What do these changes mean for borrowers?

Responsible lending laws were introduced on the back of the Global Financial Crisis as part of the National Consumer Credit Protection Act 2009.

These laws put the onus on the lender to ensure that a borrower would be able to service a loan, or the bank could be held responsible.

The changes led to banks becoming overly pedantic on things such as living expenses which can at times be a grey area. With responsible lending laws being removed, the lender has more room to accept a borrowers claimed living expenses and if they are unable to meet their loan repayment, the bank won’t be held accountable.

For many, this is a good thing as it helps remove much of the red tape around the application process and could potentially speed up borrowing significantly.

With interest rates continuing to fall, we’ve already seen a sharp spike in the number of people looking to apply for loans and going through the approval process. This has started to cause long delays with a number of lenders and has even forced people to push back settlement dates, which impacts all parties involved in the property transaction.

According to Treasurer Josh Frydenberg, the changes have been made to help the economy recover from the lockdowns caused by COVID-19.

“What started a decade ago as a principles-based framework to regulate the provision of consumer credit has now evolved into a regime that is overly prescriptive, complex and unnecessarily onerous on consumers,” said Mr Frydenberg.

“Now more than ever, it is critical that unnecessary barriers to accessing credit are removed so that consumers can continue to spend and businesses can invest and create jobs.”

At this stage, the proposed changes will still need to make their way through parliament, however, Mr Frydenberg suggested they would be implemented by March 2021.

What Do the Changes Mean for Borrowers?

Unfortunately, removing responsible lending laws doesn’t mean that everyone will be able to take out large loans that they won’t be able to repay.

Borrowers will still have to demonstrate that they can service a loan and banks will still be making sure they will be paid back. Lenders are still be required to meet APRA’s lending standards, which require sound credit assessment and approval criteria.

What it does mean is that the process will be faster and the credit easier to access.

For many homebuyers in Australia, this is a positive change and with interest rates continuing to fall, this might be a good time to speak to your mortgage broker.

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While prices across the major capital cities did decline by -0.5 per cent, this is a long way from the 30 per cent falls that some were suggesting.

Overall, while there has been  some mild weakness, even the analysts at CoreLogic, pointed out just how ‘resilient’ the property market appears to be at the moment. This is really positive for what might lie ahead.

Around the country, we saw that Melbourne was the worst performer with falls of -0.9 per cent. Sydney also fell away slightly by -0.4 per cent.

These two markets, in particular, have been negatively impacted more so by the lack of auction activity and that is clear when you examine where the largest falls came from. According to Corelogic the top end of the market, the vendors that are more often than not looking to sell via the auction process fell away more than other areas.

In Melbourne, the most expensive properties in the market recorded a 1.3 per cent drop in values over the month, compared with a 0.6 per cent fall across the broad ‘middle’ of the market. It was a similar situation in Sydney’s more expensive properties falling -0.6 per cent.

Source: CoreLogic

During the lockdown period, there were many vendors forced to sell using private treaty or even online auctions, which has made it a tricky time to transact properties. Or at least different to normal market conditions.

But again, prices have really not moved all that much as a result. We just have to look at what the annual data is telling us and we can see that both Sydney and Melbourne again come out on top.

Values across Sydney are up +14.3 per cent annually with Melbourne +11.7 per cent. Prior to COVID, auction clearance rates were pushing into the high 70s and low 80s which is not a sign of a weak housing market.

Certainly, COVID has created some fear and uncertainty and more than anything that has weighed on consumer sentiment. As the economy reopens and the states unwind their social distancing measures, we can see sentiment improving by the week with a very sharp bounce in May.

Source: CoreLogic

Are We in a Recession?

On top of the slight dip in house prices, the very same doomsayers were up in arms at the fact that Australia was staring down the barrel of its first recession in 30 years.

The definition of a recession is two consecutive periods of negative economic growth. Based on the data this week, it looks like Q1 of 2020 is showing negative growth, albeit only marginally at -0.3 percent and everyone expects the June quarter to be terrible.

Source: ABS

Some of the reasons for this were falls in consumer spending (-1.1%), while housing construction (-1.7%) and business investment (-0.8%) also fell. It isn’t surprising to see consumer spending fall, when the country is in lockdown, so that is likely to start increasing rapidly.

We’ve also seen the announcement this week of the ‘HomeBuilder’ grant which is aimed at boosting the construction and building industry. While many builders have been carrying on working throughout the lockdown, the number of people that have put projects on hold has been worrisome.

The new stimulus will see those building or renovating homes (under certain criteria) receive a $25,000 grant. The Housing Industry Association estimates at least 14,000 renovations costing over $150,000 are undertaken every year, so there will be plenty of people who will qualify for the grants.

This will hopefully have its intended effect and start to boost the sector – albeit as a short-term measure.

Source: ANZ Research/Roy Morgan

According to the latest ANZ research, confidence has been bouncing back and has been getting gradually higher for the last nine weeks as well.

As confidence rises, stimulus measures continue to roll out and social distancing measures continue to ease, we may well see a very minor dip in housing prices rather than the worst case scenarios that have been highlighted in the public media.

Given the extent of the Monetary Policy easing with the cash rate now at 0.25 % and ongoing RBA intervention to ensure ultra-low rates at least for the next few years, there is every reason to be confident that house prices will continue to buck the trend and remain resilient.

However, the flood of short-stay rentals that have hit the market in recent weeks, must just be a turning point for a market in desperate need of more stock.

Recent data from Domain has shown that there has been a 41% spike in the number of rental properties hitting the market this year. Given that Hobart has become one of Australia’s premier tourist destinations, huge numbers of investors have turned their properties into various forms of short-stay accommodation through platforms such as Airbnb in search of high yields.

With tourism being one of the biggest losers from the border closures and travel restrictions, owners have been forced to try and push their properties back into the rental market.

Vacancy Rate to Triple

Prior to the Government crackdown, Hobart had a rental vacancy rate of 0.8% according to SQM Research, making it the tightest in the country.

President of the REIT, Mandy Welling thinks the upcoming data for the rental market could show the vacancy rate nearly tripling to 2.9%. But that might be just what Hobart needs.

“So far the previous quarter’s data is not really reflecting any of the impact of COVIID-19. The first COVID-19 case wasn’t confirmed in Hobart until the 2nd March, so there wasn’t any impact to later in the month, which is when we saw the Airbnb owners look to seek something a little more secure.”

“Hobart is very tourism-driven, so we’ll be severely affected by this albeit with the surge in rental properties, it’s actually causing some relief.”

“We had such a severe shortage of rental properties and it’s actually elevating that, but the problem at the moment is many of them are furnished and we don’t have a huge market place for that.”

Despite the huge numbers of properties hitting the rental market, rental prices across the state haven’t budged, reflecting the incredibly tight market to date.

“At this stage, we’re not seeing it impact prices as we are still absorbing the shortfall at the moment. We had one home put up for rent recently and we still had 16 groups come through, which was considerably less than what we have been seeing mind you.”

“Speaking to the other directors from across the entire state, only two tenants from all the companies have been in a position, where they can’t pay rent. So we’re not really having an issue at the moment.”

 “We certainly need properties to come onto the market, to help tenants who were desperately looking for a home.”

“But there’s still the concern from tenants about how long these properties are going to stay in the long-term rental market. That’s a question that agents are being asked because they are likely not a long-term possibility.”

Hobart’s Trendy Inner Suburbs in the Firing Line

Property Expert and Researcher, John Lindeman of The Lindeman Report, feels that even though rental prices haven’t been hit yet, it’s only a matter of time.

“Hobart’s rental vacancies have doubled in the last few months, and the same trend is also being experienced in other major urban markets, This is due to the collapse of student, tourist and business short term rental demand due to the restrictions on movement and has impacted owners of such properties, typically let through platforms such as Airbnb and Stayz.”

“Not only has rental demand plummeted, but owners, desperate for revenue, are listing their properties in the longer-term rental markets and competing for tenants with other property investors.”

“The effect will be a substantial short term reduction in asking rents in locations where students, tourists, hospitality workers and those working in the accommodation industry have been residing.”

Mr Lindeman does think Hobart will quickly rebound once social distancing measures are reduced.

“Once the restrictions on movement and travel are eased, the demand for rental accommodation will recover, but this is likely to occur in two stages, firstly as restrictions on movement between States is restored, we can expect rental demand for business and holiday rental accommodation to recover, and then as overseas arrivals are permitted to travel here, rental demand in student and tourist precincts will recover as well.”

While Hobart property prices have been a strong performer over the last five years, Mr Lindeman thinks there will be segments of the market that will see sharp price falls.

“Many property investors purchased their investment properties in the expectation of a bonanza in rental income from short term rental accommodation relying on platforms such as Airbnb and Stayz to deliver tenants. With the collapse of this market, some will be forced to sell their properties, even at a loss, because they can’t manage the holding costs, such as maintenance, repairs, insurance, rates, management fees and loan repayments.“

“The addition of such properties to the number being listed is likely to result in a fall in property values, especially units in Hobart’s trendy inner suburbs and houses in the suburbs preferred by holidaymakers and tourists, such as the popular riverside suburbs from Wrest Point Casino through to MONA.”

There are a number of questions that need answering, both for landlords and tenants and so far, the changes have been a work in progress.

Over the last week, a number of states have managed to finalise some new legislation for renters and this is what the different states are currently doing.

NSW

The NSW Government is focusing on land tax as opposed to a direct payment, to assist struggling renters.

If a renter has lost 25% of their income, landlords are eligible for a 25% cut to their land tax. Assuming the landlord agrees to pass this on to the tenant in the form of a rent reduction.

Keep in mind, land tax is only payable in NSW for properties valued above $734,000.

There is also a six-month moratorium on evictions of tenants who fall into arrears because of impacts from the coronavirus.

President of the REINSW Leanne Pilkington labelled the move to transfer the burden to landlords as ‘unjust’ but acknowledged there were cases where renters would need assistance.

“Rent relief will be necessary (for some tenants), should they lose their jobs or have their work scaled back”.

“But it doesn’t look like a particularly fair deal for landlords at this stage.”

REINSW CEO Tim McKibbin believes that there has been ‘little concern for landlords’ in recent weeks.

“The overwhelming majority of landlords are ‘mum and dad’ investors who own just one property, not Westfield and Stockland.”

“The NSW government has made it very clear that landlords are expected and required to ‘waive’ all, or a significant portion, of the rent due by the tenant”.

VIC

The Victorian government has put in place a plan to give rent relief payments of up to $2,000 for tenants experiencing hardship because of coronavirus.

The program will be funded by an $80 million rental assistance fund and will be open to tenants earning less than $100,000 a year who have less than $5,000 in savings. Tenants must also be paying more than 30% of their income in rent.

Tenants and landlords will be left to negotiate the terms of the rent between themselves.

Steve Mickenbecker, Group Executive, Financial Services & Chief Commentator at Canstar believes the changes are putting landlords in a tricky spot at the moment.

“Landlords do look to be disproportionality impacted by this. Yes, they can get a repayment holiday, but they are also in a position where people can and will take advantage of a rent holiday. A rent holiday isn’t something that is clawed back like a mortgage holiday. So I think there is a disproportionality large burden put on landlords.”

QLD

Initially, QLD looked like it was going to have some of the strongest laws to support renters in the country. These measures have since been scaled back in line with the other states after lobbying from the real estate industry.

Land tax relief will be offered to landlords as well as a ‘last-resort’ $2,000 payment to struggling renters.

These come on the back of the six-month freeze on evictions that’s been backdated to 29 March.

Lisa Perruzza from Partner Place Bulimba thinks the current changes are a win-win for both tenant and landlords.

“It’s a win for both the landlord and tenant as we now have a pragmatic commercial and mutually supportive set of parameters. Specifically for tenants, it gives surety about their tenures as they cannot be evicted if COVID19 impacted. Equally, it gives owners security of income with respect of what needs to be demonstrated for tenants to qualify for hardship status.”

Lisa Perruzza feels that leaving in the notice to leave without grounds for landlords who have equally found themselves in difficult circumstance due to COVID19, would have been beneficial to investors.

WA

In line with the rest of the country, the West Australian government has made a six-month moratorium on COVID-related evictions.

During the ‘emergency period”, it’s also illegal to increase rents and any fixed-term tenancies due to expire will continue on as is. Tenants are now also allowed to break a lease without incurring any fees

Tenants who have been impacted by losing their job can apply for up to $2,000 – which will be part of a $30 million residential rent relief fund. This payment will go directly to the landlord, but the tenant must have lost their job and applied for Centrelink to be eligible.

President of the REIWA, Damian Collins says the last round of changes do help equalise the issues landlords were facing.

“We understand the need to protect tenants, but in doing that the problems and burden go back onto the landlord. The latest changes do go some way to helping. And we didn’t ever expect landlords to be fully compensated for this.” 

Kirsty Pilcher, Senior Property Manager at Aussie Property believes the changes to WA are a good compromise for both tenants and landlords and feels it’s important to ‘look at each case individually’.

However, she thinks that there could be some better processes put in place for resolving disputes.

“A quicker conciliation process would have been helpful for tenants and landlords that cannot come to a solution together.”

SA

The South Australian Government as yet hasn’t rolled out a direct financial relief package but has imposed the same kind of eviction laws as the rest of the country.

The government is cutting land tax and will allow deferment of 2019-20 land tax bills by six months.

For the time being, routine inspections can be done by video to avoid close contact and maintain social indicating measures.

Andrew Shields, Interim General Manager of REISA, feels that at this point in time, landlords are the ones that are losing out.

“From what we can tell, landlords are really not seeing any financial benefits from the changes so far. Less than a cup of coffee per week. So landlords do seem to be impacted the most.”

TAS

In Tasmania, landlords will not be able to increase rent prior to 30 June along with the non-eviction period.

Tenants and landlords are being told to negotiate with one another, however, both parties can break the lease if it is likely to lead to hardship. Landlords will also be able to access land tax relief.

President of the REIT, Mandy Welling feels that tenants should be happy with what the Government has put in place.

“The most recent change was that landlords cannot increase the rent on a property prior to the 30th of June. There are a lot of positive protections that have been put in place in Tasmania for tenants.”

ACT

In the ACT, if landlords cut their tenants rent by at least 25 per cent for up to six months, they can access land tax cuts themselves.

The government will match 50 per cent of the rent reduction up to $2,600 over a period of six months – which equates to $100 per week.

Like other states, there is also a freeze on rent increases, the moratorium on evictions and renters won’t be blacklisted if they run into financial hardship and fall behind.

NT

The Northern Territory Labor government has opted against a moratorium on evictions when they sat on April 24.

The Government intends to make changes to negotiating and notice periods instead of the moratorium on evictions which was agreed to by the National Cabinet and implemented across the other states and the ACT.

Leading valuers Herron Todd White has tabled their thoughts into what each state is facing and what might lie ahead for the nations residential property markets.

NSW

Sydney has been at the forefront of the battle against COVID-19 given its size and population and as such has seen areas that have been impacted directly by the social distancing measures.

Auction clearance rates have tumbled which is generally a good indicator of sentiment, but there are some areas that are not being impacted.

The Northern Beaches as a whole has appeared to absorb much of the negative sentiment and restrictions surrounding the pandemic. Higher value markets are outperforming entry-level markets at this stage.

Whilst overall transactional volumes are down, agents in the inner suburbs and eastern suburbs are advising that many savvy investors are utilising the current downturn to add to their portfolios. The primary concern in the investment market at the current time is finding a tenant.

In Sunderland Shire local agents are saying that the Coronavirus pandemic has not yet significantly affected prices that properties are achieving at either online auction or via private treaty.

In Western Sydney, HTW are still seeing reasonably strong activity, particularly at the entry level. There appears to be many first home buyers still looking to purchase which is helping the lower end of the market. While there are some sharks out there looking for desperate sellers, agents are doing their best to avoid them by being selective about genuine buyers for inspections by appointment. Listings are becoming increasingly difficult to source as many owners are adopting a wait and see approach until we emerge on the other side of the restrictions.

VIC

In Melbourne, HTW is seeing the CBD particularly impacted as hundreds of units and student accommodation apartment are listed for sale and lease as investors struggle to fill the void and try to replace the regular rent from students who would be otherwise be studying at universities. 

In the outer south east, first home buyers with job security who were looking in the property market prior to the pandemic are encouraged to take advantage of the current market conditions as sellers are more open to negotiation.

In the inner and outer north there has been a reduction in supply of properties due to vendor uncertainty, whilst demand appears to have reduced less noticeably. 

In the inner and outer east, HTW foresee a limited availability in supply of houses and apartments in the coming months, limiting the opportunity for new home buyers and investors to purchase property.

Out west, vacancy rates for rental properties will remain high with tenants and landlords both suffering, however this pandemic and these restrictions won’t last forever and it is a fair assumption to believe the western suburbs will bounce back to their previous market performance and continue to grow as one of the nation’s strongest performing regions.

QLD

In Brisbane, HTW has seen a noticeable reduction in listings and auctions with agents confirming that vendors are postponing their sales. This is understandable as in times of uncertainty, the confidence of achieving a desired price evaporates, so if an owner can afford to sit and wait this out, they surely will. In a practical sense, the hit to valuation figures is still to be seen. 

Agents are reporting to HTW that sale prices continue to be at pre-pandemic values, however, a significant slowdown of new listings to replenish stock levels has been noticed. Lack of stock usually means firmer prices, but in this instance, what’s available might indicate a seller eager to offload their asset.

Sales continue to transact at fairly healthy prices because there are still a number of buyers active in the market. 

SA

HTW is seeing that the banning of public auctions hindered the markets and property types which have a greater level of reliance on this method of sale. The $750,000 to $1.25 million price bracket in the inner and middle rings has historically been popular for sale by auction. 

The investor market has also been drastically affected on the back of state government measures. Measures have been announced which prevent landlords from increasing rents and prevent eviction of tenants for non payment of rent due to distress as a result of COVID-19. These factors are considered to be a deterrent for market entry in the short term. The middle and outer rings are considered most popular with investors, most active in the $150,000 to $350,000 price bracket.

HTW think that motivated vendors and purchasers will see activity remain in the market, however at a lower level of sales volume and price levels to trend downwards over the short term.

WA

Confidence across the residential market in Western Australia has decreased due to the uncertainty created by the pandemic. Agents have reported to HTW that in many markets, enquiry rates have dropped with a higher number of offers being received below asking price.

The Real Estate Institute of Western Australia (REIWA) showed a 0.5 percent increase in Perth property prices during March, indicating that prices are remaining stable for now. Property prices within the state recently enjoyed their best quarter in over six years, however this is anticipated to be short lived. 

The sales market is the main concern as demand is expected to taper which may lead to a period of oversupply in the market.

NT

The Northern Territory is the safest location in the country. As at the Anzac day weekend we’d recorded 20 days without a new case of Covid-19. 

Leading local sales agents are reporting a stable level of interest for stock which was already on the market, open homes have been replaced by private appointments, one agent noting that it has led to more qualified buyers coming through and less tyre kickers. 

HTW are yet to see any firm market evidence the pandemic has resulted in lower rents or capital values, the big test as we look through the forward lens is the speed at which social restrictions are lifted and the time it takes to re-open the economy. If these efforts splutter along and hit road blocks such as a second wave of infection then any confidence which is in the market will evaporate. 

ACT

At this stage, the full impact of Coronavirus on the local economy and more specifically the property market cannot be known. 

HTW are still seeing transactions occurring at all levels and generally agents are reporting that most purchasers are finance ready and able to compete with confidence in the market. Sellers may be adjusting their expectations slightly but this has had minimal impact so far.

The landscape changes very quickly, however, the stable market conditions hold the 

Canberra residential property market in good stead.

Ripehouse Advostry recently put together a white paper entitled COVID-19 V Australian Property, which outlined what areas of the market would be impacted the most, as well as those that would be able to ride out the Strom relatively comfortably.

Ripehouse Advisory CEO Jacob Field said university academics, industry body heads and real estate agents were among the professionals who responded.

“To help paint this picture, we turned to our extensive network of Australia’s most trusted property professionals,” Mr Field said.

“The opinions and statements in this document provide a frank assessment of a drastically changed property landscape.”

When asked, ‘which state would be hardest hit’, the respondents felt that it would be NSW, while short-term residential rental properties, like Airbnb and holiday homes were in the firing line.

The types of properties deemed to be most resilient were high cashflow and diversified rooming houses.

While the respondents felt that the peak COVID-19 impact would be felt between the 3 to 12-month mark from March 2020.

At the same time, suburbs in outer areas would also be ones that would feel the most impact, given the nature of the jobs residents in those areas generally do.

Overall the Ripeouse Advisory research found 609,628 dwellings were potentially in the firing line across 27 suburbs in Queensland, 17 in NSW, 13 in Victoria, six in WA, four in Tasmania, and one in both SA and NT.

Safe haven suburbs

The research from Ripehouse Advisory also looked at which areas would be potentially the most insulated from the crisis. There were 260,085 dwellings across the country with 30 suburbs in NSW, 10 in the ACT, six in WA, six in the NT, and one each in SA, Victoria and Queensland.

Avalon Beach topped the list in Sydney, Albert Park was considered the safest in Victoria, Longreach was looking stable in Queensland, Watermans Bay in WA also looked steady, while Hughes led the ACT.

Buying a property in your own name is quick, easy and uncomplicated but in doing so, you could be missing out on a range of other benefits and protections that other ownership structures can afford you.

With a range of ownership structures available to home buyers and investors, your first port of call is always your accountant.

Simon Gold, Australasian Taxation Services Director Sydney at SMATS Group, says there are a few rules of thumb to follow when considering the right structure for you.

“There’s absolutely no one size fits all approach. Commonly as an accountant what I’d be recommending, is your main residence is owned personally, your investment properties are held in a discretionary trust. If you’re doing a development, you’d do it in a company structure with the family discretionary trust as the shareholder.”

Individual

While most people are familiar with buying a property in their own name, there are still some clear advantages to using this approach.

“The simplest, cheapest, most common way of property ownership is to own the asset as the individual. If the property was the main residence, in other words the family home, then it is beneficial from a tax perspective owing to the capital gains exemption.”

“It is the most simplistic way of obtaining finance because the individual’s personal income is taken into account and most of that can be proven by way of tax returns, payslips, etc”

Mr Gold suggest that buying property in your own name is also beneficial when considering the tax implications and income.

“When the property is going to be an investment and you’re buying it as an individual, or more importantly multiple individuals, so typically say a husband and a wife, you can skew the ownership ratio for the taxpayer that will obtain the most benefit.”

“So negative gearing losses are preferred when you have a higher or a high income-earning individual because the tax breaks provided are reflected with the higher taxable income.”

Despite its ease, there are some limitations to buying a property in your own name.

“The main disadvantages would be asset protection that you own the asset and therefore if you are personally sued, the property is owned directly and therefore is more at risk.”

“Another disadvantage on the tax side is it’s all well and good to buy property in your individual name or as multiple individuals to get the tax advantage, but what happens if that property starts off negative and then becomes positively geared?”

Company

Mr Gold says that for developers, using a company structure can be very beneficial.

“A company is a separate legal entity that is controlled or run by the directors but owned by the shareholders. Now the main reason people would use companies is separation of ownership and control. So they’ve created a separate entity with which to hold the asset. The mortgage would be in the name of the company as would the asset be in the name of the company.”

“Any income that is derived is taxed at the corporate rate, which is currently 30%. Although there are two tiers of tax rates, being 27.5% for a small company and 30% for a larger company.”

If you’re not looking to hold a property for the long-term, Mr Gold says this might be the best structure to consider.

“The main disadvantage is, therefore, no capital gain discount and any profits are taxed at 30% as well as the ability to borrow less. There is enhanced asset protection because a company is a separate legal entity, but the rule of thumb is you don’t buy appreciating assets in the name of a company.”

“So commonly what we would see is if it was a property development where the underlying properties are on a trading account,  but bought to be redeveloped and sold then a company structure does make more financial sense because a trading business doesn’t get the 50% capital gains discount anyway.”

Trusts

There are a range of trusts available for purchasing assets and Mr Gold says they are becoming more popular with investors.

“A trust is not a separate legal entity, it’s a relationship between the trustees that control the asset and the beneficiary or unit holders that have an underlying interest within the trust. The two most common forms of trust would be a family discretionary trust, so the term’s interchangeable, or a unit trust.”

“A unit trust is not too dissimilar to a company in the sense that you have defined unit entitlement so you have a fixed interest within the trust. Any profits that are derived flow in accordance with that ownership ratio.”

Mr Gold says unit trusts are common, where there are unrelated business partners and the unit trust would then buy the property and then the unit holders would acquire a stake within that property. 

“Commonly the unit itself will obtain finance to buy the underlying asset, not necessarily at the unit holder level, although sometimes that can happen as well and any interest is claimed against the unit trust income of that recipient. So unit trusts are quite good for holding assets between unrelated parties, such as business partners.”

“A discretionary trust on the other hand, there are no defined owners and the trust can therefore allocate whatever income there is in a very, very flexible manner. And so the unit trust has defined unit holders, defined owners, a discretionary trust or a family trust doesn’t. So the single biggest advantage to the family trust is flexibility. With a family trust there are also significant asset protections.”

When looking at trust structures Mr Gold says it’s important to balance your tax implications with complexity for finance reasons.

“In terms of financing, commonly the trustee will obtain the loan and the trustee of both the family trust or a unit trust can either be a company or individuals.”

“Generally speaking the more complicated the structure, the worse it is for obtaining finance so that’s something to bear in mind as well.”

“The cleaner the structure, the easier it is, but the harder and more complicated, yes you might get tax benefits, but it often comes with not being able to get a loan.”

Joint Ventures

Mr Gold says joint venture structures are often best when there is an end-date in mind with the investment.

“With a joint venture, it’s more common with a development than it is with a passive investment because in a joint venture you share the proceeds, not necessarily the profit. So with a joint venture it’s parties bringing something to the table and then the end product, the end properties, are split so more common with a joint venture.“

“Maybe Developer A owns a parcel of land and Developer B owns the parcel next door so you come together with the goal of building something on both parcels of land. Not so common on the passive investment side.”

Consider Interest Rates

In the current low interest rate environment, Mr Gold has started to see a move towards family trusts.

“We have noticed a huge increase in the use of family trusts though, I will say, brought about by low interest rates. As negative gearing is nowhere near as prevalent as what it was a decade ago because interest rates are so low.”

“So when people are taking a longer term horizon, the family trust option, purely if it’s just investment property that is, becomes much more advantageous because the negative gearing losses that the individual used to receive, or the individuals if they were buying it in partnership, aren’t there to the same extent.”

The bottom line is every entity has its advantages and disadvantages, whether it be ease of buying, lower transaction costs, ability to get finance or tax benefits.

One of the major drivers of Australia’s long-term growth in property values has been the steady levels of immigration.

With the Government predicting that immigration will fall by up to 85%, in the coming 12 months alone, that could mean little growth in the short-term – but once the borders reopen, things could change dramatically.

SMATS Chairman, Steve Douglas, says the slowdown in immigration has been hitting certain segments of the market harder than others.

“I’ve always said for the last 25 years that the key to Australia’s success as a property market has been our population growth.”

“With our borders closed, intended migrants haven’t been able to come in. We’ve had a bit of a surge of expatriates coming back, but they may or may not stay.”

Mr Douglas says the fall in student numbers has been particularly telling.

“Short-term and student accommodation are probably the hardest hit. Anything like Airbnb has been fueled by the tourism industry. That’s flattened out to basically zero. We’re seeing that particularly in Melbourne in the CBD, where there are many students.”

“We’re seeing tens of thousands of students stuck abroad and not being able to come back to Australia to continue their studies and have been forced to shift to online.”

Steve Douglas, feels that while there will be some short-term ramifications on the back of the tight border controls.

“Because of the borders being closed, anyone who did not get back to Australia or migrate prior to March is going to have trouble getting into the country.”

“There’s very limited flights, there’s very limited and strict rules, and you have to go into isolation. It’s difficult to move your furnishings and all these sorts of things. So I think we’re going to have a temporary reduction in the population growth as migrants, in particular, find it very difficult to travel and move”. 

The Melbourne CBD Hit Hard

Laura Scott, Senior Property Manager at Aussie Property has already started to see the 

Melbourne CBD market taking a hit.

“We have been seeing a huge halt in the CBD market stock. Due to the boarders being shut this is the hardest area hit by COVID-19.”

“When you have new builds nearing settlement, short stay accommodation companies heavily hit, students who cannot come back into the country, therefore they are exiting their tenancies & with many of the tenants who work in tourism/hospitality, they generally live in the CBD.”

“When you put all of the above together you have a huge over supply of vacant apartments in the CBD & inner CBD areas.”

Laura Scott says that this short-term phenomenon is having a big impact on prices and vacancies, but not everywhere is impacted.

“The vacancy rate for this area is larger than we have seen before, we have had to drop rents dramatically even then this isn’t helping with leasing the properties. Unfortunately, I believe a lot of these apartments will sit vacant until this is all over.”

“Outer suburbs of Melbourne are leasing well, if anything these properties are leased within 2-4 weeks. I haven’t noticed a huge impact to the broader rental market.”

An Immigration Boom Around the Corner

Despite the short-term halt to immigration, Steve Douglas believes this could actually lead to a boom in new arrivals.

“I think we’re going to have a kick up where immigration is going to accelerate faster and largely because of the fact that you’ll have the pent-up demand from those that didn’t arrive.”

“And then you’re going to have a lot of people say, wow, what a major, major thing this was in the world. And if we’ve got to go through something like this again, I might as well go and enjoy myself in a country as lovely as Australia, then be working my tail off in some place that is purely just an employment driven destination.”

Mr Douglas also suspects the way Australia has handled the crisis, might make it an even more appealing destination in the future.

“I think you’re also going to find a lot of people that have been considering going to other countries like the US or Europe may look at Australia as a much better alternative because of the way that we have handled this crisis as well. Australia is looking at this stage to end up being in the COVID champions of the world.”

“What will happen is Australia’s reputation is going to be greatly enhanced and the way it’s been handled by our state and federal leaders has been commendable. The amount of cases is phenomenally low for a population of our size.”

Mr Douglas feels that the way immigration plays out over the next few years will have a large bearing on how prices respond.

“This population growth is literally going to be the determining factor as to where the property market goes over the next six, 12 and 24 months.”

“That could be the silver on the lining of this whole COVID issue is that it puts a real big spotlight on Australia as to how wonderful a place it is – which we’ve always known.”

“If that happens, expect the property market to have a mini-boom.”

With the high cost of living in cities like Melbourne, it is harder than ever to try and save up the deposit for a home loan and that’s one of the reasons many people never started.

Fortunately, if you speak to a residential mortgage broker in Melbourne, there is every chance, they will be able to find a way for you to buy that property – even if you have no deposit.

When you’re looking at a loan with little to no deposit, there will be, of course, a few other requirements that you’ll have to meet. But a residential mortgage broker in Melbourne is the first place you should start as they have access to a broad range of lenders who can find something to suit your personal situation.

Guarantor Home Loans

If you’re a first home buyer, looking to get into the housing market then one of the most effective ways is to use a guarantor to help you get started.

For the most part, this is going to be your parents and they are able to generally offer up equity in their own home to help give you the leg up you might need to get that first property. Once you’ve paid off the guaranteed portion of the loan or your property has appreciated in value by that amount, you can then apply to remove the guarantee. But for getting into your first property quickly, a guarantor loan is a great option.

Your residential mortgage broker in Melbourne will be able to help you identify a lender that will likely be able to lend up to 105% of the purchase price.

What that means is that the entire cost of the house is recovered by the loan, as well as the additional closing costs such as stamp duty. A guarantor home loan is a great way for you to quickly get yourself into your own home, or even get an investment property.

This type of loan is also great for a number of other reasons as well.

Firstly, it will allow you to save money by not paying an LMI premium. Lenders mortgage insurance (LMI) is generally applicable to loans where the LVR (loan to value ratio) is greater than 80%. LMI is an ongoing cost that can be in the thousands of dollars every year.

By using a guarantor loan, this will eliminate the need for LMI, as the lender is using the guarantee from someone, like your parents, to help cover the equity shortfall.

You also have the ability to roll some of your other high-interest loans, into these loans as well, saving you a significant portion of money every month. Things like credit card or car loans are great, but they end up costing you a lot in the long-run. So it’s well worth speaking to a residential mortgage broker in Melbourne about this prior to getting started.

Servicing the Loan

While you might be to access a guarantor home loan, you’re still going to have to be able to actually service the loan that you take out.

At the end of the day, if you can’t meet those monthly payments, the guarantor is also on the line here. That said, they will only be liable for the portion of the home that they are guaranteeing – likely 20%.

That’s why if you do have some savings and show a track record of being able to save to build that deposit, it is going to give a lender far more confidence.

And while your residential mortgage broker in Melbourne will be able to help if you don’t have any savings, you will really be able to open up your options for a home loan if you put a plan in place to save that 5%.

Government Incentives

If you’re in the market for a home loan in Melbourne, the good thing is you also have a number of other Government incentive programs that you might be able to access that you could use as a deposit.

The First Home Super Saver Scheme (FHSS) lets you use additional super contributions to finance your first home. In a way, this is the same as saving for a deposit.

At the same time, first home buyers will have access to the First Home Owner’s Grant (FHOG). However, it is unlikely that it would be enough to cover the full deposit costs, but it could help with things like stamp duty.

With many jobs and sectors being effectively shutdown, investors are increasingly nervous about how they are going to pay their mortgages. And those fears are starting to ripple their way through the property market.

Last month, we started to see a sharp fall in the number of new listings coming onto the market. With all states seeing falls as high as 90% based on data compiled by Ripehouse Advisory. At the same time, the low number of listings and homes going to auction has been exacerbated by thousands of vendors pulling their houses off the market with the fear that they will not be able to achieve an adequate sales price in this environment.

The numbers are looking equally concerning for new investor mortgages. According to data from CoreLogic, mortgage activity in April fell by 16.9 per cent in NSW, 13.8 per cent in Victoria and 25.3 per cent in Queensland.

At the same time, after slashing the official cash rate to 0.25 per cent, the RBA are now out of ammunition. At the latest meeting of the RBA, Governor Phillip Lowe noted that they expect to see, “output falls by around 10 per cent over the first half of 2020 and by around 6 per cent over the year as a whole.”

“The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2-3 per cent target band,” said Lowe.

Lowe has previously noted that 0.25 per cent is already the lower band of where they are prepared to go in terms of interest rate cuts. So in the short to medium term, there doesn’t appear to be any further relief for homebuyers or investors from an interest rate perspective.

Banks Are Getting Squeezed

Up until this point, both the Government and the banking sector have done everything they can to help struggling mortgage holders. The banks have implemented a ‘mortgage holiday’ period, whereby borrowers can temporarily freeze their repayments from anywhere between three to six months.

The problem is that this is only a temporary measure. When the mortgage holiday ends banks are going to need to start calling on borrowers to begin making repayments.

This is made clear by the fact that Westpac just posted a 70 per cent fall in profits and has suspended dividends. Not something its major shareholders are likely going to accept indefinitely and it’s something the major banks will have to strongly consider if they are to remain open for business.

When the time comes for banks to call an end to the mortgage holidays and when the Government payments (via JobSeeker and JobKeeper) finally run dry – what does that mean for mum and dad investors?

The Holiday is Over

Stephen Mickenbecker, Group Executive, Financial Services at Canstar, says there will be cases where banks will continue to work with borrowers as mortgage holidays end.

“When the time comes for the mortgage holidays to end and people are forced to start making repayments, generally speaking, the banks will be open to negotiating that and potentially extending those terms in certain circumstances.”

“Now if you can’t afford those repayments, that’s another matter altogether.”

Mr Mickenbecker thinks that those people who are under mortgage stress already are going to be severely impacted.

“There are still options for borrowers. Banks can put you on interest-only, they can extend your terms. But that is likely based on the fact that you have reasonable equity in your property.”

“But if property prices have fallen, your loan has blown out because you haven’t been making repayments, then it’s the banks problem as much as it is your problem and they’ll be asking if it’s viable for you to stay in your house? For people in extreme financial straights, they will eventually be saying it’s time to move on.”

Forced to Sell

When the mortgage holidays finally end and banks need to start collecting their mortgage payments once again, this could force many mums and dads to sell.

If that happens, will investors and homeowners flood the market en mass?

The scary thought – if there was a mass rush to the gates, and investors have to sell, then the assumption would be that the buyers would be equally impacted. This means the floor falls out of the market and we see huge price falls.

At Ripehouse Advisory, our research has found there are 999,065 dwellings most at risk across the country. These are homes that are in areas that will not fair well when the mortgage holiday period ends and will likely fall into severe mortgage stress.

Many of these areas have a high reliance on tourism or at risk employment and have already seen rental income fall dramatically, if not completely.

At the same time, there are many property ‘experts’ out there suggesting this is one of the greatest buying opportunities we’ve ever seen. Telling investors to buy into these very areas.

These ‘experts’ continue to quote the great investor Warren Buffett who says to be “fearful when others are greedy and greedy when others are fearful.” The only problem is that Warren Buffett has busy been selling stocks and is now sitting on huge a pile cash. 

If the Oracle of Omaha, isn’t ready to start buying just yet, should we really be listening to these so-called property experts?

No one knows how the next 12 months will play out, but what we do know for sure, is that there are nearly one million dwellings in Australia that are at high risk and will be facing severe mortgage stress in as little as three months time. 

With that in mind, it’s important to consider that when buying an asset, just because something’s cheap, doesn’t mean it’s good value.