Property vs. Shares – the current state of play


Sydney & Melbourne residential property has had a fantastic run over the last few years – the ABS statistics show Sydney residential prices up 18.9% in the year ended June 2015. However, price appreciation in Western Australia and other states has been quite low; negative 1.2% for Perth to June 2015. Very low interest rates have been the major contributor to the record level of investor demand for property in the eastern capitals over the last few years. Foreign demand, assisted by the falling AUD which makes our property cheaper for buyers using stronger currencies, has contributed.

Investing in new Apartments – dangers to be aware of?

Investors should always look forwards, not backwards, and recently property auction clearance rates in Sydney & Melbourne have eased modestly, partly due to increased supply. The apartment boom in Sydney and Melbourne is in danger of ending abruptly as supply potentially outstrips demand and rents may fall. Banks have commenced following APRA directions to make borrowing to buy investment property significantly harder than it was even 6 months ago. Also, there is some evidence that Chinese purchasers have recently been somewhat less active due to the Chinese Government discouraging capital outflow.

In Sydney & Melbourne, where tens of thousands of new apartments have been sold off the plan, there are increasing concerns raised by several commentators that some foreign buyers may walk away from their deposits and not settle. A clear sign of trouble would be if significant numbers of apartments that were sold off the plan are immediately placed back on the market when they are completed. Remember, such apartments would no longer be considered new and could only legally be sold to Australian residents. It is doubtful that in such an environment local investors would pick up all the stock without significant price falls.

If you are considering a property investment I recommend that you look at a Sound Property Group presentation, detailed further below, as part of your research.

The Share market

All sectors of the Australian share market, which is dominated by the banks, resources and a handful of others like Telstra, Woolworths & Wesfarmers, has seen heavy selling in recent months. The ASX All Ordinaries index is down from a recent peak of 5,950 to around 4,950, a fall of around 17%. This is a sizeable correction, but certainly not unprecedented. As usual, the explanations for the fall are varied but primarily relate to a growing concern that the global economy is slowing and Australia is particularly vulnerable if China’s growth rate falls markedly.

A big question is whether the recent declines create good opportunities for investors. Australian banks have declined over 25% over recent months with concerns about the state of the economy combining with APRA’s increased capital requirements. Only around 50% of the retail entitlement to CBA shares at $71.50 was taken up, clearly illustrating the local investors have lost some confidence. On the positive side, APRA’s increased capital requirements mean that the local “Big Four” banks are more secure. It is notable that the big 4 local banks are paying excellent, fully franked dividends of up to 9% grossed up so provided these can be sustained they look quite attractive.

While the share market now looks to be offering good value, forecasting short term moves in share markets is extremely difficult, if not impossible, which is why we recommend a medium to long term timeframe for any such investment. If you are considering an investment we recommend you seek professional advice.

While the share market now looks to be offering good value, forecasting short term moves in share markets is extremely difficult, if not impossible, which is why we recommend a medium to long term timeframe for any such investment. If you are considering an investment we recommend you seek professional advice.

Want to educate yourself on Property Investment?

Many potential investors in residential property are unsure how to go about it and would like to have more information before they take the plunge. At Ramsay Financial Group we don’t give advice on property, which is a specialised area, but we do try and assist our clients looking at this favoured asset class with educational material.  Sound Property Group, who we know personally, recently held a seminar which covered off some important issues for potential investors. Items that were covered off included:

  • A good time to buy?
  • The Australian property markets
  • Discover your position and potential
  • Assembling a team
  • Looking at the cash-flow of an investment for a typical investor (general advice)
  • Arranging insurance and property management

This link will give you an access to their presentation.


What is the National Disability Insurance Scheme?

The National Disability Insurance Scheme (NDIS), launched in July 2013, will progressively roll out across Australia to July 2019. In simple terms, the NDIS provides long-term, high-quality support for people with a permanent and significant disability. This includes people whose disability is attributed to intellectual, cognitive, neurological, sensory, or physical impairment, or a psychiatric condition.

The NDIS replaces the previous state-based schemes that resulted in differing levels of care, dependent on an individual’s state or territory of residence.

Who is eligible to receive funding under the NDIS?

Eligibility is based on three main requirements; age, residency and level of disability.

  • Age:Participants must be under the age of 65 when they become disabled, as well as when they join the NDIS. Once they are covered under the scheme, support is for life.
  • Residency: Participants must reside in Australia, be a citizen or have the appropriate visa. Until coverage is complete in July 2019, only certain roll out zones will provide NDIS support.
  • Level of disability: Participants are required to be permanently disabled. This can include a disability that is ‘episodic’, meaning that some days are more affected by it than others.

What is the difference between the NDIS and life insurance?

The NDIS does not replace the benefits provided by life insurance products such as Trauma, TPD and Income Replacement. These forms of protection provide either a lump sum payment selected by the insured, or an income stream based on the insured person’s income should they suffer a permanent or temporary incapacitation that prevents them from returning to their previous level of work.

It is important to remember that the NDIS does not provide financial support for eligible participants. It only covers the costs of care and support.  The NDIS does not provide a lump sum payment, nor replace any income lost by participants due to their inability to work.

The NDIS is not a risk prevention tool – it is a safety net. Unlike, TPD and Trauma insurance and Income Protection, the scheme does not allow an individual to protect their assets, safeguard themselves and their family against future losses, or pay down financial obligations such as a mortgage.

What is covered by the NDIS?

The NDIS protects any Australian (whether they can work or not) from the possibility of not being able to afford proper care and treatment for their disability. It does not help pay for day-to-day living expenses.

Some of the most common benefits provided under the NDIS to those who are eligible include:

  • Aids and appliances (e.g. artificial limbs and communication aids),
  • Home and vehicle modification costs,
  • Personal care (e.g. showering and general hygiene assistance),
  • Domestic assistance (e.g. shopping, food preparation and cleaning assistance),
  • Respite care,
  • Guide dogs.

There is no substitute for peace of mind

For the everyday Australian, there should not be a choice between the NDIS and life insurance. It is impossible to predict whether a future disablement will be severe enough to qualify for the NDIS. Life insurance allows the individual to take control should the unexpected happen, whether it’s to replace income or provide a lump sum that can be used to cover debts and other expenses.

While the NDIS is a big step forward and will assist thousands of Australians living with a permanent disability (as well as their families and carers) it is not an adequate substitute for the peace of mind that life insurance provides. Rather, the NDIS should be seen as a supplementary level of protection that works alongside life insurance to provide the ultimate care for an individual and their family, should the unforeseen happen to them.

This newsletter contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.

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