Superannuation impact on IPs

The changes in tax on superannuation, primarily having no tax on earnings, will come into effect soon. API mag has put a positive spin on this as a bonus when buying an IP through SMSFs.

I would expect a more immediate effect. I expect this will engourage property investors, particulalry one-time investors nearing retirement age to sell their IP and shift money into super. The transitional arrangements allows for up to $1M to be shifted prior to 1 July, and then $450k as a consolidation of 3 years contributions. I don't expect the majority of one off property invetors to be cashing out more than $450k profit and needing to get in before 1 July, but the tax-free incentive is sure to be attractive.

My guess (and that's what it is) is that this change in taxation could create a bit of an IP selling spree from the approaching-retirement property investor. Perhaps a short-term drop in property prices (= opportunity ... eeek, lost smilies!)?

Does anyone else have a view on this?

Dave

 

I don't expect a selling spree to be honest.

Edit: Note though I have no expertise, I'm just a mug punter.

 

Seems like the shift is already well under way:

Through the roof: rents to soar 20% - National - smh.com.au

It could be an interesting period ahead or maybe a fizzer, depending on how desparate people are to top up their super.

Dave

 

Hi Gang,

I'm 47 now and obviously don't know how other baby boomers are thinking but I for one am intending to have disposed of all our property investments by age 60 at the latest. A substantial amount of funds will be invested in our SMSF (no direct property) and the remainder outside of super (via a Disc Trust) in dividend paying listed share and index funds etc.

I may be wrong but it seems that as one ages the hassles associated with owing property cause more stress than when one is younger. Most older friends and acquaintances of mine once they retired sold up their properties. And that was before the latest round of very favourable super changes. Certainly when I'm 60 I just want to enjoy life to the fullest and hence have the most hassle free (but relatively safe) investments that are on offer. And that is not direct property with its renos, repairs, property managers, tenant issues, insurances, land taxes, rates etc etc)

Cheers - Gordon

 

Hey Sim,

I certainly agree with you on Land Tax. Out of all property expenses it is perhaps the most hated. Also it can become a very substantial expense as one's portfolio increases in size especially if investing through trusts. Trying to smooth cashflow for living expenses when major repairs unexpectably occur and land tax is payable is just another stress most retirees can do without.

Of course when one mentions expenses like these it is quite common for fans of living on equity to suggest that these are minor relative to the growth in asset value and access to LOC's can smooth these. However it seems to be part of the process of aging that results in one becoming more conservative overtime and hence carrying relatively massive amounts of debt can severely impact the SANF. It pays to bear in mind also that the more experienced type investors with greater knowledge and risk tolerance who frequent Sommersoft and InvestEd etc may not necessarilly be representative of the majority of typical mum and dad property investors.

However one has to wonder that if investors don't eventually return to Res Property as they have in previous cycles (due to Super changes, age related conservatism and need to access savings by baby boomer etc) then I shudder to think what will happen to rental yields. They are likely to go through the roof as available rental stocks continues to dry up from already mininal supply. I'm sure that good old fashioned laws of supply and demand will somehow find a way to continue working as they always have.

Cheers - Gordon

 

I now own a house, but continue to rent, so I'm still trying to work out which side of the fence I'm on

 

Gordon,

I can understand the hassles issue, there is no question about that! Perhaps many BBs were going to sell down over the next few years anyway to be hassle-free in retirement, the superannuation changes will just accelerate that for a few months.
An excellent point.

Dave

 

From my experience people have been buying $1 million plus retail investments in Armadale,Malvern and Toorak on 3% yields for the last couple of years.
I think there will always be property advisors pushing newer cashed up investors into property ,both retail and residential,based on the last twenty years CG history.This will be even stronger if there is any sort of downturn in the sharemarket.

Regards

Denis

 

3% yields on commercial/retail? That's insane! Although I've always thought people on here and SomerSoft give commercial capital growth less credit than it deserves. Obviously these '3% yield' investors are betting on greater than average commercial capital growth returns, otherwise they've paid about twice what they should have. Maybe it's a bit of both, or insider information on future development/zoning/investment/etc.