Puzzle Finance Blog
Tips on saving for your new home
Meeting the upfront costs of buying a property is only the first step on your financial journey. We asked William Johns, Senior Financial Planner and Managing Director, Health & Finance Integrated, for his tips on saving for a new home.
Q: What are the best ways for first home buyers to save the money for the upfront costs of buying a new home?
A: “As the property market in major metropolitan cities continues to experience high demand, many new entrants and first home buyers feel ‘squeezed out’. There are a few ways you can get in. Couples can learn to live on one income and save the other. Living with parents or flatmating can also help. For established families, working with a financial planner can be extremely beneficial for putting together a plan.”
Domain’s research found that over half of those saving for a property purchase reduced spending on entertainment, eating out and clothes and accessories. This was followed closely by reducing spending on holidays and groceries.
There are many ways to cut household costs if you’re willing to do your homework, including reducing your utility bills, moving to a cheaper rental property, or even considering purchasing with friends or family.
ASIC’s MoneySmart website has some more good ideas on reducing your household expenses if you’re going to go all out. Make sure you have a good idea what your home buyer budget will look like when you start saving for your new home so you have some concrete figures to work towards.
Q: How can buyers be sure they will be able to afford the ongoing costs?
A: “Having the required deposit and being able to borrow money is only the first step in owning a property. Early practice of living on one income (for a couple) or seriously reducing your unnecessary spending on luxuries can set you on the correct trajectory. After the purchase, maintaining on-time payments will reduce the chance of incurring dishonour fees, and being disciplined with your spending will also help you pay the home off faster.”
Q: How much “fat” would you recommend people have to guard against getting into trouble with a large, unexpected expense? Should home buyers take out income insurance?
A: “When working with buyers, we recommend they have a ‘plan B’ in case ‘plan A’ fails. Plan A is usually buy the property, and do all you can to pay it off…but what if something goes wrong? The most common scenario is loss of employment. But buyers neglect more serious scenarios such as being diagnosed with a serious illness or acquiring a disability by accident or through illness. For some loss of employment, you need a cash reserve of few thousand dollars to see you through, but for more serious life challenges like sickness or death, then it is very important to invest in a solid income protection policy.”
MoneySmart has some sound advice on saving for your property purchase.
Posted by Jackie Neville - Realestate.com Blog on 26th May, 2015 | Comments | Trackbacks | Permalink
The key to property investment
A LANDLORD'S key to success is being able to keep a good tenant. As investors continue to swarm the property market being able to maintain a longstanding arrangement with a tenant is crucial to ensuring you don't cost yourself in the long run.
Continually changing tenants can be an expensive process especially if there are periods when your property isn't leased out.
LJ Hooker's Amy Sanderson says the first thing to ask yourself is whether you as a landlord would happily live in the property.
“Tenants want security and a property that's clean, neat and tidy,'' she says.
“It can be worth giving it a freshen up, a paint, new carpet, new blinds and always think as a landlord whether you would live there.”
She says simple improvements such as new blinds, light fittings or ceiling fans can cost a few hundred dollars but add significant value to the property and at the same time keep the place looking modern.
It's also important to act quickly when something at the property breaks, for instance a fitting or fixture, but when tenants do move out look at doing bigger improvements.
“When the property is vacant look at the big-ticket items and things that would normally inconvenience a tenant,'' Sanderson says.
“You wouldn't want to inconvenience someone by recarpeting the house or repainting the home while they are living there.”
University lecturer, author and investor Peter Koulizos says you should also think twice before increasing the rent.
“Don't increase the rent just because you can,'' he says.
“If the tenant is good and unless there is a huge discrepancy with what the market rent is and you know they could go somewhere else for the same rent I would leave the rent as it is.”
However he says if you do improvements to the property it gives you licence to hike the rent, for instance by installing a dishwasher or building a carport.
The tenants won't be shocked if they are hit with a rent rise.
Koulizos also says rewarding your tenants is a good idea — give them a present at Christmas or send it to your agent to pass on to them.
“It might just be movie vouchers, it might only cost the landlord $50 but it's the thought that counts,'' he says.
And finally Koulizos says give the tenants plenty of notice to renew their lease — a few months before it expires.
This will help in getting them to resign well before they start hunting around for another place to live.
Posted by Sophie Elsworth - News Limited Network on 25th May, 2015 | Comments | Trackbacks | Permalink
Borrowers with small deposits for a home are getting stung
STRUGGLING first home buyers battling rising house prices are getting pushed out of the market even further with hikes to compulsory insurance for those with small deposits.
Rises to lenders mortgage insurance (LMI) — which protects the mortgage lender not the borrower if the customer defaults — is the latest sting in the tail for borrowers entering the market.
LMI hits customers with a loan-to-value ratio of more than 80 per cent and has crept up since
the global financial crisis, costing customers thousands of dollars more when taking out a loan.
LMI rates have climbed from an average of 2.92 per cent to 4.37 per cent on the total loan sum.
On a $650,000 property with a five per cent deposit the LMI costs have risen by nearly $9000 from $18,000 to $27,000 over the past seven years.
Slamming the door on first home buyers
Industry experts say it’s making it tougher for entry-level buyers to crack into the market, as they continue to battle surging house prices and the banks’ toughening up around lending criteria in recent months.
Home Loan Experts’ managing director Otto Dargan said it was just another barrier for first-time buyers trying to buy their first home.
“It’s already tough for first home buyers to enter the market with tighter lending criteria and higher property prices, increasing LMI is just another blow,’’ he said.
“The biggest roadblock for first home buyers is the size of their deposit.’’
He warns that borrowers who do pay LMI will pay interest on these costs as it’s rolled into the total home loan cost.
“If you added $10,000 in LMI to your 30 year home loan at 4.15 per cent then you’d actually end up paying $17,499 with the additional interest,’’ Mr Dargan said.
Price of entering property market
Property prices in Sydney are up about 14 per cent in the past 12 months compared with Melbourne at 6.5 per cent, Brisbane 2 per cent and Adelaide one per cent.
But a Genworth spokesman said despite LMI increases it allowed first home buyers to make their dream of buying a home possible sooner.
“Without LMI many first home buyers simply would not be able to get the finance to buy,’’ he said.
Westpac this week ended its longstanding agreement with the nation’s largest LMI provider, Genworth, and could provide a much needed shake-up to the mortgage insurance industry as more players enter the market.
Mortgage Choice figures show first home buyers continue to be sqeeuzed out of the market — in April this year 12 per cent of their loans were for first-time buyers compared to 23 per cent in April 2009.
LMI costs are not transferable too so if borrowers are wanting to refinance and have little equity in their home they will have to pay the cost all over again if they jump lenders.
Posted by Sophie Elsworth - News Limited Network on 23rd May, 2015 | Comments | Trackbacks | Permalink
Why it could be a good time to buy
WITH all the talk of housing bubbles, it’s good to be cautious about the property market but for some people this could actually be the right time to buy.
Foxtel’s property expert Andrew Winter told news.com.au that you could always find value if you did your homework.
“It can always be a good time to buy. While buying during a slump is best, you can still find good properties in a boom, as some properties might get forgotten or left behind,” he said.
“It all depends on the property cycle and where the cycle is in your area.”
Mr Winter said that there were overheated markets in central Sydney and Melbourne but in most other areas of Australia, prices were not at their peak, and had not even returned to levels experienced in the last boom cycle.
“If the price of a property is not back to what it was seven years ago, then it’s not at a peak,” he said.
Property prices in Sydney have risen 14 per cent in the first four months of this year and are expected to crack the $1 million median soon. But interest rates are at historic lows so it’s never been cheaper to get a loan
Mr Winter’s advice for buyers trying to get a foothold in central Melbourne or Sydney, was to look at a different area or a smaller place.
But he warned that even when buying a “compromise property” that buyers should do their homework.
“If in three or four years time you do need something bigger, the property may not have increased in value or you could even have made a loss so you there’s no point selling, in that case you might want to rent something bigger, so make sure you can rent out the (first) property for a reasonable amount,” he said.
“If you’re in one of those bigger markets, the most important thing is to ensure you can afford it, and if you can afford it now, ensure you lock in your finance at least for the next three or four years so you know you can pay it off (in case interest rates rise).
“This is not the time to be looking at variable options.”
How much can you afford to borrow? Use realestate.com.au’s borrowing power calculators now.
Mr Winter also advised people to analyse why they were buying.
“A word of caution if you’re buying your first home, your seventh or whatever, decide if profit is important to you.
“If you’re buying a forever home ... if you get carried away that’s probably ok because you will hold on to it for a while but if you are buying a first home or an investment property, and everyone wants the property, they’re all chomping to get it, you probably need to walk away.”
Mr Winter said it was best to buy in markets you were familiar with as you would be less likely to make mistakes but if you did look further afield you needed to give yourself time for research.
“A bit of online research is just not enough, go to the area, talk to the agents, look at the papers, attend open houses even they are not your type of home, just to get a feel for the area. Get down and dirty as they say.
“The reality is the best time to buy is when nobody else is.”
CoreLogic RP Data senior research analyst Cameron Kusher said when deciding whether an area represented good value, the important thing to consider was whether you were buying at the right price and for the right reasons.
“Look for areas that haven’t seen much growth of late, are undergoing urban renewal or are seeing new infrastructure investment which will boost the area’s desirability,” he said.
“The best opportunities at the moment seem to lie outside of Sydney and Melbourne given the strong recent growth in values.”
Mr Kusher said while these cities were still recording growth, buying now meant you would be paying higher prices and would also have missed out on the past two and a half years of growth.
“The opportunities appear to be buying for the longer term in markets yet to have seen much in the way in capital growth,” he said.
“Although the Brisbane and Adelaide housing markets remain fairly muted and may do so for the next few years, they typically follow the growth in Sydney and Melbourne.
“Of course at this point their economies aren’t as strong but at some point, as people are priced out of the two largest cities, they may start turning their attention to these two cities. “Alternatively we are also staring to see some growth appearing in near capital city markets like Illawarra, the Hunter region and Geelong.”
He said the biggest consideration was interest rates.
“Given they are currently at historic lows, borrowers should consider how they can/will serve that debt when interest rates increase. Obviously other things to consider are cost, location size, future requirements, up-keep etc.”
Posted by Charis Chang - News Limited Network on 23rd May, 2015 | Comments | Trackbacks | Permalink
How to get a broken personal budget back on track
If your personal budget is in bad shape, there are ways to clean it up — but cutting out your favourite luxuries should not be part of the plan.
A household budget - much like a Government budget - can turn sour over several months if people are not realistic about their spending.
But bouncing back can be a quick process if people focus on the big household expenses and develop new habits, says LifeSherpa founder Vince Scully.
“Don’t beat yourself up, start fresh, stop making it worse, but keep things that you truly love. If you are cutting out stuff that you really love, you are not going to sustain it,” Scully says.
If coffee and cake make you happy, don’t give them up. Instead aim to trim spending on big expensive bills such as utilities, he says.
“By changing electricity provider or switching off the lights at night you can save more — and that’s one decision rather than 365 decisions.”
Scully has created a PEARL system that groups spending in five categories:
POSTPONE recurring expenses such as haircuts, dentist check-ups or even car upgrades;
ELIMINATE spending that you don’t use such as under utilised memberships and subscriptions;
AVOID things that often cause cost blowouts such as drinks at the pub or clothes-buying sprees;
REDUCE how much you spend on common money-wasters such as grocery shopping and transport;
LOVE to spend money on the things that are most important to you, whether luxury cosmetics, travel or good food and wine. “Keep what you save for the things you love. If you want to make your budget sustainable, these are your most important expenses,” Scully says.
CUT THE CARDS
Nettina Baressi, founder of money mentoring program BudgetWorx, says good ways to get a budget back on track include switching your bills to direct debit payments and avoiding the use of credit and debit cards.
“Lots of people are not closely monitoring their spending. Cards are so accessible, even if they’re debit cards, and people aren’t tracking what they are doing,” she says.
“Go back to basics and identify your vision and goals.”
Baressi also believes in not giving up all the luxuries. “Try to be more positive and reward yourself. If you are under budget one week, you can splurge the next week,” she says.
There are plenty of budgeting and spending tools available to help consumers track spending and it’s important to learn how to use them, Baressi says.
“Be strong-minded and say ‘this is the way I’m going to operate my household’, and you will get results.”
Posted by Anthony Keane - News Limited Network on 19th May, 2015 | Comments | Trackbacks | Permalink
Bank regulation to favour owner-occupiers could mean cheaper home loans
A CRACKDOWN by the banking regulator could mean cheaper home loans for first home buyers.
The Australian Prudential Regulation Authority (APRA), which oversees the banks, has imposed new rules to slow the growth of lending to investors, which could mean a better deal for owner-occupiers, who are often first home buyers.
This means that people paying off the home they live in are likely to become the new prime customer of banks, Fairfax reports. This fiercer competition could lead to cheaper home loans for owner-occupiers than what is offered to investors.
First home owners are increasingly competing against investors for the same properties. March housing finance statistics showed investors accounted for 40 per cent of property sales.
The National Australia Bank is among the lenders that has offered a better deal to owner-occupiers, with a 0.15 per cent interest rate discount offered to people living in the home they are paying off.
APRA has imposed a cap to slow the growth of credit offered to investors to less than 10 per cent a year, in order to rein in the risk that loans will not be repaid.
It is yet to be seen how each bank will respond to the measure.
NAB’s Anthony Waldron told Fairfax that he believed more banks would offer “differentiated pricing” to comply with the new rules.
“Within a 10 per cent cap, I think you will see that play out more and more over the next few months, as we see people really try to grow their owner-occupied books and operate within the guidelines set out by the regulation,” he said.
However, Michael Rafferty, of the University of Sydney’s School of Business, said the banks’ change in priorities was more to do with mitigating risk than giving first home buyers a fair go.
“They’re not interested in the fairness of housing. It’s about who are the lowest risk borrowers,” Dr Rafferty toldnews.com.au.
He said APRA argued that owner-occupiers were more likely to repay their loans because they tended not to walk away from home ownership, while a person taking on more debt for a second or third home was a riskier proposition.
“People hang on to home ownership as long as they can: they stop going out, and stop buying cars … So the argument is being put that selling homes to new young couples to live in is considered a safer bet than an investor,” he said.
Dr Rafferty said there had been a significant change in the way Australians looked at the property market, which had made it increasingly difficult for younger people to buy their first home.
“We’ve allowed housing to become a form of saving, when it used to be seen principally as place to live in,” he said.
“As a consequence, you’ve got all these investors and all sorts of other people securing housing like they’re playing the stock market.
“A young person in their 20s trying to pay off their HECS debt is looking at the housing market and seeing it whizzing past. It’s changed housing in less than a generation and that’s a big concern.”
Dr Rafferty said unions were involved in securing affordable housing for their members in decades past, but now it was seen as a dilemma for individuals, or considered only a concern for people on welfare.
“Today, I don’t see any institutional champion for people wanting to change the direction (of housing affordability),” he said.
Despite the difficulties, Dr Rafferty said younger Australians should continue to pursue the dream of home ownership, because it had it had other social benefits, such as offering security of tenure in the one home and helping people support themselves in retirement.
Record-low official interest rates of 2 per cent continue to make property an attractive investment.
Investors have led unprecedented growth in Australian home loan approvals, which has led to an overheated property market, particularly in Melbourne and Sydney.
The amount of home lending grew 3.8 per cent to a record $31.3 billion in March, helped by a $12.9 billion surge in borrowing by investors.
Posted by James Law - News Limited Network on 19th May, 2015 | Comments | Trackbacks | Permalink
Recycling can turn your bad debt good
Go forth and borrow is the word according to Joe Hockey, though as a financial adviser he should stick to his day job.
I know worrying about debt is so last year's budget and to be fair he did say we should "borrow and invest" as distinct from borrow to buy. That's just as well because have you seen what credit card rates have been doing?
Exactly. Nothing, in spite of numerous rate cuts by the Reserve Bank going back 3½ years. The average card charge of 17 per cent is more than eight times the official cash rate, when the norm used to be just over two times, according to www.canstar.com.au.
And wouldn't you know, if you find a lower rate, sure as eggs, there'll be an annual fee. Is nothing simple? The only excuse for having one of those cards would be to take advantage of a zero rate balance transfer. Even then you wouldn't want to be adding more debt to it.
Truth is the rate doesn't matter when you use your credit card the right way. Funnily enough, using it to the max is even better than not using it at all but it has to be one of the 55-day interest-free cards. Use it for everything and then pay it off before it's due. That's the best revenge on the banks I can think of, especially if you can earn a bit of interest, not that it'd be much, while your pay is parked in an account in the meantime.
Hmm, might be an idea to download an app or something so you keep track of what you're spending.
If you have a mortgage with an offset account you'd save interest on the home loan and maybe accumulate lots of reward points, neither of which Joe had in mind. Still, he does have a point about borrowing to invest, aka gearing. I mean if you're going to be in debt you want it to be the nicer tax deductible kind.
I've banged on before about the difference between debt that's good – because the interest is tax deductible – and bad which is frittered away on things that lose value such as a car.
For argument's sake, a mortgage is bad debt too since the interest isn't deductible, even if home ownership boasts even better tax benefits.
It could be made partly tax deductible too but you'd have to rent out a room or two.
Or you could turn the bad into good debt.
Goodness, is that possible?
Yes, though I'm talking about recycling, not reducing, debt. Still, your tax will be lower and you'll finish up with an asset that grows in value.
The secret is stepping up your loan repayments and then borrowing whatever the extra was to invest – probably in shares since it wouldn't be enough for a property. It's as good as making some of the mortgage tax deductible.
Hang on, wouldn't that mean more money going out?
Ah, but the part going on shares becomes tax deductible, which was the whole point, and can probably be claimed during the year against your PAYG instalments by filling in a special form (NAT 2036) from the Tax Office. Plus the dividends should have a bonus 30 per cent franking credit.
I should mention it won't be good debt for long either if you buy some speccy stock that goes belly up.
Another way of creating good debt is getting any shares you already own – say Medibank Private or Telstra – to do some heavy lifting.
Sell and buy them back in the next market correction – or choose different stocks – using a tax deductible loan. This is one occasion when the lower the price is, the better off you are because there's less to borrow. A home equity line of credit, a margin loan or instalment warrant are all possibilities. A credit card isn't.
Since you'll probably be up for capital gains tax, I'll leave it to you whether it's worthwhile.
Or just use the proceeds to reduce bad debt such as a credit card. Would those shares return 17 per cent year in and year out? I don't think so.
And just between you, Joe and me – promise not to tell the Reserve Bank – there's even a case for switching your mortgage to interest only and using the savings to gear an investment.
I'm not saying you should because frankly the best and safest investment is reducing your mortgage, but it's another way of generating good debt from bad.
Posted by David Potts - Money Manager (Fairfax Digital) on 19th May, 2015 | Comments | Trackbacks | Permalink
Owner-occupiers may get cheaper loans than investors due to APRA cap
Home owners paying off a mortgage on the house they live in are on the way to becoming the new prime customer for the nation's banks.
Facing new rules on lending to investors, banks are set to fight hard for borrowers who intend to live in the home they are borrowing against and that could mean bigger interest rate discounts for these customers.
Just this month a wholesale lender owned by National Australia Bank introduced larger discounts for new owner-occupier borrowers than new investors.
"We've got a bigger discount for owner-occupied lending than we have for investor lending," said National Australia Bank's executive general manager of growth partnerships, Anthony Waldron.
"It's a direct response to us having a higher appetite for owner-occupied lending."
The reason is that the Australian Prudential Regulation Authority, which maintains the safety of the banking system, is demanding that banks slow investor credit growth to less than 10 per cent a year, meaning banks must compete for other customers.
Mr Waldron said the bank's wholesale white label lending business, Advantedge, which sells loans through brokers under different brand names had this month introduced changes that meant new owner-occupier borrowers received deeper interest rate discounts than investors.
Advantedge is offering owner-occupiers a discount that is about 15 basis point larger than the discount given to housing investors, he said. The change does not apply to NAB-branded loans, but it could be a sign of things to come.
Mr Waldron said each bank would respond to APRA's 10 per cent growth cap differently, but the "differentiated pricing" approach may become more common, as banks seek to expand in home lending while still complying with APRA's cap.
"Within a 10 per cent cap, I think you will see that play out more and more over the next few months, as we see people really try to grow their owner-occupied books and operate within the guidelines as set out by the regulator," he said.
It follows Westpac's comment earlier this month that it would apply tougher tests to new property investor borrowers when assessing how they would cope with higher interest rates.
The focus on investor lending comes amid signs the Reserve Bank of Australia is torn between cutting interest rates again to push the local currency down and further stimulate investment and holding them to prevent over-indebtedness in Australian households, according to one senior board member.
Deputy governor Philip Lowe told an investment conference in Sydney on Monday that it was not in Australia's long-term interests to "engineer" a debt-fuelled consumption boom through a low cash rate.
"This is especially so when debt levels are already high and prospects for future income growth are not as positive as they once were," he told a gathering of chief financial officers.
The comments come on the back of fears from ASIC chairman Greg Medcraft about property bubbles in Sydney and Melbourne.
At the same time, however, monetary easing around the world had stymied to some degree attempts by the RBA to lower the value of the Australian dollar to accommodate the economic transition away from resources-related investment.
Posted by Clancy Yeates - The Age on 19th May, 2015 | Comments | Trackbacks | Permalink
How small is too small for an investment property?
Small properties are low priced, generate significant cash flow and in certain suburbs, are hotly in demand. Plan your investment strategy with caution and reap the returns.
When it comes to property investing, size does matter. Most banks have lending restrictions on mortgages for properties less than 50 square metres (40 square metres in some cases), excluding external balconies. That means buyers will typically have to fork out at least 20 per cent of the loan, plus costs, in order to meet approval.
David Johnston, who is managing director of Property Planning Australia, says banks usually exercise lending restrictions on small investment properties for valid reasons: “They typically perform poorly from a capital growth perspective”.
Even so, property investing is not a black or white matter and there are exceptions to every rule. Johnston shares his advice on selecting the right type of small property for investment purposes.
One-bedroom apartments and studios look like they attract a high amount of rent for the space they occupy, but don’t be fooled, says Johnston. The reason studios and one-bedroom apartments are priced so high, from a renter’s perspective, is because they don’t tend to generate a lot of capital growth – a key factor to consider when investing.
“For small properties, my real advice to anyone is to buy the best property they can for what they can afford to purchase,” he says.
Johnston suggests buyers opt for a small one-bedroom apartment or studio in a two or three-story high apartment block.
“It isn’t the property that creates capital growth, it is the land the property is built on. The larger percentage of land the property is on, the larger the potential percentage of capital growth. And the larger the apartment block, the lower your share of land. So generally speaking, the smaller the block the apartment is in, the better.”
There are ways to maximise the capital growth prospects of a small property. Johnston advises buyers to choose a one-bedder with a:
- Large living space.
- Kitchen that has a good amount of space.
- Good-sized bedroom.
- Car spot.
One-bedroom apartments outrank the investment potential of studios. However, Johnston explains, if a buyer is determined to purchase a studio, they should follow the basic fundamentals of property.
- Ensure the floor plan is logical.
- The studio must be in a block that’s on a nice street in a highly desirable suburb.
- It should have a nice amount of natural light.
- Buy new to boost its market attraction.
“The first and foremost reason to purchase an asset should be to provide a great return, typically with capital growth,” he says.
“Many people get sold on a smaller asset, like car spots, because of the tax deduction angle, without understanding how the asset is likely to perform.”
The truth is, Johnston says, car spaces don’t produce good capital growth rates. But he concedes that if an investor is not interested in capital growth, but instead set on cash flow and a tangible tax deduction, then a car space might be the option.
Managed studios or one-bed apartments tend to look like good deals, but they could come with much higher property management fees: from seven to 20 per cent.
“On top of that are the levies for the concierge, pool facilities, lifts and body corporate fees. You could end up paying $4,000-$10,000 pa, instead of $1,000-$2,000. So in fact, they end up being more expensive than standard properties as the holding costs tend to be greater.”
“Every investment decision must start with an individual’s goals and financial situation. Determine what you can afford to buy and then from there, develop a property strategy. It’s important that the buyer makes a decision with their eyes open,” he says.
Posted by Yasmin Noone - Domain Blog (Fairfax) on 19th May, 2015 | Comments | Trackbacks | Permalink
The rise of the first home buyer investor
The number of first home buyers purchasing investment properties has jumped to record levels in Australia, a new report has revealed.
Low interest rates, tax benefits, the potential for capital growth and the continuing lack of affordability of the kinds of properties the first-time buyer wants to live in are all fuelling the jump in the level of new investors in the market.
"We are now seeing first home buyers buying homes for different reasons, with more investors in the market than ever before," says Martine Jager, the CEO of RAMS Home Loans. "Pleasingly, we are also seeing that, despite some of the challenges, first home buyers are more determined than ever."
Jager was commenting after a first-time investor survey conducted by RAMS together with Core Data, found that 19 per cent of first home buyers were intending to buy their property within the next three to six months, up from 14 per cent the previous year. Around 44 per cent of those had been saving for a deposit for two years or more, compared to 41 per cent the year before.
Many of those first home buyers purchasing investment properties are choosing to stay at home with their parents and pocket the rental income as a way of saving for their dream home later. It's often seen as a much more affordable way of getting that critical first step on the property ladder.
"We've really noticed that trend of first home buying going for an investment property and moving back home with their parents so they can save their money," says Andrew Fawell, director of Melbourne's Beller Property Group. "Current interest rates are so low, the rent often pays the mortgage.
"In addition, we're seeing a lot of them rent out their property privately for the first year, so they can claim first home buyer benefits by pretending they're living there, then when that period's up, they give it to an agent to manage. Buying an investment place at the moment, with these rates, makes perfect sense."
Sydney solicitor Aleksandra Ilic certainly thinks so too. She's just bought a two-bedroom apartment off the plan at Mirvac's Ovo building in Green Square as an investment.
At the moment living in Rosebery, Ilic, 24, felt that a unit in the 28-storey tower designed by architect Richard Francis-Jones would be a great buy – especially since there was so much competition for them on their release in April, when they almost sold completely out.
"In my experience, it's been difficult for people of my generation to enter the Sydney property market as it's so expensive, and it's a big step and a big commitment," she says. "So for me I was buying as an investment because I can see how desirable it'll be in the long-term, and it makes much more financial sense to rent it out so it won't cost me anything.
"I think a lot of professionals will be keen to live there as it's so close to transport options, and to the CBD. Then there's the tax incentive and the likelihood of great capital growth as Mirvac is an extremely reputable developer and, with all the infrastructure planned, I can see Green Square becoming a real urban hub."
That's a scenario Sam Elbanna from CPM Realty is seeing more of all the time. "A lot of first home buyers are pushing themselves to buy investment properties now," he says. "They're just very keen to get into the market and this is the cheapest option for them. The only downside is for the poor parents, who are having to house them for longer and longer."
In Melbourne, software designer Henri Lee, 28, is still living at home, a saving that's helped him buy his first home in Brighton, intending to rent it out. On his calculations, staying at home with his parents means he'll only have to make a minimal outlay on the mortgage after rental income.
"I'd like to live there one day but, to be honest, I can't afford it at the moment," he says. "Maybe in five years' time I'll be in a position to move in but by then hopefully I'll have made inroads into the mortgage, the place will be worth more and I'll be on a better salary at work."
The prospect of good capital growth in a rising property market has been singled out as the most important reason first-time investors intend putting their money into property, the RAMS survey found. Of those first-timers, 94 per cent required a home loan, while 59 per cent intended to take a loan with a partner, and 31 per cent by themselves.
Posted by Sue Williams - The Age on 19th May, 2015 | Comments | Trackbacks | Permalink
How to design the perfect home loan
BUYING a house is a widely held dream that has become increasingly achievable for many. Interest rates have never been lower and competition between lenders for your business means it is easier than ever to design yourself a great home loan.
By taking these four simple steps you can make a blueprint for the perfect mortgage and pay off that pad as quickly as possible.
MAKE HOUSE RULES
Home loan rates — both fixed and variable — have fallen below the four per cent mark, data from financial comparison site Mozo shows.
The lowest variable rate for a standard $300,000 30-year loan is 3.98 per cent while the lowest three-year fixed rate is 3.95 per cent.
Choosing whether to fix or not comes down to your circumstances however always make sure you look beyond the “advertised” headline rate.
The comparison rate includes all the fees and charges associated with the loan and is a better guide to what the true cost of your mortgage will be.
First-home buyers Bronik and Corinne from Channel 7 reality series House Rules bought their home in 2014 and chose to lock in their interest rate.
“We decided to go with a fixed rate on our home loan over five years,'' Bronik says.
“The rate was quite good so we decided to fix it in and not have to worry about any variations.”
Banks have had their margins cut as interest rates hover at historically low levels, forcing them to look at other sneaky ways to sting customers.
The easiest way to do this is through fees and charges — lenders often hit customers with application fees, upfront fees, valuation fees and discharge fees.
“It's more important in most cases to get a home loan with a lower interest rate than worry about the fees,'' says Mozo spokeswoman Kirsty Lamont.
Home loan fees do vary greatly — annual fees range anywhere from zero to $450.
So factor in these costs when choosing your loan but as Mozo spokeswoman Kirsty Lamont says, “fees shouldn't be a deal breaker” when choosing your loan.
Interest rates for deposit holders are so low — some in the two per cent range — so it's hardly worthwhile parking money in the bank.
But building a home loan that has an offset account attached is essential to helping curb your interest bill.
It acts as an everyday banking account that's linked to your home loan and will lead you on the way to cutting your monthly interest charges by leaving cash in the bank.
On a $300,000 loan, if you have $10,000 tucked away in your offset account, you'll only pay interest on a balance of $290,000.
Lamont says an offset account is one of the easiest, no-fuss ways to help pay back your loan faster.
“You can save around $30,000 on the life of your typical loan by having an offset account, it will save you a huge amount of money by basically doing nothing,'' she says.
FINISH THE JOB EARLY
When signing up to your loan one critical feature is to make sure you can opt for weekly or fortnightly payments.
By steering clear of monthly repayments you will be well on your way to building the ideal mortgage, and Lamont explains why.
“By making weekly or fortnightly repayments instead of monthly repayments you can actually reduce the amount of interest you pay on your mortgage because you end up paying a few extra repayments on your mortgage each year,'' she says.
“Find a home loan that offers you the flexibility of paying weekly or fortnightly and not just monthly.''
Make sure you make principal and interest repayments to cut down the money owed — usually investors opt for interest-only loans to reap the negative gearing tax gains.
If borrowers also receive cash windfalls or are lucky enough to receive a cash windfall tip the extra money into paying back your home loan.
Posted by Sophie Elsworth - Herald Sun on 18th May, 2015 | Comments | Trackbacks | Permalink
New Zealand introduces 33 per cent tax on properties bought and sold within two years
NEW Zealand will introduce a 33 per cent tax on any property that is bought and sold within two years in a bid to keep housing prices under control.
NZ prime minister John Key announced the measure today and it will only apply to homes that are not the seller’s main residence.
The country has been looking at ways to take the heat out of the Auckland property market, where median prices for a home have risen by 60 per cent since 2008.
“It’s not unreasonable to expect that if you buy an investment property and sell it for a gain within two years, then you should be taxed on that gain,” Mr Key said.
But Associate Professor Mark Crosby, of Melbourne Business School, believes the 33 per cent tax is a clumsy way of tackling a hot housing market.
“I think this is a poor policy, and I wouldn’t be surprised to see this policy quietly dropped within a year or two,” Prof Crosby said.
When asked if it would be a good measure to introduce in Australia, Prof Crosby said figures on housing turnover collected by the Reserve Bank suggested about 7 per cent of the 500,000 Australian dwellings sold in 2011 were held for less than two years.
“Those selling within two years tend to be younger people, and it is hard to tell, for example, how many of these sellers might be foreign speculators, but there doesn’t seem to be any evidence that foreigners are more likely to flip properties than local residents,” Prof Crosby said.
“So the tax will hit those who are forced to sell for whatever reason, rather than targeting any particular group. It is also unlikely to have much effect on house price growth.
“Buyers will simply hang on for two years and then sell, rather than selling inside that window.”
The New Zealand Government has been under increasing pressure to control foreign speculators buying properties in Auckand, with the NZ Reserve Bank estimating that investors accounted for about 40 per cent of house sales in the city last year. While it does not know how many of these were non-residents, the Green Party believes they could be driving up prices.
“Foreign buyers are treating the Auckland housing market like a restaurant buffet — they’re going back for second, third and fourth helpings,” Green Party housing spokesman Kevin Hague said.
“Every house a non-resident speculator snaps up is a home an Aucklander can’t own.”
The New Zealand dollar fell after the government stepped up measures to curb Auckland’s bubbling housing market, stoking speculation the move would free up the Reserve Bank to reduce interest rates.
The Kiwi dollar dropped to 74.26 US cents at 8am in Wellington, from 74.72¢ at the New York close and 74.74¢ at 5pm in Wellington on Friday.
The government announced on the weekend that it would give the Inland Revenue Department an extra $29 million in this year’s budget to chase property investors.
It will also tighten rules on investment gains and link transactions to IRD numbers while it assesses a withholding tax for foreigners, in a response to the growing fears about the pace of Auckland house price inflation.
“The New Zealand dollar has opened lower this morning on news that the government is also increasing measures to cool the housing market,” ANZ Bank said.
This is expected to give the NZ Reserve Bank additional freedom to reduce interest rates as it eyes weaker dairy commodity prices and an elevated currency.
Posted by Charis Chang and wires - News Limited Australia on 18th May, 2015 | Comments | Trackbacks | Permalink
Renovate smart to boost property value
Australians have an ongoing mission to renovate. The rate of home renovations increased 147 per cent from 2010 to 2014 and the renovation shows are TV ratings winners.
There are many reasons for renovating but whether you do it to sell a house or make a home more comfortable, you're doing it for capital improvement. With such low interest rates, if you have been considering a renovation now is a good time to get it done.
Before you get started though it's worth noting that many renovators fail to make the gains they envisioned. This happens because they either spend too much, take too long or they make incorrect assumptions about valuations.
These are some things you should know before you break out the hammer. First, get an understanding of what adds value. Renovations that are most likely to improve the value usually centre on the kitchen, bathroom and garden. Extra bedrooms, bathrooms, and certain fittings are effective too, but the basics hold true in most markets. Another rule of thumb is your spending ratio: ideally a renovation shouldn't cost more than 10 per cent of the property's value. If you go over this basic budget limit, you should be clear the required uplift in valuation might not be achieved.
Also exercise caution in your plans: before going too far, ensure that what you're proposing has council approval. Remember that in residential areas, the lower the value of the renovation, the more likely it is to be approved.
Once you decide that you want to proceed, you'll need to determine how you will finance the renovation. There are two options that people generally take – equity or a construction loan. Ideally you use equity from your existing property, and some of your cash, to fund the renovation. When you use equity and cash to finance a renovation, you'd typically refinance your home loan, or use features in your home loan such as redraw, line of credit and offset account, to access the equity.
Doing it this way gives you more control over your funds, your timetable and the tradies you use – than a construction loan. However, if accessing equity isn't an option for you, then you can consider a construction loan. It gives more control to the lender but can still be a suitable solution. It provides certainty to the borrower by writing the loan against the property's renovated valuation, taking a lot of risk away from the property owner.
The lender deals directly with the builder and pays the builder in stages, holding the builder to milestones and a schedule. Interest on a construction loan is only paid on the drawn-down stage payments. Neither option is fast – they involve plans, building contracts and valuations. You have to be patient.
If you're unsure, a mortgage broker is a smart step. They can advise which option will best suit your needs and help you select the best deal on your loan.
Whatever route you take on your renovation, remember this: the most valuable part is usually the extra time spent doing your homework. Good luck!
Posted by Mark Bouris - The Age on 15th May, 2015 | Comments | Trackbacks | Permalink
Buying a home a tough task whatever the era
Victoria Walker has come up with a plan to slash the time it will take to save a home deposit.
The 30-year-old mental health nurse this month will move from her flat in Bondi into her grandfather's home nearby.
"We definitely have it harder than our parents did buying a home, but I figure that it's going to be hard no matter when you choose to do it," she said. "The move will help me save … and its not for everyone, but we have a good relationship and I'm lucky to have the opportunity."
Her comments come as a new Senate inquiry has revealed the national rate of home ownership is declining and more Australians are being locked out of the housing market.
Some rental markets are also being affected by prices which are rising much faster than the average median wage growth.
The committee including Senators Sam Dastyari, Scott Ludlam, Kim Carr and Nick Xenophon has called for state government to dump stamp duties, which they argue should be replaced by more broad-based land tax levies.
They have also taken aim at negative gearing, arguing the Federal Government should consider slashing the controversial policy in a taxation review currently underway.
"The committee has called for an inquiry into the costs and impacts of negative gearing, particularly on renters, including the option of phasing it out," Senator Ludlam said.
"The Abbott Government should consider this as part of a sensible discussion of Australia's tax system."
Other recommendation include changes to infrastructure funding, which is usually funded by developers and passed on to consumers in the form of higher house prices, and the reinstatement of Minister for Housing and Homelessness.
Meanwhile, Ms Walker is prepared for a long battle no matter what action the government takes to improve the odds for new homebuyers.
She believes her parents' generation had it easier buying a home, but there are always other issues that affect the affordability at any point in time.
Obtaining credit for a home loan is easier for her generation than for her parents, she notes.
"You just have to figure out what your priorities are … mine was never to buy a house straight away, and so I spent money on travelling and my lifestyle, but now I'm getting to the age where having a home is becoming important to me and saving is becoming my number-one priority," she said.
Ms Walker has worked for more than seven years at hospitals across Sydney, most recently Royal Prince Alfred hospital in Camperdown.
Saving for a housing deposit has been on the agenda since she started working, but has only become front-of-mind in the past two years.
Holding a coveted position within the mental health unit at Camperdown's Royal Prince Alfred hospital, she is not concerned about her earning capacity.
But price jumps in the Sydney housing market in the past 12 months of more than 13 per cent means the price of ownership is rising faster than she can save, which is where the opportunity to live with family comes in.
Is she daunted by the task ahead?
"A little, but its something I want to do," she said.
Posted by Samantha Hutchinson - Domain (Fairfax Media) on 11th May, 2015 | Comments | Trackbacks | Permalink
Make the most of the low interest rates because they won't be around forever
The cut in official interest rates brought them to the lowest level since the early 1960s. It was a move expected by many but perhaps not welcomed by all.
Cutting rates recognises the fragile state of our economy that could further unnerve consumer confidence. It is hoped that the rate cut will give that much-needed stimulus to business investment and consumer spending.
In his announcement, Reserve Bank governor Glenn Stevens acknowledged the Board wanted to "reinforce recent encouraging trends in household demand". That's a worrying thought considering the low wages growth.
There is only so much the RBA can do to repair economic growth back to trend. It really lies now with the state and federal budgets.
Low rates tend to attract higher activity levels putting upward pressure on price. The booming Sydney market and issues of affordability must be addressed. The Domain Group reported Sydney's median house price is now $914,056 and could be set to hit over $1 million by the year-end. Regulators need to find ways to turn this market down a gear, whether that be through limits on negative gearing, foreign investment or cashed-up self-managed super funds.
An unaffordable property market is unsustainable and out of reach for many Sydney residents. The RBA did state they are closely monitoring the housing market "working with regulators to assess and contain risks".
But it is important to remember that trends throughout the capital cities have been varied. While regulators need to act fast to contain the Sydney housing market, other cities such as Brisbane, Canberra, Hobart and Perth breathe a sigh of relief.
Borrowing is more affordable as many of the banks were quick to pass on the majority of the rate cut. Lower rates help to make repaying a mortgage that little bit easier and faster. Not only does this make upsizing more affordable it should encourage tenants to become first homebuyers, of which numbers have been dwindling. Savings? As rates fall it is becoming more illogical to save, making other forms of investment more attractive. Property investment perhaps one.
Remember low rates cannot remain; it is only a matter of time before we see increases. It is all too tempting to over-extend yourself. If your debt levels are high try to use this as an opportunity to pay off a mortgage sooner rather than borrowing more. Repayments may be affordable now but will they be when rates rise?
Posted by Nicola Powell - Sydney Morning Herald on 11th May, 2015 | Comments | Trackbacks | Permalink
Forget painting and new curtains, there is one thing certain to add value to your home
FORGET about painting the walls and hanging new curtains, a new survey has revealed adding solar panels is what makes your home more valuable.
The survey for Origin Energy, done through realestate.com.au, revealed 85 per cent of respondents believed solar rooftop panels increased the value of a property.
They were considered the top “green’’ feature to increase a home’s value.
About three quarters of renters surveyed said they would be happy to pay more rent to live in a property with solar panels.
About 78 per cent of those surveyed believed it would add up to $10,000 to the price of a home.
A similar number agreed it would make the home a more attractive buying prospect for them.
Of the renters surveyed 40 per cent said they would be willing to pay $10 more per week for a house with solar panels.
Phil Craig of Origin said the findings showed that solar panels could be a significant asset.
He said as well as helping with the cost of running a household it could provide a “real boost’’ if owners decided to sell.
REA Group Chief Product Officer, Henry Ruiz, said if you were looking to sell or lease your property it would be worthwhile considering adding solar panels.
“If you’re looking to sell or lease your property, it’s a really simple measure you can take to gain a competitive edge in the market.’’
What green features owners believe adds value
Solar rooftop panels 85%
Energy efficient appliances 79%
Solar hot water system 78%
Water tanks 70%
Water saving fixtures 47%
Posted by Michelle Hele - News Limited Network on 9th May, 2015 | Comments | Trackbacks | Permalink
Why women are the key decision makers in real estate
BUYING a house is more about purchasing an opportunity to create a lifestyle than deciding on bricks and mortar.
It’s hardly surprising then that women play a key role in deciding on property purchases and influencing how a home is presented and marketed for sale.
Harcourts chief executive Sadhana Smiles said women had always been the key decision-makers in real estate.
“There are not many men who would purchase a home without their partner viewing it and approving of it,” Ms Smiles said.
“Frankly, it would take a brave man to take the decision to buy property without the wife’s approval.”
“Almost at every auction behind every man bidding is the wife pushing him to bid again.”
Surveys conducted over the past decade show that the majority of people searching for homes on realestate.com.au are women. The latest survey, conducted in March by Nielson, found 53 per cent of the unique audience on realestate.com.au were female.
A breakdown of search habits showed 52 per cent were keeping up to date on the value and performance of the market, while 37 per cent were seriously planning for the future.
But what are women looking for?
“Women see the purchase of a home from a far more emotional perspective then men,” Ms Smiles said.
She said women looked for features including a stylish and functional kitchen, good sized bedrooms, plenty of cupboard space and a well equipped laundry.
They also wanted to envisage the lifestyle they would be able to create in the home with their children.
“Women will visualise the home with their family in it. These things have not changed,” she said.
HOMEBUYERS URGED TO MAKE A MOVE
She said while female buyers were more emotionally driven when it came to purchasing a family home, women who bought investment properties were able to take the emotion out of their decision.
“As more women enter the market as investors, they clearly look for return on investment and it becomes a more non-emotional purchase,” she said.
Ms Smiles said the influence women had over purchasing property hadn’t moved housing trends, but it had shaped the marketing messages used.
“The lifestyle a property can provide and location is always a key marketing message,” she said.
So what are the key messages sellers need to make?
That depended on the buying market you were aiming at, Ms Smiles said.
“Young families will have different needs to those who are buying to a have a family, to young couples to parents who are upgrading, as their kids haven’t left home,” she said.
“Location also plays a key role in the decision-making process.”
Identifying the type of buyer that was going to be attracted to the home would determine the best marketing approach, what features to highlight and how to photograph them.
“Often asking the vendor why they bought the home will be the reason why the next person buys it,” Ms Smiles said.
When it comes to presentation, decluttering is a key as it allows buyers to really imagine their own items in the space.
Highlight features that are likely to generate interest in the property.
Floorplans and video are a great idea. Professional photos are a must.
“Marketing is an expense that often vendors cut back on, however your property is not for sale in isolation, it is in competition with many properties that may look the same as yours,” Ms Smiles said.
“When a potential buyer is searching for properties they will always look at photos and videos so it is imperative that you present the property in the best possible way.
“Remember your photos need to attract people to come to your property.”
FAMILY’S DELIGHT AT FINDING HOME
SANDY Ingram took the reigns when it came to finding her family’s first home.
Living with their parents for three years and with a second child on the way, Ms Ingram and husband Jarryd knew it was time to get in the market.
“It was getting crowded because our family is growing and we needed our own space, our own home,” Ms Ingram said.
With her husband working long hours, Ms Ingram started trawling through websites and following up leads on houses.
She compiled a list of what they wanted in a home.
“First it was a school for our kids. Second was how many rooms there were and how big the house was,” she said. “It needed a nice garden and a nice kitchen.”
The young family went through three or four properties before settling on a home in Pakenham.
“We could see ourselves living in it,” Ms Ingram said.
She said it was important to be able to visualise living there.
“It actually is because you’ll be living in this home forever,” she said.
Mr Ingram said they saw potential in the home.
“At the moment there’s no sort of rear yard, so there’s plenty of work to do as far as what we want. It’s a nice big family home within our price range,” he said.
Posted by Peter Farago - Herald Sun on 9th May, 2015 | Comments | Trackbacks | Permalink
Low rates drive hunt for cheaper loans
Even before the Reserve Bank reduced official interest rates this week, borrowers were testing the mortgage market to find the best rates.
Figures from finder.com.au show the big banks still dominate mortgage lending, with more than 83 per cent of new loans. But in March they lost ground to other lenders.
The reason is obvious: none of the big banks' standard variable mortgage rates are still below 5.3 per cent. That's a 1 per cent difference between the big banks, and the second-tier lenders.
If you have a 25-year mortgage of $400,000, the difference between a variable rate of 5.3 per cent and 4.3 per cent is around $230 a month.
I applaud the people who are using the competitive nature of the mortgage market to their advantage. It's only by becoming informed and then acting, that you can secure the best deal. Low rates give you an opportunity to put more money in your pocket and not the bank's. It also allows you the benefit of creating a rate "buffer" for when rates start to rise.
When interest rates move there's no guarantee that it's by a quarter of a per cent each month. An upward movement could be in greater leaps, giving people with large mortgages a bit of "rate shock". By reviewing your statement, shopping around and ensuring you have the lowest possible rate, you'll be in the best position for when a rate rise occurs.
So what should you look for to secure the best mortgage? There's a few things to remember beyond simply the amount of interest charged on a loan.
The service proposition is one: a mortgage is a large, important debt and most borrowers find they not only find better interest rates with second-tier lenders, but also one-on-one servicing, faster approvals and decisions, and more flexibility in dealing with their circumstances. Second-tier lenders also have a reputation for charging lower fees than the big banks, largely because they have smaller overheads.
While keeping an eye on how much interest you pay, and the service quality of your home-loan provider, also remember to match your goals and lifestyle to the right home-loan features. A no-frills loan is excellent for first-home buyers and people on a budget, but an offset account home loan might be better if you're trying to build equity fast, and a line of credit facility is good for experienced borrowers. If you're buying an investment property, an interest-only loan might be the best pick.
When you're looking around for a better home-loan deal, first give your current lender a chance to match the best rate you've found: it's always worth a go. And remember that mortgage brokers are an excellent way to access the market if you don't have the time, the latest knowledge or the expertise.
The March lending figures are encouraging because it shows borrowers are finding a better deal and acting with their feet. Are you?
Posted by Mark Bouris - Sydney Morningg Herald on 8th May, 2015 | Comments | Trackbacks | Permalink
The truth about negative gearing
IT’S the tax concession governments dare not touch even though there could be savings currently estimated at $12 billion a year if it were it scrapped.
And again this year, negative gearing — the claiming of costs related to investment properties as tax deductions — has escaped the Budget axe.
Prime Minister Tony Abbott has said it won’t be touched: “The government I lead wants taxes to be lower, simpler, fairer,” said the Prime Minister.
And his government is not about to upset some 1.2 million Australians who use the tax rebate to cover expenses of investment properties, such as mortgage payments and repairs.
There are two issues at the core of this debate:
WHO NEGATIVELY GEARS?
The common view is that only the rich can buy a rental property so only the well-off benefit from negative gearing. So eliminating the concession has been depicted as a measure of fiscal equality.
“The reality is that over half of geared housing investors are in the top 10 per cent of personal taxpayers and 30 per cent earn more than $500,000,” said Dr Cassandra Goldie of the welfare sector body ACOSS.
Well, that used to be the common view. It’s now a crowded debate.
“There is an urban myth running around that negative gearing is the province of the rich and should be for the high jump,” said Social Services Minister Scott Morrison recently.
Sometimes the same set of figures have been used to make competing arguments.
Research by the Australia Institute think tank found a third of the rebates from negative gearing went to richest 10 per cent of households. More than half went to the wealthiest 20 per cent.
But another reading of the same data found more than a million people were negatively gearing, and, said a report in The Australian, “the widespread use of the tax losses in areas once considered ‘blue collar’ Labor territory in suburban Brisbane, Melbourne and Sydney”.
Scott Morrison used a Property Council analysis of Tax Office data. He said it showed negative gearers included 83,000 clerical workers, 62,000 teachers and child carers, and 12,000 emergency service workers “who aren’t the rich and famous”.
Certainly the well-off are better placed to buy property and use the concessions, but the Australian obsession with property means second-home ownership is no longer a province of the rich.
WOULD RENTS RISE?
This is the big obstacle faced by the anti-neg gearing side: The notion that eliminating the concession would halt investment in rental properties and push up rents.
“If you abolish negative gearing on investment properties, there’s a strong argument that rents would increase,” warned Treasurer Joe Hockey.
The tax concession has been dumped only once, by Labor between 1985-1987, and, Mr Hockey said, “The net result was you saw a surge in rents.”
Well, rents did rise but only in Sydney and Perth. The ABC fact checking unit has taken exception to Mr Hockey’s reading of history.
“During the period that negative gearing was abolished real rents notably increased only in Sydney and Perth — where rental vacancies were at extremely low levels,” said the fact checking verdict.
“This is inconsistent with arguments that negative gearing was a significant factor, with negative gearing likely to have a uniform impact on rents in all capital cities.
“At the same time, high interest rates and the share market boom of the mid 1980s increased consumer demand for rental properties, encouraged existing investors to pass on high mortgage costs to renting consumers, and discouraged additional investors from investing in the rental property market.
“While the rent increases in two cities did coincide with the temporary removal of negative gearing tax deductions, it is unlikely that change had a substantial impact on rents in any major capital city in Australia.
“Mr Hockey’s claim doesn’t stack up.”
Posted by Malcolm Farr - News Limited on 7th May, 2015 | Comments | Trackbacks | Permalink
The secrets to managing debt
Before attempting to build up your assets, you need to be clear about what you owe, writes Alex Berlee.
Today debt is a way for life, with the average household owing nearly 1.8 times its annual disposable income, and the average person about $80,000 in debt.
But debt doesn't have to be a dirty word. The right kind of debt can be helpful. . It's a simple concept: good debt can create wealth and bad debt reduces it.
If you borrow to invest, and the investment earns money, debts can be paid off from the earnings. In this way, the debt is y working for you. That's good debt.
But if you borrow for a car, or use a credit card to buy things that lose value and don't earn money, you can be behind in two ways – you're left with something that has a lower capital value, while having to afford interest payments. This is bad debt.
If you're trying to win the battle against debt, you should consider paying out any non-deductible debt first, such as credit cards, personal loans and home mortgages. It's important to reward yourself for your hard work, but if you receive a lump sum of money, say from a tax return or a bonus at work, you'll probably be better off in the long term by using it to pay off any non-deductible debt.
Managing debt doesn't stop when you retire. One of the biggest changes to retirement in recent years is people's attitude about taking debt into their golden years.
This is not such a problem if we're talking about good debt, but bad debt can eat into super or retirement income. In the lead-up to retirement, look at how long it's going to take to clear your debts and stick to a plan.
You might also consider going slow on the mortgage in order to crank up salary sacrifice into super and then use some of the extra super at retirement to clear the mortgage. You're ultimately paying off the mortgage at retirement with low-tax dollars, via your super.
Retirees should think carefully before going guarantor for their children. This can seem like a great way of helping them make a start, but be aware of the risks, especially if they lose their jobs or get in over their heads.
Before attempting to build up your assets, you need to be clear about what you owe – how much, in what form and at what interest rate. Once you know this, you can work out whether your debt could be arranged more efficiently.
If you have several bank accounts and credit cards, consider consolidating them, which will help to reduce fees and charges, and make it easier to track spending.
Think about rolling any non-deductible debt into your home loan as this will usually have the lower interest rate.
Arranging for income to be paid directly into a home loan and using a credit card for daily purchases can help make considerable savings on interest payments. Of course, this will only work if you pay off your credit card debt each month.
Without a budget, there's no way of knowing how much is left at the end of the week to save, invest or go toward reducing debt.
Make it easy on yourself by setting up an automatic spending plan – pay your debts down first, allow an amount for larger short-term expenses like holidays, then spend what's left (avoiding credit cards), rather than spending first and trying to reduce debt later.
Posted by Alex Berlee - Sydney Morning Herald on 6th May, 2015 | Comments | Trackbacks | Permalink
What does an interest rate cut mean for you?
The Reserve Bank has cut the official cash rate by 25 basis points to an all-time low of 2 per cent.
But what does this decision mean for you?
1. More competition at auctions
Experts say the cut will no doubt fuel consumer confidence and spark more activity in the property market. Buyers, expect tougher competition at auctions.
The city's clearance rates are tracking at five-year highs, and with a rate cut, get set for this to continue.
"Melbourne is not yet in a boom, but it is a very, very strong market, with clearance rates in the high-70s," Greville Pabst, valuer and buyer's advocate at the WBP Property Group, said.
"[This cut] is only going to put more fuel on the fire."
2. House-price growth to hit double digits. Yes, double digits.
As competition increases and if clearance rates remain at lofty heights it will translate into higher-prices growth.
Mr Pabst said the interest rate cut will ensure double-digit house price growth in Melbourne this year.
"When you have clearance rates up around the 77 per cent to 78 per cent mark...you're getting seven or eight bidders at auctions, and that has a tendency of driving price growth," he said.
3. Pity the first-home buyers
Assuming the banks pass on the savings, money will be cheaper and first-home buyers will be helped to get a foothold on the property ladder, but on the flipside, those that are saving for the deposit, will need to save harder and for longer.
4. Cheaper loans
Well, there'll be more cash in your pocket, due to money being cheaper and buyers locking in finance at a lower rate.
If you're one of the lucky ones, that may just fund your weekly coffee addiction, but those with a larger mortgage will probably feel slightly more smug.
5. Bad news for home owners on fixed rates
Those clever cookies that locked themselves into a three or five-year fixed rate home loan, may be feeling just a tinge of regret right about now.
7. Courtney Barnett's Depreston will become even more relevant
The Melbourne based singer-songwriter's tune about struggling to buy a house within close proximity to the city may become an anthem for many, as people are pushed further out by the highly competitive market.
8. Spoiled for choice
There should be something for everybody. The cut may prompt those who are sitting on the fence about selling to take advantage of the market conditions.
Posted by Christina Zhou - The Age on 5th May, 2015 | Comments | Trackbacks | Permalink
Reserve Bank adds fire-water to the punch bowl
After wrong-footing most market watchers in March and April, the Reserve Bank had little choice but to cut rates this time around.
The need to further stimulate the economy has outweighed concerns that another rate cut will add fuel to the house price boom in Sydney and, to a lesser extent, in Melbourne.
The quarter of a percentage point cut takes the cash rate to 2 per cent, and a record low.
It is the second cut this year, after rates were last cut by a quarter of a percentage point in February.
Data from researcher Canstar shows that on a $300,000 mortgage taken over 25 years the monthly savings in repayments from this latest rate cut are almost $45. That is based on the average of the four big banks' standards variable interest rates.
Inflation is of little concern to the Reserve Bank given annualised underlying inflation is running roughly in the middle of the Reserve Bank's target range of between 2 to 3 per cent.
The lower cash rate should help weaken the Australian dollar and help offset falling commodities prices by making Australian exports cheaper for foreign buyers.
There is evidence that the Reserve Bank's last cut in February is working. It seems to have helped stimulate demand for home construction and retail spending.
Of course, housing construction helps to create more jobs. Job ad volumes, as measured by ANZ's monthly series, are running at two-and-a-half year highs.
While the Reserve Bank's role is to help manage the national economy, the rate cut is likely to drive Sydney house prices even higher and increase household indebtedness.
Just because the Reserve Bank has topped up the punch-bowl with even cheaper money doesn't mean that consumers should be filling-up their cups with more debt.
Rising prices are going to make it even tougher for first home buyers to get a foot hold into the market.
Australian Bureau of Statistics data analysed by finder.com.au, found the average home loan size for first home buyers has increased by $121,000, or 58 per cent, over the past decade to $331,000.
Then there is the potential banana skin waiting for everyone who is loaded-up to the eyeballs with mortgage and other debts: namely, a return to normal cash rate levels. It may be some time down the track, but rates will go up.
Some market economists are expecting the cash rate could even start rising by as early as the start of next year.
But if rates do stay lower for longer, those retirees with big exposures to interest-paying investments, such as term deposits, are going to feel the pinch the most.
Those retirees with self-managed super funds, in particular, may be among the biggest losers from the rate cut.
They tend to be under-diversified with a typical asset allocation of about 30 per cent is in term deposits and fixed interest.
When the term deposits come to maturity, they will be rolling over into lower-yielding term deposits.
On the other hand, DIY funds have a typical exposure to Australian shares of about 40 per cent.
And lower rates should be a positive for the sharemarket. Less than 10 per cent of the money held inside DIY funds is invested in international shares, which have been outperforming Australian shares.
Posted by John Collett - The Age on 5th May, 2015 | Comments | Trackbacks | Permalink
Home loan customers could be paying extra money to their bank without even realising
ALMOST half of the nation’s mortgage customers could be unnecessarily handing over thousands of dollars a year to their bank in interest costs without even realising.
Alarmingly, 85 per cent of borrowers at one of the nation’s biggest banks have monthly repayment plans in place which may be costing them dearly.
Analysis by News Corp which looked at the repayment frequencies of home loan customers at four lenders — including two of the big four banks — showed 41 per cent of mortgage holders have monthly mortgage contracts.
Another 41 per cent pay fortnightly and 18 per cent pay weekly.
Figures by financial comparison site Finder.com.au show the interest costs associated with making monthly repayments on the average variable 30-year $300,000 loan with a rate of 5.35 per cent was up to $60,000 more over the life of the loan than if they paid weekly or fortnightly.
This is due to customers making only 12 monthly payments per year as opposed to 26 repayments per year — or the equivalent of an extra month — if they made fortnightly repayments.
Over this loan term a customer will pay about $303,000 in interest costs by paying monthly or about $244,000 in interest by making fortnightly repayments.
ME Bank’s head of home loans Patrick Nolan said for customers it’s a simple case of “the faster you pay off your loan the less interest you need to pay.”
“If you can afford to increase the frequency and amount of your home loan repayments, you could potentially save thousands of dollars in interest and shave years off your mortgage,’’ he said.
“Aligning your payday with your mortgage payments can also make budgeting easier and help you pay more off on your mortgage.’’
Making monthly repayments is popular among property investors who aim to keep their interest costs high to reap the tax gains from negatively gearing property.
Mortgage Choice spokeswoman Jessica Darnbrough said mortgage repayment frequencies often came down to a customer’s individual circumstances.
“There are more negative gearing benefits for investors paying monthly but for owner occupiers how they make their mortgage repayments comes down to how often they get paid,’’ she said.
“When you are taking our your home loan or refinancing chat to your bank or mortgage broker and understand whether paying fortnightly would benefit you.”
The Reserve Bank of Australia will meet on Tuesday to make their monthly rates announcement — and according to the Australian Securities’ Exchange’s cash rate indicator there was a 71 per cent chance on Friday that they would drop the cash rate to two per cent
Posted by Sophie Elsworth = News Corp Australia Network on 4th May, 2015 | Comments | Trackbacks | Permalink
Parents want to help – here's how they can
The median price of property has been rising so quickly in Sydney and Melbourne that many young adults worry they will never be home owners.
The housing affordability issue isn't just about home prices. There are social and generational factors because today's young adults are less likely to be savers.
So even as home-loan interest rates are at their lowest in more than 50 years, affordability is as much about a lack of a deposit as an inability to service repayments.
Luckily, there are options for borrowers who have decent incomes and low deposits, and it's even easier if you have supportive parents.
Recent research of more than 6000 people by Yellow Brick Road showed that many parents want to help their children to buy property. If that is something you hope to do for your kids, these are the options.
First, most lenders will consider a family guarantee in lieu of a saved deposit. If you're buying a $500,000 property, need $100,000 deposit and your parents have built substantial equity in their own property, they can offer it as security for the deposit.
A family guarantee works when the deposit is as least 20 per cent of the purchase price. The lender accepts this security as the deposit, but the borrower is responsible for the mortgage repayments. If the borrower defaults, the lender recovers costs by selling the property, and they can take any shortfall from the security offered by the parents.
While this form of deposit-financing has increased by about 30 per cent in the past five years, many home owners don't want to risk losing their property wealth if their son or daughter fails to make mortgage repayments.
This leads to another option: the non-refundable gift. If a parent wants to help their child buy their first home, while keeping their own property high and dry, they can give a sum of money to the borrower and sign a statutory declaration that the money is a gift.
Lenders, generally speaking, don't allow these deposit gifts to exceed 50 per cent of the deposit. The other half must be savings of six months or more, so the non-refundable gift is a good way for first home buyers to double their deposit, and the parents can help without putting their own retirement plans in jeopardy.
Be aware that the ability to save a deposit counts for a lot with lenders, and where a borrower has low or no savings, the lender will scrutinise their income and their serviceability.
This situation can be looked at from another perspective: that instilling good financial habits at a formative age is a good investment. The combination of high income and low savings is no way to build financial security. The key is to save some of your income, so you can turn it into hard assets. This is something worth teaching children, especially given the number of consumer temptations foisted on young people.
If you're a first home buyer who won't get parental help with a deposit, save hard and buy the property you can afford, not the one you want.
Posted by Mark Bouris - The Sunday Age on 3rd May, 2015 | Comments | Trackbacks | Permalink
A tax break that beats all comers
Fingers crossed, negative gearing and super will escape the clutches of this budget. Both have great tax breaks but you might be surprised which is best.
I'm afraid you'll have to forget the over-hyped annual tax breaks on an investment property. These are at best middling and only there because you've had to spend money. As we speak they're probably illusionary too, thanks to very low interest rates.
The average gross rental yield is about 4.5 per cent in Sydney and Melbourne, though lower after running expenses, and fixed rates are under 4 per cent, so making a loss has never been harder. Not impossible, mind you.
Although this won't always be the case, at least super's tax benefits don't waver. Hang on, did I say that? I meant while the rules will inevitably change in some future budget, they'll be grandfathered as always. Only new money going in will get caught, not what's already there.
Something gearing can't do is self-generate. Super can, as income is re-invested because, not to put too fine a point on it, you have no say.
But all this is quibbling. The tax jackpot is on the capital gains. And here's the odd thing. While property is all about capital gains, super is the quiet achiever if you can wait long enough, which is to say your entire working life.
The discount on capital gains tax when you sell is 50 per cent on a property, or any other investment come to that, so long as you had it for at least a year.
Wow, a tax that is both deferred and discounted? I'll take one of those please.
In a super fund it's a less generous one-third off but remember it's only been paying 15 per cent tax on the income.
But that's nothing, which is exactly what the capital gains tax will be in super after you retire.
So unless you're in the two bottom brackets for tax – zero or 19 per cent plus Medicare levy where there's little or no extra gain – super has it all over negative gearing.
Plus it comes with the bonus of automatic diversification. That's all very well but tax breaks aside, surely gearing beats staid old super?
Yes, it will get you there faster since more money is invested from the word go, though borrowing bulks up losses as much as gains. The trouble is when you're taking on debt timing becomes critical.
Property prices are at record highs in most places so you're buying at the top of the market.
Don't quote me but I suspect after a reasonable time the annual pre-tax return from a balanced fund in super and a geared property are similar after a while. Remember I'm talking about salary sacrificing a dollar into super, or paying interest on an investment loan from your pay packet.
Super gets the better breaks but is weighed down by having less to start with because there's an annual limit on salary sacrificing of $30,000 ($35,000 for 50s and over). It will also have some money in cash and bonds which will never shoot the lights out.
So property will be off the blocks faster but is handicapped by a higher tax rate and deadweight costs such as repairs, council rates and maybe land tax.
The closer you are to retiring the better – and safer – super looks since its singular shortcoming of hogging your hard-earned no longer matters as much.
Hmm, instead of getting into more debt with gearing what about paying off the mortgage you already have faster? How does that stack up against super?
On a typical variable mortgage every extra bit you pay off is saving you about 5.5 per cent. Since this isn't taxed it's the same as getting between 8.25 and 10.75 per cent on an investment depending on your marginal rate.
Did I mention that along with a bank deposit and a government bond, it's the only guaranteed return you'll ever have?
Anyway I consulted my authority on these things, HLB Mann Judd's head of wealth management, Michael Hutton, who says "the super fund doesn't need to make the same as the mortgage because more dollars are going in. You're paying 15 per cent tax instead of, say 34 per cent."
So mathematically, salary sacrificing is better while rates are this low.
But there's more to it than arithmetic, and this from a bean counter too.
"When you're young, salary sacrificing locks your money away. It's better to pay off the mortgage. Our rule of thumb is wait until you have 50 per cent equity in your home then think about extra wealth accumulation."
Posted by David Potts - Money Manager (Fairfax) on 28th April, 2015 | Comments | Trackbacks | Permalink
Underquoting opinions muddying the waters
Buyers think underquoting happens regularly, yet even industry experts can't agree on how common the practice is.
When buyer's agent Miriam Sandkuhler and real estate franchise Hockingstuart director Rob Elsom were asked about the issue on Monday they could not agree on the frequency of underquoting .
Hocking Stuart director Rob Elsom denied that it is common, instead saying it's a product of a hot market.
"Underquoting is always a topical issue when there's a slight rise in the market and that's what we're seeing at the moment," Mr Elsom said.
"You'll find that a lot of the underquoting is done by just a small minority of real estate agents."
In fact, he said that agents are often "kept in the dark to a certain extent" awaiting the vendor's decision about the reserve and that it is this reserve price that is often out of line with expectations.
For this reason, he said there is no real need for a legislative change to stop underquoting.
Ms Sandkuhler said that the problem is continual across Melbourne and cannot be fixed without legislative change.
"For industry associations and agents to continually stand there and say it doesn't happen is actually quite ludicrous and things need to be brought about to change it and legislation is one of them," she said.
These are respected industry professionals at the frontline of the market, yet they cannot agree. They are not alone.
In the 2011/2012 financial year, 15 complaints were made and Du Pont Sung International Properties Pty Ltd trading as The Professionals Sunbury was fined.
The issue was so hot at the time that David Lack of Biggin Scott in Port Melbourne drafted an advertisement in the local paper condemning "misleading behaviour by a minority of agents".
Last year, 400 complaints were made to Consumer Affairs Victoria about underquoting - yet not all of them checked out.
The same arguments have been repeated on both sides. Some say it's wide-ranging, others say it's a handful of notorious agents.
Relying on anecdotal evidence on both sides of the fence is a problem.
RealAs targeted Melbourne as the "worst city" for the practice and claimed homes are underquoted regularly by "up to 30 per cent".
Their data calculates the selling price against the initial quote and does not look at the sales agreement between the agent and the vendor.
The sales agreement is a document signed by both the agent and the vendor that indicates what the property is likely to sell for - it is what a regulator will ask to see should they wish to investigate a complaint.
Consumer Affairs Victoria, who have the authority to ask for access to these documents, last year said there isn't a problem with underquoting in the state.
"In terms of the technical requirements of the legislation, we would not consider underquoting to be a significant problem in Victoria."
Victoria's regulator says there's no issue, yet Real Estate Institute of NSW president Malcolm Gunning previously told Fairfax Media that Melbourne is "notorious".
"Setting the lower price rate emanated out of Melbourne and we've cottoned on to the idea here in NSW," Mr Gunning said.
Agents themselves have started to take action, with a handful in Victoria now publishing reserve prices, a step Ms Sandkuhler wants to see made mandatory.
Melbourne may be named the city where underquoting started, but it has no chance of being named the city where it ends. Without any basic level of agreement, changes to legislation are a hard sell.
Posted by Jennifer Duke - The Age on 27th April, 2015 | Comments | Trackbacks | Permalink
Young Australians are house sitting to save for their first homes
A little while ago, when I decided I wanted to live on my own and calculated the exorbitant amount of rent I would be paying for a one-bedroom apartment, I toyed with the idea of professional house sitting. Free accommodation and zero bills, the opportunity to live in neighbourhoods all across the city, looking after cute dogs – everything about it sounded appealing.
Others agree. Google "house sitting Australia" and agencies upon agencies pop up, offering to set up potential sitters with homeowners in need of a temporary resident.
Ruth Myers and her husband Malcolm own and run Happy House Sitters, one such online agency, which they opened in 1999. On average, they've had a 20 per cent increase in the number of homeowners using their site every year since then.
"We've got about 40,000 people on our books all up, and that number is quite fluid. We actually, overall, have more owners on our books than sitters," Ms Myers says.
A house sitting job can range from several days through to 12 months, with six to eight weeks being the average.
As for sitters, they fall into several categories. There are "grey nomads", who sit while travelling the nation, and those in need of short-term accommodation because of a change in life situation. Ruth Myers estimates that about a third of her house sitters fall into another category: young people who are saving for their own place.
"We've got a significant number of young couples who are on our books who are saving for their first home, and we've got some really lovely stories of people who have written in, telling us that they've been able to achieve that by house sitting for a little while."
Cameron Young, a 31-year-old lawyer based in Brisbane, falls into that group. He started house sitting while living in London. A friend put him in touch with Ian Usher, an English author and public speaker who auctioned his "life" on eBay in 2008 following his divorce. Mr Young's job was to look after Usher's property on a remote island in Panama, and the position introduced him to a network of house minders.
After house sitting all around the world for four years, Mr Young and his fiancee Tara settled in Brisbane last November, and have been looking after houses there ever since. They're currently staying in a house in inner-city Ashgrove, caring for a chihuahua.
"Every month or so we change house-sits and we adopt new pets and a new postcode," Mr Young says.
"Now that we're back in Brisbane and working full-time, we only really consider properties that are within cycling distance to the CBD. We like to move around and explore different suburbs, but limit ourselves to the inner suburbs."
While the couple loves how house sitting lets them try out a range of neighbourhoods, look after pets and meet new people, ultimately the decision to adopt this lifestyle was financially motivated.
"We don't just save the rent money; we save on electricity, on water and sewerage, on internet, on having a fixed phone line," Mr Young clarifies. "That money that we don't spend, we're banking it to buy our own place and, when we do buy our own place, we'll know exactly where we'll want to live as we will have lived just about everywhere in Brisbane."
It's a sentiment echoed by Alana Collins, 32, a psychologist in Melbourne who house sits with her partner Steve through agency Aussie House Sitters. They started sitting to make back the money they spent while backpacking last year, and are also putting their savings towards a house deposit. So far, they've lived in Williamstown and Richmond, and are due to move to South Yarra and Black Rock very soon.
"One of the great things that has happened for us out of one of our house sits is that the owners have also had holiday houses, and have asked us to check on them and mow lawns and told us we could stay there," Ms Collins says. "When I told people at work over Easter, 'we're going to Sorrento [on Victoria's Mornington Peninsula] and we're staying at this place', they thought it was amazing that we got to do that and it didn't cost anything."
While the advantages of house sitting are numerous, there are some potential pitfalls to be aware of. House sitters can't leave the house they're sitting for extended lengths of time, ruling out weekends away or holidays for the duration of a sit. They also have to travel light, be flexible, and regularly say goodbye to places and animals they've become attached to. Individuals who enjoy routine and predictability may struggle with the lifestyle, as might those who prefer a lot of freedom.
For those keen to try it out, though, here are a few tips. First of all, those who don't like animals need not apply.
"I'd say 90 to 95 per cent of the places we look at, pets are the main reason they're getting a house sitter in," Ms Collins says. "If you're going to do it, you need to love pets, and be experienced with them."
She also recommends having a "base," somewhere – such as a family member's place – where you can stay between jobs and store your belongings, and getting a police check, as most homeowners will request one.
After applying for a position, a homeowner might request a face-to-face interview, which is where personal compatibility comes into play. In Mr Young's words, "people can tell straight away if they like you and if you connect with their pets".
Registering with an agency will increase your house sitting opportunities, as will a well-written profile. Happy House Sitters charges $59 annually to register as a sitter in a particular region, and $99 to register Australia-wide. At Aussie House Sitters, the fee is $65 per year. Homeowners advertise their houses for free.
As for Mr Young and Tara, they have big plans for when they give up the sitting gig and buy a home of their own: "we'll be inviting all those homeowners and fantastic pets over for a big barbecue to say thanks".
Posted by Erin Munro - The Age on 27th April, 2015 | Comments | Trackbacks | Permalink
How to find the property you want
Knowing what you are looking for, when to compromise and how much to spend will help you achieve property buying success.
Choosing a suburb and property
Embarking on your property journey without clear parameters is like sailing in a ship without anyone at the helm. Make a suburban checklist that will form the basis of your search and help you decide which areas to target. Consider the following features in choosing your suburbs:
Research property prices to find out where you can afford to buy. Use industry data to assess an area’s median prices, by suburb, postcode, street or property type. Having an idea of your property requirements will also be a big help. This includes:
- Proximity to your work, social network and family
- Access to amenities such as shops, schools, medical services and transport
- Access to your favourite leisure spots including parks, beaches, cultural centres, cafés and other entertainment areas
- Future developments and potential infrastructure changes or rezoning.
When an area was developed or experienced a resurgence in development, and its history of use – such as rural, industrial or residential – will determine the types of properties available.
- Property type – house, unit, studio or townhouse
- Property style – off-the-plan, new, specific architectural period (e.g. Federation, Art Deco, Mid-Century or industrial) or fixer-upper
- Number of bedrooms, bathrooms and parking spots
Real estate search tools
A range of advanced property tools is now available to help you in your search, including mobile, online and print property listings and buying guides. You can also enlist the help of buyer agents, real estate agents and mortgage brokers.
Don’t forget your personal network. Let friends, family and colleagues know you are in the market for real estate, and your suburbs of interest – you never know where that next lead might come from!
- Mobile apps: the very nature of hunting for property means getting out on the road. By downloading a property app, your resources will always be on hand. Domain’s award-winning app provides tailored search functions, interactive maps, property photo galleries, agent details, inspection and auction times, and directions.
- Online: the convenience of jumping online at any time of the day or night to review the latest property listings is invaluable. Tailor your searches, save search results, shortlist properties, and access the latest market data based upon city, suburb, postcode or street.
- Print: by reviewing printed listings and guides you can obtain an instant overview of a particular market and gain greater insight into featured properties. Domain prints listings in over 200 metropolitan, regional and community newspapers.
- Real estate agents: along with perusing the local real estate agents’ windows, it is helpful to register your interest with a number of agents located in your target areas. They can search for properties on your behalf that fit your criteria, with the added benefit of being up on new properties coming onto the market.
- Buyer agents: these independent property experts locate and purchase real estate on a buyer’s behalf. This includes negotiating sales and bidding at auctions. This is particularly useful for those not confident in handling the sale process or who don’t have time to look for property themselves.
When to compromise
As you progress along the real estate path your must-have property criteria will naturally evolve. The more inspections you undertake and the better you get to know an area, certain property and neighbourhood attributes will increase in importance, while others will fade into the background. Buying a house in less than perfect condition on your dream street may be worth it in the long run. Alternatively, you may need to spend a little more than you first thought. Just make sure the compromises you make are not purely emotional, and when it comes to finances, always obtain sound professional advice. If you are buying with a partner it is a good idea to research your joint legal obligations. This is not something to shy away from; it can take the awkwardness out of the financial and contractual negotiations when you find the ideal property. Continue reading the Complete Home Buyers’ Guide with: What you need to know about houses and units
Posted by Jacqui Thompson - Domain Blog on 26th April, 2015 | Comments | Trackbacks | Permalink
There’s more to buying property than perfecting a poker face
BUYING a home shouldn’t be a gamble, yet negotiating to buy property shares many strategies used in card games.
Buyers have to perfect their poker face. They have to know what cards to play, when to hold their offer, know when to fold. And if the price is still too high, they have to know when to run.
But with the right preparation, buyers can successfully negotiate to a buy a house on their terms.
Outside of the inner suburbs, negotiated sale by private treaty is the main method of selling property in Melbourne.
And even in auction campaigns, about 30 per cent of sales are negotiated after the hammer has fallen.
The poker face is an important weapon in a buyer’s armoury. But it has to be used correctly.
It was especially important when inspecting a property, Wakelin Property Advisory director Richard Wakelin said.
“You do not want to be having a whole tribe of family members or a friend talking about the ins and outs of the property and how you’re going to place your furniture in the living room,” Mr Wakelin said.
“Walking into a property as a private homebuyer, you do not want to show any emotional attachment. You’re giving yourself away.”
But it was possible to be too cool for your own good.
“The agent may think you’re mildly interested or not interested,” Mr Wakelin said.
“There’s a balance between unemotional and emotional. But it’s important not to show a level of excitement or strong level of interest.”
A respectful, businesslike approach was best, he said. He urged buyers to indicate to the agent they had an interest and would at some point make an offer. Exchange contact details but leave it at that. It was also OK to ask for documentation, like Section 32 statements and contracts. This would be a sign you were ready to talk.
Levelling the playing field between buyer and seller was the first strategy, Mr Wakelin said. The seller started in command because they set the asking price.
Mr Wakelin said rather than making your first offer, which could back you into a corner, challenge the asking price.
Careful research will show you what similar properties have sold for recently. Buyers can subscribe to data services for their research or search the sold sections of websites like realestate.com.au.
Asking the agent for their best price might work when you’re buying whitegoods, but the agent will end up asking what you are prepared to pay.
But like whitegoods, most real estate prices are padded to allow for negotiation.
“In a private sale, I’d be saying ‘I have an interest in this property. At $500,000, you and I know this is far too much’,” Mr Wakelin said.
“There’ll be silence and the agent will get the message.
“I’ll say, ‘go to the owner and tell them we are interested in this property, but when the asking price changes, we will make an offer’.
“Push the ball into the vendor’s court. Show you have done your research, carry your comparative sales and use them as evidence to talk down the asking price.”
Hocking Stuart, Melton and Werribee, director Julian Conte said buyers who had done their price research were in a far stronger bargaining position.
“The biggest thing is to really look at enough homes to get savvy on pricing,” he said.
Other tools in a negotiation include an inspection report on the condition of a property and other similar homes in the area.
Mr Wakelin said the report could be used to highlight you would need to spend a lot of money improving the condition of the property.
Also, be aware of other properties on the market.
“Making the agent aware that we have options in the marketplace is often an extremely useful tool when it comes to negotiating,” he said.
STRAIGHT TO THE POINT
CHERYL Dall didn’t waste time quibbling over a few thousand dollars when she bought her home in Melton West recently.
A self-described “straight-shooter”, Ms Dall (pictured left) gave clear instructions to the selling agent that her offer was the first and final one — accept it or she would walk away.
“I try and keep the emotion out of it. I don’t like wasting everybody’s time and I don’t like people coming back offering $5000 and $2000 and $3000,” she said. “I do my research, I know what the market values are. I’ve got all my ducks in a row and I’ve been to the bank and know what I can offer.”
But when Ms Dall subsequently sold her
Attwood home, she was prepared to meet the buyer on price, although she did knock back two low-ball offers.
“Accepting a little bit less than what I was after was the best decision because if I had to pay one, two or three months more off the mortgage, I would have been worse off anyway,” she said.
TIPS FOR BUYERS
STAY on neutral territory. Don’t go inside a property to negotiate, especially if you’re the highest bidder after
UNDERSTAND rules for negotiating. Are you the only buyer in the picture or is it highest and best offer wins?
CHALLENGE the price guide on a private sale or the reserve at an auction using comparable sales.
ASK what evidence was used to set the reserve at an auction if it’s higher than the quoted price range.
INDICATE you will make an offer after the vendor has changed their asking price.
OFFER non-cash sweeteners, like a larger deposit or shortened settlement terms without giving ground on price.
BE prepared to walk away when negotiations are stuck. An agent will often chase you up.
Posted by Peter Farago - Herald Sun on 25th April, 2015 | Comments | Trackbacks | Permalink
Five pieces of real estate advice you should ignore
When you buy or sell a home, you're likely to get lots of unsolicited advice from well-meaning friends and family. And a portion of the advice may be helpful while some of it, well, may not be so helpful.
When it comes to real estate, people tend to make generalisations based on their own experiences and speak in absolutes, when the reality is more nuanced.
Here are the five most common pieces of advice given to people thinking of buying or selling:
"Look for a deal during the holidays."
On the other side of the coin, I've seen many buyers who were convinced that they could score a great deal on a home by looking around the holidays. Like much advice, there is a nugget of truth to this concept. Fewer buyers are looking during this time period. Sellers who list during the holidays may be selling due to necessity, like a job relocation, and therefore be more motivated to sell quickly.
Sale price is ultimately a function of market dynamics and less a function of the season. The key is to be patient, since it may take many months for the right opportunity to present itself. I also suggest that buyers look at homes that have been on the market for a bit of time. These homes may be good opportunities for negotiating a sale under asking price. Once a listing gets stale, you're likely to have more negotiating power, regardless of the time of year.
"You don't need an inspection for a new build or recent renovation."
Some buyers are under the impression that they can forgo the inspection for a property that is new or recently renovated. How much could be wrong if everything is new, right? From an improperly installed dryer vent to faulty wiring, new developments can have minor and major problems that aren't apparent until you get a professional in to do a thorough review.
While there may be competitive reasons to waive the inspection contingency in the contract, the decision to do so should not be taken lightly and should be made with full knowledge of the risks. Regardless of how shiny and new the property looks, it is in the buyer's best interest to spend the money to get a thorough inspection from top to bottom.
"Your home is updated and in a good neighbourhood, so you don't need to stage it to sell."
Even the most beautiful, high-end homes should be staged and photographed by a professional photographer. Listing photos are a critical factor in the selling price of your home, how quickly it sells, and whether it sells at all. Our agents found that homes with professional listings photos sold faster, for more money, as much as several thousand dollars more.
A professional stager can provide objective advice on how to get your home photo-ready. They see a lot of homes so they can speak to design trends and features that are common in homes for sale in your area. You live in your home every single day and stop noticing little things that make a big difference in listing photos - a frayed rug, clutter in the entry way, chipped paint, etc. Spending a few hours to de-clutter and a few hundred dollars for a fresh coat of paint will go a long way in attracting the most interest from potential buyers.
"Price your home above the amount you want to get, so you have room to negotiate."
Determining what your list price should be is an art and a science. Before you list your home, ask your real estate agent for a comparative market analysis, which will help you determine a reasonable price based on sales of similar homes in your area. It's very important to set a good price the first time, so you don't have to drop the price later.
A Redfin study showed that the first week that a listing goes on the market, it receives nearly four times more visits online than it does a month later. Even if you drop the price later, it won't get the same attention. When in doubt, start with a lower asking price. Bidding wars are a good thing if you're the one selling the home. If you underprice by, say, $10,000, you could get multiple buyers to bid up the price. If you overprice by $10,000, the home may sit on the market for months, and you'll lose a lot more.
"You should wait to list your home until the spring."
Ultimately, the difference between selling in the winter and spring is negligible, so choose the time of year that is most convenient for you. Ultimately, a home that shows well and has a good pricing and marketing strategy is the most likely to sell, regardless of when it hits the market.
Posted by Marshall Park - The Age on 25th April, 2015 | Comments | Trackbacks | Permalink
Buyers swoop at Fitzroy auction in a game of strategy
In the competitive world of real estate, buyers will use whatever advantage they have to win the keys.
The new owners of a tightly-held Edwardian on a large block in Fitzroy were so determined to ink the contracts, they asked a relative to bid alongside them on Saturday.
The tactic worked - as two separate bidders, on either side of the crowd, they squeezed out a third contender and secured 82 St David Street for $1.95 million.
Bidder Simon Barr - who the home was knocked down to - opened bidding at $1.7 million.
He appeared to be competing against a man in a red jumper alongside a woman, as well as a party of three, who were the main underbidders.
But the contender in red was Mr Barr's brother-in-law and the woman was his partner.
Even Chambers auctioneer John Costanzo was in the dark on the ruse, which is a legal but bold and uncommon tactic, until all three - the winning bidder and underbidders - headed inside to sign the contracts.
The St David Street auction was one of 84 scheduled across Melbourne on Anzac Day.
The clearance rate clocked in at 86 per cent from 56 auctions reported to the Domain Group.
Auction listings dipped significantly on Saturday in respect of Australia's sacred day.
The Real Estate Institute of Victoria encouraged agents to call off auctions on Anzac Day or at least schedule them after 1pm.
At the St David Street sale, which was held at 1.30pm, a crowd of about 60 gathered.
Mr Costanzo took a long recess shortly before the hammer fell, with the elderly owners emotional and reluctant about the sale.
The home had been in their family since the 1950s and they moved out six months ago, due to their age and fragility.
After a wait, during which the family and extended relatives discussed the sale, the vendors handed over ownership to the Barr family.
"It was that last decision they really didn't want to make," Mr Costanzo said.
The three-bedroom house has laneways on both sides on its title and a spacious backyard, overlooking a church. It was in original condition, with well-looked after cornices, arches, leadlight windows and soaring ceilings.
"Fitzroy is one of the most sought after suburbs in Melbourne and also the type of home it is, you don't see very many Edwardians in Fitzroy, and I think it is a style that people have really taken to," Mr Costanzo said.
"[Bidding] started higher than I thought it would start because a lot of buyers who had been through said it needed work and car access was a bit of an issue."
Mr Costanzo said the buyer's tactic was risky but paid off.
"They did a bit of a tag-team, so they were bidding for the same team and thought they would split their resources and work that way and that may have had a detrimental effect on the other bidder, who thought 'I am competing against two', but in the end, wasn't," he said.
"It does happen and you don't always know it has happened.
"It is risky - you can't have someone standing behind a pole where you can't see what is happening."
Mr Barr said they loved the area and had been wanting to buy back into Fitzroy after living on Collingwood's Oxford Street.
He said the family plans to renovate.
"Basically the land size, to have this much space in Fitzroy, is a bonus," Mr Barr said.
"We really wanted the property and sometimes you have to pay a little bit extra."
He said he decided to enlist a relatives' help to bid to ensure their play for the property "looked quite firm".
"We knew how much we'd go up to," Mr Barr said.
Posted by Emily Power & Alistair Walsh - Domain (Fairfax) on 25th April, 2015 | Comments | Trackbacks | Permalink
Australia's best new credit cards (for your every need)
Eight million of us have one. In fact, many have more than one. And my bet is most are old, wrong ones. Our credit card companies have slugged us with outrageous interest rates, nasty foreign currency conversion costs and astronomical annual fees, all for paltry points.
But you no longer have to simply take the hits. Here are my top picks from the new breed of circumstance-specific credit cards – and how to use them so that you, not your provider, win. If you clear your card in full each month....and don't want points:
ME Bank's Low Rate Credit Card (MasterCard) This great-value little card has no annual fee and still manages among the lowest interest rates going (not that you will ever pay it).Purchase rate 9.99 per centCash advance rate 9.99 per cent plus the greater of $4 or 2 per cent of the cash advance amount (and never forget no card gives interest-free days on cash advances)Interest-free days Up to 55Annual fee $0.
… and use a card for points:
ANZ Rewards Platinum American Express and Visa This dual card is a persuasive deal at the moment if you will charge enough to justify the annual fee; it strikes a middle ground between the highest points-accrual and the lowest annual fee – and the current bonus points offer is a good one.
Points can be redeemed for "any leading airline or hotel, cashback, gift cards or merchandise".
The card also comes with some decent travel insurance for those free trips! (You need a minimum annual income of $50,000 to qualify and the deal – no surprises here – is not available to existing customers or to those who've closed card accounts in the past six months. As always, it pays to become a new customer.)
- Points accrual rate Three for every $1 spent on Amex; 1.5 for every $1 spent on Visa
- Bonus points 50,000 if you make a purchase in the first month (available on sign-up before May 5)
- Purchase rate 18.79 per cent
- Cash advance rate: 20.99 per cent
- Interest-free days Up to 55
- Annual fee $149. Also be aware of a $10 additional cardholder fee plus a "Rewards Program Services Fee" of $55.
So you know If you're using plastic for points (my own approach), you must ensure they're worth it. You could pay a $1200 annual fee for a rewards card if you were so inclined but unless you're a massive earner and put through – and promptly pay off – a huge amount of transactions, you'll lose out.
It's vital to always pay off in the interest-free period a card you're using for points; if you incur their higher interest as well as their higher annual fees, you'll never come out ahead. And watch the redemption rules closely. Airlines are notorious for changing them.
If you don't clear your card in full each month transfer it to:
St George Vertigo or Bank of Melbourne Vertigo Visa card And move heaven and earth to pay it off in the 18 months you get interest-free. Other advantages of this card are a relatively low annual fee, as well as 0 per cent interest on new purchases for the first three months (but beyond that remember you'll get charged interest that could cancel your balance transfer savings). You can transfer balances from up to three (non-affiliated) existing cards (so again it's new customers only).
If you still have a remaining balance after 18 months, transfer it again to:
- Balance transfer rate: 0 per cent
- Balance transfer period: 18 months
- Introductory offer: 0 per cent on purchases for 3 months then …
- Purchase rate: 13.24 per cent
- Cash advance rate: 21.49 per cent (fees apply too – but don't ever use this card for cash advances)
- Revert rate for outstanding balances: 21.49 per cent
- Annual fee: $55.
Bankwest's More MasterCard (but in reality by the time you've finished balance transfer No. 1, there will likely be a better, longer deal going. And yep, you have to be a new customer). Then move heaven and earth to pay it off on this second 18-month interest-free deal.
- Balance transfer rate: 0 per cent
- Balance transfer period: 18 months
- Purchase rate: 19.99 per cent (from day of purchase)
- Cash advance rate: 21.99 per cent (fees apply too – but don't ever use this card for cash advances)
- Revert rate for outstanding balances: 19.99 per cent
- Annual fee: $70.
So you know: Tut tut to ANZ for following the industry's worst practice and imposing a 2 per cent balance transfer fee; this would be $100 on a $5000 transfer, with the annual fee on top; brownie points to Westpac and Citibank for stopping the slug, for now.
But note that the latter's longest-in-market, 24-months interest-free Platinum Visa deal comes at a $199 annual cost (and a crazy $90 additional cardholder fee, not that you should use even one of this card type for purchases – see below).
Carefully do your savings sums if you're tempted.
Don't fall into the balance transfer traps that all cards carry
1. New spending (after any intro deal) attracts nasty purchase rates, from day one. Instead, use a card that will get you 55 days interest-free and is also cheap. This can be your existing card or, if that carries an annual fee, the ME Bank Low Rate Credit Card above. (This is if you are confident you will always be able to repay your full balance each month. If there is a risk you'll incur interest, read the next section …)
2. At the end of the interest-free transfer period, any remaining transferred balance will attract an eye-watering interest rate (see above). Either repay it within the period or move it at the end. Two 0 per cent balance transfers are OK; any more than this and you'll start to look like a bad prospect to a provider and could get knocked back in future for credit. So… If you still have outstanding debt after two balance transfers, open the best low-rate card and keep chipping away at your debt:
Community First Credit Union's McGrath Pink Visa This is Australia's lowest rate credit card, although it's a shame they ceased offering an even better 4.74 per cent introductory rate for the first nine months. Use this to pay down your remaining debt as quickly as possible – and live within your means from now on.
If you have unexpected expenses you can't meet in the short term and feel a credit card is your only option) pay them with the:
- Purchase rate: 8.99 per cent
- Cash advance rate: 8.99 per cent
- Interest-free days: up to 55
- Annual fee: $40 (half of which goes to the charity).
Nab Low Rate Visa card. Nab has reduced the interest-free period on new purchases by three months, but this is still a good deal. Just don't be tempted to rack up more debt than you absolutely need to – and pay it off in the 0 per cent period. (Existing customers need not apply.)
If you're headed overseas or love an online shop…
- 0 per cent purchase rate period: 12 months (apply by October 11).
- Purchase rate: 13.99 per cent after the introductory period
- Cash advance rate: 21.74 per cent (fees apply too – but don't ever use this card for cash advances)
- Revert rate for outstanding balances after 12 months: 13.99 per cent
- Interest-free days: up to 55 after the introductory period (if you've cleared your entire balance)
- Annual fee: $59.
… and you have cash:
Citibank Plus Account (Visa debit). You pay no currency conversion or international transaction fees and no ATM fees. What's more, there's no monthly/annual fee and the account's exchange rate is updated daily.
This makes it as cheap as chips to access your cash overseas or online. (It's just a shame they removed early a deal to get 5 per cent cashback of up to $500 a month on Visa payWave purchases.)
… and you want credit (but pay it off immediately you get home!):
Bankwest Zero Platinum MasterCard, which levies no foreign currency conversion fee (typically as high as 3 per cent), and has no annual fee and complimentary travel insurance. There's also a 24-hour concierge service, should you need it.
You need to be approved for a minimum credit limit of $6000 (so you require the income to support this).
- Purchase rate: 17.99 per cent (make sure you never have to pay it)
- Cash advance rate: 21.99 per cent (you'll also pay 2 per cent or $4, again the greater, unless you pre-load your card with cash before you travel)
- Interest-free days: up to 55
- Annual fee: $0
- Overseas-ATM usage fee: $5.
After reading all this you might be tempted to say "I can't be bothered with any of these changes because it means moving all my direct debits"…
You don't have to change them at all. New-ish direct debit rules mean you simply ask your existing card provider to give you a list of all your scheduled transactions, then ask your new provider to re-establish them for you.
What are you waiting for?
Posted by Nicole Pedersen-McKinnon - The Age on 23rd April, 2015 | Comments | Trackbacks | Permalink
Need a helping hand? Don't get sucked in
From payday loans to funeral insurance, some financial products come with a warning - and the warning reads: BEWARE, writes Christine Long.
When money is tight it makes you more vulnerable and more likely to jump at anything that seems to offer some relief. That can make you a target for providers of some of the most hazardous financial products and services around. Like pay-day lenders.
NAB research shows almost one in five Australians (18.7 per cent) rarely or never have any money left at the end of a pay cycle. For those trying to survive on a low income these short-term loans can seem like an ideal fix, if bills need to be paid, something breaks down or if there is not enough to eat.
Adam Mooney, chief executive of Good Shepherd Microfinance, says high-cost lenders target people on low incomes with "promises of fast cash and online same-day approval". However, with interest rates as high as 240 per cent, many borrowers end up in a cycle of repeat loans and mounting debts, according to Katherine Lane, who is principal solicitor with the Financial Rights Legal Centre.
"It's very common for people to have more than one payday loan," Lane says. "I've had whole families who have all got payday loans. They are all on Centrelink and they are all poor and they are just trapped in a debt cycle."
A report released by the Australian Securities and Investments Commission (ASIC) last month estimated that $400 million in payday loans were written last year, a rise of 125 per cent since 2008. Two-thirds of the files it reviewed showed that people were borrowing when they already had a loan; when they were in default for a loan or when they had loans during the last 90 days.
Nicola Howell, who researches consumer insolvency at the Queensland University of Technology, says the growth in payday lending is in part the result of a lack of alternatives. "Banks for the most part won't lend small amounts of money," she says. "Credit cards may not be available or people may have maxed out their credit cards."
She suggests government could be doing more to support no-interest loan schemes and to ensure the Centrelink advance system works for people who need it.
Payday loans are not the only product or service that can lead you deeper into financial difficulty if you are already struggling. Here are five others to be wary of and some alternatives.
Can't afford to buy a fridge or a TV outright? Companies such as Radio Rentals and Rent the Roo market rent-to-buy arrangements. They also promise peace of mind through "responsible" policies that assess their customers' credit history and, in the case of Radio Rentals, aim to "never over-commit you – it's not in our interest, or yours". But the high cost of renting – interest rates can be 40 to 90 per cent — is often hidden by some of the less scrupulous providers.
Mooney says: "Goods rental companies usually advertise a weekly repayment rate which may seem affordable, but what they don't tell you is that by the time the contract ends you'll have paid about 300 per cent more than someone who bought the product outright."
Over three years, the customer will pay about $1800 for a $650 fridge. Contracts often include the option to buy the item for $1 after three years. However, the customer needs to contact the rent-to-buy company and pay the $1 separately, something that is easily overlooked, says Mooney.
"The other reason that $1 buy option is there is purely to exploit a loophole in the National Credit Act," he says, adding that the contracts are deliberately designed to sidestep legislation governing small amount loans (loans of $2000 or less). Under that legislation, the provider has to disclose to the client upfront the value of the item and the total finance cost. "There's also a pricing cap so the financial service provider can only charge 20 per cent upfront plus 4 per cent of the original amount per month."
Sydneysider Norma Wannell has experienced the high cost of these arrangements first-hand. She worked in the community sector until 2009, when an accident forced her into early retirement and on to a disability pension. In November 2013 she signed a rent-to-buy contract "on the spur of the moment" to get a new vacuum cleaner. Recently she checked how much she needed to pay to buy the Dyson cleaner. The answer: $991.
"My reaction was: You're kidding," she says. "I'd already paid about $1500 on it." The alternative was she could continue making the $39 fortnightly payments for another 18 months and then buy it for a $1. By that time she would have paid about $3200.
"I can't just give the items back because I've paid too much now and I'd be liable to pay the contract out anyway," she says.
The alternative: For Centrelink recipients there is a no-interest loan scheme (NILS) for essential items (see box). Wannell has used one in the past to buy a new fridge.
Consumer advocates warn funeral insurance is rarely good value. Gerard Brody, chief executive of the Consumer Action Law Centre, says payout figures are often low.
"It's not like a savings account or an old life insurance policy that will pay out what you contribute to it," Brody says.
People may contribute $15,000 to $20,000 to a policy over the years, but their estate will only receive a payout of $5000 to $6000. Policies can also have stepped premiums, which means they get significantly higher as the policy-holder ages.
"By the time you're 70 or 80 years old it's actually a significant proportion of your income especially if you've gone on to the pension," says Brody. If people can't afford to keep up the premiums they lose everything they've contributed.
The alternative: Lane says: "The vast majority of people have access to some sort of funeral cost cover through their superannuation death benefits."
Another solution: Save up or prepay for a funeral.
PART IX DEBT AGREEMENTS
If you have mounting or multiple debts, these agreements can seem to offer a way out. Debt agreement activity reached the highest annual figure – 10,705 – on record in a financial year in 2013-14, according to the Australian Financial Security Authority.
People often mistakenly think it's some form of debt consolidation, says Lane.
"It's not. It's a form of bankruptcy," she says. "It blemishes your credit report quite seriously and it's an act of bankruptcy so people can use it later to make you bankrupt if they want."
Brody says: "Part IX debt agreements are probably suitable for someone who wants to avoid bankruptcy because they own property, probably the family home.
"Our concern is that the majority of people who end up in debt agreements don't even have property to protect."
The alternative: Seek the advice of a financial counsellor. Often, says Lane, "another option like making financial hardship arrangements [with creditors] is much better and has less repercussions."
CREDIT REPAIR SERVICES
It's tempting to turn to a credit repair service if previous defaults are preventing you from getting a loan or credit card. However, Lane says such services come with a high price-tag – up to $1000 per default – and may not actually achieve the desired outcome.
Brody explains: "If the defaults listed on their credit report are accurate then a credit repairer can't actually remove those." Or, he says, they may only be able to remove one of several default listings. "[The consumer's] access to finance isn't improved at all but the credit repairer says it's done its job according to the contract that they've entered into with the consumer." '
The alternative: You can obtain a free copy of your credit file to check for default listings. Creditors must follow a set procedure before they can list a default. If you believe there is an error on your credit file contact the relevant Ombudsman and make a complaint.
"So if it was your energy company that made an incorrect listing you could make a complaint to the Energy Ombudsman," says Brody. "Those services are free of charge and very simple." '
PERSONAL BUDGETING SERVICES
Paying for a service to handle your finances may seem like a positive step if money is causing you angst. Not so, says Lane. "If you're in financial difficulty the last thing you need to do is add another creditor to your pile."
Lane says some services tell customers to stop paying their creditors, pay them and they will do deals with their creditors. They also make mistakes such as getting people to pay statute-barred debts, those that are too old for a debt collector or creditor to pursue.
"If you're in financial difficulty in any way, all debts are not created equal and you need advice on who to pay and who not to pay and who to make arrangements with and these [services] simply do not do that."
The alternative: Financial counsellors can help you make financial hardship arrangements with creditors. Free budgeting tools are available on ASIC's Moneysmart website or the Consumer Action Law Centre's MoneyHelp. Small loans for essentials
Good Shepherd Microfinance helps Centrelink recipients take out NILS loans of $300 to $1200 to buy essential items such as a fridge, washing machine or television. It also has StepUp, a low-interest (5.99 per cent) loan scheme for loans of $800 to $3000.
The loans can be accessed through 660 community organisations throughout Australia, with Carers Victoria the latest organisation to act as a facilitator. NILS recipients have a year to pay off the loan in equal instalments and three years for a StepUp loan.
Good Shepherd's Adam Mooney, says NILS borrowers have to meet three criteria: they must have stable housing (at least three to six months in one place); be able to afford the loan and have the intention to repay it.
As part of the assessment process the organisation offers budgeting help. It will lend to the "credit impaired" and help them negotiate hardship arrangements to repay outstanding debts. ACTION PLAN
- Find a free, independent financial counsellor (Call MoneyHelp on 1800 007 007 1800 007 007 FREE).
- Consider all your options including hardship arrangements
- Use free budgeting tools and services
- Get a free copy of your credit file
Posted by Christine Long - The Age on 22nd April, 2015 | Comments | Trackbacks | Permalink
Fears about foreign investors buying Australian real estate are misplaced
Property is a great conversation topic because it affects us all in some way, from our basic need for shelter through to the glamour and status of prestigious property.
Therefore, property will always be a hot topic. Everybody has an opinion about it, whether in terms of its type, style, location, aspect and liveability, or the current focus - given rising prices in our three major cities Sydney, Melbourne and Brisbane - affordability.
The apparent influx of foreigners snapping up Aussie real estate is also topical. In fact, these concerns are often connected, with many media commentators claiming foreign demand for real estate is pushing up real estate prices.
The truth is somewhat different. Australia has strict rules limiting what types of residential property foreign investors can buy. Investors who are not citizens or permanent residents must seek approval from the Foreign Investment Review Board (FIRB), and at present they cannot buy existing property (except for gaining an approval to build multiple dwellings).
Further proposed changes to FIRB policy requiring foreigners to pay a fee to buy residential property, and the establishment of a National Register of foreign investment and investors are welcome developments. Finally we will be able to see some true figures about just who's buying what and where these investors are coming from, rather than speculating on the impact foreign investors are having on the market.
The affordability myth
The relation between affordability and foreign investment is unsubstantiated, given foreign buyers can only buy new property and are heavily restricted in what they can buy.
Perhaps the real issue in the broader affordability debate is whether people can buy in the suburbs they want to live in. From this point of view, a bit of perspective and worldly maturity needs to enter the debate. For example, for $US1 million ($1.3 million), I could own 15 square metres (yes, the size of a bedroom) in Monaco or an apartment just over 20 square metres in Hong Kong. And if I wanted to live in a nice condo in Downtown Manhattan, it's more than likely that I wouldn't see any change from $US4 million for a two-bedroom apartment.
The fact is, Sydney is a "rich" world city and Melbourne isn't too far behind. Great property, particularly in the more popular locations, is going to attract a premium price, just as it does in all rich cities in the developed world. We need to come to grips with this reality and resist blaming foreigners for pushing up the price of real estate in our capital cities. One must have a level head in this debate and look at the facts and figures before making judgments or claims.
Additionally, it's important to note that foreign investments have had positive impacts on the property market.
The biggest hurdle to affordability right now is the lack of supply. Foreign investors play a critical role in helping increase the supply of new dwellings into the market. How? The first obstacle to getting a multi-unit or high-rise unit development approved for construction is finance. Often developers need to secure a 20 to 30 per cent pre-sale level to meet their bank's requirement to get the project off the ground. These are the types of properties that foreign investors buy into, and getting these pre-sales means the project will go ahead, thereby increasing supply and providing local buyers with the opportunity to buy also.
Stimulating economic development
Foreign investment into Australia is critical for our future prosperity. Each year hundreds of billions of dollars flow into Australia, supporting our local economy, our jobs market and ultimately our overall standard of living.
A couple of years back I attended a NAB economic briefing where it was stated that for every dollar spent on actual housings (meaning the buildings of dwelling) a further $10 of economic activity is generated in the economy. Think about it. The dwelling, whether it's a home or unit, generates government fees, mainly in the form of stamp duties. It generates direct jobs for trades, financiers, manufactures and sales representatives, and indirect jobs like retailers in home wares and services jobs like cleaners.
Foreigners who are choosing to buy property in Australia should be seen as a big vote of confidence for our country and the sustainability of our property market.
Posted by Ben Kingsley - The Age on 21st April, 2015 | Comments | Trackbacks | Permalink
9 ways to have a stress free auction day
1. Do your research
Before you put your house up for auction it’s important that you’re at least a little bit familiar with the industry. Go to other house auctions, ask questions of the agents and most importantly have a few conversations with the bidders. House auctions are something most people will rarely participate in, so it’s difficult to acquire organic experience in this area. This is why it’s so important to get out in the field and learn as much as you can before your own auction. The industry changes every few years so even if you went through an auction ten years ago, it’s still worthwhile to attend upcoming auctions to see what’s happening in the space.
2. Choose the right agent
If you have any friends or acquaintances that have sold property recently, ask them about their experience with their agents. Finding a good agent is like finding a good employee. Not everyone is going to work well with everyone so take the time to find an agent that works for you.
3. Be sure about the auction
Make sure that you’ve made the best choice when it comes to selling your home. The fact of the matter is that you will never know how an auction is going to go and you need to be totally comfortable with that.
4. Be sure about your reserve price
It’s important to be realistic about your reserve price but it’s also important to feel comfortable with the price you’re putting on your property. A good agent should be able to talk you through this process. It’s in the best interest of the agent to sell your house for the best possible price so you need to trust their experience, but also be honest about where you draw the line with offers.
5. Invest your time into the property
Think about retail merchandise and the way damaged stock is sold. It’s usually discounted right? The same goes with houses. If there’s a hole in a wall, fix it. If the paint is chipped, fix it. If the garden is full of weeds, fix it. A potential buyer is going to be looking at every single corner of the property and it’s their job to find the flaws. Make their job really difficult by thoroughly fixing anything that is wrong with the house. Never assume that a buyer won’t notice a problem. If someone is spending a large amount of money on a property, they’ll notice a problem.
6. Be physically prepared
Make sure you have everything you need on the day. The agent/auctioneer should provide any materials they need but make sure you have any paperwork or keys that you might need on the day. If someone wants to see inside the garden shed and the key is three suburbs away, that’s not going to look very good.
7. Be emotionally prepared
Keep calm. The auction is going to happen and there are limited outcomes. The house will sell or the house won’t sell. Those are the two basic options. If the house sells, great. If it doesn’t there are always other opportunities. If you’ve done everything within your power to sell your house at auction, then there’s nothing you can do on the day to change the outcome of the auction. Just relax. What will be, will be.
8. Know your limits
If the property doesn’t sell during auction, the agent may engage in negotiations with the highest bidder. You need to decide what your offer limit is and whether or not you will accept it before the auction even starts. Making a big financial decision under pressure isn’t a good idea. Have your limits mapped out prior to the auction to avoid making mistakes at a crucial moment.
9. Manage your expectations
The property market is very much in favour of the seller at the moment and there are constant market reports of homes being sold for double their asking price, which can give home sellers unrealistic expectations. Just remember that each property is different. Location, time of auction and even the weather on the day of an auction can have an effect on the sale of a property. Be realistic and don’t expect a bidding war that ends with an unprecedented financial win in your favour.
Posted by Carly Jacobs - realestate.com.au on 21st April, 2015 | Comments | Trackbacks | Permalink
To fix or not to fix your home loan? The latest trends and what experts recommend
HOME loan interest rates continue to fall but many borrowers are resisting fixing their loans as they expect the cash rate to tumble further.
But those mortgage holders who locked a rate in just 12 months ago have come out in front.
Data from financial comparison website RateCity shows the interest rates on more than 260 fixed loans have fallen in April alone while more than 50 variable loan rates have also dropped.
Customers with the average $300,000 30-year loan who locked in their rate one year ago
— when the average one-year fixed rate was 4.83 per cent — would have saved themselves more than $1000 over those who keep their interest rate variable.
The average variable mortgage rate in 2014 was more than five per cent.
Competition remains rife with about one dozen lenders offering fixed rate loans with a “three” in front.
ME Bank’s Head of Home Loans Patrick Nolan said the bank’s latest offering of a three-year fixed rate loan at 3.99 per cent is the lowest rate the bank has ever offered.
He said Australians remained hesitant to lock in their loans because many people expect further rate falls this year and also did not like the rigid nature of fixed rates.
“Customers sometimes are concerned that there is not so much flexibility with fixed rate offers,’’ Mr Nolan said.
“Some of the banks including ourselves have changed that ... if you take out a fixed-rate loan (at ME Bank) you can pay up to an additional $30,000 (during the fixed period.)’’
He suggests customers unsure about signing up to fixed rates to lock in a portion of the loan and leave the rest on a variable rate.
Figures from Australia’s biggest mortgage broker Australian Finance Group show in March of all new loans written 14 per cent of borrowers choose to fix, compared to 24 per cent in March last year.
HSBC’s chief economist Paul Bloxham expects the RBA to deliver another cut this year and doesn’t expect lenders to move down much further on their deals.
“We are very, very close to the bottom in terms of the rates available in variable rates and fixed rates,’’ he said.
RateCity’s spokesman Peter Arnold said there’s plenty of “hot deals” available for customers.
“We are seeing a lot of competition for those really low rates, especially by smaller lenders,’’ he said.
“If you do look beyond the big banks there are some very low rates out there.”
The Australian Securities Exchange’s RBA rate indicator which uses market expectations to predict a change to the official cash rate has forecast a 60 per cent chance it will fall by 25 basis points to two per cent.
Posted by Sophie Elsworth - News Limited Network on 19th April, 2015 | Comments | Trackbacks | Permalink
‘A complete load of rubbish’: Economists hit out at negative gearing myths
IT’S a uniquely Aussie slang term up there with thongs and budgie smugglers, but it’s also the behind one of the most pervasive myths in public debate.
Economists have hit out at fresh calls to wind back negative gearing concessions in a bid to raise more tax revenue and increase housing affordability.
In a report released yesterday, peak welfare body the Australian Council of Social Services urged the government to restrict tax deductions for negatively-geared property investments.
ACOSS claimed the move could save more than $1 billion a year, arguing the current system primarily benefited the rich.
According to its report, ‘Fuel on the fire: Negative gearing, Capital Gains Tax and housing affordability’, more than half of geared housing investors were in the top 10 per cent of personal taxpayers.
It argued negative gearing encouraged over-investment in existing properties and expensive inner-city apartments, lifting housing prices and doing little to promote construction of affordable housing.
Sinclair Davidson, Professor of Institutional Economics at RMIT University, described the public debate around negative gearing as “a complete load of rubbish”.
The term itself is an Australianism, so the whole notion of having to explain negative gearing to foreigners falls into the same category as having to explain slang terms to foreigners, he argues.
“ACOSS and other people who don’t actually pay tax themselves don’t understand much about the tax system and so they think it’s being rorted,” Professor Davidson said.
“People like ACOSS, UnitingCare and Anglicare, they have an incentive for the government to take in more tax revenue because they want to spend more money. They are going for a tax grab.
“I suspect a lot of journalists don’t understand business and taxation, which is probably slightly unfair and a sad thing to say, but unfortunately too many journalists are a little sucked in by salacious arguments about tax rorts.”
According to Professor Davidson’s analysis, the main beneficiaries of the system were lower-income earners, with people earning between $45,000 and $180,000 per annum actually the most likely to be declaring a loss on rental property.
He claimed myths around negative gearing permeated public discussion, partly because Australia was the only country to have a specific term for what was considered a standard tax deduction in most other countries.
“It is standard procedure that if you earn a loss you deduct it against your income. The thing that causes excitement in Australia is we are the only country that calls it negative gearing,” he said. “You ask people in other countries, ‘Do you have negative gearing?’ and they say, ‘Gee, what’s that?’.
“But if you ask, ‘Do you have mortgage reduction or deduct loss against income?’, and they say, ‘Of course we do.’ This is not some strange or unusual quirk of our tax system.”
While some countries only allowed deductions against the same asset class, Australia has a better system, he argued.
“A loss is a loss, you should carry a loss against all income. New Zealand has it, Japan has it. In the US, individuals can’t deduct their losses against all other income, so people incorporate as companies. It’s a workaround, but effectively the same thing is happening.”
Robert Carling, senior fellow at the Centre for Independent Studies and former official with the NSW Treasury, Commonwealth Treasury, World Bank and IMF, argued groups like ACOSS only looked at the demand side of the housing equation.
“More investment in housing, other things being equal, should lead to more supply eventually,” he said. “They argue people are buying up existing housing, but they don’t have to buy new houses themselves to stimulate supply. If prices are bid up across the board then that will encourage more supply by developers, and we see that happening.”
In a report released last week, Mr Carling argued much of the “mythology” around potential revenue to be gained from abolishing tax concessions such as negative gearing came from a misinterpretation of the Tax Expenditure Statement published by Treasury.
In addition to the revenue cost of some concessions being greatly exaggerated, he pointed to the inability of the estimates to account for taxpayer behaviour in response to changes in tax concessions, and an incorrect assumption that estimates for revenue forgone were equivalent to potential revenue gain.
“If it’s the tax system that’s driving up house prices, why aren’t we seeing it happening across all cities? The tax laws are the same across the country yet we’re not seeing large price increases in other cities. Many countries have had house price booms, and all of them have had different tax arrangements,” he said.
“The main factor, according to the Reserve Bank, is the secular decline in real interest rates over the last 20-odd years, which has vastly increased people’s borrowing capacity. That’s been the common factor around the world.”
He said winding back negative gearing might raise significant revenue initially, but after investor behaviour responds net revenue gains would likely be very small.
If reductions in tax concessions were to be justified, they should form part of a broad, revenue-neutral tax reform with offsetting reductions in income tax rates, he argued.
In response, an ACOSS spokesman said countries like the US and UK do not allow people to claim unlimited deductions for investment property losses against their other income.
“We didn’t rely on Tax Expenditure Statements alone but they are a reasonable starting point,” he said. “We advocate the closure of tax shelters on a number fronts to deal with behavioural responses.
“There are considerable lags between higher property prices and more construction, due to well-known problems on the supply side.
“In any event the main problem is that prices are too high by Australian and international standards. This means, for example, that institutional investors are reluctant to invest because their rates of return from rents alone are too low.”
Posted by Frank Chung - News Limited Network on 18th April, 2015 | Comments | Trackbacks | Permalink
Paying-off the wrong credit card is costly
Many people make irrational decisions when paying off their credit card debts.
Rather than paying off the debt attracting the highest interest rate first, card holders tend to pay off the smaller of the debts first, regardless of the interest rate.
Research by UTS Sydney academic, François Carrillat, with international collaborators, finds card holders with more than one credit card tend to pay off the debt they can pay off entirely or substantially first, even though they have debts on other credit cards with higher interest rates.
By focusing on smaller debts first, card holders are unwittingly helping to prolong their indebtedness and increase the amount of interest they pay.
To reduce debt overall and reduce interest costs, card holders should pay-off credit card debt with the highest interest rate first, the second-most expensive debt next and so on.
"Paying off big debt seems to be a difficult goal and often it is," Carrillat says.
"You can understand why it is appealing to pay off a small debt first, even though it is not the rational thing to do," he says.
He says it is because paying off the smallest credit card debt first gives card holders the "illusion" of making progress towards the goal of reducing total debt.
In a paper published in the Journal of Public Policy & Marketing with two colleagues from American universities, it is shown that people's approach to debt re-payment also depends on the nature of the debt.
If the debt was for a "want", such as a holiday, instead of a "need", the debtor is more likely to pay off that debt first because the benefit of the debt has passed.
The data was collected from an online survey of American adults to find out how they prioritised credit card debt repayment. Carrillat says the results are just as relevant for Australian card holders.
He says the best thing that card holders can do is to consolidate their cards so that they have one card only.
A quick check with one of the financial comparator sites shows there is a wide variation in the interest rates charged on credit card debt, which is why it is worth shopping around.
Posted by John Collett - The Age on 17th April, 2015 | Comments | Trackbacks | Permalink
The good, bad and ugly reasons why you must fix up your retirement portfolio
Across the world, property has been a great investment story. And this has never been more true than right here in Australia. Many investors have ridden the property wave during the past few decades and enjoyed tremendous capital growth, rivalling the returns of Australian and global share markets.
In this country, investors have also been fortunate to be able to take advantage of the phenomenon of negative gearing. Introduced in the early 1980s, the aim of negative gearing was to increase housing supply for renters by providing tax benefits for the investor. This tax benefit has seen investors flock to residential property investments during the past 30 years, with demand pushing prices to the lofty levels we see today.
We are also currently seeing an increasing number of baby boomers retiring, with the first baby boomer having reached age 65 in 2011.
Many of these baby boomers have grown their wealth by holding property during the past three decades, in addition to their superannuation funds. As people move into the new phase of life, retirement, it is critical their investments match their needs.
They no longer have a steady income from employment; rather they will need to rely on the income delivered from the assets they have accumulated over their lives.
So where does property fit into these plans?
One of the great things about property is that it has delivered excellent capital growth for investors. Not all have experienced this, but most have. In fact, according to the Australian Bureau of Statistics, since 1880 house prices have increased four-fold after accounting for inflation. The interesting thing is that from 1880 to the mid-1950s, house prices remained stagnant after adjusting for inflation. The four-fold increase occurred from the mid-1950s through to today.
This growth has put retiring investors in a sound financial position. Property has performed as well as shares, particularly in the last 30 years. The latest Russell Investments Long-term Investing Report shows that although shares outperformed property over the 20-year period to December 2012, property outperformed shares over the 20-year period to December 2013.
For those investors who have been able to repay the debt on their investment properties, they will retire with a source of income from rent. An investor who can have different kinds of investments and therefore, multiple sources of income, will put themselves in a much stronger position in retirement with far less risk.
So what are the things that retirees need to look out for when investing in property through retirement? The first fundamental issue is that the primary requirement for a retired person is cash flow. Unfortunately, after the costs of maintaining an investment property the income that is actually received from the investment averages around 2 per cent; lower than interest earned from a bank account. This clearly does not meet the needs of most retirees. Without cash flow, it doesn't matter how much capital growth one has; and I have seen too many people under financial pressure as they are asset rich and cash-flow poor.
Another important factor to consider is that once retired, it is important to be able to access money for one-off expenses or unforseen events. A difficulty with property is that we cannot sell a bathroom or a chimney to access some cash. This lack of flexibility can often limit the freedom we have in retirement as we are bound by the fact that a property is an illiquid asset.
The above "bad" factors need to be considered, but as long as we are aware of them they can be somewhat managed. However, there are some risks we need to be aware of that can have a long-term detrimental impact on our financial position and more importantly, the rest of our lives.
The biggest risk a retiree can face with holding too much wealth in investment properties is having all your eggs in one basket. We so often hear people say that property in Australia can never fall in price, but I have seen many people holding properties that have fallen in price, which seemed like great investments at the time.
Now, I'm not saying that property prices will fall, but we should not be naive in thinking that they can never fall. The thousands of property owners in places such as the US, Germany, Japan and the UK also never expected their property prices to fall; yet fall they did.
In conclusion, property investments have an important role in a sound investment portfolio. We simply need to ensure the investments as a whole deliver on our requirements throughout retirement.
No matter what your situation, the key to retiring comfortably is not entrenched in finding that perfect investment that hopefully has amazing performance. The key is managing risk and protecting the money for which you have worked so hard.
Posted by Thabojan Rasiah - The Age on 15th April, 2015 | Comments | Trackbacks | Permalink
The $50,000 you didn't know you paid to a property spruiker
This is a property market where outrageous commissions, which I have seen span up to $50,000, are built into the purchase price that you pay. A world where the naive are suckered into signing up for brilliantly marketed properties because "the tax benefits and automatic capital growth mean it will pay off in the long run".
A few years ago we had a client in tears and on the verge of a mental breakdown because she had been convinced by a "property guru" to buy a negatively geared investment a few years earlier. This was bought through that same guru.
She was a 50-year-old divorcee who owned her own home and was debt-free at the time, earning $50,000 per year in an administration role.
Having been sold the classic story of how she could use negative gearing as a tax benefit, she bought. She was told that one day it would become positively geared and that the capital growth would set her up for retirement.
What they failed to tell her was that she had paid a premium for the property in the first place. They also didn't explain that the holding costs would almost send her bankrupt. In the end, she was a victim. Her only crime was trusting the wrong people and being given the wrong advice.
In the end, she owned a negative geared investment property and $700,000 in high-interest debt.
All I could advise her to do was to sell the property and clear the debt, while I "worked on" the financier for a significant rate reduction on the residual $165,000 debt.
Her previously unencumbered home now had a $165,000 mortgage against it and no investment property to show for it.
Subsequently, she was encouraged to take legal action against the outfit that put her in the situation – yet she refused, crippled with embarrassment and wanting to put it behind her.
Her situation is by no means unique.
There are hundreds of people in the investment property sector only too willing to sell you investment properties with secret commissions of anywhere up to $50,000 built into the price.
Over the last 15 years I've been approached by developers and marketeers offering commissions if I would introduce their properties to my clients. I've shown them the door.
What's most dangerous is when the sharks don't appear, on the surface, to sell property. Instead they sell 'education'. Education is crucial, however too often education programs lead you to the promoter's selected properties and it's the same game with a different label.
Ensure the education you think you're getting isn't an upselling course in disguise. If the entry level program is $2990 and there's another course promoted during this program that's even pricier, think twice.
Some "free" educational events, seminars or workshops could be hosted by a marketer or group who take a sizeable share of your eventual course fees. This explains the ridiculous price tags each one charges for their specialty course and the long list of so-called experts appearing as special guests.
Have your eyes peeled for what property industry experts are really selling. In the investment sector that price tag might just include a hefty secret commission.
Ask the person vying for your signature exactly what their commission is. If they refuse to answer, walk away.
Posted by Kevin Lee - Domain (The Age) on 14th April, 2015 | Comments | Trackbacks | Permalink
Houses take cake by a narrow margin
Which will make you richer, investing in the sharemarket or a property? I thought I'd never ask.
If you go by history, the sharemarket. Even then there's not much in it, especially over very long periods, which is surprising considering the sharemarket leaves property for dead when it comes to tax breaks.
Hmm, that might surprise you even more. Negative gearing isn't just the province of property, though it's probably better at it, which isn't necessarily a compliment, and the best break of all applies to any investment. That's the 50 per cent discount on capital gains tax when sold after a year.
Anyway there's a twist, but then you knew there would be.
The sharemarket's big advantage is the no-questions-asked 30 per cent tax credit on franked dividends, which compounds over time if you reinvest them in the same or some other stock.
But what about all those deductions for expenses and the free kick of depreciation allowances? Well, there's a reason they're deductions: they cost you. And that includes depreciation. It might not be a cash outlay, but it will be eventually when repairs or replacements are needed.
A true tax break is a gift, not partial compensation for an expense.
So over the past 10 years, which included the GFC, shares returned an average 9.2 per cent – including dividends – trouncing property's 6.1 per cent including rents, according to Russell Investments. After tax the gap was even wider.
But over periods of 20 years it can go either way. The definitive word - or I should say picture - is in the chart below going back to 1926 compiled by AMP Capital 's chief economist, Shane Oliver. Shares beat property by 0.4 per cent a year, though perhaps your patience doesn't stretch to 88 years.
In which case it might be better if I confine myself to the next 10 years. Just as you should take statistics for the past 10 years with a grain of salt, I wouldn't be putting much store on forecasts for the next 10, especially mine.
But there's one sure thing to be said about the starting point.
The sharemarket is nowhere near its record of eight years ago, whereas property prices have beaten theirs.
So on the face of it the risk is property prices flattening out or maybe falling, especially as affordability is already challenging, while share prices have room to rise, admittedly with the usual fits and starts. Perhaps more fits than starts.
While rents are rising by less than inflation, share dividends are beating it. You can see this best with yields, which are the returns based on what you pay.
They're rising on dividends – did I mention these often come with a 30 per cent tax break? – and falling on investment properties because rents have flattened out while values, and so what you pay, have soared.
Also sluggish wage growth and rising unemployment are, to be blunt, good for profits, recession aside. But they're indisputably bad for property.
Another thing. The boom in construction which incidentally helped keep Australia out of a recession as commodity prices slumped will lift the supply of housing. That will put a price cap on some areas, and could push down rents in others.
True, a rate cut would help property by reducing the cost of the mortgage, but I suspect it would help shares even more by pulling money out of bank savings and fixed interest.
I know you're going to say there are other considerations in choosing between shares and property. Fair enough. It's a mistake to look at a return without considering the risk.
Shares are more volatile, though they also give you easier access to your money. You can hardly sell a bedroom to raise some cash.
Property values don't slump precipitously the way a stock can. Nor can they ever be wiped out altogether, because land will always be worth something.
Besides, vendors only sell in a slump if they really have to. In bad times most home owners just sit pat. They'll do anything but sell.
As it is CBA, the biggest lender, says almost three-quarters of its borrowers are, on average, seven years ahead in their repayments.
And so, what was that about a twist?
Well, it's a bit underhand on the part of property, but the fact is it's easier, safer and cheaper to have a big mortgage than the same-sized margin loan. Buying a property will be a much bigger outlay, which means you've got more at stake.
And the more you can invest, the bigger your potential windfall.
Posted by David Potts - Money Manager (Fairfax) on 14th April, 2015 | Comments | Trackbacks | Permalink
Don't ignore the signs when it comes to yield
The house price boom in Australia's two biggest cities is crunching a key measure of return for property investors: rental yields.
If you're thinking about investing in the hot parts of market, especially Sydney, it's worth considering this fact, alongside any prospect of future capital gains.
One argument often made in favour of property investment in Sydney and Melbourne is that the rental markets are still pretty tight in most areas. There is strong demand for housing, and this is pushing up rents.
In Sydney, for instance, average rents rose 3.3 per cent in the year to March, which was the fastest in the country, CoreLogic RP Data says.
That may sound like good news to a potential investor (though not for tenants), but it's not quite that simple.
True, the fact that rents are rising and vacancy rates are low should bode well for landlords looking to lease their homes.
But if you're thinking about investing in these markets at a time like now, when prices are rising fast, it is also worth thinking about rental yield.This is the annual return that a landlord entering the market at today's prices gets on their investment.
Gross rental yields for houses are at near record lows of 3.4 per cent in Sydney and 3.2 per cent in Melbourne.
They are higher for apartments, which typically make less capital gain, though the Reserve Bank has pointed out that the rental market is looking soft in inner-city Melbourne flats.
As prices soar, yields will fall if rents are unable to keep pace with the growth. That is exactly what's been happening during the past couple of years. The average rental yield for a house in a capital city has fallen from 4.3 to 3.6 per cent – and remember that is the return before costs such as water bills and council rates.
Investors should take yield into account, because it represents the type of return they will get on their investment until they are ready to sell.
Of course, many property investors are also banking on long-term capital gains, so a smaller yield is not necessarily a deal-killer.
And these things are relative. Dividend yields of shares have also been dragged down by investors bidding up share prices. It's all being driven by a global surge in asset prices, which has in turn been triggered by record low interest rates.
But all the same, signs like this shouldn't be ignored. Capital gains is a big reason many investors buy properties, but rent is the most immediate source of return.
Posted by Clancy Yeates - The Age on 14th April, 2015 | Comments | Trackbacks | Permalink
Family guarantors guarantee one thing only: The rich getting richer
A rising tide lifts all ships. Yet if you haven't gotten onboard, the swim to the surface is even longer.
Much is the same in the Australian property market.
Those that are born into families without property wealth are increasingly forced onto the back foot when it comes to getting a foothold into the market. Property is the marker of the "haves" and the "have nots" and this is set to continue.
Never is this more apparent than when it comes to the concept of a family member standing guarantor for a first home buyer's loan. This home loan feature allows a purchaser to use wealth that their family members have built up in a property to buy themselves.
It's regularly marketed as a way to leapfrog into the market more quickly and to avoid the otherwise inevitable cost of Lenders Mortgage Insurance incurred from having less than 20 per cent in cold hard cash for a deposit.
Family guarantees may be a great way for parents to offer their children the benefit of a lump sum of funds without giving them an outright gift, but this product also has the potential to widen the wealth divide even further.
Those whose parents are wealthy enough to have equity in their house or a significant chunk of cash left around, either through good property market choices or diligent repayments, are in the fortunate situation to not have to save as much money to buy a home as those who do not. It's that simple.
On Monday, NAB released statistics that found 6.7 per cent of first home buyers are using a family guarantee to buy in, compared to 4.8 per cent in 2010.
This is largely a bonus for 20 to 29 year olds, a cohort that makes up 73 per cent of the market for the NAB product, followed by 30 to 39 year olds, at 21 per cent. A further 3 per cent using the guarantee were in their teens.
As house prices increase and equity in the homes of those parents that do have property holdings subsequently rise, their capacity to stand guarantor grows.
This effect is also divided strongly between those with homes in attractive strong-growing areas and those in areas that are not so sought-after.
Those who own properties in desirable suburbs, such as Sydney's Hills District, will feel this "wealth begetting wealth" effect strongly.
Castle Hill's median house price soared $173,333 last year, to $1,040,000.
In the lower priced, lower socio-economic area of Mount Druitt, property prices increased $37,070 to a median of $400,500.
You can see how other Sydney suburbs fared here.
In Melbourne, the story is similar.
Murrumbeena surged 27.5 per cent to the end of 2014 – bringing the median price up to $954,000. This is an increase of just over $200,000.
Meanwhile, the cheapest in the top 10 performers in Melbourne, Braybrook, jumped 21.7 per cent, bringing it to $486,750. This is an increase of almost $100,000.
By sheer power of the numbers, lower priced areas with strong percentage price growth still lag behind those suburbs even with equal percentage growth.
For those whose parents have property in these growing areas, they have the capacity to skip LMI completely and buy in sooner than their savings will allow them.
For those who don't? It's about to get tougher.
Family guarantees inevitably pour more money into an entry level housing market that many first home buyers currently struggle to enter. All this to ensure that the children of the fortunate are given yet another opportunity to get in first.
Research from The Australia Institute last year found that the top 20 per cent of people have five times more income than the bottom 20 per cent. It also recorded that the top 20 per cent holds 71 times more wealth.
For 20-somethings with parents who rent or who have property outside of the fashionable growing areas, the ladder to home ownership is set to get that little bit steeper.
Posted by Jennifer Duke - Domain (Fairfax) on 14th April, 2015 | Comments | Trackbacks | Permalink
NAB finds more parents use assets to help children buy into first homes
The pace of house price growth is prompting more parents or other family members to put their assets on the line by guaranteeing home loans taken out by first home buyers, new figures show.
National Australia Bank says the proportion of first home buyers signing up for loans with the bank who have the backing of a family member has lifted to 6.7 per cent from 4.8 per cent in 2010.
The practice allows first home buyers with relatively small deposits to secure a loan and is often also used to avoid the cost of mortgage insurance.
However, it comes with risks for the family member who agrees to be a guarantor, as it means their assets are, ultimately, on the line for the portion of the loan they have guaranteed.
NAB's executive general manager for consumer lending, Angus Gilfillan, said rising house prices and fierce competition from investors had made this option more popular with first home buyer customers.
"It's getting a lot tougher for first home buyers to enter the market. The rise in house prices has been pretty well-documented, particularly in Melbourne and Sydney, where prices have increased by circa 50 per cent since 2008," he said.
"All of this means that first home buyers need a larger deposit and we're seeing that first home buyers are, effectively, being crowded out of the market."
Aside from having a family member guarantee the loan, he said other strategies being used by first home buyers included buying a property as an investor and renting it out for several years, and co-purchasing with family or friends.
The Australian Securities and Investments Commission's MoneySmart website urges parents to "think very carefully" before agreeing to guarantee a child's loan.
It says that before guaranteeing a loan, they should think about alternatives, such as contributing to a deposit so a guarantee is not needed.
"Consider how you will pay back the loan if your friend or family member can't. Can you afford the repayments?" the website says.
In response to these risks, Mr Gilfillan said NAB's family guarantee product allowed the family member to limit their exposure to a proportion of the loan, not the whole mortgage.
If the parents have put down cash to guarantee part of the loan, they also receive interest on this cash.
Frequently, he said family members' exposure was under 20 per cent of the loan.
This is the point at which banks no longer require costly mortgage insurance, which protects lenders from default risks.
"The risk associated with providing a guarantee is something that we talk to guarantors about and suggest that they get external advice first," Mr Gilfillan said.
He said the bank would also ensure there was "some sort of deposit" form the first home buyer, who would be assessed in line with normal credit procedures.
Sydney house prices jumped 13.9 er cent in the year to April and Melbourne prices were up 5.6 per cent, figures from CoreLogic RP Data show.
Posted by Clancy Yeates - The Age on 13th April, 2015 | Comments | Trackbacks | Permalink
Can you afford to sell without quoting a price ?
HOW well does the adage, “if you have to ask the price, you can’t afford it”, ring true in today’s real estate market?
Pricing is a hot topic in real estate at the best of times, whether it’s record prices, hot auctions or accusations of underquoting.
It all turns the spotlight on how best to convey the seller’s price to the market.
Most agents are upfront, listing a property with a quoted price or range, even for auction campaigns.
But there’s a solid percentage of properties that are listed without a price. Many agents instead ask for expressions of interest or provide a price only on request.
Deakin University Professor Richard Reed said price strategy differed depending on the price bracket and whether market conditions favoured buyers or sellers.
“The interesting thing is if it doesn’t have a price, the seller is in control,” Prof Reed said.
“A bit like an auction, they’ve got all the cards up their sleeve.
“If the price is quoted, the buyer is more in control. They know they can negotiate down and they know the top end.”
Prof Reed said prestige homes tended to be listed without a quoted price, while the price was revealed to the lower brackets where buyers were more price-conscious.
“If it’s a seller’s market, where demand exceeds supply, the sellers are more in control and they can dictate what the deal is going to be and they will have multiple people to negotiate with,” he said.
“Having said that, many buyers won’t be interested if there’s no price. I guess there’s an old adage in retail, if you’ve got to ask the price, you can’t afford it.”
Prof Reed said knowledgeable buyers would know what a property was worth, even if a price wasn’t quoted, because research would tell them prices achieved for similar properties.
But he said leaving the price out added to the inefficiency in the real estate market.
“If all the properties didn’t have their prices listed, buyers would actually have to go and do a little more research and it would create a lot more uncertainty in the marketplace,” Prof Reed said.
“The upside is they might get a higher sale price, but the downside is it will very much limit the number of interested buyers.”
Harcourts Victorian chief executive Sadhana Smiles said while it could be difficult to quote a price for an auction campaign, the risk with not pricing a home in a private treaty sale was the consumer would make their own assumptions and disregard properties they believed were out of their price range.
Posted by Peter Farago - Herald Sun on 11th April, 2015 | Comments | Trackbacks | Permalink
Flexibility can keep first home buyer's dream alive
You're better to do what you can, rather than worrying about what you can't, writes Mark Bouris.
The Reserve Bank's decision to hold steady with interest rates this week means house prices in Sydney and Melbourne are likely to keep rising, even if the growth isn't as steep as last year's. This is good for home owners with mortgages – but not so great for first home buyers.
There's been a lot of negativity lately about first home buyers getting into the market. However, if you're a first-home buyer, I suggest you focus on the parts of property-ownership you can control. You can't control the Reserve Bank or the momentum of the property market. But you can control your deposit, your mortgage and finding a property in your price range.
First-home buyers must be practical if they're trying to enter the market with just a deposit and without the advantage of using equity in their current home.
They could also have a chat with a mortgage broker. Expert advice is always helpful in these matters.
Currently in the mortgage market the lowest rates are about 1 per cent less than the middle of the pack. On a $400,000 home loan over 25 years, the difference between a mortgage at 5.5 per cent and 4.5 per cent is about $230 a month. This is a simple way to improve affordability.
One of the biggest mistakes first home buyers can make it to feel pressured to "keep up with the Joneses" and only buy in a prestigious suburb. But just because your ideal suburb is beyond your resources, you needn't give up on the property market.
But where do you buy? The Sydney property market rose 3 per cent in March, and almost 14 per cent over the year. The median Sydney price is now $690,000; the Melbourne property market rose 5.6 per cent over the year to March and its median price is $518,000.
Let's put these figures in perspective: it takes many hundreds of property sales to come up with the averages and there are many low-price sales to even out the high ones.
Some suburbs in Sydney and Melbourne are not booming. In Sydney there are properties at half the median price in outer areas such as Blacktown, Campbelltown and Wyong. And while Sydney and Melbourne surge, Brisbane, Adelaide and Canberra recorded modest gains in the year to March and Perth, Hobart and Darwin went backwards.
Many first home buyers are pragmatic about this market: they purchase a property where they can afford it. They either move there, or they rent it out and live in their suburb of choice.
In the latest home ownership figures, almost 10 per cent of property purchases were by "first-home buyers" who are not owner-occupiers. They act according to their means and once in the property market, their options increase.
So, this is not a time to give up on owning property. Be clear about your finances and talk to an expert about your options. And then do what you can rather than worrying about what you can't.
Posted by Mark Bouris - The Age on 10th April, 2015 | Comments | Trackbacks | Permalink
Paying extra on the house may not make sense
PLOUGHING more money into your home loan gives you more bang for your buck each mortgage repayment.
But this doesn’t mean it’s always the best way to make the most of lower interest rates.
We have been conditioned to believe paying off our mortgage as quickly as we can is the key to financial success.
But paying off your debt faster than you need to will only save you interest, it won’t actually grow your wealth in any practical sense.
Realistically you can’t live off your home because you don’t realise it’s value until you sell it, which may be never.
This is why investing some of your free cash and building your savings over the long term is an attractive option.
WHILE you can take comfort in the reality that interest rates will stay low for a little longer, you need to ask yourself the question — should I try to get years ahead on my mortgage, or am I better off doing something else with my money?
But before opting to invest elsewhere, it’s wise to make sure you have a safety net — by either being a few months ahead on your mortgage, or having enough cash handy to cover living expenses for a period of time. Having some cash set aside means you can invest what you have left over at the end of each month.
Paying $100 extra each month off a $200,000 mortgage with 20 years left will save you $14,000 in interest and have your mortgage cleared just over two years earlier (assuming a 5 per cent interest rate).
Investing the same amount for 20 years earning 7 per cent will give you an extra $50,000, with over half of this amount coming from interest or capital gains. In other words, you are more than doubling your money.
It’s worth noting that if mortgage rates were higher the interest savings you would make from paying extra off your home loan would be greater. This is why lower rates support investing your money in investments that can grow your wealth.
So given you already own your home, it’s a good idea to spread your wealth to different asset classes, so investing in shares is the option that will help you achieve this.
You don’t need to be a stock picker, instead you could opt for a listed investment company, which owns a portfolio of shares managed by professionals.
An alternative is to direct your extra cash to your superannuation.
While this is a more tax-friendly environment for most Australians, you can’t access the money you put in until you are at least 55 years old.
You might consider extra contributions to super if you already have built up your savings and know you won’t need this money.
Over time, the value of your shares will go up and down as share markets rise and fall, so you need to have time on your side to weather any downturns.
The intention is you won’t draw upon these funds to meet living expenses — you can use your safety net for this. Or if you need some extra cash you can stop saving and investing, and use these funds to cover short-term living costs.
If you are one half of a partnership, it could be a good idea to put the investment in the name of the half with the lowest tax bracket.
This will help manage the tax paid each year.
AS the interest rates we receive on our cash and term deposits are so low these days, saving to buy your first property can be helped along by investing a small amount of your wealth in shares.
Investing your deposit savings means you need to have a realistic idea as to when you think you might be buying a property.
If it is within the next three to five years, it would be risky to direct a significant amount of hard-earned savings towards shares, which can go up and down in value. Instead you might only invest a small amount — you want to have a degree of certainty as to the value of your savings.
But if you have a longer time frame it could be worthwhile investing a greater portion of your savings in the share market in a bid to get a better return than what’s on offer from cash and term deposits.
At the end of the day you should only invest if you have the right investment time frame. For shares this is five years and residential property it is at least a decade.
Posted by Kirstie Spicer - Herald Sun on 10th April, 2015 | Comments | Trackbacks | Permalink
Netting a better rental return
The best time to consider how to achieve maximum rental dollar is before you've actually purchased an investment property.
Everyone wants to live close to a lifestyle precinct, but also considering who your ideal tenant is will make a huge difference, advises Greville Pabst, chief executive of independently owned valuations and buyer advocacy companies WBP Property Group.
"Executives will pay a lot more than students, but they expect far better quality accommodation, too. A property in a tree-lined street as opposed to a tiny one-way street with limited parking will obviously help you command top dollar," says Pabst, who's also on the jury of TV show The Block.
"When you're looking through a property, get some perspective on your purchase and what's feasible in rent by considering if you could live there yourself, or if you would be prepared to put your son or daughter into the property."
Self-contained laundry facilities, modern bathroom and kitchen, built-in wardrobes, good storage and two car parking spaces are important considerations if you want to achieve as much as you can in rent, he says.
"The other consideration when you're purchasing a property is to remember that a two-bedroom property will probably cost $150,000 more to purchase than a one-bedroom property, but in most cases, will only achieve an extra $30 or $40 a week in rent, which may not make it a worthwhile investment," Pabst says.
Also, make sure you understand what represents value in the mind of your tenant, advises the director of Achieve Property, Mark Kelman.
"It's important to remember that adding value to your property is a completely different equation to cost. For example, keeping your tenant happy can be as simple as fitting an extra power point to the bathroom, giving the living room a lick of paint, fitting a sensor light to the entry or adding a better quality lock to the front door.
"Others just want a hand maintaining the garden, or perhaps an extra car parking space, says Kelman, who's the author of Become a Property Millionaire in Your Spare Time.
"Your job as the landlord is to understand what represents value to your tenant and make sure you keep your property in top repair at all times.
"You don't want to waste money on things you'd like to add if it isn't going to add value to the tenant," Kelman says.
When deciding how much rent you could achieve, do your own homework rather than simply trusting what your property manager tells you your property is worth, he adds.
"Some property managers will err on the side of caution by suggesting slightly less in rental income because it makes their life easier to charge less and attract a larger pool of potential tenants to select from," Kelman says.
Landlords should also find out what the rental vacancy rate is in the area they're purchasing in. The lower the vacancy rate, the more you're probably going to be able to achieve in rent, he says.
If you've purchased a property that's scarce in your suburb, such as a three-bedroom house in an area filled with vacant one and two-bedroom units, you'll be able to achieve a higher rental income, he says.
Another important tip for investors is to charge the tenant water on top of the rent, rather than including the cost in the rent, he says.
"It's better to advertise your rental price ex-water, as this keeps the rental price lower and means you can add a bit more rent into your advertised price when the tenant is signing the lease. The other reason this is a better approach is that if the tenant has long showers or waters the gardens more than you factor in, you won't be stung for excess water charges."
Also make sure you always present your property in the best possible light, says Jessica Darnbrough, national spokesperson for Mortgage Choice.
Be sure the place is spotless and everything works, avoid personalised furnishings and ensure there are locks on all doors and windows, which will also be required by your insurance company, she adds.
"Tenants understand that rental increases are necessary, so make sure it's an easy process by being open about an upcoming rental increase well in advance," Darnbrough says.
"You may even be better writing a rental increase into the lease as they're signing, so the tenant realises the rent will increase every six months or year. Just make sure you stipulate how much the rent will increase and on what date."
However, you're going to have much better luck increasing the rent if you keep the property well maintained at all times and respond to any maintenance requests straight away, rather than expecting tenants to put up with a leaking tap for weeks on end," she says. ACTION PLAN
How to increase the rent on a budget
- Understand what represents value to your tenant.
- Consider offering a service, such as an occasional gardener, when increasing the rent.
- Find out the vacancy rate in your suburb to understand where you fit in the market.
- Respond to maintenance requests immediately.
- Be up front about rental increases in advance.
Source: Mark Kelman, director, Achieve Property
Posted by Nina Hendy- Money Manager (Fairfax) on 9th April, 2015 | Comments | Trackbacks | Permalink
Pensioners' poser: nest - or divest?
Housing is a hot-button issue in Australia at the moment. Booming property prices are making it increasingly difficult for first-home buyers to enter the market while at the other end of the age spectrum retirees are finding it difficult to exit.
"I keep hearing that people living in $3 million homes and living on the age pension should sell to young families and solve the housing crisis. Rubbish", says Ian Day, chief executive of Council of the Ageing (COTA) NSW.
The conventional wisdom is that retirees should downsize to release some of the equity in their home. Not only will this provide them with extra cash to supplement the pension, it will free up housing stock and take some heat out of the market in the process. On the surface, this argument makes sense.
First-home buyers represent just 14.6 per cent of the owner-occupier market, according to the latest Adelaide Bank Housing Affordability report. With house prices rising faster than wages, it takes 36.2 per cent of median weekly household income to pay the average NSW mortgage, and 33.4 per cent in Victoria, compared with the national average of 31.5 per cent.
It's true that many retirees are asset rich and income poor, with the family home their only asset. It is often too large, with a big garden and high maintenance costs. It may also be isolated from friends and services once the owner is unable to drive.
In practice though, even when retirees want to move their options may be limited. The downsizing dilemma
"There's no doubt housing is an issue for seniors on several levels", says National Seniors Australia chief executive, Michael O'Neill.
"The cost of downsizing, such as stamp duty and agent commissions, are an impediment as is the lack of suitable age-friendly housing stock in areas where people want to remain", says O'Neill.
Say you live in Sydney's Drummoyne or Melbourne's Armadale. Your doctor is there, friends are nearby and you are comfortable doing your shopping there but the nearest retirement village is 25 kilometres away. It is a disincentive to move.
Others may decide to cash in their $1 million home in the city and buy a $400,000 place on the coast to enjoy their early retirement, only to find themselves cut off from health and other services as they become frail. Another potential disincentive to downsize is the age pension assets and income test.
The family home is exempt from the assets test but converting it into cash could reduce the amount of age pension a person receives. This is a complex area to work through and most people will need professional financial advice to navigate their way through it.
O'Neill believes part of the problem is that downsizing is not planned for earlier in the retirement process. Between the age of 55 and 65 the emphasis is on planning the financial aspects of retirement.
"What's not happening is sufficient attention to planning around the next phase – particularly around what to do with the family home. Then people make decisions in haste because of other events such as illness or a fall, rather than in a planned way that gives you more control", he says.
With the oldest of the baby boomers about to turn 70, this is an issue that is about to become even more urgent. Day says that age 70 to 75 is often when retirees' modest super savings run out.
"They still want to travel and lead an active life so they think 'maybe I should do something about the house"'.
"They are making decisions around their contacts and networks, so they want to move to a smaller townhouse or unit in their area", says Day. Unfortunately, they may be left without much change after the move. The wrong houses
Downsizers generally want at least two bedrooms so the grandkids and friends can stay over, or couples can each have their own space.
"They don't want a one-bedroom apartment because they are spending more time inside their walls than they did in their youth", says Day.
The problem then is finding suitable housing.
"There is a lack of diversity in retirement housing", says Day.
Retirement villages are not available in all areas and apartments without lifts are not suitable for older residents. Older retirees in their 80s who are still living in their own home are less active and therefore better able to live on the age pension, but they may have practical or health-related reasons for moving.
Yet for all the obstacles facing older homeowners, even seniors advocates recognise that the issue of affordable, age-appropriate housing is not just an issue for retirees, it's an intergenerational issue.
"Keeping the family home on a large block in an area where there is demand from young families is a loss to the broader community", says O'Neill. Tapping into home equity
One of the reasons freeing up equity in the family home is such a challenge for retirees is the lack of market solutions. The major banks shied away from equity release products in the wake of the global financial crisis, leaving the sector with a lack of funding.
Equity release products fall into two categories. Reverse mortgages give you a loan in return for some of the equity in your home, while home reversion schemes provide a cash payment in return for a certain percentage of your home's future sale price.
The industry was tarnished when many of the early reverse mortgages left elderly borrowers owing more than their home was worth. While most products nowadays offer a 'no negative equity' guarantee, banks have been slow to get back into the market or innovate due to reputation risk. The biggest provider of reverse mortgages is Commonwealth Bank, followed by Westpac, St George and Bankwest.
Bendigo Bank's Homesafe is not a loan but a shared equity product which provides retirees with an upfront cash payment in return for a portion of the future sale value of their home.
Macquarie Bank re-entered the fray last year after a five-year absence with a reverse mortgage designed to fund the bond and/or ongoing costs for aged care accommodation. This allows aged care residents to keep their home and rent it out.
"In the aged care segment there is a lot of product development", says John Thomas, chairman of the Senior Australians Equity Release Association of Lenders (SEQUAL).
Thomas says retirees should only look at products that allow you to live in your own home as long as you want. "Even people in their 80s often prefer to stay in their own home and use in-home care", he says.
"We also insist all SEQUAL accredited members have a no negative equity guarantee," he days. Case study: 'If you're on the pension with no money coming in you're basically stuck'
Felicity Simmons, 78, is a single retiree who says she is stuck between a rock and a hard place. Her ageing body is telling her she can't manage the steps to her first-floor apartment for much longer, but her budget is telling her she can't afford to move to more age-appropriate housing. And it's not for the want of trying. Simmons traded a three-bedroom home and garden in Canberra for her current two-bedroom Sydney apartment in 2006 to be closer to family. But Sydney's higher property prices meant she was not left with any change, despite "downsizing". For the past five years she has been thinking about moving again. "The stairs are becoming an issue now that I have a few aches and pains," she says.
She began by looking at single-storey villas and apartments with a lift but the Sydney's booming property prices have put these options out of her reach. At auctions she is outbid by wealthier retirees downsizing and young families settling for a unit or villa as a stepping stone to a larger home.
So she attended a few retirement fairs organised by aged-care providers marketing retirement villages. While the units were reasonably priced she found that the ongoing fees were up to twice what she currently pays in strata management fees and there were hefty exit fees if and when you need to move into high care.
"As an alternative to Sydney I thought I should go to the Central Coast like everyone else. I went on a bus tour of villages but prices were not much different to Sydney. At the moment I can drive but there will come a time when I can't so I need to be near public transport. "All my income is from the age pension so I can't get a loan and I can't get work because no one wanted me once I turned 70." "I feel grateful for the pension but I would like to work. I've been looking at starting an internet business writing e-books", says Simmons, who worked in education in Australia and overseas for many years. "If you're on the pension and have no money coming in you're basically stuck", she says. Action Plan
Housing strategies for seniors:
- Stay in the family home.
- Downsize to a smaller residence such as an apartment or strata title villa.
- Explore community options such as retirement villages, residential parks.
- Let the family home and rent somewhere cheaper.
- Sell or let your home and move into residential aged care.
- Sell and move in with family or to a granny flat.
- Stay and draw income from an equity release product.
Source: COTA NSW
Posted by Money Manager (Fairfax) on 8th April, 2015 | Comments | Trackbacks | Permalink
Pump up a mortgage cushion by overpaying
Home loan customers are exploiting the very low cost of credit to get further ahead on their mortgages, giving them a protective buffer against a financial shock.
Amid all the warnings about the dangers of very cheap credit, this is a reminder that low interest rates aren't just an opportunity to take more risk, they also give borrowers the chance to get on top of their debts.
When interest rates fall, borrowers have the option of paying the bank less each month, or leaving their mortgage payments unchanged and paying off the loan more quickly.
Figures from the Reserve Bank show that in aggregate, they are continuing to do the latter. Excess repayments have been gradually growing as interest rates have fallen.
This expands the borrowers' "mortgage buffer," which give them more breathing room before a default if they were to lose their job or suffer some other hit to their income.
The overall mortgage buffer has reached 16 per cent of all home loans, once mortgage offset accounts are included. That may not sound like all that much, but it's equal to more than two years of minimum loan payments at today's interest rates.
The buffer has expanded from about 10 per cent of all home loans a few years ago, and it means that many borrowers would have significant breathing room if they lost their jobs. Above all, it is a sign that many borrowers are managing their finances sensibly.
However, it's also occurring at the same time as other warning signs are flaring up in the mortgage market.
For one, the closely-watched ratio of debt to income is high. Household debt to disposable income is about 150 per cent – near its highest level on record – and that increase has mainly been driven by the surge in house prices over the last couple of decades.
Delving into the data a bit further, the most recent increase in this ratio has been driven by investors, many of whom are betting on future house price gains.
The RBA is worried that this "speculative demand" is pushing up house prices to a level where they are at risk of falling significantly, which would harm economic growth.
These property investors who are using low interest rates to take bigger financial risks and push up house prices are worrying the regulators, who are looking to rein in riskier bank lending to property investors.
On the whole though, many borrowers appear to be responding to low rates by paying their bank back faster – and that's welcome news.
The low level of interest rates means that most households can afford their loans now, but you should remember that rates are highly unlikely to stay this low in the long-term.
Therefore, paying off a bit extra each month can be a smart financial move.
Posted by Clancy Yeates - Money Manager (Fairfax) on 7th April, 2015 | Comments | Trackbacks | Permalink
How to buy a property
RECORD low interest rates and rising house prices mean buying into bricks and mortar is an enticing proposition for investors at the moment. Plus, many first homebuyers are looking to use an investment property as a way to hoist a foot onto the property ladder, before picking up a place of their own down the track … or living in the investment property when they can afford it.
We think that property can be a great way to grow your wealth over the long-term as long as you're smart about it and don't expect to become a mogul overnight.
But don't be fooled, buying an investment property is very different to buying a place to live.
If you're thinking about becoming a property investor, here's what you need to know.
You're buying for a different reason
Buying your own property is full of personal, emotional decisions. Can this place support my family for the next five to ten years? Are there good schools nearby for the kids? Do I actually like it?
An investment property purchase, on the other hand, should be completely objective. You'll want to make sure the property is reasonably priced, with a strong rental yield and good potential for long-term capital growth.
Also consider whether the property will appeal to the types of tenants that are likely to want to live in the area, not whether you'd want to live there or not.
The financial benefits
Loans taken out to buy investment properties are generally considered ‘good debt', as they generate income, provide tax benefits and the property can also increase in value over time.
On the other hand, loans for a property that you live in yourself are generally thought of as ‘bad debts', as they don't generate an income for you.
When you borrow money to invest in property, the borrowing costs and other costs of owning the property, including depreciation, can be offset against the rental income you receive.
If the income from the property is less than the cost of the loan (interest repayments and other property expenses), then the difference can also be claimed as a tax deduction against other income in a process known as negative gearing.
Just keep in mind that negative gearing isn't a guarantee of making money. It relies on capital growth to offset the losses you're making on the investment, so don't be blinded by the promise of a tax deduction.
While there may be a tax deduction down the track there is a cash “negative” every month which you need to cover.
Buying an investment property has many risks, some of which are similar to buying a place to live.
For example, interest rate are at record lows now, but if they were to rise quickly and you have a variable loan on the investment, your borrowing costs would increase dramatically.
Remember also if you can't find a tenant for whatever reason, you'll have to fork out for the entire mortgage by yourself. And a dodgy tenant can ruin both the property and the financial return.
Thirdly, many people don't realise that investing all of your money into a property means that your investments are not well diversified, and this is doubly true if you already own your own home.
Finally, if you've only watched the market for a few years, you'd be forgiven for thinking that property values only ever go up.
But the reality is property prices can fall, and in some markets you might find it difficult to sell your place at all. You could even end up owing more money to the bank than your property is worth.
Despite these risks, there are a lot of potential upsides to buying an investment property if you approach it in a prudent way.
As always with any major investment, do your research, know what you're getting into and don't stretch yourself too thin.
Posted by David & Libby Koch - News Limited Network on 7th April, 2015 | Comments | Trackbacks | Permalink
Maximise low interest rates and shave down debt
PAYING more than the minimum amount off your mortgage can save you hundreds of thousands of dollars over the loan term.
And with interest rates at record lows the potential to save is even greater.
So if you are one of many homeowners choosing to pay just interest on your loan think how much it could cost you in the long run.
DO THE SUMS
On an average $300,000 loan you would need to pay $1572 a month in principal and interest to pay off the loan in 30 years, figures from financial comparison site Mozo show.
Paying just interest, the variable rate repayments reduce to $1315, leaving an extra $257 a month in your pocket.
But these loans are really not viable long-term options for the average property buyer because they don’t help you earn an asset, says Mozo spokeswoman Kirsty Lamont.
“Principal and interest loans are designed to allow you to pay down the debt so at the end of the loan you are debt free and you own the property outright.”
The best option, while it may seem harder in the short term, is to make more than the required repayments on your loan.
Taking the same $300,000, 30-year loan, if you pay an extra $50 a month on top of the required $1572 for interest and principal, you will save $20,200 and pay the loan off almost two years earlier.
Paying an extra $100 a month will save you an extra $37,400 in interest repayments and the loan paid off three years and seven months earlier.
IN YOUR INTEREST
Many borrowers opt for interest-only repayments on investment purposes so they can negatively-gear it and reap the tax benefits, but owner occupiers who opt for interest-only repayments receive no tax benefits.
Shadforth Financial Group’s head of advice John Barton says making interest-only repayments on your own home’s mortgage can be a good idea if you are smart with the surplus funds.
“Interest-only repayments don’t matter if you understand them but if you spend the money you would have used on principal and interest repayments at restaurants, on poker machines or on flat-screen TVs it is a bad idea,’’ he says.
“You are relying on your property value going up a lot over the life of the loan and you are going to pay a lot more interest.”
He says if you take the extra money and save it and invest it you could end up better off — but you would have to know what you are doing.
PAYING INTEREST ONLY
— Frees up more cash and can be useful if your household income changes, for instance if you lose your job or have a baby.
— Makes your monthly repayments lower.
— Allows you to invest the money elsewhere.
— You will never pay back the home loan debt.
— You will not a build a buffer if interest rates rise in the future.
— You don’t get any tax benefits.
Posted by Sophie Elsworth - News Limited Network on 7th April, 2015 | Comments | Trackbacks | Permalink
Don’t get caught making a fed-up purchase
Are you are a prospective homebuyer exhausted by months of searching for “the one”?
You may be at high risk of making a “fed up” purchase decision that can cost you dearly long term, warns Buyer’s Agent and Author Patrick Bright.
According to figures by CoreLogic RPData, the percentage of houses and apartments sold at auction in Sydney in the week ending March 15 reached a whopping 78.3%.
That’s the highest clearance rate since 2009.
It’s a similar story in the inner suburbs of Melbourne, where weekly auction clearance rates are consistently at 70% or higher.
Even if you’re not hunting in a hot metro market, more cashed-up and game-ready buyers can regularly pip you at the post.
The current competitive property market is leaving many buyers feeling increasingly disappointed, says Bright, who is Director of EPS Property Search.
First-home buyers in particular may be finding it hard to keep their spirits up.
“Naturally buyers become disillusioned when they miss out on a potential home they really like,” Bright says.
“They are sick of looking and some end up making a ‘fed up’ purchase that will cause them grief both emotional and financial for many years to come.
“Unfortunately, after buying an unsuitable home a lot of buyers realise they can’t live with the home’s shortcomings and either begin an expensive renovation, which often leads to over capitalisation, or decide to sell and buy a more suitable property.
“Doing so ends up wasting 10s if not 1,000s of dollars in buying and selling costs.”
Bright says homebuyers “must keep their emotions in check” and remember that another suitable and appealing property is always just around the corner.
Here are 5 tips to help buyers avoid making a ‘fed up’ purchase:
1. Trust your needs/wants lists
Pull out a piece of paper and pen and, if you haven’t already, write a two-sided home wish list.
One side is all your needs. The other side is all your wants.
The needs list must only include features you cannot compromise on – for real.
Must you have 3 bedrooms to house your six children? Write it on the needs’ list.
Do you need to have an ocean view? No, but you’d like one? Pop it on the wants list.
“This process will help you rule out unsuitable properties before you attend open homes and save you becoming emotionally attached to a house that doesn’t meet your requirements,” Bright says.
2. Become a home values gun
Make sure you’ve done comparable market analysis and know current values as opposed to following price guides.
“By keeping your search to properties that are in your price range, your top three suburbs and that match your needs list, you’ll become an expert on that particular type of property in your research area … able to spot a quality property and make an informed offer.”
3. Can you get your hands on the dollars?
One of the surest ways to seal a deal on a high-quality home is with a deposit cheque (or money transfer) today.
If you find your dream home but still have to talk to a lender about getting funds, you run a high risk of losing to a more organised buyer and ultimately making a fed-up purchase of a lesser home.
“Have pre-finance approval in place and make sure you’re aware of all the upfront costs of buying property e.g. stamp duty, pest and building inspections, legal fees, mortgage fees, removalists etc,” Bright says
4. Consider hiring an agent
If you’re suffering home-hunter fatigue, minds can play tricks: It may be time to pay for professional (agent) help.
Have you tried to convince yourself that lime-green bedsitter with the outdoor toilet is “charming in a retro way”? Yep. You are at dangerously high risk of a dodgy deal.
Engaging a buyer’s agent will cost a percentage of your home’s purchase price, but may save thousands in the long run.
5. Walk away for a wee rest
Guess what? The housing market never sleeps but it also doesn’t vanish if you give yourself a break. You will come back fresher and there are always new fabulous listings just around the corner.
Log-off for a week and see what happens.
That sweet property you really wanted that you missed by a whisker may just pop up again because your rival buyer couldn’t raise the bucks and the contract collapsed.
It happens. It can happen for you. To recap, avoid fed-up buying by:
- Buying only what’s on your shopping list
- Studying home prices and values so you don’t overpay/under-offer
- Getting your money sorted
- Bringing in outside help if needed
- Taking a house-hunting holiday
Posted by Caroline James - Realestate.com.au on 7th April, 2015 | Comments | Trackbacks | Permalink
Tax tactics can make your money grow
The announcement of another tax review may not excite you but paying tax is still a fact of life for most Australians. But it needn't be a negative.
If you're trying to create financial security, always remember that the tax system can often be on your side, as long as you are properly informed and understand how to comply.
In the first instance, you should always see an expert adviser if you make financial decisions that hinge on tax. But if you don't have an adviser you should at least understand these basic ideas that can boost your tax efficiency:
- Salary sacrifice to super When you get your employer to make extra contributions above the superannuation guarantee, the amount sacrificed (up to your cap) each year reduces your assessable income by the same amount, saving you a lot of income tax and increasing your retirement savings.
- Super contribution concessions When you put your own salary sacrifice contributions into superannuation, they are not taxed at your marginal income tax rate, but at just 15 per cent within the superannuation fund (up to your cap).
- Tax on super fund earnings If you put your money into a term deposit for example, the earnings are taxed at your income tax rate. But same money in a super fund is taxed at just 15 per cent on earnings, allowing your retirement savings to grow faster.
- Investment property expenses When you buy an investment property, most of the expenses associated with maintaining and managing the property as an investment, are deductible. Including asset depreciation. That means you reduce your assessable income from the property by the amount of your expenses, reducing your tax bill and making the property more affordable.
- Negative gearing If your investment property's costs are greater than the rental income, you can take this annual loss and use it to reduce your other income by the same amount, thereby reducing the amount of tax you pay and making the property more affordable.
- Interest only loans Your investment property could be more tax efficient depending the type of loan you use. The only part of an investment loan that is a tax deductible expense is the interest. So property investors using interest-only loans (no principal is re-paid) could make their investment property more affordable from a cash flow perspective whilst maximising tax deductions.
- Franking credits When you own shares in a company that issues 'franked' dividends, the Tax Office acknowledges that the company has already paid corporate tax, and attached to the dividend is a franking credit for you. Most investors reduce their tax liability with franked dividends.
- Your family home In most circumstances you are not charged Capital Gains Tax (CGT) when you sell your 'primary place of residence'. This is a great tax concession and is one of the foundations of retirement finances.
- Your business There are several CGT concessions for business owners who sell their business and use the proceeds for retirement savings.
So, the tax system can work to your advantage as you create financial security and build wealth, but you first have to know the tax rules and then you have to comply. I think it's always beneficial to talk to an adviser. Good luck.
Posted by Mark Bouris - The Sunday Age on 5th April, 2015 | Comments | Trackbacks | Permalink
The pros and cons of being an owner builder
Every year, more than 8000 Victorians apply to the Building Practitioners Board for permission to take responsibility for much of the building of their own property. While some owner builders restrict themselves to project managing qualified sub-contractors, many undertake much of the less skilled work themselves.
Owner builders make registered builder Neil Coulter angry. With decades of building site experience under his belt, Mr Coulter says property owners should not be allowed to do work that requires skill and experience.
He blames reality TV shows like The Block for giving people the impression that building is easy.
"They don't understand that behind those people on those TV shows there's a whole team of people co-ordinating that build," he says.
"I think people look at those shows and think they can do that, or better, but then they get a bit of a surprise when they go to do it themselves. They might know the general specifics of how to build a house, but they don't know the intricate bits that a builder with 20 years of experience knows."
Mr Coulter says building sites can be dangerous and owner builders don't know enough to ensure tradesmen are not cutting corners.
"I have demolished houses before where they have put an add-on and you might have a whole heap of rubbish under floor spaces obstructing the natural air flow, which can have an effect on the performance of your footings and subfloor, and that sort of thing can cause health issues with dry rot and mould.
"I have seen some houses where owner builders haven't even put simple things like air vents in or … things like expansion joints, where they haven't been put in at the required intervals and that can affect the structural stability of the walls and can have cracks forming because buildings move."
Brian Heaton, chief executive officer of Owner Building Solutions, has trained thousands of owner builders over the years and says the potential to save a Registered Builder's fee, which is usually about 30 per cent of the cost of a build, is the big attraction.
"Some of them get a lot of self-satisfaction out of physically building something themselves, but the main motivator, of course, is to save money."
Despite his involvement in training, Mr Heaton is not a fan of owner building, having witnessed the stress and heartache when things go wrong, usually when inexperienced owners try to do work themselves.
"One of the problems with owner builders is they think they are a lot better than they are, and that's when they get into trouble," Mr Heaton says.
However, Barry Plant property consultant James Brougham says the input of an owner builder can result in a unique property.
Mr Broughman recently listed a Wonga Park property that was transformed by the work of the owner, a flooring expert.
"I think what they have created is just so different, you are not going to get that out of a Metricon or from a builder's property range," Mr Brougham says.
Mr Broughman says the obvious attention to detail, combined with signoff from the council, would alleviate any potential concerns buyers may harbour about the quality of the work done by the owner builder.
Sustainable building designer Tim Sonogan's enjoyment of his new home in Torquay is heightened by his sense of satisfaction from project managing the build and undertaking much of the physical labour.
"The main reason I did it was to improve my knowledge of the building process to further enhance what I do in my design, but a massive amount of satisfaction has come out of all the work I have put in," he says.
And while it took him three months longer than anticipated to complete his home, Mr Sonogan is convinced he has created a superior property, in part because he was very particular in overseeing the subcontractors' work.
"The plumber said he would never work with another owner builder again – I guess I might have been a bit pedantic."
As for anyone considering becoming an owner builder, Mr Sonogan suggests they talk to someone with experience of building their own home.
"The info they can give you … you couldn't put a price on it."
Nine years and a lot of hard work by floorer James Orpwood and his partner Merren Winter has transformed a one-bedroom unit into a unique home that suits their lifestyle.
The couple, who love entertaining, can relax at the full-length bar in their living room; play billiards in the covered pergola, with outdoor kitchen; or, watch TV from their spa, grabbing a cold beer from its adjacent fridge.
If they are feeling more active, there is storage for their jet ski, and a golf swing practice area.
"When you're doing your own extension, there's not a lot of time to get out on the green," Mr Orpwood explains.
Not that he has regrets about being an owner builder. "We were in no rush to do it up quick and borrow a lot of money. We have done it with our own hands basically. I look at it like a second job, or doing overtime.
"Everything's done with pride and care. I have worked on a lot of building sites and some of the housing they are putting up is slap dash. I would double check everything. I didn't want to look down my hallway and see the skirting was bowed."
Itching for a tree-change, the couple are now selling their home but plan to recreate it in Mildura.
"There's not a lot we would change," Mr Orpwood says.
Posted by Kate Robertson - Domain (Fairfax) on 5th April, 2015 | Comments | Trackbacks | Permalink
Melbourne's holiday boltholes at the beach that should be on your radar
Rye, Inverloch and parts of Barwon Heads could provide the perfect entry point for families looking to buy a holiday home on the Victorian coast.
As properties prices soar in Melbourne, coastal townships are also offering a cheaper way into the market for those with an eye to retirement.
Data from Domain Group (owned by Fairfax Media) shows there is a clutch of towns across the state that offer good value in either scenario, and have prospects of more than 5 per cent growth this year.
Andrew Wilson, senior economist at the Domain Group, said Australia had turned into a country of savers since the global financial crisis, with discretionary purchases such as holiday homes put on hold.
But strong prices growth in some Melbourne suburbs could translate into confidence, he said.
"If rising prosperity from aspirational buyers in Melbourne leads to thinking about buying a holiday home ... these are popular holiday destinations which still appear to offer good value," he said.
Holiday home hunters shopping for a getaway on the Mornington Peninsula with a lifestyle similar to that in Portsea and Sorrento – beaches, cafes and amenities – but without their hefty price tags, could consider Rye.
Compared with a typical house in Portsea, which could set buyers back by $1,165,000, the median house price in Rye sits at just $470,000.
Hocking Stuart Blairgowrie director Craig Evans said there seemed to be particular interest in homes within 500 metres from the front beach and close to shops. Buyers looked for a holiday home they could potentially do up, or knock over to build afresh, for retirement in the future, he said.
"All our buyers are coming from the south-east suburbs," Mr Evans said. "And with the Peninsula Link, and the ease of getting to Rye, it's only an hour for most people to get down to holiday territory."
For those wanting a piece of the Peninsula's most expensive property, Andrew Wilson believes it could be an ideal time to buy.
"If you're at the top-end of town looking for a holiday home, those areas are now just really ripe in terms of [prices] being flat there for quite some time," he said.
"Portsea and Sorrento really do offer good value for the ultra-prestige buyer because prices there are below their previous peaks."
Along the Surf Coast, house prices have been pushed up by holidaymakers and sea changers.
Compared with the traditional holiday resorts they were 50 years ago, Dr Wilson said the Surf Coast had been attracting more long-term residents.
But buyers could still find value in coastal villages such as Barwon Heads, where the median is $658,000. It's an alternative to Lorne further down the Great Ocean Road, with a house median of $745,000.
Vendors Clive and Vivienne Moulday are selling their home of three years at 29 River Parade, Barwon Heads, and plan to downsize to a single-storey house they're building in the town.
Mr Moulday, 65, said the town had not undergone much change since the couple bought the home.
"Torquay and those areas are just going ahead with their growth corridors," he said. "[Barwon Heads] is not going to be overdeveloped because it's bounded by the sea, the river and the wetlands."
Listing agent Peta Walter of RT EdgarBarwon Heads is quoting $1,575,000 for the three-bedroom house near the Barwon River.
With a house median of $391,250, Inverloch could be an option for those looking on the Gippsland coastline.
"It's a traditionally popular destination east of Melbourne," Dr Wilson said. "It has more value than if you're looking at dollar for dollar [compared with] the other side of the bay."
Buyers with an even tighter budget could consider Winchelsea, south-west of Geelong, where the median house price is just $299,000
Dr Wilson said the town, which offers a combination of the sea and tree-change lifestyle, could be an option for buyers priced out of the Surf Coast.
Holiday getaways, Median house price
- Winchelsea $299,900
- Sandy Point, $366,500
- Rosebud West, $370,000
- Inverloch, $391,250
- Rosebud, $396,250
- Tootgarook, $400,000
- Cowes, $400,000
- Bittern $420,000
- Rye, $470,000
- Barwon Heads $658,000
Source: Domain Group senior economist Andrew Wilson
Posted by Christina Zhou - Domain (Fairfax) on 5th April, 2015 | Comments | Trackbacks | Permalink
Agents wary of vendors' great expectations
Melbourne's strengthening residential property market will face a series of challenges in April and May.
Some real estate agents predict the current bounce in auction clearances, which has defied expectations, could evaporate if buyers baulk at paying excessive reserve prices.
Vendors in some suburbs could also be disappointed by relatively low levels of house price growth, despite a weekend clearance rate nudging 80 per cent over the past month.
At the start of the year analysts said macroeconomic factors – including a high jobless rate, Victoria's declining manufacturing sector and record-low levels of wages growth – would curtail housing market growth.
But that hasn't happened. Low interest rates, the setting of "fair" reserve prices by most vendors and high levels of migration to Melbourne have proved more critical in shaping the market than broader economic factors.
But how long reasonable reserves will remain a market constant is anyone's guess.
Marshall White director John Bongiorno said high reserves were more likely to quell sales activity than external factors.
There were signs vendors were hiking up reserves, he said
"If vendors start to get ahead of themselves and get a little bit greedy, buyers will just shirk the prices," Mr Bongiorno said.
But Jellis Craig director Craig Shearn said some high reserves were being met and exceeded at auctions.
"It is still important to set your reserve realistically but in a lot of cases in the past few weeks when a reserve has been seen as high, the market has taken care of it," he said.
Auction clearance rates have moved up 10 percentage points to about 80 per cent since October. Historically, increases in the clearance rate lead to growth in property values.
Domain Group senior economist Andrew Wilson said the improved clearances were expected to lead to 8 per cent growth in Melbourne's median house price this year, up from the 4 per cent growth rate originally forecast for Melbourne.
"There will be double-figure growth in the eastern suburbs," he said.
However, Dr Wilson said there wouldn't be a repeat of the 2009-10 boom, when Melbourne prices surged by 30 per cent. This was because the capacity for price growth was weak due to Victoria's underperforming economy.
Listing numbers, which were soft at the start of the year, are also now pulling ahead of 2014's auction bookings.
This will give buyers choice and up the pressure on sellers.
Yet a move by the Reserve Bank board, which meets on Tuesday, to cut interest rates again would certainly boost confidence levels.
Only 11 metropolitan auctions were held on Saturday. Listings will ramp up next weekend when 546 auctions are scheduled.
Posted by Chris Tolhurst - The Age on 4th April, 2015 | Comments | Trackbacks | Permalink
Australian households now owe almost $1600 billion in debt
A DEBT binge by households is putting people in dangerous financial positions and leaving them unprepared for future interest rate rises.
Despite falling interest making it easier to pay down loans, Australian households now owe almost $1600 billion, a 28 per cent rise in just five years, and economists say our personal borrowing levels are among the highest in the world.
The latest Reserve Bank of Australia figures show housing debt is the biggest factor. Meanwhile, people are paying high interest rates — averaging 17 per cent — on almost $33 billion of credit card debt that fails to get repaid every month.
Borrowing experts say now should be the time to pay off debt faster, not increase it, while interest rates remain low.
Prushka Fast Debt Recovery chief executive Roger Mendelson said Australians had not factored in the costs to repay their debts when rates eventually climb.
“I certainly think there’s going to be an issue when interest rates go up, and anyone who says they won’t is denying the normal economic cycles,’’ he said.
Mortgage interest rates near 5 per cent have helped fuel the debt spike. Since early 2010 owner-occupier housing debt has climbed 28 per cent to $945 billion, while investment housing debt has jumped 41 per cent to $495 billion.
“They need to factor in interest rates at 8 per cent, and even that is low historically. If there’s any time to get your household budget into order, now is the time to do it and prepare for bad times,” Mr Mendelson said.
“If you lose your job, interest rates go up, unemployment goes up, house prices go down, that’s when people get caught out.”
Australian Credit Management managing director Campbell Woskett said households had enjoyed easy access to credit in the past five years amid a growing number of borrowing options including more credit cards, debt-consolidation lenders and payday lenders. Another newcomer, peer-to-peer lending, is in its early stages.
Mr Woskett said most people aged under 40 could not remember Australia’s last recession in the early 1990s. “Maybe some older folk may also have dusty memories,” he said.
“Then in 2008 we had a GFC. The government of the day built some schools as part of the stimulus package, while many people received a bonus $900 to go shopping. I recall younger workers saying to me ‘hey, if this is a crisis, bring it on’.”
Mr Woskett said in the past six months more people appeared stretched financially. “There will always be debt, but excessive debt can hurt people. It can set them back financially, it can damage their individual confidence and it can shatter families,” he said.
Oracle Lending Solutions director Angelo Benedetti said his firm was turning away people every month because they wanted to overstretch themselves with debt.
He said he had received a lot of inquiries about personal loans “but unfortunately for a lot of people it’s about debt consolidation”, combining several out-of-control credit cards into one lower-interest loan.
“Debt reduction should be the number one thing at the moment. Interest rates will definitely go up in the future and it’s important to create a budget and build equity in your property.”
Then, if rates rise or you hit an unexpected financial hurdle, you have “room to move” with your bank, Mr Benedetti said.
HOW TO MANAGE RISING DEBTS
1. Keep alert to what is happening in the local economy and how it might affect you.
2. Don’t take your source of income for granted. Ask yourself what happens if it disappears.
3. Define what is really necessary to buy, and limit your consumption.
4. Don’t over-borrow. Try to have decent equity in major purchases such as motor vehicles.
5. Check your own credit file for free on websites such as mycreditfile.com.au and experian.com.au.
6. Keep in regular communication with your creditors — it always helps to talk with them
7. Understand that being in debt is not forever, and you can get back to a stronger position
8. If you are in serious and overwhelming debt, get advice from a trusted financial counsellor or adviser and make a plan to manage it.
Source: Australian Credit Management
Posted by Anthony Keane and Sophie Elsworth News Corp Australia Network on 4th April, 2015 | Comments | Trackbacks | Permalink
Melbourne at the forefront of fixing underquoting
Despite promises to crackdown on underquoting in NSW, it's Melbourne where agents are exploring avenues that benefit buyers and sellers.
Petitions calling for legislation to mandate the publishing of reserve prices were circulated last year in Sydney and Melbourne by buyers' agents Patrick Bright and Miriam Sandkuhler.
Yet it seems we may not need to wait for the law to change for agents to step up to the plate. A handful of real estate agents are taking it upon themselves to clean up the industry.
Over the past month, Caine Real Estate CEO Jacob Caine slowly introduced the publishing of reserve prices to his real estate agency.
Long frustrated by the lack of transparency around price advertising, he saw this step as the logical progression towards fairness for sellers and for buyers, who are often left "humiliated" when an auction quickly heads above their price bracket.
"Our job as residential sales people is to sell properties for the highest possible price by marketing them to the greatest number of people capable of paying, at the very least, the owner's reserve price," he said.
"Time and time again we've witnessed auctions where disillusioned, confused and downright angry buyers leave auctions that they weren't even close to in terms of buying capacity."
Underquoting is good for only one thing – attracting a crowd. Yet a crowd of unqualified buyers doesn't create a strong auction.
John Keating, from Keatings Real Estate, pioneered the concept of publishing the reserve price more than 10 years ago.
Starting in July 2003, it took him a few years to perfect the process and publish reserve prices regularly.
The catalyst was a staff member who was selling through the agency. He opted for full transparency, beyond just telling buyers about the agency's relationship with the vendor.
"We discussed how much it was worth, around $220,000 or $230,000. He agreed to advertise the reserve and we set it at $220,000. I didn't do the auction, I stayed one step back, and it sold at $242,000. That's how it started," he said.
Buyers and vendors do need educating around the process and what it means to publish the reserve price, however he finds that most people are attracted by the idea and, in fact, are often more likely to buy.
While Melbourne real estate agents are steaming ahead with this concept, an LJ Hooker agent did sell a home in Bexley, New South Wales last year with a published reserve price.
The 15A St Georges Road home advertised a $570,000 reserve price and achieved $613,000 at auction.
Mr Caine does foresee difficulties in rolling the concept out across Melbourne and other cities, particularly with jaded buyers expecting that every agent has underquoted and adjusting the price accordingly. Some even adjust upwards by 25 per cent.
"We've had buyers come to us, who've been so conditioned by the market place to adjust way up, and they've said: 'I would have paid more for that property, but I didn't even come to the auction because I didn't think you were telling the truth with your range'. Buyers are ruling themselves out of properties arbitrarily that they may otherwise have paid the owner a great price for," he said.
"But we've got such an entrenched and distorted psychology around pricing to compete with," he said.
Now on the Real Estate Institute of Victoria Young Agents Committee and Members Council, part of his push will be to get other agencies to consider taking this step and encouraging the REIV to explore the option.
"We'd love for some of the big independents to get on board with us – if some of those big guys weighed in we could possibly hit a tipping point," he said.
Although some independents have started to show their commitment to cleaning up the industry, it may take a bit longer to get the larger agencies on board.
Posted by Jennifer Duke - The Age on 3rd April, 2015 | Comments | Trackbacks | Permalink
Fierce competition at auctions means many buyers miss out. Should you make an early offer?
AUCTION clearance rates are high and with multiple bidders at many auctions, chances are a lot of buyers are missing out.
In southern states clearance rates are regularly between 70 per cent and 80 per cent at the moment and multiple bidders are lining up to secure their dream homes.
So how do you make sure you win that property?
Should you make an early offer and try and bypass the auction process completely?
Buyers’ agent and valuer Tony Coughran from VFM Property reckons you should.
“I’ve bought many properties prior to auction day,’’ he said.
“Buying a property that is going to auction is really no different to buying one that is being sold through private treaty. Think strategically and always have a plan in place — this begins with making an offer prior to auction,’’ he said.
Mr Coughran said making an early move could knock out the competition and remove the chances of paying a premium at auction.
“Emotions don’t even get to play into it (like they can do on auction day) especially if the bidding gets out of control,’’ he said.
“Don’t be disappointed if your offer is not accepted; it’s just the start of a process.’’
Mr Coughran said the success of buying before auction depended on the property type and the current market in the area you are buying.
“In an ordinary market if you have done your homework and are making a fair offer with auction-like terms, there is every chance your offer could be accepted.
“You have to be realistic though, don’t expect an offer to be accepted pre-auction if you’re trying to purchase a great property in a highly sought-after location. Buyers will be lining up come auction day for this type of property and vendors know there is every chance they’ll get a premium under the hammer.’’
Empire CEO Chris Gray said if you want to make an offer before auction day, make the conditions appealing to sellers.
“Unconditional offers (that are not subject to finance, building inspections etc) are always appealing to vendors, as they are serious,’’ he said.
“To ensure yours is accepted, you will need to have a conversation with the agent to discuss the vendor’s expectations. Do they want a long or short settlement, or to extend their stay in the property?’’
He said be confident of what the property was worth and don’t make an emotional decision when you do find your dream property.
Independent valuations and research will help you work out what to offer.
Posted by Michelle Hele - News Limited Network on 2nd April, 2015 | Comments | Trackbacks | Permalink
Buying houses with super is not a smart idea
You will have noticed that federal Treasurer Joe Hockey recently suggested – then clarified that it had been suggested to him – that the government would consider letting Australians dip into their superannuation accounts to help fund the purchase of their first home. We can already buy investment property with super, of course, but this idea was to allow a withdrawal of cash from super for the purpose of buying somewhere to live.
On first blush, it's an idea that seems to have some real merit. After all, Australian house prices (and particularly those in Sydney and Melbourne) are at or near both historical and relative highs, when compared with most countries around the world.
Yes, there are reasons put forward as to why we're "different" to the rest of the world, but remember housing is only worth what someone else will pay for it. If we all decided to pay less at auction, the prices would fall overnight. Will we? Who knows... but don't fall for the "we're different" schtick!
If you'd accept the reasons that are cited, you also need to accept that there are a huge number of Australians who can't find a home because supply is so constrained (and rents would simply be much higher if that was the case).
What problem are we really solving?
At its core, the "buy a house with super" solution is like treating the symptoms of a problem, and letting the cause go unchecked. The question shouldn't be "how can we help young adults get into an extraordinarily expensive housing market", but "why is the housing market so expensive". And asking the right question is immensely important if we're going to have the right policy outcome.
Exhibit one is the range of first-home owner's grants that both the federal and state governments decided to make available, originally to offset the GST, but which has persisted, in different permutations and amounts, ever since. And if that grant wasn't – and still isn't – able to make first-home ownership affordable for new buyers, then what makes us think yet another "free kick" scheme would help?
It's a tempting short-term solution – give people a little extra money to help them get into the housing market. But the first=home owners schemes didn't meet that aim in the past – and it's even more doubtful that dipping into super would help in the future. Indeed, think about the simple supply and demand dynamic – rather than levelling the playing field, tapping super is likely to simply be just adding extra demand, and pushing house prices even higher.
Real solutions required
Some commentators have argued that having a house is likely more valuable in retirement than having a few dollars more in super. I can't disagree with that in theory, but Australia's policy-makers have more than just a binary choice between the two. And swapping some super for a first home is letting them off the hook – and ignoring the real problem.
It'll take some real policy guts – and more than a little leadership – for the real problems to be addressed, but they must be. The state and federal treasurers must first look at the supply of land. After that, the distorting effects of negative gearing must be addressed. Like it or not, negative gearing makes it cheaper for an investor to buy a house than for an owner-occupier. And as individuals, we need to get over the "super is our money" greed.
Yes, the money is in your name. But remember, it's contributed by your employer under government regulation, to replace, in whole or in part, your need to claim on the welfare system in retirement – not as a personal piggy bank. It might be "your" super, but it rightly comes with strings.
Our superannuation system is the envy of the world. It shouldn't be compromised because policy-makers (of all political persuasions) are unable or unwilling to find better solutions to other problems
Posted by Scott Phillips - Money Manager (Fairfax) on 1st April, 2015 | Comments | Trackbacks | Permalink
A little self-knowledge can go a long way
Our financial decisions are coloured by emotions, biases and by the people with whom we associate – our peers.
Some prefer to live in the moment and not think too much about the future. Some of us make decisions more on "gut feel" than solving problems rationally.
- FIND YOUR MONEY TYPE Our interactive quiz will reveal more about your financial decision making - and give you some tips on how to improve things
Everyone is vulnerable, to a greater or lesser degree, to making mistakes when managing our finances.
Who has not been guilty of putting off a decision and leaving it to later because it is all too hard and now is not the right time?
Psychological research has made big strides into better understanding financial decision-making.
Brad Klontz, a financial psychologist in Hawaii and an associate professor at Kansas State University, reckons many people fit into one or more of four money belief patterns. In a paper published in 2011, in which he was lead author, Klontz identified four basic money belief patterns that people tell themselves, whether true or not.
People with a "money avoidance" belief pattern try to distance themselves from money.
Then there are those who "worship money" and think that if they only had more of it their problems would go away.
Those with a "money status" belief pattern link their self worth to their net worth. Finally, there is "money vigilance"; those who pay their debts on time and are cautious about over-spending.
However, they could deprive themselves for no rational reason. In other words, what we would call a miser.
Apart from personality or belief patterns there are just the plain old irrational instincts that lead all of us, even the most financially literate, to make mistakes.
"The human brain evolved during the Pleistocene age when the trick was to avoid being squashed by a woolly mammoth or eaten by a sabre tooth tiger," says Shane Oliver, chief economist at AMP Capital Investors.
That is probably the reason that bad news sells. We are always on the lookout for risks, Dr Oliver says.
Susan Thorp, a professor of finance at the University of Sydney, says: "Most of the mistakes in finance relate to the way we process risk and probabilities.
"There is a list as long as your arm of the mistakes that most of us make at one stage or another when it comes to dealing with uncertainty and information about events," she says.
One of the best known is the "gambler's fallacy". This is where five "heads" are tossed in a row and the gambler thinks "tails" has to be next. In fact, the chances of the next throw coming up tails remains at 50 per cent.
And, of course, there is the tendency to favour past winners and assume that the winning streak will continue. That leads to us to chase past performance; whether it is the top-performing shares, superannuation funds or managed funds.
"We are all subject to behavioural biases," says Shane Oliver. "The most serious perhaps being a tendency to extrapolate recent developments off into the future regarding investment returns," he says.
"So, if the recent past has been poor you assume this will continue and want to get out and vice versa.
"But this just causes us to get wrong footed by the cycle," he says.
Professor Thorp's research includes decision-making about superannuation. Most of us, when confronted with an unfamiliar problem, will resort to "heuristics" or rules of thumb, she says. For example, in choosing a superannuation investment option, many people will simply choose the most diversified option, even though it may not be the best option for their individual circumstances.
They do that because they have heard that diversification – not having all your eggs in one basket – is a good thing to do, Professor Thorp says. So they tend to simply pick the option with the most diversification, she says.
That could mean someone starting out in the workforce, who can afford to have a relatively large exposure to shares, being under-exposed, leaving them with less in retirement. Behavioural economists at the Queensland Institute of Technology (QUT) have been studying how biases affect people's investment decisions.
They say a bias called the "illusion of control" makes us believe we can control, or at least influence, the outcome of an uncertain event when we cannot.
"For example, when buying Lotto tickets, some individuals believe choosing their own numbers, as opposed to being assigned random numbers, increases their odds of winning," says Anup Basam, the leader of the research at QUT.
Personality also plays a big role in how we handle our finances, says Adam Tucker, the director of the Beddoes Institute, a financial services consultancy.
"Whether someone is impatient and impulsive can make a big difference, as is their past history," he says. When faced with a financial decision the "first things that come into your head are often not the right answer," he says.
In the absence of information we will rely on the most primitive of our instincts, including even those such as tending to trust better-looking people more.
It is well-established by psychological research that in the absence of other information, most people think better-looking people are more trustworthy than others. Of course, there is no connection between looks and honestly or competency at all.
Katherine Lane, principal solicitor at the Financial Rights Legal Centre, says that is a real problem because it can lead people into the hands of "dodgy" people.
"The problem is that dodgy people wear suits and look nice and professional," she says. "They are good at sales and sound competent and plausible," Lane says.
There are things that you can do to help make better financial decisions.
The best way to help counter behavioural biases is to know yourself, says Shane Oliver. "The reality is that we all suffer from the behavioural biases that give too much weight to recent developments in forming expectations regarding future returns, seek safety in the crowd and give too much weight to loss relative to gain," he says.
Consumers need to be aware of their weaknesses and try to manage them, he says.
Adam Tucker says: "We have to try to use our rational side and work it out." Sometimes the best opportunities in investing arise when many are engulfed by doom and gloom, says Shane Oliver.
"We are now bombarded by economic and financial news and opinions on a continuous basis via TV with finance updates, multiple news and finance channels, websites and blogs," says Dr Oliver.
"An ordinary investor could be forgiven for thinking we are in a constant state of lurching from worrying about one potential catastrophe to another," he says.
We should resist chopping and changing. When it comes to investing the best approach is to agree to a long-term strategy and stick to it, Dr Oliver says.
"You'd be better watching less of the financial soap opera in favour of episodes of The Brady Bunch or The Partridge Family," he says. Comparison sites can help you cope with multiple choice – but they don't have all the answers
Buying shares in a company as part of a well-diversified portfolio will probably not cost the investor too much if the share price falls.
For most of us it is the decisions such as whether to fix the mortgage interest rate or stick with a variable interest rate, for example, that can save or costs us thousands of dollars in interest.
But these are decisions few feel qualified to make.
Consumers are forced to make more and more financial decisions or risk paying a lot more for financial products and services. For the past 30 years in advanced economies, big corporations and governments have been offloading the risks from their balance sheets to the balance sheets of households.
Hundreds of financial decisions are made by each of us every year. They range from the trivial to those with serious financial consequences.
And not only are we required to make more choices, the financial landscape is becoming ever-more complex. Marketing is becoming slicker and trickier.
Financial product providers prefer to compete on bells and whistles rather than price. They often make their products complicated and difficult, if not impossible, for consumers to compare on price.
Then there is superannuation. Get that wrong and the risk is that retirement will be less than comfortable. Most people are just not well equipped to make financial decisions, says Katherine Lane, principal solicitor at the Financial Rights Legal Centre.
Financial literacy surveys such as that by the Australian Bureau of Statistics, published in 2013, have found that more than 1 million Australians are likely to struggle with anything more difficult than "basic mathematical processes".
Millions more have a mathematical understanding that is not much better.
However, the complexity of modern finances is such that it is even challenging for the financially literate, Lane says.
"The amount of sophistication needed is quite incredible", she says.
The complexity is behind a boom in online comparison websites that compare everything from home loans to private health insurance. The Australian Securities and Investments Commission, which regulates comparator sites, says some are better than others, but even the better ones are not always telling consumers everything they need to know.
In its report on insurance and credit comparison sites released at the end of 2012, the regulator said some product providers pay comparator sites to be listed and also pay for their products to be "featured".
These links and payment are supposed to be clearly disclosed.
Posted by John Collett - Money Manager (Fairfax) on 1st April, 2015 | Comments | Trackbacks | Permalink
What is renting really costing you?
Have you ever asked: Isn't it cheaper and less worry to rent than to make mortgage repayments on a similar property? This is a valid point – for the short term.
While it may first appear that renting is the cheaper option, I encourage a look into the future, beyond a two to three year time frame.
Take an example of a $500,000 property with a full mortgage. It will set you back around $2000 per month just on interest repayments. Then add to this other ownership costs such as maintenance, rates and insurance and body corporate fees. In comparison, you could rent an equivalent property for $1950 a month without any extra costs.
Based on this scenario it seems renting would be cheaper. Why would you consider buying?
To properly assess this, the first thing is to fully break down the costs.
Home owners have short-term costs which include the one-off purchase of the property and then ongoing costs. These include:
- Stamp Duty
- Legal and other costs (e.g. Building/Pest Inspections)
- Moving house expenses
- Mortgage interest repayments (The interest portion only is the true expense as the principal portion is saving and investment)
- Rates, Body Corporate fees, maintenance and insurance (approximately 1 per cent to 2 per cent of the property value each year)
- Moving house expenses
- Monthly rent
It still seems dismal to buy a property doesn't it? Beware though – there are what I call the "hidden economics" they are not always obvious but are crucial to consider.
Frequent moving costs
If you've ever moved house, you'd know that it's stressful, time-consuming and costly.
Tenants move house more than a home owner. Think of it this way – every time your lease is up for renewal, your future is in the hands of your landlord. They may decide to sell, or they may increase the rent beyond your means. Consequently, tenants often move every two years or so.
If an average move costs $5000, this adds an additional $50 onto your weekly rental costs.
Rising rental expenses
The beauty of being a home owner is having the advantage of fairly stable mortgage repayments (fixed rates and so on). Unfortunately as a tenant, your landlord can increase your rent yearly, factoring in the inflation rate and if the property is in a sought-after area.
For example: if your weekly rent is $450 and it rises by 5 per cent a year, in five years' time, your rent will be $575 per week. In 10 years this will be $730 per week.
Owning a growing asset
As you'd know, you'll never own your rental property. However home owners gain an asset that increases in value over time, where a tenant is left with nothing to show for their spent money. Sure, you could use the money you 'save' on rent to invest elsewhere, but there are very few investments in Australia which provide the tax advantages, leverage possibilities and long-term steady growth that residential property does.
For example: Looking back at the $500,000 property I mentioned earlier: After 10 years, it's likely to be worth $1 million. Even if you haven't paid any of your mortgage off and just paid interest only, you are sitting on an asset worth $500,000 of your own clear of the mortgage.
And going further, the home owner can use this equity to buy more properties, setting themselves up with even more assets for a comfortable retirement. As a renter, you'll never have access to this proven strategy so many use to build large property holdings.
Long term – retirement
It's never too early to start planning for retirement. In fact, it's essential for people to really plan for retirement as early as possible.
The last thing you want to be doing in retirement is paying rent. You'd still have a regular expense that you can't escape, and now have little income to pay for it.
Renting may seem like your best option at the moment, but I really encourage you to see that it's not the best long-term option. Set your goal to own your own home. The short-term sacrifices are worth making for the longer term benefits.
Posted by Tim Boyle - Sydney Morning Herald on 1st April, 2015 | Comments | Trackbacks | Permalink