With the media providing incorrect and sensationalist information about the real estate market it’s important to provide buyers and sellers the “factual” version of what is really happening. By reading over the information below you will get the “real” state of play.
Here’s some facts and figures that highlight the current condition of the Australian real estate market.
Data from the Australian Taxation Office shows 1.5 million property investors claimed $19.4 billion in rent and $25 billion in deductions in 2006-07. This equates to a collective loss of $5.6 billion and an individual average loss of $3733. Gross yields (annual rent divided by price) on most investment properties remain a little above 5 per cent.
With the cuts in marginal tax rates and the lifting of the thresholds at which the rates come in, negative gearing has become less attractive. The highest tax rate of 45 per cent (excluding the Medicare levy) does not kick in until income reaches more than $180,000. The majority of people are on the 30 per cent tax rate and so negatively gearing an investment is much less tax-effective than it used to be.
With the next move in interest rates heading upward, and mortgage rates likely to be close to their normal levels of 8 per cent in a year or two, anyone thinking of taking the plunge into property had better do the numbers carefully. I’m not suggesting that people should avoid property as an asset class however I am also not subscribing to the media notion that prices are about to boom and soon be out of reach.
When looking at the Sydney market specifically, one of the effects of having all of those renters now buying units because of the first-home-owner incentives is that vacancy rates in units are at their highest level in three years (with a vacancy rate of about 2 per cent). That’s better than the usual long-term rate of 3 per cent, but its creeping up again after being a very low 1 per cent for the past three years.
After treading water for five years, Sydney unit prices are up 5.4 per cent since the start of the year, according to property researcher RP Data. The main reason for this is surely the first-home owner incentives. After September 30, the $14,000 grant for established property reduces to $10,500 and the $21,000 grant for new property is lowered to $14,000.
Don’t be pressured into making decisions based on fear – can you remember being told in 2003 that property prices would double again by 2013? Fear sells newspapers but it shouldn’t cloud your judgment. Vendors who are holding off selling in the hope that prices will increase hugely should reassess their thoughts – do you really believe that property is set to increase in price given the outlook of rising interest rates, underemployment and the price of oil?