Mark Mendel

Property or shares? Which is best?

You might think it’s a no brainer – after all the devastation caused by the global credit crunch – that property is a no contest winner. You might be right.  Your home is the best investment you are likely to have made. In the constant debate over shares versus property, bricks and mortar have won out.

An ANZ review has found the family home has been the highest returning asset over the past 24 years, taking costs, taxes and gearing into account.

Owner-occupied housing outperformed investment property (which still beat shares) largely because of its exemption from capital gains tax. The findings follow a study by RMIT, which also found property has generated better returns than the share market over the past 20 years.

But property investors should take note: the ANZ predicts the stock market will outperform bricks and mortar over the next decade. Even here, though, the bank points out that when the risks associated with each investment are taken into account, the difference between shares and property is likely to be small.

For homeowners this included assuming maintenance costs – rates, insurance and general repairs – were 1.2 per cent of the property’s value. Maintenance costs for investment property were calculated at 1.8 per cent of the dwelling’s value, covering advertising and property management fees.

Stamp duty was applied across the board at 5 per cent. To keep the analysis consistent, cash flow such as rent from investment property or dividends from shares was placed in a term deposit account.

When all the numbers were crunched, owner-occupied housing was found to have generated an annual return of 12 per cent. Investment property 9.6 per cent, stocks 8.9 per cent, government bonds 4.8 per cent, commercial property 4.2 per cent and term deposits 3.7 per cent.

On an average basis, a $100,000 investment in your home in 1987 would be worth $1.428 million today. A similar sum sunk into an investment property would be worth $810,000; although this could be higher of depreciation allowances are significant (for example in the case of near new houses or apartments). what the report fails to acknowledge is the possibilities of LEVERAGE which can magnify your gains in the property market significantly without the need to worry about the volatile share market.

The ANZ expects the ASX 200 to outperform all property over the next 10 years, with returns averaging 7.8 per cent a year, expected. Meanwhile, owner-occupied property is expected to return 7.2 per cent and investment property 4.5 per cent.

The report assumes capital growth in housing will be 5 per cent over the decade, rental yields will average 3 per cent and there will be no major shifts in interest rates.

The good news for property owners is that when the ANZ factored in the risk associated with each investment, they all came out roughly on par.

Having said all this though, you CAN NOT count your home as an investment so this really leaves you with the fact that an investment property can provide a better return than shares… BUT we always think it is wise to have a mix of both thus providing a diversified portfolio and reducing your risk.

Mark Mendel

Housing Shortage in Australia

Is there really a housing shortage in Australia? Certainly affordability factors in the big cites of Sydney, Brisbane and Melbourne suggest that prices are still in the hard-to-afford range. And recent reports indicate a rental squeeze in Sydney has resulted in rents increasing substantially over the past 18 months. Fundamentals however are playing their hand in the property market as boom conditions are not present.

The Housing Industry Association, in its recently released edition of the National Outlook, Australia’s most comprehensive update regarding the housing industry, highlights a continuing deterioration in new home building conditions in 2011/12, with the growing risk of a return to GFC-like levels. Following a 5.8 per cent fall in 2010/11 HIA is forecasting a 10.3 per cent decline in new housing starts in 2011/12 to a level of just over 140,000, which would mark the sixth decline in eight years.

HIA Chief Economist, Dr Harley Dale, said new housing is the second most heavily taxed of the 27 large industrial sectors in the Australian economy. He said “Many of the taxes on new housing are highly inefficient and inequitable. They therefore heavily restrict the supply of a basic necessity of Australian life – shelter.”

“A combination of stimulus and taxation reform could turnaround once and for all one of the biggest issues the Australian economy faces – the lack of affordable roofs over peoples’ heads,” added Harley Dale.

Whichever way one does the numbers, there is a large and increasing shortage of dwellings in Australia, despite some ignorant and miscalculated claims to the contrary. New South Wales lies at the heart of the problem, where over the last five years only 20 per cent of the nation’s new housing stock was added in the Premier State despite it having 33 per cent of the population.

In Sydney, it takes 8.1 times the average annual income to afford the median house, up from 5.6 times in 2001,   and increased prices cause first-time buyers to stay in the rental market for longer, competing for properties and pushing up rental prices. Since 2005, rents in Australian cities have risen at twice the rate of inflation and in some areas, up to 50 per cent of low-income home owners are in mortgage stress.

In NSW, with its expensive and restrictive development laws, both at a state and local government level,  housing construction in terms of new home starts had plummeted and in fact was worse than the 16.3 per cent recorded by flood-hit Queensland

Mark Mendel

Find House and Land

Find Investment Property has launched a new sister website called Find House and Land. As the name suggests it is for those property buyers looking for house and land packages in Australia. We have only just gone live with the site with about 65 land estates listed where you can buy the latest new homes available.

We hope in the coming 12 months that we will be able to increase the number of land estates to well over 100, have them spread accross the country with multiple home and land packages available in each land estate that we have online.

House and Land packages are perfect for first home buyers that are looking to buy a home and cant necessarily afford the inner city living provided by established homes. When looking at a house and land package it is important to look at the community that is being developed and understand the infrastructure in the immediate and surrounding areas. Buying into an early stage of a multi stage development can see a property investor or home buyer make good capital growth on the land.

If you are interested in buying a house and land package, visit the Find House and Land website and let us know your thoughts. We are always looking at ways to help improve your search. If you cant find what you are looking for, simply give us a call and we can help you out!

Mark Mendel

Rent and invest to stay ahead of the game

Below is an article written by John McGrath on what could be the future of real estate ownership in Australia. It is something I have been suggesting for a long time and is only now starting to be thought about by other ‘experts’ in the industry. Buying a property as an investment as your first property purchase in the Australian market while renting the home where you live is a much easier purchase than having to try and save for a large deposit and pay down the principal and interest repayments over the duration of the loan. The tax benefits achieved from buying an investment property coupled with the additional income paid by the tenant makes owning an investment property a pleasure! See below what John McGrath has to say. We are happy to step you through the numbers in more detail should you wish to discuss this further.


The rise of renter-investors

There is a rising number of young buyers who are choosing to purchase an investment property instead of their first home so they can get a foot in the door of the property market while continuing to live in the lifestyle locations they like. They’re dubbed ‘renter-investors’ and it’s a growing trend. In fact, one academic estimates 11 per cent of all residential properties are purchased by people who rent their own homes*.

There are two reasons for this. Firstly, we’ve known for some time that many young Australians are valuing lifestyle over the traditional dream of home ownership. They’re renting in beachside or cityside suburbs where there’s a café culture, restaurants, nightlife, entertainment, recreational facilities and fast CBD access to work. They can’t afford to buy in these locations but they don’t want to move to the outer ring where properties are cheaper. So they’re left with two options. They either rent for life or they buy for investment.

This choice means they don’t qualify for the First Home Owners Grant, which is only available to first homebuyers who have never purchased property before. But they do enjoy the significant tax benefits of negative gearing and with rental returns so strong right now they have greater ability to manage the repayments on an investment loan.

I have long advocated home ownership as a cornerstone investment in people’s financial future. However, I would rather see young Australians buying an investment property than doing nothing at all.

Property has proven itself to be one of the best asset classes for wealth generation and as long as these young buyers are sensible about their ability to pay high rents themselves as well as the repayments on their investment loans, then good luck to them.

Renting-investing is entirely do-able if you’re on a good income. Here’s the numbers, using Sydney as an example.

One of the suburbs I like for apartment buying right now is North Parramatta, where the median apartment price is $345,000.

With a 10 per cent deposit, the monthly repayment is $2087.

Rents in this area are an average $360 per week for a two-bedder and $420 per week for a three-bedder. This represents a very strong rental yield of between 5.4 and 6.3 per cent.

Say you buy an apartment for $345,000 and get the minimum rental return of $360 per week. That’s an average $1560 per month, leaving a $527 gap or an average $120 per week gap over the year.

Although this gap doesn’t take into account costs such as strata levies and council rates, this out-of-pocket expense is tax deductible – as are the strata levies, council rates and other costs too!

So, these young executives can live in a rental by the beach and close to work while still owning property to secure their future wealth. And there’s one thing I haven’t mentioned… capital gains. Their investment property will keep growing in value – in our example here, North Parramatta apartments appreciated a respectable 4.55 per cent or $15,000 in 2010. Not bad!

Source: | Written by John McGrath | Posted 11th April 2011

Mark Mendel

New Landlord Rules

New laws for landlords and tenants come into effect on the 31st January. Make sure you know your rights after these changes take effect.

The new laws would create a dispute resolution process which, for the first time, would enable tenants to get a tribunal order to remove their name from commercially run databases, the Tenants’ Union said.

In other changes for landlords:

  • Landlords would be required to offer all tenants at least one fee-free way of paying their rent.
  • Landlords and real estate agents would be under an obligation to disclose ”material facts” about the premises, including if a violent crime had occurred there within the past five years.
  • Bonds would be capped at a maximum of four weeks’ rent, and landlords must give longer notice periods for tenants to move out: 30 days if they wanted the tenants out at the end of their lease.
  • If the lease had expired, the ”no grounds” notice period would be increased from 60 days to 90 days.
  • Landlords would gain the right to show premises to prospective tenants or buyers at least twice a week without the tenant’s consent if necessary.  

Changes to effect Tenants include:

  • Tenants would have more rights to make minor changes such as installing child safety locks on windows, connecting pay TV or adding picture hooks to walls; but they must get written permission from the landlord, who would not be able to ”unreasonably refuse” such requests. Disputes of this nature could be resolved by the tribunal.
  • The grounds on which a landlord could refuse a new co-tenant or sub-lessee would also be narrowed.

The reforms would cut red tape to make it easier for landlords to dispose of goods left behind by vacating tenants.

Landlords worry the reforms remove their ”absolute control” over who lives in their property; and do not make it any easier to deal with non-paying tenants.

But the major problem with the new laws, landlords and agents’ groups said, was a lack of clarity in drafting which was likely to leave open a number of issues for the Consumer, Trader and Tenancy Tribunal to resolve.

The Fair Trading Minister, Virginia Judge, said the laws fairly balanced the rights and obligations of landlords and tenants

Mark Mendel

Australian Property Prices to Rise

The latest report by BIS Shrapnel, commissioned by QBE, forecasts median house price growth across the country with growth of 20% in Perth, Sydney and Adelaide over the next 3 years.

With mixed feelings about the Australian property market from local and foreign economists, this most recent report provides those looking to buy a new apartment or home with more confidence.

Robert Mellor, Director of BIS Shrapnel, said, “We aren’t in for a period of phenomenal growth but we’re certainly not in for a 20 per cent drop either”.

Mark Mendel

NSW Stamp Duty Cut

Property Investors and Home Buyers have welcomed the move by the NSW State Government to remove the payment of Stamp Duty for those that purchase off the plan before construction begins and discount it when construction has started. This is applicable for all purchasers under $600,000.

Once again it is the lower price market that gets the assistance which will continue to help push prices higher for everyone. It is a good move by the NSW Government and one that many should take advantage of. The intention is for developers to start bringing to market affordable property priced under $600,000. Although developers and now the Government have every intention of helping property buyers, the developments are still being delayed by Councils who are not approving plans and banks who are still reluctant to finance unless the developer is financially very strong with a large number of pre-sales for the particular project. Now with the removal of the NSW Stamp Duty for some properties, hopefully the achievement of these pre-sales will be a little bit easier.

Some have said that although this move by the NSW Government to abolish Stamp Duty on new homes and apartments is a move in the right direction, it is still not enough. These days $600,000 doesn’t buy you much depending on the suburb and location you are looking at and in many cases developers just can’t deliver a quality product due to their land prices being so high.

What about those that are shopping in the $600,000 – $750,000 price bracket. There really should be a phasing out up to $750,000 which is where the upper limit is for first home buyer concessions. If you spend $601,000 then you are required to pay full stamp duty, but at $599,999 then you save yourself circa $22,000. There really does need to be a scaled approach to this effort by the Government.

While we are all waiting for the Government and the OSR to release official information we will just have to sit back and wait to see what the finer details are.

This is a very positive move for NSW and should help stimulate much needed residential development across the state and hopefully with a focus on some of the growth corridors where heavy infrastructure spending is required to deliver community needs including new transport, hospitals and other amenities.

Mark Mendel

Another NSW Tax for property buyers: Sales Tax

The government has once again decided to slug property buyers with another tax that they hope is going to raise them $90million a year. The newly conceived Sales Tax is to start on 1 July and is going to be calculated on all sales of residential property over $500,000. Any residential property sold between $500,000 and $1 million will attract a tax rate of 0.2 per cent, while above $1 million, the tax rate increases to .25 per cent for that portion of the property sale price.

So with the median property price in Sydney at $600,000, the tax that would be payable is going to be $200, while those homes at $1.2 million will be hit $1,500.

When we look at the actual numbers involved in an isolated manner they are small relative to the purchase amount but we still have to remember the whopping amount of stamp duty we are paying each time we purchase a property. A $600,000 property will incur a $22,490 stamp duty tax, a transfer fee of $190 and a mortgage registration fee of $95. So there has already been a fee for transfer and now it has more than doubled for the average NSW home buyers ($190 + $200).

We also have to remember when buying a property there many other costs associated with it which could include insurance, council rates, strata fees, solicitor fees, mortgage fees, valuation fees, Building inspection fees, depreciation schedule costs, defect inspection costs and lenders mortgage insurance. Buying a property is not a cheap exercise and adding any additional costs to the purchase process is only going to continue to defer some home buyers which is disastrous for them and the economy.

Buying a home or investment property in Australia has been a great way to build wealth and many Australians have done so over the years… Now the government just wants to take advantage again and slug those that have been the main contributors to society with another tax to bring them down. Home ownership, whether it be for owner occupied use or as a property investor, is critical to the NSW and national economy and to stop people buying by continuing to slug extra taxes and expenses on them is only going to hurt the NSW state in the long term.

The big question is… What if they raise the Sales Tax in the future!

Mark Mendel

NSW Landlords threatened by changes to Residential Tenancy Act

NSW Landlords are under threat from new changes that were brought to their attention in late 2009. At this stage these changes to the Residential Tenancy Act are just proposed and are yet to be introduced into the NSW Parliment. This is scheduled to occur in 2010 so if NSW landlords don’t like what they are about to read, then it is important that they make this know to their local members as well as the Real Estate Institute of NSW.

Some of the most significant changes that have been raised in the Residential Tenancies Bill 2009 include:

Fixed term tenancies – end of certainty of tenure for landlords and tenants. Section 98 of the Bill will enable tenants to break a lease, during the fixed term, without any special grounds, by giving 14 days notice to the landlord. This break clause will be subject only to the payment of a ‘break fee’, which will not exceed 6 weeks rent. Details of the maximum amount of ‘break fees’ for long-term leases (over 3 years) have not been released. What is the point of a landlord entering into a fixed term tenancy that will be unable to be enforced?

Periodic tenancies – ‘no grounds’ termination notices. Section 85 of the Bill increases the notice period required to be given by landlords to tenants (who are out of fixed term) from 60 to 90 days. While the section provides that the CTTT must now make a termination order if the notice has been validly drawn and served, the Bill still gives the CTTT jurisdiction to determine when vacant possession is to occur, if a tenant challenges the landlord’s termination notice. The Bill does not set a maximum time limit between the date the CTTT makes a termination order and the date it nominates that vacant possession is to be given up by the tenant. Once served with a 90-day termination notice by the landlord, a tenant can give vacant possession at any time. Section 110(2) of the Bill provides that a tenant will only be liable to pay rent until the date they give vacant possession.

Frustration of repossessions by tenants. Section 89(2) of the Bill provides a mechanism whereby tenants who are already (or habitually) in arrears, can further frustrate a landlord’s attempt to regain possession of their property. The effect of the section is that orders for possession and warrants for possession issued by the CTTT, will cease to have effect if the tenant pays their arrears at any time prior to vacant possession being given, or the warrant enforced. The tenant will not have to apply to the CTTT seeking the suspension of an order for possession or warrant. The section also makes no provision for the recoupment by the landlord of the costs incurred in obtaining the order for possession or warrant.

Cosmetic changes. Section 66 of the Bill provides that landlords must not unreasonably withhold consent “to a fixture, or to an alteration, addition or renovation that is of a minor or cosmetic nature”. While the section provides that the costs of installation are to be met by the tenant, no definition of what “a minor or cosmetic nature” is contained in the Bill. This section is backed by another provision (section 68), that a tenant may apply to the CTTT for an order that the tenant may install a fixture or make a renovation, alteration or addition to the residential premises without the consent of the landlord. While the Bill contains provisions concerning the removal, rectification and cost of repairs for such matters at the end of a tenancy, the potential for default or significant disputes concerning this area alone is enormous. Disputes will occur both at the beginning and the end of tenancies and landlords risk being considerably out of pocket as a result of these changes.

Partial transfers of tenancies or sub-letting. A landlord’s right to decide who inhabits a property will be able to be challenged. Section 75(5) of the Bill will enable a tenant to apply to the CTTT to review a landlord’s refusal of consent to a partial transfer or sub-letting to an additional tenant, or tenants, that the landlord would not otherwise accept as a tenant. The CTTT will be able to permit the partial transfer or sub-letting if the landlord’s failure to consent was unreasonable (the word unreasonable, is not defined). The scope for dispute here is obvious.

Rent control. Section 44 of the Bill does not, unfortunately, clarify some of the past uncertainty (and case law) relating to what matters the CTTT must, or may, take into account when hearing an application by a tenant that rent, or a rent increase, is excessive. For example, there is no compulsion in the Bill for the CTTT to take the market rent of the premises into consideration when making a determination.

I for one am against giving tenants this much control of your property. Make the fight today to ensure that these changes and others don’t impact on your investment properties in NSW.

Mark Mendel

Australian Housing Shortgage

The folloing is a media release from the Housing Industry Association:

Housing Shortage Tracking to 500,000 by 2020

The Housing Industry Association, Australia’s largest building industry organisation, today released its inaugural Housing to 2020 report. The report finds that if current building trends persist, then Australia’s cumulated housing shortage would reach 466,000 dwellings by 2020.

HIA Senior Economist, Mr Ben Phillips said that Housing to 2020, which focuses on future housing demand and the number of dwellings required in meeting this demand, highlights a current housing shortage that already numbers over 109,000 dwellings.

“The reality in many regions and cities in Australia is that affordable, well located land is not available or abundant. Furthermore, planning restrictions, higher taxation on new housing relative to existing dwellings, labour shortages, and onerous regulation biased toward new housing all add to the problem.

“If we don’t get a comprehensive supply response to the accumulating housing shortage then the lack of affordable and appropriately located rental properties will only worsen, while pressures on existing home prices will continue at an undesirable rate, placing avoidable upward pressure on interest rates,” Ben Phillips said.

“A lack of skilled labour is an emerging threat to the much needed housing supply response. A second round resources boom this decade will draw heavily on an already tight labour market. The $90 billion worth of resource projects on the books is expected to demand an additional 136,000 direct and indirect jobs. This labour will need to be housed, adding additional pressure to the supply of labour and materials in non-resource regions.”

Housing to 2020 provides the first estimates made of Australia’s housing shortage at a Local Government Area (LGA) level.

“The report finds that shortages exist in just under half (295) of the 669 LGA’s across Australia. The majority of the shortages can be found in and around metropolitan Sydney and Brisbane.

“It was also found that many of the LGA’s with the largest housing shortage are also the same regions with the highest level of demand. Again, it’s the growth areas in the greater Sydney area and in South East Queensland where demand will be amongst the highest in the nation.

“The growth areas in and around Melbourne also show high levels of demand.

“Current construction levels in most high demand areas are simply not sufficient to meet the needs of a fast growing population,” said Ben Phillips.