Ralph’s Property Investing Newsleter May 9th 2016

In this edition :

The Death Clock
Oversupply in the Melbourne unit market ? No says SQM
Banking & Interest Rate News
Markets around the country to slow
Facebook group Invite
More on ASIC
50% of taxes raised come from property
80% of investors to walk away from property
More news sources

The Death Clock

Before I tell you about the death clock, just a plug for those of you in Southern Sydney, don’t forget our annual tax-themed meeting at Sutherland on Wednesday – full details below. (There is also a new pic of me holding my silver medal Tongue out)

The Reserve Bank governor Glenn Stevens warned recently in a speech in New York, that in today’s world of ultra-low interest rates, the returns for superannuation funds is likely to be below current expectations. (You can read a summary of his speech and find a link to a video of it here)

He says that many people, sooner or later, will be dissapointed in the results from their super.

In the past, people of retirement age survived with the help of family, (mainly children), their own savings or pension and government social security schemes.
Today, that is changing. People are living longer and having fewer children. Savings and private super are increasingly being seen as insufficient, but government help is also eroding. It is worth less and coming later and later in life.

Some USA data from a John Maudlin newsletter today says:

…. the data in the US is pretty stark. The average savings of a 50-year-old is only $42,000. The average net worth of somebody between 55 and 64 is $46,000. A couple at age 65 can expect to pay $218,000 just for medical treatment over the next 20 years. Eighty percent of people between 30 and 54 believe they will not have enough money to retire. One in three people have no money saved for retirement at age 65, and almost 40% are 100% dependent on Social Security.

Here in Australia, having a property portfolio is still seen as one of the safest ways to invest, even with talk of changing negative gearing and CGT rules.

Do you know when you are going to die and therefore how long you are going to need to support yourself ?

This handy Death Clock can tell you that !

www.deathclock.com

Oversupply in the Melbourne unit market ? No says SQM

SQM research just put out their latest (free) newsletter, (Click here to read), which is often worth a read.

In this edition, they talk about oversupply of units in Melbourne and point out that whilst there is a huge number of high-rise planned or under construction, they say over one hundred, the current vacancy rates in the city centre and areas such as Docklands, is still only around 2%.

We have seen previous research suggesting that Melbourne is an area where a large percentage of units are left vacant, presumably the result of overseas buyers just parking their money in real estate.

They also mention the new rules that will charge overseas buyers a higher tax rate than locals. To be introduced in the State budget this week, the tax rate will rise from 3% to 7%. This could further slow down investment in Melbourne and possibly increase demand in other areas like Brisbane where such investors may see better value for money.

Banking & Interest Rate News

I am sure you are all well aware by now that the RBA reduced the official interest rate down to an all-time Australian low of 1.75%.

The majority of banks followed suit with ANZ the outlier cutting by only 1.9%. That may have something to do with their recently reported profits dropping by 24%.

Most of the other banks adjust by the full amount with the start dates varying from 16th May (BoQ) to May 23rd (most of the major banks).

I’ve also seen some more drops in fixed rates including a 2 year fixed from ANZ for owner occupiers of just 3.75%
Whilst on fixed rates, the Bank of Sydney has recently announced that its 3 year fixed rate for owner-occupiers has been reduced to 3.98%. (Click here to read more)

Which is good news if you are a home owner. There are dozens of similar rates at or below 4% for owner occupiers, but a bit higher if you are an investor. I know one of my members is on 4.2% and I’m in the process of trying to re-finance a couple of my more expensive loans.

I re-financed a few years ago to release some equity, but at the time, I had to make them lo-doc loans, which meant a higher interest rate.

They are still high at 6.77%, so time to try and re-finance at full-doc rates and I’m being quoted around 4.49%, which if it goes through will save me quite a deal of money each month – around $1,200 per month, so well worth the effort of all the paperwork.

Markets around the country to slow

So says this Moody’s report. Well, that’s not really news, but the article suggests that Sydney growth will slow to low single digits and Melbourne to mid single digits, or around 5-6% over the next few years.

6% equates to a doubling cycle of 12 years, so that is what I would expect from a well built and well-located capital city property over an extended period.

Of more interest to me was their findings that gross rental rates have dropped dramatically:

….. rental yields dropped 30 per cent to 2.3 per cent for Sydney houses, 20 per cent to 2.68 per cent for Melbourne houses, 19 per cent to 3.9 per cent for Sydney apartments and 10 per cent to 3.7 per cent for Melbourne apartments
It is no wonder that investors are deserting the Sydney market in particular, because if you are getting a 2.3% rent return with a mortgage of upwards of $700K for a median property, there is no way to make that work for an investor without having to tip-in a bucket-load of your own cash.

It is why the Property Club is not looking at Sydney as a place to invest at present and concentrating more on other locations, like Melbourne and Brisbane.
In Melbourne, we currently have properties available with an expected minimum rent return of 4.91%, well above the average figure of 3.7% quoted in this report. For many investors with a reasonable taxable income, that would make the property cash-flow neutral, if not positive from day one, after tax.

Facebook group Invite

I know that only around 30% of people getting this email newsletter read it. I know that a lot more file it away in a folder to read later. I know that many readers just read one or two of the articles and are too busy to read through all of them.

For those of you on Facebook, and those that only have time to read one article at a time, or who want to hear the news as soon as it comes out, rather than a week or three later, you can now do that.

Here is a link to a new group that I have set-up: Property4Wealth Facebook group

I keep my personal Facebook Friends to ‘real’ friends and relatives generally and don’t accept Facebook invitations from people, including my PropertyClub members, unless I have known them for a long time and consider myself to be a friend, but this page is for the rest of you.

My intention is to post a maximum of only one thing each day and there may well be periods when I post nothing.

It means that you can always find old articles. You are free to share articles that you like with your friends on your Facebook page if you want. It is a Public group.

I won’t often provide the links in the facebook posts, as they tend to get a bit messy, but will copy them here and add links.

More on ASIC

I read somewhere this week, but am unable to find the source, that ASIC actually makes the government money.

So I looked up their annual report. (Click here for your copy)

I can see in their 2014-2015 annual report, that just 38% of their budget is allocated to enforcement and that the average time to take offenders to court is close to 4 years !

I can see that a total of $312,000K was provided by the government, (Page 104), but income was $823,000K in fees and fines, plus another $210,000K in unclaimed monies, meaning a revenue of over $1billion. (Page 109)

If ASIC got to keep the money they made, (rather than having to give it to the government to put into consolidated revenue), there would be no need to strip money from them in the budget, (and now give it back), and they could be much more proactive about both surveillance and enforcement.
Needless to say, the bankers are delighted about this move, (Click here for article), which they hope will head off a Royal Commission:

Australian Bankers’ Association (ABA) said the move will ensure accountability is upheld across the financial sector.

“We support the introduction of a new industry funding model for ASIC,” ABA chief executive Steven Munchenberg said.

Macro Business was particularly scathing in it’s assessment (Click here to read), with the headline:

Bank pantomime reaches operatic proportions

Bernard Keane and Glenn Dyer writing in Crikey were almost as scathing (click here to read) calling the reform package by bankers, for bankers and suggesting :

This is a government of ex-bankers and its package for banking “oversight” might hand more control to the banks.

Michael West in the Fairfax mastheads writes about the proposal for seconding outsiders from the banking industry to write the rules creating yet more conflict. Click here to read.

50% of taxes raised come from property

According to new data from the Australian Bureau of Statistics (ABS),over 50% of State and local government revenue for the 2014-15 financial year, was from property.

Well past time for a serious conversation about replacing stamp duty with a broad land tax to make it revenue neutral, but spread more fairly. It will mean that governments can budget, not just have big revenue spikes when house prices go up, and then loss of revenue when prices drop.

You can read more via this article.

80% of investors to walk away from property

I wrote about dodgy surveys and reports in one of my recent newsletters – Here is a case in point.

The Real Estate Institute of Queensland (REIQ) who represent real estate agents and the like, so no conflict of interest there, apparently commissioned a survey of 14,000 of its members and their property investor clients. Read more here.

This article doesn’t say how they chose those people. It doesn’t say what the questions were. It doesn’t show the methodology used and no sign of the full survey or any more info on their web-site.

The article says “79 per cent of investors would walk away from property if negative gearing was abolished”

Nobody is suggesting that it be abolished, just restricted to new, plus grandfathered for existing, so not quite sure how this is even particularly relevant.

“We now know for a fact that 79 per cent 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.”

We know for a fact ??????

Good luck with that, what else is there ? Do you trust either side of government not to fiddle with super again in the future as they did in last weeks budget ?
Have you watched the share market recently ?
With interest rates cut further yesterday, do you think sticking your spare cash in the bank is going to make you any money form fixed interest and term deposits ?

More News Sources

Please use the link below to visit our media centre. Here you will not only find the latest editions of our magazine, but also back copies, always with some interesting articles.

Click here to read on-line or even download a .pdf copy of the Mar/Apr issue for later reading.

You should all have recieved either your posted copy, or a direct email from Head Office with your email version. Let me know if you did not get this latest edition yet.

As usual, if you’d like a hard-copy posted out to you, please let me know.

Kevin Young has now produced 40 video episodes of him answering questions from our members. You can go here to check it out.

He also wrote a Capital City Round-Up recently which some of you may have seen already, with his comments and 2016 predictions for growth prospects. Please let me know if you’d like a copy.

Dates for your Diary

Sutherland Meeting – Tax focus

The date will be Wednesday evening, 11th May from 7.30pm.

Entry to our Sutherland meetings are free and this is not a hard-sell, just an information evening.

Special guest, Karen Newman, a very experience local tax accountant and will be our main guest speaker and she will outline the recent changes to tax law that will affect borrowers and what you can do to ensure that your annual tax refund is maximised. Club broker Laurayne Walkended will also speak and share current changes to bank policy.

The location is our usual room in the Stapleton Avenue Community Centre
3A Stapleton Avenue, Sutherland NSW 2232

This is just opposite the library and there is plenty of free parking as well as being an easy walk from the railway station
The meeting starts at 7.30 and we are normally finished by around 9.00pm, depending on questions from the floor.

You are more than welcome to stay back afterwards and ask more questions.

If you’d like to come, let me know so I can pre-register you, but if it is a last minute decision, then just turn up on the night.

Bring your family, bring your friends, all welcome.