REAL ESTATE INVESTMENT INDUSTRY UPDATE FOR MARCH 2016
NATHAN’S UPDATE: DON’T BELIEVE THE DOOMSDAY HYPE!
There has been a bit of a media frenzy about a supposed Australian Real Estate bubble since my last update. This stirred up a lot of fear in people and they have been asking me for my thoughts. The way I see it the overall outlook for Australian real estate is positive. Undeniably there are micro-markets where things aren’t looking flash, but anyone who’s been following my advice would have stayed well clear of these areas and avoided the burn of imploding mining towns.
I have always been a firm believer that the best advice on playing the game comes from those who are out on the field scoring the points. There are a lot of spectators and commentators out there who think they know the game inside out, but unless they are down there in the trenches and winning you have got to question the authority and motivation behind their advice.
Anyone who has followed Binvested knows we are severely allergic to bullshit and we call it like it is because we are passionate about helping people to live life on their terms.
FINANCIAL PLANNING UPDATE: ARE YOU ADEQUATELY PROTECTED FROM SHUDDERS IN THE STOCK MARKET?
Following recent shudders across domestic and international stock markets many analysts are proclaiming that these are evidence of a major correction on the horizon. The Nobel Prize-winning economist Paul Samuelson famously joked that “Wall Street Indexes predicted nine out of the last five recessions”.
Does this mean the sell-offs which greeted the New Year are pointing towards another recession? Probably not, however Joseph V. Amato, President of Neuberger Berman Group LLC believes that “Markets seem to have been hit by a confluence of three factors: the slowdown and market uncertainty in China; having to digest the (United States) Fed’s first rate hike for a decade; and, especially, the collapsing oil price… the concern is that sub-$30/bbl prices are telling us something worrying about the state of global demand”.
While investment columns don’t make for light reading it pays to keep abreast of the market environment and understand how it could affect you. During the GFC of 2007/08 many Australians had to watch as an entire year’s super contributions were eroded along with up to a third of the value of their super holdings. While fortunately most people were able to wait it out and recoup their losses, a significant segment were detrimentally effected because their super assets did not reflect their risk appetite and life stage.
Hasitha Perera, the financial planner for Dynasty Private Wealth warns “there is a high chance you have a large exposure to investments within your own super fund if you haven’t reviewed and taken control of your retirement savings. Is your super invested to mirror your core values and beliefs? How do you know how much is enough to live on, and how do you know your investments are suitable for you and your family?” A qualified financial planner can review your situation and align your investment and wealth protection strategies, this will protect your wealth along with your lifestyle.
FINANCE UPDATE: BANKS CONTINUE TO SHIFT LENDING GOAL POSTS
APRA released its most recent Deposit-taking Institution Property Exposures report last month. The data showed that the total of all residential property related exposures across lenders was $1.38 trillion dollars in Dec 2015. Overall 39.3 % of all residential loans were on interest only terms, with an average loan size of $249,000. Residential investor loans accounted for $500.0 billion (36.1 per cent of all residential loans), an increase of $12.5 billion (2.6 per cent) from 31 December 2014. Owner occupier loans accounted for $884.1 billion (63.9 per cent), an increase of $100.1 billion (12.8 per cent). With owner occupier loans growing faster than investment loans, it seems that the purse string tightening towards investors is having a visible effect.
Investment loan interest rates continue to be higher than those for owner occupiers however Tim Wong of Zinger Finance comments “a lot of lenders are promoting discounts on their owner occupied home loans. There are some offers extending discounts to interest only investment loans provided the lending is combined and the securities crossed. We advise using caution and checking the conditions that apply to any discounting offer”. The finance environment continues to change as banks continue working out the kinks in their new lending policies with Wong saying “We have seen more lenders adopting restrictions on variable salary components such as overtime, bonuses and commissions. Several lenders now only accepting a maximum of 80% of this type of income for loan servicing”.
However investors hoping to shop around may be disappointed, Wong continues “there increasing uniformity across the industry on the calculation of monthly household living expenses. HEM (Household Expenditure Measure) is now becoming the accepted benchmark measure for lenders to assist in determining serviceability’ and most lenders now require 2015 tax returns for self employed applicants”.
Have you been knocked back by your bank? Are you looking for expert advice? Get in touch with Zinger Finance today so see what options could be open to you.
ACCOUNTING UPDATE: IS THERE A SILVER LINING TO NEGATIVE GEARING REFORM?
There has been much debate about negative gearing with Nathan providing his thoughts on what it would mean for the Australian residential property market in last month’s update. But what will it do for an investors balance book? Ridhwan Hannan from OnePath Accountants shines a light from an accounting perspective.
According to Hannan, some of the major benefits of negative gearing are that “Investors can use tax breaks to be able to afford investment properties and it also creates an active buy and build market along with varied density projects taking place and a constant pool of people buying and selling”.
The negatives of the current property tax environment is that “ultimately the tax office wins once a property is sold due to capital gains tax”. If negative gearing were removed along with capital gains tax is would likely favour mature investors with neutral to positively geared properties who are wanting to consolidate their portfolios.
For investors who positively gear the removal of these two tax treatments would be positive on net. Investors who have neutrally geared will likely see themselves thrown into a negative scenario unless they increase their rents.
Have you got concerns about the cash flow of your portfolio? Get in touch with the expert property accounting team at OnePath Accounting to take full advantage of the current negative gearing opportunities.
PROPERTY MANAGEMENT UPDATE:
WHERE WOULD RENTS RISE THE MOST IF NEGATIVE GEARING IS REMOVED?
A fresh new report just published by BIS Shrapnel has forecast the average rental increases by state which would occur if the negative gearing were to be removed. The increase varies according to state, however ranges between 4.3% and 10%. The percentage increase is related to the average rental rise which would need to occur in order for investors to break even on their investments. The report projects a modest rental rise in Sydney and Brisbane of between 5% and 6%, with the greatest increase of 10% to occur in Adelaide. For the majority of our investors who are already positively to neutrally geared, this would provide a nice boost to their cash flow.
AUSTRALIAN POST CHANGES CREATING A HEADACHE FOR LANDLORDS
Changes to the postal system are causing headaches for landlords as it is now taking longer for bills to be delivered (up to 17 days) which can result in late payments if sufficient funds are not available to be drawn. In the past a shorter postage period allowed the property manager to withhold enough funds after receiving the bill to pay the bill within the 30 day payment terms. The current restrictions only allow 2 weeks’ worth of rent to be drawn from which is often not enough and could result in late fees. If you are concerned about the possibility of late fees on any upcoming bills you should consult your property manager to work out a solution.
LEGAL UPDATE: OFF THE PLAN BUYERS OFFERED MORE PROTECTION AGAINST THE UNETHICAL USE OF SUNSET CLAUSES
The NSW state government has introduced new laws relating to termination of property development contracts upon expiry of sunset clauses. The laws were introduced to provide protection to buyers of off the plan properties. The laws were designed to prevent developers from behaving unethically in order to profit from sunset clauses. It was reported that developers were citing delays in building progress as reasons for invoking a sunset clause termination, and then reselling apartments for a higher price to new buyers. Meanwhile the previous buyers may have been waiting for months or even years only to be disappointed and left unable to afford the new market prices.
The new laws stipulate that in order to terminate a contract the developer will need to seek the expressed permission from each buyer. Should any of the buyers disagree the developer will be required to honour the original contract or demonstrate genuine reasons for rescinding the contract to the Supreme Court and obtain an order permitting the contract to be terminated.
The new legislation covers all uncompleted projects in existence prior to 2 November 2015 and any new contracts entered into after 2 November 2015. If you are currently experiencing difficulties with your off the plan purchase or have been presented with termination notice from your developer contact Zenith Legal today.