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Investment Advice

The ripe apple for investors part two, Brisbane: Oasis’ Gavin McPherson

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GUEST OBSERVER

In my last article, I’m not sure if I could hide my intense upside expectations for the Gold Coast.

Discussing South East Queensland more generally however, it would be remiss of me not to discuss Brisbane. In fact, let me explore Brisbane a little more intimately than the Gold Coast.

So while I am a firm advocate that while I believe Sydney and Melbourne growth has finished, please note in neon lights…this boom isn’t finished yet. It’s just moved north.

In my business, we have confidently purchased well over $150 million of property in South East QLD property since 2014.and with the next 2 years expected to look like Sydney’s past 2 years, we look set to confidently double or triple this number.

Of course, a ‘bubble’ is a term that I try and avoid using, because it tends to lump all areas in a region in the same basket expecting growth of, but for those that hold out desperately for a prediction, one might detect that I am not backing away from my recently held belief that the Brisbane and Gold Coast markets are about to explode.

Of course, this could give a false sense of security for those anticipating growth if they own in these areas, or future growth if they and investing now. A few points to be careful of:

I am a universal student of history…and history has always told me that markets always recover in a financial sense from a “bottom up” perspective. By way of example; everything that is in the low price band (ie: $250k – $300k) moves first. This then precipitates a net movement upwards in the market place as sellers who are displaced by this movement (and buyers who have been pushed up into a better amenity) now have pressure to buy in a higher price band. This is a quite natural phenomenon, and one that is entirely predictable.

If the above (“bottom up”) phenomenon works in a financial sense, the same can also be said from a geographical perspective. I call this part the “in/out” perspective. That is, those areas and precinct in the ‘epicentre’ of the action (usually a CBD) get the most attention, and eventually the outlying areas and suburbs realise attention from the market as buyers are displaced to more affordable areas in their search for value and amenity. Again…no conspiracy theory here to ponder. It makes sense right?

We tend to call this the “ripple effect”. I am happy with this term. What I am not happy about is the fact that the markets always behave in this pattern, yet we as investors seems to try and re-write the rule book each market cycle and wonder where growth will occur next? Why wonder? It has always been thus.

By way of example of the “ripple effect” taking place…I cite a property that my Buyers’ Agency purchased approximately 16 months ago in New Farm, Brisbane. A 2/1/1 in a small block of 10, we purchased this for $343,500 for our client. At today’s price in New Farm, we know recent sales point closer to $480,000…an almost 40% increase.

Now, taking last year’s approximate capital growth figures of Brisbane (6-8% dependant on source)…one has to note that while New Farm statistics point to almost 25% growth, laggards such as Chermside (who carry the burden of being too overdeveloped) suffered a minus two percent (-2%) price decrease. Again, this demonstrates the “ripple effect” perfectly, despite creating confusion around the data on Brisbane’s growth and opportunity.

Now of course, to suggest as a strategy of buying in the ‘next best’ district outside of what has just seen significant price growth would be disingenuous of me. It’s not that simple. You will need to still rely on specific data and features in particular areas that have a better chance of above trend growth in this phase of the market ahead. Furthermore, you need to be genuine about where those limitations might lie.

By way of example, areas that have become part of Brisbane’s urban sprawl like Logan City, are unfortunately, for me at least; a no go zone. I should emphasise…these areas will grow; that is not in question (just like Blacktown has in Sydney recently.) The problem is that their ‘once in a cycle’ uptick is almost always followed by a precipitous downturn and many years of stagnant growth afterwards, while the better areas general show a more linear (and upward) growth pattern. Furthermore, don’t get me started on your tenants you’re likely to encounter over that cycle.

The downside tenancy issues that often fester in cheaper housing in lower socio economic areas over the longer term can dwarf the upside of the high rents. High [potential] yields can be useless when you’re caught in tribunal QCAT or RTA) with a family not paying rent for 4-10 weeks every year with a property in the wrong suburb.

I don’t say all this to be politically incorrect. I say it because a) I’ve made these mistakes and b) we are trying to make money, not win a Nobel peace prize! Stick to tried and tested areas. Over time, in fact, since biblical times…affluence has tended to breed more affluence. Go with it.

So my advice for Brisbane is to look for those areas where affluence is shown consistently in land values, yet still has a predisposition to growth in this current market. My current tips are Paddington, Auchenflower, Spring Hill and Hawthorne in the $500,000 to $1,200,000 price range. Again, on the premise that “the cure for low prices is low prices”; I’m confident that these areas should reflect growth commensurate with their lack of development and absolute popularity for the districts.

And as for when…I’m expecting it soon!

Gavin McPherson is chief executive officer of Oasis Property Buyers Agency and author of “Value Investing in Property: What would Warren Buffet do if he was investing in property in Australia?” He can be contacted here.

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Investment Advice

What’s in a name? Why the name on title deeds matters for property investors

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brisbane investment advice

Our interest and appetite for investing in property haven’t calmed down over the last 12 months, with most areas in Australia continuing to rise in price. Of course, that’s not to say that prices are going to keep increasing. Just like the Melbourne Cup, it’s a long race and at some point, the gallop will end and we’ll see a slowing down of house prices.

If you are still determined to enter the property market as an investor or you are a recent entrant, it’s important to do your homework. By homework, I’m not simply talking about where you should purchase, which of course is critical. Instead, I’m talking about one of the most skated-over decisions that arise with property investment (or any type of investment) – how should you own your investment. This question means you have considered protecting your asset, you’re thinking long-term as not just simply maximising the short-term returns and tax deductibility of the investment you have purchased.

brisbane investment advice

It makes sense to have a property in the name of the higher income earner for negative gearing, but what about capital gains tax when it comes time to sell?

The decision I’m referring to is whose name the investment should be purchased in. That’s because you shouldn’t simply default (like many people do) to purchasing the property in the highest income earner’s name.

Why wouldn’t you default to this when negative gearing is so attractive for higher income earners? That’s because too often investors are only focused on negative gearing the property, which is only one of the many things you should be considering. Yes, the negative gearing benefits can be attractive but what about when you sell? If the property is only in the name of the highest income earner (or 99 percent in their name), the entire capital gain proceeds on sale will also be in the name of the highest income earner, which means there is no ability to split the sale proceeds with lower income earners.

brisbane investment advice

Australians are continuing to invest in property.

It’s also important to be aware that if you’ve had a depreciation report prepared and are claiming depreciation on your property (which is a great thing to do), you may need to add back this depreciation when you sell which means the capital gain could be even higher than your quick back of the envelope scratchings.

Instead, you should consider your plans for the property – if you intend to pay down the debt, how long you plan to hold it for and what other debts you have. That’s because if it makes sense to pay down the debt, the property may only be negatively geared for a short period of time. Or if interest rates remain low and rents rise you may find yourself in a positively geared situation sooner than expected which may mean that the highest income earner holding the property may be non-beneficial.

Of course, tax deductibility is only one piece of the puzzle. Asset protection is another reason why you might not necessarily default to holding a property in your own name/s. If you own your own business or if your job means you might be susceptible to a liability claim, it might be wise for you not to hold assets in your own name. Of course, in NSW, land tax can mean holding your property in a family trust may not be attractive and companies don’t get access to capital gains concessions so that might not be a great option. However, you might consider a special unit trust where a family trust or a self-managed super fund (SMSF) holds the units. You might even consider purchasing the property directly within an SMSF. Yes, there are strict rules with some of these structures you need to be aware of and follow. However, they can give you more flexibility in some cases and even a willingness to hold a property that is positively geared, as well as providing the advantage of an asset that is safeguarded because it’s not in your name.

Yes, owning investments such as property or shares in your own name is easy and simple. However, sometimes the unintended consequences of paying more tax further down the road, exposing your private assets to creditors or even less flexibility in a market of low-interest rates and rising rents can mean that simple is not always better.

Originally Published: www.brisbanetimes.com.au

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Investment Advice

Investors search nation for best property returns

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Tom and Antonia Murphy are digital-savvy property investors who understand the need to look beyond their neighbourhood and home state to find the best returns.

The couple are saving for a Sydney home by buying investment properties in Brisbane and the Gold Coast where prices are lower, yields higher and prospects for capital growth stronger.

“If the numbers add up, then we buy,” says events manager Antonia, 29. Tom is a high-voltage lineman. The couple base their buying decisions on latest market data and advice from a buyers’ advocate. “We will eventually sell the properties and buy our home,” she adds. “We have taken the emotion out of buying. We see the properties as a way of making money.”

It’s a strategy being used by an increasing number of investors aware of the widening spreads between different states, regions and dwelling styles, particularly high- and low-rise apartments.

“Years ago you could rely on everything going up,” says Damian Collins, managing director of Momentum Wealth, a Perth-based buyers’ advocacy.

“We are now in a different world,” he says. “Low wage growth, low inflation and low interest rates mean consumers cannot expect 8 per cent returns every year.”

Sydney still a gold mine

CoreLogic, which monitors property values, says the number of properties resold at a loss on the purchase price has jumped from 8.3 per cent to 9.2 per cent in the first quarter of this year.

“There is a difference between houses and apartments,” says CoreLogic’s head of research Cameron Kusher. “A property owner is much more likely to sell a unit than a house at a loss.”

Nearly 20 per cent of inner Melbourne apartments are being sold at a loss, the highest level in more than a decade, according to CoreLogic analysis.

Sydney – for the moment – remains a real estate gold mine, with nearly everyone who purchased five years ago hitting pay dirt when they sell, says Corelogic.

Sydney home prices rose 6.6 per cent in the three months to May.

“But including the months between October and February (when prices fell by 2.2 per cent), the overall performance was a more modest 4.4 per cent over eight months rather than 6.6 per cent over three,” says Glenn Piper, chief executive of buyer’s advocacy Meridian Australia.

Forced sales

“The next four months will be interesting – if values stay flat, then we could see a lower single-digit 12-month growth performance for Sydney,” Piper says.

In Perth 40 per cent of all sales are lossmakers, says CoreLogic.

The fall in price in former boom suburbs around Perth, such as Mandurah, is more than three times the national average, with buyers selling after just six years, suggesting that many could be forced sales.

“Bargain hunters are out there,” says Momentum’s Collins, who adds real estate agents are increasingly advertising that properties “must be sold”, which is often code for distressed sales.

Many buyer’s advocates believe Sydney and Melbourne house price rises have outpaced wages growth and savings and are running out of puff, which means they are looking at other markets.

“There are still pockets of value in Sydney,” says Rich Harvey, chief executive of Property Buyer, a Sydney-based buyers’ advocacy. “But investors need to have more modest expectations.”

Affordability

Collins and Paul Nugent, a director of Wakelin Property Advisory, believe the time it takes for a top-performing investment property to double in value has – at best – doubled from between seven and 10 years to more than 15 years.

The prospect of values doubling is a traditional benchmark used by real estate agents to attract buyers.

CoreLogic estimates it takes 17.5 years to double the purchase price. The typical house sold at a loss was held for six years. Those sold at a profit were typically held for 10 years.

Low wage growth, record low interest rates, a ban on some foreign investors, and low single-digit inflation mean likely growth is expected to be about 4 per cent, which is about 2 per cent over wage growth. This could be slightly higher in strong demand postcodes, says Collins.

Affordability continues to be a key factor in predicting market direction.

Sydney mortgage repayments as a percentage of household disposable incomes are more than 40.5 per cent, or 30 basis points higher than at the end of Sydney’s last price boom in 2004, says Piper.

Local issues

It was about 29 per cent at the start of the most recent boom in 2009. Since then prices have increased by 78 per cent,

In Melbourne the ratio of mortgage repayments as a percentage of household disposable income is 34.4 per cent, compared to 37.5 per cent in June 2010, the end of the city’s last boom. The median price has since increased by more than 33 per cent.

“Melbourne and Sydney are close to, or above, the previous affordability capacity reached in their last boom,” says Piper, who believes both cities’ prices will move sideways because of lack of affordability, poor yields and increased supply.

But investors like Tom and Antonia Murphy claim they need to dig deeper and discover what local issues are encouraging, or retarding, growth.

For example, a property price boom was sparked in the Queensland town of Gladstone in 2010 by the inflow of well-paid construction workers to build three refineries. But it quickly wound down as workers began seeking jobs elsewhere and developers started constructing dwellings.

Hobart’s rental returns have increased by 10 per cent in the past 12 months, or more than three times Sydney’ returns, according to analysis by SQM Research, which monitors property market prices and returns.

Potent combination

But veteran buyers’ agents, like Harvey, say the attractive returns provide little insight as to whether they will be sustained by rising population, well-paid jobs and high employment, which typically drive property market growth.

“Any of these three factors in isolation will not drive a market, but together they are a potent combination,” he says.

CoreLogic’s report also highlights that different types of properties, such as holiday houses and high-rise apartments, can also fall when other types are rising, or fall faster and harder when markets turn.

For example, nearly five times as many Melbourne apartment owners are selling at a loss than those selling houses.

The southern capital is struggling to digest a huge supply of apartments, many purchased at inflated prices by off-the-plan buyers chasing stamp duty tax breaks offered by the state government to encourage construction.

Four in 10 apartment sellers in the Northern Territory are under water, four times as many house sellers experiencing losses. The Northern Territory’s housing market is also suffering from an over-supply and a slump in demand following the end of the mining boom.

Monitor prospects

Properties in Mandurah, a popular holiday resort about 70 kilometres south of Perth, are selling on average at a 30 per cent loss to the purchase price only six years after purchase, which suggests holiday houses are an early target for budgeting households.

Tom and Antonia, childhood sweethearts who married three months ago, recently sold a house in the Sydney suburb of Parramatta they had purchased five years ago for a $200,000 profit.

They own four other properties in Brisbane and the Gold Coast and believe they will have enough to buy their Sydney home in about three years. They use Meridian to help them monitor prospects for future returns based upon capital growth, yield, affordability and population growth.

“We rent where we want to live, which is in Sydney, and buy where we can make the most capital gains,” says Antonia.

Original article published at www.afr.com by Duncan Hughes 9/7/16

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Investment Advice

Brisbane takes out top spot for property investment

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A new report has named the Queensland capital as Australia’s leading residential property investment location.

According to the latest Performance Property Advisory (PPA) Investor Market Update, homes in Brisbane remained high in investor value over the December quarter, while other capital cities showed “lacklustre performance”.

“Homes in Brisbane are showing strong investor value and will continue to do so thanks to the city’s ongoing population growth, low levels of unemployment (currently around 5.4 per cent) and its continued undersupply of housing,” PPA director of acquisitions David McMillan said.

“Brisbane’s residential population has grown by 27 per cent over the past decade or so – from approximately 1.7 million to 2.1 million people – with an additional population increase of 820,000 projected over the next two decades.

“Combine this with the fact that the infrastructure spend is up $1.07 billion on 2015 and you have a very positive story for Brisbane,” he said.

According to the update, Brisbane also remains one of Australia’s most affordable cities to invest in.

“House prices rose by as little as 15 per cent between 2008 and 2015 while income over the same period grew by approximately 31 per cent,” Mr McMillan said.

“Couple this with falling interest rates and Brisbane’s residential stock remains extremely inexpensive.”

However, Mr McMillan noted that he anticipates this materialising into strong price rises in the short to medium term.

The report also revealed that while Adelaide’s property investment indicators are mixed, the city remains very affordable for first home buyers, with rental growth now outpacing price growth.

Meanwhile, the PPA update showed that in terms of investment value, Victoria is Australia’s second poorest performer, with average yields of just 2.8 per cent – slightly higher than Sydney at 2.6 per cent.

The update also showed that the Sydney market is now nearing its peak in terms of investment prospects.

“While demand for property is out-pacing supply, the market is starting to experience serious affordability issues which could see the average number of persons per household rising as people are forced to shared rental accommodation,” Mr McMillan said.

With Sydney experiencing the lowest yield of the capital cities, it represents a less attractive option for experienced investors, he added.

 

Original Publish: http://www.mortgagebusiness.com.au/

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