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Are we headed for a housing crash — or not?



YOU can’t blame people for being confused.

One minute we are told there is an apartment glut and house prices could crash any minute. The next, our leaders are calling for negative gearing changes that will push prices down even further. So are we headed for housing armageddon or not?


Housing prices have been rising for over a decade and warnings about a property bubble have been brewing for years.

One of the latest warnings came last month from property analyst Louis Christopher, of SQM Research, who said the national property market was overvalued by 22 per cent.

This is being driven by prices in Melbourne, which hit its highest overvaluation level of 40 per cent and Sydney, which was at its second highest level of overvaluation at 40 per cent.

Mr Christopher warned that if changes weren’t made, such as lifting interest rates or tougher restrictions on home lending, prices in Sydney and Melbourne would continue to rise by up to 16 per cent in 2017.

“However it is likely 2017 will be the last year of price falls generated by the mining downturn for these cities,’’ he said.

Mr Christopher said if interest rates were cut again, prices would rise even further, paving the way for a possible correction in 2018.


At the opposite end of the spectrum, there are fears that construction of new apartments will lead to an oversupply in the next few years.

The construction boom already seems to be impacting Melbourne apartment prices, where there’s been record levels of building in the last two years.

On Thursday, Corelogic’s November Hedonic Home Value Index showed Melbourne dwelling prices had fallen by 1.5 per cent.

Head of research Tim Lawless attributed this to new units coming on to the market. Prices for units fell by 3.2 per cent last month.

Overall, prices for Melbourne units have only grown by 3.9 per cent this year, compared to 12.2 per cent for houses.

But this is where things get really interesting for Sydney.

While Sydney unit prices are not increasing as fast as those for houses, they are still rising.

In November, unit prices increased by 0.9 per cent, which was actually slightly higher than 0.8 increase achieved by houses.


Across the year, unit prices grew by 10.6 per cent compared to 15.3 per cent for houses.

Earlier this year BIS Shrapnel released a report that predicted Melbourne would have an oversupply of more than 20,000 homes by 2017, but managing director Robert Mellor said Sydney was still suffering from an undersupply of housing.

“It’s so severe we won’t see an oversupply in Sydney in the next four years,” Mr Mellor said at the time.

“A downturn in Sydney between 2004 and 2012 was so severe, basically only in the last 12 months we’ve started to see construction move above the level of demand.”


Prices in Sydney have outstripped those in other areas and it remains Australia’s most expensive city, with a median dwelling price of $845,000, according to the latest statistics released by Corelogic.

Since 2009 dwelling prices in Sydney have risen by a staggering 96 per cent, Corelogic head of research Tim Lawless told

Melbourne is not that far off, with growth of 78 per cent, but the next best performing market after that was Canberra, which has only seen growth of 33 per cent.

The difference was even more stark in Perth, which only grew by 6.5 per cent, and Hobart on 4.5 per cent.

Mr Lawless said Sydney’s astronomical growth had been achieved against the backdrop of record low wages growth of about 2 per cent.

“So the byproduct of strong capital gains (for housing) and relatively low income growth is that affordability is becoming stretched,” he said.

One way of measuring housing affordability is to look at the dwelling price to income ratio.

In Sydney this ratio is 8.4, which means it takes 8.4 times the typical household salary to buy the typical Sydney dwelling.

If you look at houses only, this ratio is closer to 10, while for apartments it is 7.1.

These figures are still higher than in other cities.

Melbourne has a ratio of 7.2 for dwellings, while Brisbane’s ratio is 5.7.

“It highlights that Sydney is becoming increasing unaffordable,” Mr Lawless said.


However, Mr Lawless said there was some confusion in the market because the measure of “serviceability”, the proportion of household income that goes towards paying a mortgage, which has been really flat because of record low interest rates.

“This hides the fact that dwelling prices have risen at a substantially higher rate than incomes in Sydney and to a lesser extent, in Melbourne.”


All the analysts seem to agree on one thing — the Sydney real estate market is different and property prices in other areas are not growing as strongly.

This may be why NSW Planning Minister Rob Stokes, called for reform of negative gearing this week.

His comments were later backed by NSW Premier Mike Baird, who said changes should be considered. But this is in direct conflict with Liberal Party policy.

During the election Prime Minister Malcolm Turnbull said the coalition would not change the measures, and warned Labor’s policy to reform negative gearing and the capital gains tax discount would lead to price falls. Estimates have ranged from between two per cent to as high as six per cent.

Mr Turnbull pointed to the need to increase housing supply to improve affordability.

But in his speech, Mr Stokes said supply alone wouldn’t solve Sydney’s housing affordability problem.

The state is currently building 185,000 homes over the next five years to try and address an undersupply of close to 100,000 homes in NSW.

But with interest rates at record lows and generous federal tax incentives, Mr Stokes said Sydney had become a prime target for investors.

Property investors can use negative gearing to reduce the tax they pay if they make a loss, for example if the rent they collect is less than their mortgage repayments.


Once they sell the property, they only pay tax on half of the profit because of the capital gains tax discount.

Mr Lawless said statistics showed investors currently made up more than half the demand for mortgages in NSW.

States are now trying to wind back incentives for investors.

This year NSW introduced higher taxes on foreign investors buying residential property, following in the footsteps of Victoria and Queensland.


AMP chief economist Shane Oliver said NSW must think there’s still some extra capacity in the property market as the state planning minister probably wouldn’t be talking about negative gearing if the market was weaker.

“They are probably thinking there is still room in the market as it’s not altogether clear that the market has peaked,” he told “They are probably thinking there’s a long way to go.

“I would be more cautious, I think a supply glut could hit next year,” he said.

However, if prices did fall, Mr Oliver said the market could still be propped up by two types of buyers.

Firstly, first home buyers may re-enter the market, especially if prices fell by 20 per cent and interest rates remained low.

Ironically foreign investors could also be lured by lower prices and move to snap up a bargain. Prices in Sydney are still reasonable compared to those overseas, especially because the Australian dollar is quite low at the moment.

Population growth in Sydney also remains strong and this would also cushion the market against a big fall. Mr Oliver said he didn’t think any price falls would go beyond 15-20 per cent.

“You wouldn’t be looking at a fall like what happened in the US or eurozone.”


By restarting the debate on negative gearing, NSW is basically trying to push some of the responsibility for fixing housing affordability back on the Federal Government.

While Mr Oliver believes supply is more connected to affordability, this doesn’t mean some changes shouldn’t be looked at — especially the capital gains tax discount.

“This is a bit of a distortion and that’s what makes negative gearing so profitable,” Mr Oliver said.

But Treasurer Scott Morrison did not seem to be taking the bait, and said on Friday that abolishing negative gearing would hit mum-and-dad investors in rental properties, pushing rents up and putting immense pressure on the market.


Another tricky thing about changing negative gearing and the capital gains tax discount, is that the measures would impact property markets around Australia, not just Sydney.

Meanwhile, Housing Industry Association chief executive Graham Wolfe pointed to the state taxes and levies charged on the sale of every new home.

“State-based stamp duty on the purchase of a typical new home alone adds a $91 per month burden on household mortgage repayments,” Mr Wolfe said.

Stamp duty is something the NSW Government could change to help first homebuyers but has left untouched.

In his speech, Mr Stokes said if states were to consider getting rid of inefficient state taxes, the Federal Government needed to outline how it would help states raise money for schools and hospitals to cater to a booming population.

Providing investors with generous tax breaks such as the capital gains tax discount, costs the Federal Government billions. In 2014/15, the CGT alone was estimated to have cost the federal Budget more than $6 billion.

And despite all the talk of housing bubbles, apartment gluts and falling rental prices, this hasn’t deterred investors.

ABS housing finance data has shown a consistent rise in finance commitments for investment purposes since May this year.

“Clearly investors are continuing to see housing as the preferred investment option, despite low yields and a mature growth cycle,” Mr Lawless said.

Mr Stokes believes it’s time for a real debate about policies and for the Federal Government to partner with states to address housing affordability.

“Why should you get a tax deduction on the ownership of a multi-million dollar holiday home that does nothing to improve supply where it’s needed?” he said.

“We should not be content to live in a society where it’s easy for one person to reduce their taxable contribution to schools, hospitals and other critical government services — through generous federal tax exemptions and the ownership of multiple properties — while a generation of working Australians find it increasingly difficult to buy one property to call home.”


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Queensland is the next property hotspot, experts say



Queensland is the next property hotspot, experts say

As New South Wales and Victoria continue to experience weakness. Queensland is expected to take the lead, a National Australia Bank (NAB) poll of property professionals revealed.

According to the survey, industry experts project house prices in Queensland to increase by 0.7% next year and 1.3% in two years.

Some areas seen to perform strongly over the next year include Brisbane, Cairns, the Gold Coast, and the Sunshine Coast. Out of the suburbs, Coomera and New Farm are expected to realize robust gains.

Meanwhile, Queensland’s rental market is also poised to enjoy an upward boost, growing by 1.3% next year and 1.9% in two years. This is despite the stricter rules on housing investment.

The respondents of the survey also expect Queensland to retain foreign buyer interest. In fact, the share of foreign sales hit a four-year high of 22.8% over the previous quarter.

The results of the survey go against NAB’s own projection of the market. For instance, the bank expects house prices to remain flat in Brisbane over the next three years. Unit prices, on the other hand, is seen to fall by 4.5% over the next year.

NAB chief economist Alan Oster said Brisbane’s housing market seemed to be going sideways and its unit market still creates concern.

“It hasn’t peaked yet, so that’s good. We’re seeing quite strong economic activity in Queensland, so that always helps,” Oster said, as quoted by The Courier-Mail.


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How much savvy QLD landlords negatively gear and what they claim on tax



How much savvy QLD landlords negatively gear and what they claim on tax

Cathy Zappala and Peter Button were savvy with their property investments. Photo: AAP/Ric Frearson.Source:News Limited

MORE landlords in Queensland negatively gear their properties than in any other state. Here’s how savvy property investors can maximise their deductions at tax time.

PETER Button and Cathy Zappala are revelling in early retirement — and they have negative gearing to thank for it.

The Brisbane couple recently sold their eight investment properties, all located in and around the suburbs of Chermside and Wavell Heights, and put the money into their superannuation.

“We’re fortunate to be able to choose to retire now, and be able to travel and afford a house and not have any debt,” Mr Button, 62, said.

How much savvy QLD landlords negatively gear and what they claim on tax

The Buttons’ owned investment properties close to Chermside Shopping Centre. Photo: Steve Pohlner.Source:News Corp Australia

But the couple had to be sensible with money and savvy at tax time to get to that position.

“We put our necks on the line by getting ourselves $1 million worth of mortgages, so we were really careful to maintain good relationships with our tenants to keep them there and look after them,” Mr Button said.

Mr Button also made sure he maximised their deductions at tax time by keeping a record of all costs including legal bills, insurance, council rates, management fees, travel expenses and maintenance and repair costs.

All eight properties were negatively geared and the couple estimate they claimed around $7000 in expenses and up to $4000 in interest from each of them every year.

Mr Button also rotated fittings and fixtures in the properties every two to three years because he knew that by maintaining the properties, he could increase their sales value.

How much savvy QLD landlords negatively gear and what they claim on tax

Many property investors claim expenses at tax time through negative gearing.Source:Supplied

Almost seven out of 10 rental properties in Queensland are negatively geared, with landlords in the red claiming billions of dollars in expenses in their tax returns, according to data from the Australian Taxation Office analysed by comparison site

In fact, more rental properties are negatively geared in the sunshine state than anywhere else in the country.

And those properties that still have a mortgage attached are deducting an average of $8,653 per year in interest on their home loans.

IS THIS BRISBANE’S MOST SOCIALLY RESPONSIBLE HOME? money expert Bessie Hassan said billions of dollars worth of tax could be saved through negative gearing, although claims differed between states and territories.

“Expenses like travel for landlords, gardening and lawn mowing can all be claimed by property investors,” Ms Hassan said.

“There are tax advantages of being negatively geared, and savvy investors are deducting thousands for cleaning, repairs, maintenance and even stationary.”

How much savvy QLD landlords negatively gear and what they claim on tax money expert Bessie Hassan.Source:Supplied

Ms Hassan said recent research into pivot loans, also known as ‘loan reducer’ home loans, suggested property investors were paying interest as low as 1.9 per cent on their personal owner occupier home loans by bundling with their investment properties.

“The perks for property investors in this country don’t stop at negative gearing, now landlords can even use their personal home loan to save on tax,” she said.

But housing tax policy has been a hot political issue as home ­prices reached sky-high levels in the east coast capital cities in recent years.


The Australian Housing and Urban Research Institute is calling for a gradual phase-out of negative gearing tax concessions, saying it could save taxpayers more than $1.7 billion a year from the annual $3 billion cost of negative gearing tax deductions.

A new report by the AHURI recommends a cap on housing-related tax deductions that should be phased in over 10 years, starting with a $20,000 cap and falling by $1500 a year to a final limit of $5000.

“One of our key findings is that gradually reducing the generosity of capital gains tax and negative gearing provisions over a decade-long time frame would result in only a modest impact on the after-tax return from housing investors for most ‘mum and dad’ investors,” lead report author and University of Tasmania professor Richard Eccleston said.

How much savvy QLD landlords negatively gear and what they claim on tax

Rents and rental income continue to climb. Image: AAP/Paul Miller.Source:AAP

Rental income for Queensland landlords increased 3.1 per cent in the past financial year, according to data from the ATO, and is tipped to continue to rise.

The latest quarterly rental review from CoreLogic reveals Brisbane’s median weekly rent rose 0.3 per cent over the past quarter and has increased 1.2 per cent in the past year to $435 — the strongest rental growth in the city since July 2015.

Brisbane’s gross rental yield at the end of June was a healthy 4.43 per cent.

Mr Button said he only increased rents in his properties to cover inflation, the majority of rent and rates.

“Any other maintenance costs we’d cover ourselves,” he said.

A new study by has found Brisbane property owners are also spending less on mortgage repayments than any other capital city.

How much savvy QLD landlords negatively gear and what they claim on tax

Brisbane landlords spend on average 17 per cent of their income on mortgage repayments. Image: AAP/Lukas Coch.Source:Supplied

Landlords in Brisbane spend on average 17 per cent of their income on home loan repayments.

That’s well below the ‘mortgage stress’ threshold of 30 per cent — touted as the danger zone for borrowers.

Brisbane homeowners spend $1,122 a month on their mortgage on average, which is roughly one sixth of the average national monthly wage of $6,794.

Ms Hassan advised would-be property buyers to reduce other debt obligations before applying for a mortgage.

“You don’t want to just scrape by after paying all your expenses because interest rates would only have to increase slightly to feel mortgage stress,” she said.


State Interest Land tax Council Rates Travel Total Negatively geared

on loan(s) expenses deductions properties

NSW $9,984 $3,168 $1,014 $450 $16,552 50%

QLD $8,653 $1,744 $1,456 $574 $12,876 68%

VIC $8,898 $859 $1,034 $372 $12,566 59%

WA $9,881 $851 $1,145 $513 $13,705 64%

SA $7,144 $608 $903 $461 $10,515 62%

ACT $9,399 $1,456 $1,136 $362 $14,345 67%

TAS $5,777 $463 $922 $515 $9,756 54%

NT $10,443 $1,032 $1,005 $660 $16,800 62%

AUS $9,115 $1,392 $1,135 $471 $13,861 60%



City Average mortgage repayment Monthly wage Proportion of monthly wage

Adelaide $1,328 $6,254 21%

Brisbane $1,122 $6,682 17%

Melbourne $1,266 $6,820 19%

Perth $1,404 $6,822 21%

Sydney $1,701 $6,858 25%



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Three reasons Brisbane is doing better than Sydney and Melbourne



Three reasons Brisbane is doing better than Sydney and Melbourne

Brisbane’s ‘fairer’ property prices had sparked migration from southern capitals. Picture: AAP/Ric Frearson.Source:News Corp Australia
BRISBANE now has a more optimistic picture than Sydney and Melbourne — as working class suburbs deliver the strongest growth in the past decade for the state.

A WORKING class suburb in Brisbane has beaten the bluechips to pull off the highest growth the state has seen in the past decade.

Underwood in Brisbane’s south has seen a massive 65.6 per cent rise in median house prices between May 2008 and May this year, according to latest figures by property data experts CoreLogic.

It comes as a prominent Sydney property expert declares there is now more optimism for Brisbane than Sydney and Melbourne thanks to the city weathering the unit glut, interstate migration, a fairly valued market and the economy picking up again.

None of the usual bluechips were on the top 10 list which saw Ashgrove come in second (53.4 per cent) followed by Sunnybank (50.7 per cent) which rode a wave of Asian buyer interest in recent years.

SQM Research head Louis Christopher said there was growing evidence that Brisbane had coped better than Sydney and Melbourne with recent housing market woes, prompting fresh optimism.

Brisbane listings figures out yesterday showed the city rose the highest of all the capital cities last month, but unlike Sydney and Melbourne where the effect of a rise in listings was a drop in asking prices, in the River City prices rose almost in defiance.

That, according to Mr Christopher, showed the worst was over for Brisbane, with the city proving it had coped with the oversupply.

“We’re a little more optimistic on Brisbane than Sydney and Melbourne right now,” he told The Courier-Mail.

The comments come as the Reserve Bank yesterday decided to keep its cash rate target on hold at the record low of 1.5 per cent, with no sign that it is likely to move any time this year or even most of next year.

“Generally speaking when you see a big rise in listings, it’s not a good sign as absorption rates are falling like in Sydney and Melbourne, but Brisbane is coming from the perspective that it had its downturn,” Mr Christopher said.

“I think Brisbane is coping better than Melbourne and Sydney right now. I don’t believe prices for freestanding houses are falling in Brisbane like they are in Sydney and Melbourne … Potentially the worst is over for Brisbane.”

Three reasons Brisbane is doing better than Sydney and Melbourne

SQM Research head Louis Christopher said there was more optimism for Brisbane than Sydney and Melbourne.Source:Supplied

Three things were running in the River City’s favour, he said.

“The acceleration in interstate migration from southern states to Queensland” was a key factor, he said.

“That has occurred because the housing market is more fairly valued (in Brisbane) and there is a standard of living gain moving south to north”.

As well, he said, the “Brisbane economy is picking up again so job creation has been improving and just as well because I think one of the barriers moving (from the) south to Queensland has been, up to recently, because of the soft job market.”

“The mining downturn has been over for a solid 18 months so it’s meant that the move has been less riskier for people to do because they have been able to find work making the move.”

Mr Christopher said even better was that housing construction had peaked in Brisbane.

“This is good on the supply front. I think the worst is behind us. We still have an oversupply scenario but it’s not likely to get worse from here. Given the increase in interstate migration, (supply) will now wind down as the year progresses.”



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