A Week in Real Estate: 29 Jul 2017

By July 29, 2017News

Landlord Inspection Trips Disallowed

Rental property owners will no longer be able to tack a holiday onto a visit to “inspect” their investment property under new draft legislation.

The new bill will abolish travel-related expense claims that have seen holidays to places like the Gold Coast masquerading as property inspections.

Investors who legitimately spend funds looking after their rental property, such as regular maintenance and gardening, will be impacted. Real estate agents engaged to provide property management services for investment properties are excluded.

The new measures restricting travel to inspect properties will apply only to residential premises and not commercial holdings.

BDO senior tax partner Tony Sloan said “the real targets of this measure are the mum-and-dad property investors who want to take a holiday on the taxman”.

Resources Pooled to Buy Property

A group of 11 friends has banded together to negotiate a discount on their deposit for new homes in northwestern Sydney.

The purchasers have bought eight properties between them, some individually and some as couples, from a boutique developer. Their new homes are all in a row in Riverstone, a suburb 38km from the CBD.

Saving for a deposit as well as dwelling price growth outpacing wage growth has been a challenge for young home buyers.

The median established house in Sydney costs $1.05 million, according to researcher CoreLogic, putting a 10% deposit above $100,000.

The group found a developer willing to agree to 5% deposits on house and land packages costing $720,000 in return for being able to sell all eight plots quickly.

Quote of the week

“Investors are actually attracted by rising prices. Home owners don’t care or are pleased by it. Declining affordability will eventually halt price rises but we are a long way from that. More and more housing is forced into strong hands who are not very concerned about price rises.”
Affordable housing provider Community Housing aLimited’s Joe Flood

Increased Dwelling Supply Does Not Lower Prices

Increasing housing supply seems like a sound economic solution to Australia’s housing shortage and affordability problems, but it doesn’t work, affordable housing provider Community Housing Limited’s Joe Flood says.

In 2016, new dwelling commencements increased from 62,000 to a record 76,000, but house prices did not retreat. In Sydney and Melbourne, prices have risen 12.2% and 13

“Rising house prices relative to incomes result in the transfer of housing from ‘have nots’ to ‘haves’ who are less affected by rising prices. The process accelerates over time and will only stop when housing becomes sufficiently unaffordable or finance constraints are reached,” said Flood.

Every dollar used to buy real estate will push up house prices by 1.8 times, Flood said.

Jobs Growth Strongest in 29 Years

Australia’s labour market has held steady with the jobless rate at 5.6% last month and 14,000 positions being created, in line with market expectations.

Full-time employment increased by 62,000 jobs last month, although this was offset by a reduction of 48,000 part-time positions.
Annual employment growth is running at 2% — its fastest rate since April 2016.

Chief economist for CommSec, Craig James, noted the rise in full-time employment of 115,400 positions over the past two months was the “strongest back-to-back job gain in 29 years”.

Australian Bureau of Statistics chief economist Bruce Hockman said full-time employment had increased by about 187,000 people since September 2016, but was marked by a “particular strength over the past five months” averaging about 30,000 people per month.

House Prices Don’t Always Go Up

The Prime Minister has issued a warning to property investors that they cannot continue to assume house prices will only go up.

“Clearly you need to remember that asset price movements go in two directions,” Prime Minister Malcolm Turnbull said after a speech to an economics conference this week.

In particular, this is relevant to housing. “It has been a pretty good one-way bet for a long time – but it is going to be important for people to be prudent.”

Australians have borrowed a lot, and for now the risks of borrowing have been well managed, Mr Turnbull said. But that could change.

“High levels of indebtedness that are incurred with low levels of interest rates always pose a risk when you have the prospect of an increase in rates. Particularly if it has all been built on an assumption of rising asset prices.”

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