The Federal Government recently brought down the budget with a mixed result. Their handling of the Super Tax on mining companies and getting it through parliament is a hot topic and the result will have a significant impact on the Australian economy. We should not forget though that there are still several external factors that may have an impact on our economy.
These include the financial melt down in some European countries and the possible second drop in the US economy. We are not out of the woods yet, economically speaking, and our economy is still fairly fragile, despite what the papers say. There are still bargains out there, if you are looking for property, but make sure that you do your research and buy carefully.
With interest rates on the rise we suggest that you plan your finances to expect the average variable rate (currently at around 6.7% pa) to increase to around 7.25% by the end of the year. Commentators are saying that interest rates could reach 8.5% by the end of next year. Whether it actually reaches this high is yet to be seen but you should make sure that you have the capacity to cope financially if your home loan rate does reach that level.
Happy reading.
Richard and the team.
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Do You Need Director’s Insurance? In today’s litigious world there can be more risks than rewards in being a company director or officer.
Directors and Officers can be held personally liable for failure to carry out their duties properly. Read more ... ( 418K)The number of new home loans has plummeted to its lowest level since early 2009, the Australian Bureau of Statistics (ABS) has reported.. Read more ... With six rate increase in the past 12 months and predictions of more to come, you may have customers who are thinking of ways to deal with the rising rates. Here are a few tips. Read more ... The federal government has announced new measures aimed at encouraging competition and reducing reliance on the big banks for borrowing. Read more ... New research shows signs that the monetary tightening by the Reserve Bank and the end of the government's stimulus package are reducing inflationary pressures... Read more ... This month's newsletter has received many comments from our readers, one of which I would like to bring to everyone's attention. Read more ... While Greece grapples with a debt crisis that could force it to default on its liabilities, Australia's Reserve Bank is keeping a watchful eye... Read more ...
According to ABS figures, established homes in Melbourne grew in value by 19.7% in the year to December 2009. Read more...
Source: RP Data
| February Price & Indicator change since January 2010 | Darwin |
Brisbane |
Sydney |
Canberra |
Melbourne |
Adelaide |
Perth |
| HOUSES | |||||||
| Median House Price | $550,831 |
$476,693 |
$643,444 |
$550,245 |
$544,554 |
$446,639 |
$517,198 |
| Quarterly growth | 2.76% |
0.09% |
3.93% |
3.52% |
5.05% |
2.69% |
-0.17% |
| Annual growth | 14.44% |
5.89% |
12.04% |
13.89% |
17.40% |
8.71% |
6.80% |
| Average annual growth | 14.98% |
8.77% |
2.65% |
7.73% |
7.18% |
8.49% |
11.02% |
| Median Weekly Rent | $536 |
$378 |
$493 |
$485 |
$365 |
$344 |
$404 |
| Gross rental yield | 5.06% |
4.12% |
3.98% |
4.58% |
3.49% |
4.00% |
4.06% |
| UNITS | |||||||
| Median Unit Price | $429,547 |
$362,093 |
$484,252 |
$414,404 |
$443,971 |
$371,930 |
$489,465 |
| Quarterly growth | 8.37% |
2.16% |
3.61% |
-0.61% |
6.46% |
1.92% |
-0.48% |
| Annual growth | 28.15% |
8.69% |
10.54% |
12.91% |
18.33% |
8.86% |
8.78% |
| Average annual growth | 17.29% |
10.02% |
3.18% |
7.09% |
7.75% |
10.98% |
12.54% |
| Median Weekly Rent | $487 |
$338 |
$461 |
$385 |
$344 |
$317 |
$412 |
| Gross rental yield | 5.89% |
4.85% |
4.96% |
4.83% |
4.03% |
4.44% |
4.38% |
Source: Broker News 14th May
Budget changes to Self Managed Super Funds will create greater certainty around borrowing to invest in shares and property. Accountancy firm Chan & Naylor has backed government measures that will bring greater clarity on borrowing requirements.
“SMSFs are highly effective investment vehicles which should be encouraged and promoted by the government as a means of bolstering national retirement savings and reducing the dependency on government for retirement income,” said chief executive Sal Carrero.
He added that taxpayers with non-complaint SMSFs risk being stung by penalty fees, audits and tax office scrutiny.
Carrero also welcomed the Federal Government’s plans to simplify tax returns but cautioned that many taxpayers should continue to lodge deductions for work-related expenses, rather than opting for the $500 standard deduction.
“We’d be concerned if the simplified system meant that taxpayers opted for convenience rather than what is best for them financially,” he said.
Source: Broker News 14th May
NSW is proposing a new tax to prevent property fraud. The tax, announced yesterday by Lands Minister Tony Kelly, will apply to property selling for more than $500,000. Borrowers making an average purchase in Sydney will face an additional $200 in fees, while purchases more than $1m will include an additional $1,000 tax.
According to Kelly, the fee – which is not a tax, but “insurance” against fraud. The fee will be part of the budget process in three weeks, however Kelly said he brought the announcement forward early because he didn’t want to be accused on burying it in the budget.
However according to a report in the SMH, several groups have spoken out against the tax. The Property Council of Australia NSW called it a “stamp duty, second time round”, while the Real Estate Institute of NSW described the fee as a tax on the “mortgage heartland” of NSW.
According to the institute, homebuyers in hundreds of suburbs across Sydney will be affected by the changes.
But Premier Kristina Keneally defended the tax, calling it a fair fee. NSW police are currently investigating 35 fraudulent transactions.
Source: Barney McCarthy 14th May
The number of new home loans has plummeted to its lowest level since early 2009, the Australian Bureau of Statistics (ABS) has reported.
Loans for the purchase of new dwellings fell by 3.2% in March and 14% over the quarter, while loans for construction decreased by 7.3% in March 2010, representing a quarterly drop of 15%.
March’s figures mark the sixth consecutive decline in total lending and the fifth straight fall in loans for construction.
Harley Dale, chief economist of the Housing Industry Association, blamed a “debilitating confluence” of higher interest rates, tight credit availability and obstacles related to land supply, planning, infrastructure charges and taxation for the malaise.
He added: “These forces are standing in the way of a sustainable lift in new construction in 2011 and beyond that would allow inroads to be made into Australia’s large and growing housing shortage. A circuit breaker is urgently required to expedite progress in reducing supply side barriers and easing credit conditions. Otherwise the financial strain on renters and entry level buyers will only worsen and upward pressure on interest rates will intensify. “
ANZ economist David Cannington said the fall in housing finance approvals both in terms of value and number confirmed that slowing momentum in housing finance commitments will continue to present concerns for the undersupply issue facing the Australian housing market.
He commented: “Housing supply will continue to slow into 2010. This will leave the Australian housing market well short of the supply necessary to keep up with what is still very strong underlying demand. [The ABS data] confirms our view that the shortage of housing in the Australian market will provide the fundamental economic forces to keep house prices growing in 2010, although not at the growth levels seen in 2009.”
Source: CBA Update 13th May
With six rate increase in the past 12 months and predictions of more to come, you may have customers who are thinking of ways to deal with the rising rates. Here are a few tips:
- Consider fixing the rate or splitting the loan between variable and fixed. This will enable the customer to lock in repayments for at least a part of the loan. This will help with household budgeting.
- Schedule repayments in advance or consider setting up a direct debit to avoid additional interest and fee charges on late payments.
- Suggest the customer make a personal/family budget to see where money is being spent.
- Customer could defer discretionary expenditure where possible and use the money to make additional repayments on the home loan. An account with redraw facility will allow customers to withdraw their additional repayments if they need them at a later stage.
- Do a financial needs analysis to ensure the customer has the best product for their needs. This may help them avoid some fees and charges.
Source: Andrea Cornish 12th May
The federal government has announced new measures aimed at encouraging competition and reducing reliance on the big banks for borrowing.
The measures include the development of a corporate bond market and tax cuts to make it easier for second-tier lenders and foreign banks to raise money offshore. The measures were announced last night following the Henry Tax Review and the Johnson report.
The government is proposing ASIC oversee a process that will make it easier for listed companies to issue bonds to both retail and wholesale investors.
Treasurer Wayne Swan said the measure would boost competition in business lending by making it easier for businesses to borrow directly from retail investors and “reduce their reliance on borrowing from banks”.
The government is also trying to make it easier for smaller lenders to raise money offshore by reducing the Interest Withholding Tax that applies to local branches of foreign banks when they borrow from overseas parent organizations. In addition it will cut taxes incurred by locally-owned lenders when borrowing offshore retail deposits.
Source: Luke Cornish 11th May
New research shows signs that the monetary tightening by the Reserve Bank and the end of the government's stimulus package are reducing inflationary pressures, which should enable the central bank to pause its pattern of rate rises next month.
The latest Dun & Bradstreet Business Expectations Survey, which examines expectations for the September quarter, reveals executives are expecting slower growth in sales, employment, inventories and selling prices compared to the June quarter.
Selling price expectations have fallen by four points to an index of 15 with 20% of firms expecting to raise prices in the September quarter and 5% expecting to lower them.
Concerns over the impact of rising selling prices on underlying inflation were seen as a key factor for triggering the latest interest rate by the RBA. According to Dun & Bradstreet’s CEO Christine Christian, the impact of rising interest rates and a reduction in government stimulus is having the desired effect on inflationary pressures.
“The reduction in selling price expectations is a positive sign to ease government concerns about growing inflation,” said Christian. “Given that the RBA has listed rising selling prices as a key trigger for interest rate rises, this may reduce the need for further immediate action by the central bank.”
A third of firms rank interest rates as the major influence on their business and 23%. Access to credit also scored a vote of 17% percent as the most important influencing factor on their business in the quarter ahead.
Dun & Bradstreet economic consultant Duncan Ironmonger said he expects the RBA to hold rates at the next couple of meetings.
“After the rises in official interest rates in six of the last eight months the Reserve Bank is likely to leave rates unchanged for the next month or two,” Ironmonger said. “This should enable business and household borrowing to stabilise with interest rates at about average for the decade.”
That agrees with the outlook that ANZ has for the central bank. “Strong housing markets, high consumer confidence and rising credit growth are all consistent with the view that monetary policy is still stimulatory to the economy,” research analyst Andrew Dowman said. “Nonetheless, we expect that RBA to sit back and observe how the economy plays out for a few months.”
Dowman said that he expects the cash rate to rise to 5.25% by the end of the year before moving into restrictive territory of 6% in 2011.
Source: John Edwards, CEO, Residex 21st April
This month's newsletter has received many comments from our readers, one of which I would like to bring to everyone's attention. Many of you have recognised the implication and potential issues which flows from what I have said.
A question, I am commonly receiving reads along the lines of:"Why are you recommending Sydney units that are well positioned, close to transport hubs and are more than a decade old?"
My response to this is the following:
- These units are often found in areas which are currently seeing new unit development around transport hubs. As such, these older units are more likely to decrease in price due to surrounding pressure, as newer units are brought onto the market. As a direct consequence of this, these older units should allow better negotiated purchase prices.
- These units will tend to have less facilities in them, thus their strata fees are less.
- These units will present an opportunity for immediate gain with resale after minor refurbishment.
- The lower cost will ensure that the rental yields are higher.It is true that with newer units, the tax deductions are higher.
However, I believe that what I have outlined above outweighs these tax benefits unless monthly cash flow is a major issue for you.
I hope that this clarifies this issue. If you missed this edition read it here.
By Luke Cornish 10th May
While Greece grapples with a debt crisis that could force it to default on its liabilities, Australia's Reserve Bank is keeping a watchful eye out for any indication that the problems could spread beyond the European border.
Evidence of the spread of panic was provided courtesy of the US stock market on Friday when it fell a massive 9% at worst before recovering slightly. This environment of fear and panic amongst international investors, is reminiscent of that which was prompted by the collapse of Lehman Brothers in September 2008.
If panic does spread, it could cause a second financial crisis just as Australia had thought it had managed to dodge any negative effects of the first one.
This time round, the federal government’s balance sheet is not strong enough to prime consumers’ wallets with bonus payments but there is room for the RBA to act to help stave off a downturn.
Any indication that the Greece debacle is more than a European problem will force the central bank to readdress its position on raising interest rates and, if it feels the need, it has plenty of scope to turn back the clock and drop rates as fast as it has been raising them.
According to ABS figures, established homes in Melbourne grew in value by 19.7% in the year to December 2009. The Real Estate Institute of Victoria supports claims of strong growth in the state’s median, adding that the largest increases occurred from properties in the middle to upper price brackets, which are largely represented by inner-city property.
But, according to WBP Property Group CEO, Greville Pabst, while there is no doubting that prices are on the up, the data upon which these figures are based fails to recognize the implications of the increasing trend of property owners in inner city areas to renovate or redevelop to add value to their property.
According to Pabst, as property prices become increasingly unaffordable and stock levels remain low many property owners are choosing to renovate or extend rather than upgrade.
“Transaction costs alone are a key factor in this decision with many property owners opting to invest money back into their real estate assets rather than loose it to agent and legal fees, taxes and administrative costs” says Pabst. This trend is seeing property owners inject tens of thousands of dollars into their property, adding significant weight to the property’s value when they decide to sell.
ABS trend estimates show that Australians spent an estimated $528m on alterations and additions to residential buildings in January 2010 alone, while local figures demonstrate that Melbournians spent more than $823m on renovations and extension since July 2009.
Interestingly, data confirms that city council areas with the largest expenditure on renovations housed those suburbs that witnessed the greatest rises in median house prices during 2009.
