Sunday, December 30, 2018

This year's top 10 Nest Egg stories give insight to what's front of mind for Australian investors going into 2019 including the domestic property market, international political tensions, and ever-popular tax tips.

This year's top 10 Nest Egg stories give insight to what's front of mind for Australian investors going into 2019 including the domestic property market, international political tensions, and ever-popular tax tips. Number 10: Taxpayer loses out in ‘awkward’ ATO case
After the High Court of Australia refused a taxpayer’s appeal against a ruling that found he was liable for the entire amount of general interest charge (GIC) on income tax, despite him receiving a letter from the deputy commissioner stating he was not, Nest Egg readers were eager to find out what the verdict could mean for taxpayers who have made tax decisions based off ATO communications made in error.
In July of this year, research house CoreLogic identified the 10 suburbs Australia wide that have grown the most in the past decade.
Coming in as the ninth most read story of the year, Nest Egg readers were clearly keen to find out if the areas they’d invested in had made the cut, and where the next opportunity could lie for them. 
This article confirmed there are misconceptions in society about how and why Australians find themselves bankrupt.
There's often a perception that over-spending and poor savings habits trigger bankruptcy, and while that can be the case, Andrew Aravanis, of Aravanis registered bankruptcy trustees, finds there's often many more unexpected factors at play. Based on market conditions and trends in his own client base, he predicted which professions would be most at risk of bankruptcy in 2018. 
Back in September, murmurs of a possible downturn in the housing markets had already begun circulating, but forecasters were unsure of how big of a drop we’d see.
One property consultancy boss claimed the fall in prices could be as large as 40-45 per cent, however research house CoreLogic was quick to refute this prediction, with much-welcomed data and reasoning for Nest Egg readers.
The Royal Commission into Misconduct in Banking, Superannuation and Financial Services has created the biggest shake-up of Australia's banks and financial services institutions in modern history. From banks charging dead customers to grossly inappropriate financial advice being given to vulnerable investors, the Royal Commission exposed the systemic flaw of prioritising shareholders over customers, and sales targets over ethics. 
The popularity of minute-by-minute coverage speaks to the impact of the Royal Commission's findings on Australian investors, and their shock at the findings.
Nest Egg will report the Commission's final verdict in February as it happens. For the latest from the Commission, click here. 
In another nod to how Australian investors feel about getting their taxes right, the ATO flagging the five most common issues made when lodging GST was a popular story for Nest Egg readers. 
According to the Tax Office, the most common areas taxpayers make mistakes are in reporting on time, miscalculating GST payment, understanding their eligibility, offering proof of their entitlement to GST tax credits and charging GST when they need to.
In 2016, the biggest round of superannuation changes since the era of Howard and Costello were made by the federal government. This year's top podcast - featuring superannuation expert at BT Financial Group, Bryan Ashenden - tells us investors are still grappling with the aftershocks of the reforms. 
Bryan shared his insights on how recent changes to super will impact those looking to retire in the near future, and offered advice to investors looking to grow their wealth into retirement.
As the rollercoaster ride of US and North Korean relations took its many turns over 2018, Nest Egg readers were watching closely how the escalating tensions could impact global markets.
We spoke with leading economist Shane Oliver about three potential resolutions to the rising pressures and how each would uniquely affect the markets.
In September of this year, the ATO announced it would be increasing scrutiny on work-from-home claims.
In particular, the Tax Office turned its gaze on individuals working from home that ‘questionably claim’ their entire internet or phone bills and not just the work-related component.
The tax office explained how it can work out which claims are legitimate and which claims are sailing close to the breeze, and Nest Egg readers were keen to understand how to stay above board in 2018 and beyond. 
There's a host of misconceptions about what taxpayers are and aren't entitled to claim at tax time. As tax time drew near, the ATO warned Australians it would be targeting popular deductions, which are often over- or illegitimately claimed. 
The ATO identified short-term rental income, the ‘standard’ deductions of laundry, car travel and work-related expenses, cosmetics/makeup, travel costs to investment properties and working from home expenses as targeted areas it would be looking into on 2018 tax returns.
The ATO's unprecedented access to spending and saving data means the chances of getting away with a suspect claim, and subsequent penalties, are unlikely. Eligible tax deductions are a core consideration for investors who want to grow and protect their savings, a fact Nest Egg readers were well across in 2018. http://www.ljgrealestate.com.au

Despite concerns that the Chinese market’s record bull run may be coming to an end on the back of poor US/China relations and industry slowdown, investors should remain positive as China’s government moves to provide stimulus to the domestic economy.

China economy shows strong growth in 2009

China v Japan GDP
China has said its economy expanded by 8.7% in 2009, exceeding even the government's own initial expectations.
The pace of change increased as the year went on, with growth in the final quarter of 2009 increasing by 10.7% from the same period a year earlier.
China is now on course to overtake Japan and become the world's second-biggest economy.
Japan announces its latest quarterly gross domestic product (GDP) figures next month.
The Japanese economy is likely to have contracted by about 6% in 2009.
'What the world needs'
Jim O'Neill, chief economist at Goldman Sachs, said that China had come up with "a very smart policy stimulus" and that some aspects of the financial crisis may not have been a bad thing.

"[In] November 2008, they came up with a quick, aggressive fiscal and monetary response which has worked," he told BBC Radio 4's World At One programme.
"They have replaced exports with domestic demand, both consumption and investment... China has become more important as America [has become] less, which is what the world needs."
He said part of the reason behind the global crisis was that the world had become dependent on the US consumer, and the realisation of that had now forced countries to stand up for themselves.
"The most important one is China and their economy is now being driven by their own domestic economy, which will not only be increasingly important for them but important for everyone else including - directly and indirectly - people in Britain," he said.
'Right direction'
China's GDP announcement was made by Ma Jiantang, head of the National Bureau of Statistics.
He said China had faced "severe difficulties" in 2009, but its economy has now recovered and was moving in the right direction.
Annual growth was only slightly down on 2008.
These latest GDP figures have exceeded the target set by the Chinese government, the BBC's Chris Hogg in Shanghai says.
Chinese workers in Shenzhen queue up to enter factory
This is a turnaround because China, like other countries across the world, was hit by the economic crisis during late 2008 and early 2009. Factories closed and workers were laid off.
The economy recovered with the help of a massive government stimulus package but now there are signs it is expanding too quickly.
"There's very strong growth but there's real concern about the quality of the growth and what will happen when the stimulus is withdrawn," said Michael Pettis, professor of finance at Peking University.
"It seems pretty clear that any withdrawal of the investment stimulus is going to have a big impact on growth."
Inflation is also picking up, with consumer prices increasing by 1.9% in December from a year earlier.
Chinese authorities are expected to now take measures to prevent the economy from overheating.
Economists expect interest rates to rise, while banks have already been ordered to keep more money in reserve, and reports say some have even been told to stop lending for the rest of January.

'China's reality'
But Mr Ma played down speculation that China's economy had now overtaken Japan's.
"According to the UN standard - that is $1 a day - there are still 150 million poor people in China. That is China's reality," he said.
"So despite the increase in our GDP and economic strength, we still have to recognise that China is still a developing country."
On inflation, he said that price rises were "mild and under control".
Predictions
Meanwhile, the World Bank has said that the global economic recovery will slow later this year as the impact of government stimulus policies wanes.
The Bank has forecast growth of 2.7% this year after a contraction in 2009.
However, its predictions for Japan are slightly less pessimistic than other forecasters. It estimates that Japan's economy shrunk by 5.4% last year.
It added that the poorest countries - those that rely on grants or subsidised lending - may require an additional $35bn to $50bn in funding just to sustain pre-crisis social programmes.
China is expected to become the world's biggest economy in 2030.
According to Fidelity International’s China-focused portfolio managers, there will be a number and risks and opportunities facing investors in 2019.
According to Raymond Ma, portfolio manager for the China consumer sector, while US trade tensions will take their toll on the equity markets, the Chinese government is expected to respond with measures to support internal fiscal growth.
“Chinese equity markets are expected to remain volatile in the near term, due to concerns around escalating trade tensions between the US and China, a depreciating renminbi and a potential slowdown in the Chinese economy,” he said.
“Given the rise in trade tariffs, Chinese corporates are expected to witness a decline in exports, and a reduction in earnings and capital outflows, as some companies consider shifting their production base outside China.
“The good news is that the Chinese government is likely to introduce more fiscal and monetary loosening policies to support the domestic economy and consumer sector. As a result, money supply and liquidity conditions should improve going forward.
Mr Ma said the fixed asset investment is expected to continue in growth, while reforms will give encourage production productivity.
“We could also see an acceleration in fixed asset investment growth, while consumption growth is expected to remain relatively resilient. Ongoing supply-side reforms are also likely to boost China’s production efficiency and improve corporate earnings.
“With the recent correction in equities, market valuations have fallen. Consequently, we may see a window of opportunity in the next two to three quarters as some resolution is reached on the trade war,” he concluded.
Jing Ning, China portfolio manager at Fidelity International, agrees adding that the current low-growth environment is likely to stabilise the economy moving forward.
“China has entered a relatively low-growth phase of economic activity, compared to a decade ago. This has positive implications: the economy is likely to be less cyclical, and structurally driven by consumption, rather than fixed asset investment,” she said.
“Chinese corporate balance sheets have significantly improved and companies are more conscious about capital expenditure, while managements are adopting a more mature approach towards efficient capital allocation and reducing leverage. In a distinct shift towards increasing shareholder value, dividend payouts are also garnering attention, which markets have so far under-recognised.
She said despite trade tensions continuing to be a concern, Chinese corporates remain innovative and an increasing workforce may see growth in key growth areas such as technology and automation.
“The external trade-related matters reflect the emergence of a new age in Sino-US relationships, where there is likely to be less emphasis on co-operation. Nonetheless, the momentum of innovation at Chinese corporates is quite positive, which provides thrust to its extensive integration in global manufacturing value chains,” she said.
“China also has substantial human capital in its universities and vocational schools, which it can potentially monetise over the next decade in areas such as automation, health care, media and technology.
“As China faces external uncertainty, it will respond with measures to stimulate internal growth. Chinese policymakers have a clear intention to support economic activity, which they have demonstrated on several occasions in 2018. The series of Reserve Requirement Ratio cuts seen during the year is one such manifestation of this intent. While the impact of additional liquidity will be felt with a lag in the economy, it confirms that policymakers will be proactive,” she concluded.



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How to Ensure Your Builder's Quote is Accurate and Fair | Houzz

How to Ensure Your Builder's Quote is Accurate and Fair | Houzz

Thursday, December 27, 2018

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Goalcast Christmas Newsletter! http://mvnt.us/m886132

Goalcast Christmas Newsletter!
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North Lakes new tenant handover 27-12-18


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Did the Australian economy present any surprises over 2018?

A recent housing affordability report has shown an improvement nationally with the proportion of income required to meet loan repayments decreasing by eight basis points.
The Adelaide Bank/REIA Housing Affordability Report for the September quarter 2018 demonstrated Australians on average needed 31.4% of income to pay their loans.
Housing affordability improved in all states and territories except Queensland where there was no change. Compared to the September quarter 2017, housing affordability declined in all states and territories.
Darren Kasehagen, head of third party banking, Adelaide Bank said, “The improvement in housing affordability nationally is a welcome finding. Victoria continues to lead with the highest number of first home buyer loans and housing affordability improved most in NSW for the September Quarter.
“Refinancing excluded, the Australian Capital Territory had the biggest decrease in the number of loans at -7.8%.”
All states and territories showed an annual decline in new loans except for Tasmania where there was a 2.7% increase.
The declines ranged from 17.6% in Western Australia to 4.4% in South Australia with WA showing both the largest decrease in the number of loans to first home buyers, yet the highest proportion of first home buyers at 35.1%.
Kasehagen added, “When you consider that rents in Tasmania are now 28.3% of income and loan repayments are now at 25.1%, the decision to switch from renting to buying has never been easier.
“On these numbers, it’s about $50 a week cheaper to buy than rent, which may explain why Tasmania is bucking the trend as the only state to see an increase in the number of loans.”
According to the report, the number of first home buyers decreased to 27,839, a decrease of 2% during the quarter and a decrease of 3.7% compared to the September quarter 2017.
The number of first home buyers increased in Queensland, South Australia, Tasmania and the Northern Territory over the September quarter, with the largest increase in the Northern Territory (14.7%).
Compared to the corresponding quarter 2017, the number of first home buyers increased in New South Wales, South Australia, Tasmania and the Northern Territory, with the largest increase in Tasmania (25.1%).
The weighted average capital city median house price decreased to $751,411, a decrease of 1.6% over the quarter and a decrease of 1.5% over the past twelve months.Our expectation a year ago was for growth of around 3 per cent over 2018. However, after a very strong first half and signs of solid but moderating momentum in the second half, we have lifted our 2018 growth forecast to between 3.25 per cent and 3.50 per cent. Given the headwinds from trade uncertainty, credit crunch fears and falling house prices, this is a strong outcome and reflective of the accommodative stance of monetary policy and the positive spill-overs from a strong pulse of public infrastructure spending.
There were several domestic macro surprises of note. The first was the labour force, where despite a slowing in the rate of monthly job creation from the booming levels of 2017, the unemployment rate fell from 5.6 per cent at the end of 2017 to a low of 5 per cent in September and October. While some labour market slack has been absorbed, wages have yet to lift materially, despite the period of wages disinflation appearing to be behind us.
The second macro surprise was the extent of fiscal improvement. Stronger than expected revenue growth and delays in some payments meant that the final outcome for the FY18 budget deficit was $10.1 billion, $8.1 billion better than expected. An improving medium fiscal outlook saw S&P lift Australia’s sovereign rating from AAA ‘negative’ to AAA ‘stable’.
What’s in store for 2019?
More above trend growth 

The Australian economy is poised to grow by around 3 per cent over 2019, with a large pipeline of public sector infrastructure projects and the ongoing roll-out of the National Disability Insurance Scheme (NDIS) to drive public sector demand, with positive spill-overs into business investment and employment. With a large pipeline of work yet to be done, dwelling investment is likely to continue at elevated levels but not add to economic growth over 2019. Net exports are expected to add to growth as LNG export capacity continues to expand. Consumption is also expected to grow at a moderate pace in line with further jobs growth and a gentle lift in wages growth.
Gradual lift in inflation

We look for the underlying inflation rate to gradually lift to a little over 2 per cent by the end of 2019. Upward pressure comes from further reductions in excess capacity, the lagged effects of a softer exchange rate and lifting global prices, and the direct and indirect effects from higher fuel prices.
Some further tightening in labour conditions and the flow-on effects from the 3.5 per cent lift in the minimum wage in mid-2018 should exert upward pressure on inflation in the non-tradable sector. Working in the opposite direction is limited rent inflation, given increases in the stock of dwellings, heightened completion in a range of sectors and the risk of further “one off” declines in administered inflation as governments focus on policies to reduce the cost of living expenses in election years.
RBA patiently waiting for stronger wages growth 

The November Statement on Monetary Policy forecasts from the Reserve Bank of Australia (RBA) have the economy growing at above trend rates over the next two years and the unemployment rate falling to 4.75 per cent over the second half of 2020. Given uncertainty about the transmission of labour market tightening into wages and inflation, the RBA has ruled out any near term tightening, noting that a period of stability would help create the conditions which would eventually allow them to begin removing policy accommodation.
In our view, further ongoing labour market improvement, along with the lagged effects of a lower currency, less fiscal drag and a large public sector infrastructure pipeline should see the RBA in a position to begin removing policy accommodation from late 2019 onwards. However, the large stock of household debt held will increase the potency of any cash rate increases and is the reason why we anticipate a more modest and drawn-out tightening cycle by historical standards.
We see the balance of risks tilted to the downside and clustered around the deferral of consumption and investment because of uncertainty about the path of domestic and global policy settings. These are unlikely to be powerful enough to get the RBA easing, but could significantly push back the timing of the first monetary tightening.Compared to 2017, home values across the capitals declined over the year but Canberra and smaller capitals such as Hobart, posted some of the strongest growth nationwide at 4% and 9.3% respectively, according to Tim Lawless, research director, APAC, CoreLogic.
Sydney values have declined by 8.1% from their peak in July 2017 and Melbourne by 5.8% from a peak in November 2017 –further declines are likely in 2019 with prices in Sydney on track to fall 15% in total.
“There are some mainstream economists who are suggesting Sydney and Melbourne could be down by as much as 20% from peak to trough but I’m a little more optimistic than that,” Lawless says.
“I wouldn’t say that would be a worst-case scenario, more a realistic case. We have already seen Sydney dwelling values fall by around 9.5% peak to trough, so it isn’t that much of a stretch to see the overall market fall another 5% over the year,” he continues.
Looking ahead, Lawless adds, “The best case outlook would be that conditions start to level out; we start to see a rate of decline easing off and then the market finding a floor.
“Under a worst case scenario, we would see credit tightening further, economic conditions slowing down and potentially mortgage rates starting to rise as well,” he continues.
In reality, Lawless says it is most likely the actual outcome will fall somewhere between the two extremes, with the bad news concentrated in Sydney and Melbourne and steady conditions in the other capitals. It is also likely that Hobart will see a slow down in its rate of growth.
“We also expect some of the smaller capital cities like Brisbane and Adelaide will continue to show growth and particularly parts of Queensland, on the back of migration rates that are really ramping up interstate,” Lawless says.

Tuesday, December 4, 2018

Australian property prices have fallen but they have also grown strongly for years


https://www.smh.com.au/business/banking-and-finance/the-graph-that-puts-falling-home-prices-in-perspective-20181204-p50k33.html

Sunday, November 11, 2018

Australia’s housing downturn has extended to a 13th month, with further falls expected.

More market experts – including the RBA – are now turning their attention to how a negative wealth effect from falling house prices could drag on consumption growth.

We’ve highlighted five indicators that will be worth monitoring in the months ahead to gauge the extent of a housing-linked consumption crunch.https://www.businessinsider.com.au/house-prices-falling-australia-negative-wealth-effect-2018-11

Tuesday, November 6, 2018

Tuesday, October 30, 2018

The China banking system is under stress and they are desperate to maintain the currency peg, leveraged  off shore investments will continue to be sold down... Oz real estate developments are all in the firing line.

Exclusive: Guarding stability, China likely to slow yuan's slide to 7 per dollar - sources reut.rs/2qbNqBf via @kevinyao_yao

Monday, October 29, 2018

State of the States: QLD has slipped to sixth place on the economic performance rankings, behind SA. Find out why at commsec.com.au/stateofstates #ausbiz #ausecon



Tuesday, October 23, 2018

The 7 Best Hard Flooring Options for Your Home | Houzz

The 7 Best Hard Flooring Options for Your Home | Houzz
https://www.smh.com.au/money/investing/property-is-falling-shares-are-shaky-here-s-where-to-put-your-money-20181022-p50b65.html
Fresh analysis shows the concentration of property sales across Australia is shifting from its traditional centres. Property sales rates were higher in Australia’s regional locations than in its capital cities, according to a CoreLogic analysis. The latest research from CoreLogic analyst Jade Harling has found that over the 12 months to July, four out of seven of the “rest of state” regions reported a higher turnover rate than their capital city counterpart. According to Ms Harling, the disparity was most prevalent across NSW, with Sydney’s turnover rate at 4.1 per cent, compared with 5.6 per cent outside the capital city. Ms Harling also reported that the regional areas of Tasmania saw the highest level of turnover of all regions (6.1 per cent), while the lowest turnover levels were reported in Western Australia (Perth 3.3 per cent, rest of state 3.3 per cent) and Darwin (3.5 per cent). “Unsurprisingly, regional Tasmania has been one of the strongest housing markets for capital gains, with values up by 8.1 per cent over the past 12 months, while areas of Western Australia and Darwin have been among the weakest markets, with dwelling values down materially since peaking in 2014,” she said. However, the research revealed that, overall, turnover rates in the year to June 2018 were 70 basis points lower year-on-year, down from 5.3 per cent to 4.7 per cent. Ms Harling said that she was not surprised by the decline in overall turnover rates and pointed to softening in the credit and housing markets. “The more pronounced decline in turnover rates over the year to July is hardly a surprise given current market conditions, with dwelling values softening each month now for the past 12 months, coupled with the lowest levels of new stock being added to the market seen since 2012 over the past six months, as confidence wanes and homes take longer to sell,” Ms Harling said. She continued, “[The] high transactional cost to both purchase and sell property has likely added a further barrier to housing market participation. “From the sell side, there are marketing costs, agent fees and commission, legal costs and potentially some costs associated with getting the property ready to present to market. From the buy side, stamp duty costs as percentage of the purchase price are a major barrier to entry, especially in the more expensive markets as well as the costs associated with building and pest inspections and conveyancing.” Ms Harling concluded, “More recently, credit rationing has provided an additional dampening effect on housing activity. “Given the potential differences across each market, the analysis takes a look at turnover across each of the states’ capital city and non-capital city regions, including the top five council areas across each state where the largest proportion of dwellings sold over the year.”

We won't charge dead people anymore

Australia’s banks will change their code of practice so dead people and customers receiving no services are not charged fees. The Australian Banking Association will overhaul the way the code of practice deals with managing a customer’s estate when they have died, and fees for no service across the industry. The reforms, prompted by the banking royal commission, will be the first of several changes from the ABA. Others include seeking new changes to the Future of Financial Advice reforms of 2013, to further reduce the incentive of commissions in financial services. “It has always been unacceptable for any organisations to charge fees without providing a service,” said ABA chief executive, and former Queensland premier, Anna Bligh. “This announcement will put beyond the shadow of a doubt that this practice has no place in Australia’s banking industry. “Banks will change the way they manage a customer’s account, proactively contacting them to confirm what services are required for their investments and only charging for those provided. “This issue of charging fees without service, particularly when customers have recently died, was raised during the royal commission and identified as unacceptable. “When someone loses a loved one, they need support and compassion as they finalise their loved one’s financial affairs. Charging ongoing advice fees to dead people is clearly unacceptable.” The ABA said banks are currently working with customers to refund those charged a fee where no service was provided. Latest ASIC data indicates customers will receive more than $1 billion in refunds. “In addition to these changes, the industry is supporting legislation to remove grandfathering provisions in relation to financial advice,” Ms Bligh said. “This is another important piece in the puzzle of ensuring there are no conflicts for advisers.” You can read the latest on the progress of the royal commission here.

Monday, October 15, 2018

Brisbane Housing Market Update | October 2018









The Australian housing
market continued to weaken over the month, with national dwelling values
falling 0.5% in September, marking twelve months of consistently falling values
across CoreLogic’s national hedonic home value index.

Sunday, October 7, 2018

Lucky Australia has such as broad range of housing options

With rapid population growth and a surge in high rise towers, many of Australia’s inner city regions have seen a surge in the population density. Australia is moving through the peak of an unprecedented boom in apartment construction. Over the twelve months ending March 2018 there were almost 97,000 medium to high-density
dwellings that completed construction across Australia; a year earlier there were 105,300 projects that finished construction (84% higher than the decade average). As at March of this year there were still 155,275 medium to high-density projects still under construction. The majority of this construction work has been centred around the inner city areas of our largest capital cities, so it shouldn’t come as a surprise that population densities have surged higher across many inner-city areas of our largest cities. Based on an analysis of population data at the SA2 level (an SA2 region is a standard geographical classification roughly the size of a suburb in the cities or a town in regional areas), the highest density area in Australia is now Melbourne. 45,231 people reside within the 2.4 square kilometre (sqkm) area, equating to a population density of just over 19,100 people / sqkm. The population of the area has increased from 7,644 in 2001 – an increase of almost 500% over sixteen years. Apartment values in the area are relatively low with a median of $444,000, providing a relatively low-cost entry point to a housing market located right in the middle of one of Australia’s largest working populations. Back in 2001, the Melbourne SA2 region ranked 114th in the country with a population of only 3,229 and a population density of 7,644 persons per sqkm. Potts Point – Woolloomooloo showed the highest population density, followed by Surry Hills. In fact, back in 2001, the top 12 areas of highest population density were all located in Sydney, with St Kilda East recording the highest population density outside of Sydney (6,259 people per sqkm). The 20 most densely populated areas of Australia are all confined to Sydney and Melbourne. Fifteen of the top 20 areas are in Sydney and five are in Melbourne. While high-density living may not be everyone’s cup of tea, it makes sense for many, especially for students and young professionals who work and play in and around the city centre. Focusing on the Melbourne SA2 area again, two-thirds of the resident population are aged between 20 and 34, with the most significant age group being 20-24-year-olds (31% of the population). High-density living generally involves less time commuting, lower housing prices and plenty of choice for amenities. Of course, there are going to some downsides to high-density living, like the potential for noise pollution, tight living spaces, elevator congestion at peak times, overcrowded or poorly maintained communal areas and limited access to green space. The latest small area population numbers from the ABS are already a year old, and, considering the record number of apartments under construction across Australia, our inner city areas are going to increase in density further from here. Densification makes sense from a town planning perspective – it reduces urban sprawl and the necessity to continually invest in transport infrastructure linking the outer fringes of the cities. From a livability perspective, some people will thrive in a high-density environment, while others will crave the peace and quiet of the burbs. Lucky Australia has such as broad range of housing options.

Tuesday, October 2, 2018

The Sydney gross rental yield is tracking at 3.2%. It is 3.8% for apartments, and just 3% for houses.

Landlords in New South Wales will be limited to seeking rent renewal increases once a year under proposed state government legislation. There will be no rental hike price restriction, just a 12 month period before any rent increase can be sought from existing occupants, as part of what Matt Kean, the Better Regulation Minister, heralded as "sweeping reform for tenants' rights". Less frequent rent increases will certainly help tenants plan for their cost of living pressures. But there will be some ramifications. The restrictive new law, which is yet to be passed by parliament, could see some investors sell up and exit the market. Others maybe be tempted to try the short-term accommodation market. At a microeconomic level, some landlords will now insist on six month rental agreements, with the possibility of tenant turnover potentially allowing a higher rent. Ofcourse, it is one thing for the investor landlord to seek rent increases, the other is the economic circumstances to be able to get it, and without losing weeks in an empty property. On the macroeconomic front, prospective investors who will be calculating revised potential yields, are not going to spend as much to initially buy their investment property. The cap on the timing of rental increases mimics the policy implemented by the Labor Government in Victoria, whose aim in a much broader reform package was to reposition investors as housing providers with responsibilities. The historic primary aim of property investors has been wealth creation through finding and holding a property for the long term, without undue interference from government intervention. With capital growth on investment property currently slowing across Sydney, the Berejiklian government proposal comes at a time when investors are sharply focused on their rental return. And landlords don't need to be reminded they aren't that flash. From rentvestors to experienced property investors, it was easy to overlook the significance of rental yields when Sydney property were rising with annualised 15% growth. Rental markets remain relatively subdued across Sydney, partly due to an increase in rental supply accompanying the surge in apartment construction. It is also because there has been a reduction in demand as first home buyer numbers have risen. CoreLogic recently noted Sydney rents were down 0.9% over the past 12 months. CoreLogic expect rental yields will continue to be sluggish. The Sydney gross rental yield is tracking at 3.2%. It is 3.8% for apartments, and just 3% for houses. The national gross rental yield is tracking at 3.73%, lower than the decade average of 4.27%. Nationally it is 4.2% for apartments, and 3.6% for houses. Slowing price growth, the conversion from interest only loans to principal and interest, and the prospect of interest rate rises could see tolerance from investors wear thin. And the Sydney rental market vacancy rate is rising, according to the Real Estate Institute of New South Wales. The vacancy rates across the Sydney metropolitan sits at 2.8%, up from 2% this time last year, with inner Sydney at 2.7%, middle Sydney at 2.9% and outer Sydney at 2.7%. Tim Lawless at CoreLogic says the recovery in rental yields is likely to be drawn out. This article first appeared in The Daily Telegraph.

Sunday, September 23, 2018

Overall, it’s hard to see a scenario where Australian housing values could fall off a cliff. For this to happen we would need to see a material about face in labour market conditions, a global shock or a material rise in interest rates – none of which seems to be a likely outcome at the moment.

Without a doubt, housing risks are heightened relative to a year ago. Dwelling values are slipping lower nationally (down 2% since peaking in September last year), mortgage rates are edging higher (up by around 15 basis points from three of the four major banks announcing a rate rise in September) and mortgage arrears have moved off their record lows (but still only around 0.6% of all mortgages are 90+ days in arrears). All this against a backdrop of record high levels of household debt (the ratio of disposable income to household debt reached 190% in March this year), increasing levels of housing supply and rising domestic and global uncertainty. It should come as no surprise that some commentators are forecasting a substantial reduction in dwelling values. We saw similar forecasts during previous downturns from the likes of Steven Keen, Harry Dent and Jeremy Grantham as well as many others. The most recent dire prediction to get mainstream airplay was from Martin North predicting a 40-45% fall in dwelling values; albeit with only a 20% chance of this occurring. Since airing on 60 Minutes, the segment titled ‘Bricks and Slaughter’ has seen the two primary experts featured, Martin North and Louie Christopher, clarifying their televised comments which were apparently presented in an unbalanced context: a presentation of the worst case scenario with no regard for the most likely outcome. If we look at the current downturn in Australian housing, the trajectory of decline is actually quite unremarkable. Australia’s largest housing market, Sydney, has seen values fall by 5.6% since peaking in July last year; a trajectory that is straight down the middle of previous downturns. During the GFC, Sydney dwelling values fell by 7.0% in the space of twelve months, and the downturn before that (2003-2006) saw values fall 7.1% over the same number of months. Australia’s second largest city, Melbourne, has seen values falling since November last year. Since that time the market is down a cumulative 3.5% and the descent has generally been milder relative to previous downturns. CoreLogic Historic Periods of Peak to Trough Decline Even in markets where values have been falling consistently for more than four years on the back of a material weakening in economic and demographic conditions, we haven’t seen values fall by anywhere near 40%. Perth dwelling values peaked in 2014 and have fallen by 12.6% and in Darwin where conditions have been even tougher, dwelling values are down 21.8%. Recently released housing value forecasts from Moody’s Analytics certainly paints a less gloomy picture of housing markets over the coming years. While, growth is forecast to be subdued relative to previous years, the forecast is for a relatively mild downturn, with national house and unit values returning to mild positive annual growth by the middle of 2019. CoreLogic Annual Change In National House Values The Moody’s Analytics forecasts are based on an econometric model which uses CoreLogic’s Hedonic Index data as a base to forecast from. Their upbeat assessment of dwelling values is based on rising business investment, particularly in the non-mining sector, a rise in infrastructure spending, above trend jobs growth, and ongoing low interest rates. Of course the outlook for housing conditions is varied across the regions. By the end of 2019, Moody’s is expecting every capital city except Hobart (-2.4%) to record a positive annual change in house values, with year on year rises ranging from 4.5% in Canberra and Adelaide to a 0.9% rise in Perth dwelling values. Forecasting the movement in asset values is challenging at the best of times. With so much uncertainty at the moment it’s even harder. Several wildcards remain that could have a negative impact on the direction of housing values. Households are more sensitive than ever to interest rate movements due to the record level of household debt. Roughly 70% of household debt is housing related, which implies small changes to mortgage rates could have an amplified impact on household balance sheets. Further out of cycle movements in mortgage interest rates could have a negative impact on the market. On the flipside, if the RBA decides to cut the cash rate further (a possible scenario of economic conditions weakened and housing price falls accelerated), this would likely see a rise in housing activity and help to place a floor under housing prices. There is also the potential for changes to property taxation policies that could have a further dampening effect on investment demand. Based on the value of new housing finance commitments, investors still comprise around 41% of mortgage demand, down from 55% in mid-2015. Investor concentrations remain well above their long term averages across New South Wales (49% of housing finance commitments) and Victoria (41% of housing finance commitments), implying Sydney and Melbourne would have more to lose if investor activity were to drop more substantially. Investors are already being disincentivised by falling prices, mortgage rate premiums and low rental yields; additional disincentives from tax reform could see demand reduce further, creating some slack in the overall demand composition for Australian housing. In balance, even with mortgage rates edging higher, we are still in the lowest mortgage rate environment since the 1960’s. Population growth remains strong and maintaining a consistent migration policy seems to have support from both sides of politics which will continue to support demand for housing. Labour markets are reasonably healthy with unemployment holding at 5.3% and likely to trend lower, underemployment at the lowest rate since May 2014 and jobs growth above the long term trend.