How would rising interest rates affect property prices?

If interest rates start to increase, do you expect any change in property prices in the short to medium term?

Any increase in interest rates would mean mortgage repayments would rise, putting pressure on household budgets; also, people buying properties would find it harder to qualify for a loan. These factors combined would put downward pressure on property but, of course, the effect on an individual property would depend on its location and price range. The pressure would be less for investors as the interest on their loans is tax-deductible.

My wife and I, both in our 80s, run our self-managed super fund and at present we both have more than $1.6 million in the fund. Both are in pension mode. There is one bank account attached to the fund.

We are now required to transfer above $1.6 million to individual accumulation accounts. The question is how is the bank account allocated to what will then be three accounts?

The simple solution is to leave your fund as it is with the assets unsegregated. Then you can keep the one bank account and all that needs to be done at the end of the financial year is to have an auditor prepare a certificate stating the asset proportion. I assume you have expert advice about your fund administration – there are substantial penalties for getting it wrong.

Is it better to put money into super or pay off your own home at the moment?

The great benefit of super is that in some cases, as in salary sacrifice, you can contribute with pre-tax dollars. It is also one of the few assets that can’t be touched if you go bankrupt.  But the price is lack of access till you reach your preservation age, which may be as much as 60.  If you are young, my advice is to focus on paying off your home as a first step and rely on the employer superannuation contributions. You can always change tack as you get older.

Can you please explain how the Government Guarantee for bank savings up to $250,000 works and what accounts and entities are covered?  In what circumstances would this guarantee be used and is it reliable to get 100 per cent of your money back in a timely period?  How careful do you think consumers should be about not having more than $250,000 in any one bank/credit union, and is it worth the effort and security to spread funds across different entities? 

The Australian Government has guaranteed deposits up to $250,000 in Authorised Deposit-taking Institutions (ADIs) such as banks, building societies and credit unions. This means that this money is guaranteed if anything happens to the ADI. The cap applies per person and per ADI.

Just bear in mind that if a bank went broke the shareholders would be the last to be paid.  This means the shares in a bank that did go broke would become worthless – imagine the effect on the stock market and everybody’s superannuation if that happened. In my mind a much bigger risk is leaving too much money in cash or term deposits where its value is being continually eroded by inflation and often by income tax.

I have an investment property that I am selling. Capital gains tax (CGT) will apply to the proceeds. If settlement of the property was scheduled for on or after July 1, apart from the obvious, I suspect, of deferring the payment of CGT for 12 months, are there any disadvantages in adopting this policy?

The only flaw in your strategy is that the effective date for capital gains tax purposes is the date of the contract not the date of settlement. Therefore, if you wish to push the date of disposal to the next financial year you will need to ensure the contract is signed after June 30.


by Noel Whittaker, originally published on The Sydney Morning Herald

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