Defencewealth

22/08/2024

Our latest update has just been published!

G’day All, Hope you’re well and looking forward to Spring! It’s been a while since our last update so here’s a quick snapshot on the latest: Interest Rates Inflation is still above 3% with main con…

25/10/2023

Our latest update has just been published!

G’day All, With annual inflation coming in at 5.4% in September, inflation is still high and well outside the RBA’s target band of 2-3%. The main contributors were fuel and electricity – staples wh…

04/01/2023

Our latest update has just been published!

G’day All, Hope you had a great Christmas and festive New Year! To cap off 2022 and bring in 2023, some property investment-related topics and updates below: Interest Rates After eight consecutive …

04/01/2023

27/06/2022

Our latest update has just been published!

Inflation bodes well for property...

G’day All, What a year 2022 has been so far! Although the RBA hiked quite steeply in June, the two cash-rate increases to 0.85% so far is still very low. The cash-rate is an important number as it …

10/10/2021

Our latest update has just been published: https://defencewealth.com.au/2021/10/11/sss-oct-2021/

What a great year 2021 has been for Aussie property and it's only just getting started!

G’day All, What a great year 2021 has been for Aussie property! Official cash rate is still at 0.1% – this means the velocity of money flowing through the economy is still considered too low.…

05/12/2020

Our latest update.... https://defencewealth.com.au/2020/12/05/sss-jul-dec-2020/

Wishing all a safe and enjoyable festive season! 🙂

02/06/2020

G’day All,
Hope you’re all keeping safe and sane during this pandemic…

Much has been said lately (mostly negative) on how COVID-19 will affect Australian property going forward. Whilst no one can definitively say what will happen, we can use history and knowledge of cycles as a guide:

18.6-year Real-Estate Cycle – Defencewealth clients will be familiar with, or at least have been introduced to the 18.6-year cycle as taught by Philip J Anderson through his 24-hour property clock and his book: The Secret Life of Real Estate and Banking.

As investors, we use this knowledge to guide our investment timing, combined with fundamental and technical data to determine which property markets might likely provide the best wealth-building prospects, and in an efficient time frame.

The clock (first seen by me in 2013) is on record calling for a mid-cycle slowdown in 2020-21, which is where we are now with COVID.

A key point about mid-cycle slowdowns is that whilst a short recession may ensue which affects the share market, property (land) values remain largely unaffected. This of course is a generalisation and other cycles relating to commodity prices and infrastructure need to be referred to when deciding on where to invest.

Going forward, we’d suggest that property will indeed remain stable. However, as we shift into the second-half of the 18.6-year cycle from mid-2021 onwards, the locations that had significant capital growth between 2012-20 (read Sydney/Melbourne/Hobart) will likely stagnate or possibly decline in the run-up to 2026-27.

The states of QLD, WA, NT and SA will, in my opinion, be key to watch and invest in as their economies are primarily built around resources and agriculture, which usually become high-demand in the second-half of the global real-estate cycle.

Another point worth noting is that governments and central banks around the world, including our own RBA, have said they will do whatever it takes to ensure the economic and financial system doesn’t implode. This means that house prices will not be allowed to mass-crash by ensuring people can continue to pay their mortgages and rent.

Examples include JobKeeper programs, money printing, bond buying, first-home buyer grants and guarantees, and even direct stimulus payments like Rudd’s $900 back in 2008/09.

Investment home loan rates are now below 3% and gross yields on previously recommended properties are tracking between 4.5%-5.2%.

Vacancy rates have mostly been tightening in landlords’ favours (3% is considered a balanced rental market) with April stats from SQM Research showing:

Adelaide (Seaton, Exeter): 0.5%
Gold Coast (Coomera, Pimpama): 2.1%
Ipswich (Ripley): 2.7%
Logan (Greenbank): 3.1%
Toowoomba (Glenvale): 1.8%

Yes, there will be some further fallout in the months ahead, but not to the extent that most are implying. Once we get over this COVID speedbump and society’s demand for credit picks up again, and at historically low interest rates, this will likely fuel a surge in property demand in areas where new jobs will be created; think resources, agriculture, major infrastructure and defence.

We will of course need to exercise caution and adequate planning as we get closer to 2026-27, being the anticipated peak of the cycle, but until then, maintaining a long-term view especially now will be important. Helping you build sustainable wealth that will provide for you and or your family’s future endeavours is our primary mission.

Stay Safe! 🙂

24/11/2019

G’day All,

2-minute read

Quick reminder these updates are designed to help inform and educate on key things to monitor when investing in property. The aim is to help build a solid and sustainable wealth/capital base ideally early on in one’s career. Having an understanding of historical cycles will also aid in future investment decision-making.

Tax Alert
From 1 July 2019, investors are no longer able to claim interest expenses during construction of an investment property. These costs will instead be claimable against capital gains tax if the property is later sold. Investors will still be entitled to full construction depreciation as well as on fixtures and fittings should you elect to build new. If purchasing an established property, depreciation will only be limited to what’s left over of the original construction cost.

Interest Rates
With the official cash rate now down to 0.75%, principal and interest (P&I) investment loans with fixed rates in the mid-3% range are readily available (80% LVR or less). From a cash flow perspective, the aim is to generate a yield (rent) that is higher than the interest rate and is why we target properties generating a minimum 4.5% gross return. Please get in touch if you’d like us to review your current loan situation.

Infrastructure
Federal and State governments are bringing forward infrastructure spending on major projects over the next 5-10 years. Keys states are VIC, NSW and QLD. SA and WA will be ramping up spending in preparation for major defence projects such as the Attack Class Submarines, Hunter Class Frigates and the Arafura OPVs. Our aim is to get ahead of the growth curve before these large projects begin impacting land price.

Longer-term, NT and QLD will benefit from further civil and defence spending as the federal level debates and redefines what northern Australia will need to look like given the power plays occurring in the Asia-Pacific.

Economy
As we move into the second half of the 18-20 real-estate cycle, we expect commodity prices to begin trending higher. We are already seeing this with iron ore and copper spot prices and the new calls for Australia to begin ramping up exploration and production of rare-earth minerals (China currently have the monopoly).

If these trends are sustained, particularly with fresh demand coming from India, we can expect the property markets of WA and NT to begin solid growth over the next 3-5 years. As expected, the recently approved Adani coal mine in QLD has already begun to positively impact the property markets of Mackay and Rockhampton.

Strategy
The Defencewealth strategy of TWO-50-TEN™ is based on acquiring a $2 million portfolio at 80-90% LVR over a 6-8 year timeframe. Once acquired we work to reduce the LVR to 50% over the next 4-7 years using a combination of capital growth, offset accounts and principal repayments. Once at 50% LVR, you will have some serious financial options but it will take time (min 10-15 years) to achieve. The new property packages we recommend are considered investment-grade based on experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.

Quote
An investment in knowledge pays the best interest – Benjamin Franklin

It’s the dream of many a property investor — buy when the market is low and sell just as it peaks — but trying to time the market can be risky and most get it wrong, new research shows.

03/03/2019

G’day All,

Well we’re well and truly into 2019 and a lot has happened in the property investment space over the last few months. Main events are the Banking Royal Commission and reports of the Sydney and Melbourne property slow-down.

Royal Commission
Whilst this was a good thing and uncovered a lot of bad practices, bank shares actually increased after the final report was released. Pretty surprising and is an indicator that the market thinks that the worst is actually over for the big banks. It doesn’t look like any new laws will be introduced although consumers (you and I) may have to pay upfront in the future for lending advice. This will prove anti-competitive and end up shifting more power to the banks. We’ll have to wait and see for what happens after the federal election in May. Expect lending standards to still remain tight which will constrain supply and force up rents over time - a good thing for those that either already own property or who can qualify for new lending in the current market.

Market Slow-down
Yep, Sydney and Melbourne prices have come back in the last 12-18 months but this was anticipated and is very similar to what occurred in the late 90’s and early 00’s. It’s also one of the reasons why we have avoided recommending properties in these markets. Notwithstanding, residential rents in Melbourne and industrial property nationally are performing well. Only Sydney and Darwin saw rents fall in the last 12 months.

Key affordable markets to watch remain south-east Queensland and Adelaide. Queensland defence industry has again been boosted with the Loyal Wingman by Boeing - https://www.thedailybeast.com/boeing-just-revealed-the-loyal-wingman-fighter-dronefor-australia
Although still at concept stage, if aircraft manufacturing does go ahead, it will further boost the Queensland economy and of course land prices.

Going forward, we expect the commodity-based economies of QLD, SA, WA and NT to really begin leading around 2021-22. QLD and SA especially so with the submarine and frigate builds, emerging space industry, Land 400 and the large infrastructure projects planned in and around Brisbane.

Strategy
The Defencewealth strategy of TWO-50-TEN™ is based on acquiring a $2 million portfolio at 80-90% LVR over a 6-8 year timeframe. Once acquired we work to reduce the LVR to 50% over the next 4-7 years using a combination of capital growth, offset accounts and principal repayments. Once at 50% LVR, you will have some serious financial options but it will take time (10-15 years) to achieve. The new property packages we recommend are considered investment-grade based on experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.

Quote
The best time to plant a tree was 20 years ago. The next best time is now – Chinese Proverb

29/10/2018

29/10/2018

G’day All,

3-minute read

Doom & Gloom – Really?
As you’re aware, the mainstream media have been plaguing us with pending property doom and tipping a massive correction to occur very soon. 60 Minutes is probably the most noteworthy as they had a finance professor (Martin North) state that a 40-45% crash was possible.

What 60 Minutes failed to disclose was Professor North only placed his 40% prediction on a 20% probability; his most likely scenario for Sydney and Melbourne was a controlled correction of 10-15% over the next 2-3 years.
Ep 33 - 60 Minutes property - https://modo.ly/2JrZQxX

On the topic of academics, the Queen asked a bunch of them back in 2008 why no one foresaw the GFC to which they were stumped and effectively blamed it on a lack of imagination.

https://modo.ly/2Oc3LiM

There’s a saying that goes if it’s in the news, it’s in the price. Broadly speaking, the mainstream media are always late in their reporting, but we can use the media to guide our investment decisions and judge where we actually are in the cycle. In line with the principles of risk management and safety, the likelihood of a high-risk event being realised is greatly reduced with heightened awareness and mitigation.

This is exactly what is playing out now with Australian property in general. The increase in negative news is our cue to either remain or continue building our property holdings where it is feasible and responsible to do so.

The Banking Royal Commission is also good for us as the tightening in credit conditions and serviceability standards will slow housing supply, yet population growth and underlying demand continues upward in line with the growing Australian economy. This will lead to increased rents followed by capital growth.

Australian exports of tourism, coal, iron ore and LNG are now trending higher, so much so that there’s actually a chance the federal government budget will be in surplus this financial year.

https://modo.ly/2yGl7zu

There’s also been a lot of focus on China, but very little on India, a country of over 1 billion that are itching to pull themselves out of poverty and become more developed. This is exactly where China was 15-20 years ago! China’s Belt-Road Initiative (BRI) will also require large amounts of steel and energy and if Australia supplies even just 20% of the anticipated demand, we’re potentially looking at another mining boom similar to 2004-2010.

https://modo.ly/2OaDkKw

In summary, Australia is tracking pretty well. This doesn’t reduce investment risk though and when it comes to property investment, there’s a lot of considerations from land-size ratios, demographics, market-cycle, interest rates and investment buffers to name a few that need to be considered. This is in addition to your specific circumstances as an individual.

Always remember that property (land) is a long-term play and its price is derived by its overlying economy and position in the cycle, therefore avoid buying in at cycle peaks.

Strategy
The Defencewealth strategy of TWO-50-TEN™ is based on acquiring a $2 million portfolio at 80-90% LVR over a 6-8 year timeframe. Once acquired we work to reduce the LVR to 50% over the next 4-7 years using a combination of capital growth, offset accounts and principal repayments. Once at 50% LVR, you will have some serious financial options but it will take time (10-15 years) to achieve. The new property packages we recommend are considered investment-grade based on experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.

Quote
When everyone rushes to one side of the boat, head to the other side to avoid getting soaked

Program reports on a 40% fall in property prices but fails to include less alarming predictions