Cyclone Alfred is giving us this timely reminder + How much $ property renovations really add

Hi everyone,

First of all, all the very best to readers in South East Queensland and Northern NSW battling Cyclone Alfred. Stay safe and prepare well.

The Trump reality show continues to keep us guessing every morning when we wake to some new decision. It’s a strange world at the moment.

In this week’s newsletter:

• Better economic growth thanks to federal and state governments.

• A cyclone reminder why insurance is an essential safety net.

• Property values rise on rate cuts, but property listings pick up pace.

• Elder financial abuse: Keeping your money safe from the kids.

• Ensuring renovations add value.

• 10 years of economic growth: How Australia ranks in the world.

The economy is growing, but it’s thanks to Federal and State Government spending

I’ve said this before, but the record level of government spending has been a big contributor to the growth in the economy and also to inflation. I think it’s much healthier for the growth to come from business and consumers.

This week’s December quarter economic growth figures highlight the situation. The 0.6 per cent increased in real GDP over the quarter, while annual growth stepped up from a very weak 0.8 per cent to a still weak 1.3 per cent - but over the last six months the growth rate is 1.8 per cent.

The consumer side of the economy is still on the soft side considering real income growth has improved. And stripping out the farm sector shows that non-farm GDP rose just 0.4 per cent for the quarter and only 0.9 per cent for the year.

Compare that to the government sector where spending increased by 0.7 per cent for the quarter and 5.1 per cent over the year.

According to the Australian Bureau of Statistics, it was largely driven by spending on transport, roads, water and renewable electricity infrastructure. Through the year public investment is up a whopping 8.1 per cent. The overall level of public CapEX is elevated as state governments in particular run large infrastructure programs to keep up with strong population growth. The upshot is that many state government budgets have come under pressure.

So the Government is on a spending spree while high interest rates have hit consumers who saved rather than spent their Stage 3 tax cuts. Real household consumption rose by 0.4 per cent in the December quarter after the 0.1 per cent decline in the September quarter and a 0.2 per cent fall in the June quarter.

Real household consumption per capita contracted yet again over 2024 to mark eight consecutive quarterly declines. The cumulative decline in real household consumption per capita over the past two years is 2.7 per cent.

We all know this ... the average Australian is asset rich (because of rising house and superannuation values) but cash poor. Real household disposable income per capita (cash available to spend) has been hit because of elevated inflation, rising tax paid as a share of income because of bracket creep and the big lift in interest rates.

The savings rate moved up a touch to 3.8 per cent from 3.6 per cent previously. The savings rate still remains below its five-year pre-pandemic average of ~6 per cent and interest paid on housing debt moved up by 1.4 per cent for the quarter and is 11.9 per cent higher over the year.

Mortgage repayments as a share of household disposable income are currently at a record high.

Business investment rose over the quarter, driven by a solid lift in new engineering construction (3.5 per cent), partially offset by a fall in non-residential construction (-4 per cent). Machinery and equipment investment over quarter four last year fell slightly.

Business investment over the past year was flat overall, indicating that capital hollowing out has continued. This partially explains Australia’s poor productivity growth (more on that below).

Insurance is a waste of money … until you need to make a claim

With the appearance of Cyclone Alfred, it’s a timely reminder to ensure insurance cover is appropriate. I know in a cost of living crisis insurance premiums can seem a waste of money, but they are a very important safety net around your biggest assets.

Did you know that when disaster strikes, insurers usually put the sale of new policies on hiatus? This is to prevent people buying cover only when there is a much higher risk, without ever having any previous plans to be insured.

Embargos usually come into effect when warnings are issued for fires, floods and storms. Insurers may also impose a no-claim period on new policies.

The good news is that if you already have cover in place, cyclone damage is typically a standard inclusion in home and contents policies.

There are currently embargoes in around 200 suburbs - around 170 are located between Bundaberg and South East Queensland, while the remaining 30-odd are in Northern New South Wales.

As the cyclone makes landfall we could see more insurers rely on embargoes and more suburbs could be included in the embargo zone.

For people unable to purchase or update their insurance policy, damage prevention will be key. Tie up or secure loose items to stop them flying into your property, trim any overhanging branches, clear the gutters and park cars undercover.

If you do have an insurance policy in place, go through it with a fine tooth comb and understand what you’re covered for. It’s also a good idea to take photographs of your property and belongings. Should you need to claim, having evidence that damage occurred during a weather event may help speed up the process.

Also be aware that there’s no such thing as ‘flying trampoline cover’, however, damage caused by flying objects during a storm will generally be covered under a standard home and contents policy.

It’s important to note that even if a flying object during a storm or cyclone doesn’t belong to you, you may be responsible for protecting your home or paying for damage caused to your home. If in doubt, chat with your insurance provider and prepare early ahead of Alfred’s impact.

Property values start the interest rate cut bounce back

After slightly declining for the last three months, CoreLogic’s national Home Value Index posted a 0.3 per cent rise in February. Every capital and ‘rest-of-state' region except Darwin (-0.1 per cent) and regional Victoria (which remained flat) recording a monthly rise in values.

The largest month-on-month change across the capitals was recorded in Melbourne and Hobart (both up 0.4 per cent) where home values have previously been among the weakest. For Melbourne, the lift breaks a streak of ten consecutive months of falling home values.

Conversely, the mid-sized capitals of Brisbane, Perth and Adelaide have lost their mantle as the strongest growth markets. With a monthly change of 0.2-0.3 per cent, the mid-sized capitals were outpaced by Melbourne and Hobart.

Adelaide and Brisbane are still leading rolling quarterly growth trends (up 1.2 per cent and 0.9 per cent respectively), but Perth’s value growth has slowed more sharply with downward revisions over recent months dragging the quarterly change to just 0.3 per cent.

The return to growth across Sydney and Melbourne is being driven by the more expensive end of the market, with upper quartile house values leading the monthly gains in both cities after high-value markets recorded the sharpest declines over recent months. This stronger performance is in line with earlier research from CoreLogic, which highlighted that premium housing markets in Sydney and Melbourne have historically been the most sensitive to rate cuts.

But property prices start to grow

The rate cut has certainly sparked increased property activity not only in terms of value rises but also in listings for sale.

According to SQM Research, total nationwide residential property listings increased by 2.3 per cent over the month of February, reaching 249,325 listed properties - a 4.1 per cent rise compared to February 2024.

The increase in listings was evident across most major cities. Sydney recorded the highest monthly rise of 11.6 per cent - 10.5 per cent higher than the same time last year.

Melbourne also experienced an increase of 5.5 per cent month-on-month and 4.8 per cent over the year. Brisbane, Adelaide, and Hobart saw monthly gains of 1.1 per cent, 4.8 per cent and 1.1 per cent respectively, though Adelaide recorded a yearly decline of 5 per cent.

Canberra posted a strong yearly growth of 17.1 per cent, with an 8.3 per cent monthly increase in listings.

However, Perth and Darwin experienced both a monthly and yearly decline, with listings falling by 0.9 per cent and 1.6 per cent in February and dropping 0.2 per cent and 26.9 per cent compared to February 2024.

Interestingly, it seems all the new listings are being soaked up by buyers as the number of properties staying on the market for longer than 90 days is dropping dramatically.

Except Sydney, property where long-time listings are still rising.

Elder financial abuse: How to keep your money safe from the kids

We don’t like to think about getting older, but it’s a fact of life. Unfortunately, it’s also when we’re most vulnerable to financial abuse. Elder financial abuse is when an older person, often lonely, frail or suffering from cognitive decline, is manipulated or tricked into giving away their money

As if this isn’t bad enough, there is also this fact: The main perpetrators are the victim's children.

Now, I’m not saying you should be suspicious of your kids, most will provide love and support as you age. But it’s always smart to safeguard your money - not just for you, but for your whole family. I've heard too many stories of siblings and relatives fighting over a parent’s money being misused for personal gain when they are old.

The stats

The numbers back up the stories. The National Elder Abuse Prevalence Study found that around 2 per cent of people aged 65 and over experienced financial abuse in the past year. Notably, four in 10 abusers were family members. Children were responsible for a third of the abuse, with sons twice as likely as daughters to commit it. Grandchildren made up 5 per cent, and 4 per cent of cases involved stepchildren.

Similarly, in Queensland, 65 per cent of the 4,458 calls to the Elder Abuse Helpline in the last financial year involved financial abuse. The culprits? The victim’s own kids.

Take these hypothetical scenarios involving elderly parents and their family members and you can see why this might happen:

• A mum lets her son access her bank accounts to “help with finances”, but he starts using the money for himself, paying off his debts, and living off it without her knowledge. When she confronts him, he manipulates her into feeling guilty for not trusting him.

• A man with dementia is pressured by his daughter and son-in-law to sign over his house. They claim it’s for his benefit and they will sell it and use the money to buy a bigger house which he can live in with them so they can look after him. When the time comes, though, he’s put in a care home and has lost his property.

• A grandchild who has serious financial troubles his grandfather doesn’t know about, asks his grandpa for a large sum of money as a “loan”. He promises to pay it back. He doesn’t. When the other cousins ask him when he’ll pay it back, he lies and tells them the money was a gift. The grandfather later dies before the loan has been repaid.

How to protect your money from financial elder abuse

To safeguard YOUR money, here are some steps to take today:

• Secure your cards: Keep credit and bank cards in a safe spot. Never share your PIN or passwords: Keep them to yourself.

• Sort your finances: Set up direct debits and pre-authorised payments. Be cautious about granting anyone, even family, open access to your accounts.

• Consult those you trust: Discuss financial requests, like loans or gifts, with someone you trust before agreeing.

• Stay scam-aware: Educate yourself on common scams, especially those targeting older people. Be cautious of unsolicited advice, emails, or texts. You can stay updated on scams via ScamWatch.

• Set up a Power of Attorney: Choose someone you trust to make decisions on your behalf. An ‘Enduring Power of Attorney’ is valid even if you become incapacitated. It’s a vital planning tool as we age.

• Have a will: A will outlines how your assets will be distributed after death and names an executor to carry out your wishes. It’s essential for avoiding family disputes and ensuring your plans are clear. Estate planning can also include trusts, powers of attorney, and healthcare directives.

Look our for these red flags

Lastly, be aware of the signs of financial abuse. These include:

• Missing funds from your accounts.

• Unexplained charges or withdrawals.

• Manipulation to give or loan money. Important documents go missing or are altered.

• Sudden changes in your financial situation, like not having enough money to pay for things, which you know you should have.

• Pressure to sign documents you don't understand. New ‘friends’ or people you hire who show excessive interest in your finances.

By being aware of elder abuse and how it can happen, you can take steps to protect your finances and the risk of financial abuse.

Ensuring your renovations add value

According to Ray White chief economist, Nerida Conisbee, over the past two years, we've seen the value of renovations undertaken remain high, largely driven by rising construction costs.

With the cost of building expected to remain high but with the added boost of the recent interest rate cut, we're likely to see an increase in renovation activity as borrowing costs decrease and homeowner confidence grows.

"How much value will my renovation add?" is one of the most common questions homeowners ask. Of course, quantifying the value a renovation adds to your property depends entirely on the specific project type and scope.

Projects vary enormously. Adding a second floor costs more than updating a bathroom, and each will add different amounts of value. A swimming pool might cost anywhere from $30,000 to $100,000 depending on size and features, while landscaping prices range dramatically based on scope. This makes it impossible to say "renovations add X per cent" to your home's value as each project must be evaluated individually.

When homeowners ask how much value a renovation adds to their property, there's a simple starting formula:

Your home's new value = Current value + Cost of renovation.

In basic terms: If you spend $200,000 renovating a $1 million home, you should expect your home to be worth at least $1.2 million afterward. This gives you a minimum 20 per cent increase in value.

But real estate isn't always that simple. These are some reasons why this is the case:

1. The market moves independently. If you bought a house anywhere in Australia in the last two years, its value went up without you doing anything. When the market is rising, it's hard to tell how much of your home's increased value came from your renovation versus general market growth.

2. There's a ceiling on what people will pay. Spending $500,000 on renovations in a street where homes typically sell for $500,000 is unlikely to double your home's value. Each neighbourhood has a limit on what buyers will pay, no matter how nice your renovation is.

3. Taste matters. Renovations that most people like will add more value than those with limited appeal. A swimming pool in a warm climate is usually more valuable than one in a cold area, and most people would prefer a pool over a tennis court at the same price.

4. Today's renovations cost more. Finding builders is difficult right now, and construction costs have jumped more than 30 per cent in many places. This means recently renovated homes often hold their value better because they would cost more to replicate now.

5. Time has value too. Renovations take time and create disruption. People who hate the renovation process may pay more for an already-renovated home than someone who enjoys the project.

6. Location still trumps renovation. Even the most impressive renovation can't overcome a challenging location. A beautifully renovated home next to a busy highway will still face value limitations compared to a less renovated property in a quiet, desirable street. The old adage "location, location, location" remains true even after significant improvements.

7. Different buyers value different features. Young families might pay a premium for an additional bedroom, while downsizers might value single-level living and low-maintenance features. Understanding who typically buys in your area helps predict which renovations will add the most value for that specific market.

8. Partial renovations can detract from value. Mixing old and new elements sometimes highlights what hasn't been renovated. A brand new kitchen alongside a severely dated bathroom can make the unrenovated spaces look worse by comparison, potentially detracting from the home's overall perceived value.

Importantly, if you renovate your home in a way most people would like, you should get back at least what you spent on the renovation. However, with rising construction costs and limited builder availability, well-renovated properties are often selling at a premium so this may lead to a significant premium to the total cost of the renovation.

10 years of economic growth

We get bombarded with so much daily economic data that we often lose perspective of how the Australian economy compares on a global scale over the long term.

I was fascinated by this table which ranks all the major global economies on their growth over the last 10 years which, obviously, includes the COVID lockdown years.

China’s economic growth leads the world over that 10 years by growing its economy 77 per cent adjusted for inflation. India’s growth came in a close second at 75 per cent and the average of all major economies was 35 per cent.

Among the developed economies, the US grew 28 per cent and UK 14 per cent. Australia’s economy has grown 25 per cent which is pretty good when compared with a similar economy like Canada which grew 17 per cent.