Superannuation fund enters property lending

Funding options for building societies have broadened with superannuation fund AustralianSuper’s entry into commercial property lending, according to The Australian Financial Review.

AustralianSuper – the country’s largest superannuation fund, with $32 billion under management – has agreed to lend $200 million to a property debt portfolio controlled by Challenger Financial Services Group, and is seeking to increase its property lending portfolio, the paper reports.

“This is the first step we’ve taken to what we think could be a new asset class for superannuation investors,” AustralianSuper chief investment officer Mark Delaney told the AFR.

Mr Delaney said the fund is optimistic on the outlook for the country’s property sector.

“We quite like property because in the current environment because property prices have come down,” he told the paper.

“Cap rates are up substantially. The Australian market is recovering slowly.”

“It’s a good time to invest in property so we’re not worried about property values.”

Building Approval Statistics for Australia – April 2010

ABS Building Approvals – April 2010 Key Points

TOTAL DWELLING UNITS

  • The trend estimate for total dwellings approved was flat in April 2010 following rises in the previous 14 months.
  • The seasonally adjusted estimate for total dwellings approved fell 14.8% following a rise last month.

PRIVATE SECTOR HOUSES

  • The trend estimate for private sector houses approved fell 2.0% in April and is now showing falls for four months.
  • The seasonally adjusted estimate for private sector houses approved fell 13.5% following a rise last month.

PRIVATE SECTOR OTHER DWELLING UNITS

  • The trend estimate for private sector other dwellings approved rose 5.0% in April and has risen for ten months.
  • The seasonally adjusted estimate for private sector other dwellings approved fell 5.4% following a rise last month.

VALUE OF BUILDING APPROVED

  • The trend estimate for the value of total building approved fell 1.0% in April and is now showing falls for three months. The trend estimates for the value of building approved should be interpreted with caution.
  • The seasonally adjusted estimate for the value of total building approved fell 13.3% in April. The seasonally adjusted estimate for the value of new residential building fell 4.6% while the value of residential alterations and additions fell 8.4%. The seasonally adjusted estimate for the value of non-residential building fell 28.5%.
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Paying Interest in Advance on Investment Property

Now is the time of the year some people consider paying 12 months of interest upfront to claim the tax deduction in this financial year. If you have sold a property and have a capital gain liability, or have come into some money via a bonus or something, paying the interest upfront and claiming the deduction this year can be a good way to reduce the tax bill for the year.

Many lenders will offer a discount on the interest rate for paying in advance, for example Commonwealth Bank have an interest rate of 6.54% for paying 1 year upfront if you are on their professional package. This is less than the discounted variable rate, of course you are taking a risk as to what interest rates will do over the next 12 months.

Brokers lead banks in customer satisfaction

According to the latest Bankwest/MFAA Home Index, customer satisfaction with mortgage brokers has climbed 5 per cent since this time last year, from seven out of 10 to 7.5 – widening their lead over the banks.

Some new clients have told me of their experiences with dealing direct with the banks and how it could take weeks to get a response, and this has led them to go to a broker. I think as most brokers are small businesses, they will try much harder to give a leading customer experience than the banks as it’s our livelihood. Myself I will always try to contact a client back within the day for any inquiries they have.

Further detail on the Bankwest/MFAA Index is here.

TOP TEN TIPS – TAX RETURNS ON RENTAL/INVESTMENT PROPERTIES

Here is a list of the 10 most common mistakes that investors make when preparing tax returns for rental properties from a partner at BDO Kendalls.

TIP l: Repair or improvement?

There is a fundamental difference between a repair and an improvement – the former is tax-deductible. but the latter is considered capital and therefore not tax-deductible.

To determine if something is a repair or an improvement, consider: did the work done restore something to its original condition or did it improve it to a condition beyond its original state?

TIP 2: Non-deductible costs

Just because something is not tax-deductible does not mean it simply fades into the tax black hole. Any work done on a property that is capital in nature may still attract some tax perks.

If you acquire a free-standing functional unit, it may be classified as a depreciating asset on which you may claim a depreciation deduction. If the item acquired is affixed to the building, it may constitute ‘construction expenditure’ on which you may claim a building allowance deduction.

TIP 3: Building allowance

You are generally allowed to claim an annual building allowance of

2.5% or 4% on the construction expenditure incurred on structural improvements attached to land. However, construction expenditure is not synonymous with the amount one pays to acquire the property.

TIP 4: Interest expense

Most people assume that any loan drawn down that is related to their rental property is immediately tax-deductible. While this is generally true, the deductibility of interest is contingent on a strict tracing of loan funds to ascertain the purpose for which the funds are drawn.

TIP 5: Borrowing costs

These are costs associated with the access of loan funds that are used to purchase a property. If the amount incurred is less than $100, it may be claimed as an immediate tax deduction. If the amount exceeds $100. the amount will need to be claimed progressively over the life of the loan or five years, whichever is shorter.

TIP 6: Legal fees

Legal fees related to the purchase or sale of a property are included in its cost base and are not tax-deductible. However, legal costs incurred to deal with the day-to-day operations of the property, eg, drawing up a lease, are tax-deductible.

TIP 7: Body corporate fees

Many property investors seem to think that body corporate fees are categorically tax-deductible. While this is generally true for regular body corporate fees, special levies and sinking funds that are used to fund capital improvements on the property are not tax-deductible.

TIP 8: Travelling expenses to inspect property

If your primary intention to travel to a particular location is to inspect your property but you also intend to use the opportunity to go on a holiday, there will be multiple purposes behind the trip. This means that the associated travelling expenses will need to be reasonably apportioned.

TIP 9: Available for rent?

An expense is only tax-deductible to the extent that the property is used for an income-producing purpose. Therefore if a property is not available for rent for part of the year, the expenses incurred on the property for that year will need to be apportioned.

TIP 10: GST

Residential property leasing does not attract GST, but the leasing of commercial properties does. Generally, if you own commercial properties and the combined projected annual gross rent of these properties will exceed $50,000, you are required to be registered for GST. This will also mean that you are automatically liable for GST on 1/11th of the gross rent,

From Australian Broker – December 2009