Wealth Management and Protection – AustAsia Group

Why the ATO is targeting babyboomer wealth

AAG AustAsia — Thu, 20 Feb 2025 07:02:07 +0000

The Australian Taxation Office (ATO) thinks that wealthy babyboomer Australians, particularly those with successful family-controlled businesses, are planning and structuring to dispose of assets so that the tax outcomes might not be in accord with the ATO’s expectations.

“Succession planning, and the tax risks associated with it, is our number one focus in 2025.

In recent years we’ve observed an increase in reorganisations that appear to be connected to succession planning.”

ATO Private Wealth Deputy Commissioner Louise Clarke

If you are within the ATO’s Top 500 (Australia’s largest and wealthiest private groups) or Next 5,000 (Australian residents who, together with their associates, control a net wealth of over $50 million) programs, expect the ATO to be paying close attention to how money flows through the entities you control.

A critical issue for many business owners is how to effectively (and compliantly) benefit from a successful business. In many cases, the owners have spent years building the business, and the business has become not only a substantial asset but a lucrative source of income either through salary and wages, dividends, or the sale of shares or assets. Generally, under tax law, you can legitimately structure holdings if there is a good reason to do so – like for asset protection, but if you tip across the line and the only viable reason for a structure is to reduce tax, then you risk the ATO taking a very close look at your operations or worse, denying any tax benefits under the general anti-avoidance rules in Part IVA of the tax rules, designed to combat “blatant, artificial or contrived” tax avoidance activities.

“We’re seeing that succession planning behaviour is primarily done by group heads who are approaching retirement. They typically own groups that family members are a part of, and wealth is transferred to the next generation to keep it within the family (via trusts and other means),” ATO Private Wealth Deputy Commissioner Louise Clarke said in a recent update.

Key areas of concern include:

Division 7A loans being settled. — A company has been paying a shareholder or an associate under a loan account. The ‘loan’ is quickly settled, often via a distribution, to remove it from the accounts.
Assets moving around the group. — (Often, the actual value of an asset is not recognised, raising the question of why the change should be made if not to avoid capital gains tax on disposal or for some other benefit).
Family member interests being restructured.
Trust deeds being amended.
A restructure is cited as a reason for late lodgment.

Use of trusts

Trusts are also a key area of concern in 2025. Where a trust that has made a family trust election (FTE) or interposed entity election (IEE) makes a distribution outside of the family group, a 47% Family Trust Distribution Tax applies (tax at the top marginal tax rate plus Medicare).

In addition, the ATO has recently tightened its approach to trust tax returns for closely held trusts to ensure that trustee beneficiary (TB) statements are being completed. These are required when a trust distributes income or assets to the trustee of another trust unless an exclusion applies.

For example, a trust that has made an FTE or IEE doesn’t need to make a TB statement. The ATO will then use the TB statement to cross-reference against what the beneficiary has declared in its tax return. Where a valid TB statement is not made on time, it can trigger a hefty 47% Trustee Beneficiary Non-Disclosure Tax.

Reducing risk

Where you or your family have control over multiple entities, particularly where the value of these entities is significant, it is essential that the connections between these – be it in Australia or overseas – are looked at closely to avoid any nasty surprises or lost opportunities.

Transferring control of your business may involve restructuring your business operations – changes to share structures, changes to the trustee and appointor of a trust, changes to partnership structures – or transferring assets to family members via the creation of trusts or other entities. All these events have legal and tax implications that must be carefully considered.

Contact us to assist you with your succession and tax planning.

The post Why the ATO is targeting
babyboomer wealth appeared first on AustAsia Group.

Currency Hedging

AAG AustAsia — Mon, 13 May 2024 05:06:50 +0000

What is currency hedging & what does it mean to me?

In this article, when we say hedging, we mean currency hedging – not some crazy hedge fund manager punting pork belly futures.

Currency hedging only affects investments that are not in Australia.

If all of your investments are only in Australia (which are in $A), currency hedging doesn’t matter.

In a nutshell

If the $A is falling, you prefer your investments unhedged.

When the $A is rising, hedged is your better option.

Currency Conversion 101

If the $A/$US exchange rate is 66c, that means that one Aussie dollar will only buy you US66c.

The flip side of this is $US/$A, which means that if you have one US dollar, it will buy you $A1.52.

Unless otherwise noted, we will use the $ A/$US conversion for the sake of this article.

$A/$US movements

Back in 2014, the $A/$US exchange rate was 78c.

This time last year, it was around 67c; three years ago, it was 73c, and today, it’s 66c.

The long-term average exchange rate has been around US81c, as shown in the chart below.

Historically, we have observed US65c as a key level for investors considering whether to start thinking about currency-hedged options.

The $A recently fell below this mark for just the fifth time in the past 20 years.

The long-term average exchange rate has been around US81c.

If the $A reverts to the mean (US81c) from US65c, investors in unhedged $US exposures would suffer.

Why does it matter?

The decision to hedge your currency exposure is important, as movements in the Australian dollar can either erode or add value to your investment.

If the $A were to decline by 10% relative to the $US, the value of investments denominated in US dollars would typically increase by 10% in $A terms.

If the $A starts to rise, as many analysts are predicting, you are better off with currency-hedged options. So, if our currency rises, you make more money if you are hedged rather than unhedged.

For example, if you have an ETF with a holding in Microsoft, $US 100 of Microsoft shares would right now be worth $A152.

If the exchange rate increases to US75c, your investment in $A would now be worth $A133.

[For income-oriented investors, hedging ensures currency movements do not offset offshore income.]

Which way are we expecting the $A to go?

Since its February 2021 high of nearly US80c, the $A has fallen on worries about the global growth outlook, China, the strong $US, and the RBA’s relatively less aggressive monetary tightening.

However, according to Dr Shane Oliver, AMP’s Chief Economist, there is good reason to expect the $A to rise as:

It’s undervalued;
Short-term interest rate differentials look likely to shift in favour of Australia. That is, we expect that the US will reduce interest rates sooner than Australia;
Sentiment towards the $A is negative;
Commodities still look to have entered a new super cycle; &
Australia has a solid current account surplus.

So, there is a case for Australian-based investors to tilt a bit to hedged global investments.

The main downside risk for the $A would be if there is a hard landing globally and/or in Australia next year.

It’s important to remember that, over the long run, currency risks generally even out.

What options do investors have for currency hedge portfolios?

Given this weakness in the $A, how should investors think about their currency exposure?

Currency-hedged ETFs seek to substantially offset a fund’s exposure to movements in the value of foreign currency.

For example, any drop in the $A helps unhedged investors as it magnifies gains when assets are converted back into Australian dollars.

This is where hedging an international portfolio may be advantageous, as it will benefit from rises in the value of the $A.

Risks

Ultimately, much like investing, timing currency exposure is difficult to assess.

Investments carry risks such as ASX trading time differences, financial markets generally, individual company management, industry sectors, foreign currency, currency hedging, country or sector concentration, political, regulatory and tax risks, fund operations, liquidity and tracking an index.

Let’s wrap this up then.

When investing in international assets, an investor has the choice of being hedged (which removes this currency impact) or unhedged (which leaves the investor exposed to $A changes).

For Australian-based investors, if the $A is falling and you have unhedged investments, you make money on the currency devaluation.

Conversely, if the $A is rising & you have unhedged investments, you are losing money on the currency appreciation.

The decline in the $A over the last few years has enhanced the returns from global shares in $A terms.

So, given expectations for the $A to rise further into next year there is a case for investors to tilt towards a more hedged exposure of their international investments.

The post Currency Hedging appeared first on AustAsia Group.

AAG turns 45 in 2024!

AAG AustAsia — Wed, 20 Dec 2023 13:36:23 +0000

As we approach the holiday season, with Christmas and the New Year just around the corner, we are taking some time to reflect on the year that has passed and look ahead to 2024. This is also the time of year when we wrap up any outstanding work projects, finalise tasks, and prepare for office closures and time off. We are excited for the upcoming holiday season and all the joy it brings.

We typically reflect on the past year and set goals for upcoming milestones, in 2024, AAG will be celebrating its 45th anniversary in February!

From humble beginnings in February 1979, Syd and Jeanette Chesson started the business which is now AAG. From beginnings that started in the lounge room of Syd and Jeanette’s house, the business has evolved to have a staff of over 45 and close to 1,000 clients, and over the years helping clients to deal with a range of their personal and financial affairs – some very joyous and some not so when helping clients through tough times. We will be holding an event in 2024 to celebrate our 45th Birthday.

The 2023 year for AAG and our clients has been a lot of change – with the economic situation getting more difficult with housing and rent shortages, higher interest rates, difficulty in finding staff and contractors, and building houses or renovations, there has also been a lot of positives as well.

We have had lots of changes over the years, and 2023 was no different. We have had a number of team members that have been promoted to senior positions within AAG, as these are staff that have shown drive, passion, loyalty, and living the AAG Core Values.

To assist us in the support of the business, and to help to deliver the results for our clients, we have been building our senior leaders and our future leaders to create sustainability and quality of service to support you, our clients.

We would like to formally acknowledge and congratulate the following staff members:

Danielle Ablett –promotion to Wealth Management and Protection Services Advisor

Danielle Ablett
Danielle graduated from Curtin University in 2016 with a Bachelor of Commerce majoring in Accounting and Financial Planning. She joined the Investments team at AAG as a graduate in 2017. She has also completed her studies to become a Certified Financial Planner (CFP) (non-practicing) with the FPA in 2021. She is currently completing her professional year, and will be a fully qualified adviser in her own right in 2024.

During 2020 to 2022, Danielle moved to the Consulting team, working alongside our Managing Director, Simon, to provide clients with tax and structural advice. She then transitioned back to the Investments team as manager.

Danielle has been promoted as Wealth Management and Protection Services Adviser, assisting Simon meeting existing and new clients, providing advice more specifically in the financial advice side of the business.

Jeremy Heng – promotion to Manager of Tax, Management Accounting and Client Care.

Jeremy Heng
Jeremy graduated from UWA back in 2012 and then attained his CPA in 2017. He has been in public practice assisting clients in meeting their tax obligations, as well as tax consultations since 2014.

Jeremy joined AAG in February 2022 as a Senior Accountant and moved to Tax Manager in October 2022. In a short period of time, Jeremy has shown the AAG core values and assisted to provide clients and worked within a team framework very well, which has also been to mentor and develop our up and coming new tax team members.

In his current position, Jeremy oversees a team of tax experts, ensuring compliance with regulatory requirements and implementing effective tax strategies to optimize the company’s financial performance.

Jeremy is a Registered Tax Agent and promoted as Director of Austasia Accounting Services.

Melanie Ferries – promotion to Manager of New Business Division

Melanie Ferries
Melanie joined AAG in 2015 as a Receptionist in Client Care Team. After years of building and developing strong client relationships, she moved seamlessly to the role of Client Care Team Leader in 2020.

Melanie has been promoted as New Business Manager, engaging new clients and determines their financial and life goals in order to provide tailored financial services to meet their financial needs. She ensures superior client satisfaction and ensuring AAG Teams deliver professional services in the areas of tax accounting, financial planning, and business consultancy services.

Marcella Hindarko – promotion to Manager of Business Advisory / Consulting

Marcella Hindarko
Marcella graduated from Prasetiya Mulya Business School in 2015 with a Bachelor of Economics and Business Management and continue her study in Curtin University and graduated in 2018 with a Master of Professional Accounting degree.

Marcella joined AAG in 2019 as a Graduate in our Client Services Team (now the Client Care Team), and moved to the Consulting Team providing Business, Financial and Tax Advice. Within a short period of time, she has grown and developed her team and her own skills and become a key part of the Consulting Team. She was promoted to the Manager of the Consulting Team earlier this year.

Due to her passion and drive for growth and improvements, she has transitioned to a new role as Business Advisory Manager, which is assisting with business strategy for clients and working alongside the board with our own strategic growth for AAG internally.

Sherly Phen – promotion to Manager of Internal Accounts

Sherly Phen
Sherly joined AAG in 2008 as a Graduate Accountant in the Investments Team and has worked for AAG for over 15 years. After a short career break, has come back to AAG to work with the Directors. She has held various roles, from a graduate to Manager of a team, to Executive Assistant for the Directors, and now has risen to the role of Manager of the Internal Accounts team. Sherly oversees various crucial responsibilities within the organization.

Sherly has been the backbone of AAG internally.

Denise Locantro – promotion to Associate Director Wealth Management

Denise Locantro

Denise has a long history in the Financial Services Industry, with over 30 years as a stockbroker. She is skilled in Portfolio Management, specialising in Australian and international equities, corporate finance, and asset management.

Her belief that it takes a team effort to deliver a high-level client experience is evidenced by the substantial growth in funds under management. Denise graduated from the University of Western Australia with a Bachelor of Economics and is a Fellow of FINSIA (Financial Services Institute of Australasia).

Leah Ann Mathew – promotion to Team Leader of Consulting

Leah Ann Mathew
Leah earned her Master Degree in Professional Accounting from the University of Western Australia. She started her journey with us as a Graduate Position in the Client Care team, working closely with Nicole and Mel in August 2020. Her responsibilities included client and ATO liaising, lodgements, packaging, and more.

Leah’s rapid progress led her to a Team Lead role within the Client Care team. In early 2022, she transitioned into Consulting Team, and promoted as Team Leader in 2023. She is now the expert of Structured Advisory and utilising her expert knowledge, she also assisting Simon with the finance team focusing on more complex finance matters, as they tie into the overall advisory role and implementation of our strategies. She has taken on SMSF and business finance and is studying the requirements to be able to provide advice on finance in the future.

Haseeb Shafqat – promotion to Team Leader of Tax and Client Care

Haseeb Shafqat
Haseeb graduated from National College of Business Administrations & Economics in 2013 and continued his study in Edith Cowan University, graduated in 2019 with Master of Professional Accounting and Finance Degree. His passion for studying has brought him to be Registered Tax Agent in 2023.

Haseeb started his journey in AAG as a tax intern in March 2021, and quickly transitioned into Junior Accountant then a Senior Accountant in Tax Team. He has a passion and drive that AAG has fostered to be able to take Haseeb to be a Team Leader. His recent promotion is as the Team Leader of Tax and Client Care.

Haseeb is the expert on handling complex tax works.

Poonam – promotion to Team Leader of Wealth Management and Protection Officer

Poonam
Poonam graduated from Murdoch University as Master of Accounting in 2020. And joined AAG in 2022 as a Graduate Accountant in the Client Care team, then, transitioned to the Tax team, refining her tax return and financial skills.

In early 2023, Poonam joined the Consulting team, sharpening her tax and Business Structure knowledge. With her growth mindset, she then transitioned into Investments team, promoted as the Team Leader and ensuring client’s needs are tied in together both from the tax and investment side.

We also want to congratulate the following staff for some milestones of their own:

Nicole Copeland – started with AAG in August 2005, (over 18 years ago) and recently went on maternity leave for the birth of her second daughter. We look forward to welcoming Nicole back in 2024.

Wayne Archibald – Wayne was our General Manager for 5 years and left us in 2021. He came back to work part time to help us with some special projects during 2023. We farewell Wayne for his real retirement, and thank Wayne for his assistance during 2023 in particular.

Jayden Huynh – started with AAG as a graduate accountant in 2019 and has become an Intermediate Accountant, being able to handle a range of tax and accounting issues with complex financials for clients. Jayden recently resigned due to his family’s business needs, and is moving to Vietnam. We wish Jayden the best in his future, and there will be a role for Jayden if he wants to come back to Australia and AAG!

We take this opportunity to thank all of our clients for allowing us to continue work with you to help you to achieve your goals. Wishing you and your family a very Merry Christmas and a safe, healthy and prosperous 2024!

The post AAG turns 45 in 2024! appeared first on AustAsia Group.

Property Market Update

AAG AustAsia — Fri, 01 Sep 2023 04:39:38 +0000

Further to our recent article on the Property Market and our views of the fundamentals, Macquarie Bank released its own Housing Market Update for at the end of August 2023.

For those that missed our article in mid July 2023, please see it here:

The Australian Residential Property Market

The article provides 5 main trends / topics for the property market, being as follows:

Property rebound is losing momentum
Despite reaching the ‘fixed-rate cliff’, mortgage arrears remain in check
Rental market to remain tight
Despite strong rental conditions, more investors are selling
Development pipeline lacks approved supply

It is a great read, and gives a lot of background for where the Industry sees the market, rather than the political rhetoric that is in the media.

The Macquarie Bank article gives a great background and a different view on the market. We have reproduced the article in its entirety.

If you have any concerns on your position or want specific advice to your circumstance, please contact us so that we can help you with your concerns and help to develop a solution that suits your requirements.

Contact the AAG Team today.

5 trends in Australia’s shifting housing market

Housing market update August 2023

1. Property rebound is losing momentum

The property market has been on a rollercoaster ride over the past couple of years, defying typical growth cycles.

“We moved through a period of nearly 30% growth in our national index between 2020 and mid-2022, which was the fastest growth cycle on record. Then we experienced a 9% drop between May 2022 and early 2023, which again, was one of the fastest drops over a relatively short period of time. And now we’re back into this new phase of a positive inflection in housing values,” explained Lawless.

The recent rebound in Australian property prices has defied expectations in the midst of tightening policy. One key factor in Australia’s recent rebound is extraordinarily low supply amidst average levels of demand.

As new listings start to pick up, growth in the market appears to be easing in most regions. While July marked the fifth consecutive month of growth, property values across the country rose only 0.8% compared to 1.3% in May 2023.

“Sydney and Melbourne appear to be leading this slowdown. These are two markets where housing is relatively unaffordable, but also where we have seen a visible lift in advertised supply,” Lawless observed.

Some regional markets, including the Gold Coast, Newcastle and the Illawarra, are still recording strong growth over the past three months. Gold Coast values rose 4% in that period.

“It’s going to be really interesting to see where those inflection points are as supply continues to come to market, and at what point will it outstrip the demand that still exists,” Thompson said.

2. Despite reaching the ‘fixed-rate cliff’, mortgage arrears remain in check

A significantly larger than average number of home loans were fixed between mid-2020 and mid-2022 – accounting for 46% of all secured housing finance at its peak in July and August 2021. The majority of these facilities are expected to expire this year, potentially putting additional stress on borrowers who may struggle to service their loans on higher interest rates.

Yet, as of March this year, 99.5% of borrowers remain on track with their mortgage repayments¹, and arrears remain low.

“It looks like most borrowers are contending with rate rises so far. But this has been accompanied by a sharp drop in household savings, and consumers pulling back on discretionary spending,” said Thompson.

3. Rental market to remain tight

Rental vacancy rates have edged slightly higher from 1% to 1.2% across capital cities, and to 1.6% from 1.3% in regional areas. However, the rental market remains extraordinarily tight.

With no adequate supply on the horizon and net migration projected to reach 1.755 million between 2023 and 2028², vacancy rates are likely to remain low.

“Overseas migration creates an immediate demand for rentals, especially considering it is quite skewed towards students and short-term migrants rather than permanent migrants,” explained Lawless.

Although a tight rental market has pushed rental values up in more than 90% of Australian markets³ in the past year, recent growth has slowed slightly across the board.

“We’re starting to see a slowdown, even in the high-growth markets like inner Sydney and Melbourne. Part of that simply comes back to rental affordability pressures putting a ceiling on how high rents can eventually go,” Lawless shared.

In regional markets, migration back towards the capitals is also dampening growth.

“This is not necessarily because fewer people are moving to regions. It’s about more people moving from regional Australia to the capital cities.”

4. Despite strong rental conditions, more investors are selling

In July, investment properties accounted for around 37% of new listings in capital cities, compared to the pre-pandemic average of 23.6%. This surge in investor sales is likely due to holding costs outweighing rental gains.

“Servicing an investment loan has increased by at least $1,000-$1,200 a month in markets like Sydney, and a little bit less in some of the more affordable markets. Even though we’ve seen rents go up, the rise in rental income has only partially offset the increase in mortgage repayments in dollar terms. In Sydney, for example, monthly mortgage repayments might be about $1,200 higher, but rent has only gone up by $350 a month,” Lawless observed.

More leveraged investors who are feeling the pinch may also be concerned by debates around proposed policy changes, including land tax and rental caps.

“A lot of real estate businesses have seen significant decline in investor portfolios over a sustained period of time,” noted Thompson.

However, there are signs investment lending is starting to return. It accounted for the second biggest rise in lending activity since February.

“The return of investor appetite is being driven by tight rental markets, rising gross yields and more investors positioning for medium to long-term capital gains. We’re seeing some faith that markets have bottomed out, and hopefully interest rates have peaked as well,” said Thompson.

5. Development pipeline lacks approved supply

The trend in dwelling approvals across the medium to high-density sector has been below the 10-year average since 2018, and the sector will likely remain critically under supplied for the next five years⁴.

While a significant number of dwellings are under construction, approved supply in the pipeline is critically low.

“Even though we were moving through a peak in the number of homes that are under construction, a lot of this is related to the HomeBuilder grant. Because of supply chain constraints, bottlenecks and materials and labour shortages, completion of these developments has been prolonged,” Lawless pointed out.

New construction is expected to fall to 127,500 dwellings in 2024-2025⁵ – down from 148,500 in 2022-2023.

Elevated costs and labour shortages remain major challenges for delivering supply in the future.

“The hard part for many builders and developers will be delivering stock to the marketplace with a profit margin. They may struggle to offset the rise in construction costs given consumers may not be able to tolerate significant price rises.”

And while construction costs are not likely to fall, developers can expect to make decisions with a little more certainty, as the growth of construction costs continues slowing down – rising 0.7% over the June quarter, below the pre-COVID decade average of 1.0%.

Looking ahead

So, what’s in store for the second half of the year?

“The key factor to watch moving forward is what happens with supply coming onto the market, especially as we move into the traditionally active spring season,” said Thompson.

Contact the Client Care Team today.

See our other articles on our website relating to markets:

The Australian Residential Property Market

What to do when the next market correction happens and what not to do

Don’t Waste the Downturn

Scary Markets, and you’re all familiar with our

AAG Investment Philosophy.

The post Property Market Update appeared first on AustAsia Group.

Investing and Life Lessons,is there a difference?

AAG AustAsia — Fri, 18 Aug 2023 03:49:21 +0000

Let’s start with a quote from the investing guru himself:

“You will continue to suffer if you have an emotional reaction to everything that is said to you. True power is sitting back and observing things with logic. True power is restraint. If words control you that means everyone else can control you. Breathe and allow things to pass.”

Warren Buffett

When markets truly are challenging, the mainstream media screams at us, social media screams at us, and family/friends can be full of advice. So why don’t they make a career out of it? Do they know what’s best for you?

All of these are distractions.

They are trying to get you to notice them; that’s their job; more clicks = more eyes = more advertising revenue or just plain old attention at a gathering.

So why do we listen to it? Because we’re human.

It’s perfectly natural to take notice. But what sets us apart as a species is that we can choose how we react.

So why act when the world is screaming at you to sell everything and go and live under a bridge because that’s the only safe place?

It might be safe because you know where the bottom is, but it’s neither ideal nor comfortable. So why consider it?

The first rational thing to do is take a breath.

What a knee-jerk investment strategy looks like

Imagine if…

You bought when your emotions were running high (which coincides with market highs) and sold when you were frightened or scared (when the market is down).

This is what your trading would look like in a simple graph….

Chart 1 – Fast track to the bridge

Or, in slow motion…

Chart 2 – The roller coaster of investor emotion

This is exact opposite of what you should do.

What a sound investment strategy looks like over time

We’ve all seen and heard the data many, many times. Why is that?

Because it’s living breathing evidence.

We look back with perfect 20/20 hindsight and this is the long-term Back of the Envelope drawing of what actually happens over time:

This is not what we see on a daily or yearly basis; it is not normal.

Chart 3 – Back of the Envelope (literally) – Straight Line Indicator of Market Returns

We extrapolated that from applying market data such as Morningstar.

Chart 4

This is normal.

Chart 5 – Back of the Envelope (literally)

And this is what normal can feel like.

Chart 6 – Back of the Envelope (literally)

Not our idea of fun!

It looks and feels hyper-agonising, and it will give you multiple ulcers if you let it, or at the least, a very bad drinking habit.

Let’s now transpose all of these charts over each other.

No, let’s not because that’s way above my technical capabilities, but you get the idea.

So why do this to ourselves when the reality is Charts 3 and 4?

More on the noise

Here’s another picture of what the noise actually looks like:

Some people tell us that the dot is too big!

That’s why we say, “turn down the noise”. It will lead to a shorter life.

It’s normal to feel uncertain or frightened; that’s why we set our investment goals when emotions are stable (relatively).

The noise can echo and feed on itself. But ultimately, it’s just that…noise.

So, we need to trust and stick to our long-term investment strategy with our long-term financial goals clearly in sight.

Chart 7

In conclusion

If we are slaves to our emotions and other people’s words, we hand over our reasoning and logic to others.

Words are designed and used to try to make us feel a certain way.

But we don’t act on it; why? Because separating emotions and money decisions is the gold standard, otherwise you’ll always buy high and sell low.

What keeps human beings alive as a species is that we adapt, not just react.

So, give yourself a break and understand what “normal” is.

When scary things happen around us, sit with it, breathe and say, “This too shall pass”.

So, are these Investing Lessons, Life Lessons, or both?

We’ll let you decide.

And finally, always remember that you have us. If you have any queries or need our help, please contact us

We have many articles on our website relating to markets. Here are just a few:

What to do when the next market correction happens and what not to do

Don’t Waste the Downturn

Scary Markets, and you’re all familiar with our

AAG Investment Philosophy.

The post Investing and Life Lessons,
is there a difference? appeared first on AustAsia Group.

The Australian Residential Property Market

AAG AustAsia — Sat, 15 Jul 2023 05:43:52 +0000

Like most prices, the economic laws of supply and demand dictate where prices go.

That is, when demand is greater than supply, then prices go up. When supply is greater than demand, prices go down.

There are differing views right now on whether the property market will continue to rise, or it is heading for a cliff in the next 12 to 18 months.

As usual, we adopt a middle of the road approach, but also review the underlying metrics that usually drive property markets.

We’ll review the availability of property by looking at the supply side first.

The supply side

It has been widely publicised that the current residential property market is being driven by a lack of supply.
There are a number of factors that drive supply, which include:

Lack of materials, due to production levels lower than usual during the COVID pandemic and leading to a shortage in many areas (similar to the car industry where there are some components and some materials which are in short supply, leading to delays in vehicles being able to be made).The Ukraine situation has added to this as raw materials for items like insulation and similar fibrous materials are sourced from Ukraine, and other areas in Europe, which are now affected by the war;
Lack of labour, due to not enough people to do the work.We are still sitting at a record unemployment rate, and more workers in part time work, with many people going back into the workforce to make ends meet (due to inflation and rising rates);
Lack of funding for people wishing to develop.Through our finance arm of AAG, we have seen clients struggle to obtain finance for a development, or for their own house to be built. This does not help with being able to fund for builders to be guaranteed payment. While this is relating to the user side, it does mean that it is more difficult to complete houses and to have more stock on the market available;
A number of Australians moved back to Australia, and took back their rental properties to live in, therefore taking rental stock off the market; and
Builders usually have fixed price contracts, which means that they cannot pass on price increases from materials or labour. So, a number have closed the doors as they are no longer financially viable to stay in operation.

The above have all led to the so called “housing crisis” which is due to a lack of supply.

The demand side

There are three major issues that have exacerbated demand :

Increased immigration, which has been sanctioned by the government in an attempt to fill the labour shortage gap, and allow for more construction to be completed;
More people post pandemic moved back home to Australia; and
As we mentioned above a number of larger companies have brought home their call centres and data processing to Australia post the pandemic.While this is marketed by companies (like Telstra) as them doing us all a favour, the facts remain that they were unable to provide a working from home option in many places like Bangladesh and India, as they do not have the same communication facilities and infrastructure like Australia.

Immigration is something that should not be ignored.

Immigration generally adds 1% to property prices for each 100,000 new migrants that settle in Australia (as stated by CoreLogic and other media sources).

The Australian newspaper stated on 23 June 2023 that:

“For every 100,000 arrivals in Australia, average house prices increase by 1 per cent. Many analysts underestimated immigration last year…”

This is where population growth (mainly via migration) is heading:

Even the ABC had commentary on the population growth in early June 2023:

“Overwhelmingly, commentators are calling for governments to release more land, ban NIMBYism and force local councils to rush through housing approvals.

But as the graph below shows, construction hasn’t kept pace with population growth since the mid-90s. Population growth completely overwhelmed new construction from 2005 until the pandemic and once again has blitzed new housing completions.

As anyone who has ever been involved in construction knows, it takes at least a year to build a house and far longer for units, even after approvals have been granted.

And the idea that you could expect entire, well-established neighbourhoods to submit to wholesale demolition to pave the way for new development is completely unrealistic.”

So, on the back of the lower supply and increased demand, the natural position is for house prices, and rents to increase. Rents have been increasing at a larger rate than what has been reported.

The question is now where to from here?

Again, there are differing views, with the two extremes as follows (sourced from Forbes and The Australian Financial Review):

From Forbes dated 22 June 2023

“The Australian property market will continue to shrug off inflationary pressures and the threat of recession to rise in value over the next 13 months, with Sydney house prices rising by 5% to 9% in value.

That’s the prediction of property listings site and research company, Domain, which argues that an influx of migrants between now and the end of June 2024 would act as an accelerant on property values, especially in Sydney, Hobart and Adelaide.

Typically, overseas migrants rent on arrival, but, with a tight rental market Australia-wide, we may see some arrivals transition to home ownership sooner as they seek more stable housing alternatives” the report noted.

“The rise of migrant numbers will also make rentals seem like a better investment option, and the shift to home buying from migrants will exert upward pressure on property prices, particularly in the current under-supplied market conditions.”

Domain forecast prices to rise in Hobart by 3% to 5%, while in Adelaide they will grow by 2% to 5%. Surprisingly, Melbourne, Australia’s second largest city, was tipped to grow by between zero and 2%:

The “centre of positive price gains” will be concentrated in the combined capitals, with a slower pace of growth in units and combined regional house prices.

“House prices in Sydney, Adelaide, and Perth, and unit prices in Brisbane, Adelaide and Hobart, could have fully recovered from the 2022 downturn by the end of the next financial year,” the report states.

“Adelaide and Perth house prices are predicted to rise slowly and may avoid a downturn— but see a period of modest or sideways growth (for which Adelaide is renowned).”

From The Australian Financial Review in May 2023 (post the budget)

Australia’s housing crisis has widened beyond homes being too expensive for first home buyers and young families into a fully blown rental emergency in which only four rental listings – out of 45,895 nationally, by charity Anglicare’s count – are affordable to a single person on JobSeeker.

Of course, migration is playing a role. The federal government’s National Housing Finance and Investment Corporation in March predicted that a slump in new housing construction and growth in migration would widen the shortfall of homes to 106,300 by 2027 from 62,900 last year.

Last month, the agency said the deficit could deepen as a result of bigger-than-expected predictions of migrants.

“We estimate a gap of about 106,000 is going to emerge over the next five years, but … if we do get net overseas migration in the realm of 650,000 over this year and next year, we could see this gap grow to about 175,000,” NHFIC head of research Hugh Hartigan said.

“So, if anything, our numbers are an underestimate.”

But despite the pick-up in migrants, NHFIC says the fastest-growing type of household over the decade to 2033 would comprise single people, with an additional 533,300 of these created.

Developers are seeing the changes – and responding.

“Housing demand has changed rapidly since the start of COVID,” Andrew Whitson, developer Stockland’s head of residential, told The AFR.

With working from home cutting commute demands, ASX-listed Stockland identified that 20 per cent of its customers who would have bought homes in middle-inner ring suburbs opted for areas further out than they would have previously considered, as it afforded them a bigger home with more space.

People also reconfigured the homes they bought. In the company’s larger off-the-plan houses, home theatres were replaced quickly by more productive uses, Mr Whitson said.

“The media room changed to become a home office,” he said.

Student accommodation operator Scape found demand grew for single-person studio and ensuite apartments during the pandemic and the company, which recently announced an expansion into build-to-rent housing, said changed workplace patterns were also making people demand more space.

“The demand for flexibility in the workplace seems to have reached a new cultural zeitgeist and therefore working from home does mean needing an extra room for the ‘home office’,” said Scape CEO Anouk Darling.

That was likely to remain for some time, Ms Darling told AFR Weekend.

“Until we address the infrastructure issue of the commute – slow and lack of public transport, employees will probably argue greater productivity is enabled by working from home,” she said.

In conclusion

We understand that this doesn’t give any real forecast in resolving the current crisis.

Will housing come to a grinding halt in the next two years or is this is just the beginning of a new bull market?

With the labour shortage likely to continue for some time, being driven by the export markets for Australian natural resources (including forward facing metals), clients should consider all options before making a decision to sell their house without seeking advice first from real estate agents or advisers to be comfortable with their decision(s).

In other times we have seen clients sell out of property to sit on the sidelines and hope that they can get back in and time the market. We usually recommend clients to buy and sell in the same market to reduce the risk of loss.

And finally, always remember that you have us. If you have any queries or need our help, please contact us

See also our other articles on our website relating to markets:

What to do when the next market correction happens and what not to do

Don’t Waste the Downturn

Scary Markets, and you’re all familiar with our

AAG Investment Philosophy.

The post The Australian Residential Property Market appeared first on AustAsia Group.

How high will interest rates go?

AAG AustAsia — Mon, 15 Aug 2022 06:25:41 +0000

The RBA lifted the cash rate to 1.85% in early August 2022. The increase comes a few weeks after Reserve Bank Governor Philip Lowe told the Australian Strategic Business Forum that “… we’re going through a process now of steadily increasing interest rates, and there’s more of that to come. We’ve got to move away from these very low levels of interest rates we had during the emergency.” He said that we should expect interest rates of 2.5% – how quickly we get there depends on inflation.

The RBA Governor has come under increasing pressure over comments made in October 2021 suggesting that interest rates would not rise until 2024. At the time, however, Australia was coming out of the Delta outbreak, wage and pricing pressure was subdued, and inflation was low. That all changed and changed dramatically. Inflation is now forecast to reach 7.75% over 2022 before trending down. We’re not expected to reach the RBA’s target inflation rate range of 2% to 3% until the 2023-24 financial year.

In the UK, the situation is worse, with the Bank of England predicting that inflation will reach around 13% over the next few months. The UK has been heavily impacted by the war in Ukraine, with the price of gas doubling, compounding pressure from post-pandemic supply chain issues and price increases.

With interest rates rising, what can we expect?

Deputy RBA Governor Michele Bullock recently said that Australia’s household credit-to-income ratio is a relatively high 150%, increasing in an environment that enables households to service more elevated debt levels.

But it is not all doom and gloom. “Strong growth in housing prices over 2021 and early 2022 has boosted asset values for many homeowners, with housing assets now comprising around half of the household assets,” she said. The recent downturn in house prices has only marginally eroded the significant increases over recent years. Plus, households have saved around $260m since the pandemic creating a buffer for rising interest rates. This, however, is a macro view of the economy at large, and individual households and businesses will face different pressures depending on their circumstances.

For businesses, the rate increase has a twofold effect. It is not just the rate rise and the higher cost of funds in their borrowings. That is significant, but at this stage, if anything, it is a lesser issue. The more significant impact comes from negative consumer sentiment and the flow-through effect on sales and cash flow.

Generally, your debts should not exceed 35-40% of your assets. There will be exceptions to this with new business start-ups and first home buyers.
Review the cost of cash in your business, reviewing rates, and the configuration and mix of loans to ensure you are not paying more than you need to.
If possible, avoid having private debt and business and investment debts. You can’t get tax relief on your personal debt.
Keep an eye on debtors, and don’t become your customer’s bank.

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Super Guarantee Changes as of 1 July 2022

AAG AustAsia — Wed, 08 Jun 2022 03:16:38 +0000

In line with the legislated superannuation guarantee (SG) rate increase, the SG rate will;

increase to 10.5% on 1 July 2022
steadily increase by 0.5% each year until it reaches 12% on 1 July 2025.

From 1 July 2022, two crucial SG changes will apply to your business. These are:

The rate of SG is increasing from 10% to 10.5%
The $450 per month eligibility threshold for when SG is paid is removed.

What this means for you

These changes mean that from 1 July 2022:

You’ll need to make SG contributions at the new rate of 10.5%
Employees can be eligible for SG, regardless of how much they earn. You may have to pay SG for some or all of your employees for the first time.

The ATO is working with digital service providers (DSPs like Xero, MYOB, etc.) to make sure payroll software is updated in time, and we can also assist you.

The ATO has online tools, and calculators will be available to help you from 1 July 2022.

What you need to do

Check that your software is updated to correctly calculate your employees’ SG entitlement from 1 July 2022.

If removing the $450 threshold means you’ll be paying SG for one or more employees for the first time, you’ll need to give them a Standard Choice Form.

If your employee does not provide you with a choice of super fund, review the Stapled Super Fund
information on the ATO’s website for guidance on what you need to do next. A stapled super fund is an existing super account linked to an individual employee.

For more information

The ATO has some helpful information about SGs on their website.

And as always, we are here to help, so do not hesitate to reach out and contact our Client Care Team today.

The post Super Guarantee Changes
as of 1 July 2022 appeared first on AustAsia Group.

It’s a new government – So what can we expect?

AAG AustAsia — Fri, 27 May 2022 04:15:05 +0000

Labor has won the 2022 Federal election, and Anthony Albanese has been sworn in as Australia’s 31st Prime Minister.

There could be some short-term uncertainty if Labor has to rely on minority parties or independents, but it’s looking like Labor will be able to govern in its own right.

The absence of significant macro policy differences between the new Labor Government and the Coalition suggests a minimal impact on the share market and the Australian dollar.

The key economic challenges for the new government relate to inflation, interest rates & housing affordability. Higher inflation and rates argue for faster deficit reduction.

Both major parties took a substantial hit to their support base as the country shifted its preferences towards the minor parties.

It is unknown how influential the Greens and/or Teal independents will be in shaping policy – even around climate change – but the public has spoken. If the ALP follows through on its message of greater inclusiveness, then some “drift” to the left is likely.

The industry sectors likely to benefit from the change in government include clean energy, health, education, home builders and manufacturing, whereas heavy carbon emitters may lose.

Here is what to expect from the new government and what it means to you, and the implications on the economy and investment markets.

Personal income tax

The 2019-20 Budget announced a series of personal income tax reforms.

Stage 3 of those reforms is legislated to commence on 1 July 2024.

Stage 3 radically simplifies the tax brackets by collapsing the 32.5% and 37% rates into a single 30% rate for those earning between $45,001 and $200,000.

Superannuation - No change to SG rate and rate increase

No change to the legislated superannuation guarantee rate increase. The SG rate will increase to 10.5% on 1 July 2022 and steadily increase by 0.5% each year until it reaches 12% on 1 July 2025.

Superannuation guarantee on parental leave

In the 2019 election campaign, Labor committed to paying superannuation on Government-funded paid parental leave payments.

However, when asked about the policy at a media conference, Mr Albanese said, “We can’t commit to everything that we committed to during the last campaign.” The initiative and the proposal to extend paid parental leave from 18 to 26 weeks are not dead but delayed by economic constraints.

Your Super, Your Future

Back in May 2021, Stephen Jones stated that Your Super, Your Future had “serious flaws”.

One of these flaws was the ‘stapled’ superannuation rules introduced on 1 November 2021. This requires employers to identify if an employee has an existing superannuation fund before setting them up in a default fund. (Even if the existing fund is a poorly performing fund.)

Instead, he advocated for superannuation to “move with the employee from one fund to another when they change jobs.” TFN tagging would move the employee’s superannuation account from one fund to another when they changed jobs if they did not identify a fund of choice.

Retirees and pensioners - Eligibility for Commonwealth Seniors Health Card to widen

Eligibility for the Commonwealth Seniors Health Card will be widened by increasing income eligibility thresholds.

To be eligible for a CSHC, currently adjusted taxable income plus deeming of account-based pensions (unless grandfathered) needs to be below $57,761 for singles or $92,416 for couples. It is proposed that this increase to $90,000 and $144,000, respectively.

Although the ancillary benefits are not as broad as the pension concession card, a CSHC will provide eligible self-funded retiree clients access to benefits such as:

Cheaper medicine under the Pharmaceutical Benefits Scheme (PBS).
Prescriptions become free to cardholders after a safely net of $326.40 for the calendar year has been met.
Earlier access to the Medicare safety net.
Bulk billed medical appointments – subject to approval from their doctor.

The policy was initially announced by former Prime Minister Scott Morrison and adopted by the Labor Party.

Freezing deeming rates

Labor has committed to freezing deeming rates that form part of the income test that determines access to the pension and social security payments at their current levels for two years.

Employment & wages

The Fair Work Commission will remain the arbiter of wages and wage growth in Australia, but legislative amendments will:

Make gender pay equity a central objective of the workplace relations system.
Make the “same job, same pay” concept an object of the Fair Work Act. For example, workers employed through labour-hire or other employment arrangements such as outsourcing will not receive less pay than workers employed directly.
Enshrine “secure work” as an objective of the Fair Work Act for gig economy workers. I.e., Extending the Fair Work Commission’s powers to include “employee-like” forms of work. This will enable the FWC to make orders for minimum standards for new forms of work, such as gig work.
Create an objective test to determine when a worker is classified as a casual.
Limit the use of fixed-term contracts to 24 months overall.
Strengthen the ability of the FWC to order pay increases in low paid female-dominated industries.
Requiring companies with 250 or more workers to publicly report their gender pay gap.
Make “Wage Theft” a crime.

In addition, two new expert panels will work with the Fair Work Commission:

Pay Equity, and
Care and Community Sector

Climate change

Climate change featured heavily in the election. Labor, through its Powering Australia plan, intends to reduce Australia’s emissions by 43% by 2030 and align with a net-zero target by 2050 by:

Upgrading the electricity grid
Making electric vehicles cheaper with an electric car discount from 1 July 2022 that will exempt all electric cars below the luxury car tax threshold for fuel-efficient vehicles ($77,565 in 2020-21) from:
- Import tariffs – a 5% tax on some imported electric cars; and
- Fringe benefits tax – a 47% tax on electric vehicles provided through work for private use.
  The policy notes that currently, there are only five electric cars in Australia priced under $60,000 and none under $40,000.
Investing in a new Driving the Nation Fund to invest in 117 electric vehicle fast-charging stations on highways across Australia.
Adopting the Business Council of Australia’s recommendations for the gradual reduction of emissions by Australia’s largest emitters.
Ensuring Emissions Intensive Trade Exposed industries will not face a greater constraint than their competitors.
Allocating up to $3 billion from Labor’s National Reconstruction Fund to invest in green metals (steel, alumina and aluminium); clean energy component manufacturing; hydrogen electrolysers and fuel switching; agricultural methane reduction and waste reduction.
Providing direct financial support for measures that improve energy efficiency within existing industries and develop new sectors in Regional Australia through a new Powering the Regions Fund.
Rolling out 85 solar banks around Australia to enable more households to benefit from rooftop solar.
Installing 400 community batteries across the country.
Reducing the Australian Public Service’s emissions to net-zero by 2030.
Investing in 10,000 New Energy Apprentices and a New Energy Skills Program.
Establishing a real-world vehicle fuel testing program to inform consumer choice.

Manufacturing

Labor has flagged $15 billion of capital to invest in job-creating projects through loans, equity, and guarantees in resources, agriculture, transport, medical science, defence capability, enabling capabilities, renewables, and low emissions technologies. Goods made in Australia will receive preferential treatment in Commonwealth contracts.

A part of the push for local manufacturing is a $100 million partnership with the Queensland government to create an Australian Made Battery Precinct as part of Australia’s first National Battery Strategy.

Implications for investment markets

Macquarie doesn’t see the election result as having much of an impact on financial markets but notes that:

1. Equity market weakness is being driven by “end of cycle pressures” such as rising inflation and interest rates, declining liquidity and slowing economic growth. Neither Labor nor the Coalition can provide a reprieve from these forces or materially change the earnings or rates outlook.

2. A greater focus on climate change can benefit clean energy sources and those corporates that are further through this transition. EVs, hydrogen and grid are clear winners.

3. The risk for fossil fuels is higher – all things equal – but how quickly that risk is realised is uncertain.

4. Ultimately, bond yields, the A$ and equity markets are driven by global forces that the election result will not change. Bond yields and the equity market will not stabilise until inflation risks decline and/or central banks take a more dovish stance on the path for rates.

5. House prices are under threat from rising interest rates and a lack of affordability. Targeted policies offer selective, not universal, support. Australia is entering a new political dawn, but politics will likely remain a secondary driver for markets.

6. The minimum wage proposals are significant in size and breadth (impacting around 20% of the labour force). This could represent a substantial drag for labour-intensive industries on top of rising raw material costs. But, against the highest inflation rates in decades, this is a minor reprieve for spending.

And on the economic front.

The Teal independents’ policies on climate, integrity and health align closely with Labor.
Labor’s (and the Teals) desire to be more than a one-term wonder should work against the new Government moving too far to the left on economic policies. Policies that would push them down a far less business-friendly path, such as implementing the Greens’ proposed super profits tax.

The change in Government has no implications on AMPs growth, inflation and interest rate forecasts for this year. They continue to see the RBA raising the cash rate at its June meeting by 0.4% and increasing it to 1.5%-2% by year-end.

In Conclusion

There will undoubtedly be more political analysis following the election, particularly concerning the driving out of moderates from the LNP, pushing it to the right and threatening the Coalition.

More broadly, the election result represented a rejection of more right-wing/conservative views on climate, gender equity, health, and integrity in support of what one new Teal independent member refers to as the “sensible centre”.

With the share market down 3.5% over the last eight weeks, there is potential for a rebound ahead as political uncertainty is reduced. But the Australian share market remains vulnerable to ongoing global concerns about inflation, interest rates and recession – these will likely dominate.

The industry sectors likely to benefit from the change in Government include clean energy, health, education, home builders and manufacturing, whereas heavy carbon emitters may lose.

If we can help you with your tax, finance and investment concerns, or in any other way, please get in touch with us.

As always, we are here if you need us.

Simon Chesson & Denise Locantro

The post It’s a new government
– So what can we expect? appeared first on AustAsia Group.

Industry Super Funds – not so super?

AAG AustAsia — Tue, 22 Feb 2022 05:07:29 +0000

A January 2022 article from InvestorDaily outlined that inadequate management and processes by Statewide Superannuation resulted in members being overcharged on insurance premiums by at least $2.5 million.

While Industry Super Funds promote themselves to be low cost and benefitting members, that is not always the case.

They can also have far-reaching powers that they give to themselves. Like moratoriums, to stop the outflow of funds when markets tumble.

Whether you have an Industry Super Fund or a Self Managed Super Fund, it’s vital to be aware of what your fees include and the fund’s performance.

What should I do?

We would encourage you to review your super and your Super Fund, so you know exactly what you are being charged for and to ensure that it still suits your investment objectives.

Don’t forget, super is your money. Anything that is spent on or any investment should be solely to benefit you in your retirement. Look past the published returns, as the returns that you make are a function of the underlying investments.

We can assist you to:

Have a quick look at your Super
See where it can do better
Review your fees
Review the funds performance
Check if the fund includes Life Insurance, Death Benefits.

See Investor Daily article – Federal Court imposes $4m penalty on industry fund.

Also see our Knowledge Centre for more information regarding Superannuation Funds.

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