Premium Finance Services

Many clients of Premium Finance Services use well structured debt to safely create wealth from the residential housing market. Statistics are shedding new light on the best types of property to use; traditionally investors have preferred house & land to townhouses or units but recent research shows that units and town house capital growth is keeping pace traditional house and land.

September 2009 saw stronger-than-expected gain in building approvals driven by a 14.6% rise in apartment approvals. Private sector houses rose by 0.3% in the month. Apartment approvals are notoriously volatile and have can large impact on the aggregated data, so it’s worth looking at the trend data to gauge the strength of the upswing.

Trend building approvals were up by 2.0% in September and have been showing monthly gains of at least 2% since March, although the strength of the upswing seems to be slowing with trend monthly growth easing from 3.1% in April.

The housing finance data shows that first home buyers have been a key driver of the pickup in building approvals in the first half of this year and the phasing down of the grant is probably responsible for some of the easing in recent months. Of course lack of finance availability for small developers, the well-publicised bottlenecks around the local government approval process and developer infrastructure charges have provided some headwinds to the broader upswing as well.

At Premium Finance Services we have always focussed on population growth and level of construction to identify, from a financial perspective, the lowest risk markets for residential property investment.

With strong population growth continuing to outstrip the pace of housing construction residential property is considered the most appropriate and lowest risk investment for wealth creation. The shortage in housing is placing upward pressure on rents and the CPI which all bodes well for property investors. The ABS reported that rents rose by a solid 1.2% in Q3 2009, although it appears that rental price pressures are slowly easing, with quarterly growth easing from a peak of 2.2% in Q208. This is probably due to some renters becoming first home buyers, but it could also be due to an increase in the household size.

Current market trends and recent ABS statistics still point to South East Queensland being the best (highest growth, and lowest risk) investment market over the next 15 – 20 years. With the correct finance structure from Premium Finance Services many new clients are finding they can halve the cost of owning a new investment property meaning their wealth creation plans are back on track after the disastrous performance of most superannuation funds.

At Premium Finance Services we specialise in the structure and restructure of debt to help our clients reduce bad debt and use good debt to create wealth. The use of debt to improve our client’s financial position relies on being able to structure finances so that they are worry free, hassle free and risk free and this requires an understanding of interest rates and their likely future direction.
Like most other in the financial services industry Premium Finance Services believes that interest rates are likely to move up – but when will this occur and what are the triggers?
Many economist believe it is the labour market, and not the housing market, will be the key to the next interest rate rise.
So this raises the question: if the RBA doesn’t have to raise rates earlier, then why would they? The labour market is important here and currently some weakness is still expected. Further, the unemployment rate is still rising and will continue to do so. Given the benign outlook for inflation, it would seem the RBA is in a position to take the edge off this increase, by holding off on rate hikes for a few months. (You can be sure the government would be appreciative heading into an election year). The ANZ bank believes that, in the absence of a strong and sustained turnaround in the labour market, remains for the first hike to come early next year.
The ANZ bank notes that some commentators suggest the recent rise in house prices will be the catalyst (interestingly some former housing doomsayers have now converted to a housing bubble story). This seems unlikely in most regions because median prices have only now recovered to levels seen in 2008 and much of this rise has been driven by subsidised first homebuyers. From end-September the boost the FHOG is scaled back and by the end of December it will be gone. This will no doubt dampen what has been frenetic buyer demand going forward. Upgraders and investors will increasingly support market activity, yet price gains in the next six months are unlikely to match what has happened over the past sixth six months, largely solving any perceived problem for the RBA.
The two regions of strongest population growth in Australia, South East Queensland and Greater Melbourne, are expected to remain the strongest residential housing markets over the medium to long term.

Our clients at Premium Finance Services are often concerned about the impact changes in the economy will have on their financial position and more importantly their ability to improve their financial position in the future.
So When and what is normal Australian Economy? Dr Alex Joiner Economist from ANZ explains; -
The balance of risks in the economy seem relatively evenly poised and as such we think the RBA will only act in the next few months to increase interest rates if the economy outperforms current expectations.
Does the RBA need to raise rates this year?
The minutes from the RBA’s September meeting added no clarity to the debate around when the first hike on the way to a ‘normalised’ level of interest rates will take place. This “wait and see” approach would seem appropriate given the still elevated levels of uncertainty around the domestic and global economic recoveries over H2 2009. Further to our minds at the moment, the RBA still lacks a compelling reason to raise rates sooner, i.e. this year, rather than later. True, the “emergency” scenario is no longer in play but a repeat of H1 economic growth in H2 is nowhere near guaranteed.
A reason may still emerge for the RBA to act in coming months, yet most believe the Australian economy will post very moderate growth in the back half of this year. The balance of risks in the economy seem relatively evenly poised across many major sectors and we think the RBA will only act earlier if the economy continues to outperform current expectations. What will be key is whether sharp gains in confidence made in the first half of the year will translate into activity in the second.
Given the likelihood of very modest economic growth as the fragile economy recovers through the second half of this year, the labour market, retail sales and inflation are key indicators to the timing of the RBA’s first move to normalise official interest rates. We believe the inflation outlook buys the RBA a bit of time. A significantly negative output gap, decelerating wages growth and a relatively high Australian dollar should keep the current downward momentum in the annual rate of inflation in train. Modest economic growth this year and next, (that will be well below a potential rate around 3¼%p.a.) should do nothing to derail this expectation.

At Premium Finance Services we take into account the likely changes to interest rates and the economy in determining what strategies are most appropriate to our client’s financial goals.

At premium Finance Services we work with our clients to get them in to the best possible financial position they can so they can move forward to a better financial future than would otherwise have been possible.
The starting point is often a budget but it works better if we call it a ‘priority planner’. Instead of it being a negative like most budgets are a ‘priority planner’ gets us to focus on what we have rather than what we are missing. It is a ‘glass half full’ situation. The priority planner focuses us on the reasons we are choosing to spend less and save or pay down debt and be in a financially stronger position.
It is remarkable how many things we can’t afford we could really have if we were prepared to prioritise differently. Let’s say for example that we would like a media room but feel we can’t afford it. If we instead determine we could have the media room but it is not a priority then that puts a whole new spin on things.
Let’s assume we will have the media room but to do so we have to give up some other part of our life with a similar financial cost – say the children’s education or our retirement, maybe just the new car and the family holiday – so we can have what we want but what are our priorities? Perhaps it is not the media room after all.
All of us have limited resources and we forget that as Australians we are so much better off than the vast bulk of the world’s population. Having a ‘priority planner’ rather than a budget and living within our means is a discipline that can help us to give thanks for what we have and to focus on what is most important to us financially. It is so much better to be in control than feeling a victim about all the things we could have if only they were important enough to be a priority.
Premium Finance Services is all about showing our clients how to gain control of their financial position and improve it without worry, without hassle, and without risk. Now that sounds like a great idea doesn’t it?

A friend of Mine, Kevin Bailey, runs a major Financial Planning company in Melbourne that focuses on controlling those things we can and minimising the risk associated with those we can’t. This is the same philosophy adopted by Premium Finance Services.
Kevin’s article and views are reproduced below on Prioritise and Regain Control
We are all going to have to tighten our belts a little in the period ahead. No one likes to have to work to a budget. A budget so often becomes a negative, focusing us on what we can’t have rather than we want to achieve. I believe the answer to succeeding in the exercise of budgeting lies in the way we frame our thinking.
When we are told we can’t afford something it can tend to make us feel like a victim and we focus on how unfair the situation is. One of my earliest memories was going into our local milk bar with my mum and seeing all the lolly jars full of treats, only to be told “No, we can’t afford it”. I can tell you I had an emotional experience that let the whole world know I was not happy.
A short while later I went into the same store with an aunty who told me that “Yes, I could have a lolly but I had to choose just one”. The difference between the two experiences was stark. In the first instance there was a feeling of having no control and there was a bitter resentment at the injustice of it all.
The experience with my aunty was one where I was in control of my choices and I just had to prioritise. I might have only been a pre-schooler but the lessons and memories remained. As adults we are faced with an array of choices. Those choices collectively lead us to the position where we are able to determine how we allocate our available resources.
When we say we can’t afford something, subconsciously we can build resentment and feelings of injustice and of being a victim. Despite this, so many people use this phrase in their everyday language. I think what we really mean is that it is not a priority. By replacing the phrase “I can’t afford it” with “It’s not a priority” we are empowering ourselves to feel in control instead of being a victim of circumstance.
This is the approach we use at Premium Finance Services to help our clients achieve financial independence – work out what the real priorities are and work towards them – for most of us the real priorities are our family and its future, not a dinner out and new video game.
What are your priorities?

Over the last 100 years we have seen share prices and house prices double in value every 7 to 10 years but the growth has not been consistent. When viewed over the medium term (5 to 7 years) there is a vast difference between shares and property in the level of volatility (how much an investment falls or grows in the short term). We just do not know in advance which short term direction a market will take and for how long.

What we do know is that the longer the time frame the better the return; 5 to 10 years for property and 10 to 15 years for shares seems to reduce the volatility to an acceptable level.

The long term achievement from investing is as much about the value of compound interest as it is about the merits of long term investing.

The reason for this is that the last 100 years was a bit of a bumpy ride. Australia experienced two World Wars, the “Great Depression”, several recessions, and a number of over upheavals as our young nation developed. Investors tend to get distracted by the “noise” of investment professionals and forecasters (economists) that give people the false knowledge as to when and how to “time markets” and with the aim of securing over concentrated investments. This sporadic approach to investing seldom delivers a return appropriate to the level of risk taken.

In 2008 the Australian Share Market posted its worst return over a calendar year in 109 years (-43.0%) which was worse than the Great Depression during which the Australian All Ordinaries managed to fall 3.6% in 1929 and a further 28.1% decline in 1930.

The early 1970’s was a period of economic upheaval that rivals 2008. If you had invested $1,000 in shares at the beginning of 1970, by the end of 1974 your investment would be valued at only $619 (excluding fees and taxes).

The advice from Premium Finance Services remains the same
• First get your financial structure correct; then
• Maintain your focus on your longer term goals; and
• Ensure you are doing the best you can; and
• most of all, ignore the market noise (short term volatility)

There has been a lot of hype about the share market so what are the facts?

Advocates of shares will tell you that In the 109 years from 1900 to 2008, the Australian Share Market has produced an Average Annual Return of 13.3% including dividends. That means that if you were lucky enough to invest $1,000 in 1900, at the end of 2008 you would have a portfolio of approximately $211,000,000 (ignoring fees, taxes).

Not a bad effort for someone who had the patience and foresight to make a long term decision.

Advocates of property will tell you that over the same period of time
• residential houses out performed shares; and
• shares had negative returns about 20% of the time (one year in five); and
• 10% of the time shares lot between 20% and 50% and

So what is the best investment for you – well at Premium Finance Services that is exactly what we help you identify by looking at your personal financial position and teaching you how to create wealth without hassle, without worry, and without risk.

The sorts of questions Premium Finance Services will help you answer are
1. Is your current financial structure the best for you?
2. How can you reduce debt more efficiently?
3. How can you use your tax dollars to create wealth?
4. What sort of investment and structure is best for you?