SSS – May 2015

RBA Cash rate

As expected, the RBA dropped the official cash rate from 2.25% to 2% this month. Most lenders have responded by dropping their rates but not by the full 0.25%. This signifies a couple of things; firstly that bank margins (profit) are now being squeezed and secondly, the banks foresee a period of stability in interest rates.

I personally think we will now hold at 2% until at least Oct-Nov this year, at which time the RBA will have two quarters of economic data to better gauge how the economy is going. Rate rises in the US are now not expected until the end of the year.

Investor Lending

Over the past week, major lenders have tightened their policies on investor lending. This is in response to APRA’s (Australian Prudential Regulation Authority) concerns about the rate of house price growth in Sydney and Melbourne. In essence, higher LVR loans (80% and above) are going to be harder to come by but not impossible. I think this will be a positive for us investors in the long term as it will serve to restrict the number of new homes being built. This will force rents up and in time capital growth as demand begins to further outweigh supply with the increase in population.

Simon Norris is completely swept up with the finance landscape and we both agree the timing right now for getting into the market couldn’t be any better!

Federal Budget

Highlights from the 2015/16 budget that may interest our members:

Families 

Child Care Subsidy – The package will include a revamped Child Care Subsidy, which the government will seek to introduce from July 1, 2017. The subsidy will be on a sliding scale that depends on a household’s combined income. For households with incomes of up to approximately $65,000, the subsidy will be 85% per child of the actual child care fee or the benchmark price, whichever is lower. This will drop to 50% for incomes of approximately $170,000 and above, while those with incomes under $185,000 will no longer have a cap on the subsidy they can receive. The subsidy will mean families with combined household income of up to $165,000 will be around $30 better off a week, while those with combined household income about $170,000 will receive the same average level of support.

Defence and National Security

  • $1.2 billion in new funding for national security
  • Increase in Defence budget by $2.7 million to $31.8 billion per year
  • $750 million for overseas military operations
  • $382 million for Iraq mission
  • Defence public servant numbers to drop by 2,000 over two years
  • $10 million for extra case workers for modern veterans
  • In March the government confirmed ADF members would receive a 2 per cent pay increase per year over the next three years, above the current inflation rate of 1.7 per cent.

Infrastructure 
A $5 billion loan facility has been announced to encourage infrastructure development across Western Australia, Northern Territory, and Queensland.

Northern Queensland is expected to be one of the major beneficiaries of the facilities, as funding is made available for ports, pipelines, electricity and water infrastructure.

Additional Federal Government spending on infrastructure includes the $500 million Bruce Highway project between Brisbane and Cairns, $102 Moreton Bay Rail Link and the $10 million Coomera upgrade – Exit 54. This Coomera upgrade has cleared one of the major stumbling blocks in the development of the multi-billion dollar Coomera Town Centre. 

In addition to the infrastructure facilities, the Townsville region will also benefit from its share in the announced $26.2 million investment in permanent border clearances for Townsville and Sunshine Coast Airports. This will establish both as more permanent international airports, rather than seasonal international destinations.

Tax Variations

The ATO are now accepting 2015-16 tax variation applications. A tax variation allows you to receive your expected tax refund every fortnight as part of your salary instead of waiting until the end of the financial year. For those that have recently built new investment properties, I highly encourage you take advantage of this for the cash flow benefits.

You can personally lodge your application online or through your accountant or tax agent. Alternatively we can refer you to our preferred accounting partner. See this link for more info.

Financial Planning Scandal

In case you’re not aware, the financial planning arms of the big banks (NAB, ANZ, Westpac and Macquarie) are getting smashed with allegations of poor advice and fraud over the years. In one case, Grazier and businessman Raymond “Curly” Tatnell is suing Westpac and Macquarie Group for investing his savings in structured products. He lost $3 million. The Westpac financial planner stood to make $543,000 in fees and commissions – despite losing $3 million of his client’s money.  http://www.smh.com.au/business/senate-banks-inquiry-may-not-fix-advice-malaise-20150420-1mo717

As the old saying goes – no one is going to look after you better than you. If you don’t understand what you’re investing in and why, then don’t do it. Our role is to help guide and facilitate your property investment journey as your success is also our success.  

Quote

It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for – Robert Kiyosaki

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