RBA must choose between housing and currency bubbles: Computerisation of land records continues in six districts

Mar 25 2015 at 1:02 PM | Updated Mar 25 2015 at 1:44 PM RBA must choose between housing and currency bubbles The RBA has introduced unprecedented monetary policy settings in the form of the cheapest borrowing rates in history to put downward pressure on the Aussie dollar. Rob Homer by Christopher Joye The Reserve Bank of Australia's governor Glenn Stevens is trying to unravel a Gordian knot created by his institution's inconsistencies. The RBA is blowing the mother of all housing bubbles to deflate an overvalued exchange rate. It is replacing one asset pricing conundrum with another, arguably more dangerous, one. The RBA has introduced unprecedented monetary policy settings in the form of the cheapest borrowing rates in history to put downward pressure on the Aussie dollar. Relative to both the Greenback and our key trading partners' currencies, the exchange rate is way above the RBA's estimate of fair value, which is around US70¢. When the RBA cut rates in February it judged the local housing market was cooling. Much like it thought rate cuts in 2013 would not fuel an unsustainable housing boom that would force regulators to introduce macro-prudential rules to slow credit growth running at three times the rate of incomes. On all these counts the RBA's forecasts have proven badly wrong. It has probably been blindsided by housing dynamics over the last couple of years because it has never confronted these conditions before. Back in 1991 the value of housing debt divided by disposable household incomes was just 35 per cent. Today it is over 140 per cent - beyond any previous peak. And climbing every day. Australia has never had to contend with home loan rates below 4.3 per cent. And home buyers have never seen more expensive house prices - either in absolute terms or compared to their incomes. The bad news for the RBA is that the asset-class it has consistently mis-called is heating up again with national house prices inflating at a circa 12 per cent annualised clip over the three months to 25 March. In Sydney and Melbourne auction clearance rates are the strongest we've seen in years. With so much more leverage in the household sector, small changes in interest rates can have a bigger impact on participants' behaviour. The exact size of this sensitivity is, however, hard for the RBA to anticipate because it is in unchartered waters - it has no "base-line" against which to compare current circumstances. It has never had to deal with a cash rate as low as 2.25 per cent... The RBA has been quite explicit in admitting that it is already an active combatant in the global "currency wars", repeatedly declaring that it is battling the overvalued Aussie dollar by crushing interest rates. The problem is that this is a very blunt tool that is inflicting far-reaching collateral damage by inflating asset price bubbles across interest rate elastic areas of the economy and forcing retirees to assume untenable capital risks that could decimate their future living standards. And it is not clear that all borrowers - and especially the record 40 per cent share taking out "interest-only" home loans - will be able to service the repayments required in an inflationary world. We're talking mortgage rates back above 8 per cent, which is only a touch higher than their average level since 1993. Lean on exchange rate So one crucial question is why the RBA is not using its formidable balance-sheet powers to lean against, or actively sell, the exchange rate as it has done on occasion in the past. The RBA's reluctance to directly tackle these distortions is ironic given its two most senior leaders - Glenn Stevens and Phil Lowe - made their policy bones advocating that central banks should "lean against" asset prices that were far removed from fundamental values if they threatened the economy's overall well-being. There is no doubt the Aussie dollar falls into this camp. Indeed, that has been the RBA's official assessment. Interestingly, Lowe and Stevens made this case in the context of their critique of the US Federal Reserve, which they suggested contributed to a house price bubble by leaving rates too low for too long prior to 2007. The worry is that on any credible measure the Aussie house price bubble today is much bigger than its US equivalent prior to the global financial crisis. Australia does not need cheaper money. In fact, it would be quite detrimental to long-term productivity. The lesson from the GFC was meant to be that we needed to take on less leverage and redirect scarce resources away from overvalued banks and homes into real-world businesses that make things that actually contribute positively to productivity. In Australia at least we've done the opposite. Our banks and homes have never been dearer while households have never been more indebted. Of course the currency war itself is an artefact of central bank interference in markets in a race to the bottom to furnish voters with ever-cheaper money. Here I would pay heed to the RBA's Guy Debelle, who in October last year said he found it "somewhat surprising that the market (in aggregate at least) is willing to accept the central banks at their word and not think so much for themselves". Put differently, the central bankers' current BS is not likely to last. There will eventually be a reckoning when freely functioning financial markets reassert themselves at radically different prices. Nobody knows when, but it will happen. And you've been warned. ======================== By Our Correspondent Published: April 26, 2015 Abdul Karim Khan had broached the subject when he asked a question in the house. STOCK IMAGE PESHAWAR: Computerisation of land records has been completed in Mardan while the project is currently in progress in six districts of the province, documents shared with the Khyber-Pakhtunkhwa Assembly earlier this week have revealed. Qaumi Watan Party MPA Abdul Karim Khan had broached the subject when he asked a question in the house. According to the documents shared with the house, the project was initiated under the budget for 2013-2014. Seven districts in K-P – Mardan, Peshawar, Buner, Kohat, Abbottabad, Bannu and DI Khan – were selected for the first phase of computerisation. The document stated land records of Mardan district have been digitised while the project was at different phases in other districts. The land record computerisation project in seven districts had also been in K-P’s budget for 2014-2015, added the document. Going digital Several types of documentation are needed to digitise land records, all of which need to eventually be computerised. Documents on the computerisation of mauza-wise (mauza is vernacular for estate) scanning of records on rights and data entry in Peshawar showed 191 register haqadaran zameens (RHZ), a land registration process which gives the details of the landowner, cultivator, land and soil, according to the country’s land administration system. Of these, 190 have been computerised. Out of 191 mutations (records of the transfer of title from one person to another), about 176 have been completed. Furthermore, out of 345 RHZs of Abbottabad, about 258 RHZs were completed. Only nine mutations out of 345 have been completed. In Mardan, 176 RHZs and mutations were completed. In DI Khan, 340 out of 390 RHZs have been completed while a similar number of mutations are yet to be computerised. Similarly, in Bannu, 209 out of 249 RHZs have been computerised. Data entry The data entry status for all seven districts revealed out of 191 mauzas in Peshawar, data entry had been completed for 190 while the entry of the last mauza was currently in progress. Data entry for 248 mauzas has been completed in Abbottabad. Moreover, 314, 112, 57 and 14 mauzas have been entered in DI Khan, Bannu, Kohat and Buner. In Mardan, 176 mauzas have been computerised, it added. In addition, farad badar (the error correction process) and mutation entries of 106 mauzas in Mardan, 29 mauzas in Katlang and 41 mauzas in Takht Bhai have also been completed. Management of records According to the K-P finance department white paper for 2014-15 shared with the house, the government had prepared a project cycle of around Rs803 million for the seven districts. However, it was later revised to around Rs1.24 billion. The white paper stated the project would be extended to the remaining districts of the province from the next financial year and an estimated amount of Rs2.8 billion is likely to be allocated in this regard. Published in The Express Tribune, April 26th, 2015.