Forecasts for Housing Price growth
We seem to be by bombarded by various forecasts for Housing price growth, or maybe I should say, in some cases, housing crashes or bubbles bursting.
If you are feeling in a particularly negative mood, or perhaps you are a first home buyer waiting for the market to crash in order that you can buy, then its best to try and get a hold of the many international companies, looking at the Australian housing market from the outside, to find the doom and gloom price crash scenarios. Just last week, Deloitte Access, (not for the first time) tipped property to be the ‘worst investment’ over the next few years; I’m sure they’d love to get it right just once!
If you are interested in hearing a more positive forecast for real estate prices, you can usually depend on the Real Estate Industry itself, particularly some of the better known, (not necessarily more accurate!) organisations like Domain or Hotspotting “ guru” Terry Ryder, who infamously wrote that there was ‘no mining boom’ a few years ago and high prices, high rents and growth would continue in some of our mining boom towns!
(Please contact us at [email protected] for further information or the chance to discuss this and other issues in the comfort of your own home)
Probably, by far, the most dependable forecasts we have are those done by BIS Shrapnel on behalf of QBE, the most recent being the Australian Housing Outlook Report 2016-2019. This report is published in October each year and the latest has just recently been released.
While the press report on this release loves the opportunity to use phrases and words like “The Boom is over” and “Prices Plummet”, the experienced property investor will find absolutely nothing out of the ordinary or unexpected in the report. In summary, Sydney has hit the top of its growth cycle and we may see a small correction in the price of units and an even smaller correction, if at all, in house prices; exactly what happened after the 1988 and the 1993 Sydney ‘booms’ but maybe not as much as the small corrections of the last two booms – just don’t expect any price growth over the next 3 years. The forecasts for Melbourne are very similar although we may see a slightly larger correction in unit prices and a small correction in house prices.
Brisbane is forecast to see a drop in unit prices due to the very high level of unit development in the CBD and fringe but house price growth will continue, making the Brisbane house market the strongest growth market in Australia over the next 3 years.
Take away the emotive language of this daily mail article and the truth behind it shouldn’t hurt any property investor in our east coast cities too much and, in fact, should see Brisbane house investors continue to smile! Read more https://goo.gl/a6XArr
If you want to know more about the QBE Forecasts for Housing Price growth or find out more about growth suburbs contact us at [email protected].
Brisbane suburbs where house prices have doubled
It’s interesting to read about the number of Brisbane suburbs where house prices have doubled over the last 10 years.
(Please contact us at [email protected] for further information or the chance to discuss this and other issues in the comfort of your own home)
The news always seems to be centred on the Sydney market with the occasional comment on what is happening in Melbourne. We read about property investors (and maybe a few home owners) almost buying out a brand new release in Macquarie Park in Sydney at the weekend but one story you will find very difficult to find is about Sydney suburbs that have doubled in value over the last 10 years – there are none. It’s a slightly different story in Melbourne where we do have a few suburbs that have doubled in value in the last ten years but we read and hear so little about Brisbane.
Well, according to Domain Group Data, here are the suburbs in Brisbane that have more or less doubled in value over the last 10 years:-
• South Brisbane*
• Newmarket*
• Wishart* (*have more than doubled in value, according to Domain Group data)\
• Macgregor
• Cannon Hill
• Northgate
• Sunnybank
Apparently the growth is not all about people paying more to get into a suburb. Simon Pressley said, “While someone in South Brisbane may have bought for $500,000 and now their home is worth $1 million, they might have spent $800,000 on the home.”
Sunnybank has attracted a very large number of residents from a Chinese background and like many of the well-populated Chinese Australian areas in Sydney, prices have just grown and grown.
Probably not surprisingly, seven of the top ten of the biggest growth suburbs are located within five-kilometres from the CBD.
According to Andrew Wilson from Domain, most of the growth had occurred in the past three years. Similar to the claims being made about the growth in Melbourne and Sydney, low interest rates over the past few years are being attributed to the cause of much of this growth.
It is interesting to note that BIS Shrapnel’s annual housing report released last week is still predicting house price growth to be stronger in Brisbane than in any other capital city over the next few years, so look out for more additions to the list of Brisbane suburbs where house prices have doubled over the last 10 years. Read more here: https://goo.gl/4ChtqG
If you want to know more growth suburbs in Brisbane and how they may affect your property investment choices contact us at [email protected].
Life changes for the property investor to understand
Today we are reading about how the housing boom is changing the way Australians live, quite important life changes for the property investor to understand for successful investment.
(Please contact us at [email protected] for further information or the chance to discuss this and other issues in the comfort of your own home)
It hasn’t been a “long boom” as the writer describes it in the article link below but we certainly have seen significant price growth in our two largest cities, which not surprisingly, has some effect on the way we live and our behavioural changes.
Most of these changes would be very predictable we spent the time to think about them, but the primary question for the property investor should be how important it may be to understand the impact these demographic/life changes have on the demands of certain types of property?
- The most obvious change is that we are finding that young adults to live in the family home for longer than in the past. We also have what has been described as the “boomerang generation” – the chicks leave the home only to return when they have to face the economic realities of not living with mum and dad. This trend is now showing up clearly in Australia’s demographic data.
- Closely related with the above, is the fact that home ownership rates among those between 25 and 45 years has fallen markedly during the past two decades. If that decline is not reversed, the proportion of life-long renters in Australia will grow.
- There has been a huge shift towards high- density living in our big cities. I’d comment that it is incorrect to assume that this is because of the price of well-located urban land increasing relative to incomes. I’d suggest it has a lot more to do with the choice the young in particular are making for the city and city-fringe lifestyle as well as the increasing number of older Australians who are downsizing into more manageable city units. It is interesting to note that 51 per cent of all dwelling approvals in Australia were for multi-unit houses and 62% in Sydney! Unsurprisingly, the number of small cottages with a yard is in decline.
- House price movements have a “clear and consistent” influence on how much some people work. The economists recon there is a tendency for older females in particular to use any unexpected wealth gains from house prices to retire early.
- High property values also affect the work choices made by younger women and men. Those between 20 and 40 years who own property cut back their hours of work, on average, following strong gains in housing wealth. At that formative stage of the family life-cycle many young couples use housing wealth gains to help manage the juggle between work and family.
- There is another pretty predictable change – as prices rise, homeowners take on more debt.
You can read more about this here: http://www.smh.com.au/comment/how-the-housing-boom-has-changed-the-way-australians-live-20161011-grzoe1
If you want to know more about how these changes can affect your property investment choices contact us at [email protected]
Or even better, why not give us a call at LIME and we’ll be happy to discuss with you.
Negative gearing does NOT mean you are making a loss!
George Cochrane in this week’s money section in the SMH tells us that negative gearing means we are making a loss – what rubbish! – Negative gearing does not mean you are making a loss! Obviously on paper, a tax loss must be showing before we can claim the ‘loss’ against our tax, but very often the astute property investor is making this ‘loss’ through permitted depreciation only, it is not an actual loss in cash but it ‘transfers’ to money in the pocket after tax. By most definitions, money in the pocket is PROFIT not loss!
Negative gearing does not mean you are making a loss. Property can be positively geared after tax
Let’s look at a hypothetical apartment bought in one of Sydney’s fringe around 3 years ago. It doesn’t really matter how many bedrooms it has or in which suburb, but for the sake of the exercise, we’ll assume it was bought brand new!
It cost $600,000 and the investor borrowed another $20,000 on top of the purchase price to help pay the stamp duty and legal costs, so $620,000 is owed and borrowed at an interest rate of 4.3%.
$620,0X 4.3% = $26,660.00 per annum interest
Annual rates = $2000.00
Annual Body Corp = $4000.00
Annual Management fee Inc insurance = $2000.00
Total costs out = $34,660
Less rent @ $570 per week = $29,640
TOTAL ACTUAL ANNUAL LOSS = $5020.00
As well as the cash loss of $5020, we then have to add the first year depreciation on a new apartment. A very conservative figure for this depreciation would be $16,000.
Now we add together the actual loss and the depreciation loss ($5020 + $16,000) giving a total tax loss of $21,020 in the first year. You multiply this figure by your actual tax rate to give a very good idea of what you will be reimbursed by the ATO so assuming you are paying tax at the following rates (excluding the additional Medicare levy which can also be claimed) then we have:-
30% tax bracket – rebate of 30% x 21,020 = $6306
37% tax bracket – rebate of 37% x 21020 = $7,777.40
45% tax bracket – rebate of 45% x 21020 = $9459
In EVERY case the tax rebate is greater than the actual cost of holding the property. In Every Case, the owner of the investment is in a stronger cash flow position because they bought the property. THEN we look at the close to 25% – 30% market growth in apartments in Sydney over the last 3 years giving capital growth profit on the $600,000 of (600,000 x 25%) = $150,000 profit before CGT!
In summary, over 3 years on a 37% tax bracket you would be around $23,000 better off in your daily cash and around $150,000 better off in asset!
So keep this in mind if you read the following article which explains that negative gearing means you are making a loss! Negative gearing does NOT mean you are making a loss! Read more here: https://goo.gl/iJX5Ow
Guide to buying property with your partner
Today we have two very good articles which offer a guide to buying property with your partner and many other financial issues that are so often overlooked or completely ignored when two people decide to live together.
I have lost count of the number of couples I have worked with who tell me they are buying an investment property but ‘it has nothing to do with my partner, we keep our financial lives completely separate”.
It’s Spring again and love is in the air so it’s maybe a great time to sit down with your significant other and sort out some problems you may face if you decide to go your separate ways at some point in the future. Probably the two most important issues to recognise are:
- If you have been living together for two years or more, then under Australian law you will be treated in the same way as a married couple.
- Understanding point 1 above, you should try to steer clear of potential sexually transmitted debt.
Moving in together with a partner can triggers unexpected tax and financial consequences that are not all bad as there can also be unexpected financial gains from living together. Read here: https://goo.gl/ktYEYg
Relationship Australia research has found that disagreements over money are a stronger predictor of divorce than other commonly cited causes of marital disagreements.
Among other things, the 2015 online survey by Relationships Australia found 7 out of 10 couples said money causes tension in their relationships
A lot of people think that a pre-nuptial agreement is something that can only be done before an actual wedding but it makes a lot of sense to organise a pre-nuptial agreement before you move in with somebody. While it may be easy to keep separate bank accounts, what about the money your partner owes to the Bank? Half could easily become yours! Or what about your superannuation or even the inheritance from your parents that went towards paying off the house you both own or maybe its sitting in your long-term deposit or share portfolio; it may only be half yours!
There are other issues that can immediately affect you for good or for bad and they are all worth checking out. Make sure you do your guide to buying property with your partner. Here is a small list but further information on how they affect you can be found on the above link and below..
- Medicare levy surcharge
- Private health insurance rebate
- Businesses and structures
Find out more at: https://goo.gl/pxcLUO
What Sydney Housing Bubble?
Another international story about “The Bubble” – what Sydney housing bubble? Should be he title! It seems that every month or so we read of overseas ‘experts’ (and very occasionally some local ‘expert economist”) telling us here in Sydney that doom is on the horizon for house prices in Sydney. Instead of peering over price growth charts in their far-away offices on the other side of the world, maybe they should just try finding a property to buy or rent in our great city before predicting yet another housing price crash!
Highlights from the recent UBS Global Real Estate Index Report place Sydney as the fourth-biggest housing bubble in the world. A bubble is something that is about to burst so this suggests that our young in Sydney actually will have no problem at all in entering the housing market as prices tumble when the bubble bursts. How many people do you know who actually believe this is close to coming true?
Bubbles burst when a city ends up with a major over-supply, populations decline and/or when loan repayments become impossible. With all the warnings of bubbles bursting in Sydney over the lifetime of anyone reading this article, it has never happened! Sure, towards the end of a boom period, we have seen prices correct by a few percentage points but no-one alive can ever tell you about the time the Sydney Real Estate market bubble burst.
If you actually believe this overseas take on the Sydney market, then you must also believe the following is about to occur:-
- Sydney’s building boom is about to leave us with a massive oversupply of new stock
- Sydney’s population boom is about to come to a screeching halt
- Sydney is about to be hit with a very large unemploymnet problem
- Interest rates are about to increase dramatically leaving home owners unable to pay their mortage
If you are concerned about interest rate hikes, read this: http://dailym.ai/2dno9k3 – they are likely to remain low for decades! As for the likelyhood of the other factors – forget it!
It would be great for our younger generation trying to make their first step on the housing ladder if there was the slightest element of hope in our non-existant bubble bursting- what Sydney Housing Bubble – and maybe the topic makes for a little light banter around the BBQ but I’m convinced anyone who knows this great city also knows the story of the bubble bursting is just pie in the sky.
Read more: https://goo.gl/fAhbYi
Choosing a good investment property and understanding the demographics
Choosing an investment property and understanding demographics of a neighbourhood go hand in hand.
When we are looking at an area or suburb for investment, it is essential to have a look at the demographics of the neighbourhood to understand the age groups attracted to the area and the likely incomes and type of housing that will be the most attractive for the majority of people wanting to rent and wanting to buy as owner-occupiers in the area.
It makes sense to be buying a modern two-bedroom apartment close to the city for your investment if you know that a large percentage of the population in the area are young professional renters with a reasonably high disposable income who can afford to pay the rental your investment should achieve.
Report found Cardiff as the most segregated city in England and Wales
Likewise, in areas where we see large numbers of retirees moving to smaller single level villa developments, wanting the added security of a gated community, then perhaps that type of property may make the best investment in that type of area.
A recent report from the UK may be of some interest to Australian planners also as we see the median age of residents in our cities fall considerably as young Gen x and Gen Y renters move closer to our city centres. The article entitled “Housing crisis ‘is driving young and old apart as different generations are being forced to live apart‘ , highlights the fact that age segregation is now an planning issue in many UK cities.
The study found that:
- Under-30s are stuck renting in Britain’s regenerated city centres
- In a rise in ‘age segregation’ the middle-aged dominate the coastal regions
- The lack of affordable housing in many areas has damaged society, says a report by the Intergenerational Foundation
Recognise any of these issues for our Australian cities? Older people congregating in smaller towns and outer suburbs has implications on where to place health services and other planning issues as well as some of the more obvious problems ‘age segregation’ may cause.
Choosing an investment property and understanding the demographics of a neighbourhood is essential in understanding the type of property likely to work best for you both for finding renters immediately and for future capital growth in having the type of property most likely to appeal to future owner-occupiers. Read more: https://goo.gl/CbaxP7
Are holiday homes still a good investment?
There is an article in domain.com.au today which asks the question, are holiday homes a good investment? The author seems to support the notion that, on the whole, money can still be made from a second ‘holiday home’ but I do not think this statement actually answers the question. It is almost a certainty that any property will make you money over a period of time, this fact in itself does not make a good investment.
Holiday Homes do not always make a good investment.
I have the experience of a holiday home in Cairns, purchased new back in 2002. The complex was new and was awarded all sorts of awards as “the Best” in this and “The Best”. I could use it whenever I chose and at other times in was in the complex holiday rental pool; a very typical set-up for a holiday unit almost anywhere in Australia. The total cost, including a furniture package and stamp duty was around $300,000. As an investment, it held its own for the first few years and it gained from the large growth cycle witnessed in Cairns between 2002 and 2008, probably reaching a price point of around $420,000…… then came the GFC! The Australian dollar went through the roof, tourism disappeared, body corporate in far north Queensland almost doubled overnight due to insurance policies and Cairns city council rates became some of the highest in Australia.
Even with the higher 4% depreciation that can be claimed on this type of ‘commercial’ property, the out of pocket after tax holding costs were quite substantial. The Cairns housing market also collapsed by up to a staggering 50% in some cases. Fourteen years after the purchase, I can still say I love visiting this unit (each time now seems to involve a fridge replacement or a lounge suit replacement or something else), it almost looks after itself and, if I chose to sell, I’d probably just get around the $300K I originally paid for it.
Had I purchased a unit on the gold coast around the same time for the same purpose, the history would just be about the same, maybe slightly better.
For a good investment, stick to areas where you can minimise your risk and maximise your return. Stick to the major capital cities of Melbourne, Sydney and Brisbane and do not try and kill two birds with the one stone; if you want a good investment property, buy a good investment property: if you want a good well-located holiday home then that is what you buy – but don’t look for this being a great investment!
Read more: http://www.domain.com.au/news/are-holiday-homes-still-a-good-investment-20160912-gre5q4/
Is there an oversupply and should property investors be concerned?
In the last few blogs, we have been discussing the game-changing projects now being undertaken in the heart of Brisbane and the Big Australia policy all pointing to the need for more property and opportunity for property investors, so is there an oversupply and should property investors be concerned?
There is little doubt that there are some pockets of short-term concern in our major cities. Fringe suburbs in Sydney are seeing small corrections in some unit prices, inner Melbourne has seen substantial falls in some unit developments and Brisbane units are seeing slight falls in yields in some areas. It’s all very temporary, we have been in much worse temporary over-supply situations before and again the over-supply is in relatively tight pockets where just too much of inappropriate property development has taken place. I use the word ‘inappropriate’ because the vacancy rates are highest in small cheaply-built units that really depend on one and one only selling point – relatively good location. This type of apartment may be popular for students and young professionals leaving home for the first time but they do not attract the owner-occupier or the longer-term tenants wanting a larger space to call ‘home’. When other ‘better’ options are available in a market place, it tends to be the inferior properties that suffer from long vacancy which in turn drives down rental yield as landlords strive to attract fewer renters.
It’s all temporary anyway, and the recent report on Sydney’s population boom makes this abundantly clear; we need more homes for an exploding population. Sydney is now growing faster than predicted putting more pressure on the city’s housing needs.
Rob Stokes, NSW Planning Minister, describes this population boom as a “symptom of Sydney’s success”. Sydney’s population is expected to leap by more than 2.1 million people in the next 20 years – about 170,000 more than predicted only two years ago. In 2014 Sydney was projected to have a population of 6.25 million within 20 years, up from 4.29 million in 2011. The updated projections anticipate a 6.42 million population in 20 years.
It’s planned that 1/3 of this new population will be housed in new high density corridors along major transport routes, one third will be in higher density existing areas and the remaining one third will be housed in our expanding growth corridors, particularly in the west and south-west. In the Camden area in the south-west, the population is expected to rise from 58,000 in 2011 to 224,000 in 2036. In Parramatta the population is expected to double from about 200,000 in 2011 to 416,000 in 2036. The City of Sydney population is expected to increase at a similar rate – from 183,000 in 2011 to 315,000 in 2036. Stark rates of growth are anticipated in the Hills, Botany Bay, Liverpool, and Blacktown.
Over-supply? ….. Maybe in small pockets but for a very short time!
Read more: http://goo.gl/B6cZws
Do you want a Big Australia?
Both of our major political parties are in favour of a big Australia. Of course a big Australia means many more people, at present we are seeing an additional one million people being added to Australia’s population around every three years. The city of Sydney now has a population of over five million with another 1.5 million to be added to Sydney alone within the next 16 years.
The many arguments for a big Australia state that more population means more economic growth; another argument is that new migrants are of working age which helps off-sets the problem of the very large number of Australians reaching retirement age. Our future as an aging nation is not nearly as bleak as some of our Asian and European friends.
There are many dissenters to the Big Australia policy and their arguments are discussed in today’s news article (see http://www.smh.com.au/comment/is-there-room-for-big-australia-20160901-gr6atz ).
Wilton Junction. The newest of our New Towns – 70Km from the CBD
The implications of this massive growth in population should make the property investor stop and think. In Sydney, for example, using an average of 3 persons per household, we actually need an additional 500,000 homes over the next 16 years. It is only these numbers that can make some sense of the massive new developments happening in our North West and South West in particular. No longer are we seeing massive new ‘commuter suburbs’ being built on our city fringes but instead whole new towns with their own job-creating infrastructure.
The priority new town development area has been announced and will commence next year at Wilton Junction – (http://talkwiltonjunction.com.au/) – a new community to cater initially for 12,000 new homes and 35,000 new residents. Wilton Junction is just over 70Km from the CBD. If you have a trip to this new town, at around the 50km mark from the CBD just off the M5 bordering Narellan is the new town of Oran Park – (http://www.oranparktown.com.au/) – and its surrounding suburbs. Oran Park has transformed from the old Oran Park race track and surrounding paddocks to a hub of hundreds of homes surrounded by new commercial development with an eventual target of hosting a population of 25,000 people and maybe the same again in the surrounding area. It all looks very grand and we may wonder where all these ‘new’ people may come from?
We have two massive new developments here, one well-underway and another due to start shortly and between them they will offer a home in a new town to around no more than 90,000 people! Where will we house the remaining 1.4 million? Are we really building too many units in Sydney?
There is still great opportunity here for the astute property investment.
