Superannuation Vs Property

At this time in the quarter all small businesses should just have paid their 1st quarter 9% compulsory superannuation guarantee payments.

For those people like myself who have to make these payments, this can be a very frustrating time:

1) Because under “CHOICE” I have to send the money into about 10 different funds using about 5 different methods

2) With the financial crisis the money goes into funds that are just going to lose a lot of it.

3) How much better would it be if the money had been invested in residential real estate?

If you want the details, read on.

1) It’s great that we all have “Choice” as to who to let lose our hard earned 9%, but “Choice” has become an administrative nightmare for small businesses.

I got bombarded with paper from about 10 different funds, most of them trying to get me to send them money monthly instead of quarterly, which is the government requirement for the superannuation guaranteed (9%). Do you seriously think I want to send amounts as small as $100 to 10 different funds monthly rather than $300 once a quarter, just so the government can take their 15% contribution far earlier, so that the funds can get their excessive fees earlier, and lately, just so they lose the remaining amount more quickly. Because I refuse to do this, one fund wrote me quite threatening letters which start by stating that their fund (who better remain nameless)”….requires superannuation contributions you make on behalf of your employees to be remitted at the end of every month.” Because I refuse, even though the law allows me to refuse and the funds know this, the fund & several others make me write individual cheques to cover the superannuation guarantee (SG).

At the other end of the scale there is BT (now part of Westpac) who are super efficient. They allow me to pay by Bpay. Each member has a unique reference number, which my financial institution stores and the process of sending that staff members SG takes about 1 minute, with absolutely no paperwork involved. Brilliant! But I have all the range of funds and their individual quirks in between. Some funds are still in the dark ages with their accounting systems. They want a cheque and a letter, or Bpay plus follow up advice.

How is a small business supposed to have time to make money and survive when this chaos reigns supreme? There are simple solutions to this problem, but does anyone in authority care?

2) What is going to happen over the next few years is anyone’s guess, but we have to face facts. We have just had 15 fantastic years of economic growth so we can’t really complain that about 8 different bubbles (see my blog 18.10.08) have burst at the same time. It is unlikely that we are going to recover quickly from this crisis, if, in fact, we have reached the bottom yet. We might even have a way to go down yet. So what does this mean for your 9% SG. Firstly, the government will take 15% off the top, then there are the administration fees, the insurance cover costs and before the funds have invested a cent your money is below 80c in the dollar. After only a few years of negative income, it is going to take a lot of positive returns to even get your money back. Anyone approaching retirement would not voluntarily put money into super.

When I was young and worked for a bank, my bank’s superfund was so rich it was compared with Fort Knox. If you stayed till you were 65 you walked away with guaranteed super benefits. One year they actually worked out the bank could give all its staff some money back because we had overcontributed. Other years the expected liability was such that the Bank had to fork out huge money so shareholders got sick of that & closed the fund to new members and gradually changed over to a scheme where the benefits depended on the economy and financial managers who are like lemmings and follow each other over the cliff. By that I mean that because of ratings no funds performance can be too different from that of another so they all have to be in the latest fancy investment or derivative or lose funds to those that are. Of course when the bubble burst they all fell over the cliff at the same time without exception, like sheep to the slaughter.

Quite apart from the performance aspect I remember writing to the committee of the bank when it was looking for submissions on superannuation. I said I didn’t want to contribute to superannuation for my retirement when I was already battling to feed, house & educate my four children. Also, I was working just before the 1987 crash and after the 1974/5 crash. Crashes are not new, but this one is a beauty.

3) One of the investments, super fund managers don’t get into is residential estate. Yet over my working life, land in my area has gone from $10,000 to $500,000 without any finesse or intervention from fund managers.

Admittedly, 2 years ago, it might have been worth $550,000 – $600,000. Why not package residential real estate into trusts and let super funds home buy into them?

Another solution might be, and this is not a new suggestion, to allow self funded retirees to get the pension, but tax it along with their retirement income. After all, they have probably worked and paid taxes for 40 years before getting the pension.

Alternatively, do away with the 9% SG and add another income tax such as is charged in many European countries and invest the specific proceeds in some sort of infrastructure future fund.

With the benefit of hindsight it is easy to criticize the SG. Two years ago when funds were returning +15% everyone was happy. Hopefully the good times will return. In the meantime government can do a lot to improve the system we have.

Or think about investing in quality real estate?

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School Holidays!

School holidays are never a great time to auction a property and last week was the perfect example. 2 nights of midweek auctions, the middle weekend of the school holidays and 3 Sunday auctions, culminated in a 25% clearance rate. Let’s blame the school holidays and the rain.

1 auction is scheduled this Anzac Day Long Weekend. Maybe we will achieve a 100% clearance rate for a change!

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I have just been told that Burraneer is a new suburb as of January 2008 according to Australian Property Monitors (APM) which provides the database and statistics for the Leader’s Domain magazine,, The Sun Herald and the Home Price Guide. This means there are no sales in Burraneer as yet, sales in what we know as Burraneer are, in fact, according to APM, sales in Woolooware.

This discussion with APM came about after we noticed that the Sun Herald classified our prior to auction sale at 6 Bermuda Place, Burraneer 2 weeks ago, as a sale in Woolooware and not Burraneer as we had advised them in writing.

After several conversations with Australian Property Monitors, who provide information to agents and the public alike on sale prices and statistics, I am told that the State Government only acknowledged Burraneer as a suburb in January 2008. Therefore, until they get official word in May or August this year, our sale at 6 Bermuda Place stays in Woolooware.

Mind you, and thus Australian Property Monitors is happy to let agents advertise properties for sale in Burraneer but when the property is sold they suddenly get converted to sales in Woolooware which must be providing some very unreliable data for Woolooware.

I then checked on and discovered that on this website you can in fact have a sale in Burraneer.

How stupid and unnecessarily complicated is this? Clearly Burraneer is a suburb and has been for quite some time. In fact in the Sutherland Shire Leader for April 3rd, 2008 there is an article regarding suburb boundary changes which states “Burraneer has greatly increased following the inclusion of dozens of streets once considered Woolooware…”, there is a map and the information was supplied by the Geographical Names Board!

In the Sun Herald’s 2008 Domain Property Guide lift out, again information supplied by Australian Property Monitors they have a photo of a property we sold last year (264 Woolooware Rd) under the heading Burraneer, and the following:

“Prices are hardly cheap. Burraneer is the place where hardworking and high flying types choose to upgrade especially to the deep waterfronts…”

I think the residents prior to Jan 2008 and after deserve to have up-to-date, accurate statistics on the sale prices of their suburb.

Beach & Bay is watching this suburb closely so if APM wants to continue with Woolooware, we hope clients will find our website more useful.

Also, to clarify, Real Estate Agents by law, have to advertise a property by what the 149 certificate classifies as the suburb for each property. The 149 certificate is a council zoning certificate.

Our contract for 6 Bermuda Pl has Burraneer as the suburb. It is against the law to advertise by anything else.

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School holidays started today so there were less auctions scheduled. The clearance rate was up marginally to 37.5% with 3 out of 8 properties sold. It will be interesting to see how this compares with Sydneywide.

The breakdown of the auctions was 3 sold (1 at auction and 2 prior), 2 cancelled and 3 passed in (1 with a vendor bid). Beach & Bay was one of the lucky agents to have a “sold prior to auction” sale and moreso because the sale was in Burraneer. Since compiling the auction stats, there has been no sale at auction or prior to auction in this suburb.

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There Goes Port Hacking And The Auction Clearance Rate

In a week with the worst clearance rate this year, a dismal 25%, and almost half that of Sydneywide’s 49%, we also had clarification on the suburb re-zoning that has recently taken effect. The suburb of Burraneer has doubled in size. Some streets in Dolan’s Bay have become Caringbah or Lilli Pilli and Port Hacking is gone. We will leave this suburb on our website to show the timeline and also track the outstanding sales.

Regarding the auction results, the details were 3 sold, 1 cancelled and 8 passed in…

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Good News Week

This week our suburbs hit an auction clearance rate of 50% compared with 51% Sydneywide, up almost 20% on previous months. The breakdown was:

• 4 sold prior
• 2 sold at auction
• 2 cancelled on the day
• 4 passed in/passed in with no bids/passed in with vendor bid.

Combine this with the news today that the Reserve Bank has left official interest rates on hold this month at 7.25%, things are looking up!

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Auction Etiquette

On the evening of Thursday, 21st March (the start of the Easter long weekend) there were 2 properties I was interested in, going to auction in-rooms at Doltone House. I rang the agency concerned on Thursday to check that both were going ahead (which they were) and since they won’t tell you the order of the properties I made sure I was there on time at 6.30pm. The properties I was interested in were scheduled at No. 1 and No. 4 (out of 5). The first auction started late at 6:45pm but sold quickly (mortgagee sale), then I had to wait till 7:20pm for No. 4 to be auctioned. As the auctioneer announced the address the agent for this particular property walked up to the auctioneer and whispered in his ear…next minute the auctioneer announces that the property has been withdrawn from auction.

What a waste of time! I could have been halfway to my holiday house by that stage. I was furious, as you can all probably tell. Why cancel an auction a minute before it starts? Why make us all wait? I don’t see any reason to do this besides bad PR. Why not just have the auction? What is the worst thing that can happen? No bids? This is exactly what happened with the previous auction. You never know who is in the audience waiting to bid. The owner has spent the money on the campaign, the auctioneer still gets paid. I think you should never cancel an auction. I will never forget the property I auctioned several years ago where I had no serious interest, the auction was about to start, passerby stops with his dog and asks what price range, comes in, checks it out, goes back home (up the street), gets his cheque book and a few minutes later has himself a new home, SOLD under the hammer!

What do you think?

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Prices Up, Clearance Rates Down

While we have been discussing and obsessing over auction clearance rates, has anyone noticed that property prices are not falling, well at least in our area.

Sales like $1.8mil for a house with “water glimpses” at 54 Water Street, South Caringbah, $1.7mil for a 2 bed apartment at 4/1-3 Tullimbar Rd, Cronulla and $798,000 for 4 bedroom house at 14 Burleigh Ave, North Caringbah. These are all great prices; all achieved in the last month with average clearance rates of 30%-40%.

This week our clearance rate was up slightly at 44% with Sydney wide dropping to 48.3%.

So what does all this mean? Interest rates are going up, prices are going up, and clearance rates are dropping. I am not an economist but from my 1st year Uni course, I think this means inflation is still a problem. Does anyone else think that interest rate increases are maybe not having the desired effect?

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All the talk is about interest rates this week, from the Sunrise morning show to the shop owners in Cronulla, to the Australian Financial Review. Today, Kochie from the Sunrise morning show raced over to the Reserve bank during the show to hand in emails from struggling families who, like the rest of us, are wondering why the Reserve Bank had to hit us again when we are all hurting already.

Last weeks rate rise has seen the papers talking “doom and gloom”, “consumer confidence down to 15 year low”, “looming recession” etc.

But the hard reality of it all is seen closer to home with “Wellbeing”, the popular health food chain closing its doors this week in Cronulla and staff suddenly finding themselves jobless.

As to your questions on the blog regarding how auction results have been affected I would say they have been dramatically affected by the rate rises. There are now people who have very large mortgages and are paying 9% or more. How can auctions and real estate not be affected? Many mortgagees have had 12 consecutive rate rises. Who would have anticipated that? Everyone is now cutting back, hopefully we won’t have to give up our daily cappuccinos because that would be really depressing.

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Autumn Chill to Auction Sales

The sun was shining but the 1st day of autumn certainly had a chilling affect to the auction results. Both mid week auctions passed in and Saturday 1st March saw only 1 property sold at auction, a 2 bedroom apartment in the Tradewinds, in South Cronulla which sold for $620,000. Luckily 3 properties sold prior to auction day and 1 property sold soon after the auction – another 2 bedroom apartment in South Cronulla. So the stats for this week are 5 sold, 10 passed in or cancelled thus a clearance rate of 33.3%. It seems interest rate rises have started to have a very noticeable impact.

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