You can use a SMSF (self-managed superannuation fund) to buy an investment property in Australia. However, this has previously been quite difficult. Many lenders would not allow SMSFs to borrow money, which means they had to fund the full purchase themselves.
However, that changed after the 2017 Budget. Now, a self-managed super fund can borrow the money needed to fund the purchase of an investment property in Australia. As a result, those who previously couldn’t afford to use their SMSFs to buy an investment property in Australia now have a pathway to do so.
The first thing to remember is that you shouldn’t set up a SMSF solely to buy a property. However, having it available makes sense for a lot of small business owners. After all, a business owner can occupy the SMSF’s investment property in Australia, as long as they use it for business purposes.
However, managing an SMSF takes a lot of time and hard work. To help you along, we’re going to show you some of the secrets of using an SMSF for property investment.
You’ll need some money in your SMSF before you can use it to buy an investment property in Australia. How much will depend on your situation, but as a rough guide you should aim to have $200,000 available.
This will help you to cover the deposit and the fees associated with taking out a home loan. Furthermore, you’ll probably have some money left over for diversification. This is important, as investing only in property could come back to bite you if the market crashes.
The funds should come from every SMSF member. You don’t have to fund the entire thing yourself.
Know How Much You Can Borrow
Most lenders are still quite wary of lending to SMSFs. That shouldn’t come as a surprise, as many have only just started doing so following the 2017 budget. As a result, it’s unlikely that you’ll be able to secure a home loan with a loan to value ratio (LVR) above 80% of the home value.
In fact, most lenders prefer to offer 50% LVR on SMSF loans. Having a 50% deposit available for your investment property in Australia increases the lender’s confidence and puts the property closer to being positively geared.
Of course, you need to make repayments on the home loan once you’ve secured it. This is where the self managed super fund can really help an investor. You can use your super contributions, which you can deduct from your taxes, to make the repayments. The same goes for any rent or other payments that the SMSF receives.
As a result, you often won’t need to spend any of your own money to repay the home loan. Better yet, you can deduct quite a large portion of the repayments from your tax bill. Of course, it’s best to work with a tax professional to ensure you set up the correct structure for this.
The Tax Benefits
Let’s look at the tax benefits of buying an investment property in Australia using an SMSF in more detail. For one, the fund only has to pay a maximum tax rate of 15% on any income the property generates.
However, the bigger benefits come if you choose to sell the property. Assuming the SMSF has held the property for at least one year, you only have two-thirds of the capital gains tax (CGT) you would have paid on a property you personally own.
Better yet, both of these tax contributions disappear if the SMSF keeps the property until its members start claiming their retirement pensions. As a result, retired SMSF members can benefit from the property’s income, without having to pay any tax. They also receive larger lump sums if the SMSF sells the property because they don’t have to pay CGT.
Can Everybody Do It?
Property investing using an SMSF sounds appealing, and it can provide you with a lot of benefits. However, it’s not for everybody.
As mentioned earlier, you should avoid using your SMSF to invest in property if it doesn’t have a large sum of cash available. Diversification is crucial when investing, so you don’t want to be in a situation where your SMSF relies only on the property’s income. A lost tenant or property market crash could cause major problems.
Furthermore, those on low incomes should think twice about investing using an SMSF. Remember that you have to make regular SMSF contributions. These contributions benefit you when it comes to your taxes, but they’re also long-term benefits. You may struggle in the short term if you don’t have the money to make regular SMSF contributions.
HOUSING affordability has been an issue for, well, what seems like forever, with Sydney a particular focus as prices have been skyrocketing.
So what’s being done about it? Well, it was addressed in the Federal Budget, the Victorian State Government announced stamp duty concessions, and now it’s New South Wales’ turn, with the State Government announcing a new housing affordability package at the beginning of this month.
It includes measures to help first homebuyers into the market, dampen competition and increase supply to put downward pressure on prices.
Before the new measures will take effect in just a few weeks, on July 1, let’s take a look at what they are and what impact they’ll have on the market.
The benefits to first home buyers
The major measure to come out of the package for first home buyers is concessions to stamp duty.
The tax has been abolished for home purchases up to $650,000 and concessional rates will apply for homes costing between $650,000 and $800,000.
It will apply for both new and existing homes, while concessions used to be only available for new homes.
Insurance duty on lenders mortgage insurance will also be abolished for all buyers, and this, combined with the stamp duty concession, is expected to save first homebuyers up to $26,857 for a $650,000 home.
The $10,000 first home owner grant will also be capped at $600,000 for new homes, but for those constructing a new home it will remain at $750,000.
What else is in the package?
The stamp duty surcharge for foreign investors will double from 4% to 8%, and the surcharge on land tax will rise from 0.75% to 2%.
For investors, the 12-month stamp duty deferral will be no longer, and stamp duty concessions for off-the-plan properties are also gone.
The NSW Government has also undertaken measures to increase supply by speeding up development approvals and council rezonings. It also aims to accelerate the provision of infrastructure to support the construction of new homes.
What impact will the affordability package have?
The affordability package has had mixed reviews since its announcement. While it has been welcomed by the industry overall, there are some criticisms.
The biggest issue is the threshold for stamp duty concessions; the argument is that it needs to be much higher to actually have an impact in Sydney. Since prices are so high, it’s not easy to buy a property under $650,000.
It’s a different story in regional areas of course, and perhaps this is the intention – to encourage people to move out of greater Sydney and to elsewhere in NSW.
Another issue is that stamp duty is still very high for upgraders and potential downsizers – ie. empty nesters – which prevents them from selling and moving on, which in turn reduces the supply available for first homebuyers or families to get into the market.
So even though there are incentives for first homebuyers, one has to wonder whether the supply will be there, even with the measures being undertaken by the NSW Government. Although of course the Federal Budget did provide an incentive to Australians over 65 to downsize, giving them the opportunity to make non-concessional contributions of up to $300,000 into their superannuation from the sale of their home, and this may help.
Another criticism of the NSW affordability package is that grants or concessions can simply create a surge in demand and the extra funds available to first homebuyers are simply added to the purchase price, so it just ends up in sellers’ pockets.
With the Sydney market already moderating, however, and supply likely to be increased, prices may not be pushed up.
Sydney price growth has already started dropping off due largely to affordability constraints and lending restrictions on investors.
According to CoreLogic, the city’s median dwelling price fell by 1.3% over May and has had zero growth over the past quarter, with growth now sitting at 11.1% for the past year, less than that for Melbourne. Sydney’s median dwelling price is now $872,300.
The other issue people will be keeping an eye on is the impact of dampening foreign buyer demand from the measures in the NSW affordability package.
Since these buyers are usually the ones developers get pre sales from, it could result in less development, restricting supply and pushing prices up.
On the other hand, foreign investors may not be put off and could still compete with other buyers, which will do nothing for affordability. Or if they completely disappear there is a risk that prices could significantly fall, as they did in Vancouver, especially since the market has already started moderating.
It’s all going to be a wait and see exercise it seems.
The affordability package is expected to be just part of the solution to the so-called housing affordability crisis in NSW, so stay tuned for the next announcement!
A lot of people buy property when interest rates go right down. For example, two years ago there were a lot of people buying property because interest rates were extremely low. And of course, it makes logical sense. Everyone goes out and buys when this happens, which generates a higher demand in the market. But who would not want to buy property if you can lock in interest rates and borrow at 5% for five years?
But for me, I prefer not to rush. Sometimes, I choose to sit back and wait when the market is hot. I’ve learnt that sometimes being patient with your money is a virtue. You don’t have to buy something every year. It might be better to save up for 10 years, and then come and pounce when not as many people are in the market.
Sometimes when the rate goes up to 9% and no one can afford to buy. So, I’d actually rather buy then and have enough money. That way I don’t have to worry about having a big debt or fighting with other investors. You don’t want to be in so much debt when rates go up again.
I don’t want to buy when there are 100 people going to auction against me. I’d rather buy when there are not a lot of buyers.
Whenever I give a seminar about Property Depreciation, I always have a Question & Answer session at the end
In the seminar, I discuss how I created the Property Depreciation Calculator and spoke about how it helps property investors make informed decisions about the type of rental property they want to buy.
Then this guy up the back puts his hand up the back and asks, “What’s so special about your Property Depreciation Calculator?”
“Well”, I say, “Let me tell you…”
“I’m pretty proud of our property depreciation calculator. It took me 4 years to build and is the only one of it’s kind. In fact, it’s the only property depreciation calculator that lets you work out the depreciation of a property based upon a proposed purchase price.”
“You see, I believe you can’t really work out the depreciation of a property by entering an area. And, let’s face it, how many of us know the internal unit area of our property. Do we include balconies, garages, common areas etc… That’s why I think the other calculators on the market that use an area are flawed.”
I’m pretty excited by now, and I go on…
“I’ve got to be honest, when I first started creating this, well, I had more hair!! It was a long and arduous task.”
“I think no two houses are the same. So, basing the depreciation of a property on it’s area is flawed. I wanted to create a property depreciation calculator where people could enter a proposed purchase price and easily get a result.”
“Now, in order to do that we needed to come up with a way where the calculator would grab lots of similar property types, add them up and average them out.”
“That’s why it took 4 years to build. We needed enough data in the calculator to make it a calculator that property investors could use. And today, I’m proud to say, day in – day out… It remains the most used part of our website.”
“We’ve actually got a patent pending on it… Again, a reason why I’m proud.”
If you need a depreciation schedule for your investment property – get a quote here or work out how much you can save using our free calculator.
There are a myriad of reasons as to why I have been drawn to property
Below are the six main reasons:
Reason # 1 – You can add value
One of the principal advantages of investing in property is that you can buy a rundown old property and increase the value of your investment by getting your hands dirty, or paying someone to get theirs dirty instead!
In comparison, it would be hard to add value to the Commonwealth Bank shares I own. Sure, I bank with the Commonwealth, but I don’t think my day-to-day savings account is going to add much value to the bank’s profits and in turn increase the value of my stock portfolio.
Admittedly, I can vote when it comes to the company’s annual general meeting, but are the voting rights attached to my 1,000 shares really going to make a difference?
For example, installing new carpet, painting and adding new blinds to an investment property will make an immediate difference to the tax returns available to an investor.
Reason # 2 – There is limited supply
A builder once said to me, “You can’t make property from a plastic mould”. I like the fact that property takes a while to plan and build because, in my opinion, the demand and supply equation has a lot to do with the price of property.
A development across the road from where I live in Bondi has been ‘in council’ for three years now. This means, it has taken three years for all the planning approvals to be passed – before construction has even started. And it will probably take two more years to build.
That’s five long years for the developer.
With shares, however, the company can make a capital raising at any time or issue options to directors or employees. This type of activity can dilute your shareholding making your piece of the pie smaller.
In contrast, you or the government can’t just issue another house and lot or land package in Bondi or any suburb you happen to like.
Reason # 3 – There are some capital gains tax exemptions
Unlike any shares I currently own, the home I live in does not attract capital gains tax (CGT) when I decide to sell it. The sale of your principal place of residence is one of the only assets that you won’t pay capital gains tax on. This has proved lucrative for many Australians, and I can’t see the law changing in this regard for a long time.
Reason # 4 – It’s easy to KISS (Keep it Simple, Stupid)
I like property because it’s easier for me to understand compared to shares or other types of investment. Granted I work in the property industry, but I know if I buy a property for $500,000, I can get $600 a week rent. There will be expenses that I can work out and I can use the Washington Brown depreciation calculator to work out my depreciation claim. It’s simple, really! Have you ever read a share prospectus or company annual report and completely understood it?
Reason # 5 – I am the master of my own domain
I like property because I can be the master of my own domain. I can be the CEO of my property portfolio, the CFO of my investment and answerable to the board directors that I care about – my wife.
I don’t know about you, but I’m pretty sick and tired of golden handshakes to CEOs who have done the wrong thing to their staff or shareholders. I’m over self-interested company directors who pretend they have shareholder company value at heart. Do they really? As the CEO of my property portfolio I can guarantee I’m looking out for number one- myself!
Reason # 6 – It’s not a constant reminder
I like property because I’m not reminded of how much I have lost or made every day. Regular share market updates in the media mean you are constantly aware of the gyrations of the market and the value of your shares. And it’s really not necessary. I personally don’t wake up and wonder what the Nasdaq did overnight and I don’t want to worry about how that’s going to affect my share portfolio – if at all. If I need to have my property valued for any particular reason, for example if I plan to sell it or borrow against it, I will employ the services of a valuer. At all other times, as long as it’s not causing me any problems and the tenants are paying their rent, then I’d prefer to let it appreciate in value in the background without being a constant reminder.
Office, business tools with dollars and calculator on table
Before feeling intimidated by the following explanation, if you so choose, all you really need to know is that a quantity surveyor can inspect your property and prepare a depreciation schedule for you, without you having to understand how exactly depreciation is calculated.
If that is the case, all you’ll need to do is hand it over to your accountant at tax time. That’s all you need to know, if you wish.
What if I do my own taxes?
If you do your own tax return, you can easily include the figure straight from the quantity surveyor’s report yourself.
You don’t need to worry about complicated calculations. In practice, it’s as easy as a phone call to a quantity surveyor to ensure you get all of your allowable depreciation deductions. He or she will produce a one-off report you can use year after year. Another benefit to you, is that you can claim the cost of that report as a tax deduction as well.
Many investors, however, will want to understand the process for themselves. So, now for the nitty gritty. Here is an explanation of the laws behind depreciation. To give you some background, there are two parts of the Income Tax Assessment Act 1997 we are dealing with here:
The capital works allowance (more commonly referred to as the building allowance) refers to the construction costs of the building itself, such as concrete and brickwork. Plant and equipment refers to items within the building like ovens, dishwashers, carpet and blinds, etc.
Each of these two categories incurs claims. The building allowance is calculated between 2.5% and 4% per year of original construction costs (depending on the date of construction). Plant and equipment has a number of categories in which items are claimed at different percentages over their effective life. I’ve used the Washington Brown depreciation calculator to demonstrate the following example of how much you can claim on a standard $400,000, high-rise, two-bedroom unit in Melbourne.
Unless your property is very unusual, there would generally be no reason to speak to a quantity surveyor before purchasing a property.
While you’re hunting for potential investments, you can work out the estimated depreciation for a property by using Washington Brown’s free online depreciation calculator.
Once you have committed to purchasing the property, it is time to start thinking about contacting a quantity surveyor.
The ideal time for a QS to do an inspection is straight after settlement and just prior to the tenant moving in. This is to make sure that we don’t disturb the tenant and we also get to see exactly what you have purchased and the condition that it is in.
Why is that important?
Jenny Jones owned a unit in a complex at Hastings Parade, North Bondi. This property had substantial damage to the structure due to the surrounding elements (rain, wind, ocean spray, etc.). To fix the problem, the strata body raised a special levy of $80,000 from each of the six unit-holders and engaged a builder to carry out the work.
Once the building work was completed the strata manager engaged Washington Brown to differentiate between work that was capital in nature and work that was considered to be repairs.
In general, special levies raised are not deductible, but Washington Brown was able to break down the construction costs into repairs and capital works (i.e. eligible for building allowance depreciation). In the end, we estimated approximately $57,000 of the client’s $80,000 expenditure, or close to 80% of the overall spend, could be considered as an immediate deduction.
The client’s accountant thought this figure was too high and asked for a private ruling from the ATO.
The ATO ruling read as follows:
“The Tax Commissioner accepts the classification of the work carried out as per the report prepared by Washington Brown”.
I can proudly say that the $57,350 deduction was approved in full, as opposed to claiming the work over 40 years at 2.5%.
The Australian Institute of Quantity Surveyor’s (AIQS) website www.aiqs.com.au gives a detailed description of the major works and services of quantity surveyors. The list is quite detailed and informative, so you may find this helpful when you’re considering whether to consult a quantity surveyor.
When Mike Baird announced he was resigning as Premier of New South Wales in January there was a lot of commentary around his legacy. Most of this focused on infrastructure in the state.
Contrary to his predecessor, Bob Carr, who once said Sydney was full and couldn’t cater for any more growth. Baird believed building was very important for NSW to forge ahead. He knew it was the key to facilitating further growth.
In fact, one of the reasons the former investment banker entered politics was to remedy how far the state has fallen behind in infrastructure, making it a less attractive place to live.
He says infrastructure investment is a crucial way in which state governments can not only create better services, but drive economic growth.
So after years of inaction Baird took action, funding many projects through public asset sales. Now, NSW has plenty of infrastructure both under way and planned.
Upon announcing his resignation, Baird himself said he had “unleashed an infrastructure boom in Sydney and the regions”.
Infrastructure in the pipeline
Infrastructure basically refers to the structures enabling the effective operation of a society. This includes transport and communications systems, water supply, sewers and power plants. It also includes services such as schools and hospitals, and facilities including public parks.
When it comes to property, one of the most important types of infrastructure is transport. The majority of projects in the NSW pipeline fit into this category.
While more are mooted, here’s a quick rundown of some of the projects in the current infrastructure pipeline for NSW:
WestConnex – A 33-kilometre motorway linking Western Sydney to the airport and Port Botany.
NorthConnex – A 9-kilometre tunnel linking the M1 Pacific Motorway at Wahroonga to the Hills M2 Motorway at West Pennant Hills.
Sydney Metro Northwest – This is Australia’s largest public transport project. It will provide an automated rapid transit system running from Bankstown in Sydney’s southwest to Rouse Hill in the northwest.
Light rail – Sydney’s tram network is being extended with the CBD and South East Light Rail project. There’s also a light rail project for Newcastle and a proposal for more light rail in Parramatta.
Badgerys Creek Airport – This is a second airport for Sydney. It will be built at Badgerys Creek in the city’s west.
Parramatta Square – An urban renewal project designed to transform Parramatta into a vibrant mixed-use hub.
Barangaroo – A waterfront redevelopment project on the western edge of the Sydney CBD. This includes James Packer’s new Crown Casino.
Why is infrastructure needed?
Building enables cities to cope with population growth. It’s needed for citizens to have access to services and amenities, and employment.
If there isn’t adequate provision of building there can be major disruptions affecting productivity and day-to-day life, such as traffic gridlock. People will flock to areas with infrastructure, choking them up and putting pressure on existing services and amenities, while shying away from other areas.
Sydney has already experienced strong growth in population. It surpassed 5 million people last year, and there’s no sign of growth slowing. Recent projections show 6.42 million people are expected to call Sydney home in 20 years. And the NSW population is expected to hit nearly 10 million by 2036.
Infrastructure is needed to cater for this growth to prevent putting further pressure on already-stretched resources.
Since Baird left the Premier’s office and the new Premier Gladys Berejiklian has been installed there have been calls for the focus on infrastructure to continue to provide adequately for future growth.
Chris Johnson, chief executive officer of the Urban Taskforce, said: “Sydney is Australia’s global city, and as a result, it must develop into a well-connected metropolis, with additional density, housing and services located around a metro rail network. It is crucial the new Premier continue this approach to ensure Sydney’s continued success as a growing, prosperous global city with a high standard of living.”
The Urban Taskforce also stressed the importance of providing infrastructure in growing regional areas of NSW, in addition to Sydney.
Infrastructure provision isn’t just something NSW should be concerned with. All state and territory governments – and the Federal Government – should be looking to provide both new infrastructure and update existing infrastructure to ‘future proof’ their cities.
Unfortunately though, many governments – especially in the modern day, where they seem to turn over so quickly – focus only on the short term rather than looking to provide long-term infrastructure solutions.
Australia’s population is set to rise from 24 million to 30 million in 2031. So if governments are not planning for this growth now they are going to run into significant problems down the track.
How does infrastructure impact upon property?
Building is a key growth driver of property, and specifically prices and rents.
As an investor you want your property to be in close proximity to existing infrastructure so people want to live there. People want to be close to schools, major public transport routes and other amenity.
If it’s not close to existing infrastructure, you want your investment property to be in an area where major building projects are underway. That is, you buy in an area knowing there’ll be growth when the planned infrastructure is completed. This is because there will be higher demand to live in the area from both buyers and renters.
In these areas growth can actually explode, along with property prices and rents, meaning you have a great investment on your hands.
New transport projects in particular can have a huge impact on the appeal of a location.
While upgraded or new infrastructure is a great indicator of capital growth. On the other hand a lack of infrastructure can prevent an area from reaching its full potential.
What happened in property over 2016, and what we can expect in 2017
Like every year, 2016 seemed to go by in the blink of an eye for many of us. But, in the world of property quite a lot happened over the past 12 months.
For starters, our love affair with property apparently reached a peak – I know right, who knew it could grow even stronger?!
According to the REA Group Property Demand Index, which analyses visits to realestate.com.au, the demand for property rose by a very significant 16.2% in 2016.
Futhermore, the REA Group found that Australians spent more than 110 million hours looking at property from January 1 to November 30. That’s a lot of time scrolling through listings!
It was generally a good year for property. Buyers benefited from continuing low interest rates and sellers benefited from growing prices, particularly in the major capitals of Sydney and Melbourne. However, price growth of course kept the affordability debate raging throughout the year.
When it comes to the outlook for 2017, it all looks pretty positive, although at this stage there are quite a few question marks over what exactly will happen.
This uncertainty relates to the global political and economic sphere, as well as around interest rates and potentially ongoing financial restrictions on investor activity.
Double-digit growth over 2016
Capital city dwelling values rose by 10.9% over 2016, according to CoreLogic, which was the highest rate of growth since 2009. Much of it was attributable to not only the surging demand for property but the lack of stock, with property owners seemingly opting to hold onto their properties rather than sell.
Meanwhile, total annual returns for housing as an asset class were 14.7%, taking into account both gross rental yields and capital gains, according to the research house.
It’s been the same story for quite some time in Australia’s property market, where Sydney and Melbourne are seeing strong growth and other capitals are, in contrast, experiencing either more modest growth or even falls in property prices.
Over 2016 CoreLogic figures show that Sydney and Melbourne had the greatest price growth (no surprises there) of 15.5% and 13.7%. Perth was the only capital city to record a fall in growth, with prices falling by 4.3%. The other capitals experienced the following growth rates:
Canberra – 9.3%
Adelaide – 4.2%
Brisbane – 3.6%
Darwin – 0.9%
While capital city markets generally performed well, regional markets didn’t fare as well, with annual growth to November recorded at 2.8%.
There’s no doubt that affordability is an issue, particularly for first home-buyers, but these arguments centre on Sydney and Melbourne. Median prices are between $852,000 and $641,200 respectively, and apparently still rising.
In Sydney, property values rose by around $10,000 per month over 2016. But in other states and territories – both capital cities and regional areas – housing hasn’t reached these unaffordable levels – in fact, in some areas prices are falling.
This is also the case for some property types. Units are experiencing significantly less growth than houses, with the latter rising by 11.6% over 2016 according to CoreLogic, and the former rising by only 5.9%.
This disparity in growth between property types is largely due to the existing or pending apartment oversupply, particularly in Melbourne and Brisbane, which has been one of the big issues of 2016.
Another big feature of last year was interest rates. Yes, I know, we pay an inordinate amount of attention to interest rates – particularly the Reserve Bank of Australia’s cash rate decisions – every year. However, towards the end of this year, the banks really started to break away from the RBA and move their home loan rates independently – albeit in an upward direction.
While historically interest rates are still very low, this move has created some uncertainty in the market, making money more expensive and would-be buyers more wary.
If you’ve already forgotten some of the other headlines in property over 2016 here’s a refresher… Remember the under quoting cases that we saw in the news? And what about the industry disruptors, such as businesses aiming to cut out the middle man (ie. real estate agents) and directly connect buyers and sellers?
What’s ahead for 2017?
While demand for property slowed towards the end of 2016, with the REA Group Property Demand Index finding a 6.6% slowdown in December, there is no doubt once the holiday period is over that we’ll all be back on realestate.com.au, clicking away on our way to work, on breaks or even sneakily during the day.
The question on everybody’s lips is: ‘What will happen in the property market in 2017’?
It’s likely it’ll be another eventful year, with the potential for global political uncertainty to impact upon our market. Particularly in light of Brexit and the election of Trump, the consequences of which will both be seen this year (Trump takes the helm on January 20).
Our demand for property isn’t likely to wane, but sentiment may be dampened by these global events, and by any further interest rate increases. Some experts predict the RBA will keep the cash rate on hold or even reduce it, but since the banks are out of step it doesn’t really seem to matter.
It’s clear that demand for property will continue from China especially, despite the Federal Government cracking down on foreign investors last year. The reasons for these buyers to purchase here far outweigh any extra costs they’ve been slugged with, and they may even increasingly turn to our market since China’s relationship with the US could be strained due to Trump.
Another feature of the property market this year will be ongoing issues with apartment oversupply, with supply expected to reach a peak in the Melbourne and Brisbane CBDs, with likely price declines.
While apartments may suffer, houses are expected to keep rising in value strongly.
Where will grow, and by how much?
While nationally property prices might be rising, it’s clear – as has always been the case – that the markets within this wider market are at different phases of the property cycle and are driven by different growth fundamentals, as well as having different economic and demographic conditions.
Price growth predictions vary widely, with some ranging into the double-digits on a national level, but with other experts forecasting a slowdown over 2017.
Sydney and Melbourne are once again predicted to be the best growth performers. This is largely because their low stock levels will continue and demand will stay strong due mainly to their strong economies, which equates to jobs.
Tabcorp’s online website Luxbet has Melbourne at the highest odds for the highest capital growth at $3.
Demand for properties in both Victoria and New South Wales fell at the end of last year however, with the REA’s index showing a fall of 8.6% and 8% respectively.
Some believe Sydney’s growth has topped out, but there are just as many experts – if not more – that believe there’ll be more growth to come with strong demand, especially in the most sought after inner-city areas.
But there’s also expected to be growth in the coastal – yet commutable – areas near Sydney. They’ve been increasing in popularity due to their relative affordability to the NSW capital and it’s likely this will continue to result in price rises.
Indeed, CoreLogic figures showed regional New South Wales has been experiencing the strongest growth conditions of the regional areas around Australia, with non-capital city house values rising 7.3% over the 12 month period to November 2016.
Affordability has also seen Tassie perform well over the past year, a trend which is set to continue over 2017.
Many are turning to the Apple Isle for not only affordability but lifestyle, and the improvement in its economy on the back of a change in State Government has helped. In fact, the REA Group Property Demand Index found Tasmania was the most in demand market over 2016.
So, what about the other states and territories? There isn’t much happening in Western Australia and the Northern Territory, but while these markets are down there could well be some good opportunities to buy, so investors should be on the lookout.
Canberra seems to be picking up on the back of an increase in government employment, which is seeing people move to the state.
There’s nothing special to mention about Adelaide – it will likely continue to tick along steadily, with nothing spectacular to foster growth. In fact, the closure of the Holden production line this year will do the opposite, with the economy still weak.
While sections of SEQ such as the Gold Coast and Sunshine Coast have been picked as hot spots in recent times, and there’s plenty going on to justify such claims, Brisbane remains pretty quiet, with the economy still waning and many more ducks needed to line up in a row before its time really comes.
As always, do your research!
Like me, you’ll all probably continue to be obsessed with property – the Great Australian Dream will always live on in my opinion.
But a word of warning – if you’re looking to buy this year, the key is always to do your research. Don’t just rely on median data.
Ensure any property you select has the right fundamentals, and make sure you’re buying in the right locations, with the right ingredients for growth.
There are always properties within each market that will perform well, and it’s always a good time to buy, if it suits your circumstances, particularly financially.
Ahhhhhhhh, housing affordability. That old chestnut. It’s a topic that’s been hotly debated a million times over! And will no doubt continue to be for many years to come.
The general consensus is that property in Australia is unaffordable. The results of a recent survey seemed to confirm this, with the proportion of adults who own their own home falling from 57% in 2002 to 51.7% in 2014.
So, is home ownership falling because Australians simply can’t afford to buy properties due to hugely elevated prices, or is it due to other factors?
Property prices have significantly grown
It’s certainly true that property prices have significantly risen in Australia over recent decades.
The median dwelling price for the combined capital cities is currently sitting over $500,000, according to CoreLogic. But prices of course range widely between the capitals. Hobart is the cheapest at around $300,000 and Sydney being the most expensive at nearly $800,000.
This decade so far prices have risen across the board by 35%, and over the previous decade they rose by around 140% according to CoreLogic figures.
But since the beginning of 2010, it’s been the two major capitals of Sydney and Melbourne that have seen the majority of growth. Prices are increasing by around 60 and 40 per cent respectively (as at May this year). The other capital city markets have seen either little growth or have fallen in value, so theoretically, in some places affordability is actually improving.
This is especially the case when you consider interest rates; in this regard 2016 actually presents quite a good time to buy with the cash rate now sitting at a record low of 1.5%; very different from the double-digit interest rates investors experienced decades ago.
We, of course, also need to consider incomes in relation to price growth. Depending on who you ask, there can be a case to say housing has or hasn’t become more unaffordable. It’s clear, however, that house prices have risen faster than incomes, making it harder to save for a deposit.
Priorities are changing
While property prices have clearly risen, it’s also the case that priorities for more recent generations have changed.
Once upon a time – not that long ago really – youngsters left school and got a job, with their primary objective being to save for a deposit to buy a home.
Nowadays, however, younger generations seem to have different priorities. They often leave school with the intention of travelling abroad for a gap year (or two or three). Or if they go straight into a job they’re not necessarily saving, but buying the latest gadgets; in our modern society it’s about instant gratification.
So does that have an impact on affordability?
It makes sense that it likely impacts on the ability to save for a deposit.
We need to consider which is the cause and which is the effect, however. Some – including a Sydney real estate identity recently – argue that this generation is simply too selfish to make the necessary sacrifices, such as cutting back on commodities such as widescreen televisions and designer clothes, to save and get a foothold in the market.
But on the flipside others argue that priorities have changed simply because it’s impossible to save the huge deposit required for property these days. So younger generations are instead deciding to spend their money on something else because property is out of their reach.
But are the expectations of younger generations now just too high? When they complain about property being unaffordable, is that because they want to buy a flash pad in inner Sydney as their first home, rather than buying something further from the city in a price bracket they can actually afford? Essentially, many want to buy what would traditionally be their last property – often what their parents have worked their way up to – first.
Add to all this the fact that renting has also become more socially acceptable. The Great Australian Dream perhaps fading a little, and we have a little more insight into the affordability debate.
Consider your options
It’s clear that the debate around housing affordability isn’t clear-cut; there are many aspects to consider. As the debate continues to rage, demands for reform or government measures to curb price growth will persist.
While Australian property prices have risen and are unlikely to fall (despite claims from doomsayers), leading many to feel as though it’s impossible to break into markets such as Sydney, there are always more affordable opportunities within each capital city if you care to look. Consider buying further from the city, or a unit instead of a house. Scale down your expectations and buy where and what you can actually afford.
And if you don’t want to scale down your expectations, become a ‘rentvestor’. This means you choose to rent where you want to live and invest where you can afford to buy.
For investors, it’s of course better to buy where there’s more potential for growth. Chances are that’s in an area that hasn’t already seen huge growth. Yet where there are lower prices with more room to move.
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