Correspondence: Hot property and investing overseas

One member discusses Melbourne's property market while another looks at investing offshore.

Hot property

I’m just recently married with my first child on the way and am looking at buying my first home in the outer eastern suburbs of Melbourne. Like many more in my position I am spending countless hours looking up websites, speaking to agents, going to auctions on my weekends, arranging section 32s, building inspections etc all to just be smashed out of the park by someone (generally someone using equity to buy yet another home to build to their portfolio) who is happy to pay way more than what the property is worth.
I understand that auctions and houses are worth what someone is prepared to pay for it. But my real beef comes down to agents and what they advertise houses for with their recommended sales range. I have been to auctions where the house sells for over 30% the guide price.
I’m tired of putting in my maximum price range on what I can afford for mortgage repayments and just being smacked in the face with pictures of houses that appear to be in my price range but I know the seller just isn’t going to sell if I offer anything near or just over that.
Is there any regulation of this activity to keep agents in check? It seems to be getting more and more out of hand.
Editor’s response: Thanks for your letter. This is a problem many buyers face and it can be frustrating. Still, market forces determine the selling price at auction, which as you’ve said, can often go above the reserve price. There’s no way of telling what buyer interest will be like at an auction, and the seller’s reserve set on the day of the auction can actually be higher than the advertised price if the seller believes a number of interested parties are in attendance.
If you are concerned about possible breaches then you may want to contact Consumer Affairs Victoria. You can find relevant information from them on property pricing here.

Investing overseas

I read with interest Cliona O’Dowd’s article on diversifying into overseas markets, It’s time to diversify offshore. As a novice when it comes to investing overseas, I was hoping to get some information on how to invest in overseas markets?  I assume I need to consult with a financial adviser or invest through a managed fund or ETF. Is that correct?
Name withheld
Cliona’s response: Thanks for your letter. You can indeed gain overseas exposure by investing through a managed fund or an ETF. A few months ago I wrote an article on some of the best performing Australian-listed ETFs over the past 12 months, many of which focused on overseas markets (see Exchange-traded flyers).
You can also buy shares directly if you have an online trading account or alternatively through your broker, although make sure to look closely at the fees charged, as these are likely to be a fair bit higher than fees incurred when trading Australian shares.
If you’re unsure, it’s best to consult a good financial adviser before taking the plunge.

Super fund contributions

Could Eureka Report confirm what the superannuation contribution threshold for FY 13/14 is?
Editor’s response: Thanks for your letter. Currently, the contribution cap for over 60s is $35,000 and for everyone else it’s $25,000. From July 1, 2014, over-50s can avail of the $35,000 cap. The Coalition has thus far made no changes to these limits.

High-yielding LICs

I found Cliona O’Dowd’s article on listed investment companies, LICs rise again, quite interesting. Could you please advise which LICs currently deliver the best dividend yields? AFIC and ARGO have low dividend yields, but others seem to pay above 7%. I am looking for another investment opportunity. Thanks.
Cliona’s response: Thanks for your letter. Some of the highest-yielding LICs recently include WAM Active (WAA), Australian Leaders Fund (ALF) and Cadence Capital (CDM). Grossed up, the 12-month yield for each was 9.2%, 9.9% and 10.4% respectively. But keep in mind there’s no guarantee that investors will enjoy such yields in the coming years. It’s important to thoroughly research any prospective investment before committing to it.

Safety in annuities?

I thought Scott Francis’s latest article, Riding the annuities stream, was very good. I’m wondering what happens if the annuity provider goes ‘belly up” with all your capital?
Rod Collins
Scott’s response: Thanks for your query. We are lucky in Australia that annuities can only be issued by Life Insurance Companies, which are regulated by APRA. The history of annuities in Australia suggests that this regulation seems to work well - I am not aware of any situations of an annuity provider failing that has led to losses for an annuity owner in Australia.

Taming inflation

I thought Clifford Bennett’s latest article, Inflation animal is now much tamer, was the best business article I have ever read. The line “market share is king, and so companies do everything they can to avoid raising prices,” is so true. I think our Reserve Bank is living in the past. Brilliant article!
Name withheld

Super changes

I read with interest the assurances from the Federal Government that it does not intend to make significant changes to superannuation. However, I feel strongly that the completely tax-free status of superannuation in pension phase both in the fund and the pension in the hands of the recipients is unacceptable. I realise Bill Shorten’s changes are planned and hope that the Abbott government will at least keep these. My wife and I have benefitted greatly from the changes installed by the Howard regime but felt at the time that they were too generous.
As a retired public accountant I still take a healthy interest in how tax is raised and spent. Being in practice as I was from 1981 to 1997, I saw immense changes and greater complexity introduced in the system. I was an early enthusiast for SMSFs, setting up many in my practice (including our own), preparing financials and tax returns and later performing audits.
After intense lobbying from the ‘big end of town’, doing both now requires more red tape, CPD hours and increased costs to the SMSFs!
Back to raising taxes: Looking at health services in the future and the rising expectation from voters for better government services all around, the tax pie has to grow, meaning those that can afford it must pay more tax, including those on generous pensions!

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