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There is a big difference in getting advice about property and getting advice about investing in property.
Too often property investors are looking to real estate agents to give them that property investment advice and this is problematic when it overlaps into financial and tax advice – advice that they are not qualified to give.
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It is increasingly important that they get the right type of advice as more and more Australians invest directly in property.
Particularly as we are seeing that the rapidly shifting Australian population demographics are making this asset class more complex.
And so often the properties that performed well in the past are not necessarily the ones that will perform well into the future.
The Australian love affair with property investment is long standing.
It’s easy to understand when you consider the favourable tax system that helps underpin our property market with the cash flow assistance just too good to resist for many investors wanting to make the leap of faith into property assets.
At Nyko, we have broken down the numbers on an average $80,000 income to show a newly constructed investment property worth $530,000 would offer an investor approximately $45,000 in tax deductions.
After considering the rental income, the property will give that same investor a tax credit of about $8,000 in the first year.
Obviously this makes the cash flow required to fund the investment that much easier. In the current market this particular property would cost this investor only $40 per week in the first year, although this would increase if rates moved higher.
The long-term average growth of over nine per cent per annum over the past 48 years (Melbourne figures) and the relatively low holding costs make it an investment strategy that the average Australian is going to find very attractive. Why wouldn’t you invest in property?
But just because it seems so attractive doesn’t mean that you can’t get it wrong.
In this unregulated environment, the real estate agent’s motivation tends to be driven by the short-term commission rather than the best long-term financial interests of the client.
And this undermines the consumers’ long term investment strategy.
There has been talk recently about bringing regulation to the property investment industry, a move Nyko supports as we feel there needs to be stronger measures to protect the consumer.
While, currently, financial advisors cannot give advice on property selection, there is still scope for them to play an integral role in their property investment strategy.
They are in a good position to help their clients manage the risks of not diversifying or not being adequately insured in the event of the unforeseen happening such as sickness, injury, death, etc.
What we would like to see is a model where estate agents – those who cross the line and give financial advice are of course spruikers – should no longer be allowed to give all-encompassing advice on property investment.
The financial and tax advice should be left to those best qualified, and registered, to deliver the advice – professional financial advisors and accountants.
The focus for the real estate agents should be on property selection, and its merits.
It will also ensure that advisers and accountants are acting in their clients’ best interests by advising on the asset class Australians find most attractive and have to date been investing in with no professional advice.
This does not require any radical changes in regulation but an increase in the policing of current regulations against spruikers and a change in mindset by professional advisers.
If this shift occurs then we will see a much better outcome for investors and a useful counter-balance to the boom-bust mentality that afflicts our industry.
