32 Pergola Ideas From Around the World | Houzz

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Off-market property offers: Are they too good to be true? | afr.com

https://www.afr.com/personal-finance/offmarket-offers-too-good-to-be-true-20181112-h17shf

Posted in LJ Gilland Real Estate Pty Ltd

Brisbane’s median dwelling value is currently $491,925 – take a look within the capital cities to get a better understanding of typical housing costs from region to region.

20181106_median_dwelling_value_3

 

While that is substantially lower than Sydney and Melbourne you can see that all of the regions relatively close to the city have current median values which are higher than that.  The most expensive region of the city is the West ($659,554) while the most affordable is Ipswich ($350,511).  Only three SA4 regions of the city actually have a median value which is lower than the citywide median.

City-wide median dwelling values comparing those to each of the SA4 sub-regions within the capital cities to get a better understanding of typical housing costs from region to region.

Median values and prices are often quoted in the media but what do they actually mean and what are they reflective of?  CoreLogic’s median value is an estimate of the middle value of all residential properties within a market.

The median is useful for understanding the middle of the market, however across the metropolitan area of our cities there is great deal of diversity in housing values. To try and provide a bit more depth, in this week’s Pulse we are looking at median values across the 5 largest capital cities and comparing them to values across the capital city SA4 sub-regions.  In Tas and NT we are comparing capital city values to regional SA4 values.

Sydney’s median dwelling value as at October 2018 was $833,876 and the SA4 region closest in median value was the Inner South West at $840,805. Most of the areas that have a median value lower than that of greater Sydney are located some distance from the city centre while those with higher values are typically the areas closer to the city centre or along the coastline.  The city’s most affordable SA4 region is Outer South West ($602,246) and the most expensive is Northern Beaches ($1,383,461).

Across Greater Melbourne, the median dwelling value is recorded at $665,044. The city’s most affordable region is West ($578,922) and the most expensive region is Inner East ($1,127,558).  Outside of the highly desirable Eastern and Inner regions values are remarkably similar across the remaining Melbourne regions.  In fact, only the Inner East, Inner South and Outer East have median values that are higher than that of Greater Melbourne.

Brisbane’s median dwelling value is currently $491,925.  While that is substantially lower than Sydney and Melbourne you can see that all of the regions relatively close to the city have current median values which are higher than that.  The most expensive region of the city is the West ($659,554) while the most affordable is Ipswich ($350,511).  Only three SA4 regions of the city actually have a median value which is lower than the city-wide median.

Greater Adelaide’s median dwelling value was recorded at $431,554 as at October making it the nation’s most affordable capital city housing market. Throughout the city’s four SA4 regions, Central and Hills is noticeably more expensive than the rest and North is noticeably cheaper. Central and Hills and West are more expensive than the city-wide median and South and North are cheaper.

 

Posted in LJ Gilland Real Estate Pty Ltd

Some of the highest concentrations of property investors with negatively geared investment properties are in Labor-held electorates

 

FIRST HOME BUYER PIC.jpeg

Flawed methodology. Bill Shorten said this yesterday and while I totally understand his honourable view, there are many other ways to go about helping first home buyers. What first home buyers want though is a good investment on top of being somewhere to live. If they felt they could lose money and it would be cheaper to rent, they would be happy to wait. The problem with Bills approach is that the best way to stop property investors is to attack interest-only loans, increase investment interest rates, slow down the banks and vastly reduce investor borrowing capacities. Coincidentally this is exactly what APRA has done over the last four years, and really it’s not worked its way through yet. That’s what is driving things down now. If you reduce someone’s ability to borrow money, increase the cost to do so, investors will not invest. When the royal commission plays out next year, it’s my belief borrowing money will become harder with substantial falls in how much you can borrow and in turn continuing falls in property values. If Bill is successful and it comes in from 1 July 2020, that will also be the time when the biggest expiry of interest-only loans will hit and finally, the royal commission should have worked its way through. Perfect storms require only a few ingredients

The income and tax statistics-based report by the Australian Taxation Office was published along with a coalition attack on Labor’s policy to phase out negative gearing.

Some 1.3 million Australians take advantage of the tax break on investment properties, with 640,000 living in coalition electorates and 570,000 in Labor-held seats.

Treasurer Josh Frydenberg said Labor’s property plan would punish investors, he told The Australian.

According to a nationwide seat-by-seat study by the government, the most recent incom­e and tax statistics from the Australian Taxation Office shows that more people ­residing in Labor-held seats had negatively geared rental properties than in Coalition-held seats, in five out of the eight states and ­territories.

Josh Frydenberg ­said the ATO data showed that in the biggest property market, NSW, the number of people who negatively geared rental properties was divided equally among Labor and Coalition-held seats, with deputy ALP leader Tanya Plibersek’s seat of Sydney featuring in the country’s top 10.

The electorates with the highest number of investors were the two seats in the ACT, both of which are held by Labor.

The latest data shows about 254,000 Queenslanders claimed a loss in 2015-16.

Some regional Queensland electorates have been hit with huge slumps in property prices since the mining downturn, The Courier Mail has noted.

In Capricornia and Flynn in central Queensland, along with Dawson, which has a strong mining and tourism workforce, have about one in 10 voters who claim for a net rental loss.

In NSW The Telegraph published data from Treasury revealing 374,000 Sydneysiders are claiming the benefit.

“No real estate market will be harder hit by Labor’s ill-conceived property tax than the NSW market,” the Treasurer said.

Treasury data reveals about 10,000 people in each of the Labor electorates of Parramatta, Greenway, Barton, Sydney and Kingsford Smith claimed the tax discount.

The 8655 people using the concession in deputy opposition leader Anthony Albanese’s Grayndler electorate is more than the 8195 people in former prime minister Malcolm Turnbull’s old electorate of Wentworth, the paper noted.

Labor’s proposed rules apply to properties bought after the policy start date: either July 1 next year or July 1, 2020, depending on the timing of the next election.

The government claims that investors already holding negatively geared property will feel the impact of the grandfathered policy by trying to sell into a depressed market with less interest coming from investors.

Labor’s policy to restrict negative gearing to new dwellings – and to cut the capital gains discount from 50 per cent to 25 per cent – has come under sharper scrutiny, The Australian reported.

Master Builders Australia has warned that it would result in a $12bn hit to building activity in the sector and lead to 42,000 fewer new homes being built over five years.

There are 120,000 ­investors with three or more properties, up from 116,700 just a year prior.

This week the Westpac boss Brian Hartzer noted a factor weighing on property uncertainty was the Labor policy, although he stopped short of blaming the proposed policy as a reason for falling prices.

“Clearly negative gearing is a significant feature in investors’ decisions on property investment, or certainly, it has been over recent years. So a change in negative gearing policy would be viewed by many investors as a significant issue to be thought through before they make a further property investment,” Mr Hartzer said.

Two property investor bodies have attacked the federal Labour party’s proposed changes to negative gearing and capital gains tax, claiming it will “will decimate the property market”.

Independent research commissioned by Masters Builders Australia found Labor’s policies could result in a multi-billion dollar hit to the Sydney and Melbourne markets.

The Property Investment Professionals of Australia (PIPA) and the Property Investors Council of Australia (PICA) said the party has a fundamental misunderstanding of the sector.

“Property investors provide housing for 30% of Australians at a time when spending on social housing is at an all-time low,” PIPA Chairman Peter Koulizos said.

“Contrary to media headlines, only about 70% of investors own one property so the concept of ‘greedy investors’ is not supported by the facts.”

The 2018 PIPA Property Investment Sentiment Survey found about 60% of investors believe their portfolio will be positively geared within the next five years.

Koulizos said that this shows that negative gearing is primarily a result of high transaction costs associated with real estate investment, rather than a strategy.

In the survey, 6% of investors said they were interested in buying a new property.

This means restricting negative gearing to brand-new dwellings would not increase supply, Koulizos claims

Contrary to Labor’s claims, its policies on negative gearing and capital gains tax will not increase the supply of new housing or create new jobs in the building industry according to new independent economic modelling commissioned by Master Builders Australia.

According to modelling prepared by Cadence Economics if Labor’s policies are implemented it will mean:

1. Up to 42,000 less new dwellings being built across the country.

2. Up to 32,000 less full time jobs.

3. Up to $11.8 billion less building activity.

4. Up to $210 million less renovation building activity.

Labor’s policies on negative gearing and CGT fails its own test. “Master Builders calls on the ALP to rethink their policies in the light of this new research and a changed housing market. Australia cannot afford for housing supply, building activity and employment to go backwards.

Cadence Economics was commissioned by Master Builders Australia to test Labor’s claims that its policy to restrict negative gearing to investments in new housing and halve the capital gains tax (CGT) discount to 25 per cent all properties will increase the supply of new housing and employment in the building industry.

The results of the modelling show that within five years of Labor’s property tax policy being implemented the construction of new housing would fall in all states and territories and employment would fall over the same period.

Labor has previously stated their policies would boost new dwelling construction “by thousands of new homes each year.”

On the other hand independent modelling by Cadence Economics shows that Labor’s policy would mean up to 42,000 fewer new homes would be built over the five years following the implementation of Labor’s policies, resulting in a reduction in the value of residential building activity of between $2.8 billion and $11.8 billion.

Home renovations would also be hit by an expected reduction of between $50 million to $210 million in activity over a five year period.

Inevitably this would mean a fall in employment which is expected to be between 7,200 and 32,000 less jobs across the country.

Finally, the context of Labor’s policies, namely an ‘overheated’ housing market no longer exists bringing into question the need for reforms to curb investor activity.

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Investors are being urged to realise Labor’s controversial changes to negative gearing will apply to all investments, not just property, which broadens the scope and impact of the reforms beyond what many investors realised.

Given Labor has tied its negative gearing policy into its housing affordability plan, many professionals and their investor’s clients were unaware the policy would be applicable to all investments.

Professor Deutsch sought the clarification after some of the institute’s members and their clients were unclear on how the policy would impact their investment portfolios.

“The overall impact of Labor’s negative gearing proposals is not likely to be nearly as draconian as some sectors seem to be suggesting. The good news is that the proposed restrictions to negative gearing would apply on a global basis to every taxpayer,” said Professor Deutsch.

According to Professor Deutsch, taxpayers will now need to consider the entirety of their investments.

“For example, if the total of the interest and deductions related to investments exceed the investment income, the excess will not be able to be used for offset against other non-investment income. This excess will need to be carried forward for offset against future investment income or capital gains. Importantly, you will not have to look at each individual investment, or at any particular asset class – that would have been a very onerous and cumbersome exercise,” he said.

“It would continue to allow people to hold, for example, four, five or six properties with some positively geared and some negatively geared. Provided the overall positives exceed the overall negatives, there will be no problem.”

How will the property market react?

Doug Driscoll, CEO of Starr Partners real estate group, said that those in the property industry are likely to view this clarification positively, as it will reduce the likelihood of investors abandoning investments in housing.

“I think that if the policy had been as we understood it was initially, then people would have been looking at alternative investments,” he told Nest Egg.

“It is about maximising return when all is said and done. Is it [the clarification] welcomed by the property industry then? Yes, I guess so.”

Mr Driscoll said he was concerned, however, that the universality of the proposal may inspire individuals to give up on their investments altogether.

“I think if they literally introduce a blanket measure across the board, it’s going to be a step backwards where investors won’t be looking at, ‘What should I invest in?’ but whether they invest in anything at all. Or do they just put their money in the bank? It’s a dilemma that investors haven’t faced for a long, long time because interest rates are so low, which is advantageous when buying property but it’s also disadvantageous when you have money in savings accounts,” he warned.

“If they’re being disadvantaged, and their returns are being limited as a result of policy change, a lot of people may not actually invest at all and, in terms of the wider economy, that’s not a good thing.”

Labor policy wording:- For most young families in Australia, the dream of purchasing and owning their own home is almost completely out of reach.

Working and middle-class families are increasingly being priced out of the housing market. Ownership rates for young people aged 25-34 have spiralled downwards in recent years from 60% to 48%. Young people are being forced to take on levels of debt unimaginable just a few decades ago.

With first home buyers making up just 1 out of 7 of all home purchases, we have to do better. It’s well and truly time someone did something about making housing more affordable in Australia. That’s why Labor has announced a policy that will help level the playing field for first home buyers competing with investors.

Labor will reform negative gearing and the capital tax discount effective from a yet-to-be-determined date after the next election, a policy which will help put the Australian dream of home ownership back within the reach of middle and working class families.

The fiscal challenge

Australia is changing rapidly, and the Commonwealth Budget must change too. The Budget needs to promote growth and jobs into the future, not entrench subsidies of past decades.

This requires tough choices, and a line by line assessment of all calls on the Budget against the simple test: can a Budget designed to drive jobs and growth into the future, afford it?

Budgets are inherently a statement of priorities for any government – where they choose to raise revenue and how they spend and invest resources to achieve policy outcomes.

Budgets are also set against, and part of, a broader economic context that should guide the aggregate position (surplus/deficit) and the composition of budget settings.

Labor’s approach to fiscal policy is therefore framed by our economic priorities to boost growth and create jobs.  That is why we are investing in schools and higher education, reforming and boosting infrastructure spending, driving a clean energy future and a universal health care system.

To fund these priorities requires a strong Budget position.  This requires an assessment of all budget items – both expenditure and revenue – to ensure that the budget is delivering on our priorities for the future within an aggregate position that is sustainable.

And it requires tough budget choices to align purpose and funding.  Labor understands this, and that is why we have announced a number of measures to fund important investments, and contribute to Budget repair, including:

  • making multinational companies pay their fair share of tax
  • reducing superannuation tax concessions for millionaires
  • increasing the changes to tobacco excise
  • ceasing the Emissions Reduction Fund, and
  • not proceeding with the Liberals’ new Baby Bonus.

Labor will continue to scrutinise budget line items to fund important investments and contribute to Budget repair.

A fair tax system

Australia aspires to be a fair society and we expect our tax system to align with this aspiration.

For most Australians this is the case – their tax is withheld fortnightly on the basis of their wages.  The more an employee earns, the greater the amount of tax they pay.  This simple principle of progressive tax scales is a fundamental pillar of our tax system, and ensures that the burden of tax falls on those most able to bear it.

While this principle applies to fortnightly pay cheques, it does not apply to other aspects of the tax system.  Significant tax subsidies are available for people that hold investments, establishing a significantly more favourable tax basis for holding capital, rather than earning income.

Higher income Australians are able to use these tax subsidies to reduce the income tax they pay, primarily through negatively gearing property and the capital gains discount.  These subsides are concentrated in the highest income deciles, as low and middle income Australians are more likely to spend their income on consumption, whereas higher income Australians are able to accumulate capital and use tax benefits to reduce the amount of tax they pay on their income.

Ultimately, a dollar of tax avoided by high income Australians is an extra dollar of tax paid by all other Australians.

Labor is committed to ensuring that the tax system is fair for all Australians.

Leaky bucket

The Australian tax system includes a number of deductions and concessions that result in taxpayers reducing their tax bill.  Many of these represent legitimate expenses like work related expenses, such deducting the cost of a uniform or tools, or incentives to drive policy outcomes – like research and development incentives.

Labor supports the existence of deductions and concessions where they drive positive policy outcomes and improve neutrality in the tax system. As a policy instrument, they provide a mechanism that allows Government to influence behaviour to achieve specific policy objectives. But these need to be done on the basis that they are a fair and effective use of resources, both in terms of the policy, and in the broader budget context.

It is important to recognise that deductions and concessions – essentially forgone revenue – represent significant costs to the Budget.  To date, they haven’t received the same level of scrutiny as the payments system.

This should start from proper recognition of what tax subsidies actually are: government spending through the tax system.  The impacts of these items are reported annually in the tax expenditure statement released by Treasury.

This position is supported by Martin Feldstein, Professor of Economics, Harvard University, former Chair of President Reagan’s Council of Economic Advisors, who noted that:

Reducing those [tax] subsidies, then, is really cutting government spending. The resulting deficit reductions show up on the revenue side of the budget, but the economic effect is to cut government spending. …  Anyone opposed to government spending should favor removing these subsidies from the tax code.

The payment system is highly targeted and progressive in nature, while tax concessions are beneficial to high income earners.  Therefore any serious approach to budget repair requires these tax subsidies to undergo the same level of scrutiny as budget spending.

For example, superannuation earnings concessions are expected to grow by 33% over the next four years, more than twice the rate of growth in the age pension over the same period (14%). The fact that the top 10 per cent of Australians receive nearly 40 per cent of Australia’s of superannuation tax subsidies whereas the age pension max rate starts tapering down for couples on incomes of $7,488 demonstrates why action is needed.

That is why Labor has already acted to reduce the generosity of tax concessions for high income superannuants – to moderate concessions for Australians with superannuation balances in excess of $1.5 million.

Proper scrutiny of tax subsidies is fiscally responsible and can remove unintended consequences of tax subsides.  Labor will continue to strengthen the revenue base through removing unfairness, and ensuring that the tax system is designed to deliver our priorities.

No retrospective tax changes

Labor recognises that Australians make financial decisions in good faith on the tax arrangements in place at the time.

While making change to the tax system to improve fairness is a policy objective of Labor, it must be done without negative retrospective impacts on existing investments.  This same approach was taken by Labor the announcement policy to curb generous and excessive tax concessions for high income superannuation accounts.

Jobs and Growth

Taxation has a significant impact on decisions made in the economy, incentivising some behaviour and curbing others.

Labor believes that the tax system should be designed to boost jobs and grow the economy.

The tax system acts a form of traffic lights in the economy, directing investment within the economy.

In setting tax policy, therefore, we should be designing a system that green lights investments on activities that boost economic activity, and underpin the efficient allocation of resources.  Existing policy arrangements that direct resources to unproductive investments and speculative markets should be re-considered.

Research and Development tax incentives are an example of tax concessions that provide beneficial tax arrangements for companies that invest in R&D.  The objective of the R&D tax incentive is to boost competitiveness and improve productivity across the Australian economy, while incentivising industries to conduct R&D work that may not otherwise have been conducted without the incentive.

Similarly, tax policy should provide disincentives/red lights to activities and investments that are not productive.  Similarly, disincentives to curb harmful behaviours are effective as is the case with Labor’s announced continuation of increases to the tobacco excise.

The importance of getting the settings right to improve the allocative efficiency of capital cannot be overstated.

The Financial Systems Inquiry (Murray Inquiry) pointed out that reducing tax concessions that create major distortions would improve the allocation of capital in the economy. This means that resources would flow to their highest value use, improving productivity and growth outcomes, while also improving the stability of the financial system. This would drive increased and more sustainable economic growth and jobs.

For Labor getting the tax system right has a very real impact for working Australians – it boosts jobs, and supports growth.

That is why reforming the tax system is so important to lifting living standards in Australia.

The problem

Tax subsidies are unsustainable, and unaffordable

Several tax subsidies are growing at a rate that is unsustainable.

Quite simply the Budget position today, and over the medium term cannot afford both these generous subsidies and the necessary investments required to boost growth and jobs. It is appropriate that every budget line item that is growing rapidly undergo close scrutiny to ensure that the spending/tax subsidy is achieving its stated objectives and that the quantum is appropriate when evaluated against competing policies.

Two specific tax deductions – negative gearing and capital gains subsidies – are both significant calls on the budget and are growing at a rapid rate.

Negative gearing

Negative gearing refers to the situation where investors make an investment (mostly in property) that loses money in the short term (e.g. loan and related costs are greater than rental income), in the expectation of making capital gains in the future.

The investor can deduct any losses associated with the investment from their salary and wage income.

For example:

James buys a unit as investment property, and his expenses for the property are greater than rental income, resulting in a $10,000 loss.  James can use that $10,000 loss to reduce his $130,000 income to $120,000, providing a $3,700 tax subsidy to James.

Capital gains tax discount

When an individual sells an asset for a profit, they make a capital gain equal to the amount of profit on the asset.  They would then pay tax on that gain at their marginal tax rate.

Individuals, trusts are entitled to a 50% discount on the capital gain amount providing they have held the asset for more than one year.

For example:

Jane sells a property that she’s owned for 5 years, and makes a $150,000 capital gain over that period.  Her annual salary is $190,000 in the year of sale.  Applying the capital gains tax discount would see the capital gain reduced to $75,000, which takes her effective marginal rate on the capital gain from 47 cents in the dollar (top marginal rate) to 23.5 cents in the dollar, which is lower than the marginal rate of an average income earner.

Negative gearing and the capital gains discount have not achieved their aim to boost housing supply and encourage the building of more new houses. This year, they will cost the budget over $10 billion. That’s more than that the government spends on higher education or child care.

For example, the capital gains tax discount subsidy is growing rapidly, with revenue foregone doubling from $4.2 billion in 2013-14 to $8.6b by 2018-19.

The capital gains discount cost is growing, on average, at 8% per annum over the forward estimates. This rate of growth is greater than funding on research, universities, VET and schools.

growth-rate-of-selected-government-expenditures.jpg

These tax subsidies are unaffordable, and to continue them will crowd out funding for important investments in that are required to grow our economy and jobs.

Furthermore, these tax subsidies have an interaction effect as investors can get tax subsidy from losses over the course of ownership, and then access a significant tax subsidy at the point of sale.  As shown below, the introduction of the CGT discount in 1999  accelerated claims significantly.

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Tax subsidies benefit the wealthiest Australians

Tax subsidies are skewed to high income earners. Australians benefits from the Commonwealth through either the payments or the tax system.  The OECD and the Henry Tax Review has recognised that payments are highly targeted in Australia, and overwhelmingly support low-income Australians.  However, tax subsidies are highly inequitable, with the vast majority of benefit to high-income earners.

For negative gearing, the top 20% of income earners receiving around half of the negative gearing benefits, according to NATSEM.  The top 10% capture more benefit that the bottom 60%.

Claims by the Government that the benefits overwhelming go to low and middle-income earners are incorrect. The Government uses income data after tax deductions have been applied. More reliable data which uses gross income shows that the benefits overwhelmingly to higher incomes earners.

The benefits for the capital gains tax discount is even more inequitable, with the top ten receiving nearly 70% of the total subsidy.

These investment subsidies come at a significant cost to the budget, which means that other taxpayers have to pay higher tax rates or accept lower quality services in order to pay for these subsidies

Despite spurious claims being made about the benefits of negative being overwhelmingly claimed by nurses and policemen, the evidence from analysis by the Grattan Institute shows that in fact it is financing managers and anaesthetists that benefit from these investment subsidies.

average-tax-benefit-from-negative-gearing-by-employment.jpg

Any argument that nurses, teachers or hairdressers losing out in the future is also false.  All existing properties are fully grandfathered – and therefore unaffected – while the reforms simply change the direction of investment to new assets.  That is, tax concessions for negative gearing will continue to be available to people of all career types and income levels.

It is also worth noting that as these tax concessions continue into the future, that the biggest risk to family budgets is the Liberal Government.

Malcolm Turnbull’s Liberal Government is cutting up to $5,000 from family budgets per year through their unfair cuts – cuts that will hit the families of teachers, policemen and cleaners.

For example, under the Turnbull Liberal Government, 1.5 million families will lose their end of year supplements of $700 per child – around 500,000 of these families are on household incomes of less than $50,000 a year.

Not supporting productive investment in new housing

Tax subsidies can play a positive role when they support productive investment that in turn supports economic growth and new jobs.

Rather than leading to productive investment, the combination of the capital gains tax discount and negative gearing has led to over-investment in loss making on existing property.

The most recent Australian Bureau of Statistics data shows that 93 per cent of new investment loans go to people purchasing existing housing stock.

This means that the vast bulk of investment does not increase supply or boost jobs. All it does is increase demand and the price of the existing homes, allowing investors to use tax subsidies to outbid owner occupiers and first home buyers from existing properties.

This problem has been identified by a large number of reviews and policy experts such as the Henry Review, the Government’s own Financial System Review and the Grattan Institute.

“The tax treatment of investor housing, in particular, tends to encourage leveraged and speculative investment in housing” and “Reducing these concessions would lead to a more efficient allocation of funding in the economy”  Financial System Review, Box 3: Major Tax distortions, page 22 of Overview

Economist Saul Eslake, one of the leading thinkers on housing affordability in Australia has noted that:

“after the Howard Government’s 1999 decision to tax capital gains at half the rate applicable to other income (instead of taxing inflation-adjusted capital gains at a taxpayer’s full marginal rate), ‘negative gearing’ became a vehicle for permanently reducing, as well as deferring, personal tax liabilities” Saul Eslake, 50 years of housing failure

Housing affordability

The capital gains tax discount and negative gearing have also given investors an unfair advantage over first home buyers. In 2015 investors outnumbered owner-occupiers in new housing loans for the first time.

Australia also has some of the most generous taxation concessions for housing investments amongst all advanced economies. In recent years this helped fuel an investor-driven property boom, leaving more and more young people and first home buyers unable to purchase a home. The interaction of negative gearing and the capital gains tax discount has also encouraged speculative behaviour exposing the economy to unnecessary levels of financial risk.

The Grattan Institute:

“The combination of capital gains tax rule changes in 1999 and negative gearing has strongly increased the demand for investment properties. Investors compete directly with potential homebuyers, particularly for established houses. This makes it harder for first home buyers to secure a property.” Grattan Institute, Renovating Housing policy, page 13

Labor’s Proposal

Labor will reform negative gearing and the capital gains tax discount to ensure that our tax system is fair, sustainable and targets jobs and growth.

Negative gearing

Labor will limit negative gearing to new housing from a yet-to-be-determined date after the next election. All investments made before this date will not be affected by this change and will be fully grandfathered.

This will mean that taxpayers will continue to be able to deduct net rental losses against their wage income, providing the losses come from newly constructed housing.

From a yet-to-be-determined date after the next election losses from new investments in shares and existing properties can still be used to offset investment income tax liabilities. These losses can also continue to be carried forward to offset the final capital gain on the investment.

Capital gains tax

Labor will halve the capital gains discount for all assets purchased after a yet-to-be-determined date after the next election. This will reduce the capital gains tax discount for assets that are held longer than 12 months from the current 50 per cent to 25 per cent.

All investments made before this date will not be affected by this change and will be fully grandfathered.

This policy change will also not affect investments made by superannuation funds. The CGT discount will not change for small business assets. This will ensure that no small businesses are worse off under these changes.

Labor will consult with industry, relevant stakeholders and State governments on further design and implementation details ahead of the start date for both these proposals.

Benefits of Labor’s tax reform package

Sustainable budget to fund our priorities

Australia is changing rapidly, and the Commonwealth Budget must change too.

The Budget needs to promote growth and jobs into the future, not entrench priorities of the past decades.  That is why Labor has been acting to put the budget on a sustainable footing and provide the confidence that Labor can fund its important investments.

Labor does not believe in the context of competing priorities – schools, hospitals, science and research – that the budget can afford to continue these concessions as they currently stand.

The truth is, without curbing to poorly targeted subsidies, Australia won’t have the money to invest in the future.

This tax reform package will improve the budget bottom line by $32.1 billion over ten years. When combined with Labor’s previously announced revenue and savings measures this leads to an improvement of $100b over ten years.

Furthermore, it is better economic policy. As the Murray Inquiry recommended, reducing these distortionary tax settings will lead a more efficient allocation of funding in the economy.

Allocating capital more efficiently will lead to more productive investment decisions in the economy, delivering more jobs and higher incomes in the future.

Make Australia’s tax system fairer

Labor is working to make the tax system in Australian fairer.  It is patently unfair when first home owners in Australia get no tax breaks to buy their first home, but get significant subsidies to buy their second, third and fourth homes.

These subsidies – negative gearing and the capital gains tax discount –overwhelmingly provide benefit to the wealthiest Australians.

Limiting these subsidies will strengthen the budget, and create space to invest in schools and hospitals that all Australians need.

Furthermore, these changes will promote productive investment rather than debt-fuelled speculation in existing property, Labor’s plan makes Australia’s tax system fairer.

While the Turnbull/Abbott governments have sought to cut essential services that all Australians need, Labor’s plan means ensuring that where we have subsidies in our system that they are fit for purpose and are not excessively generous to those who don’t need them.

New houses will lead to growth in jobs and increase housing affordability

Housing Affordability is of increasing concern across Australia. Particularly in some of our major cities, house prices have skyrocketed beyond the reach of many.  First home buyers now make up less than 15 per cent of all home purchases, which is well below the historic average of 20 per cent.

In part this is because Australian housing construction has not kept up with population growth since the early 1990s. Labor’s reform of negative gearing tax subsidies is aimed at shifting the incentive to the construction of new housing. Independent modelling by the Parliamentary Budget Office assumes that following the changes, negatively geared investment in new dwellings will almost double.

Two-and-a-half years into the Abbott-Turnbull Government there have been many promises, but little action on housing affordability.

In contrast, Labor has been working and acting. In March 2015 Labor held a Housing Affordability Roundtable. The roundtable brought together policy think-tanks, industry bodies, academics and consumer representatives.

Labor also invited submissions on its Housing Affordability Strategy from these participants, as well as other interested organisations and everyday Australians.

Whether it was policy think tanks, would be new home buyers, or parents concerned about whether their children will ever be able to enter the property market, one theme was overwhelming. The interaction of negative gearing and the capital gains tax discount, was making it harder – not easier – for Australians wanting to own their own home.

Labor understands that housing affordability is a complex problem. Record low interest rates and underlying supply dynamics, particularly at the state level, are significant factors affecting housing affordability. It’s why Labor will have much more to say about housing affordability before the next election.

But reforming taxation arrangements on housing is the first big step in tilting the balance back towards first home buyers.

https://www.alp.org.au/negativegearing

Posted in LJ Gilland Real Estate Pty Ltd

33.3 per cent of homes sold across Brisbane this week according to Corelogic

House prices continued to fall in October, taking the annual decline to 3.5%, the weakest macro- housing market conditions since February 2012.

The data from CoreLogic shows dwelling values are trending lower across both combined capital city regions (-1.6%) as well as combined regional areas (-0.7%).

Analyst Tim Lawless said the “broad-based weakness” made it clear that tighter credit availability was acting “as a drag” on demand.

Sydney and Melbourne continued to be the weakest two areas, with a concentration of investment buyers, high supply conditions and the most stretched housing affordability.

Sydney values are now down 7.4% over the last 12 months and Melbourne follows behind with a drop of 4.7%.

Darwin and Perth are the only two other areas where prices have dropped in the 12 months, which Lawless said had been ongoing since 2014.

While other capital cities have seen increases over the last 12 months, the pace of growth has slowed down.

Both Hobart and regional Tasmania recorded strong growth, by 9.7% for the city and 11.4% for regional areas. This was driven by strong demand and shortage of supply.

While Melbourne has faced falling prices, regional Victoria has benefited from the lack of demand in the city. The ‘rest of Victoria’ saw a 7.1% increase in 12 months.

Western Australia excluding Perth has not had the same experience, with a drop of 6.5% in the average house price over the last 12 months.

According to CoreLogic’s report, the highest valued quarter of the market has led the downturn nationally. Prices for the more expensive houses fell by 6.6% over the past year, while the least expensive rose by 0.5%.

The report said the downturn in the housing market had been “relatively mild to date”, as the 3.5% fall in values comes off the back of a 34% rise.

It said, “With credit availability remaining tight and rising inventory levels, we are expecting there will be further downward pressure on housing values as we move through spring and into summer and the New Year.

“A key driver of lower housing market participation is related to credit availability. Annual growth in housing credit slipped to 5.2% in September; the lowest reading in almost five years.

“While investment credit growth has been trending lower for several years, credit for owner occupiers has more recently contracted as lenders seek out borrowers with more substantial deposits and lift their serviceability criteria.

“Although housing credit originations remain well below the formal APRA targets for investment lending and interest only lending, it’s clear that lenders are also focusing more on loan serviceability and reducing their exposure to borrowers with high debt levels relative to their incomes.

The Reserve Bank Board meets on November 6. The Bank will also release the November Statement on Monetary Policy on November 9. Of course the Governor will announce that there has been no change in the cash rate.

Readers will be aware that Westpac adopted a “no change” call for both 2018 and 2019 back in September 2017. At that time markets were pricing in three hikes by end 2019.

Today, markets are pricing only the probability of around 50% of one hike by end 2019 and a full 25bps is not priced-in until end 2020.

Back in August this year, Westpac forecast that the cash rate would remain on hold in 2020.

So, while a year ago we were offering readers some forecasts that were significantly at odds with market pricing, our views today are now largely factored in by the market.

That does not mean that our views are universally supported. In the latest Bloomberg survey of economists’ forecasts, only 10 of the 24 forecasters expect the cash rate to be on hold (one is calling cuts) by end 2019. In addition, 9 of those 13 forecasters expecting rates to be rising expect multiple hikes. Note that the other three major Australian banks expect rate hikes next year.

So the case for rates on hold is certainly not a universally accepted one.

As usual we will scour the Governor’s statement next Tuesday for any hints towards a firmer tightening bias, but there is unlikely to be much to encourage these efforts.

The Statement’s themes will be the same: continuing global expansion; China slowing a little; international trade uncertainty; Australian growth to average a bit above 3% in 2018 and 2019; positive business conditions; household consumption a source of uncertainty; labour market outlook positive; wages growth low; but a gradual lift in wages growth expected; further gradual decline in the unemployment rate expected; inflation higher in 2019 and 2020; housing conditions in Sydney and Melbourne continue to ease; progress toward full employment and target inflation will be gradual.

The Statement on Monetary Policy will include an update of the Bank’s forecasts out to December 2020.

Forecasts for GDP growth are likely to be unchanged from the August Statement on Monetary Policy: 3.25% in 2018 and 2019; and 3% in 2020. These forecasts indicate above potential growth, which is generally accepted to be 2.75%.

Headline Inflation forecasts in August were 1.75% in 2018; 2.25% in 2019; and 2.25% in 2020.

With higher petrol prices than were expected in August, the RBA may raise its forecast for headline inflation in 2018 from 1.75% to 2%.

The first week of November saw fewer homes taken to auction across the combined capital cities after last week recorded the fifth busiest week for auctions this year (2,928). There were a total of 1,529 auctions held this week returning a preliminary auction clearance rate of 47.4 per cent, increasing only slightly on last week’s final clearance rate of 47 per cent. As the remaining results are collected, the final clearance rate will see its usual downward revision and likely come in lower than last week. Over the corresponding week last year, a much higher 61.5 per cent of auctions were successful (2,046).

Melbourne saw the most notable dip in volumes this week; the lower volumes is what we traditionally see the week just prior to the Melbourne cup festivities, while also coming off the back of the second busiest week for auctions this year last week (1,709). There were only 264 Melbourne homes taken to auction this week, returning a preliminary clearance rate of 50.5 per cent. Last week, a final clearance rate of 48.6 per cent was recorded across the higher volumes.

A preliminary auction clearance rate of 47.7 per cent was recorded across Sydney this week, improving on last week’s final clearance rate of 45.3 per cent. There were 801 auctions held across the city this week, which was only 3 extra auctions compared to last week.

Across the smaller auction markets, Adelaide was the best performing in terms of clearance rates with 57.6 per cent of auctions successful, while only 33.3 per cent of homes sold across Brisbane this week.

Auction results by property type

The above results are preliminary, with ‘final’ auction clearance rates published each Thursday. CoreLogic, on average, collects 90% of auction results each week. Clearance rates are calculated across properties that have been taken to auction over the past week.

Sub-region auction stats

 

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RBA reveals: Is the cash rate staying on hold? The fall in the official unemployment rate to 5 per cent helped by above-trend economic growth is good news. But the slide in home prices in Sydney and Melbourne risks accelerating as banks tighten lending standards which in turn threatens consumer spending and wider economic growth and inflation and wages growth remain low. Against this backdrop, it remains appropriate for the RBA to leave rates on hold.

The Reserve Bank has today announced if it will keep Australia’s official cash rate at record lows for another month.  As widely predicted, the RBA has today left the official cash rate on hold at 1.5 per cent.

Australia’s top economists were unanimous in predicting another hold, including ING Direct’s Michael Witts, who said there are no triggers in Australia which would require a move.

Others, like Saul Eslake, pointed to patterns in employment which will continue to inform the RBA’s decisions.

“Although most recently reported economic growth figures were above trend, and unemployment rate is 5 per cent – the level traditionally regarded as signifying full employment – the above trend growth is unlikely to be sustained in the near-term, the unemployment figure was probably rogue, there is still a lot of spare capacity in the labour market by other measures,” Mr Eslake said.

“The RBA itself has started to wonder out loud that unemployment probably needs to be lower for longer than history suggests before wages growth starts to pick up – and, most importantly of all, the latest CPI data show underlying inflation still running below the RBA’s target range,” he said.

How low can we go?

What’s happening in our world this week and how will it impact Australian investors? Dr Shane Oliver, chief economist at AMP Capital, reveals his thoughts and predictions.

USA

In the US, the mid-term congressional elections will be held this Tuesday (6 November), with polls and betting markets indicating the Democratic Party will assume control of the House of Representatives while the Republican Party will hold the Senate. Although this is likely already reflected in the markets, Dr Oliver says the outcome may provoke uncertainty regarding the potential impeachment of Trump and policy orchestration.

He suggests it is unlikely that impeachment charges brought against Trump in a Democrat led House of Representatives will get the 67 Senate votes it needs to see his removal, although the House will probably stop the passing of more tax reforms. However, Dr Oliver asserts that, despite this, the House cannot change the already legislated cuts or Trump’s policies on deregulation and tariffs.

On Thursday, the Federal Reserve is expected to recognise various risks to the outlook regarding trade, emerging markets and the financial instability of late. However, Dr Oliver also predicts it will assert confidence in its base case of ongoing strong growth and low unemployment and maintain that gradual rate hikes remain appropriate, with the next hike set for December.

The non-manufacturing ISM data for October will be revealed Monday, with Dr Oliver anticipating it to fall back to a solid reading of 60. Job openings and hiring figures, released Tuesday, and he expects it to continue strong, while core producer price inflation, disclosed Friday, is predicted to stay at 2.5 per cent year on year.

Finally, US sanctions on Iran will come into effect Monday, resulting in a loss of 1 to 2 million barrels per day of oil supply to the global market. Although Dr Oliver assures this should already be factored into the markets, as it was announced in May, he predicts it will see further strain placed on the global supply/demand balance in oil, potentially causing additional spikes in oil price.

China

According to Dr Oliver, China’s trade data for the month of October (released Thursday) is expected to show export growth has fallen by 12 per cent year on year and import growth has dropped by 10 per cent YOY. While consumer price inflation, unveiled Friday, is predicted to continue at close to 2.5 per cent YOY.

Australia

He predicts the Reserve Bank of Australia to once again leave interest rates on hold come Tuesday. Although employment rates and above trend growth are doing well, he suggests the fall in house pricing may hasten as banks input stricter lending standards that could impact consumer spending and wider economic growth. Alongside this, inflation and wage increases stay low. As such, Dr Oliver says it is unlikely the RBA will hike rates until 2020, with some economists thinking ultimately it will be forced to cut.

Although the RBA’s statement on monetary policy, delivered Friday, is expected to increase its near-term growth and employment forecasts and decrease projections in underlying inflation, Dr Oliver says it is unlikely to offer any suggestion of a move on rates.

Finally, Monday will see the release of ANZ job data, while housing finance data will be unveiled on Friday, both of which Dr Oliver predicts will show a further drop in lending, particularly to investors.

Projections for the Australian markets

In light of all of this, Dr Oliver predicts shares will continue to be at risk of short-term weakness. However, he highlights that shares on the Australian markets continue to be up as good earnings growth is driven by strong global growth and relaxed monetary policy.

Australian bonds are continuing to do better than global bonds as the RBA holds and the Fed hikes, resulting in low but increasing yields that Dr Oliver predicts will usher low returns from bonds. Unlisted commercial property and infrastructure are still expected to benefit from the search for yield, but it is fading.

To residential house pricing, and Dr Oliver anticipates national capital city prices will continue slowing. Sydney and Melbourne’s prices are predicted to drop by another 15 per cent or so, while Perth and Darwin prices are close to bottoming out. Hobart, Adelaide, Canberra and Brisbane are witnessing moderate price increases.

Term deposit rates will remain at close to 2.2 per cent, which he suggests signals that cash and bank deposits will likely continue offering poor returns.

Dr Oliver states that the Australian dollar is at risk of another short-term bounce as excessive short positions relax following the currency falling close to its target of $US0.70. Although he predicts any near-term bounce is more likely to fall within the $US0.60s, due to the disparity between the RBA’s cash rate and the US Fed’s funds rate moving further into negative territory as the US economy booms in relation to Australia. Falling short, the Aussie dollar continues in good stead against the issues facing the global economy.”

The fall in the official unemployment rate to 5 per cent helped by above-trend economic growth is good news. But the slide in home prices in Sydney and Melbourne risks accelerating as banks tighten lending standards which in turn threatens consumer spending and wider economic growth and inflation and wages growth remain low. Against this backdrop it remains appropriate for the RBA to leave rates on hold,” Mr Oliver said of today’s decision.

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