This new Federal Government initiative will prove a boon to residential property investors and low income renters alike.
The scheme provides for a tax free rebate of $8,000 per dwelling per year for up to 10 years for new rental accommodation of 20% below market rent for the particular area. The net effect will be between $5,000 and $6,000 per annum tax free per dwelling on top of normal net income.
Developers need to obtain accreditation for each development of more than 20 dwellings. Round 2 accreditations close on 27 March 2009.
It is anticipated that the scheme will kick-start the residential property investment market, which has been in the doldrums since 2003 when sharply escalating house prices reduced rental yields, even though rents were rising during that time.
Thursday, December 18, 2008
Tuesday, December 9, 2008
Residential Property Lending Will Drive the Recovery in QLD
Why?
1. The residential property market generates more economic and employment multipliers than any other industry, e.g. furniture, white goods, landscaping, floor coverings, and most of all the trades (carpentry, plumbing, electrical, bricklaying, roof fixing and finance/banking).
2. Banks who are currently restricting lending on property will inevitably return to the mortgage market because this is the lowest risk and most profitable form of lending (lending margins are currently 3%). Capital required for lending will come from share issues and increasing retail deposits emanating from the Government deposit guarantee.
3. Record population growth should continue underpinning housing demand.
When?
The return to normal mortgage lending levels and development funding will take up to 18 months. This is the time it should take for the banks to re-capitalise their losses and maintain their capital adequacy ratios without the need to cut lending.
1. The residential property market generates more economic and employment multipliers than any other industry, e.g. furniture, white goods, landscaping, floor coverings, and most of all the trades (carpentry, plumbing, electrical, bricklaying, roof fixing and finance/banking).
2. Banks who are currently restricting lending on property will inevitably return to the mortgage market because this is the lowest risk and most profitable form of lending (lending margins are currently 3%). Capital required for lending will come from share issues and increasing retail deposits emanating from the Government deposit guarantee.
3. Record population growth should continue underpinning housing demand.
When?
The return to normal mortgage lending levels and development funding will take up to 18 months. This is the time it should take for the banks to re-capitalise their losses and maintain their capital adequacy ratios without the need to cut lending.
Tuesday, December 2, 2008
Property in 2009 Seminar
Thank you to all those who attended the Midwood Australia seminar on Tuesday night, 2nd December. If you would like a copy of the presentation please copy and paste the link below into your browser.
http://www.midwoodaustralia.com/files/Midwood-Seminar-Dec-08-Property-in-2009.pdf
If you have any feedback from the night, please feel free to post your comments.
Regards,
Bill.
http://www.midwoodaustralia.com/files/Midwood-Seminar-Dec-08-Property-in-2009.pdf
If you have any feedback from the night, please feel free to post your comments.
Regards,
Bill.
Monday, November 17, 2008
MIDWOOD AUSTRALIA GOLD COAST SEMINAR
Don't miss an opportunity to attend the Midwood Australia Gold Coast Evening Seminar: Property in 2009 - Opportunities and Survival Techniques, which I am speaking at.
I will present a 'pre-release' of the latest property findings in the November 2008 edition of the Midwood Report.
Places are limted, so book early to avoid dissapointment.
For further information and to register for this event please visit www.midwoodaustralia.com
I will present a 'pre-release' of the latest property findings in the November 2008 edition of the Midwood Report.
Places are limted, so book early to avoid dissapointment.
For further information and to register for this event please visit www.midwoodaustralia.com
Sunday, October 19, 2008
Rudd's Economic Tonic ($10bn)
The $10billion stimulant to the economy announced by Kevin Rudd, aimed at retirees and the lower income sector, will only work if the funds are invested on deposit in the banks, and this is most unlikely.
What was really needed was a stimulus to bank liquidity because it is the cut-back in lending that has hurt the economy, particularly the property industry. Rudd should have required every recipient to put the money on deposit in one of any number of banks (not just the four “pillar” banks). In that way he could have satisfied his labour constituency as well as increasing bank liquidity.
By handing out a sum of $1400 to individual pensioners and $1,000 to carers and low income earners (per child) without directing it strategically the funds will go largely to retailers, which will do nothing for liquidity.
Another alternative could have been to use the $10billion to buy sank shares, which are at their lowest price now. They could have been sold at a later date when the share price has increased. A larger amount than $10billon could have been realised to effectively increase liquidity, perhaps $50billon, from the Future Fund.
As for the first home owner grant increases to $14,000 for established homes and $21,000 for new homes, this will increase consumer confidence if only for a short while. The problem is going to be the lending margins offered by the banks under the reduced liquidity regime. We may see 90-100% mortgage loans dissapear and instead the banks are likely to revert to 70-80% mortgage loans, which leaves first home buyers to gather up a 20-30% deposit. Considering the average home in Brisbane and Gold Coast is $450,000, a home buyer would need up to $135,000 for their deposit!
All in all, the Rudd crisis package will improve the circulation of money in the Austrlaian economy but will not cure the main problem of low bank liquidity and hence reduced lending capability. In addition, the package will be inflationary.
What was really needed was a stimulus to bank liquidity because it is the cut-back in lending that has hurt the economy, particularly the property industry. Rudd should have required every recipient to put the money on deposit in one of any number of banks (not just the four “pillar” banks). In that way he could have satisfied his labour constituency as well as increasing bank liquidity.
By handing out a sum of $1400 to individual pensioners and $1,000 to carers and low income earners (per child) without directing it strategically the funds will go largely to retailers, which will do nothing for liquidity.
Another alternative could have been to use the $10billion to buy sank shares, which are at their lowest price now. They could have been sold at a later date when the share price has increased. A larger amount than $10billon could have been realised to effectively increase liquidity, perhaps $50billon, from the Future Fund.
As for the first home owner grant increases to $14,000 for established homes and $21,000 for new homes, this will increase consumer confidence if only for a short while. The problem is going to be the lending margins offered by the banks under the reduced liquidity regime. We may see 90-100% mortgage loans dissapear and instead the banks are likely to revert to 70-80% mortgage loans, which leaves first home buyers to gather up a 20-30% deposit. Considering the average home in Brisbane and Gold Coast is $450,000, a home buyer would need up to $135,000 for their deposit!
All in all, the Rudd crisis package will improve the circulation of money in the Austrlaian economy but will not cure the main problem of low bank liquidity and hence reduced lending capability. In addition, the package will be inflationary.
Tuesday, September 30, 2008
USA Has Coughed - Have We Caught a Cold?
Australia is right in the middle of a classic liquidity crisis. A crisis not of its own doing but one borne out of a 50% reduction in the availability of funds borrowed out of the USA for financing property and business development in Australia.
More recently, the lack of confidence in the USA financial markets has caused a fall in the sharemarket by around 20% since June 2008. This in itself is not catastrophic because the sharemarket will inevitably rebound in the future and may even surpass its previous record highs.
The Australian economy is underpinned by record low unemployment, record high immigration, a stable trade union environment and moderate interest rates, which are not high by historic standards. The only real problem is liquidity and this affects new property development and re-financing of existing facilities. New projects on the drawing board are likely to be postponed until project funding can be accommodated.
Everybody wants to know the possible effects of this liquidity crisis on the value of their properties. In my opinon there will be alot less buyers around over the next 12-18 months, which will have a downward effect on property prices, moreso in the higher price brackets.
The extent of price reductions will vary on locality and price range. In prime locations (such as inner city or beachfront)with prices around $500-700,000 there should not be much change, however in fringe locations and higher price brackets there could be reductions in the order of 10-20%.
To put this in context, most property owners benefited from a 100% price increase in the 2003-04 property boom when we saw the highest rise in property values in Australia since the 1851 Goldrush! A 20% reduction now is more of a correction than a downfall.
In the Midwood Report, I have stated for some time that the next uplift in the property cycle is due in 2010 and the size of this lift is expected to be in the order of 30-40%. This will over correct the reductions we are seeing now.
In the long term property values in South-East Queensland increase at approximately 8%pa. This has occured over a long period, dating back to the 1960s. When added to rental returns of about 5%pa, the effective gross yield of investment properties is around 13%pa.
Have we caught a cold from the USA? Yes but its not terminal and with a bit of management it can be cured without too much pain.
More recently, the lack of confidence in the USA financial markets has caused a fall in the sharemarket by around 20% since June 2008. This in itself is not catastrophic because the sharemarket will inevitably rebound in the future and may even surpass its previous record highs.
The Australian economy is underpinned by record low unemployment, record high immigration, a stable trade union environment and moderate interest rates, which are not high by historic standards. The only real problem is liquidity and this affects new property development and re-financing of existing facilities. New projects on the drawing board are likely to be postponed until project funding can be accommodated.
Everybody wants to know the possible effects of this liquidity crisis on the value of their properties. In my opinon there will be alot less buyers around over the next 12-18 months, which will have a downward effect on property prices, moreso in the higher price brackets.
The extent of price reductions will vary on locality and price range. In prime locations (such as inner city or beachfront)with prices around $500-700,000 there should not be much change, however in fringe locations and higher price brackets there could be reductions in the order of 10-20%.
To put this in context, most property owners benefited from a 100% price increase in the 2003-04 property boom when we saw the highest rise in property values in Australia since the 1851 Goldrush! A 20% reduction now is more of a correction than a downfall.
In the Midwood Report, I have stated for some time that the next uplift in the property cycle is due in 2010 and the size of this lift is expected to be in the order of 30-40%. This will over correct the reductions we are seeing now.
In the long term property values in South-East Queensland increase at approximately 8%pa. This has occured over a long period, dating back to the 1960s. When added to rental returns of about 5%pa, the effective gross yield of investment properties is around 13%pa.
Have we caught a cold from the USA? Yes but its not terminal and with a bit of management it can be cured without too much pain.
Tuesday, June 10, 2008
Why are land prices in Australia so high?
The Australian property cycle has historically been driven by land prices. Land has been in short supply due to:
• State Government policies which restrict land development within a footprint, termed 'urban consolidation'
• Long approval time by Councils (particularly in Queensland, 12 months or more for large properties)
• High Council charges for headworks and infrastructure
Serviced land shortages and increasing development costs have driven up prices by more than 100% since 2001.
(See page 25 of our May 2008 Midwood Report for my full story).
• State Government policies which restrict land development within a footprint, termed 'urban consolidation'
• Long approval time by Councils (particularly in Queensland, 12 months or more for large properties)
• High Council charges for headworks and infrastructure
Serviced land shortages and increasing development costs have driven up prices by more than 100% since 2001.
(See page 25 of our May 2008 Midwood Report for my full story).
Queensland Property Market Softens
Queensland's property market has softened since January 2008. This has resulted from:
- A long run of prosperity between 2001-07, which saw almost all property in Queensland increase in value by more than 100%
- The virtual satisfaction of pent-up demand for property
- Mortgage interest rates rose from 5.5% per annum to 9.5% per annum since the year 2000.
I state in my latest Midwood Queensland Investment Report (May quarter 2008) that there is no need to raise interest rates any further. Doing so would only stop the market completely and cause damage to borrowers, lenders, asset values and all of the ancillary industries which depend upon the housing industry.
- A long run of prosperity between 2001-07, which saw almost all property in Queensland increase in value by more than 100%
- The virtual satisfaction of pent-up demand for property
- Mortgage interest rates rose from 5.5% per annum to 9.5% per annum since the year 2000.
I state in my latest Midwood Queensland Investment Report (May quarter 2008) that there is no need to raise interest rates any further. Doing so would only stop the market completely and cause damage to borrowers, lenders, asset values and all of the ancillary industries which depend upon the housing industry.
Wednesday, April 23, 2008
Is Demand Inflation Really The Problem?
We keep hearing that demand needs to be supressed, but price rises are the result of supply constraints, in particular housing, which has given rise to the largest rent increases in the nation's history.
Housing supply has been constrained in all Australian capital cities including the Gold Coast by State Government planning policies which encourage urban consolidation or infill development as opposed to decentralised development.
Consequently none of the States have produced sufficient housing to meet underlying demand over the past five years. This has caused serviced land and house prices to sky-rocket faster than ever before in Australian history.
The impacts are obvious, that is, higher mortgages and a much higher proportion of spending directed towards housing than ever before, hence supply-side constraint inflation.
The answer is to revisit our planning policies to open up more affordable land, and this means creating satellite suburbs, not neccessarily continuous urban sprawl. There are a number of Australia's largest public companies, for example Delfin Lend Lease and Stockland, who are equipped to do this but are being hampered by restrictive planning policies.
Housing supply has been constrained in all Australian capital cities including the Gold Coast by State Government planning policies which encourage urban consolidation or infill development as opposed to decentralised development.
Consequently none of the States have produced sufficient housing to meet underlying demand over the past five years. This has caused serviced land and house prices to sky-rocket faster than ever before in Australian history.
The impacts are obvious, that is, higher mortgages and a much higher proportion of spending directed towards housing than ever before, hence supply-side constraint inflation.
The answer is to revisit our planning policies to open up more affordable land, and this means creating satellite suburbs, not neccessarily continuous urban sprawl. There are a number of Australia's largest public companies, for example Delfin Lend Lease and Stockland, who are equipped to do this but are being hampered by restrictive planning policies.
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