Hi Rogue,

Loved this paragraph.

“According to the RBA’s submission to the Productivity Commission’s Inquiry on First Home Ownership, rents on properties being pounced on by investors represented a yield on the full price of just 2.5%. Most purchases were negatively geared with no prospect of returning positive net rents for decades.”

Throughout the article there is constant reference made to the ‘Australian Property Market’ – yet the figures quoted above do not reflect the whole of the Australian Property Maret – in my mind there is no APM, rather there are a collection of pockets (some large) that each has different influences beingplayed upon them and factors workign within them.

Once again it would appear that the journalist in this article has looked no further than the inner city rings of Sydney and Melbourne and then written an article of implied expertise.

And then there this little beauty;
“The Reserve Bank’s submission to the Productivity Commission put the blame for the bubble squarely at the doorstep of the Treasurer and his tax policies. Although action now would be too late, a failure to act could ultimately kill Costello’s political career.”

As I understand it the concept of deductibility of interest expenses for income earning activities has been around in Australia since Adam was a boy and the 12 month 50% CGT rule equally applies to shares as it does property. Please correct me if I am wrong.

So the ‘bubble’, as the article so eloquently put it, is all Peter Costello’s and the treasury’s fault – it has nothing to do with market cycles, share market recent underperformance, superannuation fund disillusionment, media beat up of property, cheaper interest rates, FHOG scheme or world economics and so on.

Already I am seeing a firming up of the rental market in areas I watch with vacancy rates starting to fall primarily due to higher interest rates, less housing construction and/or less ‘sexiness’ about property investment. This factors will result in rents increasing over time and rental returns returning to ‘normal’ (what ever that may be) with the closing of the growth and rental cycles that operate in a property market.

The ramblings of someone who did year 11 and 12 economics and who has no financial qualifications and sometimes has trouble balancing his cheque book.

Derek
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Hi Dave,

If the chattels are crucial to your investment sims then ask the agent an/or vendor and put said item into the contract if vendor says yes.

Also include a condition that requires the property to be in same condition as when inspected – some dated digital photos also useful.

Just prior to settlement inspect the property (or arrange someone you trust) to ensure the above two issues are met to your satisfaction.

You can also include clauses to ensure the rusty car wreck out the front (or back) is removed too. No point inheriting someone elses problem.

Derek
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Hi Kay,

It is good to shut down from time to time but then there are people out there who need a push and a shove (or should that be encouragement[biggrin]) to fulfil their dreams – whatever that may be and who also get frustrated and/or disillusioned because they don’t feel like they are getting anywhere.

Obviously there are others who feel perfectly happy with their lot and would not need anyone to push them along.

Derek
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Hi Bear,

I am currently in the process of developing a very rudimentary idea along the lines of a personal coach (mentor) which would include a full day workshop and a 12 month follow up program to help people fulfil their aspirations.

My role would be to listen and challenge people to achieve their goals as distinct from giving advice and much could be accomplished by email, with face to face options possible.

Also tossing around organising a local ‘well being’ expo for local businesses that could be classified as being in the personal growth/development side of people from naturopaths to financial advisors – the whole range would be covered.

And then an ‘online’ bookstore with suitable tapes etc.

Derek
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Hi Gina,

My take on the situation is as follows.

Initially the poorly informed people will endeavour to sell up before the new stamp duty is imposed and as such there may be some semblance of a buyers market in parts of NSW.

Little do these people realise the long term fundamental reasons for initially buying ‘that’ property still largly remain the same. Any increases in either land tax or stamp duty will partially come back to the investor either through increased tax deductions or reduced capital gains liabilities.

If the property was well researched and as performing well over the long term the reasons for hanging on remaim the same.

Now as to what effect the new tax has on price movements in Qld it is really difficult to predict.

I suspect most ‘serious investors’ (how ever that is determined) had been previously diversifying their investment portfolio anyway including into Qld. I do think there will be a herd like movement, as distinct from a rush, across NSW borders – even in WA we are already seeing NSW people moving into WA markets in greater numbers – which will/may create little growth spurt above and beyond the rosey predictions anyway.

The tip – poorly informed investors who haven’t done the long term math will sell up and get out whereas the well informed people will continue to buy and hold for the long haul – just as they have done in the past – they will do in the future.

An investigation of world, national, state and local events (wars, economics, inflation, trading crisis, inflation rates) over the last 45 years clearly demonstrates there has always been a reason to not buy property – yet the successful people continued to do so and experienced success.

My take on the tax changes (with some more think time involved and recognising the bigger picture) is that life will go on and well chosen property will continue to be successful irrespective of the state it was bought in.

Derek
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Hi all,

A bit more information on travel claims and apportioning costs.

The ATO travel guide in some detail.

The Hitchmans also owned another rental property in a resort town on the north coast of Queensland. They spent $1,000 on airfares and $1,500 on accommodation when they travelled from their home in Perth to the resort town, mainly for the purpose of holidaying, but also to inspect the property. They also spent $50 on taxi fares from the hotel to the rental property and return. The Hitchmans spent one day on matters relating to the rental property and nine days swimming and sightseeing.

No deduction can be claimed for any part of the $1,000 airfares.

The Hitchmans can claim a deduction for the $50 taxi fare.

A deduction for 10% of the accommodation expenses (10% of $1,500 –that is, $150) would be considered reasonable in the circumstances. The total travel expenses the Hitchmans can claim are therefore $200 ($ 50 taxi fare and $150 accommodation). Accordingly, Mr and Mrs Hitchman can each claim a deduction of $100.

Stingray – as you do not yet own the property the travel expenses are still considered capital and as such will be written off when CGT liabilities are calculated.

The ramblings on someone who is not an accountant – need to check it out with your accountant.

Derek
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Hi Mencevski,

There was no mocking involved – it is one thing to say ‘I’ll offer $X for the property” and yet another to write the same message on a contract with deposit attached.

All of a sudden you move into a different dimension as far as the REA and vendor are concerned.

Derek
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Hi Ghoti,

In my opinion – the current trend for state and federal governments is to ‘outsource’ as many services as possible – in some respects public housing falls into this category.

I understand private landlords (investors) provide the great bulk of housing for non-homeowners and as such bean counters will need to be sure of any flow on effects, and their costs, before contemplating such a move.

The most significant deduction for proeprty investors is the interest component of loan borrowings – these costs are deductible for businesses and other investors too and would require a major rethink on tax legislation.

Given GST and the tax bracket creep makes us one of the higher taxed nations and the current government has collected a windfall through these avenues – I am not sure there is a need to review this aspect of tax legislation.

That is not to say it could never happen but I would argue there may be some tinkering of the edges and when normal market conditions return the issue may well go away anyway.

My tip is an alteration of the GST rate – from memory GST legislation only allows for GST rate adjustment if all states and the federal government agree. Labour wins the federal election and we have a grand slam – all governments labour.

Comment from someone who does not have a degree in economics.

Derek
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