PROPERTY UPDATE JUNE 2016 EOFY EDITION
NATHAN’S UPDATE: GEN-Y HAS NOT BEEN PRICED OUT OF THE MARKET
There is no doubt that young people live in a very different world than that of their parents when Australia was just a fledgling country with little established infrastructure and plenty of room to grow. But, just because things may not look the same as they did back then doesn’t mean Gen-Y has the right to throw in the towel and give up on home ownership. I heard a lot of this victim mentality being defended while I was a guest on ABC2’s HackLive show The War On Young People.
People were quick to point the finger at the government, the baby boomers, employers and investors for taking away their ‘entitlements’ but offered little in the way of a solution to their perceived problems. I can’t argue that things haven’t changed. According to McCrindle Research, incomes have risen 10 fold since the 70’s but house prices have gone up 30 fold. The Grattan Institute also states that the wealth of Gen-Y shrunk by 2.7 per cent annually in the last decade while baby boomers increased their wealth by 2 per cent each year.
Some people look at these numbers and think that there is some kind of conspiracy against them, a war against young people! Unfortunately, this mindset can breed a self -perpetuating cycle. The Grattan Institute states that the biggest reason for the difference in wealth between younger and older generations is home ownership, with older Australians growing in wealth thanks to the rising value of their brick and mortar assets. With this in mind, it is more important than ever for Gen Y to get a foothold on the property ladder.
Fortunately for Gen Y interest rates are at historic lows. Some may recall back to 1989 when nominal interest rates were 17 per cent and inflation was at 8 per cent. This meant the real interest rates were around 9 per cent per annum. Today the nominal rate is 1.7 per cent and inflation is 1.3 per cent (RBA) meaning real interest rates are around 0.4 per cent per annum (with a little bit extra added through the banks). This means while properties may seem expensive, and getting a deposit can be a big hurdle, the cost of holding property is not that high, with some economic big wigs saying it’s actually easier on a weekly basis than in the past. So where’s the crisis? Is it possible there’s an assault on people’s mindset rather than a housing affordability problem? What many young people don’t see is that the previous generation didn’t simply walk into a job and buy a home. They worked hard, sacrificed and practiced delayed gratification. People today can’t start their lives living to the same standard as their parents do now.
My advice to young people wanting to get on the property ladder is to be realistic and target what you can afford. People often like living in the urban fringe and get frustrated when they can’t afford to buy a property there. Just because you can’t buy your ideal home in an inner city suburb doesn’t mean you can’t keep renting and living there while you invest in property within an affordable capital city location. By investing rather than owning you can have the best of both worlds, knowing that your mortgage is paying for itself and enjoying the freedom to change jobs, cities and travel. Young people do have the power to change their lives and own property even today, though maybe not in the same way as their parents did.
FINANCE UPDATE: BANKS TRY TO ATTRACT MORE PROPERTY INVESTMENT LOANS
The latest figures show that the measures triggered by APRA”s guidelines have been working a little too well. Property Investor loan growth is now well below the target of 10 per cent annual growth, sitting at just 7.2 per cent, down from the 11 per cent growth seen in the first half of 2015. As a result, some banks have made changes to their policies in a bid to attract more investor business. Read exactly which banks have lowered their investment loan requirements here.
ACCOUNTING UPDATE: HOW CAN THE NEW FEDERAL BUDGET AFFECT PROPERTY INVESTORS USING SUPER TO INVEST?
This year’s federal budget includes several changes to superannuation that may force property investors using self-managed super funds to rethink their retirement strategy. As part of a larger reform that will allow the government to redirect tax concessions from the very wealthy to those at the bottom end, the shake up to superannuation that has been outlined in the 2016 budget has come after a surge in the industry’s growth – an acceleration prompted by the 2007 legislation that allowed borrowing through SMSFs. Ridhwan Hannan from One Path Accountants outlines the impact of these changes to super that will limit those looking to invest in property through their SMSF here.
PROPERTY MANAGEMENT UPDATE: 4 WAYS TO INCREASE YOUR RENTAL INCOME
While thinking about your investments and finances you could be wondering how to get the most rental yield from your assets. It’s a good time of year to think about the shape of your investment properties and what you could do to improve your return for the following financial year. Read the 4 expert tips for improving your rental income here.
LEGAL UPDATE: BUYERS OF PROPERTIES SOLD BY FOREIGN RESIDENTS TO PAY 10% WITHHOLDING PAYMENT TO ATO
As of July 1, 2016 buyers of properties worth $2 million of more, which are being sold by foreign residents will incur a 10% withholding payment to the Australian Taxation Office. It seems like an odd piece of legislation, asking Australian residents to pay more while foreign investors rake in the cash. However, the legislation is actually an attempt to recoup lost capital gains tax revenue from foreign residents who evade ever making the capital gains tax payment to the ATO. Read the whole story here.
FINANCIAL PLANNING UPDATE: HOW CAN YOU BOOST YOUR SUPER BALANCE
For most Australians nearing retirement, the average super balance is not holding anywhere near enough for a “comfortable” retirement. Superannuation management is not something many people think of until they are already approaching their twilight years. However, end of the financial year is a time when most of us start paying more attention to our finances, financial strategies and research options for improving our financial standing.
Some people might treat this time of year as a hall pass, to splurge and buy those big ticket items they wouldn’t otherwise give themselves permission to buy. However the EOFY buying frenzy is a bit of a fallacy, if you want to reduce the taxes you pay while making sure your money goes to good use then why buy depreciating assets and non-capital generating items? Instead, there could be an opportunity to reduce the tax you pay and boost your super at the same time.