At our Christmas drinks I had the crowd bristling with the confidence I expressed about the South Australian economy but within less than a week we can now add another $30b of projects to the already $70b that will guarantee our futures for decades to come. Even if only half of this happens it will still be a massive boost to our small economy. More importantly these projects are going to feed from the top down rather than the Labor Government approach which believed that it all had to start from the bottom up. I can hardly keep my feet on the ground and Steven Marshall must be sprouting wings.
The impact on our property market will be significant. It was 15 years ago that we last enjoyed the benefits of an economy that was booming on all fronts which included the Olympic Dam project, a booming Wine Industry, and a growing education sector. To this we can now add a Rocket here and a Whyalla there plus a Frigate contract about to start. It hasn’t been this good for decades.
The main driver in any rising property market is jobs and job security, something we have been denied for over a decade. High income earners will buy top end housing and that will motivate retiring Baby Boomers to sell up their family homes to the next generation and the ripple effect from top to bottom will be underway. Government coffers will benefit from higher stamp duty receipts in a more active market plus a huge leap in royalty income from a booming cooper market that will allow the State Government to be more bullish. Herein lies a message that could be taken up by Premier Marshall in the way he governs S.A. for the next 10 years.
“Dear Steven, Take note of how Daniel Andrews won the recent Victorian election when he focused on infrastructure spend and jobs without paying any regard to budget deficits. You are in a position to forecast massive increases in revenue that can wisely be spent on major infrastructure projects that will complement the big deals that are already in the bag. The multiplier effect will be exponential, and the boom and doom of the past will be over. If you do it right, you will become a Premier in Perpetuity.”
The road humps to be endured next year will come firstly in February with the final report of the Banking Royal Commission. We all know now how close we came to creating our own GFC through the greed and rotten management of the big 4 Banks and others. The real estate market is already experiencing a major shift in Bank behaviour in the time that it is taking for loans to be approved. We have even had the experience of a pre-approved loan being declined and this is due to a greater adherence to household expenses. Previously Banks applied a generic assessment which did not necessarily reflect the true cost of home expenses by the applicant. The net result was that people were taking on loans that potentially could not be serviced and in time would have decimated the property market. Perhaps our banking industry should give up its cosy cartel by introducing Asian and American Banks into the system that will clear out the culture problem and provide more competition. I am optimistic that the final report will be a positive first step to a better banking system.
The second hump will come in May (or before) with the election of a Labor Government. With reference to the threat to negative gearing, I refer to my December 2003 newsletter where I stated “negative gearing be sustained however the tax losses accumulated out of any particular investment (not excluding shares) would be quarantined to that investment… meaning that if you make a loss on an investment property then those losses will be carried forward to future year profits rather than being traded off against other earned income in the year incurred. This will produce the same outcome that the Labor Government seeks in saving $6b of tax refunds but will not upset the fundamental tenet of Sec.51 of the Taxation Act which states “costs necessarily incurred in earning assessable income are deductible”. This would mean that negative geared investors will need to adjust their position or sell out of the market if the negative gearing benefit was needed to sustain their holding. But I believe that you can always turn a disadvantage into an advantage and it comes in the following form.
A family has $1.5m to invest in property and decides to spend $1m on a family home and $500,000 toward an investment property that is negatively geared. If they feel uncomfortable with the approach of the Labor Government, then all of the $1.5m could go into a family home. This home will have a better location or bigger size and certainly present a higher level of intrinsic value to the family. And at this stage it is tax free when sold. Simply, invest the lot into the sacred cow and none into an investment property which explains why rentals are going to rise.
And finally, people will adapt to the changes that are proposed in other areas including a shift in the treatment of franking credits, a decrease in the capital gain rebate for property sold after 1 year and the application of businesses being run through family trusts. In the big scheme of things, it would appear that many of these changes are going to affect Labor voters as much if not more than Liberal voters and I have a feeling that the threat of what is proposed will not become the reality after May next year. Take your mind back to the 1stJuly 2000 when the GST was introduced, and we now know that within a period of less than 12 months we were able to adapt to the change and move on.
2018 will be remembered as the year when South Australia turned the corner. By 2025 the South Australian economy will be enjoying massive benefits through job opportunities from major projects associated with Defence, (Frigates and Rockets), Industry (Whyalla), Mining (copper), Education (overseas students), Agricultural (wine exports), and a return to home of a generation of kids who rightly decided that the prospects were better in other places.
To all of our readers and clients, we thank you for your support and look forward to servicing your property needs into the future. On behalf of a very dedicated hard-working staff backed up by a very loyal and capable team of maintenance providers, we wish you a Joyous Xmas and a Happy and Healthy 2019.