The Finance Blog

Aug 23, Super Law Changes to affect SMSF Borrowings

Mon, 23 Aug 2010 05:46:39 GMT

In time for the start of a new financial year, superannuation laws were amended effective from 7 July 2010. These amendments were inserted in sections 67A and 67B of the Superannuation Industry (Supervision) Act 1993 and provide some clarity to existing rules and answers about superannuation borrowing so far known as instalment warrant arrangements.

The ATO has summed it up on their website as follows:

super fund assets are better protected in the event of a default on a borrowing
the asset within the arrangement can only be replaced by a different asset in very limited circumstances specified in the law
super fund trustees cannot borrow to improve an asset (for example, real property)
the borrowing is permitted only over a single asset or a collection of identical assets that have the same market value
the asset within the arrangement is not subjected to a charge other than to the lender in respect of the borrowing by the super fund trustee

Limited recourse borrowing arrangements or LRBAs, as they are called now, have been confirmed and are here to stay. The Cooper Review confirmed that today only a small number superannuation funds make use of the borrowing provisions and they did not see any concern in the near term although they suggested a review by the Government down the track.

Generally, the new rules are tighter than the old rules, specifically with regard to what assets can be acquired (acquirable asset), what can be included in the loan amount, potential replacement of assets and guarantees given to lenders.

It is an absolute must for SMSF Trustees to familiarise themselves with the latest changes on the ATO website to make sure they understand their obligations before entering into a LRBA. For example, in the case of property investments through super there are additional requirements in terms of maintenance, repairs and capital improvements that must also be considered carefully.

Aug 4, Super Property - How to use super to buy property? - Sydney, Baulkham Hills

Wed, 04 Aug 2010 03:10:11 GMT

Super Property - The Facts About Using My Super As A Deposit To Buy Property. First hand know how for everyday Australians. - Sydney, Baulkham Hills

Aug 3, A super investment for your superannuation - Baulkham Hills, Sydney

Tue, 03 Aug 2010 05:56:56 GMT

How to turn an already great investment into a super investment? - Baulkham Hills, Sydney

Jul 28, Free budget planner - Easy to use spreadsheet - Sydney Baulkham Hills

Wed, 28 Jul 2010 05:05:18 GMT

Free Budget Planner - Easy-to-use spreadsheet to quickly assess your personal finances and save money. Calculate your spending and analyze cash flow. - Sydney, Baulkham Hills

Jul 23, Private wealth - How to build wealth? - Sydney, Baulkham Hills

Fri, 23 Jul 2010 07:57:26 GMT

Private wealth - The Ezine with tips about how to build wealth explaining strategies and solutions, financial news, views, updates and other money matters. - Sydney, Baulkham Hills

Jul 13, Fast Mortgage Reduction strategies for fast debt relief. Baulkham Hills, Sydney

Tue, 13 Jul 2010 01:32:08 GMT

Use Fast Mortgage Reduction free techniques to take years off your mortgage and improve the quality of life for you and your family. - Baulkham Hills, Sydney

Jul 13, What's in store for 2010/2011

Tue, 13 Jul 2010 00:14:14 GMT

Fear is still very abundant in world economies and financial markets. The last few weeks have demonstrated that fundamental reasons and facts do little against fear and negative sentiment in share markets around the world.

Let's face our fears:

The US must be able to sustain a successful economic recovery.
Global economies depend on a strongly growing China which in turn might run the risk of overheating.
European economies must reduce their debt and prop up exports to fix their problems.

In Australia we're exposed to international market forces and will remain the play ball of international and institutional investors.

On the home front, an imminent Federal election, the potential for strong commodity prices, jobs and housing market developments will give us some guidance. Normal interest rate levels combined with improving profit results of Corporate Australia could well translate into a rebound of our stock market once fear abates.

The Asian region and Australia show resilience that first must be rediscovered.

What to do?

It is prudent to stay alert, review investment portfolios regularly, seek diversification options and avoid fear-driven exposures to problem markets.

In comparison to other historical falls in Australian equity markets such as in 1987, 1973 or 1929 we're about half way through a recovery. There are also voices out there that want to make us believe that we haven't seen the worst yet.

As an optimist and with the whole world pulling in the same direction of a necessary recovery I believe we'll have a bumpy road ahead but will be trending to better levels.

Jul 12, Investing for Dummies - Beginner and not so Beginner Investing - Baulkham Hills

Mon, 12 Jul 2010 00:09:18 GMT

Investing for Dummies looks at the fundamental elements that are involved in investing. These are the building blocks of all other investments out there and often get overlooked even by professionals.

Jun 28, What's in the Population Growth Figures?

Mon, 28 Jun 2010 04:48:54 GMT

The Australian Bureau of Statistics (ABS) released the latest population growth figures last week with the following key finding:

Australia's population reached 22.2 million by the end of 2009, growing by 432,600 people over the year.

This equates to a slowed growth rate of 2 over 2009 compared to 2.2 over 2008. 64 of that figure was due to overseas migration and 36 due to domestic natural increase.

Although they point out that this is a slowing rate of population growth the figure still stands at 40-year highs. Over the last 20 years the annual rate of population growth was in a more normal range of between 1 to 1.5. Thus we're still sitting at a very strong rate for 2009.

Population growth, of course, is one of the major driving forces for economic growth. With additional people we need more housing, services, infrastructure and everyone needs to be fed too.

Adding to this the latest news from the HIA today, saying that we need an extra 420,000 dwellings built in Australia over the next ten years, it's not difficult to see where the opportunities are. However, first, the housing starts figure they expect to drop significantly down to 3 growth for 2011. This is seen as a result of the Government stimulus fading which in turn makes it more difficult for first home buyers to enter the market and renters to sign affordable leases.

Property investors sit tight or get set.

Jun 24, Point of View: Flight to Safety

Thu, 24 Jun 2010 04:26:17 GMT

Where would you invest your money to keep it safe?

The renewed volatility in financial markets locally and internationally has made investors nervous again. In Australia, we've sort of survived the GFC and sort of jumped back on the investment bandwagon only to realize that uncertainty is following us and scaring investors from one side to the other.

Traditionally in a crisis, investment dollars flew to strong currencies such as the US Dollar, Euro, UK pound or maybe the Swiss Franc. Traditionally, safe harbours were the fixed interest markets and gold.

In today's world, however, we've learnt from the GFC that all asset classes can retreat together although they're supposed to balance each other out. Furthermore, the above stronghold currencies got hammered too.

So what's troubling us? - to name a few:

The ongoing debt problems of European countries;
Political issues in the UK;
A potential housing bubble in China;
The stalling of the US housing market recovery;
The resources super profits tax at home; plus
an incessant flow of bad media news about volcano ash clouds, oil spills, Goldman Sachs prosecution and more...

Trying to keep the big picture here, we also know that historically all market hiccups have recovered to new highs over time. The recovery from the low points can take 4 to 6 years to get back on track and we're nowhere near that yet. Naturally, during that period of time everything is questioned, investors are scared and behave like sheep.

Okay, to be safe let's sell out and put everything into the gold market. Right? - The fact is, however, that the gold market is at a level of all time highs. If advancing further we might end up in a gold bubble and all bubbles must burst. It we compare the volatility of the gold price with the ASX 200 Index we also realize that gold in fact is more volatile than shares; add to this the currency risk when buying gold in US dollars.

What about bonds then? Government and corporate bonds certainly give us stability and can preserve capital. However, being driven by scare, these bond prices are high and income returns low. Fleeing into expensive bonds might give you a double whammy when other asset classes recover and bond prices dive.

Assuming for a moment that the whole world is desperately trying to get things right and avoid major disasters on all continents it is hard to see equity markets not recovering over the next few years. Especially, if global growth is steaming ahead as it currently is.

What can we do? - Protect our investments, spread the risks and diversify into quality, avoid running with the herd and rather think as contrarians.

After all, it doesn't hurt to stick with good quality investments in shares or property in the right locations.

It is quality that will produce successful returns in these uncertain times.

Herbert Tomaschett

Jun 23, SMSF - self managed super, key to financial freedom - Baulkham Hills, Sydney

Wed, 23 Jun 2010 01:43:56 GMT

Discover the secrets of using your own SMSF. Speed up the wealth creation process and achieve financial freedom for retirement. - Baulkham Hills, Sydney

Jun 18, Property Prices & Rent Returns Will Go Up
and Interest Rates Could Come Down

Fri, 18 Jun 2010 01:22:11 GMT

Investors Paradise is here! Are you waiting for the property bubble to burst before you make that leap of faith into the property market?

Are you waiting for the Government to sweeten the pot and come in with another stimulus package? Then, you might want to go back to sleep and enjoy that dream; because in the real world the cold hard truth is:

It just ain't going to happen!

You're currently living through a major property boom, possibly when it's over it will be the largest Australia has ever seen.

Capital Growth rates last year

(Source: Residex)

Melbourne 22.46
Sydney 17
Brisbane 4.87
Adelaide 7.52

There is no better time than right now to start building a real estate portfolio and here's why. Australia is now entering into a strong period of growth and success. Australia will go through an amazing property boom for 3 powerful reasons:

economic growth,
population growth;
and a continually growing housing shortage.

How bad is the housing shortage?

It's really bad. The following shows the number of houses each state will require just to fill the immediate shortage. With ongoing record population growth you can be assured these numbers are not going to get better, in fact, they'll get worse.

Shortfall of houses by state:

VIC - 22,700
NSW - 57,600
QLD - 56,100
WA - 30,200
SA - 100

How High Will Property Prices Go?

Gauge for yourself from the following historical table:

Median House Values (houses only) to March 2010:

	1980	1990	2000	2010
Melbourne	$40,616	$140,979	$203,287	$580,500
Sydney	$62,246	$178,818	$336,031	$651,500
Darwin	NA	NA	$170,840	$513,500
Perth	NA	$88,234	$158,436	$483,500
Adelaide	NA	NA	$148,395	$406,000
Brisbane	$37,490	$103,713	$153,674	$464,000

Interest Rates Coming Down

Don't laugh, it just may happen as the Sydney Morning Herald recently reported that consumer confidence is plummeting, with the latest slide - the third in three months - blamed in part on the budget and the proposed resources super profits tax.

Sevanth Sebastian, the Commsec economist said "We are now barely more confident than a year ago and the slide in the share market hasn't helped."

Against that trend though, investment loans have been climbing and are now 26 per cent higher than they were a year ago.

This may suggest that you should be putting your money where the smart money is - property.

David Fleming

Jun 10, The Current Australian Sharemarket

Thu, 10 Jun 2010 06:29:39 GMT

Many investors are puzzled by the falls in the Australian sharemarkets over the last few weeks. Is this the onset of another bear market?

We've come across the attached economic update from CommSec, dated 7th June 2010, which makes interesting reading. They state that the "Australian sharemarket should reflect trends in the Australian economy, but the reality is that our market remains hostage to global developments".

How true is that? In addition, the Rudd Government has cooked up its own poisonous soup with the proposed resources super profits tax.

Some of the key findings that CommSec stated:

The NYSE represents about 24 of all global sharemarkets.
The Tokyo stock exchange represents about 7 of the world market.
Currently, 1 in Aussie market movement translates to around $14 billion.
The Resources sector accounts for 22 of the Australian sharemarket.
Our banks account for around 18 of the market.

It is then explained that the latest Australian market movements are a reaction to international market forces. Whilst Australia is well placed for a recovery only time will tell if our market can actually reflect that in better market prices some time in the near future.

This is a must read for all investors. Again, investing comes down to principles of diversification, long-term positioning, re-balancing and quality.