Dispelling the myths about negative gearing

March, 2018 by

A new report released last month by the Australian Housing and Urban Research Institute (AHURI) joins others in confirming that negative gearing is not responsible for high home prices.

The report undertakes an in-depth review of the private rental market in Australia and nine other comparable countries, considering tax and finance settings, demand and supply and regulation of landlords and tenants.

Property Council Chief Executive Ken Morrison said the report, co-authored by Chris Martin from the University of New South Wales, Kath Hulse of the the Swinburne University of Technology and the University of New South Wales’ Hal Pawson, adds to the growing body of credible research that dispels common myths around negative gearing.

“We welcome this new AHURI report which finds that Australia’s negative gearing settings are neither out of kilter with those of other comparable countries, nor are they the driver of escalating house prices across much of Australia,” Mr Morrison said.

The AHURU report recommends that policy settings and any future strategy for rental markets should consider the tax settings in combination with the availability of finance, population, and other demand levers.

Other myths debunked

To my way of thinking, the media and political commentary about negative gearing concentrate on those who appear to be directly affected – the 1.7 million Australians who have an investment property, and the estimated 1.2 million who own a negatively geared property.

Mistakenly these so-called “property moguls” are not investment bankers, internet entrepreneurs or mining magnates. Instead, the majority are everyday Australians, who have only one investment property each. The data shows they’re mostly police officers, ambulance drivers, paramedics, train and tram drivers – hardworking Australians who are trying to build wealth for their family’s future.

Tenants will be the big winners – wrong

Tenants won’t escape the fall-out. There will be fewer rental properties available as investors take their money elsewhere. Rents will rise by an estimated 10% as landlords pass on some of the extra expense. At least 70,000 additional families will be in housing stress, potentially costing the government many tens of millions of dollars in assistance.

If you’re saving a deposit for a first home, the extra rental expense will hinder your homeownership plans. This result is ironic given Labor’s plans to scupper negative gearing aim to get more people into a first home.

Owner-occupiers won’t be affected by the end of negative gearing – wrong

With investors forced to take their business elsewhere, there will be fewer properties bought and sold. And we don’t need to be economists to know if housing demand falls, prices will follow. More than 65% of Australians own their own home – and a fall in real estate values will potentially leave some people owing more than their home is worth. The banks aren’t big fans of this situation – and we may see an increase in the number of distressed sales.

More broadly, 14.8 million Australians have a stake in the property market through their super funds, which will also fall in value, noted the Property Council of Australia.

Only real estate agents will be affected – wrong

It’s not hard to see that the direct effect on the real estate industry could be disastrous, with many job losses a distinct possibility – and some businesses will close. There are 1.4 million Australians working in real estate industry, which is the nation’s biggest employer. In comparison, the mining industry employs 218,000, according to research from the Property Council, while 819,000 Australians work in manufacturing. Moreover, property contributes 13% to Australia’s GDP (the economy). The industry is worth $202.9 billion to the economy, with health the next biggest with a total value of $112.9 billion, followed by mining ($99.5 billion) and retail ($73.6 billion).

But it doesn’t end here. The Australian economy is in a fragile state and with 25% of Australians are drawing their livelihoods from the property industry including builders, plumbers, draftspeople, architects, mortgage brokers, bankers and even property journalists.

As the federal election draws nearer, the shrill of the anti-negative gearers will intensify. To maintain some perspective, be sure to take a broader lens when considering the debate, as the demise of negative gearing will have wide-ranging impacts on our local communities.

Don’t leave new year resolutions to January

December, 2017 by

With the clock fast running down on 2017, the time has arrived to start considering your prospects for the bright New Year.

No matter whether you’re planning to lose a few extra pounds, start a self-improvement course, read more books, make additional mortgage repayments, quit smoking or trim your credit card debt, making positive changes to the way we manage our lifestyles and finances can make a world of difference.

The trouble is that a US study found only 9.2% of Americans felt they were successful in achieving their resolution, a figure that is probably close to mark here in Australia. Interestingly, despite the troubling result, the researchers believe people who explicitly make resolutions are ten times more likely to attain their goals than people who don’t explicitly make resolutions.

When it comes to successful goal setting, whether it’s in business or life, it’s essential that some measurable targets are attached. If you’ve resolved in 2018 to make higher mortgage repayments, choose a target that is realistic and measurable. Setting a goal such as “I will pay $50 extra each week into my mortgage” is more quantifiable than simply aiming to “pay more off the home loan in 2018”. Then ensure the extra repayments occur by setting up a weekly fund transfer that shifts cash online from your bank account into the mortgage. And while on the issue of the mortgage, be sure to review your current home loan rate to ensure you’re paying the lowest interest charges. A finance specialist such as Our Broker can assist with a mortgage review.

Moreover, look at your credit card debt and whether it went up or down in 2017? Spending more than you earn is remarkably easy and having to pay excessive credit card interest just compounds the impact of injudicious expenditure.

Creating a budget is another step you can take that will help you meet your financial resolutions. To create a realistic budget, list all your expenses, including your mortgage and credit card repayments. Compare your expenses to the money going into your bank account from your wage or salary, and the difference is the amount you have left over to make extra mortgage repayments or pay down some credit card debt. Having a budget, highlights where you can trim back some spending too. Reducing unnecessary spending frees up more money for extra debt repayments or additional saving. If you’re not sure how to create a budget, explore the budget tools offered on the Australian Securities and Investment Commissions’ Money Smart website.

That said, if you feel your credit card interest repayments have left you in a financial bind, then talk to Our Broker today. We can help you consolidate your higher interest charging debts such as a credit card into your mortgage to reduce your overall interest payments. Call us for an obligation-free discussion about debt consolidation on 1800 913 677 and let us help you make 2018 a winning year financially.

Regional real estate continues to shine

November, 2017 by

The June Quarter CoreLogic regional update once again confirmed that New South Wales has the largest number of Australia’s strongest performing regional markets.

Leading the way is the Illawarra region situated to Sydney’s south, followed by Newcastle, to the north of the capital, along with nearby Lake Macquarie. The Illawarra region recorded the largest annual increase in home values, up 15.8% for houses and 14.4% for apartments.

In Queensland, the Gold Coast region recorded increased values for houses (7.5%) and apartments (5.9%). On the Sunshine Coast, houses climbed by 6% and apartments by 4%. In Victoria, values in Geelong and the La-trobe-Gippsland increased. In Geelong, house prices rose by 8.3% and by 5.6% for units. In La-trobe-Gippsland, house values (2.9%) were out performed by apartments (4.1%).

Apart from the excellent growth, the benefits of buying in regional centres is the relatively affordability. For example a property in a popular NSW regional town such as Bathurst, has a median house price of $343,750 and $295,000 for units. In comparison, the median house price in Sydney is over $1 million and its more than $780,000 for apartments.

Research is critical to regional success

Before buying into a regional centre doing some research is a must. To assist your research, be sure to check whether a regional centre has a robust economy, strong employment prospects and population growth. These factors in combination can help underpin decent long-term real estate growth and rental yields. They can also provide some cover against the effects of environmental influences such as flood and drought, which can impact some regional towns.

Take Wagga Wagga, the largest inland city in NSW. Wagga is a central hub of services to a catchment of over 185,000 people and has strong economic and population growth, coupled with consistently falling unemployment rates that are below the NSW and national averages.

Economic diversity is the key to the success of regional towns and Wagga Wagga has this commodity in spades, noted my colleague Grant Harris, Principal of Raine & Horne Wagga. Public administration and safety contribute 17.2% to Wagga’s gross productivity and a large number of jobs, just ahead of education and training (11.4%) and healthcare and social assistance (10.4%). Other sectors of note include construction, manufacturing, retail and financial services.

“A number of government departments such as Centrelink are also major employers, along with the Australian Army base at Kapooka, the RAAF base at Forest Hill and Charles Sturt University,” said Grant. I’d add Wagga Wagga Rural Referral Hospital, the Laminex Group, and the Australian Airline Pilot Academy, which is affiliated with Rex Airlines, as other major employers.

In my book, Wagga Wagga has economic diversity in spades, and the best place to find information about a regional city’s diversity is by visiting the appropriate local government website. Do some research, and you’ll be on your way to regional real estate investing success.

Prepare now for bush fire season – and don’t forget to check your insurance

October, 2017 by

Bushfires constantly create a dangerous risk to life, the environment and properties located in rural and urban areas.

The risk of bushfire increases as the mercury jumps in the warmer months, especially with the Bureau of Meteorology (BOM) predicting daytime temperatures are likely to be warmer than average for northern and southeastern Australia during spring.

Western Australians will need to be careful too as the weather warms up, with a report by the Bushfire and Natural Hazards Cooperative Research Centre forecasting a high fire risk for parts of the state, according to a report in Perth Now. The areas that are most at risk include the South West and western parts of the Great Southern regions, the Goldfields Midlands and parts of the Pilbara and north Midwest Gascoyne.

As homeowners, investors and tenants, there is very little we can do about our harsh climate. However, there is plenty we can do to ensure our properties are safe this bushfire season, whether we live in a suburb or township surrounded by bush or near to a major national park.

  1. Working equipment

A garden hose, which extends to the perimetre of your property, is a must for helping to protect your home from bushfire. Likewise, ensure all hoses and tap fittings are in good working order. There is nothing worse than facing up to a raging bushfire with a faulty hose, which isn’t long enough to reach the blaze.

  1. Remove possible bushfire fuels

Recycling newspapers and cardboard is a noble endeavour. However, these highly-combustible items should be safely contained if a bushfire strikes. Also remove flammable liquids or paints as they will feed the fire. Gas bottles used to fuel barbecues should be kept in a fire-safe place, and steer clear of using a barbecue in blustery bushfire conditions.

  1. Be garden smart

If you don’t do anything else, be sure to clean out the roof gutters, which collect leaves and other garden flotsam and jetsam. Garden waste is extremely flammable when it dries out and will prove a magnet for flying embers.

If you have a woodpile left over from winter, locate it well away from the house, as it’s a hazardous stimulant for a bushfire. Trees with overhanging branches are another potential fire risk. If you can’t trim the trees yourself, commission a gardener or arborist to undertake some pruning.

It also pays to keep the lawn clipped and to take a rake to any leaf piles. Dead leaves represent a major hazard should a bushfire explode in your neighbourhood.

  1. Neighbourhood watch

It may pay to share your ideas about protecting your home from bushfire with your neighbours. This will ensure everyone is well-prepared for the warmer months. Similarly, don’t be afraid to talk to your neighbours about their firefighting plans and precautions, as you may find yourselves in the firing line together.

If there is bushland or national parkland nearby, contact your local council to make sure there is a firebreak cleared or maintained to help protect local properties.

  1. Check your insurance coverage

While cover for fire is standard in most home and contents insurance policies, natural disasters such as a bushfire may not be insured.

Usually, bushfires are addressed under the natural disaster section of your insurance policy. You can find this information in the Product Disclosure Statement (PDS) that will be issued by your insurer when you purchased the cover. If you’re still not sure about your bushfire coverage, contact a finance specialist from Our Broker on 1800 913 677 for more information.


High-speed rail could help solve housing affordability issues

September, 2017 by

The recent release of Infrastructure Australia’s Corridor Protection report, addressing the preservation of land for a proposed high-speed rail corridor between Brisbane and Melbourne is welcomed news for many with an interest in real estate.

The East Coast high-speed rail (HSR) networkwill help relieve some of the affordability pressures in our capital cities and underpin long-term property prices in regional centres in NSW, Victoria and South-East Queensland by as much as 5-10% when it becomes a reality.

For instance, we’ve been urging the government to include a station at Goulburn, in NSW’s Southern Tablelands, on the HSR network for a number of years now. Other stops are proposed for Casino, Grafton, Coffs Harbour, Port Macquarie, Taree, Newcastle, Gosford, Wagga Wagga, Albury-Wodonga, Shepparton, and Queensland’s Gold Coast.

Goulburn, a major inland city centrally located between Sydney and Canberra, offers very affordable real estate, with three-bedroom houses under $350,000[ii],” recently noted Zeb Alaia, Co-Principal, Raine & Horne Goulburn. He told me that: “A high-speed train could encourage more businesses to shift to regional centres such as Goulburn, which will help generate employment growth, which is a key factor in long-term real estate growth.”

“Also a pragmatist, Zeb admits that the HSR has been in the pipeline for a long time and that he believed that it’s time for the government commit to this, “as it will be a massive economic boost for regional towns in NSW”. For what it’s worth, I agree with Zeb’s sentiments unreservedly.

The new Central Coast Council welcomed news that Infrastructure Australia was focusing attention on the region and how to preserve land for the HSR, noted REINSW Deputy President Brett Hunter, General Manager, Raine & Horne Terrigal & Avoca and Raine & Horne Commercial Erina. “The HSR is necessary for the growing population on the Central Coast, and to connect more commuters to jobs in Sydney and Newcastle,” said Brett.

The proposed HSR network would have an enormous impact on Central Coast real estate markets, according to Mr Hunter, by attracting even more Sydney buyers. Commute times to Sydney are a major issue for Sydneysiders considering a shift to the Central Coast, noted Brett. The MSR could transport a typical Central Coast worker door-to-desk in Sydney in around 60 minutes compared to the current average of 2 hours using existing drive, park and rail commuting solutions.

It will be possible to halve commute times with a fast train service between Sydney and Newcastle, which would prove attractive to more Sydneysiders, who are looking for a way to break away from the city’s surging real estate prices too, added Brett.

There’s no doubt that a fast train between Brisbane and Melbourne makes plenty of sense. It’s now time for governments to stop talking and start building. It will be good for tourism, business in regional growth centres and will ease affordability pressures in our capital cities. It’s a no-brainer in my book.

[ii] http://www.raineandhorne.com.au/goulburn

The Census produces some interesting lessons for real estate

July, 2017 by

The results of the latest national Census last month revealed that Australia’s population has grown by almost 9% since 2011.

The 2016 Census counted 23,717,421 people in Australia on 9 August 2016, the night of Census. It’s now over 24.5 million.

The Census found that New South Wales remains our most populous state, with 7,480,228 people counted, ahead of Victoria in second (5,926,624 people) and Queensland in third (4,703,193 people). Yet it’s the nation’s capital – the Australian Capital Territory (ACT), which experienced the largest population growth of any state or territory since 2011, adding more than 40,000 new residents – an increase of 11%.

ACT is a population growth leader

Located approximately 45 kilometres from the Perth CBD in the woody hills of the Darling Scarp, Serpentine – Jarrahdale showed the fastest regional growth in the country, with a population increase of 51% to 27,000 people – up from 18,000 people in 2011. Gungahlin, a thriving northern area in the ACT, continues to flourish and is now home to 71,000 people, up from 47,000 in 2011 – an increase of 50%.

Greater Sydney continues as Australia’s largest population centre, with 4,823,991 people, with around 1,656 new people calling the Harbour City home every week since 2011. However, the population of Greater Melbourne is accelerating with 4,485,211 people, increasing by around 1,859 people every week since the last Census.

Immigration is contributing to population growth with 1.3 million new migrants arriving in Australia since 2011, with China (191,000) and India (163,000) being the most common countries of birth of our new arrivals.

Older population underpins need for stamp duty tax breaks

Our population is also getting older, which underpins yet again the need to create stamp duty breaks for empty nesters. The 2016 Census found that there are 664,473 additional people aged 65 and over since 2011. Tasmania is our most experienced state, with nearly one in five people aged 65 and over. The Apple Isle also recorded Australia’s highest median age (42 years), ahead of South Australia (40 years).

I was also heartened to see that despite many experts telling us that real estate is increasingly less affordable, monthly median household mortgage repayments have fallen since the 2011 Census. Six years ago, we were paying $1,800 a week, yet in August 2016, it was $1,755 – and don’t forget this statistic was collected just before the Reserve Bank cut interest rates in September.

Table 1: Dwelling statistics Census 2016

2016 2011
Occupied private dwellings 8,286,073 7,760,314
Median household rent (weekly) $335 $285
Median household mortgage repayments (monthly) $1,755 $1,800
Median bedrooms per household 3.1 3.1
Average number of people per household 2.6 2.6

Source: Australian Bureau of Statistics

Slight adjustments to your goals can work

July, 2017 by

To be fair, the affordability issue centres largely on Sydney and Melbourne. If your objective is to buy a first home in our southern capital cities, it might be a case of adjusting your search radar. For example, if you venture 12 kilometres from the Sydney CBD to Dulwich Hill or Summer Hill in the inner west, you’ll find 2-bedroom apartments from $650,000.

I’m also a big advocate for looking at some of our boom growth centres such as Bathurst and Wagga in New South Wales, Geelong in Victoria, Queensland’s Toowoomba and Mandurah in Western Australia. In regional NSW, for example, in towns that are just 2-3 hours from Sydney you can buy a house for $300,000. Moreover, these towns have affordable real estate, are achieving decent population growth and have diverse economies, which can underpin real estate capital growth long-term.

More government subsidies

July, 2017 by

At the same time, I was pleased to see that New South Wales Government has finally recognised a need to assist first home buyers. In June, it abolished stamp duty on new and existing homes up to $650,000 purchased by first homebuyers, while there is stamp duty relief for homes up to $800,000. It will abolish insurance duty on Lender’s Mortgage Insurance (LMI) and has restored a $10,000 grant for first-timers building a new home valued up to $750,000 or purchasing a new home valued up to $600,000.

I’m confident other state and territory governments around Australia will start to follow New South Wales’s lead.  That said, the Northern Territory’s experience illustrates the desired effect that generous first home buyer subsidies can have on first time buyers. According to Raine & Horne Darwin, around 25% of the sales of established properties in Darwin involve first home buyers, while almost 90% of land sales in some developments are to first-timers. A first home buyer who is building or buying a new home in the Northern Territory is eligible for a $26,000 first home owner’s grant. In addition, first-timers receive $2,000 to buy household goods. Up to $23,000 in stamp duty relief is available for first home buyers purchasing an established home valued up to $650,000.

Ignore the noise, first home buyers can still afford a home

July, 2017 by

The challenge of real estate affordability is mostly a Sydney and Melbourne issue. But through a combination of government subsidies and realistic goal setting, it’s possible for first timers to secure a home in these capital cities and elsewhere, writes Angus Raine, Executive Chairman, Raine & Horne.

Is it little wonder that first home buyers are confused. This month, it was widely reported in the media that Swiss investment bank UBS reckons that it would take first timers 40 years to save for a home in Sydney.

The research was based on saving to buy a home worth more than $1.2 million. Yet the latest Bankwest First Time Buyers Deposit Report revealed it will take Australian couples buying a home for the first time an average of 4.4 years to save the $103,600 needed for a 20% deposit on a median-priced home. In Sydney, the Australian bank reckons it will take closer to 8 years to save for a deposit. That is a long way short of the Swiss bank’s estimates. Also, don’t forget that wages paid to Sydney and Melbourne workers are considerably higher than in other states – so we can’t have our cake and eat it too.

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.