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Do we really want housing to be more affordable? + Benefits of investing with a friend + The ‘cubby house’ syndrome

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Highlights from this week:

  • How to get increased buying power
  • Parents forced to fashion their property to help the kids
  • Why negative gearing MUST remain
  • The areas that are set to boom because the city is unaffordable
  • Changes to investor benefits from the Federal Budget
  • Kids stay at home longer – how to cope

Transcripts:

How the Budget changed the investment landscape – Brad Beer

Kevin:  Investing in property with a friend, a partner, or a colleague is called co-ownership. Brings with it a lot of benefits. What about depreciation reports, though? To maybe enlighten us a bit more on this, Brad Beer from BMT Tax Depreciation joins us.

G’day, Brad. Thank you, and welcome to the show.

Brad:  Hi, Kevin. Great to be here as always.

Kevin:  Mate, what can you explain about purchasing a property with another partner and how it’s going to affect both owners’ claims?

Brad:  Simplistically, what we want to do is do things correctly to start with. Secondly, if you actually do it correctly in the early years of owning the property, with co-ownership, you actually get a few more deductions sometimes.

The premise of why that is really about at the moment, if we do a depreciation schedule for a property, we put a cost and a value on items, and then we apply some tax rules to get deductions. A lot of items that are plant and equipment items that are worth a lower amount of money actually have some rules to make it simple and they get written off quicker.

But when two, three, or however many people actually own a property together, then what the legislation allows is that you actually split the value of the asset first and then you apply the tax rules.

If we do it properly, we end up with items that are worth a lesser value for your ownership, because you only own a percentage of the property, we apply some tax rules, and we actually get some better deductions in the early years of ownership, as opposed to taking what a normal report would be and just splitting the deduction by your percentage of ownership.

Kevin:  Does it matter how many owners there are, Brad?

Brad:  No, not at all. And it becomes different depending on the percentage of ownerships as well. If it’s two people, 50/50, fine. When there’s a 10% owner, then that 10% owner, most of their ownership in these items is actually quite small and gets written off quite quickly. So, one, two, or 15 owners, it all gets split based on your percentage of ownership.

Kevin:  What if I buy a property now and then maybe bring someone else in at a later stage? How do I step through that process in terms of depreciation?

Brad:  When you buy the property, you’ve applied some of those tax rules to what you’ve purchased at the start. Then you continue with what you do, and it doesn’t get reset at that point. The other owner comes in. They’d need to come in and split some of those things, but we can facilitate that when that is the case.

Kevin:  There are obviously great benefits in doing this, defraying the costs, but you’ve given us an idea there on some additional taxation benefits.

Can I take you in another direction – a question without notice? The Budget came down this week. Brad, have you had a chance to look at its impact on property investors, particularly in relation to depreciation?

Brad:  Yes, absolutely. It was a bit surprising. They’ve actually messed with some of the rules, which they don’t do very often.

I guess the important thing to start with: anyone who has bought something or exchanged a contract prior to the Budget night, there is no change. You do exactly what you were going to do in the past. If you already own a property you’re depreciating, you continue on, you do exactly what you’re doing. If you replace something in your property, you start claiming that new item as depreciation into the future.

What they are changing is for people who are going into the future. If you’re buying a property and the assets in there are already there and they’re secondhand, then you don’t get to claim depreciation on that plant and equipment. You do get to claim depreciation on the building allowance still, which is that Division 43 component against the structure of the building providing it’s built the right dates, but nothing in that second-hand arena for the plant and equipment.

What they’re saying is that if you don’t actually purchase the plant and equipment, then you don’t get to claim this deduction for it. If you replace things in that property, deductions will be available.

Now, I’ve been talking to government, trying to get some further clarification on the back end of this legislation because new properties, from what I understand, will be excluded from any of these changes because you are the first owner or you’re the first person to rent this property out.

There’s a bit of conjecture around some of that, but as soon as we get some more, Kevin, I’ll be sure we let you know.

Kevin:  If you could, mate, that would be great. Of course, all this does is underscore the need to make sure you have a professional on side, and no one better than BMT Tax Depreciation. Contact our good friends, Brad Beer and his team. You can do that by using the link at Real Estate Talk, as well.

Brad, thanks very much for your time.

Brad:  Always great to be here. Thanks, Kevin.

 

Regional ares that areas set to grow – Pete Wargent

Kevin:  A questions I’m commonly asked is whether we should be buying in the city? Are the cities becoming too over-priced now, and should we look at some of the regional areas? I guess a lot depends on your personal situation.

But let’s get a bit of an overview on that. Pete Wargent joins me, a recognized expert, one of our experts we use on the show quite often. He has a great blog site, too, which is PeteWargent.blogspot.com.

Pete, welcome to the show. Thanks for your time.

Pete:  Pleasure, Kevin.

Kevin:  What is the best? Is it best that we start to look in the regional areas? Are the cities becoming a little bit more over-priced and unaffordable?

Pete:  Going back to the fundamentals, in the simplest terms, property prices rise when demand exceeds supply. Most people live and want to live in the capital cities, and that’s where there’s a critical mass of population growth. In fact, population growth is becoming even more focused on the capital cities.

Over the longer term, incomes grow faster in the cities, more jobs are created, and that’s where most of the property price growth is.

Kevin:  In the past, of course, state and federal governments have tried to encourage people to move to more regional areas, citing the fact that now with the Internet and transportation so much easier, it could be an easy solution to affordability, but it doesn’t seem to have had much traction, Pete.

Pete:  Not today. In the most recent statistics, the demographics always lag a little bit, but they show that the population growth has really shifted between the states a little bit, but the capital city proportion of that growth has actually increased and is projected to increase over the next decade, as well. So today, the regional centers haven’t really gotten that traction.

Kevin:  One of the other issues, I guess, with investing in the regional areas is that quite often, they’re reliant on one or two major industries and if they tend to fail, then property prices are impacted quite heavily, aren’t they?

Pete:  Yes. We’re obviously generalizing here, and Australia is a diverse country. We had a one-in-150-year event after the Sydney Olympics, a construction boom that really ran all the way through until 2012. So, a lot of regional areas did really well in that period up to 2012, but many of those have come back again since that time and under-perform the capital cities.

But there will always be some regional out-performers; it’s really just a question of which. If you look at, say, Geelong, at the moment, there’s a confluence of factors – proximity to Melbourne and the coast, affordability, and you already mentioned some government incentives, the First Home Buyers Grant and stamp duty exemptions – so that could create a mini boom in a city like Geelong.

Kevin:  I know a couple of really good examples in New South Wales would be Gosford and Newcastle, too, which have benefited a lot from being so close to Sydney and it’s so easy to commute back into Sydney, as well.

Pete:  That’s right. It’s what they call the ripple effect, when the capital city prices out some buyers and they will start to look at the next most affordable location – and proximity to the capitals can certainly do that.

Kevin:  Some of the other areas that have probably come under heavy concern, some of the tourist areas like Townsville and Cairns in north Queensland, even Mackay and Rockhampton in Queensland. These are areas that we’ve been waiting to grow and develop for some time, but they’re so reliant on things like tourism and mining.

Pete:  Yes, I think with the lower dollar, you would expect to see tourism booming, and it has been more lately. I think if you throw in for Queensland, the Commonwealth Games that’s coming up, you’d expect to see the Gold Coast seeing more demand and maybe seeing prices rise.

I think, in the capital cities on the supply side, land value. Land is inherently scarce close to the capital cities, but there is a glut of high-rise apartments in some cities. So, if you take the old adage of land value and land depreciating, you really want to be finding something with scarcity value if you’re looking in the capitals.

Kevin:  We had a talk in a recent show about the West Australian market and how the development of a railway line going up and down connecting north and south to Perth is going to be a bit of a boost for some of those regional areas. Western Australia is a fairly unique location in what it could do for the development of some of those regional areas, Pete.

Pete:  Yes. Western Australia is really in the middle of a recession. We already mentioned the mining boom there, and since 2012/13, Western Australia is coming down the other side of that construction boom. Really, all parts of WA from Perth and the regional areas have really struggled since that time. A lot of people trying to beat the bottom.

I think rents are still declining. There are high vacancy rates in a lot of WA locations as people drift away to Melbourne and other parts of the country. But at some point, it will become cheaper for people to buy than rent, and I guess at that point, you’ll see the inflection and prices will begin to rise again.

Kevin:  Just around this now, Pete, your view on what people should be doing if they want to invest in the regional areas: how should they go about researching it?

Pete:  As I mentioned, Australia is a diverse country. I think if it was me, personally, I would be looking at locations that do have that proximity to the capitals that you mentioned. Geelong is one such example, which I think is going to have a really good run. If you’re looking in Queensland, maybe places like Ipswich or Toowoomba.

But I wouldn’t be venturing necessarily too far away from the capitals because, as you say, there’s less diversity of employment in industry the further you get from the cities.

Kevin:  Good talking to you, Pete. Pete Wargent, and that blog site again is PeteWargent.blogspot.com. Thanks for your time, mate, and we’ll talk to you again soon.

Pete:  It’s always a pleasure. Cheers, Kevin.

 

Do we really want houses to be more affordable? – Michael Yardney

Kevin:  I can tell you that the topic that I’ll be talking to you about in this segment is really going to draw a lot of comment, I can assure you, because one thing that everyone talks about is how unaffordable housing is in Australia. We’re going to pose a different question: the great Australian dream, owning your own home; is it really all that important?

Now, I’m sure you’ve heard how investors, negative gearing, foreign investment, and a whole host of other factors are all to blame for making housing so unaffordable. But today, I’m going to turn this around a bit. I want to take a different view and look, do we really want houses to be more affordable? What are the consequences if house prices do fall? To get a view on this, Michael Yardney joins me from Metropole Property Strategists.

Michael, have you thought about…? You obviously have. Give me your view on that. Do we really want houses to be more affordable?

Michael:  Kevin, I’ve a father of six kids in my blended family and nine grandchildren, so I fully understand how difficult it is for young people to get into the property market, and I’ve had those issues many years ago when I first got into the market, as well. So, I understand the concern.

On the other hand, if you break it down, there are two groups of people who seem to want house prices to fall. Because to make properties more affordable, it means that property values are going to have to go down. Because if you suddenly increase everybody’s wages so that they can pay more, that’s just going to keep pushing property values up.

So, the two groups who in my mind are wanting property values to fall are either first-home buyers wanting to get into the market or Australians who want to get into property investment but they feel they’re priced out of the market.

But Kevin, if you think about it, both of these groups only want prices to fall for a short while. They don’t want prices to keep falling once they bought a property. They want it to fall for a short while, get in the market, and then make a killing like everyone else has. Because nobody really wants prices to keep falling continuously.

Kevin:  I’m going to actually add a third group into that. I’m doing this without notice and I don’t expect you to comment on it, but I do believe there’s a third group, and they’re just a bunch of whingers who will never buy a property anyways and they just want to get down on everyone who does own property.

Michael:  Well, there’s no doubt that there is an element of jealousy out there. You’re right, Kevin.

Kevin:  I just had to get that off my chest, Michael.

If I could just ask you another question, what do you think could make house prices fall?

Michael:  Well, we’re not talking about the correction that everyone knows is going to happen, because house prices are going to moderate and stagnate and in some areas, drop – I don’t know – 5% or 7%. But when you talk about affordability, you need property values to drop considerably, and that would mean that people can’t hold on to their homes and they have to sell them, and there’s no one wanting to buy them, so property prices want to drop considerably. Because a tiny drop isn’t going to create a big change in affordability.

So, for that significant drop to occur, Kevin, it’s either going to be a recession or a depression where people can’t hold onto their mortgages because they haven’t got jobs or because interest rates are very high or because finance is too tight so they have to give away their homes.

And in certain segments, it’s going to be where there’s just too much supply compared to the demand, and those forces of the supply and demand market are going to make property prices drop, Kevin.

Kevin:  You mentioned earlier about the two groups who only want property prices to drop for a short period of time, just so that they can get into the market. That’s simply not going to happen. Any drop in prices is going to be more long term.

What do you think would be the consequences if that happened?

Michael:  All you have to do is look overseas. See what’s happened in the United States when property prices crashed, or in parts of Europe where still there are problems. First of all, we would be having a terrible economic time. There’d be job losses and mortgage defaults.

Interestingly, Kevin, this won’t affect the rich, well-heeled property moguls who people are blaming for the property price rises. It’ll affect ordinary Australians, working class Australians. They’ll be out of their jobs, they’re going to lose their homes because they’re going to default on their loans, and that has terrible social consequences and personal consequences on their family. So, it’s not going to be a good idea.

I think some of these people will be displaced, they’re going to move out of their homes, because even though mortgages are affordable, they’re not going to have the jobs. And where are they going to live?

I think the other thing people haven’t considered is when this happens – you just have to look at what happened in the United States – just because prices are cheap doesn’t mean the banks are suddenly going to lend you money that you can get in. Because if those consequences occur where the market crashes, property values drop, the banks are suddenly going to be much more cautious about who they lend money to.

And ordinary Australians like you and me, and everyone who has money in their superannuation fund, their funds are going to decrease in value because most super funds, most industry funds, are invested in banks and in real estate and in property trusts.

And then the average household wealth that we have tied up in our family home is also going to be decimated, and a lot of us are counting on that for our older years, our golden years, or to pass on to our kids. So, the consequences would be horrific, Kevin.

Kevin:  Yes, they would be, and we have to therefore hope that that doesn’t eventuate.

So, Michael, for those who are struggling to get into the market or appear to be struggling, what do you think the answer is? What should they be doing?

Michael:  I think for many first-home owners, they’re going to have to adjust their expectation – their expectation as to the location where they could live or the size of the property they could live in or the location where their property is going to be. Maybe they should be buying an apartment rather than a house, and others are going to need to rentvest – in other words, rent where they want to live but can’t afford to, and put their money in the property market somewhere.

One of my concerns there is as affordability increases, some people are being pushed out of the good markets and buying properties in what I’d call secondary locations, which aren’t going to have the good capital growth, or they’re going to move to the outer suburbs where the traffic is just too difficult, it’s going to be long commutes in and out from work. So, there are lots of consequences to this we have to consider.

Kevin:  Yes, and that’s another reason why I have difficulty sometimes with these government schemes that try and push people into more affordable housing, things like First Home Owners Grant, and they restrict it to new builds, so therefore you’re restricting someone to an area that may not have infrastructure, it’s probably not going to have good growth.

So, all of these things, this trimming around the edges that you and I have spoken about is not necessarily a good thing for making houses more affordable.

Michael:  I guess it goes right back to your question initially: do we want houses to be more affordable? There are 9 million houses in Australia. 70% of Australians own their own home. It’s only a really small group, maybe about 5% who are currently being locked out of the market. Do 70% of Australians have to suffer for those 5%?

Kevin:  Yes, exactly. Great talking to you, Michael. Michael Yardney from Metropole Property Strategists.

Thanks for your time, Michael.

Michael:  My pleasure, Kevin.

 

The great Aussie dream fades – Kylie Davis

Kevin:  Well, by any measure, housing affordability has worsened over the past 15 years. You’ve only just got to listen to the current reports and what people are talking about. It is all about housing affordability. The cost of buying a dwelling currently takes 7.2 times the annual income of a typical household, up from 4.2 times the income 15 years ago.

This is the headline in the executive summary of the CoreLogic report that deals with housing affordability, looks at the total issue – a great report. And the author of that report joins me, Kylie Davis, who is the head of property marketing at CoreLogic.

Kylie, thank you for joining us today on the show. There is no way that we can get through every piece of this report but let’s just deal with a few of the key issues.

How critical is housing affordability right now?

Kylie:  Australia is one of the most unaffordable places to live in the world, and what we’re seeing is a growing gap between who can afford property and who can’t. What we’re seeing is increasingly, property is being owned by people who are older, who have higher incomes, and, slightly ironically, families with small children.

But really it’s about if you’re already wealthy or you’re very lucky, you can afford to buy property, whereas everyone else is really struggling. And I think that is in contradiction to Australia’s cultural belief that everyone deserves a fair go and that we should all be equal.

Kevin:  Yes. And there is another belief, too, that everyone should have their own home. It’s the great Australian dream, isn’t it? It’s becoming more unrealistic.

That first statement you made there about Australia being the most unaffordable country in the world to buy property, really boiling that down, you’re talking about two major capital cities here, Sydney and Melbourne, aren’t we?

Kylie:  No, no. We’re not. An organization called Geographica, at the beginning of the year, did an affordability study around the world, and we are number two in the least affordable major housing markets. All of the capital cities in Australia fall under an unaffordable ranking according to Geographica and, in fact, even most of the regions do. The only ones that came up is affordable under their modeling were some very regional areas that often had mining in them, and because of that they said, “Yeah, we’re not actually very sure.”

By all criteria, regardless of where you live across Australia, when compared to other countries – and those countries are like the U.S. – everywhere that you want to live is quite unaffordable.

Kevin:  There are some countries around the world where they’re taking a very creative approach to house ownership or living in a property or owning a property. Scandinavia is one where they’ve had some very creative ways to get people into a property, and I think there the focus has been not so much about making a profit out of housing but actually having housing to live in. There is a bit of a difference, isn’t there?

Kylie:  Yes, there is. I guess one of the issues for Australia as an economy is that real estate and property ownership and residential property is such an important part of our wealth. We have close to $7 trillion in money and investment tied up in residential property, and that compares to $2.2 billion for superannuation and other investments. Real estate is very dear to our hearts.

Kevin:  Let’s have a look at the report, and as I said at the outset, we can’t go through every piece of it. By the way, too, if you’d like to get a download of this report it is available. How much is it?

Kylie:  The full report is available for $49, or you can see just a quick executive summary for free.

Kevin:  We’re going to put that executive summary on both of our websites, Real Estate Talk and Real Estate Uncut. Just go to the blog section, have a look at the article there that’s been written by Kylie about housing affordability, and you’ll be taken to the link there.

Kylie, let’s have a look at some of the summary or some of the findings that you’ve come up with in this report. Were there any areas that surprised you?

Kylie:  There were. The things that really surprised us were around generations. We all hear that cliché that the kids won’t move out of home and they’re getting older and older and staying at home, but we saw in the research that really is happening.

30% of people generally have never owned a property but 60% of millennials have never owned a property. We’re seeing that millennials are living at home. Most of them are moving out between 25 and 29, but a growing number are starting to move out after 30.

Kevin:  In the report, have you been able to foreshadow any solutions to housing affordability, and really, are there any?

Kylie:  There are. The issue with housing affordability is that there’s not one magic bullet or one button you can press and fix everything, because Australia has three layers of government and each of those layers is responsible for a different element that affects the overall picture of housing affordability. There really needs to be coordination across the different levels of government.

What we see that will make property most affordable is increasing supply, and the work that needs to happen there is better infrastructure. So better public transport that’s linking our regional cities to the capitals, better public transport that’s linking different parts of our city rather than always feeding into the capital – into Sydney city or Melbourne city or Brisbane city – making orbital links, because that then encourages jobs and employment, and allowing people to move easier means that you open areas that are currently more affordable to more people and it takes the pressure off the center of town.

Then also looking at zoning and planning and having a big picture of how we need to be living. At the moment, a lot of the apartment approvals that are going through are for very big apartment blocks that are one or two bedrooms. That’s not a forever home. We really need more apartments or townhouses that are focused on being an alternative to a house but that you can live in and move in as a couple and then have a couple of kids there and not feel like you’re completely constrained.

Kevin:  Did you reach any conclusions in your report about the impact of things like First Home Owner Grant and incentives that we will give people to buy property in terms of whether or not that actually does inflate property prices?

Kylie:  I think we saw with the New South Wales government – looking at an example that I can remember – the trouble with grants is that they flood a proportion of the market with a bit of money and often supply on the other side hasn’t been dealt with, then simply what happens is that prices actually go up even higher.

Grants are great but they also need to be done in a bigger picture of “Okay, if we’re going to give a particular section of the market more money or make it easier for them to collect the money to go and to spend on a property, how do we make sure that on the supply side that there’s enough out there for them to buy so that that doesn’t just simply push prices up?”

When the First Home Owner Grant came out in New South Wales, pretty much the bottom end of the market, prices just lifted because suddenly people had more money to spend.

Kevin:  We did see in Queensland, didn’t we, where the state government has said that you won’t get a First Home Owner Grant unless you’re buying a new property, that is a new build. Is that part of the solution? Is that what you’re talking about?

Kylie:  Yes. I think grants need to be used to encourage more stock to come onto the market as opposed to simply pushing up the price of existing stock.

Kevin:  Yes. It does come back to supply, doesn’t it, which is what you said right at the outset?

Kylie:  Yes. It always does.

Kevin:  Was that the bottom line in the report – that it is about supply?

Kylie:  It is. There are some things in some legislation across different states that are discouraging people from selling their homes. We saw that one of the biggest impediments to a lot of people actually selling as opposed to buying was stamp duty.

What we can see in the research is, yes, stamp duty is a big barrier if you’re trying to save for deposit and buy a home in the inner city of Sydney and Melbourne especially, because our stamp duty proportions are a lot higher than Queensland.

That can be an add-on that becomes extraordinary expensive. If you’re going to buy a property that’s over $1.5 million in Sydney – which is not an uncommon thing – you’re looking a stamp duty bill of around $90,000, which is in most people’s minds – especially, baby boomers who are more likely to own the houses that would effect – dead money.

What we’re seeing is people are saying “Look, I’m not going sell then because if I sell I have to go through all the trauma of selling. I then have to find something to buy. I’m not convinced I’ll find something better than what I have, so I’ll just renovate now.”

We’re seeing that stamp duty issue hitting both sides of the market. It’s a major barrier to people who are trying to buy and it’s a major issue for people who are thinking are selling because they see that they then are going to have to pay stamp duty to buy something new and they think “Oh, that’s too hard. I don’t want to do it.”

Kevin:  The report is certainly the most comprehensive report that I’ve ever seen on housing affordability. It’s available now. Just go to our websites, Real Estate Talk or Real Estate Uncut. Have a look at the blog section. Look for the article written by Kylie Davis. It will take you to a link where you can actually see this. You can also see an executive summary of this report.

Kylie Davis has been my guest. Kylie is the head of Property Marketing at CoreLogic.

Kylie, thank you very much for your time.

Kylie:  Thanks, Kevin. Lovely to talk to you.

 

The ‘buzz words’ are just that – words! – Helen Collier-Kogtevs

Kevin:  There’s no doubt, is there, that property prices continue to grow, and we’re hearing all the time – and we’ve spoken about it in this show – about how unaffordable property is in Australia, now recognized as one of the most unaffordable countries in the world to buy a property. So, what’s driving property prices? Can we blame it on things like negative gearing?

I want to talk now to Helen Collier-Kogtevs from Real Wealth Australia, who’s written a lot about this, I know has been thinking a lot about it, and no doubt talks to a lot of people about it.

Helen, thank you very much for joining us in the show.

Helen:  Thanks, Kevin.

Kevin:  Is negative gearing the big baddie, the one that’s driving property prices up?

Helen:  I don’t think so, Kevin. I think the whole negative gearing saga is over-stated, and I really feel that it’s not all bad news for investors. No one goes into property investing to negatively gear or to save on tax. We invest in property to grow long term wealth. So, I really feel that right now, this whole topic of negative gearing is over-stated.

Kevin:  I quite often wonder if the taxation benefits associated with negative gearing, if they weren’t there, would we see as many investors in the market?

Helen:  That’s possible initially, but I think what will eventually happen if that was to occur is that rents would increase. As investors, negative gearing is a fundamental part of investing in this country, and it’s been around for a very long time. If negative gearing was removed entirely, then I’d imagine that rents would go up.

The government did do that some years ago when they tried to remove negative gearing, and rents went up. In my opinion, the same thing would happen again.

Kevin:  There are many countries around the world where buying property is not so much about making a profit or having a nest egg at the end of the day; it’s actually having somewhere to live. Do you think our focus on profit from property has driven prices the way they are, Helen?

Helen:  I think there’s probably some truth in that, but the reality is the statistics and the numbers and all the data shows us that long term, property has grown and has proven to a lovely little nest egg for the long term when done well.

Kevin:  There’s no doubt that the prices in Sydney and Melbourne continue to climb, as I said at the outset. So, what’s driving the price growth in Australia, Helen?

Helen:  I think one of the major factors for Melbourne and Sydney booming are the Chinese investors who are coming in. They’re purchasing property simply because in their country, in China, they’re only entitled to purchase one investment property. They’re cashed up and looking to put their money somewhere.

Melbourne and Sydney by comparison to their country are relatively cheap, so they can afford to actually outbid the locals. They’re coming in with all the cash and they’re leaving them vacant because they can afford to.

So, it’s actually causing a boom, as well as the 200,000 migrants coming into the country – roughly around 100,000 for Melbourne and 100,000 for Sydney – and they too are wanting to purchase the property while they’re here, as well.

Kevin:  In the recent federal government Budget, there were some penalties going to be applied for investors who do just that – buy investment properties from overseas and then leave them vacant.

Do you think that’s going to put a bit of a dampener on that, or do you think it’ll have no effect?

Helen:  I think it will have a dampener. I really like that idea. I feel that limiting foreign buyers – or Chinese buyers specifically – is a good sign for us locals. As for how much of an impact it will have, I guess we’ll just wait and see. But in my opinion, I think that it will have some sort of an impact in the short term.

Kevin:  The reality, though – and we hear both sides of government talking about wanting to make houses more affordable for people – is that unless they can actually put a stop on house price growth or even have prices go backwards, there’s not a lot they can do about affordability, is there?

The way it is now, if prices were to fall back – so it were more affordable – there’d be a huge outcry from all those who currently own properties.

Helen:  Exactly right. And you have to consider that most Australians, when they do buy a property, it’s their own home and they leverage and use their own home in their retirement. So, to then not have it be worth anything at the beginning of their retirement phase, that would have a devastating effect on many Australians.

I particularly do like the effort that the government is going to in order to help young Australians purchase a property using their super, however I question the practicality of it. $15,000 to salary sacrifice, I don’t know too many young people who could afford to sacrifice that kind of money per year unless they’re living with mom and dad or sharing, etc.

But I like the concept; I just don’t think it’s all that practical.

Kevin:  Yes, it’s a very small incentive to save when we don’t have a history of being great savers, and the reality is $15,000 over a few years is not going to help you much with the way prices are growing right now to actually build that deposit.

Helen:  Exactly right, Kevin.

Kevin:  So, bottom line, what do you think? What does this all mean for investors? Wrap it up for me, Helen.

Helen:  With the new Budget in place and a couple of changes that have been made to negative gearing, in all, I really don’t feel it will have a big impact for investors. If investors are negatively geared and because of a couple of the changes are suffering a little bit more from a cash flow perspective, a couple of things they’ll need to do is maybe look at purchasing a cash flow property rather than a growth negatively geared property. So, they might need to switch their portfolio around.

They might need to just literally tighten up their budgets a little bit. Pulling back on your spending in order to sustain the property in the long run might be also something people need to consider, but realistically with this latest Budget, I don’t think there’s a lot to see here, really.

Kevin:  Helen, great talking to you, thank you very much for your insight there. Helen Collier-Kogtevs from RealWealthAustralia.com.au.

Helen, once again, great talking to you and t hanks for your time.

Helen:  Thank you, Kevin.

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