Opinion
Why have my property investments had such a bad year?
Paul Benson
Money contributorMy property ETF has had a terrible year, yet I keep seeing reports that property prices have been going up recently. What’s going on?
Your property ETF will hold investments in commercial property – offices, warehouses, shopping centres, etc. Most of these investments will carry some debt.The combination of higher interest rates and reduced demand for offices following the COVID-induced work-from-home trend has depressed prices in this sector.
Commercial - rather than residential - property has taken a hit over the last 12 months.Credit: Louie Douvis
The headlines you’re seeing about rising property prices refer to the residential market, where high demand from a growing population seems to be keeping prices up, even in the face of higher interest rates.
In weighing up whether you hang onto your ETF, do consider the diversification benefits. If you sell your property fund and reallocate the money into a share-focused ETF, are you increasing risk across your portfolio by having more of your wealth in a single asset class? If all your investments are going up at the same time, it likely means you are not diversified.
I have a small amount to invest (~$1000). Is it better to put it into an ETF or other similar investment, or make a voluntary super contribution, given all the tax concessions you can get from putting more money into super?
Your starting point should be to have clarity on why you are investing this money. Depending on your age, money that you put into superannuation may be locked up for a very long time. If these savings are money that you might need for a holiday, a house deposit, or to cover a period of maternity leave, then superannuation is certainly not the investment vehicle for you, no matter how generous the tax concessions might be.
If we assume these savings are intended for long-term investment, then it would make sense to consider whether a super top-up is the best option. Provided you have room within your concessional contribution cap, currently $27,500, you could claim a tax deduction for this contribution.
Your money will be taxed at 15 per cent (higher if your income exceeds $250,000) when it hits the super fund, so making a tax-deductible contribution to super only makes sense if your personal tax rate is higher than 15 per cent.
Typically, I would suggest only making voluntary tax-deductible super contributions where your taxable income is greater than $45,000. At this level, you are on a 32.5 per cent marginal tax rate which makes the equation attractive.
On top of the initial tax deduction, earnings within your super fund are taxed at only 15 per cent, meaning your savings have a greater ability to grow within the superannuation environment compared to holding your investments outside and paying your marginal tax rate.
My father is in poor health and has recently gone into a nursing home. We don’t expect he’ll be with us a lot longer. Are my siblings and I better off selling the house now, or waiting until after his death? Centrelink/age pension is not a consideration here.
Provided you sold the property within two years of your father dying, there would be no difference capital gains tax wise selling now or later. Either way, his home would get the main residence exemption.
Your decision then would hinge on other practical considerations. If you retain the home, who is going to mow the lawn and maintain the property? You’ve also got costs like council rates and insurance.
It would also be worth checking with your aged care provider that your father’s aged care fees won’t alter if the house is sold. This is a specialist area of financial planning that I’m not an expert in, but I am aware that there is an element of the fee that is means-tested.
Paul Benson is a Certified Financial Planner, and the host of the Financial Autonomy podcast. Email: paul@financialautonomy.com.au
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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