Brisbane’s housing market leads the nation as only city to record home value growth

BRISBANE’S housing market is leading the nation, with the city the only major state capital to see home values grow this month.

Plummeting home prices in Sydney and Melbourne have dragged the national market into the biggest slump since the start of the global financial crisis, but the Queensland capital continues to defy the downturn.

Preliminary figures from CoreLogic’s Hedonic Home Value Index show Brisbane was the only major capital to record growth in prices over November — albeit a modest 0.1 per cent.

Annual growth was expected to hit 0.2 per cent by month-end.

It’s the second month in a row that Brisbane has recorded growth in home values at a time when every other major state capital either remained stagnant or went backwards.

CoreLogic head of research Tim Lawless said Brisbane was proving more resilient to the downturn because its home prices had never climbed as high and its recent growth was at a more sustainable level.

It’s the second month in a row that Brisbane has recorded growth in home values at a time when every other major state capital either remained stagnant or went backwards.

CoreLogic head of research Tim Lawless said Brisbane was proving more resilient to the downturn because its home prices had never climbed as high and its recent growth was at a more sustainable level.

The CoreLogic preliminary figures reveal national property prices fell 0.9 per cent over the first 28 days of November.

This would push total falls for the year to an estimated 5.6 per cent — the largest national drop in prices since December 2008.

Sydney recorded the biggest price falls of all the country’s five major capitals, followed by Melbourne and Perth.

“Queensland residential real estate is presenting an unbeatable buying opportunity for savvy property-watchers and what we’re seeing here is buyers who know what they want and are acting quickly to grab a good bargain.

Blambles Finance Group director Campbell Gordon said it was important to realise the national figures were skewed towards the nation’s two biggest housing markets.

Mr Gordon said his clients were finding good buying opportunities in the current Brisbane market because of its relative affordability compared to Sydney and Melbourne.

According to CoreLogic, Brisbane has a median house price of $538,000 — still significantly less than Sydney’s $980,000 and Melbourne’s $750,000, despite the price falls in those two cities.


He said the local economy, improving employment and infrastructure spending was luring southerners north.

“We lagged Sydney for a long time, but now we’re actually spending a bit of money on infrastructure and it’s drawing more people here,” Mr Gordon said.

“Financing conditions are tough and so we’re not going to see any massive price growth in the short term, but hopefully in the medium term things might turn around and I think they will.”

Universal Buyers Agents director Darren Piper said the signs of recovery in the Brisbane apartment market was instilling confidence in investors.

Mr Piper said he experienced one of his biggest months on record in October and was confident of seeing further lifts throughout the rest of the year.

“We’re seeing a lot of buyers attracted by the lifestyle, great schools, weather — and prices of course,” Mr Piper said.

“There’s also a renewed confidence in the market, so we’re seeing more people upgrading that we haven’t seen for the last 12 months.

“They’re more confident that their home will sell and see the opportunities elsewhere in the market.”

AMP Capital chief economist Shane Oliver said tighter credit, rising supply, a significant pool of borrowers having to switch from interest-only to principle and interest mortgages and reduced foreign demand were weighing on the overall market.

Mr Oliver said AMP expected Sydney and Melbourne to record 20 per cent top to bottom house price declines out to 2020.

The CoreLogic Hedonic Home Value Index is set for release on Monday. / 30 NOV 2018


A little Christmas spending could harm your chances of a home loan

“They are so much harder than four years ago.” Imagine my relief when I realised my doctor wasn’t talking about my arteries but the procedures he’d just endured to get a home loan.

Did you catch this was a doctor? From having money virtually thrown – on the spot – at him in just 2014, this pre-approval process took a month, a mountain of documentation … and resulted in a loan-to-value ratio, despite significant assets, capped at 80 per cent.

Why so different in such a short period? The royal commission into banking – again supplying us with a jaw-dropping week – has persuaded lenders to heed in earnest tighter lending criteria set by regulators several years ago.

“The bank eventually gave us the amount we wanted. But I had to reduce my credit card limits,” my doctor tells me. “And it’s lucky we’re responsible spenders as we wouldn’t have got nearly as much.”

And those, dear readers, are the two most likely factors that will today see you denied a home loan.

They are also, crucially, potential road blocks to the 1.5 million households coming off interest-only loans in the next few years, if they want to renegotiate loan terms? say, extend the loan term to 30 years to minimise the jump up to principal and interest repayments.

This “material change” now requires a full serviceability assessment – just like my shocked doctor. Failing would mean a bigger-than-expected hip-pocket hit … and the refinance rejection rate has spiked to 40 per cent in the past year, according to Digital Finance Analytics.

The good news is you don’t have to be rejected and dejected. You can fix the two factors that are making institution loathe to lend.

Step 1: Curb your credit

“I pay off my card each month but they said: ‘We count your whole credit limit as if you’ve spent it all’. I guess that’s maybe that people do after they buy a house?” my doctor recounted.

Though the specific requirements for a loan vary from lender to lender, your capacity to repay is what their inquiries are all about.

This is calculated from your after-tax income, minus your cost of living (more in a mo) and minus your repayments for existing liabilities.

And yes, you could run up your credit card the day after you sign the mortgage… so regulators now insist there’s enough fat in your finances to clear a maxed card in three years.

Craig Morgan, managing director of Independent Mortgage Planners, explains lenders now typically assume that your credit card will cost a monthly 3.75 per cent of its limit (albeit unused). So if you have a $10,000 limit, that’s $375 of your repayment capacity for a home loan each month, gone.

If you have a $50,000 limit – Morgan says not uncommon for clients he sees – that’s $1875 of your salary that will be considered ‘‘unavailable’’.

“Even for someone with a $150,000-a-year income, $1900 a month less money is going to dramatically shrink the loan size,” he says.

Figure out how much ‘’capacity’’ you’d lose from limits by multiplying them by 0.0375. Remember, too, that a lender will usually calculate your home loan repayments at 7 per cent interest (another regulator rule change).

Is there enough spare money to cover both? If not, reduce your credit card limits – now.

Step 2: ‘HEM’ your spend

You’ve probably heard prospective lenders have started requiring three months of living expenses… and proof via all bank statements.

Fairfax Money has obtained the 12 most common categories on which you’ll need to report.

What banks will do is get an aggregate number and once again net this off your salary to identify your leftover for a loan.

So be careful what you spend in the quarter before you intend applying – and be particularly so at Christmas if you’d like a loan approved before, say, April next year. Even a little Christmas splurging could do a lot of harm to your chances.

But getting super frugal won’t help either. That’s because lenders use the higher of your actual expenses and (most often) the household expenditure measure (HEM), a benchmark adapted from the ABS Household Expenditure Survey … no point squeezing below it.

Your assumed “cost of living” will depend on your income, location and household composition. For example, HEM for a couple might

be $4100 a month while for a family with two kids, it could be more like $5400 (including mortgage repayments).

(Note there’s just been a big fight over HEM with Westpac winning a case ASIC had brought over the bank’s failure to do an actual cost of living assessment, and relying instead on the benchmark. The Federal Court basically said that’s the letter of the law – if not the regulation… so expect that law to change soon.)

Whatever you do, don’t have a last, pre-mortgage hurrah – it will really hurt you.

And be aware the royal commission is mainly focused on banks and that not all lenders fall under APRA. You might find the application process a bit less rigorous with a non-bank lender.

The 12 expenses a lender will want to knowd where to cut costs in the three months prior to application, to maximise your loan size.

  • Groceries (and other household expenses)
  • Clothing and personal car
  • Owner-occupied utilities and rates
  • Investment property utilities and rates (if applicable)
  • Insurances
  • Transport costs (fares, fuel, registration etc)
  • Telephone, internet and other media (pay TV etc)
  • Medical and health
  • Education
  • Childcare
  • Recreation, sport and entertainment
  • Child maintenance (where applicable)
  • Other

SMH/ 25 November 2018


Negative gearing – not just for ‘greedy baby boomers’?

WHAT do negative gear-ers think of Labor’s plan to wind back negative gearing?

Around 1.3 million Australians take advantage of the popular tax break, which allows property investors to reduce their taxable income when the rental isn’t enough to cover the mortgage repayments and other costs.

Critics have blamed negative gearing for contributing to Australia’s housing affordability crisis, with investors borrowing money to speculate on rising prices while enjoying the temporary tax deductions.

The Government argues now is the worst possible time to tinker with the policy, given house prices have already started falling, and claims Labor’s plan will crash the housing market if it wins the next election.

Maureen Pound has three investment properties, two in Melbourne and one in Moreton Bay, worth a combined $1.5 million. All three are negatively geared, one “quite substantially” and the other two only slightly.

“I am by no means a wealthy person,” the 50-year-old said.

“I did it by saving. I’ve worked hard and I feel there’s a common view out there that there’s all these rich people buying up the properties, which I think is a fallacy. I get annoyed that investors are seen as these ‘greedy rich baby boomers’.”

The executive coach purchased her first property 17 years ago with a $20,000 deposit. While house prices have skyrocketed since then, she says there’s “this expectation that people should be able to enter the market” with their dream home straight away.

“A friend of mine is buying her first house for $850,000, with help from her parents, because she wants to live in a certain suburb,” she said.

“There are still cheap houses around but they want to jump (into expensive ones). Out west you can still get some great properties for under $400,000, only 15-20km from the city. It’s not like you have to live in the sticks.”

Ms Pound worries there may be “unintended consequences” from Labor’s plan.

“I’m not too concerned for myself because I think they’ll make sure it doesn’t have retrospective impact,” she said.

“I’m all for it being reviewed if it’s done sensibly, but they should look at the long-term impact, not just the short-term gain.”

The single mum-of-two said while it reduced her taxable income, people “sometimes get caught up” in the emotion and “don’t understand” that it still means the investor is losing money.

“Yes, it’s a tax benefit but it wasn’t the main reason,” she said.

“You’re taking a risk and losing money for the longer-term benefit of capital growth. The main reason was not to have to rely on the Government for a pension when I retire, to have enough to support myself. I do not spend a lot of money but put a lot into my properties instead of superannuation.”

IT worker Joseph Skewes takes the opposite view. The co-founder of online start-up Secure Nest owns two negatively geared investment

properties worth a combined $625,000. He thinks Labor’s planned changes are a good thing but “don’t go far enough”.

“I’m probably not very typical of real estate investors,” the 34-year-old said.

“Even though myself and my wife invest in property, I think in particular in the eastern states the amount of speculation and investment crowding out homebuyers is just ridiculous. The policy should balance home ownership.”

His issue with Labor’s policy is that investors will still be able to deduct losses from investment property against other kinds of investment income.

“All this other income that can be used, business income, trust income, it’s typically skewed towards those with greater wealth,”

he said.

“It creates this sort of two-tier investor market by dividing investors into those that have a wage or salary income and wealthier people who might have investment income.”

Mr Skewes says it’s difficult to predict whether restricting negative gearing will drive down prices.

“It could certainly discourage investors and have an impact on prices,” he said.

“But I think their capital gains tax changes are more likely to have a negative effect.”

Even if the change is made, he says he would still see real estate as a good investment in the future.

“Our intention would be to have properties that are paying us rental income over the long-term,” he said.

Mark Boldiston, owner of Melbourne jewellery store Lord Coconut, owns three heritage apartments in the CBD worth a combined $1.7 million, only one of which is still negatively geared.

The 50-year-old doesn’t understand why losses from rental properties should be treated differently to any other investment.

“We started a small business eight years ago and business expenses and any initial losses were tax deductible,” he said.

“People invest in different products for wealth creation, whether it’s starting a business, investing in shares or purchasing a property. All three traditionally have been valid ways to increase wealth and each of them should be treated equally from an income and expenditure perspective.”

Mr Boldiston describes himself as Gen X and says he never complained about the baby boomers.

“My first property I purchased to live in was one of the smallest flats I’ve ever seen,” he said.

“I didn’t expect the world. It was a stepping stone. It appears the younger generation don’t necessarily want to take the same steps.

You can still buy a small one-bedroom apartment in the city for under $400,000.”

While he doesn’t think Labor’s plan would push down prices significantly, he warns that even if it does, it will be the next generation of buyers left out in the cold.

“If house prices drop 30 percent, first home buyers aren’t going to get a loan from the bank,” he said. “The people who are going to get a loan will be people who already have properties and a track record of repayment.”

Location Property Group director Ajay Valanju owns 21 properties across NSW, Victoria and Queensland worth $13.5 million, the “bulk” of which are negatively geared? and he supports Labor’s plan, in theory.

“I think Labor’s intentions are good in that they want to try and encourage home ownership over and above investment,” the 41-year-old said.

“However I think the critical issue is actually providing the supply of houses to cater for the high growth of our population. Negative gearing was initially brought in to encourage the private sector to invest in housing and it’s worked quite successfully.”

He worries that Labor’s policy could dampen housing construction, echoing concerns raised by the Master Builders Association.

“If there’s a shortage of properties it could potentially have the opposite intended effect,” he said.

That, he argues, could drive up prices again.

“In the short term it will push down prices, there’ll be less demand from property investors, but I think medium to long term it will actually reduce the supply of houses into the market overall,” he said.

“So if investors can hold on during that period I think it will bounce back.” 11, 2018


Negative gearing, capital gains changes suited to the times, tax expert argues

With the banks cracking down on lending and Labor proposing changes to negative gearing and capital gains tax, investors feel under siege.

Vet Lauren Bugeja owns two investment properties and her own home. She said negative gearing is misunderstood.

“It’s not the reason most of us choose to invest in property. I invest for capital growth over the long term,” she told ABC’s The Business program.

Ms Bugeja, who is a member of the Property Investors Council of Australia, argues property investment is like any business — you make losses in the first few years but eventually the business becomes profitable.

Investors might start off negatively geared, but eventually they become positively geared and pay income tax as debt is paid down and rents increase. Although that does not apply as much to investors on interest-only loans.

Labor’s plan to abolish negative gearing for established properties and halve the capital gains tax discount is a major concern for Ms Bugeja.

“They may reduce my ability to purchase property and to hold it for the long term and it may reduce the actual growth in my properties and my ability to fund myself in retirement,” she said.

Opponents of Labor’s tax changes play down the impact of investors and their tax concessions in driving up property prices, yet they forecast dire consequences if the concessions are reduced.

On the other hand, supporters are reluctant to admit the changes could drive down property prices, while claiming the existing tax arrangements played a major role in the property boom, driving up prices beyond the reach of first home buyers.

Builders warn property tax changes will cost jobs

Property groups have focused on the dangers of removing the tax concessions in a falling property market.

The Property Investors Council of Australia is mobilising investors through a petition arguing Labor’s policies could trigger a recession.

Master Builders Australia commissioned a study forecasting a significant drop in homebuilding with damaging consequences for jobs and economic growth, even though the Opposition will retain negative gearing for newly built properties.

Master Builders Australia chief executive officer Denita Wawn said that exemption is not enough.

“It effectively means a tax increase for investors, which means they’ll be deterred from entering the market even for new homes,” she argued.

Low inflation makes discount ‘too generous’

The Tax Institute, representing tax practitioners, supports some of the tax changes and said many of the concerns are overblown.

Professor Bob Deutsch, the institute’s senior tax counsel, believes the 50 per cent discount for capital gains tax is too big and a reduction to 25 per cent is about right.

“Inflation has been running annually at 2 per cent or less, so the 50 per cent discount to accommodate that concern is just too big and it’s been too big for probably about 15 years now,” he said.

Professor Deutsch said the capital gains tax change will affect all assets, but it is simple to implement.

He also rejects the notion that introducing the negative gearing changes is a major threat, particularly in a weakening property market.

On the contrary, he said it is a better time to introduce the change.

“Obviously when interest rates are higher you get more negative gearing,” Professor Deutsch explained.

“When interest rates are as low, as they are at the moment, people positively gear and many of them do because the rent exceeds the interest. Fewer people will be impacted in the current market.”

Also many investors have already been driven out of the market by the banks’ tighter lending practices.

New home buyers’ credit crunch

Home buyers could see their borrowing capacity cut by as much as 40pc due to reforms likely to be driven by the Hayne Royal Commission.

Professor Deutsch said the negative gearing changes will prove more problematic because many details still need to be worked out.

“There are concerns around the commencement date,” he said.

“Will the changes apply to new property acquired after that commencement date? What if you refinance? What’s going to be the definition of newly constructed property for the exemption? Can an established property be negatively geared if you already own a positively geared property?”

Most people agree the changes will make property investment less attractive.

“The world is not going to collapse if Labor wins and gets all these proposals through the Parliament,” argued Professor Deutsch.

“It’ll just mean that people will have to think differently and more carefully about their investments because they will need to accommodate these two very significant changes.”

ABC / 02 November 2018

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