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Daily Telegraph
26 minutes ago
- Daily Telegraph
Huge profits as 20-year home move expires
There's a significant new trend in property investment: for the past three years, a majority of Australian investors have been positively or neutrally geared. That means their rental income has met or exceeded their expenses, including loan repayments. As a result, they've been pocketing extra income each year on top of any capital gains. This is a significant shift given the previous 20-year trend of most investors being negatively geared. The trend is revealed in FY23 tax data released by the Australian Taxation Office (ATO) last month. Based on all our tax returns, the ATO reports there were 2,261,080 Australians with an interest – either sole ownership or joint or part-ownership – in one or more rental properties in FY23. Among them, 51% – or 1,143,905 – reported net positive or neutral rental income. This is the third consecutive year in which more investors came out ahead after expenses. In FY22, 58% of investors reported positive or neutral net rental income. In FY21, it was 53 per cent. This follows a two-decade history prior to FY21 when the majority of investors were negatively geared each year. The fact that interest rates were at record lows in FY21 and FY22 is the most obvious reason why more investors were positively geared in those years. But what about FY23? The Reserve Bank of Australia raised interest rates 10 times (albeit from a low base) in FY23. The cash rate rose rapidly from 0.85 per cent to 4.1 per cent between July 2022 and June 2023, and yet most property investors remained positively geared. How is that so? I think several factors are contributing to what I hope might become a lasting trend. The biggest one is a huge surge in weekly rents that began in FY21 and continued into FY22 and FY23. Data shows annual rental growth of about 7 per cent in FY21, 9 per cent in FY22, and another 9 per cent in FY23. Additional rental income would have certainly offset the impact of rising interest rates in FY23. (The pace of rental growth has since slowed but remains above inflation, with annual increases of about 8 per cent in FY24 and 3.4 per cent in FY25.) Another contributing factor is the ageing profile of property investors. According to the data, the largest cohort of Australian investors are aged 60 years or older. The FY23 data shows more than one in four investors, or 27 per cent, are in this age group. This is relevant because older people typically have more wealth, after a lifetime of work and decades of owning their homes, and therefore have more scope to pay down investment debt. Retirement would also provide a new motivation to pay off debt, as would turning 60, since that's when many Australians can access their superannuation in a lump sum under certain conditions. Additionally, a rising number of baby boomers have been downsizing in recent years, which is freeing up funds to pay off loans or fund the purchase of a new property investment with cash. Owning property mortgage-free virtually guarantees strong positive cash flow, since loan repayments are by far the biggest cost for most landlords. I'm also mindful that since the pandemic, we have seen a significant trend in investors choosing to buy cheaper properties with higher rental yields in regional areas or investing in capital cities in states or territories that are more affordable than Sydney and Melbourne. This may also be contributing to the trend in more property investors being positively geared. Affordability is a key driver of this trend, but the pandemic also facilitated it. Lockdowns led to rapid changes in the industry, including enhanced online marketing tools and the provision of private inspections via video. Documentation like loans and property sale contracts went digital, making the financing and conveyancing processes more streamlined, and reducing the barrier of distance. I also think more investors are employing buyers' agents to do all the legwork for them, and this helps people access other states and territories to diversify their portfolios. Buyers' agents are readily available across the country, so investors can buy in the best-performing markets with confidence. For example, there is plenty of anecdotal evidence that East Coast investors have been buying in both the capital cities and regional areas of Western Australia and Queensland over the past few years. These states have been among the top performers in terms of home value growth for several years now. The best thing about more property investors being positively or neutrally geared is that it makes it easier for them to hold on to their investments for the long term. The real wealth from property investment comes from capital gains, and we know that the longer you hold your investment, the higher your capital growth is likely to be.
Courier-Mail
30 minutes ago
- Courier-Mail
Huge profits as 20-year home move expires
There's a significant new trend in property investment: for the past three years, a majority of Australian investors have been positively or neutrally geared. That means their rental income has met or exceeded their expenses, including loan repayments. As a result, they've been pocketing extra income each year on top of any capital gains. This is a significant shift given the previous 20-year trend of most investors being negatively geared. The trend is revealed in FY23 tax data released by the Australian Taxation Office (ATO) last month. Based on all our tax returns, the ATO reports there were 2,261,080 Australians with an interest – either sole ownership or joint or part-ownership – in one or more rental properties in FY23. Among them, 51% – or 1,143,905 – reported net positive or neutral rental income. This is the third consecutive year in which more investors came out ahead after expenses. In FY22, 58% of investors reported positive or neutral net rental income. In FY21, it was 53 per cent. This follows a two-decade history prior to FY21 when the majority of investors were negatively geared each year. The fact that interest rates were at record lows in FY21 and FY22 is the most obvious reason why more investors were positively geared in those years. But what about FY23? The Reserve Bank of Australia raised interest rates 10 times (albeit from a low base) in FY23. The cash rate rose rapidly from 0.85 per cent to 4.1 per cent between July 2022 and June 2023, and yet most property investors remained positively geared. How is that so? I think several factors are contributing to what I hope might become a lasting trend. The biggest one is a huge surge in weekly rents that began in FY21 and continued into FY22 and FY23. Data shows annual rental growth of about 7 per cent in FY21, 9 per cent in FY22, and another 9 per cent in FY23. Additional rental income would have certainly offset the impact of rising interest rates in FY23. (The pace of rental growth has since slowed but remains above inflation, with annual increases of about 8 per cent in FY24 and 3.4 per cent in FY25.) Another contributing factor is the ageing profile of property investors. According to the data, the largest cohort of Australian investors are aged 60 years or older. The FY23 data shows more than one in four investors, or 27 per cent, are in this age group. This is relevant because older people typically have more wealth, after a lifetime of work and decades of owning their homes, and therefore have more scope to pay down investment debt. Retirement would also provide a new motivation to pay off debt, as would turning 60, since that's when many Australians can access their superannuation in a lump sum under certain conditions. Additionally, a rising number of baby boomers have been downsizing in recent years, which is freeing up funds to pay off loans or fund the purchase of a new property investment with cash. Owning property mortgage-free virtually guarantees strong positive cash flow, since loan repayments are by far the biggest cost for most landlords. I'm also mindful that since the pandemic, we have seen a significant trend in investors choosing to buy cheaper properties with higher rental yields in regional areas or investing in capital cities in states or territories that are more affordable than Sydney and Melbourne. This may also be contributing to the trend in more property investors being positively geared. Affordability is a key driver of this trend, but the pandemic also facilitated it. Lockdowns led to rapid changes in the industry, including enhanced online marketing tools and the provision of private inspections via video. Documentation like loans and property sale contracts went digital, making the financing and conveyancing processes more streamlined, and reducing the barrier of distance. I also think more investors are employing buyers' agents to do all the legwork for them, and this helps people access other states and territories to diversify their portfolios. Buyers' agents are readily available across the country, so investors can buy in the best-performing markets with confidence. For example, there is plenty of anecdotal evidence that East Coast investors have been buying in both the capital cities and regional areas of Western Australia and Queensland over the past few years. These states have been among the top performers in terms of home value growth for several years now. The best thing about more property investors being positively or neutrally geared is that it makes it easier for them to hold on to their investments for the long term. The real wealth from property investment comes from capital gains, and we know that the longer you hold your investment, the higher your capital growth is likely to be.
AU Financial Review
an hour ago
- AU Financial Review
ASX to slip, Wall St edges down as Fed awaited
Australian shares are set to edge lower at the open. Shares were broadly, albeit modestly, lower on Wall Street with investors awaiting more earnings reports and guidance from the Federal Reserve on the rate outlook. Fed policymakers began a two-day meeting on Tuesday (Wednesday AEST). A statement will be released at 4am AEST on Thursday. While rates are expected to be held, investors are keen to see if chairman Jerome Powell has begun to lean towards a rate cut at the next meeting in September. Here, it's monthly CPI data day. The report 'could validate market pricing for a 25 basis points rate cut at the bank's August 12th meeting', Scotiabank's Derek Holt said in a note. Wednesday marks the first 'busy' reporting day with Rio Tinto set for release at 4.15pm AEST. Earlier in the day, Atlas Arteria Group, Champion Iron, Pilbara Minerals and Mineral Resources are on deck. Market highlights ASX futures are pointing down 6 points or 0.1 per cent to 8663. All US prices are near 2.30pm New York time. Today's agenda For local investors, the monthly CPI data to be released at 11.30am is in focus. TD Securities: 'We expect headline and trimmed mean CPI to print at 2.1 per cent year-over-year (consensus: 2.2 per cent) and 2.6 per cent y/y (cons: 2.7 per cent) respectively. This is below consensus forecasts but in line with the RBA's May forecasts. 'Slower inflation in rents, utility prices (from rebates) and transport should drive the disinflation process in Q2. However, food price pressures are rising while services price remain fairly sticky as seen on the monthly measure. Barring a huge upside surprise, we still see the RBA cutting by 25bps in August.' Later on Wednesday, there will be GDP reports from Germany, France, the EU and the US. There will also be more private payroll data from the US, with labour market's strength rising on economists' radar screens. Policymakers meet at the Bank of Canada with a hold decision expected at 11.45pm, as Canada awaits a tariff letter from the US. The Fed decision will arrive at 4am AEST on Thursday with Jerome Powell's press conference starting at 4.30am. Top stories A shameless Trump-ed up listing plan reveals tricks of the ASX trade | Microcap Resolution Minerals is doing what it can get away with to stand out in the crowded and often overlooked world at the bottom of the ASX. | While there are plenty of investors trying to land a lucrative payday as AI use goes mainstream, Maincode is trying to become Australia's answer to OpenAI. Mt Isa fights for its life, and a billion-dollar smelter bailout | The regional centre's population has slumped by almost 20 per cent over the past two decades. Locals fear without taxpayer help, that will be just the start. | The third round of US-China trade talks in less than three months wrapped up two weeks before an August 12 deadline.
