REAL ESTATE INVESTMENT INDUSTRY UPDATE FOR FEBRUARY 2016
Here is the first in our series of real estate investment industry update. We will be publishing all of the latest property investment related news from our team of experts so you have the inside scoop.
NATHAN’S UPDATE: WHAT WOULD AN END TO NEGATIVE GEARING MEAN?
Both the federal government and the opposition are drafting their upcoming budgets and it seems negative gearing in their cross hairs. While they each have a different approach, both are indicating that negative gearing could be on the way out.
Contrary to popular belief, negative gearing is not a prop of the rich and wealthy. The Property Council of Australia states that of the 1.2 million Australians who negatively gear, 840,000 of these earn less than $80,000 a year. So many middle income Australians have been sold the negative gearing pipe dream and are losing their hard earned money each week, hoping that they will get it back once a year at tax time. It’s no surprise that 2 out of every 3 Australian investors will never own more than one investment property, it’s just too hard when relying on negative gearing! In reckon removing negative gearing will only make things harder for the investors who are already doing it tough.
I have always warned of the dangers of relying on negative gearing for building a foundation portfolio. Personally I built my portfolio on bread and butter properties which were positive from day one. Today my portfolio has an overall positive cash flow, so I have enough cash coming in from my rent to cover any negative gearing reform fallout. Secondly, to completely offset the effects I will just need to raise rents slightly across each of my properties. The way I see it the biggest losers will be the poorer families relying on rental housing or saving a deposit of their own as they will have to cover the cost of investors shortfalls.
Watch the video below to get more of my thoughts on this issue
FINANCE UPDATE: GENERAL NEWS
Do you feel like the new APRA changes have knocked the wind out of your sails? You are not alone, Tim Wong from Zinger Finance has seen a rise in the number of property investors who feel they have hit a wall with their current lender of financial structure. Although the lending environment has changed there is no need for despair, however it is now more important than ever to seek strategic long term finance advice rather than chasing loans for one off purchases. On the positive side some banks are beginning to incrementally loosen their restrictions for investors. A summary of the APRA changes can be found here.
In terms of interest rates, the Reserve Bank of Australia has continued to hold interest rates at historically low levels of 2% for this February. All the indications are that they will continue to remain low for the foreseeable future. Read the RBA’s full media release here.
The First Home Owners Grant has been reduced to $10,000 in New South Wales and is applicable for homes up to a value of $650,000. The change became effective as of Jan 1st 2016.
PROPERTY MANAGEMENT UPDATE: GENERAL TIPS AND ADVICE
Scott Johnson from Blink Property Management shares the following advice;
At rent renewal time make sure your property manager is aware of not just the current market price but also the ‘current market trend’. For example the fair market price for your property might be $250/week however the current local market is seeing a saturation of comparable properties advertised for $220/week. In this case your property will likely lease out last and It may be better to drop the advertised rent and apply an increase within the tenancy period.
Australia Post has made changes to the speed and price of its services. Regular mail will now take as much as 6 days to deliver while the cost of sending a regular letter has increased from $70c to $1. Priority letters now cost $1.50 and can take up to 4 days to deliver. In light of these new changes it is a great idea to have your tenant sign an electronic mail authority letter which will help you deal with problem tenants quicker while leaving more money in your pocket.
LEGAL UPDATE: NEW NSW STRATA LEGISLATION
The NSW parliament passed new strata legislation late last year. The new legislation touches on several strata issues which are summarised in each section below.
- Transparency and accountability:
Key changes include lifting standards and accountability of strata managing agents and building managers. This will involve enhanced disclosure of any conflicts of interest, including financial interests. Strata managing agent agreements would be time limited to one year in the first year and three years in following years.
- Modern and flexible schemes:
Changes will enable use of modern forms of communication. Voting will be able to occur through the post, electronically and through secret ballots. Papers can be distributed by email. The reforms will accommodate meeting attendance through social media, video and teleconference. They will also enable owners corporations flexibility to determine when their annual general meetings are held.
- Collective sale and renewal:
This new process recognises the rights of owners to jointly end or wind up a strata scheme so the site can be sold or renewed if the majority of the owners are in favour.
- Maintaining the building’s condition:
Changes include introducing mandatory defect inspection reports and a building bond. These will enhance consumer protection if a new building has defective work by encouraging the developers and builders to fix defects quickly. Developers of dwellings over three storeys will be required to lodge a 2% bond for the contracted price of the building, as a form of security to fix any defective work.
- Owner renovations:
The legislation will waive restrictions for minor, cosmetic changes to lots such as inserting a picture hook. Renovations with a lasting impact, such as installing floorboards, will still require approval but only a general resolution (50% of the vote). Renovations like those that affect the structure or external appearance of the building will still require a special resolution (75% of the vote).
- Proxy voting:
The reforms would limit the number of proxy votes able to be held by one person to one proxy vote only for schemes with less than 20 lots, or 5% for schemes with more than 20 lots.
Reforms will introduce a model by-law dealing with smoke drift. It will also reform the model by-laws to make it easier to keep pets.
- Tenant participation:
The new strata laws will allow tenants in schemes where the majority of units are tenanted to take part in owners corporation meetings and have an elected representative on the strata committee, while respecting the financial decisions of owners.
- Levies and capital works funds:
Owners corporations will be able to more easily recover outstanding levies that are mainly used to pay for the scheme’s day-to-day expense during the period between when the strata plan is registered, and the developer has sold at least one third.
- Dispute resolution:
The reforms will expand the Tribunal’s power to exclusively deal with most strata disputes, including orders to recover outstanding levies.
FINANCIAL PLANNING UPDATE: AUSTRALIANS ARE FINANCIALLY EXPOSED
Our in-house financial planner, Hasitha from Dynasty Financial Planning, revealed some shocking statistics which painted a picture of just how financially vulnerable the majority of Australians are. While 83% of Australians insure their car only 31% of us insure our income (lifewise.org.au). Using the illustrative example of a 35 year old Sydney male driver, it costs $100/month to insure a $45,000 four door sedan. It could cost as low as $75/month to insure his $45,000 income, so are our priorities right? Assuming you were unable to work because of illness or injury, how long do you think you could survive on zero income before needing to sell off your assets?
Source: Zurich Mis-insurance whitepaper February 201
Many people assume that because they make active super contributions that they are covered for loss of income, however how many of us have actually looked at the fine print and run the numbers? Would your Super Fund’s insurance policy actually be enough to keep you and your family afloat?
If any of these numbers concern you maybe it’s time to start running the numbers and finding out how you can protect your lifestyle, wealth and assets. To get a personal assessment email Hasitha from Dynasty Financial Planning today. Send your email to firstname.lastname@example.org.
If you have any comments or feedback about this months update then please let us know about it in the comments section below!