Govt bailing out mum & dad investors

Discussion in 'Property Market Economics' started by Gabbaking, 20th Mar, 2020.

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  1. Gabbaking

    Gabbaking Well-Known Member

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    {Note from mods - this thread split from here: Coronavirus and property values}



    Not having a dig here but that's what should be happening rather your preferred scenario number two. For too long, Mum & dad investors are being looked after and it just continue to artificially stimulated the market.

    If you are highly leveraged and loose capital during the hard times, government shouldn't be bailing out these mum & dad investors.
     
    Last edited by a moderator: 21st Mar, 2020
  2. wylie

    wylie Moderator Staff Member

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    How are we "mum and dad investors" being looked after?

    We pay tax on rent. We pay capital gains tax when we sell. We pay land tax every year. Right now, for we "lucky" investors, we are paying nearly one quarter of our rents in land tax. That is before we pay rates, infrastructure, interest, maintenance etc.

    And if private landlords don't provide housing, who will do it? The government?
     
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  3. The Grinch

    The Grinch Well-Known Member

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    If people need to sell their houses due to unaffordability then this for sure will create more demand for the rental market. People will be looking to move away from the capitals or to affordable housing options.

    There are always investors at the lower end or regionals close to the capitals. There will be plenty of investors who can service their properties and still provide accommodation. This is not all doom and gloom.

    Those who are too heavily geared will be impacted but this is the risk they signed up to when formulating their strategies.
     
    Last edited: 20th Mar, 2020
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  4. Harris

    Harris Well-Known Member

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    This is just the start...
    NAB, Westpac extend loan holidays to home owners, ANZ cuts rates

    National Australia Bank, Westpac Banking Corp and ANZ are offering six-month loan holidays to mortgage customers, going further than the relief package for small business announced by the Australian Banking Association hours earlier.

    NAB CEO Ross McEwan said the bank understood it was important for both business and retail customers to be able to pause their payments if they found themselves in trouble.
     
  5. Gabbaking

    Gabbaking Well-Known Member

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    Hmm Let me take a wild guess:
    - Highly leveraged = Negatively geared = Tax benefits
    - Capital Gains tax = Only when you sell it, even that can easily be avoided to some extent by changing you IP to PPOR prior to selling.
    - Rates, infrastructure, bank interest, maintenance are all tax deductible which is load of BS.
    - These 'Savvy investors' taking out IO loans and going bizzerk at auction because they are not paying principal and holding on to the property for 0-5 years prior to selling.
    - In terms of providing housing, there's a reason why rental vacancy is the highest it has ever been.

    I may sound quite sour however these shenanigans have been going for too long and I do not have any sympathy for individuals who may loose a fair chunk of their capital. If you care about the economy, perhaps open up a small business and provide a service.

    Again not taking a dig, just stating the facts.
     
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  6. Timb89

    Timb89 Well-Known Member

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    The goal would be for them to buy their own.
     
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  7. Timb89

    Timb89 Well-Known Member

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    I'd even meet in the middle, mortgage holidays should be for PPOR. But even then your debt is your responsibility.

    This was always going to happen, Corona was just the needle that popped the balloon. If we hadn't had to create higher and higher levels of debt to fuel price increases, we'd be in an infinitely better position.
     
  8. wylie

    wylie Moderator Staff Member

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    No problem with your response as it is your opinion and differs from mine.

    Not all "mum and dad investors" are highly leveraged.

    Capital gains tax takes a huge chunk and you cannot avoid it by changing your IP to your PPOR prior to selling. It is apportioned by time it was an IP from the start, not whether or not it is an IP or PPOR at time of sale. You cannot just move into your IP to avoid paying capital gains tax.

    I believe the costs that are claimed on tax are added back on sale, so you save tax as you go through, but pay it at the end. I'm not certain of this, but someone else who is certain can confirm or put us straight.

    Plenty of people taking out IO loans for IPs and also for PPOR purchases I believe. I'd suggest most who take a risk would not be "savvy investors" because if you are savvy, you would be factoring in what happens when rates go from IO to P&I. If not, then I'd say that puts you into the "not savvy" camp.

    Anyone without an "exit plan" also would possibly not be able to be called savvy investors.
     
  9. wylie

    wylie Moderator Staff Member

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    That's a great goal. But historically, the percentage of renters has pretty much stayed the same for the past 100 years in Australia I believe. So why aren't they buying their own?
     
  10. Peter2013

    Peter2013 Well-Known Member

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    Yes, Australia has had a large debt fuelled housing bubble for a long time. Our household debt levels are the worst in the world, second only to Switzerland.

    All Corona was is the pin that popped the bubble.
     
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  11. Timb89

    Timb89 Well-Known Member

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    Because barriers to entry into the property market are increasing at a pace that wages can't compete with.

    Annotation 2020-03-20 153647.png

    Source: Using a boomer to save me from scorn.



    Median deposits as a percentage of median income have increased like this:

    1993 = 60%
    2019 = 227%
     
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  12. Tony3008

    Tony3008 Well-Known Member

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    I do wish these charts and news stories would use first quartile prices - much more appropriate when considering FTB affordability. Of course in some places the mix might mean that Q1 and median weren't too different.
     
  13. wylie

    wylie Moderator Staff Member

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  14. 2FAST4U

    2FAST4U Well-Known Member

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    Thanks for posting an article acknowledging that it's much more difficult for Australians to purchase housing these days.

    Quotes from the article:

    "In 1985, the median price for a detached house in Sydney was about $73,000, or roughly three-and-a-half times the average yearly earnings at the time. In 2015, the median house price in Sydney is over $900,000 – around 11 times the average annual earning...it is now becoming harder for young people to afford to buy a new home, and many feel that they are perpetually chasing constantly rising prices. It’s a difficult dilemma: wait a little while until you’ve saved more money for a deposit, or bite the bullet and buy now because you’re afraid of what house prices are going to be like in as little as 2 or 3 years.

    Home ownership among Australians in the 25-34-year-old age group was over 60% in 1981, but by 2011 it was down to 47%. Another ominous statistic is that housing stock in Australia (basically, the number of available places to live) had been consistently outpacing population growth in Australia since way back in 1947 – at least until 2001. Now a different trend has begun to emerge, with population growth starting to creep past housing stock for the very first time since the end of WWII.

    The Australian dream of owning your own home is still alive and well, but it’s becoming financially harder to achieve, especially for young people and low-income earners. As of the middle of 2015, the median house price for the country as a whole was $658,000. Our median house prices for individual capital cities for the same period were as follows: Sydney – $929,842, Melbourne – $688,000, Darwin – $625,000, Canberra – $560,000, Perth – $535,000, Brisbane – $475,000, Adelaide – $425,250 and Hobart – $382,500".

    Some economists, such as AMP’s Shane Oliver, estimate that prices could drop 20% if the recession lasts more than six months. One month into the virus and the share market is already down 30% and segments of the service sector are in meltown.
     
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  15. wylie

    wylie Moderator Staff Member

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    Clearly the message resonates differently depending on what you want to hear.

    You quote 1985 but what stopped people buying homes when the ownership rate was 40%?

    There will always be something stopping those who choose not to buy. And there will always be a way to buy something if that's what you really, really want to do.

    That first purchase might not be a palace. Young people might have to buy something their parents might have settled for.
     
    Last edited: 20th Mar, 2020
  16. Timb89

    Timb89 Well-Known Member

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    What do you have to prove that young people are looking for a palace or they are turning their noses up at something their parents might have settled for?

    Urban sprawl disproves this point completely. Why are blocks in the suburbs bigger than block sizes in the outer rings?

    The house that my parents settled for was a double brick house on 600 square metre that they bought for under 100k in the 90s, now (allegedly) worth $1.3 million. Probably something they settled for.

    An equivalent "settling", would be a 300 square metre block another 30 mins further out for 750k+.
     
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  17. wylie

    wylie Moderator Staff Member

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    Maybe look further back than the 90s? Houses were hardly tiny, two bedroom crappy houses that our first house was.

    And perhaps look back through other threads if you want to continue this. It's all been discussed before.

    And this is taking the thread off topic so I'll refrain from further comment.
     
    Last edited: 20th Mar, 2020
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  18. Patrico1966

    Patrico1966 Well-Known Member

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    Nothing in writing to prove that but there is plenty of anecdotal evidence based on talking to people at auctions, various functions, tv interviews etc etc. have a chat to real estate agents and they will soon tell you what the first property they ask for is...yep you guessed it..it is a 2 bedder in Elwood when the couple are on $50k a year each, same as rentals, they want the best but are a long way from it. Google it and you will find plenty of documentation.

    Did you know that your parents never had computers in their day?
     
  19. The Grinch

    The Grinch Well-Known Member

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    Our first property was a small townhouse in a not so great part of town, we got a good deal and could see the bigger picture. We have seen a lot of our friends give up on owning property because they are chasing properties in sydney and Melbourne which frankly they will spend the better parts of their lives working to pay their mortgage off.

    It's about sacrifice, having a bigger plan and hard work which it seems many in this forum have in spades.
     
  20. The Grinch

    The Grinch Well-Known Member

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    Sure there are plenty of young people my age in their 20's and early 30's with good dierection and vision, but surley if you speak to most people in this age bracket they would be far more concerned with their relationships, travel, partying and show little concern in delaying gratification.

    Sorry to go off topic but I do agree with willy that there will always be a way into property and people will always make excuses on why they can't get in.

    Sure there are always certain circumstances that make things harder for some but generally people won't make the sacrifices, they won't delay gratification and they won't pivot in a new dierection when required.

    This is just another instance on why people can't get over the line, or people getting caught with their hands in the cookie jar.

    Not meaning to insight any ill feelings towards anyone but that is how I feel.
     
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