Perhaps the question most frequently asked of me is “Ray, when and where should I buy real estate?”
While I don’t have a crystal ball, for everybody looking to buy a home, interest rates on mortgages are something you should be keeping a keen eye on.
When the announced that it would keep the cash rate at the record low of 2 per cent, it was great news for buyers. A low cash rate gives people the chance to lock in fixed rate mortgages that will stay low and affordable. Homeowners who are selling will continue to experience a high amount of attention, especially in certain capital cities.
According to CoreLogic RP Data, real estate values in Sydney and Melbourne in particular have been enjoying striking growth, although there are signs that this rate of growth is now slowing. But even in the cities and regions of Australia where prices have been moderating, low interest rates will continue to fuel demand for property as home loans stay accessible. With these buoyant conditions, home sellers are likely to complete the satisfactory sale of your real estate in a reasonable timeframe.
Australia is enjoying the lowest rates since the 1950s which also opens up a window of opportunity to make those renovations you’ve been thinking about. Smart renovations will give your property that extra punch in an already sizzling market.
My parting advice to real estate buyers, sellers and investors is to be sure to take advantage of the low cash rate while you still can.
Recently, I voiced my opinion on a plan to tax profits on the sale of family homes worth over $2 million, saying it could be the ‘thin edge of the wedge’.
Today’s $1 million properties are the future’s $2 million properties so while the proposal may seem unlikely to affect “average” Australians now, it certainly has the potential to affect many Australians in Sydney and Melbourne.
It should be remembered that Sydney currently has 302 suburbs where houses and apartments have a median price of $1 million. That’s double what it was five years ago. In Melbourne today, one in five suburbs have a median price of $1 million.
While such a tax might reduce pressure on the Government to increase the GST, it could affect Australians in unexpected ways.
People buying homes as a principal place of residence, but planning to live in and renovate for speculative purposes – such as an old $2 million property that could be re-purposed into two more affordable residences – could be driven to buy well under the $2 million threshold, thereby increasing competition and the level of difficulty for buyers in those price ranges.
Secondly, first home buyers anticipating the sale of a parent’s property would assist them to break into the property market may find themselves, and their siblings, subject to a government tax-grab on the proceeds of the sale of the original family home, substantially reducing their share upon distribution.
The government already adds substantially to the purchase cost of a family home through stamp duties that were supposed to be removed when the GST was introduced. Now it wants to add a new tax to the sale of the family home, which could immediately affect the market in more affordable price ranges.
I am pleased to announce a strategic partnership with WYZA, the socially connected digital discovery media platform for people over 50 years of age.
The over-50 population is a growing force in Australia and the rate of home ownership is higher among this age group than in any other. Today people 50 plus have more active lifestyles, are more affluent and they have plenty of choices open to them.
Downsizing, tree-change, sea-change, multi-generation living, holiday homes, investment properties and lifestyle villages are just some of the many options being considered by Australia’s most affluent demographic segment, if they downsize their homes it is often in size rather than price.
First National is participating in the alliance with WYZA, which aims at demystifying the household challenges and lifestyle decisions that the 50 plus demographic is faced with. WYZA.com.au is a digital market place for the WYZA generation – people plus 50 years of age. Over 16 million Australians are online each month and the largest component of that audience is the over 50s.
WYZA is a reflection of how the 50-plus demographic lives today and it helps them to work out how they want to live their “tomorrow”. They want to communicate with people over 50 on their terms. It’s an approach that aligns directly with First National’s vision and ‘We put you first’ promise.
The WYZA website has 450,000 unique users and more than a million monthly page views as of January 2016. It brings together information about travel, entertainment, lifestyle, health, finance, property, retirement living and aged care.
I have recently made comments in the public domain that as the complicated debate about negative gearing and capital gains tax continues amongst politicians, one certainty about real estate investment is that it plays a major role in consumer confidence and economic stability.
As our biggest industry is in a post mining-construction boom, property underpins Australia’s economy.
I believe that people consider the arguments about changes to negative gearing in the run up to the Federal Election, its important to keep in mind that last December more than 34 per cent of buyer demand came from investors. If you damage that segment of demand, it’s unrealistic to think family house prices won’t be affected.
Investors and renters tend to prefer older style properties. If negative gearing is restricted to newly constructed property, the dynamics of a third of the real estate marketplace will become uncertain. Economists anticipate decade long impacts leading to lower house prices, higher rents, rising unemployment, lower council revenue and lower stamp duty receipts for government, which could affect a broad range of services.
With the bulk of Australia’s family assets held in the family home, falling house prices would affect the confidence that is a critical driver of economic growth and sustainable employment. When values fall, homeowners defer spending on renovations, appliance and furniture purchases, and other activities that stimulate the whole economy and generate jobs.
While it is reasonable to review the fairness of the current negative gearing/capital gains tax arrangements, the Reserve Bank has indicated it would rather change capital gains tax arrangements than negative gearing because the right to deduct the legitimate expenses incurred when earning income is an important principal of Australia’s taxation system.
I have the pleasure to announce that former Prime Minister John Howard OM AC will deliver the keynote address at the First National Real Estate 2016 National Convention, which will be hosted at the Hilton Cairns this May.
The Convention, which is expected to attract over 400 estate agents from Australia, New Zealand and the South Pacific, will contribute more than a million dollars to the Cairns and Far North Queensland economy.
With property underpinning Australia’s economy and being responsible for one ninth of our national income, proposals to change negative gearing or other property taxation arrangements are likely to polarise political debate in the lead up to the 2016 federal election.
Matters such as these are of significant concern to the property industry and First National Real Estate’s membership is delighted to have the opportunity to receive former Prime Minister Howard’s insights on the subject.
Mr Howard has expressed concerns about scaling back property investment rules, saying ‘Negative gearing has been around forever… I’d be careful’ on Sky News’ Australian Agenda programme.
In principal, our network shares these concerns.
As our biggest industry in a post-mining boom, property is at the centre of Australia’s economy and employs more than a million workers. Negative gearing has helped countless thousands of Australians get a foot on the property ladder, underpins the supply of affordable rental property, helps mums and dads save for their future, and plays an integral role in sustaining consumer confidence.
The Australian Bureau of Statistics housing figures released this week provide evidence that investor activity and current negative gearing tax arrangements keep rents lower than they would otherwise be.
The March quarter CPI figures reveal that current levels of investor activity have delivered the lowest increase in rents since 1995. In fact, since investor activity began accelerating in 2013, the rate at which rents have been increasing has slowed.
The figures also show that lending to investors has been trending down for the past nine months. This is likely the result of increased mortgage interest rates for investors and a tightening of lending criteria, since APRA cracked down on more marginal borrowers in late 2014.
The number of owner-occupied housing commitments reduced in March by 0.4 per cent, excluding refinancing, after 18 months of increases.
These figures serve to remind us that while the debate about negative gearing devolves into debates about which income groups get the greatest share of the benefits, negative gearing has played an important role in keeping rents affordable for low income households.
If we abolish or restrict negative gearing, the potential for investors to choose other asset classes instead of property could exacerbate the already slowing trend of investor lending. This would lead to fewer rental properties and rising rents.
I recently went on record saying that a new tax policy aimed at stopping foreign investors sending sale proceeds overseas before compliance action can be taken could catch unaware buyers.
The new legislation requires buyers of properties worth more than $2 million to withhold 10 per cent of the purchase price and send it to the Australian Tax Office (ATO), if the vendor is a foreign resident for tax purposes.
First National Real Estate is supportive of this legislation but it is essential that lawyers and conveyancers proactively ensure their clients abide by the new laws.
It is important to note that if buyers don’t retain the 10 per cent withholding tax, they could find themselves liable for a penalty, which could be the full 10 per cent of the purchase price as well as interest. Nobody would want that.
To avoid potential settlement delays and complications, Australian owners selling properties worth more than $2 million must now obtain a clearance certificate from the ATO to prove they’re an Australian resident for tax purposes.
While there is no charge for the certificate, which is anticipated to take several days to obtain via an online application, the ATO warns some applications could take up to four weeks.
Vendors would be well advised to apply for the certificate the moment they appoint a conveyancer and real estate agent. This will assure that the moment a sale price is agreed with a buyer, there will be no impediment to completing a contract of sale and the buyer will have confidence they are not placed at risk.
I was recently interviewed by Neville Sanders from The Real Estate Conversation in an article titled ‘Economy cannot withstand Labor’s Experiment with Negative Gearing’, in which I stated that “the property industry is Australia’s largest employer, currently employing 1.1 million people and providing jobs for one in eight working Australians. If it is adversely affected then every Australian will suffer, either directly or indirectly”.
To read the complete article, please follow this link to The Real Estate Conversation.
In a recent article titled California Dreaming Baja Style, I wrote for the Australian Golf Digest (August, 2016), I encourage enthusiastic golf travellers that a Mexican golf journey is a must!
The Diamante and Quivira golf courses are my new favourite golf courses. These destinations are found on the Baja peninsula, a state of Mexico, yet traditionally also part of California. I hope you enjoy my articles and venture down south of the border to California Mexico.
Read more at the Australian Golf Digest.
I was interviewed on SBS News in August in which I commented that Australia’s demand for property continues unabated. It is clear homebuyers have been quick to capitalise on the Reserve Bank’s decision to reduce interest rates to historic lows last month.
As the First National Real Estate member offices begin their Spring campaigns, I welcome you to watch this video of the SBS News segment in which I was interviewed.
Watch the SBS Television News Segment – Interview with Ray Ellis