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A COLOSSAL RISK: Huge danger sign for housing in Australia

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A COLOSSAL RISK Huge danger sign for housing in Australia
There could be far too many apartments for sale in coming years. Picture: Glenn Hunt/The Australian What does a million dollars buy in Aussie capital cities?

IT COULD be a bad year for housing prices if building approvals are anything to go by. With the housing market teetering on the edge of a serious downturn, apartment developers seem to be having a “last blast”.

Building approvals data released last week shows a serious uptick in the number of homes that were approved. November building approvals were up 0.9 per cent compared to October, and are 8.1 per cent higher than November 2016. The source of the lift is mainly apartments, which rose from already high levels.

Do that many people really want to live in new apartments?

Do that many people really want to live in new apartments?

Do that many people really want to live in new apartments?

The timing of this big push is fascinating because November is exactly when Australian capital city housing prices started falling. Corelogic shows prices fell by 0.1 per cent in that month as Sydney took a sharp downturn. The developers didn’t know in advance that was going to happen, but they might have sensed it. After all, what could drive such a big uptick in building approvals is the sense that it is now or never.

Builders who have just got their approvals will be racing to get their apartment blocks and new developments done before everyone else. Those who finish early can hope to get in before prices really slump. Any who have delays will be worried they’ll end up selling into a soggy, lifeless market.

TIMING IS EVERYTHING

Markets are supposed to co-ordinate supply and demand. But that’s a hard job when supply takes a long time to come online. If you’re halfway through building a big development when the market falls by 10 per cent, you’re in a bind. The losses involved in finishing the properties and selling them for less than they cost to build will almost certainly be smaller than the losses involved in abandoning the project, so you have to push on to get at least some money back. This is the essence of the boom and bust cycle that characterises property.

If apartments are nearing completion in a market downturn, it can be cheaper to finish and sell quickly rather than abandon the project. Picture: Glenn Hunt/The Australian

If apartments are nearing completion in a market downturn, it can be cheaper to finish and sell quickly rather than abandon the project. Picture: Glenn Hunt/The Australian

Some very large developers might finish properties and then sit on them, hoping the market improves over time, but that’s also a risk. Markets can take a very long time to recover.

SOUTH OF THE MURRAY

The really interesting thing about the November building approvals data is where it was focused. All the increase was focused on Victoria. The average number of building approvals in New South Wales, Queensland and South Australia was actually lower than in the previous month, by 2 to 3 per cent. But Victoria saw a whopping 27 per cent rise.

That anomaly becomes especially curious when you consider that Victoria was the market that actually went on to see price appreciation in November (0.5 per cent growth in prices, according to Corelogic). Could it be that developers, sensing Victoria is the only market with price growth left in it, are focusing their attentions there?

It’s curious there’s still many apartments being approved in Victoria, after real estate agent Mariecris Tagala last year claimed more than half of new apartments in Melbourne’s CBD, Docklands, and Southbank have sold at a loss since 2011. Picture: David Geraghty / The Australian.

It’s curious there’s still many apartments being approved in Victoria, after real estate agent Mariecris Tagala last year claimed more than half of new apartments in Melbourne’s CBD, Docklands, and Southbank have sold at a loss since 2011. Picture: David Geraghty / The Australian.

Another explanation for such a massive jump would be if a single large project came through the pipeline in the month of November. A giant apartment development somewhere in Melbourne, for example. For now, it’s not clear if that’s the case. Whether it is one project or many, the impact on housing markets of a big rush of supply is largely the same – extra supply generally makes prices lower than they would otherwise be.

QUIT WHILE YOU’RE WINNING

Some smart developers have already got out of the property development game, telling the financial press they are sitting out until the market repairs itself. The so-called “pipeline” of new building had been shrinking. The November building approval data shows a different picture. It suggests the pipeline might get fatter again for a little while and there could be one more flurry of cranes going up. The one caveat is this – builders can pay to get a building approval and then not use it. That might be the best case scenario.

The big question hanging over Australia’s high housing prices is whether a housing downturn can happen without also crashing the economy. A gentle and controlled downturn might be a positive – young people can afford to get into the market more, but people don’t feel like the sky is falling.

But a severe sharp downturn could be different. A giant backlog of supply that could be released into an already weakened market is a concern because it could accelerate a modest slide into a hard one.

Originally Published: sunshinecoastdaily.com.au

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Opinion

Negative gearing changes will affect us all, mostly for the better

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Negative gearing changes will affect us all, mostly for the better

Don’t have a negatively geared investment property? You’re in good company.

Despite all the talk about negatively geared nurses and property baron police officers, 90 per cent of taxpayers do not use it.

But federal Labor’s policy will still affect you through changes in the housing market and the budget. Here’s what you should know.

Labor’s negative gearing policy will prevent investors from writing off the losses from their property investments against the tax they pay on their wages. This will affect investors buying properties where the rent isn’t enough to cover the cost of operating the property, including any interest payments on the investment loan.

Doesn’t sound like a good investment? Exactly right: negatively gearing a property only makes sense as an investment strategy if you expect that the house will rise significantly in value so you’ll make a decent capital gain when you sell.

The negatively geared investor gets a good deal on tax – they write off their losses in full as they occur but they are only taxed on 50 per cent of their gains when they sell.

Labor’s policy makes the tax deal a little less sweet – losses can only be written off against other investment income, including the proceeds from the property when it is sold. And investors will pay tax on 75 per cent of their gains, at their marginal tax rate.

Future property speculators are unlikely to be popping the champagne corks for Labor’s plan. But other Australians should know that there are a lot of potential upsides from winding back these concessions.

Limiting negative gearing and reducing the capital gains tax discount will substantially boost the budget bottom line. The independent Parliamentary Budget Office estimates Labor’s policy will raise about $32.1 billion over a decade.

Ultimately, the winners from the change are the 89 per cent of nurses, 87 per cent of teachers and all the other hard-working taxpayers who don’t negatively gear. Winding back tax concessions that do not have a strong economic justification means the government can reduce other taxes, provide more services or improve the budget bottom line.

Labor’s plan will reduce house prices, a little. By reducing investor tax breaks, it will reduce investor demand for existing houses.

Assuming the value of the $6.6 trillion property market falls by the entire value of the future stream of tax benefits, there would be price falls in the range of 1 per cent to 2 per cent. Any reduction in competition from investors is a win for first home buyers.

Existing home-owners may be less pleased, especially in light of recent price falls in Sydney and Melbourne. But if they bought their house more than a couple of years ago, chances are they are still comfortably ahead.

And renters need not fear Labor’s policy. Fewer investors does mean fewer rental properties, but those properties don’t disappear – home buyers move in, and so there are also fewer renters.

Negative gearing would affect rents only if it reduced new housing supply. Any effects will be small: around 90 per cent of investment lending is for existing housing, and Labor’s policy leaves in place negative gearing tax write-offs for new homes.

All Australians will benefit from greater stability in the housing market from the proposed change. The existing tax breaks magnify volatility. Negative gearing is most attractive as a tax minimisation strategy when asset prices are rising strongly. So in boom times it feeds investor demand for housing. The opposite is true when prices are stable or falling.

The Reserve Bank, the Productivity Commission and the Murray financial system inquiry have all raised concerns about the effects of the current tax arrangements on financial stability.

Negative gearing would affect rents only if it reduced new housing supply.

 

And for those worried about equity? Negative gearing and capital gains are both skewed towards the better off. Almost 70 per cent of capital gains accrue to those with taxable incomes of more than $130,000, putting them in the top 10 per cent of income earners.

For negative gearing, 38 per cent of the tax benefits flow to this group. But people who negatively gear have lower taxable incomes because they are negatively gearing. If we look at people’s taxable incomes before rental deductions, the top 10 per cent of income earners receive almost 50 per cent of the tax benefit from negative gearing.

So you shouldn’t be surprised to learn that the share of anaesthetists negatively gearing is almost triple that for nurses, and the average tax benefits they receive are around 11 times higher.

Treasurer Josh Frydenberg says aspirational voters should fear Labor’s proposed changes to negative gearing and the capital gains tax.

But for those of us who aspire to a better budget bottom line, a more stable housing market and better opportunities for first home buyers, the policies have plenty to find favour.

 

Source: brisbaneinvestor.com.au

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Opinion

Revealed: The top 10 suburbs to buy a bargain home and reap long-term capital growth returns – but experts warn there’s a catch

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Revealed The top 10 suburbs to buy a bargain home and reap long-term capital growth returns - but experts warn there's a catch

The top 10 suburbs for buying a bargain home have been revealed.

The top two on the list were Norlane and Lovely Banks, two northern suburbs in Geelong, Victoria, while the remaining eight all come from Queensland.

Hollywell in the Gold Coast was named as the best Queensland suburb for an affordable home with long-term capital gain, according to property researcher RiskWise.

The Gold Coast suburb, located 70km south of Brisbane’s CBD, is close to shopping centres, good schools and the beach.

Experts have warned buyers not to confuse a ‘bargain’ property with a ‘cheap’ one.

top 10 suburbs to buy a bargain home and reap long-term capital growth returns

 

The coastal suburb also has many older properties which will have plenty of potential after renovation, according to realestate.com.au.

It has a median house price of $786,614, according to property data researcher CoreLogic.

Mount Ommaney, Sinnamon Park and Gordon Park in Brisbane also make the list, followed by Gaven on the Gold Coast and Doonan in the Sunshine Coast.

Mount Ommaney, an outer suburb located 14 kilometres south-west of Brisbane’s CBD, has a median house price of $852,729.

Sinnamon Park, also located south-west of the Brisbane CBD, has a slightly lower median house price of $747,272.

RiskWise’s list ends with Gordon Park, Stafford Heights and Twin Waters in Queensland.

All the suburbs listed had a median house price of $300,000 to $870,000, with Norlane having the lowest price at $370,931 and Doonan with the highest at $871,189.

RiskWise chief executive Doron Peleg warns the public that a ‘bargain’ house does not necessarily mean buying a ‘cheap’ one.

RiskWise listed down suburbs where capital growth was expected to increase steadily over the years.

The top 10 suburbs to buy a bargain home and reap long-term capital growth returns - but experts warn there's a catch

 

‘It’s more about knowing where to buy for long-term capital gain,’ Mr Peleg said.

‘Sure, there are a lot of well-priced houses out there, but if they are not expected to grow in value down the track, then they really aren’t the best buy.

‘These (Queensland) suburbs, which all enjoyed capital growth of 13 per cent of the past 12 months, are expected to continue to do well as they have a number of things going for them.

‘For starters, they are relatively affordable and all within 100km of Brisbane which means, provided there is a good public transport and road infrastructure, commuting to work is not too much of an issue’.

The top 10 suburbs to buy a bargain home and reap long-term capital growth returns

 

Source: brisbaneinvestor.com.au

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Property Experts Reveal Surprising Areas Investors Are Snapping Up

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Property Experts Reveal Surprising Areas Investors Are Snapping Up

We all know Sydney’s property market has taken hit after hit recently — but there are other lesser-known areas that are experiencing a sudden property boom.

That’s according to Australian real estate experts, who claim that while investors may have deserted Sydney and Melbourne, their attention has turned to other regions across the country.

According to Daniel Walsh of investment buyer’s agency Your Property Your Wealth, investment activity has now firmly shifted to Queensland.

“Net migration has now overtaken Melbourne due to the affordability that Brisbane has to offer,” he explained.

“We’re also seeing rising demand particularly in the housing sector in southeast Queensland where yields are high and jobs are increasing due to the amount of government expenditure around infrastructure which is attracting families to the Sunshine State.

“With Brisbane’s population growth at 1.6 per cent and surrounding areas like Moreton Bay at 2.2 per cent, the Sunshine Coast at 2.7 per cent and Ipswich at 3.7 per cent, we are forecasting that Brisbane will be the standout performer over the next three to five years.”

Realestate.com.au chief economist Nerida Conisbee agreed, saying Sydney investors especially had started to turn their attention north.

“Interest is strong in the Gold Coast across the board although there’s more action on the south side in places like Tugun and Burleigh Heads,” she said, adding there was also a notable trend towards Tasmania, Adelaide and pockets of NSW.

“In Tasmania, most activity is definitely taking place in Hobart, but it has shifted — a lot of the action was in the inner city, but it’s now happening in the middle and outer ring suburbs, as well as in Launceston.

“Tweed Heads and Byron Bay (in NSW) have also had strong price growth at the moment,” she said, adding that in Sydney, trendy inner-city suburbs like Paddington, the premium end of town and areas like Winston Hills in the city’s west were defying the downward trend.

Ms Conisbee said long-neglected Adelaide was also finally booming after recently hitting the highest median house price ever recorded, largely driven by jobs and economic growth off the back of defence contracts, the announcement of the new Australian Space Agency and other investment in the area.

“Inner Adelaide, beachside and the Adelaide Hills tend to have the most activity but there’s also quite a lot of rental demand in low-cost suburbs so we’re expecting to see a bit more investment there in those really cheap suburbs over the next 12 months,” she said.

“There you can get houses for $250,000 so for an investor, it’s a relatively low cost in terms of outlay and the area is seeing really strong rental demand which means you’re more than likely to get tenants, so for investors it’s a really attractive area.”

Mr Walsh said Sydney still remained a solid investment option in the long term — but stressed it was just not the right time to buy in the city due to its market cycle as well as lending constraints.

“While property prices in Sydney have softened by about 9 per cent this year, they are still high, which means it’s not an affordable option for many investors,” he said, noting the city’s high buy-in prices coupled with relatively low rents made the yields quite unattractive.

“At this point in time, the high costs of entry as well as holding costs make it a location that should be avoided — but not forever,” he said.

“The thing is, Sydney is still Sydney, which means that it will always be in demand.

“Its population is forecast to grow by some three million people in the decades ahead, plus it remains our nation’s economic engine room.”

He said the entire NSW economy remained “robust” with unemployment falling to 4.4 per cent last year, with Sydney’s major infrastructure program also proving there was “much to be positive about” in Sydney.

“Sydney homeowners and investors who bought a number of years ago are still well ahead because they chose the optimal time to buy and they remain focused on the future,” he said, adding the optimal time to re-enter the market probably wouldn’t be for at least another year or two.

Source: brisbaneinvestor.com.au

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