http://the-riotact.com/greens-push-for-better-standards-in-rental-properties/42272 www.scribd.

com Draft only - Comments will be appreciated before finalisation What the Government does not want investors to know about residential real estate in the ACT (Note this is a companion essay to a forthcoming essay entitled A Manual for Tenants of Residential Real Estate in the ACT how to use the legislation to legally thwart attempts by landlords to get your rent and your bond and to remove you from your property) Thinking of becoming an investor landlord in the Australian Capital Territory? Dont be a sucker. The Government dearly wants you to invest because at every turn the it will fleece you and turn you into an agent for social security. The Government simply will not stop legislating in this field and every new piece of legislation is against the landlord and biased in favour of the tenant. No investor in their right mind would invest in residential real estate in Canberra. This is mainly because of taxes and charges imposed by the Government and because of Governments heavy regulation of homeowners right. Leave this business for suckers. If you invest here are the factors that will cause your financial losses High Price of Canberra Residential Real Estate As at September 2011 Median Price of residential estate in Canberra was $525000.00. The average house price in Canberra is 9.3 times the average national wage, compared with 5.8 times 40 years ago. It is now a big gamble to buy a house in the expectation that the property will increase in value. Real Estate Prices - Canberra Economy dependent on Public Service Employment Watch out for possible future cuts to APS employment by the Federal Government. This can have devastating effects for Canberra residential real estate prices in the future. Look what happened to Canberra real estate in the early 1990s when John Howard cut the public service. At the time of writing (Oct 2011) the coalition is threatening to cut 12000 jobs from the APS if it gets into power. High Stamp Duty on Purchases of Property If you buy a house in the ACT you must pay stamp duty. On a median priced property this is around $22000 Not only that but when you sell it the buyer must pay stamp duty. This tends to reduce the price you will obtain for your property when you come to sell. http://www.revenue.act.gov.au/duties/land_and_improvements High Capital Gains Tax Stamp duty is one thing. But, added to this, in the unlikely event that you make a capital gain generally one half of the capital gain is added to your taxable income in the financial year in which you sell the property and taxed at your marginal tax rates. You can lose a lot of money from your profit this way. High Land Tax If you derive rent from a house that you own in the ACT you must pay Land Tax. For a median priced property this is around $2800.00 every year or around 12 percent of the rent you get http://www.revenue.act.gov.au/land_tax/land_tax_rates
120055587.doc page1

High Rates Land tax is one thing. You might have thought that was enough. But you will have to pay ordinary rates as well. On a median priced property this will cost you about $1500 per year or around 7 percent of the rent you get Income Tax at your marginal tax is payable on the net rent you derive from the property. Many investors however borrow money to purchase their investment property and they obtain a deduction for the interest and other charges they pay to their borrower so this may not be a concern. However in the past the Federal Government under Paul Keating tried to remove the deduction in the past and they may try to do so again as these deductions cost it billions in lost revenue. Environmental Assessments and Tree Protection Laws You cannot sell your house unless you have an EEA done and make it available to prospective buyers. This will cost you around $500.00. This is an onerous law that does not benefit the environment at all. The fee is bad enough but depending on what the assessment says it can reduce the price you get for your property. In addition the Tree Protection Law makes it illegal for you to fell any tree higher than 12 metres notwithstanding that it may be costly to maintain. Building reports It is illegal to sell a house in the ACT unless the seller gets a building report on the property and makes it available to a prospective buyer. This will cost you around $500.00. This cost is bad enough. However notwithstanding that you pay for the report the person who prepares it may criticise your house and this may considerably reduce the price you get for your property when you decide to sell it Low Rents compared to the price of property The median rental in the ACT is around 400 per week. This will return less than 3% of the median price per annum after expenses. At the time of writing it is possible to get 5.24% at call from a bank - government guaranteed. There are also many other alternatives that do not have the impediments to investors. High Interest Rates Interest rates in Australia are comparatively high compared to other countries and arguably are likely to go higher because of increasing inflation and because they are finding it more difficult to get funds from overseas. (See Dariyl Dixons article in the Canberra Times of 11 September 2011). This will increase your costs if you borrow and may depress the price you get for your property when you eventually decide to sell. Low Bond You Can Charge Tenants You can only charge four weeks bond to a tenant to cover the case where the tenant damages the property or fails to pay the rent. For a median type house this will be around $1800.00. This may seem a lot to a tenant but to an investor it is a paltry amount when the value of the property is $525000.00. Not only that but the tenant does not pay it to you. Legally the bond goes to a government authority and you have to convince a bureaucrat that you are entitled to it if the tenant damages your property. Make no mistake the heart of the bureaucrat always bleeds for the tenant. Not only that but the tenant can appeal to a Tribunal a decision to make the bond available to you. You may think that this is not an important issue in the scheme of things but wait until you get deadbeat tenants. These laws will really hurt you then. Other Legal Limitations On How A Landlord Can Treat His Or Her Tenants
120055587.doc page2

Under the Residential Tenancies Act 1997 there are serious impediments placed on investors to achieve financial success for their investment some of these are follows you do not have freedom of contract with the tenant as the form of lease is restricted; you have limited rights to inspect your property; under recent amendments to the RT Act it is now much more difficult to find out if a prospective tenant is a deadbeat; it is very difficult to get rid of deadbeat tenants once they get into the property. Minimum Standards As if all the above impediments were not enough to discourage would be investors in legislation recently introduced into the Legislative Assembly the politicians are going to impose more regulation empowering the Government to determine minimum energy efficiency standards, minimum standards for rental accommodation including locks or other security devices, construction, condition and safety of premises, sanitation and plumbing, supply of hot and cold water, ventilation and protection from damp, heating, laundry and cooking facilities, electrical safety, lighting, hard-wired smoke detectors. The tenant can serve a rectification notice on you about any of these matters. If you dont comply the tenant can sic a shiny bum onto you called a Commissioner who can walk into your house wander around and make a judgement without consulting you. Guess whose heart this bureaucrat will bleed for. If you dont comply with what the Commissioner wants the Tenant can take you to the tribunal. The Tribunal members are appointed and reappointed by the Government for short terms. The Tribunal has the power to force you to comply. Just imagine what a malicious tenant can do to you under these provisions. It could be absolutely devastating for you financially. For example the tenant could serve rectification notices as often as he or she pleases over the most trivial matters such as whether water is coming fast enough from a tap or whether the battery in a smoke detector is flat!! This legislation is extreme. One thing you will need to be very careful about is the EER rating of the property you are thinking of buying. Getting the rating up to the minimum standard could cost you thousands of dollars. High Running Costs There are many running costs incidental to a residential property investment. These include insurance, commission to Real Estate agents for rent collection, maintenance. In Canberra these costs are higher than elsewhere There is a skills crisis developing in the ACT. If you need to get a plumber or an electrician in to do repairs it will be expensive. Insurance is also more expensive for an investor than a live in homeowner Real Estate Agents Have a Monopoly on Selling Your House Under another oppressive ACT law (The Agents Act 2003) nobody can act as a selling agent for you unless he is a registered real estate agent. When you come to sell your property you will find that although there is no law prevents you yourself from selling your property it will be very difficult to sell it without their help. If you use them on a median priced property their fees will be around the $16000.00 mark. Legal Fees Although you are entitled to do your own legal work from a practical point of view you will need to hire a lawyer or a conveyancer to both when you buy your property and when you sell it. This will add approximately $600.00 to $1500.00 when you buy and when you sell. You will also need a lawyer to attend to the drafting of lease agreements
120055587.doc page3

Summary Governments have now introduced so much regulation and so many taxes that it is now no longer worthwhile for people to invest in residential real estate in Canberra. This is causing a shortage of housing and the shortage is going to get a lot worse. The main losers from this shortage are tenants the very people the incompetent Government is saying they are seeking to protect. Only unwise and imprudent investors will invest in Canberra residential real estate these days. There are much better places to park your hard earned investment money. If you have been an owner occupier and you are posted overseas think twice before renting out your property. It could be the worst financial decision you ever make. If you are thinking of investing in Canberra real estate take this article to a professional adviser not a real estate agent and ask the adviser what he thinks of the idea.

120055587.doc

page4

There are other vehicles for investment that do not have many of these impediments you can negatively gear into them if you want to. Shares in Australian or overseas Companies Listed Property Trusts Government Bonds Deposits in Australian Banks that are guaranteed by the Australian Government

120055587.doc

page5