Many small businesses operate from the owner’s home. This could mean the factory is a shed in the backyard and the office a corner of the kitchen or dining room table.

For others the business can have a separate section of the home or permanent structure on the property used exclusively by the business. The facts of each case will determine what costs can be claimed as a tax deduction.

Business owners are often keen to claim a percentage of the interest on a loan where a mortgage has been taken out to purchase the property. The ability to claim property related expenses will depend on two tests being passed.

The first requires part of the home or the property to be set aside exclusively as a place of business. This would mean the part of the home used for business purposes could not have a dual private usage component. Setting up half of a large rumpus room as an office, with the rest being used for private purposes, would not satisfy this test.

In addition to the exclusive use test the section used for business purposes must be clearly identifiable. This can often mean that there is an entrance for the part used as a home and a separate entrance for the section relating to the business.

Building a shed that is used exclusively by a business for manufacturing or storage purposes would result in part of a property being classed as business premises.

If these tests are passed a portion of the property related expenses can be claimed including interest on the loan to purchase the property and rates. The method used to apportion the expenses must be able to stand up to the scrutiny of the ATO. An accepted method is calculating the area used for business purposes as percentage of the total area of the home.

In addition to the property related costs a tax deduction can also be claimed for the occupancy costs such as electricity, gas, telephone and internet usage. For these costs the owners must again be able to prove how they apportioned them between business and private usage.

Where the business property tests cannot be passed a business can still claim a portion of occupancy costs.

The ability to claim property related expenses does however come at a cost. By establishing a home or property is used for business results in a loss of the main residence capital gains tax exemption for that part of the home or property.

This will mean the owners of the business need to have the home valued at the time it starts to be used for business purposes. When the property is sold a portion of the difference between the net sale proceeds and the value when the business was started will be taxable as a capital gain.

Thankfully in this situation if a business owner passes the small business capital gains tax exemption tests income tax may still not be payable.

Tax for small business, a survival guide, by Max Newnham is available in bookstores.

Story source: www.domain.com.au

The Reserve Bank of Australia has cut interest rates by 50 basis points in an unexpected move that should provide welcome relief to many homeowners.

The reduction takes the official cash rate to 3.75 percent.

Damian Smith CEO of financial comparison site RateCity called the RBA’s decision "a very big move".

"They haven’t moved rates this far since the depths of the Global Financial Crisis," Mr Smith told ninemsn.

"This cut will help thousands of households, with people on a $300,000 mortgage potentially saving around $1000 per year."

But he warns that some banks may be unwilling to pass on the rate cut in full.

"It’s unlikely that all lenders will pass on the full rate cut," Mr Smith said.

"The signals from the big four banks suggest that they will try to hold on to part of this rate cut."

Mr Smith points out that while the central bank has lowered the cash rate by 50 basis points since November, "the big four banks have only passed on around 40 basis points to variable rate home loan customers".

It is the largest cut to the cash rate since a 100 basis point reduction in February 2009, and the first time the RBA has lowered the cash rate since it cut it by 25 basis points at its December board meeting.

Business lobby groups, trade unionists and some economists had called for the board of the RBA to cut rates by 50 basis points to help ailing retailers, manufacturers and the stubborn housing market.

Story source: www.ninemsn.com.au

Australia’s housing sector has called on the reserve bank to deliver a 50 basis point interest rate cut after a survey showed new home sales have fallen to their lowest level in more than a decade.

The Housing Industry Association (HIA), which represents the residential building industry, says new home sales dropped 9.4 per cent, seasonally adjusted, in March 2012, their lowest level in more than 10 years.

Multi-unit sales slumped 6.4 per cent over the same period.

HIA chief economist Harley Dale called on the Reserve Bank of Australia (RBA) to deliver a 50 basis point interest rate cut at its board meeting on Tuesday.

An AAP survey of 16 economists on Friday showed all expected the RBA to cut the cash rate 25 basis points, to 4.00 per cent, this week.

However, Mr Dale said a larger cut was needed to revive the housing sector.

"The bank needs to send a clear signal that it is back on the case of assisting an economy that is clearly weaker than it anticipated in 2012," said Harley Dale.

"It is not too late to turn the situation around and prevent new housing from revisiting a GFC (global financial crisis) low.

"Interest rate cuts, while no panacea, can provide substantial assistance in restoring confidence and activity."

The survey of Australia’s 100 largest builders found Queensland suffered the biggest decline with new home sales down 15.3 per cent, followed by Western Australia, down 12 per cent, and New South Wales, down 9.7 per cent.

Story source: http://finance.ninemsn.com.au

Hard at Work Setting up the New Website

Beginning the 1 May 2012 we will have our “new-look” site up and live for all to visit.

Yonika, Dylan Marie and myself have put a great deal of thought, hard work and effort into producing a user friendly, convenient website that will hopefully make it easier and more interesting for our valued clientelle to access.

We have properties for sale, rent and holiday lettings in the Lennox Head, Ballina, Byron Bay, Bangalow, Hinterland and surrounds available to browse in a new, crisp format.

We are confident that the new site will be a pleasure to explore.

Many of us could spend hours (possibly weeks) pouring over pictures of hip homes in interiors magazines, and dreaming … If you’ve ever pondered the secrets of these pads’ photogenic success and wanted to emulate them, here are a couple of general tips:

Story time: Most photoshoots capture pictorial vignettes – the sofa, the casually draped throw, the lovely fluffy cushions, the pile of artistically arranged books … It’s not just about the furniture; it’s about what these items say and the story they tell about you and your home.

Go into detail:  A photographer’s nightmare is a room with no possessions on show. Editors love details – knick-knacks make a home a home.  We’re not thinking for a minute that you cover every space with your old telephone bills and children’s drawings – think knick-knacks, photos of loved ones and think about putting some of your children’s special pics in a frame – and put the bills and clutter out of sight!

Set great store: Good storage is vital – but it doesn’t need to be an expensive built-in: photographically that’s dull. Try a trendy glass cabinet, such as the eye-catching, Forma.

All the little things:  Bold doesn’t have to equal expensive. If you’re nervous, build on a neutral base – beige or brown lounge – then take risks with accessories: zingy cushions or throws, or a ceramic jar – much cheaper than getting the wrong lounge.

Screened off: Something you’ll never see in an interiors mag is the TV! They’re so huge now – and not pretty. Hide giants in a cupboard – and never hang one over a fireplace.

Personal appearance: Forget having the ‘right’ or fashionable thing. The best style is surrounding yourself with things that you love.

To create that beautifully designed magazine look, be sure to follow these tips.

Source: Nick Scali Reviews

Amid news that finding a rental property may have temporarily gotten a little easier with asking rents for units dropping 1.1 per cent during the first three months of the year, comes a warning that the easing won’t last.

Dr Andrew Wilson, the senior economist at Australian Property Monitors, says ongoing shortages of accommodation, low levels of new supply and continued inactivity by investors, will lead to upward pressure on rentals this year.

APM figures show weekly asking rents for units either fell or were steady across all capital cities in the first three months of the year.

Median weekly asking rents for houses remained unchanged in Sydney, Melbourne, Brisbane and Perth.

Minor relief was handed to house renters in Canberra with a 2 per cent fall, and in Adelaide to a lesser extent, where the asking rent for houses dipped 0.6 per cent.

The ongoing tight rental situation has led to renewed calls from two experts for the Federal Government to take a fresh look at negative gearing.

Dr Chris Martin, a senior policy officer at the Tenants’ Union of NSW, says bluntly: "There’s a bunch of things that could be done to negative gearing that would go some way to changing what it currently does to our housing system, which is screw up house prices and distort the rental market to the disadvantage of low-income renters.

"We have such a large number of landlords who have small holdings, typically most of them [own] only one property, and they are amateur speculators," Martin argues.

"They are more interested in being able to sell the place when they judge the time is right to either realise gain or lever up into some new, even higher-value property. And so their … strategy, depends on being able to get vacant possession when it suits them.

"Even more than our renting laws, it’s the nature of our landlords and their strategy that makes renting as insecure as it is."

Martin says the tenants most acutely affected by a shortage of rental properties are low-income earners who don’t qualify for social housing.

The union has found backing in Saul Eslake, who recently took up a role as chief economist of Bank of America-Merrill Lynch Australia.

Eslake has been following the Australian property market for more than three decades.

"Interests associated with landlords and the real estate industry more generally will always tell you that the abolition of negative gearing would be the worst thing that could possibly happen to tenants, not to them but to tenants, because they think it would lead to a landlord strike and huge increases in rents," says Elsake.

"They sometimes argue that ‘look at what happened in 1986 when the Hawke Government temporarily abolished negative gearing for rental property investment’, which they allege was a surge in rents as evidence of their assertions.

"In fact there was a significant increase in rents in Sydney and to some extent also in Perth … but it was only in Sydney and in Perth and in other parts of the country, the rate of increase in rents either slowed or actually fell.

"The truth is that negative gearing was abolished temporarily everywhere and if the abolition of negative gearing was going to cause a problem then … rent should have gone up everywhere rather than in just two cities.

"That’s a sort of an urban myth that has been living for the last 25 years to the detriment of informed policy making."

However, Eslake isn’t just advocating the abolition of negative gearing on investment properties.

"That would be quite unfair," he says. "I mean why should property investors be denied tax breaks that would still be available for investors in shares or bonds or artworks or gold? So I think it should be abolished for everyone.

"I’d even support, as a compromise, what the Henry Review proposed, which is that expenses association with property should be deducted at the rate at which the income from property is ultimately taxed on i.e. at the capital gains tax rate, that would be, to my way of thinking, a reasonable compromise, even though it falls short of what I’d regard as the ideal."

Story by Carolyn Boyd, Story source: www.domain.com.au

Foreign investors have “very odd” views about Australian property and fret that housing prices may yet collapse, according to a senior Australian banking executive.

“Overseas investors have a very odd set of views about Australian property prices,” Phil Chronican, ANZ’s chief executive of its Australian operations, said today.

“They on one hand look at the stability and take a lot of comfort from it. The other is they cannot believe Australia was able to not have a property price collapse.”
Questions about the health of Australia’s property market continue to surface in talks ANZ has with investors overseas more than four years after the financial crisis battered real estate markets in the US and UK, Mr Chronican told the American Chamber of Commerce in Melbourne.
Australia’s capital city home prices have lost 4.4 per cent in the year to March, and the outlook remains subdued.

While home prices have turned positive in the past two months, building approvals and dwelling starts have plunged and a shortage of affordable homes remains.
In the wide-ranging speech, the executive in charge of ANZ’s domestic market said the mining boom was passing many Australians by, contributing to a drop off in consumer activity in recent years.
“Despite our strong economy, many Australians feel worried about our prospects in the face of uncertainty in Europe and many, particularly outside the fast lane of the mining and resource sector, feel they’re not seeing the benefits,” Mr Chronican said.

Story by Chris Zappone, www.domain.com.au

The Australian Government has chosen to simultaneously introduce three significant tax changes that directly affect the Australian Construction Industry. See what those big tax changes are and how they will affect you.

According to the Australian Bureau of Statistics the construction industry is the fourth largest contributor to Australia’s GDP accounting for around 7% of Australia’s total economy and over 9% of Australia’s employment. Construction has been a backbone of the Australian economy and the Australian way of life. Notwithstanding, the Australian government has chosen to simultaneously introduce three very significant tax changes that directly affect the Australian construction industry.

As of July 1, 2012, the construction industry will be hit with the implications of:

• Carbon Tax
• Mining Tax
• Compulsory reporting of subcontracting arrangements

This is a time when the government has already withdrawn support from those in the building and construction industry through:

Eliminating the free home insulation scheme.

Not continuing or increasing the School Building and Renovations program.

Being extremely inconsistent on when and if they are going to subsidise solar.

Taking longer than expected to roll out the National Broadband Network (a major infrastructure project consuming huge construction industry resources)

It has also come at a time when the Federal and State Governments are applying increasing requirements for builders to build green home and green renovations such as Victoria’s recent upgrade to a minimum 6 star rating for new homes at the same time that consumers are trying to build bigger homes with smaller budgets.

The Carbon Tax and the Construction Industry

Service Central has already published a review of how the Carbon Tax will affect the Construction Industry here, however let’s go over the key points once again.

Manufacturing the materials used in construction of new homes and renovations is extremely carbon intensive. As a result the carbon tax will add thousands of dollars of new costs to a new home. The HIA estimates that with the introduction of carbon tax the price of a new home will increase by between 0.8% and 1.7%.The Allen Consulting Group have released a carbon price mechanism report that estimates that the carbon tax will add around $3,821 to its model two storey detached brick veneer 200m2 house.

The Allen Consulting Group report found that in building a two storey home in NSW you would see increases in a broad variety of building costs, including:

• Direct Energy: 6.8%
• Aluminium: 4.1%
• Bricks: 4%
• Concrete: 3.2%
• Steel: 3%
• Carpet: 2.6%
• Paint: 1.5%
• Timber: 1.5%
• Glass: 1.1%
• Plasterboard: 1%

The Mining Tax and the Construction Industry

Whilst the Mining Tax is not directly related to the Construction Industry, the Government’s Mining Tax will increase the costs to an industry that supplies materials to Australia’s Construction Industry.

The mining tax that is set to commence from July 1 2012, imposes on select sectors of the Australia’s Mining Industry a 30% tax on extraordinary profits, specifically in the coal and iron ore sectors.

Similar to the Carbon Tax, this Mining Tax could have a flow-on effect to the Construction Industry that causes price increases in building materials and construction costs. An increased cost of production in the coal industry could lead to even further increases in the cost of Direct Energy as a significant proportion of Australia’s electricity is produced using coal. Building products that use a lot of energy in their production such as aluminium, steel and glass could be hit hard.

Targeting the iron ore sector also could have a direct flow-on to the cost of steel, a major component in the manufacture of Australian homes.

Tax Office targets Construction Industry in Sub-Contractor Crackdown

The third prong in the Government’s three-prong attack on Australia’s Construction industry is a significant crack-down on payments to subcontractors by builders with the introduction of mandatory reporting to the ATO of all payments made to subcontractors.

The new tax regime starts on July 1, 2012, and requires builders to report to the tax office all of the following:

The details of sub-contractors used by the builder.

The ABN of each subcontractor.

The exact amounts paid to each subcontractor.

It is proposed that the ATO will be using this information to data-match against the tax returns of each subcontractor. It is possible that discrepancies in the amounts reported by the builder and the subcontractors could lead to further scrutiny of their accounts by the Australian Tax Office.

The ATO has also indicated that it may share this information with various State and Territory authorities that could, for example match with payroll tax and workers compensation payment records.  Should this information also find its way into the hands of construction industry run superannuation and insurance schemes, significant additional costs could be imposed on small businesses.

Accountants have said that this extra reporting requirement will cost builders on average of $300-$500 per year extra in compliance costs. There are also risks that builders will be hit with extra costs as a result of increased audits from the ATO of their businesses and the businesses of their subcontractors. Furthermore, subcontractors may seek to increase their rates to builders as a result of the extra risk of the builders reporting their payments directly to the tax office.

The guidance from the ATO as to what needs to be reported and what doesn’t has been confusing to say the least. For example, the ATO has said that domestic building projects will be exempt from the program, however if the domestic building projects involve the use of subcontractors then they will need to be reported. Given that nearly every building project (of any size) involves the collaboration between various contractors (plumbers, electricians, painters, tilers, etc) it would seem that this “exclusion” actually might still capture the vast majority of projects.

This change comes into operation on July 1, 2012, so we would highly recommend that everyone in the building industry (builders as well as subcontractors) speak to their accountant about how this is going to affect them. If you’re accountant is not experienced in these matters then it is important that you post a job request for an accountant and get some quality advice for your business.

Resources:

Carbon Tax

http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/1350.0Feature+Article1Oct+2010

http://hia.com.au/media/Industry-policy/~/media/Files/documents/Carbon%20Tax%20documents/carbon_tax_price_adjustment.ashx

http://www.allenconsult.com.au/resources/acgcarbonprice2011.pdf

Subcontracting

http://www.smartcompany.com.au/construction-and-engineering/048605-the-building-industry-gets-ready-for-changes-to-tax-reporting.html

According to the Australian Bureau of Statistics the construction industry is the fourth largest contributor to Australia’s GDP accounting for around 7% of Australia’s total economy and over 9% of Australia’s employment. Construction has been a backbone of the Australian economy and the Australian way of life. Notwithstanding, the Australian government has chosen to simultaneously introduce three very significant tax changes that directly affect the Australian construction industry.

Story source: http://www.servicecentral.com.au

Knowing your limits and the market will help to expand your property portfolio.

Why do some people struggle to buy one investment property and yet others manage to own five or six? The answer isn’t simply that they have more money.

Investors who are creative in their approach to financing and who thoroughly research the important real estate indicators routinely achieve their goals faster and with less hassle.

There are several well-known ways to increase a property portfolio. You can take out an interest-only loan, buy with partners as ”tenants in common” or tap into your home equity.

Owning an investment property is not out of reach, it simply requires an astute approach. Photo: AFR

All of which help free up cash flow, enabling you to make more substantial contributions to a principal place of residence or to access cash flow for other investments. Coupled with buying investment properties in the right place at the right time, these tactics have reaped financial rewards for many people.

But savvy investors take their strategies to the next level. Let’s look at some of the less-traditional approaches to more profitable property investing.

Varying your income tax

If you’re negatively geared, a good way to improve immediate cash flow is to ask your accountant to submit an income tax variation form to your payroll office.

This reduces the tax rate charged on your wages by estimating your total end-of-financial-year tax position in advance. Rather than receiving a lump sum tax refund, you receive money evenly throughout the year.

Line of credit with a global limit

This is a line of credit home loan with a ”global” or ”umbrella” limit and several sub-accounts. It gives you maximum access to your equity to optimise your investment opportunities. The loan can be operated with multiple accounts under one global limit.

Mortgage Choice spokeswoman Belinda Williamson says line of credit accounts can be attached to a credit card. ”If you earn a decent income, using a credit card for expenses should mean that most of your income stays in the loan until the credit card payment is due, which helps to reduce the loan balance.”

Targeting distressed vendors

Successful investors don’t appraise the properties on the market in an area, they try to work out why they are for sale. Paul Osborne, of the buyer’s advocate firm Secret Agent, says it’s a smart move to understand household indebtedness in specific areas to snare a bargain.

He says many households are managing to service only the interest repayments, not the principal amount, of their home loans. As a consequence, the best buying opportunities tend to be in suburbs that have high proportions of household debt.

A secondary dwelling as an investment

Building second dwellings, such as granny flats, on the land held by either an owner-occupied or an investment property has become a growing trend. These dwellings can generate extra rental income and increase the property’s future value.

They also provide depreciation benefits and must be council-approved. Lending criteria for secondary dwellings varies from lender to lender and it’s smart to monitor how such additions in an area have shifted property values.

Choose a loan tailored to your needs

Depending on your finances, lifestyle and investment portfolio, there are a range of property loans to consider. Ms Williamson recommends checking the health of your home loan at least once a year.

”You should make sure that your loans not only meet your current needs but also take your future needs into consideration,” she says. ”Make sure that you are managing your loan, rather than letting it manage you.” Always be aware that new products are entering the competitive housing finance market constantly.

Story source: www.domain.com.au Story by Chris Tolhurst

In a world first, property-obsessed investors will be able to check house prices daily and trade on an index that tracks the ebbs and flows of dwelling prices across Australia.

The Australian Stock Exchange and property data providers today launched a capital city home value index tracking home prices in Sydney, Melbourne, Brisbane, Adelaide and Perth that is designed to be tradeable on the stock market.

The index, backed by property group RP Data-Rismark, will ”impute” the value of all dwellings in Australia’s capital cities and include daily price updates from homes sales across the country.

The index was developed to cater to the demand of investors – many of them overseas hedge funds – anxious to bet Australian house prices would eventually fall as they have elsewhere during the global financial crisis.

Although the indices are not tradeable yet, the Australian Securities Exchange is looking into products based on them, which would potentially allow local and overseas investors to profit – and lose – from bets on the where Australian home prices are going.

"ASX continues to investigate the creation of exchange-traded products with the objective of allowing investors to replicate the return and performance characteristics of the Australian residential property market," said ASX’s product development manager Brian Goodman.

"The ability to obtain and optimise residential property exposure with an exchange-traded product will enable investors to efficiently manage exposure to this asset class."

Developers could also potentially use investments in the index as a hedge, to protect themselves against fluctuating market price movements that affect building projects.

Previously data tracking the movement of house price has only been available on a monthly or quarterly basis from a range of providers such as RP Data, Australian Property Monitors and the Real Estate Institute of Victoria.

Advances in computing technology now allowed daily ”real time” updates, RP Data research director Tim Lawless said. The new index shows capital city dwelling values in February rose by 0.8 per cent, after a 1 per cent fall in January.

Home values jumped by 5 per cent in Darwin, 2.2 per cent in Hobart, 1.8 per cent in Melbourne, 1.9 per cent in Canberra, 1 per cent in Adelaide and 0.8 per cent in Sydney to the end of February.

They fell 0.1 per cent in Brisbane and 1.8 per cent in Perth. The daily capital city house price index will also account for the number of bedrooms, bathrooms, land area and location of a property to allow for ”accurate analysis of true value movements across specific housing markets,” RP Data said.

Only 6 per cent of Australian homes are sold each year. Of those, about 1390 are traded across the country each day with most transactions weighted towards weekends.

Australia’s residential housing market is worth an estimated $4 trillion, about three times the value of the $1.2 trillion equities market and the $1.3 trillion held in superannuation funds, Mr Lawless said.

"As Australia’s most valuable asset class, accounting for around 60 per cent of Australia’s major banks’ balance sheets, it is important to have the best possible measurement of housing returns and rental yields,” he said.

Only one other property index in the world in the United States was tradeable and it used historical data that was 63 days old, Mr Lawless said. The ASX will need approval from the Australian Securities and Investment Commission before the investors are allowed to trade on the new index.

Investors are likely to include super funds and big institutions such as banks wanting to hedge their property exposure risks.

sjohanson@theage.com.au www.domain.com.au

There are times that cause you to take a reality check on Australia’s overriding view of bricks and mortar as investments.

As brown swirling flood waters force thousands of people from their homes in NSW and northern Victoria last week, the images of rivers breaking their banks and gushing through gardens and into homes are enough to make you cry.

When one devastated homeowner declared on national television that he "wasn’t going through this again", his pain was raw for all to see.

Imagine being forced to grab a few precious belongings and leave your home to the will of nature.

Yes, it’s only brick and mortar, and not lives, but for many people – if not almost everyone – a home is part of what defines you. It’s full of memories. And most poignantly, brimming with dreams of times ahead.

A spokeswoman for the Bureau of Meteorology says the recent high rainfall is a result of La Niña and is not necessarily related to longer-term climate change.

Nevertheless, given that this week’s widespread flooding follows last year’s wave of floods, cyclones and bushfires, the question facing many Australians is whether this is situation normal, and if so, do we need to adapt our style of housing, or the infrastructure around it?

In a speech given by Insurance Australia Group chief executive Mike Wilkins late last year, he called on governments to learn the lessons from our recent experience to make our communities safer.

"If we don’t take action, we’re doomed to repeat this cycle of destruction, devastation, slow rebuild and lost productivity over and over again into the future," Wilkins told the American Chamber of Commerce in December.

"In recent times we’ve seen significant new areas of land being opened up for development in the rapidly growing areas around the north west of Sydney. Much of this region is located on the Nepean floodplain and has historically been subject to severe flooding.

"We believe the planning authorities responsible for releasing these areas of land must ensure mitigation work is conducted prior to any new building, so it is not subject to flood if the outskirts of Sydney experience a wet summer similar to Queensland’s."

Wilkins also highlighted the tragic Queensland floods of last summer.

"[They] were not the first times that many of the areas around Brisbane, Ipswich, Toowoomba and Emerald had been severely flooded. It will also not be the last time. In these areas, it is not a question of if; it’s a question of when the next flood will come.

"Notwithstanding this inevitable pattern, plenty of development – homes, sheds, businesses, even infrastructure like substations – was allowed to spring up in areas of unacceptable risk around Brisbane and Ipswich over the intervening drier years."

Wilkins said it was irresponsible to rebuild in a way that "ignores clear historical records". "We do a great disservice and potential harm to our community if we grow apathetic in our approach to rebuilding," he said.

Wilkins put forward a number of solutions, which are listed verbatim below:

• Increasing the woefully inadequate level of investment in mitigation infrastructure. Protective works could include barrages for unusual tides, levee banks, sea walls, properly maintained fire breaks and access trails, improved drainage and dams.
• Planning authorities must be a lot tougher and more transparent about their planning and zoning decisions. Development simply shouldn’t be allowed in areas of unacceptable danger.
• Strengthened building standards will ensure we are adequately prepared for changing risks.

"The improvement to building codes in cyclone-prone areas in north Queensland following Tropical Cyclone Larry meant that – notwithstanding its enormous size and destructive wind speeds – the level of damage incurred during Tropical Cyclone Yasi … was surprisingly low," Wilkins argued.

Story source: www.domain.com.au

The board of the Reserve Bank of Australia has left the official cash rate at 4.25 percent for the second month in a row.

The move was widely expected with inflation at the bottom of the RBA’s target band of 2-3 percent and global economic conditions improving.

However, the news may not be met with the rapturous receptions of the past with many lenders now lifting their rates independently of the RBA.

"The rates that borrowers pay have been creeping away from the Reserve Bank’s cash rate movements since the global financial crisis," RateCity CEO Damian Smith said.

"Last month proves that all variable rate mortgage holders are vulnerable to rate hikes, regardless of what the RBA does."

The central bank left rates on hold last month but that didn’t stop the big four, ANZ, Commonwealth Bank, NAB and Westpac from lifting their standard variable mortgage rates between 0.06 and 0.10 percent.

Westpac-owned St George went even further by hiking their rates by 0.12 percent.

The RBA was expected to ease rates last month but shocked observers when it left the rate unchanged, citing the resilient domestic economy and improved global outlook.

The decision not to move rates suggested the RBA had confidence in the local economy, buoyed by low unemployment and continued demand for labour.

However, the new dynamic the banks have set up by raising rates independently of the RBA mean borrowers could be hit by a rate rise at any time.

"Borrowers should expect frequent small changes in rates, perhaps as often as every month," Mr Smith said.

Source: www.ninemsn.com.au

When it comes to planning for retirement, paying off a mortgage should be the cornerstone of security.

Question

I am a 49-year-old single female earning $61,317 a year. I pay a compulsory members contribution of 2 per cent to the Public Servants Superannuation Fund.

I have $96,000 in super and another $11,000 in a rollover fund. I have a $232,000 mortgage on a house in the outer suburbs of Melbourne with repayments of $910 a fortnight.

My preservation age is 58 and my Centrelink age pension age is 67. I was hoping to retire well before 67 as I am barely capable of working full time now.

I realise my super balance is inadequate to enable early retirement. In one year I will attain 10 years service and my employer will match my personal super contributions up to 10 per cent.

I receive $911 a fortnight net wages after mortgage, tax and super deductions, so I struggle financially.

If I increase my super contributions it will create even more hardship.

Should I increase my mortgage repayments instead of increasing the super, or a combination of both?

Should I get income-protection insurance and trauma insurance (reducing my net income further), to avoid calamity if I were to get sick? S.M.

Answer

Yes, you can’t go past the offer to match contributions up to 10 per cent and you need to take this up to the full.

However, you also have to put priority on being able to retire in a mortgage-free home and thus avoid a drain on your retirement income. At least you can then rely on the full-age pension to meet your daily needs.

At your current rate of repayment, it will take you some 17 years to pay off your mortgage, assuming an interest rate of 7.3 per cent. Alternatively, you could pay off a loan of about $155,000 over nine years or $130,000 over seven years.

You need to decide whether you can afford this property or whether you are better off relocating to a smaller unit. Or wait until retirement to sell and then buy what you can then afford without a mortgage, but you’ll pay bigger repayments into a bigger mortgage until then.

For now, open a mortgage offset and use it as your main deposit account so that, by using a 55-day credit card, you can keep as much money in there for as long as possible. It’s the most tax-efficient way to handle your money.

Some people suggest salary sacrificing to the maximum and thus getting a tax deduction, then withdrawing a lump sum at retirement and paying off the mortgage.

This may suit those in high tax brackets, depending on whether their super investments make or lose money, but you are already struggling and will be struggling more.

Rollover the benefit from your rollover fund into, say, the AGEST super fund and buy salary continuance insurance through super so as not to reduce the amount you can put into your mortgage offset account.

That, plus your sick pay entitlements will, hopefully, insure against any trauma.

If you have a question for George Cochrane, send it to
Personal Investment
PO Box 3001
Tamarama, NSW, 2026

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Story source: www.domain.com.au, story by George Cochrane

White sandy beach at Lennox Head

It is exciting to hear that Byron Bay has won back the rights to the Splendour in the Grass Festival. 

This is an annual festival showcasing music and entertainment from all over the world.

It has been an iconic Byron Bay event for many years, however, in 2011 it moved to the Sunshine Coast.  It has now been confirmed that Spendour is back!!!!!!!!

At Lois Buckett Real Estate we have quality accommodation available for those who want to, not only enjoy the festival, but make the most of our wonderful beaches and hinterland.  Our local bus company will be running regular routes from Lennox Head to the festival site several times a day to easily transport patrons to the event. 

What a great option. 

No hassles with parking or transport, and a quiet tranquil place to get away to!

There’s still money to be made out of property if you are careful and hard-headed.

It has been the wealth strategy of a generation. Buy a home. Look after it, improve it, upgrade it. And if cash flow allows, gear up to your eyeballs to buy more property for other people to live in. For the baby boomers and for many from generations X and Y, it has been an easy path to success.

But the prospect of lower rates of capital growth and possibly even falls, if the doomsayers are right and the global economy takes another big turn for the worse, has changed the outlook for property investment.

Home owners and investors will need to be smarter about property. Solid rental yields, buying the right property at the right price and less dependence on gearing will be the key to making money. The days of certain returns made by gearing up and hitching a ride on the market boom are gone. At least for now.

THE OUTLOOK FOR PROPERTY

In November, The Economist magazine said Australian housing prices were still 38 per cent overvalued when compared with incomes and a hefty 53 per cent when compared with rents. Household debt levels in Australia exceeded those in the US at the peak of the boom, which makes us highly vulnerable to falling prices if the worst case of a second crisis – worse than that of 2008-09 – happens.

In December, ratings agency Moody’s said Australian house prices were unsustainable and last month a leading US real estate analyst, Jordan Wirsz, predicted Australian house prices could fall by as much as 60 per cent.

Last week, the Demographia International Housing Affordability Survey found Australia was one of the least affordable countries in which to buy a home. The median house price in capital cities was 6.7 times the median annual household income – with only Hong Kong being more expensive. Sydney was the least affordable city in Australia, with a median house price 9.2 times the average annual household income.

Many commentators say prices might be fully valued, or overvalued, but a crash is not the only way the market can correct itself. The head of property and financial system research at ANZ, Paul Braddick, says talk of a big crash assumes a doomsday scenario for the economy. While not impossible, he says it’s unlikely.

”Our base case is that the labour market will remain soft for the next six months but will start to pick up again in 2012-13,” he says. ”It won’t be a boom in any sense but [the economy] should bottom and start to pick up again.

”But there are risks and that does overlay sentiment. There’s a fear of the unknown and if Europe does implode, how will that affect us? As we saw in 2008 at the height of the global financial crisis, if overseas conditions get worrying enough, the Reserve Bank will react. In 2008-09, it lowered interest rates and boosted the housing market, though that was also helped by the new first-home owner boost and changes to the foreign investment rules, which are less likely to reappear this time.”

Given that, Braddick says the most likely scenario is that house prices will fall further in the next six to 12 months but once they have found a floor, prices should start to rise in line with household incomes. He says that means longer-term growth of about 4 per cent to 5 per cent a year on average, though there will be cycles around that.

The chief economist at AMP Capital Investors, Dr Shane Oliver, says historically, prices get ”stuck in a range” for five to 10 years after they have been pushed to extremes. He says research on house prices since 1920 shows they have risen about 3 per cent a year after inflation in the longer term.

He says in the 1990s, prices were below that long-term trend (see graph below) but they took off in the early 2000s and are now about 25 per cent above the trend line. Though not predicting a US-style collapse, Oliver says it is hard to see prices growing at the rate they were because affordability is so poor and people are more reluctant to take on debt.

Australian Property Monitors (APM) is predicting national growth this year of 3 per cent to 5 per cent (see table above).

It says Brisbane, Perth and Darwin have the potential for higher growth while Melbourne, Adelaide and Hobart are likely to underperform.

POTENTIAL STUMBLING BLOCKS

The managing director of SQM Research, Louis Christopher, says buyers need to ask what would trigger a major selloff in housing and assess the likelihood of those events happening. One strong trigger (thanks to high levels of household debt) would be a return of rising interest rates. ”All it took was the cash rate to get to 4.75 per cent to cause problems in this country,” he says.

He says buyers also need to watch for signs of the banks reducing loan-to-valuation ratios. He says house prices in most big British cities fell by about 20 per cent when British lenders suddenly cut lending ratios from 100 per cent or more to 80 per cent.

”Think about it,” he says. ”If you had a $50,000 deposit and someone was willing to lend 95 per cent, you could borrow up to $950,000. But if they would only lend 80 per cent, you could borrow $200,000 and your maximum purchasing power would be cut from $1 million to $250,000. You can see the havoc that would cause in the market.”

Why would banks cut their loan ratios? Like most things, it comes back to Europe. At worst, if Europe unravelled, we would be likely to see significant bank defaults that would limit the ability of other banks to raise finance outside their own countries. Australian banks have already raised the threat of another credit squeeze.

Other risks include unemployment rising to levels in which forced sales become a problem (Christopher says SQM Research’s modelling suggests problems would occur if unemployment broke through 7 per cent) and banks lifting interest rates independently of the Reserve Bank’s changes.

Oliver says the most vulnerable are heavily geared buyers, because they are most exposed to negative equity and forced sales. RP Data recently found slightly less than 5 per cent of Australian houses were worth less than their purchase price. Queensland had the highest levels of negative equity while Victorian households had the strongest equity positions. In Melbourne, 1.9 per cent of houses were worth less than their purchase price. However, the figures did not take into account debt, especially mortgage redraws.

The research director at RP Data, Tim Lawless, says coastal lifestyle markets are also vulnerable to a downturn and have already suffered from a downturn in tourism and sea-change migrants, as well as weak demand from second-home buyers. He says many of these lifestyle markets experienced dramatic appreciation before the GFC.

He says markets that had a big run-up in prices during the most recent growth periods are now also potentially more exposed to weaker conditions. ”The Melbourne market, for example, has seen home values appreciate by almost 50 per cent since the start of 2007,” he says. ”Rental yields in Melbourne are now the lowest of any capital city and new housing supply has been much more sufficient than [in] other cities.”

WHERE THE OPPORTUNITIES ARE

In this market, most analysts say the old strategies no longer guarantee success.

Buyers will need to do their sums and ensure they are buying well rather than simply picking the next ”hot suburbs” and riding the boom.

Success will also depend on having the flexibility to decide when to sell. That means buyers will need to keep borrowings at a manageable level so they are not forced to sell at the worst possible time.

Christopher says he is loath to tip particular areas, given that any recovery might not be long-lived. But he does favour the outer ring of Sydney, particularly the western and south-western suburbs.

”We see a big movement to more affordable housing,” he says. ”Rents there have already been rising by about 5 per cent a year, infrastructure has been improving and they have the potential to outperform over the next five years. We think 7 per cent growth there is possible.

”More average and above-average income earners are moving west because they don’t want to raise a family in a unit and it makes the mortgage more manageable.”

APM forecasts growth in Sydney this year will come mostly from middle- and lower-band suburbs, supported by high rents and an undersupply of housing. In his 2012 outlook, the senior research analyst at RP Data, Cameron Kusher, also predicted Sydney might perform better than in 2011. ”Home values across Sydney have increased at an average annual rate of just 4 per cent over the past 10 years,” he says. ”Although value growth has been limited, rents have increased by 5.4 per cent for houses and by 6.4 per cent for units in 2011. Estimated sales activity as at September 2011 was 6 per cent above the five-year average. Sydney’s market continues to be hampered by an undersupply of new housing at a time when demand remains strong.

”Although we don’t expect property values to increase at a rate above inflation, we anticipate Sydney will continue to be one of the better-performed markets, especially considering that when adjusted for inflation, values remain below their 2004 peaks.”

A property adviser at Lachlan Partners, Ana Bennett, says areas along the main Sydney transport corridors ”should do well”, given the undersupply of housing – ”areas that aren’t reliant on having two cars to get to work” – though she says Melbourne is a different prospect.

”The large volume of stock coming onto the market in Melbourne is a concern,” she says.

For investment, she favours ”the groovy, funky areas with a younger demographic”, such as South Yarra, Richmond and Middle Park.

”The other opportunity is the old house on the corner block in suburbs like Cheltenham where there is the potential for multi-residences down the track,” she says. ”Investors can rent them out for five years or so with a view to either selling the site or developing themselves. People are saying they’ll build one residence for themselves and sell the second for profit.”

Braddick says buyers should be aware that states are likely to perform differently. ”NSW has the advantage of being the most undersupplied market but it’s tricky to look at particular sectors.” He says if the construction and resources sectors continue to boom, this could support the upper end of the market, while soft conditions in retail and manufacturing could dampen the middle and lower parts of the market.

”But ultimately it will come back to the ‘atmospherics’ – the number of properties on the market, current sentiment and so on,” he says. ”Over the short term there could be significant increases or falls but on average the market is unlikely to achieve much.”

A GREATER FOCUS ON YIELD

To a large extent, buying a home is a lifestyle decision and you can afford to trade off slower capital growth against the desire for a place to call your own.

But if you’re considering putting your hard-earned money to work in investment property, you’ll need to be hard-headed.

Braddick says investors in the 2000s ”got away with non-focused property buying because most prices were going up.” But with capital gains likely to play less of a role, investors will need to focus on yield for more of their return.

”You need to look at the yields now and what they will be in the future,” Bennett says. ”The initial yields in the inner city may be lower but newer stock can balance that with depreciation allowances and if you get income growth, the yield will bounce back.”

Lawless says units have outperformed detached dwellings in terms of value growth in recent years.

”This is probably due to both improving demand related to price sensitivity [units are generally more affordable than houses] as well as the fact that units generally provide higher rental yields than houses. With more focus on urban renewal and higher densities around transport hubs and employment nodes, we would expect that well-located units will continue to be a popular choice for investors,” he says.

”Another tactic that is likely to remain popular among investors is buying within close proximity to the capital cities. The 10-kilometre to 15-kilometre ring should continue to provide reasonable housing demand with tight supply constraints. Public and private transport options are becoming even more important and these factors will be one of the primary drivers of long-term capital gain.”

Oliver says investors might also want to consider looking outside the residential box.

”You can argue that if you’re going to buy investment property, you’d be better off looking at commercial property where the yields are higher and there is less evidence of overvaluation,” he says. ”Listed property trusts have gone back to their roots after going through a more speculative period and are offering yields of 5.5 per cent to 6 per cent, unlisted property trusts and syndicates are an option [though you have to be careful], or you can invest directly in something like a shop, warehouse or strata office.”

The new rules to property success

When it comes to gearing, less is more. ”It’s not what you own but what you owe,” Shane Oliver, of AMP Capital Investors, says.

Think affordability. The more expensive your property, the smaller the list of potential buyers or renters.

Buy well. What’s the point of being in a weak market if you don’t get to dictate terms? ”You make money in property when you buy, not when you sell,” Ana Bennett, of Lachlan Partners, says.

Don’t count on making a quick buck. ”If you think you’re getting a bargain, you’re usually not,” Bennett says. She says property should be regarded as a long-term investment. ”Particularly for investors, you have to ask whether you can really afford it,” she says. ”There’s no point struggling and realising you have to sell in two to three years.”

If you’re investing, think income. In the absence of strong capital growth, investment returns will increasingly depend on a decent, and growing, rental yield.

Do your homework. While average returns might not look promising, the property market is highly segmented and demand for the right properties will remain strong. Look for properties that are in undersupply, not a dime a dozen. ”I would be wary of locations that have recently experienced a large surge in home values or where rental yields are lower than average,” RP Data’s Tim Lawless says. ”Areas where housing can easily become oversupplied should also be treated with some caution.”

Understand that property prices can be volatile – especially in the short term. Just because your house price isn’t quoted on the news each night doesn’t mean it can’t go up and down. ”If you put a large proportion of your money into a particular investment, it is a risky position, particularly if you’re also leveraged,” Michael Sherris, from the Australian School of Business, says. ”There may be half the volatility that you get with shares but people think there’s no volatility at all.”

Look for areas with strong population growth, strong demand and good infrastructure that is improving.

Think outside the box. Will it be possible to add value to the property in the future? If residential property doesn’t stack up, what about commercial?

Don’t expect history to repeat itself.

Story by Annette Sampson, source: www.domain.com.au