AFF Member Real Estate Discussion

[tgh]

...
For me , real estate has slaughtered equity gains last few years and any interest rate cut should see more...

 

[cove]

Actually both Sydney and Melbourne real estate auction results seem to be tanking. Buyers are maxed out it seems. Saw clearance rates below 60%.

 

[Mr_Orange]

Actually both Sydney and Melbourne real estate auction results seem to be tanking. Buyers are maxed out it seems. Saw clearance rates below 60%.

Sydney and Melbourne are not the centre of the universe. Plenty more to be had in Brisbane, Adelaide and Perth. I wouldn't like to give a view on Darwin though.

 

[SYD]

Actually both Sydney and Melbourne real estate auction results seem to be tanking. Buyers are maxed out it seems. Saw clearance rates below 60%.

I know people who’ve been waiting 30 years for the big Sydney market correction. It didn’t come and unlikely to. The family home averages 5.4% growth pa (CGT free).
This article (slightly dated) gives the gist of things and the sage advice - time in market, not timing the market is better in the long run.

https://www.corelogic.com.au/__data/assets/pdf_file/0015/12237/220829_CoreLogic_Pulse_30years_Finalv2.pdf

Interesting, some of the other cities with really big spikes might be more problematic in the short term.

Meanwhile back in SYD, the real issue for the so called “housing crisis” is lack of new dwellings for the ever increasing population. All this silly, ill informed talk about “negative gearing” and CGT just stifles investment and new developments. Supply and demand (one tanking and the other on the way up) just means more and more are priced out of the market.

 

[andye]

I know people who’ve been waiting 30 years for the big Sydney market correction. It didn’t come and unlikely to. The family home averages 5.4% growth pa (CGT free).
This article (slightly dated) gives the gist of things and the sage advice - time in market, not timing the market is better in the long run.

https://www.corelogic.com.au/__data/assets/pdf_file/0015/12237/220829_CoreLogic_Pulse_30years_Finalv2.pdf

Interesting, some of the other cities with really big spikes might be more problematic in the short term.

Meanwhile back in SYD, the real issue for the so called “housing crisis” is lack of new dwellings for the ever increasing population. All this silly, ill informed talk about “negative gearing” and CGT just stifles investment and new developments. Supply and demand (one tanking and the other on the way up) just means more and more are priced out of the market.

At a risk of derailing the thread, I feel you are conflating two different issues (the housing shortage and the tax incentives).

Sydney houses will always rise in value as its a world class city in an amazing country and there will be never be enough houses built to make a glut.

As such housing is very likely to be a winning investment. Negative gearing increases the available capital for investors (especially as the ATO allows negative-gearers to run an "unprofitable" business for decades using interest-only loans). The CGT discount magnifies those gains (accepting that PPOR is exempt).

As such, a higher proportion of established properties end up being owned by investors rather than owner-occupiers. One must accept if an investor sells if it becomes less tax-advantageous, that leaves a property for someone to buy as their own home.

The idea of encouraging development by restricting NG and/or a high CGT-discount to new developments seems sensible to me as new houses are what is needed. The Australian voters seemed to disagree when it was offered to them however. There are other models that could tilt things towards home owners

 

[prozac]

I know people who’ve been waiting 30 years for the big Sydney market correction. It didn’t come and unlikely to. The family home averages 5.4% growth pa (CGT free).
This article (slightly dated) gives the gist of things and the sage advice - time in market, not timing the market is better in the long run.

https://www.corelogic.com.au/__data/assets/pdf_file/0015/12237/220829_CoreLogic_Pulse_30years_Finalv2.pdf

Interesting, some of the other cities with really big spikes might be more problematic in the short term.

Meanwhile back in SYD, the real issue for the so called “housing crisis” is lack of new dwellings for the ever increasing population. All this silly, ill informed talk about “negative gearing” and CGT just stifles investment and new developments. Supply and demand (one tanking and the other on the way up) just means more and more are priced out of the market.

Talk of abolishing CGT and is so much bunkum. It won't happen and there is no intention to remove them. It is a dummy pass, a feint, a distraction, a red herring designed to take attention away from the privacy reform "misinformation" bill parliamentary discussion. Look over there!

 

[SYD]

At a risk of derailing the thread, I feel you are conflating two different issues (the housing shortage and the tax incentives).

No, not really. Renters are also feeling the pinch and from the perspective of broader investment portfolios, the uncertainty around tax treatment is holding back investors from new property developments.

It would be great if a developer could sell everything to owner occupiers but there’s traditionally been a mix of investors and owner occupier buying off the plan (as well as the developer hanging on to some units).

Sydney houses will always rise in value as its a world class city in an amazing country and there will be never be enough houses built to make a glut.

Yep. Although, it is horribly out of kilter at the moment.

As such housing is very likely to be a winning investment. Negative gearing increases the available capital for investors (especially as the ATO allows negative-gearers to run an "unprofitable" business for decades using interest-only loans). The CGT discount magnifies those gains (accepting that PPOR is exempt).

Interest only loans are actually harder to come by now. For my two properties, I was unable to renew on IO basis several years ago. Going P&I actually increases the tax deduction (negative gearing) while paying down the principle and increasing net equity.

Also, investment properties aren”t always “unprofitable”. Overtime, the rent increases the catch up. During the period of low interest rates, the negative gearing component for interest was obviously significant less.

Whereas depreciation deductions soldiered on. That’s actually one of the perks of investing in new properties! If that goes, say goodbye to new rental properties.

As such, a higher proportion of established properties end up being owned by investors rather than owner-occupiers. One must accept if an investor sells if it becomes less tax-advantageous, that leaves a property for someone to buy as their own home.

Slightly ironically, if CGT was removed entirely, there would be greater turnover of property because a lot of peeps hang on because they don’t want to pay tax on the sale (same applies for shares and other investments). That’s just how we are.

The idea of encouraging development by restricting NG and/or a high CGT-discount to new developments seems sensible to me as new houses are what is needed. The Australian voters seemed to disagree when it was offered to them however. There are other models that could tilt things towards home owners

As above, what incentive is there for a developer if they can’t be certain they sell sufficient units of the plan?

Tinkering with negative gearing and CGT also can impact other investments. Anyone with a margin loan could be adversely affected and of course, our returns on share growth.

And don’t start me on imputation credits. Another topic that most people with no investments have zero understanding of how they actually work.

Bottom line, whenever you read “It’s costing Treasury $x” you need to invert that and say, “Treasury have worked out how they can increase taxes by $x”….

 

[Mr_Orange]

Slightly ironically, if CGT was removed entirely, there would be greater turnover of property because a lot of peeps hang on because they don’t want to pay tax on the sale (same applies for shares and other investments). That’s just how we are.

When you buy off the plan, the CGT clock starts ticking at contract signing so, invariably, 12 months have passed before the sale even completes. This means that the owner could sell one day after completion and still take advantage of the 50% reduction for CGT.

 

[andye]

No, not really. Renters are also feeling the pinch and from the perspective of broader investment portfolios, the uncertainty around tax treatment is holding back investors from new property developments.

It would be great if a developer could sell everything to owner occupiers but there’s traditionally been a mix of investors and owner occupier buying off the plan (as well as the developer hanging on to some units).

Yep. Although, it is horribly out of kilter at the moment.

Interest only loans are actually harder to come by now. For my two properties, I was unable to renew on IO basis several years ago. Going P&I actually increases the tax deduction (negative gearing) while paying down the principle and increasing net equity.

Also, investment properties aren”t always “unprofitable”. Overtime, the rent increases the catch up. During the period of low interest rates, the negative gearing component for interest was obviously significant less.

Whereas depreciation deductions soldiered on. That’s actually one of the perks of investing in new properties! If that goes, say goodbye to new rental properties.

Slightly ironically, if CGT was removed entirely, there would be greater turnover of property because a lot of peeps hang on because they don’t want to pay tax on the sale (same applies for shares and other investments). That’s just how we are.

As above, what incentive is there for a developer if they can’t be certain they sell sufficient units of the plan?

Tinkering with negative gearing and CGT also can impact other investments. Anyone with a margin loan could be adversely affected and of course, our returns on share growth.

And don’t start me on imputation credits. Another topic that most people with no investments have zero understanding of how they actually work.

Bottom line, whenever you read “It’s costing Treasury $x” you need to invert that and say, “Treasury have worked out how they can increase taxes by $x”….

I'll just say that I don't think that obtaining a tax-deduction to borrow money is wrong. Offsetting that against non-investment income (which is what most people mean when they criticise NG) is unusual by international standards though one could argue it helps smaller investors get started. This is one of the arguments in favour of limiting the number of properties someone can negatively gear. One could also postulate limiting the time one could negatively gear (say to 10 years) when one would expect to be in positive territory on a P&I

I also do think there should be some CGT discount to reflect the risks of investing.

I also agree there are complexities. If, for example, as per Shorten, NG was confined to new properties, potential investors would be worried about a smaller pool of buyers when they came to sell on

As you can probably guess, I'm not a property investor. However, even if I were, turbocharging house prices is not particularly in my long-term interest as I have 4 children who will need to put roofs over their heads eventually (and will also need access to nurses, teachers, ambos and shop assistants).

The rental situation is hard. Without a vacancy rate there is no free and fair market (barring going back to live with parents or flat-sharing). In the short-term, removing NG would feel diastrous as leveraged investors would need to hike rents significantly or sell. However, the number of such leveraged investors is also a current problem as high investor-loan interest rates need to be passed on (NG does cushion this but doesn't abolish it).

I do agree with prozac that major change
is unlikely as its so risky electorally. I guess I'll have to try to pass on enough to the children to join in on the game.

Bringing things back on topic, would a proportion of the current $ invested in property make a difference to the ASX if it were diverted into shares?

 

[prozac]

Talking of renters copping shortage pricing I just came across this home in Reid, ACT. Land tax is a massive deterrent to any property investor, but this knocked me for six.

Specs:
Built: 1927 approx
Living: 194m2
Land: 1,077m2
Ceiling insulation rating: R2.0 & R3.0
EER: 3 Star
Rates: $1,982pq approx
Land tax (If tenanted): $4,401pq approx

$17,600 pa to the government before you even start making a return!

 

[andye]

Talking of renters copping shortage pricing I just came across this home in Reid, ACT. Land tax is a massive deterrent to any property investor, but this knocked me for six.

Specs:
Built: 1927 approx
Living: 194m2
Land: 1,077m2
Ceiling insulation rating: R2.0 & R3.0
EER: 3 Star
Rates: $1,982pq approx
Land tax (If tenanted): $4,401pq approx

$17,600 pa to the government before you even start making a return!
I once owned 7 properties in beachside suburbs. I sold 2 of the homes in 2012/13 after paying $64,000p.a. land tax for a couple of years. I needed to borrow money to pay the land tax. And you wonder why there is a shortage of rental properties.

Sorry to disagree but if it's too expensive to buy as an investor, then it could be bought by an owner-occupier. If it's too expensive to buy as an owner, the asking price is too high

 

[prozac]

Sorry to disagree but if it's too expensive to buy as an investor, then it could be bought by an owner-occupier. If it's too expensive to buy as an owner, the asking price is too high

Really, I don't understand your reasoning. I was pointing out why there might be a shortage of available rental property for renters given the high cost of ownership for investors, in this case land tax of $17,600 pa. This should be deterrent enough to stop most from buying this home for investment. If an owner occupier buys this there is no land tax applicable.

 

[TheRealTMA]

Really, I don't understand your reasoning. I was pointing out why there might be a shortage of available rental property for renters given the high cost of ownership for investors, in this case land tax of $17,600 pa. This should be deterrent enough to stop most from buying this home for investment. If an owner occupier buys this there is no land tax applicable.

But why should renters be expected to pay off your loan and investments when you make heaps when you sell on reduced tax capital gains, not to mention having other taxpayers chip in for special negative gearing on property investments.

I’ve never subscribed to the scare that cutting tax and deductions for investment properties will cause rentals to dry up. Someone’s got to buy and live in the houses.

 

[SYD]

Really, I don't understand your reasoning. I was pointing out why there might be a shortage of available rental property for renters given the high cost of ownership for investors, in this case land tax of $17,600 pa. This should be deterrent enough to stop most from buying this home for investment. If an owner occupier buys this there is no land tax applicable.

Yet another variable in the property market. Generally, apartments dodge land taxbut a free standing house / terrace is fare game.

Now that we’re in a new thread! I can also say that new apartment developments are generally a mix of studio, 1 and 2 bedders (yes, very few 3 bedders - which some desire). Those studios and 1 beds are prime investor (rental) properties v how many first home buyers want a studio? (apart from the savy ones who see it as the first step in the ladder.

But why should renters be expected to pay off your loan and investments when you make heaps when you sell on reduced tax capital gains, not to mention having other taxpayers chip in for special negative gearing on property investments.

I’ve never subscribed to the scare that cutting tax and deductions for investment properties will cause rentals to dry up. Someone’s got to buy and live in the houses.

Renters don’t directly pay off anything!

You can only ever charge what the market is prepared to pay. So the point being made earlier was that if you can’t recover those costs, why bother?

It’s funny (not) that there’s been a lot of coverage of rent increases post COVID but zero mention that’s off the back of massive rent reductions during COVID (Uni students, casual and professionals all went home).

 

[Mr_Orange]

Talking of renters copping shortage pricing I just came across this home in Reid, ACT. Land tax is a massive deterrent to any property investor, but this knocked me for six.

Specs:
Built: 1927 approx
Living: 194m2
Land: 1,077m2
Ceiling insulation rating: R2.0 & R3.0
EER: 3 Star
Rates: $1,982pq approx
Land tax (If tenanted): $4,401pq approx

$17,600 pa to the government before you even start making a return!
I once owned 7 properties in beachside suburbs. I sold 2 of the homes in 2012/13 after paying $64,000p.a. land tax for a couple of years. I needed to borrow money to pay the land tax. And you wonder why there is a shortage of rental properties.

Land tax is the golden panacea to the ills of the western economy. It's proper implementation will never happen though. Start with Progress & Poverty by Henry George.

 

[prozac]

But why should renters be expected to pay off your loan and investments when you make heaps when you sell on reduced tax capital gains, not to mention having other taxpayers chip in for special negative gearing on property investments.

I’ve never subscribed to the scare that cutting tax and deductions for investment properties will cause rentals to dry up. Someone’s got to buy and live in the houses.

One simple reason. Because the past 40yrs I have been involved in property successive governments have done little to provide much in the way of public housing.
It's one or the other. If you are going to cut the meager incentives for private investors to provide housing then you must first provide a safe level of public housing.

 

[SCM]

...
For me , real estate has slaughtered equity gains last few years and any interest rate cut should see more...

I think you're investing in the wrong kind of equities. NVDA, TSMC, PLTR have gone up tremendously this year - around 100% average, for locals I got GMG, MCQ, RMD even QAN have all gone up around 30%.

At the moment, with real incomes falling and GDP per capita recession, I highly doubt housing is going to see a lot of growth.

 

[burmans]

But why should renters be expected to pay off your loan and investments when you make heaps when you sell on reduced tax capital gains, not to mention having other taxpayers chip in for special negative gearing on property investments.

I’ve never subscribed to the scare that cutting tax and deductions for investment properties will cause rentals to dry up. Someone’s got to buy and live in the houses.

I agree, short term for sure some people’s numbers may not add up anymore and they will sell. Then prices will come down and equilibrium will be restored and/or some of those renters will actually be able to buy a house.

Plenty of countries don’t have our incentives for investors and believe me people still rent, in fact in many of those countries rental rates are higher than Australia.

This argument just doesn’t reflect the reality of other jurisdictions. I can of course see why people make, which is to distract from their real issue, house prices will probably decrease (short term) and they will lose some of their capital gain.

 

[cove]

We do not consider Victoria as being a State where we can consider buying more real estate. Land taxes are going to continue to rise to put a bandaid over the financial mess that continues to grow. We do have a 3,000 square metre office/warehouse and an apartment in Southbank but nothing more.

 

[drron]

People are ignoring the fact that our 5 major housing markets are in the seriously unaffordable range in World rankings with Sydney number 2, Melbourne 9th. Adelaide 14th, Brisbane 15th and Perth 50th.

https://www.canstar.com.au/home-loans/expensive-cities-buy-property/

So for Australian prices to keep rising you will need the average punter to be able to keep their income rising at the same rate. I doubt that will happen. There will come a time when the bank of mum and dad will not be able to keep up with the rising subsidy needed. Then there will be a bust. The only problem is no one can forecast when that will happen.

But in 1990/91 house prices in Melbourne dropped 18%. They then had to rise 20% to get back to sqare 1.