Treasurer Josh Frydenberg handed down the 2022-23 Federal Budget and as expected in an election year, delivered a big spending Budget with the focus on cost of living support and defence.
We have been busy detailing and summarising what we feel are the key measures announced from a financial planning perspective. For our ongoing service package clients, your adviser will be in contact to provide guidance on changes which impact your strategy.
The Government has extended the 50 per cent reduction of the superannuation minimum drawdown requirements for account-based pensions and similar products for a further year to 30 June 2023. The minimum drawdown requirements determine the minimum amount of a pension that a retiree has to draw from their superannuation in order to qualify for tax concessions.
Given ongoing volatility, this change will allow retirees to avoid selling assets to satisfy the minimum drawdown requirements.
The Government will increase the low and middle income tax offset (LMITO) for the 2021-22 income year. LMITO is targeted at low- and middle-income earners that are most susceptible to cost of living pressures.
The LMITO for the 2021-22 income year will be paid from 1 July 2022 when Australians submit their tax returns for the 2021-22 income year. This proposal will increase the LMITO by $420 for the 2021-22 income year.
The Government is investing $346.1 million over five years, from 2021-22 to introduce Enhanced Paid Parental Leave (PPL), which is fairer and provides full flexibility for eligible working families. These changes will increase families’ choice to decide how best to manage work and care. Eligibility for the scheme is also being expanded.
The Government will increase the number of guarantees under the Home Guarantee Scheme to 50,000 per year for 3 years from 2022-23 and then 35,000 a year ongoing to support homebuyers to purchase a home with a lower deposit. The guarantees will be allocated to provide:
Global oil prices have risen significantly since the Russian invasion of Ukraine. The Government will help reduce the burden of higher fuel prices at home by halving the excise and excise-equivalent customs duty rate that applies to petrol and diesel for 6 months. The excise and excise-equivalent customs duty rates for all other fuel and petroleum-based products, except aviation fuels, will also be reduced by 50 per cent for 6 months. The Government is responding in a temporary, targeted and responsible way to reduce cost of living pressures experienced by Australian households and small businesses.
The measure will commence from 12.01am on 30 March 2022 and will remain in place for 6 months, ending at 11.59pm on 28 September 2022. Under the measure, existing policy settings for fuel excise and excise-equivalent customs duty, including indexation in August, will continue but on the basis of the halved rates. At the conclusion of the 6 month period the excise and excise-equivalent customs duty rates will then revert to previous rates, including indexation that would have occurred on those rates during the 6 month period.
The rate of excise and excise-equivalent customs duty currently applying to petrol and diesel is 44.2 cents per litre. This measure will halve the rate on petrol and diesel to 22.1 cents per litre from 30 March 2022, with the price faced by consumers expected to be reduced by a larger magnitude given GST will be levied on the lower excise rate.
The Australian Competition and Consumer Commission will monitor the price behaviour of retailers to ensure that the lower excise rate is fully passed on to Australians.
The Government will digitalise trust and beneficiary income reporting and processing by allowing all trust tax return filers the option to lodge income tax returns electronically, increasing pre-filling and automating ATO assurance processes.
The measure will commence from 1 July 2024, subject to advice from software providers about their capacity to deliver.
The Government is introducing a skills and training boost to support small businesses to train and upskill their employees. The boost will apply to eligible expenditures incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2024.
Small businesses (with an aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of expenditure incurred on external training courses provided to their employees. The external training courses will need to be provided to employees in Australia or online and delivered by entities registered in Australia.
The Government is introducing a technology investment boost to support digital adoption by small businesses. The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2023.
Small businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of the cost incurred on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services.
An annual cap will apply in each qualifying income year so that expenditure up to $100,000 will be eligible for the boost.
The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred.
The Government will provide $1.5 billion in 2021-22 to provide a $250 economic support payment to help eligible recipients with higher cost of living pressures. The payment will be made in April 2022 to eligible recipients of the following payments and to concession card holders:
The payments are exempt from taxation and will not count as income support for the purposes of any income support payment. A person can only receive one economic support payment, even if they are eligible under 2 or more of the categories outlined above. The payment will only be available to Australian residents.
If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2022-23 Federal Budget, please feel free to book a chat with your adviser.
Until next time.
A Bill implementing the Government’s key 2021-22 Federal Budget super changes recently passed parliament and received Royal Assent.
Outlined below is a brief explanation of some of the key changes and how you could benefit.
Whether you’re thinking about retirement, have already retired, or even looking to purchase your first home, there is likely to be value in reviewing your circumstances and understanding how these super changes could benefit you.
Individuals aged 67-74 will have increased opportunity to contribute to super with the following changes:
Currently, the work test requires you to undertake work for at least 40 hours in a consecutive 30 day period in the financial year a super contribution is made. Alternatively, you may be eligible to apply the work test exemption.
This requirement is removed from 1 July 2022 for individuals aged 67-74 if making personal after-tax contributions and salary sacrifice contributions. The removal of the work test may make it easier for you to make contributions.
It is important to note that the work test (or work test exemption) still applies if you make a personal contribution and wish to claim a tax deduction.
Other eligibility requirements to make contributions continue to apply, such as total super balance limits and contribution caps. See ato.gov.au for more details.
Caps apply to limit the total contributions that you can make to super. The current annual non-concessional contributions (NCC) cap is $110,000. NCCs include:
If you meet certain requirements, you may be eligible to ‘bring-forward’ NCCs from future financial years to make even larger contributions. This is known as the ‘bring-forward rule’. If you’re eligible, you may be able to contribute up to $330,000 either in a single financial year, or over a three year period.
Currently, you need to be less than 67 on 1 July of a financial year to be eligible to use the bring-forward rule. From 1 July 2022, you may be able to access the bring-forward rule if you’re aged less than 75 on the prior 1 July. Other eligibility rules will continue to apply, such as the total super balance limits.
The following table summaries the maximum NCCs that can be contributed in 2022/23 based on your total super balance as at 30 June 2022:
NOTE: Contribution caps apply to both concessional and non-concessional contributions. Care should be taken to avoid breaching your cap as additional tax and penalties may apply. For further information visit ato.gov.au or get in touch with us.
Downsizer contributions allow eligible individuals to contribute some or all of the proceeds of the sale of their home, without impacting other contribution caps. Unlike NCCs, downsizer contributions do not have a total super balance limit, or an upper age limit. This means it could be a great, final way to boost super for those who don’t meet other eligibility rules to contribute, or where the NCC cap has been earmarked for other purposes.
From 1 July 2022, the eligibility age is reducing from 65 to 60. The age reduction increases the number of individuals who may be eligible to make a downsizer contribution and boost their retirement savings.
Provided certain other conditions are met, it may be possible to contribute up to $300,000 per person (or $600,000 per couple) from the proceeds of selling your home.
Downsizer contributions won’t count towards your concessional or non-concessional contribution caps.
You’ll need to make the contribution within 90 days of settlement of your sale, and you need to complete the required forms to notify your fund that you’re making a downsizer contribution, no later than the time your contribution is made. You must have reached the eligibility age at the time of contributing.
Aside from super being a concessionally taxed investment, there are a number of other ways a downsizer contribution could benefit you.
Funds in super accumulation phase are an exempt asset for social security purposes while you are under your Age Pension age. This could help increase or maintain your or your spouse’s entitlement to a pension or other benefit. Also, making a downsizer contribution together with an NCC could help you contribute even more of your home sale proceeds into the concessionally taxed super environment.
Other eligibility rules and requirements apply. Before you contribute it is important to seek advice and if you are unsure then please get in touch with us.
The First Home Super Saver Scheme (FHSSS) allows you to make voluntary contributions of up to $15,000 per year within your concessional and NCC caps and you can later withdraw an amount of those voluntary contributions plus earnings (calculated at a set rate by the ATO on the amount you withdraw.
The maximum amount of voluntary contributions that you can withdraw increases from $30,000 to $50,000 from 1 July 2022. This boosts the amount that can be accessed from super and directed to buying your first home.
As the scheme allows the withdrawal of voluntary contributions, consideration must be given to not only whether using super is the right approach for you but the type of contribution you will make. For example, salary sacrifice amounts (if an employee), personal deductible contributions or non-concessional (after-tax) contributions).
There is a range of criteria to withdraw your super under this scheme as well as ensuring the funds are used to purchase your first home which is outlined on the ATO website.
Superannuation Guarantee (SG) requires employer to pay a minimum level of super support for eligible employees. One criteria for an employee to be eligible is based on that employee’s monthly earnings being at least $450 per month. However, this threshold is abolished from 1 July 2022.
allowing all eligible employees to receive SG paid into their super fund.
This measure primarily assists low-income earners to have employer contributions paid to super boosting their retirement savings. SG contributions count towards your concessional contribution cap and should be taken into consideration when determining any other contributions made.
Business owners should review their processes to ensure that SG is paid for all eligible employees. Penalties may apply if SG is unpaid or paid late.
When you think about wellbeing, you often think about your physical health. Are you exercising enough, eating well and keeping healthy habits? But, in reality, it is so much more than that.
Your wellbeing is a conscious and deliberate process of making choices that help us to live our best life. A life full of purpose, satisfying work and play, joyful relationships, a healthy body and mind, financial confidence and ultimately happiness.
According to research, a person’s wellbeing can be measured against eight dimensions of wellness: physical, spiritual, social, emotional, intellectual, occupations, environmental and financial.
Each dimension means something different to everyone. Understanding what it means to you can help you uncover what you value in life, where your strengths are and what you might need to work on.
The Physical Wellness Dimension involves things that keep us active and healthy. Our physical wellbeing is so important to our mental health, longevity and ensuring we live our best lives. This doesn’t mean we must all be athletes. But it does mean building good physical health habits, having a healthy diet, exercising regularly, and having the appropriate health care for our needs. The more we are in tune with our bodies and what they need, the less likely we will be to become reliant on the healthcare system or even our families and loved ones.
The Intellectual Wellness Dimension involves things that keep our brains active and our intellect expanding. It’s about mastering new skills, learning new things or helping to educate others. Having the time and resources to keep your mind active and supporting your loved ones can help you live a long life.
The Spiritual Wellness Dimension is a broad concept that represents one’s personal beliefs and values and involves having meaning, purpose, and a sense of balance and peace. It includes being able to volunteer your time to support causes that mean something to you and help others to live a more purposeful life.
The Emotional Wellness Dimension involves the ability to express feelings, adjust to emotional challenges, cope with life’s stressors, and enjoy life. It includes building and nurturing relationships to strengthen our support networks and ensure we have the resources to spend time and money on those we love and the things we enjoy in life.
The Financial Wellness Dimensions addresses your financial wellbeing. It covers your income, debt, savings and investments as well as your financial literacy. It also means having the resources to support and protect those you love. To live your best life, you need to be confident in your current financial situation or your future financial prospects.
The Occupational Wellness Dimension involves aligning your work to what you value in life. Ensuring that you pursue work that has meaning and purpose and reflects your values, interests and beliefs. Living your best life means work shouldn’t feel like work.
The Social Wellness Dimension involves having healthy relationships with friends, family and the community. Living your best life means living a life where you participate with others you care about and have the time to do so.
The Environmental Wellness Dimension involves living in an environment that promotes positive wellbeing. Such as preserving areas where we can live, learn and work, providing pleasant, stimulating environments that support our wellbeing and offer the natural places and spaces to promote learning, contemplation and relaxation. We need to create the right environments to help us live our best lives now and into the future, for both ourselves and our loved ones.
Our financial advice process will help you to uncover which areas of wellbeing are most important to you and how close you are to living a life aligned with those areas of wellbeing.
Our advisers will then work with you to set goals and shape strategies to make sure you are on the right path to living your best life. A life full of purpose, satisfying work and play, joyful relationships, a healthy body and mind, financial confidence and ultimately happiness.
The first home saver scheme (FHSS) has now been accessible for 3 years, but still is an under-utilised tool in assisting you to save for your – or your kids – first home. Below is a recap on this scheme, and why it may want to be considered as part of either your own savings plan, or if you are a parent looking to assist your children with their first home purchase.
If you’re aged 18 or over and are an eligible first home buyer, you can withdraw voluntary super contributions made since 1 July 2017 to put towards the purchase of your first home. Under the current rules, these voluntary contributions are up to $15k per financial year, with a total maximum of $30,000. This applies to each individual buying the home, so if buying with a spouse, friend or sibling, you have access to your own FHSS, meaning you could access up to $60,000.
The legislation has now passed to increase the total maximum from $30,000 to $50,000 from 1 July 2022.
Although you need to be 18 to withdraw the funds, contributions can happen prior to this age.
Super contributions that can be withdrawn are salary sacrifice contributions and personal contributions (concessional or non-concessional). Your compulsory super contributions and spouse contributions cannot be withdrawn as part of the FHSS.
As superannuation is usually a more favourable tax environment compared to an individual tax payers own marginal tax rate, the intention is that a first home buyer will be able to grow a deposit quicker and also reduce the tax they pay (and therefore save the difference).
Investment earnings are deemed using a formula from the ATO, which is the 90 day bank bill rate plus 3%. This is generally more than you can earning from the average bank account interest.
When money is withdrawn from the FHSS, amounts that were contributed as tax deductible contributions are taxed at your marginal rate less a 30% tax offset, as will associated earnings. After tax contributions will attract no tax.
You must request a determination from the ATO via your MyGov account prior to signing a contract to buy your first home. This will then tell you how much you can withdraw under the scheme. You can then make a withdrawal request.
Based on above, the ATO advises requesting the release as soon as you start to seriously look for a home – ie when you apply for a home loan pre-approval
The FHSS maximum release amount is the sum of your eligible contributions, taking into account the yearly and total limits, and associated earnings. This amount includes:
The FHSS maximum release amount takes into account the $15,000 limit from any one year and $30,000 total limit (The legislation has now passed to increase the total maximum from $30,000 to $50,000 from 1 July 2022) to the total contributions across all years when calculating the eligible contributions, before adding the associated earnings.
You will need to purchase within 12 months of requesting the withdrawal. If you withdraw and then do not purchase a home, you must put back into super as a after tax contribution to avoid penalties.
You will need to live in the property for at least 6 months in the first 12 month period the property can be occupied.
Further information can be found directly on the ATO site.
As always, the above information is general in nature only and does not consider your personal circumstances. If you want to know how to apply this to your own personal situation, please book with one of our advisers here.
After the economic turmoil of 2020, the 2021-22 Federal Budget focused on measures to promote economic growth and recovery with big spending and very few surprises.
The biggest winners aged care, women, health, and childcare. Perhaps laying the foundations for an Election announcement?
There were also some wins for superannuation, although the rate of superannuation guarantee or changes to minimum pension requirements didn’t see any proposed changes. As a result, superannuation guarantee will increase to 10%, and minimum pension drawdown requirements will revert to their standard levels from 1 July 2021.
On a positive note it was good to see the data confirming the economy is recovering rapidly, but the Treasurer did temper the excitement on this, noting that we cannot take the gains we have made for granted. Probably a fair point, as a fair chunk of the heavy lifting has come as a result of tax receipts off the back of an iron ore spot price that is 4 times higher than forecast. The deficit is still significant, however it is hard to argue that something of this magnitude isn’t required.
NOTE: It’s important to remember that the Budget announcements are still only proposals at this stage. Each of the proposals must be passed by Parliament before they’re legislated – and could change.
Expected to be 1 July 2022
The Government has announced it will allow individuals aged 67 to 74 to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.
However, individuals aged 67 to 74 years wanting to make personal deductible contributions will still have to meet the existing work test. This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government stated it expects this to occur prior to 1 July 2022.
Expected to be 1 July 2022
The Government has announced it intends to reduce the eligibility age to make a downsizer contribution from 65 to 60 years of age.
The downsizer contribution rules allow people to make a one-off after-tax contribution to super of up to $300,000 from the proceeds of selling their home they have held for at least 10 years. Under the rules, both members of a couple can make downsizer contributions for the same home and the contributions do not count towards a member’s non-concessional contribution cap.
This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government has stated that it expects this to occur prior to 1 July 2022.
Expected to be 1 July 2022
The Government has announced it will increase the maximum releasable amount for the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000.
Under the existing FHSSS rules, an eligible person can only apply to have up to $30,000 of their eligible (voluntary) contributions, plus a deemed earnings amount, released from super to purchase their first home.
This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government has stated that it expects this to occur prior to 1
Expected to be 1 July 2022
The Government has announced it intends to remove the $450 per month minimum superannuation guarantee (SG) income threshold.
Under the current rules, an employer is not required to pay superannuation guarantee contributions for an employee who earns less than $450 per month.
This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government has stated that it expects this to occur prior to 1 July 2022.
Effective first financial year following Royal Assent The Government has announced people with certain complying income stream products will be given a two-year window to commute and transfer the capital supporting their income stream (including any reserves) back into a superannuation account in the accumulation phase. The member can then decide whether to commence a new account based pension, take a lump sum benefit or retain the balance in the accumulation account.
The income streams affected by this measure include:
that were first commenced prior to 20 September 2007 from any provider, including self-managed superannuation funds (SMSFs).
Under the measure, any commuted reserves will not be counted towards an individual’s concessional contributions cap but they will be taxed as an assessable contribution of the fund. When commuted, any social security treatment the product carries such as 100% or 50% asset test exemption and/or grandfathering for income test purposes will cease.
However, the Government has confirmed there will be no re-assessment of the social security treatment the product received prior to the commutation. Therefore, the member would not be required to pay back any overpaid entitlements.
The Government has also confirmed the existing transfer balance cap rules will continue to apply. Therefore, on commutation the member will receive a debit in their transfer balance account based on the debit value method that applies.
Income streams not included in this measure include flexi-pensions offered by any provider and lifetime products offered by a large APRA-regulated defined benefit scheme (eg some older corporate funds) or public sector defined benefit scheme (eg CSS, PSS).
Expected date 1 July 2022
The Government plans to relax the residency requirements for SMSFs by extending the central management and control test from 2 to 5 years and removing the active member test.
Under current rules, SMSF trustees living overseas who intend to return to Australia at some point can be away for a period of up to two years and the fund will still meet the central management and control test. Under the proposal, the trustee will be able to be away for up to five years and still meet the test.
Further, the active member test will be abolished. Under this test, if the fund had members that were ‘active’ by making contributions or rollovers into the fund, the residency status of the fund could be jeopardised. This means that members who are overseas for a period of time often cannot make contributions to their SMSF or SAF. In contrast, a non-resident can contribute to large APRA and industry funds without putting the fund’s residency status at risk.
Abolishing the active member test simplifies the rules and ensures that members and trustees who are temporarily overseas can continue to make contributions to their SMSF or SAF without jeopardising the fund’s complying status.
If you would like to discuss how this may impact your retirement planning, then please book a chat.
Effective 1 July 2020
The Government will retain the low and middle income tax offset (LMITO) for the 2021-22 income year, providing further targeted tax relief for low- and middle-income earners. The LMITO provides a reduction in tax of up to $1,080. The table below shows the amount of offset an individual client is entitled to depending on their taxable income:
This announcement means that an individual’s effective tax-free income threshold for 2021-22 financial year remains the same compared with the current financial year. An individual who is not eligible for seniors and pensioners tax offset can effectively have taxable income of up to $23,226 without having to pay income tax.
Effective 1 July following Royal Assent
The Government will replace the individual tax residency rules with a new, modernised framework. The primary test will be a simple ‘bright line’ test — a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident. Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.
Effective from the income year after Royal Assent Currently, tax deductions for Category-A self-education expenses must generally be reduced by $250.
The Government has proposed removing this $250 reduction amount to effectively allow individuals to claim a tax deduction for all Category-A self-education expenses.
Category-A expenses include tuition fees, textbooks, stationary, student union fees, student services and amenities fees, public transport fares, car expenses worked out using the ‘logbook’ method (other than the decline in value of a car), running expenses for a room set aside specifically for study.
Effective 1 July 2022
The Pension Loans Scheme (PLS), a voluntary, reverse mortgage type loan available through Services Australia, currently allows a fortnightly loan of up to 150% of the maximum rate of Age Pension. From 1 July 2022, the Government will implement two changes to the scheme – a No Negative Equity Guarantee and lump sum advances.
No Negative Equity Guarantee
A No Negative Equity Guarantee will be introduced so borrowers, or their estate, will not have to repay more than the market value of their property, in the rare circumstance where their accrued PLS debt exceeds their property value.
Lump sum advances
Eligible people will be able to receive one or two lump sum advance payments totalling up to 50% of the maximum Age Pension each year. Based on current Age Pension rates, this is around $12,385 per year for singles and around $18,670 for couples combined. Note, the total amount eligible people are able to receive under the pension loans scheme, including
any lump sum advance payments, has not changed. The total amount cannot exceed 150% of the maximum Age Pension which is around $37,155 per year for singles and around $56,011 per year for couples.
Effective 1 July 2022
The Government announced it will:
The current hourly fee caps will continue to apply.
Effective 1 July 2021
To support senior Australians to remain at home, the Government is funding an additional 80,000 Home Care packages:
Additional respite care services will be provided to assist carers and enhanced support services will
be provided to assist senior Australians to navigate the aged care system
Effective over 3 phases: 2021, 2022-23, 2024-25
To improve and simplify residential aged care services, the Government is implementing a range of measures To improve residential aged care quality and safety, including a new star rating system to provide senior Australians, their families and carers with information to make comparisons on quality and safety performance of aged care providers.
Reforms to residential aged care services and sustainability, including a new Government-funded Basic Daily Fee supplement of $10 per resident per day, funding to implement the new funding model, the Australian National Aged Care Classification (AN-ACC), and implementation of a new Refundable Accommodation Deposit (RAD) Support Loan Program; and
a range of measures to grow and upskill the aged care workforce.
For our ongoing service package clients, your financial adviser will be in touch with any specific actions or impacts to your situation.
If after reading this you want to chat, get some clarification in regards to any of the above measures outlined in the 2021-22 Federal Budget, please contact us so that we can discuss your particular requirements in more detail.
This is without doubt one of the most exciting times of the year, well at least for some of us. Last night the Treasurer, Josh Frydenberg, released the Government’s highly-anticipated 2020-21 Budget, featuring the bringing forward of tax cuts, superannuation reforms, measures for Centrelink clients and additional aged care funding. After going into a record deficit of $213.7 billion to support individuals and businesses during the Coronavirus crisis, the focus of this year’s Budget is to regrow the economy by creating job opportunities and encouraging spending.
Pekada’s team have reviewed the Budget and prepared a summary of the key measures for you, and will be updating our the Federal Budget 2020 page here throughout the day.
NOTE: It’s important to remember that the Budget announcements are still only proposals at this stage. Each of the proposals must be passed by Parliament before they’re legislated – and could change.
Personal tax cuts
The Government has announced that it will bring forward stage two of the previously legislated tax cuts that were due to take effect from 1 July 2022 by two years. As a result, from 1 July 2020:
What this could mean for you
Low and Middle Income Tax Offset
The Low and Middle Income Tax Offset (LMITO) was introduced in the 2018 Budget, to complement the existing Low Income Tax Offset (LITO). In 2019, the base rate for the LMITO increased from $200 to $255 and the maximum payment increased from $530 to $1,080. The Government had planned to discontinue the LMITO when the stage two cuts were to be introduced in mid-2022. However, even though the stage two cuts have been moved forward to the current financial year, the LMITO will also remain in place for the
2020–21 financial year.
What this could mean for you
Default super accounts
Currently, if you start a new job and you don’t let your employer know where you want them to pay your super contributions, they will open a super account for you. The account will be in your employer’s default super fund. This may result in you having multiple super accounts.
By 1 July 2021, your employer will be able to obtain information about your existing super account from the ATO. They will then pay your super contributions into this account, unless you instruct them to pay it to a different account.
For people who don’t yet have a super account, their employer will be able to open an account for them in their default
What this could mean for you
Performance testing for MySuper products
MySuper products follow a strict set of government guidelines. They tend to offer their members lower fees, simple features and limited investment options.
The Government feels there are too many underperforming super funds in the market, and this is impacting members’ retirement savings. From 1 July 2021, MySuper products will be subject to an annual benchmarking test. If the fund is found to be underperforming, it will need to inform its members by
1 October 2021.
Further, if a fund is found to underperform for two consecutive years, they won’t be permitted to accept new members until their performance improves.
By 1 July 2022, all super funds will need to do the annual benchmarking test – not just MySuper products.
What this could mean for you
YourSuper online comparison tool
To help members easily compare super funds, the Government will release an interactive online comparison tool called YourSuper by 1 July 2021 which will:
What this could mean for you
Additional support payments for welfare recipients
Government support recipients will receive two separate economic support payments of $250, to be paid progressively from December 2020 and March 2021.
This follows two previous payments of $750 to eligible recipients, with the new payments estimated to cost a total of $2.6 billion.
What this could mean for you
You may be eligible for the two payments of $250 if you’re currently receiving:
Coronavirus has taken its toll on the mental health of many Australians. Therefore, the number of psychological services funded by Medicare will be doubled from 10 to 20, effective immediately.
The NDIS will also receive additional funding of almost $4 billion, to provide essential support to Australians living with a disability.
Women facing ovarian cancer will now be able to access the drug Lynparza through the PBS. Rather than costing $140,000 per course, general patients will now pay around $41 for a script while concession card holders will be charged $6.60.
What this could mean for you
New jobs in key industries
The Government is committing $1.5 billion over five years from 2020–21 to support the building of competitiveness, scale and resilience in the Australian manufacturing sector. It will focus on six key industries of strategic interest:
Rural communities will benefit from $2 billion in funding over 10 years to improve water infrastructure, while regional businesses will benefit from an expansion of the instant asset write-off scheme. Regions that rely on international tourism will benefit from their share of $51 million in funding over two years to diversify their markets.
While the Budget doesn’t offer much financial relief to female workers currently impacted by Coronavirus, the government is committing $240 million over four years towards a range of employment initiatives for women. These include increasing female workforce participation in male-dominated industries such as construction.
What this could mean for you
For our ongoing service package clients, your adviser will be in touch with any specific actions or impacts to your situation.
If you have any queries in the interim or would like further clarification in regards to any of the above measures outlined in the 2020-21 Federal Budget, please feel free to give me a call to arrange a time to meet so that we can discuss your particular requirements in more detail.
To use a basketball analogy, a good financial advisor should often run point guard for your personal finances. This means that they are the main playmaker, they decide the plan of attack moving forward. A good point guard is essential in having a championship calibre team, but it’s also important that the other positions are filled with experts in their fields such as accountants, lawyers and mortgage brokers. Today we’re going to focus on the latter and discuss why I think it is important that people should see a mortgage broker.
A good mortgage broker will be able to offer you advice far greater than just finding you the best rate. Getting a loan can be confusing, especially if it’s your first time. Offset accounts, fixed vs variable, redraws… the list can go on in terms of different terminology. A good broker will be able to help you navigate through these different features and find out what is important for you. Often, I feel that getting the structure and features of your loan right can be more important than the rate alone.
They have access to a range of different lenders and rates, they may even have access to rates that you are unable to get due to the size of their business. You as a consumer have access to these lenders as well but you likely don’t have the software to go and compare these as quickly as a mortgage broker does and it will often leave you spending a lot of time comparing different lenders when you could have a broker do it for you far more efficiently.
A majority of the time the mortgage brokers are actually paid by the lender for finding them business and do not charge an extra fee on top to you. Commissions are often a dirty word for people, especially following on from the royal commission but now most lenders pay a very similar commission and no decent mortgage broker would or should ever focus on the commission alone, rather looking at what loan and solution is best for you.
Similarly to a financial plan, you should be reviewing your loans on a consistent basis. Situations change, interest rates change, and products change so you need to be making sure you are reviewing these to ensure you have the best solution possible for you. Having a good mortgage broker should mean that they are proactively reaching out to you. It also means you will have an expert to call if you ever have any questions rather than having to sit on hold to a bank or other lender to get an answer.
If you would like to get in contact with a mortgage broker, please shoot me a message and I would be happy to do an introduction to one of our trusted business partners.
The question is not an unusual one and it has been asked many times, but which option provides you with the edge you’re looking for? Certainly there are pros and cons for both – that’s the answer you were expecting. But let’s break down the aspects to consider, “tale of the tape” style and see which one will deliver. Again, the final decision must always be yours and is dependent on your individual circumstances.
Ease of entry
We’re told that when heading to snow country for the very first time for say 3 days you have a choice to make – ski or snowboard. Some instructors will tell you that snowboards are easier to get started on but harder to become really good at and the opposite applies for skiing. Maybe yes, maybe no but will the same be true for property investment versus shares?
Well that all depends on whether you can get your mitts on around $691,000 because that’s the mean price of residential dwellings at the moment. Yes, you really only need to find a deposit but that’ still going to be significantly more than the $1000 you’ll need to start a share portfolio.
Ok firstly, there’s no such thing in the world of investment. Sure over the course of the medium to longer term, things flatten out but there will be undulations at the very least. That said, those peaks and troughs in the share market can be far more pronounced and regular than the shifts that occur in the property market. The share market routinely reflects political and economic nuances whereas housing fluctuations are less reactive.
In many cases, you’ll find that property demands you put all (or most) of your nest eggs in the one basket. There’s safety in numbers so diversification is your friend. Share portfolios, by their very nature, lend themselves to risk-spreading across a variety of industries, countries and more.
Cash! And risk pt1
Ok, let’s say you need to put your hands on some cash for a key purchase, upgrade, re-investment – whatever. This is an interesting one because the deciding factor probably speaks to a simple qualifier. How much? If smaller amounts are needed, accessing limited funds from your portfolio is simple – unless the company’s value falls dramatically (it can happen) leaving you less at that moment than you anticipated. Worse, if the company into which you’ve invested funds goes bust, you’re in line behind the liquidators…
Selling a property, as you may well know, can be a convoluted process taking weeks and sometimes months. Realistically, the value should not fall dramatically (has happened though) and many can bank on profiting from their property investment. It would seem that property is a more dependable and stable income source.
Risk pt 2
Firstly, expenses. Think about property maintenance, rates and taxes, insurances and more taxes. Think about interest rates. Interest rates can increase your repayments and many find their returns stymied by interest rate fluctuations. Couple that with the all-important occupancy and that leaves the property investor plenty to think about. Too much? The last thing you want is to owe the bank more than the property is worth, particularly with talk that negative gearing could be on its last legs due to budgetary pressures.
Time and effort
Let’s be clear – there’s no such thing as set and forget. That said, the share market typically demands research, vigilance and regular deposits into your personal knowledge bank. Property is a different story, the research comes prior to point of purchase and generally speaking the rest is a matter of maintenance (in its many and varied forms). The share market can handsomely reward the diligent researcher and punish those that frequently take their eye off the ball.
Alright, we need a tie-breaker and the tie-breaker is, as always, your personal circumstances. Those should be at the forefront of your considerations – always.
And given that there are certainly more investment options than simply property versus shares, you should enlist the help and advice or your trusted adviser to help make the call. Feel free to chime in with your opinions and experiences, questions or concerns.
Listen to the podcast here where we debate this blog!
In the latest episode of The Wealth Collective Podcast we talk to Dave Robbins from Performance Property Advisory and BuyerX about all things property. In particular we discuss the concept of rentvesting, general property market update and buying outside of your neighbourhood.
Hi guys, and welcome back to another episode of the wealth collective podcast. Pete Pennicott here and I’m joined by my co-host as always Zac Masters.
Hey Pete, how are you going?
Very good. And we’ve got a special guest in the studio, not that you’re not special. So Dave Robbins from Performance Property and BuyerX.
Thanks Pete. And thanks Zac for having me.
Yeah, so we thought really, really good timing to kick off, so with good note as well. So property is having a little bit of a little bit of a recovery, almost like a very sharp recovery since mid last year.
It is, it’s rebounded quite well obviously with, um, the federal election probably getting the result that, uh, property investors were seeking and obviously interest rates coming off from sort of August onwards, uh, has really, um, brought some activity back to the market nationwide.
So we’re seeing a lot of inquiries from our clients and listeners just sort of checking in going, all right, is this the time to buy or have I missed the boat again? So the people that were sort of sitting on the sidelines, and I think that was sort of sickly hoping that it went further down so they could sort of get in and um, you know, perhaps they might have missed that opportunity or there might be different pockets of places to actually invest in. But in some of the other things we wanted to talk about today is awkward sort of rent vesting as well. So for people trying to enter the property market, especially in metropolitan Melbourne, it’s getting tougher and tougher. Um, and I’m hoping you’ll sort of cover off on why that’s difficult and hopefully is that going to end at any point?
Sure. So we, we, uh, there’s 40 different metrics for us to, um, position a market somewhere on the property cycle, on the property clock. One of those is, the price to income ratio. Uh, and at Melbourne at the moment, uh, Melbourne house prices are 10 times the average income. So that makes it extremely difficult for first home buyers to save for a deposit to enter into a market. With still being able to live. So if you’re, if you’re having 50% of your average wage going to the average mortgage without any living expenses, it makes it extremely difficult to, to enter the market unless you’re gifted a lot of money from parents or guarantor loans and obviously, uh, the whole, um, market at the moment, is very sensitive. So not too many parents are willing to loan four or 500,000 to their kids to get into the market.
Um, and, and it, it’s a bit of a compromise as well because if all your borrowing capacity gets you is 500,000, you have to compromise on either the quality of the asset, the location of that asset and are you going to travel an hour and a half to work every day if, if that’s what your 500,000 can buy or do you buy a one bedroom apartment in the city because that’s what your $500,000 can buy.
Yeah. And that, and then you might be sort of, there’s the trade off of what’s the longterm capital growth prospects for those different properties as well. Yeah. Um, and then, so a lot of people just look in the location where they live, so they only think of, I want to get into the property market. Um, I live in Melbourne, work in Melbourne, so I want to have, I think about that commute that you were talking about earlier. So are there other ways or sort of, how else can people, I guess, manage that compromise? So they are getting a toe in the water so that building an asset in property and something, hopefully what we’re, we like your service helps people sort of cut through the noise and actually put some, I guess, real research behind their decisions and make really good investment decisions, um, when purchasing the property. So can they do that without sacrificing all of their lifestyle or remortgaging their parents’ house?
So rentvesting is a, is a property terminology, and that is, um, becoming more and more apparent as prices get further and further away. So a great example would be, a 24 year old, living with a renting with a girlfriend or, or mates or whatever it is. Um, let’s say they are renting in Richmond, obviously Richmond house prices at the moment, uh, far in excess of what a first time home owner can afford. So they may be working in the city or going to uni, um, somewhere in the city. Yeah. Um, so the idea of rentvesting is that you continue to rent in an area that is suitable to your lifestyle, your work, your family, wherever it may be.
You might be share housing as well to sort of spread those costs.
Yep. Um, and then you, you, you still want to build an asset base so you can enter a more affordable market. And that may be regional Victoria at the moment where, let’s say it’s Ballarat or Bendigo, uh, average house price is around 400,000, and you’re going to get close to a four and a half, 5% yield on that. So by the time you put your, let’s say it’s an $80,000 deposit down, which is roughly 20% of the purchase price, um, the, the rental income is almost going to be servicing the debt, so close to cashflow neutral or very slightly negatively geared . Um, and entering a an $80,000 deposit in Melbourne, it doesn’t really get you anything. Um,
You might get a shoe box somewhere in one of those dodgy built, you know, one in Docklands that had the fire. Yeah. Literally fire sale process.
So, so with rentvesting it’s not a get in get out two years later and try to take your money and put it on a bigger deposit in Melbourne, you really need to commit, the short to medium term, which could be anywhere from five to seven, eight years. Um, and the idea is that you’ve got an asset, in a growing market that is more affordable in a confident market where demand is exceeding supply. Um, and that isn’t costing you an arm and a leg to service the debt because we’ve got someone renting the property. You continue the, or you have the freedom or, choice to rent wherever you want to do. And it may be in five years time that you’re sick of the rental market and you want to buy a principal place of residence in Melbourne. But you can do that by, the asset that you have in, let’s say it’s Bendigo for example. That will have grown in that five to seven years and you can use that a deposit to reenter the Melbourne market and it hasn’t cost you anything. It’s only costs you the initial deposit, not the servicing of the debt along the way.
Yeah. And that’s good. And one of our listeners lives in Bendigo, so he’ll be very happy to hear the Bendigo one. So, yeah. Um, and in terms of timeframes, you mentioned sort of five years ish as a reasonable timeframe. Look where all about longterm investing. So is it something that can be part of a longterm portfolio as well to actually build? Or are you seeing most people actually using that as a stepping stone in selling that property?
It’s all comes back to the individual client. But um, if you’ve got a growing asset in a market like that, the vacancy rate, the event, the rental vacancy rate at the moment in Bendigo is less than 1%. So it means there is a huge demand for people wanting to rent properties in Bendigo. So if you’ve got that, that puts upward pressure on rental pricing, it may be that you don’t need to get,
why sell this great asset, like what’s the rush in terms of turning over bomb properties and we see the same on other types of investments as well. So, um, if it can be built into a portfolio and you have got a cashflow positive, a property that’s growing in value and you can potentially use some equity, you’re not too sure leverage into the next property. Um, yeah, that sounds pretty well.
The, the advice would only be to sell if you’re going to use the money for something immediately. So if you’re not going to use it on a principle place of residence where you’re not going to use it to pay back debt or whatever it may be you hold, because obviously there’s entry costs, stamp duty, et cetera, getting into the property and there’s also taxes getting out of it, through capital gains and agent’s fees, et cetera. So unless you’re going to use the money, absolutely. You hang onto the property.
I’m just thinking out loud, like in terms of you’ve got a few, you know, your cohort of people would be in this sort of, this zone could even sort of do even better if you’re living at home and no rent at all, so home investing.
Yeah. Yeah, I was literally having this discussion, um, with a client the other day of going, you know, he’s in the position where he can potentially buy somewhere near the city but he’s going, is that going to be the best investment longterm? If I hold is this the best area to be buying, buying an hour? Am I better to just rent? So not even for the sake of, um, could he afford the property? It’s, is that the best investment decision for him as well?
It all comes back to affordability. As I said, we’re, we’re, we’re 10 times a average house price to the average income in Melbourne. Um, how much further that can grow is really dependent on interest rates at the moment with Melbourne. Melbourne can really only grow if interest rates stagnate or fall. And when we’re roughly 3% at the moment with an RBA rate of 0.75. How much further can we go lower? Obviously the banks know better than us, but if you’ve got, in a more affordable market, like a Victorian regional, even if interest rates go up, those markets still have the ability to grow because of how cheap they are. They’re four times income. Um, and if you have a look at it from a, let’s say you’re in the public service, an ambo, a doctor, a police officer, you’re on the same wage in regional Victoria, and you can have a completely different lifestyle house, et cetera, for $600,000, as opposed to a house and land package in Melbourne, an hour from where you work for the same price.
Yeah. And that’s what we wasted a few people do that several years ago with Geelong. So in terms of the commute there is similar from a train experience, if you can get the right train. Coming into Melbourne and they’ve sort of got a property with a backyard. They’ve got sort of space in the house and they were living sort of, you know, quite cramped up and they had kids and stuff in inner city. Melbourne just wasn’t working for them. So they, their lifestyle is amazing and I think they’ve sort of loudly campaigning to get everyone to move down there as well. Probably just the drive up prices for themselves. So, um, so in terms of other stuff, Zac, what do we want to be covering off today?
Yeah. So we’re going to be looking at hopefully just getting a basic property market update from you as well. So we’ve spoken a bit about Melbourne being quite high but probably a majority of the listeners sit around the Melbourne um, area. So if you could give your thoughts on that at the moment.
So, so Melbourne’s last growth cycle began in 2012 and it ran to virtually the end of 2017 very beginning of 2018. Um, overall that was just shy of an 80% growth, um, through 2018 and 2019. Obviously with the, with the federal election, Royal commission, APRA changes, it was a world of negativity that went through finance and property. So prices actually came off in most of the blue chip suburbs in Melbourne. They’ve come off anywhere from 15 to 20%. Um, so that was a really good opportunity for people to buy. Then, if they had the ability to service the debt, which a lot of people didn’t.
Or even get the debt as well as it was getting harder and harder to get the funding.
yeah. But as soon as the, the federal election decision was made, uh, and interest rates, were virtually 25%, 30% cheaper than what they were a year ago. It Melbourne, it made Melbourne more affordable. Um, but we, we believe it performance property that we didn’t go back to the start of the next cycle. A typical cycle in Melbourne lasts anywhere from six to nine years and it’s typically a 100% total growth. Okay. As I said before, it was a six year run and 80% growth. Um, we believe as soon as interest rates were made cheaper back to roughly 3%, it gave Melbourne the ability to run, we believe to finish off the last 20 to 30% of its last run. Obviously we can’t predict it to exactly what percentage that will be, but you can even see basically since, August or September, there’s been some, um, uh, cases where properties have gone back from an auction market, were we weren’t an auction market a year ago. The auction market is back and property prices are going two or 300,000 above the reserve.
And when you say was more private sales, is that sort of how they’re getting transacted on?
Yeah, so, so real estate agents were, they would advertise a property, let’s say it’s on a 900 to 990 that they’d be accepting offers under 900. Okay. Now if that if it’s that same range, 900 to 990 at auction, they’re hitting 1.2, 1.3, and even more in some .
There’s going to be a lot of people are a bit worried that they might’ve missed the boat.
Well, yes or no, but it’s all fragmented. Blue-chip suburbs are really, really flying and others are yet to get that, that influx of people.
And you mentioned the Bluechip. Like, what makes a property, suburb blue chip, are their certain sort of like a tick a box checklist that people can go through without engaging your services.
Well you think about where all the private schools are, typically the character homes built before anything else. You’ve got better infrastructure. Obviously proximity to the CBD or work or whatever it may be and they’re all affluent suburbs with affluent people living in it and the idea is if, if you’re unable to purchase in those, the rental will still get a, you’ll get a really good rental because that gets people into the schools. So yeah, we believe Melbourne’s got roughly 20 to 30% left to run. Um, and then after that we believe we’re into a longer stagnation because the interest rate lever can’t be pulled much more because we’re going to be down to under 3%. We believe the only thing to allow the market to recover is wage growth. Where that’s going to take some time to catch back up to how quickly the property prices have moved. So Sydney, so as I said before, Melbourne is 10 times income. Um, Sydney is 13 times income, so that’s even further away from reality for a lot of people. I will. Yeah. It’s quite unique Sydney, cause obviously half of it is water and what’s left is just blue-chip real estate. So anything with a view to the Harbor is just gold. If we go around the country, we have a look, we’re doing a lot of buying in Brisbane at the moment. Brisbane is around seven and a half times price to income and since interest rates have come off that the, the auction market there is really gaining legs as well. So as investors we’re missing out by up to a hundred thousand, 120,000 on properties that we were able to buy six months ago with, with a lot of confidence. So it’s great for the people that we’ve purchased for because the market is doing exactly what had hoped. Um, but for people to get into Brisbane, it is time is of the essence, in another six months, another year it’s going to be too late. We’re doing a lot of buying in Adelaide as well and have continued to do that for for quite some time. Um, and Adelaide is just that, that, that slow burn, but, but a more sustainable, consistent burn. Um, Melbourne and Sydney have grown up to 12, 13% in some years. You’re not going to get that in Adelaide, but it’s going to consistently perform at its longterm average, uh, which is in the low 8%, which is great for great for clients. Ballarat that’s, that’s a market that grew extremely quickly from Melbourne buyers heading up there in 2018 but as I said before, when Melbourne peaked, that ripple effects sort of went out to Geelong, Ballarat, Bendigo. but, it is back. It’s recovered as I said, Interest rates have come off, and the market is really starting to go again. Um, it didn’t pull back like Melbourne did and the regionals don’t typically do that, but it certainly just slowed from the aggressive growth that was happening. Having a, and it’s now back to where it should be. Um, Bendigo, as I said before, that that’s really moving. And the buyer advocate interest there has just gone phenomenal. Yeah, it’s, it’s going, it’s going really well.
So you spoke a bit about there, um, around how you’re operating all over Australia and look all over Australia. Um, can you speak a bit more about you guys at performance property? You’ve got a different data driven methodology than we’ve seen to a lot of other property type of people so can you run us through a bit about that.
Sure. So, yeah, if, if people want to log onto the website to have a look at that, um, or booking a meeting, we can do so. But basically the, the, the, the data and the research drives their advice. So, um, we have to have factual information to make a call on a market. It’s not a hunch. We’re not telling people to buy Docklands apartments because, the real estate agent told me it was a good deal or the financial planner or whoever it was. So without the research and data were nothing. So we need that and there’s, there’s 40 different indicators to be able to position a market on the cycle. And you can’t look at one in isolation and say, based on unemployment, you know, Adelaide is doing well or not doing well or, or based on, you know, last year’s growth, we need to be here or we don’t need to be there. So we take all the data back to 1980 because that’s when everyone was included and obviously there are patterns and cycles that form, for us to fit the data, those patterns and cycles and work at where a market is. Um, so there’s an investment team, within our company and they are fantastic, heated, robust discussions on where we should and shouldn’t be but it all always comes back to the data and without that we can’t make a call. It’s raw data that we get from abs core logic, local government, anywhere we can get data, um, airport arrivals in Perth cause they’re, they’re a really good indicator.
So that’s the performance property side, but you’ve also got the buyer X side as well. So what’s the difference between the two?
Okay, so buyerX is our prestige home-buying service, um, predominantly operating in Melbourne and Sydney and really million dollar plus homes. So the main difference between buyer X, the home buying and performance property, the investment arm is the emotional attachment to it. So when we are home buying, obviously we have to be emotionally attached because we are going to live in it. We’re going to raise our kids there. It’s gotta be close to schools, work, whatever it may be. Our real focus there is busy professionals that, um, don’t have the time cause it could take six months to find the right house for some people if you’re lucky and in that time the market is getting away from you and that’s prevalent right now in Melbourne and Sydney. So if, if you’ve got a professional that on the ground that he’s able to perform that service for you, um, has access to off-market sales or pre-market sales, where it hasn’t even hit the market. Where in some cases we can get a deal done before it hits the market. Obviously with no competition from outside parties, only competing against the vendor or agent, we’re going to potentially buy it a better price or beat the market to it and definitely buy it a better price.
Because how do you have a percentage on how much properties you’re buying off market? Cause I think that’s the big one that especially when I first learned about buyers advocates and things like that is how much just as not on real estate.com.
Yeah well every market is different. Um, but at the moment, if I am a, an active agent in a, in a rising market and I’d be taking it to auction because we’ve got, we know we’ve got buyers, we know we’re going to get above our reserve or our asking range and why sell to someone like us if we know we’ve got four or five buyers wanting to buy this property. If it was six months ago, before interest rates were cut and when we were still sort of getting out of the, the, the election out and Royal Commission, a whole hot mess, we had more, more opportunities for off market because people didn’t know how much further property prices were going to fall and some, some vendors want a discreet sale. It could be a marriage bust up a deceased estate or they just don’t want to tell their neighbors that they’re selling their property.
And that’s a common one. Once you get into the sort of one and a half mil plus sort of property range, I don’t want every older neighbors coming in and looking through their stuff.
And it’s an invasion of privacy. Like you’ve got to have your house spotless for a month. As you say, you’ve got your neighbors walking through at the open for inspection and you’ve got other people coming through that who knows, you know, they may see something that they like and come back when you’re on holidays and take off markets that they do vary. Um, in terms of the investment arm you asked before, that is we remove the emotion from that and it all comes back to the data. The data tells us where we should be and why we are there at that point in time. And it’s all cashflow driven. So if, if, if the strategy of the client is all about growth, but they have to have consideration to cashflow, um, we need to be in this market and we need to be here now because it’s experienced a stagnation phase. Rents have risen, um, vacancy rates have fallen, we should be buying. And it really comes back to that if, if it’s under the client’s budget, if they’ve gone to their broker and their, um, approval in principle is for 500,000, um, we’re purchasing a property for 420,000. It’s going to rent for $380 $390 a week. Is it under the client’s budget? Yes. Does it meet their servicing requirements? Yes. Is it, you know, is the data telling us to buy the, yes. Let’s buy, and it should, obviously it’s not that simple, but it should be.
And the same fundamental principles, do they, that we apply with the share market and other types of investments, does that apply with property on diversification? So, you know, should people, if they’re trying to build a property portfolio, which that sounds like a good thing to have. So you know, assets that are going to grow in value produce some form of income. Um, and yeah, it’s gonna sort of give you some discipline as well cause you’re gonna have to be paying these debts down as well when you buying them. Are your best property investors or the people that have built property portfolios over several years, are they doing so all in one capital city or are they spreading sort of their properties around Australia or they’ve been spreading risk? Yeah.
Yeah. So it’s exactly like you guys, if you, if you have a client that comes in and everything they’ve got is all on one one share or one one form of equity, it’s not, it’s not smart.
So you can get it really wrong if you sort of bought into the right market, but we’re seeing it go horribly wrong as well. So, and even when we look, we like to think, yeah, property shares, managed funds, cash, bonds can all work together. And they all have their place. Sure. But what we get nervous about is people have their family home and yeah, it might be Glen Waverley, then they’ll buy an investment property next street down. Cause they;re familiar with it. They know the area and they’ll, yeah. Oh that worked. So the next property decision, they then go back to the well and go, Hey, should I buy again in that same area?
Yeah. It’s all timing because if you look at Melbourne right now on our property clock, we’ve got Melbourne at around 10 o’clock and with 12 o’clock being the peak. Yeah. So the best buying is done at six o’clock on, on the property clock because at that time you’ve got the longest run left in that cycle. Yields are at their lowest when the property is at six o’clock and yields are at their lowest when the property is at 12 o’clock because the price growth is going to outperform the rental growth. It also comes back to land tax as well. So if you’ve got, if you own your principal place of residence in Glen Waverley, you’ve got a investment in Glen Waverley, potentially another one in Victoria. You’re going to be up for land tax and obviously that’s going to cut into any income that you’re going to make from it.
So at the, the ideal portfolio is a diverse one and one in every state. Um, now if you had 10 properties in Melbourne, um, you’re going to be up for land tax. And then what tends to happen is that the client, micro managers, they drive past the place and they say that lawn looks a little bit long for me and then it’s just too much and then all you’re doing instead of worried about going to work and focusing on family and everything, you’re driving past all these properties and not liking what you see because, well, let’s face it, tenants don’t look after properties as well as homeowners know. So it’s not to say that we don’t want to know what’s going on, but we allow the property managers to do their job and don’t micro manage the property. So when we say the land tax part of it about, you don’t avoid land tax by going interstate. You certainly minimize it because the States don’t talk to each other. You can have something in Adelaide, something in Brisbane, something in Perth, um, and it not affect your Melbourne Mount Waverley home.
Yeah. And that’s good as well cause the economies will go at different speeds at different times as we saw like WA had its time in the sun years ago and it’s all cycle. So I think that diversification one, that’s a good message to get through.
And if for whatever reason you need to reduce debt for whatever reason, you need to reduce debt with the, uh, from the property that has grown the much and ground them and also the one that’s closest to 12 on your property. And if you’ve got everything, let’s say Glen Waverley, if everything’s there and they’re all down at six o’clock. Yup. Um, why would you sell when we when we anticipate that growing market over the next five years.
So you spoke a little bit there on the fact that you’ve got property managers in each place. So that’s the big thing that some people would probably be worried about is going well, how do I know then who’s looking after the property and things like that. But you’ve got contacts in each, each area around Australia.
Yeah. So that’s another arm to our business. So pathway asset management is our property management team. So we operate in the five major capitals, Brisbane, Sydney, Melbourne, Adelaide, Perth and they look after the properties. So they look after the investment properties that we buy, in the regional markets where we’re buying. Uh, it’s an overprescribed industry anyway, and there’s almost more real estate agents in Ballarat and Bendigo than there are normal people. So, so for us to go into those regional markets, it’s just going to upset the buying team and is not good for the relationships there. With the agents. Um, but yes, in the capital cities, you know, you’re going to go through a turnover of staff within that role. So you might have a fantastic property manager that either gets promoted or moved on or whatever it may be. Um, but there’s always alternatives. Um, we believe like all the staff that we’ve got in pathway, they don’t manage the amount of properties that a Ray white or a whoever would, um, because it’s all about quality of service and when you’ve got a problem, you need to act on it. Um, and there’s always problems. Um, so if you’re managing 300 properties, there’s no way you can offer the level of service needed to, to have confidence from a landlord.
So I think the big one that a lot of our clients are getting, spruiked at the moment. So in terms of people trying to, um, sell the benefits and very, very well put together marketing material with spreadsheet showing how much money they’re going to make, how much tax they’re going to get back on new developments. Um, in terms of historical at night, there’s no crystal bowl for how they sort of play out. But historically speaking, I guess the difference between buying an established home in a, in one of those blue chip or regional centers or sort of a quality location versus buying these new developments. So new estates or even sort of the ones that are happening within CBD. Are you buying into those markets, number one, or any other sort of red flags that people or checklists that people should be looking at going, Hey, is this gonna make my desire for capital growth? Is it gonna make my desire for income? The tax is attractive. So the tax deductions, but what we try and educate clients on is if this tax deduction means you’re losing money consistently and sort of, I know we just, you mentioned before about the rental income meeting your, um, all your outgoings. Yes. That’s a good place to be cause you can just hold that property in perpetuity if you need to.
Absolutely. So we’ve talked about blue chip suburbs before. Yeah. In a capital city that is typically within a 10 to 12 kilometer radius of the CBD. Yeah. So people investing outside of that. It’s not to say that you won’t or can’t make money, but we focus on that because that’s where the, the major employment is. Um, and typically where people are making more money, therefore putting upward pressure on the prices. With the depreciation part of it and things like that, we, we are more focused and obviously every client’s different. And that’s what we’re all about with getting the right strategy for that client. Um, with a growth asse if we’re in a, uh, there’s 15,000 suburbs across the country and we grade them into a triple A, triple B, triple C, triple D, triple A’s, growing with, with a longterm compounding growth rate of above seven and a half percent. So if you’ve got money on the table in a triple D suburb, which is compounding at 4%, um, where would you rather put your money? Because I’d rather put it in somewhere that’s good. We’re not, that I know has got a better growth rate than something that potentially is an hour and a half from here, um, and is only growing at 4%. Now that 4% asset may have a fantastic yield on it that might have a 5% 6% yield on it. But typically those sorts of properties have a higher turnover of tenants. Therefore you have to have releasing fees and all your 6% yield can get gobbled up with releasing and having a tenant go in arrears with rent and things like that. Um, so we are more focused on the growth assets, um, to get our clients to whatever the next step may be.
And that next step may be just to reduce debt off their principal place of residence with a, a large chunk. Uh, now if we’re growing at 4%, uh, and we’re, we’re, we’re banking on depreciation and things going down in value, that’s not a growth asset. Um, where there’s horses for courses. Obviously if we’re chasing the cashflow asset, we would more look at commercial where you could have, you know, 10% returns, so 7% net yield, but only 3% growth. And then if we’re looking at residential, we might have 7% growth but only a net 3% yield. And that’s the balance. So it’s regardless of whether it is residential or commercial, it’s going for the blue chip style.
Yeah, exactly. I think there’s that uniqueness factor as well, that you don’t get in a giant apartment block where’s you have something that’s sort of built and got a beautiful facade. Yeah. People want to live there. And that’s what drives growth.
So, so if there is, um, a demand exceeding supply and, and a scarce product, that’s what’s gonna make people buy or pay more for it. And when we’re buying residential, we’re not buying investor spec only rentals. We’re buying something that has that owner occupier appeal. So even when it comes time to sell the property, we have five or six buyers wanting to buy it, not just the next investor going oh yeah. It’s got a great yield. Don’t like the look of it.
yeah cause you’re cutting out part of your market as well. So yeah. No that’s really good. And that’s way I look. I, I’d encourage anyone who’s ready to look at property investment, always engage us. We’ll have a chat with a property specialist, property advocate because I can help on both the buy and sell side. So yeah, if people do need to do that. And I’ve done that every time I’ve sold a property. I wish I had have engaged someone like yourself early
on because my first property decision was not a great investment but you know, still got out of there with a little bit of growth. But um, yeah really good cause you can get those insights. You’ve got all the data to support it. Um, and you have that a different mindset when you’re looking at it cause you can, you can remove the emotion. The hardest thing to do when you’re, you know, throwing over half a million dollars is to remove emotion out of that decision. Um, and it is a lot of the times that’s an investment decision. So you need it to tick the box on capital growth and income.
And obviously, uh, there are people in clients that, um, don’t want to pay a fee for something that really, that they can do themselves. But it’s a full time job for us. We, we have area specific experts that know what streets to buy on. We know where the housing commission is, we know what streets to avoid. Um, and it’s, it’s an, I guess it’s an insurance policy not to make a bad decision cause the property’s not that liquid that you can just go, Oh no, this isn’t working and we can turn it around.
Even the stamp duty alone. The entry and exit costs are high, the time’s high. And I’ve had the privilege and benefit of saying that what you provide to clients when you’re doing an analysis on a property, it is super granular detail about he is okay, this is if you’re walking through here, this is how far it is to all these amenities. You’ve done that analysis for someone else to do that themselves. It’s taking time out of, you know, family time, work time and then they still cannot possibly do that on a scale of what’s best across the country.
That’s right. And obviously people spend a lot of time trolling on Facebook and obviously we do that all day, every day on real estate.com and domain. And it’s a full time job as I said. So, you know, if you come home from work for after a 10 hour day at work and have the ability to spend four hours on, on those two platforms, that’s great. Um, but as I said before, if we’ve got the off market opportunity before it even hits those sites, because every one within our team, um, depending on their buying area, they’ve got the agent relationships and can get it done. So yeah, that matters as well.
Those agent relationships do carry something cause they want to work with you again cause they know you’ve got stock of property that, you know, if they look after you and then, you know, they’re sort of carry themselves.
Well, there’s potential for future business. Whereas for most people, if you’re dealing with an agent, you’re probably only going to deal with that agent maybe once, maybe twice, um, in your life. So, um, there’s a little bit more skin in the game when you’ve got the professionals that sort of, um, have a mutual benefits of doing that. So yeah. Um, that’s all good. But we might wrap it up there. That’s a lot of really good insights. So, um, we’ll put your contact details in the show notes, so if people want to reach out and engage your services, so yeah, but thanks for your time.