Defencewealth

Our latest update.... https://defencewealth.com.au/2020/12/05/sss-jul-dec-2020/

Wishing all a safe and enjoyable festive season! 🙂

G’day All,
Hope you’re all keeping safe and sane during this pandemic…

Much has been said lately (mostly negative) on how COVID-19 will affect Australian property going forward. Whilst no one can definitively say what will happen, we can use history and knowledge of cycles as a guide:

18.6-year Real-Estate Cycle – Defencewealth clients will be familiar with, or at least have been introduced to the 18.6-year cycle as taught by Philip J Anderson through his 24-hour property clock and his book: The Secret Life of Real Estate and Banking.

As investors, we use this knowledge to guide our investment timing, combined with fundamental and technical data to determine which property markets might likely provide the best wealth-building prospects, and in an efficient time frame.

The clock (first seen by me in 2013) is on record calling for a mid-cycle slowdown in 2020-21, which is where we are now with COVID.

A key point about mid-cycle slowdowns is that whilst a short recession may ensue which affects the share market, property (land) values remain largely unaffected. This of course is a generalisation and other cycles relating to commodity prices and infrastructure need to be referred to when deciding on where to invest.

Going forward, we’d suggest that property will indeed remain stable. However, as we shift into the second-half of the 18.6-year cycle from mid-2021 onwards, the locations that had significant capital growth between 2012-20 (read Sydney/Melbourne/Hobart) will likely stagnate or possibly decline in the run-up to 2026-27.

The states of QLD, WA, NT and SA will, in my opinion, be key to watch and invest in as their economies are primarily built around resources and agriculture, which usually become high-demand in the second-half of the global real-estate cycle.

Another point worth noting is that governments and central banks around the world, including our own RBA, have said they will do whatever it takes to ensure the economic and financial system doesn’t implode. This means that house prices will not be allowed to mass-crash by ensuring people can continue to pay their mortgages and rent.

Examples include JobKeeper programs, money printing, bond buying, first-home buyer grants and guarantees, and even direct stimulus payments like Rudd’s $900 back in 2008/09.

Investment home loan rates are now below 3% and gross yields on previously recommended properties are tracking between 4.5%-5.2%.

Vacancy rates have mostly been tightening in landlords’ favours (3% is considered a balanced rental market) with April stats from SQM Research showing:

Adelaide (Seaton, Exeter): 0.5%
Gold Coast (Coomera, Pimpama): 2.1%
Ipswich (Ripley): 2.7%
Logan (Greenbank): 3.1%
Toowoomba (Glenvale): 1.8%

Yes, there will be some further fallout in the months ahead, but not to the extent that most are implying. Once we get over this COVID speedbump and society’s demand for credit picks up again, and at historically low interest rates, this will likely fuel a surge in property demand in areas where new jobs will be created; think resources, agriculture, major infrastructure and defence.

We will of course need to exercise caution and adequate planning as we get closer to 2026-27, being the anticipated peak of the cycle, but until then, maintaining a long-term view especially now will be important. Helping you build sustainable wealth that will provide for you and or your family’s future endeavours is our primary mission.

Stay Safe! 🙂

G’day All,

2-minute read

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.

Tax Alert
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.

Interest Rates
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.

Infrastructure
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.

Economy
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.

Strategy
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.

Quote
An investment in knowledge pays the best interest – Benjamin Franklin

Investors who hold properties for long-term get better returns than those trying to time the market - realestate.com.au It’s the dream of many a property investor — buy when the market is low and sell just as it peaks — but trying to time the market can be risky and most get it wrong, new research shows.