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Catherines Chat

Wholistic Financial Solutions provides a lot of essential information and updates regarding the property investment industry. Check this page for the updates.

Australian housing not perceived as being in a bubble: US real estate industry boss

Monday, March 18, 2013

 

Australian house prices are high but they reflect the high cost of living, says Gary Thomas, president of the US National Realtors Association, who is currently visiting Australia.

Thomas says there is no perception among his constituency that Australian housing is in a bubble that may burst – a claim made by the likes of US economist Harry Dent and others.

The National Realtors Association is the largest trade association in the US, representing around one million US real estate agents.

 

“Australian property prices certainly are high relative to what we pay in the US, but it all depends on your average income,” Thomas tells Property Observer.
Thomas has more than 35 years’ experience in American real estate and has occupied numerous industry roles.
He operates real estate business Evergreen Realty, which has seven offices throughout Orange County, Southern California with a head office in Irvine and more than 7,000 estate agents on its books.
The most recent figures from US data provider CoreLogic showed that US home prices, including distressed sales, increased on a year-over-year basis by 9.7% in January 2013 compared to January 2012

Morgan says the US market is definitely improving with prices starting to inch up including in his home state of California and in Florida and Arizona, to name just a few.

 

“It’s kind of ironic that the recovery is occurring in the states the hardest hit,” he says.
In Southern California he says there is only 30 days’ worth of real estate inventory available to purchase at current sales rates – very low by historical standards.
Despite the lack of stock, house prices are not accelerating as they did in the boom years prior to the GFC, though they are rising at a more sustainable pace.

Among the reasons for this is that obtaining financing is still very hard with much stricter lending practices now in place.

“It’s like an inquisition” is how he describes lender inquiries into whether a borrower should receive mortgage approval.

 

By Larry Schlesinger

Thursday, 14 March 2013

Hobart vendors discounting the most to secure sales: RP Data

Wednesday, March 13, 2013

Hobart vendors are forced to offer the deepest discounts in order to secure sales, according to RP Data. Hobart houses are selling for an average of 11.9% less than the vendor's original price hopes, and units are selling for an average of 9.9% less.

These are significantly deeper discounts than the next most discounted capital, Brisbane, where house vendors offered discounts of 7.9% and unit vendors sold at 6% less than their original price hopes for the week ending February 24.

Description: rpfeb26

The rate of vendor discounting is the average percentage difference between the original listing price and the final selling price.

The statistics are calculated across results received by RP Data over the past week and include properties transacted over the past four weeks.

The data is based on private treaty sales only and records without a valid sale price have been excluded from the vendor discount analysis. The analysis also excludes results where there are less than 10 observations.

 

By Cassidy Knowlton
Tuesday, 26 February 2013

Narrowing Down My Property Focus

Thursday, March 07, 2013

My property research continues.....

I have been searching high and low for the best opportunities Australia wide.  For various reasons, but mainly the continuing economic stimulus from the mining sector and rent yields I have narrowed my focus to Qld.  I will revisit WA in the near future.

So narrowing down options in Qld - I have been looking for options other than the much talked about area of Gladstone.  I keep coming back to Mackay.  As you may know, Gladstone has seen massive growth over the last year or so.  Mackay on the other hand has not experienced such a large growth.  When looking for opportunities, I am assessing many things, but one stand out factor is increasing rent demand without a similar increase in property values.  Gladstone saw this happen prior to and in the early phases of it's "boom".  Mackay is seeing this happening now.  In other words, as more people move to the area, more accommodation is required.  If there is an accommodation shortage then the rents increase.  As rents increase - rent yields increase.  Then property prices increase as more investors are attracted to invest for yield and renters buy instead of paying large rents.  Rental demand and rental yields increasing often proceed a property price rise. This is what happened in Gladstone and is what is happening now in Mackay.

 

Further, the well known "ripple" effect. As one area, such as Gladstone increases and becomes out of reach of many buyers and investors, the surrounding areas start to look more and more attractive.  This is another factor indicating Mackay as a high potential investment area. However, for those who prefer to be closer to the CBD, I am closely examining growing areas within 30 mins of Brisbane.

 

So where to from here....

 

If I was the traditional "sales" person I would be shoving opportunities down your throat by now.  But because I am a property advisor, coach, Accountant and all that other gumph I am not yet ready to do that.  So please be patient.

I have a field trip planned to Mackay and Brisbane in a few weeks.  I would prefer to see the areas and properties first hand.  I will be continuing my research until then and will have some definite options out to you as soon as I return with first hand, on the ground, knowledge of the areas, the estates, the developers, and hence the opportunities. 

If you would like to view potential properties prior to this, please let me know and we can catch up to discuss.

Bumper Property Growth in 2013

Monday, March 04, 2013
Experts are predicting bumper growth for property in 2013

Some of the key trends supporting this potential growth are;

  • Australians have been saving more after the scare of the GFC!  In fact, 68% of people are ahead on their mortgage payments and credit card debt is historically low.In other words, Aussie’s are being smarter financially…and this means they have more money to invest in property.
  • ‘China’s growth predictions are of a whopping 8% growth this year.  This will have a very positive impact on the Australian economy.
  • There is an implosion of cash from SMSF’s (Self-Managed Super Funds) are flooding into the real estate market…as more investors choose to invest in property directly through their super.
  • The share market is showing signs of entering into another ‘bull run’ which will greatly enhance people’s wealth and their ‘confidence’ to invest in property.
  • The finalisation of the federal election will give investors more ‘certainty’
  • Interest rates are at a historic low making it easier for first home buyers & investors to get into the market
  • Migrants continue to come to the country in large amounts & housing supply still remains tight in many areas…we will likely see rents continue to climb.
  • This makes the rent yields for investors more exciting.
Property prices have remained subdued over the last year but this could all be about to change.  As the uncertainty lingering from the GFC finally lifts, economic stability returns, China booms again and we see a change of Government the underlying property shortage will see prices start to rise.  For anyone who has watched the market through it swings and troughs before will know, once it starts to increase, it just goes up and up, as investors who have been sitting on the fence start jumping in.  So seize the opportunity and get in now before prices rise.

Queensland Property Research

Friday, March 01, 2013
Hi,

I just wanted to update you as to my property research findings so far.

Note: I haven’t finalised my research but just wanted to let you know the direction I am heading.

I have been examining QLD in depth.  I have previously mentioned that Gladstone & Mackay are definitely ongoing hotspots.  My research has revealed this is still the case.  However, Gladstone has already had significant price rises so I would only recommend Gladstone if we can find a bargain.  Mackay (and neighboring Emerald) have not yet risen as significantly as Gladstone and are my preference in this area.  The price point however is still in the mid to high $400,000’s and SMSF stock is hard to come by.  SMSF stock needs to be a completed house rather than house and land package and due to the high demand builders are able to sell off the plan so quickly they are reluctant to sell to SMSF’s as they have to wait longer to receive their money.  Watch this space though as I do have a developer promising me SMSF stock next week.

If that price range is too high and/or you would prefer not to go that far South in QLD – I am also looking at really good options very close to Brisbane CBD.  These are a lower price point (mid to high $300,000) and have a great rental yield.

My research has involved reading numerous independent economic and valuation reports, government infrastructure plans and bureau of statistics data.  I am looking into capital growth %’s, rent yields, vacancy rates, future expectations etc.  There is a lot to consider when investing in property and I am hoping to draw all this data together for you ASAP.

I am also expanding my research to include numerous NSW areas such as Newcastle, Dubbo and surrounds.  Watch this space for more information.

I will let you know more next week.

Catherine


The truth about Self-Managed Super?

Monday, February 25, 2013
Self-Managed Super Fund’s are growing at a rate of 4 new SMSF setups per hour in Australia.  Research shows that the average balance in an SMSF is 17 times higher than balances in industry and retail funds.  Do you want to know why?

SMSF’s allow greater control over your super.  They also allow greatly flexibility. You get to decide how much to put in and take out (within the guidelines of the law). They can also cost a lot less than industry and retail funds.  But most importantly, SMSF’s can buy geared property in a simple and uncomplicated manner.  

Why would you buy property in a SMSF instead of personally?

For many reasons; you get the benefit of leverage (maximizing the amount growing for you), the stability of the property market and the generous tax concessions available in the superannuation environment. There is a maximum of 15% tax on any rental income in excess of costs, you receive a tax deduction for the loan repayments of principal via salary sacrificing, you get asset protection from creditors and most importantly any capital gains on the property when sold will be taxed at 10% or TAX FREE if you are over 60.

Please visit Our Events Page to book in and come along to our free information seminar to find out the simple truth about SMSF’s or call 6162 4546 for a free consultation.

Positive Cashflow Investing

Thursday, February 21, 2013

A Positive Cash Flow property is a property where monthly income exceeds holding costs.

Cash flow Positive Property investing is generally contrasted with negative gearing (or negative cash flow), where the income returns do not offset holding costs, and the investor uses the tax treatment of the loses to their recoup some of the short fall.

The main argument for Positive Cash flow Properties is the advantages of owning income-generating assets rather than having to put your hand into your pocket and fund a shortfall on a negative cash flow property.
Calculating Cash Flow

Cashflow is simply equal to income less expenses

.

  Income

  •    Rent
  •    Advance rent
  •    Late rent
  •    Insurance payments from loss of rent

Expenses

 

  •     Monthly Mortgage Payments
  •     Maintenance and repairs
  •     Body-corporate / property management fees
  •     Taxes and charges
  •     Repairs and maintenance
  •     Costs associated with finding new tenants

Pros and Cons of the Positive Cashflow Strategy



Pros


  • Having access to a monthly cash flow has an obvious appeal and can therefore be an excellent entry point for beginner investors.
  • Cash flow properties can balance your portfolio as the extra cash can be used to pay the shortfall that may be associated with holding properties that have negative cash flow but high capital growth potential.
  •     Positive cashflow properties increases your serviceability towards a loan and can make you more attractive to lenders.
  •     Properties that are cash flow positive AND appreciating quickly are often touted as the ‘holy grail’ of property investors. Mining towns have offered up some impressive examples in recent years. However, such properties are difficult to come without the right tools and technology.

Cons


  •     The positive income generated is taxable and so it can be difficult therefore to build real wealth off income alone.
  •     Cash flow positive properties are sometimes associated with lower levels of capital growth over the longer term although this varies from property to property - careful research can find examples that demonstrate a healthy yield and strong capital growth potential.

Defining your search criteria when looking for cash flow properties



For many the only way this will occur is to buy a property in a high rental yield area or to wait until enough of the loan is paid off and for rental yields to rise over time.

Taking out a smaller loan as a percentage of the purchase price (e.g. at a 60% LVR instead of 80-90%) can ensure immediate positive cash flow surpluses.

The property however, can still be negatively geared for tax purposes after deducting depreciation, which is a tax-deductible expense albeit a non-cash cost.

7 ideas to help you achieve cash-flow deals



  1. Look for suburbs with yields of 8% to 16% and analyse the highest net cash-flow
  2. Focus around the 154 mining towns around Australia, then narrow your search to those within your budget, cash-flow and yielding expectations.
  3. Initiate your search around properties within a 3-5km range of Australia’s 154 universities, which have a strong rental market, and potentially high demand.
  4. Change a negatively geared property to a positive cash flow property by either reducing your expenses or increasing the income it provides.
  5. Buy 20-40% under median and look to drive yields up.
  6. Buy dual income properties for example those with granny flats.
  7. Fix interest rates when they are at low points in the cycle.

Sahremarket improving

Friday, January 04, 2013

4th January 2013

Sharemarkets

 

Global equity markets continued to rally in the first few weeks of December with sentiment boosted by solid Chinese and US economic data and the eventual confirmation of additional stimulatory measures by the US Federal Reserve.

 

European shares lifted to 18-month highs in early December, although the ongoing US budget discussions did temper gains towards the later part of the month.

 

On December 12 the US Federal Reserve extended previous stimulus measures, while vowing to keep interest rates near zero until the unemployment rate falls to 6.5 per cent, as long as inflation is projected to be no more than 2.5 per cent one or two years ahead with inflation expectations contained. The extension of purchases of “additional agency mortgage-backed securities at a pace of $40 billion per month” supported the bid for growth assets like equities and helped to offset the ongoing US budgetary concerns.

 

The Dow Jones gained over 300 points or 2.5 per cent from the start of December until December 18. Similarly the UK FTSE gained just over 1.5 per cent over the same period while the S&P ASX 200 rose almost 2 per cent.

The US economic data continued to be positive. US non-farm payrolls (employment) rose by 146,000 in November, well above expectations for a gain of 93,000. The unemployment rate fell from 7.9 per cent to 7.7 per cent. US existing home sales climbed by 5.9 per cent to the fastest pace in three years and suggested that the recovery in housing was advancing at a healthy pace.

 

In addition the Chinese economic data suggested that the China slowdown had bottomed out. Chinese production was up 10.1 per cent in the year to November with retail sales up 14.9 per cent (both ahead of forecasts). Investment rose 20.7 per cent in the first 11 months, just shy of 20.8 per cent forecasts. Chinese inflation also remained subdued.

 

For the month, the ASX 200 rose by 3.2 per cent, confirming the “Santa Claus” effect. The US Dow Jones rose by 0.6 per cent, in Europe the German Dax lifted 2.8 per cent and the London FTSE rose by 0.5 per cent. And in Asia the Japanese Nikkei rose by 10.0 per cent.

 

For the year, the ASX 200 index rose by 14.6 per cent and finished 34th of 73 global equity markets. The US Dow Jones lifted 7.3 per cent but the broader S&P 500 index gained 13.4 per cent with the Nasdaq up 15.9 per cent. In Europe the German Dax lifted 29.1 per cent and the London FTSE rose 5.8 per cent. And in Asia the Japanese Nikkei rose 22.9 per cent.

 

 

Australian Market

 

Onward & upward Australia

National accounts

  • Another quarter of growth: The record-breaking economic expansion has notched up another quarter of growth. The Australian economy grew by 0.5 per cent in the September quarter to stand 3.1 per cent higher than a year ago.
  • Contribution to growth: The biggest contributions to growth came from business equipment spending (+0.4 percentage points), followed by inventories (+0.3pp), household consumption (+0.2pp), and net exports (+0.2pp). The biggest drag on growth was by public investment (-0.4pp), the statistical discrepancy (-0.2pp) and government consumption (-0.1pp).
  • States & territories: The best description of the performance of States and Territory economies is state final demand plus net exports. The Northern Territory had the fastest annual growth in the September quarter (up a staggering 60.2 per cent), followed by Western Australia (up 10.3 per cent), ACT (up 5.6 per cent), NSW (up 3.8 per cent), Victoria (up 2.5 per cent), South Australia (up 1.5 per cent), Queensland (up 1.1 per cent) and Tasmania (down 5.3 per cent).
  • Industry sectors: Just seven of the 19 industry sectors contracted in the September quarter. Mining contributed 0.4 percentage points to economic growth with Manufacturing and Health care & social assistance both contributing 0.1pp. Biggest drags were by Agriculture, Transport and Professional services (each taking around 0.1pp from growth).
  • Productivity: Gross value added per hours worked in the market sector rose by 0.4 per cent in the September quarter. Annual productivity growth is a respectable 2.5 per cent.
  • Household spending: Eight of the 17 sectors recorded weaker spending in the quarter. Household spending rose 0.3 per cent in the September quarter.
  • Other measures: The Household saving ratio eased from 10.9 per cent to 10.6 per cent; a measure of inflation – the household spending implicit price deflator - rose by 2.3 per cent over the year; real unit labour costs fell by 0.6 per cent in the quarter.

 

Investors switch to property; Record car loans

Consumer confidence; Lending Finance; Resources forecasts

  • Consumer sentiment falls: The Westpac/Melbourne Institute index of consumer confidence fell from 19-month highs in December, down 4.3 points or 4.1 per cent to 100.0. The data is in line with yesterday’s weekly reading on consumer confidence by Roy Morgan.
  • Confidence was mixed across states: Consumer confidence rose sharply in Western Australia and South Australia, fell sharply in NSW and Victoria and was little changed in Queensland.
  • Property in vogue: The reading on whether it was a good time to buy a home lifted 11.5 per cent over the December quarter to a 3-year high of 142.2. And 24 per cent of people said real estate was the “wisest place for new savings”, up 4.1 per cent over the quarter and near the highest reading in seven years.
  • Lending lifts again. Total lending finance rose by 2.6 per cent in October after surging 5.8 per cent in October. Lending is still down 6.1 per cent on a year ago.
  • Record car loans: Loans to buy new or used cars hit a record $1.23 billion in October. And loans to buy blocks of land rose by 17.5 per cent over the past year – the strongest growth in three years.
  • Resources forecasts: Earnings from mining and energy products are tipped to fall 4 per cent this year from record highs after lifting 7.5 per cent the previous year.

 

Trade deficit widens as businesses ramp up imports

International Trade

  • Multiple trade deficits. Australia recorded a trade deficit of $2,088 million in October, following a downwardly revised $1,420 million (previously $1,456 million) deficit in September.
  • Businesses take advantage of the stronger Aussie: Imports of capital goods rose by 12.7 per cent in October - marking the strongest monthly growth in almost 5 years.
  • Imports outpace exports: Exports of goods rose by 0.4 per cent in October while imports of goods rose by 3 per cent.
  • The net services deficit narrowed by $8 million to $968 million in October.
  • Rural exports rose by 5.4 per cent in October while non-rural exports fell by 1 per cent.

 

Resilient Job Market

Labour force

  • Employment gains: Employment rose by 13,900 in November after a revised gain of 10,100 jobs in October (previously +10,700). Economists had expected a flat result.
  • Mixed job outcomes: In November, full-time jobs fell by 4,200 after rising by 17,600 in October. Part-time jobs rose by 18,100 after falling by 7,400 in October. Full-time jobs have only fallen once in the past five months.
  • Unemployment rate: The unemployment rate decreased from 5.4 per cent to 5.2 per cent in November. The participation rate fell from 65.2 per cent to 65.1 per cent – near six year lows.
  • More hours worked: The number of hours worked rose by 0.1 per cent in November after falling by 0.3 per cent in October and now stands 0.3 per cent higher than a year ago.
  • Unemployment across states and territories: NSW 5.1 per cent (5.2 per cent in October); Victoria 5.5 per cent (5.4 per cent); Queensland 6.0 per cent (6.1 per cent); South Australia 5.3 per cent (5.6 per cent); Western Australia 4.1 per cent (4.6 per cent); Tasmania 6.7 per cent (6.7 per cent); Northern Territory 3.8 per cent (3.9 per cent); ACT 4.1 per cent (4.0 per cent).

 

Chinese economy on recovery path

Chinese economic data

  • Monthly economic indicators. Retail sales in November were up 14.9 per cent on a year ago – the fastest rate in eight months (consensus 14.6 per cent); industrial production was up 10.1 per cent (consensus 9.8 per cent); and fixed asset investment over the first 11 months of 2012 was up by 20.7 per cent (consensus 20.8 per cent).
  • Inflation stabilises. China’s annual inflation rate lifted from a near 3-year low of 1.7 per cent in October to 2.0 per cent in November (forecast +2.1 per cent). Over the month inflation rose by 0.1 per cent. Food prices are 3.0 per cent higher than a year ago while non-food prices are up by 1.6 per cent.
  • Business deflation. Producer prices fell by 0.1pct in November after rising by 0.2 per cent in October. Producer prices are 2.2 per cent lower than a year ago (forecast, 2.0 per cent decline).
  • The data confirms that the Chinese economy is lifting from an engineered slowdown.

 

Source: CommSec Economic Insights

Market Snapshot

 

Major monthly movers in the S&P ASX 100

Top 5 Increases

Security

Description

Last Price

% Movement

AGO

Atlas Iron Limited

$1.86

39.37

FMG

Fortescue Metals Grp

$5.02

33.51

ARI

Arrium Ltd

$0.94

19.3

WHC

Whitehaven Coal

$3.56

17.5

RIO

Rio Tinto Ltd

$68.92

17.7

 

Top 5 Decreases

Security

Description

Last Price

% Movement

TWE

Treasury Wine Estate

$4.75

-6.86

NCM

Newcrest Mining

$23.64

-6.33

GMG

Goodman Group

$4.37

-4.8

DUE

Duet Group

$2.06

-3.95

PRU

Perseus Mining

$2.20

-3.07

 

 

Source: Iress Market Technology.

 

December Flashnotes

BHP Billiton Limited: BHP Billiton to Sell Interest in Browse JVs (BHP)

BHP Billiton advised that it has signed a definitive agreement with PetroChina International Investment (Australia) to sell its 8.33% interest in the East Browse JV and 20% interest in the West Browse JV, located offshore WA, for a cash consideration of US$1.63bn. The transaction is subject to regulatory approval and other customary conditions. Completion is expected in the first half of calendar year 2013. The Browse JV participants hold a right to offer to match the transaction with respect to the company's interests in the East and West Browse JVs and have a customary period to consider whether to make an offer to match.

 

Leighton Holdings Limited: Leighton Holdings Announces John Holland Awarded Two Major Contracts by Sydney Water (LEI)

Leighton Holdings reported John Holland has been awarded two contracts for water infrastructure services on behalf of Sydney Water. John Holland will provide the project management services associated with Sydney Water's Networks and Facilities Renewal Program, as part of a JV with Lend Lease. The Project Management Service Provider JV, will manage Sydney Water's projects through their lifecycle, from conception to commissioning and handover. John Holland was also awarded a third contract extension for the Priority Sewerage Program to deliver additional sewerage works to six communities in environmentally sensitive areas around Sydney.

 

Metcash Limited: Metcash Reports NPAT Down 13.1% to $82m for the Half Year to 31 October 2012 (MTS)

Metcash reported NPAT down 13.1% to $82.0m for the half-year ended 31 October 2012. Revenues from ordinary activities were $6.34bn, up 3.5% from the same period last year. EBITA lifted 1.2% from $203.7m for 1H12 to $206.2m for 1H13. Diluted EPS was 9.75 cents compared to 12.24 cents last year. Net operating cash flow was $144.7m compared to $252.4m last year. The interim dividend declared was 11.5 cents compared with 11.5 cents last year. The company reported that it has revised its full year underlying EPS guidance to -2% to -6%.

 

Rio Tinto Limited: Rio Tinto Agrees Sale of Shareholding in Palabora (RIO)

Rio Tinto advised that it has reached a binding agreement to sell its 57.7% effective interest in Palabora Mining Company for US$373m. The purchaser is a consortium comprising South African and Chinese entities led by the Industrial Development Corporation of South Africa and Hebei Iron & Steel Group, who are committed to the ongoing sustainable management of Palabora. The sale is subject to customary regulatory approvals in South Africa and China which are expected to take four to six months. The purchase price is subject to customary adjustments upon closing.

 

Woodside Petroleum Limited: Woodside Petroleum Enters Major Gas Discovery Offshore Israel (WPL)

Woodside Petroleum reported it has reached an agreement in principle to acquire a participating interest in one of the largest recent gas discoveries worldwide. The agreement involves an initial upfront payment of US$696m. The Leviathan JV participants, Noble Energy Mediterranean, Delek Drilling, Avner Oil and Ratio Oil, have reached agreement with Woodside on the key commercial terms under which Woodside will acquire a participating interest in each of the 349/Rachel and 350/Amit petroleum licences which contain the Leviathan field in Israel. Under the agreement the Company will acquire a 30% interest in the Leviathan field, which is estimated to contain about 17 trillion cubic feet of recoverable natural gas. The agreement will also allow Woodside to participate in further exploration opportunities in the Leviathan licences.

 

 

Source: Morningstar Research

Top 10 smart money tips for 2013

Thursday, January 03, 2013

Top 10 smart money tips for 2013

Don't let another year go by without sorting out your money. Here are the top ten things you can do to make 2013 really count.

1. Set your savings goals

Identify some specific, realistic saving goals and put them up on your fridge so you see them every day. See our saving tips on creating achievable goals and how to make them happen.

2. Talk turkey with your partner

Talk to your partner or family about your financial goals and what you want to achieve together so you are on the same page. Together you can put a plan into action. See relationships and money.

3. Automate your savings

Open a separate high interest savings account and set up an automatic transfer for a fixed amount each pay. That way your money will grow and you can enjoy the rewards faster. See direct debits and savings accounts.

4. Tackle your credit card debt

If you've got a credit card debt, treat it as a priority. Repay more than the minimum required each month. Money Smart's credit card calculator can help you work out how to reduce your debt faster.

5. Spend your own money

A debit card might be better than a credit card as it only uses money in your account. It's a great way to make you think before you spend. See debit cards for more.

6. Keep tabs on your daily spending

Download MoneySmart's 'Track My Spend' app and see what you really spend each day. Once you know where your money's going, it's much easier to see where and how, you can save money.

7. Get up close and personal with your super

Super is your money. Make sure you know where it is and how much you've got. If you've got super in different places, think about consolidating it into one fund. There will be less paperwork and it's easier to see how your super is growing. See consolidating super funds.

8. Get ahead while rates are low

With interest rates so low, a great way to get ahead is to keep your repayments the same as they were when rates were higher. It's effectively like making extra payments into your mortgage. If you keep that up you can save thousands in interest and cut years off your loan. More on making repayments.

9. Check what your insurance really covers

Don't just think about price when you are buying insurance. Make sure you have the right type and level of insurance. If you do need to make a claim, it'll be what your policy covers that matters most. See insurance for more.

10. Take your money's temperature

Do our Money Health Check - it will tell you where you are doing well and where you could do better. Devise a clear money plan and make 2013 your best year yet.

https://www.moneysmart.gov.au/tools-and-resources/news#Topten

Negative gearing for property investors makes good economic sense: Cameron Kusher

Friday, December 28, 2012
n its most simplistic form, negative gearing for investment housing allows investors to deduct their losses against their personal taxable income.  These losses may occur when the investor incurs costs such as interest on a home loan as well as maintenance and other small expenses on an investment property. However, it is important to note that negative gearing is not unique to the property asset class; it also applies to businesses and shares in Australia.

The most important thing to realise about asset negative gearing is that it is fundamentally offsetting a loss.  Although you can claim that loss on your tax return, the investor must carry the cost of that loss throughout the year.  Ultimately, when investing, most purchasers would be hoping that rental rates increase over time and result in the asset moving from a loss-making one to an income-producing one.

It is also important to note that between September 1985 and September 1987, negative gearing laws were changed.  The government quarantined negative gearing interest expenses on new transactions.  As a result, investors could only claim interest expenses against rental income, not other income.

Given that negative gearing provides a benefit to investors, we look at the impact these changes had on the investment market over the two-year period.  The first component is the impact the changes had on the rental market.

According to the rental component of CPI data, rents across the capital cities rose by 21.8% over the two years to September 1987 (the period during which negative gearing laws were changed).  The increase in rents was most pronounced over the period in Sydney (26.1%) and Perth (31.1%).  As a comparison, over the two years to September 1985, rental costs rose by a lower 17%.

Click to enlarge

The data clearly shows that rental growth was present over this period and it was greater than it was over the two-year period directly preceding it (The above chart shows the period for which the negative gearing rules were changed and are bolded black).  Here you can see that rental growth was well above average, particularly recent averages, but it was not unprecedented, with rents growing by a greater amount on an annual basis in late 1982 and early 1983.

Another important determining factor is the demand from investors over this period.  Unfortunately the Australian Bureau of Statistics does not provide information on the number of loans to investors; rather it provides the total value.  The total value of investment finance commitments in September 1987 was 41.5% higher than in September 1985.  These figures seem to suggest that at that time there was no weakness in demand for investment housing, however, a clearer outcome would be apparent based on the number of loans rather than the value.

The reason why negative gearing was reinstated in September 1987 was that it was proclaimed that rents rose sharply on the back of a fall in housing market investment.  However, it doesn’t look as if investment in the housing market dried up throughout this period. Rents clearly did rise quite sharply throughout, as demonstrated.

 

Many in favour of removing negative gearing from property say that it should occur due to the fact that housing is an unproductive asset class.

My argument is that given that housing provides shelter, if investors don’t purchase these assets, it would then be the responsibility of the government to provide this shelter.  Ultimately, that would mean that anyone that pays taxes would be funding housing for those who can’t afford it themselves.

One of the arguments against negative gearing is that the tax deductions afforded to investors in the housing market reduces government revenue.  However, if investors did not provide shelter to those who can’t provide it to themselves, government revenue would already be reduced due to the fact that this responsibility would fall on the government.

If we look at the recent Australian Bureau of Statistics (ABS) dwelling approvals data, it is interesting to see just how much of the new housing supply is created by the private sector as opposed to the public (government) sector.  According to the ABS dwelling approvals series, which began in July 1983, between July 1983 and October 2012, 4,355,266 dwelling approvals have been given to the private sector compared to just 228,843 to the public sector.  Over the last 29 years (give or take a few months), public housing approvals have accounted for just 5% of all dwelling approvals.  This is less than 8,000 approvals by the public sector each year!

Over the 12 months to October 2012, 145,515 dwellings approvals were granted to the private sector (98.6%) compared with just 2,065 to the public sector (1.4%).

The most recent census data shows us that of those homes occupied, 29.6% are rented (investment properties).  Based on this data, if we assume that without the private sector building homes for investment purposes, the public sector would have to account for 29.6% of all dwelling approvals to cover those in rental accommodation.  Over the past 12 months this would have equated to 43,684 dwelling approvals.  If we also consider that the median home price across Australia as at October 2012 was $386,000, and if the government had to buy the land and build 43,684 homes, this would cost the Government of the day $16,861,900,480 based on the number of approvals and the median home price.

Of course this is a rather simplistic calculation and if the government were to build homes on its own land it would cost less, as that figure includes land and building.  Also, it is unlikely that private investment in residential housing would cease without negative gearing but I would expect that it would fall.

The most recent taxation statistics data shows that over the 2009-10 financial year, $4.81 billion in net rental deductions were claimed by taxpayers.

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In order for the government to break even to allowable deductibles from tax returns they would have to be building those 43,684 homes at a cost of $110,100.  Based on the current median home price across the country at $386,000, they would have only been able to build 12,461 homes over the past 12 months or 8.4% of the total building approvals over the past year.  It should be noted that not all new builds are for investment purposes but if we assume that 29.6% are there is a significant shortfall.

When you look at these figures it is obvious why negative gearing is unlikely to be removed.  Whether the removal of negative gearing impacted investment or not, and whether it lead to an increase in rents is a secondary concern relative to how much it would cost the government to supply public housing for the almost 30% of Australians that don’t own their own home.

These figures are not to suggest that if in the case negative gearing was removed, there would be no investors in the market however, the appeal of negative gearing is part of what attracts many investors to the market.  Without negative gearing it is likely that there would be fewer investors and therefore less private developers delivering new homes coupled with a greater need for the public sector to provide housing.  The flow on effect may also be that there would likely be lower demand for housing credit.  Although some proclaim removing negative gearing would cause house prices to fall, I would expect that new housing supply would be even tighter as developer’s struggle to achieve pre-sales for new development, this may in-turn force prices higher than they otherwise would be.

By looking into the figures in more detail, it makes good economic sense for the government to allow housing investors to negatively gear their properties so that the significantly greater cost of providing social housing is not borne by the Government and ultimately the Australian taxpayer.

Cameron Kusher is senior research analyst at RP Data.

 


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