit. You will just be taxed as if you didn't have it in the first place, unless you have other properties that are positively geared, or other investment income such as dividends or trust distributions - in which case the negatively geared property will reduce your taxable income overall.

    As for risky, I think this largely depends on your personal risk profile and what you consider to be risky. For me personally, since my properties are positively geared, and located in areas that will always be in high demand, and I haven't borrowed more than 80% LVR, I don't think this type of investment is "very" risky. Certainly far less risky than other asset classes.
    What I meant was they could change the capital gains tax from 50% to say 70%.

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    Default Housing / negative gearing / politicians

    Quote Originally Posted by Rose&Aurelia&Hannah View Post
    Never.
    Me neither.

    No doubt there are dodgy deals that go in within the property and building industry, but it's like comparing apples and pears

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  6. #135
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    Quote Originally Posted by Rose&Aurelia&Hannah View Post
    Never.
    Me neither - and I've been in the industry for 25 years

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  8. #136
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    I most certainly have

    but mostly in reference to those "you dont need cash, use the equity in your own home" schemes.

    they have snake-oil salesmen who convince Mum-and-Dad type investors that they dont need extra cash flow, that if they have equity int heir own home, they can use that equity to borrow 110% (or usually more) and buy an investment property.

    the rent, and the additional borrowings, pay the interest (interest only loan) and they rely on the property price increasing before the additional borrowings are used up.

    BUT if anything goes wrong (damage, vacancies, rising interest rate, lower rental rates etc) the people can lose not only the investment but their home that they used as security.

    It basically is a ponzi scheme - and they still get advertised from time to time

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    Quote Originally Posted by Freyamum View Post
    Ponzi in this regard - pyramid schemes / bubbles...
    "Minsky developed a theory called the ‘financial instability hypothesis,’ theorising that financial markets are not very efficient and continually misallocate substantial amounts of credit into asset markets, creating pyramid schemes or bubbles (Minsky called them Ponzi schemes, named after the fraudster Charles Ponzi).

    He defined three types of finance: hedge, speculative and Ponzi. Hedge finance: income flows from an asset are sufficient to pay down both principal and interest on the debt used to finance the asset purchase, and asset prices are based upon fundamental or intrinsic value. Speculative finance: income flows cover only interest repayments, not loan principal, requiring debt to be continually rolled over from the current time period to the next. Businesses or individuals may experience financial stress, but it is not widespread and fundamentals valuations are kept largely in check. Ponzi finance: income flows cover neither principal nor interest repayments. This leaves asset owners completely reliant upon escalating capital values in order to realize substantial capital gains at sale to meet the cost of principal and interest. Prices are completely delinked from fundamental valuations at this stage, resulting in an asset bubble.

    Simply put, if gross rental income pays down neither interest nor principal repayments of mortgage debt on aggregate (including other property-related costs) and is sustained over a number of years, a housing bubble exists by this definition. Even better, there is plenty of evidence to show that the residential property market is currently experiencing said bubble."

    Have you really never heard anyone compare the Australian housing bubble to a Ponzi scheme?
    No I have not. I haven't heard of "minsky's financial instability hypothesis" before you posted it here. I don't believe that just because someone coins a theory as being a Ponzi scheme, it automatically makes it a Ponzi scheme. Maybe I'm just too old school when it comes to financial and economic theory, because when I think of Ponzi, I think of it in the "classic" sense, not in the sense that elements of the scheme can be applied to various theories and financial models.

    The whole point of Ponzi is to scam investors out of their money but promising them certain returns and never paying them back their capital investment. Many investors have lost their livelihoods and their lives because of these schemes (scams) and I just think it's inappropriate to call "property a Ponzi scheme", particularly as neither the article you posted or the extract from the "financial instability hypothesis" say that property is a Ponzi scheme - they only refer to a certain type of finance in both cases.

    Maybe in USA before the GFC you could say that this theory was true, but not in Australia where our banking system is tightly regulated and lending criteria is stringent, with LVRs limited to 80%.

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    Quote Originally Posted by witherwings View Post
    No I have not. I haven't heard of "minsky's financial instability hypothesis" before you posted it here. I don't believe that just because someone coins a theory as being a Ponzi scheme, it automatically makes it a Ponzi scheme. Maybe I'm just too old school when it comes to financial and economic theory, because when I think of Ponzi, I think of it in the "classic" sense, not in the sense that elements of the scheme can be applied to various theories and financial models.

    The whole point of Ponzi is to scam investors out of their money but promising them certain returns and never paying them back their capital investment. Many investors have lost their livelihoods and their lives because of these schemes (scams) and I just think it's inappropriate to call "property a Ponzi scheme", particularly as neither the article you posted or the extract from the "financial instability hypothesis" say that property is a Ponzi scheme - they only refer to a certain type of finance in both cases.

    Maybe in USA before the GFC you could say that this theory was true, but not in Australia where our banking system is tightly regulated and lending criteria is stringent, with LVRs limited to 80%.
    I think you are taking the Ponzi concept too literally. It's not a comparison I've personally come up with - do a quick google on Australian property / housing bubble and Ponzi. I don't think the comparison is to suggest that people who sell property are fraudulent rather the nature of housing as an overpriced asset that relies on further investors to keep pushing prices up. Tbh I've read that comparison soooooo many times I wasn't intending to offend any property investors - I've many friends who own multiple properties. But I do feel that speculative property investment that is just chasing capital gains is a bit like a pyramid scheme. If I buy a property and don't rent it out or rent falls way short of covering costs and then sell it at a profit I need another investor to pay more and so on... The property is changing hands and increasing in price based on nothing. Housing is the only thing I can think of that appreciates the older it gets! It's just a very odd notion to me. I buy a car and the next year the value has dropped by what 20-30%? Buy a house and it goes up in "value". Bonkers!
    Very interesting thread though.
    So surprised so many people are supportive of NG and generally seem happy with the property market in Aus. I thought labor a shoe in considering some of the Libs comments but probably me that's out of touch

  11. #139
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    Comparing a house purchase to a car is very odd. Cars deappreciate in value very quickly. Houses/land appreciate value slowly, as in generationally.

    Most people are supportive of NG for 1-3 properties. Not for multiples. This is because most house investors are mum/dad or people preparing for retirement. They aren't quick income earners but rather slow and steady assets.

    Yes- if you purchase a property with minimal deposit and if the market tanks then you are stuffed. But if you are sensible and plan ahead for the ups& downs then property is a good long term investment. This is not in any way a ponzi scheme.

    If people choose to over extend themselves or risk 'flipping' houses then that is risky. You can win or lose large amounts very quickly.

    I honestly don't see how long term property investment is anything like a ponzi scheme.

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  13. #140
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    Also properly prices don't change because of nothing. They change because of increased people, new train lines or infrastructure, mining booms/busts, big companies moving in or out etc. But slowly OVER long periods of time land values generally always increase even if they suddenly drop in between.

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