Thursday, July 15, 2010

Latest Property News from Ted Hanson

Friday 16 July 2010
Regrets...'I have a few...too few to mention'

Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbour. Catch the trade winds in your sails. Explore. Dream. Discover." (Mark Twain)

Lending turns up again
Housing finance commitments rose in May, finally breaking a run of seven consecutive falls, according to figures released this week by the Australian Bureau of Statistics.

The total number of dwellings financed for owner occupiers, seasonally adjusted, rose by 1.9 per cent in May, to be down 24.4 per cent on May last year.

The number of loans for the purchase of new dwellings rose by 4.7 per cent in May, while loans for the construction of dwellings fell by 2.2 per cent in May.

The number of loans for the purchase of established dwellings rose by 2.3 in May, to be down 26.1 per cent on the same time last year.

On the other hand, the value of lending to finance the purchase of investment housing rose by 2.5 per cent in May, to be up 17.3 per cent on a year ago.

The building industry was pleased to see that the value of lending to finance construction of dwellings for rent or resale rose by 28.1 per cent in May, to be up 5.6 per cent on a year ago.

Peter Jones, Chief Economist for peak building and construction organisation Master Builders Australia, said that a period of stable interest rates is critical for the housing market in order to engender confidence and encourage up-graders, investors and first home buyers.

"Loans for the building or purchase of new dwellings are beginning to flatten out after the correction seen during the past four or five months, and remain well up on the low point in late 2008", Mr Jones said.

"Although there is a solid pipeline of new building work yet to be done, Australia needs a major phase of residential building to go anywhere near to meeting the housing needs of the population", he added.

Construction dips

The national construction industry contracted in June following three consecutive months of growth, according to the Australian Industry Group/Housing Industry Association Performance of Construction Index (Australian PCI®).

A fall in new orders, employment and deliveries, largely due to a dip in house building, saw the Index fall 6.8 points to 46.4 (readings below 50 indicate a contraction in activity).

Across construction, the house building activity sub-index dropped 13.9 points after ten straight months of growth while the apartment building sub-index contracted for the second consecutive month. This was largely due to ongoing tight credit conditions and subdued demand.

The apartment sector sub-index dropped 2.0 points to 44.0.

In contrast, engineering construction was back in positive territory in June and commercial construction also strengthened.

AIG Director Public Policy, Dr. Peter Burn, commented that the sharp fall in recorded activity in the housebuilding sub-sector comes after almost a year of expansion.

"While the result in the housing sub-sector relates only to a single month, it could reflect the delayed impact of the withdrawal of the extra first home owner's grant and the cumulative impact of the run of interest rate increases from last October", Dr Burn said.

"The housing outcome together with the continuing weakness of the apartment sector reinforces other signs of flat household spending."

We're still not locking in
Despite the cost difference between fixed and variable interest rates dropping, June saw a higher percentage of Australians turning their backs on locking in their home loan rate.

According to the latest loan approval data from mortgage broker Mortgage Choice, only 2.6 per cent of new borrowers chose a fixed interest rate for their home loan. This compares to 3.3 per cent in May and 1.8 per cent in April.

Mortgage Choice senior corporate affairs manager, Kristy Sheppard said that many people in the industry were expecting a rise in fixed rate demand last month but it hasn't happened with their customers.

"Instead we've seen this product's popularity reduce by one fifth", Ms Sheppard said.

"Further, our June data shows fixed rate loans have represented less than 5 per cent of all new approvals for the past 10 months and less than 10 per cent of approvals for two years now."

She noted that it was interesting to see the proportion of fixed loans to new borrowers dropped in all states apart from Western Australia, which was a complete reversal of last month's trend.

"So, although we've seen a swift rise in rates from October through to March and the cost of fixing a loan continues to decrease, demand for variable interest rates remains at near-record highs", Ms Sheppard said.

"Perhaps the price tag is still too high when potential borrowers weigh up the advantages and disadvantages of fixed versus variable.

"Or perhaps whispers of a much steadier cash rate are seeping through and wielding influence over borrowers' decision processes."

Standard variable loan demand reached 50.1 per cent of June loan approvals, which was an increase on 47.8 per cent in the month prior and the highest level reached since October 2008.

One of the key reasons for the popularity of standard over basic variable loans is the
plethora of quality `professional packages' on offer with these products, which attract customers with benefits such as rate discounts, `Gold' credit cards and other special features.

Other key home loan choice trends for the first month of winter were:

- Basic variable: fell to 41.9 per cent from 43.5 per cent.

- Line of credit (often popular with investors): fell to 5.3 per cent of approvals from 5.4 per cent.

- Bridging (for those selling property while purchasing another): remained well below 1 per cent.

Rental property deductions

It's tax time and the Tax Office has warned that it is focusing on rental property deductions again this year and wants to ensure people understand how to declare rental income and claim deductions correctly.

Some common mistakes made by rental property owners include:

* incorrectly claiming property improvements as repairs when they are actually capital costs, like remodelling a bathroom or replacing a stove
* claiming construction costs as decline in value instead of capital works
* overstating rental deductions by incorrectly apportioning the interest on a loan between a rental property and private use, and
* making incorrect claims for a property that is not genuinely available for rent, or where a property has been available for rent for only part of the year.

You may be able to claim an immediate deduction in the year you incur rental expenses for things like advertising for tenants, building insurance, or for repairing windows, appliances or other fittings damaged while the property was rented.

However, some expenses like renovation costs are claimed over a number of income years.

Generally you can't claim rental deductions for private or capital expenses, such as:

* the cost of buying or selling your rental property, like the cost to purchase the property, conveyancing costs and advertising expenses
* expenses not actually incurred by you, like water or electricity charges paid by your tenants, and
* expenses that aren't related to the rental of the property, like expenses connected to your own use of a holiday home that you rent out for part of the year.

You will need to apportion your expenses if:

* your property is available for rent for only part of the year
* only part of the property is used to earn rent, or
* you rent your property at non-commercial rates.

Record keeping

Keeping good tax records is not only helpful when completing your tax return but is necessary if the Tax Office asks you to provide evidence of your claims later on.

Generally you need to keep records for five years. You should keep records of:

* any receipts you have received, such as rent
* any expenses relating to rental deductions you have claimed, such as repairs or maintenance, and
* when you acquired or disposed of the property.

For capital gains and capital losses you need to keep records for at least five years after
the CGT event.

If you're not sure, it is better to keep too many records than not enough.

The Tax Office has several publications available to help you understand your tax obligations in regards to your rental property, including Rental properties and Guide to capital gains tax.

These guides are available from the Tax Office website or by calling 1300 720 092.

Sand in your bed

The sandcastles we built as children may have been big enough to fit our imaginations inside, but afforded little more space than that. For those young at heart, a discount hotel provider with imagination has commissioned the world's first Sand Castle Hotel.

Constructed by a British sculptor (and a few helpers) using approximately 1000 tonnes of sand, the hotel built on a UK beach is 15sqm and 4m high. Guests can stay the night in an open-air room with a sand bed for around AU$24, or bask in the sun while listening to the tide.

The best part is, you're not likely to have your fun wrecked by a lead-footed bully.

Ghost chairs

Through the ages, people have reported sightings of eerie mists, strange lights and shapeless forms around their homes. A design firm has now developed a way to summon ghostly spectres into your home with a chair close at hand, should you need to sit down.

Design Drift has used laser technology to group millions of tiny air bubbles inside the clear plexiglass chairs, meaning that only the ghostly apparition-like shapes inside are visible when light is reflected off the structure.

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