Show me the money!

My husband and I have just built a house and with rising interest rates we are wanting to lock-in an interest rate - we have been offered 1yr 9.07%, 2 years- 9.08%, 3yrs 9.03% and 5yr 8.85%. Could you please give us some advice on what the market is doing and which you would think is the best amount of time to lock-in for?

Thanks so much,

Fiona

 

This is a very difficult question to answer… especially without a crystal ball! There are two things to look at:

1.       Your personal financial budget and personal feelings – what is your capacity to be able to withstand future variable rate increases; and

2.        What is going to happen to rates moving forward – looking at if you are going to be better off fixing or not.

The first item is the most important. If you have any doubts about your ability to meet repayments if variable rates increase then you definitely need to lock in your rate. However, if you are comfortable with variable rates, then it’s fair to look at the second question. At the moment, not many economists are talking about anymore than one rate increase – possibly in May.

Regards

Stuart Wemyss 

 

I would like to purchase an investment property in America from a loan with an American bank. Where do we start?

Thank you

Hao Pham

 

I don’t have any knowledge of the US lending market personally but I think a US based mortgage broker would be a very good place to start. I suggest seeking a referral from a professional but be careful about getting a referral from someone that is also trying to sell you property.

Regards

Stuart Wemyss 

 

Development dilemmas...
 

I have copied this quote from the current newsletter;

Currently the cost of construction is too high to allow new development to take place and this has created a marked undersupply of dwellings.

To bring a new medium density development out of the ground today costs 25% to 30% more than the market will pay. New development will not take place until the market values increase closer to this level.

I am interested in this because I am facing a situation where I have the opportunity to buy a property next to one I already own and it is on a double block of land and it is prime land for a development, currently with zoning to allow this, which is within 5kms of Brisbane city centre.  Interpreting this comment above it seems as though this would not be wise as the cost of construction is too high.  Is this correct or are you referring more to the major developments, such a high rises?  Do you expect this cost to come down soon and what will make this happen? 

Mark and Lisa

 

You are correct in saying that this issue relates more to medium and high density developments. We are finding that 2 units on a single housing block are still working very well.  However we always advise that you undertake a full feasibility analysis before purchasing any property. 

Regards

For a long time now I have been trying to get a general idea of the approximate cost of a small development, say five units. Let’s say a builder could build the buildings for say $1000 per sqm, but what about all the other associated on costs such as concrete driveways, landscaping, perimeter fencing, head works and all DA fees, is there an average percentage that can be applied? For eg 20%? The approximate total cost of the development would now be $1200 per sqm. I eagerly await your response.

Many thanks

Drewe

 

Unfortunately there is no rule of thumb; every development needs to be assessed individually taking into account, location, topography, quality of fit out required and numerous other considerations.  All of the other issues you have mentioned also should also be included in your feasibility analysis and final construction contract. 

 

My wife and myself purchased a 'beach front' block approx 4.5 years ago in Port Bouvard - Mandurah - PERTH. Our original intention was to build, however due to numerous financial reasons (including massive increases in the cost of building, unstable cash flow, new baby girl etc) we have made a decision to sell the block. We intend then to potentially still rent, pay off any personal debt and then invest the remainder.

We very recently had an offer for $2 million fall over due to the recent stock market crash....We believe we should be able to achieve somewhere close to this in the near future. If we achieve this amount we will be up for approx $200,000 Capital Gains TAX...(purchased for $410,000)

As mentioned our original intention was to build on the block...We currently do not own a principle place of residence...Can the block be regarded as our principle place of residence (we have been renting for 4.5 years) and if so can some or all of the capital gains tax be reduced. We have heard (but do not fully understand) about some 4 year limitation on building a home on a vacant block where your block can be your principle place of residence.

If the capital gains tax has to be paid...is there a way we can pay some or all into a superannuation fund or similar?

Kind Regards,

Phil.

 

PPR Exemption:

Tax Determination 51 (attached) lists several factors used when considering whether a property can be treated as your PPR, which are not satisfied in this case.

It also states that the intention to construct a dwelling as your PPR without actually doing so is insufficient to claim the PPR exemption.

Accordingly, the CGT calculation of $200K tax would be a fair estimate based on the information provided.

All Loan interest and other property expenses incurred whilst the property was held should be capitalised and would therefore increase the Cost Base and decrease the Capital Gain on the sale of the property.

Super to reduce the Tax Bill:

Normally, if you are employed and your employer pays Employer Contributions to your Superannuation Fund then you cannot claim a Tax Deduction for any Personal Super Contributions.

To be eligible for a Tax Deduction for Personal Contributions to Super (subject to Age Based Limits) less than 10% of your Assessable Income can be from Employment.

However, your Assessable Income as per your Tax Return may be adjusted if it includes a distribution from a Trust or Partnership, income or losses from Rent or Business (including PSI), capital gains or capital losses or foreign source income.

Salary Sacrifice to Super:

In order to minimise the Tax payable on the Capital Gain, both of the owners of the property could Salary Sacrifice their employment income (to Age Based Limits including the 9% SGL) in the year in which the property is to be sold thus reducing their income and therefore the proportion of income taxed at the top Margin Rate.

If not in Private Health Cover, the Capital Gain will also result in the Medicare Levy (extra 1%) being paid.

Negative Gearing:

As new investments are to be considered, Negatively Gearing those investments with 12 months interest upfront included in the Loan contract could also assist to reduce their income and therefore the proportion of income taxed at the top Margin Rate.

If I can be of any further assistance, please do not hesitate to contact me.

Regards

David Austin

 

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