Australia’s Property Market in 2017 (and what to expect in 2018)

During the past twelve months we’ve seen some important shifts in property market conditions across Australia’s capital cities. As is often the case, past activity can help us predict future trends, and so in this article we’re not only putting the last 12 months under the microscope, but looking to the future too.

As a whole, Australia’s property market seems to be cooling. According to research from Core Logic, 2017 was the weakest calendar year for value growth since 2012. National dwelling values were down 0.3% over the three months to December 31. This is the slowest quarterly rate of growth we’ve seen since April 2016. Although Sydney remains the nation’s most expensive city, dwelling values fell over the final quarter by -2.1%, along with Darwin down -2.9%. Over the same period, growth continued in Melbourne 0.9%, Brisbane 0.3%, Adelaide 0.3%, Perth 0.1%, Hobart 3.1% and Canberra 1.0%.

Growth in the major capitals over the past 12 months has been modest – Sydney 3.1%, Melbourne 8.9%, Brisbane 2.4%, Adelaide 3.0%, Perth -2.3%, Hobart 12.3%, Darwin -6.5% and Canberra 9.6%.

australian property market

In Sydney and to a lesser extent Melbourne, it appears that price growth has slowed for the time being. This can be attributed to a range of factors however a key driver of slower growth has been tighter credit policies which are changing the way investors can access funds. In particular, bank regulator APRA has imposed stricter conditions on the amount of interest-only loans banks can lend investors.

Ultimately though, past experience tells us that fluctuations in property demand and value are cyclical in nature and normal. For 2018 we’re expecting a fairly solid but unspectacular year for property. We’re likely to see lower growth rates, across previously strong markets (perhaps even slightly negative) with more cautious buyers, and ongoing regulatory interference around credit standards and investor activity.

In spite of these property headwinds, we’ve seen the Australian economy growing around 2.8% annually; interest rates are low; public and private infrastructure investment is increasing; globally the major economies are doing well and commodity prices have been improving. This bodes well for rising land prices and house prices. Therefore we think it’s a relatively good bet that average Australian property prices will increase in 2018.

Snapshot: Australia’s property market in 2018

Looking forward to a new year, there are still opportunities aplenty for investors seeking to strike gold in the Australian property market.

These three key factors will play an influential role for investors who are ready to grow investment portfolios in 2018:

A cooling market: Shrewd investors will have the chance to take advantage of plateauing or even cooling property prices in the country’s two big cities, as well as opportunities in cities better placed in their growth cycle like Brisbane.

Infrastructure boost: Planned major infrastructure projects in main cities promise to boost property values over the long term.

Low interest rates not rising in a hurry: Mortgage interest rates remain at a record low and aren’t expected to rise in the immediate future. Plenty of time to plan for future rises while enjoying the current low.

As strong advocates of responsible investing with over 10 years of experience, the Providence team can assist you in identifying the best growth opportunities that suit your budget and goals, assisting you throughout the process, from research to acquisition and more.

Get in touch with us for an obligation-free chat about increasing your portfolio (or starting one for 2018!).

 

 

Written by Lynton Stevenson, Managing Director, Providence Property Group.

Understanding Tax Freedom Day

We’re all known to wonder where our money goes or try to make sure it goes to the right places, but do you really have a clear vision of your expenses? Understanding Tax Freedom Day is a sobering concept, but one that is vital for you to take control over your financial position and ultimately pay less tax in Australia.

Prefer to listen to this information via podcast? Click here.

What is Tax Freedom Day? 

What do you think your biggest expense is? Your mortgage? Private school fees? Your passion for travel? For the majority of people taxes are your number one expense.

If you look at your pay slip, you’ll see that PAYG figure that denotes the sum that the government’s hand has swept in and taken before you’ve even noticed. If you work for yourself or run a business, you might PAYG too – if not, you probably end up paying a lump sum of your earnings out to the ATO at the end of the financial year.

When we look at it, we need to remember that it is actually calculated on the total taxes collected by all three levels of government. We are not just paying tax directly to the ATO – we pay all these other indirect taxes too, including GST and council rates.

With taxes at front of mind as your biggest expense, Tax Freedom Day sounds quite important doesn’t it? Tax Freedom Day is the number of days that we work for the tax man at all three levels of government before we start earning for ourselves.

Over the last 50 years we’ve seen the trend in taxation whereby Tax Freedom Day is moving out later and later in the year, and it’s getting worse.

In Australia in 2016 you had to work until May 9 to pay all your taxes to the Australian Government. This is similar to the US and UK, who have Tax Freedom Day on April 24 and May 8 respectively.

What is particularly sobering for Providence clients to learn is that if you are paying off a mortgage, you spend most of the year working for both the government and the bank. That’s what you spend your time and effort doing for weeks and months of the year. Needless to say, this is far from ideal. It’s no surprise that we all look for ways to pay less tax in Australia.

Pay less tax in Australia

A key part of the work we do at Providence it to help our clients to move Tax Freedom Day back as early as possible in the year for themselves. This certainly isn’t about evading tax, as we all have an amount of tax we need to pay. However, the tax system and the code is written with room for allowable deductions for certain things.

Tax benefits of owning an investment property

Owning an investment property has many benefits and is a way that we guide clients to manipulate Tax Freedom Day for themselves. Through investment property ownership, you can move your Tax Freedom Day and effectively have the tax man become a contributor to your wealth creation strategy.

The best way we know to do that is to find a growth property that the tenant and the tax man pay off for you. And what we are seeing is the longer that you leave this the more money that you are letting slip through your fingers. It’s very important to take action.

When identifying property opportunities to meet our clients’ goals, the key factors that we look at are capital growth, yield, cash flow, depreciation and other allowable deductions. These help contribute to funding a property, so we’re analysing all of these factors and also ensuring that there are three parties paying for the property. That is, the purchaser, the tax man and the tenant. The tenant will usually pay around 60% of the cost, the tax man can pay roughly 30% and the purchaser covers around 5-6%.

Once you own that property for three or four years and the rent starts increasing, the tenant actually starts contributing to more of that. And importantly, in terms of Tax Freedom Day, the tax man is typically contributing about 30% to the cost of that property.

Let’s make that clear – in this wealth creation strategy, the tax man ends up contributing to you paying off that asset and your savings for retirement and you pay less tax in Australia.

While rental yield and capital growth are the most important when it comes to investing in property, there is a lot to be gained from a tax flow perspective too. Whether you’re a first, second or fifth time investor, if you’d like to learn more about the contributional tax benefits that you can generate from owning an investment property, our team has the expertise you need. You can contact us here.

Listen to Simon Harris and Jay Pace talk about Tax Freedom Day in this podcast episode and discover how you can pay less tax in Australia.:

 

 

 

Written by Lynton Stevenson, Managing Director, Providence Property Group.

Why savvy investors choose Brisbane property

Brisbane is a hot favourite amongst property investors and with a range of infrastructure upgrades and developments pegged for the city and surrounding regions over the coming years, the trend looks set to continue. So why invest in Brisbane property? There are plenty of reasons.

Brisbane (compared to Sydney and Melbourne in particular) is more affordable and benefits from a higher income return for property investors. Many experts agree that whilst interest rates are low, Brisbane is a standout city for growing your investment portfolio.

This sentiment is echoed by investors.

According to a survey by the Property Investment Professionals of Australia (PIPA), Brisbane remains the top capital city pick, with 43 per cent of investors choosing it as their preferred destination for property investment.

So, let’s take a look at what makes Brisbane such an attractive investment location.

The population is migrating

Sydney house prices are nearly double those in the other capital cities. This, combined with rising job creation in Queensland, is creating an influx of migraters. According to research, when these factors have aligned in the past, more than 134,000 people have trekked up north over a 3-year period, predominantly out of NSW.

Wealth is transferring

Migration shifts like the one described above result in a transfer of wealth – with estimates of up to A$8.1bn of equity being injected into the Brisbane and South-East QLD housing market over the coming years. In turn, this will impact consumer spending too – boosting the Queensland economy.

Less oversupply

As interstate migration goes up, property oversupply balances out. In Brisbane’s case, this means balancing any current oversupply of apartments whilst putting upward pressure on house prices.

The city is booming

Perhaps one of the most exciting (and important) reasons Brisbane is becoming the property investors top choice is the significant services and infrastructure upgrades taking place across the city (and beyond) over the coming years. Some highlights include:

Brisbane Live – An entertainment precinct penned to be Australia’s equivalent to New York City’s Madison Square Garden. The development will include a 17,000-seat world-class arena along with a 4,000-capacity rock club, multiplex cinemas, restaurants and bars, and a giant screen and amphitheatre to accommodate up to 15,000 people. The precinct’s other attractions include a proposed signature 90-storey residential tower and dining precinct.

Queen’s Wharf Brisbane – This will develop into a world-class tourism, leisure and entertainment precinct in the heart of the CBD, which is expected to create permanent employment to more than 8,000 workers once completed in 2022. The development is estimated to attract 1.4 million additional tourists yearly via five new premium hotel brands, three residential towers, a department store, an iconic ‘Arc’ building that will feature a Sky Deck, a riverfront moonlight cinema, a Queensland Hotel and Hospitality School operated by TAFE Queensland, and redeveloped public realm covering an area of at least 12 football fields.

Cross River Rail – This project will improve Brisbane’s public transportation landscape with a railway connecting Dutton Park and Bowen Hills. Between the destinations will be five new stations at Boggo Road, Woolloongabba, Albert Street, Roma Street and Exhibition, including 5.9km of underground tracks beneath the Brisbane River and CBD.

Herston Quarter – Upon completion in 2027, this precinct will include a 132-bed public specialist rehabilitation and ambulatory care centre, a new private hospital, childcare and aged care facilities, retirement homes, student accommodation, private apartments, dining and retail areas and renovated heritage buildings. Approximately 7,000 new jobs will be generated over the development period.

Interested in investing in Brisbane property, but not sure where to start?

As you can see, choosing to invest in Brisbane presents an incredible opportunity for property investors, but knowing where to begin can be difficult. As a specialist property investment and advisory firm, we provide our clients with responsible and informed investing advice – with expert knowledge in major Australian cities. We can assist with all aspects of the investment journey from professional guidance, to property negotiation and purchase, finance and further assistance.

Satisfy your curiosity and get in touch with our team to find out how investing up north can supercharge your wealth.

 

 

Written by Lynton Stevenson, Managing Director, Providence Property Group.