The rental market in Australia is tight - with under 1pc vacancy in Sydney, Melb and Canberra with Adelaide, Perth and Hobart under 0.3pc .
As supply reduces - prices tend to rise
Immigration over next 4 years will grow by 200,000 per annum
What does this mean for the property market and investors in the medium to long term ?
Historically , property has doubled every 10-12 years
In 2035 - the next 13 years - will property in Australia increase or decrease ?
Take the poll
Alan Kohler and Evan Thornley talk about the investment elephant in the room !!!!
So what does the founder of Looksmart and a tech guru , Evan Thornley , know about property?
A lot , it seems
His company, LongView, now manages 4300 properties for individual investors and is also a national buyers’ advocate.
Residential property and gearing …. A cocktail that has been given Australians exponential returns since 1926.
Solidly built properties, preferably on a rail corridor, have been an investor’s best bet for capital growth , as major city’s rapid population growth pumped up residential properties !
Total residential housing in Australia is $10 trillion, of which about $2.1 trillion is mortgage debt and $300 billion is in new developments. That leaves $7.6 trillion in equity in existing residential property, which is three times the size of the sharemarket.
And yet the $3.4 trillion in super funds don’t currently invest as there is not a liquid market and the risk/return equation makes it worthwhile.
It is certainly a big asset class – the biggest, in fact:
Research by Shane Oliver, of AMP, shows that the total return from residential property since 1926 has been 11 per cent a year – almost identical to the 11.3 per cent p.a. return from the sharemarket, but with much less volatility, so that’s a tick.
Shares vs Property and gearing (using OPM)
Real estate earns lower rental yields (2% than company dividends 6% (after Frankish credits ), but the gap is made up with negative gearing and capital gains.
The math
The magic formula for exponential returns - gearing and being able to afford rental repayments through net rent received and negative gearing!
An example of how the average property owner with a mortgage has made money since 1926!
Investor holds an investment property for 15 years at a net 3% shortfall (after tax 2%) - after 10 years property needs to increase by 30% in 10 years to breakeven .
No gearing
Let’s assume you purchased a property for $500k 15 years ago - and sold it for $1 million today.
Returns :-
After costs and negative gearing , your return would be $350k or 23k per annum (circa 5 %pa on an investment of $500k )
Gearing
Let’s assume you purchased a property for $500k 15 years ago - put down $200k deposit and sold it for $1 million today.
Returns :-
After costs and negative gearing , your return would be $350k or 23k per annum (circa 11.5% per annum )
They need large investment vehicles, preferably with the ability to sell quickly, in large lumps, if they need to.
Evan Thornley puts business 101 into property
The goal :- To improve the rental experience for both tenants and landlords – to “dignify tenancy”, and provide a better service for investors, including guaranteed rent, where LongView takes the risk.
Investing in “solid older dwellings on well-located land”, as Thornley puts it, in the suburbs.
One of the funds will be for long-term rental, and the other will invest alongside home buyers in a shared equity scheme….. much like the government is doing!!!!
In the shared equity arrangement, the fund wouldn’t own any part of the house but would provide up to a third of the deposit and stamp duty in return for a contract to share in the capital gain when it’s sold.
“Our shared equity clients are almost all migrants and children of migrants; sole parents and the children of sole parents,” says Thornley. “That is, people without the Bank of Mum & Dad.’’
2. Invest for rent through a REIT
The other fund will be a straightforward real estate investment trust that will create a suburban land bank of existing energy efficient houses for rent close to stations and shops so that large aggregated sites can be used for affordable housing in future.
The investment will be geared to rely on long term capital gains
Thornley says the initial interest in these funds will come from family offices and high net worth individuals.
Whether it’s Evan Thornley or someone else, the only way the superannuation pool can be mobilised for housing is if it can be pooled into funds that break down the super funds’ bias against it as an asset class and work as a decent investment.
This budget delivered last night is all about addressing housing affordability over the long term by ramping up supply - say Treasurer Jim Chalmers
“We want more Australians to know the security of decent housing and more Australians realising the aspiration of homeownership,” he said in a joint statement with the housing minister, Julie Collins.
“It’s more important than ever that we work together to ensure there is an adequate supply of affordable housing where it is needed – close to jobs, transport and other services.”
The federal government Budget has set an "aspirational target" to "build one million new well-located homes over five years from 2024".
The states and territories will be expected to "expedite zoning, planning and land release for social and affordable housing".
Labor’s flagship election promise – a shared equity scheme – aims to help more people enter homeownership with a smaller deposit and smaller mortgage.
The federal government's main role will be to create conditions that lead to more private investment from #superannuation funds and other institutional #investors.
“We have the world’s third-largest pool of capital in our superannuation system, which is hungry for investments that will deliver stable returns over the long term for the benefit of members.”
Housing supply and affordability is an important piece of the solution.
Under the new National Housing Accord:
* 10,000 of the one million homes will be financed by the federal government costing the budget $350 million. This was on top of the $10bn Housing Australia Future Fund, promised by Labor before the May election to build 30,000 new social and affordable housing properties in five years.
* 20,000 will be financed by the states and territories
* most will come from the market - superfunds and investors - we need to support them and remove barriers
* In 2020, the Victorian government announced a $5.3bn “big housing build” to fund 12,000 new social and affordable homes in four years. tripling the size of its Victorian Homebuyer Fund to $1.1bn
* The Queensland government, meanwhile, recently announced $2bn to deliver 13,000 social and affordable homes by 2027.
The median cost of a home in Sydney is still a whopping $1,053,131. A 20 per cent fall would only bring that down to $908,255.
In Melbourne, the median home value is $774,531. A 20 per cent fall would bring that down to $638,625.
The median price of a home in Brisbane is currently $746,017, while in Adelaide it’s $649,983.
The median home price in Perth is $558,879 and in Hobart is $705,079.
According to the Australian Bureau of Statistics, about 985,000 new homes were built over the five years to March 2022, though the majority were completed before 2018-19.
Housing starts have been reducing due to COVID, weather , bureaucracy .
Treasury forecasts there will be about 180,000 housing completions on average across the next three financial years,
And yet there is a plan to bring in 190k immigrants a year
(Which is great)
- “Removing tax barriers to institutional investment in new residential development projects such as build-to-rent could play an important role in tackling the undersupply of rental accommodation.
- “Improving planning regulations and removing inefficiencies that reduce approval times are key to this. So too is rezoning, releasing, and decontaminating land to enable more residential development,”
- freeing up ‘well located’ land, for example in and around train stations and TAFE campuses.
Under the scheme, the government will co-purchase up to 40% of a new property (or 30% of an existing home) with an eligible buyer. Over time, the buyer could buy out the government, or pay out their share once the property is sold.
Help to Buy will be open to 10,000 Australians each year. Individuals earning less than $90,000 and couples earning under $120,000 could be eligible.
The government hopes to have the scheme up and running in the first half of next year.
For example, if a buyer purchased a $400,000 home with a 25% shared equity, they’d only make repayments on a $300,000 loan, minus any deposit paid up front. They will, however, need to cover the ongoing costs associated with owning a property.
This is already operating in several states, including Western Australia, South Australia, Tasmania and Victoria. And just weeks ago the NSW government proposed its own shared equity scheme.
From 1 October 2022, the Regional First Home Buyer Guarantee will help 10,000 buyers per year enter the housing market outside of the capital cities.
eligible applicants can purchase a home with a deposit of as little as 5%, with the government guaranteeing up to 15% of the purchase price.
Jim Chalmers
Anthony Keane shares in the Sunday Mail on Aug 28 2023 the 7 keys to getting rich - slowly!
Make sure that more money comes in than goes out on a monthly basis - and with that surplus
Buy low , Sell high with other peoples money - and do it regularly.
Don’t be afraid to take risks and fail until you succeed !
