Newsletter Autumn 2014 Welcome Welcome to another edition of the Financial Spectrum quarterly newsletter. We hope you enjoy this edition!
In this issue... Latest Australian economic update covering capital investment growth, the latest employment figures and interest rates.
Our big news for this issue is that we have outgrown our Balmain office and have started operating from 2 new branches: > Sydney CBD: L2, 62 Pitt St
Choosing the right property investment strategy
> Rozelle: 637 Darling St
SMSFs myths exposed
All our contact numbers remain the same. If you are visiting our CBD office, the nearest train station is Wynyard. We look forward to welcoming you at our new offices very soon!
The history of Easter
With Easter nearly upon us, all the team wish you and your family a very Happy Easter.
All the best! The Financial Spectrum team
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Economic Update
Factors boosting demand and housing prices
Job growth outlook
The housing market has seen an increase in demand recently. This is the result of several factors. The population growth rate is picking up with the current rate of increase (1.79% p.a.) well above the thirty year average (1.37% p.a.). This is largely due to an increase in the skilled migrant intake. Another factor boosting housing demand is the competition with the mining sector for skilled labour and materials which has limited supply. This reduction in supply, and boost to demand has seen an overall increase in housing demand and pricing.
Job growth over the past year has been solid for the part-time sector. For the remainder of 2014, mining job losses from the construction industry (particularly the coal sector) are likely to stall employment growth and push the unemployment rate higher in the short term. However, the forecasted strengthening in the household sector is expected to drive a recovery in employment growth and a steady improvement in the unemployment rate from 6% in 2013-14 to 5.5% in 2015-16.
Yet another factor boosting demand is an increase in foreign investor activity in Australian real estate over the last few years. The 11,700 foreign investor approvals in 2012/13 are more than double those in 2009/10. However, much of this activity is at the top end of the real estate market ($1.5m +) and is unlikely to be unduly influencing affordability for the average investor.
In an ever-changing and complex world, seeking professional advice can help guide you through the maze. We invite you to contact us to explore the opportunities available to you.
Call your adviser today on 02 8238 0888 Source: Commonwealth Research, Australian Economic Perspective.
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Choosing the Right Property Investment Strategy
How to harness the investment power of your investment property portfolio Investing in property is one of the most popular methods of investment in Australia. But simply investing in property is not the end of the investment story. There are many different strategies you can use when investing in property—but which is the right strategy for you?
Buy and Hold Long-Term for Capital Growth By far the most popular strategy when it comes to investing in property is to ’buy and hold’. This strategy is a simple and secure strategy that entails buying property and holding onto it in the expectation of capital growth over the long term. Capital growth or appreciation is the increase in the market price of an asset with the passage of time. For example, the current market price of a building could be $300,000 while its market price 10 years ago was $200,000. The building has effectively had a capital growth of $100,000. Although many investors bet on capital growth to be a certainty in life, the outlook of Australian house prices in the next decade remains contentious as ever. The average home prices in Sydney rose by over 10% in 2013. This is a massive growth considering the performance of home prices in the prior years. The rise across all other capital cities in Australia was at a meager 2.4% per annum in the 5 years to August 2012. This growth rate in home prices has been greatly subdued ever since the Global Financial Crisis (GFC) considering the growth rate prior to the GFC (between August 2002 and August 2007) was 8.4%. Investors have thus tended to rely more on strong rental yields than on capital growth.
Invest for Rental Returns Another property investment strategy is to invest for rental returns (aka yields). According to RP Data, weekly rents from July 2009 to June 2013 have increased by 27% while dwelling values have increased by a relatively smaller 10%. This phenomenon means that there was an improvement in rental yields. Gross rental yields rose from a low of 3.5% to 4.2%. The average gross yield on a capital city unit was 5%; from as low as 4.4%. If a property was rented out for $350 per week, it would now be rented at $444.50. This translates to additional cash flow amounting to $4,914 for the investor per year. It should be noted however that certain locations had varying averages over 5 and 10 year periods. If you’re investing for rental yields, you really need to pay attention to the location of your rental property as this will impact heavily on your rental income. Investing for rental returns is more risky than for capital growth but can also be a great investment strategy if you choose wisely.
Which is the Best Property Investment Strategy? Capital growth or rental yields? The balance tips between capital growth and rental yields. The standard trend across property markets in the long term is that renters purchase when rents surge while residents rent when capital growth also surges. It pays to get some professional advice before choosing either option!
Find out more > Factors Affecting Capital Growth There are a number of factors that can point to the direction of capital appreciation or depreciation. The location of property, the type of property, the time frame in consideration and the stage of the overall property cycle, all affect the likelihood of capital growth. It is also important to note that the property cycle follows three distinct phases: the boom, the slump or downfall and the recovery. The caveat to this theory however is that this cycle only ensues in a free market where any person can buy and sell property within the possible government restrictions.
For more information about investing in property, have a chat with one of our experienced financial advisers. Our in house mortgage broker and property experts can also assist you in sourcing the right investment property and arranging finance.
Chat to one of our financial planners today about investing in property.
Call a financial adviser today on 02 8238 0888
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The Truth about Self Managed Super The top myths about SMSF
Legendary American writer Joan Gould mused “I don’t know these stories as well as they know me, I’ve discovered.” This is probably what SMSFs would have to say were they able to speak for themselves. SMSFs have risen in popularity by significant proportions in recent years. This has however not stopped the proliferation of misinformation about them. Here are some of the most outrageous myths about SMSFs:
Myth 1. SMSFs are Cheaper than Public Funds SMSFs are required to prepare an annual set of financial accounts, submit an annual income tax return, submit an audit certificate and in some cases submit actuarial certificates alongside asset valuations. Given all these requirements, SMSFs only become more economical than the alternatives with a substantial account balance; and even then, not always.
Myth 2. SMSF Trustees Must Have Extensive Knowledge of Investment Markets SMSF regulations require that trustees take responsibility for all decisions made with respect to their SMSFs. They do not however require them to possess ‘a substantial bank of knowledge’ than all other fund members. That being said, they can always seek the input of professional advisers.
Myth 3. Having an SMSF is an Effective Way to Improve Your Super Performance Whilst it might be true that the performance of the average retail super fund is largely uninspiring, active management of the composition of your super fund assets is just as effective in the public space as with an SMSF. The amateur who expects to beat the professional is ambitious at best and delusional at worst. When all is said and done, proper professional assistance in the construction and maintenance of a super portfolio will often mean returns exceeding ‘the average’ by comfortable margins.
Myth 4. You Must Have an SMSF if You Want to Invest into Direct Shares This is arguably the most widely held myth regarding SMSFs. Although it may have been true a couple of years back, nowadays many super funds allow members to choose from an extensive range of ASX-listed securities with others giving full ASX access. It should be said however that management of Capital Gains Tax (CGT) implications and corporate actions become problematic under these structures. Nonetheless, it is questionable whether these pros outweigh the additional costs incidental to SMSFs.
When a SMSF is Appropriate SMSFs have become hugely popular in Australia, particularly since the GFC, although they’re not appropriate for everyone. The main reason for establishing a SMSF is where there are certain strategies with superannuation assets that can only be adopted through a SMSF that justify establishing and maintaining one. These strategies may include selling an asset to a member, buying an asset from a member, investing in direct real estate, borrowing money and jointly owning an asset with another super fund member. If you choose to go with any of these strategies, then you must have an SMSF to do so. To be on the safe side, always seek professional advice to determine whether or not you need an SMSF to achieve your objectives .
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Need help deciding whether a SMSF is right for you?
Give our financial planning experts a call today on 02 8238 0888
The humble chocolate egg has an interesting history
While you munch in to your third Easter egg on Easter Sunday this year, you could be forgiven for not realising the long history of the Easter egg. The humble Easter egg boasts a rich history, dating back thousands of years to pre-Christian times. While we tend to attribute the egg to the Christian holiday of Easter, pre-Christian Saxons used the egg as a symbol of fertility during the Spring equinox, representing the rebirth of life. Later, the egg was used to symbolise the resurrection of Jesus for much the same reasons. Historians credit Pope Gregory I with merging the pagan Spring festival and Christian celebration of Easter. The name of the holiday is a derivative of the pagan Spring goddess Eostre. The eating of eggs was forbidden during Lent, however this didn’t stop chickens from laying, so historically, households hard-boiled the eggs to prevent them from becoming rotten and ate them quickly once Easter arrived or decorated and given to children as good luck symbols. The earliest Easter eggs were hen or duck eggs which were hand-decorated in bright colours using vegetable dyes and charcoal. By the 17th and 18th centuries, this tradition evolved to the manufacture of egg-shaped toys which were given to children at Easter time.
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The History of the Easter Egg
So the egg makes sense, but what does the Easter bunny have to do with Easter? Much like the origins of the egg, the Easter Bunny can be traced back to the 13-cenury in pre-Christian Germany where people worshipped pagan gods and goddesses. The deity Eostra was the goddess of spring and fertility, and feasts were held in her honor on the Spring Equinox. Her symbol was the rabbit because of the animal’s high reproduction rate. The first Easter Bunny legend was documented in the 1500s. By 1680, the first story about a rabbit laying eggs and hiding them in a garden was published.
Ok, so I know the history, now pass the chocolate! Whatever the history, we’re sure that you’ll agree that Easter is a wonderful time of year to celebrate and partake in just a little chocolate indulgence. The whole team with you and your family a wonderful and safe Easter holiday. Copyright © 2009 Financial Spectrum Pty Ltd
The early 19th century saw the advent of the first chocolate Easter eggs in France and Germany. These eggs were solid chocolate as the technique for mass-producing moulded chocolate had not yet been created. A crocodile-style patern emerged in Germany which helped to disguise any imperfections in the chocolate egg surface, this design continues to today.
Important Information: This document has been prepared by Financial Spectrum Pty Ltd (ABN: 30 149 141 971) as is current as of April 2014 but may change without notice. The information contained in this newsletter is of a general nature and does not take into account your personal needs and financial circumstances. Before making any decisions based on the advice contained in this booklet you should consider whether it is appropriate for your circumstances.
Spectrum Wealth Advisers is the holder of an Australian Financial Services Licence (AFSL 334400).
Copyright © 2014 Financial Spectrum Pty Ltd