Retaining negative gearing is in the ‘public interest’

The debate about negative gearing’s impact on the property market seems to be showing no signs of slowing down, with the Real Estate Institute of Australia (REIA) the latest body to enter the fray.

As the Federal government engages in a back-and-forth with independent think-tank the Grattan Institute about what impacts the tax break has on the property market, the REIA claims retaining the negative gearing status quo is in the public interest.

“With large increases in house prices in Australia’s two largest capital cities, there have been many claims that the current tax treatment of negative gearing and capital gains of residential property is exacerbating housing affordability issues,” REIA president Neville Sanders said.

“This is simply not the case. Indeed the public interest is being served and advanced through the current taxation arrangements,” Sanders said.

While those proposing changes for negative gearing, such as the Labor Party, claim it is detrimental to housing affordability, Sanders said there is a more pressing issue causing the price barrier many buyers face.

“There is ample research that shows that negative gearing and the CGT discount are not driving excessive, unproductive and speculative investment in housing but instead they are adding to housing supply with currently $7 billion a year invested in new dwellings,” he said.

“It is supply that is the critical factor in resolving the affordability problem. Changes to current taxation arrangements will do nothing to address affordability. If anything it will exacerbate the problem.”

Sanders also said there is plenty of evidence besides what was seen in the 1980s when negative gearing was abolished that changing the tax break will hurt renters.

“The current taxation arrangements provide many Australians with the opportunity to invest in property and augment their savings in particular their retirement savings and at the same time improve rental affordability through an increased supply of rental housing.

“The Henry Review, released in 2010, recognised that the current tax arrangements placed downward pressure on rents.”

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Gen Y, first time buyers issued spruiker warning

Investors and homeowners, particularly inexperienced ones, have been warned to be on the lookout for property spruikers promoting “get rich quick” or similar property investment schemes.

Regulators such as the Australian Securities & Investment Commission (ASIC) have increased their focus on dodgy property deals in recent times and the Real Estate Buyers Agents Association of Australia (REBAA) has reminded consumers that profitable investments aren’t usually a walk in the park.

“There’s always going to be a spruiker or wealth generator out there promoting their wares, it’s really a general and constant warning to be on your guard about who you trust and where you get your advice from,” REBAA president Rich Harvey told Your Investment Property Magazine.

“You see a lot of the spruikers out there making outlandish claims and I think it’s really important for consumers to be aware that making money is not easy, it takes time and it takes effort. Particularly if the market’s changing and cooling then some of the claims people are making now will be severely tested over the next decade,” Harvey said.

In particular, Harvey said younger buyers are likely at more risk of being taken for a ride and he reminded them not let their dreams override sensible decision making.

“They’re also very aspirational. People in that Generation Y bracket can easily be sold a dream which can quickly turn into a lemon,” he said.

“They’ve got to be very careful with who they decide to listen to and where they get their advice from.”

While Harvey and REBAA have concerns about operators who claim they will deliver significant returns in a short period of time, buyers have also been warned about those who promote quantity of quality.

“A lot of people get caught up in that they have to have 10 properties or five properties or X number of properties.

“It’s a mathematical equation at the end of the day in terms of what you want to achieve when it comes to wealth or income. It’s not about the number of properties, that can have a bearing on it, but a more important point is the quality of those properties.

“You might have one two-bedroom apartment in Potts Point and that could be the equivalent of four houses in a regional area.

“Which one is better? Well they’re going to perform differently but you may end up at the same point, but there are different levels of risk involved.”

Though he is concerned about activities of spruikers and the possibility of them causing people to overleverage, Harvey said recent tightening of lending criteria has come with a positive.

“APRA really has tightened the brakes, so naturally investors are having that forced upon them so they can’t over-gear.

“There’s a lot of spruikers out there that say we know the way around the banks and we can beat them at their own game and try to fudge employment figures or income returns, but you can’t do that.

“At the end of the day APRA is now really digging their heels in and a lot of brokers that I’m speaking to are finding it a lot harder to get approvals.

“Good deals will get approved if you’ve got good savings and tick all the boxes, but the actual volume or quantity of loans you can get have been reduced quite significantly compared to two or three years ago.”

Both REBAA and Harvey are long time proponents of more regulation in the property investment industry and while there are some positive signs in that respect, Harvey said real progress will only be made if regulators are better resourced.

“It’s all about resources. At some point I think ASIC will regulate directly property investment, as to when that might happen I don’t know, but I think they’re moving in that direction.

“The entry barrier to become a selling agent or buying agent is far too low. The bar needs to be raised and it really needs to be raised a lot higher than what it is right now. I’d like to see stronger licensing requirements and stronger training and education requirements around real estate agents and buyers agents.”

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Labor’s negative gearing plan would drive out 80% of investors: REIQ

Nearly four out five property investors would abandon real estate as an investment class if the Labor Party’s negative gearing proposals became law.

According to a survey conducted by the Real Estate Institute of Queensland, Labor’s proposal of restricting negative gearing to new homes only form 1 July 2017 and reducing the capital gains tax discount to 25% would see 79% of investors move on from the property market.

“We now know for a fact that 79% of respondents will get out of property and find an alternative investment strategy that works more effectively and yields a better return,” REIQ chairman Rob Honeycombe said.

“That will have a crippling effect on house values and on the rental market, where the private rental market plays such a critical role in keeping rents affordable,” Honeycombe said.

According to the survey, which was sent to more than 14,000 REIQ members and their investor clients 38% of respondents said a different asset class would be a more likely investment option if negative gearing benefits were removed from property.

Around 25% of respondents indicated they would be unlikely to consider shares as an alternate investment avenue.

Pointing to research from independent think-tank The Grattan Institute which claimed the changes to negative gearing would reduce home values by 2%, Honeycombe said the Queensland government would be left significantly out of pocket by amendments to the tax break.

“The State Government would lose a significant amount of revenue from stamp duty if people’s house values fell by two per cent, and the Grattan Institute is being very conservative with its estimate of 2%,” he said.

“How does the State Government feel about this massive loss to revenue? ABS data released yesterday reveals that revenue from property taxes at a local and state level have increased 70% over the past nine years – representing an increase of $1.6 billion in council rates and $1 billion in stamp duty over the past nine years.

“Negative gearing will decimate those tax revenues, adding further stress to local council and State Government budgets. Regional Queensland councils can ill-afford this enormous hole in their budgets.”

While the Labor Party claim their negative gearing plan is driven by a desire to improve housing affordability, Honeycombe said that will require more than just changing one policy due to the complicated nature of Australia’s tax system.

“It’s a complicated web of interconnected policies and it’s virtually impossible to “tweak” just one without affecting everything.

“Negative gearing plays an important role in the Queensland property market and any changes to it will be detrimental.”

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Three quarters of Aussie households favour action on housing affordability

Three quarters of Australian households believe the government should take some steps to address housing affordability.

According to the results of survey conducted by non-major lender ME Bank in December 2015, 76% of Australian households are in favour of the government intervention around affordability; while 9% disagreed action should be taken while 16% were neutral to the idea.

Compared to the previous edition of the survey carried out in June 2015, support for government action increased 3%, while those disagreeing decreased by 1%.

Source: ME Bank

Support for government action on the issue of affordability was widespread among buyer types, with 81% of respondents to the December survey who are looking to buy property in the next 12 months supporting the idea, while 70% of investors were also in favour.

When it comes to what actions should be taken, 76% agreed (9% disagreed; 15% neutral) the federal government should do more to encourage the development of lower priced housing, up 2% from June 2015.

Sixty-one percent of respondents agreed (20% disagreed; 19% neutral) the federal government should reform the tax system to provide less support to investment property buyers, with 42% of investors believing the tax mix should be addressed.

Source: ME Bank

ME Bank chief executive officer Jamie McPhee said the survey’s results show housing affordability is a pressing issue for many Australians, particularly younger generations.

“We see the impact a lack of access is having on younger generations’ sense of financial wellbeing, which is falling behind the financial wellbeing of older Australians,” McPhee said.

“Property is an important wealth generator and the inequities in accessing housing should be tackled,” he said.

While property taxes may be a contentious issue at the moment, McPhee said the fact that a significant portion of investors believe the tax mix should be addressed is an important statistic.

“Australia’s current tax arrangements are contributing to the problem by advantaging investors over first home buyers and they should be addressed within a broader review of our taxation system.”

“That 70% of property investors agree something should to be done and 42% agree tax concessions for property investors should be changed, shows reforms would receive wide support.

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Home prices rise 1.5pct in April

Duplex_small.jpgHousing prices gained momentum in April after stalling in March, preliminary figures from CoreLogic RP Data show.

Prices rose by 1.5 per cent in April after gaining only 0.2 per cent in March, according to an estimate based on sales in the mainland state capitals for the first 28 days of April.

Detailed data for the whole month and covering all capital cities and regions will be published on Monday, CoreLogic RP data said.

Auction activity sees marked increase

Australia’s auction market is set for surge in activity this week as more than 2,000 homes are scheduled to go under the hammer.

Figures from CoreLogic RP Data show that 2,419 residential auctions are being tracked this week compared to the 1,565 that were held last week.  

Last week’s national clearance rate finalised at 69.7%.

After being knocked off its perch as the nation’s busies market last week, Melbourne has jumped back to the top this week.

The Victorian capital is scheduled to hold 1,233 auctions this week, more than double the 602 it held last week.

Melbourne finished last week with a clearance rate of 71.5%, the third highest in the country.

Melbourne is home to the top five busiest individual suburbs, with Bentleigh East to hold 28 auctions, followed by St Kilda with 21 and Craigieburn, Malvern East and Reservoir all holding 18.

While it may not be the nation’s busiest auction market this week, Sydney too has seen a week-on-week increase in volumes.

The harbour city held 643 auctions last week and is so far expecting 763 for this week.

Sydney’s clearance rate finished at 77.4% last week, the highest mark recorded across the country.

Brisbane is expecting 141 auctions this week, an increase on the 130 it held last week.

The Queensland capital finished last week with a clearance rate of 37.6%, the second lowest mark recorded across the country.

In Adelaide 129 auctions are currently scheduled for this week.

Last week saw the city hold 99 auctions and return a clearance rate of 59.5%.

In Canberra, volumes have nearly doubled over the week, with 101 auctions scheduled this week compared to last week’s 56.

Canberra’s clearance rate finalised at 73.3% last week, the second best mark recorded across the country.

After holding 30 auctions last week and returning a clearance rate of 29.2%, Perth is set to hold 44 this week.

The volume numbers for Perth, Canberra and Adelaide are all six-week highs.

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No real issues, but commission review welcome says broker

The current level of scrutiny placed on mortgage brokers and commissions could have benefits for both the industry and consumers according to a respected member of the industry.

The issue of brokers and their commission is currently subject to review, with the Australian Securities & Investment Commission currently holding a wide-ranging inquiry into the practice.

One major bank, Westpac, also announced this week that it will review its commission structure.

While scrutiny of that level may be a warning bell for some about conduct in the broking industry, Jane Slack-Smith, director of Investors Choice Mortgages, said the vast majority of mortgage brokers are working with their client’s best interests, not commissions in mind.

“When I’m working with a client and looking for a lender or loan for them I base all my decision on what would suit them and I would say that’s the case for the majority of brokers,” Slack-Smith, a two-time Your Investment Property Magazine Reader’s Choice Mortgage Broker of the Year, said.

“That’s at the top of the list and the potential commission is so far down the list that it’s not important at all. It’s just not something that most would think about when working with a client,” she said.

Though she believes the majority of brokers are acting appropriately, Slack-Smith said she still welcomes the spotlight being shone on the industry.

“One of the things that happens when you have a review like this is that people get to see the potential benefits and downfalls that can come with any decision,” she said.

“I think one of the things people will see is that brokers across the country are doing the right thing by customers and see that when it comes to assessing somebody and what loan might suit them brokers have access to a lot more information to help them make the right decision.

“The other thing is that there probably are a small number of people who aren’t doing the right thing so I welcome the review in that it might encourage them to leave the industry.”

Even though she believes the majority of the industry is acting appropriately, Slack-Smith said she isn’t surprised regulators have turned their attention to mortgage brokers.

“I’m not sure there’s anything in particular that has prompted it.

“In reality I think this is just progression and mortgage brokers are the next financial group being looked at, we’ve seen it happen with financial planners and those sort of people and now it’s happening to us.”

While the current reviews are focussing on the commissions brokers receive from banks, concerns have also been raised recently about brokers being incentivized by developers to direct clients to specific property purchases, but Slack-Smith again said that practice is not as widespread as many may think.

“There are a few developers who will dangle things to brokers, I had one who offered me a brand new BMW if I referred 10 clients to them but I said I was happy with my Toyota.

“Again there may be some who accept those deals, but if you listen to the concerns that APRA and the RBA have been raising recently in regards to people borrowing to buy off the plan and new apartments you’ll see that it’s really not in the best professional interest of brokers to point people to those kinds of things.”

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Sydney house price growth in world’s top-five

Sydney’s recent run of strong house price growth has pushed the city’s property market towards the top of the global ladder.

Global real estate services firm Knight Frank claims in the 12 months from September 2014, house prices in Sydney grew 19.9%, good for fourth position on their Global Cities House Price Index.

According to the index, which tracks house price growth in 165 cities across the globe, the Chinese city of Shenzhen was home to the world’s strongest house price growth in the 12-month period, with prices rising 47.5%.

Kate Everett-Allen from Knight Frank’s international residential research department said Shenzhen rose to the top of index thanks to moves by the Chinese government.

“In 2015 first-tier cities in China saw strong demand on the back of the relaxation of policy restrictions which boosted market performance,” Everett-Allen said.

“Shenzhen is fast becoming one of China’s key technology hubs, its population of 10 million has an average age of 30,” she said.

In second position over the 12 months from September 2014 was Auckland, New Zealand, where house prices grew 25.4%.

The Turkish city of Istanbul, where prices rose 25%, took third spot on the index.

Sydney and China’s Shanghai, where prices rose 18.2%, rounded out the top five.

Across the index house prices grew 4.4%, with 121 of the 165 monitored markets recording price growth.

All eight Australian capital cities feature among the 165 that make up the index, with Melbourne the next best performer after Sydney.

The Victorian capital was ranked 24th on the index with house price growth of 9.9% in the 12 months from September 2014.

Canberra was the next best placed Australian market at number 77 on the index with house price growth of 4% over the 12-month period, followed by Brisbane at 81 with growth of 3.8%.

Adelaide came in at 81 with growth of 3.5%, while Hobart’s 1.7% growth over the year to September 2015 put it at 111.

A price fall over the period of 2% put Darwin at 141 on the index, while Perth’s 3.3% fall saw it come in at 152.

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ACT leads the way for housing hotspots

Australia’s hottest location for housing is located in the ACT according to new figures from the Housing Industry Association (HIA).

Released this weeks, the HIA’s latest Population and Residential Building Hotspots Report  has identified more than 600 housing hotspots across the county, with the ACT- South West topping the list.

For the purposes of the report, a hotspot is defined as an area where population growth exceeds the national average and where the value of residential building work approved is in excess of $100 million. The final ranking of the hotspots is determined by their respective population growth rates.

“A total of more than 220,000 new dwellings were commenced last year, so it’s no surprise there was a strong performance among housing Hotspots across Australia,” HIA economist Diwa Hopkins.

“Today’s report identifies a total of 602 Hotspots spread right across Australia’s eight states and territories. Nearly all jurisdictions were represented amongst the National Top 20 Hotspots,” Hopkins said.

The ACT- South West took first place with $216.4m worth of residential approvals in 2014/15 and an annual population growth rate of 127.3%.

Victoria’s Cranbourne East took second spot on the list, with $328.6m worth of work approved in 2014/15 and an annual population growth rate of 32%, followed by NSW’s Cobbitty – Leppington in third with $363.m of approvals and an annual population growth rate of 26.1%.

Harrison in the ACT came in fourth with $101.7m of approvals and a growth rate of 22.8%, followed by the Northern Territory’s Palmerston – South  with $102.1m of approvals and population growth of 22.4%.

Source: HIA

While NSW and Victoria combine to account for 10 of the top-20 hotspots, Hopkins said there are positive signs that areas that have been struggling recently are showing signs of improvement.

“In the final analysis, the fact that ten of the Top 20 Hotspots are located in NSW and Victoria speaks volumes. These two states have been the engines of the strong upturn in new home building over the last few years,” she said.

“It is also encouraging to see WA still perform strongly this time at the national level, considering the difficulties arising from the natural resources downturn.”

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Bubble talk unfounded says PCA

The investment outlook for the Australian property market should remain mostly positive in 2016, despite talk of busts and bubbles.

According to the latest ANZ Property Council Survey, the national confidence index for Australian real estate remained at 131 at the end of the March quarter, which indicates a positive outlook for the market.

The index has now remained unchanged for 12 months and Property Council of Australia of chief executive Ken Morrison said that shows any talk of a collapse in the property market is unfounded.

“In recent times there has been some media commentary about ‘property bubbles’, but the data does not support these claims. [The] Property industry is neither going through boom nor bust – instead, it is steadily meeting the continued strong demand for housing in Australia,” Morrison said.

“We are seeing confidence underpinned by the continued strong economic performance of our largest states – NSW and Victoria. This is a positive and steady outlook – that reflects the steadiness of the economy. Australia is witnessing steady employment growth, low and stable interest rates, stable rents and house prices,” he said.

According to the survey, house price growth will be stronger in the June quarter compared to the three months to March, however Morrison said there are some challenges for the market in the immediate future.

Source: PCA/ANZ

“Consumers and businesses have a tendency to see elections as uncertainty and often postpone decisions until after they are held. We are heading into the longest campaign in Australia’s history and this will test sentiment,” he said.

Weak wage growth is also pulling on consumer sentiment according to Morrison.

Richard Yetsenga, ANZ acting chief economist, agreed that wage growth is a serious issue for the property sector; however it will likely continue to be an important economical pillar in 2016.

“Slower housing market, weak wages growth and tentative consumer confidence all remain key challenges to both housing construction and household spending,” Dr Yetsenga said.

“Importantly, the ANZ-Property Council Survey indicates a steady year-ahead pipeline of work in the property sector, which is ‘doing its bit’ to offset an otherwise subdued business activity outlook,” he said.

Another issue the market will likely face is the ongoing impact of changes to lending practices, with the survey predicting further tightening of lending criteria for those looking for a mortgage.  
The survey also predicts the involvemnt of foerign investors in the Australian property market is set to decline. 

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