Property - Get in ASAP

[Papa G]

Forget interest rates, forget that you think property is over valued in this country, forget the fact that a slow down in the economy will curb growth in the property sector - forget it all. A new hyperinflationary measure in the property market is on our doorstep and at the moment which will continue to drive prices up and very few people are aware of it.

A massive change to superannuation law has just been legislated. For the first time ever people will be allowed to make significant borrowings within their self managed super funds. In the past you could only directly borrow up to 5% of your total portfolio which made a conventional loan from the bank to purchase investment or commercial property impossible. This has now changed. A super fund can now pretty much borrow under the same rules/guidelines as an individual i.e. borrow up to around 80%.

Now the way I see it, let say your 40-55 year old couple which has a couple of hundred grand in super. They watch their super balance diminish over the course of this year (as I believe it will be a shocker) they hear about this strategy and think property! I love property, I can't lose. They have their SG contributions going towards paying off the interset, plus any rental income they get, they can also salary sacrifice into the fund to help pay off the debt whilst reducing their taxable income - so they are laughing.

So all of a sudden there is potentially up to 3 or 4 million Australians who now can purchase property through their superannuation fund that were previously not in the market at all. To my mind this will make a huge increase to demand and basic economic theory shows with increased demand there is increased prices.

As I said most are not aware of this at the moment, but I would expect it to catch on by the end of this year - so to those considering getting into the market or upsizing, it may be well advised to do it sooner rather than later.

 

[Lance Uppercut]

and if we all continue to borrow money to invest in old bricks and mortar, then that money isn't doing a whole lot.

Instead of using money to fund start up ventures, we use all our money to drive up the prices of property.

When the creditors start knocking, we're not going to be left with a whole lot except dramatically lowered house prices

 

[Scratcher Gillespie]

Forget interest rates, forget that you think property is over valued in this country, forget the fact that a slow down in the economy will curb growth in the property sector - forget it all. A new hyperinflationary measure in the property market is on our doorstep and at the moment which will continue to drive prices up and very few people are aware of it.

A massive change to superannuation law has just been legislated. For the first time ever people will be allowed to make significant borrowings within their self managed super funds. In the past you could only directly borrow up to 5% of your total portfolio which made a conventional loan from the bank to purchase investment or commercial property impossible. This has now changed. A super fund can now pretty much borrow under the same rules/guidelines as an individual i.e. borrow up to around 80%.

Now the way I see it, let say your 40-55 year old couple which has a couple of hundred grand in super. They watch their super balance diminish over the course of this year (as I believe it will be a shocker) they hear about this strategy and think property! I love property, I can't lose. They have their SG contributions going towards paying off the interset, plus any rental income they get, they can also salary sacrifice into the fund to help pay off the debt whilst reducing their taxable income - so they are laughing.

So all of a sudden there is potentially up to 3 or 4 million Australians who now can purchase property through their superannuation fund that were previously not in the market at all. To my mind this will make a huge increase to demand and basic economic theory shows with increased demand there is increased prices.

As I said most are not aware of this at the moment, but I would expect it to catch on by the end of this year - so to those considering getting into the market or upsizing, it may be well advised to do it sooner rather than later.

Don't get too excited PapaG. There was a big page 3 article in the Fin Review not long ago talking about the massive loopholes generated by the decision, and that the new government would be looking at it closely. The basic tone of the article was that it was too good to be true, and that the change will need to be repealed at least in part.

The changes are ridiculous, it is possible to circumvent contribution limits causing a possible massive reduction in tax take (super over 60 is tax free on withdrawals and earnings). The powers that be will not let these loopholes distort the financial system. At least, I hope they don't.

 

[Papa G]

Don't get too excited PapaG. There was a big page 3 article in the Fin Review not long ago talking about the massive loopholes generated by the decision, and that the new government would be looking at it closely. The basic tone of the article was that it was too good to be true, and that the change will need to be repealed at least in part.

The changes are ridiculous, it is possible to circumvent contribution limits causing a possible massive reduction in tax take (super over 60 is tax free on withdrawals and earnings). The powers that be will not let these loopholes distort the financial system. At least, I hope they don't.

Whilst I agree it is somewhat unbelievable that they are doing it, it seems to be gathering a lot of momentum in the FP industry and increasingly in the real estate industry also. I am unaware of anyone actually doing it, but I believe it is not too far away.

The advantages and loopholes are that bloody obvious I'm amazed it has got this far. The Libs were very supportive of superannuation, but even I think it is a step too far and will inflate our already inflated property market. Time will tell if it will happen, but as I said there seems to be reasonable momentum behind it. If it does go through, I think what I originally posted is a massive possibility.

 

[utility]

When the creditors start knocking, we're not going to be left with a whole lot except dramatically lowered house prices

Property prices never go down! No need to worry about negative equity!

 

[Merv]

Property prices never go down! No need to worry about negative equity!

Is that you being sarcastic or do you believe that?

 

[Scratcher Gillespie]

Interesting, from an industry publication...

Superannuation black spots?

The media have used the Freedom of Information Act to obtain an expurgated version of Treasury’s briefing to the incoming Rudd government. The document can be viewed through this link: Treasury briefing

The superannuation briefing which begins on page 27 is blacked out for all but one sentence. The statutory exemptions relied upon are sections 46 and 44 of the Freedom of Information Act. Section 36 deals with internal working documents disclosure of which would be contrary to the public interest. Section 44 reads as follows:

“44(1) A document is an exempt document if its disclosure under this Act would be contrary to the public interest by reason that it:

(a) would, or could reasonably be expected to, have a substantial adverse effect on the ability of the Government of the Commonwealth to manage the economy of Australia; or

(b) could reasonably be expected to result in an undue disturbance of the ordinary course of business in the community, or an undue benefit or detriment to any person or class of persons, by reason of giving premature knowledge of or concerning proposed or possible action or inaction of the Government or Parliament of the Commonwealth.


(2) The kinds of documents to which subsection (1) may apply include, but are not limited to, documents containing matter relating to:

(a) currency or exchange rates;

(b) interest rates;

(c) taxes, including duties of customs or of excise;

(d) the regulation or supervision of banking, insurance and other financial institutions;

(e) proposals for expenditure;

(f) foreign investment in Australia; or

(g) borrowings by the Commonwealth, a State or an authority of the Commonwealth or of a State.”

The blacked out material has the potential to set many hares running, especially given the nature of the s.44 exemption which can be tested on appeal (ie the exemption reflects a considered view that the exemption would be maintained on appeal). We can think of some rather large hares that could be hiding behind paragraphs 44(2)(c ) and (d)!


Doesn't mean it has to do with borrowing in super, but fits into the bigger picture perfectly.

 

[James23]

property prices cant keep going up forever, it will get to the point where 85% of the population cannot afford houses anymore and therefore the demand for houses will go down and it will return to a suitable level.

i also believe a recession could be on the cards in the next 3-4 years, which would bring havoc to the property market.

 

[Rob]

Speaking of legislative effects on property prices - anyone else read the government paper on the implementation of the first home buyers savings account? From reading it, it's going to take a huge chunk of people out of the market for 4 years - because the money can't be touched for 4 years (even if you buy a house in the meantime), people that get involved in the scheme are going to be reluctant to buy a house in that 4 years.

Probably not going to effect the top end of the market, but there could be a decent hit on demand for the lower priced houses. And the come 1 July 2013 - WHAM! They're all going to want in.

 

[bunsen burner]

and if we all continue to borrow money to invest in old bricks and mortar, then that money isn't doing a whole lot.

Instead of using money to fund start up ventures, we use all our money to drive up the prices of property.

When the creditors start knocking, we're not going to be left with a whole lot except dramatically lowered house prices

Won't happen. Prices in Melb will rise for next few years because:

a) rents are rising and many people who didn't get caught last time will enter the market
b) there's still plenty of people who are cashed up. Not everyone got burnt by the rate rises
c) Investors have a sniff and they will stimulate the market - probably too much.

It will go up for a few years and then there will be the usual small correction. Same as usual.

 

[bunsen burner]

property prices can keep going up forever

Indeed they will.

it will get to the point where 85% of the population cannot afford houses

Our cities won't be the first to experience this.

anymore and therefore the demand for houses will go down and it will return to a suitable level.

Not true. Those 15% will always have money to keep buying.

i also believe a recession could be on the cards in the next 3-4 years, which would bring havoc to the property market.

it wouldn't do huge amounts of damage.

 

[Clay Davis]

Grim picture you paint there, bunsen burner. Sounds like the symptoms of a mild form of Dutch disease. Sure it won't go the way of US and UK?

If petrol prices keep rising as they are predicted to, we could see a massive deflation in the outer suburban market - with corresponding growth in property prices close to CBD. I doubt we'll be seeing growth across the whole market in the next 5 years.

 

[Sir_Adrian84]

Grim picture you paint there, bunsen burner. Sounds like the symptoms of a mild form of Dutch disease. Sure it won't go the way of US and UK?

If petrol prices keep rising as they are predicted to, we could see a massive deflation in the outer suburban market - with corresponding growth in property prices close to CBD. I doubt we'll be seeing growth across the whole market in the next 5 years.

isn't that already happening in parts of Western Sydney.

The outskirts of the cities will be the first to fall

 

[Barry Zuckercorn]

Are you PS146 compliant?

 

[Papa G]

Are you PS146 compliant?

Do you require a FSG?

 

[Pornstar]

Are you PS146 compliant?

If he was, would that put your mind at ease? PS146 is probably the easiest professional qualification to obtain.

 

[bunsen burner]

Grim picture you paint there, bunsen burner. Sounds like the symptoms of a mild form of Dutch disease.

Last time I checked it wasn't me painting the grim picture.

If petrol prices keep rising as they are predicted to, we could see a massive deflation in the outer suburban market - with corresponding growth in property prices close to CBD.

I agree with this - already happened/happening in Sydney. This is how a lot of our markets will be in the future.

I doubt we'll be seeing growth across the whole market in the next 5 years.

That's stating the obvious - there's 5-7 major markets in this country, a heap of smaller markets, and then shit loads of even smaller markets. Many are doing different things. Perth and Darwin are ****ed, Brisbanehas been good for a couple of years, Melbourne and Adelaide a year or so, and as mentioned, Sydney has this 2-tier stuff going on. Not sure if Melbourne is doing the same because I only look inner suburbs in Melbourne.

But you will see growth in Melbourne over the next few years. I don't believe we're at the highpoint yet so I don't see house prices dropping lower than they are right now, in the future, ie when the correction does come, it won't dip lower than current prices.

Sydney is still going backwards out west but going forward at a good pace cloe to the city and the more desirable suburbs.

 

[Clay Davis]

Last time I checked it wasn't me painting the grim picture.

85% of people being unable to own property is pretty grim. I can only forsee this having a negative effect on the economy.

I agree with this - already happened/happening in Sydney. This is how a lot of our markets will be in the future.

That's stating the obvious - there's 5-7 major markets in this country, a heap of smaller markets, and then shit loads of even smaller markets. Many are doing different things. Perth and Darwin are ****ed, Brisbanehas been good for a couple of years, Melbourne and Adelaide a year or so, and as mentioned, Sydney has this 2-tier stuff going on. Not sure if Melbourne is doing the same because I only look inner suburbs in Melbourne.

But you will see growth in Melbourne over the next few years. I don't believe we're at the highpoint yet so I don't see house prices dropping lower than they are right now, in the future, ie when the correction does come, it won't dip lower than current prices.

Sydney is still going backwards out west but going forward at a good pace cloe to the city and the more desirable suburbs.

Why won't what is happening in America and the UK happen here? How are we protected?

I know people like to push the decoupling theory wrt to our resources boom, but as strong as China is, there's another trading partner in big trouble (Japan) that no one seems to be mentioning.

 

[Tim the Toolman]

Are you PS146 compliant?

I have a PS146 and am Sub-licensed Real Estate Agent (i.e. Agents Representative for Real Estate in Victoria) and can tell you all of the above is actually correct

- you will be able to purchase property for SMSF (Self Managed Super Funds) via Warrants for Property which are a type of Derivatives (securities that deliver their value from underlying assets traditionally shares, currencies etc...). So as you could buy shares through warrants for your super, the ATO has passed a private ruling to a certain Accountant to acquire Property via Warrants as part of SMSF therefore you will find many Accountant and Solicitor-run SMSF's will indeed look towards property for Super
- Property prices do not go up all the time everywhere but indeed they do go up all the time over time. This is just fact as people have to live somewhere and what you'll find is that country towns may not enjoy population growth they will not attract much capital growth, however in outer lying capital cities' suburbs for example Cranbourne in Melbourne's south east, there will be huge population growth not met with capital growth due to the amount of land to be developed in the local area. The answer to this is to look for capital growth in other areas where land is not developed and Melbourne's draconic 2030 program installed by the Bracks Government ensures that the 4 major growth corridors will take a long time to grow in price whilst competing with newer estates however if you have the capital to invest in already established areas you will indeed find the capital growth quite expedential.
- No answer on the housing affordability. This will only get worse with no Government-run Agency, Church or Charitable organisations coming up with any brilliant ideas. The 2030 program has only added to this debacle in Victoria. Decentralisation is the only answer in my opinion and this will assist with Regional capital growth and transport woes in Melbourne but nobody wants to push this for some reason: "let's just deepen the Melbourne Ports and Port Phillip Bay, open another lane on the South-eastern and put a bandaid over it for the next Government to worry about."
- Whilst this policy is still running you will find Melbourne prices outside of the growth corridors will continue to rise at the expense of country areas so if you invest outside of the established capital cities, regardless of miles from the city according to where you can afford, you will always have your capital growth.

 

[Tim the Toolman]

When the creditors start knocking, we're not going to be left with a whole lot except dramatically lowered house prices

As opposed to the letter I receive from Super company yesterday to explain how they've buggered up with investing 15% of my super in Centro stocks?

I haven't seen house prices get wiped off the face of the earth!

 

[Scratcher Gillespie]

I have a PS146 and am Sub-licensed Real Estate Agent (i.e. Agents Representative for Real Estate in Victoria) and can tell you all of the above is actually correct

- you will be able to purchase property for SMSF (Self Managed Super Funds) via Warrants for Property which are a type of Derivatives (securities that deliver their value from underlying assets traditionally shares, currencies etc...). So as you could buy shares through warrants for your super, the ATO has passed a private ruling to a certain Accountant to acquire Property via Warrants as part of SMSF therefore you will find many Accountant and Solicitor-run SMSF's will indeed look towards property for Super
- Property prices do not go up all the time everywhere but indeed they do go up all the time over time. This is just fact as people have to live somewhere and what you'll find is that country towns may not enjoy population growth they will not attract much capital growth, however in outer lying capital cities' suburbs for example Cranbourne in Melbourne's south east, there will be huge population growth not met with capital growth due to the amount of land to be developed in the local area. The answer to this is to look for capital growth in other areas where land is not developed and Melbourne's draconic 2030 program installed by the Bracks Government ensures that the 4 major growth corridors will take a long time to grow in price whilst competing with newer estates however if you have the capital to invest in already established areas you will indeed find the capital growth quite expedential.
- No answer on the housing affordability. This will only get worse with no Government-run Agency, Church or Charitable organisations coming up with any brilliant ideas. The 2030 program has only added to this debacle in Victoria. Decentralisation is the only answer in my opinion and this will assist with Regional capital growth and transport woes in Melbourne but nobody wants to push this for some reason: "let's just deepen the Melbourne Ports and Port Phillip Bay, open another lane on the South-eastern and put a bandaid over it for the next Government to worry about."
- Whilst this policy is still running you will find Melbourne prices outside of the growth corridors will continue to rise at the expense of country areas so if you invest outside of the established capital cities, regardless of miles from the city according to where you can afford, you will always have your capital growth.

About 130 million Japanese, and a growing number of US citizens would beg to differ.

 

[Clay Davis]

Yeah Japan's a massive case in point. Crazy what happened there.

 

[Tim the Toolman]

About 130 million Japanese, and a growing number of US citizens would beg to differ.

So you're telling me that property will be cheaper in Japan in 20 years time, that's what you're saying?

 

[Scratcher Gillespie]

So you're telling me that property will be cheaper in Japan in 20 years time, that's what you're saying?

Prices are cheaper today there than they were 20 years ago... Worse in real terms.

 

[Clay Davis]

http://en.wikipedia.org/wiki/Japanese_asset_price_bubble

Prices were highest in Tokyo's Ginza district in 1989, with some fetching over US$1.5 million per square meter ($139,000 per square foot), and only slightly less in other areas of Tokyo. By 2004, prime "A" property in Tokyo's financial districts were less than 1/100th of their peak, and Tokyo's residential homes were 1/10th of their peak,[citation needed] but still managed to be listed as the most expensive real estate in the world. Some US$20 trillion (1999 dollars) was wiped out with the combined collapse of the real estate market and the Tokyo stock market