Global stock market gyrations have silver lining for Australian property market
By Paul Bennion, Managing Director, DEPPRO
The finance sector in Australia has been spooked by the gyrations in international stock market over the past few weeks.
There has been a growing consensus by economists that a major correction is now due because of the soaring price of stocks during the past year, especially in the USA.
This is because over the past 12 months there has seen significant growth in major asset class values (particularly shares) across the world which has been fuelled by the significant increase in global debt.
For example, according to the PE Shiller Index, the US share market (as measured by the price of a company's share relative to average earnings over the past 10 years for US companies in the S&P 500) is now at its second highest valuation level in history at 32.62, with the highest being the 1999 dotcom bubble.
According to the PE Shiller Index, the bubble in US share market is now bigger than the peak reached in September 1929 which was 32.54. This was immediately followed by the 1929 Wall Street crash.
The good news for the Australian property sector is that any major correction in the stock market should benefit the local real estate sector.
When the stock market crashes, the property market tends to benefit as happened following the stock market crash of 1987.
The move from stocks and shares to property will be led by older Australians who had their retirement savings boosted by the stellar performance of the stock market over the past year.
Many of these older Australians have substantial amounts of money in superannuation funds, which in-turn have invested heavily in the international share market.
These superannuation funds will be badly affected by any stock market correction and this could see a flight of money into the property market led by older Australians who already own property.
These older Australians understand property offers a "safe haven" for investors during times of financial uncertainty as most have owned their family home for many years and seen it appreciate in value over time.
DEPPRO is finding a very high proportion of property investors undertaking tax depreciation reports are now aged forty-five years and over.
The tax benefits associated with property investment is historically encouraging mature investors to buy real estate.
Property investing still allows people to claim generous tax benefits associated with negative gearing as well as depreciation.
The tax benefits associated with tax depreciation can be very signification with DEPPRO clients achieving tax benefits obtained through depreciation equivalent to 60% of the total purchase price of the property.
To qualify for these legitimate tax deductions, an investor must have a fully compliant tax depreciation company undertake an onsite inspection of the property and then compile a depreciation report based on this inspection.
Property investors should therefore check that the company undertaking their tax depreciation schedule is a member of The Australian Institute of Quantity Surveyors (AIQS).
Employing a company who is a member of AIQS such as DEPPRO gives protection to consumers that their tax depreciation report complies is completed in a professional manner.
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