Australian Property Bubble....

[turar]

Don't they have a double taxation treaty with US? Also, depending on how far ahead this taxation event is, rules will probably change several times over.

[ERICOPOLY]

Don't they have a double taxation treaty with US? Also, depending on how far ahead this taxation event is, rules will probably change several times over.

 

They would treat an IRA account as a "Foreign Investment Fund" and tax the increase in balance as income.  So, for example, if you had an IRA (or Roth IRA) with a $3m balance and the account balance increased by 10%, then you would have $300k in taxable income to report to Australia.  This happens even if you do not withdraw any funds from the account!

 

They are paranoid about abusive offshore tax shelters and don't distinguish an IRA from an offshore tax sheltering scheme.

[Myth465]

I have peanuts in my IRA and plan to ignore this. My have to look into how it applies to a Permanent Res vs. a Citizen. Also I wonder if the Aussie Super is taxed in the US via a similar arcane rule... Tax time will be interesting in June.

[ERICOPOLY]

They seem to have new legislation in the works to introduce a "Foreign Accumulation Fund" that will replace the FIF.

 

http://www.mondaq.com/australia/article.asp?articleid=125702&tw=2

 

The good news for me is that my Roth IRA would likely not be treated as an FIF as long as I stick to equity investments and shy from fixed income:

 

An offshore fund that predominantly undertakes equity investments would therefore not be treated as a FAF.

 

[dwy000]

Don't they have a double taxation treaty with US? Also, depending on how far ahead this taxation event is, rules will probably change several times over.

 

They would treat an IRA account as a "Foreign Investment Fund" and tax the increase in balance as income.  So, for example, if you had an IRA (or Roth IRA) with a $3m balance and the account balance increased by 10%, then you would have $300k in taxable income to report to Australia.  This happens even if you do not withdraw any funds from the account!

 

They are paranoid about abusive offshore tax shelters and don't distinguish an IRA from an offshore tax sheltering scheme.

 

Eric - I might be reading this differently but my impression was that they treat income from the IRA as ordinary income for taxation purposes.  Therefore it's not necessarily tied to the account balance but is instead based upon realized capital gains, dividends, interest etc. - just as if the account was not a retirement account.  Therefore from your example, the $300K would only be taxed if that was actual realized income and not if it was unrealized capital gains.

 

It's still a massive tax implication.

 

As an Australian citizen can you roll your IRA into a Superannuation Fund (the Aussie equivalent)?

[ERICOPOLY]

Don't they have a double taxation treaty with US? Also, depending on how far ahead this taxation event is, rules will probably change several times over.

 

They would treat an IRA account as a "Foreign Investment Fund" and tax the increase in balance as income.  So, for example, if you had an IRA (or Roth IRA) with a $3m balance and the account balance increased by 10%, then you would have $300k in taxable income to report to Australia.  This happens even if you do not withdraw any funds from the account!

 

They are paranoid about abusive offshore tax shelters and don't distinguish an IRA from an offshore tax sheltering scheme.

 

Eric - I might be reading this differently but my impression was that they treat income from the IRA as ordinary income for taxation purposes.  Therefore it's not necessarily tied to the account balance but is instead based upon realized capital gains, dividends, interest etc. - just as if the account was not a retirement account.  Therefore from your example, the $300K would only be taxed if that was actual realized income and not if it was unrealized capital gains.

 

It's still a massive tax implication.

 

As an Australian citizen can you roll your IRA into a Superannuation Fund (the Aussie equivalent)?

 

You might be right, and I need more clarity.  A couple of days ago I called the Australian Tax Office and they are researching my questions and will have somebody contacting me on what they find.

 

I could always put all of my BofA positions into warrants in my RothIRA if that's the case.  Or sell common stock deep-in-the-money PUT positions that won't pay dividends and also won't expire before I leave  :D

 

So lots of questions still.  My wheels are turning.

[ERICOPOLY]

I got a call back tonight from the Australian Tax Office, this time from someone with experience dealing with the repealed Foreign Investment Fund (FIF) rules.  He confirmed that under the old rules my IRA would have been taxed based on account balance swings, irrespective of whether any gains were realized.  Thus, Buffett himself if he held all of his Berkshire shares in an IRA would be taxed in the multiple billions per year (on a good mark to market year for the BRK shares) if he were an Australian citizen prior to July 2010!  Hows that for a Buffett rule!

 

He said firmly that the FIF is currently repealed and no tax exists at the present.  However they are expecting the new Foreign Accumulation Fund (FAF) rules to take effect in July.  Yet they don't know what those rules will be as they are not official.  So maybe I'm staying in America, or maybe I'm leaving in July.  Stay tuned!

[shalab]

So maybe I'm staying in America, or maybe I'm leaving in July.  Stay tuned!

 

You smell american over the internet  ;D. I bet you a dollar you are coming back even if you go there.

 

 

[turar]

So maybe I'm staying in America, or maybe I'm leaving in July.  Stay tuned!

 

How do you compare living in Aus vs US? There was a pretty insightful comparison earlier from dwy, I was curious about your thoughts.

[ERICOPOLY]

So maybe I'm staying in America, or maybe I'm leaving in July.  Stay tuned!

 

How do you compare living in Aus vs US? There was a pretty insightful comparison earlier from dwy, I was curious about your thoughts.

 

Some history helps understand the differences;  America got the puritans and Australia got the convicts.  Much less of the "born-again" American Taliban clones!

 

I love Australia. There are so many weird things about it.  It sort of feels like a throwback in time.  Imagine going into a downtown in an American city and finding a green grocer and a "chemist" (pharmacy) a butcher, a baker, etc... only they are all in separate independent stores!  Okay, that is just like America... in the 1950s!!!

 

Basically I just feel like it's really laid back and literally "no worries mate".  It's just a cool relaxed place.

 

However I've never lived there -- it's always been on a vacation or a visit.  So we'll see whether my perception was tainted by lack of responsibility and change of routine.

[hyten1]

eric

 

you can find all these .. green grocer and a "chemist" (pharmacy) a butcher, a baker, etc... only they are all in separate independent store

 

in manhattan nyc

 

and they are all on the same street too

 

hy

[sswan11]

Many years ago I lived in Vienna (Austria), and ended up dating the daughter of the Australian Commercial Counselor to Vienna, originally from Canberra.  We went over to his house in the nicest part of Vienna near the Vienna Woods every weekend and drank Australian wines, which the Commercial Counselor was charged to promote into European markets (imagine trying to sell Australian wines in Austria, in the middle of the Central European wine region!).  Aussies seem to have the good life of the US w/o the crazy right-wing stuff and seem to have a saner society (gun laws, low relative crime rates, etc).  Also seemed to me have more of European ethics (read less work, higher income taxes) and morality...

 

My first job out of the UW in Seattle.  Would have been a lot richer if I'd gone to Redmond (this was in the early 80s)! 

 

What I wanted to say is, couldn't you just migrate BEFORE July while no tax is in effect, would that "grandfather" you in tax-free status?  :)

 

 

[ERICOPOLY]

eric

 

you can find all these .. green grocer and a "chemist" (pharmacy) a butcher, a baker, etc... only they are all in separate independent store

 

in manhattan nyc

 

and they are all on the same street too

 

hy

 

Too cold in winter  :)  Brrr...

[ERICOPOLY]

ended up dating the daughter of the Australian Commercial Counselor to Vienna, originally from Canberra.

 

 

Oh, and of course the name "Canberra" was given to the capital city of Australia.  The place from which this name was derived says a lot about the permissive culture of the country, and perhaps speaks to the divine beauty of the country:

 

Alternatively, the name was reported by Queanbeyan newspaper owner John Gale in the 1860s to be an anglicisation of the indigenous name 'nganbra' or 'nganbira', meaning "hollow between a woman's breasts"

 

http://en.wikipedia.org/wiki/Canberra

 

 

[ERICOPOLY]

article:

Daily property index latest thing to bet the house on

 

http://www.smh.com.au/business/property/daily-property-index-latest-thing-to-bet-the-house-on-20120301-1u5zf.html

 

Melbourne's gross rental yield only 3.63% today:

http://asx.com.au/asx/markets/propertyIndices.do

 

 

[nwoodman]

Looks like regression to the mean continues.  It will be interesting to see if the RBA drops by 50 bp at their meeting today. 

 

http://www.theage.com.au/business/home-price-fall-adds-to-rba-focus-20120501-1xvya.html

http://www.theage.com.au/business/home-sales-sink-to-lowest-since-1994-20120430-1xtur.html

 

[ERICOPOLY]

American real estate through the lens on an Australian property investor:

 

http://www.smh.com.au/business/property/us-faces-biggest-land-shortage-in-history-property-investor-20120513-1ykri.html

 

''In more than 30 years as a developer, I have not seen anything quite like it. For property professionals, America is back where Australia was in 1992 - in some areas, even better,'' he told BusinessDay.

 

 

Mr Drapac himself has substantial financial assets but has also acquired Melbourne backers. ''We have approached a handful of clients, but many more have come to us - a large percentage of Melbourne's established real estate investors,'' he said.

 

''There is the allure of a one in 100 years event in the US. The Australian dollar is high, and opportunities in Melbourne are relatively limited. They would like to capitalise on that.''

 

 

[brker_guy]

Bubble Trouble Seen Brewing in Australia Home Prices: Mortgages

 

http://www.bloomberg.com/news/2013-11-05/bubble-trouble-seen-brewing-in-australia-home-prices-mortgages.html

 

 

[Myth465]

I have been thinking of buying, for tax reasons and I live in Melbourne.

Just need a crash or pullback. Will wait for now, but its tempting.

 

Home fever is alive and well with many friends talking of buying an investment property.

Sydney seems to be on a whole other level.

[Max Alpha]

The tolerance for debt that the average Australian has is disconcerting, the amount of leverage the average person employs to buy a house is enormous. Most people see the minimum down payment as par for the course in an asset class that has experienced unprecedented growth.

 

Mention housing bubble, or equity markets as a viable alternative though and you get treated like a leper. 

 

I have an old "friend" on facebook who is a real estate agent, the frequency and bullishness of his tone is the perfect indicator for housing sentiment in Brisbane. We didn't feel the benefit of the lower interest rates straight away here in Queensland because of the exposure to the free fall in thermal coal prices last year but it is definitely following Sydney's lead and starting to heat up here as well now.

 

A couple of years ago people might have been justified in their defense of housing price growth citing rapid income growth, record immigration levels, constricted supply due to red tape, high foreign investment etc etc. A lot of these conditions are going in the wrong direction now.

 

People frequently cite the sideways price action that preceded this recent run up as justification for sustainable prices. Going sideways doesn't count for much when you are already on the top floor.

 

If the sort of growth that Sydney is experiencing continues for the next 18 months things will get out of hand pretty quickly.

 

Investment thesis aside, it is pretty frustrating as a young person who would like to buy a first home.

[Myth465]

Investment thesis aside, it is pretty frustrating as a young person who would like to buy a first home.

 

I can understand this frustration. At my first job down here, many thought home prices were insane and waited for it to pop only to wait for 5 years and watch prices go even higher. It really does a number on your mindset.

 

I am working on fixing my balance sheet, and hoping we have a downturn soon, I am the leper of the group when I bring up home prices. I come from a place with some of the lowest house prices (Houston), and am now in a place with some of the highest. I think some premium should be given to coastal cities with near CBD locations, but things are very much out of wack.

[ERICOPOLY]

Suppose you buy a house in Texas when you are 30 and you live in it until you are 85.

 

You wind up paying 1.8% every year in property tax.  So you buy the house twice.

 

They don't assess property tax on your primary home in Australia.

 

So like, when you Texans say Australia has this bubble and that bubble, look at the bubble world you live in.  Every 10 years you have to pay another 18% for your house. 

[nkp007]

Suppose you buy a house in Texas when you are 30 and you live in it until you are 85.

 

You wind up paying 1.8% every year in property tax.  So you buy the house twice.

 

They don't assess property tax on your primary home in Australia.

 

So like, when you Texans say Australia has this bubble and that bubble, look at the bubble world you live in.  Every 10 years you have to pay another 18% for your house.

 

Sickeningly true. It seems to compound capital, you need to do your best to avoid purchasing real estate.

[racemize]

Suppose you buy a house in Texas when you are 30 and you live in it until you are 85.

 

You wind up paying 1.8% every year in property tax.  So you buy the house twice.

 

They don't assess property tax on your primary home in Australia.

 

So like, when you Texans say Australia has this bubble and that bubble, look at the bubble world you live in.  Every 10 years you have to pay another 18% for your house.

 

Sickeningly true. It seems to compound capital, you need to do your best to avoid purchasing real estate.

 

I live in Texas, in an area with crazy demand for housing at the moment (Austin).  I calculated all in costs for the house we have a mortgage on versus renting and then investing the principal amount.  I realized that the low interest rates + leverage from the mortgage was hard to beat from an investment standpoint, especially when taking into account the cost to rent.

 

Here is what I calculated:

 

cost to own = interest portion of mortgage + insurance + taxes + other costs

versus cost to rent = monthly payments

 

For a comparable place, we would be paying much more in rent, so we would not get the increase in equity every month (excluded from the cost to own above).

 

then comparing possible appreciation of the home leveraged 4:1 (I own 25%) versus my own investment returns using the 25$ of the house, which are unlevered, I was concerned that I couldn't match the levered returns.  Additionally, the house diversifies the investments and the low interest rate is somewhat a hedge against inflation.

 

Prices are currently very high in Austin for real estate (and rent), so if someone has a better way to think about the above, I'd be glad to hear it; I kind of wanted to sell the house this summer and move downtown.  I think it is just too cheap to live in my house right now, versus renting.

[locatevalue]

Suppose you buy a house in Texas when you are 30 and you live in it until you are 85.

 

You wind up paying 1.8% every year in property tax.  So you buy the house twice.

 

They don't assess property tax on your primary home in Australia.

 

So like, when you Texans say Australia has this bubble and that bubble, look at the bubble world you live in.  Every 10 years you have to pay another 18% for your house.

 

Sickeningly true. It seems to compound capital, you need to do your best to avoid purchasing real estate.

 

I live in Texas, in an area with crazy demand for housing at the moment (Austin).  I calculated all in costs for the house we have a mortgage on versus renting and then investing the principal amount.  I realized that the low interest rates + leverage from the mortgage was hard to beat from an investment standpoint, especially when taking into account the cost to rent.

 

Here is what I calculated:

 

cost to own = interest portion of mortgage + insurance + taxes + other costs

versus cost to rent = monthly payments

 

For a comparable place, we would be paying much more in rent, so we would not get the increase in equity every month (excluded from the cost to own above).

 

then comparing possible appreciation of the home leveraged 4:1 (I own 25%) versus my own investment returns using the 25$ of the house, which are unlevered, I was concerned that I couldn't match the levered returns.  Additionally, the house diversifies the investments and the low interest rate is somewhat a hedge against inflation.

 

Prices are currently very high in Austin for real estate (and rent), so if someone has a better way to think about the above, I'd be glad to hear it; I kind of wanted to sell the house this summer and move downtown.  I think it is just too cheap to live in my house right now, versus renting.

 

No you are accurate, Rents are going higher and with the deductions available with house owner its definetely cheper then renting currently in Texas even with property rates going up, At these intrest rates it still makesense to own a home. Also its a good hedge against inflation. I work with lot of people, they rent a 2 bed room home and when they buy they buy a 5 bed room mansion and ask me how much they save by purchasing home :) . So for comparable homes its still better to own then rent in texas but would have preferred Eric scenario of not paying taxes on primary or atleast like CA where you pay on purhcase price. In texas it is ridiculous i pay 2.2% of every year appraised value. I hope we never go into crazy boom in which case i would prefer to sell and then move into smaller then paying lot higher taxes.