Property Investment Newsletter

Edition 1, November 2022

Market summary

With the interest rate rises, the real estate market has not had its usual boost this Spring, but we are still seeing positive results and great buying opportunities in various locations around Australia.  Here are some key facts supported by the latest analysis from Corelogic:

  • Residential real estate still underpins Australia’s wealth, currently valued at $9.5 Trillion, nearly 3 times the value of Superannuation and 3.5 times Australian listed stocks
  • Despite the doom and gloom in the media, the total mortgage debt on this $9.5 Trillion is $2.1 trillion (which equates to a 22% loan to value ratio)
  • Australian dwelling values are down 0.9% over the past 12 months, the first annual decline in national home values since October 2019
  • Combined regional values, however, went up 6.6% in last 12 months – this statistic highlights how the big cities (which have dropped in last 12 months) pull down the national average
  • The rolling 28-day growth chart (my favourite chart) shows the pace of decline has eased – this is an indicator (at a national level) we may be passing the bottom of the market.

 

 

  • My 2nd favouroite chart below shows how the various main property markets (note there are many more than in this graph) have performed over last 12 months – this is solid proof that Australia does have many markets.  Key notes from below:
    • Regional SA was the top market in the past 12 months with growth of over 20% (imagine if you invested there 18 months ago!)
    • Sydney has performed the worst in past 12 months, down 8.6%
    • The difference between the top and bottom performing market is a whopping 29%!

 

NSW Stamp Duty tax change – why most Investors should still pay stamp duty

The NSW Liberal Government has recently introduced a new Land Tax alternative to Stamp Duty – called the First Home Buyer Choice legislation.  This is now active and gives buyers the choice of the traditional Stamp Duty or an annual Land Tax.  The tax rate varies significantly if you are an Investor or Owner Occupier.  Also note that if Labor win the NSW election in 2023, they could repeal this legislation immediately as mentioned in a recent article by Sydney Morning Herald.

Buyers get ready for stamp duty change
Niva Property features in Newcastle Herald

We believe this is a great initiative as it gives buyers choice (see our comments too in the Newcastle Herald paper).  Every first home buyer should assess it though based on your own situation and goals.  The initiative is heavily biased towards owner occupiers; Investors – if you hold the property a long time, could end up paying a lot more than if you paid Stamp Duty upfront.

There are various conditions for this; one of which is that the scheme is only on offer for properties costing up to $1.5 million or vacant land up to $800,000.

The annual property tax payments will be based on the land value of the purchased property. The property tax rates for 2022-23 and 2023-24 will be:

  • $400 plus 0.3 per cent of land value for properties whose owners live in them
  • $1,500 plus 1.1 per cent of land value for investment properties.

 

Based on $1 million property (established house), land value $500k, land value increases at 2% per year, the tax values would be as shown below:

Stamp Duty Tax in Year 1 Total Tax after 10 years Total Tax after 20 years
Owner Occupier $40,400 $1,900 $20,424 $44,446
Investment Property $40,400 $7,000 $75,223 $163,635

NOTE this is only for your first home, any subsequent purchases must still pay stamp duty.  So if your first home is an investment property, and you are looking to build wealth long term, we recommend paying Stamp Duty as you can see that the ongoing tax payments add up to significant costs over time.

For owner-occupier, first home buyers though, this is a great initiative to consider for your first home.

Visit the following web page if you require more information  https://www.nsw.gov.au/initiative/first-home-buyer-choice

Also read our blog on this from a few months back when this was announced – https://nivaproperty.com.au/nsw-stamp-duty-reforms-what-this-means-for-investors/.

How to boost your borrowing capacity

I was once told that Property Investing “… is a finance game with property in the middle.”

I don’t agree with this as there is a LOT more to property investing than just finance, but that said and finances are of course critical – both the initial funding of the property and then managing the cash flow.

Without various financial structures – such as the ability to leverage equity, borrow other people’s money, tax offsets etc, property investing would not be as popular as it currently is.  These financial structures should be in place though; around 30% of people need to rent at any one given time.  The Government does not provide houses for these people – this is left to property investors – many of whom are normal couples (or even individuals).

One of the first steps when purchasing an investment is of course to borrow money!.  There are various ways you can increase your borrowing capacity when it comes to borrowing, and this is especially so now with increasing interest rates.  Increasing rates do not slow down savvy investors; savvy investors understand that they can still borrow and that they just need to adjust expectations.  Expectations can be about how much you can borrow, what you can buy, where you can/should buy, and also expectations around cash flow.

Here are some tips on increasing your borrowing capacity, courtesy of renowned accountant and wealth adviser Stuart Wemyss :

  • Borrow money before you change jobs (employers), especially if you receive variable remuneration (e.g., bonus/commission), as a lender will not rely on this income unless you have 2 to 3 years of history of receiving it.
  • Minimise credit card limits. Banks will include 3-4% of your card credit limits as a monthly expense which reduces your borrowing capacity.
  • Delay taking out any new car leases/finance until after you have made changes to your mortgages, as short-term loan repayments (e.g., car leases) tend to be relatively high compared to the liability amount.
  • Protect your credit score.  You can get a free copy of your credit score here.
  • If you have Higher Education Loan Program (HELP) debt, consider repaying it, which really eats into your borrowing capacity, particularly for first home buyers.
  • Minimising living expenses 3+ months prior to lodging an application will demonstrate what level of discretionary income you have, which you will be able to contribute towards meeting loan repayments, if required.
  • Stopping any “buy now pay later” schemes for 3 months+ prior to lending i.e. Afterpay etc.
  • If your children go to a private school, the bank will include school fees in addition to living expenses when calculating your borrowing capacity. Some schools offer attractive discounts for prepaying school fees which also has the added advantage of increasing your borrowing capacity. If your children are in year 8 or later, some banks will exclude private school fees.

Distressed sales on the rise – great for Investors but beware

According to a recent article on brokernews.com.au, distressed sales are on the rise in recent times.

A distressed sale is generally one as a result of a deceased estate, a forced sale due to a divorce or a bank foreclosure.  They can also be due to owners overcommitting themselves financially; something which has possibly occured a lot lately due to people overpaying during the recent boom and taking advantages of the very low interest rates when they bought.

Some of the key points from this article are:

  • Distressed listings for October 2022 totalled 6,658, an increase from 6,299 in September
  • The monthly change in distressed listings was most dramatic in the ACT and NT, where the figures jumped 12.5% and 13.5%, respectively
  • In terms of gross numbers, Queensland ranked first with 2,791 distressed listings, an increase of 7.5%, while New South Wales had 1,265, up 7.8%

Read more from this article here.

For investors, distressed properties can present opportunities, however, investors should be aware that distressed properties are not always great investments.  You should ensure you do your due diligence and make sure that the property is right for your intended goals. A quality Buyer’s Agent will not only help to determine if the property is distressed, they can also ensure that it is not a lemon (with hidden unforeseen issues and costs that eat into your investment) and indeed delivers on your goals and needs.  Too often inexperienced investors may think they are getting a bargain, only to find out the preoprty doesn’t deliver on all their capital growth needs, or has problems that cost them a lot of money.

Top property pick – 243 Mitchell Street, Stockton NSW

 

Very lucky to get through this amazing beachside house recently.  Designed by multi award-winning Sorensen Design & Planning, and brimming from high-quality recent renovations, this amazing 4-bedroom/3-bathroom residence is the epitome of beachside living in Stockton, a 5 minute ferry ride from Newcastle CBD.

A new 8kw solar system, Miele appliances, Zip tap, gas fireplace and a butler’s pantry are just some of the quality features that will help you live your best life. Enjoy ocean views from various locations including the master bedroom, complete with very handy real lane access to an oversize garage and lockable carport.

Split across 2 levels, and with sweeping views from Nelson Bay to Nobbys, this spectacular residence also features a studio apartment downstairs with its own balcony, which can be used as an Airbnb.

If you are looking for a seachange, check out 243 Mitchell Street, Stockton – you won’t be disappointed.  View the sales listing here.


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