Friday, March 20 2015
Two recent reports have flagged the strongest areas for price growth in Queensland. The results will no doubt be a surprise to many as they bust some myths about the best areas for growth.
The latest data from Real Estate Institute of Queensland (REIQ) reveals that Ipswich ranks as the strongest Queensland price growth region. Ipswich's median house price increased by 6.7% over the quarter, the largest gain recorded by any area across Queensland.
Brisbane’s while improving only moved by 3.4% over the same period.
Meanwhile Hotspotting’s latest price predictor report has Logan City as the number one predicted growth region in Australia. The Price Predictor Index is a tool based on trends in sales volumes which provide an indicator of future price movements.
Logan City has more growth suburbs than any other Local Government Area in Australia with 4 of the nation’s top 30 rising suburbs. Hotspotting puts Logan’s performance down to its affordability, good road and rail links, proximity to jobs nodes, and abundance of schools and shopping options.
These reports again bust the myth that the closer you are to the CBD the better the growth. Unfortunately many would be investors turn their nose up at areas like Ipswich or Logan City because of preconceived ideas about the market or potential tenants without any actual data to back up their beliefs.
I’m not certain of the origins of this myth but often when we ask people what their investment plans are – many say they want to buy close to the city because they believe that’s where you obtain the best growth.
Our own research tells us that good growth opportunities exist in many places and if you limit your focus to inner city only then you are cutting yourself off from significant upside gains.
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Thursday, March 19 2015
Many people are reluctant to actively invest for their retirment because they are concerned about risk. Therefore they choose to do nothing believing this is a "safe bet". Unfortunately inaction carries with it as much risk as taking action. In fact I would argue greater risk.
Warren Buffet, one of the worlds wealthiest indivuals, highlighted this in his recent letter to his clients. The simple message - if you try to play it safe by holding cash you will go backwards.
By way of example he compared the performance of holding the S&P500 with holding cash over a 50 year period. The S&P 500 achieved a 11,196 per cent return as opposed to cash which depreciated by 87 per cent over the same period.
At certain points in time cash may be a safe haven but it is only effective in the short term. Over the long term (with the correct approach and advice) assets like property and shares will grow in value while the real value of cash will go backwards. Sure you can reinvest interest in your cash holdings but what are you actually doing? Your rate of return is only matching the inflation rate so at best you are treading water but after tax you are steadily going backward.
Assuming an average rate of inflation of 3% the real value of $100,000 would reduce by more than $25,000 over 10 years. If that was $1 million dollars then that would be more $250,000.
The reality is there's no such thing as playing it safe. But if you choose to do nothing your outcome is guranteed.
Thursday, March 19 2015
BIS Shrapnel says pent up demand, a push by investors into the market and an undersupply of new housing stock will drive a 14% surge in Brisbane house price over the next 2 years to June 2017. Pushing the market further out of reach of first-home buyers and driving up rents.
Beyond 2017, house prices will continue to rise in markets like Sydney and Brisbane, but at a more moderate pace, as higher interest rates impact on demand.
Thursday, March 19 2015
Last week I wrote about my concerns with what appears to be a emerging over supply of units in Brisbane. What's the big risk for the Brisbane market.
BIS Shrapnel has made similar observations this week suggesting we are building the wrong thing. Too many units and not enough detached housing. With the potential for a 10% fall in prices.
Melbourne, Brisbane each face glut of 15,000 apartments within two years, BIS Shrapnel predicts
Australia will run into a glut of apartments in just two years led by Melbourne and Brisbane - but other cities including Adelaide are also building more than they need, research house BIS Shrapnel predicts.
By June next year, the country is likely to have more than 74,000 apartment completions, which is 5000 more apartments than it needs. In Melbourne, which faces a surplus of 15,000 apartments, prices are likely to fall 10 per cent over the next three years, BIS Shrapnel says.
The predictions, which show an aggregate stock overhang even as Sydney continues to be underserved on higher-density dwellings, lay bare the uneven nature of Australia's house-building economy. By June next year, the NSW capital will still have a deficiency of nearly 30,000 apartments.
Having led the growth of high-rise dwellings on a scale not yet seen, Melbourne's construction industry needed to change tack to avoid being hit by the glut, said BIS Shrapnel associate director Kim Hawtrey.
"Now is the time to start sounding the alarm," Dr Hawtrey said.
"We're probably building too many apartments and not enough detached houses and we may find we have an unbalanced result in a couple of years' time. We need to increasingly re-orientate the housing recovery to build more detached houses and fewer attached dwellings."
The figures that predict 74,159 attached-dwelling completions in the year to June 2016 include townhouses and semi-detached dwellings as well as apartment buildings of four storeys' height and above. But the glut "essentially" would be in high-rise, as this was a component of the market most driven by local and offshore investors, Dr Hawtrey said.
The forecaster, which started warning about an apartment overhang in Melbourne a year ago, is now also ramping up warnings about Brisbane and Adelaide.
Brisbane's voracious appetite for apartment construction has resulted in a stock surplus that dates back at least to 2006, but that glut is about to triple from 5000 from last financial year to 15,000 by next year, BIS Shrapnel says.
Adelaide's oversupply of apartments, which has been constant at 6000 for the past three years, is likely to grow by a third to 8000 by June next year.
The glut of high-rise dwellings contrasts with a continuing shortage of detached dwellings. Even with completions of detached houses ramping up, the country will face a shortfall of 56,207, BIS Shrapnel predicts. NSW will have a deficit of 25,000 detached houses on top of its apartment shortfall, but Queensland will also have a detached house deficit of more than 20,000 dwellings. SA will have a deficit of about 1500 detached houses.
WA will also have a deficit by next year of about 6000 houses - down from the current 20,000, reflecting the state's strong production pipeline - and apartment shortfall of 4000, less than half the current figure near 9000, BIS Shrapnel says.
The oversupply of apartments was likely to coincide with a rise in interest rates that was likely to cause the Reserve Bank of Australia's cash rate to rise by about 1 percentage point from the current record-low 2.25 per cent, BIS Shrapnel managing director Rob Mellor said. This would also raise the borrowing costs developers face at a time of weakening demand, he said.
"In percentage terms these are significant increases," Mr Mellor said.
(SOURCE: Austrlian Financial Review)
Friday, March 13 2015
The Brisbane market has been on a steady albeit modest recovery since 2012 but their are significant risks emerging which could see substantial losses for some.
I saw the below article last week and it has me pretty concerned about over-supply in the Brisbane unit market. Many of these units are being built in inner city suburbs like the Valley, South Bank, and West End. Sure these areas are artractive from a lifestyle perspective but these areas are already heavily saturated with units that have achieved limited price growth over an extended period and in many cases have seen declining prices.
They are also markets that have demonstrated fairly sluggish rental growth.
Given that many of these projects are being realsed at the same time it is likely they will completed and settle around the same time. The potential impact of thousands of units coming onto the market at once is a sharp decline in values and increased vacancy levels.
This means for people purchasing off the plan they may find that the unit they purchased values for less than the contract price. And for those looking for it to be an investment there could be extended periods of vacancy or reduced rents achieved.
Since this article was released I have seen the announcement of several more projects and off the plan sales.
How it plays out only time will tell but I would be exercising a fair degree of caution and if I did proceed would have in place a substantial buffer to fund any devaluations on the property.
Remember once you sign an off the plan contract it is unconditional which means you have to settle of lose your deposit.
Brisbane’s off the plan apartment market is smashing all previous records within a three month period with a staggering 1621 unconditional sales taking place.
Apartments sold during this quarter revealed a weighted sale price increasing to $551,558 from a recorded $545, 478 during the three month period to September 2014, a figure which remains relatively unchanged.
An apartment “boom” was evident with a total of 12 new projects released during the December 2014 quarter, spanning a colossal 2760 new apartments – more apartments in a single quarter than during the entire 2013 calendar year.
The report identified that the most unconditional sales of the December 2014 quarter arose from the inner-northern Brisbane off the plan apartment market, which included 620 unconditional transactions with a weighted average price of $481,774, representing 38 per cent of all sales during the period.
Thursday, March 12 2015
(Source: AFG Mortgage Index)
Mortgages processed last month by AFG, Australia’s largest mortgage broker, surged 58% higher than in January, and 16% higher than in February 2014, according to the latest AFG Mortgage Index.
The $4.3 billion of mortgages processed in February included a record $280 million processed on the last Wednesday, 25th February, the largest single day’s volume AFG has recorded in its 21 year history.
Mortgage volumes varied significantly from state to state, with South Australia showing the greatest increase of 31% on February 2014, with NSW up by 25%, VIC by 21%, QLD by 15% and WA going backwards, processing 4% less in volume than in February 2014.
Mark Hewitt, General Manager of Sales and Operations (pictured) said the figures were encouraging.
‘February is the real start to the mortgage year and overall we’re off to a flying start this year. No doubt the February rate cut has made borrowers more confident, but it’s important to recognize the significant variations from one state to another,” Mr Hewitt said.
“We’re also keeping a close eye on the proportion of investors, but this hasn’t changed on the levels we’ve been seeing for the past twelve months.”
Loans to investors comprised 39.6% of all home loans processed last month, a similar figure to those reported each month for the past year.
Fixed rate mortgages declined as a percentage of all home loans to 13.6%, its lowest since August 2011 when only 9.4% of borrowers chose fixed rate loans. The rise of Introductory loans continued to a fresh high of 7.9% last month, indicating the proportion of borrowers.
Wednesday, March 11 2015
(Source: The Urban Developer)
Australia’s population is likely to greatly exceed the Intergenerational Report’s (IGR4) forecast of 39.7 million people by 2055, according to advisory group MacroPlan Dimasi.
The baseline assumption in the IGR4 is that net overseas migration will average 215,000 people per annum.
However, MacroPlan Dimasi Chairman Brian Haratsis believes the annual increase is likely to be closer to 300,000 persons per annum, even if the national permanent migrant intake is not substantially raised.
“Australia’s economy has become more dependent on long-term temporary residents, including overseas university students, skilled workers and family visitors,” Mr Haratsis said.
“Recent history has shown that sectors leading economic growth are dependent on our temporary residents. Our healthcare, professional services and tertiary education sectors provide leading edges to jobs growth.”
The 16 million new Australian’s will drive demand for around 12 million homes, 32 million sqm of retail floorspace and 160 million sqm of office floorspace. By 2055 both Melbourne and Sydney are likely to be the same size as Chicago is today at 9 million people.
MacroPlan Dimasi argues that it is now time for a refresh of macroeconomic policy, with a focus on industry perspectives (rather than industry policy).
“It is clear that both monetary and fiscal policy, as sources for momentum, are close to exhausted. Moving forward, Governments will need to offer more detailed and considered analysis of how the economy is evolving” Mr Haratsis said.
One area policy makers should be focussing on is the tourism sector, which is complex as a source of demand for transport infrastructure, retail services and property investment. Our services for overseas tourists are thriving, but this sector remains undervalued and misunderstood.
“Framing actions for the next 40 years will require thoughtful assessment of the global services boom, as it collides with the digital revolution and growth in Asian middle class wealth,” he said
Wednesday, March 04 2015
Cash neutral investment properties are those that pay for themselves without any additional contributions from the investor. If the property is one that delivers reasonable price growth over time it really becomes a no brainer. A property that pays for itself and builds your wealth and your retirement fund. But do they exist and where do you find them?
Do they exist? Yes, but you won’t find them with a sign out the front. And you probably won’t have much success if your are using realestate.com.au either. In fact if all you do is look at properties you will probably never find one.
That’s because the property is only one part of the story and there are a range of other factors that will influence a property’s cash position and whether it will be neutral for you, including.
- Your specific financial position
- Your taxable income
- Tax structuring
- The financial structure set up to fund the property
- How the property is managed
Unfortunately most people get focused on the “property” and pay little attention to the structure around it. In many cases the structure and strategy become an after- thought.
This is unfortunate because in many cased they are doing themselves out of thousands of dollars a year. Which in turn could undermine goals like paying off their home loan and building further wealth.
Our approach with clients is to start with the strategy first in the context of the client’s financial position. We map out the financial goals and then put in place the correct property and structure to support it.
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.
Wednesday, February 25 2015
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. And if you are audited by the ATO could result in substantial penalties.
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 this loan is tax deductible. Bill is dead wrong.
The 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 then 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.
Monday, February 23 2015
Sydney and Melbourne have definately been the growth stories of the last 2 years. Whereas Brisbane has been sluggish in comparison. There's probably many factors that have contributed to this but the softening in the mining sector and the public service cuts by the Newman government have put a dampner on confidence.
While Sydney has been going strong the rate of growth is above the long term trend which suggests at some point there will be a market correction. With a median of $850,000 and average yields of only 3.7% that's a fairly substantial shortfall for investors to fund.
Melbourne is sitting at $613000 with yields of 3.3%.
With Brisbane sitting at $485,000 average yields of 4.6% and interest rates now sitting at 4.5% and lower we feel its only a matter of time before some catch up occurs.
The key factors will be a return of confidence and improvement in the jobs figures. But don't think the market isn't moving up. It still grew 5.1% for the last 12 months.
So as always it will be the ones that move early while others sit on the fence that will maximise their upside.
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