Monthly Archives: October 2013

BUYING PROPERTY WITH YOUR SELF MANAGED SUPER FUND

There are scammers everywhere and none worse than those who would promote a scheme to you promising untold wealth for little or no outlay.  Such as the scumbags who telemarket NRAS (National rental Affordability Scheme) properties to those who may have the wherewithall to purchase through their SMSF (Self Managed Superannuation Fund).

Reproduced below is a WARNING from ASIC (Australian Securities and Investments Commission).

Tuesday 22 October 2013

ASIC is today warning consumers about advertising that promotes the use of self-managed superannuation funds (SMSFs) to invest in residential properties through the National Rental Affordability Scheme (NRAS). 

NRAS is run by the Australian Government in partnership with the states and territories to promote investment in affordable rental housing. The scheme offers direct payments and tax offsets for building and leasing housing to low and moderate income earners at a rate that is at least 20% below the market value. 

ASIC is aware that a number of SMSF promoters include misleading statements in their ads about the grants that may be available under NRAS. 

ASIC has seen ads stating that consumers can use their superannuation to purchase a property using the scheme and receive ‘$100,000 tax free’. 

These ads do not provide balanced messages about the features, benefits and risks of investing via an SMSF in an NRAS property. Such ads should make clear to consumers:

  • that eligibility to participate in the scheme is subject to restrictions
  • the likely fees associated with purchasing, tenanting and managing properties purchased from NRAS-approved participants
  • that to receive a total financial incentive of $100,000, consumers will need to remain in the scheme for 10 years, and
  • that they will be required to rent out the NRAS property at 20% below the market value to eligible tenants.

NRAS aims to encourage larger scaled property investments (usually 100 or more houses). However, individual investors can access the scheme through an approved participant. The Department of Social Services publishes monthly reports on its website which contain the names of NRAS-approved participants.

SMSF investors should be aware that: 

  • if you are considering purchasing an NRAS property through an approved participant, there is no requirement for the incentives to be passed on by the approved participants to you
  • the payment of the incentive to the approved participant is dependent on compliance with specific conditions
  • there are likely to be fees associated with purchasing, tenanting and managing properties purchased from NRAS-approved participants, and
  • any contractual arrangements in place should be checked to ensure that the relevant NRAS-approved participant will comply with all legislative requirements.

A person recommending that you make an investment through your SMSF will generally need to hold an Australian financial services licence. If you are approached about using an SMSF to invest in an NRAS property, or any property for that matter, check that the person you are dealing with is licensed to provide financial product advice by searching ASIC’s public register of AFS licensees or authorised representatives: see ASIC’s connect online. You should also do your research and consider whether the investment is appropriate for your retirement objectives.

‘ASIC is focused on protecting consumers and where we see people recommending consumers invest using their SMSF we want to ensure they are providing balanced messages that comply with the law,’ ASIC Commissioner Greg Tanzer said.

‘It is important that ads are clear, accurate and balanced, especially when consumers are looking for investments for their long-term retirement,’ Mr Tanzer said.

‘Consumers need to be cautious when presented with claims which appear too good to be true and should do their research before investing. Consumers should think carefully about how long they intend to hold the NRAS property, ensure that they understand the income and capital potential of an NRAS property and satisfy themselves that it fits with their investment purpose,’ Mr Tanzer said. 

‘An NRAS property may not be suitable for everyone. Those who recommend any form of investments through an SMSF must be authorised to do so under an AFS licence and provide appropriate financial product advice that is in the best interests of investors.’

 

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CHINA AGAIN AND A QUICK NUMBER CHECK

Sotheby’s Real Estate is opening an Office here on the Gold Coast.  Mmmmm.  The Chinese are coming here in droves and buying up.  It looks like the Japanese rush all over again.  Dr Boldy, Sotheby’s main man in our region, is quoted as saying, “Our Sydney Office under Michael Pallier just posted $300 million turnover in its first year and recorded nine sales worth more than $10 million…. half of those sales were to Chinese buyers but others came from all over the globe.”

It’s an interesting but also ambiguous statement.  Does he mean 4.5 sales more than $10 million per property went to Chinese buyers or that $150 million of their total sales went to Chinese buyers?  In any case it’s a lot of Chinese buyers!

People are emailing and calling freaking out that they should “get in now whilst prices are low and interest rates are low” and that I’m just a scare monger.  Well let’s have a look at a statistic that pertains to this RISING CAPITAL CITY MARKET that everyone is quoting to me as a reason to GET IN NOW!  Australia’s capital cities’ property values actually FELL 7.4 per cent from October 2010 to May 2012, and ROSE 8.7 per cent from June 2012 to September 2013 .  Simple maths – say at October 2010 we give the values a value of 100.00. Take off 7.4% and you’re left with 92.6.  Take the new lower value of 92.6 and add 8.7% and you get 100.65.

WOW!  Back to SQUARE ONE plus a little for Grandma. No surge, no value increase, no need to panic and as I keep saying….watch for the steep and sudden correction when it comes.

Take out the Chinese action and its all downhill baby!

Our hearts go out to the thousands of Aussies who’ve lost their homes, possessions and in one case so far, their life, around Sydney this past week.

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POOL FENCES

I know I’m going to receive howls of protest but I really don’t care.  I’m a parent and take the supervision of children under my care (mine and others) very seriously.

I’ve inspected literally thousands of houses with backyard pools over the years and have seen it all.  Properly installed (at ridiculous expense) pool fences where teens have propped open the gate, or there’s been boxes or chairs near parts of the fence allowing most children to climb up and over the fence, and vegetation so thick that any enterprising child could climb through the hedge for instance, and gain access to the pool area.

I’ve watched kids running and chasing each other around pools completely unsupervised by a responsible older child or adult.

I disagree with pool fencing as it places a huge cost on those of us who are responsible and supervise our kids and those under our temporary care.

Where I live we have thousands of kilometres of lake front, canal frontage, creeks, rivers and ocean beaches, none of which have fences!

In my early days I taught hundreds of adults and kids to swim, have been an active Surf Life Saver, Patrol Captain and Rubber Duckie (Inflatable Powered Rescue Boat) captain and have rescued hundreds of people from the surf.

In closing this post (read, RANT) in 2012, ONE-THIRD of drownings of kids under 5 occurred in BATH TUBS or SPAS!*

*Royal Life Saving Society Drowning Report 2012

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CHINA CONTINUES TO BUY UP BIG

Chinese buyers are really exerting their influence in my home town.  It’s different to the heady days of the Japanese though.  Many Japanese ‘investors’ were thoroughly lied to and screwed over by Gold Coast ‘sharks’ and paid the price years later when their investments sold for pennies on the dollar.  The Chinese are buying up distressed assets at the higher end of the market at bargain basement, ‘less than replacement’ cost.  Whilst there is still some downside risk, in most cases they are buying well.  That said, and as I’ve opined previously, some just don’t seem to care they are paying well over the asking price or reserve at auction, hence my questioning of their true motives.  There appears now to be two distinct types of Chinese buyers.

Anyway, back to the article below. I wonder if this Chinese buyer has even set eyes onf this penthouse.  Who in their right mind would live in the middle of Surfers Paradise is beyond me.  I am sure that living in the Penthouse would be lovely (I wonder if it and the Sky Homes have a dedicated elevator?) but having the share the foyer with the drunken ferals about to descend on the Gold Coast for the Motor Racing Festival followed by hoardes of out-of-control “Schoolies” would put me off.  Imagine living in that gorgeous penthouse and waking very early Sunday morning for a walk on the beach.  You’d step out to drunks, half-clothed foul-mouthed women, vomit and rubbish all the way to the beach.  No thanks.

And whilst this may not happen any time soon, the old real estate cry of ‘Location, Location,Location’ must always be applied to any purchase.  Most of the gorgeous views to the ocean could vanish over the years as massive high rises are built on the beachfront north and south of the already massive ‘SOUL’ building (another pricing disaster subject to many, many law suits as I write).  If you venture into a beach area with high rises, the ONLY position is absolute beachfront or across the road from a beachfront park that would/should never be sold off for development by local authorities.

Good luck to whoever bought this. Their first early Sunday morning walk may well see it back on the market!

Hilton Penthouse Article

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MORE ON CHINA

I reproduce in full, an article in my local newspaper, the Gold Coast Bulletin, published on the 17th October 2013 by Tanya Westthorp.  The publisher and writer are acknowledged in full.

Now local agents and the people at the Gold Coast Bulletin may think that Chinese based buyers flooding into the market and paying “over the odds” is a good thing but as I’ve written before, this surge of interest will eventually come at an horrific cost. Read and decide for yourself…

CHINESE buyers are splashing cash on Gold Coast properties, paying well above the asking price and adding pressure to an increasingly heated local market.

Real estate agents report the number of sales has doubled in recent months with properties fetching tens of thousands of dollars more than the expected price.

Asian investors are spearheading the interest with Ray White Broadbeach sales and marketing consultant Tiger Malan saying it has sold 23 properties in the first 16 days of October — six of which have been to Chinese investors, sometimes sight unseen.

Chinese buyers paid more than $20,000 above the expected price to secure a $1.4 million Clear Island Waters home and a $1.27 million Isle of Capri mansion.

A Paradise Waters block also recently netted top price when Chinese investors bought it for $4.2 million and a local Chinese buyer snapped up a Sorrento home for $1.9 million.

“When Chinese buyers see what they want, they are willing to pay a premium,” said Mr Malan.

The comments were echoed by Ray White Surfers Paradise principal Andrew Bell, who said his agency had sold more than $30 million of property this month, including nine homes in just three days.

One $2.15 million Currumbin home sold for 26 per cent above reserve last month while Chinese buyers snapped up 50 properties.

“It’s the strongest month we’ve ever seen on the Gold Coast,” he said. “It is up about 50 per cent on previous months …

“There is a lot of action in the sub-$1 million homes.

“About 15 per cent of buyers at our auctions are now Asian.

“Last year we sold $130 million of property to Chinese and this year it is likely to be more than $200 million. It just keeps gaining momentum.

“The Chinese are no fools — they do their research and don’t buy blindly but when they can see the capital growth, they buy.”

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MELBOURNE MARKET – A HOT PERFORMER?

All you ever seem to read is just how “HOT n STEAMY” the Sydney and Melbourne markets are and how, if you “invest”, you’ll make an absolute killing in just a few short years.

Isn’t it funny then, that a major Melbourne Newspaper would publish a dire warning about a particularly large part of the residential housing market, namely Apartments.

Greg Brown, in The Australian on 16 October 2013 wrote, and I quote, ”

THE apartment construction boom in Melbourne is set for a dramatic correction over the next few years, with the value of some apartments in the central business district, Docklands and Southbank areas expected to decline more than 10 per cent by 2017.

BIS Shrapnel managing director Robert Mellor said the correction would mirror the crunch suffered by the Gold Coast since 2008, when the over-building of high-end apartments led to a market collapse.

In that collapse, residential developments The Soul Tower and Oracle were placed in receivership and the Jim Raptis-built Hilton had 101 buyers who failed to settle. Apartment prices fell by up to 40 per cent. In one case, a Taiwanese businessmen, James Tai, bought a Hilton apartment for $1.395 million in 2008 and the value dropped to $830,000 by mid-2012.

Since 2010, Melbourne has had more than 20,000 building commencements a year when the city generates underlying demand for only about 12,000, BIS Shrapnel says.

Apartment developments in the three inner-city zones it warned about contributed about 500 of these commencements each year.

On BIS Shrapnel’s reckoning, Melbourne as a whole is headed for a surplus of about 28,000 dwellings by 2016, with 10,000 too many apartments.

Mr Raptis, the Gold Coast developer who was slugged by the collapse, told The Australian that the market went under because there was an oversupply of high-end stock, and because the banks stopped lending.

“It’s about supply and demand and if that equilibrium is broken in any market, then people face the consequences,” Mr Raptis said, when asked if Melbourne were facing a similar problem.

Oh dear, who DO you believe?

The residential real estate correction we have to have have looks like it will be further delayed as the Reserve Bank appears set to reduce rates AGAIN to try and halt a soaring Aussie dollar. Its coming together for a perfect storm as soon as interest rates turn and start climbing there will be an unholy rush for the exits.  Don’t be caught in that mess…

 

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CHINESE INVESTMENT IN AUSTRALIA

Rick Feneley writes in The Sydney Morning Herald newspaper about offshore investors, particularly the Chinese.  Search on “Forget the farm, we’re selling the city” if you wish to read the article in full.

Things I’ve heard first hand over the last few years, and “Chinese Whispers” from elsewhere, paint an unhealthy picture of the Chinese Government’s plans for places like Australia.

The Chinese, world’s factory, hard workers and smart operators, bless them. are still controlled by a centralised communist government.  We can’t really believe everything Chinese leaders tell us, nor their statistics, or anything else for that matter, as they will say and do anything they please as they have no accountability.  The level of corruption within their ranks is legendary.

All that aside, they have designs on Australia.  their purchases of farm land continue unabated.  if they can;t buy it directly, they buy it using “other means” if you get my drift – any tactic to get around our pretty pathetic foreign investment laws.

I’ve long-held that one should analyse the residential sales in Sydney and Melbourne in particular and to a lesser extent Canberra, to see exactly who is buying up and forcing prices up in certain sectors.  I think you’ll find that individuals with names like Yuen, Chen, Wang, Chu etc are predominant.  if properties are bought by Trusts then one should have a bit of a dig to see where the trail ultimately ends. I’ve heard that phenomenal amounts of money are flowing out of China, mainly through Hong Kong to fund these purchases.

How about this for something to think about?  the Chinese Government, through intermediaries, given naturalised Chinese Australians non-recourse but secret-handshake “loans” to buy property in Australia.  The people who “sign up” for this kind of nonsense “know” that the Chinese Government ultimately own the property even though their name is on the Title, but, as long as they “play the game” they can live there, rent free, (or maybe not – who would know) pay the rates and so on, for as long as it suits the Chinese Government’s purposes.

Rick Feneley writes that 16 percent of New South Wales new housing is being snapped up by Chinese buyers.  what percentage of the population of New South Wales do Chinese represent and why this sudden surge in activity?  Perhaps because the shine has gone off the mining and farm sectors so the massive piles of money have to go somewhere? Maybe?  He further writes that real estate has indeed overtaken mining and the biggest category for foreign investment approvals with real estate purchases in 2011-2012 accounting for 35% of approvals, or $59.1 billion.  I don;t know about you, but this rings alarm bells, but, as we know, nothing will be done, and our kids and grand-kids will be speaking Chinese as a first language and have nothing but Chinese landlords if we keep this rate of acquisition up.  I know, I know, it sounds alarmist but, pooh pooh this proposition at your peril…

In the same article, a statement by a Mr Bright, founder of EPS Property Search is of concern – “Too many of these foreign buyers are paying over the odds. Even if I wanted this business, I couldn’t put my hand on my heart and tell them they were paying a fair price.”

This aligns with what I’ve been saying for years.  Foreign investors, especially the rapacious Chinese, don;t care if they pay 20 or 30 percent too much – it gets their money OUT of China and into what they see as a stable and OK country.  Many Chinese, at all levels, don’t trust their holdings of US dollars (fair comment there given the US’s debt and current issues!) and rather than see those holdings devalue to perhaps NIL, they seek to shift them to Australia and are buying anything and everything they can and paying anything over the odds to get their hands on prime real estate.  That’s why the prices are “popping” in Sydney, Melbourne and Canberra – and for NO OTHER REASON.

NAB Chief Economist Alan Oster is quoted – “If you’ve got 15 percent of new stock being taken by foreigners, that’s a large stock.  Without them, prices wouldn’t be as strong.”

First home buyers are now being squeezed out of the market and they’ll be “forever renters”.  Guess who’ll be their landlords?

Meriton Group, for instance, has long held that about 70 percent of its sales are to Chinese buyers but also say that they are to Chinese living in Australia. Hmmm – go back to my earlier assertions.  There is something fishy here and the appropriate regulator should be having a really close look at the flow of funds to identify this mass of local Chinese investors with tons of money to buy up Meriton product.

Watch this space.

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MARKET UPDATE 11 OCTOBER 2013

The commercial market is a great indicator of what’s going on as not only is it ‘property’ but it’s business too, as businesses (mostly) need an office or factory to carry on their business.  Why is it then, that the majority of advertisements I’m seeing, are distressed sales?  The Receivers, Mortgagee In Possession, Expressions of Interest due to divorce, bankruptcy of some related party or plain Bank pressure advertisements and results of my phone enquiries are not falling away.  I don’t think they’re getting worse (at least not at the moment) but they’re not going away either.

The vacancy rate near my place is still astronomical at above 50%.  FOR LEASE and FOR SALE signs on some shops where the windows face the western sun are so old they are cracking, peeling, fading and falling off the inside of the window.  That in itself is indicative of the poor quality of Agents acting for these distressed sellers and lessors – too damned lazy to change and update the signage so that they places don;t have that run-down, no-hoper look about them.  A decent agent will also pressure their sellers and lessors to clean the windows and inside the premises on a regular basis and clear the mail.  often the mail is easily readable and it’s quite obvious that letters are from Collection Agencies, Banks and others looking for money!

Leases are being renegotiated by struggling lessees as business conditions, especially in retail, continue to deteriorate.  Lower lease payments have an immediate effect on capital values. large anchor tenants have been holding lessors to ransom and some deals I’ve heard the intimate details of recently would make your hair curl.  I dare not reveal them as some of the parties are not-so-nice!

However, those in the public domain can be talked about and I refer to the recent sale of Ashmore City Shopping Centre which was bought in 2003 for $37 million. I’ve visited this centre many times over the last ten years and watched tenancies come and go, vacancies appear, some really shitty shops open, and close soon afterwards.  it used to be a reasonable place to go – now, not so much.  it was offloaded for a tad under $38 million.  That is really NO PROFIT after 8 years of ‘ownership’ and reflects, in real time, what’s happening in retail.

The whole real estate market is undergoing fundamental structural change.  I cannot believe some of the decisions being made by large fund managers who manage YOUR MONEY, probably your Superannuation, plowing half a billion dollars into Shopping Centres in the vain hope of turning them into “destinations”.  HELLO!  We’ve already tried that – it didn’t work.  Gangs of feral teenagers take over Shopping Centres and make them not nice places to be.  Desperate leasing agents lease space to what can only be called “Gypsie Traders”, you know, the ones selling hair styling products who all but crash tackle you to the ground as you walk past.  Shopping Centres are no longer “Nice Places” nor are they destinations, no matter how many rides and gimmicks you fill them with.  My local large shopping centre, Robina Town Centre, is no longer a nice place to be.  its now officially TOO BIG, the car parking a nightmare and you have to walk MILES to get things done.  The old fashioned strip shops along a street are enjoying a resurgence.  I know I’m quite happy to pay a little more from a smaller shop where they know your name, sometimes see you coming and have your coffee half made before you get there. Awesome.  We are sick to death of Mega Malls – they are a dying breed in the USA and will surely follow suite here.  The nongs who are about to spend squillions on Pacific Fair will fail in their efforts (my humble prediction) and it will be over run with ferals and demanding, grubby-end-of-the-market tourists.  The centre will fill with cheap and nasty touristy stores and it will become an altogether unpleasant place to be, despite the hanging gardens of babylon, pools and waterfalls they’ve promised in the glossy brochures.

Its all changing so fast and some of these dinosaurs continue browsing in the same place, unaware or ignoring the dramatic change about to hit them…

Oh well – we can only wait and see.

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YOU WORK IT OUT

Met a lovely starry-eyed couple who’d bought an Apartment 18 months ago after saving for years.  They believed the spin and pressure from their parents (experts of course – 4 people, 2 couples who between them over a period of 30 years had bought exactly TWO properties!).  They’d been to try and refinance and had come to the coffee shop for some caffeine to steady their nerves – they should’ve gone to the Pub.

Here’s the deal.  Apartment $450,000.00.  Hard saved deposit of $45,000.00. Stamp Duty of about $16,000.00 they said which sounds about right.  Registration and legals fees of about $2,000.00 and the dreaded Lenders Mortgage Insurance of about $8,000.00 which again, sounded about right.  Their immediate OUT OF POCKET was therefore some $62,000.00 which they didn’t have so Mums and Dads chipped in (adding to their debt).  Loan repayments had actually dropped a little from about $2,350.00 a month to $2,220.00 as interest rate cuts took effect.

They’re not very good with their money it seemed, as their credit card debt had ballooned (buying shit they really didn’t need).  NOTE TO SELF – It never ceases to amaze me how much personal information people will share with a perfect stranger once they realise you are a. a real estate blogger, b. a licensed real estate agent, and c. have no interest in selling them anything.

Their parents (Bless them they of good intentions but no expertise) advised our wayward couple to just ‘re-finance’, pay off the credit cards and live happily ever after.  Didn’t this kind of thinking get the World in the mess we find it today?  Oh well.  Our hapless couple toddled off to various Banks and Brokers and had just come from the last one where they’d paid to have a proper Valuer make an assessment of their Apartment’s value.  I’d already brought up a recent list of re-sales and thought it looked bad so what they told me didn’t come as any sort of surprise.

Their loan with Suck-the-Marrow-from-my-Bones Bank was now what we describe as ‘under water’. What’s that old saying – ‘Never ask a question you don’t already know the answer to’.

WHOOPS.  The Valuer, as they do nowadays, looked at recent sales, subtracted (what I thought) a reasonable downside margin and said $385,000.00.  The loan is still at $404,000.00.  DOUBLE WHOOPS!

Oh dear.  This is a story being repeated all too often across the country.  Unreported.

CAN’T FIND A STATISTIC EVEN IF YOU WANTED TO!

I thought I’d take a peek at where I rent to see how the rumoured ‘re-sales’ have been going.  You know I couldn’t find the place for love nor money. I searched in every way possible.  Gone. Vanished. Never existed.  Ka-Boom!

Turns out the Valuer General (VG) has our Apartment Complex listed as being in an adjacent street!  No wonder I couldn’t find it!  The very nice lady at VG contacted the local Council and Australia Post, who both confirmed the address I have, and she promised to immediately (if not sooner) amend their records to reflect the change!  Imagine the confusion this has caused lawyers, conveyancers and real estate agents?

Anyway, I managed my good deed for the month and now the records are slowly being updated.  And now I could see exactly what’s been going on and whether buying one of these (rather nice) apartments would have been a good idea…

Good News first.  Apt 7 was bought for $580,000 in Dec 2010 and re-sold for $610,000 in Oct 2012.  A profit?  NOPE.  By the time you add stamp duty and legals to the purchase (lets see, maybe $20,000 (not including Bank Fees if there was a mortgage) and take out Agents fees, legals and perhaps some advertising at the sale end, ( lets say around $16,000) the net result was probably a $6,000.00 to $10,000.00 loss (if lucky).

The other 6 purchases and re-sales within a 3.5 year period yielded losses ranging from a minimum $80,000.00 to a staggering $155,000.00.

I don’t know where this BOOM is happening?  Do you?

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