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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!
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.
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.
Extracts from a recent UBS Research report: 26 February 2010
We have been arguing since 2008 that the combination of a long-standing structural under-supply of housing, coupled with a cyclical improvement in affordability – via falling prices in 2008/early 2009, government stimulus & lower rates in 08/09 – would see activity rise strongly in 2H09 and 2010. Indeed, the very strong 10%+ rise of house prices in 2009 – and the 59% leap in building approvals since January – is symptomatic of rising demand.
For house prices, after correctly forecasting the 5% peak-to-trough decline through Q109, our forecast for a 3% rise through 2009 was well short of the actual 11% gain. Looking ahead, while we continue to expect a moderation beyond 2009, we take this opportunity to formalise our forecast for 2010 and 2011 price growth at around 6% (broadly in line with the economy’s trend income growth), up from 3% previously. This also partly reflects the likelihood that bottom-end prices should be softer given the expiry of the FHOB.
We have also updated our forecasts of underlying demand from 180k-185k to 200k over the next few years – incorporating the record pace of population growth over the year to Q209, as well as the Government’s upgrade to population forecasts contained in IGR3. This in turn, highlights the chronic undersupply of physical housing in Australia.
Our estimate of the ‘cumulative gap’ of under-building is currently a shortfall of around 75k, doubling to a record 150k by end-2011. As an aside, these estimates are more conservative than the National Housing Supply Council’s (medium scenario) estimate of the cumulative gap being 85k as at Q208, rising to 155k in 2011 (and then continuing to deteriorate to 203k in 2013 and 316k in 2018).
RBA Gov Stevens also recently noted the ‘under-hang’ of housing construction. One obvious solution is the creation of higher-density housing, both in terms of urban density (ie more units compared to houses), and more persons per household.
Although rental yields are expected to fall in 2010, this is actually positive for property investors as growth of property prices are expected to exceed that of the rental market.
We need to look at the whole picture to understand what is currently happening in the market.
Many First Home Buyers were sucked into the market last year due to the Government incentives. Those that were on the edge of buying would have bought and those thinking about it would have rushed to take advantage of the grants made available. This has been the case and supported by the reported record number of first home buyers in the market through 2009. Towards the end of 2009 we saw the rate of First Home buyer lending fall as they moved out of the market as grants started to disappear and interest rates started to rise.
Rising interest rates are another major factor that is going to keep first home buyers out the market now. With affordability becoming an issue for home buyers, property investors will take their place as they are able to take advantage of negative gearing tax benefits.
Property Investors are all focused on property that is high in demand. This includes the 1 and 2 bedroom new apartments, townhouses and house and land packages. They are all affordable and demand for rental of these property types is going to grow as First home buyers stay clear of buying. It is also important to remember the high migration levels to Australia and those from interstate are putting pressure on the states property markets.
The property market is expected to move up substantially this year, possible even more so that last year which means that although property prices will grow, and rental prices will increases, the growth or property prices will exceed the growth in rentals thus reducing the investors yield.
How to ensure you get the best of both worlds… Buy sooner and hold for longer.
Australian Property Outlook for 2010
I hope everyone had a fantastic break over the festive season. We at Find Investment Property wish everyone all the best for 2010.
In the first week of the year, the Australian Financial Review had a summary of each of the property markets across Australia. Below is a brief summary from each of the stories that appeared in the paper from the 4th January through to the 8th January 2010. The articles cover the Melbourne Property Market, Sydney Property Market, Queensland Property Market, Western Australian Property Market, Tasmanian and the Adelaide Property Markets.
In each of these articles, the journalist has interviewed a few people in the relevant states property industry that may have some bias towards each state, thus all pushing a positive sentiment for their respective property markets.
Having said this I do think they all have good arguments for why buying in each area should see capital growth occur in 2010.
Melbourne Property Outlook 2010
Comments below are from Cameron Anderson, a Director at Red C and Canopi Homes. He previously was in a senior management position at Stockland.
- 2009 property market was fuelled by federal government grants and Melbourne’s appetite for new homes (Due to Stamp Duty Savings)
- Cautious outlook for 2010 – median growth expected to be 3% before the market picks up steam in 2011.
- RP Data stated Melbourne’s median price grew 15% for the first 9 months of the year
- Little supply of apartments in the pipeline at the moment
- Rental pressure in Melbourne and it’s growing because the banks have been reluctant to lend money to high-rise developers
- Big drivers for property prices include supply constraints and population growth
Other comments on the Melbourne property market from Angie Zigomanis at BIS Shrapnel and Tim Lawless at RP Data Research
- Expected to have solid growth through the year as upgraders and investors take over from first home buyers
- Higher interest rates will slow growth down from the highs of 2009
- Late recovery in 2009 may show that first home buyers are less sensitive to rising interest rates
- New development in Melbourne is falling short of Melbourne’s migrant-driven population growth
- 2009 price growth was helped by cashed up Chinese buyers which is expected to continue into 2010
Sydney Property Outlook 2010
Comments below are from Brian Haratsis from MacroPlan Australia and Rob Ellis from Property Insights
- Population boom to lift prices
- People that can afford to buy now will stand to benefit the most
- Sydney expected to see the fastest population growth in 15 years
- Climbing prices in South-East Queensland have slowed migration from NSW to QLD
- Same levels of international migration plus high birth rate levels
- Employment generated population growth – young brains from around the world will come to work in Sydney-based financial services, IT and Business services
- Apartment market is being starved of stock owing to tight lending practices that restrict developers by loan to value ratios plus high levels of pre-sales
- Rents poised to soar even higher due to the shortage of rental accommodation, especially with rising interest rates deterring some people from buying
- Prestige property to remain flat for the next 24 months before a potential boom in the high end market
10% price growth for 2010 wouldn’t be a surprise
Comments below are from Louis Christopher of SQM Research and Jason Anderson from BIS Shrapnel
- 6 – 8% price growth expected in the next 12 months
- Nothing to indicate buying trend will stop or slow
- Price growth in 2009 was 11.6% but affordability was its lowest level since 2002 because interest rates were so low
- Prestige prices (those over $2m) to rise by 12 to 15% in 2010
- Sydney will face an ‘extreme’ shortage of rental properties, worse than any other state
- Rental demand would boost demand for properties in outer suburbs which could result in price growth of 10%
Perth Property Outlook 2010
Comments below are from Nigel Satterley from Satterley Property Group, Western Australia’s largest private residential property developer.
- Perth property prices poised for a decade of strong growth
- 6% expected in 2010 with increases of 7 – 10% over the next 7 to 8 years
- Perth property prices fell by as much as 25% during the downturn
- Population growth and growing confidence affecting the market
- Demand is increasing for premium property
- Medium house price in Perth in September 09 was $462,000
- Prior to 2008, Perth’s property prices doubled in 4 years as demand outstripped supply
- Bank funding for property developments will remain constrained
Adelaide Property Outlook 2010
Comments below are from Michael Brock, Managing Director of Brock Real Estate and president of Real Estate Institute of South Australia.
- Enormous untapped potential in the real estate market
- Adelaide soon to assert itself as one of the most attractive investment destinations in the country
- 2009 saw house prices jump 5% and growth is predicted to double in 2010
- Adelaide’s median house price in September 09 was $421,765
- Property investors now taking the place of first home buyers
- Population Growth expected from skilled migrants and those serving the defence and mining industries
- Adelaide vacancy rate is 1.2% while North Adelaide is only 0.2%
- Many new apartment projects on hold due to finance obligations which can’t be met by Developers
Tasmania Property Outlook 2010
Comments below are from Tim Lawless, Research Director at RP Data
- Could perform well in 2010 due to lifestyle buyers entering the market
- Houses in Hobart are $140,000 cheaper than the national capital city average with an average price of $330,000
- Units average $270,000, $120,000 cheaper than the capital city average
- Tasmania does not have strong population growth or a large economic base
- Rental returns in Tasmania are above 5% with vacancy rates below 2%
- Population growth is just over 1% driven by migrants, retirees and younger families seeking affordable housing
Queensland Property Outlook 2010
Comments below are from Wayne Rex, President of The Property Council in Queensland
- Brisbane property prices increased 6.9% in the first 11 months of 2009
- South East Queensland has seen a stabilisation of prices and turnover
- Building Approval levels have dropped to low levels not seen since the 1980’s
- Many house and land packages still available in South East Queensland for under $425,000
- Release rate of new stock and lack of competition is affecting prices
- Queensland property market will be steady for the first 6 months of the year as people will still remain cautious
- Funding still difficult to attain along with substantial pre-sales
Other comments from Bill Morris, Rod Cornish (Macquarie Capital Advisors) and Lachlan Walker (Colliers International)
- Still not enough homes being built in Queensland
- South East Queensland saw a population increase of 75,000 in 2008-09 with a need for 30,000 homes, yet only 17,000 were built
- Interstate migration has dropped in Queensland (Victoria now leading the way), there is still a high number of people coming from overseas
- Developers still finding it difficult to attain finance
- Developers can’t buy land at the right price meaning they can produce a home at affordable levels (under $500,000)
- QLD suffering from a shortage but Sydney supply shortage is more severe
Some comments from Ross Greenwood earlier this year:
Right now the Federal Government is at pains to tell everyone – including us the mug-punters to the International Monetary Fund that it will not exceed its own, self-imposed, borrowing limits.
How much? $200 billion. And here’s a worry. If you work in a bank’s money market operation; or if you are a politician; the millions turn into billions and it rolls off the tip of the tongue a bit too easily.
But every dollar that is borrowed, some time, has to be repaid. By you, by me and by the rest of the country.
Just after 5 o’clock tonight I did a bit of maths for Jason Morrison. But it’s so staggering its worth repeating now. First though … here’s what Chairman Rudd has been saying about – what he calls – these temporary borrowings. Remember those words … temporary deficit but the total Government debt could end up around $200 billion.
So here’s a very basic calculation … I used a home loan calculator to work it out … it’s that simple.
$200 billion is $200,000 million. The current 10 year Government bond rate is 4.67 per cent. I worked the loan out over a period of 20 years.
Now here’s where it gets scary … really scary.
The repayments on $200 billion come to more than one and a quarter billion dollars – every month – for 20 years. It works out we as taxpayers – will be repaying $15.4 billion in interest and principal every year …$733 for every man woman and child – every year.
The total interest bill over the 20 years is – get this – $108 billion.
And remember, this is a Government that just 18 months ago had NO debt. NO debt. In fact it had enough money to create the Future Fund to pay the future liabilities of public servants’ superannuation … and it had enough to stick $20 billion into the Building Australia Fund last year….
Queensland’s premier, Anna Bligh, has indicated a new underground Metro for Brisbane and surrounding suburbs could be built by 2030.
Not to be outdone by Sydney’s CBD Metro fiasco, the premier has launched a vision for an underground light rail project linking Toowong, West End, the CBD, Newstead, Bowen Hills, Bulimba and Bowen Hills by 2030.
Queensland Rail is already midway through a $20 million feasibility study for an underground rail tunnel to replace the Merivale Rail Bridge at South Brisbane, which would allow extra trains to connect some new CBD underground stations by 2016.
But Ms Bligh said Brisbane’s Rapid Metro is beyond the cross river rail link – which is all heavy rail. She is talking about an underground metro system like you see in some of the great cities in the world, such as London.
She states that Brisbane needs an entirely new metro system just to support the CBD and will run completely separate from the heavy rail system already in place with further expansions in the pipeline.
“This is a new way of thinking about Brisbane that takes us to 2030.”
The rationale behind the vision is the indication that twice as many people will be trying to access the Brisbane CBD in the next 25 years with employment in the area expected to double from 200,000 to 400,000.
A prediction / forecast like this can cost any city an enormous amount of money, especially if it is wrong. I think we need to consider how we are going to be working in 25 years time. With the advancements in technology and with businesses looking for cheaper accommodation to house their businesses, the growth in CBD employment is unlikely to be anywhere near what it has been in the past. If anything, it may even remain stable. We are already seeing a number of high profile businesses moving their staff to middle ring and outer ring business parks where rent is cheaper and travel times are reduced for many of the staff.
We also need to factor in the possibilities that businesses, due to technology development, may not need to house all their staff in one location with the possibilities of business hubs being created along with the option that many of us may be working from home.
For every property investor, Landlord Insurance is essential. Buying an investment property is usually part of a wealth building strategy and being the landlord, you would not want to see that disappear. Landlord’s insurance is important to help protect you from certain aspects of owning an investment property including:
- Rent default – Loss of rent
- Legal liability
- Theft and malicious damage by tenants or their guests
- Accidental loss of damage
- The extra costs of rebuilding such as architects fees and removal of debris
It is important to have proper protection for not only the investment property but also the belongings you provide to your tenants. The Landlord insurance is generally a relatively small cost but could save you thousands of dollars should something go wrong.
So why is it that many landlords in Australia don’t protect themselves accordingly? If you don’t organise it yourself, your property manager should make you aware of it and even offer to organise it for you. The two main reasons that a landlord should take out a landlord insurance policy in Australia is to protect them from rent default and theft & malicious damage by tenants. There seems to a be a reliance on most tenants doing the right thing, however sometimes it may not be the tenant but rather one of their guests.
The rule of thumb with risk is to insure what you can’t afford to lose. So, be sure you are protected and take out the necessary landlord’s insurance. Failure for a tenant to pay rent for a few months could see significant financial stress on your circumstances which could ultimately lead to forced asset sales.
Eynas Brodie states “Seeking cover for buildings and contents, loss of rent and legal liability needs to be at the top of your list of priorities and so does understanding the policy terms and conditions that are set out in the policy because the types of loss for which you are covered are defined clearly and it’s only those losses that are covered.”
There seems to be a lot of hype in the media at the moment about rising interest rates. Personally, I’m not sure why. Australia has had the lowest cash rate in decades and all of a sudden they are shifted slightly and everyone gets nervous. Through all the recent property booms across the country, they have all occurred when interest rates have been higher than they are now.
In 2008 when the term ‘GFC’ was part of nearly every conversation & headline, the RBA responded accordingly dropping interest rates faster than they had ever done before and lower than they had done for the last 40 or so years. This to me was a true sign of an active board that should be applauded for their swift movements, leading Australia almost unscathed out of what was a turmoil period for the world economy. There is no doubt Australia did suffer, however to a lesser extent than that of other developed countries around the world. The GFC is not over, although journalists are calling an end to it although I do believe the effects of it will linger for some time. In particular, I think every new and existing investor will make their decisions with the GFC in the back of their minds as a very real possibility to consider in both the short term and beyond.
So now we have seen what could happen and how it can be managed. The share market is up over 50% from its lows in March, the property market has pushed up over 8% this year alone and unemployment levels are nowhere near the levels that were once expected at the start of the GFC.
So what does rising interest rates actually mean? Well, for starters, I think we should be happy about them. Rising interest rates are evidence that our economy has survived AND is showing signs of growth. So, in order to slow down inflation, which the RBA is very wary of, interest rates are required to rise.
My concern though is not that interest rates are rising but more importantly that interest rates may rise too quickly. Everyone seems to think that we are over the worst and that there is only positive news to come, but, with such a fragile world economy at the moment the slightest hint of bad news could bring the economy crashing down (again, although I don’t believe it will be anywhere near the levels we saw in March 09).
The NAB has suggested that there will be an interest rate rise of 25 basis points in every board meeting until March 2010. This means the cash rate should hit 4.25% within months. NAB’s chief economist Alan Oster said growing consumer confidence and an improvement in business conditions had increased the likelihood of further rises. The business conditions index surged nine points over the last month to a reading of +12, which is substantially above the long run average reading of +3 index points.
“While confidence has surged in recent times, business conditions have remained significantly below long term averages. That has now changed. In many ways, very high business confidence readings appear to be bearing fruit,” Mr Oster said.
Now although the business conditions index is reading +12, much higher than the long term average of +3, it doesn’t take into account the fact that we have just been through one of the most serious financial downturns in history, so human psychology will tell us that any glimmer of hope to escape the negative sentiment in the world would be exaggerated. So although there is a reading of +12, it needs to be taken into context against the backdrop of the reading as I do think its hard to agree that business is 4 times better at the moment than our past average years.
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