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Would Australian Households Be Better Off if We Ditch Negative Gearing?



Would Australian Households Be Better Off if We Ditch Negative Gearing

Economic modelling undertaken by University of Melbourne economists, and presented to the Reserve Bank last month, shows that three-quarters of Australian Households would be better off if negative gearing is abolished.

The study was posted on the Reserve Bank website for public release on Friday.

The paper explores the implications of negative gearing – including a 30 per cent collapse in the supply of rental properties – and found that abolishing negative gearing would lead to an overall welfare gain of 1.5 per cent of GDP.

Negative gearing is a policy that largely benefits landlords, and for the 17 per cent of the Australia population that have property investments – out of which 70 per cent are negatively geared – would be worse off.

The study estimated that thirteen per cent of the population would be directly influenced by the removal of negative gearing, and likely to quit their holdings.

“The housing prices fall because removing negative gearing takes a significant amount of housing investment out of the property market,” the report said.

“Both the proportion of landlords and the amount of resources allocated to housing investment, given by the average expenditure, have fallen significantly after the policy reform.

Importantly, removing negative gearing increases the average homeownership rate of the economy from 66.7 per cent to 72.2 per cent.

The improvement in homeownership was observed most predominantly among poor households, where the fall in house price and the rise in rent reduce the price-to-rent ratio in the economy by 4.2 per cent.

“This has direct implications on housing affordability as the fall in house price lowers both the downpayment requirement for mortgages and the size of mortgages required to purchase a house, making it easier for households to own a home.”

If negative gearing was to be scrapped, the average mortgage size held by homeowners would likely decrease 21 per cent.

“Eliminating negative gearing takes young landlords who were rich enough to meet a downpayment requirement for investment properties away from the market.

“This reconciles a recent trend in the property market that there has been a rise in investment housing debt holdings by young and rich 35 households who would have benefitted the most from negative gearing concessions.

“The aggregate welfare for the economy improves upon the repeal of negative gearing … around 80 per cent of households are better off after the policy reform.”

Australia’s negative gearing regime stands alone against comparable OECD countries. Only New Zealand and Japan allow the unrestricted use of negative gearing losses to offset income from other sources.

The report’s authors, Yunho Cho, Shuyun May Li, and Lawrence Uren said that along with their findings on negative gearing it would also be worth considering some partial restrictions, such as allowing tax deductions for mortgage interest payments only.

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Queensland Construction Companies at ‘High Risk’ of Insolvency



Queensland Construction Companies at ‘High Risk’ of Insolvency
After a difficult 12 months for Queensland-based construction companies, insolvency experts have cautioned that there are tough times ahead.

Despite a steady period of growth and surging infrastructure activity, insolvency group SV Partners’ warned that more than 430 Queensland construction businesses are at high to severe risk of insolvency.

Smaller businesses related to the construction industry are being warned to keep an eye on their capital as activity faces a possible downturn.

The latest data from SV Partners’ Commercial Risk Outlook report said that while the construction industry has experienced steady growth so far in 2018 the benefits may not be shared among smaller construction service businesses.


Construction workers2

Plumbers, electricians, carpenters and residential builders are most at risk of financial collapse in the next 12 months.

SV Partners managing director Terry van der Velde said smaller construction services are more prone to a predicted residential building downturn and the least likely to gain from the rise in commercial activity.

“Industry bodies are forecasting a downturn in residential construction in the coming year, particularly in the apartment market due to oversupply, and there has already been reports of weakening apartment and unit dwelling approvals” van der Velde said.

“Construction companies need to keep a close eye on their cash flow to ensure they have enough capital to weather short to medium term cash flow shortfalls.”

SV Partners report showed 1,967 construction businesses, or three per cent of the industry, were at risk of failure.

It also found that a total of 12,338 businesses, or 2.4 per cent of incorporated Australian businesses across all industries, were at high to severe risk of financial failure over the next 12 months.

Construction site 3

Property is the country’s biggest industry contributing $200.9 billion (13 per cent) of GDP and is the nation’s largest employer with 1.4 million people.

“Construction businesses tend to be very interlinked, so when one business struggles to pay its creditors, it can have significant impacts on contractors in the chain,” van der Velde said

“Contractors in the finishing trades are often the first to be impacted by these struggles, as they are usually the last in the chain and hence the last to be paid, which creates cash flow strain.

Van der Velde says that despite these weaknesses, business can put in place strategies to cope with the changing conditions and make the most of opportunities.

“Implementing robust cash management strategies and well-thought- out capital structures can assist in future proofing a business.”

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Property price growth on Gold and Sunshine coasts outperforming Brisbane, REIQ report finds



Property price growth on Gold and Sunshine coasts outperforming Brisbane, REIQ report finds

PHOTO: Highgate Hill, Milton, Kelvin Grove and West End suffered the biggest sales price declines in the inner-city ring. (ABC News: Isobel Roe)

Several of Brisbane’s more expensive suburbs are among the biggest losers in the property stakes, a Real Estate Institute of Queensland (REIQ) report rating performance in 2017 has found.

The Queensland market monitor showed Highgate Hill, Milton, Kelvin Grove and West End suffered the biggest sales price declines in the inner-city ring, followed by Wilston, New Farm and Taringa.

Highgate Hill in Brisbane’s inner-south suffered a median price plunge of 17.9 per cent year-on-year to $937,500.

Milton’s median price fell 11.4 per cent to $855,000, compared to 2016.

In Kelvin Grove, the median sale price was down 7.9 per cent to $764,750 and West End dropped 6.3 per cent to $1,030,500.

But some Brisbane suburbs enjoyed strong growth.

Teneriffe in the city’s inner-north became Brisbane’s first $2 million suburb in 2017 with a median sale price of $2.4 million — up 30 per cent on 2016.

At the same time, Kangaroo Point and Kalinga joined the $1 million club, with median sale prices soaring 28.4 per cent and 22.5 per cent respectively.

REIQ media manager Felicity Moore said inconsistences in price growth throughout the city could be attributed to “supply issues”.

“When you see a price soften significantly, it could be that there’s an additional level of stock developed, such as house and land packages that meets the level of demand,” Ms Moore said.

Gold Coast skyline
PHOTO: The Gold Coast recorded an overall increase in median sale price of 7.7 per cent. (Supplied: Tourism and Events Queensland)

Beach lifestyle proving attractive

Both the Gold Coast and the Sunshine Coast outperformed Brisbane in terms of house price growth.

The REIQ report showed the Gold Coast recorded an overall increase in median sale price of 7.7 per cent and the Sunshine Coast achieved 5.9 per cent, while Brisbane only managed an average of 2.6 per cent.

Ms Moore said the rediscovery of the beach “lifestyle markets” was somewhat overdue.

“When you look at what those markets have to offer, the Gold Coast and Sunshine Coast are just world class coastal beachfront living at its best,” she said.

“They’re not densely populated, they’ve both got world class beaches, great shopping and good schools and the amenities that go into those communities are of a very high standard.”

She said 2017 results positioned the Gold Coast as the strongest market in Queensland and among the top 10 nationally.

“It’s a similar story with the Sunshine Coast, although for years the level of supply going into that market has been a bit constrained,” she said.

“It’s struggled from a long-time lack of construction of new dwellings and when there’s demand building up it puts pressure on prices.”

Mining downturn impact

The report indicated the mining downturn continued to impact parts of central Queensland.

In Blackwater, the median sale price nosedived 70 per cent to just $36,000 last year, down from $120,000 in 2016.

Five years ago, the average sale price was $450,000.

“It’s a very sad situation but there is good news on the horizon,” Ms Moore said.

“The global body that monitors coal demand is forecasting that from 2022 there’s going to be a global uptick in demand, so in anticipation of that we’re seeing some coal miners pull some smaller mines out of mothballs.

“There’s a level of confidence coming back into the coal sector.”

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The property clock strikes big for hot spot areas



The property clock strikes big for hot spot areas

9 Lion St, Ipswich. Picture:

DESPITE last month’s previous lacklustre values, analyst Michael Matusik has identified the areas on the upswing.

While property values remained fairly stagnant during February, property analyst Michael Matusik has revealed where the housing market is on the upswing.

Mr Matusik’s latest property clock for houses, has Brisbane, Gold Coast, Logan, Redlands, Sunshine Coast and Gympie all in upswing.

He said a market’s position on the property clock was based on the strength and direction of key indicators including sales numbers, price and rent, demand and how much new supply there was.

His latest Matusik Missive also listed Ipswich, the Fraser Coast and Noosa markets as heading into upswing territory.

Ipswich has many beautiful homes, often at prices well below what something similar would cost in Brisbane’s suburbs. A four-bedroom home at 9 Lion St,Ipswich is listed for $879,000.

The land the home sits on was bought in 1904 from the family of the then Ipswich Mayor Mr Pettigrew. A home was built on it in 1907.

The period home has 3.5m high ceilings, VJ walls, period window, and timber floorboards which have all been restored.

REAL ESTATE: 9 Lion St, Ipswich. Picture:

REAL ESTATE: 9 Lion St, Ipswich. Picture:

The home has two new bathrooms, a large separate dining area and study. It is listed through Steve Athanates of NGU Real Estate Ipswich.

On the Gold Coast at Robina, 196 Easthill Drive is listed for more than $850,000.

The three-bedroom home is within the Glades Golf Community.

It has formal and informal living and dining areas, and an outdoor entertainment area with a swimming pool nearby.

196 Easthill Drive, Robina. Picture:

196 Easthill Drive, Robina. Picture:

It is listed through Ian and Linda Mills of McGrath – Palm Beach.

On the Sunshine Coast at Noosaville a home at 15 Bluebell Court is listed for offers of more than $740,000.

The three-bedroom home is in a cul-de-sac in a residential pocket bordered by the Lake Doonella Reserve.

The single-level home has open plan living and dining areas. An outdoor area overlooks the pool and reserve at the rear of the property.

15 Bluebell Court, Noosaville. Picture:

15 Bluebell Court, Noosaville. Picture:

The property has a double lockup garage, plus on-site side parking for a boat or caravan, on the 975sq m block.

It is listed through Tansy Grant and Justin Sykes of Ray White – Noosa.

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