NEWSLETTER – JANUARY 2016
BIG CHANGES COULD BE ON THE WAY
The Chinese stock market suspended trading on 4th January after suffering big losses that triggered automatic shutdown mechanisms setup by the Chinese government to steady the rapid devaluation of the Yuan. Then only 3 days later on 7th January it happened again with a 7% loss.
Stock markets around the world reacted with similar drops including a 2.3% drop on Wall Street and the Australian stock market lost $33 billion.
Analyst Angus Nicholson from the Melbourne trading firm IG was reported by The Guardian as saying;
The great concern for global markets is that the dramatic pace of the currency devaluation seems to indicate a far greater weakness in the Chinese economy than is easily perceivable in its publicly released statistics. A lot of people in the market are speculating that this is primarily about boosting exports and stimulating the slowing economy. While this no doubt will help, the primary concern for the government is deflation
The Wall Street Journal reported that later on Thursday the Chinese government said that it would suspend its new circuit breaker mechanism that has been at the centre of its stock market unrest.
The Wall Street Journal Market Data Group yesterday also reported, “Some investors shrugged off the Chinese declines, saying they were likely magnified by the threat of an expiring ban on selling by large shareholders.” The thought was that with the likelihood of the government removing the restraint from big shareholders selling the little guys wanted to get in first.
The overall thinking is that 2016 will experience continued volatility in the share markets until a new equilibrium is found and who knows how long that will take.
As always we at Adelaide South Property continue to place our confidence in land.
The other major issues facing investors will arise during our tax debate
Like these stock market jitters the Turnbull government’s determination to fuel the tax debate continues to bring uncertainty to investors who are not sure which way to turn.
Although it’s been mentioned many times before there looks to be a renewed attack coming against the Capital Gains Tax (CGT) rebate for investors. Currently if any investor sells a property after 12 months they get a 50% discount on the tax they pay on any profit they made from a sale.
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.
The Treasurer urged caution over changes
An important quote from this same article was from the Treasurer;
Mr Morrison urged caution over changes to negative gearing however, saying property investors were responsible for one third of new housing supply. “If those that argued for the complete abolition of negative gearing and the CGT discount were successful you would certainly see less housing construction, less rental stock and higher rents as a result,” he said.
Combined with the broader threats on negative gearing, hikes in the GST and superannuation changes the coming tax debate is going to be of paramount significance to investors.
What every investor or potential investor should realise is that most of these sorts of changes usually only affect future purchases so we at Adelaide South Property urge you to buy now. If you are at all thinking about investing in property a purchase now should insulate you from most of these changes.
HOW EASY IS IT FOR FOREIGNERS TO BUY PROPERTIES IN AUSTRALIA?
Many locals think rich foreigners come here with money to burn and not too much sense when it comes to working out what’s a good property or a good price to buy. But what they lack in knowledge of the local market they make up in mega bucks to smooth over all the problems that you or I would flounder on – or at least that is what lots of us think.
Foreigners can be the victims of uncaring or unscrupulous real estate agents often from their own country of origin. They come to a country, like Australia, of which they know very little so naturally they gravitate toward their own countrymen who give them reassurance about a property for sale but so often it’s a reassurance with all the substance of a snow flake in Marble Bar.
So they buy where they are told for a price that’s supposed to be good but in the years following they may come to realise they were ripped off. The huge commissions they unthinkingly paid lined the pockets of those agents who they thought had been helping them and the price they paid just added to the pressure of inflating the cost of local real estate.
The media says foreigners push up prices which push out locals especially first home buyers. The fact is that in general foreigners are not allowed to purchase established or second hand properties regardless of whether it will be for their home or an investment property. They are restricted to buying new and all purchases must be approved by the Foreign Investment Review Board (FIRB).
This means foreigners are only competing for new homes therefore locals have the established homes to themselves. And remember an established home might be only 12 months old so this hype about first home buyers being squeezed out of the market is largely a media beat up.
Regulations surrounding the purchase of properties by foreigners are relatively complex and have become even more so since 1st December 2015 when the FIRB introduced application fees and compliance penalties.
Engaging a Buyers Agent can be the solution
Foreigners can’t buy old or established properties but there are a few exceptions so they need to consult people who know what these exceptions are.
Adelaide South Property can help and we also know what purchases rarely fail to gain approval. Any foreigner must also weigh up the benefits of getting lower interest rate finance from their country of origin compared to using an Aussie bank. They may be more expensive but banks here will loan more, provide fixed interest rates and a greater variety of products and they will be protected from currency fluctuations.
It’s also critical to understand taxation obligations but just as important to also understand entitlements to claim big reductions in tax for costs incurred for things such as council rates, water rates, insurance, depreciation on the asset, interest on Aussie loans and much more.
It’s not necessary for foreign buyers to restrict themselves to only purchasing off-the-plan properties marketed overseas by Australian developers. Anyone buying off-the-plan can’t always be sure that what they have ordered on paper will be what they like when finished and you can never be 100% sure if the quality of workmanship will be forthcoming.
On the other hand when you buy a newly built house what you see is what you get – no uncertainty.
We believe that no foreigners, except for those who have substantial living experience in Australia, should contemplate purchasing any property without expert advice from a Buyers Agent.
Any person, not just a foreign buyer, needs to use a Buyers Agent unless they are able to personally search through maybe many dozens of properties before they find the right one. An Agent can introduce you to many properties and eventually make a short list of the ones you like. They would all be inspected and you would receive many photos and a full report on each one. Once you have decided on a property the Agent would negotiate a price and, if you wish, you can authorise the Agent to sign all contracts on your behalf.
There will be no obligation or cost for any initial consultation so if you would like to discuss your situation with us please contact either;
Mark Nielsen on +61414 969 490 or firstname.lastname@example.org
Cheryl Lee on +61406 277 701 or email@example.com
IT NOW COSTS $1 TO POST A LETTER
Australia Post announced that from 4th January the cost of postage will rise 40% to $1 for a standard business letter and delivery will now take 2 to 6 working days. I saw this on a news feed on 9news.com.au along with a story that North Korea has tested a hydrogen bomb and I don’t know which is worse.
The increase in prices was expected, after Australia Post recorded a loss of $222 million – its first loss in 30 years. They sure jumped quickly to the price hike solution. Couldn’t they have suffered for another year or two … maybe not.
Apart from the extra costs further problems become evident because of the longer delivery times. In many business and legal situations there has to be an assumption regarding the time it takes for a letter to be received.
Up until now it has been recognised that normal postage within the Adelaide metropolitan area takes 1 day but now it is 2 to 6 business days. The 2 days is not so bad but if we now have to assume it takes 6 business days for delivery that becomes 8 days including the weekend which is ridiculous. However if you pay an extra 50cents this is reduced to 1 to 4 days but the only way to guarantee next day delivery of a standard business letter is to pay $5.75 for Express Post. So what used to cost 70 cents has now increased to $5.75 !!
It is interesting to note that on 6th January the Australia Post website stated normal delivery time for a standard letter would be 3 to 6 days but on 7th January it was changed to 2 to 6 days.
These changes clearly show that Australia Post has been struggling to remain viable. This is due to the encroachment of the digital era with its instant communication & web based delivery options not to mention the advent of Facebook. These shenanigans from Australia Post may be the thin edge of the wedge but nonetheless ‘snail mail’ remains a critical pipeline for a lot of information for business.
One way this will immediately affect Real Estate Agents and their landlords is with the delivery of statutory forms for residential tenancies.
If a tenant is 15 days or more in arrears with their rent they can be served with a ‘FORM 2 NOTICE BY LANDLORD TO TENANT TO REMEDY BREACH OF AGREEMENT – NOTICE OF TERMINATION’. Once this form has been served they have 7 days to pay otherwise they must either vacate the property the next day or dispute the notice.
Previously, including delivery of the notice, the agent or landlord would have to allow 9 days between the date the notice was posted and when the tenant had to pay. Now they will have to allow an extra 7 days!
Currently there is no decision from the Tenancies Branch of Consumer & Business Services regarding what they will now accept as a reasonable time to allow for postage. They are just quoting the Residential Tenancies Act by saying service happens when you believe it is reasonable to assume a notice has been received. But if you were to think that even 3 days was reasonable you might get a rude shock when you find the South Australian Civil & Administrative Tribunal (SACAT) were to rule it to be 6 days and so many applications may be deemed invalid.
Alternatives could involve emailing the notice then texting the tenant to advise it has been sent or Agents could increase their charge to landlords to issue these forms but email is too simple to overlook. So inadvertently Australia Post might have helped to nail down its own coffin lid.
It might not be the end of life as we know it and Kim Jong-un might still get more attention from the media but I think, this change in the rules is going to be another milestone in the irresistible encroachment of technology over a much simpler and certain way of life that many of us used to know.
WHAT IS THIS ROOM FOR?
This is the question someone asked me as I showed them through an empty house I had for sale!
It might sound reasonable, innocence, sensible, stupid or quirky but what it really means is that without furniture a house can be anything and demonstrates graphically that most people find it difficult to visualise the potential of an empty canvas. What it means for Vendors and Real Estate Agents is that marketing a house has to accept this quirk as reality and he who fails to do so is throwing money way.
Empty houses will sell but probably for many thousands of dollars less than if properly decorated.
With this in mind it makes the average cost of hiring a Property Stylist of about $1,500 money well spent.
Wendy O’Connor from Property Presentation Plus did another master work for our recent sale at Huntfield Heights. The before and after photos are very telling but they don’t show all the discussions with the owners, the colour schemes & furniture options considered, advice on where to spend money and what not to spend to create the WOW factor that got one of the highest prices in the area. But have a look at the photos anyway and you might get some idea of the transformation.