This week we look at the data on a Brisbane suburb where it is actually cheaper to buy than rent, if you buy a property around the median price level. And this week we hear from economic forecaster BIS Shrapnel about their outlook for residential property. And in this week’s tax tip we look at paying ‘Pay As You Go’ tax if your property is positively geared.
Making news, the Reserve Bank of Australia has decided to keep the official cash rate unchanged at 3 per cent. In its quarterly Statement on Monetary Policy the RBA said it may look at raising rates to normal levels when the economy starts to sustain a recovery. For the time being though RBA Governor Glenn Stevens says the central bank believes the low rates are appropriate. The Reserve Bank also upwardly revised its forecast for gross domestic product growth to 0.5 per cent for 2009. And in other news, the Australian Bureau of Statistics Australian house price index rose 4.2 per cent in the June quarter following a 1.5 per cent fall in the March quarter.
This week we are looking at the house and unit market in Fortitude Valley which is a suburb of Brisbane city - only about 2kms from the CBD. The reason why we’re focussing on Fortitude Valley is because based on current interest rates and median prices, it is actually cheaper to buy a property than to rent in this market. Let’s have a look at the numbers.
50% of Fortitude Valley’s dwellings are occupied by singles with 20 to 29 years olds representing the most common age bracket. Stand alone houses account for 33% of dwellings in the area with flats and units accounting for another 45% of properties. Rental properties make up a high 53% of the housing market and the area appeals to professionals working in the city. The median house price in Fortitude Valley is $398,000 dollars, which is a massive 32% decline compared to a year ago. There were only 11 houses sold in Fortitude Valley in the 12 months to June 30 and this median price is low because the 11 houses that were sold are mainly from the bottom end of the market. The average growth rate over the last 5 years is 5.2% each year. And if you were to buy at this median house price, the weekly mortgage repayments are $444 at an interest rate of 5.8%.
The median rent price for a house is $530 which brings the gross rental yield to 6.9% and means that it is cheaper by $86 a week to own a house than to rent one. The median unit price in Fortitude Valley is $375,000 dollars, which is a year on year increase of just over 7%. The average growth rate over the last 5 years is 5.6% each year while the 10 year average is 7.8% per annum. There were 178 units sold in Fortitude Valley in the 12 months to June 30 and if you were to buy one at the median price, the weekly mortgage repayments are $418, again based on an interest rate of 5.8%. The median rent price for a unit is $430 which brings the gross rental yield to 6% and means that it is cheaper by almost $12 a week to own a unit instead of renting one.
Most rental properties are negatively geared and so at the end of the tax year, you get a tax deduction for this amount of negative gearing. But what happens if your property is positively geared? Well in this case, the ATO could write to you and ask you to pay what are called ‘Pay As You Go’ installments. These payments are usually quarterly and are for the tax on the expected profit on the annual rental property profit. It works in a similar way to the tax that is taken out of wages and tries to create a situation where the tax paid during the year is equal to the tax payable at the end of the year. If you do have a positively geared property and are also a wages earner, you can ask your employer to take out more tax automatically to cover this Pay As You Go tax payment on your behalf. And you can adjust the amount of tax paid during the year by filling out a variation form, if your investment income forecast changes. Of course, this is very general information only and for more specific advice, speak to an accountant and get it right.
