<p>The residential transformation of St Kilda Road is set to continue into with more new apartment plans for the sought-after boulevard.</p>

<p>Wing Tai Asia has lodged plans for a major residential tower at 464-466 St Kilda Road, replacing the former VACC House with an 18-storey mixed-use development designed around a retained heritage podium and a sculpted contemporary tower.</p>

<p>The proposal, prepared under Victoria’s Significant Residential Development with Affordable Housing pathway, would deliver 325 apartments and ground-floor retail across the prominent 4,653 sqm boulevard site in Melbourne’s St Kilda Road North Precinct.</p>

<p>The project centres on the adaptive reuse of the site’s heritage-listed VACC Building, an eight-storey office designed by Bernard Evans that has occupied the address for decades. Planning documents state the development would involve “carefully dismantling and conserving off-site the original metal fabric of the podium visible from St Kilda Road,” before reinstating it as the defining frontage of the new scheme.</p>

<p>Above the restored podium, Wing Tai is proposing a curvilinear residential tower. The scheme includes 172 one-bedroom apartments, 63 two-bedroom apartments, 66 three-bedroom apartments, and 24 four-bedroom apartments, alongside two ground-floor food and beverage tenancies fronting St Kilda Road.</p>

<p>The tower has been designed with substantial articulation and variable setbacks to minimise perceived bulk and maintain view corridors along the boulevard. Urbis, which prepared the planning report, said the design “has been significantly articulated through a curvilinear design” with “an interplay with materials, façade expression and depth” to create visual separation and visual interest.</p>

<p>The proposal also includes 254 basement car spaces, landscaped pedestrian links connecting St Kilda Road and Queens Lane, and a biophilic landscape strategy featuring canopy trees, raised planters, cascading greenery and a glass oculus pool overlooking the eastern frontage.</p>

<p>Planning documents confirm the $270.1 million development will contribute 3 per cent of project costs to the Social Housing Growth Fund as part of the application process.</p>

<p>Wing Tai acquired the St Kilda Road property in 2018 alongside Abacus Property Group for $95.38 million, before later consolidating ownership of the site. The property previously served as the Victorian Automobile Chamber of Commerce headquarters for around 60 years.</p>

<p data-end="345" data-start="110">The transformation of the St Kilda Rd boulevard is already beginning to materialise, with a number of high-profile projects recently completed, launched, or approaching launch as developers continue to back the long-term appeal of the precinct.</p>

<p data-end="689" data-start="347">Among the most notable recent completions is Louise by Samuel Property Group, just off the strip on Queens Lane, the same pocket Hirsch &amp; Faigen recently launched The Queensbury. Mirvac is too on the same street with The Albertine, which is approaching completion.</p>

<p data-end="689" data-start="347">Dexus recently secured approval for its slice of St Kilda Road, while Gurner also has approved plans for the precinct.</p>


Joel Robinson

Wing Tai unveils 325-apartment St Kilda Road tower on former VACC House site

<p>Malaysian developer <a href="https://www.apartments.com.au/developers/s-p-setia">SP Setia</a> is the latest to jump into St Leonards booming Transport Oriented Development precinct.</p>

<p>The developer, which has previously delivered Sapphire by the Gardens apartment development in Melbourne, identified the Atchison Street site in 2023. It filed a Scoping Report around 12 months ago, and now has revealed the designs for the new&nbsp;40-storey mixed-use tower.</p>

<p>The State Significant Development Application covers <a href="https://next-portal.urban.com.au/projects/14650/summary">20-22 Atchison Street</a>, a 1,374 sqm site positioned between St Leonards Station and the new Crows Nest Metro station.</p>

<p>Designed by <a href="https://www.apartments.com.au/architects/cox-architecture">COX Architecture</a>, the project would deliver 181 apartments, above a four-storey commercial podium, five basement levels, and new public domain works along Mitchell Street. The apartment mix comprises 35 one-bedroom apartments, 39 one-bedroom-plus-study apartments, 85 two-bedroom apartments, and 22 three-bedroom residences.</p>

<p>The proposal has been lodged as a shop-top housing development under the NSW Government’s TOD planning pathway, which allows increased density around key transport infrastructure. The site sits within the recently rezoned Crows Nest Accelerated TOD Precinct.</p>

<p><img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b799673d-48e2-46b0-801a-0e33a9330100" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20site.png?VersionId=dPh0UfwfaHpbFL1R7H1cbZNbIW0CHbCC" /></p>

<p>SP Setia acquired the Atchison Street site as part of its continued expansion into the Australian apartment market. In comments made to City &amp; Country (The Edge Malaysia) in 2023, SP Setia President and CEO Datuk Choong Kai Wai described the acquisition as “a strategic move” aligned with the group’s post-pandemic market recovery strategy.</p>

<p>“Our target for this exceptional development is local and overseas buyers, including first-home buyers, downsizers and investors,” Choong said.</p>

<p>The tower has been designed as a slender vertical form rising from a mixed-use podium, with COX Architecture positioning the development as a response to the evolving St Leonards and Crows Nest skyline.</p>

<p>“The purpose of the project is to facilitate the delivery of high-quality housing at a strategically located site and deliver a built tower outcome that is consistent with the desired future character of St Leonards and aligns with the TOD controls,” the design report stated.</p>

<p><img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b1a85eee-76f7-436c-a6da-73ba827b9b13" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20entry.png?VersionId=dA9jHGPMcm.dDbwk4QfxqWiY5bfh3UVt" /></p>

<p>The podium would incorporate retail uses fronting Atchison Street, commercial tenancies, landscaped communal areas, and pedestrian improvements along Mitchell Street. Vehicle access and loading would be consolidated via Atchison Lane.</p>

<p>Residents would have access to more than 665 sqm of communal indoor and outdoor spaces, while the development proposes 96 parking spaces across five basement levels.</p>

<p>The proposal also includes a commitment for 10 per cent of residential floor space to be allocated toward affordable housing through a monetary contribution.</p>

<p>COX said the tower form responds directly to the emerging high-density character of the precinct while seeking to maximise solar access, cross ventilation, and outlook from apartments.</p>

<p><img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="2163f85c-f63b-4be3-aafa-f8763976cec5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Article%20Feature%20Image%20%28Grid%29_5.png?VersionId=WiAmtIKJ6.ZQ41EtYEQ1fol7AeorKBlL" /></p>

<p>“The building is orientated towards north,” the Apartment Design Guide compliance report noted, adding that the tower’s slim form was driven by the constrained inner-urban site dimensions.</p>

<p>The design also incorporates landscaped setbacks and communal open space at podium level, intended to soften the interface with surrounding streets and improve pedestrian amenity.</p>

<p>The project adds to a growing wave of redevelopment proposals reshaping St Leonards and Crows Nest following the opening of the Sydney Metro City line and the NSW Government’s push for higher-density housing around major transport nodes.</p>

<p>Last week Stockland filed plans just down the road. They want to build a <a href="https://www.apartments.com.au/new-apartments/601-pacific-highway-st-leonards-nsw-2065">52-storey tower on Pacific Highway</a>.</p>

<p><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">First look: Stockland plans 52-storey, 538-apartment St Leonards tower&nbsp;</a></em></p>


First look: SP Setia targets St Leonards skyline with 40-storey TOD tower

<p><a href="https://www.apartments.com.au/developers/urban-property-group">Urban Property Group</a> has revealed plans for a new mixed-use tower at 10 Dangar Street, Wickham, advancing a proposal that would reshape the southern gateway to Newcastle’s city centre with one of the city’s tallest residential buildings.</p>

<p>The State Significant Development proposal, now on exhibition, seeks approval for a <a href="https://www.apartments.com.au/new-apartments/bowline-10-dangar-street-wickham-nsw-2293">43-storey tower</a> immediately adjacent to the Newcastle Interchange. The project would deliver around 200 apartments, including 42 affordable housing dwellings, alongside 99 co-living units, a 171-room hotel, retail space, and new public domain integrated through the site.</p>

<p>The scheme marks a significant escalation of plans previously approved for the site. Urban Property Group took over the prominent 2,904 sqm parcel, where excavation and demolition had already commenced under an earlier consent for a 14-storey mixed-use development.</p>

<p><img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="58a96dd9-407f-4d20-86b4-94e4bfeef74b" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20podium.png?VersionId=LGlf08pdFGAZDzvx_CXC4XakHNZRuEE0" /></p>

<p>Designed by <a href="https://www.apartments.com.au/architects/sjb-architects">SJB</a>, the tower has been conceived as a landmark transit-oriented development anchored to the Newcastle Interchange precinct. The proposal includes 245 build-to-sell apartments across a mix of one, two, and three-bedroom residences, as well as two penthouses. Fifteen apartments and one operational unit are earmarked for NDIS housing. The co-living component would add a further 99 units, while the podium would accommodate retail uses and hotel facilities.</p>

<p>SJB said the site presents “a valuable opportunity to anchor the precinct by setting the standard for design, active ground planes and character at the key southern gateway.”</p>

<p>The architecture responds directly to the site’s position beside major transport infrastructure and within one of Newcastle’s fastest-evolving urban renewal precincts. The tower form sits above a sculpted podium designed to frame new public spaces, including a through-site pedestrian link connecting Station Street to Hannell Street, landscaped plazas, and activated retail edges.</p>

<p><img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="a7bd6ff0-f7db-4ce8-a6dc-ea56e72c6149" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20lanne.png?VersionId=xzf39VADyhj7zBQY2I9fx9vI62u2tuSb" /></p>

<p>The design report describes the project as part of the broader transition of Wickham into “a vibrant, high-quality mixed-use urban precinct” that leverages proximity to the station, open space, and regional connectivity.</p>

<p>A detailed public art strategy has also been prepared for the development. The strategy positions the project as “a transit-oriented development of state significance at the gateway to Newcastle’s city centre” and outlines a series of integrated artworks responding to Newcastle’s industrial and transport heritage.</p>

<p>Creative Road’s curatorial framework for the project, titled Unveil, draws on “stratified surfaces, carved volumes, and light-filled apertures” while referencing Newcastle’s transformation from an industrial city into a contemporary education and technology hub.</p>

<p><img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="77a882bb-14b1-4d28-99ff-9438e39508c0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20site.png?VersionId=cevgo_vN0eKPK78P8YcEu3mKPLkpFqE7" /></p>

<p>The proposal is being advanced through the NSW Housing Delivery Authority pathway after being declared State Significant Development in June 2025. The accompanying scoping report states the development aims to “maximise the site’s proximity to the Newcastle Interchange by delivering transit-oriented development” while increasing housing supply and affordable housing provision within the Newcastle LGA.</p>

<p>Urban Property Group’s plans align with the long-term strategic vision established under the Wickham Master Plan, which identified the interchange precinct as suitable for substantial uplift in height and density. The current proposal would significantly intensify that vision, positioning the tower among the tallest developments proposed for Newcastle.</p>

<p>The site sits immediately north of the Newcastle Interchange, bounded by Dangar Street, Hannell Street, and Charles Street. It is surrounded by a rapidly growing cluster of residential towers and mixed-use projects that have emerged following the completion of the light rail and transport interchange.</p>


First look: Urban Property Group unveils Newcastle’s latest tower at Wickham interchange

<p>Bottega House has completed settlement of a landmark riverfront site in Macquarie Street, St Lucia, representing its first major Brisbane development.&nbsp;</p>

<p>Positioned on the banks of the Brisbane River, the <a href="https://www.apartments.com.au/new-apartments/180-macquarie-street-st-lucia-qld-4067">premium site at 180 Macquarie Street</a> features uninterrupted river frontage in one of Brisbane’s most tightly held residential precincts.&nbsp;</p>

<p>The proposed development, currently under assessment with Brisbane City Council, has been designed by <a href="https://www.apartments.com.au/architects/plus-studio">Plus Studio</a> with interiors by <a href="https://www.apartments.com.au/interior-designers/mim-design">Mim Design</a> and will deliver a boutique collection of premium residences positioned specifically for owner occupiers and downsizers.&nbsp;</p>

<p>The residences are set to redefine luxury apartment living in the area, with a focus on architectural quality, refined finishes, landscape integration and elevated amenities including curated wellness facilities, resort-style pools and recreation spaces rarely seen in the local market.&nbsp;</p>

<p>Exclusive sales for the project will be led by Keenan &amp; Byrne, ahead of an anticipated launch later this year.&nbsp;</p>

<p>Bottega House Managing Director Nick Malloch said the project reflects the group’s ambition to deliver a highly curated residential offering within one of Brisbane’s most tightly held precincts.&nbsp;</p>

<p>“This is an incredibly rare riverfront opportunity and one we have approached with a long-term perspective,” Malloch said.&nbsp;</p>

<p>“Our vision from the outset was to create a boutique collection of residences that feel more like private homes than traditional apartments, with generous proportions, refined finishes and exceptional amenity throughout."</p>

<p>Malloch says there is a&nbsp;lack of premium owner-occupier stock of this quality in the market, particularly for downsizers wanting space, privacy and a true lifestyle offering without compromise.&nbsp;</p>

<p>"Demand is expected to be strong given the scarcity of premium riverfront opportunities of this nature within Brisbane’s inner-west."&nbsp;</p>


Bottega House secures landmark riverfront site in St Lucia 

<section data-scroll-anchor="false" data-testid="conversation-turn-6" data-turn="assistant" data-turn-id="request-WEB:84a2af5e-d7cf-4ddf-922a-f4d44d6c6caa-2" data-turn-id-container="request-WEB:84a2af5e-d7cf-4ddf-922a-f4d44d6c6caa-2" dir="auto">
<section data-scroll-anchor="false" data-testid="conversation-turn-2" data-turn="assistant" data-turn-id="request-WEB:5a5ab36c-8dd3-454c-b456-c501f22f0eb4-0" data-turn-id-container="request-WEB:5a5ab36c-8dd3-454c-b456-c501f22f0eb4-0" dir="auto">
<p data-end="157" data-start="0">The arrival of the first piling rig officially marks the commencement of construction at SIERA’s new beachside apartment development, Exhale, in Northcliffe.</p>

<p data-end="459" data-start="159"><a href="https://www.apartments.com.au/new-apartments/exhale-surfers-paradise-8-enderley-avenue-surfers-paradise-qld-4217">Exhale</a>, a glass-encased tower featuring 54 large-scale apartments at 8 Enderley Avenue, is SIERA’s third Gold Coast development. It follows the recently completed PIPIS Bilinga beachfront project, which achieved suburb-record prices, and the soon-to-be-completed Chevron Island development, Tapestry.</p>

<p data-end="459" data-start="159">[smartcode_project:default project_id=112661 project_image_fid=359603]</p>

<p data-end="651" data-start="461"><a href="https://www.apartments.com.au/developers/siera">SIERA</a> Founder and Managing Director Brent Thompson said the arrival of the piling rig represented a significant milestone for the development, which is scheduled for completion in late 2028.</p>

<p data-end="950" data-start="653">Over the next month, around 260 piles are expected to be installed as work progresses on the basement structure. The building is anticipated to rise above ground level early next year, before unveiling its sculptural glass curtain wall, developed in collaboration with specialist façade engineers.</p>

<p data-end="1081" data-start="952">“The façade was designed to maximise panoramic coastal views while creating a distinctive architectural identity,” Thompson said.</p>

<p data-end="1081" data-start="952">[smartcode_project:default project_id=112661 project_image_fid=355935]</p>

<p data-end="1307" data-start="1083">Designed by BDA Architecture, Exhale will comprise just 54 two- and three-bedroom residences across 26 levels, a level of low-density living rarely delivered in this beachside pocket between Surfers Paradise and Broadbeach.</p>

<p data-end="1522" data-start="1309">The project has been conceived as a resident-only building, with no short-stay accommodation permitted. SIERA says the model is intended to appeal to long-term owner-occupiers rather than transient holiday demand.</p>

<p data-end="1522" data-start="1309">[smartcode_project:default project_id=112661 project_image_fid=361052]</p>

<p data-end="1714" data-start="1524">Residences have been designed with large-format layouts and expansive glazing, with most apartments featuring more than 30 metres of glass frontage to maximise natural light and ocean views.</p>

<p data-end="1945" data-start="1716">The amenity offering spans two levels and centres on wellness and lifestyle, including a heated magnesium pool, sauna, yoga and Pilates studio, gymnasium, private dining facilities, cinema lounge, and dedicated surfcraft storage.</p>

<p data-end="1945" data-start="1716">[smartcode_project:default project_id=112661 project_image_fid=359607]</p>

<p data-end="2220" data-is-last-node="" data-is-only-node="" data-start="1947">More than half of the apartments have already sold. SIERA has also opened a sales gallery for Exhale at its Chevron Island commercial premises, near its Tapestry tower and the site of its second Chevron Island apartment development, which is slated to launch in early 2027.</p>
</section>
</section>

<p>[smartcode_project_cta:default project_id=112661]</p>


SIERA kicks off construction at Northcliffe tower Exhale

Investment

<html><body>
<p class="Body">There is no one correct strategy for successful property investment.</p>
<p class="Body">There are many diverse ways to grow your wealth with residential real estate. The best strategy depends on the individual.<span style="line-height: 1.3em;"> </span></p>
<p class="Body">But the various methods have one thing in common. They work only if the individual investor implements the plan with intelligence and diligence.</p>
<p>I’ve been involved in a series of seminars in recent weeks, as a speaker and as an organiser. I’ve witnessed discussion of numerous investment strategies. They all work, so long as the individual investor is accesses good information, taps into quality advice and makes good locational choices.<span style="line-height: 1.3em;"> </span></p>
<p>I’ve presented at a number of seminars organised by Melbourne-based Performance Property Advisory. This business has a very clear approach to property investment on behalf of its clients, based on a singular focus on the one capital city that presents the best buying opportunities and potential for capital growth. Three years ago it was Sydney and more recently Brisbane was the focus.</p>
<p>The approach is very much quality homes in inner-city suburbs. From what I can tell, it works well for Performance Property’s client base. It’s a good strategy but there are others equally valid.</p>
<p>One of the approaches used by Brisbane-based PPI Advice is creating equity by buying houses where the land and zoning allow additional dwellings on the property. They’re focused primarily on inner and middle-ring suburbs of Brisbane, when the housing and amenities are of a high standard.</p>
<p>I’ve seen examples where investors have had considerable success with this kind of value-adding exercise. Done well, equity of $400,000 or $500,000 can be generated on one property.</p>
<p>On Saturday I spoke at a Melbourne seminar organised by Louise Lucas and the Property Education Company. Other speakers included clients of the business who have built substantial portfolios of well-performing properties by buying in affordable suburbs of capital cities and in good regional centres.</p>
<p>Some of the properties featured were what I sometimes refer to as “ugly real estate” – the kind of houses that make you think “I’m not sure I’d want to live in something like that”, located in downmarket suburbs with a certain kind of reputation.</p>
<p>But I know from three decades of research that ugly real estate grows strongly in value if it has certain qualities. If it’s solid, affordable and well-located in terms of public transport, schools and shops, it’ll appreciate in value. It doesn’t need to be pretty to achieve good capital growth.</p>
<p>Many downmarket suburbs have excellent capital growth rates. That’s why I often urge investors not to be real estate snobs. The key question is not “Would <span style="text-decoration: underline;">I</span> be happy to live there?” but “<span style="text-decoration: underline;">Who</span> would be happy to live there?”</p>
<p>People may aspire to live in the prime suburbs but most can’t afford it. They buy where they can afford the prices. If it’s solid and located near desirable amenities and jobs nodes, they’ll overlook a lot.<span style="line-height: 1.3em;"> </span></p>
<p>That’s why the greatest demand goes to the cheaper areas.<span style="line-height: 1.3em;"> </span></p>
<p>That’s why 234 people bought in Toorak (median $3.1 million) in the past year, but 801 in Frankston ($388,000) and 1,187 in Point Cook ($470,000). Houses sell twice as fast in Frankston as in Toorak and the rental yields are double.</p>
<p>Which is the right way to do it? It depends on the individual, where their preferences lie and how much they can afford to pay.</p>
<p>They’re all the right way – if the individual investor goes about it the right way. The right way includes undertaking genuine research and being prepared to pay for good information and quality advice.</p>
<p> </p>
<p><em>Terry Ryder is the founder of <a href="https://www.hotspotting.com.au/" target="_blank">hotspotting.com.au</a>. You can <a href="https://mailto:ryder@hotspotting.com.au" target="_blank">email him</a> or follow him on <a href="https://twitter.com/hotspotting" target="_blank">Twitter.</a></em></p>
</body></html>

terryryder-YECXbqmri2

Don't be a real estate snob: Terry Ryder

<html><body>
<p>GUEST OBSERVER</p>
<p>Australian super members have earned returns of 117% on average since the depths of the Global Financial Crisis (GFC) nine years ago, despite February producing the first negative monthly return since January 2017. Recent data also reveals the risk for members in trying to time the market over that nine-year period and the cost of potentially switching products due to a relatively short period of underperformance.</p>
<p>SuperRatings has reported a return of -0.3% in February for members in a balanced option fund. Over the nine years since the GFC, the median balanced option fund has delivered an average return of 9.0% per annum (representing accumulated growth of 117%). For members in growth option funds (growth assets of 77–90%), the median return has been even higher, reaching 9.9% per annum. or an accumulated 134%.</p>
<p>Our data also reveals that a flight to relative safety in times of volatility can have long-term effects on investment performance. If the volatility of the GFC resulted in a member switching from a relatively riskier growth option to a balanced option during the depths of the crisis in 2009, they would be approximately $17,700 worse o today (assuming a starting balance of $100,000). </p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/3/16/super%20rating%201.jpg" alt=""></p>
<p>The lesson for superannuation members is that a focus on long-term performance is essential. While members may feel unnerved by recent volatility, it is impossible to ignore the significant gains that super funds have delivered since the start of the bull market in 2009.</p>
<p>February’s market correction had a negative impact on super fund returns, but when assessed within the context of long-term performance, the overall effect is negligible. Our estimate is that the median balanced option return for February was -0.3% for accumulation funds and -0.4% for pension funds. Australian shares managed to rebound from early falls, with the S&amp;P/ASX 200 Index 90% recovered by the end of the month. Despite the recent market pullback, superannuation members have good reason to be positive.</p>
<p>Ater nine years, you might say the global share market rally is getting a bit long in the tooth, but this is at odds with the economic data, which is pointing to a strengthening economy.</p>
<p>Market corrections, while they can cause members to panic, are often a necessary check against bubbles. What the recent volatility tells us is that the market is capable of self- re flection, and that investors are focused on valuations as well as the broader economic picture.</p>
<p><strong>Choice of fund matters</strong></p>
<p>Looking back to the start of the bull market, there has been significant dispersion between the best and worst performing balanced funds. The worst performing fund has only managed to outperform inflation since July 2013. </p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/3/16/super%20rating%202.jpg" alt=""></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/3/16/super%20rating%203.jpg" alt=""></p>
<p><strong>REST in top spot over 10 years</strong></p>
<p>SuperRatings’ return data for January show that REST has taken first place among balanced option accumulation funds, returning 7.0% per annum. over 10 years, followed by CareSuper, which returned 6.9%. All funds within the top 10 have delivered in excess of CPI plus targets, highlighting the strength and consistency of Australia’s top performers.</p>
<p>Among growth funds, CareSuper was the leader, returning 7.3%, followed closely by Energy Super, which returned 7.3%. While balanced funds still represent the most popular option among members in both the accumulation and pension phase, growth option performance is becoming increasingly relevant. Since 2008, member allocation to higher growth options (including local and international shares, property, and high growth options) has risen from 8.4% to 13.6%, and SuperRatings expects that this trend will continue. </p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/3/16/super%20rating%204.jpg" alt=""></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/3/16/super%20rating%205.jpg" alt=""></p>
<p><em><strong>Kirby Rappell</strong> is CEO of <a href="https://www.superratings.com.au/" target="_blank">Super Ratings</a>.</em></p>
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j.ballantyne1990-6AQqhLzZaK

Super members are in a winning market despite volatility: SuperRatings

<html><body>
<div>EXPERT OBSERVER</div>
<div> </div>
<div>Actual investment was quite flat over the third quarter of the calendar year at a seasonally adjusted $29.4 billion, while fortunes have diverged significantly around the traps, according to the latest data from CapEx.</div>
<div> </div>
<div>In the economic powerhouse state of New South Wales the quarterly trend investment for private capital investment tore 12 per cent higher over the year to September 2018 to a record high of $8.22 billion. </div>
<div> </div>
<div>No wonder Greater Sydney has created almost 120,000 new jobs on a net basis over the past year, with plenty more coming down the pipe!</div>
<div> </div>
<div>Building and structures investment exploded 20 per cent higher over the year in NSW, while plant and equipment investment was up by a pretty solid 5 per cent. </div>
<div> </div>
<div>Huge investment numbers for the Premier State.</div>
<div> </div>
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<div class="separator">There was also steadier trend growth in Victoria, South Australia, and Queensland, while Tassie was off the charts with capital investment up by a ripping 33 per cent over the year to September, albeit from a low base in this cycle. </div>
<div class="separator"> </div>
<div class="separator">Unfortunately this was offset by shrinking investment in Western Australia - the quarterly trend now a walloping 62 per cent below the heady 2012 peaks - while Ichthys LNG investment has now dropped off the charts for the struggling Northern Territory. </div>
<div class="separator"> </div>
<div class="separator">On the plus side a number of iron ore and other resources projects are now hoving into view for WA, so from a sentiment perspective the bottom is now likely to be in out west. </div>
<div class="separator"> </div>
<div class="separator"><strong>Brighter times ahead</strong></div>
<div class="separator"> </div>
<div class="separator">Despite the modest actuals the Reserve Bank will surely be well pleased with this release, with the fourth estimate for 2018-19 capital investment rising all the way up to $114 billion, a substantial double-digit lift from the third estimate of $102 billion.</div>
<div class="separator"> </div>
<div class="separator">We haven't seen a quarterly upgrade in expectations of this magnitude for just shy of two decades. </div>
<div class="separator"> </div>
<div class="separator">The additional investment is planned and expected largely for the services industries, although investment in both mining and manufacturing also appears set to rise. </div>
<div class="separator"> </div>
<div class="separator">Overall, it was a sluggish result for actuals due to the seemingly endless drag from the resources jurisdictions, but Sydney is firing and the expectations for investment recorded a solid improvement. </div>
<div class="separator"> </div>
<div class="separator"><em>PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>.</em></div>
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NSW investment booming: Pete Wargent

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<p>Premium investment properties remain highly sought after by private, high-net-worth investors, according to Colliers International.</p>
<p>Paul McGlynn and Harry Bui of Colliers have sold McDonald’s Bella Vista (pictured above) to a private Asian investor from Melbourne for $6.65 million on a net yield of 3.1%. </p>
<p>The acquisition was for a 2,885sqm long-term ground lease. </p>
<p>McDonalds Australia constructed a brand-new single level restaurant with dine-in and drive-thru take-away facility, open to the public since May 2019.</p>
<p>Mr McGlynn and Mr Bui will be also taking the adjoining Shell Service Centre Bella Vista (pictured below) to the market for sale by international expressions of interest.  </p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/9/21/Norwest_060820_36%20Large.jpg" alt=""></p>
<p>Both properties are located in a gateway position at the entrance of Norwest Business Park within the north-west growth corridor in Sydney’s Hills District.  </p>
<p>On a 2,813sqm site, this new Shell service station with an annexed café is anticipated to receive high levels of interest from both local and international investors.</p>
<p>The opportunity benefits from its premium location in Norwest Business Park, long WALE profile of 10 years by income, strong annual rental escalation, and head lease to Viva Energy Australia with a fully leased net passing income of around $604,544 per annum. </p>
<p>“Premium investment properties with long leases such as a freestanding petrol station leased to Viva Energy, 7-Eleven, Caltex, BP or freestanding fast food sites like McDonald’s are currently very sought-after,” said Harry Bui, National Director, Investment Services at Colliers International. </p>
<p>“Private high net worth investors are the most common buyer profile within the sub-$20million investment market, while both property syndicates and consortiums showed increased interest towards premium investment assets with longer WALE’s and company leases to national blue-chip corporate tenants.” </p>
<p>There have been several significant national portfolio sales for premium investments in the past year.</p>
<p>This includes; 33 7-Eleven petrol stations, which sold for $156 million in October 2019 and February 2020 with an average yield of 4.76% and; 25 Caltex petrol stations sold for $133 million in November 2019 with strong underlying land values for future development.  </p>
<p>Charter Hall also took a 49% stake in a portfolio of 225 BP petrol stations in Australia, worth $1.7 billion with a weighted average lease expiry (WALE) of 20 years which was the biggest deal of 2019. </p>
<p>Paul McGlynn, National Director, Industrial at Colliers International said that the Norwest area where both properties are located will benefit from major State and Federal Government projects.</p>
<p>“Norwest is in the suburb of Bella Vista which is surrounded by major State and Federal Government infrastructure projects, specifically the North-West Metro which opened in May 2019, North-Connex due to open next month, the re-development of Parramatta CBD (11 kilometres South) and establishment of the new second Western Sydney Airport (43 kilometres West).”</p>
<p>“These infrastructure projects coupled with substantial increases in new residential dwellings and population growth locally will rejuvenate and promote Western Sydney, helping the area to become a major economic powerhouse.”</p>
<p>Colliers International will also be bringing a brand-new, flagship BP in Tighes Hill, Newcastle to market.<span style="font-size: 12.16px;"> </span></p>
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Two Norwest properties in Sydney indicate premium investments remain sought after

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<div>There's been a fair amount of talk about negatively geared landlords, and whether they might need to sell property during the rental market disruption.<br><br>You should never judge a 20-30 year investment on what's happening right now, but it's nevertheless worth taking a look at the current state of play.<br><br>With the Airbnb sector effectively shuttered at the present time some areas have seen a 5 to 10 per cent jump in rental listings as landlords seek tenants, especially in areas that are generally popular with students, holidaymakers, or short-stay lets.<br><br>With the borders also effectively closed to New Zealanders, tourists from China and India, and international students, there's likely to be a scramble for tenants over the coming months.<br><br>On the flip side, of course, Aussies aren't heading overseas either, so the net effect is less pronounced.<br><br><div class="separator"><img src="https://1.bp.blogspot.com/-NHMwiB8le_s/Xqi_KI_OKqI/AAAAAAAA1co/f9bzKMhEbmYEpvVXqz0_K20qZL-txRQgACNcBGAsYHQ/s640/STDs.jpg" width="640" height="374" data-original-height="801" data-original-width="1370"></div>
<br>The New South Wales State Government looks set to do its part with the apartment overhang by buying up unsold new apartments from developers. </div>
<div> </div>
<div>The compensating good news for landlords is that some of the available mortgage rates have plunged over recent months.</div>
<div> </div>
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<p>The latest figures aren't available yet, but when they are they'll probably show that interest cost serviceability is back to where it was about 35 years ago.</p>
<p><img src="https://1.bp.blogspot.com/-U63M-j09Ntk/Xqi7novQO8I/AAAAAAAA1cc/OkXV1ekccmcdanXhcxsw06e9sh5RH5xYgCNcBGAsYHQ/s640/RBA.jpg" width="640" height="366" data-original-height="804" data-original-width="1405"></p>
<p>Some of the 'rack rate' variable mortgage rates are still unreasonably high for investors, but for those taking a  moment to shop around rates may now be very low indeed. </p>
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<div>New owner-occupiers can secure mortgages from close to 2 per cent in some cases, while rates tend to be higher for investors. </div>
<div> </div>
<div>A lot of the statistics quoted on the number of negatively geared landlords are years out of date (the figure was 1.3 million in 2016-17, but interest rates have nosedived since then, so the figure would be lower today). </div>
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<div>Even assuming flat rents, a stylised model suggests that net rental losses will now be the lowest in years.</div>
<div> </div>
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<div>Most investors own one rental property, and the <em>average</em> net rental losses will probably be about $1,000 to $1,500. </div>
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<p>The detailed Australian Taxation Office statistics <em>do</em> show that many of those investors aged between 30 and 60 choose to hold an investment property with a reportable net rental loss of between $5,000 and $10,000 per annum, partly to reduce their income tax payable. </p>
<div>Generally this cohort tends to be the white collar set, earning solid incomes in relatively speaking more secure positions.<br><br><strong><span style="text-decoration: underline;">Depreciation report (MCG)</span></strong>
</div>
<div> </div>
<div>Moreover, the net rental loss reported to the ATO is not the same thing as the investor's cashflow.</div>
<div> </div>
<div>In fact it's possible to be negatively geared from a taxation perspective but still to have a positive cashflow, due to on-paper depreciation benefits and capital allowances. </div>
<div> </div>
<div>MCG's <em><strong>1000 Assets 2020</strong></em> report showed that there was a big increase in investors buying new property over a period of four years through the construction boom.<br><br>These investors tend to receive very significant depreciation benefits, but I expect there will many investors in this cohort facing negative equity as brand new property tends to...well, depreciate.</div>
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<div class="separator">MCG's study also found that investors have become more aware of depreciation benefits, and as a result they're claiming deductions sooner than they used to. </div>
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<div><em> </em></div>
<div><em>Source: MCG Quantity Surveyors</em></div>
<div><span style="text-decoration: underline;"><em> </em></span></div>
<div>Some property investors will choose to sell, of course.<br><br>But the number of forced sellers will be lower than otherwise would've been the case due to record low mortgage rates, while borrowers have also been extended the option to switch to interest-only loans or take a 6-month repayment holiday. </div>
<div> </div>
<div>A couple of years ago many reports suggested that the interest-only reset would lead to a spike in mortgage arrears, but owners adapted and arrears barely moved. <br><div> </div>
<div>
<strong>PETE WARGENT</strong><em> is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>.</em>
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Will investors hold or sell in this troubled time? Pete Wargent

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<p>With so many different options available for residential property investors, how do we decide on what is the best strategy when there are so many gurus out there promoting various investment strategies?</p>

<p>Whilst there is no cookie-cutter approach (and there shouldn’t be, for something so important), what I have found is that the only way to true long term wealth in property is to have a long term focus. This sounds simple, and it is but time and time again I see investors pack up and go home and give up on their dreams because ‘it didn’t work’. Sadly, had these investors had more of a long term focus, a plan, and a team around them to help them succeed, then perhaps their results would have been different. There are two components to this that cause people to give up. Firstly, they chose the wrong property, most likely in the wrong area for the wrong price, at the wrong time. Secondly, they probably sold that property because they followed the advice of well-intended family and friends, the media, or more commonly, they simply got impatient and sold up. Whatever the reason, to have long term success in property we need to take some of the focus off the ‘property’ and put some emphasis on the ‘strategy’ which is what is lacking for most investors.  </p>

<p>So if we are looking for an investment option that can take away some of the stresses and financial pains that a lot of investors face, causing them to sell and give up, then perhaps buying off the plan could be the smartest decision you ever make. Now, of course, this is just general information and may not suit everyone, however here’s a snapshot of 7.5 reasons why buying off the plan could be a good strategy for you:</p>

<p> </p>

<h2><strong>1. LESS HEADACHES </strong></h2>

<p>When building a property portfolio one of the biggest headaches and frustrations for property investors, is maintaining the asset and making sure you can manage cashflows. Often I find that investors get disheartened and frustrated with their property investing because of the ongoing costs, and it slows them down. Looking over their portfolios it's often clear that the types of property they have chosen to invest in are inappropriate for their situation. You see, an older property may need significant repairs and maintenance to keep it up to standard. Often we find that big-ticket items need to be replaced, such as hot water systems, kitchens, bathrooms, or even bigger issues like a roof replacement or rewiring that can come out of the blue. It’s surprising how many people are out there buying investment properties but not considering these huge costs that need to be factored into their overall cashflow position.</p>

<p> </p>

<h2><strong>2. BETTER CASHFLOW </strong></h2>

<p>With a nice new property available for rent, you will often find that tenants are looking for all of the amenity that new properties provide. With more and more people renting these days, it’s no surprise that tenants are looking for all of the modern conveniences that owner-occupiers enjoy. When I was growing up, we always knew which were the ‘rentals’ in an area – they were always tired and run-down properties. But now, due to house prices being out of reach for many, our society is in the middle of a shift over the next few decades of learning to become ‘renters for life’. If you are looking to rent, no doubt you will pay a slight premium to live in a property with a dishwasher, new carpet, working air-conditioning and heating and secure parking. Tenants are more likely to stay for longer leases if they are happy with the amenity of both the property and the suburb it is located. This balances out your cash flow and will help you to keep the portfolio going, without having to keep big buffers aside for repairs, that could be put to work elsewhere. </p>

<p> </p>

<h2><strong>3. TAX BENEFITS </strong></h2>

<p>As an investor, you have the luxury of claiming depreciation benefits on your property which can give you a boost in your tax return. Second hand (established) properties do not provide such substantial tax benefits which can mean that investing in new properties can help you build your portfolio faster. I always teach people that its less about the property and more about the strategy. Of course the property is important, but you need to know how the property fits into your strategy. If you have your strategy wrong, it doesn’t matter what property you buy because you won’t know how it fits into the overall plan. Using the depreciation and tax benefits to your advantage can be a great strategy for your long-term investing and can put you ahead of the rest. The government wants to give you thousands of dollars for buying off the plan new properties, why not take it?</p>

<p> </p>

<h2><strong>4. SHORT STAY </strong></h2>

<p>Depending on the location, your new property could be in an area suitable for short term accommodation. Many investors are using this approach to buy apartments in key lifestyle areas that are suitable for short stay accommodation using companies like Quickstay, AirBnB or other accommodation providers. Guests often like the amenities that a new property provides, just like a hotel room, which can assist with increasing yields. Imagine being able to stay in a well presented property that presents like a hotel, but for a significantly cheaper price. Providing you buy into an area that has good demand, this can increase your return and still provide you with a low maintenance investment that is managed by a professional company. Whilst select older properties are often suitable for this strategy, new apartments, houses and townhouses set up well, are often desirable giving that personal touch that hotels will never be able to provide.</p>

<p> </p>

<h2><strong>5. AFFORDABILITY </strong></h2>

<p>Often when buying off the plan, the development you are buying into is on land that is being redeveloped. This means that the land may have previously been used for small commercial, residential or even farm land and now due to population growth is being repurposed for higher use. Often people will be priced out of an established area that is predominately houses, and when a new development is launched, this can provide you with an opportunity to buy in to a suburb that you may not have been able to afford previously. When there is higher density, that often brings down the entry price point in an area, so for significantly less outlay than a house you may be able to secure an apartment or townhouse in a great suburb that is more affordable.</p>

<p> </p>

<h2><strong>6. SUBURB UPGRADE </strong></h2>

<p>When redevelopment is happening in an area, this may be due to regentrification or rezoning of land. This can mean there is opportunity for growth which can assist with boosting your portfolio value. Off plan properties in areas that are being redeveloped can give you access to new infrastructure such as schools and shops, and new train and other public transport options. Infill redevelopment can be a smart move as people will want to live close to existing infrastructure, whereas rezoned industrial or farming land can create entire new communities. When considering your options, you may be able to buy an older property in an inferior location, or perhaps a smaller but brand new property in a superior location with access to established infrastructure.</p>

<p> </p>

<h2><strong>7. FASTER GROWTH </strong></h2>

<p>Buying off the plan could assist with building your property portfolio faster because you can take advantage of the ‘leapfrog strategy’. Essentially, this means you save your deposit for the first property and buy off the plan. Whilst that property is under construction you are saving your deposit for the next. When the first one settles, and you start collecting rent, collect your tax benefits, then you can put the deposit down on property number two. You continue to save, and over time you will have equity in property number one. This can provide enough deposit for you to purchase number three. This is an extremely simplified version of course, however we have used this approach successfully many times and by selecting the right property if can be quite successful. This approach works with your savings ability and your tax benefits, as well as the capital growth over time rather than simply waiting for growth on its own.  </p>

<p> </p>

<h2><strong>7.5...</strong></h2>

<p>And lastly, all of this is simply <em>easier </em>because only around 7.5% of Australians invest in property, and the majority of those sell within the first 5 years. We have found that this is due to a lack of a plan, and often property just ‘didn’t work’ because buying the wrong properties can put a bad taste in your mouth. So, when planning your investment strategy, consider that buying off the plan, in the right area, with the right development, could set you on a course to continue building your portfolio when many other investors simply give up… The data shows that most people fail with their investing. Buying off the plan could be the smartest thing you ever do…</p>
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7.5 reasons why buying off the plan could be the smartest decision you ever make

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<p>Purchasing <a href="/guides/how-to-invest-in-property-in-2020-the-ultimate-guide"><u><strong>an investment property</strong></u></a> can be one of the best ways to invest your money and <a href="/guides/housing-market-effect-on-wealth"><u><strong>increase your wealth</strong></u></a>. If you invest strategically, you could generate a return through passive income and tax breaks. However, a lack of research, knowledge and <a href="/guides/top-7-tips-on-how-to-value-a-house"><u><strong>understanding of the real estate market</strong></u></a> could lead to poor financial gain. We’ve created a list of key factors to consider when securing the financial future of your investment property from choosing the right location to choosing an investment loan that is right for you. </p>

<h2><strong>1. Do your research </strong></h2>

<figure><a class="colorbox colorbox-insert-image" href="https://res.cloudinary.com/dz9xllyip/image/fetch/q_auto:good/https://s3-ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/pictures/article-images/screen_shot_2020-02-27_at_10.13.43_am.png" rel="gallery-all"><img alt="" class="image-article-full-width-580px" height="385" src="/s3/files/styles/article_full_width_580px/public/pictures/article-images/screen_shot_2020-02-27_at_10.13.43_am.png?itok=IKLA-Bv_" width="580"></a></figure><p>Always do your research before making any real estate or financial decisions. </p>

<p>When it comes to investing in property, there isn’t always a “safe option” financially, as it often requires a little financial risk to get the most return. Keep track of your investments by thoroughly <a href="/guides/understanding-the-property-cycle-when-buying"><u><strong>understanding the property cycle</strong></u></a> and always remaining ahead of the market. You should also be <a href="/guides/how-to-negotiate-when-buying-a-house"><u><strong>open to negotiation</strong></u></a> with real estate agents for better deals.  </p>

<h2><strong>2. Define your ideal tenant</strong></h2>

<p>It is essential to spend time getting to know any potential tenants, to determine whether they will be suitable for your rental property. Discuss how many people will be living in the house, whether they have stable employment or if they have lived in many rental properties previously. If they have a pet, ask whether they are house-trained.</p>

<p>While these questions may sound trivial, they could help you in selecting a great tenant who will look after your property.</p>

<h2><strong>3. Choose a popular location among renters </strong></h2>

<p>It is crucial to ensure the location of your investment property will <a href="/buildings/nbh-at-lachlan-s-line-25-27-epping-road-macquarie-park"><u><strong>attract tenants</strong></u></a> and meets the <u><strong>requirements of their lifestyles</strong></u>.</p>

<p>For example, if your ideal tenant is a student, the property should be close to a university or library, whereas, if they are a young family, the property should be near a kindergarten (childcare), primary school and/or local playground. This will help to increase the popularity of your property among property seekers with specific requirements.</p>

<h2><strong>4. Find a property that is close to public transport </strong></h2>

<figure><a class="colorbox colorbox-insert-image" href="https://res.cloudinary.com/dz9xllyip/image/fetch/q_auto:good/https://s3-ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/pictures/article-images/screen_shot_2020-02-27_at_10.13.26_am.png" rel="gallery-all"><img alt="" class="image-article-full-width-580px" height="385" src="/s3/files/styles/article_full_width_580px/public/pictures/article-images/screen_shot_2020-02-27_at_10.13.26_am.png?itok=_ZcCm1T0" width="580"></a></figure><p>Houses near public transport are a desirable feature for those who prefer <strong><a href="/news/city-of-melbourne-wants-to-see-less-cars-more-space-for-sustainable-transport-in-its-municipality">a more sustainable transport option</a></strong> and do not drive. Finding a home on a popular tram, train or bus route will become a key selling point when you go to market your home for rent.</p>

<h2><strong>5. Seek advice from renters  </strong></h2>

<p>One way to determine the suitability of a rental apartment is to talk to tenants currently living within the building. Ask them how they feel about the environment, the value for money and the attentiveness of the body corporate, as this information could give you a better idea of the quality of the building and its maintenance. You could also seek advice from successful investors who are experienced and understand the property cycle. Based on Urban data, here is <a href="/guides/what-investors-are-looking-for-in-australian-properties-based-on-urban-data"><u><strong>what investors are looking for in Australian properties</strong></u></a> and which <u><strong><a href="/guides/insider-property-guide-booming-melbourne-suburbs-you-should-be-considering">Melbourne suburb you should be considering</a>.</strong></u></p>

<h2><strong>6. Collate funds for your down payment </strong></h2>

<p>A downpayment is an initial payment in credit, cash or an equivalent form of payment, which goes towards the purchase of an expensive item such as a car or house.  When purchasing an investment property, you will be required to provide a down payment – which could cost more because mortgage insurance does not apply to investment properties. There are also additional expenses for approval requirements and renovations; you can read them <a href="/guides/top-10-hidden-costs-of-buying-a-house-or-apartment-in-2021"><u><strong>here</strong></u></a>. </p>

<h2><strong>7. Do your sums</strong></h2>

<figure><a class="colorbox colorbox-insert-image" href="https://res.cloudinary.com/dz9xllyip/image/fetch/q_auto:good/https://s3-ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/pictures/article-images/screen_shot_2020-02-27_at_10.03.29_am.png" rel="gallery-all"><img alt="" class="image-article-full-width-580px" height="384" src="/s3/files/styles/article_full_width_580px/public/pictures/article-images/screen_shot_2020-02-27_at_10.03.29_am.png?itok=lv9aS0jc" width="580"></a></figure><p>Calculate the additional income you already have and match it with the amount you can borrow. Once you’ve found a property, you are interested in purchasing, create a contingency budget to allow for any renovation expenses (if renovations are required), the overall operational cost of running an investment property and a fallback for any unforeseen issues. We recently explored how much buyers actually need to spend on an apartment; you can read about it <a href="/guides/how-much-do-you-really-need-to-spend-on-an-apartment"><u><strong>here</strong></u></a>. </p>

<h2><strong>8. Avoid overspending on your first investment</strong></h2>

<p>Investment advisors suggest that even if you are willing to spend a million dollars on an investment property - it is wise to select a property <a href="/guides/buying-right-investment-wise"><u><strong>between the lower-midrange price bracket of $225,000</strong></u></a>. Keeping the range as low as possible also keeps you in a safe-zone as an investor, as it keeps you from losing money if you do not meet your expected profits. Did you know there are also ways you can <a href="/guides/how-to-invest-in-property-with-no-money"><u><strong>invest in property with no money</strong></u></a>? </p>

<h2><strong>9. Consider investment loan options </strong></h2>

<p>When collecting funds towards your first investment property, there are several investment loans you should research before purchasing. Ideally, you may want to <a href="/guides/how-to-choose-the-right-home-loan"><u><strong>select a loan</strong></u></a> that provides you with the option to split the credit with a line-of-credit-facility. </p>

<h2><strong>10. Choose any investment partners carefully</strong></h2>

<p>If you wish to purchase your investment property with a friend or business partner instead of taking out an investment loan, you will need to choose your investment partner carefully. You should look to base this decision on their financial security, reliability, experience as an investor and the status of your relationship, as well as any financial implications of the partnership agreement. Before embarking on any financial venture with another person, it is very wise to get a contract drawn up to avoid any disputes in future (even if you don't anticipate any to arise).</p>

<h2><strong>11. Use the 1% rule</strong></h2>

<figure><a class="colorbox colorbox-insert-image" href="https://res.cloudinary.com/dz9xllyip/image/fetch/q_auto:good/https://s3-ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/pictures/article-images/screen_shot_2020-02-27_at_10.03.18_am.png" rel="gallery-all"><img alt="" class="image-article-full-width-580px" height="384" src="/s3/files/styles/article_full_width_580px/public/pictures/article-images/screen_shot_2020-02-27_at_10.03.18_am.png?itok=U26qOnU7" width="580"></a></figure><p>The real estate investment term ‘1% rule’ refers to the method investors can use to determine whether a property is worth investing in. The rule suggests that an investment property should have a monthly return of no less than 1% of the price it was purchased at, including the additional costs of renovations.</p>

<h2><strong>12. Understand the expense of hiring a property manager</strong></h2>

<p>Some property investors choose to serve as landlords, managing day to day operations and engaging with their tenant, whilst others prefer to hire an external property management service. A property manager will be available throughout the day to help your tenants with any requests, and most real estate firms also have round the clock care for renters should any issues arise. Using a <a href="/guides/tips-for-negotiating-with-real-estate-agents"><u><strong>rental agent</strong></u></a> is more of a time-saver than money saver as they do charge a fee. </p>

<h2><strong>13. Investment properties require you to fork out funds regularly</strong></h2>

<p>An investment property is not a one-off purchase and requires <a href="/guides/18-ongoing-rental-property-costs-and-which-ones-are-tax-deductible"><u><strong>ongoing maintenance</strong></u></a>. Landlords (investors) are expected to <a href="/guides/2019/06/24/own-rental-property-here-are-14-things-to-check-to-avoid-major-problems-in-future"><u><strong>financially cover issues that may occur in the house</strong></u></a>. One way to financially manage this is to create a budget or add your current household budget so you know where, how much and when to allocate funds when they are required. </p>

<p>Additional expenses include:</p>

<ul>
<li>Property tax (required)</li>
	<li>Homeowners insurance (required)</li>
	<li>Property management expenses (optional)</li>
	<li>Home-owners corporation fees (case-by-case)</li>
	<li>General upkeep costs such as cleaning and landscaping (required)</li>
</ul>
<h2><strong>14. Research the risks</strong></h2>

<p>Purchasing an investment property is no different from any other business deal in terms of the associated risks which can lead to loss of money. </p>

<ul>
<li>Some of the risks include: </li>
	<li>Your property might not meet the 1% rule </li>
	<li>You may spend more money on the renovations than anticipated</li>
	<li>The local market economy could change, for example, the value of the suburb may decrease due to an increase in crime</li>
	<li>The property taxes may be increased </li>
	<li>An accident or disaster may occur and you may have to pay for expensive repairs</li>
	<li>You could have bad tenants with poor hygiene or that break your rules, resulting in cleaning, repair or eviction cost</li>
</ul>
<h2><strong>15. Invest in high-quality fixtures </strong></h2>

<p><a href="/guides/20-things-you-should-look-out-for-before-you-buy-property"><u><strong>Before you buy property</strong></u></a>, you should look out for high-quality fixtures within the home or determine where you should include them on the property. Investing in high-quality fixtures may help prevent any incidents or damage, and limit the amount and cost of repairs required in your investment. It will also add to the design of the house and encourage tenants to take pride in and look after the property. Urban has created an <a href="/guides/home-inspection-checklist-step-by-step"><u><strong>inspection checklist</strong></u></a> that could help you determine what fixtures may need to be included, upgrades and what tenants will be looking out for in your investment property. </p>
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Olivia Round

How to ensure financial return on your property investment in 15 simple steps

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<p>EXPERT OBSERVER</p>
<p>The last few weeks have seen escalating concern that a new coronavirus (called 2019 novel coronavirus or nCoV) originating in the Chinese city of Wuhan in Hubei province will become a global pandemic.</p>
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<p><span>Concern has been heightened after the World Health Organisation (WHO) declared the outbreak an </span><span>“international public health emergency” </span><span>on 30 January and the number of cases has continued to escalate.</span></p>
<p><span>While this is first and foremost a human crisis, there has been increasing concern that the associated disruption to economic activity will trigger a global economic slump. </span></p>
<p><span>Consequently, share markets have seen falls (ranging from three per cent for global and Australian shares to around seven per cent for Asian shares and 12 per cent for Chinese shares), commodity prices have fallen, and bond yields have collapsed again. </span></p>
<p><span>While the current situation is highly uncertain, the experience with SARS, bird flu, swine flu &amp; Ebola highlight worst-case pandemic fears don</span><span>’</span><span>t usually eventuate.</span></p>
<p><strong>What do we know about this Coronavirus</strong></p>
<p><span>Here is a summary of information regarding nCoV:</span></p>
<p>Coronaviruses circulate in animals but can be transmitted to humans and affect the respiratory system. SARS in 2003 &amp; MERS in 2012 were examples. Symptoms can be treated but there are no vaccines or antiviral drugs for them (at present). Like SARS, nCoV looks to have originated in wildlife markets in China.</p>
<p>So far there are over 24,500 confirmed cases worldwide, with 99 per cent of cases in China. But the number of cases is still rising rapidly and more/faster testing could mean many more with spikes in the number of new daily cases.</p>
<p>So far the mortality rate is running at two per cent which puts it above swine flu but well below SARS (which settled around nine per cent). And of those dying, its mainly been older people or those with pre-existing conditions (as with common flu).</p>
<p>Against this, nCoV has been more contagious with total cases well above those for SARS (8000) and patients can be contagious but without symptoms for one to two weeks.</p>
<p>Containment measures – notably in China – have been more aggressive and started earlier than in the case of SARS. These include restricting travel into and out of Hubei province and various countries have restricted (and in some cases banned) foreign travellers entering from China.</p>
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<p><strong>Past experiences</strong></p>
<p>To provide some context it is worth reviewing past pandemics – both real and feared.</p>
<p>There were three influenza pandemics in the last century: 1918-19, 1957 and 1968. The 1957 and 1968 pandemics are estimated to have killed up to 4 million people. However, the 1918 Spanish flu pandemic was the most severe.</p>
<p>While the mortality rate was low, up to 50 million people died worldwide. With a big proportion of the population staying at home, economic activity was severely disrupted, although this was compounded by the ending of World War I.</p>
<p>US industrial production slumped 18 per cent between March 1918 and March 1919. Australian real GDP slumped 5.5 per cent in 1919-20 (but then rebounded 13.6 per cent in 1920-21). The share market impact is hard to discern given the ending of WWI, however US and Australian share markets rose through much of the pandemic period.</p>
<p>The SARS outbreak of 2003 is a more useful guide.</p>
<p>After emerging in China around February 2003, SARS infected about 8000 people (mostly in Asia) in 30 countries over a five-month period and had a mortality rate of about nine per cent. SARS had a big negative impact on the countries most affected as people stayed home for fear of catching it.</p>
<p>GDP in China, Hong Kong and Singapore slumped by over two per cent in the June quarter of 2003. Growth then subsequently rebounded.</p>
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<p>Reflecting SARS, Asian shares fell in April 2003, even though global shares started to move out of a three year bear market from March. The April 2003 low in Asian shares coincided with a peaking in the number of new cases.</p>
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<p>Most pandemics have taken 6 to 18 months to run their course and peter out as measures are taken to slow their spread (eg. hygiene, quarantining, banning gatherings, preventing travel). SARS ended quicker due to the nature of the virus and rapid action by authorities.</p>
<p>In 2005/2006, there was significant concern that a severe strain of bird flu (called H5N1), which was resulting in human casualties, mainly in parts of Asia where people had contact with chickens, would mutate into a form that was readily transmissible between humans.</p>
<p>However, this didn’t really eventuate and as such the economic impact was modest although it did cause bouts of volatility in share markets. Similarly, concern that the spread of swine flu would become a global pandemic rattled share markets for a while around April 2009, and Ebola did the same in 2014, but both quickly faded.</p>
<p><strong>The economic and financial impact of nCoV</strong></p>
<p>After strong double-digit gains over the last year and with investor sentiment pushing up to high levels indicating a degree of complacency, share markets were at high risk of a correction in mid Jan and the fears around coronavirus have provided the trigger.</p>
<p>Given their greater sensitivity to Chinese growth, commodity prices like Chinese shares are down by more and the Australian dollar has fallen to October lows below $US0.67. What happens from here depends on how long it takes for the outbreak to be contained. The higher number of cases than with SARS or swine flu suggests a greater economic impact.</p>
<p>But given the range of possibilities, the best way to get a handle on the economic and investment market impact is to consider several scenarios. Here we consider two.</p>
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<p>1. Containment within the next month or two – the number of cases continues to rise but it remains mainly contained to China (and Hubei) and the number of new cases starts to peak in the next month or so. This would allow travel restrictions to be removed by the June quarter. Under this scenario:</p>
<p>GDP in China and parts of Asia would likely take a two to three per cent hit (taking Chinese GDP growth from six per cent year on year in the December quarter to three to four per cent yoy in the current quarter) as workers stay home and travel dries up. With the Chinese economy now being four times the share of global GDP it was at the time of SARS, this along with some drag on growth in developed countries would knock world growth to around 2.5 per cent year on year (from around three per cent). However, growth would rebound in the June quarter as travel restrictions are removed and things return to normal.</p>
<p>Australian growth could see a 0.2 per cent hit in the current quarter mainly due to the loss of Chinese tourists (which account for 20 per cent of tourism earnings and 0.2 per cent of GDP) but also lower raw material demand and an impact on confidence. With the bushfire impact this could see GDP contract, but growth would rebound in the June quarter.</p>
<p>Against this background share markets, commodity prices and the $A could still fall a bit further in the near term but would quickly rebound by the June quarter. Easier than otherwise monetary and fiscal policies - with more stimulus measures already announced in China - would aid this.</p>
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<p>2. Global pandemic – the number of cases continues to escalate beyond China and aren’t contained until say mid-year.</p>
<p>This scenario would see a bigger and longer negativeimpact on economic activity. Global travel would collapse. Many would simply not come into work – a reasonable estimate is around 20 per cent of workers, although this might be spread over time.</p>
<p>This would see a sharp slump in global GDP and the risk of global recession. Australia would not be immune and would likely see two negative quarters of growth with flow on to education exports to China (which accounts for another 0.6 per cent of Australian GDP).</p>
<p>Share markets would likely fall sharply – maybe by 20 per cent or so - reflecting the huge economic uncertainty. Cash would be the place to be. The $A could fall to around $US0.60.However, economic activity would rebound quickly once it’s clear the pandemic is under control. Share markets are likely to anticipate this. But this wouldn’t occur till the second half of the year.</p>
<p><strong>Concluding comment and what to watch</strong></p>
<p>While there is reason for concern and it is easy to dream up nightmare scenarios, the experience with SARS, bird flu (with “predictions” it could kill as many as 150 million people) and the mini panic regarding swine flu and Ebola tell us that the worst case fears of pandemics usually don’t come to pass. Rapid containment measures provide some confidence this will be the case. As such, our base case scenario (with 75 per cent probability) is one of containment over the next month or two. This could still see more downside in share markets and bond yields in the near term, but they are likely to rebound by the June quarter as economic growth rebounds. The key things to watch are:The daily number of new cases – the SARS experience saw markets rebound once this showed signs of peaking.</p>
<p>The spread of new cases and deaths in developed countries – if this remains limited then markets will also get more confident that the economic fallout will be short lived.</p>
<p><strong>DR SHANE OLIVER </strong>is the Head of Investment Strategy and Chief Economist AMP Capital.</p>
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soliver-smf6LQXgW9

The economic and financial impact of the Corona Virus: Shane Oliver

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<div class="column"><strong>EXPERT OBSERVER </strong></div>
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<div class="column">The past 10 years have seen pretty good returns for well- diversified investors.</div>
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<div class="column">The median balanced growth superannuation fund returned 7.3% pa over the five years to July and 8.2% pa over 10 years and that’s after fees and taxes. This is impressive given that inflation has been around 2%.</div>
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<a href="https://www.propertyobserver.com.au/images/2019/9/25/medium%20term%20returns%201%20.jpg" target="_blank">Click here</a> to enlarge: </div>
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<p><span>Shares and growth assets have literally climbed a wall of worry this decade with a revolving door list of worries around public debt, the Eurozone, deflation, inflation, rate hikes, Trump, North Korea, China, trade wars, growth, house prices, etc. </span></p>
<p><span>But returns benefitted from the recovery after the GFC and a search for yield as interest rates have collapsed depressing yields on most assets. But </span><span>– </span><span>while it sounds like a broken record </span><span>– </span><span>the decline in yields points to eventually more constrained returns ahead.</span></p>
<p><strong>Declining yields = falling medium-term return potential</strong></p>
<p><span>Investment returns have two components: yield (or income flow) and capital growth. </span></p>
<p><span>Looking at both of these components points to lower average investment returns over the next five years compared to the last five years.</span></p>
<p><span> It</span><span>’</span><span>s basic to investing that the price of an asset moves inversely to its yield all other things being equal. Suppose an asset pays $10 a year in income and suppose its price is $100, which means an income flow or yield of 10%. </span></p>
<p><span>If interest rates are cut resulting in increased demand for the asset, as investors search for a higher yield, such that its </span>price rises to $120 given the $10 annual income flow its yield will have fallen to 8.3% (ie $10 divided by $120) as its price has gone up by 20%. So, yield moves inversely to price. But as yields decline it means a lower return potential going forward.</p>
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<p><span>Since the early 1980s investment yields have collapsed. Back then the RBA's "cash rate" was around 14%, 1-year bank term deposit rates were nearly 14%, 10-year bond yields were around 13.5%, commercial and residential property yields were around 8-9% and dividend yields on shares were around 6.5% in Australia and 5% globally. </span></p>
<p><span>This meant that investments were already providing very high income so only modest capital growth was needed for growth assets to generate good returns. </span></p>
<p><span>So, most assets had very strong returns and balanced growth super fund returns averaged 14.1% in nominal terms and 9.4% in real terms between 1982 and 1999 (after taxes and fees).</span></p>
<p><span>Over the last four decades, investment yields have mostly fallen quite sharply. See the next chart.</span></p>
<p><a href="https://www.propertyobserver.com.au/images/2019/9/25/medium%20term%20returns%202.jpg" target="_blank">Click here</a> to enlarge: </p>
<p><span><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/9/25/medium%20term%20returns%202.jpg" alt=""></span></p>
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<p><span>Today the cash rate is 1%, 1-year bank term deposit rates are 1.5%, 10-year bond yields are 0.9%, gross residential property yields are around 3%, commercial property yields are just below 5%, dividend yields are still around 5.5% for Australian shares (with franking credits) but they are 2.5% for global shares. </span></p>
<p><span>This points to a lower return potential for a diversified mix of assets.</span></p>
<p><span>What’s more</span><span>, the capital growth potential from growth assets is likely to be constrained relative to the past reflecting more constrained nominal economic growth. Several megatrends are likely to impact growth over the medium term. These include:</span></p>
<ul>
<li>
<p><span>Continued slower growth in household debt.</span></p>
</li>
<li>
<p><span>An ongoing retreat from globalisation, deregulation and small </span>government in favour of populist, less market friendly policies.</p>
</li>
<li>
<p><span>A shift in corporate focus from profit </span><span>to “balanced scorecards”.</span></p>
</li>
<li>
<p><span>Rising geopolitical tensions </span><span>– </span><span>notably as the US attempts to </span>constrain the rising power of China as evident in the trade war.</p>
</li>
<li>
<p><span>Aging and slowing populations </span><span>– </span><span>resulting in slowing labour </span>force growth and rising pressure on public sector budgets.</p>
</li>
<li>
<p><span>Technological innovation and automation.</span></p>
</li>
</ul>
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<p><span>Continuing rapid growth in Asia and </span><span>China’s middle class</span><span>.</span></p>
</li>
<li>
<p><span>Pressure to slow emissions &amp; the impact of global warning.</span></p>
</li>
<li>
<p>A large shift to sustainable energy as its cost continues to fall. Most of these will constrain economic growth &amp; hence returns.</p>
</li>
</ul>
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<p><strong>Medium-term return projections</strong></p>
<p>Our approach to get a handle on medium-term return potential is to start with current yields for each asset class and apply simple and consistent assumptions regarding capital growth reflecting the above-mentioned megatrends. We also prefer to avoid forecasting and like to keep the analysis simple.</p>
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<ul>
<li>For bonds, the best predictor of future medium-term returns is current bond yields as can be seen historically in the next chart. If a 10-year bond yield is held to maturity its initial yield (0.93% right now in Australia) will be its return over 10 years (ie 0.93%). We use 5-year bond yields as they more closely match the maturity of bond indexes.</li>
</ul>
<p><a href="https://www.propertyobserver.com.au/images/2019/9/25/medium%20term%20returns%203.jpg" target="_blank">Click here</a> to enlarge:</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/9/25/medium%20term%20returns%203.jpg" alt=""></p>
<ul>
<li>
<p><span>For equities, current dividend yields plus trend nominal GDP growth (a proxy for capital growth) does a good job of predicting medium-term returns.</span><span>1</span></p>
</li>
<li>
<p><span>For property, we use current rental yields and likely trend inflation as a proxy for rental and capital growth.</span></p>
</li>
<li>
<p><span>For unlisted infrastructure, we use current average yields and capital growth just ahead of inflation.</span></p>
</li>
<li>
<p><span>In the case of cash, the current rate is of no value in assessing its medium-term return. So we allow for some rise in cash rates over time.</span></p>
</li>
</ul>
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<p><span>The second column shows each asset’s current income yield, </span><span>the third shows their 5-10 year growth potential, and the final column their total return potential. Note that:</span></p>
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<li>We assume inflation averages around or just below central bank targets.</li>
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<ul>
<li>For Australia we have adopted a relatively conservative growth assumption reflecting slower productivity growth.</li>
</ul>
<ul>
<li>We allow for forward points in the return projections for global assets based around current market pricing. </li>
</ul>
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<p><strong>Key observations</strong></p>
<p><span>Several things are worth noting from these projections.<br></span></p>
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<li>The medium-term return potential has continued to fall due largely to the rally in most assets and fall in investment yields. Projected returns using this approach for a diversified growth mix of assets have fallen from 10.3% pa at the low point of the GFC in March 2009, to 8.6% five years ago, to 6.2% a year ago and to now just 5.6%.</li>
</ul>
<p><a href="https://www.propertyobserver.com.au/images/2019/9/25/medium%20term%20returns%205.jpg" target="_blank">Click here</a> to enlarge: </p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/9/25/medium%20term%20returns%205.jpg" alt=""></p>
<ul>
<li>Government bonds offer low returns due to ultra-low yields. Yes, bond returns have been strong lately as yields have collapsed pushing up bond prices. But this is no guide to future returns, particularly if bond yields stop falling.</li>
</ul>
<ul>
<li>Unlisted commercial property and infrastructure continue to come out relatively well, reflecting their higher yields.</li>
</ul>
<ul>
<li>Australian shares stack up well on the basis of yield, but it’s still hard to beat Asian/emerging shares for growth potential.</li>
</ul>
<ul>
<li>The downside risks to our medium-term return projections are that: the world plunges into a recession driving another major bear market in shares or that investment yields are pushed up to more normal levels as inflation rebounds causing large capital losses. Just allow that drawdowns in returns tend to be infrequent but concentrated and it’s been a while since the last big one. See the first chart.</li>
</ul>
<ul>
<li>The upside risks are (always) less obvious but could occur if we see improving global growth but inflation remaining low.</li>
</ul>
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<p><strong>Implications for investors</strong></p>
<ul>
<li>
<p><span>First, have reasonable return expectations. Low yields &amp; constrained GDP growth indicate </span><span>it’s </span><span>not reasonable to expect sustained double-digit or even high single digit returns. In fact, the trend decline in the rolling 10-year average of both nominal and real super fund returns since the 1990s indicates we have been in a lower-return world for many years </span><span>– it’s </span><span>just that it only becomes clear every so often with bear markets and then strong returns in between.</span></p>
</li>
<li>
<p><span>Second, remember that responding to a lower return potential from major asset classes by allocating more to growth assets does mean taking on more risk.</span></p>
</li>
<li>
<p><span>Third, bear markets are painful, but they do push up the medium-term return potential of investment markets to higher levels and so provide opportunities for investors.</span></p>
</li>
<li>
<p><span>Fourth, some of the decline in return potential reflects very low inflation </span><span>– </span><span>r</span><span>eal returns haven’t fallen as much.</span></p>
</li>
<li>
<p><span>Finally, focus on assets with decent sustainable income flow as they provide confidence regarding future returns.</span></p>
</li>
</ul>
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<div class="page" title="Page 2"><strong> Key points </strong></div>
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<li>
<p><span>The ongoing slide in investment yields across major asset classes points to a more constrained medium- term return outlook. For a diversified mix of assets, this has now fallen to around 5.6% pa on our projections.</span></p>
</li>
<li>
<p><span>The key for investors is to have realistic return expectations; allow that inflation is also low so real returns </span><span>aren’t down as </span><span>much; and focus on assets with decent and sustainable income.</span></p>
</li>
</ul>
</div>
</div>
</div>
</div>
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</div>
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</div>
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<p><span><strong> </strong><em><strong>DR SHANE OLIVER </strong>Head of Investment Strategy and Chief Economist AMP Capital</em></span></p>
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Investment returns have been good, but likely to slow over the next five years: Shane Oliver 

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<p>GUEST OBSERVER</p>
<p>It’s easy to ask businesses to invest more, hard to get them to do it. <span class="attribution"><span class="source"><br></span></span></p>
<p>You know the economy is in trouble when a clever and successful Liberal Party treasurer resorts to doing an <a href="https://en.wikipedia.org/wiki/Elizabeth_Warren" target="_blank">Elizabeth Warren</a> impersonation in front of the Business Council of Australia in hopes of boosting investment.</p>
<p>That’s what <a href="https://joshfrydenberg.com.au/latest-news/making-our-own-luck-australias-productivity-challenge/" target="_blank">Josh Frydenberg</a> did on Monday, saying:</p>
<p>Share buybacks and capital returns are becoming increasingly prominent and the default option for corporates. But is a buyback always the best option for the future growth of the company and therefore the economy?</p>
<p>Let’s set aside the fact that the recent uptick in buybacks was almost entirely due to a $15.4 billion capital return from BHP after selling off what was left of its ill-fated shale oil and gas investments in the United States.</p>
<p><strong>Are buybacks bad?</strong></p>
<p>A bunch of US Democratic presidential hopefuls sure think so. Self-proclaimed “Democratic Socialist” Bernie Sanders joined with the more centrist Senate Minority leader Chuck Schumer to <a href="https://www.nytimes.com/2019/02/03/opinion/chuck-schumer-bernie-sanders">propose legislation</a> that would require companies spending money to buy back their own shares to raise the minimum wage of their workers $15 an hour and provide seven days of paid annual sick leave.</p>
<p>A number of other prominent Democrats have similar ideas, including Warren, and fellow Senators Kamala Harris and Cory Booker.</p>
<p>There is a myth that share buybacks are some kind of “sure thing” benefit to shareholders that is worth dispelling.</p>
<p>The myth goes like this.</p>
<p>A company buys back some number of its outstanding shares from willing sellers. That reduces the number of shares, but future profits haven’t changed. So, earnings per share go up, and so does the stock price.</p>
<p>That’s said to be is a win for the remaining shareholders, but the business won’t invest as much in capital expenditures and workers might miss out on pay rises.</p>
<p>This logic is tantalising, but wrong. What is overlooked in that the business used cash on hand to buy back its stock. So the value of the company to the shareholders who didn’t sell isn’t the same – it’s been reduced by the amount of the buyback.</p>
<p>The key question is whether that cash can be used more productively inside the company than paid out. US firms like Apple and Boeing have recently undertaken significant buybacks and seen their share price rise relative to the broader stock market. That’s the market telling us that the money is better used outside of Apple and Boeing than in.</p>
<p>The correct term for buybacks like that that increase value is “good corporate governance”, not “short-sighted capitalism” or “theft”.</p>
<p><strong>How to get business to invest more</strong></p>
<p>Having said that, Frydenberg was spot on in his analysis of what is needed to boost wages in Australia:</p>
<p>If we are going to create new jobs and enable people to earn more for what they do, we need businesses to increase their capital expenditure and to adopt new technologies and business practices that effectively integrates capital with labour.“</p>
<p>The question is how to do that.</p>
<p>One thing’s for sure, trying to bully companies into doing it isn’t the answer.</p>
<p>Business invest earnings in plants and equipment when the economic environment is attractive.</p>
<p>Bureau of Statistics figures released Thursday made clear that business have a <a href="https://www.propertyobserver.com.au/https://www.abs.gov.au/ausstats/abs@.nsf/mf/5625.0" target="_blank">negative view</a> of that environment.</p>
<p>Capital expenditures were down a seasonally-adjusted 0.5% in the June quarter – worse than market expectations – and down 1% over the year.</p>
<p><strong>The problem with an investment allowance</strong></p>
<p>One idea the treasurer is reportedly considering is a so-called ”<a href="https://www.bca.com.au/in_the_absence_of_tax_cuts_investment_allowance_is_key" target="_blank">investment allowance</a>“, much like the investment allowance the <a href="https://www.acra.com.au/government-investment-allowance-10-tax-rebate/" target="_blank">Rudd government</a> introduced during the global financial crisis between December 2008 to December 2009.</p>
<p>It would give businesses an immediate tax deduction of, say, 10% on spending on equipment and plant and machinery, in additional to the normal annual deduction for depreciation.</p>
<p>The problem with such allowances is that they don’t provide certainty. The fact that they have been brought in and quickly ended makes it look as if they will be taken away. So businesses use them to bring forward investments rather than make long term plans.</p>
<p>And it is hard to limit them to "additional investment” as Frydenberg said he wanted to on Monday.</p>
<p>By contrast, cutting the company tax rate would signal a permanent shift in policy. It’s politically difficult, which perversely would make it a credible signal about future conditions.</p>
<p>Cutting the rate right away, to 25%, would help move us away from one of the highest corporate tax rates in the developed world, and would boost investment.</p>
<p>The best <a href="https://www.aeaweb.org/articles?id=10.1257/aer.20130570" target="_blank">empirical evidence</a> is that about half the benefit of company tax cuts goes to workers. And as <a href="https://www.afr.com/opinion/the-evidence-is-in-cutting-australias-corporate-tax-will-cut-inequality-20180129-h0prje" target="_blank">I wrote early last year</a>, that evidence suggests that young, low-skilled, and female workers benefit the most.</p>
<p>We also need major government investments in physical and social infrastructure to deal with flagging demand and create an environment in which companies will find it worthwhile to invest.</p>
<p>In the low-growth, low-inflation, secular stagnation world we are in budget surpluses are neither prudent nor evidence of sound economic management. They are a death sentence for jobs and growth.<img src="https://counter.theconversation.com/content/122614/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;"></p>
<p><em><a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a>, Professor of Economics, <a href="http://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a></em></p>
<p><em>This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/vital-signs-business-investment-is-flatlining-and-it-isnt-clear-that-suasion-or-a-special-allowance-will-help-122614" target="_blank">original article</a>.</em></p>
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