The Federal Budget delivers a few changes for investors to consider

May, 2017 by

The federal government’s determination to commit to negative gearing and capital gains tax discounts in last week’s budget is welcome relief for real estate investors. However, there are a few measures that seemed to have appeared from out of the blue, which will require further detail, writes Angus Raine, Executive Chairman, Raine & Horne.

Negative gearing going nowhere

Pleasingly, the Government reiterated in the budget that it has no intention of removing or limiting negative gearing or changing the capital gains tax discount. To do so, would add to the tax burden on Australians trying to provide a future for their families. This practical decision maintains the supply of housing for our growing population, keeps rents affordable and eases the burden on social housing. It will also give many Australians the confidence to keep investing in bricks and mortar to build long-term wealth.

Depreciation deductions limited for residential rental properties

While the government left negative gearing intact, the decision to tighten some deductions will create confusion among property investors. For instance, plant and equipment depreciation deductions will be limited to equipment purchased by investors in residential real estate properties from 1 July 2017. I’m not an accountant, so I looked to the National Tax and Accountants’ Association (NTAA) for some clarification. The NTTA says plant and equipment items are usually mechanical fixtures or those which can be easily removed from a property such as dishwashers and ceiling fans. According to the NTAA this is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors more than their actual value. I have no idea if this double-dipping is happening, however, we need to see more detail from the government about this measure.

Change to travel expenses

Travel expenses related to residential rental properties will also be disallowed. Deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed from 1 July 2017. This measure will not prevent investors from engaging third parties such as real estate property managers such as Raine & Horne – property management services will remain tax deductible.

To find out more about what the taxation measures announced in the Federal Budget mean for your investment property, please contact to your accountant.

 

Australia’s real estate affordability

April, 2017 by

Tax breaks for retirees and a return to old-school values are the answer to Australia’s real estate affordability issues, writes Angus Raine, Executive Chairman, Raine & Horne.

As real estate values keep charging ahead in most parts of Australia, the housing affordability debate continues to rage.

Half of the country’s leading economists believe that Millennials face a bleak economic future compared to their parents’ generation, according to a recent survey by finder.com.au  These economists cite housing affordability as the primary concern, followed by slow wages growth, fewer career opportunities, and the trend from full-time toward part-time work.

However, the survey also showed that 35% of economists and investment experts disagree with that grim assessment. They argue that housing affordability and wages growth can change over time with social shifts and policy changes.

I’m with the 35%. I believe that with some social shifts and policy changes, we can tip housing affordability back in favour of first-home buyers.

Ease the stamp duty burden

April, 2017 by

Let’s start with stamp duty breaks for empty-nesters aged over 70. Currently stamp duty costs are stopping many empty-nesters in Australia’s capital cities from downsizing to a smaller home or moving out of the city. The result is a low supply of houses in the second-home-buyer market, which, in turn, is causing affordability issues for first-home buyers.

I read with interest a report from consulting firm SGS Economics and Planning, which noted that it’s becoming increasingly difficult for young first-time buyers to enter the market in Sydney because retirees are choosing to stay put in desirable suburbs. It seems to me that many of these retirees would prefer not to take a hit from stamp duty, even if it means they have to forego the dream of heading to a retirement home on the coast.

Stamp duty erodes retirement savings, so it’s little wonder empty-nesters might be hesitant to move on from their family home. It is a serious consideration retirees need to weigh, especially those who retired before the advent of compulsory superannuation in the early 1990s and therefore have limited savings.

Giving older Australians a break on stamp duty would be a win-win: retirees could downsize and move to the places where they want to retire, meanwhile freeing up housing stock in our capital cities.

Remember the property ladder

April, 2017 by

In the past, Australians were happy to take measured steps up the property ladder towards their dream home. Some were even prepared to take many decades working their way up through a succession of apartments, terraces and bungalows until they had the financial wherewithal to acquire a dream family home.

For me, the key to climbing the property ladder is location: if you graduate to a more desirable suburb with your next home purchase, and do the same thing the next time you sell, you will build value faster than if you stay in the same suburb and keep buying grander homes. It might be a case of trading off an extra bedroom to live in a great location.

But over the last few decades, there’s been a cultural shift. People don’t talk about the property ladder any more. Buyers have come to expect that they should get their ideal family home right now, rather than arriving there through a gradual journey.

I’m calling for another cultural shift – back to the notion that a family’s first property is only the initial step on the property ladder. A change in perception of what a first home means, a new attitude toward growing value gradually as you climb the property ladder, and stamp duty changes freeing up the supply of homes are what we need to prove the economic naysayers wrong.

Will changes to negative gearing hurt the rental market?

March, 2017 by

The answer quite simply is yes. A proposal pushed by the Federal Opposition prior to the last election to restrict negative gearing to new properties was universally howled down by almost all sectors of the property market with experts saying it will lead to higher rents and drive house prices up even further.

Labor’s proposal to limit negative gearing to new housing from July this year and reduce the capital gains tax discount to 25% was slammed by the experts who say the move would hurt renters the most and do nothing to help housing affordability.

Renters in major metropolitan cities like Sydney are already paying up to $2,000 a week due to low stock and low vacancy rates and property experts say any change to negative gearing policy would drive up rents further and affect the “most vulnerable people in the community”.

REIA president Malcolm Gunning said the major beneficiary of negative gearing are renters because it has proven to increase supply. “The rate of increase in rents has plummeted since investment in housing started to pick up at the end of 2011,” said Malcolm. “For Australia, rents increased by 0.7% for the year ending September 2016 which is the lowest annual increase since March 1995.”

Changes to negative gearing would have an enormous impact on an already tight rental market and see less rental properties causing rents to rise even more. A report by property analyst SQM Research showed Labor’s proposed negative gearing changes could see rents rise by as much as 6% and property prices fall by 15%.

Raine and Horne Executive Chairman Angus Raine, said any change to negative gearing was “personal”.

“I represent the fourth generation of my family to lead Raine & Horne and I’m taking the ALP’s proposals personally because we’ve been helping Australians build wealth for four generations and 134 years,” said Angus. “The end of negative gearing will mean investors can no longer write off rental losses against other income, deterring people from investing in property at all.”

Recent reports showed the Government was now providing less than 12% of rental properties compared with 25% prior to the introduction of negative gearing in the late 1980s.

The report argued that most first-world countries provide some kind of tax relief or subsidy to ensure the supply of rental housing and if negative gearing was removed or changed in a way that leads to investors leaving the market, it would create other problems. It’s a sentiment Angus agreed with. “If landlords lose the ability to write off losses on investment properties, and current rents don’t cover the mortgages and other costs they incur, they must increase rents until they do,” he said.

 

 

The Great Australian Dream is still achievable

February, 2017 by

The Great Australian Dream is still possible, writes Angus Raine, Executive Chairman, Raine & Horne.

I recently read a media release issued by a mortgage broker breathlessly claiming the Great Australian Dream was essentially on life support.

For starters, I’ve heard this declaration, or similar, countless time over the past 30 years, yet owning a house still seems achievable for many Australians. Also once you dig below the sensational headline, claiming that 90% of the survey respondents believed owning a free-standing home was impossible, the mortgage broker, who makes money from the sale of property, said it appears the traditional dream is evolving. The media release elaborated: “Australians no longer consider owning a free-standing home as the ‘Great Australian Dream’. Instead, they believe the ‘dream’ has evolved to include any style or type of property.”

Charles Darwin will be spinning in his grave. Of course the way we choose to live continues to evolve. One man’s cave is another man’s New York loft apartment. The facts are there remain unresolved housing affordability issues in some of our biggest cities. But it’s never been a cinch to buy a house. I remember interest rates of 16 and 17% in the late 1980s. Likewise, we didn’t have the massive banking competition in those days that we have today. More competition gives us the chance to borrow money, and at affordable rates, which are currently at historic low levels.

Go west (north or south) young man

To my way of thinking, with some compromises about where you’d like to live and where you can afford to buy, it is still possible to buy a free-standing house. For example, I really urge people to consider the affordable housing offered by some of Australia’s favourite regional towns. The trick is to buy into a regional town that has a diversified economy and plenty of job opportunities to sustain long-term real estate growth. In the northern NSW town of Coffs Harbour, for example, there are more than 79,000 jobs across 19 sectors. According to a federal government website, in addition to jobs in local agriculture, the Coffs region employs around 79,000 workers, with about 17% working in the local healthcare sector, 14.5% in retail, 10% in accommodation and education and about 5% in manufacturing and construction. What is more, in Coffs Harbour, it’s possible to buy a house for $415,000, according to Raine & Horne. Likewise, in the state’s south, a house in the bustling town of Goulburn will set you back a very affordable $339,000 and just $320,000 in Nowra, which is located on the state’s south coast.

It’s also worth keeping in mind that a well-selected free-standing house, for which you paid a fair market price, should continue to rise in value over the long term, and the time will come when you own your property mortgage-free.

Take control of your Christmas spending

December, 2016 by

`Tis the season for spending money, but with a few simple financial tips, it’s possible to avoid a financial hangover, which lingers well into 2017, writes Dawn Inanli, General Manager Financial Services, Our Broker.

Australians are expected to shell out at least $9.7 billion on Christmas presents this year, according to comparison website Finder.com.au. That’s an increase of 28%, or $119 per adult, on last year.

It’s easy to get caught up in the holiday spirit and splurge on trinkets, turkeys and tinsel. The danger is that if you use credit cards to fuel this spending, you can wind up with a debt hanging over your head in the New Year . . . and potentially for many New Years to come.

The surefire way to avoid digging yourself into debt this Christmas is to use cash. It might even earn you a discount! Yet the reality is that many of us will flash the plastic fantastic this Yuletide season. So here are 6 tips for taking control of your credit card spending. Follow them and you will give yourself the best gift of all: a debt-free New Year.

 

  1. Stick to a budget. Shopping for the perfect gift can be fun. . . . well, for most people, “fun” isn’t the word that springs to mind. But before you spend a cent, it’s important to work out how much you can afford to repay on your credit card. Use your bank balance for guidance rather than your credit card limit.

  1. Use only one credit card. A trap many people fall into is using more than one card to pay for Christmas expenses. Multiple cards make it harder for you to budget but easier to for you to run up considerable debts.

  1. Never treat a credit card like an ATM card. Use your credit card to withdraw cash and you’ll pay a much higher interest rate immediately. This is true even if your card gives you an interest-free period for purchases. Indeed, the purchases you make after getting a cash advance will also be hit with the heftier interest rate until the credit card is repaid in full.

  1. Choose the right credit card. It’s a good idea to regularly compare your credit card with others on the market, because selecting the card that best suits you can save you money. Let’s say you have a card that charges 18% interest and comes with rewards and interest-free days. If you don’t take full advantage of the rewards or fail to pay the card in full each month, the high interest charge will sink you deeper in debt. You would be better off shifting to a no-frills card, which will have an interest rate nearer to 10%. But if you do plan to change cards, be sure to check the fine print first, because annual fees can add to the costs.

  1. Don’t fall for paying only the minimum. On your credit card statement, the minimum payment is calculated at roughly 2.5% of your outstanding balance. The trouble with making only the minimum payment each month is that it drags out the time needed to repay the debt, which blows out the amount you pay in interest. To head off post-Christmas financial blues, pay the monthly closing balance or pay as much above the minimum payment as you can afford.

  1. Remember what Christmas is all about. If you feel you’re about to give in to the temptation to spend more than you’ve budgeted, one option is to shred your credit card. Christmas is meant to be a time to come together with family and friends to celebrate. You can give the people in your life a lot more than the stuff a credit card can buy—and surely that’s one of the best ways to ensure the Christmas cheer continues into the New Year!

 For more tips on effective budgeting, contact Our Broker on 1800 913 677

 

Don’t allow your home to become a crime scene this Christmas

CrimeScene

November, 2016 by

In the excitement of preparing for the Summer holidays, it can be easy to forget to secure your home against unwanted intruders this Christmas, especially if you are planning a vacation.

However, some simple strategies can help maintain the security of your home during this busy time of year:

  • Ensure doors have high-quality locks, particularly deadlocks, and windows have keyed locks or security grills.
  • If your home has sliding doors or windows, place a simple metal or wooden rod in the cavity to prevent them being opened from the outside.
  • Install a security alarm, and lock up the power box to prevent tampering with alarm systems and lights.
  • Ensure gates are locked and gaps in fences are repaired.
  • Install a sensor light to flick on when someone approaches your home.
  • Set a timer to switch on your lights and a radio or television at different times.
  • Hang some old clothes on the line and leave a pair of shoes at the front door to give the impression your home is occupied.
  • Turn down the ring tone on your phone so people don’t know you’re not around.
  • Don’t leave a message on the answering machine or voicemail telling people you are away.
  • Suspend newspaper or magazine subscriptions during your absence.
  • Ask neighbours to collect your mail, park a car in your driveway and put your rubbish out for collection.
  • Trim the grass before you leave and ask a neighbour to cut it again if you are away for more than a few weeks.
  • Make sure garden sheds are locked to prevent burglars gaining access to tools that could aid a home invasion.

How to hayfever-proof your home this spring

October, 2016 by

While spring is a welcome break from the cold of winter, it also brings its own trials and tribulations for the unfortunate sufferers of hayfever. Blooming spring flowers lead to increased pollen counts and the side effects of sneezing, watery eyes and itchy throats. But hayfever sufferers need not despair – we’ve gathered a few guidelines to help you reduce the impact of hayfever in your home.

1. Go native with your garden

According to the Australasian Society of Clinical Immunology and Allergy (ASCIA), grass pollens are the main outdoor trigger for allergic rhinitis, also known as hayfever. Tree pollen allergies are less common, but could still be the cause of your discomfort.

As painful as it may be, it you want to really cut down on your hayfever suffering, it might be time to replace those exotic trees you planted in the garden during the autumn. ASCIA describes how native Australian grasses and trees have pollen that may have less of an impact on your allergies; returning to the classic Australian backyard could be a great first step to fighting hayfever.

2. Lighten up your window coverings

Heavy drapes are a great choice in the winter when you want to keep your home warm and snug, but they become a lot less useful in the balmier, pollinated air of spring.

The heavy fabrics used in drapes are notorious for trapping dust, pollen and other allergens, keeping your exposure high and your hayfever constant. Try switching them out for a lighter sheer or net curtain, or even washable blinds. Your nose will thank you – and it’s a great opportunity to try a different look for your home as well.

3. Leave your shoes behind

Your shoes, hair, clothes and even pets can all bring pollen into your home. While it might be a step too far to expect people to wear hair nets when they visit and take a shaver to the family pets, the removal of shoes is an easy solution to keep the pollen out.

It might also be advisable to try a change of clothes when you get home, and if you have time, wash your hair as well. This way, the pollen is washed away and is no longer in sniffing distance of sensitive nostrils.

Using these tips, you can stop hayfever dictating your home comfort. Plus, if you’re trying to sell your home during the spring rush, you might find that people are more receptive to a property that doesn’t literally make their eyes water!

Kick Start your fitness program this spring

September, 2016 by

Spring – you can feel it. The weather is warmer, the days are longer, and people are starting to emerge from their winter hibernation.

The turn of September is also a time when many of us look to shake off the inactivity of winter and revisit our long-forgotten fitness regimes. It’s a great time to set some personal fitness goals for the next six months – this could be something as aspirational as training for a marathon, partaking in a 5km fun run, or just getting back into a regular gym routine. So to help you get started, we’ve put together some useful suggestions to kick your spring fitness program into gear.

Enlist a buddy

If you’re struggling to find the motivation to start your fitness program, then why not recruit a friend to help you stick to your workout schedule? Buddying up with someone as you exercise will give you much-needed support, and you can both ensure you stay accountable and motivated towards your fitness goals. Over time, you might also build up a healthy rivalry and sense of competition which will keep you pushing forward.

Get to know your local park

The warmer weather means local parks and recreation areas are returning to life, with people once again enjoying the green spaces and sunnier days. Whether it’s an undiscovered walking trail, a group sporting activity, or some more serious training, you’ll find plenty of options in your friendly neighbourhood park. While you’re at it, be sure to enjoy the local character, stunning views, and social interaction as you exercise. And when you’re done, you might even find time for a healthy picnic.

Sign up for a fun run

If you’re up for a challenge, a foray into running might be just what you’re looking for. Apart from being a great way to burn energy, running is a fantastic way to enjoy the great outdoors. Participating in a fun run is a perfect family activity, and you can even design and set your own progressively harder courses. To train for your fun run, you might like to start by trading the car, bus, or train for a walk to work or the shops, before transitioning into running over time as you build up to the big day.

Get your cycling boots on

Dust off that bicycle in the back of the garage and explore one of the easiest ways to get active and enjoy the outdoors. Invest in a helmet and start with a simple ride, either in your neighbourhood or a local park, and start burning those calories! The best part is that bike riding is a low impact but intensely aerobic exercise, meaning you can easily increase your heart rate and improve your cardiovascular health at the same time.

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