Leave SMSF property purchases to investors

The head of a self-managed superannuation (SMSF) advisory firm has hit out at renewed calls to allow people to use super to buy owner-occupied housing.

According to the Australian Financial Review, Harry Triguboff, head of apartment developer Meriton used his speech at the SMSF Members Association’s National Conference in Sydney last week to call for changes to SMSF regulations to allow for the purchase of owner-occupied housing.

“I am not fighting for people to buy a home and lease to others, I am fighting for people to have a home,” Triguboff reportedly said.

“If they wait to save enough money, they are losing all the time – when they collect a bit of money, prices go up.  So we must make it easier for them to buy a home,” he said.

Triguboff believes the change would alleviate the pressures of decreasing affordability, but Justin Beeton, managing director of The SMSF Club is staunch in his opposition against any such plan.

“That’s something that I’m completely against,” Beeton said.

“The idea of superannuation is for people to build wealth for retirement and we’re already at the point where people don’t have enough money in their super when they reach retirement age,” he said.

Triguboff is not alone in calling for an expanded access to super before retirement, with then Treasurer Joe Hockey floating a similar idea in early 2015, but Beeton believes policy makers will make what he believes is the right decision.

“The idea of superannuation is for us to overcome the reliance on the aged pension and I don’t think allowing people to take money out of super to use for something like buying their home is going to help us overcome relying on the pension.

“I don’t think we’re likely to see that change made for decades at least though. If we get to the point in say 20 years where people aren’t so reliant on the pension then maybe it will happen, but it’s not going to be anytime soon.”

While he doesn’t foresee SMSF use being expanded to owner-occupied housing in the near term, Beeton does believe there will be an increase in people using them as an avenue for property investing.

“I think this year we’re going to see the idea of people using SMSFs to invest to become more popular now that there’s a bit more certainty around the borrowing rules and regulations.

“The Murray Inquiry in 2014 handed down 47 recommendations, which included a ban on SMSF lending for property purchases. The government last year adopted 46 six of those, but didn’t impose the ban.

“Before that there was some real uncertainty in general about the laws, but now people have the confidence that there’s not going to be any changes for a few years at least and that’s going to help.”

Beeton also believes changes that will come into effect from 1 July banning accountants from providing SMSF advice without a financial services licence will be a positive.

“It’s a good opportunity to make sure people are getting the right advice when it comes to investing through an SMSF.

“People looking to invest in property through an SMSF should be getting advice from somebody who specialises in that area. Just putting the wrong name or the not getting dates in the right order on the paper work can have some very serious and expensive repercussions.”

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End of summer brings bright note for national auction market

Australia’s auction market has ended summer on high note, with preliminary figures from CoreLogic RP Data putting the national clearance rate above 70% for the fourth straight week.

Last week’s preliminary national clearance rate currently sits at 72.4%, which is a slight strengthening on the previous week’s result of 71.8%.

The four-week stretch through February has been a stronger start to the year than was expected, and is the strongest performance put up by the country’s market since September 2015.

Melbourne was the nation’s best performing market over the week, with the Victorian capital home to the highest auction a volumes and clearance rate.

Melbourne’s preliminary clearance rate currently sits at 75% from 1,327 auctions, compared to the 74.1% from 1,105 auctions it posted over the previous week.

The corresponding week one year ago saw city return a clearance rate of 77.1% from 1,565 auctions.

Melbourne’s top performing sub-region last week was the Inner South, which returned a clearance rate of 83.9%.

Despite a week-on-week fall last week, Sydney has still managed to break the 70% barrier.

Sydney’s preliminary clearance rate currently sits at 73.3% from 872 auctions, compared to the 76.5% from 800 auctions it registered over the previous week.

The Eastern Suburbs was the city’s best performing sub-region over the week, with a preliminary clearance rate of 86.9%, followed by Ryde at 81.9%.

Last week saw 175 auctions held in Brisbane, a figure similar to the 172 last week; however the Queensland capital did see its clearance rate increases from 53.1% to 58.3%.

Last week was a stronger week for the auction market in Adelaide, with it posting a clearance rate of 72.7% from 118 auctions, compared to the 64.6% recorded from 112 auctions the week prior.

Canberra saw a similar improvement over the week, with its clearance rate increasing to 69.6%, up from the 61.9% recorded over the previous week.

Perth’s preliminary clearance rate currently sits at 44.4% from 47 auctions.

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RBA expected to stay put on cash rate

The Reserve Bank of Australia has been widely predicted to leave the official cash interest rate on hold at today’s board meeting.

The cash rate has sat at 2% since May 2015 and all 31 financial commentators and experts in the latest edition of Finder’s monthly RBA Survey have predicted it will remain unchanged after today’s meeting.

Shane Oliver, chief economist at AMP Capital said the central bank is unlikely to make a rate move before it gets a clearer picture of the overall economy.

“Recent Reserve Bank commentary suggests a degree of comfort with the current level for the cash rate and while it retains an easing bias not enough has changed to suggest it is about to act on it,” Dr Oliver said.

“It’s basically in wait and see mode regarding the jobs market and the potential impact of global financial turmoil,” he said.

Angus Raine, head of real estate franchise Raine & Horne, agreed with Oliver’s outlook and said the RBA will likely take into account current trends in Australia’s property market.

“The Reserve Bank will stick with its ‘wait and see’ approach from February. It will seek to weigh inflation data, financial and commodity market turmoil, and business confidence, against local real estate data which appears to be on the improve compared to the end of 2015,” Raine said.

“There are plenty of buyers and investors in the Sydney, Melbourne and Brisbane markets, who missed out in 2015 and have decided to return to the market for a second shot at buying a property,” he said.

Less than a quarter of those surveyed believe the cash rate will rise in 2016, however there has been some words of caution for borrowers, with 39% of the respondents predicting lenders will levy their own out-of-cycle rate rises in 2016.

Three non-major lenders, Yellow Brick Road, Bankwest and Australian Unity, announced their own out-of-cycle rate hikes in February and Bessie Hassan, consumer advocate at Finder, said it would pay for borrowers to look out for signs that could point to a possible rate rise.

“Some lenders have a tendency to keep their rate hikes quiet. With the uncertainty in the market, it’s really important that homeowners don’t become complacent about their mortgages and therefore miss any important news that may impact their finances,” she says.

“You can try to prepare yourself by investigating the best deals on offer and seeing how your lender fares. If you’re feeling uneasy, chat with your lender about your rate and ask if that’s really the best deal they can do for you – use your loyalty and loan size for bargaining power,” Hassan said.

“Australians should be cautious – experts are divided about what lenders will do next. While we don’t expect a dramatic upswing in rates, they can turn very quickly and catch borrowers by surprise,” she said.

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Credit card giant predicts soft 2016 for Australian real estate

Global credit card giant MasterCard believes a recent downturn in expenditure from Australian on household goods is a prime indicator of what will happen in to the country’s real estate market in 2016.

According to report in the Fairfax Media outlets yesterday, MasterCard’s latest SpendPulse analysis claims a slowdown in expenditure on hardware, furnishings and appliances signifies further softening for the real estate market in Australia.

According to the analysis, household goods sales have dropped below the three month moving average for five out the last six months, with the slowdown expected predicted to increase.

“We are seeing a pronounced slowdown and it’s deepening each month,” MasterCard analyst Sarah Quinlan told Fairfax. 

“Therefore we fully expect real estate will weaken further,” Quinlan told Fairfax.

While it may not be a traditional method of tracking the performance of real estate markets, Quinlan told Fairfax the data has been accurate in the past.

“It’s the same correlation in the United States,” she told Fairfax.

“We saw a drop in appliance sales for eight months and sure enough we saw the housing recovery basically slow to a crawl – it’s a very correlative indicator.”

MasterCard may not be a leading voice on the Australian real estate market, but its predictions aren’t dissimilar to those made recently by some who are.

Last week saw Moody’s Analytics and CoreLogic RP Data release new research that predicts house price growth will slow to 3.66% this year and fall below 3% in 2017.

“On the outlook for the housing market nationally, we expect house price appreciation to slow in 2016. Our forecast reflects lower income growth as the Australian economy transitions away from mining-related investment, as well as the strong build-up of housing supply over the past two years,” Moody’s Analytics economist Alistair Chan said.

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Yields, rental support to help boost Darwin’s popularity

It’s been a market that has seen more than its fair share of struggles in recent years, but one real estate franchise is predicting somewhat of a revival for Darwin in 2016.

While investors may have been put off from venturing into the Northern Territory as the mining boom continues to wind down, one real estate professional in the city is predicting a surge in sales volumes this year.

“There’s already increased interstate activity at the coal face and this is translating to more contracts,” Glenn Grantham, general manager of Raine & Horne Darwin, said.

“Darwin, however, is a small capital city property market and we still need one more major announcement relating to the economy, an infrastructure development or more government jobs, to attract even more investors from the southern states,” Grantham said.

A poor performer in terms of capital growth in recent years, Grantham believes the fact that Darwin’s rental yields of 5.3% for houses and 5.1% for units compares favourably with the national capital averages of 3.4% and 4.3% will prove attractive to investors.

A new initiative from the Northern Territory government, aimed at attracting emergency services and hospital workers, will also provide landlords with greater security in terms of their rental returns
“Through the Home Buyer Initiative, the government guarantees investors a head lease rate starting at $550 a week. It’s guaranteed for 52 weeks of the year for ten years, with CPI increases annually,” Grantham said.

“The scheme is designed to stimulate accommodation opportunities for those working in the NT’s hospital and emergency services sector and to make it affordable for them to live and work here.”

Under the terms of the scheme, the tenant pays a percentage of the weekly rent and the balance is made up by the government and returns from a property secured through NT’s Home Buyer Initiative are locked in regardless of what occurs in the wider real estate market

“If a tenant pays a rent of $450 a week in the first year, the government will top up the rent with an additional $100 to bring it up to the agreed amount of $550,” Grantham said

“In Eclipse (a development featuring 30 two-bedroom apartments), prices range from $460,000 for a ground floor apartment to $480,000 for a second floor unit. Yet the rent paid to the owner will be $550 a week regardless of the floor they choose to buy an apartment on.”

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Townhouse surge predicted for middle and outer ring suburbs

One major Australian residential developer believes space and affordability constraints will lead to a rise in the popularity of townhouses in Australian cities.

Developer Cedar Woods is currently launching the early stages of the St. A development, which consists of 250 townhouses in St Albans in Victoria.

The suburb is 16 kilometres from the Melbourne CBD and Cedar Woods state manager for Victoria and Queensland Nathan Blackburne believes there will be a surge in townhouses in similar suburbs across the nation’s capital cities.

“Townhouses are far from a new concept. If you look art cities like London and Paris they’re extremely common,” Blackburne said.

“In Australia they’ve historically been reasonably common in the inner city rings, but I think the middle and outer rings are going to see a lot more townhouses start to pop up,” he said.

While suburbs further out from city centres may have traditionally been locations for people looking for the typical “Australian Dream” of a detached house on a quarter-acre bloke, Blackburne said improved public transport links are helping to reshape people’s attitude.

“We’ve had really strong interest so far. In the stage one release we sold all but two townhouses and we’ve had great interest in stage two as well,” he said.

“So far the buyers have predominantly been from Melbourne who see the growth prospects and really strong public transport links the suburb has.

“People’s attitudes have changed in recent years. Not everybody wants a house on a large block, they won’t something a bit more low-maintenance where they can live out of the city centre, but easily access it for work and those sort of things, and that’s why we see a places like St Albans being so strong.”

The Victorian Government is currently undertaking a $220 million upgrade of the St Albans train station, which has included the removal of level crossings on main arterial roads in the area.

While a lack of similar options in the area may have helped the strong sales Cedar Woods has seen in the St. A development, Blackburne believes more projects will follow as land supply closer to the Melbourne CBD dwindles.

“That’s very much so going to play a role in the increase of townhouses. In the inner urban areas we’re starting to see supply dry up and that’s going to help the shift to further out from the city centre.

“For the owner occupiers a townhouse presents a bit more of an affordable option and while investors traditionally favour established housing,  we think an area like St Albans that has strong fundamentals like transport and schooling is going to appeal to them too.”

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Aussie dream becomes more popular with Chinese buyers

The appetite of Australian based Chines buyers looking to break into the real estate market looks to be changing, with new figures suggesting their focus is shifting off the type of property they have traditionally targeted.

According to figures from Juwai, an online real estate platform that markets Australian real estate to Chinese buyers, the end of 2015 saw a marked increase in interest in residential properties that come with land.

“We saw a 23.5% increase in the past year in the share of inquiries made for Australian property that specify a desire for a home with land. This is the based on the fourth quarter of 2015 compared to a year earlier,” chief executive officer of Juwai Charles Pittar said.

“Chinese buyers most often buy apartments in inner city areas. They know urban living best, those who live offshore are required by Australian law to purchase only new homes and the entry price is more affordable,” Pittar said.

According to Pittar, Chinese buyers in Australia, and those of Chinese decent, are becoming more likely to chase what has traditionally been known as the “Australian Dream.”

“Chinese buyers are starting to wake up to the ‘Australian Dream’ of owning their own house with land. To be clear, we’re talking here about buyers who live or are moving to Australia, many of them Australian citizens, who just happen to be of Chinese descent.

This is not a trend among offshore investor buyers,” he said.

 “These buyers are Australian citizens or permanent residents, and they want the same things as other Aussies. They want their kids to have a place to play, perhaps a place to garden.”

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Moody’s Analytics, CoreLogic predict capital growth slowdown

The slow growth of incomes, a transitioning national economy and increased housing supply are set to lead to a slowdown in capital growth across Australian real estate in 2016 according to research released yesterday.

The Australian Forecast Home Value Index, developed in partnership between CoreLogic RP Data and Moody’s Analytics, predicts Australia’s housing market will see a national rate of growth of 3.66% through 2016, with no individual market to see capital growth hit double figures.

Nationaly housing values increased by 9.12% over 2015.

The index predicts Melbourne will be home to the strongest rate of growth this year, with values expected to grow by 7.16%, followed by Hobart at 6.61%.

After increasing by more than 14% in 2015, Sydney’s growth rate is predicted to plummet to just 2.24% this year.

The index predicts it will be at least another 12 months before a recovery is seen in Darwin and Perth, with further price falls of 1.68% and 0.05% predicted for the respective cities.

“On the outlook for the housing market nationally, we expect house price appreciation to slow in 2016. Our forecast reflects lower income growth as the Australian economy transitions away from mining-related investment, as well as the strong build-up of housing supply over the past two years,” Moody’s Analytics economist Alistair Chan said.

“Nevertheless, accommodative policy, robust rental growth, and a recovering labour market are expected to support valuations over the medium term,” Chan said.

The Index predicts the national rate of growth will slow further in 2017, down to just 2.77%, with Melbourne to see the largest drop-off, as it capital growth slows to just 1.31%.

Source: Moody’s Analytics/CoreLogic

While Melbourne is expected to lose its crown as the strongest performing market, speaking at the launch of the research CoreLogic research head Tim Lawless said the slowdown is a necessary occurrence for the city.

“It’s a good news story in the sense we’re not seeing Melbourne values crashing,” Lawless said.

“The good news story is that we’re seeing a controlled descent in the rate of growth after such striong growth conditions… [You] can’t expect dwelling values to keep on rising by 10 or 11% per annum indefinitely in a time where household incomes aren’t moving, he said.

Lawless’ claim the slowdown is appropriate for Melbourne may be tied to the fact that Moody’s Analytics claims the Victorian capital is the most overvalued in the country.

“As of February 2016, house prices nationwide are 5.9% overvalued relative to fundamental values. The biggest driver of this overvaluation is the housing market in Melbourne, which is more than 23% above the Moody’s Analytics estimate of fundamental value. House values in Melbourne have appreciated far beyond what income and rental growth suggests is appropriate,” Moody’s Analytics said.

Source: Moody’s Analytics/CoreLogic

“This underlines the Moody’s Analytics forecast that Melbourne’s housing market is set for aperiod of near-stagnation while incomes, rents, and the employment market catch up with actual housing values.

“House prices in Sydney are closer to fair value than Melbourne’s, although they are still 9.5% overvalued in aggregate. This smaller estimate of overvaluation is the result of Sydney’s stronger employment market.”

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Party room tensions could block negative gearing changes

The possibility of changes to negative gearing under a Coalition government looks likely to killed-off by political infighting.

According to a report in Fairfax media, a group of Liberal backbenchers has pushed back against plans by Prime Minister Malcolm Turnbull and Treasurer Scott Morrison to change the current arrangements for negative gearing on housing and are committed to seeing the status quo retained.

While the Federal Opposition has announced its position on negative gearing, with the Labor party promising to restrict the tax break to new housing only from 1 July 2017, the government has not publicly announced its position yet, though there is strong speculation it is considering a cap on the dollar amount that can be claimed each year via negative gearing.

Changes to the taxation arrangement have been proposed as a method to increase tax revenue, however an unnamed backbencher told Fairfax the group is concerned by their party’s current position.

“There is growing concern on the backbench about our position on negative gearing. We need to address the expenditure side of the budget instead,” the backbencher said.

“This is about finding sensible changes that ensure that the attack on Labor’s negative gearing policy isn’t undermined.”

If the Liberal party does decide to leave negative gearing unchanged, they won’t be alone in attacking the Labor party’s policy, with numerous lobby groups having come out in strident opposition to any changes.

Most vocal has been the Property Council of Australia, which this week launched a month-long media blitz against any changes.

PCA chief executive Ken Morrison said his group would be “negligent” if they didn’t voice their opposition to changes to negative gearing and said the tax break was vital to Australia’s housing industry and wider economy.

Almost two million Australians own an investment property and almost 1.2 million negative gear. This is an industry that is vital to our economy.  1.1 million Australians rely on property for their jobs and property generates one ninth of Australia’s GDP,” he said.

“Sudden lurches in policy are risky to an industry that is contributing so much to jobs and growth. Negative gearing is a vital part of the means by which Australians, from all walks of life, secure their financial future.”

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