NEWSLETTER – FEBRUARY 2016
GST INCREASE OFF THE TABLE – FOR NOW
There has been a lot of talk in recent months about a possible increase to the GST from 10% to 15% but with a backlash from the electorate and even a revolt of the Liberal back benchers Malcolm Turnbull finally announced in Parliament Question Time on 8 February that it was all but off the table.
The original idea was that the GST would be increased but personal and company tax would be reduced and low income earners would be compensated in other ways for the extra GST they would have to pay. But most of the electorate believes that the average person would end up paying more whilst the big end of town would get tax reductions. A Newspoll published in the Australian on 1 February found that 54% of voters were against raising the GST whilst only 37% were for.
It has been widely recognised that increasing the GST would impact more upon lower wage earners because they spend a greater proportion of their income on the basic consumables of life that attract GST. And all proposed methods to compensate them for this increase could become a bureaucratic nightmare to administer.
Malcolm Turnbull’s argument has been that the economic benefit from increasing the GST would be negligible and the stimulus to the economy ambiguous so it was not worth the political angst to try to force the issue.
Although this will be hailed as a back down by the government it must nevertheless be congratulated for conceding defeat on an issue when it became plain that the electorate would not accept it. How often have we seen a government push forward on an issue regardless of public opinion with nothing more than a spirit of bloody mindedness and resolve to tough out all protest.
We criticise politicians who ignore the voice of voters yet when they listen and reverse their policies we condemn them for being weak. Are we never satisfied!?
We agree that it is best not to increase GST. Any change must be part of a complete tax review not just a knee jerk reaction to our current deficit.
GOVERNMENT TARGETS SUPERANNUATION, CGT AND NEGATIVE GEARING
With GST off the table issues like superannuation, self managed superannuation funds, Capital Gains Tax and negative gearing now have even bigger targets on their backs.
The issues of superannuation, Capital Gains Tax and Negative Gearing have raised their ugly heads at regular intervals but as it has become harder to balance the books the government has firmly drawn a bead on them as a way out of its revenue/spending dilemma.
Many commentators have persisted in saying that axing all of these apparent tax perks would put $billions back into treasury coffers.
News Corp reported on 8th January in an article entitled, ‘Billions wiped from Federal Government coffers through capital gains tax property discount’;
… an analysis of Treasury figures by News Corp reveals the amount of revenue lost via the CGT concession given to individuals and trusts on property held for more than a year will skyrocket from $4.41 billion in 2010-11 to $8.31 billion in 2017-18.
There have been similar savings bonanzas of up to $2.4 billion annually predicted if negative gearing were to be abolished.*
It must also be tempting for governments to want to get their big sticky fingers onto the almost $2 trillion in super assets owned by Australian workers **
They toy with the idea of solving all the country’s budget woes with a few stokes of the legislative pen. Admittedly the average worker can’t see the sense in giving part pensions and all sorts of tax concessions to those who might have more than a $1million in super and it must be remembered that most people in this bracket would also have a home they own freehold. This has given rise to calls for the family home to no longer be exempt from any means test for tax concessions.
What many forget is that without the Aussie investor the supply of rental properties will dry up. Not only would we have a rental crisis but it would lead to a larger real estate crisis which would spill over into the whole of our real estate dependent economy.
The Treasurer, Mr Morrison, at his National Press Club address on 17th February talked at length about the economy and hopes for tax reform but he made it abundantly clear that at the coming budget we should not expect anything like significant tax relief for the average wage earner. He did, however, suggest the main changes would assist those who have found themselves creeping into the next tax bracket due to inflation.
It’s what he has not said that is more telling. He made no suggestions about the big changes that so many investors fear which could ruin their whole financial & retirement strategy.
He also suggested that reigning in the deficit would also take many budgets into the future to rectify. The grand announcements of the LNP to speedily undo the damage done by Labor have had a reality check but we should not get too disheartened. Slow and steady repair is not so bad so long as it is being repaired.
Media outlets are also reporting that the LNP back benchers are revolting against moves to cut into Negative Gearing which would be good news for the 1,213,595 investors reported by the ATO as having a Negatively Geared Property in the 2010/11 financial year; obviously a few more now.
At this point there seems to be only a hint of tinkering around the edges of entitlements for these key tax policies that affect investors so much. Nevertheless it is not a time to get too complacent because changes of some description will come in sooner or later.
Every would be investor should realise that if you secure yourself a property now, in general, you also lock in place the tax rules that are current now. Only future investors will miss out so the longer you delay the more you stand to loose.
* The Sydney Morning Herald, Business Day ran an article on 29/9/2014, ‘Kill negative gearing to calm housing market, says Saul Eslake’;
“ … The Grattan Institute pegs the cost in lost tax revenue to the federal government at $2.4 billion a year.”
** [reported by the Association of Superannuation Funds of Australia (ASFA) to be an estimated $1.995 trillion as at the end of the September 2015 quarter]
WHAT TURNS OFF BUYERS
Anyone selling a property should think hard about presentation but don’t overlook what turns a buyer off even in a well presented home. There are many lessons to be learnt with some more obvious than others.
To know what turns off buyers who better to ask than someone who presents homes for a living. Here is a quick list;
A No Brainer
Most people would realise that a modern kitchen with a reasonable amount of cupboards and a good bathroom are a must to attract the better buyers but there is a lot more than just that. Even a lot of brand new kitchens will fail in the basics especially if they are a budget kitchen. Is there adequate bench space; after a microwave goes on plus a kettle and toaster some kitchens don’t even have enough room to spread your toast in the morning. For any suburb there is a price for a house beyond which buyers expect things like a dishwasher or a decent sized fridge alcove. Forget about some of these things and you might as well discount your price by $10,000.
Many people will run the taps in a house including in the shower to test the water pressure and to see how hot the water gets. They must have had a bad experience.
Internet & Phone Reception
This can make the perfect home into a no go zone for any student or professional who works at home not to mention the avid gamer. There can be many options for you to pursue to get a good connection before you go onto the market.
You can bet your prospective purchaser won’t be able to explore these options as well as the owner can; they will go to the house for sale at the other end of the street.
A separate vanity outside of the main bathroom can be a sort after option especially if the house has only one bathroom. For some people it might be just as important as a second toilet. But with no separate vanity lighting and only the main central light when you will stand at the mirror the light will be at your back and your face in shadow.
You might lose a buyer who doesn’t want to do any modifications; and there are a lot of them, including me.
Timber sleepers common in retaining walls can be a source of real concern for potential buyers. They have a very limited life span although it can vary drastically depending on the soil type, dampness and presence of termites.
Even if they are new and look perfect they introduce an element of doubt. Concrete is the obvious choice – if you get the opportunity to rebuild.
Poor Presentation by Tenants or Owners
This is what very quickly scares many buyers but if you want to get a bargain look at these homes very carefully. After settlement the junk should be gone and underneath there might be a beautiful home.
One of these homes can be music to the ears of the bargain hunters but if you are the seller then you need to consider getting a Professional Property Stylist in to give you some key advice that could make you a windfall.
Strata Fees and Sinking Funds
Strata units, apartments and homes built within Community Groups can have significant quarterly fees attached. There is not much an owner who wants to sell can do about these but they represent a real hurdle for many buyers such that they can cross these types of properties off their list without a second thought.
If you still find one of these properties that you want to buy have a close look at the fees and just remember the sinking fund is a fund of savings put away in case of future maintenance so it can change from time to time. It is probably there to help you maintain the externals on your property so it’s not all bad.
High fees can be due to the maintenance requirements of facilities such as lifts, gardens, pools, gyms and other shared facilities that might have been the reason you were attracted to the property in the first place. You will need to read the minutes of the Strata or Corporation Group very carefully to find out if there are any significant issues such as large maintenance works planned soon which may even require a new owner to contribute extra to.
There is often little a seller can do about these things. They are the things not shown in the usual real estate marketing but are what every buyer wants to know about. Even vacant land or laneways next to the property for sale will detract some people.
Unusual Sale History
Homes sold at regular intervals can be an indicator of something odd going on such as structural problems that don’t become evident for a while after purchase or nightmare neighbours.
If you own a home like this you might need to think hard on what you need to do to break the cycle. I know people with difficult neighbours who are wait them out. When they leave the area it will be like a new lease on life and $1,000’s extra at settlement.
Poor Advertising for the House
Poor quality and/or few photos and no floor plan for a property for sale is like a messy home it gives your buyers no idea of what the house is really like.
I remember one buyer saying that he reluctantly went to one open inspection, expecting very little, but was amazed to find a gem. There was no one else at the open inspection so they got a buy of a lifetime.
Depending where you live you might know examples of Asian buyers who were turned off a property because it didn’t comply with the requirements of Feng Shui.
We do not necessarily endorse everything that is said by people and companies we make reference to in this newsletter but in all
situations before making any decisions based on what you read above we recommend that
you do your own investigations first to determine if any course of
action is right for you.