Interesting market moves
Brisbane house prices jumped 2.1% last month well above Melbourne and Sydney although both still on the rise and Melbourne quarterly increase is still the strongest. Perth also saw a moderate rebound after losses last year.
Edmondson Park, an estate 57km west of Sydney where many of our clients own property, was the highest growth area for land prices, and in turn house prices in 2015, jumping at 53%. There's a good lesson there for us. As highlighted before, the boom starts in the centre and then moves out. At Custodian, we buy in the outer emerging areas because of land size but also cash flow and leverage. This is how we get a 40% return p.a. plus on equity invested.
Gearing up for the future
Don't pay too much attention to the debate on Negative Gearing.
My view is that the only solution to our problems is 15% GST, but with a split upper lower house either side, it will block; hence the push for a double dissolution. Neither party will run on GST increase so they are looking at the periphery.
The bottom line for us as Custodians is that the Labor party’s policies don’t affect us, as they are targeted at older properties. What it does mean though is: if you continue to grow your portfolio after July 2017, should Labor get in, the 50% capital gains benefits will be reduced to 25%. I say No big deal, and that's only on purchases post July 2017.
The Liberal party haven’t come out with a policy. They said they are looking at high income Australians with lots of property. I assume that this one could be more relevant for our high income clients. And by high income, I’m guessing that’s $150K + per annum, owning more than 4 properties; it could mean that they might pull back on the ability to obtain negative gearing and get to a neutral gearing position.
The Libs are backpedalling on their negative gearing ideas every day as business comes out with the reality on numbers. The property council have let them know that there are 1.1 million people employed in the property industry (11%) more than both mining and manufacturing together and that property taxes make up $72billion of revenue, 9% of total.
I liked the comment from the head of Commonwealth bank warning both sides to not tinker with negative gearing as they have a $400billion Loan book and the effect would dwarf any economic fears they have from monetary policy.
One thing that did come to mind: should Labor get in and put in their policy to restrict negative gearing to just new property? It would mean that there would be a huge demand on new property and the prices of that property would go up exponentially as currently 9 out 10 investors buy older properties.
As always, Whatever you can do - Do it now.
2015 round up
2015 saw Australia create 301,000 jobs. That was a record. In fact 129,000 were created in the last quarter. It’s interesting that the RBA are forecasting that unemployment which is now around 6% could come down to as low as 5% this year.
On the flip side to that, commodities continue to collapse around the world and economists are forecasting more rate cuts this year. RBA are going to be stuck between a rock and a hard place with that job growth putting pressure on wages particularly if we go under 5% for unemployment.
And yes you read the big news. Our population hit 24 million just last month. We reached that target 17 years earlier than originally predicted! In 1999 the population was 19 million and the ABS forecast we wouldn’t reach 24 million until 2033 (growing at a rate of 1 million every 7 years or so.) We added the last million in a record 2 years and 9 months.
As you may know, the major part of the population is going to the main 4 cities, with Melbourne forecast to overtake Sydney sometime after 2050. Of course Custodians know and have been benefiting from it for the last 10 to 15 years.