The future of Australian property prices

[schnootle]

Gotta love this country..

$1 million asset, and get centrelink benefits.

Completely crazy. Yet if you have $10000 to your name but its in cash and lose your job you will be told you have too many liquid assets and need to spend that and come back when its gone.

 

[Julia]

Many thanks for responses which are appreciated.

I guess where those funds are going to be best invested comes down to your cousins temperament. If she is likely to be upset by market fluctuations then maybe a property investment would be best, that way she can focus on the weekly rent without paying heed to the ups and downs in it's capital value.

If she can take market flucutations with a degree of equanimity, maybe averaging into asx index fund may be better suited.

Sensible suggestions. I've tried often to interest her in the sharemarket (long before this present volatility) but she seems resistant for no reason that she can explain.

If you don't mind me asking, why is she on centre link benefits, you said she is bright and her kids are teenages, surely she could be working more than 2days a week. That way she could earn more money and also invest without worrying about losing benefits, probably met more people too.

Ah, an excellent question. Let's just say she is getting a very nice income under the present circumstances, is very comfortable, and would rather swan about than work too hard.

Gotta love this country..

$1 million asset, and get centrelink benefits.

Crazy isn't it.

No argument from me on this.

I'd advise you're friend to investigate what(if any) implications there are with regard to Centerlink benefits in these scenarios.

Cheers

Thanks, Macca. I've already asked what effect her plan would have on her benefits.
Her response was very vaguely that she expected the income from an IP would make up for any loss of these. I don't know if this is the case.

I'm still interested in anything Sydney people might know about the accuracy or otherwise of my calculations above if possible.

 

[Bill M]

She says a basic IP unit in Sydney would be around $500K. If that's right, what sort of rental income would it produce?

I've done some very rough calculations on around $500 p.w. which is only about 5% gross, and assumed (on the basis she does not now pay any tax) the tax free threshold of $6000, then 15% on the remaining $20,000 = $3000.

Then there would be council rates and body corporate, plus maintenance and insurance which optimistically all up would be around another $4000. Is this about right?

This would be a net yield of less than 4%.

How realistic is the above?

Wouldn't it also affect her Centrelink benefit?

What have I failed to think of?

I'm concerned that she has a blind faith that property - because it's all she has experience of and even then just that in which she has lived - is necessarily going to be a 'fantastic investment'.

I'd be appreciative of any comments members could offer.

Hello Julia, it is best for me to say what my out goings are and then you can work it out from there. My unit is worth around 420K and I get $430 p/w rent as it is very well located, walk to shops, bus, beach and entertainment. Building has one lift, no pool, no yards and no gardens.

Don't under estimate the levys. Mine are nearly $800 p/q, total $3,200 p/y
Water $600 p/y
Warringah Council $1,000 p/y
Landlords insurance $350 p/y
Agents Commission 6.6% = Around $1,500 p/y
Smoke Detector Checks $100 p/y
+ Special Levys if needed, figure unknown as they pop up about once every 8 years or so.
+ Internal repairs if needed, carpets, kitchen, bathroom etc. I haven't spent any but eventually I will have to.

I think you are pretty close to your calculations and for me after all expenses including tax it's probably around 3 to 4% income. It doesn't sound like a lot but it does pay the bills and it is the most worry free investment I have. Every Month after Agents fees I have a $1,600 drop into my account. That is excluding any capital gains that could arise.

Now back to your friends case. Epping, there is no doubt she would get the money for her house $1.3 M as it is a high demand area and the Chinese in particular love that area. The problem is, where is she going to buy a house for 800K? She will either have to move into a big unit or a worse suburb. Now I am not trying to be funny but I have lived on the Northern Beaches and now I live on the Central Coast and it's very different up here to there. Which suburb is she going to move to and how are 2 teenagers going to live in a unit if they must move into one?

The other point is that I personally would not wait a year or more to buy the principle place of residence. It is unpredictable which way her new suburb may move in prices, it could just as easily go up rather than down. I would absolutely not take the risk myself of being out of the market. She can hold off on the investment unit until later but I wouldn't on the PPR, that's taking a balanced approach to the decision making.

I can understand her negativity towards sharemarket investing, it is very hard for a novice to see $36 Billion and $50 Billion wiped of the markets in daily moves. It is also a very scary that shares are still down some 40% from it's peak 4 years ago, she has reasons for her doubtfulness. Personally for me, there is nothing sweeter than that $1600 coming in a Month with very little to worry about and virtually nothing to do to get it. Cheers and I wish her luck.

 

[So_Cynical]

She says a basic IP unit in Sydney would be around $500K. If that's right, what sort of rental income would it produce?

A 500K unit would rent for between $430 > $460

Then there would be council rates and body corporate, plus maintenance and insurance which optimistically all up would be around another $4000. Is this about right?

Body Corp in a new (good) block would be around 3.5K PA, a very good block 4K and up, an older block maybe as low as 2K PA...council rates PA around 1.5K

 

[Bill M]

Gotta love this country..

$1 million asset, and get centrelink benefits.

That's why you have many old ladies living in $2 Million run down old houses drawing a Centrelink Pension. They refuse to sell and downsize because "I will lose the pension", heard it hundreds of times, truly unbelievable.

 

[MACCA350]

Thanks, Macca. I've already asked what effect her plan would have on her benefits.
Her response was very vaguely that she expected the income from an IP would make up for any loss of these. I don't know if this is the case

I think there may be some implications when that PPOR is sold and as it changes from an asset to cash. She may find Centerlink will cut her off completely at that point and/or there may be limitations on the value of the to be purchased PPOR and/or IP let alone the income derived.

I think she needs to have a chat to someone in the know and become a lot less vague before making any commitments.

Cheers

 

[lindsayf]

Yes
Why not suggest she speak directly to a Centrelink financial advisor and get it from the horses mouth

Lindsay

 

[medicowallet]

Dollar dropping = inflation rising = pressure for interest rates increases.

Hmmm, lucky we are different here

MW
(the original Robot destroyer)

PS Where is Robots?

 

[Tysonboss1]

That's why you have many old ladies living in $2 Million run down old houses drawing a Centrelink Pension. They refuse to sell and downsize because "I will lose the pension", heard it hundreds of times, truly unbelievable.

I think that if you claim the aged pension, when you die the government should beable to make a claim against your estate to recover the funds paid out to you as part of the aged pension, the government could probably pay out a better pension rate that way.

Maybe those that pleadge a property to the government to claim against could get a 50% higher pension plan, Sort of like an interest free government reverse mortgage.

 

[Knobby22]

I think that if you claim the aged pension, when you die the government should beable to make a claim against your estate to recover the funds paid out to you as part of the aged pension, the government could probably pay out a better pension rate that way.

Good idea but no votes in that.

 

[Tysonboss1]

Good idea but no votes in that.

If they were going to get a 50% higher pension they may vote for it, it could be voluntary.

 

[McLovin]

I think that if you claim the aged pension, when you die the government should beable to make a claim against your estate to recover the funds paid out to you as part of the aged pension, the government could probably pay out a better pension rate that way.

Yeah, an estate tax on pensioners, imagine trying to sell that!

 

[medicowallet]

I think that if you claim the aged pension, when you die the government should beable to make a claim against your estate to recover the funds paid out to you as part of the aged pension, the government could probably pay out a better pension rate that way.

Maybe those that pleadge a property to the government to claim against could get a 50% higher pension plan, Sort of like an interest free government reverse mortgage.

Great idea in theory (and already addressed by reverse mortgages)

But, in reality, the person would just offload/change names to avoid it.


I think it would just be easier to make housing more realistic in the eyes of centrelink.

ie say I have $500000 in shares

vs $50000 cash and $1000000 property.

vs $1000000 shares

First gets part pension
second gets full pension
third gets no pension

Some way of valuing property needs to be taken on board so as to make it more realistic, and to avoid the system overload approaching.

And

in reality

This is a potential target in the future, as the BB start to overwhelm the ability of the system to maintain their lifestyle.

This (and other factors relating to generation shift) has the potential to really pull some supports out from property.

MW

PS Where is Robots?

 

[Tysonboss1]

Yeah, an estate tax on pensioners, imagine trying to sell that!

As I said it could be sold as a voluntary program.

 

[medicowallet]

Yeah, an estate tax on pensioners, imagine trying to sell that!

It would be easier than trying to sell a tax on an odorless, colourless gas, which aids crop production and helps maintain our lifestyle.

BUT

the point of sale was probably 20 years ago. If we would have had the opportunity to vote back then, we probably could have got something done, but now us oldies control the vote to a greater extent, and it aint gonna happen...... a bit lke how nobody could promote a tax, with an abysmal vote, on an odorless, colourless.... hang on!


MW

PS Where is Robots?

 

[McLovin]

As I said it could be sold as a voluntary program.

Yes, but what you're attempting to do is say that people who have contributed tax their whole life on the basis that they will have a pension as part of the deal will now have the rules changed. Medicowallet is right, the time has passed. It won't be seen as a voluntary program, it will be seen as creating a system of have and have not pensioners.

Of course if you're in your late 20s/early 30s (like myself) then you're staring down the barrel of not only having to fund baby boomers retirements through the pension, healthcare and real estate system but also save enough to provide for their own retirement because the government won't have the cash.

 

[Tysonboss1]

Yes, but what you're attempting to do is say that people who have contributed tax their whole life on the basis that they will have a pension .

If I have a $2M dollar house I can claim the pension, If I have $2M in cash I can't.

That is unfair,

Offcourse it has developed because the government does not want to be seen making old people sell the family home to fund retirement, But they are quite willing to make them sell shares and empty bank accounts.

All I am saying is that having a system where they can claim a pension to fund life style, but have their assets cover the bill upon death would be fairer.

The way I see it, atleast in the future the pension is a safty net to stop you staving to death if you fail to save for retirement, And you should use all your personal resources before you qualify, and if you can't bear to leave the family home it should be able to be claimed against to fund you past pension payments when you die.

 

[Julia]

Hello Julia, it is best for me to say what my out goings are and then you can work it out from there. My unit is worth around 420K and I get $430 p/w rent as it is very well located, walk to shops, bus, beach and entertainment. Building has one lift, no pool, no yards and no gardens.

Don't under estimate the levys. Mine are nearly $800 p/q, total $3,200 p/y
Water $600 p/y
Warringah Council $1,000 p/y
Landlords insurance $350 p/y
Agents Commission 6.6% = Around $1,500 p/y
Smoke Detector Checks $100 p/y
+ Special Levys if needed, figure unknown as they pop up about once every 8 years or so.
+ Internal repairs if needed, carpets, kitchen, bathroom etc. I haven't spent any but eventually I will have to.

Many thanks for detailed response, Bill, especially the actual figures. that's what I was looking for and which I don't believe she has clearly thought about.

Now back to your friends case. Epping, there is no doubt she would get the money for her house $1.3 M as it is a high demand area and the Chinese in particular love that area. The problem is, where is she going to buy a house for 800K? She will either have to move into a big unit or a worse suburb. Now I am not trying to be funny but I have lived on the Northern Beaches and now I live on the Central Coast and it's very different up here to there. Which suburb is she going to move to and how are 2 teenagers going to live in a unit if they must move into one?

When I ask these questions, she is very vague. I also think she's underestimating how much she likes what she sees as the prestige of her street in Epping and the undoubted elegance and charm of the house.

The other point is that I personally would not wait a year or more to buy the principle place of residence. It is unpredictable which way her new suburb may move in prices, it could just as easily go up rather than down. I would absolutely not take the risk myself of being out of the market. She can hold off on the investment unit until later but I wouldn't on the PPR, that's taking a balanced approach to the decision making.

That seems like good advice. I wouldn't either.

I can understand her negativity towards sharemarket investing, it is very hard for a novice to see $36 Billion and $50 Billion wiped of the markets in daily moves. It is also a very scary that shares are still down some 40% from it's peak 4 years ago, she has reasons for her doubtfulness.

Sure, but she displayed the same reluctance when we were in a bull market. What concerns me is that she seems to have a focus which regards only property as a good investment.

A 500K unit would rent for between $430 > $460

Body Corp in a new (good) block would be around 3.5K PA, a very good block 4K and up, an older block maybe as low as 2K PA...council rates PA around 1.5K

Thanks, SC. Very helpful.

I think there may be some implications when that PPOR is sold and as it changes from an asset to cash. She may find Centerlink will cut her off completely at that point and/or there may be limitations on the value of the to be purchased PPOR and/or IP let alone the income derived.

I think she needs to have a chat to someone in the know and become a lot less vague before making any commitments.

Cheers

Yes
Why not suggest she speak directly to a Centrelink financial advisor and get it from the horses mouth

Lindsay

Yes, I've suggested she talk to a Centrelink FI before making any decision.
With the funds left over from buying a new PPOR, she could have a SF own the asset, whether it's property, shares or bank deposit.

I do appreciate the input, fellas, thanks very much.

Agree that it's obscene to have old people living in extremely expensive homes while hauling in a taxpayer funded pension. There do seem to be tentative moves by the Productivity Commission and hopefully soon government to insist aged care, whether institutionalised or delivered in home, is funded by the individual rather than the state.
The obvious objection to this will be that those who have invested wisely and saved so as to be secure in old age will be penalised for not having been spendthrift throughout their lives.

 

[McLovin]

If I have a $2M dollar house I can claim the pension, If I have $2M in cash I can't.

That is unfair,

Offcourse it has developed because the government does not want to be seen making old people sell the family home to fund retirement, But they are quite willing to make them sell shares and empty bank accounts.

All I am saying is that having a system where they can claim a pension to fund life style, but have their assets cover the bill upon death would be fairer.

The way I see it, atleast in the future the pension is a safty net to stop you staving to death if you fail to save for retirement, And you should use all your personal resources before you qualify, and if you can't bear to leave the family home it should be able to be claimed against to fund you past pension payments when you die.

Don't worry I agree with you. But no politician, unless they have a Sisyphus complex, would ever contemplate it. Look at the rort that is negative gearing.

 

[medicowallet]

Things are getting interesting.

More pressure in the news, growth tanking, and therefore wages/jobs will come under pressure.

Mainstream media is now against property.

Realestate agents calling me again.

Robots still has nothing, and is going backwards fast.

Pressure on interest rates up AND down!

Inflation to get a boost from the weaker dollar, banks higher funding costs, but in a weaker economy.

World's best treasurer supporting a houping bubble, while business finds it hard to get finance.

Clouds r coming


MW
(the original Robot destroyer)

PS Where is Robots?