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Catherine's Chat

Wholistic Financial Solutions provides information and updates regarding the property investment industry. Learn more from Catherine's chat here.

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.

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.

rpdec172

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.

 

ATO concerns over SMSF investing in Property over stated

Friday, December 28, 2012

The Australian Taxation Office (ATO) recently released a Taxpayer Alert (TA 2012/7) which outlines the ATO’s concerns that some arrangements entered into by an SMSF to acquire property do not comply with the law.

The ATO is concerned that it may not be possible to simply restructure or rectify the arrangements, and unwinding the entire arrangement could lead to a forced sale of the asset, potentially at a substantial loss to the fund.

The ATO is concerned about the potential consequences of poorly structured arrangements regarding direct property investments using limited recourse borrowing arrangement

Under a limited recourse borrowing arrangement (LRBA), the SMSF borrows money to acquire a property which is held via a holding trust (the Bare Trust). The rights of the lender in the event of default of the loan are limited to the asset over which the borrowing is held.

 

Issues of concern:

  • Where the borrowing and the title of the property is held in the individuals' name and not in the name of the trustee of the holding trust. The SMSF pays part or all of the initial deposit and the ongoing loan repayments.
  • The title of the property is held by the SMSF trustee not the trustee of the holding trust.
  • Where the trustee of the holding trust is not in existence and the holding trust is not established at the time the contract to acquire the asset is signed.
  • The SMSF trustee acquires a residential property from an SMSF member.
  • The asset is a vacant block of land. The SMSF trustee intends to use the same borrowing to construct a house on the land. The land is transferred to the holding trust prior to the house being built.

Superannuation issues that could arise from such arrangements

  • The arrangement may be in breach of the sole purpose test (SISA section 62).
  • The arrangement may be in breach of the borrowing provisions (SISA section 67).
  • The asset acquired is not a single acquirable asset (SISA section 67A(2)).
  • The asset is subject to a charge in breach of the borrowing provisions (SISA section 67A(1)(f)).

Summary

In my opinion all of the above issues can be overcome by Trustees of the SMSF obtaining advice from qualified and experienced SMSF administrators.  WFS Canberra Pty Ltd is able to offer such advice as well as set up the Bare Trust and obtain the loan to acquire the property. As long as all the correct legal steps are undertaken, in the correct order SMSF trustees have nothing to be concerned about.

 

Kargoolie/Boulder WA shows promising signs

Friday, December 28, 2012

According to ANZ House prices in Kalgoorlie/Boulder in the Goldfields-Esperance region of Western Australia have risen 10% over the year to September, making it the top-performing market in the state.

As the graph shows, regional markets in WA have been both the best performers and the worst performers over the 12-month period, with the largest price decline of 8% recorded in Pallinup in the Great Southern region.


Real Estate Institute of WA president David Airey said that in contrast to “unsustainable” house prices and rents in mining towns like Karratha, Port Hedland, South Hedland and Newman “the steady growth and more affordable market of Kalgoorlie-Boulder perhaps offers greater confidence to lenders”.


Notable on the list of top performing regions is Geraldton, picked by Terry Ryder as future potential Gladstone-like hotspot, where house prices increased 4% over the year to September.

Flood of activity' still coming in QLD

Wednesday, December 05, 2012

MORE than 13,000 machine operators, 6000 graduates and more than 7000 tradies will be needed by 2015 to keep Queensland's mining industry ticking over.

Skills researcher Kinetic Group's boss Derek Hunter concedes these are "uncertain times", but said a flood of activity was still headed our way.

"If you stop looking at the headlines and look at what the activity in the industry is right now, it's as high if not higher than it has ever been," Mr Hunter said.

"We have got significant new growth in productivity from 2013 onwards."

As of April, there were 20 mining and gas projects in Queensland alone, amounting to more than $64 billion in investment.

That includes BHP Billiton's Caval Ridge and Daunia mines already under construction which will deliver a total of 2450 jobs in construction and during operations

"These are not pie in the sky figures - the companies already invested are unlikely to stop them going through to production unless there was the most amazing crash."

He noted that even the global financial crisis, though it created a few "blips" for the industry, had only mild long-term effects.

Mr Hunter said the danger was this boom to bust mentality, if something stopped booming, then surely it had bust.

"We have to change people's heads about that - companies have shareholders to satisfy so action must be taken as soon as there is difficulty.

"Certainly (BHP Billiton Mitsubishi Alliance) is laying people off, they have closed a couple of mines in the past few months.

"But they have absorbed most of them back into the organisation."

Thousands needed to run mines

Wednesday, December 05, 2012

MORE than 13,000 machine operators, 6000 graduates and more than 7000 tradies will be needed by 2015 to keep Queensland's mining industry ticking over.

Skills researcher Kinetic Group's boss Derek Hunter concedes these are "uncertain times" but said a flood of activity was still headed our way.

"If you stop looking at the headlines and look at what the activity in the industry is right now, it's as high if not higher than it has ever been," Mr Hunter said.

"We have got significant new growth in productivity from 2013 onwards."

As of April, there were 20 mining and gas projects in Queensland alone, amounting to more than $64 billion in investment.

That includes BHP Billiton's Caval Ridge and Daunia mines already under construction, which will deliver a total of 2450 jobs in construction and during operations.

"These are not pie in the sky figures - the companies already invested are unlikely to stop them going through to production unless there was the most amazing crash," Mr Hunter said.

He noted that even the global financial crisis, though it created a few "blips" for the industry, had only mild long-term effects.

Mr Hunter said the danger was this boom to bust mentality, if something stopped booming, then surely it had bust.

"We have to change people's heads about that - companies have shareholders to satisfy so action must be taken as soon as there is difficulty.

"Certainly (BHP Billiton Mitsubishi Alliance) is laying people off, they have closed a couple of mines in the past few months.

"But they have absorbed most of them back into the organisation."

Daunia

  • Open cut mine, 2960 hectares
  • Production expected to begin next year
  • Full production of 4.5 million tonnes per annum expected in 2014
  • 1000 employees required in construction phase, 450 during production
  • Caval Ridge
  • Open cut mine, 6706 hectares
  • Production expected to begin in 2014
  • Full production of 5.5 million tonnes per annum expected
  • 2000 employees required during construction, 500 during production

Flood of activity' still coming in QLD

Wednesday, December 05, 2012

MORE than 13,000 machine operators, 6000 graduates and more than 7000 tradies will be needed by 2015 to keep Queensland's mining industry ticking over.

Skills researcher Kinetic Group's boss Derek Hunter concedes these are "uncertain times", but said a flood of activity was still headed our way.

"If you stop looking at the headlines and look at what the activity in the industry is right now, it's as high if not higher than it has ever been," Mr Hunter said.

"We have got significant new growth in productivity from 2013 onwards."

As of April, there were 20 mining and gas projects in Queensland alone, amounting to more than $64 billion in investment.

That includes BHP Billiton's Caval Ridge and Daunia mines already under construction which will deliver a total of 2450 jobs in construction and during operations

"These are not pie in the sky figures - the companies already invested are unlikely to stop them going through to production unless there was the most amazing crash."

He noted that even the global financial crisis, though it created a few "blips" for the industry, had only mild long-term effects.

Mr Hunter said the danger was this boom to bust mentality, if something stopped booming, then surely it had bust.

"We have to change people's heads about that - companies have shareholders to satisfy so action must be taken as soon as there is difficulty.

"Certainly (BHP Billiton Mitsubishi Alliance) is laying people off, they have closed a couple of mines in the past few months.

"But they have absorbed most of them back into the organisation."

Apartments in Mackay - the next big thing

Wednesday, December 05, 2012

IT'S going to be apartment bonanza in Mackay as several new projects ramp up or are set to get under way.

Honeycombes Property Group has launched its $25 million apartment project in East Mackay after winning their development approval.

Branded Carlyle Apartments, the development is Honeycombes' first project to start in the Mackay region with construction set to begin at the end of November.

Meanwhile there has been a surge in activity at the riverside Lanai Apartments residential resort with six Lanai apartments sold in the September quarter, including two-bedroom and plus-study and three-bedroom designs.

Blacks Real Estate marketing agent Peter Francis said buyers had sensed Mackay's market was on the move and were securing competitively priced receiver stock at a prime point in the property cycle.

"With professional on-site management, Lanai has achieved yields of up to 8.84% net in the last 12 months," Mr Francis said.

"Given the fundaments of Mackay's market, the receivers have always had confidence in Lanai's value, and this surge in activity bears out that view."

Honeycombes director Richard Wallace has shrugged off the doom and gloom shrouding the mining industry and said Mackay was still an investor's hot spot.

He said there the strong demand for short -term accommodation would continue given Mackay was the gateway to the Bowen Basin.

"Mackay is crying out for quality short-term accommodation due to the large number of people who visit the area as a result of the growth and expansion of the mining industry in recent years," Mr Wallace said.

"Carlyle also caters to owner occupiers who are looking for a work and lifestyle balance, which people seem to think they need to sacrifice when basing themselves in a mining town.

"The apartments provide a solid investment opportunity given the resource-fuelled economy which continues to drive the area and attract people to Mackay."

Mr Wallace said there were several benefits to investing in apartment type complexes, as opposed to stand-alone houses.

One of the benefits was the body corporate structure, which gave investors piece of mind, he said.

Lanai Apartments general manager Emma Purtill agreed with this.

"There is someone here all of the time making sure everything runs smoothly."

Ms Purtill said during the week the majority of their clients were business travellers, but she had seen a rise in family tourists in the past few months.

Project snapshot

Carlyle Apartments

  •  Ranging in size from 61sq m to 103sq m,
  •  Modern open-plan apartments
  •  Priced from $330,000 to $505,000.

Lanai Apartments

  •  Range of apartments from two - three bedroom designs - all rooms have private balconies
  •  Prices have ranged from $477,500 to $515,500
  •  Permanent residential, long-term, corporate and holiday rental options

Mackay leading property revival in September quarter

Wednesday, December 05, 2012

THE Mackay property market was regional Queensland's top performer during the September quarter, contributing Queensland recording its strongest house sales numbers in nearly two years.

According to the Real Estate Institute of Queensland (REIQ) September quarter median house price report, the number of house sales throughout Queensland increased significantly over the quarter.

"The mining areas of Queensland appear to have come off the boil a little, perhaps due to sharp property price increases over the past 12 months in Gladstone and Mackay in particular; however, sales in these regions remain strong," REIQ chief executive officer Anton Kardash said.

The top performer of all major regions was Mackay, which posted a median house price increase of 4.7% to $445,000. Over the year its median house price increased 4.9%.

REIQ Mackay zone chairwoman Sally Richards said numerous factors contributed to Mackay's continued steady market conditions and, despite changing local employment conditions, the prospect of growth for the following quarter and beyond was positive.

"We have found more recently that there has been increased interest in the higher priced homes such as the $400,000 to $600,000 price range.

"These people are upgrading or moving to Mackay," Ms Richards said.

"There is a significant amount of increased development and building activity in the region, resulting in strong demand for new home and land developments."

An absence of first home buyers due to the removal of the $7000 First Home Owner Grant was expected to end following the introduction of the new $15,000 First Home Owner Construction Grant, she said.

Strong Performer

 West Mackay: 9.3% increase in median house price to $427,000 and 7.1% increase in growth over 12 months.


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