Property Investors sell out of residential real estate

The tax advantages under the Government's new superannuation laws are encouraging some property investors to sell-up and boost their super.

But this strategy is only likely to benefit a small section of the market.

Housing Industry Association (HIA) chief economist Simon Tennent said he believes the super changes, which come into effect on July 1, have triggered an exit from the property market, particularly for disappointed investors or those nearing retirement.

Under the Federal Government's new super regulations, money received from a taxed super fund will be tax-free for people over the age of 60, making it the most tax-effective investment for retirement.

At present, money is taxed when put into the fund, while within the fund, and generally when withdrawn.

Once the new laws are in place, an individual will be limited to investments totalling $150,000 a year or a maximum $450,000 within a three-year period.

However, at present the Government is allowing deposits of up to $1 million to be put into super before the June 30, 2007, cut-off date.

This transitional phase has opened a window of opportunity for some investors to boost their retirement savings by selling other investments, such as property.

Mr Tennent said some investors had become disheartened with the property market due to recent low house price growth, which he did not see picking up for at least 12 to 18 months.

"I don't think prices will keep accelerating because we've hit an affordability threshold,'' he said.

"And as this coincides with changes to superannuation, our view is that there will be a flow of funds out of property.''

However, ANZ financial planner Ron Holmes said there were a lot of issues to consider before deciding to move property investments into super.

"It is a complex area; There's so many possible 'maybes' and 'what-ifs', and everybody's circumstances are so different,'' he said.

Mr Holmes said the investor's age, if they were retired or when they were planning to retire, and whether they were married, all played a role in determining if this strategy would be beneficial.
Other important considerations were house price appreciation, how much capital gains tax investors would pay when selling their property, and how much they were saving in investment property tax deductions, he said.

Mr Holmes said this strategy would probably only benefit a very narrow part of the market, including those who were nearing retirement and were planning to sell properties valued at about $1 million if they were single or $2 million if they were married.

He said many of those approaching retirement, but with a lower value investment property, could sell their property at anytime after the June 30 cut-off date and still invest the money in super.

"If they're a married couple, and they've got a $900,000 property and they sell it, they can still put $450,000 each into their super after June 30,'' he said.

Mr Holmes said waiting until retirement to sell investment property could also have benefits, with retirees paying less capital gains tax on their properties due to their lower income, Mr Holmes said.

He said younger investors needed to be wary that moving property investments into super would restrict their access to that money, while they would also lose their tax offsets.

"I can't see it as being a very attractive strategy if currently it's providing you with tax offsets and the property is growing,'' he said.

However, he said that before making any decisions, investors should closely examine their individual situation.

"Go along and talk to your licensed tax adviser and your licensed financial planner before you do a thing,'' he said.
source: AAP

Australia's big four banks raise fixed interest mortgage rates

Australia's four biggest banks have given their strongest indication that they anticipate interest rates will rise over the long term by increasing their fixed interest mortgage rates.
The nation's biggest bank, the Commonwealth Bank, on Tuesday raised its one- and three-year fixed rates by 11 basis points to 7.35 per cent.
National Australia Bank yesterday lifted its introductory one-year fixed rate for the second time since December - up 9 basis points to 6.74 per cent. However, it left its three-year fixed rate unchanged at 7.18 per cent - the cheapest rate of the majors.
Westpac and ANZ increased their three-year fixed rates by 16 basis points to 7.35 per cent in December.
Cannex financial analyst Harry Senlitonga said that in "general the trend is moving up a bit" for three-year fixed rates. He said this was an indication the banks believed rates were on the way up.
He said three-year fixed rates had increased between 5 to 10 basis points.
Mr Senlitonga said that another factor that could be contributing to the higher fixed rates was demand.
"(For) a product which has a strong demand, they will price it higher," he said.
Major banks said last year that most of their customers were switching from variable to fixed rates.
A CBA spokesman said "fixed rates are not tied to any Reserve Bank movement, they fluctuate regularly in line with movements in the cash market".
He also said CBA was "competitive with all of the other banks" and that all of its fixed rate offerings were "competitive".
Since December, the money market three-year fixed rate has increased from 6.54 per cent to 6.68 per cent.
Going against the trend was St George Bank, which this week dropped its three-year fixed rate from 7.19 per cent to 6.95 per cent.
Credit ratings agency Fitch Ratings said it expected growth in the Australian banking sector to moderate in 2007 due to competition and slower growth in housing finance.
In a report released yesterday, Fitch said it also believed asset quality would come under pressure.
"For a number of years, asset quality at the Australian banks has been near pristine; this is clearly unsustainable in the medium term," said Fitch associate director Tim Roche.
Of bigger concern was the explosion of leveraged buyout activity by private equity firms in the Australian corporate sector and higher gearing levels.
"If this were to coincide with weaker economic conditions it may lead to an increase in unemployment which is likely to have a negative impact on bank asset quality," Mr Roche said.

Source: Newscorp