Property industry groups have slammed the New South Wales Government’s decision to introduce a new tax on property transactions, but what impact will it really have on the market?

In the shadow of the Federal Budget last week, the NSW Government announced it was introducing a new transaction charge of 0.2 per cent for properties valued at $500,000 and above, or 0.25 per cent above $1 million.

The decision to introduce what’s become known as the ‘ad valorem’ levy (ad valorem is Latin for ‘according to value’) brought a furious response from the property industry.

The acting executive director of the Property Council in NSW, Glenn Byres, says the new tax will “hurt homebuyers and hurt the NSW economy” and deliver “a significant hit” to “homebuyers, the residential development market and (the) commercial property market”.

“NSW is barely creeping back from 50-year lows in residential construction levels,” Byres says. ”We can’t afford to strangle progress with a new stealth tax.” Sal Carrero, chief executive of property accountants Chan & Naylor, says the move will worsen affordability and hurt many prospective homebuyers in one of the most active market segments in the state.

“There are few family homes under the $500,000 threshold, particularly in Sydney, which will penalise families hoping to enter the market. This tax hits first homebuyers square in the eyes,” Carrero says.

“It’s also an added burden to property investors, who are likely to pass on the increased cost to renters. Increasing the cost of property to investors may seem like a populist approach but it will hurt the vulnerable as well.”

Urban Taskforce Australia chief executive Aaron Gadiel says the tax is merely a disguised increase in the rate of stamp duty.

“It again sends the message that anyone who invests in NSW will be subject to unpredictable and ever-changing imposts.”

NSW Opposition leader Barry O’Farrell has also chipped in, saying the “unfair” tax would make it even tougher for families looking to buy a home, and potentially impact on jobs if businesses took their investments interstate.

So just how big is this tax slug that’s going to hit homebuyers “square in the eyes” and “strangle progress”?

Well, as it turns out, it would total $170 on the sale of a $585,000 house, which RP Data puts as the current median price in Sydney.

That sounds more like a small pain in the behind rather than a true punch right between the eyes, but perhaps Aaron Gadiel gives a better picture of how the new tax will affect the marketplace.

He points out the levy would be a $23,500 impost on the purchase of a $10 million development site and a $123,500 impost on a $50 million development site.

That seems less like chump change.

Or perhaps the hyperbole over the new property tax is less a case of how much it will cost, and more about, as Wakelin Property Advisory director Monique Wakelin puts it, just how dysfunctional property taxes have become.

“Federal and state governments alike are growing increasingly dependent on taxes raised from property owners and this over-dependence comes at a high cost,” Wakelin writes for the Eureka Report this week.

“Rapidly decreasing housing affordability, a growing shortage of housing for buyers and renters and significant financial penalties for residential property investors are among the chief symptoms of a chronic problem requiring urgent reform.”

By Mathew Liddy Australian Property Investor

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Marie, Natalie, Trish and myself from the Lois Buckett Real Estate Team have just returned from the Australian Real Estate Conference (AREC) 2010 Conference in Sydney. As the name implies this was an opportunity to get together with industry leaders and other like minded agents across Australia and New Zealand.

To say that the experience was inspiring is an understatement.

DAY ONE

With speakers such as Erik Wahl, Edward de Bono and Sir Bob Geldof gracing the stage on Sunday 16 May the focus was on “The Art of Sales Excellence”, “Lateral Thinking” and “Reaching Your Dream”.

All 3 speakers were captivating and succinct and truly offered the audience an insight into their success and a look at the struggles along the way.

Quotes and Snippetts:

Erik Wahl shared an interesting acronym for FEAR – False Evidence Appearing Real. As fear is often the governing factor in our inability to commit to change it is refreshing to be able to identify what Fear actually is!

He recommends 20 minutes each day of reckless abandonment in an effort to break outside of the “Comfort Zone”.  Try eating dinner backwards – or even better- without using your hands.

A quote from Robert Frost “ Our mind is a beautiful organ, it starts the minute we wake up and continues working right up until we get to work!”

According to Bono “The space of excellence and opportunity is like the silence between the notes.”

Edward de Bono is the creator of the term lateral thinking and has written 62 books, including “Lateral Thinking and Six Thinking Hats” the theory of which has been adopted across the world.

He has a favourite word that he has invented – EBNE – Excellent But Not Enough and adopts this mode of thought in all that he does.  With such insights as 90% of errors of thinking are errors of perception and the CORT program which focuses on thinking creatively.

Sir Bob Geldof was captivating in his summation of his life to date and it was fascinating to have such a high-profile individual telling us in his own words the trials, tribulations and achievements that he has experienced over his lifetime.  But, most importantly what he did with it all.

Sir Bob encouraged the audience to build a culture within their given field – a culture of ideas where failure is not recognised as a governing factor.

He quoted the following:

G B Shaw “All change comes through UNreasonable people”

WH Murray “The moment one definitely commits oneself – all else comes.  What ever you can do, or dream you can, just begin it.”

Ghandi “If you want change, first change yourself.”

Now you may be asking yourself, “What does all of this have to do with Real Estate”?  As was pointed out by several of the esteemed speakers over the whole event; as agents we deal not just in the commodity of property, but, most importantly with people’s lives.

The sale, purchase or rental of premises is often aligned with major changes in an individual’s circumstances and the manner in which an agent approaches and manages a listing can often have a dramatic affect on the experience and final outcome.

This is why I encourage all the staff to “Look outside the square” and to “Put the shoe on the other foot” in all situations that come up.  The behind the scenes work in our real estate office is the glue that holds it all together and demonstrates the passion and commitment of each and every team member.

I look forward to sharing more of the AREC experience over the next week.

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The Minister for Lands, Tony Kelly, confirmed today the new tax would begin on July 1 and had been formulated as a NSW budget measure.

The tax will be levied on the buyer.

Tens of thousands of NSW home buyers a year are set to be hit with a new tax that will cash in on the improving property market and boost state government coffers by an estimated $90 million annually.

Quietly released by the Minister for Lands, Tony Kelly, amid the wash-up of the federal budget, the new land transfer charge will be imposed on the sale of residential and commercial property worth more than $500,000.

The announcement has outraged property groups, which branded it ”just another stamp duty increase”, while the opposition has criticised the timing of its release as ”sneaky”.

Under the proposal, the portion of the sale amount between $500,000 and $1 million will attract a tax rate of 0.2 per cent, before the charge rises to 0.25 per cent for the portion of the sale above $1 million.

The median Sydney house price is about $600,000, which would attract a charge of $200, while the tax on a property sold for $1.2 million would be $1500.

According to figures provided by the Department of Lands, almost 30,000 residential and commercial property sales of between $500,000 and $1 million were settled in the past 12 months. More than 10,000 properties sold for more than $1 million in the same period.

Aaron Gadiel, the chief executive of the developer lobby group Urban Taskforce, said the new charge amounted to a 4.5 per cent increase in stamp duty for the top end of the property market.

He estimated that a developer looking to acquire a $10 million development site for new housing would be hit with an extra cost of $23,000.

Mr Gadiel said that it ”flies in the face” of the recommendations of the recently released Henry tax review, which criticised transfer duties.

”The Henry review said they were unfair; they hit some members of the community harder than others and they could cause economic distortions and reduce business activity,” he said.

The acting NSW executive director of the Property Council of Australia, Glen Byers, said that the tax was introduced ”without consultation, without explanation at a time when the investment climate in NSW is fragile”.

It is understood that legislation for the new tax will not be introduced before the next session of Parliament, which begins next month.

The government is not indicating when the tax might begin, but a spokesman for the Treasurer, Eric Roozendaal, said the revenue forecast to be generated by the tax would be included in the state budget on June 8.

The announcement was labelled ”sneaky” by the Opposition Leader, Barry O’Farrell, because it was buried in a press release which focused on new security measures for land transfer documents.

Mr Kelly’s release suggested part of the tax would be used to fund the security measures.

A spokesman for Mr Kelly said revenue from the charge would flow to the Department of Lands, not the Office of State Revenue, as was the case with stamp duty.

However Mr O’Farrell said: ”This is another attempt under the cover of a federal budget to get some bad news out from the state budget, well away from polling day in Penrith.”

Figures provided by Mr Kelly’s office suggest that the proposed NSW charge is at the lower end when compared with similar charges imposed by other states.

Based on a sale worth $750,000, the spokesman said only Western Australia charged a lower ”registration charge” of $260, compared with $500 proposed in NSW. In Victoria, the figure is $1350, in Queensland it is $1623 and in South Australia it is $4759.

Story by Sean Nicholls www.domain.com.au

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The Reserve Bank of Australia (RBA) has warned lenders and borrowers to be prudent while giving an assurance that Australia does not have a speculative housing bubble on its hands.

Fears of a property bubble emerged after the Australian Bureau of Statistics house price index rose 20 per cent in the year to March.

But RBA head of financial stability Luci Ellis said in a speech that Australian house prices have recovered their small decline from 2008 to post increases of between about 12 to 15 per cent over the past year in capital cities, depending on the measure.

Ms Ellis said recent data suggested Australia does "not have a credit-fuelled speculative boom on our hands".

"It would not be desirable for the current situation to turn into one," she said in a speech.

"It will therefore be important for lenders to remain prudent in their standards.

"It will be equally important for prospective borrowers to have realistic expectations, and not to rely on a hoped-for capital gain in order to service their debts."

She told a residential property conference housing prices have been under upward pressure in Australia, with most short-term drivers coming from the demand side following the increased first home-buyers grant, low interest rates and lower than expected unemployment.

"The nature of the demand shock Australia faces means that it would be helpful if more of that demand could be accommodated with extra homes for occupation, instead of by higher prices," she said.

"Some of that pick-up in construction does seem to be happening."

She said the supply of housing was always going to be quite "sluggish".

"But whatever the causes, the ability to add to supply is falling short of this higher rate of population growth, despite some pick-up recently," she said.

"Naturally that is putting upward pressure on housing prices."

Ms Ellis said it would be "desirable" for the supply of new dwellings to become more flexible than it had been to date because extra people need somewhere to live, and both house prices and rents could rise.

The more that housing prices rise, the more some people might feel they must stretch their finances to buy a home, she said.

Another concern was that if too much of the response to faster population growth comes as faster growth in housing prices, this could be "built into people’s expectations".

"If price expectations become over-optimistic and encourage too much investor demand, the result could be disappointment, or worse," she said.

She also said fewer households had bought their homes without debt.

Across the mortgage market, lending standards were now a little tighter than they were a few years ago and the fraction of low documentation loans was now lower than it was two years ago for both owner occupiers and investors, she said.

As well, only a minority of recent home loan borrowers started with a loan to value ratio above 90 per cent, she said.

Ms Ellis also revealed the RBA has been carefully watching lending standards in the important first-home buyer market segment.

"First-home buyers have long faced greater risk than more established home owners who have more equity in their home," she said.

"But as far as the data allow us to tell, recent new loans to first-home buyers look quite like those made to previous cohorts of first-home buyers."

AAP

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Residential rents across Sydney have remained stable despite rising property prices, NSW government figures show.

NSW Housing Minister David Borger said the average rent in Sydney in the March quarter was $400 a week, just $10 more than in the same period a year ago.

"Rents remained relatively stable throughout 2009, and the latest data shows the stability continuing into the first quarter of 2010," Mr Borger said, referring to the latest Rent and Sales report from Housing NSW.

The cheapest one-bedroom homes in Sydney’s "outer ring" were in Wyong and Gosford on the central coast, costing just $170 a week.

The most expensive one-bedroom home was in the Sydney local government area, with an average weekly rent of $450.

Meanwhile, a four-bedroom home in Wyong cost just $373 a week, compared with $1800 in the eastern Sydney council area of Woollahra.

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Sixty per cent of people looking to buy an investment property before mid 2011 planned to access equity in their home to fund all or part of that purchase, according to the latest Mortgage Choice property survey.

This response reveals that there’s still a high proportion of ‘mum and dad’ investors who don’t comprehend how to use equity to buy additional properties, and feel they must first repay their mortgages, said Mortgage Choice spokeswoman Kristy Sheppard.

In addition to using the equity balance, which acts as the loan security and the cash deposit substitute, meeting the lender’s serviceability criteria is also important, said Sheppard. And on loans that equate to more than 80 per cent of the property price, adds Sheppard, lenders mortgage insurance must also be factored into borrowing costs.

Risk is also a consideration when accessing equity, said Sheppard.

"Before accessing your equity it is necessary to establish whether you can comfortably afford higher loan repayments and which, if any, lender is willing to lend to you," she said.

Mortgage Choice identifies three common types of equity finance:

1. Loan top-up – is essentially a mortgage extension to fund another property purchase. Extra funds are usually made available via a lump sum payment with interest payable on the entire top-up amount.

2. Line of credit – allows a borrower to withdraw funds in addition to a home loan amount, up to a limit set by the lender. Interest is also payable on these funds. Line of credit loans generally attract a higher interest rate, are often interest-only and must be carefully managed.

3. Refinancing – allows a borrower to move to a different lender and loan product to increase the home loan amount. It’s important to shop around as lenders offer different features, fees, interest rates and measure borrowing capacity differently.

Source: API Magazine

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The string of interest rate rises since October is not deterring borrowers from taking out variable rate housing loans, leaving mortgage holders potentially more exposed to higher repayment costs.

The Reserve Bank, in its quarterly Statement of Monetary Policy released today, said fixed-rate housing loans now account for only about 2 per cent of total – the lowest ratio in a decade.

”This share has been well below its decade average of 11 per cent for almost two years, with the result that the share of outstanding loans at fixed rates has declined substantially,” the RBA said.

Fixed loans mortgage borrowers in the market fell to 4.8 per cent of the total in 2009 from as high as 19.4 per cent in 2007, separate data from the Australian Bureaus of Statistics data and RateCity research show.

Fixed-rate loans, which currently charge an interest rate about 1.5 percentage points higher than standard variable rate loans, demand larger fees for providing borrowers with certainty about monthly costs.

Variable rate mortgages, while offering more repayment flexibility, expose borrowers more directly to Reserve Bank interest rate changes. The RBA has lifted rates six times out of its past seven monthly board meetings – including earlier this week – adding about $300 per month to total repayments for those borrowers holding a typical $300,000, 25-year variable rate mortgage.

Borrowers flocked to the certainty of fixed-interest mortgages during the last cycle of rising interest rates, with the ratio rising to 22 per cent a month over the six months to March 2008.

The average three-year fixed rate mortgage rate was 9.42 per cent in August 2008, according to RateCity. That compares with 7.38 per cent for a standard variable rate today.

”There are still a lot of people out there, still paying these high interests rate for fixed loans,” said RateCity consumer advocate and spokeswoman Michelle Hutchison.

Being locked in also meant those borrowers missed out on tumbling rates over the past two years when the RBA drove its key cash rate to 50-year lows in a bid to avert a sharp economic slowdown.

Outlook changes
Interest rate futures pointed to a rate cut this morning for the first time since August of 2009 as fears unleashed by the sovereign debt crisis in Europe forced central banks reconsider the case for a global slowdown.

As of Friday afternoon, the market was rating the possibility of a rate cut in June by the central bank at a 6 per cent chance – a reversal of previous months when the outlook has been consistently pointed to the prospect of rates to rise in coming months.

The turmoil in financial markets – including steep plunges on Wall Street overnight – has also trimmed the prospect of further rate rises in coming months.

Credit markets are pricing in a cash rate for the RBA of 5 per cent within a year from a current 4.5 per cent.

czappone@fairfax.com.au

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Property prices in Australia could start to fall as a result of interest rate cuts and a cut back in mortgage lending, it is claimed. Despite prices increasing by up to 20% in the last year, a six interest rate rises in the last eight months could put the brakes on and there is evidence of a slowdown, experts believe.

REAL estate experts are bracing for the housing market to finally slow down, as the effects of the latest interest rate rise filters through to buyers.

According to Australia’s largest real estate group Ray White, turnover in the first three months of the year is sluggish compared with last year, up only 8%, the smallest increase since the global financial crisis.

The reduced activity has continued in to April, said Brian White, joint chairman. ‘Judging by our April results, it looks as if the interest rate increases are having an impact on activity. With the additional interest rate hike, it would be the first time that the Australian market has not shrugged off the pattern of increases in the past. At last, it would appear that the ambition of the Reserve Bank to slow down the residential activity has been achieved,’ he explained.

Another outcome of soaring prices is an increased in those struggling to make mortgage payments. According to independent interest rate monitor RateCity about 27,000 households have already missed mortgage repayments and thousands more are expected to fall behind after the latest interest rate rise.

The number of securitised home loans more than 90 days in arrears has rapidly increased from 0.05% in January to a current rate of 0.6% it said.

The worsening financial crisis in Europe could also affect the Australian market. Some analysts even believe there might be a rate decrease later in the year, although most are predicting they are likely to remain on hold.

‘There will be a slower housing market in Sydney in the second half of this year, even with a normal economy,’ said SQM Research managing director Louis Christopher. But he added that if the euro zone woes worsen there would be the potential for quarter on quarter falls at the end of the year.

Residex chief executive John Edwards believes price growth will moderate and he forecasts 5 to 8% overall. The top end of the market would do best, while some cheaper areas of south western Sydney were already going backwards.

According to Australian Property Monitors economist Matthew Bell prices in the most expensive half of the property market would rise at twice the rate of the bottom half.

Story from PropertyWire.com

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Next week’s Federal Government Budget should address the recommendations of the Henry tax review to improve housing affordability and assist low-income private renters, according to the Australian Council of Social Service (ACOSS).

"Rising housing costs are putting increasing pressures on low-income Australians who are struggling to make ends meet in a tight rental market," says ACOSS chief executive officer Clare Martin.

"The Henry Review identified what low-income renters have known for years – rent assistance is too low for many people to secure adequate housing."

"ACOSS is urging government to take up the Henry Review proposal to increase rent assistance and link maximum rates to market rents."

"We have asked for a 30 per cent increase in rent assistance for low-income households which is about $15 per week."

Martin says rent assistance levels have fallen behind market rates – the Henry Review noted that over the past three years annual rents have risen at an annual rate of 10 per cent, while rent assistance has increased by only 2.7 per cent.

"The Henry Review notes that a single unemployed person spends about half of their payments on rent, leaving them with little left for other living expenses," she says.

Story from API Magazine

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Property prices in Australia have surged 20% in the last 12 months raising further fears about a real estate bubble and making it almost certain that interest rates will rise.

   The annual rise in house prices was the fastest ever recorded by the Australian Bureau of Statistics data series which began in 2002. A rise of 4.8% in the fourth quarter of 2009 was the second biggest quarterly increase.

House prices rose 4.8% in the first quarter of 2010 from the previous three months when they gained 5.2%, according to the government figures. Property prices surged in the major capital cities in the first three months of 2010 and much of the turnover was at the top end of the market. Melbourne saw the steepest quarterly rise at 6.7% followed by 5.4% increase in Canberra and in Sydney there was an increase of 5.3%.

Demand for homes surged in 2009 after the government tripled its late 2008 payments to first time buyers of new homes to A$21,000 and doubled the grant to A$14,000 for existing homes. Those payments were reduced in January to their original A$7,000 but that has not hampered the price growth in the sector.

The Australian government last month announced drastic measures to tighten rules on foreign investment in real estate and introduced penalties to enforce the changes to ensure pressure isn’t placed on housing availability for citizens.

Temporary residents, including students, will require approval from the Foreign Investment Review Board to buy property and will have to sell when leaving the country.

The rising property prices make it almost certain that interest rates will be increased tomorrow.  Rob Henderson, head of Australian economics at National Australia Bank said that the Reserve Bank of Australia now needed to get more aggressive and acknowledge the need for a restrictive policy stance.

‘This is a shocker. The RBA needs to up their rhetoric and acknowledge that the economy is now growing at above average rates, requiring above average interest rates,’ Henderson said.
‘A 20% increase in house prices is very difficult to ignore. This latest piece of news may well be the log that broke the camel’s back. Until now, I had thought that the RBA would take a month off tomorrow. It may no longer be able to afford that luxury,’ said Chris Caton, chief economist at BT.

The RBA has raised interest rates five times since October 2009, increasing its cash rate target to 4.25% from 3%. House price increases have lately been key to the RBA’s rationale for rapidly removing loose policy settings.

Source: www.propertywire.com

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