Australian residential real estate is now worth a combined $8 trillion.

That is the highest value it has ever been and to put that in perspective, it works out to be four times the size of Australia’s GDP. What’s more, it is $1 trillion more than the combined value of the Australian stock market, superannuation and commercial property values!

CoreLogic figures revealed the value of residential housing increased from $7 trillion in 2019 to $8 trillion as at the end of April 2021.

In 2011 the value of Australian residential housing was $4.2 trillion, meaning it has more or less doubled during the past decade.

In this week’s podcast, we talked about the bold policy announced by Victorian Premier, Daniel Andrews, to increase stamp duty and land taxes when he unveils the Victorian budget this week.

The proposed tax hike incudes an 18.2 per cent increase for stamp duty – from 5.5 per cent to 6.5 per cent – on property valued more than $2 million, increasing the tax by about $20,000 for a $2 million property.

The Victorian government will also apparently introduce a 19 per cent increase in land tax on properties valued between $1.8 million and $3 million, with the rate to increase from 1.3 per cent to 1.55 per cent (a minimum increase of $4,500 per annum).

Land tax on properties valued more than $3 million will increase from 2.25 per cent to 2.55 per cent, which equates to an extra $9,000 per annum.

Property developers will also apparently be hit with a tax of up to 50 per cent on windfall gains above $500,000, applied to planning decisions to rezone land from July 1, 2022. 

The big wigs in the property sector aren’t happy with it. Nor is PM Scott Morrison, who says “we want people to take the dividends of the recovery and invest it back into the recovery. We don’t want to take it off them.” 

Political stances aside, it does highlight why it is important to stick within the affordable end of the market to protect your cash flow. 

The thresholds for land tax are $600,000 in QLD, $755,000 in New South Wales, $250,000 in Victoria, $450,000 in South Australia and $300,000 in Western Australia. You only pay land tax on the value of the land you own as an investment (i.e. your own home is exempt).

You could effectively own properties in all five of the main capital cities and avoid paying land tax, which would save you circa $5,000 per annum compared with a situation where you had all your properties in one market (depending on where they are and what they’re worth).

Oliver Hume, one of Australia’s largest land sellers, produced its March quarter report this week. Interestingly, the most commonly purchased blocks of land were 350sq m and 400sq m in Melbourne, and 375sq m and 400sq m blocks in South East Queensland.

What does that mean?

Land sizes are reducing – we’d normally see the most commonly sold lot sizes at or above 400sq m. As land prices increase and become less affordable, people will move toward smaller lot sizes.

That reduction in block sizes has been occurring for decades; in the eighties the average land size was 1,000sq m. In the nineties that became 800sq m and in the 2000s it was closer to 600sq m. 

We think 300sq m will be a big block of land at the end of this decade as people seek more affordable housing and builders become more and more creative with the use of the spaces and negotiation of council setback requirements.

The solution to affordability is density – and that’s an interesting concept in the context of people seeking a ‘tree change’ (i.e. moving away from units into more spacious houses on a block of land) off the back of COVID-19.

In 2020 a lot of people accessed their superannuation prior to retirement as a way to navigate the uncertainty and give themselves a bit more of a financial buffer. 

A report released this week found the average superannuation balance of males between 55 and 64 was $183,000. Females in the same age group were sitting on an average balance of $119,000. 

It doesn’t seem like a lot. $183,000 in the bank today would only earn you $1,281 per annum.

It’s for this reason that 90 per cent of retirees in Australia rely on the pension to fund their retirement. The pension in Australia pays $953 per fortnight for a single ($24,778 p.a.) and $1,436 per fortnight for a couple ($37,336 p.a.).

Part of the reason for the low superannuation balances is that compulsory superannuation was only introduced in Australia in 1992. Anyone who is 64 today was 35 at the time – likely 15 years into their working life. What’s more, the average wage was less than $30,000 at the time (today it’s closer to $85,000 and every second household now has two working adults). 

These numbers put in perspective the significance of taking out $10,000 or $20,000 from superfunds to navigate the financial difficulties and uncertainty 2020 presented. 

Nearly 3 million Australians withdrew a total of $36 billion dollars from their superannuation funds during 2020.

As the government approaches $1 trillion in debt, and one of its biggest annual costs is our welfare system, you can’t help but think it’s a bit of a runaway train that gathered momentum during 2020.

Fortunately, the low interest rate environment presents a once in a lifetime opportunity to do something about it and set yourself up for life.

Interested in knowing more? Check out the weekly podcast we do at  The Double Shot Podcast.

James and Alex 

Interested in knowing more? Check out the weekly podcast we do at  The Double Shot Podcast.

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