HTW Month in Review July 2012

Herron Todd White Opinion’s On The Melbourne Residential Market

· The Melbourne metropolitan market is currently considered two speed. The inner suburbs are generally outperforming the middle and outer suburbs where there is continuing evidence of softening prices.

· Auction clearance rates are now generally around 60%.

· According to the REIV statistics, the Melbourne residential market cycle peaked in 2010 with an increase in the median house price of approximately 18% from $465,000 in 2009 to median house price of $550,000 in 2010

· However the trend from 2010 to 2011 has shown a decrease of 1.8% to produce a median house price of $540,853.

· So far for the March quarter 2012 the median house price is $535,000 which shows a 0.9% increase on December quarter 2011 of $530,000.

· This shows the Melbourne residential market is remaining steady in the short term, mainly caused by a steadying in the population growth and an improvement in the  supply of new homes.

· However consumer confidence continues to be low with weaknesses in Europe and a slowdown in China the main cause for concern with a cut to interest rates in July highly unlikely

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Homeowners Can Relax For Another Month As RBA Keeps Rates On Hold

The RBA made the decision to keep the cash rate at 4.75 percent after a slowing economy saw an underlying inflation rate of just 2.4 percent, well within the target band.

The decision came after the economy recorded its steepest three-month drop since 1991, brought on in large part by the Queensland floods.

The RBA’s announcement comes as no surprise to economists, with both consumers and business are keeping a tighter hold on their pursestrings.

ATO Warns On Mortgage Management Schemes

The Australian Taxation Office has included two mortgage structures among a group of unacceptable tax schemes in a guide to tax-effective investment published yesterday. It describes them as mortgage management plans and home loan unit trust arrangements.

In a mortgage management scheme, the promoter offers a means of creating deductible interest payments, equivalent to home loan interest repayments, using equity in the home to refinance and obtain additional funds for investment.

The initial step is to refinance and create two separate loan accounts (both secured over the home). Standard principal and interest payments are made on one loan account. The promoter uses the funds in the second loan account to purchase investment assets and undertakes to pay the interest on behalf of the borrower. The borrower does not derive any income from the investments.

The borrower claims a deduction for the interest paid on the second loan account. The ATO’s view is that the arrangement does not involve the purchase of a real investment.

In a home loan unit trust arrangement, the promoter sets up a unit trust as a vehicle for the client to borrow and buy a property. The borrower lives in the property and pays rent to the unit trust at a market rate, which the trust declares as taxable income.

The trust claims associated expenses and interest charges as a deduction against the rental income, and the borrower claims a deduction for the interest payments on the borrowing.

The ATO’s view is that the borrowing is for a private expense and there is no entitlement to a deduction.

RBA leaves Cash Rate at 4.75%

RBA leaves Cash Rate at 4.75%

 

At its meeting today, the RBA decided to leave the cash rate unchanged at 4.75 per cent

At today’s meeting, the Reserve Bank judged that the current mildly restrictive stance of monetary policy remained appropriate. In future meetings, the Board will continue to assess carefully the evolving outlook for growth and inflation.

The last rate rise was in Nov 2010. The RBA’s decision matched expectations by the overwhelming majority of analysts and investors.

The commentary about the strength of the dollar prompted some selling of the currency, sending it briefly below the 109 US-cent mark from 109.2 US cents just prior to the announcement.

RBA Governor Glenn Stevens indicated that the stronger Australian dollar is helping to keep a lid on prices. The currency has rocketed against the greenback, rising about 6 per cent in the past month alone.