There are many reasons you might purchase a home later in life: perhaps you’re starting fresh post-divorce, or you own a home and have decided to buy a second property to help out your kidults.

Regardless, it comes down to the same thing: knowing what you’re getting into and being ready.

Buying later presents opportunities that younger house-hunters overlook as proximity to schools and playgrounds isn’t so important.

On the flipside, if later-life home-ownership figures in your future, you should be working with your financial adviser now – and here’s why.

Time

Our population is living and working longer. We can save more towards a home with longer to pay it off. But really, do you want to be stuck with mortgage repayments chewing through your income – after retirement?

What if you purchase just before retirement? Servicing a loan is relatively easy while gainfully employed, particularly with record low interest rates. Bad news is they won’t stay low forever. Rising interest combined with reducing income can quickly turn the dream into a financial nightmare.

Job security

According to the Australian Institute of Health and Welfare (AIHW), in the period 1984 – 2014, labour force participation of Australians aged 55 – 64 grew from 41% to 64%. Good news. The Australian Bureau of Statistics (ABS) for the period 2002 – 2010, reports “declining levels of full-time employment” among the same age group indicating greater numbers of older Australians working fewer hours.

Not so good. With fewer full-time job opportunities for those aged over 55, if you’re still considering a pre-retirement mortgage, be aware of:

Compromises

If your retirement goals include travel, hobbies or even a weekly round of golf, servicing a mortgage may overburden your budget, forcing you to cut back your spending and lifestyle.

Regardless of home ownership, the Australian Centre for Financial Studies (ACFI) reports that 20% of retirees’ average household expenditure exceeded income, leaving no alternative but to draw on savings or liquidate assets just to live.

Now, throw a mortgage into the mix …

Ongoing maintenance

Be realistic about your budget and your shopping list. Consider what mod-cons you genuinely need. And size does count! If, down the track, you can’t physically maintain your home, could you afford gardeners, cleaners, etc, while repaying a mortgage?

Superannuation

Ah, that warm glow lighting our path to retirement. You could use your super to buy a house but what will you live on? The age pension? Will that fund your desired lifestyle?

To quote the ABS, “… key factors will be people’s plans as they get older, including when and how they intend to retire and what factors will influence their decisions.”

We don’t always agree with government reports, but in this it’s spot-on.

Our longer life expectancy means retirement planning is more important than ever. Talking with your financial adviser as early as possible will help you set up a strategy for living – to retirement and beyond!

For more information about purchasing a property or retirement strategy, please call Leenane Templeton on (02) 4926 2300 or email success@leenanetempleton.com.au

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The property market is one asset class that is showing signs of recovery following the severe economic downturn caused by the Global Financial Crisis (GFC). Most people have a property investment somewhere in their current portfolio – or would like to. Sometimes this is simply through “the great Australian dream” of owning your home, or maybe through an investment property. In other cases, investing into property may be in a more indirect way, such as via listed property trusts and other collective investments.

Characteristics
Since 1980, property has produced returns similar to the share market, both achieving an average of 14% pa including capital growth and income. However, in comparison with shares, property tends to be less volatile. Tax advantages may also be attached to some of the returns from property. It is a popular investment for negative gearing, as banks will lend a high proportion of the purchase price. Interest expenses in excess of the income generated by the property can be claimed as a deduction against other income. 

Although both the property and share markets collapsed during the GFC, property generally operates on a different cycle to the share market. This allows for effective diversification, and therefore a reduction in portfolio risk. The tangibility of property appeals to many investors, and the willingness of banks to lend against property allow it to be used in an investment gearing strategy. 

Even so, property investment is not risk-free. As with any investment it is important to differentiate between cost and value. The long duration of the property cycle makes the timing of an investment a more critical factor than with other asset types, and property is best viewed as a long-term investment. Investors also need to consider the relatively high costs of buying and selling property as part of the equation. 

Finding value
There is a wide variety of property available, from residential to commercial. Some are relatively low risk while others are high risk, speculative investments. It can also be difficult to obtain all the information one might require to make a fully informed investment decision. Sellers don’t usually tell buyers about the rotten floor beams or the dodgy wiring, so purchasers of property always have to keep the maxim ‘buyer beware’ top of mind. 

This isn’t always a bad thing. It creates opportunities for astute buyers who can obtain an information advantage. One BHP share is identical to another, but each property is in some way unique. Those who take the time to understand property can do well from this asset class.

And then there’s tax
The tax issues that arise from property investment can vary greatly, depending on how your investment is made and the activities that take place whilst you hold it. For example, if you have invested in a property development, a number of complex tax issues arise such as GST and whether profits are taxed as income or capital gains. Make sure that you seek appropriate advice as early as possible to ensure you are paying the correct type and amount of tax.

Is property right for you?
Many property promoters pitch their offerings indiscriminately, which sometimes results in unhappy investors. As with any investment, a property purchase must meet the specific needs of the investor. Take the time to make your decision supported by unbiased advice.

For more information, contact us at Leenane Tempelton on 02 4926 2300 or email success@leenanetempleton.com.au

The post A word about property appeared first on Newcastle Financial Planners & Financial Advisors.

A credit-fuelled property bubble enabled China to maintain its incredible run of growth through the global financial crisis (GFC). However, now China has to deal with a massive excess supply of property that is causing construction activity to contract along with a range of other linked sectors in the Chinese economy, as millions of homes lie vacant.

Background to China’s property bubble

In 2007, China was constructing around 1.5 billion square metres of gross residential floor space per year (or approximately 15 million housing units)[1] . This was to support urbanisation, replace old housing stock and to meet the investment needs of Chinese households. During the GFC, the economy received a huge credit stimulus and property market restrictions were loosened considerably, generating a boom in construction activity. Despite a recent slowdown in urbanisation, China maintained its high construction rate, resulting in massive excess supply of housing.

A serious geographic mismatch also developed between housing supply and demand. Although urbanisation generated strong housing demand in Tier 1 and 2 cities, a disproportionate share of property development was concentrated in smaller cities. Subsequently, Tier 1 cities such as Beijing and Shanghai generally suffer from housing shortages, while Tier 3 and 4 cities hold most of the excess supply.

Moreover, unfavourable demographics are putting downward pressure on property demand. China’s working age population (aged 15-59) peaked in 2012 and is currently declining by several million people each year, while the main property buying demographic, the population aged 25-49, is expected to peak in 2015 and decline thereafter.

According to the China Household Finance Survey, 22 per cent of urban housing in China is vacant. Meanwhile, vacant floor space on developers’ books has increased by over five time since 2007[2].

What does this mean for China?

A build-up of unoccupied properties held by investors and developers will ultimately lead to a major contraction of construction activity and linked sectors in the economy. Indeed this process is already underway. National house prices have fallen 5 per cent in the past year and urban housing completions are down 15 per cent so far in 2015. Electricity consumption, steel and cement production and rail freight traffic have also all slowed significantly (or are contracting)[3].

A property fire sale could result, leaving many developers insolvent. In addition, China’s property industry is highly leveraged and closely linked to the shadow banking system, creating potential financial system risks.

With real estate accounting for more than half of household wealth in China, if prices fall dramatically, household consumption would likely follow suit. Household debt, around half of which is mortgage-related, has risen considerably from around 8 per cent of GDP in 2000 to around 38 per cent in 2014[4] but remains low by international standards. Interest rate liberalisation, capital account opening, and the availability of alternative investments (eg wealth management products) could also undermine property market fundamentals.

China’s residential property sector may need to contract by as much as 50 per cent to work off the excess supply. With real estate and related industries accounting for 20-25 per cent of GDP, the bursting of the property bubble would cause a major slowdown in the economy and perhaps even a recession.

Implications for global markets

China is a key driver of global growth having contributed one quarter of global economic growth since 2010, despite only representing around 12 per cent of global GDP. China is by far the largest consumer of commodities and accounts for around half of the world’s consumption of iron ore, cement, coal and steel. Should China’s economy continue to slow or face a hard landing, the global repercussions are likely to be significant.

Commodity export countries such as Brazil, Russia, Australia and Canada are vulnerable to a slowdown in China and have already experienced material depreciations in their currencies against the US dollar. In some cases these economies may also be exposed to the unwinding of commodities-linked domestic credit booms. Other economies with major trade linkages to China, particularly the emerging markets in Asia and Japan, would also be adversely affected.

Although relatively nascent, financial linkages between Chinese banks and Hong Kong or Singapore could provide channels for the international transmission of a Chinese financial shock. Foreign currency lending to Chinese corporates has grown at a rapid pace, and has been focused on the property sector. If China experiences a recession and defaults spread across borders, an emerging markets credit crunch is not out of the question. Meanwhile, property markets in Canada, Australia, the UK and Hong Kong could be hit as investors pull out of international assets.

Fortunately, the Chinese authorities appear to be taking steps to manage the housing market correction and slow credit growth. China has room for additional fiscal and monetary stimulus and could nationalise a portion of its domestic debt. The country’s huge foreign exchange reserves and current account surplus make China highly resilient to external financial shocks. However, if the returns on incremental spending and investment are sufficiently low, or if the private sector cuts expenditure, the government may not be able to prevent a sharp slowdown or a recession.

While there are a number of reasons to be optimistic about China’s long-term economic future, there are short-to-medium term challenges if China’s property bubble is set to burst and the economic ramifications will be widespread, warranting a cautious approach by investors.

Speak to your Leenane Templeton Financial Planner to discuss your investment options. Contact us at 02 4926 2300 or email success@leenanetempleton.com.au

Source: Magellan

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