17% interest rate of 1980s v/s current position

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by S. Natarajan

1980s we paid mortgage interest of 18% in india to HDFC. I thought it was huge percent.
When i looked at Aussie interest rate at the same time in 1989-90 it almost matched what we paid – in Australia it was 17% . But when i looked  at Property prices,  Av income in Australia was around 27,000 in 1989. Av mortgage was 71,,000.  Now Av mortgage is 650 ,000 .  Av. Income is 80 to 90 k. So income increased  3 times from 1989 to today. But av mortgage increased around 8 times.  But 17% interest in 1989 with 20 % deposit was roughly 3 times  more than current 6% interest rate for 20% deposit.  Interest rates  incressed in 1980s as inflation was running high because of oil production reduced and oil prices were artificially increased by Gulf cooperation Council. Later over the years Mortgage  rates started to come down because of raise in unemployment. Now also Covid handouts and opportunistic oil prices  because of Russian oil ban on account of Ukraine war, Govt opening massive immigration nos., all made not only inflation go skyhigh but also brought down standard of  living.  In 1980s house was considered for its utility of living in. Banks, financial advisors, real estate agents, accoutants changed the meaning of homes to investment vehicles. Govt policy of  tax free portion of capital gains on living in home and negative gearing signalled each family to concentrate on real estate portfolio rather than any productive investment.  The situation of high property prices and high rents, low property development  numbers and high mortgage interest rates, raising homelessness, mortgage stress, increasing defaults on interest payments, make Australia a problem nation among G20 nations.People  paying ever increasing mortgages feel house is not an asset but lifelong liability. we saw a spurt of selling of investment properties on losses.Add on to Australian economic problems is AUKUS treaty committing Australia for Trillions of dollars for currently non existent Nuclear Submarine building technology and infrastructure. These overall take Australia to precarious position. I think massive building projects using printing houses technology as experimented over last decade in many countries including trials in 2 council aress in Australia, will come in handy to balance the housing shortage.  The measues by parties like Greens forcing  on Govt for rental freezes and reduced capital gains concession of 50 % to 25% and changes in negative gearing concessions have gained momentum recently.Some argue $40 to %50 billion savings in budgetis  by  these two measures. Labour Govt is seriously considering.  it is a modern problem we face that RBA is wanting to see unemployment noumbers to increase and also want to see NO increase in salaries so that inflation reduces and interest rate can be decreased.

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