Should I sell my property?

Remember around Budget time, when the Treasurer told us you wouldn't need to go to a financial planner anymore because of his super changes? Well, as the end of the financial year gets closer, a mild degree of panic is building with the $1m question at the centre of this disturbance.

In a nutshell
In case you missed it, it's possible for someone to dump up to $1m in their super fund before 1 July this year. And after that date, those over 60 will be able to withdraw their super as a pension or as a lump sum without being taxed!

A right kerfuffle
This has led to a kerfuffle. Some pending retirees in particular are thinking about selling their investment properties to dump their money into super.

To put you in the picture
The changes mean someone could put a $1m after tax contribution (undeducted contributions) into their super before 30 June 2007. The old reasonable benefits limits that controlled what you could put into super each year, according to your age, have been abolished.

From 1 July, there will be a $150,000 annual limit on undeducted contributions. That means for those aged less than 65, they can make up to $450,000 of undeducted contributions every 3 years.

There are other changes, but these are the ones that have captured the imagination of many Aussies and now it's time for some clear thinking on the subject.

A numbers game
I have seen some sophisticated number crunching on the issue of: "Should I sell my investment property to bump up my super before 1 July?"

For some people it could be a good idea, but for others it might not. You see, it depends on a number of important variables.

Six things to consider
First, what will your property go up in value by? Last year, Sydney's Darling Point properties went up by a whopping and statistically confusing 113.1%! Haberfield in Sydney rose by 25% while Beenleigh in Queensland only rose by 5.4%. Meanwhile the 10-year rise has been 8.5%.

Second, what will your super fund do in terms of return on a comparative basis?

Third, there will be costs when selling your property, especially when the market is soft in New South Wales, Tasmania, South Australia and Victoria.

Fourth, you need to know what capital gains tax you are up for when you sell the property.

Fifth, you need to add in the cost of selling the property.

And finally, the analysis I have looked at shows that for people in different tax brackets, the answer changes even on the same property and fund return.

This is why many time-poor Aussies will have a devil of a time working out what to do with these new super rules.

Be careful!
Given all of the above, it means many people will need to talk to a financial planner to explain the pros and cons. However, it has been my experience that many planners are rushing into advising their clients to sell.

This, I suspect, has been driven by their cosy relationships with financial institutions, which pay commissions for them tipping their customers into their financial products.

Consider what might happen
Throw into the equation that this year will be a challenging one for the stock market and it could be even harder the year after that. And that means some people might be rushing out of property when it's about to recover, while share prices could be starting to wobble downward.

Do the numbers
The whole exercise means you have to do some considerable homework, or else find a trustworthy expert to do the figures for you.

One of greatest truisms I have encountered in economics is that when governments change the rules, it creates work for everyone!

Click here to visit Peter Switzer's website