The Horizon issue 4

HORIZONTHE

NEWSLETTER

WIN AN APPLE iPOD NANO. SEE INSIDE FOR DETAILS

AUSTRALIA DOING BETTER THAN MOST!

INTEREST RATES -TO FIX OR NOT

FIRST TIMEBUYERSRE-SHAPINGTHE MARKET

FIRST HOMEOWNERS GRANTTO BE EXTENDED?

AUSTRALIA’S PROPERTY MARKET ONE OF THE WORLD’S BEST PERFORMERS

ISSUE 4 I MARCH 2009

ARE MININg ToWNS goLd MINES foR

pRopERTy INvESToRS?

THE HoRIZoN NEWSLETTER I ISSUE 4 I MARCH 2009

WE HAvE TAKEN THE McCARTHy gRoUp’S AdvICE HAvE yoU?

HoW’S THIS foR A gREAT CLIENT LETTER? THIS gETS To THE HEART of ALL THAT WE STRIvE To do AT McCARTHy gRoUp, ANd HoW WE LovE To HELp oUR CLIENTS ovERCoME THEIR fEARS ANd LEARN To fLy! THANK yoU foR THE WoNdERfUL fEEdbACK, ANd HAppy INvESTINg. Stephen McCarthy, CEO McCarthy Group.

bUILdINg fAMILy ASSETS

We (my husband and I) are a young couple, age 29 and 30 with a 2-year old little boy and another bub on the way. We see ourselves as an average family on basic wages, nothing to boast about...

About six years ago when I first heard about McCarthy group I sat down and realized that I wanted more to life than just my everyday job. They say some things are too good to be true. We like many others who are reading The Horizon newsletter took the plunge and invested with the help and support of the McCarthy group.

I am sitting here reading The Horizon newsletter and to be honest I am in a lost little world, not really understanding much about the economy and what is going on in the investment world. but the best feeling I have is that if I am a little curious or I don’t understand something, I know that McCarthy group is only a phone call away and someone always has the answer to my questions.

So I say this to all the readers who have or have not invested with McCarthy group, don’t be shy and don’t be afraid if you are a lost little

bird like me in the investment market, just think high, fly wide and give the McCarthy group a call and soon you will be smiling just like we are.

The point we are trying to make is McCarthy group have made footprints in our lives and footprints in the sand that we will always remember and benefit from.

on a special note a big WELL doNE to Michelle at McCarthy group. It’s an emotional piece that touches me and inspires me when I hear her voice. Michelle has a passion and love for her role in her job.

When you hear her voice on the phone you lighten up like you just won a million dollars. I’ve spoken to Michelle a few times over the phone and on each occasion I have put the phone down and have had a HUgE grin on my face.

It’s people like Michelle at McCarthy group I believe deserve a special pat on the back for keeping my heart and passion with striving forward for a better future. Even after the worst day at work or a long drive home, a phone call from Michelle will brighten your day.

So next time you’re thinking long and hard about investing, no matter what the question may be, give Michelle a call. you won’t regret it. She’s bright and bubbly and she will guide you in the right direction.

Thank you to the McCarthy group and all the staff who have helped us succeed in our goals. We look forward to more future investing.

Written by Audrey Taylor (Investor).

Michelle Melville

ipod NANoWINNER

The Taylor’s investment property in Cairns


RbA pRESSES ‘pAUSE’ bUTToN

The Reserve bank of Australia has held the bank rate at 3.25% and pressed ‘pause’ after cutting the cash rate by 4% over the past 5 months. (Note; this is the same as 16 successive decreases of the normal 0.25% each!). The government is also busy stuffing taxpayer envelopes with the second round of cash handouts as the $42 billion package gets underway, so the RbA clearly wants to see how things develop over the next month or two.

The decision was no surprise, but more cuts can be expected given the news that Australia slipped into the red in the december quarter and with the IMf March forecast that world growth will shrink this year.. We are likely to see smaller interest rate cuts (probably 0.25% to 0.5%) until a low point of 2 to 2.5% is reached. The drop in rates will bottom out before the economy does, so we still have some way to go. you can look for the next reduction in rates when the RbA meets in early April.

AUSTRALIA doINg bETTER THAN MoST

So far the Lucky Country is luckier than most, with many major trading partners suffering far more than we are in terms of the downturn.

The big pluses for the Land down Under have been,• The strong tailwind of the resources boom• Our housing sector is under-supplied, not over-stocked• Our interest rates were high at the start of the slowdown, so there was lots of breathing room for reductions• Our banks are strong - 4 of the 16 AAA-rated banks in the world are our Big Four• The government acted early when the warning lights were flashing• Unemployment was at an all-time low

That’s not to say that we are in for an easy ride. far from it. Tough times lie ahead. The good news is that we are relatively stronger than many other countries, and hopefully this means that the effects of the slowdown will be less.

or as Wayne Swan would say, “If there’s any country you’d like to be in as we move through these times, Australia has to be right up there on the list”.

We agree with Mr Swan! oi oi oi!



To be honest, just like this.

The problem is that it’s been 17 years since we last experienced negative growth, job losses and the belt-tightening that goes with it. families and businesses are saving, not spending. That’s logical, but which is why things slow down.

Chances are if you are 35 to 40 years old, this is a first for you! A new life experience. yes, there are bumps on the road of ‘onwards and upwards’ when some of us thought that trees could simply grow to the sky.

The good news is that the downturn will start to lessen in effect as the governments of the world throw trillions of dollars into the melting pot called “fix It”.

The reality is that it will be a while yet before we all feel we are past the bottom and moving up again.

In between, however, lies enormous opportunity. Maybe a once-in-a-lifetime opportunity, as a recession brings with it,

1. very low interest rates2. Availability of low-priced property3. Low risk investors leaving the market to wait in the wings4. Rising rents for available rental stock (in Australia)5. great opportunities for those who seize the day

for many people, this recession will turn out to be a life-changing experience. but if you have the right approach, it could be a change for the better! one in which some well-timed investment decisions could set you up with new properties that are very affordable to hold and very rewarding for years to come.


So WHAT doES A RECESSIoN fEEL LIKE?


This is a big call. Where is the bottom? When is the bottom? All we know is that as soon as the banks sense we are nearing the bottom of the interest rate cycle, the cost of fixed rates will rise very quickly indeed!

In the months ahead there will be an opportunity to lock investments into fixed rates that we haven’t seen for a long time. yes, there are switching costs. And yes, we might not exactly pick the bottom. And yes, lower holding costs mean lower tax rebates.

However, our advice is to review your situation carefully and be prepared, because if you want to change your strategy and fix your mortgage rates, the window of opportunity in which to do so will close quite fast.

AUSTRALIA SAvES ‘CASH SpLASH oNE’

All the data suggests that about 80% of the pre-Christmas “cash splash” has been used to save or pay down debt. Like credit cards. And mortgages. The opposition calls this a failure. I am not so sure. While the cash tills haven’t been ringing the way they were when Australians racked up virtual world records in terms of personal debt, maybe it’s a good thing that the first use of available support has been to reduce personal debt.

Credit card balances have been reduced, and many people will be using any spare cash to ‘get ahead’ on their mortgages as unemployment increases. It’s like when a hurricane is approaching, and some relief is offered in advance, a few people might buy a new wind surfer to enjoy the extraordinary ride. but most will sand bag their homes, stock in provisions, and prepare for the rising tide.

Cash Splash Two is set to roll in the next week or two, and it is likely that lots of it will also be saved as Australians batten down the hatches as they prepare to ride out the storm.

INTEREST RATES - To fIx oR NoT?



ARE MININg ToWNS goLd MINES foR pRopERTy INvESToRS?

It depends. Sometimes they are. Sometimes they aren’t. Sometimes yields soar. At other times they crash. Which is why many investors regard investment properties in mining areas as a high-risk investment, and expect a high yield.

In resource ‘boom times’ you can’t find enough accommodation. gold diggers will rent a converted shipping container if need be - they simply need a base from which to launch each day. In times of ‘busts’, however, the jobs quickly disappear, the migrants leave town, and the homes stand empty. So to be a winner, you have to know how to pick the resource cycles.

When the world’s best companies and economists can’t get it right, I’m not sure how you and I could do it better. So what’s the answer? It depends on your appetite for risk. As they say, ‘Caveat emptor’ - ‘Let the buyer beware’. In other words, go mining if you want to, but do so with your eyes wide open.




HoUSE pRICES - doWN oR Up?

If we look at the US and the UK, house prices were a bubble that burst. despite relative stability so far, can the Lucky Country be far behind?

In my view the key issue is ‘supply and demand’. According to a recent State of Supply Report by the National Housing Supply Council, Australian housing experienced an undersupply of 85,000 dwellings in 2008. This is forecast to grow to 431,000 by 2028.

This means there will be many more people wanting to buy or rent a house than there are houses. Strong demand accompanied by undersupply has to lead to price increases, in particular in the lower third of the market, which is where the first-home buyers and migrants are so active.

bIS SHRApNEL bULLISH oN HoUSINg gRoWTH

Speaking at bIS Shrapnel’s recent Sydney business forecast conference, Jason Anderson, bIS Shrapnel senior economist ,said that the fundamentals are in place for an overall upswing in the property market. Quoted in breaking News, Anderson said that severe under supply, rising demand and sustained low interest rates would spark an upswing in construction towards the end of the year.

He was particularly positive about the pent-up demand that was still to come in terms of first-home buyers. Anderson feels only a small percentage has been active so far, and that up to 180 000 hungry new homeowners could hit the market this year.

He was also quoted as saying that investment activity is tipped to be the next growth market. “fixed rates of around 5 per cent will bring a huge number of investors out of the woodwork,” he said.



What could possibly persuade Aussie expats (or brits for that matter) to hang around the old dart when London, the finance world and their whole economy for that matter have all gone pear-shaped, and when all that’s left is bad weather, weak beer, roast beef and tribal football.

The short answer is, ‘Nothing’. So we can expect a return migration of our best young talent as well as a fresh influx of brits who remember seeing the ‘Where the bloody hell are you?’ ads. While they might not know that Lara bingle is currently unavailable, they’ll certainly work out that Australia’s eastern seaboard beats the hell out of life in London.

And you can expect that they will be shopping in the $400 to $600k property range, which won’t hurt the market that much!

Welcome home!

HoME, SWEET HoME

first-home buyers are out there in force and having a ball, so much so that the latest Rp data shows that in the second half of 2008, sales of houses between $300,000 and $500,000 accounted for 48% of all sales.

This strong demand will continue for the next few months as this wave of new buyers rushes the market to beat the end-June deadline for the additional grants. We should see strong competition from young buyers determined not to miss the boat, as seen in the high auction clearance rates of late.

In Sydney alone, Mark Mendel, CEo of property research portal find Investment property, predicted that 63,000 additional households across the city could be actively seeking their first home by April 2009 as it becomes cheaper to buy than rent.*

These trends mean strong price support at the lower end of the market - which is great news for McCarthy clients, as this is the price bracket where we operate.

Source: Your Mortgage Magazine 12 February 2009

fIRST-HoME bUyERS RE-SHApINg THE MARKET



The first-Home owners grant has been a resounding success. With the help of low interest rates, 26.5% of owner-occupier finance in January went to first-home buyers, the highest on record.

property developments that had red-lined have been jolted back to life, and the frenzied activity in this segment has underpinned the values of the property market as a whole.

but the 30 June deadline is only 3 months away, and not everyone agrees that the added grants should be extended. Some feel that it is distorting the market and driving entry prices up. others worry about the ethics of drawing young buyers into mortgages at LvR’s of up to 95% in the face of a recession that will cost Australian jobs.

Now that it’s in place, and given the strong knock-on effect of the support, it will be hard to take it away. (The government claims that every dollar spent generates $2.90 of activity in other areas of the economy*).

So while there’s no doubt that the fHog support has been a big hit for home buyers, developers and builders, the worry is what happens when the music stops. My view is that the government will keep it going despite the concerns and the cost, as it is hitting the sweet spot in terms of economic stimulation. And it is saving jobs in construction and property. Stay tuned for developments.

*The Weekend Australian Financial Review, “Safe as Houses”, p19, reported by Emma Connors

fIRST HoME oWNERS gRANT To bE ExTENdEd?



A CooL TooL oNLINEAt McCarthy group we pride ourselves on the extent to which we help our clients to maximise their tax benefits on investment property, including depreciation benefits.

However, many clients also take great pride in managing their own affairs, so when we found this tax depreciation calculator from Washington brown - a leading Australian Quantity Surveying firm - we thought you would love to have it as a resource.

SURgE IN pRopERTy gEARINgThe latest ATo figures show that negative gearing by property investors surged by 25% in the 2006 - 07tax year. About 68% of investors recorded a net rental loss in that period, and interest repayments and maintenance expenses outweighed rents by $6.4 billion*.

In the same article, property Council of Australia chief executive peter verwer said “the biggest user of negative gearing was middle Australia, which is trying to build wealth for retirement.”

This strategy is the cornerstone of McCarthy group’s positioning and philosophy in terms of “building family Assets”. Australia’s investment property concept not only provides rental accommodation for those who need it, it also helps the government reduce its involvement in housing. And finally, it is a perfect strategy for those looking to achieve future financial freedom and independence.

* The Australian Financial Review, Friday 20 March 2009, p5, reported by John Kehoe and Fleur Anderson

oN THE RECoRdANZ’S boLd HoUSE CALL: THE fLooR’S IN SIgHT

Housing prices could drop as little as 2% before the market touches bottom some time in the second half of the year, Australia and New Zealand banking group says. The ANZ property team’s cautious optimism is based mostly on one inescapable fact: there is an underlying shortage of homes that is now forecast to hit 250,000 dwellings by mid-2010. The national median house price has dropped 3.9% from its peak early last year. ANZ’s economists have forecast an overall slide of 6% from peak to trough -leaving just 2.1% in value loss to come.

ANZ’s head of property research warned that if housing supply remains on its current trajectory, Australia will face a critical and potentially intractable shortage of housing throughout the decade ahead.

The Weekend Australian Financial Review, Page 16, 14-15 March 2009 , as quoted in Matusik itp, 18th March 2009.

foR CALCULAToR CLICK HERE

http://calc.washingtonbrown.com.au/wbdcalculator/calculator.aspx?RID=GNV8RYCI8L

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AUSTRALIA’S pRopERTy MARKET oNE of THE WoRLd’S bEST pERfoRMERS

despite a slew of negative economic news and a forecast of a severe downturn in the housing market, property prices have continued to display exceptional resilience, according to Rp data. The latest Rp data-Rismark International National property Indices report showed overall property values falling by only 2.6% during the 2008 calendar year. Including rents, the total returns to residential property were actually positive in 2008, the report said.

The property market - when compared to the US prices which have plunged by more than 25%, the ASx All ordinaries which lost 45% and the Listed property Trusts which declined by 55% - has performed extremely well, according to Tim Lawless, national research director with Rp data. “The robust performance of the Australian residential markets can largely be attributed to a critical undersupply of dwellings across the country’s capital cities, which Westpac estimates to be 140,000 homes and growing as well as the record population growth which is forecast to continue through 2056. In addition to Australia’s very strong banking system and historically low mortgage default rates, Australia’s residential market has been one of the best performers internationally,” said Lawless.

Matthew Hardman, Rismark International head of research, said that while unemployment looks set to rise to 7%, this will be offset by the record low interest rates combined with the government fiscal stimulusand housing subsidies. “Low interest rates and the continued serious undersupply of housing in Australia will continue to hold a floor under capital city residential values in the lower and middle segments of the market,” he said.

AUSTRALIA’S ExpLodINg popULATIoN“one for mum, one for dad, and one for your country” is only part of the reason that Australia’s population is growing faster than at any time since the 1960’s. The other is record migration rates.

Australian bureau of Statistics figures show a 1.84% increase in the year to September 2008 to reach a total of 21,542,500. This is a gain of 389,000, with 60% due to migration, and the balance due to natural population growth. With a national average of 2.5 people per home, this means the need for 155,600 new homes.

The people are here, but the houses aren’t. once again, a clear sign of why housing backlogs are increasing and rental yields are rising. We don’t see this changing, despite the latest 20% cutback in skilled visa allocations.

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HERE’S HoW. We’d love to hear your views on the investment property market or any other subject that you feel would be of interest and relevance to Horizon readers.

Simply email your contribution to [email protected] and we’ll send a colourful 16gb ipod Nano valued at $275 to the sender of the best entry. We’ll also publish the story in the next edition of Horizon.

If you have friends or relatives who you feel would benefit from an obligation-free review of their future financial circumstances, please feel free to forward them a copy of this e-newsletter, or email us at [email protected] or call (02) 9687 3601.

WIN AN AppLE Ipod NANo

opTIMISM, CoNfIdENCE, pREpAREdNESS...

In the same way that we all saw the warning signs of the events that have rocked the world in the last 18 months, so too will there be signs that things are getting ready to turn. These are the ‘green shoots’ that are starting to show, but don’t always get seen because the focus is still on the black.

The past week or two provided some ‘green shoots’, starting with Citi group making a profit. The share markets have also performed well. And governments everywhere are doing everything possible to support their economies.

There will be false dawns along the way, and new shocks will still hit us. What is important is how we ready ourselves for recovery.

I am very optimistic:• China is still growing strongly. They will need our raw materials;• There has been de-stocking of Australian inventories. These have to be re-built;• Interest rates are low and will go lower still;• There have been big increases in disposable incomes;• The bottom half of the housing market is very strong;• The Australian government acted early, and decisively;• Some companies are thriving in these tough times;

There is great potential for those who seek it out. We will look back on these times as the best investment opportunities of our lives. opportunities that are available to everyone. but which many won’t even see, never mind pursue.

At McCarthy group we look for the stars in the sky rather than the black spaces in between. We are confident of the investment concept that underpins our business, and that has literally changed the lives of so many of our clients. We have ensured that we are well positioned in markets and segments that will remain strong and that will grow strongly into the future.

As the country returns to positive growth we will be ready to support existing clients and new clients as they journey on the road to financial freedom and independence. This is a noble cause, and we are proud to celebrate A decade of growth of doing just that.We are excited about what lies just over The Horizon, and will make sure that we keep you well informed.Happy Investing!

Kind regardsStephen McCarthy

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