Hi,
This post is for follow up discussion on the Federal Budget and how it will impact property investors.
Just in case you missed my newsletter, I outlined the following three emerging opportunities:
** Opportunity #1: First Home Saver AccountsFirst home buyers will be able to contribute to a special savings account that
attracts incentives and tax breaks. The specifics and rules remain sketchy, but
it seems the government will offer a 'bonus' of up to $850 each year (17% of the
first $5,000 saved) in addition to capping the tax rate paid on interest earned
in this account to 15%.At first glance, this opportunity will only benefit those who save to buy their
first home and then later swap it over to an investment property.However, there may be some opportunity for those selling property to lock buyers
in and get a guaranteed sale (eg. developers selling off the plan) and then use
the incentives of the account to sweeten the deal.** Opportunity #2: Housing Affordability Fund
The government announced $500m over five years to reduce the cost of providing
new housing by cutting red tape and improving infrastructure.Unfortunately, I smell a serious waste of money in unnecessary studies and
reports, as the underlying problem is with local council planning regulations
rather than with State or Federal governments. Let's see what happens though.** Opportunity #3: National Rental Affordability Scheme
Okay – this looks like the best opportunity for investors of the three.
The government is offering annual incentives of up to $8,000 for each new
dwelling that investors offer for rent at 20% below market.It is unclear what 'new' actually means, but the answer to whether or not it
will be profitable to discount the rent and claim the incentive has to be
answered by crunching the numbers in each specific case.Again, details remain sketchy but I'll be sure to provide further comments when
I know more.Now, following on from Opportunity #1. An example of how developers may use the government incentive is as follows:
1. You sign a contract to buy a home now that will take 18 months to build
2. The developer 'pays your double rent' for you while your new home is being built. That 'double rent' payment is then made into the incentive account, so the government then contributes an extra 17% of the balance (max $850 per annum).
3. You win because you are getting the bonus without paying into the account as such
4. The developer wins because they have a sale and the 'double rent' is really already factored into the sales price.
No doubt there will be other sales variations and bonuses advertised around this feature. Things such as: sign up this weekend and we'll match the government's saving etc.
What are your thoughts about the budget?
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
does anyone know of the deductions made to stamp duty on established homes in the new budget, i heard a rumor that there was to be a deduction but hav'nt seen anything?
Get a bit discombobulated with the old rhetoric of "helping the hard workers" bit with the implication that those with high incomes dont work just as hard.
discombobulate What a great word!
I remember reading somewhere that the rental affordability scheme isnt for private investors. Is that true?
Also, what exactly determines "new"? Does that mean brand new houses only? Or a newly purchased/rented property?
There has been a recent press release which provides some information about the scheme here:
How generous to only help people saving for there first home rather than taking their greedy paws out of the measly half a percent per annum interest earned on most savings accounts. Now inflation is currently running at 4.3% p/a so really you are losing 3.8% in real terms before you are taxed.
What I find strange is MR Rudd can impose upper limits on the Baby Bonus and the Family B payments based on income
but doesn't impose a lower saving interest earned and share dividend threshold limit on taxing bank interest and share dividends so that a normal working family doesn't have to chase around trying to find out that they earned less than $2 on their savings account or less than $500 on their dividends for the year.Guess I will continue borrowing large sums of money rather than saving for a deposit for my next investment.
Just on the $8K potential rebate for renting 20% below market rates, this sounds of interest to me. I have a negatively geared property and should I lower the rent further then I get an $8000 tax deduction. Doesn't sound too bad! I have some excellent tenants in it at the moment – have been in there for 12 months now – and should such a discount apply it would be terrific to have a win-win situation.
I expect the devil is in the detail. This home I'm talking about is only 18 months old so will this be classed as new?. Just have to wait for the detail.
One negative impact I can foresee, however, is that lower rent tends to attract "undesirables". Once you place rent up a bit, its amazing just how you trim down from a broad base of applicant to a few quality ones. Of course, you've got to keep perspective in mind – if you make your rent too high then you make your rental IP unattractive. Such undesirables may perceive that you 'owe them something as well' as you get an $8,000.00 tax break.
Apologies to all if I sound cynical on this – its just that bad experiences tend to weight heavy on your mind. Either way, I will be keeping an open mind on this until the detail known.
Any thoughts re article below?
Home buyers lose out in tax change
Author: Natalie Craig, Property Reporter
Date: May 17, 2008Ironically new home buyers are constituents the Rudd Government has championed since its election.
Property Council of Australia director Trevor Cooke said certain housing developers would now pay a greater proportion of their income in GST and would pass on that cost to buyers.
"In its present form, this change will add to the cost of new housing," Mr Cooke said. "It's hard to imagine developers will be able to absorb the full cost."
The Treasury estimates the changes will reap $620 million in revenue over four years. "That money will have to come from someone," Mr Cooke said.
Under the old scheme, developers would pay GST on the difference between the sale price and the price paid for occupied land that is a "going concern". Under the new scheme, they would pay GST on the difference between the sale price and the price paid to the original land owner.
For example, apartments sell for $10.5 million. A developer bought the apartment site from a factory owner for $5 million. The factory owner bought it from a farmer for $500,000. Under the old scheme, the developer would pay GST on $5.5 million. Under the new scheme, they would pay GST on $10 million.
Prosper Australia director Karl Fitzgerald said the former system was preferable, particularly when houses were demolished to make way for apartments.
"The margin scheme was fair. It was designed to stop GST being applied to the non-GST part of land and dwellings used as exempt housing but later taken over by a developer," Mr Fitzgerald said. "Without the margin scheme . . . GST is being clawed out on the way through as housing goes from a family to a unit dweller via a developer."
But assistant Treasurer Chris Bowen said the impact would be minimal and the changes would make the system fairer.
"The impact on the property sector should be negligible or non-existent," Mr Bowen said. "The very strong advice received from Treasury is that this is simply closing a loophole which is undermining the integrity of the GST system."
The Institute of Public Affairs' Sinclair Davidson said tightening the laws would affect the cost of some new houses, but was a fairer system. "The whole idea is to prevent people from artificially lowering the price of what the land is in order to reduce the GST," Mr Davidson said.
An interesting read by all , so many conflicting stories I hear about this issue lately.
Opportunity #2: Housing Affordability Fund
The government announced $500m over five years to reduce the cost of providing
new housing by cutting red tape and improving infrastructure.Unfortunately, I smell a serious waste of money in unnecessary studies and
reports, as the underlying problem is with local council planning regulations
rather than with State or Federal governments. Let's see what happens though.I'd have to agree with the above comments , burning of funds for BS studies.
One study after the next followed by a study on a study …. what next!What is regarded as 'new' residence in regards to the FHOG and bonus?
If a building has never had a 'certificate of occupancy' issued to it and is purchased and renovated with council approval to acheive one would this pass as a 'new' residential premises and therefore entitled to receive the $5,000 Bonus rather then the $3,000?This snippet below is from the SRO web site:
If you are eligible for the Bonus and the PPR concession, you cannot receive both. The Bonus, whether $3000 for an established home or $5000 for a new residential premises) is more generous than the maximum amount of PPR concession which is $2850.
What constitutes a new home?
A new home is:
- a home built on land under a comprehensive home building contract
- a home built by an owner-builder, or
- a home which is being sold for the first time as residential premises, or
- a home that qualifies as 'a new residential premises' under Section 40-75 of the A New Tax System (Goods and Services Tax) Act 1999, including a home which is purchased off the plan
EveSydney wrote:Any thoughts re article below?
Home buyers lose out in tax change
Author: Natalie Craig, Property Reporter
Date: May 17, 2008Ironically new home buyers are constituents the Rudd Government has championed since its election.
Property Council of Australia director Trevor Cooke said certain housing developers would now pay a greater proportion of their income in GST and would pass on that cost to buyers.
"In its present form, this change will add to the cost of new housing," Mr Cooke said. "It's hard to imagine developers will be able to absorb the full cost."
The Treasury estimates the changes will reap $620 million in revenue over four years. "That money will have to come from someone," Mr Cooke said.
Under the old scheme, developers would pay GST on the difference between the sale price and the price paid for occupied land that is a "going concern". Under the new scheme, they would pay GST on the difference between the sale price and the price paid to the original land owner.
For example, apartments sell for $10.5 million. A developer bought the apartment site from a factory owner for $5 million. The factory owner bought it from a farmer for $500,000. Under the old scheme, the developer would pay GST on $5.5 million. Under the new scheme, they would pay GST on $10 million.
Prosper Australia director Karl Fitzgerald said the former system was preferable, particularly when houses were demolished to make way for apartments.
"The margin scheme was fair. It was designed to stop GST being applied to the non-GST part of land and dwellings used as exempt housing but later taken over by a developer," Mr Fitzgerald said. "Without the margin scheme . . . GST is being clawed out on the way through as housing goes from a family to a unit dweller via a developer."
But assistant Treasurer Chris Bowen said the impact would be minimal and the changes would make the system fairer.
"The impact on the property sector should be negligible or non-existent," Mr Bowen said. "The very strong advice received from Treasury is that this is simply closing a loophole which is undermining the integrity of the GST system."
The Institute of Public Affairs' Sinclair Davidson said tightening the laws would affect the cost of some new houses, but was a fairer system. "The whole idea is to prevent people from artificially lowering the price of what the land is in order to reduce the GST," Mr Davidson said.
Interesting article explaining the increasing property prices in Australia, even the aftermath of GFC. The new scheme allows the state/federal government to collect higher GST revenues from developers in comparison to the old scheme. It seems obvious the extra collected GST revenues are meant to openly support the public goverment schemes stated to provide affordable housing to Australian people, which should just be a claim from goverment to win votes!
At the same time, developers are selling their properties at higher price tags, and even higher price via various schemes like First Home Owner Boost, reduced stamp duties, FHSA, etc. The schemes are designed to make goverment looking good at helping people to own their first property. In facts, the inflated property prices have factored in the grant money. Thereofore, affordable housing is always just a political bluff to win the votes of Australian ppl. In conclusion, the housing are only affordable for property investors because they know how to generate positive cashflow from the investment properties, while non-property investors are paying for the high cost of the property through interests on mortgages for most of their working years.
I think that is the reality in real estate which has created a large pool of property investors in Australia. I hope by joining this forum, I can adapt myself in the property world made of countless smart property investors from which I like to learn how to avoid paying high proeperty-associated costs for my first investment property in the next two years.
Frankly speaking, I feel this is one of the best property-related forum in Australia! I hope to share useful insights, information, and financial IQ in this forum from 2010 onwards.
Won't offering houses for rent @ 20% below market value just drop the market value of all houses by 20%?? Or will prospective tenants need to prove they qualify for the cheaper houses?
Great but also sad …
Some one has to pay for this and I suspect it will be the tax payer.
130,000 baby boomers are retiring from 2010 with little or no savings as super was not part of their thinking after 1946 so I see more pressure for the government here also.
NRAS properties are poorly located so what if you need to sell, death divorce or disaster in the family.
Who is going to become the governing body to administer this and how much will that cost.
Kiyosaki is right … trade growth for cash flow and invest in low cost housing for over 50s ?????
Everything is going up faster than wages which is creating the affordability problem ,, taxes, carbon emission costs etc and the poor first time investors and young families are being hit the hardest … something does not add up and I think there is something going on that we are not looking at ???
We are in negotiations to buy 3 old motels and convert them to low cost permanent rental complexes … ???
Who knows where this will go … Phil Sigglekow
Hi Phil,
can I ask where you are buying the motels and how easy or difficult was it to get finance for a puchase such as this?
Thanks
Sonya
Hi Sonya,
Areas are Brisbane, Gold Coast, Sydney and Melbourne … sorry can’t tell u what suburbs yet but I am writing a new book on it.
50% funding is by investors …
I have set up a new partnership structure arrangement but more on that later.
I’ve bought my solicitor in as a silent partner as well.
If you keep an eye on my web site above I will keep you posted as a member.
Thanks for the questions have a wonderful and prosperous 2010 it is going to be a great year if you know where to invest.
Phil Sigglekow
HHmmm there is a hotel for sale in Hornsby Sydney with 30 rooms for 3.2 mill ??? that's 100k a room … zero to 30 properties in one buy ???
You must be logged in to reply to this topic. If you don't have an account, you can register here.
