This month my NW increased by $51,713 (2.07%) which was due to a combination of receiving my annual bonus (around $10K - used to reduce margin loan balances), increased house valuation (around $44K - which reflected two months of price changes), a slight gain ($9K) in my SMSF account balance, and a very modest (-$2K) overall decline in the value of my geared share portfolio. I sold off a substantial portion of my managed fund and share/ETF investments on 6 Feb and used the proceeds to pay off nearly all of my margin loan balances and the portfolio loan - thereby avoiding most of the impact of the market sell-off that happened during the past week.
Our SMSF investments also avoided the worst of the recent COVID-19 inspired market volatility (so far), due to my decision to go 'risk off' in early February. Our previous major asset allocation (Vanguard High Growth Fund) would had declined -7.97% by the end of Feb, compared to where it was when I implemented our switch in asset allocation. The investments we switched into were down -1.88% (Conservative Fund) and up 1.36% (Diversified Bond Fund) since the date I switched our asset allocation, so, overall, our investments (excluding the 5% or so we have sitting in the ANZ V2 cash account) were down by only 0.80% since we switched allocations. The switch cost about $3,000 due to the buy/sell spread (transaction cost), but has reduced the potential losses (if we'd stayed in the same asset allocation) on our SMSF investments by $108,500. And, given the ongoing potential for corona virus concerns to flow through into global economic performance and market returns during 2020/21 I'm happy to be invested more conservatively for the time being.
In my overall NW calculation I've included the amount paid so far towards my $1m investment unit ($100K deposit and $40,452 stamp duty) as the 'equity value' of my unit, and I won't start tracking a monthly estimated value for this apartment until construction is completed and the purchase 'settles' in early 2023. But for interest's sake I've been tracking the 1 and 2 bedroom unit prices for the suburb, and the overall 'trend' unit pricing, and the data up to this month suggests a potential increase of about $141,650 (14.17%) since I put down the holding deposit last year. I'll get a better idea of the real 'starting value' for my unit valuation tracking when construction is completed and I get a valuation done in order to get a mortgage on the unit. At the moment I'm ignoring any notional increase in the value of my 'off-the-plan' unit from my net worth calculations, and simply assuming I'd "break even" if I sold it before settlement. I'm carrying the notional total cost ($1m + $40K stamp duty) under 'other mortgages' as I included the deposit and stamp duty payment as 'equity' in my overall geared share valuation (as I initially paid these amounts using my portfolio loan). In reality the balance that will be due on settlement is $900K, and I'll fund that using a combination of a mortgage secured against the valuation of the apartment (at the time of settlement), and a draw down of available funds from my portfolio loan line of credit.
Our estimate house price has finally been updated with the recent (27 Feb) sales data for our suburb, and confirms that a significant recovery in Sydney real estate prices is underway (last month there wasn't any updated sales data available). At the bottom of the recent slump in house prices, the year-on-year decline in 6 month price averages had reached -12% (from the previous high). And the worst 12 month price drop was -13.4% (reached in July 2019). Currently the 12 month price change is +5.0%, and we're now only -8.13% below the previous peak (reached in October 2017). While concerns about corona virus may impact buyer confidence (and the numbers attending auctions!) in the short term, the correction in the share markets is likely to push investors towards real estate (as it did after the 1987 crash) as the only viable 'growth' asset, so should support a continued rebound in Sydney real estate prices. In the longer term, the slump in new construction commencements that has occurred is likely to be exacerbated by any weakness in the economy, and lead to a shortage in new stock once the current batch of developments has completed and settled. The troubles in Hong Kong (pro-democracy protests and corona virus concerns) may also encourage some additional migration of wealthy Chinese to Australia, which could also strengthen demand for high-end apartments. Overall, I'm reasonably optimistic regarding the eventual performance of my investment apartment.
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