It is interesting to note that several lenders in the last week have reduced their 3 year fixed rates St George down to 5.14% and NAB 5.07%. Both ahead of the RBA board meeting today.

Perhaps they knew something as the interesting comment in the statement is the RBA's view on inflation "Inflation is expected to be consistent with the 2–3 per cent target over the next two years".

The Governor's statement below.

Glenn Stevens' statement from the March Reserve Bank meeting:

"At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent.

Growth in the global economy was a bit below trend in 2013, but there are reasonable prospects of a pick-up this year. The United States economy, while affected by adverse weather, continues its expansion and the euro area has begun a recovery from recession, albeit a fragile one. Japan has recorded a significant pick-up in growth, while China's growth remains in line with policymakers' objectives. Commodity prices have declined from their peaks but in historical terms remain high.

Financial conditions overall remain very accommodative. Long-term interest rates and most risk spreads remain low. Equity and credit markets are well placed to provide adequate funding, though for some emerging market countries conditions are considerably more challenging than they were a year ago.

In Australia, recent information suggests slightly firmer consumer demand and foreshadows a solid expansion in housing construction. Some indicators of business conditions and confidence have shown improvement and exports are rising. At the same time, resources sector investment spending is set to decline significantly and, at this stage, signs of improvement in investment intentions in other sectors are only tentative. Public spending is scheduled to be subdued.

The demand for labour has remained weak and, as a result, the rate of unemployment has continued to edge higher. Growth in wages has declined noticeably. If domestic costs remain contained, some moderation in the growth of prices for non-traded goods could be expected over time, which should keep inflation consistent with the target, even with lower levels of the exchange rate.

Monetary policy remains accommodative. Interest rates are very low and savers continue to look for higher returns in response to low rates on safe instruments. Credit growth remains low overall but is picking up gradually for households. Dwelling prices have increased significantly over the past year. The decline in the exchange rate seen to date will assist in achieving balanced growth in the economy, though the exchange rate remains high by historical standards.

Looking ahead, the Bank expects unemployment to rise further before it peaks. Over time, growth is expected to strengthen, helped by continued low interest rates and the lower exchange rate. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.

In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates."

Despite many publicly aired fears to the contrary, it’s safe to say the Brisbane of 2034 will not look vastly different to the 2014 version. Beyond the boundaries of the inner city, where an estimated 50 extra skyscrapers are expected to rise in the next 20 years, the status quo is anticipated to remain among the vast majority of the river city’s suburban landscape. 

Just seven per cent of the city’s land mass will be impacted by development in the next two decades and 40 per cent of the city will remain devoted to green space. More than 150 urban villages will rise but leafy backyards will remain. City Plan 2014, Brisbane Lord Mayor Graham Quirk said, will create a city Brisbane residents can continue to enjoy and be proud of. 

Australian house prices are set to keep growing by around 6% annually in the next 12 to 24 months. The latest NAB quarterly residential housing survey showed that housing market sentiment lifted again in the December Quarter, supported by faster house price growth in all states except South Australia and the Northern Territory. NAB's forecast expects average capital city house price gains of about 6% this year. Queensland is set to lead the country, with Brisbane prices to increase 6.4% this year and 6% in 2015. Perth house prices are expected to grow 6.3%.

The Reserve Bank of Australia has noted while weak conditions in the labour market had weighed on consumption growth, the increase in housing and equity prices over the past year had raised the possibility that consumption growth could outpace that of income in the period ahead.

MacQuarie bank has predicted two further rate cuts this year. There view is not shared by all including the RBA which is expecting a pick up in GDP to 2.75%. ONly time will tell

If you are considering upgrading your property you may be looking at your existing home and feeling it could make a good investment property. Whether it is the right move for you will depend on a number of factors.

Tax deductible debt
Interest which is directly linked to income producing investment assets is tax deductible.

Many people assume they can simply redraw or set up a new loan on their old home (which will become an investment property) and claim that debt as a tax deduction. This is not correct.

Example
When Bill purchased his original home he borrowed $350000. Over time Bill has paid the debt down to $100,000. Bill decides to upgrade to a $500000 property. The purchase costs are $25000. Using the equity in his existing home Bill redraws the original loan back to $350000 ($250000 increase) and then borrows the remaining $275000 against the new property.

Because Bill has a loan of $350000 against his investment property he assumes that all this loan is tax deductible. Bill is dead wrong.

Which property the loan is secured against is irrelevant – it is the purpose of the loan that the ATO will consider. In this case the purpose of the $250000 increase was to assist with the purchase of a new owner-occupied property therefore the purpose is not for investment purposes and therefore is not tax-deductible. 

Only $100,000 of the loan is tax-deductible. The remaining $525000 offers no tax benefit whatsoever.

Age
If the property is older than 5 years it will offer little in the way of depreciation for plant and equipment which would offer significant tax write downs. It will also have lower capital depreciation deductions.

Tax Refund
The impact of both the lower interest and the age of the property could mean that Bill will miss out on a tax refund of around $7000 if he had instead sold his own home and borrowed for a new investment

Capital gains tax
As his existing home is his principle place of residence Bill can sell it today capital gains tax free. If he purchases a new principle place of residence his existing home will attract capital gains tax if it is sold at a gain. So for example Bill holds onto the old home for a further 10 years and it increases in value by $200000. Bill sells the property and is taxed on 50% of the gain - $100000 at the applicable marginal rate.

So he has not only missed out on a substantial tax refund for the last 10 years he now gets hit with a huge capital gains tax bill as well.

Repairs
If it is a significantly older property then it may also present significant maintenance and repair issues which will impact the overall cashflow of the property.

Performance
Just because you have an emotional attachment to the home doesn’t make it a great investment property. The rental yields and capital growth rates may be substantially less than what can be achieved elsewhere.

 
What opportunities are you missing?
Are there ways to improve your current cashflow that you are not currently doing? Are your finances correctly structured to build a property portfolio or are they holding you back? Do you have a plan of attack of how to build a portfolio? Are your finances set up to ensure you can acquire property without negatively impacting your lifestyle? Are there things you are missing that you should or could be doing that could have a significant impact on your wealth creation plans?

Contact us for an initial discussion.

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All the best

Greg Carroll
MTA
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Not all properties are treated equally by lenders. There are some properties that lenders like, some which they will have restrictions around, and some which they just won't touch at all. What does this mean for you. It means you may not be able to fund a particluar property purchase of they you may have to tip in additional cash to get the deal across the line

Below are some the the property types where lenders may have restrictions or may not fund at all.

• Inner city units and developments particularly studio apartments
• Student accommodation
• Retirement villages
• Rural properties
• Remote regional properties with low population levels
• Unusual properties eg unusual building designs
• Multiple properties on one title
• Company title properties
• Properties under the NRAS scheme

Units less than 50m2
Lenders prefer units with a liveable floor space of 50m2 and above. Some may consider units down to 40m2.

Number of units in one complex
Most lenders will put a cap on the number of units a borrower can hold in one complex. The guidelines for this will vary on the size of the complex. Usually around 4 is the maximum but this may be reduced is it accounts for more than 25% of all units.

Lenders may also choose to restrict their exposure to certain apartment blocks. If they have already financed a number of purchases in a particular complex they may not support any further transactions.

Inner city units and hi-rises
Some lenders have an aversion to inner-city apartments and high rise developments. They may still lend against this type of property but at a reduced LVR.

Serviced apartments/Student accomodation
The majority of lenders are not very keen on serviced apartments. Generally it is not possible to obtain lending where mortgage insurance is required. Most lenders who will consider this type of property will restrict the lending to 60% to 70%, however some will go to 80%.

Lenders may need to see additional detail to determine the level of acceptable lending. In particular they will want to see the current letting agreement and if there are any restrictions associated with having the property released from the letting pool.

Commercial property
In terms of home lending generally commercial property can not be accepted on a stand alone basis. Some lenders may accept it as supporting security at a reduced LVR.

Company title
This will vary from lender to lender. Some are an absolute no while some will consider on a case by case. It is definitely worth making investigations before proceeding with this type of property.

Heritage listed
Generally considered on a case by case situation.

Warehouse conversions
Only considered by a handful of lenders. Again assessed on a case by case basis

Multiple units on one title
This situation may particularly apply where someone want to purchase a block of units that have not been strata-titled. Some lenders will consider up to 4. Above this would probably see the deal considered on a commercial basis.

Rural property
Will vary from lender to lender. Some will only consider a few acres. Other will look at up to 50 hectares. Property can not be income producing, hobby farms are acceptable.

Aged care security and retirement villages
No

Vacant land
Accepted by almost all lenders if the intention is to build on the block. Usually will be part of a construction loan. A number of lenders will not accept land only as security. Some will accept as supporting. Some will accept as a stand alone.

ONE of the country’s biggest banks expects house prices to rise as much as 20 per cent before the end of next year, with lifts predicted to begin soon in parts of Queensland.

ANZ chief economist Warren Hogan told the Committee of Economic Development of Australia that the “housing market is at the early stages of a solid cyclical upswing” fed by low interest rates and market shortfalls.

“We expect a 15-20 per cent lift in home prices between 2013 and 2015,” he said with long-awaited rises already underway in Sydney and Melbourne.

“I am sure Brisbane, Sunshine Coast and Gold Coast will lift in terms of house prices in the next little while,” he said in the Sunshine State yesterday.

Mr Hogan said investors and “new participants” in the market — such Chinese and other overseas buyers who typically did not need to borrow in Australia - were pushing increases.

“They’re quite active and their judgment on what is fair value for property is very different from others in the market,” he said. “I think that’s something to keep an eye on.”

But experts agreed Australia was not in a house price bubble yet.

Commonwealth Bank head Ian Narev said: “We never say never — but we don’t think we are seeing even the early signs of a bubble at the moment.’’

Queensland Treasurer Tim Nicholls said there was no evidence of a housing bubble in the state.

“In Queensland we’re seeing steady but moderate growth in house prices, so we’re not overly concerned about a bubble here,” he said. “We think that Queensland growth rate is about right. We’d like to see some more growth coming through in terms of the number of houses and approvals coming through, but in terms of prices, we’re not seeing a bubble coming through here.”

Mr Hogan agreed it was not a bubble “but it could be”.

“If you whack the big four banks together, the system is only growing at five per cent, even though we’re writing new mortgages at 18 per cent ... Overall credit growth is still quite tepid so you wouldn’t say that that’s a bubble.”

Asbestos materials of various types were commonly used in Australian property construction between 1940 and 1990. Asbestos materials were embedded in wall cladding, roofs, gutters, drain pipes, vinyl flooring, electrical wiring thermal insulation, boilers, exhaust pipes, switchboards, thermal insulation and inside fire doors.

The new National Work Health and Safety Act of 2011 requires owners of buildings constructed before 2003 to conduct an asbestos survey. Where asbestos materials are identified, this triggers the mandatory requirement for an asbestos register and asbestos management plan (AMP). Some property owners appear to be unaware of this new obligation.

An asbestos register is necessary to track of asbestos materials remaining (or removed) in investment properties. Asbestos may also be located in inaccessible areas and unfortunately discovered during re-development with sometimes disastrous and costly results. Asbestos materials if disturbed can cross contaminate internal areas of the buildings, requiring evacuation, loss of rent and potential occupant litigation.

Asbestos removal is a legally notifiable project, which can result in extremely costly asbestos removal projects. Careful investigation during due diligence can forewarn investors, revealing the true cost of asbestos removal. Armed with detailed information and cost options, investors can then more accurately evaluate if they wish to proceed with the purchase or avoid the risk.

Australia’s economic growth is expected to pick up pace this year thanks to a lower exchange rate and stronger activity in the housing and retail sectors, according to the latest forecasts from the Reserve Bank of Australia. 

Investment in the mining and resources sector is forecast to peak some time this year and a pick up in the non-mining sectors of the economy is needed to maintain economic growth.

“Until recently, survey measure of current business conditions have been below average, consistent with subdued non-mining investment,” the RBA said in its quarterly statement on monetary policy.

“A number of indicators, however suggest a gradual increase in growth over time.”

“The depreciation of the exchange rate should provide some additional impetus to activity in the traded sectors of the economy,” the RBA said. 

The bank said that business conditions improved in the latter part of 2013.

“Retail sales and the Bank’s liaison point to a pick up in household consumption growth in the December quarter and measures of consumer sentiment remain a little above average levels,” the RBA said on Friday.