When it comes to financial security, traditional advice often centres around paying off your home mortgage as quickly as possible.

The peace of mind that comes with owning your home outright is undeniably appealing.

However, this strategy might not always be the most effective way to grow your wealth.

Instead, using the funds to invest in property can potentially offer greater financial benefits.

Here’s why.

1. Leveraging low interest rates

Even though interest rates in Australia have increased over the last few years, they still remain relatively low compared to historical averages.

Your home mortgage likely has a relatively low-interest rate, especially if you secured it a few years ago.

By choosing to keep your mortgage and instead using your available funds to invest in property, you can leverage this relatively cheap debt to your advantage.

The potential return from a well-chosen property investment, especially if you combine both the capital growth and rental income, would be significantly more than the 5% or 6% you are saving paying down your home mortgage.

2. Opportunity cost of capital

One of the key concepts in investment is the opportunity cost of capital.

When you pay off your mortgage, you’re effectively locking in a guaranteed return equal to your mortgage interest rate – in other words, the 6% or so that you’re not paying on your mortgage.

While this might seem like a safe bet, consider what you might earn if you invested those funds elsewhere.

As I have explained, well-located property investments have historically delivered strong returns over the long term, outpacing the cost of your home mortgage interest.

3. Building wealth through property investment

Investing in additional property can be a powerful way to build wealth.

If you think about it, rather than owning one property, your home, increasing value over time, you will now have two properties taking advantage of leverage and capital growth, and of course, you’ll have your tenants helping subsidise your investment mortgage payments.

One of the big benefits of using your funds to invest in property is that it allows you to take advantage of leverage.

By borrowing to invest, you can amplify your returns – basically, you are controlling a larger asset with a smaller deposit, maximising the return on your funds.

For instance, with a 20% deposit, you control 100% of the property and benefit from 100% of the capital gains, effectively multiplying your investment power.

Remember the bank does not get any share of this tax-free growth.

4. Tax advantages

Investment properties offer tax benefits not available when paying off your home mortgage.

Of course, you don’t invest for tax benefits, but they are the icing on the cake.

However, you can write off many of the costs of owning your investment property including insurance, rates and taxes, maintenance etc.

Further…depreciation deductions on property investments can significantly reduce your taxable income, enhancing your cash flow and overall return on investment.

These tax advantages can make property investment more financially attractive than paying down your mortgage.

5. Maintaining liquidity and flexibility

A paid-off house is a great asset, but it’s not very liquid. Once those funds are used to pay down debt, they’re not easily accessible for other opportunities or emergencies.

Keeping your mortgage and investing your available funds allows you to maintain greater liquidity and flexibility.

While this might not be available if you invest in another property, it could be a reason to invest some of your money in shares or ETFs.

6. Diversification of assets

Diversifying your investments is a key strategy to manage risk and enhance returns.

By investing in property rather than solely focusing on paying off your mortgage, you can diversify your asset base.

And as I mentioned, you may choose to invest some of the funds in other asset classes like shares or ETFs.

This diversification can contribute to a more resilient and robust financial portfolio.

Psychological considerations

While the financial arguments for investing in property rather than paying off your mortgage are compelling, it’s important to consider the psychological aspect.

The security and peace of mind that comes with owning your home outright shouldn’t be dismissed lightly.

However, in my mind, with careful planning and risk management, the financial benefits of investing in property can outweigh these psychological considerations.

Conclusion

Deciding whether to prioritise paying off your mortgage or property investment is a personal choice.

It depends on your risk tolerance, financial goals, and overall investment strategy.

 If security and peace of mind are paramount, paying off your mortgage might be ideal.

However, if you’re looking to grow your wealth and achieve financial independence, investing in property could be a more strategic approach.

By leveraging your funds, taking advantage of tax benefits, and strategically using your funds to invest in property, you can make your money work harder for you, building a more prosperous future.

About Brett Warren
Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.

The maths behind financial independence is incredibly simple.

But, if that’s the case why do so few Australians achieve financial freedom?

It’s not for the lack of knowledge – there are so many money blogs, videos, and podcasts out there.

Instead, it’s a combination of our mindset, habits, and behaviours that rule our financial destiny.

So let’s look at 7 tips that could make you rich:

1. If you are born poor it’s not your fault, but if you die poor it’s your mistake

This quote is often attributed to Bill Gates, a self-made multi-billionaire who is now helping the world through his philanthropic work.

What he’s getting at is that you have to take responsibility for your financial future.

You have to become financially literate.

The problem for many is that becoming wealthy is a long journey and it’s not easy.

But then again why should it be easy?

If it were easy, then the rewards would not be so great.

2. Don’t follow the herd

Each of us has been hardwired by evolution with a desire to be part of a herd.

In the early days of humanity, being part of a herd meant survival.

With a herd, there was always someone on guard for predators or danger, and also certain herd members identified opportunities that could be beneficial to the herd.

However, that’s not the way it works with money unless you want to be average and follow the crowd of average folk.

But if you want to achieve financial excellence, one of the best things you can do is not follow the heart.

You need to break away from the pack, take your own path, and make the best choices for yourself as an individual.

Successful investors know that to get to the top of the property ladder, they need to overcome the fears that hold most people back from ever stepping foot on the first rung, or of not waiting for the perfect time or the perfect investment.

And they also understand the importance of, wait for it, going against the crowd!

Warren Buffet said it best, “Be fearful when others are greedy and greedy when others are fearful.”

3. You should know how many months you have left in your wealth window

Your “wealth window” is the time from now until when you stop receiving an earned income.

How much are you going to earn in that time?

Think about it…if you earn $100,000 a year for the next 15 years you will have $1.5 million passing through your hands.

The big question is: how much of this will you keep?

You have two important stages in your life: a saving and investment stage – this is what I call your “wealth window” and your spending stage – your retirement.

For many Australians there biggest asset is their income earning capacity over the rest of their “wealth window.”

Your financial future will depend on the balance between enjoying your money now and planning for “then.”

Which leads to…

4. Practice delayed gratification

If you want more money and freedom in life you’re going to have to practice delayed gratification.

Successful people possess higher patience and an aptitude to postpone the enjoyment of their work.

They have the ability to work hard to accomplish a goal which isn’t been achieved for a long time.

Learning to delay gratification rather than seeking immediate satisfaction is essential for success, particularly when it comes to things like investing, business, and making money.

Yet it’s not easy to change ingrained habits and the approaches to life that you’ve been practicing since childhood, but once you’re aware of the importance of the concept of delayed gratification, it’s entirely doable.

The problem is the average Australian focuses on survival and instant gratification.

They don’t think beyond the moment.

However, the very rich think and plan very far into the future—five, ten, or twenty years.

This picture may help you understand what I’m getting at.

The poor think about the moment— they can’t wait for their pay at the end of the week.

The middle class is hoping to make it through the month.

The rich are planning a year to several into the future, and the multi-millionaires are thinking a decade or two future.

Remember, if it comes too quickly, chances are you will lose it again just as readily.

All good things take time.

As Warren Buffet wisely said: “Wealth is the transfer of money from the impatient to the patient.”

5. Don’t think you can ever make money by trading

Whether it’s property, financial commodities, shares, etc.; trading is really a form of gambling, and the only people who seem to make money out of this are the trading “educators” and the “bookmakers.”

It’s interesting how people with an ego bigger than their experience believe they can beat the odds.

No, they can’t.

Instead, stick to the wealth creation strategies that have always worked; either investing in income-earning real estate, a business or a share portfolio.

6. Avoid Credit Card Debt

While credit cards can be very useful at certain times of your life, don’t use them to maintain an expensive lifestyle to impress people who you barely know.

This is a huge financial mistake.

Remember the balance on your credit card isn’t your money, it’s the banks’ and they’ll charge you for the privilege of using it.

7. Insure yourself

Insure yourself against bad surprises such as cancer, a heart attack, a car accident or death.

Most people set up their insurance as a consequence of devastating news about a friend or a loved one, but if you don’t insure yourself when you don’t need it, you will find yourself uninsurable when you do need it.

And then hope your insurance is a total waste of money.

The bottom line

Becoming financially fluent will be the best gift you can give yourself.

And getting sound impartial financial advice along the way is not a cost, it’s an investment.

It’s interesting that all the wealthy people I know have advisors and are happy to pay for them, while the average Australian gets their financial advice from Facebook or Twitter.

About Michael Yardney
Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He’s once again been voted Australia’s leading property investment adviser and one of Australia’s 50 most influential Thought Leaders. His opinions are regularly featured in the media.

Many investors think that the hardest part of becoming an investor is searching for and finding the right investment property.

In reality, that’s only the beginning.

Once you own an investment property and become a landlord, you have to learn how to effectively manage it – and a huge part of this is ensuring that your tenants are happy.

After all, if they’re not happy living there, they’re going to move to greener pastures pretty swiftly.

In this article, we look at the most common tenant complaints about those living in apartments and how to overcome them.

It all begins with CLAP: Children, Landscaping, Animals and Parking.

1. Children

Children running around in a unit complex without much adult supervision are likely to attract the attention of other tenants, and not in a positive way.

We’re not talking about kids who like to take a scooter ride after school around the complex – but the cheeky children who shriek around the complex and go ‘door knocking’ (purposely or intentionally knocking on other tenants’ doors and then running away for “fun”, a game that can be very irritating and frustrating for neighbours).

Complaints regarding children can be targeted at those who live on the premises, or children who are visiting the complex temporarily. Importantly, a body corporate can’t refuse to let a dwelling to certain groups of people such as families, and complaints regarding children can be very difficult to manage. Children are, by nature, noisy little critters!

2. Landscaping

The quality of landscaping in common areas, as well as the ongoing maintenance and upkeep of said areas, can result in tenant complaints.

It’s not uncommon for a body corporate or owners corporation, which manages all of the owners’ in a building or complex, to receive complaints about lawns not being mowed, hedges not being trimmed or tree roots causing damage to paths.

For tenants, this can become a problem when trees or vegetation impacts their view or ability to use their home.

3. Animals

The issue of animals being kept in units or apartments has long generated heated debate amongst tenants, landlords, property managers and the wider community.

Anyone who has been stuck living near a heartbroken dog left locked indoors all day knows only too well how frustrating that can be: a constantly barking dog can be hard to ignore.

Other common complaints in relation to animals include toileting – as some owners don’t pick up after their pets – and damage to common property.

Keep in mind that laws have been introduced in some states that mean a body corporate or landlord can not reasonably refuse to allow someone to keep a pet.

4. Parking

Tenants parking in another tenant’s parking spot… tenants parking regularly in the visitor bays… tenants parking in the wrong spots altogether… visitors who overstay their welcome by using a parking space as their own private space… even tenants who make up their own parking spaces on grassy areas.

These are all potential causes of dispute between residents in a strata complex and could see your tenant making contact with you if they’re getting fed up with others doing the wrong thing.

5. Maintenance and upkeep

As a landlord, it’s up to you to ensure the property you are renting out is in good condition.

However, it’s the body corporate’s responsibility to maintain the building and ensure the upkeep of common areas – which means you don’t always have control over how well this is carried out.

Problems such as water leaks, mould build-up, pathways requiring repair and locks to mailboxes being broker can be the subject of a lot of complaints.

This is why it’s a good idea for you (or your property manager) to develop a good relationship with your strata manager – so you can ensure any issues are raised swiftly.

You may even choose to join the management committee.

6. Noise

This is a big one!

Excessive noise is one of the most common complaints that tenants can have, and for good reason: no one enjoys trying to fall asleep against a backdrop of a neighbour’s loud dance party music.

Your tenant’s noise complaints may be the result of just one regular offender, in which case it may be a little easier to address the issue.

Generally, most unit complexes don’t have more than one tenant repeatedly making excessive noise and complaints are often because of a party.

However, if the problem is ongoing – they constantly practice the drums at 10 pm, they hold regular parties, they stomp around the apartment or they watch television with surround sound as if it’s their own personal theatre, then it may need to be addressed.

7. Odours

If your tenant complains of an odour coming from their plumbing or bathroom, then it needs investigation fairly quickly – it could be the case that there is a blockage or other issue causing a build-up.

Also, when a tenant is living in closer quarters with others, it isn’t uncommon for strong cooking odours to be shared.

They might waft through mechanical ventilation systems and impact larger areas, or they might just be living so close to a neighbour that they constantly smell what they’re cooking up.

Containing or preventing this from happening is extremely difficult in a strata living situation, so tolerance is the key when people from different ethnic origins are cooking foods that have strong odours.

8. Smoking

On the topic of smells – smoking is another major area of dispute amongst tenants.

Under the Tobacco and Other Smoking Products Act 1998, smoking in enclosed areas of a common area is prohibited, so if your tenant complains of another resident smoking in the car park or the front entry, that can be addressed fairly quickly.

A tenant smoking in their own apartment, on the other hand, is much trickier to manage.

There have been some legal rulings over the years regarding smoking within units, where the smell escapes through the balconies, under doors or into the extraction system.

These rulings have found that a body corporate doesn’t have the authority to prohibit smoking within a unit, including on balconies as these are private homes.

However, somebody corporate schemes have passed by-laws that state residents are not permitted to smoke on their balconies, where it causes a nuisance to neighbouring units.

As you can imagine, these by-laws can be very difficult to enforce – so this is an area you need to work very closely with your property manager and body corporate manager on.

9. Damage to common areas

When many different people use a communal area, there’s an expectation that everyone will do the right thing to maintain and present these locations to a high standard.

Of course, this isn’t always the case.

Strata managers and property managers report that the most common complaints regarding communal areas often stem from issues with people using pools and barbecue areas, and not cleaning up after themselves.

It can also create problems if tenants attempt to use common areas for their own private use on a more regular basis when they are designed to be shared by all of the residents in the complex.

10. Lack of privacy

When it comes to apartment living, most residents relish the privacy within their own four walls as they are sharing so much of their “home” with others.

As a result, tenants tend to become disgruntled if the landlord, on-site manager or property manager come knocking too often.

You can’t just drop past and visit your tenant or your property without warning: this is not just a matter of politeness, it’s the law.

You are required legally to notify your tenant at least 24 hours before entering, with the only exception being a direct emergency.

11. Pests and cockroaches

This is another problem that can be difficult to manage in a strata setting.

If you own a freestanding home and there is an infestation of ants or cockroaches, the solution is fairly straightforward: hire a pest inspector.

However, when it comes to apartment living, there’s no point in you getting a pest treatment on your specific unit if others in the complex don’t do the same.

Otherwise, you’ll clear the infestation from your property… and it will return within a week or two.

If your tenant complains about an ongoing issue to do with pests, it’s a good idea to chat to the strata manager to see if other residents are having the same issue, so you can investigate a more holistic solution.

12. Difficulty reaching you (or your property manager)

This last one falls on you as the landlord.

A difficulty reaching you (or your property manager) and a lag in getting a response is one of the most common tenant complaints, and for good reason.

It’s frustrating for anyone to feel as though they’re being ignored, but even more so when they’re trying to reach you about an issue to do with where they live.

It might be your property, but it’s their home.

Hiring an experienced property manager who has a reasonable rent roll (ie isn’t overworked) is the key to success here.

How to Resolve a Dispute

There are clear and straightforward methods for dealing with disputes, depending on your state and territory.

Generally, if an issue can’t be resolved verbally through open and honest discussions, the unhappy tenant and/or the property owner has the option to submit a form to the body corporate advising a breach has occurred.

If the body corporate is in agreement, then a breach notice is issued.

If the body corporate considers that a breach hasn’t occurred, then the party can make an application to start proceedings through court.

If your situation reaches this point, it is best to liaise very closely with your property manager for advice and guidance.

Whilst this can be a very stressful situation and is often new territory for you, this is all in a day’s work for property managers – they deal with disgruntled tenants every day.

Note that a body corporate can also seek an order from the office of the Commissioner of Body Corporate and Community Management, or approach the Magistrates Court.

An adjudicator appointed by the Commissioner’s Office may issue an order stating the tenant must stop the behaviour that’s constituting the breach.

Just because the breach has been issued, it doesn’t mean the behaviour will stop.

However, the fines on offer might be a powerful motivator: if an order issued by the adjudicator is ignored or the breach continues, the body corporate can pursue the matter through the courts, which can impose a maximum penalty of $44,000.

The Magistrates Court can impose a fine if a party is deemed to be in breach of the by-laws, which can be up to $2200.

All of this represents the worst-case scenario and there is a conciliation process that usually helps avoid going to these lengths.

Most problems can be solved by having an independent third party assist with the negotiations.

Again, be sure to work closely with your property manager so you’re not dealing with all of this on your own.

How are By-Laws Enforced?

The body corporate is responsible for enforcing the by-laws of its complex.

The committee as the administrative arm is usually responsible for ensuring all owners and occupiers comply with the by-laws.

However, owners and occupiers can also commence with the issue of mandatory notices, however, there are limited circumstances in which the service of a notice isn’t required.

It’s a preliminary procedure that contravention notices must be issued before any formal enforcement action is taken.

The decision to serve a contravention notice can be made by the committee or by the body corporate.

Types of contravention notices

1. Continuing Contravention Notice

The body corporate may give a continuing contravention notice to an owner or occupier where it believes the person is contravening a by-law and where it’s likely the contravention will continue.

An example of this type of contravention is where an owner is parking a vehicle of common property without approval.

The purpose of this notice is to require the person to remedy the contravention.

In other words, you are letting them know that their actions are not permitted and you’re giving them the opportunity to halt the behaviour.

2. Future Contravention Notice

The body corporate may serve a future contravention notice if it believes the person has contravened a by-law and the circumstances of the contravention make it likely the contravention will be repeated.

This notice would be appropriate when an owner has a noisy party that contravenes the noise by-law, and they have demonstrated through previous behaviour that they are likely to do this again.

The body corporate may give the owner notice that if this contravention is repeated.

Proceedings can be commenced without any further notice.

The purpose of the future contravention notice is to require the person not to repeat the contravention.

3. Consequences of Failing to Comply

If an owner or an occupier fails to comply with a contravention notice, the committee, or the body corporate in a general meeting, can decide to commence enforcement proceedings in the Magistrates Court or in the Body Corporate and Community Management (BCCM) Office.

The BCCM Act empowers the Magistrates Court to impose a financial penalty for failure to comply with the notice.

Translation – you can find another tenant or resident for failing to comply with the by-laws in your complex.

When an Owner or Tenant Complains

If an owner or an occupier reasonably believes another owner or occupier has contravened the by-laws or it’s likely the contravention will continue, he or she must take a preliminary step before taking action in the BCCM office.

The owner or occupier (‘the complainant’) must ask the body corporate to issue a contravention notice to the person who is allegedly contravening the by-laws.

If the body corporate doesn’t advise the complainant that the contravention notice has been issued within 14 days after receiving the request, the complainant may take action in the BCCM office.

About Leanne Jopson
Leanne is National Director of Property Management at Metropole and a Property Professional in every sense of the word. With 20 years’ experience in real estate, Leanne brings a wealth of knowledge and experience to maximise returns and minimise stress for their clients.

As the modern workplace changes, commercial properties as old-fashioned office plans are replaced by more creative ones. In particular, coworking spaces are becoming increasingly common as a solution. More and more, workers who want to be more productive are choosing these shared places. In addition to giving people a place to work, coworking areas have many other advantages.

This piece will talk about 10 ways that coworking spaces can make you much more productive at work.

1. Collaborative Atmosphere

People from a huge range of businesses and backgrounds come to coworking spaces, which make them real melting pots of professional variety. This mix of different skills, experiences, and knowledge creates a great place to work together where experts can easily combine their areas of expertise.

The energy in these places encourages people to share their ideas, knowledge, and skills, making them great places for coming up with new solutions to problems and ideas. Professionals from different fields naturally interact with each other, which not only allows ideas to spread but also leads to the creation of new views and approaches.

2. Networking Chances

The social aspects of coworking spaces are a big plus because they make it easy for people to meet new people in the same field and build their business networks. Talking with coworkers, business owners, and freelancers in these shared spaces allows you to make connections beyond the walls of a normal office.

The variety of workers who work in coworking spaces creates a unique networking environment that makes it easy to share ideas, learn about the industry, and look for ways to work together. People who work together often find that they have similar interests, skills that support each other, and goals when they talk casually about shared amenities, during coffee breaks, or at networking events.

3. Flexibility and Convenience

Coworking places let you choose your hours and where you work. People can set their work hours to match their most productive times when they can access their work 24 hours a day, seven days a week. This makes them more productive and improves their work-life balance.

4. Access to Resources

Coworking spaces emerge as cost-effective and resourceful solutions for professionals due to their provision of cutting-edge amenities. These shared environments often boast state-of-the-art facilities such as well-equipped meeting rooms, high-speed internet, and office supplies.

The availability of these amenities eliminates the need for individuals to invest their resources, providing a cost-efficient alternative to traditional office setups. In a traditional work setting, acquiring and maintaining such high-tech resources could be a significant financial burden for an individual or a small business.

5. Programs for Professional Growth

There are many ways to improve your skills and learn new things in coworking spaces, which makes them great places for career growth. Through carefully chosen classes, seminars, and skill-building programs, these places keep people updated on the latest field trends and promote a culture of always learning.

Professional growth is easier for people in the coworking community because these kinds of events are easy to get to. This dedication to ongoing education makes members more productive by ensuring they stay up to date on the newest ideas and methods and adds to the coworking ecosystem’s overall intelligence.

6. Fewer Distractions

Working from home has problems, like taking care of the house and dealing with family interruptions that can be very distracting. People find that coworking spaces are the answer to these problems because they give people a dedicated, professional workplace.

Unlike your own home, coworking spaces are made to be places where you can work, with a structured and distraction-free setting. People can set a boundary between their work and personal lives by being physically away from household chores and family interruptions. This helps them stick to a more

7. More Motivation and Accountability

A big part of what makes sharing spaces so motivating is that everyone uses them together. The collaborative setting, surrounded by workers with similar interests focused on their work, makes people more accountable and motivated.

When everyone in these shared places is focused on work, it creates positive peer pressure that pushes people to reach their professional goals. Everyone in the coworking space’s shared commitment, energy, and drive make it even more motivating. This means that coworking spaces are not only good for getting work done, but they can also help people reach their goals.

8. Wellness and Balancing Work and Life

Wellness programs are becoming more important in coworking spaces, and people are working hard to make places that put health and productivity first. These places are meant to be healthy workplaces, with features like ergonomic chairs and fitness programs that cover the whole body.

The focus on well-being not only makes people feel better physically, but it also makes the workplace happy and more productive. Coworking spaces try to improve their employees’ professional and personal health by focusing on the whole person. They do this because they know that happiness and success at work are linked.

9. Connectivity Around the World

As working from home has become more popular, coworking spaces have become hubs for professionals working for companies or customers worldwide. This global connectivity encourages an open and diverse workplace by exposing people to different ideas and ways of doing things, eventually boosting creativity and productivity, just like this coworking space Melbourne.

Beyond their main purpose as places to work, coworking spaces offer many benefits that aren’t just useful for professionals because these places are often used for neighbourhood events, social gatherings, and group projects; they help teams work together and stay together.

The sense of community that these events create makes for a good and helpful environment, which affects people’s general health and productivity. By going beyond the usual work limits, coworking spaces become lively places where teamwork and community involvement create an atmosphere for personal and professional growth.

Coworking Spaces Will Make Your Work Experience Better

Overcoming the traditional office model, coworking spaces have become lively places encouraging teamwork, new ideas, and professional growth.

Note: Along with providing a physical workspace, these shared spaces are now essential for people managing the constantly changing modern workplace.

Coworking places offering flexibility, chances to network, and a supportive community meet the changing needs of a diverse workforce. A melting pot of ideas is created when professionals from different backgrounds work together. This increases productivity and broadens people’s views.

About Guest Expert
Apart from our regular team of experts, we frequently publish commentary from guest contributors who are authorities in their field.

These days every word of every statement from the Reserve Bank Governor Michele Bullock is pored over in minute detail – as is every word uttered at her press conference after each Reserve Bank board meeting.

Desperate for signals about what the bank will do next, market economists examine every comma, and every adjective, for a hidden meaning.

It’s a bit like divination, the ancient practice of seeking meaning by examining the entrails (internal organs) of a sacrificed sheep or goat.

It’s an approach in which words are assumed to mean something different to what ordinary people think they mean.

For example, one journalist at Tuesday’s post-meeting press conference asked Governor Bullock if the word “vigilant” in her statement meant a rate rise was coming.

Her reply was concise: “No”.

No secrets

The truth is there aren’t hidden secrets.

The Governor has made what she knows and what will drive her board’s decision perfectly plain, not only at Tuesday’s press conference but also in her testimony to a Senate hearing a fortnight ago.

Australia’s consumer price index climbed 1% in the March quarter and 3.6% over the year to the March quarter.

That’s well down from the peak of 7.8% in late 2022, but it’s still well above the bank’s target of between 2% and 3%.

The bank’s written agreement with the treasurer requires it to aim for the midpoint of that target.

While there is room for debate over whether Australia could cope with a slightly higher target, there is at present no political appetite for a change.

This means the bank is obliged to keep interest rates high until it sees clear signs that inflation is headed back to within the target range.

Inflation has been driven by excess demand: too much spending relative to our ability to supply the things on which money has been being spent.

The bank is worried that if we come to expect inflation above its target band it’ll get stuck there as people adjust their spending and wage expectations to take account of it.

Continuing concern about inflation

Interest rates are slowing the economy significantly.

The national accounts show economic growth has all but stalled.

While the bank acknowledged this in its statement on Tuesday, it wasn’t enough to convince it to change course.

The May budget contained new spending on energy and housing aimed at reducing the measured rate of inflation.

Mortgage arrears have been rising from their COVID lows of just 1.0% in Q3 2022, reaching 1.6% in the March quarter of 2024.

Although this was the highest reading on mortgage arrears since Q1 2021, the portion of loans falling behind on their repayment schedules was slightly higher at the onset of COVID at 1.8%.

The upward trends in arrears have been most influenced by non-performing loans, where the arrears rate has risen to 0.93%.

A non-performing loan is one that is at least 90 days past due or where the lender expects it won’t be able to collect the full amount due.

The non-performing arrears rate is now slightly higher than it was at the onset of COVID-19 (0.92%) and above the series average of 0.86%.

Borrowers who are 30-89 days overdue on their repayments comprise 0.68% of loans, up from just 0.35% in Q3 2022 but the highest level since Q2 2020.

This early measure of mortgage arrears is now above the series average (0.59%) but still slightly lower than levels recorded at the onset of COVID-19 (0.86%).

A key factor in higher mortgage arrears is of course the sharp rise in the cost of debt.

With the average variable interest rate on outstanding owner-occupier home loans rising from 2.86% in April 2022 to 6.39% in March 2024, a borrower with $750k of debt would be paying nearly $1,600 more each month on their scheduled repayments.

But there are other factors at play as well

Cost of living pressures are consuming a larger portion of household income, households are paying more tax than ever before and household savings are being drawn down, eroding the savings buffer accrued through the pandemic.

There is also the fact that households are more sensitive to sharp adjustments in interest rates, given historically high levels of debt, most of which is housing debt.

Loosening labour market conditions would also play a role.

Although each measure of mortgage arrears has risen to be above the series average, which is relatively short at only five years, despite the headwinds outlined above, most borrowers have kept on track with their home loan repayments.

They have done this by drawing down on their savings, working more hours or multiple jobs, and contributing less to mortgage offsets or redrawn facilities.

It is likely mortgage arrears will rise further as unemployment lifts, household savings deplete further and, more broadly, economic conditions navigate a period of weakness.

However, arrears are unlikely to experience a material ‘blowout’ unless labour markets weaken substantially more than forecast.

For homeowners that do fall behind in their repayments, there is a good chance most will be able to sell their assets and clear their debt.

The latest estimates on negative equity from the RBA estimate only around 1% of residential dwellings across Australia would have a debt level that is higher than the value of the home.

With housing values continuing to rise, the risk of negative equity is reducing.

Another factor in low mortgage arrears is likely to be a history of strong underwriting standards from Australian lenders and the prudential regulator, APRA

Borrower serviceability continues to be assessed at a mortgage rate 3.0 percentage points higher than the loan product rate, as has been the case since October 2021 when APRA lifted the serviceability buffer from 2.5 percentage points.

Most borrowers who took out a home loan between late 2019 and mid-2022 would have seen their mortgage rate rise more than three percentage points, reflecting a combination of very low interest rates leading into and during the pandemic, but also the 3.5 percentage point rise in outstanding variable mortgage rates since May 2022.

With mortgage rates rising more than the assessment buffer, alongside the cost of living pressures and a record level of household income being consumed by taxes, household balance sheets are being tested, especially for those who may have had more leverage or seen a change in their financial circumstances.

We’ve also seen a tightening of lending policies for what APRA might describe as riskier types of lending: interest-only loans, and loans with high debt-to-income ratios, high loan-to-income ratios or high loan-to-valuation ratios.

Interest-only lending is where the borrower takes out a loan without the immediate obligation to reduce the principal (i.e. they only pay the interest component of the debt).

This type of lending is generally skewed towards investors and would generally convert to a principal and interest repayment schedule after a period of time.

Interest-only loan originations have mostly held below 20% of mortgage originations since late 2017.

Prior to that, interest-only lending was as high as 45% of all loan originations, prompting APRA to introduce a temporary
macroprudential constraint limiting interest-only loans to 30% of originations.

That policy was removed in 2018, but lenders have kept originations well below the historical cap since that time.

The recent rise in interest-only lending activity aligns with a substantial pick-up in investor activity, where the value of new lending is up 36% over the past year.

High loan-to-income ratio lending has shown a subtle rise from the series low in mid-2023 but remains very low by historical standards.

APRA data shows only 3.1% of loans originated in the March quarter had a credit limit greater than or equal to six times the annual income of the borrower, down from 11.1% of originations in the final quarter of 2021.

High debt-to-income ratio lending was at a series low in the March quarter, comprising just 5.2% of home loan originations, down from the final quarter of 2021 when 24.3% of new lending was to borrowers with an overall debt level at least six times higher than their gross annual income.

The portion of home loans originating with a deposit of 10% or less has risen a little but still comprises less than 8% of originations for owner-occupiers and just 3.2% of originations for investors.

Analysis from the RBA shows high LVR loans have recorded higher mortgage arrears than other categories of lending.

Final thoughts…

Overall, lending policies across Australia remain relatively conservative, with close to 70% of borrowers obtaining housing credit with at least a 20% deposit and where their loan amount or overall debt profile is less than six times their gross annual income.

It’s likely lending policies will remain fairly cautious as the economy navigates a period of weakness punctuated by high interest rates and stubborn cost of living pressures.

About Tim Lawless
Tim heads up the Core Logic RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia. Visit www.corelogic.com.au

Home prices have surged in recent years, mortgage rates have climbed, and household incomes haven’t kept pace.

As a result, housing affordability has plummeted to its worst level in at least three decades.

Despite a dire shortage of homes, the delivery of much-needed new homes has faced significant obstacles.

Labour shortages, disrupted supply chains, and pandemic-related restrictions have all played a part.

Ms Eleanor Creagh, Senior Economist at PropTrack commented:

“Compounding these issues are pre-existing challenges like delays in planning, limited land availability, and excessive bureaucratic processes.

These delays not only slow down the building process but also contribute to higher construction costs, which are further inflated by rising building material prices and increased financing costs.

These challenges have led to a persistent housing supply deficit, pushing up prices for both existing homes and rentals.

While many hope that housing supply will eventually catch up with demand, per capita building completions and approvals are currently at historic lows.

Unless these challenges and cost pressures ease, delivering enough new houses or apartments will be difficult, and the housing and rental affordability crisis will worsen.”

According to PropTrack’s data, since the pandemic, building input prices have increased by 33.4%, while output prices have risen by 40.1% for houses and 23.2% for apartments.

Although price rises have stabilised in the past year, build costs remain high and continue to increase, albeit at a slower pace.

Ms Creagh explained:

“Higher labour, materials, and financing costs compress margins, resulting in potentially lower returns on investment, which has delayed many projects.

The surge in these costs has pushed up the prices of new builds, with established house and unit price growth in Sydney lagging behind new builds.

This greater price inflation for new builds has increased the premium of buying new housing over existing stock, presenting another challenge for new development.

While there is strong demand for new housing, construction costs have risen so much that in many parts of the country, replacement costs are more expensive than existing homes.

This means buying an existing home in lower-cost new build areas may be more attractive.”

PropTrack’s data highlight that in Sydney, most new house development is occurring in Western Sydney’s 11 local government areas.

Here, the median price of new houses is currently listed at a 21% premium to existing houses for sale.

Potential investors and owner-occupiers considering Western Sydney’s new house and land market may also look at the established market due to the current premium of buying new.

Ms Creagh further explained:

“Of course, buying new homes offers advantages such as maximum depreciation benefits and eligibility for the first homeowner grant scheme, which is not available for established homes.

This dynamic is evident in the unit market as well, creating a difficult environment for the pre-sales necessary for property development finance.

Development financing is a significant hurdle for apartment commencements, and the current environment makes it increasingly difficult to launch large apartment projects despite the need for more supply.

This trend is also prevalent in other parts of the country, though the situation looks slightly different in Perth’s new development regions.

Strong price rises for existing houses over the past year have narrowed the gap between buying new and existing homes.”

It was also noted that Perth has been the strongest-performing housing market in the country over the past year.

Many of the suburbs seeing the strongest growth in Perth, such as Rockingham, Armadale, Kwinana, Wanneroo, and Mandurah, are regions with lots of new development.

For example, median values for houses in Armadale have jumped almost 50% in the past year, potentially spurring better demand and pricing conditions for developers of new homes in Perth.

Early signs of a market recovery

Amid strong housing demand, the new homes market shows signs of accepting higher costs, though demand for new developments listed on realestate.com.au remains project-specific.

Glimmers of recovery are evident in new loan commitments, with a 6.0% month-on-month increase in lending for construction and a 10.8% month-on-month increase in lending to purchase newly built dwellings in April 2024, according to the Australian Bureau of Statistics (ABS).

This brings the value of new lending to purchase newly built dwellings up 22.4% over the year to April 2024.

Increasing housing supply

It’s clear the cost to build is too high relative to the cost of buying established housing, hindering activity and creating a difficult environment for pre-sales needed to finance large-scale projects.

Aside from developers reducing margins, shifting this dynamic requires a combination of moderating build costs (materials, wages, planning/approvals processes, land acquisition costs, productivity), lower financing costs, and/or continued house price growth.

Ms Creagh noted that:

“While construction cost increases are normalising, they are unlikely to decrease, meaning market participants will need to adjust to this higher input cost environment.

Industry productivity, innovation, and advanced manufacturing techniques have a role to play.”

Australia’s construction industry lags in productivity. Construction productivity today is lower than it was in 1990, and labour productivity growth in the sector has been low (0.3% per year) for over 20 years, a fraction of that in the transport and manufacturing sectors.

Ms Creagh said that in the near term, continued price increases in the established market are the most likely lever to close this gap.

This will allow developers better pricing conditions and increase the viability of capital flows into building new homes.

This is one reason we expect home prices to continue rising in the months ahead.

Efforts to ease development constraints, such as fast-tracking approval processes, reforming planning and zoning restrictions, unlocking land supply, and increasing densities around transport hubs, are both necessary and encouraging.

But until construction cost constraints improve and the gap between new and existing prices narrows, the significant uplift in residential construction activity required will be difficult to achieve.

She further explained:

“As this premium narrows, cost increases stabilise further, and interest rates begin to move lower, project feasibilities will improve, enabling new ventures.

As a result, a recovery in new housing supply should be underway, particularly given the current strong demand for housing.

However, all these factors will take time to materialise in new approvals and subsequent new supply coming online, meaning upward pressure on rents and existing home prices will remain until new supply becomes available.”

About Brett Warren
Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.

No one ever sets up a business with the intention to fail.

Rather, entrepreneurial types are motivated by a multitude of factors such as personal drive and ambition or a desire to work for themselves or to create a particular product or service.

Sometimes it’s as simple as wanting to be in charge of our personal financial destinies.

Whatever the reason, going into business is a big deal because it can go spectacularly well or spectacularly bad.

One of the issues that I have regularly come across, even with successful businesses, is a lack of understanding of the importance of ownership structures from the outset.

Let’s consider a real-life example to illustrate my point.

Taxing problem

Ben operates a successful construction company with his business partner Glenn.

The pair set up the business some 10 years ago when they were both single, which meant they were advised to own the company shares in their own names.

Regardless of their marital status, this was incorrect advice from the start, because what it has meant is that they have been paying the highest marginal tax rate on any dividends ever since.

Losing those funds to unnecessary tax has meant they have been unable to invest it elsewhere or fund their lifestyles, which now include their own families.

The business has been going great guns, which attracted a potential buyer who offered a very good price to buy it.

This was when Ben and Glenn came to see me, but the news I had for them wasn’t what they wanted to hear.

The purchaser only wanted the goodwill and plant and equipment – and not the shares in the company – as they did not want to be at risk on any company liabilities.

This meant the company would receive the cash, but it would not get the benefit of the 50 per cent General Capital Gains Tax (CGT) discount because only individuals and certain trusts get this benefit.

Likewise, some of the funds would be paid out via the Small Business Tax Concession but the remainder would need to be paid as a dividend, which again would attract a total 47 per cent tax rate with all the receipts going to Ben and Glenn.

The sale, while good in theory, would mean that Ben and Glenn would have paid about $150,000 each in avoidable tax – on top of having paid hundreds of thousands of additional taxes over the past 10 years because of the incorrect business structure.

A start over

Because of these tax liabilities, Ben and Glenn decided not to sell their business now as the taxes wiped out too much of the cash receipts.

Instead, they decided to start over, but this time to set up their business using a combination of companies and trusts as ownership structures.

Sure, this may cost a little bit more at the outset, but it saves significant amounts later on as they had unfortunately learned.

For Ben and Glenn, a more effective structure would have generated between 17 per cent and 22 per cent additional funds after tax to invest, plus would have allowed a distribution to other family members at lower tax rates.

If they had set up the original business in this proposed structure, there would have been no tax on the sale proceeds.

Given the type of business being set up, we recommended operating the business out of a Unit Trust with each partner owning their interests in a Family Trust.

We would then use the old company to operate as a corporate beneficiary and have the individual Family Trusts owning the shares.

We also assisted in the preparation of a Unit Holders Agreement and a Buy-Sell Agreement to protect each family’s rights and to give some certainty if either partner dies.

Lessons learned

The new structure would allow for any future sale to receive both the 50 per cent General CGT Discount and the Small Business Concessions or SBC.

However, given the expected business value on a future sale they may not be eligible for the SBC, so access to the 50 per cent general discount was critical.

The Buy Sell agreement would effectively use life insurance to buy out the deceased partner if Ben or Glenn passed away while the company was still active.

Having a correctly worded agreement would also not trigger income tax liabilities on the life insurance proceeds.

This would allow the family to get the full benefits of the business value and also ensure that neither spouse would come into the business, which neither partner ever wanted.

As you can see from Ben and Glenn’s situation, they could have saved themselves plenty of unnecessary taxes as well as, no doubt, hours of stress if they had sought out professional advisors a decade ago.

That way, they could have more financially benefited from company dividends over the years, as well as from its sale – which is what every business owner wants all along.

About Ken Raiss
Ken is director of Metropole Wealth Advisory and gives strategic expert advice to property investors, professionals and business owners. He is in a unique position to blend his skills of accounting, wealth advisory, property investing, financial planning and small business. View his articles

The cash rate was held firm at 4.35% in June, having been at this level since the 25- basis point rise in November last year, and up 425 basis points since the record low of just 0.1% between November 2020 and April 2022.

For some longer-term context, the current cash rate setting is 1.8 percentage points higher than the pre-COVID decade average of 2.56%.

The RBA’s stance seems largely unchanged relative to the May meeting.

Although headline inflation remained well above the top end of the target range at 3.6% over the year to March, mostly due to the stubbornly high services sector, the RBA has been clear that household spending has pulled back, wages growth is easing as labour conditions gradually loosen and some signs of productivity improvements have emerged.

However, the RBA has noted some ‘upside’ inflationary risks remain, highlighting recent budget outcomes could influence demand despite a temporary reduction in inflationary pressures from federal and state energy rebates.

The RBA called out the need for further improvement in productivity growth if inflation is to continue to decline.

The consensus among economists is that rate hikes are finished and the next move from the RBA will be a cut, but the timing is highly uncertain.

Financial markets, based on the ASX cash rate futures, have brought forward the timing of a rate cut from around mid-year 2025 to a fully priced-in cut by March of next year.

Meanwhile, three of the big four banks’ economic units are forecasting a 25 basis point cut in November 2024.

Although the cash rate has risen by 425 basis points, variable mortgage rates haven’t seen quite the same lift.

The average variable mortgage rate for a new owner-occupier loan has risen to an estimated 6.27% in June, a rise of 386 basis points since April.

Similarly, the average variable mortgage rate on a new investor loan has risen by 382 basis points to an estimated 6.53%.

The smaller rise in variable mortgage rates relative to the cash rate reflects a heightened level of competition among lenders; no doubt borrowers are shopping around for the best rates.

Housing markets seem to be somewhat insulated from higher interest rates, with CoreLogic’s Home Value Index continuing to rise through June, and the combined capitals daily index already 0.4% higher over the first 18 days of the month.

The RBA made a point of calling out an increase in household wealth via higher housing prices which, together with a rise in disposable incomes, could support household spending.

Similarly, the volume of home sales is tracking higher than a year ago and above the five-year average, demonstrating consistently strong demand from purchasers despite an array of headwinds including high interest rates, cost of living pressures, low sentiment and stretched affordability.

Most borrowers are keeping their mortgage repayments on track, but the latest data from APRA for the March quarter shows mortgage arrears are trending higher, albeit from a low base and remaining lower than pre-COVID levels.

Mortgage arrears, including non-performing loans and borrowers that are 30-89 days overdue in their repayments, comprise 1.6% of home loans for all ADIs.

This is up from a recent low of just 1.0% in the September quarter of 2022 but below the 1.8% level recorded at the onset of COVID in March 2020.

With interest rates set to hold at their current levels until at least late this year, alongside a gradual loosening in labour market conditions and reduced saving buffers for most borrowers, it’s likely mortgage arrears will rise further.

About Tim Lawless
Tim heads up the Core Logic RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia. Visit www.corelogic.com.au

Governments are using private investors as scapegoats for a shocking underinvestment in social housing while raking in tens of billions of dollars in property taxes each year, according to the Property Investment Professionals of Australia (PIPA).

Right now, about 175,000 households are on waiting lists for public or community housing across Australia, up by 20,000 since 2014, data analysis by PIPA shows.

More than a third of people (35 per cent) seeking urgent assistance from governments are turned away, up sharply from 29 per cent in 2016.

Despite that, Australia’s total social housing stock of 430,000 dwellings has barely changed in the past 25 years.

“What has shifted is the number of people needing housing, with the country’s population surging by 33 per cent in the past two decades,” PIPA Chair Nicola McDougall said.

Declining social housing proportion

Data from the Australian Institute of Health and Welfare (AIHW) shows the number of social housing dwellings as a proportion of total housing stock “has seen a steady decline” over the past decade, slumping to 4.1 per cent in 2022.

However, State and Local Governments collectively raked in some $68 billion in property taxes, including stamp duty and land tax but not Capital Gains Tax, according to the ATO Taxation Revenue for the 2022/2023 financial year – a staggering increase of 73 per cent over the past decade.

During the same year, governments invested just 1.4 per cent of total revenue into housing and community amenities, according to the ATO.

The AIHW data shows the proportions of social housing compared to total housing stock fell to less than five per cent in the four biggest states:

• 4.7 per cent in New South Wales
• 2.9 per cent in Victoria
• 3.5 per cent in Queensland
• 3.9 per cent in Western Australia

Each of these states has recorded falls in the previous 10 years.

Victoria’s failed Big Housing build

In Victoria, where private investors have been the punching bag of a high-taxing state government, the multibillion-dollar Big Housing Build program has been a spectacular failure.

In the four years to mid-2022, the Victorian Government managed to boost its social housing stock by just 74 dwellings.

“During that same period, the bloated waiting list of desperate Victorians needing a roof over their heads has surged to 57,672 households,” Ms McDougall said.

The root of the crisis

“If you want to know why Australia is in such a mess and why so many can’t afford a home, you only need to look at how much the population has grown and the sharp rise in people in need of support and compare it to investment in social housing,” said Ms McDougall.

As the country’s housing crisis shows no signs of easing, Ms McDougall said politicians continue to focus on penalising and demonising property investors, who provide more than 80 per cent of the homes occupied by Aussie renters.

“Instead of offering meaningful solutions, getting desperately needed supply into the market, and supporting those in the community doing it toughest, governments are passing the buck,” she said.

Outlook

Things only look set to worsen, with research from the UNSW City Futures Research Centre showing 640,000 families across Australia have ‘unmet housing needs’ or are forced to live in unsuitable housing due to cost pressures.

Based on projected population growth, the study warns that the figure could explode to 940,000 households by 2041.

About Brett Warren
Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.