Quick reminder these updates are designed to help inform and educate on key things to monitor when investing in property. The aim is to help build a solid and sustainable wealth/capital base ideally early on in one’s career. Having an understanding of historical cycles will also aid in future investment decision-making.
From 1 July 2019, investors are no longer able to claim interest expenses during construction of an investment property. These costs will instead be claimable against capital gains tax if the property is later sold. Investors will still be entitled to full construction depreciation as well as on fixtures and fittings should you elect to build new. If purchasing an established property, depreciation will only be limited to what’s left over of the original construction cost.
With the official cash rate now down to 0.75%, principal and interest (P&I) investment loans with fixed rates in the mid-3% range are readily available (80% LVR or less). From a cash flow perspective, the aim is to generate a yield (rent) that is higher than the interest rate and is why we target properties generating a minimum 4.5% gross return. Please get in touch if you’d like us to review your current loan situation.
Federal and State governments are bringing forward infrastructure spending on major projects over the next 5-10 years. Keys states are VIC, NSW and QLD. SA and WA will be ramping up spending in preparation for major defence projects such as the Attack Class Submarines, Hunter Class Frigates and the Arafura OPVs. Our aim is to get ahead of the growth curve before these large projects begin impacting land price.
Longer-term, NT and QLD will benefit from further civil and defence spending as the federal level debates and redefines what northern Australia will need to look like given the power plays occurring in the Asia-Pacific.
As we move into the second half of the 18-20 real-estate cycle, we expect commodity prices to begin trending higher. We are already seeing this with iron ore and copper spot prices and the new calls for Australia to begin ramping up exploration and production of rare-earth minerals (China currently have the monopoly).
If these trends are sustained, particularly with fresh demand coming from India, we can expect the property markets of WA and NT to begin solid growth over the next 3-5 years. As expected, the recently approved Adani coal mine in QLD has already begun to positively impact the property markets of Mackay and Rockhampton.
The Defencewealth strategy of TWO-50-TEN™ is based on acquiring a $2 million portfolio at 80-90% LVR over a 6-8 year timeframe. Once acquired we work to reduce the LVR to 50% over the next 4-7 years using a combination of capital growth, offset accounts and principal repayments. Once at 50% LVR, you will have some serious financial options but it will take time (min 10-15 years) to achieve. The new property packages we recommend are considered investment-grade based on experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.
An investment in knowledge pays the best interest – Benjamin Franklin