On house price growth in Australia

Couple of weekends ago I met an old friend who has an investment portfolio of three houses in Melbourne, Australia. Curiously, I asked him about his thought process behind investing in three houses. Specifically, what did he see in those three houses that made him willing to borrow x times his annual income to buy them. His reply – potential house price growth.

That sounded too abstract, so I asked him to explain. He started with the location of those houses and the amenities around them (i.e., school, transport, shops, cafes, parks, etc.). He added how close they were from the central business district including commute time by various modes of transport. And on he went about those houses and their neighbourhood.

After listening for a while, I asked him how does all that lead into potential house price growth. That was followed by silence, which I broke by saying potential house price growth is simply how much more another person in the future is willing to borrow to buy those same houses than him. To borrow a phrase from Howard Marks, he is betting (or waiting) on a bigger fool.

PS - we are still friends and felt our friendship grew stronger with that thoughtful disagreement. 

On negative interest rates in Europe

Creating the Euro created a common currency but not a common language. So when I found myself at a friend’s wedding banquet in Champagne, France, I felt like a foreigner in need of a bureau de change. For all my tongue carried was loose change consisting of Bonjour, Bonsoir, Merci and Bon appetit.

Fortunately, a bridesmaid came to my rescue. She was not only a good translator but also an excellent dinner companion. Someone who can share views on a variety of topics over fine food and wine. As I thanked her for taking pity on me, I added, that is exactly how I feel about savers facing negative interest rates in Europe (clearly, I didn’t drink enough champagne!).

Curiously, she asked me to explain negative interest rates. The real question was how do you explain this to someone who believes in "a penny saved is penny earned". So I improvised – it means paying the bank to keep your money, much like purchasing a wallet to keep your money. She argued, she hardly keeps any money in her handbag. I remarked, so do banks in their vaults.

PS – I didn't bring any souvenir but I left Europe with €50 bill and some loose change in wallet.