THE RECENT announcement that Brisbane has a real possibility of hosting the 2032 Olympic and Paralympic Games, being named as the preferred bidder by the International Olympic Committee, may have property investors wondering if they will find themselves on the winners’ podium if they buy in this city.
Should you rush in and buy, with the idea of capitalising on future growth?
The simple answer is that the Olympic Games shouldn’t be your only reason for buying. Hosting the event could benefit the city in many ways, which could flow through the property market, but it won’t directly drive prices up.
How will Brisbane benefit?
Under the ‘New Norm’ rules of the Olympic Games, cities that win the bid for the event should have the majority of venues already existing so white elephant stadiums that will likely never be used again don’t have to be built, and hosts can focus on ‘legacy’ projects such as public transport, instead.
This is the case for Brisbane, with Queensland Premier Annastacia Palaszczuk saying the city already has 85% of the venues required for the Games, and events may not be restricted to Brisbane, but South East Queensland and even further afield in the state.
The masterplan for the Olympic Games’ bid proposed two athletes villages (one potentially at Hamilton North Shore) and a possible new stadium at Albion, as well as public transport projects.
It’s hoped that the opportunity to host will be used to bring forward infrastructure investment in Brisbane – particularly for rail and road – to cater for the city’s growing population, with the budget of $4.5 billion contributing to these projects.
This in itself will be a huge boost for Brisbane, making it more liveable and attractive. But another benefit of hosting the Games will be the economic boost through infrastructure projects, job creation and tourism.
The bottom line is that hosting the 2032 Olympics could really put Brisbane on the world stage, with the city to become instantly recognisable and a sought after destination to both travel and move to for a long time to come.
Will it lead to a property boom?
The benefits of hosting big sporting events such as the Commonwealth and Olympic Games can flow through to the property market, and in turn, give it a boost, but there isn’t evidence of a direct boost to the property market in a city hosting one of these massive sporting events.
Some studies show there is a boost in host cities’ housing markets in the years following the event being held, but it’s not conclusively due to the event itself.
“If Brisbane hosts, for many years there will be people saying ‘we want to go to Brisbane or South East Queensland, because that’s where the Olympic Games were held’, says Property Investment Professionals of Australia Chairman Peter Koulizos.
“It attracts tourists before, during and after the Games, which has got to be good for Queensland, but not to a level where you can say property markets are going to boom, because it hasn’t happened before.
“There are certainly a lot of good things, but to be able to drill down to say ‘these particular suburbs are going to do well’ is not possible – it doesn’t have that sort of benefit.
“The research doesn’t show that you should buy in a particular suburb because the stadium is next door and you’ll make money, for example.
“It’s wonderful and the Olympics will have a greater effect city wide, but it doesn’t impact property prices from a suburb level.
“It didn’t happen for the Olympic Games in Sydney, the Commonwealth Games in Brisbane, Melbourne or the Gold Coast, and globally that sort of thing doesn’t happen.”
The reality is that Brisbane is already starting to boom, which is part of an Australia-wide trend for the property prices. The city was also overdue for growth as it has matured in recent years with billions of dollars in infrastructure projects in the pipeline that will be transformational for the city, and has seen significant population growth.
The potential promise of hosting the Olympic Games in 2032 will just increase confidence in the city’s property market, and perhaps put the city on the radar for some investors, both locally and globally.
While the Olympics may draw investors to Brisbane to buy property, investors should always stick to the fundamentals when choosing cities to buy in, and where to purchase on a suburb level in those cities.
Always ensure there will be ongoing buyer and renter demand, and that it ticks all the boxes in terms of infrastructure, amenity, proximity to employment, and accessibility.
In Brisbane, the best opportunities are close to the city and close to the river, says Koulizos, where there will always be strong demand.
If you do end up buying Brisbane make sure you order a property depreciation schedule here.
The latest CoreLogic data shows Australian home values have now reached a fresh record high, and surpassed pre-COVID levels by 1%, with the company’s national home value index 0.7% higher than the last peak in October 2017.
Dwelling values continue to rise month-on-month, with January recording a 0.9% increase.
Knight Frank’s Head of Residential Research Australia Michelle Ciesielski says there is strong momentum building across most Australian property markets, with much of the new stock built in past years being absorbed, and a very shallow pipeline of new construction.
“As economic stimulus further eases at the end of the first quarter of 2021, this may create some small pockets of distressed selling, but thus far, as a result of the historic low interest rate environment, finance lending commitments have grown significantly with a large portion of first home buyers and investors returning to the market.”
Knight Frank Research forecasts residential prices to grow the most in Darwin (9%), Perth (8%), Brisbane (6%) and Canberra (6%) in 2021 off-the-back of resilient commodity prices and increased government activities.
Lifestyle markets are also predicted to perform well, such as Hobart (5%) and Adelaide (5%), with Australia’s two largest cities of Sydney and Melbourne expected to record 4% and 2% growth respectively by the end of 2021.
What is happening to property prices in other countries?
Compared to some other countries, Australia’s growth in property prices is modest to date.
The most recent Knight Frank Global Residential Cities Index, which tracks movement in mainstream residential prices across 150 cities worldwide, found price growth in Australia continued to vary across the capital cities.
Australia’s residential annual price growth in the third quarter of 2020 ranged from 13.6% in Hobart with a global ranking of 8th, through to 1.2% annual growth in Perth, which ranked 116th globally, says Ciesielski.
By comparison, the capital of the Philippines, Manila, came in first, recording stellar annual growth of 35%.
“In Turkey, the cities of Izmir (28%), Ankara (27%) and Istanbul (26%) occupy second, third and fourth place respectively, with St Petersburg (19%) completing the top five,” says Ciesielski.
The Knight Frank research found four Canadian cities (Ottawa, Halifax, Montreal and Hamilton) also now sit in the top 20 rankings for residential price growth with growth of 10%-plus. US cities are also rising up the rankings, with Phoenix, Seattle and San Diego making it into the top 20.
The Global Residential Cities Index found annual residential price growth globally was on the way up, rising 4.7% in Q3 2020, up from 4.1% the previous quarter.
Ciesielski says there are many regional variations playing out, which is likely to continue as the pandemic continues and vaccinations are distributed at varying rates.
“As an example, 18 cities registered double-digit annual growth from the third quarter of 2019 to the third quarter of 2020, whilst 23 cities registered price declines,” she says.
“In total, 15 per cent of cities saw prices decline in the year to the third quarter of 2020 with cities in India, Spain and the UAE well represented.”
Prices in just two countries – Rio De Janeiro and Madrid – remained flat, while the rest recorded price growth.
Why haven’t world property prices plummeted?
Record low interest rates, huge fiscal stimulus measures and the release of pent up (largely domestic, due to border closures) demand in the third quarter are behind the uptick in price growth globally, according to Knight Frank’s Global Residential Cities Index report.
Property prices have been resilient in many countries given the record low interest rate environment attracting investors, explains Ciesielski.
“Unlike the global financial crisis where it was economic-led, significant economic stimulus measures have been deployed swiftly to counter-balance the rise in unemployment and support businesses to get through this health pandemic,” she says.
“Many cities, including those in Australia, have experienced a tapering off of new supply being built in recent years, so the housing market is also dealing with pent-up demand from prior to the pandemic.”
Ciesielski notes that growth in Australian residential prices was gaining traction at the start of 2020, heading into the pandemic, with pent-up buyer demand following a tightened lending regime and a shallow number of listings coming to the market.
“This gave Australia the best chance to endure several lockdowns, with most disruption easing by the ideal spring selling season and significant government economic stimulus boosting buyer confidence.”
AS WE reach the end of the year it seems Australia’s property market has been heating up, with greater sentiment, activity and price growth.
The latest CoreLogic figures show the market continued its recovery in November, with prices rising for the second month in a row. Dwelling values rose by 0.8% over November and 0.4% in October, following five months of falls resulting in a total 2.1% drop in values between April and September.
The question is now, what will happen in 2021? Will the market strengthen, or will it resume a downward trajectory when some of the COVID assistance packages come to an end?
All signs point towards growth
CoreLogic’s Head of Research, Tim Lawless, says Australian home values could surpass pre-COVID levels early next year if the current growth rate continues.
Housing values already hit record levels in Brisbane, Adelaide, Hobart and Canberra in November.
While some commentators are still hesitant, many experts believe the price growth we have seen at the end of 2020 is predicted to continue into next year.
Some forecasts for growth rates are more bullish than others, but Hotspotting.com.au founder Terry Ryder predicts a national property boom next year.
He says Australia’s real estate market has “done brilliantly” this year considering COVID-19, and has completely defied earlier forecasts of price falls.
“In March and April, economists and media headlines were telling us to expect a collapse in property prices,” he says.
“Some were forecasting a 15 to 20 per cent fall, and the worst case scenario was a 30 per cent drop, but we haven’t seen that, and I don’t think we were ever going to see that.
“Most locations across Australia have continued to show price growth month by month, with Sydney and Melbourne the exception, but they are often the exception to the national rule.
“Even those markets are now starting to get positive numbers, but most other capital cities and regions have had growth right through.
“I think we’re coming into a national property boom. I think next year is going to be incredibly strong economically and in real estate.
“We’re really going to be having the first genuine nationwide property boom since the start of the century.
The market hasn’t had double digit growth since the start of the 2000s, he says, and in 2017 Sydney and Melbourne were really the only cities to boom.
“But next year we’re going to see all the capital cities and most of the majority regional centres having strong growth,” adds Ryder.
SQM Research is also forecasting strong annual growth of up to 12% in most capital cities next year, with Perth leading the forecast with predicted growth of between 8% and 12%.
Meanwhile many of the banks have backflipped on their doomsday predictions for price falls, and revised their house price forecasts for 2021 upwards.
Westpac, for instance, predicted a 10% fall in prices between April 2020 and June 2021, but is now forecasting a 5% fall, with prices to rise by 15% in the two years from June 2021.
NAB, which predicted falls of between 10% and 15%, is expecting prices to rise by 5% and 6% respectively across the board in 2021 and 2022, while ANZ predicts price rises of around 9% across the capital cities next year, revised upwards from a fall of 10%.
All signs point towards growth
So what’s underpinning Australian real estate prices now and moving forward into 2021?
There are many factors, including a shortage of stock, with the resulting buyer competition for available properties pushing prices up.
“Properties are selling so quickly; what’s available is getting snapped up,” says Ryder. “People are offering strong prices to snap property up in the face of competition.
“It’s a vendor’s market but there are relatively few taking the opportunity, which is one of the factors keeping prices strong, but not the only one.”
Low interest rates is another factor, as well as the economy. Ryder explains that Australia was in and out of recession quickly, and the economy is strong, with unemployment failing to reach the highs predicted, and currently sitting at around 7 per cent.
Many have predicted the market may feel the worst pain when government and lender assistance packages come to an end, but Ryder says that’s not going to come to fruition – if it was going to happen, it would have already, he says.
It’s business as usual in most parts of Australia, notes Ryder, with the majority of the country getting the virus under control very quickly.
People are now confident and spending, and there has been no massive economic hit. In fact, he says some parts of the economy have thrived because of COVID-19 and some property markets were directly pumped up because of it, with some regional economies turbocharged by it.
Recent data has found consumer confidence in Australia has hit a 10-year high, with the most recent Westpac-Melbourne Institute Index of Consumer Sentiment lifting by 4.1% to 112 in December, up from 107.7 in November.
Some forecasts of property price crashes pointed to falling overseas migration in Australia, but Ryder says this demand is now being replaced by expats coming home in “droves”.
The fast-tracking of infrastructure in Australia to aid the economic recovery will also be a big boost for the property market by boosting economic activity and jobs, as well as improving the appeal of specific locations, adds Ryder.
“Nothing bumps up property markets like infrastructure spending; it’s going to be huge for the property market,” he says.
“That factor is almost going to guarantee that across Australia there is going to be a real estate boom in 2021.”
When it comes to deciding what to do with your hard earned savings, the choice between investment opportunities can be difficult. There are a number of factors that might convince a potential investor to invest in one opportunity over another.
In particular, property as an investment is something that has been extremely profitable for a number of people. With this being said, in deciding whether or not you should buy property as an investment, you should consider various factors.
The Risk Involved in an Investment in Property
An important factor in determining which investment suits your needs is the amount of risk you are willing to take. While some investors are extreme risk takers and like to put more of their investment towards something volatile such as cryptocurrency, others are more risk averse, and prefer to accept a lower return on investment with known risks as opposed to unknown risks.
In comparison to other investment opportunities such as crypto and shares, investing in property is relatively safe. With this being said, it doesn’t mean that there is not the potential for you to lose your investment. When considering the 2020 pandemic in particular, risk surrounding property is somewhat higher than it would otherwise be.
Volatility due to the pandemic has meant that Australian housing prices have dropped, open houses and auctions have been halted, and rent reductions have occurred. This might mean that you are tempted to invest, in anticipation of future price rises, however the pandemic also means that future price changes are uncertain.
Being Prepared to Pay it Off
One of the biggest considerations to make in deciding to buy a property as an investment is in terms of whether you are prepared to make the necessary repayments. These will likely take a significant chunk out of your regular income, while other investments do not require the same commitment.
Rent money will obviously contribute to these repayments, however it won’t cover them entirely. Plus, in the event of a vacancy (which is likely to happen at some point), you’ll be covering these repayments entirely.
If you are planning on putting down a deposit and making repayments on a property, you’ll want to know how much you will be paying on the mortgage – calculate it here.
Investing in a Property to Maintain Your Lifestyle
In many situations, investing in a property is often an alternative to buying a first home. If this is the case, this decision will involve a lot of thought in itself. However, a significant factor that increases the appeal of investing in a property is that it can allow you to maintain your current lifestyle.
Purchasing a property in an area you want to live in might be out of your financial means – if you want to live in a trendy area with parks, amenities, cafes, shops and entertainment, the cost of the property will be higher. Investing in a property can solve this problem as you can choose to invest in an area that is cheaper or more rural, and then continue to rent in the area you want to live in.
Don’t Overlook Maintenance, Upkeep and Management Requirements
Another factor that makes buying an investment property an involved process is the maintenance and upkeep involved.
This starts with the tenants – choosing the right tenants can be a difficult process, and one that is often ongoing. The right tenants need to take care of the home properly, be a positive contribution to the neighbourhood (you don’t want to be receiving complaints from neighbors), and make payments in a timely manner. Finding the perfect tenant is easier said than done, and depending on how long they plan on living in your property, you might be screening the next occupants sooner than you would like.
Regardless of the tenants, there are going to be maintenance requirements. Even the perfect occupants will come into some sort of maintenance requirement, whether it is to do with plumbing, the kitchen, or the general structure and quality of the property. Having to determine whether this is the fault of the tenants or not is another problem in itself, but ultimately you may end up having to pay for these maintenance costs.
Finally, you have to deal with the management of the property in general- this means taking the time to deal with the processes involved in finding tenants, performing upkeep, keeping neighbours happy, and more. On the other hand, you could enlist the help of a professional property manager – this is a more costly but convenient option, and will depend on your timetable, income and personal preference.
Client Name and Unit Number have been altered for privacy.
Marie came to Washington Brown looking to maximise her tax depreciation deductions, having purchased a second-hand investment property in 2018.
The house was originally built in 2000 and was purchased for $1,200,000 in 2018.
The two storey house consisted of 4 bedrooms, 2 bathrooms and a double garage, with a total internal area of 304sqm.
As Marie purchased the house after May 9th, 2017 and the property was not brand new, she was not able to claim deductions for the fixtures/fittings (Plant & Equipment / DIV 40).
Marie’s report from Washington Brown allowed her to claim the yearly deductions displayed below. The first year figures are specific to Marie’s settlement date in mid-August (slightly less than full financial years’ ownership).
By providing the Washington Brown depreciation schedule files to her accountant, Marie was able to claim over $8000 in her 2019/2020 tax return. In addition, she was also able to amend her 2018/2019 tax return to claim an extra $7,396. This gave her a total deduction of over $15,000.
Note: Please scroll across on mobile to view full deductions.
Client Name and Unit Number have been altered for privacy.
Having recently settled on an off-the-plan apartment in Clayton, Victoria, Paul’s accountant suggested he contact Washington Brown to maximise his tax deductions.
The 74sqm, 2 bedroom, 2 bathroom apartment was purchased for $559,000 in 2020.
As Paul was the first owner and had never occupied the property himself, he was eligible to claim deductions on both the structural elements (Building Allowance / DIV 43) and the fixtures/fittings (Plant & Equipment / DIV 40).
Washington Brown was able to achieve the below, ATO-compliant deductions for Paul. As he settled in August, the first years’ figures show the maximum deductions available based on 11 months’ ownership in that financial year.
By forwarding the depreciation schedule files to his accountant, Paul benefited from a first year tax depreciation deduction of almost $17,000. The schedule/report detailed over $300,000 worth of deduction over the full 40 year period.
Note: Please scroll across on mobile to view full deductions.
IN A MOVE designed to strengthen the economic recovery from the COVID-induced recession in Australia, the Federal Government recently announced reforms to responsible lending laws.
By removing responsible lending obligations from the National Consumer Credit Protection Act 2009 (NCCP), with a few exceptions, the changes mark a move away from the ‘one size fits all’ approach to assessing loan applications, and will simplify the process.
With the onus transferring from the lender to the borrower to ensure they can afford a loan, it will essentially make it easier to get credit, which will lead to greater spending and stimulate the economy.
It’s also expected to boost demand for housing and therefore help to support house prices.
So are these reforms, expected to be implemented on April 1 next year, a good thing or a bad thing?
Who will the beneficiaries of the reforms be?
It’s intended that the economy will benefit from the reforms, which means we should all see some benefit.
But since the changes are designed to improve the accessibility of credit by removing overly stringent lending restrictions, it’s clear borrowers will be one of the main beneficiaries.
While some reforms and closer scrutiny of lenders was needed in the wake of the GFC back in 2009, Aussie Franchisee – Lane Cove Jon Somers JP says the pendulum has now swung too far the other way.
He says the lending reforms will lead to more reasonable lending criteria, with credit more accessible and loan approval times – which he’s seeing take from four hours up to around one month – hopefully reduced with less rigorous assessments required.
“At the moment I have so many clients that are strong candidates for finance but just can’t borrow what they need,” he says.
“Waiting times with some lenders are the longest that I’ve seen in 18 years of mortgage broking.”
But while it will make it easier to get credit, Somers adds it’s most unlikely anyone who is ineligible for credit will now be able to obtain it.
Steve Mickenbecker, Group Executive, Financial Services at Canstar.com.au says there is a strong case for lending reform to rebalance responsibility between the lender and borrower and to clear up uncertainty over the degree of scrutiny to be placed on loan applicants’ historical spending.
“The operation of credit in this environment and future development had become increasingly inhibited,” he says.
In addition to borrowers, lenders will benefit from the reforms with less onerous credit processes and less risk of liability, says Mickenbecker.
“The other beneficiaries are people who have been wrongly denied credit or have experienced delays as a result of compliance with the code and the presumptions made about credit.
“Some lenders, nervous about the onus of proof falling on them, will have set credit standards too conservatively.”
Mickenbecker says the reforms should eventually make credit more readily available, but the question mark will be lenders’ ability to gear up with a new credit process and their preparedness to take on expanded credit in a time of heightened risk.
Will borrowers be at greater risk now?
Somers doesn’t believe the reforms will add any risk to borrowing, with the onus now back on the borrower, because the banks will still be performing a thorough assessment.
It’s entirely fair that the onus be on the borrower, he adds.
“If you’ve done a thorough budget and allowed for contingencies, then there should be no issue.”
Mickenbecker says borrowers who struggle to assess their suitability for credit will be exposed to some risk without the protections of the current regime, but just because the onus has shifted from the lender to the borrower it doesn’t mean lenders are going to lend irresponsibly.
“Lenders have a strong interest in avoiding loans that may pose a risk,” he explains.
Borrowers have to be satisfied that they can afford a loan and if in doubt they should seek independent advice before putting forward a loan application, says Mickenbecker.
When it comes to approaching banks when the new laws kick in, it’s best to engage a professional or at least perform extensive research yourself, adds Somers.
“These changes (to lending reforms) will not impact a mortgage brokers’ ‘best interest duty’ obligations, so brokers must continue to ensure their recommendations are in your best interest.
“A good broker will spend time with their clients, educating them on the options available, as well as the merits and risks of each offering.”
AS during any crisis – and even in the absence of one – the doomsayers come out in the property market. And COVID-19 is no different.
Following the pandemic we’ve seen numerous predictions about Australian property prices, including that they could fall by up to 40%.
Will it come true? Only time will tell. But we do know that despite many price fall predictions, so far they have not come to fruition – and according to the experts they are unlikely to this time.
Have previous doomsayer predictions come true?
Two names come straight to mind when we talk about doomsayers and property prices – economists Harry Dent and Steve Keen.
In 2014 American Harry Dent predicted a 30% to 50% fall and in more recent years he has forecast that prices will halve in at least Sydney and Melbourne by 2023.
Steve Keen, from Australia, predicted a 40% fall within five years last year, and a similar drop after the GFC in the late 2000s.
Will the property Doomsayers be right THIS time?
In reality over the past 10 years Australian house prices have grown in value by more than 36%, with the median capital city house price rising from $463,673 at the end of 2010 to $633,745 as at the end of August this year, according to CoreLogic figures. Since 2014 the data shows prices have risen by 16%.
So what will happen to prices in the aftermath of COVID-19?
The general consensus is that Australian property prices will fall a little in the aftermath of COVID-19. But a 40% drop is highly unlikely.
CoreLogic’s latest figures show Australian housing values were down in August by just 0.4%, with the fall only around 2% since the recent high in April.
“It’s more plausible that there will be some drops but they will be minimal. I think property prices will drop five to 10 per cent – it willbe closer to 10 per cent in Victoria and around five per cent for the rest of the country.”
As has happened in the past there will be some places where property prices increase and some in which falls will be felt the most.
Those to be hit hardest are likely to be near-new properties, due to government incentives to build brand new, as well as CBD apartments, with many rented by international students, says Koulizos.
“A typical suburban home – a detached house on a decent-sized block reasonably close to amenities – will not see much impact at all.”
Personal investment columnist Pam Walkley says she’s unsure of where property prices will head from here because we are in “unchartered territory”.
In the short term, she says, downward pressure could be put on prices if there are a lot of foreclosures following mortgage freezes, and if overseas migration slows significantly – which it is likely to do – and lessens demand.
“While I don’t see huge price falls in the short term I don’t really see any potential for huge rises either,” she says.
“But long term if the recession – and maybe it becomes a depression – causes governments to find ways to cut their outlays, major changes to the way property is treated tax-wise may be the catalyst for very hefty rises.
“Will we really be able to afford generous negative gearing breaks, family homes being CGT-free and not counting the family home in the assets test to access government pensions in our parlous state?”
Ultimately prices are very likely to rise again
Koulizos has undertaken research which shows Australia has proven to be very resilient in global economic crises, with prices rising in the five years after every time.
The research found that following the GFC in 2008-2009 capital city dwelling values increased by up to 39% in the five years after. Prices also increased by up to 100.7% after the recession of 1973 to 1975, 67.7% following the downturn of 1982 and 1983 and 47.3% following the ‘recession we had to have’ in 1990-91.
Eventually, prices will rise
Koulizos says in the case of the current health crisis, government and banks are offering an economic airbag, including record low interest rates and mortgage repayment holidays, to soften the impact financially, which is an added positive.
He points out that in the 1990s recession unemployment hit 11% and interest rates were 17.5%, while this time around we have unemployment forecast to hit a high of 10% and 3.5% interest rate, which is going to “save property prices” in Australia.
He adds that the Australian property market is heavily dominated by owner-occupiers rather than investors, and selling their own home is the absolute last resort.
At the moment he says buyer demand is low but so is supply which means prices are largely holding up.
Paul Clitheroe, financial adviser and editor/founder of Money, acknowledges that interest rates will be low for a long time, but he adds that income growth for the vast majority of the working population will also be low.
“Add JobSeeker winding back, COVID in all probability being with us for longer than we hope, banks wanting to get repayments on loans sooner than later…. you would not need to be Albert Einstein to figure downward pressure on prices,” he says.
Right now the market is generally holding due to huge government support, very low interest rates, banks deferring loan repayment and things such as the ability to access $10,000 from Super… not to mention a majority are in front with mortgage repayments”, he says.
“But jobs will disappear and may take a long time to come back, government support will reduce and in many cases people’s reserves will dry up.
While forced supply will put downward pressure on prices, Clitheroe says with time buyers can be quite confident that a growing population and eventual recovery will see property continue to be a solid investment.
Despite the COVID-19 crisis restricting immigration and the trend towards youngsters delaying having a family, Australia’s population still grows, he says, with the average prediction for population of around 35 million in a bit over 30 years. This means demand for housing will grow going forward.”
Paul Clitheroe’s 5 top tips for navigating the current property market:
Don’t hurry; forced supply is likely to increase putting downward pressure on prices.
With time, buyers can be quite confident that a growing population and eventual recovery will see property continue to be a solid investment.
Be realistic about the level of personal debt and your own job security. Being forced out of your property by a job loss could be ugly in this climate.
Buy where a growing population puts pressure on prices. Buy near public transport, schools, hospitals, parks and a decent cup of coffee.
Do not believe anything an agent tells you. They are not your friend, they work for the seller only. Do your own research.
IN THE AFTERMATH of COVID-19, things are changing all the time, including restrictions and the impact these are having on a range of industries, including property.
So far the property market seems to be holding up pretty well, with minimal falls in values. But it’s a different story for the construction industry (a huge source of employment for Australians), which faces a steep drop in home building after September this year.
In light of this the Federal Government recently announced a new $25,000 property grant called HomeBuilder, to be handed out to eligible people building or renovating a home, which is designed to boost construction activity and stimulate the industry.
This $688 million housing stimulus package aims to build 30,000 homes by Christmas and is predicted to generate over $15 million in national economic activity, lead to $10 million in building projects and support more than 1 million jobs.
Details of HomeBuilder are still evolving, and there may be other assistance on offer in the months to come (particularly from state and territory governments) to stimulate the housing market – we’ll have to watch this space.
In the meantime, however, here is what we know about what’s currently on offer.
What is HomeBuilder?
The scheme offers a $25,000 grant to owner-occupiers substantially renovating their home or building a new home between June 4 and December 31 this year.
It comes with restrictions though – for new builds the home cannot be priced at more than $750,000 and renovations must cost at least $150,000 and up to $750,000 for a home valued at $1.5 million or less, but the work excludes sheds, pools, tennis courts, granny flats or any other structure detached from the dwelling.
The grant is also means tested, with income caps of $125,000 for singles and $200,000 for couples.
Contracts must be signed within the next six months and construction must start within three months of the contact date.
The program is expected to be up and running within a few weeks, with applications able to be backdated to June 4 so contracts can be entered into right away.
It will be implemented via a National Partnership Agreement with the federal, state and territory governments.
At the time of writing applications for the grants were not yet open, but Australians could register interest in the scheme through the Government’s official website.
The $25,000 HomeBuilder grant is designed to complement state and territory housing assistance programs, including grants and stamp duty discounts, to encourage more people to undertake building work.
Since the Federal HomeBuilder announcement, some states have offered further stimulus, with Tasmania offering $20,000 for any owner-occupier to build a house, while Western Australia is offering owner-occupiers and investors a $20,000 grant.
What are the pros and cons of the HomeBuilder grant?
Some argue the money offered by HomeBuilder would be more effective in achieving its aims of stimulating construction if it was given for the provision of social housing instead.
While the HomeBuilder grant will encourage more people to undertake a building project – either through a renovation or new build – which will stimulate the construction sector, inevitably it will also be given to those who were already planning a project anyway, which is one of the program’s criticisms.
Other criticisms are that it’s too restrictive due to factors such as the large outlay required (particularly for renovations), property value caps, means testing and timeframes – particularly to get approvals and plans – which may lead to a low take up.
It could also inflate prices for houses or trades, as grants often do, but the short timeframe for the scheme is expected to counteract this.
Despite all these potential drawbacks it has been reported that there has been huge enquiry – numbering 8000 as at June 8- about the program in the days following the announcement. This indicates interest – and potential take up – is high, and the program could be the catalyst for people taking action after sitting on the sidelines due to Coronavirus.
In particular it could be a great incentive for first home buyers, who will also be able to take advantage of state and territory grants, but it’s also a good opportunity for existing homeowners to upgrade to a new homes or update their current home.
What to consider
You should do you own research and seek expert advice before rushing in to take advantage of this grant, despite time being of the essence.
Ensure you are making a prudent investment decision and either buying a new home that will increase in value or ensuring you are adding value through a renovation and not overcapitalising.
Chris Gray of YourEmpire.com.au says in the past property grants have often created a short-term bubble in the market, and quite often it can be a “false economy”.
Home buyers, he says, are often better off buying a mainstream existing house in a well-located suburb with no grant rather than buying a new one with a grant, as the underlying investment in the most important thing.
He warned homebuyers taking advantage of HomeBuilder to do their numbers, and determine if they would actually still do a renovation and spend the money if they didn’t have the grant.
“The grant should be the bonus rather than the reason for doing it,” he says, adding that having to spend the extra $25,000 on a higher-value renovation means overcapitalising is a real risk.
“You might spend money on things that actually devalue the property such as gold-plated taps or diamond encrusted something else. You can spend money upscaling to satisfy the requirements of the grant and it doesn’t suit the area or the type of property.
“Get a fresh pair of eyes to look over your property and determine what it is worth now and what it will be worth after so you make sure you add value and know how much to spend on a renovation.”
Do we need more property grants to stimulate the housing market post COVID-19?
At this present time, it doesn’t appear that the housing market needs propping up via other grants or handouts.
According to CoreLogic Head of Research Tim Lawless property values have been quite insulated from a downturn to date, with CoreLogic data to the end of May showing home values were down less than half a percent.
The HomeBuilder grant is more about jobs than housing, he says.
“(It) is more about shoring up jobs in the residential construction sector, so it is rightly targeted towards incentives to build or renovate, rather than stoke demand for established homes which could have an inflationary effect on prices.”
Mr Lawless explained that housing construction has been in a broad downturn over the past year and a half, and will likely slump further through the year.
“Nationally dwelling commencements peaked in the first quarter of 2018 and by the end of last year had declined by around one third to be 14 per cent below the decade average,” he says.
“Considering housing construction typically provides a strong multiplier effect on the economy via the scope of the supply chain and array of trades and industries involved, a stimulus package for the sector makes sense.”
The COVID-19 pandemic has forced many businesses to reflect on “industry norms” and the way they operate. We are no exception.
At Washington Brown we believe in researching each property and advising clients on the best way to approach achieving the maximum depreciation in the most cost-effective way.
Not EVERY property needs to be inspected in order for the maximum claim to be achieved.
This USED to be the case – but the tax legislation recently changed and property investors can no longer claim depreciation on items like ovens or dishwashers that are not brand new.
So NOW you can only claim depreciation on the structure of the building like concrete and bricks for 2nd hand properties.
If you BUY brand new items like carpet and blinds, you can still claim depreciation but it must be based upon the purchase price (not an estimate).
In the OLD days, we used to visit the property so we can value these items individually, the ATO put a stop to that.
Our Commitment to Property Investors Moving Forward
If we determine that an inspection is NOT required to ensure the maximum depreciation claim – this will reduce our fee AND you’ll receive the report sooner. Let Washington Brown work out the best depreciation plan for your property – click here.
Here are 5 reasons why SOME properties do not require an inspection:
Extensive Database – In 40 years we have amassed an extensive database of construction costs for the majority of residential and commercial buildings around Australia.
We have the costs – We are familiar with your building and as such, we already have the construction costs on file.
Plant & Equipment no more – You have purchased a second-hand property so you cannot claim on the existing plant and equipment components.
Online data – There is an abundance of detailed information and pictures of your specific property available online (both publicly and via subscription-based industry databases).
You have the costs – Your property is a brand new build and you have access to the construction cost, plans and inclusions list.
Here are 5 reasons why SOME properties STILL NEED an inspection:
Your property is unique – Your property is classed as High Spec/Luxury/Non-Standard and therefore not typical. An inspection will ensure the maximum deductions by ensuing all facets of your property are assessed and included.
Non-residential – This means you can still claim the full benefits of depreciation including the Plant & Equipment (carpets, blinds, etc.)
Renovated – Your property has been substantially renovated. There is insufficient information online and as such an inspection is necessary to maximise the depreciation.
More information required – We do not have access to sufficient information specific to your property. We, therefore, need to acquire this via an onsite assessment.
Plant & Equipment – Your property qualifies to claim Plant & Equipment deductions, an inspection ensures no assets are missed, which means your deductions are maximised.
The Australian Institute of Quantity Surveyors CEO, Grant Warner, has confirmed the following in writing to Washington Brown:
“I would like to confirm that AIQS (or the legal advice we sought) makes no representations about:
how tax depreciation reports must be prepared by Quantity Surveyors;
what Quantity Surveyors are able to estimate;
whether original or newly appointed Quantity Surveyors are best equipped to estimate certain construction costs; or
physical inspections being necessary to complete a tax depreciation report.
Grant Warner, CEO, The Australian Institute of Quantity Surveyors.”
I think the communication from Washington Brown has been really impressive. All consultants have been really patient with me - as a first time investor I have really appreciated their extra support.
Quick turnaround, very responsive and helpful with completing schedule even though I was missing some information they were able to locate what was required. I have used Washington Brown on three occasions in all three times the service was very good and would highly recommend them.
First time using washington brown, was referred by my accountant. They have a very fast turn over and their staff are very polite. Will very happily refer friends and family to them and be back if we need anything else.