Financial Plan for Realizing Australian Dream - Desklib

Assignment
Master of Professional Accounting
Case Study
1.0 Investigate the historical housing price data for Sydney or Melbourne and make
an appropriate forecast of the housing price for the next 20 years. Clearly state the
assumptions you make in order to obtain the forecasts of housing price and justify
your assumptions by providing convincing arguments. Historical housing price
data are available on the ABS website.
The historical prices have been studied from ABS website and 2 data have been
considered for analysis. The data analysed includes:
 Residential Property Price Index ; Sydney for September 2003 to December 2017;
 Established House Price Index ; Sydney for March 2002 to December 2017;
The data for the past years have been compared quarter on quarter and change is
calculated by using formula
(Index in Q1Y1- Index in Q0 Y1)/ Index in Q0 Y1
On the basis of the data has been obtained. Further a simple average has been carried
out to obtain a realistic figure for the purpose of analysis. The resultant growth obtained
in price of residential property is 5.6% and established house price was 7%.Further, the
data for residential property index has been considered as it is alignment with the
research objective of analysing the purchase of property for accommodation under
Great Australian Dream.
Accordingly, the rate of growth for forecasting is 5.6%
For the purpose of analysing, the value of property has been inked from the link
https://finance.nine.com.au/2018/02/01/08/30/sydney-median-home-price-rises-as-
growth-slows. The value considered is 7,36,900 Million AUD. Median has been
considered to remove impact of outliers.
On the basis of the above data, an analysis has been carried out forecasting the price for
20 years in the excel enclosed (Excel Answer 1).
2.0 Investigate the historical income data for Sydney or Melbourne and make an
appropriate forecast of the income of your client for the next 10 years. Clearly
state the assumptions you make in order to obtain the forecast and justify your
assumptions by providing supportive arguments..
1

The historical prices have been studied from ABS website and have been considered for
analysis.
Two data have been considered for analysis;
 Quarterly Index ; Total hourly rates of pay excluding bonuses ; New South
Wales ; Private and Public ; All industries ;
 Wage Price Index Australia Trend (a) change in March 2017 Qtr. to March 2018
Qtr.
The data for the past years have been compared quarter on quarter and change is
calculated by using formula
(Index in Q1Y1- Index in Q0 Y1)/ Index in Q0 Y1
On the basis of the data has been obtained. Further a simple average has been carried
out to obtain a realistic figure for the purpose of analysis. The resultant growth obtained
in wage index is 3.0% while in other data obtained is 2.1%
The rate of growth for forecasting is 3% as the past growth is an important critical
element in predicting future and a simple average of data over a larger length of time
encompasses all crest and trough and negates impact of abnormal situation.
Initial wage has been taken at AUD 80,000 as provided in the case.
On the basis of the above data, an analysis has been carried out forecasting the wage for
20 years in the excel enclosed (Excel Answer 2).
3.0 Calculate the nett income of your client, given that she is single and does not have
dependent. You can use the ATO tax Calculator to determine the nett income.
Make a realistic assumption on the monthly expense of your client and determine
the capacity of monthly repayment of your client. Find out the most favourite
current home loan rate, and determine the maximum amount your client can
borrow at the best rate.
The slab of individual taxation has been obtained from:
https://www.ato.gov.au/Rates/Individual-income-tax-rates/
The tax system in Australia is progressive. Further, a Medicare levy of 2% is levied on
tax.
On the basis of data in Question 2 and tax slab at ATO website tax has been computed
in Excel Answer 3. Further, the recent tax slab has been considered for the purpose of
analysis as the average of past data shall not be of any use in the current scenario.
2

Further, taxes are forward looking activity. Accordingly, net income is computed from
gross income by deducting taxes.
Monthly Expenses
The monthly expenses have been considered from the link:
https://sydney.edu.au/study/finances-fees-costs/living-costs.html
The monthly living expense for a single individual is AUD1,690 and includes food
expense, accommodation, utilities and entertainment. Therefore, yearly expense sets out
to be AUD 20,280.
Further, inflation factor has been taken into consideration as reflected in Consumer
price Index for March Qtr. 2017 to March Qtr. 2018 i.e 1.9% round off to 2%. The data
for the current period has been considered as inflation is a forward looking activity and
no sudden catastrophe or abnormal surge is expected in future years. Accordingly, a
year data has been considered for analysis.
On the basis of above, data has been plotted for further 20 years. Refer Excel Answer 3
Monthly Capacity of Repayment
The monthly capacity for repayment has been determined by deduction from gross
income taxes and expenses. The resulting factor gives us savings or capacity for
repayment which is further divided by 12 to give monthly capacity.
Assumption: Monthly expenses remain consistent over the year.
Most Favourable Home loan Rate and maximum Amount that can be borrowed
The loan rate has been scrutinized from the link:
https://www.finder.com.au/cheapest-home-loans
On the basis of analysing the above link, the following home loans have been
considered favourable:
Sl. No. Loan Company Rate of Interest Loan to Value
(Insured)
1 SCU Basic Variable Rate Home
Loan 3.81% 95%
2 Community First Accelerator 3.99% 95%
3