Puzzle Finance Blog
Secure the property of your dreams
No matter whether you’re buying at auction or by private treaty, the fundamentals apply: understand the market you’re buying into, get your legal documents checked and make sure your finances are pre-approved.
There are key financial, legal and logistical considerations to keep in mind at each stage of the property buying process. The steps in making a property purchase are the same whether you buy by private treaty or at auction, though the timings differ between the two.
When buying by private treaty, once you (or your agent) make an offer and the vendor (or their agent) accepts it, signs the sale contract and receives the deposit, you have ‘exchanged’ contracts and the cooling-off period begins. This period varies from state to state, but during this time you can withdraw from the sale by paying a specified penalty.
Purchases at auction have no cooling-off period. Because of this, contracts and inspection reports will be prepared by the vendor and made available to potential buyers before the auction. You may be able to organise your own building inspections prior to the auction.
Once the cooling-off period is over or you have bought at auction, you then enter the ‘settlement’ phase. This is usually when building, pest and other legal checks take place, so make sure your contract has provisions to cover any unfavourable reports or conditions they may uncover. The sale is ‘completed’ when, at the end of the settlement period, the remainder of the price is paid and the deeds are given to the buyer.
Buying by private treaty
Most Australians buy their properties by private treaty. The vendor sets an asking price and potential buyers are free to negotiate, either directly with the vendor or through an agent the vendor has appointed to handle the sale.
Private treaty sales are preferred by many as they can feel less risky than getting into an emotion-laden bidding war at auction. However, it’s still important to keep your wits about you and proceed carefully at all stages of a purchase. Here are our top tips:
Bidding at auction
- Know your market. As always, it’s vital to understand prices in the area you’re looking at so you can make a realistic offer (relative to your finances and the local market).
- Have your finances ready. Once your offer has been accepted, you want to move quickly to exchanging contracts, so get your finances pre-approved.
- Don’t get gazumped. Until contracts are exchanged, your vendor can still accept a better offer after accepting yours, so get your building and pest inspections done quickly to avoid being beaten to the punch.
Auctions have the advantage of being final on the day, so you don’t need to worry about being gazumped. You do need to worry about over-committing in the heat of the moment, however, as your bid is binding and there’s no cooling-off period. As always, doing your research and having your finances pre-approved will be a great help, as will sticking religiously to your budget. It’s also helpful to attend a couple of auctions just to get a feel for what goes on and how the bidding proceeds.
A lot of psychology is involved in bidding successfully at auctions. Here are some suggestions on how to get the best result on the day – even if ‘best result’ means walking away from a sale that would bust your budget.
Settlement of your property purchase
- Open strongly. Putting in a sensible first bid will tell the auctioneer and your fellow bidders that you’re serious about the property. This will help separate the speculators from the serious buyers.
- Set a realistic budget. And don’t exceed it! Your research should give you a good indication of the property’s value, so make sure you have enough funds to play with – and be very careful about exceeding your limit. The excitement of an auction lasts for a day or two but a mortgage is a much longer commitment.
- Remain calm. This is the most important advice of all. No matter how much you like the property, if the bidding goes past your limit you need to be able to walk away. You can always get a friend or a broker to bid on your behalf if you know you’re prone to over-excitement.
Regardless of sale method, once contracts have been exchanged and the deposit paid, the settlement period begins. You and the vendor may negotiate a shorter or longer settlement period to accommodate various needs. These can include your current living arrangements, like existing leases or property ownership commitments, or concerns such as wanting to move in before or after a special event (like a holiday or anniversary).
On settlement day, you (or your chosen representative) and the seller (or the seller’s agent) will meet and finalise the sale – which includes paying the vendor the remainder of the dwelling’s price. In return, you’ll receive the dwelling’s keys and title deeds and it will finally be your home.
Now all you have to do is arrange to move in – but that’s a story for another day.
Posted by Michael Butler - Domain on 15th December, 2014 | Comments | Trackbacks | Permalink
Buying a property with your partner
Looking to buy a property with your partner but you’re not legally married? No problem – as long as you take a few precautionary steps to ensure you are both protected under the law.
When it comes to property, the law has different rules for married and unmarried couples. There are courts and legislation set up to deal with marital assets, but for unmarried couples, the situation can be a lot murkier. That’s why it is essential to set up some ground rules before plunging into your exciting new purchase together. Get a co-purchase agreement
It sounds overly legalistic – asking the love of your life to sign a formal written document – but the benefits are invaluable.
A good co-purchase agreement will actually serve to protect the both of you, by setting out each person’s rights and responsibilities, as well as a dispute resolution mechanism and exit strategy in relation to the purchase.
A co-purchase agreement covers things like who will pay the bills, what if the relationship breaks down, who will reside in the house, and how can a party sell its share. Both parties know exactly what they’re getting into, and the transparency of such an agreement can only help make your relationship stronger.
TIP: Get independent legal advice to ensure your personal rights are protected. After all, a written, signed contract is your ultimate legal protection as an unmarried couple. And if you decide to get married in the future, no problem – your agreement can include a sunset date.
Joint and several liability
When buying a property, you’re most likely also taking out a mortgage together right? Be aware that most home loan agreements have a clause that makes both you and your partner jointly and severally liable to pay the mortgage in full (plus any interest or costs). This means that the bank can come after you for the whole amount of the loan (and possibly more) if your partner refuses to pay it.
So how do you protect yourself against this financial exposure? A good first step is to talk with your lawyer about indemnities and warranties that can be included in your co-purchase agreement.
Another option is to talk with your bank to see if your liability under the loan as a co-borrower can be limited. Alternatively, see if you can finance the purchase separately as tenants in common rather than joint tenants.
Tenants in common
When buying, title can be placed in your names either as joint tenants or as tenants in common. Joint tenancy is what most married couples opt for, because it gives you a right of survivorship (in other words, if your spouse dies, the whole property automatically transfers to your name). But it also makes it extremely difficult to divide and sell a share of the property – because you both effectively own the entire property.
On the other hand, a tenant in common arrangement makes it very easy to divide and sell your share of the title. This could be handy if the relationship ever turns sour and you want to get out of the property. And you can always change the title to a joint tenancy later if you wish.
Buying a property with your partner is an exciting financial venture that can bring you even closer together. Just take your time planning it – get the right documents in place and know your rights and responsibilities – and you’ll enjoy it for many years to come.
Posted by Belinda Gadd - Domain on 15th December, 2014 | Comments | Trackbacks | Permalink
What you need to know about houses and units
Buying a new home is thrilling, but are you across the ongoing costs and maintenance required?
Brilliant, you’ve found the one. You’ve paid for the prerequisite building inspections, your finances are in order and your mortgage is ready to go. Now it is time to tackle the legal fees and hefty stamp duty fees – and the property’s ongoing costs.
There are considerable differences between the ongoing financial commitments and upkeep a house demands compared to a unit.
Council rates for houses and units
All local councils in Australia charge homeowners rates to pay for local services including infrastructure and waste management. Councils set their own rates, which are charged against the value of your property. When considering a property for sale, be it a house or unit, you should evaluate the council’s levies. It’s surprising how much they differ between local governments.
House owners generally pay much higher council rates than unit owners. This is due to the fact a house owner is solely responsible for the rates charged against their property value, while unit or townhouse owners will either be charged the minimum general rate or the general rate charged against their portion of the complex, or a combination of the two. As rate calculation varies between states and local councils, it is best to check how rates are calculated in your local area.
The Valuer General is responsible for conducting property land valuations for local, state and federal government. Revaluations of your land for tax and rate purposes occur at different intervals depending on your location. For example, revaluations occur annually in South Australia, every two years in Victoria and every three years in New South Wales. If you believe your land valuation is inaccurate, resulting in higher council rates, you can contest the valuation by submitting an Objection to Valuation to your local council.
Strata management versus self-management
Owning your own house brings with it many wonderful freedoms but also responsibilities. Under Torrens title, your land and castle are your domain, and so long as council permits, you can do with it as you please. Conversely, all maintenance and upkeep fall on your shoulders.
When buying into a complex, whether it be a studio, unit or townhouse, your ownership is governed by strata title, or the lesser-known stratum or company titles. The common areas of the complex will be managed by an Owner Corporation and strata regulations will outline the owners’ rights and obligations.
It is important you look into the strata regulations and management fees associated with a complex before buying. While far less hands-on maintenance is required in owning a unit or townhouse, if you are not happy with the ongoing fees or regulations then the property will become far less appealing. Along with attending annual strata general meetings, you may want to consider becoming a member of the managing committee to have greater control over the complex’s management.
If you are buying a unit off the plan, make sure you understand the pros and cons. While you can secure a property at today’s market value with a deposit and pay the remainder upon completion of the building works, when the value is likely to have risen, there are risks. The development may fall through or unexpected building complications may occur.
House and unit home insurance costs
Houses tend to attract higher insurance premiums than units or townhouses due to their size and security requirements. That said, if you’re buying into a complex, you will need to pay strata insurance, which protects the building’s common areas, in addition to home and contents insurance.
Strategies to minimise home and contents insurance costs include:
By shopping around for a policy that best suits your needs and ensuring you don’t pay for unnecessary extras, you can cut home insurance costs from the outset. Make sure you talk to your chosen insurer about steps you can take to reduce risk and safety hazards around your home, and update the insurance company about any changes to your home and contents that may affect your premiums.
- Bundling policies such as car, life, health, pet and travel insurance with home and contents insurance
- Increasing your excess to save money each month that you don’t claim
- Protecting your no-claim status, which can save up to 65 per cent on premiums
- Paying annually if you have the cash flow, to reduce the premium
Posted by Jacqui Thompson - Domain on 15th December, 2014 | Comments | Trackbacks | Permalink
Need a reliable financial adviser? Do your homework and look online
Dodgy financial advice at the Commonwealth Bank, a weak and ineffective regulator and the government's attempts to roll back consumer protections are leaving those seeking advice in a quandary.
They must be asking themselves how they can find an adviser they can trust. A 500-plus page report by a Senate committee into the Commonwealth Bank's financial planning arm and the regulator, released last week, aired allegations of fraud, forgery and a cover-up after consumers received bad advice from some of its planners between 2003 and 2012.
The report also details how the regulator, the Australian Securities and Investments Commission, took far too long to act on tip-offs from inside the bank. It underlines how consumers have to make their own inquiries and do their homework to find an adviser they can rely on.
The minimum legal standard of advice is low. Minimum training standards are woeful. Someone can become a financial planner after completing a two- or three-week course. But perhaps the biggest problem is the product sales environment in which most planners work.
Peter Johnston, the executive director of the Association of Independently Owned Financial Professionals, which represents about 1000 planners, says the advice market can be divided into two broad categories – planners who work for independently owned planning firms and those – the vast majority – who are aligned with one of the big financial institutions. "Independently owned advisers operate their own licence and can independently decide what products and strategies they will use," Johnston says. He says aligned advisers usually recommend their employer's products.
Claire Mackay, a certified financial planner and a chartered accountant at Quantum Financial, says consumers need to be aware of "structural bias" in much of the planning industry, where advice is linked to sales. Many people like the familiarity of a big brand and a big institution standing behind the advice, but they need to be aware they will often pay an "asset-based fee" – a fee charged as a percentage of the money under advice that is ongoing rather than paid upfront.
She says that this can mean aligned advisers may not give suggestions such as paying down the mortgage or buying an investment property because they can only capture a fee by pushing products. Many non-aligned advisers, including Mackay, ask clients to pay a fee each year for advice. She says some people baulk at paying upfront. However, it is value the client is getting for the money that counts.
Many people paying commissions and asset-based fees do not really understand how much they are paying, she says. Plus, some people with simple affairs can do a lot on their own: "Not everyone needs a financial planner but everyone needs a financial plan," she says.
There are some good tools available for those with fairly straightforward financial circumstances. A good starting point is ASIC's MoneySmart at www.moneysmart.gov.au where there is a budget planner and a mortgage calculator as well as other calculators, such as those for superannuation and retirement. You can also get simple superannuation advice over the phone. Taking steps to understand your finances puts you in a better position to find the right adviser, Mackay says. All types of business models of planning firms can have conflicts of interests.
It was, for example, mostly non-aligned advisers – receiving high commissions – who recommended investing in property developer Westpoint, which collapsed in 2007. And it was mostly accountants who recommended the tax-effective agribusiness schemes such as Great Southern and Timbercorp that collapsed in 2009.
Members of the leading planner professional association, the Financial Planning Association (FPA), follow a code of practice that is far above the legal minimum. About 5600 FPA members also hold the certified financial planner (CFP) qualification, which the association promotes as the "gold standard" of financial planning. New practitioner members of the FPA must have a relevant university degree.
Read more: http://www.theage.com.au/money/planning/need-a-reliable-financial-adviser-do-your-homework-and-look-online-20141212-1261pt.html#ixzz3M59mPFTo
Posted by John Collett - The Age on 15th December, 2014 | Comments | Trackbacks | Permalink
Housing affordability: Are foreign investors to blame for Australia’s high property prices?
AUSTRALIANS are finding it increasingly difficult to fulfil the Great Australian Dream: To buy their own home.
Residential property prices have gone throught the roof over the past three decades, particularly in our capital cities. Prices are so expensive that everyday Aussies, especially first home buyers, are being pushed out of the property market in their droves.
One theory consistently put forward to explain the high prices is that the market has been flooded with foreign investors. They fly in with packed wallets and are willing to pay top dollar, locking out the locals.
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The federal government launched a parliamentary inquiry to look into this theory and its findings may come as a surprise.
So, are overseas buyers really to blame for Australia’s astronomically high house prices?
WHAT DID THE INQUIRY FIND?
For starters, the inquiry agreed that house prices were getting out of control.
Combined capital city home values have increased 13.2 per cent in the 21 months to January 2014, according to real estate data company RP Data. Meanwhile, an International Monetary Fund report from last month found that the ratio of housing prices to average incomes is 31.6 per cent above the historical average in Australia.
The inquiry heard evidence from a range of sources, including members of the general public and industry experts, to explain the price hike.
Most of the concern about foreign investment came from personal submissions, while industry stakeholders tended to argue that the general population overstated the impact of overseas buyers.
Ultimately, the report concludes that there is no solid evidence to support the idea that foreign investors are driving up prices.
It acknowledges that reliable data on the issue is scarce but finds that, overall, foreign investment is good for Australia.
The report states that overseas buyers actually help to make housing more affordable because their investment boosts the economy, provides jobs and — crucially — encourages new homes to be built, increasing housing supply.
“The evidence points to a continuous lack of supply in Australia as a key driver of price increases,” the report states.
“Importantly, foreign investment is regarded by industry experts as vital to increasing this supply.
“Rather than causing price pressures, the evidence suggests that foreign investments may actually help keep prices lower by increasing supply.”
Some contributions to the inquiry expressed concerns that overseas investors made it especially difficult for first home buyers to break into the market. But industry experts argued that foreign investors tended to buy properties that were out of the price range of local first-time buyers.
The Master Builders of Australia told the inquiry that foreign investors and first home buyers rarely competed for the same properties.
Foreigners tended to preference new, high-density, inner-city properties, often close to universities. And they tended to be valued well above the average national sales price.
Similarly, the Real Estate Industry of Australia said first home buyers favoured established real estate.
“The preference for foreign investors is at the higher end of the market, with a $1 million average for established real estate for temporary residents, and a $647,000 average for individual purchasers of new dwellings … way beyond the reach of an aspiring first home buyer,” spokeswoman Amanda Lynch told a hearing in May.
The Property Council of Australia argues that “there is no evidence that international investment is swamping the residential housing market or influencing prices”.
Exclusive Melbourne agency Nyko Property said the “noise” surrounding overseas investment was “wildly inaccurate”.
“Vision on our television networks of people of Asian appearance bidding at auctions and outbidding other Australians does, in our opinion, simply kindle xenophobia and is anathema to the long-term goal of Australian policymakers to further integrate our economy with Asia — the fastest-growing economic region in the world,” its submission stated.
The inquiry concluded that the industry experts were correct.
“The committee is also satisfied from the evidence received that foreign investment is not causing the market distortions that have been advocated in some quarters, particularly for first home buyers,” the final report states.
“This is because foreign investment levels are not large enough to do so overall because overseas buyers mainly operate at a different price bracket from first home buyers and buy different types of properties.
“The housing supply issues that have been ongoing in Australia would worsen if foreign investment was curtailed.”
HOW DO FOREIGN INVESTMENT RULES WORK?
● Non-resident foreign investors are not allowed to buy an existing home, but they can buy new homes
● Foreign people living in Australia for no more than 12 months can buy one existing home, but they must live in it and sell it when their visa expires
● All purchases must be screened by the Foreign Investment Review Board
HOW MUCH FOREIGN INVESTMENT IS THERE IN AUSTRALIA?
Figures are limited, but the Master Builders of Australia estimate that foreign investors account for 5 to 6 per cent of the Australian housing market.
Property developer Meriton said overseas buyers represented closer to 2.5 per cent of annual sales.
Foreign Investment Review Board figures show:
● Between July 2013 and March 2014, $24.8 billion in foreign investment has been approved
● This was 44 per cent higher than the $17.2 billion approved in 2012-13
● Between July 2013 and March 2014, the FIRB approved the purchase of 5755 existing properties
● In 2012-13, this figure was 5101
● Most of the investment is in Sydney and Melbourne
According to the Property Council of Australia, “There is simply not enough foreign investment to skew the residential market as a whole”.
SO, WHAT IS MAKING HOUSES HARD TO AFFORD THEN?
There is no one explanation, but a lack of housing supply is the most commonly cited reason for high property prices.
Other factors that the report notes have a larger impact on prices than foreign investment include:
● Strong population growth and higher per capita incomes
● Australians’ ability to take out larger mortgages due to greater access to cheap credit
● The scarce availability and high cost of land to develop
● Low interest rates
● The strength of the economy
● State and local planning regulations and red tape
● Stamp duty and tax arrangements
Financial adviser SMATS Group said Australia’s population growth had increased demand.
“The general community does not fully appreciate that the main driving force in property price increases is Australia’s growing population, which rose 1.8 per cent to the year 30th September 2013,” the company states in its submission.
“This equates to an additional 405,400 people and places enormous pressure in the property market for homes to accommodate this rising tide.”
The Reserve Bank of Australia argues that our historically low interest rates have increased the attractiveness of investing in “riskier, higher-yielding assets, resulting in strong demand for residential property”.
The Real Estate Institute of Australia argues, “Addressing housing supply would avoid any future questioning about impact of foreign investors in residential real estate”.
The Property Council of Australia said Australians were being priced out of the market by other Australians.
BUT IS THAT THE WHOLE STORY?
The report acknowledges, however, that foreign investors may have an impact in pockets of the market.
“At the margin, foreign purchases may be pushing up prices in particular segments of the market, such as high-quality new apartments in Sydney, Melbourne and the Gold Coast. However, even these markets are dominated by local purchasers,” Meriton states in its submission.
Christopher Kent of Reserve Bank said it was “hard to deny” that foreign investors were having some impact.
“If you imagine an auction on a weekend where you throw in an extra buyer who is willing to pay a little bit more than everyone else there, if that buyer happens to be foreign, maybe as a temporary resident, and they are buying a single play that they are able to get approval for, it is hard to deny that it would not push up the price,” he told a public hearing in June.
While the report concludes that foreign investment is good for Australia, it did find that the rules surrounding overseas buyers were not enforced or policed properly.
It also noted that there was no accurate or timely data that tracks foreign investment.
It recommends introducing a penalty regime to punish those who breach the regulations, including third parties that knowingly help investors to break the rules.
It also recommends setting up a national register to record the citizenship and residency of all home buyers.
Committee chairwoman Kelly O’Dwyer said the foreign investment rules were sufficient but their application was “severely lacking”.
“I regard the current internal processes at the Treasury and FIRB (Foreign Investment Review Board) as a systems failure,” Ms O’Dwyer said.
“Most concerning is that sanctions seem to be virtually non-existent.”
The report found that there had been no prosecutions for breaching foreign investment rules since 2006 and no orders to sell off properties bought by breaking the rules since 2007.
“It defies belief that there has been universal compliance with the foreign investment framework … since 2007,” the report states.
Ms O’Dwyer suggested that there were investors breaking the rules, but that they had slipped through the regulatory cracks.
“Suggestions by officials that (the lack of prosecutions) is due to complete compliance with the rules is simply not credible,” she said.
“Australians must have confidence that the rules, including those that apply to existing homes, are being enforced. Our inquiry revealed that, as it stands today, they could not have that confidence.”
Posted by News Limited Network on 13th December, 2014 | Comments | Trackbacks | Permalink
Size matters when it comes to defaulting
Australian borrowers are a fortunate bunch. Unlike households overseas, they've managed to avoid the wave of painful mortgage defaults that have brought other economies to their knees.
Indeed, local banks say the share of people falling behind on their mortgage payments is at historic lows.
Yet history suggests things will not stay like this forever. Bad housing loans will increase one day, and bankers say that many of the loans that will go bad are probably being written now, when interest rates are so low.
So, which borrowers are most likely to fall behind on their mortgage payments?
The Reserve Bank recently published some useful information on who is at most risk of falling more than 90 days behind on their mortgage. The findings are worth keeping in mind, especially if you're someone who might be at higher risk.
The RBA concluded that the size of the debt you are taking on makes a big difference, especially the proportion of the property purchase funded with borrowed money. This is known as the loan-to-valuation ratio (LVR).
If you take out a loan with an LVR of 90 per cent or more, the likelihood of missing a payment is three and a half times greater than for a loan with an LVR of 60 per cent or less, and almost twice as great as for loans with LVRs of 80 per cent to 90 per cent.
That's why banks generally force anyone with an LVR of 80 per cent or more to take out mortgage insurance – something that can add thousands of dollars to the cost of a loan.
The important thing to remember is that mortgage insurance protects the bank from default, not the borrower.
But it's not only the loan size that matters – there are other potential risks to be aware of.
Borrowers who pay higher interest rates are also more likely to fall behind. If there are two identical loans and one has an interest rate that is 1 percentage point higher, that borrower is about 1.4 times more likely to fall behind, the RBA said.
People who always pay off their credit card in full each month are also less likely to fall behind on their mortgage.
And low-documentation loans – where the bank does less checking of the borrower's financial situation – are more likely to go bad.
What's the bottom line, then?
For one, size matters a great deal with a loan. It's important not to borrow more than you can comfortably service, especially as interest rates will inevitably rise one day.
The research also suggest that it's worth being extra cautious with your mortgage payments if you are someone who has a high LVR loan, has a low-doc loan or has let their credit card debt pile up.
Read more: http://www.theage.com.au/money/borrowing/size-matters-when-it-comes-to-defaulting-20141205-11yfw4.html#ixzz3LiIEHuyO
Posted by Clancy Yeates - The Age on 10th December, 2014 | Comments | Trackbacks | Permalink
Financial regulators united in attack on risky loans
Australia's financial regulators have launched a joint attack on risky home lending as investment and interest-only loans threaten the stability of the financial system.
The Australian Prudential Regulation Authority called an emergency meeting with the nation's banks to tell them of new speed limits that will prevent them from aggressively pursuing investment property borrowers.
At the same time, the Australian Securities and Investment Commission said it would investigate interest-only loans, which make borrowers highly sensitive to movements in interest rates.
The move could put the brakes on the rampant property markets in Sydney and Melbourne, which have seen house prices rise at a double-digit pace fuelled in part by demand for investment loans.
The investigation will probe the banks, including the big four, as well as non-bank lenders and their behaviour as the property market heats up, the Australian Securities and Investments Commission said.
"The review follows concerns by regulators about higher-risk lending, following strong house price growth in Sydney and Melbourne," it said.
ASIC, the Australian Prudential Regulation Authority, the Reserve Bank of Australia and the Treasury were working together on the investigation, which will "monitor, assess and respond to risks in the housing market", ASIC said.
They will co-ordinate their investigation through the Council of Financial Regulators.
ASIC said on Friday that interest-only loans as a percentage of new housing loan approvals by banks had reached a new high of 42.5 per cent in the September quarter.
This included owner-occupied and investment loans.
"While house prices have been experiencing growth in many parts of Australia, it remains critical that lenders are not putting consumers into unsuitable loans that could see them end up with unsustainable levels of debt," ASIC deputy chairman Peter Kell said.
"Compliance with responsible lending laws is a key focus for ASIC. If our review identifies lenders' conduct has fallen short, we will take appropriate enforcement action."
In a separate statement, APRA revealed it had written to all of the banks, asking them to set out plans to reinforce sound residential mortgage lending practices.
"In the context of historically low interest rates, high levels of household debt, strong competition in the housing market and accelerating credit growth, APRA has indicated it will be further increasing the level of supervisory oversight on mortgage lending in the period ahead," it said.
It said it was not yet necessary to introduce across-the-board increases in capital requirements, or caps on particular types of loans.
"These steps represent a dialling up in the intensity of APRA's supervision," APRA chairman Wayne Byres said.
"There are other steps open to APRA, should risks intensify or lending standards weaken and, in conjunction with other members of the Council of Financial Regulators, we will continue to keep these under active review."
The banking regulator flagged last month it was mulling action to stop the housing market from overheating, voicing particular concerns about the jump in the number of owner-occupiers taking out interest-only loans.
Steven Münchenberg, chief executive of the Australian Bankers' Association, which represents the big four banks, said: "Lending into housing markets has been a regulatory focus for some time and we are confident that banks have been maintaining appropriate lending standards."
A spokesman for the National Australia Bank said it would "work co-operatively with the regulators to ensure ongoing prudent lending practices".
"NAB has a well-defined approach to our risk settings and regularly engage in a range of stress tests that examine the portfolio against a number of economic scenarios, including declines in the property market, rising unemployment or changes in interest rates.
"NAB assesses every customer on a case-by-case basis and looks at a range of factors such as their ability to manage debt, today and into the future, before providing loan approval."
Read more: http://www.smh.com.au/business/banking-and-finance/financial-regulators-united-in-attack-on-risky-loans-20141209-123jjx.html#ixzz3LQgjaMzK
Posted by Georgia Wilkins and Nassim Khadem - The Age on 10th December, 2014 | Comments | Trackbacks | Permalink
What Murray means for you and your wealth
All you need to know about David Murray's report on the financial system is that it would ban borrowings by DIY super funds and hit bank dividends.
There, that'll spare you 290 pages you were going to read on the beach over the holidays.
Oddly, for all its visionary reforms it's hard to nail down exactly what they are. It reads more like a policy speech, directed only at politicians.
So new capital controls on the banks, which judging by Murray's comment about their "very high payout ratios" he expects will be paid for with less generous dividends, along with maybe a tiny increase in mortgage rates, are for the Australian Prudential Regulation Authority (APRA) to sort out.
Tax changes are for the government's white paper next year to look at.
And even the lower super fees it proudly boasts require a Productivity Commission inquiry once MySuper is bedded down after mid-2017.
What's more the super reforms won't happen, says Joe Hockey, unless they get bipartisan support even though they would add 25 to 40 per cent to the retirement income of somebody on the average wage.
That rules out one of the few specific recommendations which is to exclude super from industrial awards where union and company-run funds have a privileged position as front runners to be the default fund.
Unfortunately, Murray doesn't itemise which reform will deliver how much to super balances except that a footnote reveals a 15 to 30 per cent increase would come from encouraging more annuities to be taken out by retirees.
Tax impediments would be removed – another one for next year's white paper – and funds would have to put a bit more time and effort into designing a "comprehensive income product for retirement" which would be part account-based pension and part annuity.
They'll also have to give you regular projections of your likely retirement income rather than the balance.
Funnily enough, having been offered one of those products you don't have to sign up for it anyway though I guess then you'd be denying yourself another 15 to 30 per cent extra income in retirement. Don't say you weren't warned.
That leaves the remaining 10 per cent gain in retirement incomes. It comes from falling fees as low-cost MySuper, the default fund in awards which Murray wants to abolish, is implemented by mid-2017. If fees don't fall much the report recommends fund managers compete in an auction run by the government to win the default prize.
Now, what was that about a ban on future borrowings by DIY funds? Well, Murray talked about "direct borrowing" so it's not altogether clear whether that would include popular instalment warrants. I can't imagine he'd countenance borrowing for shares which can be done clandestinely through warrants and geared managed funds, while ruling out an upfront loan for a property.
Still, it's academic. There's no date when it would apply, it would be grandfathered in any case, and needs bipartisan support.
If you ask me, the big deal for DIY super funds, most of which are stuffed to the eyeballs with high-yielding bank shares is what's going to happen to the dividends on them.
The market decided the day after the report was released that the banks weren't such big losers from Murray after all. But can it be so sure?
The report was vague about how much capital they should hold, apart from hinting the ratio is at least 1 per cent lower than it should be, and that it's up to APRA and the central bank bureaucrats in Basel to work it out.
I'll bet this has gone down a treat with foreign investors who worry that our banks are overexposed to property.
It also wants the big banks to set aside extra capital for each home loan. This would be counted toward the capital ratio and makes the smaller banks more competitive because they've always had to put a lot more aside.
So why is the market marking down the small banks?
Because they were short-changed. It had been thought the amount they have to set aside on each mortgage would fall, but instead it was lifted for the big banks, and then only to 25 to 30 per cent, not the 35 per cent they face.
Worse, it's not just the big banks facing a higher overall capital requirement. The small ones will too, and capital is harder for them to generate.
Posted by David Potts - Money Manager on 10th December, 2014 | Comments | Trackbacks | Permalink
7 traps to avoid when buying property through SMSF
Let me guess. You’ve been secretly toying with the idea of setting up your self-managed super fund (SMSF) to ramp up your retirement. You realised with horror that unless you do something about your superannuation, you may not have enough money to live on in your old age.
As you listen to your friends and colleagues go on about how setting up your own SMSF is the Holy Grail of retiring richer, you’re convinced you should do it too.
After all, if millions of Australians are already doing it, they must be clearly benefiting from it.
Read more: Tips for buying property with your SMSF
One of the most attractive features of investing within your SMSF is the fact that any income you derive within your super enjoys a low tax rate of just 15%.
Even better is the capital gains tax discount. Properties that have been held by the SMSF for at least 12 months and are sold will only attract a 10% tax.
If you bought outside your SMSF, you would have to pay tax on 50% of the capital gains using your marginal tax rate, which could be as high as 49%.
The best tax deal, however, comes when you reach pension age, then all the income you get from your SMSF investments or capital gain will be tax-free.
But there are a few gotchas. 7 things to know about setting up your SMSF & buying property
1. It’s expensive to set up an SMSF
As a rough guide, it costs about $2,000 to set up a new SMSF.
2. It’s expensive to maintain an SMSF
Because it’s regulated, every SMSF is audited for compliance. This could set you back anywhere between $500 and $1,000 pa.
3. You need substantial funds in your super
Due to the high cost of set up and maintenance, you need to have at least $200,000 in your super, as a rule of thumb, to be able to buy quality properties.
4. Borrowing through your SMSF is more complicated
Be prepared to provide a lot more documentation when borrowing to invest within your super. You also need to give personal guarantee, which means you are still liable to pay for the debts of your SMSF.
5. The amount you can borrow is usually much lower
Banks generally cap their lending at 65% of the value of the property although the competition has ramped up among lenders and some are offering up to 80% of the value of the property. However, they still require you to show a healthy buffer.
6. You cannot renovate the property
The property you buy within the SMSF should be tenant-ready and the law prohibits you from doing major renovations to improve the value of the property.
7. You cannot buy from a related party & family cannot inhabit the property
It is against the law to buy an asset, including property, from a related party. All investments must be strictly at arm’s length. Families and relatives are also strictly prohibited from renting the investment property bought within the super fund. This is to ensure the transaction is made purely on a commercial basis and avoids potential conflicts of interest.
As you can see, setting up your SMSF can be a good way to build your retirement fund, if you do it right. Make sure you speak to a qualified professional person before jumping in, however, as the consequences can be costly.
The information in this article is for general interest and is not intended as advice. For advice and planning, consult an experienced financial consultant.
Posted by Nila Sweeney - realestate.com.au on 10th December, 2014 | Comments | Trackbacks | Permalink
Homebuyers warned lower interest rates won't be 'new normal'
Australia's most watched chief economist has joined Goldman-Sachs and Deutsche Bank in tipping a cash rate cut from the Reserve Bank, but analysts are warning first home buyers of thinking low rates are the new normal.
Westpac's Bill Evans made the call on Thursday that the Reserve Bank would need to cut the cash rate by 0.5 percentage points in the months after Christmas, in order to bolster domestic demand and pull the Australian dollar lower.
He said he expected the RBA to cut rates by 25 basis points (a quarter of a percentage point) in February and again in March prior to another period of stability.
On Monday, analysts said that the Australian dollar would need to fall substantially in order to take the pressure off the RBA to cut rates in the new year.
But while lower interest rates might be good news for homebuyers, Rate City product director Peter Arnold said the big danger was assuming lower rates would become the norm.
"Historically speaking we're far from normal. The general talk is that rates will stay low for a long time, but a home loan is around for an even longer time," he said.
"Even if rates stay low for five years, no one pays off a mortgage in five years. It's very important first home buyers don't factor their overall borrowing amount on current repayments."
Mr Arnold said homeowners on a variable rate loan would no doubt benefit from a rate cut, and that even before the RBA had made a move he was observing "more trimming" of variable rates than normal.
The average variable mortgage rate for December is 5.34 per cent, down from 5.37 per cent in October.
December's average fixed rate loans for one, three and five years, were 4.76 per cent, 4.96 per cent and 5.20 per cent respectively, according to data from Rate City.
Mr Arnold said longer-term fixed rates had come down quite a lot in recent years, while shorter-term fixed rates were unlikely to come down much more.
"The average in five-year fixed rates has come down by over 50 basis points, which is a big change. That can mean two things. Either that the banks think there will be rate cuts, or they think there will be a longer time before the rate rises than previously thought."
The position of current average fixed rates suggests the expectation of where rates are going to go over the mid term has definitely changed, he said.
JP Morgan economist Ben Jarman also said that consumers believing low rates were the norm would be a big concern for the RBA.
"Their chief argument has been that it's not interest rates that are the problem, it's a lack of what the governor is calling 'animal spirit'; a lack of willingness for people to use those low interest rates to undertake productive investment," he said.
Mr Jarman said while the RBA has cut rates, the most obvious lines of traction have been in housing and not in the areas that are more important for creating investment and jobs.
"That's their difficulty, they can't control how low interest rates express themselves. The longer they stay down here at these levels the more that gets entrenched as the norm in people's minds," he said.
Mr Jarman said he did not share Mr Evans' expectations of a cash rate cut by February, but rather felt that the RBA would remain on hold through 2015.
"It wasn't that long ago that people were talking about the prospect of near term rate hikes because of the housing market, and we were definitely pushing back against that," he said.
"I think the judgment call here is about what the RBA's reaction function is, if you like. What's the willingness to try to pump up growth a bit more?"
Typically, that judgment would be determined by the RBA's view on inflation, currently at 2.3 per cent.
"It's pretty low. If we start to get a sense that it looks like it could be low for a sustained period, then you could see how they might have to change their tune in the new year. But for right now I think it's a bit preliminary to make that call."
Read more: http://www.smh.com.au/business/the-economy/homebuyers-warned-lower-interest-rates-wont-be-new-normal-20141208-1216pk.html#ixzz3LQfqOu2I
Posted by Lucy Cormack - The Age on 9th December, 2014 | Comments | Trackbacks | Permalink
Celebrate too soon and you'll blow it
I love sport. I love playing it and I generally love watching it. I publicly confess to brushing aside a sneaky tear during big moments such as Cathy Freeman's 400-metre win, Sally Pearson's hurdle victories and the Australian netballers' triumphant celebrations over our Kiwi rivals.
There is just something about an elite athlete training hard, overcoming injury and then mentally pushing through any obstacles to win. It's also perhaps why I love football movies of any kind. And yes, a sneaky tear embarrassingly escapes during these occasionally too.
What I do know through my many years of playing sport, from listening to athletes or reading about them, is that training, eating well, a great mindset and the right coach play such a big part, but at the end of the day it's what happens on the field or the track that will lose or win a race or a game. And often that comes down to what happens at the very end.
Whether it's the last few kilometres in a marathon, the last quarter of a game or the split second over a finish line it is so important to finish well. Otherwise you could have trained wonderfully, eaten well, had a great mindset going into the game and performed beautifully but in those final minutes if you don't end well then really it's all for nothing.
I mean, can you imagine Sally Pearson arriving at the last hurdle and deciding it was simply too high and too hard? Or Cathy Freeman running the last hundred metres and deciding it hurt too much? Or Jessica Fox lying down in her kayak at the final gate because she's too worn out?
Now I'm sure they were all incredibly tired and they would have loved the opportunity to stop, but it was more important to finish well and to give their all. Yet stopping and having a lie down before we arrive at the finishing line is precisely what many of us are doing with our finances this time of year.
Let's say you've had a fairly good year. You've worked out goals, you've put in place budgets, you've tracked spending, you've paid off your credit card debts and you might have a savings buffer in your accounts. Fantastic!
So you arrive at December or at the Boxing Day sales and you decide to reward yourself for having had an outstanding year. Or you decide to splurge a little extra on Christmas this year, because you can. And somehow that splurging and shopping and spending ends up undoing all the great work from your year and you end up feeling defeated and slipping back into a whole lot of bad habits.
That's like running a great race but then stopping at the last hurdle.
Now I love a good sale and buying presents for others, so I'm certainly not advocating that you sit at home, do nothing, buy nothing and act like the Grinch. However I am suggesting that you make sure you are conscious of your spending this holiday season and you put plans in place to make sure you enjoy it both now and when your credit card statement arrives in late January.
What I know from watching and playing sport is that athletes always go into a race or a game with a strategy. And generally that strategy encompasses the moment they start the race to the moment they finish. That's because they understand the mental toughness it takes to finish a race well or to win a game.
So my question to you as we reach the final moments in this year is what financial strategies are you going to put in place to make sure you end your race well?
Perhaps your strategy will include writing down every person you're buying for and keeping track of how much you're spending using free apps such as Evernote or Santa's Bag. Perhaps it's working out how much you're going to spend over the Boxing Day and January sales and then tracking it using the MoneySmart app or Xero to make sure you stick to your limit.
Or perhaps it's about simply buying everything online so you're not tempted to purchase more as you walk past something shiny at the shops. Whatever you do, make sure you have a plan to finish well.
The most incredible moments in sport often happen at the end of the race. The elation on the face of the winner, the embraces of team-mates winning a grand final or the marathon runner who has finished miles behind everyone else but still stumbles over the finishing line determined to finish to a standing ovation from the crowd.
Whether you feel like you've won your financial race this year or you're stumbling broken over the finish line, why not choose today to finish this year well and put half an hour aside this week to create a strategy so that you do.
Then make sure you celebrate your financial victory over a glass of bubbles, a cider or a green smoothie on New Year's Eve and acknowledge the fact that no matter what type of year you had, at least you chose to finish well.
Posted by Melissa Browne - Money Manager on 5th December, 2014 | Comments | Trackbacks | Permalink
Big mortgages claiming scary bite out of household income
If you thought the global financial crisis had killed off Australians' penchant for taking out big mortgages, think again
Household indebtedness is back near record highs, after only a brief slowdown between 2008 and 2012.
The ratio of household debt to income is 151 per cent, the highest since March 2008 and just below its all-time peak of 153 per cent, latest figures from the Reserve Bank show.
As the graph shows, this measure has tripled since the early 1990s, despite the short interruption from the global financial crisis.
Our debt levels are also higher than those of most other developed countries, many of which have suffered housing busts.
So it's hardly surprising that investors overseas often worry about this high debt load, and how borrowers would cope if they were hit by an economic shock or a sharp rise in interest rates.
The Reserve Bank has also been giving borrowers some not-so-subtle hints that it does not want to see borrowers take on too much more debt, most of which is used for buying houses.
It's their job to worry about these things, but the central bank has a good point.
Despite record low interest rates, the RBA says the likely burden of meeting loan repayments was at about its 10-year average.
In NSW and Victoria, it said the share of household income needed to pay the interest on an average loan over the next 10 years was already near "historical highs".
In other words, average households in the two biggest states are already directing plenty of their budgets towards paying interest on their loans.
As a result, many economists reckon average household debt compared with income is probably close to its limit - because people would struggle to afford to carry too much more.
All the same, there remains the risk of borrowers overcommitting, especially when interest rates are at their very low current levels and there is hot competition in the property market.
With mortgage rates below five per cent, it's important to make sure you would not be caught out if interest rates rise, something you can test using the MoneySmart online mortgage repayment calculator.
To save us from ourselves, the financial regulators are also looking to introduce new restrictions on bank lending for property purchases. This is what the clumsily-named "macroprudential policies" are designed to do.
It's most likely that these new rules will make it more expensive for banks to lend to property investors, rather than first home buyers or other owner-occupiers.
There is also a chance banks will be told to be more rigorous when they are assessing whether borrowers can afford the debt they are taking on.
If you're someone who's taking out a loan, it's all the more reason to make sure you'd be prepared if interest rates were to rise - something that's bound to happen eventually.
Read more: http://www.theage.com.au/money/borrowing/big-mortgages-claiming-scary-bite-out-of-household-income-20141127-11um84.html#ixzz3LQfFH71a
Posted by Clancy Yeates - The Age on 3rd December, 2014 | Comments | Trackbacks | Permalink
Three Ps of purchasing your first home
How can you be sure your first property purchase is a good one? Experts say it all comes down to the three Ps.
Dipping your toe into the property market can seem daunting! Little wonder, given a home will generally be the most expensive purchase you’ve ever made and will likely be your largest asset.
According to National Property Buyers state manager Antony Bucello, first-home buyers have a better chance of making a purchase they’re happy with if they carefully consider the ‘three Ps’: position, property and price.
“For most first-home buyers, price is the factor around which they have the least flexibility. First-home buyers typically work to a strict budget, determined by how much they can afford and how much the bank is willing to lend.
“So for many first-home buyers, the other two Ps – position and property – are the ones they need to think about most, because this is where they have the most choice.”
Bucello says the position you choose will largely depend on your priorities, what you’re prepared to sacrifice and what’s non-negotiable.
“You’re looking at a very different lifestyle in a property positioned within 10 km of the CBD compared to something that’s 25 km out.
“In an inner-city position you’ve generally got access to public transport, cafes and strip shopping, but a first-home buyer budget usually means the price you can afford to pay will only get you a small apartment.
“In an outer suburb, you may not have access to the same amenities, but you’ll be able to buy a three- or four-bedroom home with a garage on your own block of land and – if you’re planning a family – give children more room to run around.”
Bucello says history suggests established inner-city properties will rise in value more quickly over time than properties in outer areas, so if capital growth is important to you, consider sacrificing some of the items on your property wish list (such as parking or an outdoor area) in order to gain a position that will appreciate strongly.
“There’s no right or wrong way to go. It’s about being honest about what you really value in a home.”
The property you choose means the type of dwelling and, again, there’s no right answer. Bucello says the key for first-home buyers is to be realistic about what they’ll be happy to live in.
“Some people are determined to buy in a particular suburb and will start with a small one-bedroom apartment to get their foot in the door, with a view to upgrading in five years or so. Others want a unit or townhouse with a bit more space and another group again are determined to be in their own detached home.
“If you’re after the latter, most first-home buyers will need to compromise on position to get the type of property they want.”
Achieving a workable compromise
Bucello says first-home buyers need to balance their priorities and personal circumstances across price, position and property until they arrive at a dwelling they can afford, are happy to live in and that’s located somewhere they at least like. “It’s not easy, but it’s possible, and it’s a first-home buyer’s best chance of success.”
“If there’s one thing I’ve learnt as a buyer agent, it’s that every person is unique and has unique plans and priorities around home ownership. The key is to realistically consider your lifestyle and what’s going to make you happy. If you won’t cope having to drive 10 minutes every day for a good coffee, maybe it’s worth sacrificing that second bedroom?”
Let the three Ps – price, position and property – be your guide and your first home may be closer than you think!
Posted by Cathy Weaver Domain Blog on 2nd December, 2014 | Comments | Trackbacks | Permalink
Growing speculation of an official interest rate cut in 2015
A further cut to the official interest rate might have been seen as radical just a month ago, but a growing number of experts are backing this prediction in the lead up to 2015.
At its last meeting for the year, the Reserve Bank has left the cash rate on hold at 2.5 per cent for the 16th consecutive month and has restated that it is unlikely to change any time soon.
Rates have been at a 60-year-low, but three of the 37 panellists surveyed by finder.com.au say it could drop even further.
Meanwhile the majority of experts are tipping a rate rise next year, while two remaining panellists are forecasting no change until 2016.
Domain Group senior economist Andrew Wilson, who is predicting a cut for the second consecutive month, said there was no reason for a rate rise with cooling house price growth.
"With still signs of a weakening economy, I think we're starting to see more of a case building for perhaps a fall in interest rates by mid next year," he said.
"The issue to do with over-priced housing markets is now being taken off the table."
Dr Wilson said the Sydney market was still performing strongly but its auction clearance rate was waning, and Melbourne's property market would "be lucky to grow at about the inflation rate this year".
On Tuesday, the Deutsche Bank also joined the growing number of experts who are expecting the cash rate to be slashed further next year due to high unemployment and slowing household income growth.
They have predicted two quarter-point reductions, which would bring the the cash rate to a record low of 2 per cent.
NAB chief economist Alan Oster does not expect a rate rise until the end of 2015.
"While there are tentative signs of an improvement in household spending, they do not yet signal a sustained change in household and business conditions," he said.
"In the absence of any major surprises, the cash rate is unlikely to rise until late next year as monetary policy commences its return journey to normality."
LJ Hooker chief executive Grant Harrod said the RBA's decision to leave the rate on hold should keep the market buoyant over the typically quieter holiday period.
"There has been a lot of speculation about when rates will rise and as a result we expect many homeowners who have been sitting back watching the market are likely to act in the early part of 2015," he said.
"They will want to make the most of this period of stability before it potentially becomes a buyers' market."
Posted by Christina Zhou - Domain (The Age) on 2nd December, 2014 | Comments | Trackbacks | Permalink
Comparing apples with apples: ACCC warns consumers off dodgy comparison sites
ONLINE comparison websites are booming, but the consumer watchdog is urging people to be on the lookout for dodgy operators.
In a major new report into the comparison website market, the Australian Competition and Consumer Commission has highlighted concerns around lack of transparency and potentially misleading conduct by some sites.
ACCC deputy chair Delia Rickard told news.com.au the most common issues with comparison websites were misrepresenting the percentage of the market being compared, and overstating the amount of savings consumers could make.
“Comparison websites have great potential to help you compare complex products,” she said. “What we’re concerned to ensure is the integrity of these sites so consumers have a proper sense of what’s being compared, the percentage of the market being compared, and that comparisons are accurate.”
The ACCC has previously taken court action against a number of comparison websites.
In 2012, EnergyWatch was made to pay more than $2 million in penalties for misleading advertising, while Compare the Market paid $10,200 earlier this year over claims relating to its health insurance comparison service.
That followed action against iSelect in 2007 over misleading claims, in which the watchdog secured court enforceable undertakings to improve its practices.
“In two of those cases the sites were giving the impression that they compared most or all of the market, when in fact they didn’t,” Ms Rickard said.
Many consumers are now using comparison websites to research but not necessarily to purchase, which means they were increasingly relying on call centres to close sales.
“We always have concerns to make sure what’s being said in these call centres is truthful and doesn’t mislead. We see good sites, but we also have concerns about a number of others,” Ms Rickard said.
She confirmed the ACCC was currently investigating a number of comparison websites.
“They should be put on notice — give consumers accurate and honest information, and make sure you present the results fairly.”
Most comparison websites are used as marketing vehicles for the service providers, meaning if they don’t pay to be listed, they don’t appear.
One of the ACCC’s concerns, apart from the misrepresentation of the percentage of the market covered, is the presentation of paid or preferred suppliers at the top of results.
“Where a comparator website makes representations about impartiality, independence or a lack of bias but then recommends results based on preferential relationships, the initial representation is likely to be false or misleading,” the report says.
According to the ACCC, undisclosed commercial relationships have the potential to:
• cause consumers to purchase more expensive products when a cheaper alternative is available
• harm consumer trust in comparison websites and limit the expansion of the industry
• offer some service providers an unfair competitive advantage
Tom Godfrey, spokesman for consumer group Choice, said many comparison websites sought to mislead consumers.
“A number of them suggest they compare the entire market but in fact they compare a relatively small segment,” he said.
“The best thing for consumers to do is always look at the exclusions and the way they’re set up — often they will have waivers buried deep in the site somewhere.”
He said regardless of the URL or branding, commercial comparison sites often only give a fraction of the options available.
“You’ve got to look who’s behind these sites. If the company is not independent, you’ve got to ask why they’re doing it, and often it’s to push their own products and services.”
WHY WE NEED THEM
It’s not all negative, however. The ACCC’s report makes it clear that comparator websites can play a vital role in cutting through information overload.
When faced with too much information, consumers can experience “choice paralysis” and ultimately choose no decision, or a poor decision, according to the ACCC.
Many service providers in sectors such as insurance, energy and telecommunications face similar input costs, meaning they have limited scope for product differentiation.
“Where businesses are subject to these factors, which may be beyond their control, they may choose to structure their products in a complex manner or provide consumers with large amounts of information as a strategy to minimise customer churn,” the report says.
For example, the Australian Dental Association, in its submission to the current competition policy review, claimed private health insurers “deliberately pitch advertising and various levels of cover to make it difficult for policy holders to compare the levels of cover on offer”.
“It is not possible to make direct comparison of levels of cover on offer by the 34 private health insurance funds in Australia,” the ADA wrote.
Similarly, a 2013 report by the Australian Energy Market Commission on energy switching in NSW found that consumers were confused about their energy plan options and how to get credible information on the subject.
“There is widespread inertia and disengagement when it comes to investigating energy plans,” the AEMC said. “This situation is compounded by the complexity of the different options available, which saps consumers’ motivation.”
Other key benefits identified by the ACCC include lowering barriers to entry for small and medium businesses, saving time and effort, facilitating like-for-like comparison, product innovation, and putting downward pressure on prices.
The ACCC says it will soon publish guidance to consumers in the form of practical tips on how to effectively use comparison websites. It will also release industry guidance to site operators and small businesses to help them comply with the law.
Posted by Frank Chung - News Limited on 30th November, 2014 | Comments | Trackbacks | Permalink
Most real estate price guides are wrong, claims expert
Underquoting occurs in four out of five property sales with agents intentionally misrepresenting prices to attract more bidders, according to a Sydney buyer's agent.
Yet Patrick Bright from EPS Property Search says the NSW Government still refuses to do anything to fix the "horribly broken" system even as Victoria's outoging Coalition were moving to propose tough new rules to protect buyers.
In Victoria the Coalition had announced plans, if it won the election, to require agents to advertise the correct price range for a home, including the reserve price, with fines of up to $29,000 for offenders and a hotline for buyers to report alleged dishonesty.
Labor declared those plans an election stunt so the laws are unlikely to proceed with Daniel Andrews now in charge.
"Underquoting here is a huge problem, with some form of underquoting taking place in 80 per cent of sales cases," said Bright, who has gathered 700 signatures on a petition on change.org for the public to support his stand to force the NSW authorities to stamp out the practice.
"Now the Victorian Government is proposing making agents publish a range of prices they expect, to make sure the system's transparent and that buyers aren't wasting time and money on properties they don't realise they can't afford. But here, we're doing nothing."
NSW Fair Trading Minister Matthew Mason-Cox declined to comment on whether the Government was considering adopting the Victorian proposals, saying simply that the department was keeping a watching brief on the issue.
"NSW Fair Trading is aware of reports of underquoting in the marketplace and is keeping a close eye on the real estate industry, in particular underquoting activity," he said. "This year, NSW Fair Trading stepped up its real estate compliance checks in the marketplace, undertaking 10 operations across Sydney.
"We will continue to closely monitor the market to ensure that the real estate marketplace in this state remains competitive and fair."
The department is currently investigating just one city real estate agency for possible underquoting, following its latest compliance blitz, Operation Belaya. That agent, if found guilty of falsely understating the selling price, could face a maximum penalty of a $22,000 fine.
But Bright – the director of EPS Property Search who has purchased more than $500 million of real estate for clients – said that represented merely the average commission on a single sale for an agent. "That's no disincentive at all," he said. "It makes it worth running the risk of underquoting.
"The fines are too low, the rules are too relaxed and ambiguous, NSW Fair Trading doesn't have the resources to properly investigate all the cases where it occurs, and the system is horribly broken. The public is being consistently misled about the reserve prices on property being auctioned."
But the Real Estate Institute of NSW denies the system here needs fixing. Chief executive Tim McKibbon said it was very hard for agents to correctly predict prices in a strong market, when a good marketing campaign and a vigorous auction can see prices soaring over expectations.
"The real estate agent is obliged to put an estimated price on the agency agreement [between the vendor and the agent] which is very heavily prescribed in legislation," he said. "So it's very simple for Fair Trading to discover underquoting issues.
"The reality is that often the price is driven up during the auction and people misunderstand that as underquoting. We have only a small percentage of agents who do the wrong thing."
Posted by Sue Williams - Sydney Morning Herald on 30th November, 2014 | Comments | Trackbacks | Permalink
Where to find free financial advice
FINANCIAL advice doesn’t have to cost you a fortune. In fact, much of it is free if you know where to look.
Be aware of the free options before you fork out hundreds or thousands of dollars for advice on budgeting, property, investment, superannuation or estate planning, but remember that in many cases you get what you pay for.
A financial planner might charge an hourly rate of $220, an accountant anything from $200 and a solicitor $250 an hour or more, so you’ll want their words to be worthwhile.
Here are some sources of advice that won’t cost you a cent.
If you have money problems, you can speak to a financial counsellor for free. Financial Counselling Australia says these qualified professionals work within community organisations and provide “non-judgmental information, support and advocacy”. Telephone 1800 007 007.
Most financial services companies’ websites are packed with free information to help you make money decisions.
“Everything you need to know these days is on the internet, but there’s also a lot of bad information on the internet so it pays to be quite diligent,” says Mortgage Choice spokeswoman Jessica Darnbrough.
Valuable sites include moneysmart.gov.au and comparison websites such as mozo.com.au packed with financial guides and calculators.
Mortgage brokers do not charge their clients for advice about getting a home loan, saving for a deposit, property investment steps to take, rental yields and suburb information, or even how to make yourself look good on paper for a lender.
“When applying for a loan you need the best possible credit history to get the biggest discount open to you,” Darnbrough says.
An initial meeting with a financial planner won’t cost you anything, may contain some free general tips and should give you an idea of how you can benefit from more detailed paid advice.
AMP financial planner Mark Borg says anyone trying to make complex financial decisions without professional help may be compromised by their personal experiences and not be open-minded.
“The first problem with going it alone is you don’t know what you don’t now,” says Borg, principal of MBA Financial Strategists.
Sometimes some “cold-hearted” professional advice is what you need, he says.
FAMILY AND FRIENDS
The best source of free advice can be those closest to you, but always remember that their situation is different to yours so copying them completely probably won’t work.
Family and friends can give you recommendations about experts they have dealt with, or share lessons they have learned from their own financial experiences. Money should not be a taboo subject.
Free financial seminars offered by financial planners, real estate agents, mortgage brokers, law firms, super funds and government bodies such as Centrelink and Defence Housing Australia.
“You just have to open your eyes to the community announcements,” Darnbrough says.
But beware of property spruikers trying to flog a product. Just like the internet, you’ll have to sort out the useful information from the slick marketing spiels.
If there’s one thing you do this week it’s…
IF THERE’S ONE THING YOU DO THIS WEEK, IT’S ...
Start a savings plan.
Check out the best savings accounts on the market at comparison site Mozo.
Work out how much money you can afford to put away and not touch each week.
Set a savings goal for the next 12 months and check your progress each month.
UBank USaver $50 a week + interest rate 4.02 per cent = $2661 in 12 months (if you also have a transaction account with the bank)
Save $100 a week in the same account = $5322 after 12 months.
Posted by Anthony Keane - News Limited on 28th November, 2014 | Comments | Trackbacks | Permalink
Foreigners, sausages and the Great Australian Dream
After all the hearings and submissions, the House of Representatives Economics Committee Report on Foreign Investment in Residential Real Estate boils down to this sentence on page 86:
"Conflicting evidence has been received by this inquiry, although on balance it is the committee's view that the benefits of foreign investment outweigh the negatives."
It might seem a little odd that this bottom line doesn't feature in the "four key findings that translate into 12 practical recommendations" listed in committee chair Kelly O'Dwyer's introduction to the report, but followers of Yes, Minister - the British documentary series on the nature of government – would not be surprised.
There is a need for politicians to be seen to be doing something about "barbeque stopper" issues, particularly if such an issue is in danger of becoming socially divisive, is being whipped along by the government's tabloid media of choice and is causing some angst in the government's electoral heartland.
So it is with the suggestion that "foreigners" (code word for "Asians") are invading Australia not via leaky boats, but through real estate agents – buying up vast tracts of Australian housing, pushing affordability through the roof, pricing "real" Australians out of the market and thus denying them their birthright of the Great Australian Dream.
Ms O'Dwyer doesn't spell it out quite that clearly in her introduction, but she goes close:
"Owning your own home is part of the great Australian Dream. For many it represents the opportunity to build a future, it represents connection with community and security for family.And so, to be seen to be doing something and in keeping with the sage advice of never holding an inquiry without knowing what it will find, Joe Hockey commissioned an inquiry, giving O'Dwyer's committee the task of doing something.
"Buying into the Australian Dream doesn't come cheap. According to a recent International Monetary Fund, the current ratio of housing prices in Australia to average incomes is 31.6% above the historical average.
"Is it any wonder then, that many Australians now worry that home ownership may be out of reach for them, for their children, or for their grandchildren? At the same time, Australians worry about rental and interest costs, and their impacts on the cost of living.
"There is no one simple explanation for the decline in housing affordability – although lack of land supply, underdevelopment, state planning laws and regulations, local council red tape, and stamp duty and tax arrangements likely all play a part.
"Over the years, however, many in the community have asked the question – what role does foreign investment play in residential real estate?"
The four key findings amount to the discovery that the government lacks detailed knowledge about just how much real estate is owned by whom and that the Foreign Investment Review Board probably has not been enforcing the existing perfectly adequate rules.
So, the recommendations include for the establishment of a national register of land title transfers to include citizenship and residency status of all purchasers – something the Nationals and Alan Jones have been after for some years.
(And such a register could make for interesting reading for all sorts of reasons for all sorts of people if it insists on drilling down to beneficial ownership.)
The committee wants FIRB to have access to Immigration Department information on the departure of visa holders, to be across all foreign purchases and to enforce the existing rules.
To finance this large increase in FIRB's workload, the committee proposes a user-pays application fee of $1,500 for foreign purchases. The Parliamentary Budget Office suggests that would raise about $159 million over four years.
O'Dwyer's introduction manages to include the standard few gratuitous swipes at the previous Labor governments, corrects speculation about free trade agreements having an impact on residential impact and supports the adequacy of our existing regulations.
So there, something has been seen to be done, foreign buyers should be reassured as the nation needs their investment to encourage more building and the real conclusion about the impact on housing affordability is what everyone already knew – maybe a little at the margin, but not enough to worry about it.
Time to turn the sausages or they'll burn.
Disclosure: The author owns one negatively geared and one positively geared rental property.
Read more: http://www.smh.com.au/business/the-economy/foreigners-sausages-and-the-great-australian-dream-20141127-11v4a8.html#ixzz3KI6wgh00
Posted by Michael Pascoe - The Age on 27th November, 2014 | Comments | Trackbacks | Permalink
How to avoid a dud real estate agent
Finding the right property for your hard-earned dollars is only one part of the investment equation. Choosing the right agent is an important variable in that calculation and it can either lose you thousands or put thousands back into your pocket.
Engineering officer Adrian Bedoya and his wife, Rosa, found this to be the case when they sold a house in Sydney's west last year.
With two small children and a busy job, the couple had little time to scope out local agents. Bedoya turned his search online and stumbled across OpenAgent, an organisation which connects home owners with the best agents in their area.
Bedoya registered with the organisation and received a list of three agents. The difference between the valuations was a staggering 25 per cent he says.
"I was amazed and surprised by the difference in the three appraisals. One valued the property at $300,000 while the other at $420,000. It was easy to choose which one to go with; we went with the highest appraisal.
"Two weeks later, the house sold for $400,000. It was worth every cent to get the three appraisals. The 25 per cent we got from the sale means our initial investment paid off and we have more money to play with."
Co-founder of OpenAgent, Marta Higuera advises vendors to choose agents who have experience in the area, a strong track record and superior negotiating skills.
"OpenAgent only list 10 per cent of all agents in the marketplace," says Higuera.
"In Bondi Beach there are 199 agents, but we only recommend about 20 of them. It is not that the rest are bad agents, but there is a big difference between the best and the rest and this can translate to tens of thousands of dollars.
"Upfront honesty is sometimes really hard to get and it's why we encourage customer reviews. If an agent is unresponsive, or who doesn't deliver, this is definitely a red flag.
"Think twice before you sign a contract as you will be committed to them for a few months."
Higuera offers these tips to avoid dodgy agents:
Publisher Lesley Williams and her husband, Tom recently missed out on a property due to the inactions of an agent. After repeated calls, they discovered the property sold before they had a chance to make a counter offer.
- Research their sales history There is no substitute for experience. Being a real estate agent is something that you learn on the job. Agents should have a solid sales track record in your area and should have sold similar properties.
- Read customer reviews or testimonials An agent's past clients have the inside story. They are your best way to find a trustworthy agent who will deliver the best price for you.
- Test their knowledge of the local market Active real estate agents will have their finger on the pulse and should be able to provide examples and data about the local real estate market.
- Judge them on actions, not words Do they do what they actually say or are they making excuses or regularly changing their story.
"We placed the offer and I heard nothing for five days," says Williams.
"I called the agent to see whether the vendors had accepted our offer. The agent gave excuses why he hadn't responded such as he was away and the vendor was in Hong Kong.
"Another week passed and I called again and still no answer. In the end I rang the real estate agent office and spoke to someone who told me the property had been sold for$1.2 million.
"Understandably, we were very upset. We had not been advised if our offer was rejected or given an opportunity to increase our offer. Moreover, I think the vendors were poorly represented because we might have beaten the offer."
Amanda Lynch, chief executive of the Real Estate Institute of Australia, says that while Williams' example is disappointing, there are relevant consumer affairs organisations across the states that take these matters seriously.
She says that disgruntled buyers or vendors should definitely notify the relevant organisation in their state. There is a code of conduct which is enforced and membership can be removed if an agent does not comply, or is found to have acted improperly, then they are likely to be fined or penalised.
Lynch offers these additional tips:
- Develop a good relationship with your agent Choose an agent who understands your needs, this is crucial to a purchase or sale. It is best to meet with a couple of agents before making a decision. If you don't feel that they are taking your individual circumstances into account, then try another agent. A good agent will value you as a client.
- Check to see if they are a member of an industry group and have they won any awards State and national awards are independently accessed and can be a very good indication of the reputation of an agent.
- Lodging a complaint Either obtain your own legal advice or contact the Office of Fair Trading or the equivalent. REIA has a national list of regulatory offices at http://reia.asn.au/complaints/complaint/
Posted by Emily Chantiri - Money Manager (Fairfax) on 26th November, 2014 | Comments | Trackbacks | Permalink
Six ways to make your money work as hard as you do
Life is busy, and seemingly getting busier. You work hard to earn a living – probably well and truly over and above what your boss' basic expectations are. Or you're a stay-at-home parent working crazy hours taking care of a home and family.
But you've also made time to read this article, because you know that some judicious financial decisions can make your future self a lot better off. And you're dead right. Below are six ways you can make your money work harder – for you. And it's good (and profitable!) to be the boss!
- Take control You can't make something work for you until you've taken control of it. I mean really taken control. You can do a few things to help earn more, but a lot more when it comes to what you do with each pay packet. Make a budget. Stick to it. And pay yourself first – make sure putting a little (or a lot!) away for the future is your number one objective. Once you have a flowing stream of savings coming your way, you're ready to put it to work.
- Pay less on your mortgage If you have a mortgage, you're probably paying 5 per cent. If you're paying even 0.1 per cent more, you're paying too much (and depending on your circumstances, you can beat 5 per cent easily). There's no better way to get your money working hard than by simply paying less in mortgage interest. And once you're paying less, make sure your extra savings are in a no-fee mortgage-offset account. No matter how much you get in a high-return savings account, you'll do (much) better after-tax by using an offset account.
- Open a high-interest savings account No mortgage? You're not off the hook. It is literally easier than ever to maximise the return on your savings. It's true that official interest rates (and therefore the rates you'll likely earn on your cash) are at historic lows – but that's no excuse to accept lower interest than you can get elsewhere. Put "high interest savings accounts" into Google, look past the ads, and you'll see a couple of websites that compare high-interest, at-call savings accounts. Just make sure you don't fall for their "honeymoon rates"!
- Invest If you like the idea of your money working for you by earning interest even while you're asleep, you'll love the idea of doing that, but on steroids. Having your money working for you is one thing, but what about having 200,000 people on your personal staff? Okay, so maybe not your personal staff, but you can have a share of their best efforts by owning shares in, say, Wesfarmers from which those numbers come. Or the 128,000 people who work for BHP. The people who work for Australia's ASX-listed companies have turned a $10,000 investment into a $280,000 pile over the past 30 years!
- Pay less tax Australia's tax system is ridiculously large and complex. But don't let that complexity stop you from claiming all of the tax deductions you're entitled to. Accountants get a tough rap, but a good one is well and truly worth her fee. Make an appointment today, and see if you get a nice little refund cheque from our friends at the ATO at the end of each year.
Get even more money from the ATO
Dividend 'franking' is one of the great free-kicks available to Australian investors. If you earn $100 in interest this year, you'll lose a chunk in tax (depending on your marginal tax rate). But if you receive $100 in fully-franked dividends, you'll lose much, much less – and you might even get an extra cheque from the tax man. That's because the tax paid by companies can reduce your tax bill! Either way, fully-franked dividends beat interest, hands down!
Hopefully that list gives you a great starting point – and we haven't even touched credit cards, personal loans, utility bills and a host of other opportunities to save more money in the first place. A financially prosperous future is within your grasp – you just need to take it.
Posted by Scott Phillips - Money Manager (Fairfax) on 26th November, 2014 | Comments | Trackbacks | Permalink
Turning your beach house dreams into littoral reality
My husband wants a beach house. For the past couple of years whenever I ask him if I can do something for him or what present he'd like for his birthday, the answer is always the same. A beach house.
Now a shack by the sea really doesn't appeal to me but for many Australians it's a dream goal to own a place on the coast or in the mountains. Your own weekend sea or tree change.
The problem I have with my husband's dream beach house is the same one I have for a killer outfit or a painful but gorgeous pair of shoes that you'll only wear occasionally – the cost per use is often simply too high. Advertisement
But, if, like my husband, you won't be swayed from your dream, what can you do to make sure it doesn't turn into a financial nightmare?
Beach shacks are a little different to shoes in that while the cost per use may be ridiculously high, there is the potential of long-term capital gain but it's important to ensure you can afford to hold onto it for the long term without losing your sanity or your home.
- Buy where it's cheap If your idea of a beach shack is at Palm Beach, Sorrento or other multi-million-dollar spots then it would be prudent to revise your expectations. There are still reasonable prices to be paid in coastal suburbs but you may need to look at least a couple of hours outside capital cities or perhaps a few blocks back from the beach. Once you've done your research and found a place you think you can afford, make use of one of the many free online loan calculators to work out what your monthly repayments would be, as well as factoring in extras such as rates, repairs and land tax to make sure you really can afford the cheaper alternative.
- Buy with others You've taken a trip with some friends, you've all fallen in love with the area and you've all decided you want to buy there. Why not consider purchasing something together? In these cases I would highly recommend you engage a solicitor to draw up an agreement for how much is contributed each month, who can buy each other's share and how often you can use the property. It's always easier to negotiate and agree in the beginning when things are rosy than it is when someone's Rottweiler that they insist on bringing with them each time they holiday keeps you awake again. If you work out the terms and everyone gets along, purchasing something together shares the risk and the reward as well as the financial hit.
- Holiday rent If you suspect you'll really only use your dream shack once a month because your jobs are busy or your kids are in weekend sport then renting it out when you're not there would help pay some bills. This option also gives the added benefit of being able to claim a tax deduction for expenses incurred when the property is available for rent. Deciding to rent it involves more than simply telling your close friends they can rent it cheaply. It's a good idea to list with a local real estate agent or on holiday websites and receiving a tax deduction for your income shortfall reduces the cost of owning the property, which may make the whole exercise more viable.
- Rent it out Holiday rents can be a fickle and seasonal type of income so if you find your dream shack but can't quite afford to own it without regular income just yet then consider renting it out for a few years until you can afford to. During this time you can pay down debt with the motivation of being able to afford to have your shack all to yourself sooner rather than later. Plus, because the property is available for rent throughout the entire year you can claim all of the allowable deductions you incur, which may reduce your tax and help you pay that debt down even faster.
- Do it yourself If you can't face renting out your shack but you can't afford to purchase one outright either then think about purchasing a block of land instead. You may need to buy a block a few hours away from a major city but there are still pockets that are reasonably cheap either because of location or because facilities such as electricity or sewerage haven't been connected yet. If you really wanted to save some money you might eventually have a reasonably priced home built to lock-up stage then gradually finish the rest yourself as you have the funds and the motivation to. However, if you're like my husband or I and not particularly handy, the whole pursuit would end up costing you money. But for many people who are even a little bit DIY, it can be a less expensive and a rewarding way to achieve your desired outcome.
That said, sometimes a beach house can simply be an expensive exercise and it is just as fun to buy it, rent it out and then holiday somewhere fabulous instead.
Posted by Melissa Browne - Money Manager (Fairfax) on 26th November, 2014 | Comments | Trackbacks | Permalink
House flipping know how
Professional house flipper, Charyn Youngson, has been successfully renovating for profit for almost a decade. Here’s how she does it.
Adelaide-based Charyn Youngson has successfully bought, renovated and sold more than 15 properties (for herself and, more recently, for clients) in the past nine years. She says despite the costs involved in buying and selling property, by sticking to a few simple rules you can make a fast profit every time.
Buy below market value
Youngson aims to purchase properties for about 20 per cent below market value. While that may sound ambitious, she says some vendors are prepared to take less in order to achieve a fast, fuss-free sale.
“It’s true that most properties are not sold at such a discount, but I seek out those homes where the vendor is motivated to sell quickly.”
Cosmetically renovate – and fast!
Youngson says the three hot spots in any home are its street appeal, kitchen and bathroom. “If you can easily upgrade or improve those, you’re on to a winner.
“Time is money so I only ever purchase properties that can be simply improved in around three to five weeks. I never do anything structural and I stick to existing layouts in kitchens and bathrooms to keep the costs down.
“New paint, new blinds, new lights, new flooring, new shower screen and vanity … you can give a home an enormous facelift with a well-planned cosmetic renovation. Being quick about it means you minimise hold costs and you’re not exposed to unforeseen market downturns that can dampen your profits.”
DIY and upstyle
Youngson aims to DIY as much as possible. “The first property I renovated, I did almost everything myself (with some help from a friend) and made $30,000 clear profit in just five weeks.
“I also style every home I renovate with furniture, artwork and accessories so that it looks as fabulous as possible. Styling is the secret ingredient to achieving both a fast sale and a premium price.”
Buy at the lower end of the market
Working at the low end of the market is less risky. “You’ve got more buyers who can afford the property if you’re operating in the less expensive suburbs,” says Youngson.
“You’re also appealing to buyers who don’t expect granite bench tops and other high-end fixtures and fittings, which means you can upgrade the property more cheaply.”
A recent case in point is a property in Adelaide’s Klemzig that Youngson recently renovated for a client. “He’d had it appraised at $380,000. I spent $15,000 on painting, new flooring, window treatments and a garden tidy-up over three weeks, styled it up with furniture, and it sold at auction for $488,000. He was thrilled!”
Build a good team around you
Youngson has built up a reliable team of tradespeople she calls upon as soon as she’s exchanged contracts. “I try to negotiate access to the property with my carpenter before settlement, so he’s ready to start the day settlement takes place. I also maintain good relationships with real estate agents – they know what I look for and they call me if they list the right sort of renovator’s delight for sale.”
Attending a wealth-creation course inspired Youngson to kickstart her house-flipping journey. “I learnt about a lot of different ways of generating wealth through property, but more importantly, I developed a positive mindset and the self-motivation I needed to get started.”
Fake it before you make it
Youngson says its no good acting green around real estate agents, because they’ll eat you alive. “Before I even attended my first open-for-inspection, I had business cards made up that said ‘Charyn Youngson, Property Investor’. I handed them to every agent I met and let them know I was serious.”
Be realistic and do your research
“Be conservative with your numbers,” advises Youngson. “Never inflate what you think you’re going to make. Make sure you’ve done your research and know what properties in the areas you’re targetting are really worth.”
Although house flipping requires a can-do attitude plus diligence and careful planning, those who’ve done it say success is more than possible.
Posted by Cathy Wever - Domain on 25th November, 2014 | Comments | Trackbacks | Permalink
Give yourself a better mortgage rate by reviewing your loan
FINE tuning your home loan can make you thousands of dollars extra a year better off. The Reserve Bank of Australia has kept interest rates at 2.5 per cent since August last year but many lenders have failed to pass on the full benefit.
So if you're keen to make the most of this historically low rate you may need to take matters into your own hands.
Here are moneysaver's simple steps to giving yourself a better mortgage rate.
1. Do your homework.
Financial services firm Canstar's research manager Mitchell Watson says the first thing borrowers should do is get a clear understanding of what is and isn't a good deal so you are in a better position to negotiate.
Knowing what is the best rate in the market can help when you approach the lender and demand a better deal.
Canstar's database shows the lowest standard variable rate on the market for a $300,000 30-year loan is 4.48 per cent.
Consumers should also look at the fees attached which can make a big difference over the life of the loan.
Watson suggests finding out whether a home loan package which includes other products like credit cards may result in you getting better bang for buck.
2. Understand your loan
Reviewing your mortgage every few years is a good idea. If you have a fixed-rate loan do it when the loan term matures.
If you had a high loan-to-value ratio — the size of the loan compared to the value of the property — it's worth giving yourself a home loan health check once this drops below 80 per cent.
SAVE MONEY: GIVE YOUR MORTGAGE A HEALTH CHECK
Mortgage Choice spokeswoman Jessica Darnbrough says you'll have more freedom to move as you won't be slapped with lenders' mortgage insurance.
“Lenders' mortgage insurance is not transferable, so if the loan you are refinancing into has an LVR of 80 per cent or more, you could be required to pay LMI again,'' she says.
“It may pay for borrowers to bide their time, wait until they can get a loan with an LVR of 80 per cent or less and then refinance.''
3. Phone your bank
Once you're armed with your home loan ammunition it's important you're assertive when contacting lenders, whether it's your current provider or a different financial institution.
Ask for a better rate or tell the bank you'll walk.
Westpac's head of home ownership, Melanie Evans, says “shop around and find a lower interest rate so your repayments reduce as much of the principal of your mortgage as possible.”
4. Contact a mortgage broker
But some borrowers will find researching home loan deals far too hard and this is where they'll often engage a mortgage broker.
They often have a comprehensive understanding of the market and can find the best deals to suit a customer's needs.
Watson says they can sometimes provide customers with deals that aren't publicly advertised by lenders.
Teacher Najla Eid, 29, who owns three properties recently used a mortgage broker to snare her cheaper rates across her two investment properties.
“I realised my interest rates weren't that good anymore so I went to my mortgage broker who helped me get more competitive deals,'' she says.
“I've saved myself about $60 a week on my two investment property loans by getting a better rate.”
5. Changing your existing mortgage
ING Direct's head of product Michael Christofides says adopting measures such as making fortnightly repayments can also help reduce your interest bill.
“Have your salary paid into your mortgage as well and you are making sure every dollar of your income is going against what you owe on your home loan,'' he says.
Another popular method is to use your credit card to pay for purchases and pay it off at the end of the month to keep the balance in your offset account as high as possible, for as long as possible, to reduce your interest charges.
Posted by Sophie Elsworth - Newscorp Australlia on 23rd November, 2014 | Comments | Trackbacks | Permalink
What makes the best streets to live in
Living on a lovely street obviously has its benefits. A great location and a beautiful streetscape are reason enough to choose your address carefully, but when you consider your home as an investment, selecting a desirable street is a no-brainer.
"Obviously when you purchase a property you want it to hold its value or increase its value," Peter Blackshaw Gungahlin agent Luke McAuliffe says.
"Finding a good house on a good street with other quality homes will add value to your property."
There's no shortage of choices in Canberra, with all of the city's regions boasting plenty of sought-after streets. Whether you're after a quiet, family-friendly cul-de-sac in Gungahlin, a leafy street lined with heritage cottages in the inner north or a bustling modern precinct filled with quality apartments, the territory has more than its share of inviting streetscapes.
"Everyone's idea of what makes a great street or the best street really comes down to personal preferences, circumstances and needs covering a very wide range of factors," Maria Selleck Properties principal Maria Selleck says.
"But the biggest single factor is unquestionably the lifestyle that properties in their chosen street can help facilitate."
Ms Selleck says lifestyle factors include the street's proximity to amenities, appeal of the neighbourhood, street trees and the streetscape.
For large blocks of land and treelined streets, LJ Hooker Manuka principal Stephen Thompson says you can't go past the inner south. He says some of Canberra's best streets are situated in Red Hill and counts Vancouver Street, Wickham Street and Torres Street as the top streets in the capital.
"They're quiet, private and some of the largest blocks in Canberra," he says.
He says there's a level of prestige associated with these streets that makes them so appealing to buyers, but most importantly, there's the security of buying in such well-regarded streets.
"People look at it from the view of capital appreciation," he says.
Mugga Way, located in Forrest and Red Hill has earned its reputation as the golden mile and is Canberra's most expensive street. House prices have steadily increased in recent years with a handful of multimillion-dollar sales secured in 2013 and 2014, including 149 Mugga Way, which sold for $3.4 million in September.
But a great street doesn't have to comprise expensive properties. Luton Tuggeranong director Christine Bassingthwaighte says regardless of the price range, it's important that the homes are well presented.
"It's the quality of the homes," Ms Bassingthwaighte says.
"They don't have to be big homes but if you drive through a street that everyone loves living in, it has a good appeal."
Elders Real Estate Belconnen agent Andrew Lonsdale agrees that a well-presented street makes a huge difference when selling homes. He says buyers are also looking for a good location close to amenities and friendly neighbours.
"A lot of people that I deal with are families coming from out of Canberra," he says.
"They're looking for homes close to good schools."
Mr Lonsdale says neighbours who look out for each other and provide a sense of community are important factors for buyers, particularly for those who are from out of town. He says some of the best streets he has sold on have neighbours visit the open homes to tell him how much they love living there and how friendly it is.
While leafy suburban streets might spring to mind when considering street appeal, there are also plenty of options close to the action of the inner city. With apartment living gaining popularity, Mr Lonsdale says there are some great streets in the centre of Canberra that will suit a range of buyers.
Those who desire cafes and culture at their doorstep will feel right at home on Edinburgh Avenue or Marcus Clarke Street in NewActon. Others will love the peace and quiet of Turner's Watson Street with its community gardens, low-rise buildings and abundance of greenery.
Whether it's a house or an apartment you're on the market for, consider the lifestyle your new street can offer and keep in mind that a wise choice will be rewarded in the future.
"The future value of the property will also depend on what happens in that street," Independent Property Group Woden and Weston Creek agent Jonathan Charles says.
"As properties get renovated it will enable the street to grow and bring the value of your property up with it."
Posted by Rachel Packham - Domain on 22nd November, 2014 | Comments | Trackbacks | Permalink
Styling your home for sale can reap rich rewards on the Melbourne property market
SPENDING a bit of money on presentation is the key to adding thousands of dollars to the selling price of your house.
Creating an inviting garden and stylish rooms free of clutter, gives sellers a better chance of attracting a top price.
Woodards, Oakleigh, agent Chris Karantzas said the right presentation created an environment where the buyer could imagine themselves living in the home and showed there was little work to be done when they moved in.
Some homeowners opt for a DIY makeover, but many agents recommend consulting a professional property stylist for direction.
“When people spend a little bit of money they can get thousands back in return,” Mr Karantzas said.
Cheree Scott, owner of Melbourne Property Stylists, said sellers had only short time to make a good impression.
“Buyers only look for about five minutes and it’s either on their list or it’s not,” Ms Scott said. “And it’s even faster than that if they’re looking on the internet.”
Investors, first-home buyers and couples were more likely to be in the market for a one-bedroom apartment, so styling needed to suit.
Conversely, a family home needed to show defined spaces for parents and children, with some of the bedrooms styled for kids.
“If you get something like a four-bedroom home with a family in mind, we don’t do it with white, glossy furniture and chrome. We come in with warm timbers and a little bit of a family feel to it,” Ms Scott said.
PICK YOUR TARGETS
Forget the full makeover. Rather, look for smaller cost-effective projects that have a big impact.
Mr Karantzas said the garden and key living areas should be the focus.
Splash some fresh paint in a few rooms and accessorise with coloured cushions, vases and fresh flowers. Walk through the house with your agent to work out how to highlight the positives and negate any negatives.
Remember, less can mean more.
“You don’t need to remodel the kitchen or remodel the bathroom to get a better return,” Mr Karantzas said.
‘‘Decluttering, doing your garden aesthetically, maybe painting a room or two, and presentation makes a massive difference.”
Using hired furniture is a great way to redecorate a home on a budget.
“Store two or three pieces and get a nice settee and a cabinet and get a vase and some flowers to give it that appeal,” Mr Karantzas said.
Concentrate on areas of the home to be photographed for signboards and marketing, he suggested.
Decluttering is a balancing act. It’s important that the house is on display, not sellers’ belongings.
“What you’re trying to do is create balance in a room without making it feel barren,” Ms Scott said.
“So don’t take away all your photographs, don’t clear off your benches and leave nothing there.
“You’re looking for a few key pieces for people to home in on. You’re trying to create a sense of space.”
Cleared out belongings can be placed in a storage unit, family member’s garage or shed or even neatly boxed away in your own garage while you sell.
“People don’t put a lot of emphasis on the garage,” Mr Karantzas said. “They know it’s there and most of the time they end up putting a lot of stuff in it anyway.”
HOW MUCH TO SPEND
It’s not always the case that the more you spend, the more you will make in return.
Just like renovating a home, the trick is not to overcapitalise only to break even or lose money when you sell.
So take major kitchen and bathroom makeovers out of your thinking.
Whatever the budget, Mr Karantzas said sellers should expect a return on what they spend.
“You don’t have to spend $30,000, $40,000 or $50,000,” he said. “My rule is whatever you spend, you should get double back.”
Ms Scott said a pre-sale consultation costs $150, while a partial set up with hire furniture could range between $1500 and $2000. A full setup could cost between $2000 and $6000, depending on the size of the home.
“If you can’t afford to go to a stylist, have a look on websites, like realestate.com.au or ours and on television and you’ll get a bit of an idea of how things are set up,” she said.
A facelift can turn into a tidy profit
HUNTINGDALE couple Ken and Denise Hunter knew their house needed work when they called in a real estate agent for an appraisal.
But with Mr Hunter working full-time and living with renal cancer, work on their Hargreaves St home of 35 years had slowed.
However, with the impetus of selling, the couple paid a contractor to work on the garden and house.
Mr Hunter said the $10,000 spruce-up added at least $50,000 to the price of their home when it sold at auction last month.
“We knew the place needed tidying up,” Mr Hunter said.
“With my health, we hadn’t done everything we should have.
“So we got a guy and he painted the lounge and dining room and one of the bedrooms. He also did some gardening work. He tidied up the backyard. We had a granny flat that was removed years ago, but with my health we never got around to doing the back lawn.
“We put a garden in out the back and re-mulched and tidied the place up.”
Mr Hunter was prepared to spend more but found after a lick of paint that it came up a treat.
It was a lot of hard work but it was rewarding, Mr Hunter said.
“We were looking for around $700,000 and in the end we got $765,000,” he said.
“I think we walked away with buying knick-knacks and everything on about $10,000, I suppose.”
Posted by Peter Farago - Herald Sun on 22nd November, 2014 | Comments | Trackbacks | Permalink
Does your home have historical significance that you didn't know about?
Government intervention might have saved Gough Whitlam's birthplace, but the buyers of the property are left in limbo.
The Kew house where the former Labor prime minister was born was on the brink of demolition when Planning Minister Matthew Guy stepped in with an interim protection order.
Mr Guy's decision has left a legal quandary for the owner of Ngara, who bought the house with the intention of knocking it down and building a new home.
The Heritage Council of Victoria says the interim protection order will remain in place until a recommendation is announced, probably by the end of the year.
Real estate agents say while this is an unlikely scenario, it is a classic case of buyers beware. They say it is ultimately up to vendors to disclose the restrictions on a house, and for buyers to do their due diligence.
Biggin & Scott's Allan Cove, who sold recently a derelict Richmond house partially protected by heritage, said any overlays and the zoning of a property should be detailed in a planning certificate included in the vendor's statement, also known as a Section 32.
On the off-chance the planning certificate was incorrect and it adversely affected the property, Mr Cove said it might give the new owners grounds to rescind the contract.
"If the heritage overlay wasn't disclosed in the Section 32 and they bought it with the intention of wanting to pull the property down, I would imagine that it would adversely affect them," he said.
In the case of Mr Whitlam's birthplace, where the owners and the Boroondara Council were unaware of the property's historical significance, it was unlikely the buyers could have avoided the situation, he said.
Unless, of course, the buyers did their own investigations, which Mr Cove admitted was "pretty extreme".
At least seven properties in Victoria have heritage protection because of a link with a prime minister, but this doesn't mean all homes of former prime ministers have equal protection.
Despite Mr Guy's decision to save Gough Whitlam's birthplace in Kew, the Hobsons Bay City Council has no plans to seek heritage protection for former prime minister Julia Gillard's Altona house.
To apply for heritage listing, Hobsons Bay City Council's chief executive Chris Eddy said council had to demonstrate the house had a special association with the life or works of a person.
"As the house is not Ms Gillard's childhood home, nor was it where she lived primarily as prime minister, this would be difficult to demonstrate a listing based on the criteria," he said.
"There are very few residences heritage listed on the basis of association with a prime minister.
"When this has occurred it is because of a long period of association or it is the site of an important event in Australian history."
Boroondara Council's director of city planning John Luppino said it was the council's responsibility to identify places of local heritage significance through annual assessments and with the help of historical societies and local knowledge.
"Council engages expert heritage consultants and architects to undertake heritage investigations on behalf of the City of Boroondara and the community using a set of established criteria," he said.
"The assessments must demonstrate how the place of individual heritage significance meets one or all of these criteria, including: importance of the property in contributing to Boroondara's cultural history; importance in exhibiting particular aesthetic characteristics; and strong or special association with a particular community or cultural group for social, cultural or spiritual reasons."
Port Phillip mayor Amanda Stevens said the council could also request the Minister for Planning to introduce an "interim" heritage overlay for some properties.
Marshall White director John Bongiorno said buyers could start with the council and ask their agents or lawyers to check the documentation thoroughly before buying.
Posted by Christina Zhou - Domain (The Age) on 21st November, 2014 | Comments | Trackbacks | Permalink
Hands-on home renovation tips
The sheer satisfaction of tearing up old carpet and the deep gratification of applying that last dob of paint are just some of the things DIYers live for.
The passion and the glory of personally transforming your home will provide hours of triumphant storytelling with fellow DIY renovators.
There are specific renovations that are a) most suited to the average homeowner and b) can add real value to your home. Domain research shows interior and exterior painting, landscaping (including decking) and bathroom alterations are the most common DIY projects Australian homeowners undertake.
Here we provide our top hands-on home renovation tips on Australia’s favourite renovation pastimes, as well as tiling, flooring and assembling a pre-fabricated kitchen. Landscaping
Real estate agents will tell you that landscaping can add tens of thousands of dollars in value to your home. This is for a couple of reasons. First, great curbside appeal significantly increases buyer interest. Second, having a well-designed, low-maintenance backyard is high on most homeowners’ checklists. With this in mind, here are our top landscaping tips:
- Create a low-maintenance garden: Choose hardy plants suited to your local climate, pave instead of having lawn, and use ground cover or place plants close together to reduce weeding. Climbing vines can be a great way to cover unsightly walls or fencing and create the illusion of a garden wall.
- Design with privacy in mind: Privacy is a big selling factor and increases home value. Strategically plant vegetation that provides privacy but doesn’t hinder views, and ensure walls and fencing offer shelter from prying neighbours or passers-by.
- Build an outdoor entertaining area: As the costs of living rise, people are choosing to spend more time entertaining at home. Consider installing an outdoor shelter or decking to take advantage of Australia’s idyllic weather.
- Don’t forget utilities: Make sure hoses are within easy reach and there is room for conveniently locating the clothesline and bins.
- Go low-cost: The cheapest option is to do the manual work yourself, followed by borrowing or hiring equipment, and using recycled or reclaimed materials where possible.
Painting the interior or exterior of your home doesn’t cost much and makes a big visual impact. To ensure your paint job is enduring and does not require a premature touch-up, choose the right type of paint and follow the painting rules.
- Preparation is mandatory: If you do nothing else clean the surface with sugar soap, as this will help the paint adhere to the surface. You should also fill in holes and cracks, sand back inconsistent surfaces and scrape off old paint or wallpaper.
- Prime, seal or undercoat first: A recently painted surface may only require an undercoat, while other surfaces including exteriors, metal and wood will require a sealer or primer to provide grip for the top coat and durability. For wet areas and timber you should choose a primer that contains a fungicide to prevent the growth of mildew or mould.
- Choose your colour wisely: As a general rule, lighter, more neutral colours are best if you are selling your home. Otherwise go for colours that suit your décor and taste. Get some sample pots and apply a few patches to help you decide.
- Consider sheen levels: The sheen (or gloss) of a paint affects durability and reflection. Matte paints cover inconsistent surfaces better and the dense finish is great for large areas. Low-sheen and satin paints are more durable and suited to high traffic areas, while semi-gloss and gloss paints are generally used for trims, doors and detailing.
- Compare enamel and acrylic options. For exterior painting, enamel-based paints have been favoured as they dry harder. On the downside they can become brittle. Acrylic paints meanwhile, have increased in durability.
If you are planning to tackle your own wall or floor tiling, we will assume you have some basic handyman skills in this area. Your local hardware store and tile supplier will also offer invaluable advice if you run into any problems. Some key pointers include:
Polishing timber or concrete
- Choosing your tiles: Glass tiles expand and contract more so avoid using them in areas where the temperature will significantly change. You need to take into consideration how decorative patterns will work in the space, and pre-plan how you will manage cut edges and transitions in the tiles.
- Prepare your surface: Concrete bases must be completely dry, and you need to level out your surface as best as you can with a levelling compound or underlay. Chip away old mortar that may be present on old floors.
- Lay from the centre out: By working from the centre of the room, you can maximise the number of whole tiles you use and minimise those you need to cut for the finicky edges. Chalk out your tile layout first, beginning with a central line. Keep a close eye on tile spacing with a measurement tool – the more consistent the better. Lay the mortar or adhesive in sections so it doesn’t dry out, and gently press the tiles into place.
- Grout, clean and seal: Only apply the tile grout after the adhesive has dried, and the sealant after the grout has dried. When applying the grout, regularly wipe the tiles with a wet sponge to avoid permanent marks.
While tiles and carpet are common flooring options, many people consider tearing up existing coverings to reveal a goldmine of untapped design features, including floorboards and bare concrete.
You can hire concrete grinders, sweepers, scrubbers and burnishers from suppliers like Kennards Hire. Ask as many questions as possible – different grinders are suited to different types of concrete, and there are both indoor and outdoor options.
To make the most of newly revealed timber floors or old timber floors that need a revamp, you will need to sand first and then stain. Timber sanders (and relevant advice) are available from hardware stores or equipment hire companies. In addition to the sander, you will need an edger to manage the sides of the room. Seal the area as thoroughly as possible and regularly vacuum to manage dust. You need to work through three stages of sanding – coarse, medium and fine – to obtain the best results. Prefabricated flooring
Floating floors are low-cost, attractive and easy to install. For these reasons they are a renovator’s delight. Offering the appearance of timber, they can be made from laminate, bamboo, cork or engineered timber.
If you choose floating floors, it is important to factor in room for expansion when ordering and laying your flooring, particularly with bamboo styles. That said, bamboo is an environmentally sound, hard-wearing material. You will also need to place an underlay beneath your floating floor. The pre-fabricated pieces will slot together easily on top. They can be placed over virtually any surface, except carpet, but a moisture seal will be required and if your floors are concrete. Assembling flat-pack kitchens
Purchasing a flat-pack kitchen can save you serious amounts of money, as can installing it yourself. This is another DIY renovation project that requires some handyman skill – think assembling an Ikea bookshelf … on steroids. Most suppliers provide online tools that will allow you to plan your kitchen virtually, taking into account room dimensions, appliances and power sources. You can choose between standardised flat-pack or customised kitchens, the latter of which are more costly.
- Over-prepare: From carefully planning out your design, to triple-checking your measurements, the more preparation you do, the better the result. Dwell on the variables like inconsistent floor and wall levels, weight-bearing, power sources, appliance sizes and the distance that cabinets and appliance doors require to open.
- Painstakingly review directions: Your kitchen comes pre-packaged withall the parts, fixtures, nuts and bolts and instructions. Check everything has arrived before you begin, and make sure the kitchen shell is ready for installation – you don’t want hold-ups mid-installation. Work slowly through the assembly steps and contact the supplier or a friend if you hit a flat-pack speed bump.
- Get the foundations right: Flat-pack kitchens are designed to fit together – this means each layer of the installation impacts the next layer’s stability and appearance. Carefully fasten fixtures as you go, and keep a spirit level handy to ensure consistency.
There is nothing more impressive than walking into a well-organised, highly functional laundry that actually looks good. One of the most forgotten rooms in the house, a simple update can make this wet area a pleasure to use.
- Install storage: Hide cleaning products, appliances and dirty laundry behind sleek doors. Add extra storage in the laundry for general household items.
- Go light and bright: This is a room for cleaning, so keep colours fresh and use mould-resistant, hard-wearing paint that is durable and easily cleaned.
- Consider an extra lavatory or shower: Bathroom politics can be the root of all evil in an otherwise happy home. The laundry area already has plumbing and can provide an opportunity to add extra facilities.
Continue reading the DIY Home Renovation Guide with: Renovation safety plan and survival guide.
Posted by Jacqui Thompson - Domain Newsletter on 18th November, 2014 | Comments | Trackbacks | Permalink
You might think you have a choice, but . . .
You may not be aware that while there are a lot of financial products a financial planner could sell you there are only a limited number they can sell you.
Take a big wealth management business such as AMP (I could use many other examples). The AMP is Australia's largest non-bank-owned wealth management business. It has a number of large "dealer groups" operating under the brands of Hillross, Charter, Genesys, ipac, Jigsaw, SMSF Advice, Quadrant as well as the more recognisable brand of AMP Financial Planning.
A big part of the AMP business is to attract financial planners to operate in partnership with them in these dealer groups selling their products and servicing their customers. Of course one of the main concerns in this structure is that the people the dealer groups licence respect and protect their brand.
One way they achieve that is to vet or research financial products and tell their licensees which products they approve of and by omission which products they don't. It's called an "approved list" of products and all dealers groups and most financial planners have them, a list of financial products their licence holder has approved for sale to you.
Ask your financial planner for insurance, for instance, and you might find that they can only recommend one of six options because those are the only ones on the approved list.
Most planners stick to the approved list: it's easier and it's safer because as licensed advisers they have to have a reasonable basis for their recommendations and if they stick to the approved list they have that covered. It's also better for the client because the product has passed the sniff test.
You can still buy non-approved products but generally your adviser will have to get the dealer group's permission by proving why this non-approved product is suitable to your individual financial circumstances. You can see why it's easier just to stick to the list.
Planners who are not aligned to a large dealer group have the same issue. They also need a reasonable basis for their recommendation, so they use third party independent research firms such as Lonsec, Zenith, Morningstar, Mercer or, one of the best known until it went bust, Van Eyk.
There is a huge industry out there researching and approving products so licensed advisers don't go off the straight and narrow.
Some large wealth managers do it in-house, others contract it out, some do both.
Now imagine what this means for a funds management firm. The stark reality is that unless you are on the approved lists of these large wealth management dealer groups you are pushing water uphill. You may think your job is to pick stocks and make your customers money but actually it's not.
Your main focus in the early years is to get approved and that means having enough money to bankroll your funds management business for a few years without approval, performing well enough to attract approval, developing a critical mass of money in your fund to warrant approval and then, having done the hard yards and got a foot in the door, being able to jump through all the rest of the hoops which includes presenting a "proof of process".
The net result is that the approval process is about having a reasonable basis to recommend a product so no one gets sued for recommending it. This is all a bit of a perversion of what it takes to be a good fund manager, because getting approved is about being a safe fund manager whereas getting performance is about being a good fund manager and that, as any fund manager will tell you, is something more ethereal because performing well is not a robotic process. If it was something a automaton could do, then anyone could do it and if it was, then some fund manager would be doing it the Warren Buffett way, we would all be invested and we would all be billionaires.
But no one is and no one can because performance is not a formula. You cannot write it down, it is an art built on experience and knowledge and there is something delicate about it.
That's why the Perpetual Funds Management share price fell over when John Sevior left, that's why Kerr Neilson is worth more than $2 billion, that's why Warren Buffet can't be copied, because they are simply good at it and it takes humans not formulas. There's no algorithm for "I just know what to do and when" but you won't get approved without it.
Read more: http://www.theage.com.au/money/investing/you-might-think-you-have-a-choice-but----20141113-11lys3.html#ixzz3JZPyrBDx
Posted by Marcus Padley - The Age on 18th November, 2014 | Comments | Trackbacks | Permalink
Mum and dad property investors cash in on Melbourne’s rising market
MELBOURNE’S soaring property prices might have foiled first-home buyers but they’ve opened the way for a new batch of first-timers: the mum and dad property investor.
Armed with increased equity in their family home, these novice investors are looking to build wealth with a property portfolio.
If you’re thinking of joining them, there are a few things you should consider:
Many long-term homeowners have not only put a major dent in their mortgage but have seen the value of their property grow in recent years. The difference between what is owed and what the property is worth is known as equity.
“The recent surge in property values means that they may have a significant amount of equity in their owner occupied dwelling that they can tap into,” Mortgage Choice spokeswoman Jessica Darnbrough said.
This is how it works. Most lenders will let you borrow 80 per cent of an investment property’s market value (more if you are prepared to pay lenders’ mortgage insurance).
To meet the 20 per cent shortfall, you can access up to 80 per cent of your own home’s equity.
For example, if you intend to buy an investment property for $400,000, you can borrow 80 per cent or $320,000 provided you meet the lending criteria.
But with legal fees, stamp duty and other charges, you still need about $100,000 to buy the investment property.
You can use your equity to do this. Say you have $200,000 equity in your home (the difference between its $500,000 market value and the $300,000 still owed on the mortgage), you can borrow up to 80 per cent or $160,000.
The next step is finding the right investment loan.
National Australia Bank general manager of home lending Melissa Reynolds said there were a number of options, including interest-only loans, loans where the principle and interest amounts were paid, loans where interest was paid in advance and fixed and variable rate loans.
She said interest-only loans were popular with investors because they meant lower monthly repayments for a set period, typically 10 years, over which time the investment property’s value increased.
Ms Reynolds said it was important investors also factored in the other costs of buying, including stamp duty, government fees and charges, rental agency fees, strata or body corporate levies and rates.
“They all need to be understood in your total budget when you’re looking at an investment property,” she said.
CAPITAL GAIN OR RENTAL INCOME
There are two ways an investment property can work for an investor: by providing rental income and by growing in value over time.
“Some people are looking for a good stable place to store wealth and are most interested in capital gain over the long term,” RP Data Melbourne market expert Robert Larocca said.
“Others are looking for good rental yields and are not as interested in capital gains.
Mr Larocca said generally, the best rental yields in Melbourne were in high-rise apartments and houses in the outer suburbs; while the middle and inner suburbs produced the strongest capital growth.
Regional hubs were another option for good rental yields, with some of these areas also offered solid capital growth.
New figures from RP Data suggest a long-term approach might be best in Melbourne, which has the lowest rental yields of any capital city in the nation. Rental yields for a typical house in Melbourne were 3.2 per cent in the three months to October and units were 4.1 per cent.
WHERE TO BUY
Investors should look for properties close to shops, schools, parks, restaurants entertainment facilities and transport, according to WBP Property chief executive Greville Pabst.
But he warned against buying a property on a main road or too close to train and tram lines.
“Properties in these areas can suffer from traffic congestion, impeded access and significant noise disturbances. Select properties located within walking distance to a bus route or train line in quiet streets or cul-de-sacs,” he said.
HOUSES OR UNITS
While houses had traditionally outperformed units for capital growth, Mr Pabst said changing economic and lifestyle factors were seeing units close the gap.
“As rental affordability in capital cities tightens many tenants are choosing more affordable and convenient apartment living,” Mr Pabst said.
He said land values appreciated while building values depreciated.
“If the value of the property is weighted towards the dwelling ... it is unlikely to benefit from significant levels of future capital growth,” he said.
BE PREPARED FOR TENANTS, LANDLORD SAYS
ADRIAN Barnes has learnt a lot about property investment since he and his wife, Debra, first became landlords about 18 years ago.
They have owned seven or eight investment properties since then and currently have two inner suburban apartments and a Frankston house in their investment portfolio.
“They main lesson I have learnt is that you have to toughen up,” Mr Barnes said.
“We’ve got great tenants now but we’ve had properties with tenants from hell, a real nightmare.
“It’s not their property and a lot of them just don’t care, so you have to make sure you’re tough enough to deal with that.”
Mr Barnes, who lives in Frankston South and runs a property maintenance business, said a key to his success was buying affordable properties that he could improve.
“I always buy the cheapest, nice property I can find and add a bit of value.”
He said being able to do his own maintenance and renovation work had saved him a lot of money over the years.
Mr Barnes said he treated property investment like a side business, devoting up to 10 hours per week to research.
“Research is really important otherwise you are going in totally blind.”
A good finance broker was also key to success, he said.
Posted by Kamahl Cogdon - Herald Sun Real Estate on 15th November, 2014 | Comments | Trackbacks | Permalink
Property market: Underquoting accepted as the new norm
Sarah Cabret and her partner Thomas Harvey have almost given up their dream of owning a home after spending more than a year chasing properties that sold for much more than their original advertised price guide.
The couple have become increasingly discouraged after 10 failed attempts to buy a home up for auction and countless wasted Saturdays attending open for inspections.
"I'm a heartbeat away from giving up," said Ms Cabret, 36, who is now looking to Ringwood after being priced out of Blackburn.
Homehunters have long complained about underquoting – a strategy to get potential buyers through the door at open homes for properties up for auction.
But Ms Cabret says there's a new underquoting game in town – "step pricing" – where agents are gradually edging the price upwards during the sales campaign.
"By the end of the advertising campaign, it's gone up by $40,000," the marketing manager of a computer software company said.
She also claims to have been the victim of more blatant underquoting, where a Nunawading home was advertised for $600,000, only to learn that the reserve was actually $780,000 when it was passed in to her for negotiations.
"We put in several offers before auction and the advertised price was not adjusted to reflect what we had offered either," she said.
"This agent slightly adjusted the price during the advertising period, but it was well underquoted the entire time, even with step pricing."
Buyers advocate David Morrell estimates that up to 50 per cent of agents in some Melbourne suburbs are "step quoting" to lure buyers.
He said agents were also increasingly opting to quote verbally at open for inspections rather than publishing a price on advertisements.
"It's just grubby, misleading and deceptive," he said.
"It gets them out of jail … so they can say 'our last quote was within 10 per cent of the purchase price [when it's] 30 per cent more than it was three weeks ago."
Sales agents denied step-pricing was a deliberate strategy to trick buyers. It was simply a case of keeping them up to date with offers and adjusting the price guide accordingly.
Jellis Craig Hawthorn director Richard Earle said it was the agent's role to test the market, and there could be up to a 20 per cent difference between the estimated price and the final sale price.
"We're not valuers, we're negotiators and marketers," he said.
"The agent is going to start conservatively, but as that campaign moves forward, the agent's got to be progressive, and got to move that quote price up, or he is being seen as being unprofessional and unknowledgeable."
Barry Plant chief executive Mike McCarthy said underquoting was definitely happening, and the perception of underquoting has increased this year because of the rising market.
He said the market may have outpaced the comparable sale prices by the time the property goes to auction.
"If there's been an unconditional offer that the vendor has rejected, then the agent should [amend] the price quote to be above that figure," he said.
Marshall White's John Bongiorno said underquoting was not a problem.
Posted by Christina Zhou - Domain (The Age) on 14th November, 2014 | Comments | Trackbacks | Permalink
Should you stash cash in the Caymans?
The Cayman Islands is touted as one of the world's top 10 finance hubs. The chief reason that the Caribbean hotspot holds such cachet is an epic perk it provides - freedom from income tax.
The global tax haven has attracted droves of Australian companies. The likes of QBE, News and Macquarie are there. Even the Future Fund has 35 entities on the offshore international tax haven. In step, Australia and the Caymans have a Tax Information Exchange Agreement (TIEA). Yet Australian Taxation Office scrutiny of Aussie companies with Caymans dealings seems unwelcome.
In May, the ATO dropped Cayman tax evasion charges against Sydney accountant Vanda Gould, who fought a decision made by the Cayman Islands Tax Information Authority to give information about his company. Siding with Gould, the Grand Court found that the information should have been withheld and that the authority had breached the Bill of Rights and confidentiality laws.
Tax adviser Tony Anamourlis said the Gould decision raised doubts about whether TIEAs were "a workable tool to tackle tax evasion, fraud or criminality".
Despite efforts to impose transparency, the Cayman Islands remains a magnet for wannabe tax evaders, according to retired private banker Frederick Parsonage, the author of a novel about area intrigue.
"They will just continue to take the risk of not being caught, aided and abetted by the financial institutions in the Cayman Islands, who - it must be said - tend to condone tax evasion by their clients," Parsonage claims.
Remember that banks represent the client, not foreign tax authorities, he adds, also noting that investors may still strain to repatriate Cayman-based assets, unless their home countries declare amnesty on tax evasion.
Meanwhile, there has been a shift toward stashing assets in inert "shell companies" that act as vehicles for fiscal manoeuvres. Because no central registry of shell company shareholders exists, that tactic creates another layer of confidentiality, he says.
On the wane
In contrast to Parsonage, another Cayman insider - education consultant Emma Donaldson - paints shady dealings as on the wane. "The eye certainly is on the island to ensure fraudulent action is stamped out," she says, adding that wayward Caymanians she knows have had run-ins with United States police.
Investors who play it straight - legitimately seek to move to the islands – still struggle. "You need to arrange a work permit before entering the island, which is wrought with numerous red-tape and labour laws which can make it very difficult to enter or stay," says Donaldson, from St Arnaud in central Victoria.
Keep fighting, she says, but warns that if you gain traction, further paperwork lurks. Realising how tough it is to set up a personal bank account - let alone a business account - was an eye-opener.
Worse, expenses are even higher than here. "Whilst there is no income tax, the cost of living and fees which appear exorbitant in comparison to our native countries can make this advantage non-existent," she says, citing set-up fees, work permit charges and land taxes.
The "debilitating" hidden costs, which sound like stealth taxes, are the worst drawback, according to Donaldson, who says the deal works for the uber-rich embedded on the islands for a decade.
"If you are in a profession earning a very high income, the no-tax incentive is a definite benefit," she says, adding that wealth boosts your chances of making Cayman your full-time home.
Likewise, Parsonage depicts the islands as a retired tycoon haven – living costs are exorbitant because everything is imported, he says, adding that property ownership, which you need to win residency, is expensive.
Ditto private medical insurance because, like many small islands, Cayman just has basic facilities – serious sickness must be treated in the US, he says.
According to former Bank of America executive turned whistleblower, Brian Penny, the ethics of using a Cayman-style tax shelter hinge on your status.
"If you're a citizen, you're the little man and need every advantage you can get to compete. If you're a CEO, you have an ethical duty to support any economy in which you do business," Penny says.
"Another perspective to ponder is the angle of the country you're using as a shelter. Nothing in life is free: what's its stake?" he says, raising the spectre of the dreaded fees.
Also assess whether your money is truly safe and whether your deposits are insured, he says. And think about the interest rate you are getting and whether there are withdrawal penalties. Oh, and consider whether currency conversions will sap your savings.
"When you look at the numbers," Penny says, "there's always a possibility it's cheaper to just pay the taxes." Stormy past
The Caribbean paradise designated a British Overseas Territory has been tax-exempt since the wreck of the Ten Sail, which happened six years after Australia was settled, in 1794. When a 10-strong merchant fleet struck a reef in rough seas, Caymanians supposedly saved every soul.
Because one survivor was a British royal, King George III rewarded the islands by pledging never to introduce taxes, legend says. The policy gelled with Caymanian identity, becoming part of the scenery just like the turtles dotting the lagoons.
In 2012, the last premier, McKeeva Bush tried to buck tradition - establish an income tax for expatriates, which he deftly pitched as a "community enhancement fee". Still, an outcry erupted. Eventually, the proposal was killed by the united front that locals and expatriates presented.
Read more: http://www.theage.com.au/money/investing/should-you-stash-cash-in-the-caymans-20141113-11ll4e.html#ixzz3JGSWjYo1
Posted by David Wilson - The Age on 13th November, 2014 | Comments | Trackbacks | Permalink
Who’s investing in commercial property?
Since the global financial crisis there has been a decrease in commercial property prices, resulting in higher yields.
This has attracted a growing number of investors to consider commercial property as an appealing addition to their portfolios.
Calculating a strong return
Part of what is attracting new investors is the proportionally high yields that can be achieved from commercial property investments.
A yield is calculated by dividing the property’s net yearly rent by the purchase price.
So, for instance, if a property is sold for $700,000 and the lease is worth $60,000 excluding outgoings, then the yield is 8.7 per cent.
If the price is lower, say $600,000, but the rent remains the same the yield climbs to 10 per cent and a greater return on investment is achieved.
So who’s buying?
Many of the investors are owner-occupiers or trustees of self-managed superannuation funds (SMSF).
John Frame, from broking house the Loan Clinic, says the typical commercial investor has a higher than normal risk appetite.
“Your typical buyer has a larger propensity to take on risk because there’s a possibility that the property will be vacated and you may find it takes a long time to get another tenant signed on,” Frame says.
Investing in your own business
Banks will also factor this potential risk when deciding whether to lend. Often they will only lend on a short-term basis (such as for the duration of the lease) in order to reduce their own exposure to default.
For this reason, buyers are often self-employed people who lease the premises back to their own businesses, thereby eliminating the need to rely on a tenant.
A large potential windfall
“For others the risk trade-off is the higher yield they can achieve with commercial assets compared to other types of investments such as residential, bonds or shares,” says Frame.
Estimates of commercial holdings within SMSF hover around 12 per cent, which is double the figure these funds invest in residential real estate.
Look for a long lease
“Savvy commercial investors look for a property that has a tenant on a long lease in an area where there are established anchor tenants, such as a supermarket, bank, post office or pharmacy,” Frame says
“If the property has a parking lot, all the better, because that’s a drawcard for your tenant’s customers.”
Investing with your SMSF
SMSFs began snapping up commercial property in significant numbers from 2010 onwards, when prices softened, and the government rules around the type of investments that small super funds could make were relaxed.
Previously, some investors might’ve been deterred from buying commercial assets because of the larger deposit that lenders require for a commercial investment (often more than a third of the purchase price).
Today, however, buyers can gear their SMSFs to borrow for a property purchase. Those thinking of doing so should seek good financial advice first.
Posted by realestate.com.au on 12th November, 2014 | Comments | Trackbacks | Permalink
Investors lock up lions’ share of housing loans
INVESTORS are dominating home lending demand at unprecedented levels as the central bank strives to cool the property market without shattering confidence in more fragile sectors of the economy.
Buoyed by record low interest rates, investors have looked through a flat September for property prices and the prospect of tighter lending measures to snap up more than half the new loans signed during the month.
The total number of home loans approved in September slipped 0.7 per cent, seasonally adjusted, to 51,465 as property prices across the major capitals barely moved.
But the value of that finance climbed 2.3 per cent to $28.87 billion, with finance for investment housing up 3.7 per cent to a record $11.94 billion.
By comparison, the value of loans for owner occupiers climbed just 1.4 per cent, to $16.93 billion.
Excluding the value of refinanced credit, investors accounted for 50.4 per cent of new loans, the Australian Bureau of Statistics figures showed. It is the first time they have boasted the lion’s share.
First home buyers accounted for 12 per cent of finance, barely up from their record low 11.8 per cent share of the market a month earlier.
Economists said the rise and rise of the investor highlighted the imbalance in the property market worrying the Reserve Bank. CommSec economist Savanth Sebastian Sebastian said the RBA was yet to succeed in cooling the investment housing market by flagging so-called macroprudential measures — such as forcing banks to hold more capital relative to the amount they lend to investors.
“It’s almost seen them (investors) try to effectively jump the gun to beat any possible macroprudential measures,” he said.
JP Morgan economist Ben Jarman said the property boom, which had been largely centred on Melbourne and Sydney, had seen owner-occupiers lose some of their appetite to pursue their next dream home.
“Equally, credit growth is still relatively low compared to what prices are doing, so that should start to rein in property prices even before we see what the RBA will do,” he said.
The RBA and the banking regulator, the Australian Prudential Regulation Authority, are within weeks expected to reveal measures to help cool the stronger segments of the housing market.
These could involve tightening the types of loans offered to investors, or increasing the serviceability buffers — which test a borrower’s capacity to meet repayments at a higher interest rate — on certain loans.
Posted by Paul Gilder - Herald Sun on 11th November, 2014 | Comments | Trackbacks | Permalink
Follow these tips to avoid lifestyle property investment headaches
IT’S the time of year when we all start to think about going on holiday and when real estate agents prepare for an onslaught of visitors dreaming about a permanent sea change or an investment property.
So if it’s not just a passing fancy that disappears after you’ve arrived home and vacuumed all the remaining sand out of the car, check out the five things Gold Coast buyer’s agent Tony Coughran of VFM, reckons you must consider when buying in a lifestyle location.
He said buying in a lifestyle location can be risky, particularly if you are not an experienced investor and if you get it wrong you can lose a lot of money.
“In holiday destinations, rental returns often depend on the local tourism economy which can be strongly affected by global financial markets,’’ he said.
“The key is knowing when to buy and at what price.”
Mr Coughran said while it was great to pursue those property investment dreams, a little bit of work at the outset could stop them from turning into a huge financial mistake.
His tips are:
IDENTIFY YOUR NEEDS
The first step is to identify what it is you want from your investment. Is it a holiday home? is it purely for investment or is it something you may look to retire to? This can help determine where you buy and what type of property is suitable.
Once you have determined what it is you want from your investment property, the next consideration is location. Areas close to the beach or outdoor attractions and infrastructure are preferable as are properties in sought after school areas.
Mr Coughran said any investment in a peripheral area or in areas that lack social infrastructure should not make the cut.
RESEARCH DEVELOPERS IF BUYING OFF THE PLAN
If buying-of-the plan, the developer should ideally be someone who has delivered quality properties in the past, according to Coughran.
He said it was essential to do property due diligence. Find out if the developer has the land tile, if his financial position is sound and the appropriate permissions and certifications are in place.
When buying a lifestyle investment, it’s easy to get carried away with the emotion of a holiday destination.
Mr Coughran said to remember it was an investment which needed to be tenanted in what was often a highly competitive market.
“Generally look for properties that can deliver five to seven per cent minimum gross yields, low vacancy rates and little or low body corporate fees.’’
Avoid off-the-plan high-rise units and investment houses, where supply outweighs the demand.
“ Small basic rental box homes on lot sizes under 40sqm, with room sizes under three-by-three metres should be avoided, especially if marketers are involved,’’ Mr Coughran said.
Posted by News Limited Network on 10th November, 2014 | Comments | Trackbacks | Permalink
Borrowers will be hung out to dry if rates rise
Our major banks are lobbying hard to convince both the government and the Murray Financial System Inquiry that raising the mandatory capital reserve requirements will see borrowing costs rise and shareholder returns fall. As with all such special interest pleadings, this argument needs to be taken with a grain of salt, not least because higher capital revenue requirements will still leave our banking system over-invested in residential and commercial property debt.
Judging from recent statements, the banks are relying on increased lending to property developers and purchasers to power their business. Despite assurances to the contrary including via a stress test by one of the big four, this is a high-risk strategy because of booming property prices and a heavy reliance on overseas borrowings at artificially low interest rates to fund the loans.
In this situation, the risks for borrowers are much higher than many realise. Unlike in the US where fixed-rate long-term mortgages are the norm, current low interest rates on loans can rise very quickly. Even those with fixed rate mortgages are protected from rate changes for only a relatively short period.
Variable interest rates loans are the normal way of lending in Australia and put the full risk of loss on the borrower, at least until their collateral is used up. Even a modest 2 per cent rise in interest rates would put many new borrowers into negative equity and cash flow situations when property prices fall as they inevitably will.
The warnings for home buyers and even investors whose borrowing costs are reduced substantially by our negative-gearing tax concessions is that increases in the banks' capital reserves will provide them with no additional protection. Buying heavily geared real estate is a dangerous proposition because all the risks of interest rate and property price changes are placed on the borrower.
In the event of another financial crisis, even if it wanted to, the government could do little if anything to help heavily geared borrowers. The government's main priority would be to ensure the survival of the banking system. Borrowers would bear the pain.
There are no indications that the Murray Inquiry will address the options available to assist home buyers in trouble such as allowing the unemployed and disabled people to deposit their super in a mortgage-offset account. Until Australia follows the US and Singapore in providing assistance to taxpayers to acquire their home, Darwinian survival of the fittest rules will continue to apply.
The only strategies available without changes in government policy are to pay off loans as quickly as possible and to ensure there is ample financial room to service debts should interest rates rise substantially.
Posted by Daryl Dixon - The Age on 9th November, 2014 | Comments | Trackbacks | Permalink
Buying property with your self managed super (SMSF)
Using a self-managed super fund (SMSF) to buy property is becoming increasingly popular but the decision to acquire property through your SMSF is one that requires careful consideration.
You have to ensure it supports your overall investment strategy and avoids unnecessary risk.
So how do you go about it?
Limited Recourse Borrowing Arrangements (LRBA) have increased the popularity of property purchases in SMSFs.
SMSFs can use borrowed monies to purchase a single asset, or a collection of identical assets that have the same market value. The SMSF trustees receive the beneficial interest in the purchased asset but the legal ownership of the asset is held on trust (the holding trust).
The upside is that with an LRBA, your whole super fund is not at risk if the loan is defaulted. There are also restrictions on the way a debtor can recover their funds.
Before you leap in you need to ask yourself:
- If you use your SMSF to buy property, what sort of property should it be?
- What do you do if you don’t have an SMSF?
- Is it worthwhile setting up an SMSF to purchase property?
What are the advantages?
There are significant advantages to having a property in an SMSF, including tax – your super fund will be taxed at 15 per cent – which is considerably lower than most people’s personal tax rates.
If the property is sold during the accumulation phase, the capital gains tax is calculated at a discounted rate. If the asset is sold while the super fund is in pension phase, it’s tax free.
However, there are a few things to bear in mind if you plan on setting up an SMSF specifically to buy property, whether it’s residential or commercial.
Residential purchase in an SMSF
It’s important to note that you can’t buy a residential property to live in, or for any family member to live in.
There’s a condition that the SMSF trustee, its members, or any relatives can’t benefit from the property.
The property purchase must be for the sole purpose of supporting the SMSFs investment strategy in building wealth for retirement.
Don’t have enough savings in super?
If you’re looking for a way to buy a residential property but your super fund doesn’t have enough money, or you don’t want to go through an LRBA, there’s another option you can explore:
A Tenants In Common (TIC) arrangement would allow you to split the borrowing across your family home and your super fund.
For example, if the property you want to buy is $400,000, with a TIC, you could borrow $200,000 against your family home and use $200,000 from your super fund. Commercial purchase in an SMSF
Most commonly, people use their SMSF to buy a commercial property to lease back through their business. But there are a few specific conditions you need to be aware of if you’re considering this:
1. Commercially competitive: The terms of the lease must be commercially competitive. You aren’t allowed to lease it back for “mates’ rates” to give yourself a financial advantage. The ATO monitors and audits SMSFs regularly to ensure all arrangements are compliant.
2. No rental holiday: When things get tight and there’s an income downturn, you aren’t allowed to skip the rent for a payment. The payments must be made on time, every time, in full.
3. Valuations: Compliance of the SMSF relies on regular valuations being done on the commercial property. This can be time consuming and requires a lot of paperwork.
4. Sole purpose test: The investment must satisfy the ‘sole purpose’ test, which is that its sole purpose is to provide retirement benefit to the fund’s members. Still interested?
Ultimately, the test of whether you should buy a property with your SMSF comes down to making a rational investment decision based on facts and advice.
Be sure to ask the following questions about your prospective investment:
To equip yourself to make the best decision it is advisable to have a qualified, independent third party whom you are paying to have a look at the opportunity to give you their honest opinion. Anyone with a vested interest in selling the property may not be able to give you objective advice.
- Is the property a good investment?
- Will it appreciate in value?
- What are the risks?
- What is the yield?
Posted by Tony Rigby - realestate.com.au on 6th November, 2014 | Comments | Trackbacks | Permalink
Don't create a renovation disaster for your SMSF
Many self managed superannuation funds (SMSFs) invest in residential property. With finer weather on the way and holiday breaks coming up, a lot of people start to think about renovating these properties – especially if a property is not producing much income. But with the law being quite strict on what you can and cannot do with properties held in SMSFs, it might be enough to put you off taking any action or making any decisions.
Whether you can renovate a property held by your SMSF depends on whether the property was purchased by your SMSF outright with money accumulated in the SMSF or whether it was purchased using money borrowed.
Properties purchased with borrowings
If the SMSF's property was purchased using borrowed money and the borrowing remains outstanding, then you are restricted from using the borrowed funds to renovate, and thereby improve, the property. You can only use the borrowed fund to make repairs to the property.
The difference between a "repair" and an "improvement" is that a repair includes work to restore the efficiency of function of the property without changing its character. It merely replaces or corrects a part of the property that is already there and has become worn out or dilapidated through ordinary wear and tear, or is damaged accidentally or by natural causes.
An improvement, on the other hand, is work that provides a greater efficiency of function in the property and usually involves bringing the property into a more valuable or desirable form, state or condition. A property would be considered improved if the state or function of the property is significantly altered for the better, through substantial alternations, or the addition of further substantial features to the property.
Now, you can use money already accumulated in your SMSF to improve a property purchased by your SMSF via borrowings, as long as the improvement does not result in the property becoming a different type of asset. For example, you could add a swimming pool or extension of two bedrooms to the property and the property would still be a residential premise. That is okay.
But if the residential home is converted into a restaurant through renovations which may include fitting out a fully functioning commercial kitchen, then that would not be okay when borrowing is involved.
Properties purchased with accumulated funds
If the SMSF's property was purchased using money accumulated in the SMSF, then there are no restrictions in renovating the property. You could even demolish the property and build a new property or properties on the land owned by your SMSF. But what you do need to be careful of is that firstly, your SMSF's investment strategy allows for such actions; and, secondly you don't do the work yourself unless you are licensed and qualified to do the work required and you provide these services to the general public through your business.
If you are in the building and renovation business, then it is also important that any materials used in the renovation are purchased by your SMSF directly from third parties and not from you directly. This is because your SMSF is restricted from acquiring building materials from you. You need to make sure that any labour provided by you is paid by your SMSF at the commercial rate. Otherwise, the increase in the market value of the renovated property owned by your SMSF may be treated as a personal superannuation contribution and may result in you exceeding your contributions caps.
Just remember, if your SMSF has a loan on the property and is using borrowed money to fix it, you are limited to making repairs. If your SMSF has a loan on the property but is using its own money for the renovations, you can renovate a property to improve it as long as you don't change its character. If your SMSF owns the property outright and is using its own money on the property, you can improve and change the character of the property.
Posted by Monica Rule - Money Manager (Fairfax) on 5th November, 2014 | Comments | Trackbacks | Permalink
Why rates will fall in 2015: expert
Melbourne Cup is traditionally a day for making bets, and one economist has gone the long odds on what the Reserve Bank will do in 2015.
On Tuesday the central bank left the official cash rate on hold at 2.5 per cent for the 15th consecutive month.
Despite rates being at 60-year lows, Domain Group senior economist Andrew Wilson said they may get even lower.
In stark contrast to the 32 other experts surveyed by mortgage comparison website finder.com.au, who predicted that the next rate movement will be up, Dr Wilson believes a cut is more likely.
"I think the case is certainly stronger for lower interest rates than higher interest rates at the moment given rising unemployment, falling building approvals, a volatile stock market, a still too high dollar and falling house prices," he said.
"We will have to start seeing an improvement in the economy, and certainly no more deterioration in those key indicators, to maybe offset a cut in interest rates some time in 2015."
Dr Wilson said if the jobless rate increased, the Reserve Bank would move to cut rates as early as March next year.
But the majority of experts don't believe the central bank would risk further stimulating the property market by dropping rates. Instead, according to the survey, the most likely outcome is that rates will lift in August next year.
Steven Pambris from the Bank of Sydney said given the "current pressures on residential prices especially in Sydney, a rate reduction will not be considered due to fear of fuelling the residential bubble further".
AAP economist Garry Shilson-Josling summed up the Reserve Banks's predicament as: "The housing market's too strong to allow a cut but the rest of the economy is too soft to cope with an increase."
However, there have been some signs that the property market is already cooling. According to figures from the Domain Group, all capital cities bar Sydney, Melbourne and Darwin recorded a fall in the median house price over the September quarter.
October figures released on Monday by RP Data also pointed a national slowdown, with dwelling values outside of Sydney and Melbourne largely flat or falling.
Dr Wilson said the Reserve Bank had limited options if the economy deteriorated.
"We do need some stimulus for the economy and with a high budget deficit we really only have monetary policy as the lever to work with at the moment," he said.
But given that previous rate cuts had already "washed through the system", he said it was unlikely a further cut would reinvigorate the housing market.
Posted by Toby Johnstone - The Age (Domain) on 4th November, 2014 | Comments | Trackbacks | Permalink
Why mortgage-obsessed Aussies could be left without enough money in retirement
GENERATION X is too focused on paying off their home loans, which could impact them come retirement, experts warn.
Shaving down property debt is the number one priority for Australians aged 35-49, new research released by REST Industry Super today shows.
But that diligent focus on reducing mortgage balances could impact life after work, some experts believe.
About 71 per cent say paying off the home loan is the number one priority and only one in three say long-term savings is their top financial goal.
SUPER SAVINGS: How you can turn $10 a week into a whopping $175,000
Reserve Bank of Australia figures show Australians are an average of more than two years ahead on their mortgage repayments as they take advantage of historically-low interest rates.
REST Industry Super’s chief executive officer Damian Hill said while culling home loan debt was a good financial plan of attack, many would end up relying solely on compulsory employer contributions which currently sit at 9.5 per cent and would rise to 12 per cent by 2025.
“In one sense you can understand people are so focused on paying off their mortgage, it’s a big debt,’’ he said.
“It’s never too early to focus on super ... the mortgage shouldn’t be the focus of the long-term savings because of the other opportunities.’’
He said it can be too late to try and tip money into super in a person’s final working years because of the power of compound interest.
HOME DEPOSIT: How this super idea could move you out of Struggle Street and into a home
The RBA is set to meet tomorrow to make their November rate announcement, and it’s strongly predicted the cash rate will stay on hold at 2.5 per cent — where it has sat since August last year.
Consumer finance expert Lisa Montgomery said splitting a financial plan of attack between paying off a mortgage and tipping money into super was a good idea.
“Paying less interest on your mortgage now when rates are low is a good plus right now, the less interest you pay is vital,’’ she said.
“I think there needs to be a balance — pay off as much of your mortgage as you can while also planning for the future.”
The research also showed 30 per cent of generation X women have no savings at the end of the month compared to just 23 per cent of men.
Posted by News Limited Network on 3rd November, 2014 | Comments | Trackbacks | Permalink
How to win an auction
The two great Melbourne weekend obsessions of attending AFL games and real estate auctions have a few things in common. Both start out with high-spirited chanting, secret strategies and occasional subterfuge, which can progress to a desperate frenzy of play before ending in either glorious triumph or bitter defeat. Most football fans and auction losers do eventually get over their losses and head out to do it all again the next weekend. However, it is the auction winners that can continue to feel the pain for years if they pay too much.
Auctions are the ultimate game of bluff for all players: vendors, auctioneers and buyers each have their own bag of tricks which starts with how the home is styled and marketed and ends with bidding tactics during the auction. Buyers unfamiliar with or intimidated by the auction process can end up forking out more than was necessary to secure the property. Before raising that hand in pursuit of your dream home, it can help to understand the psychology of selling and have your own game plan for auction day. What you wear, who you take, where you stand and how you bid can all have an impact to varying extents on your opponents and the price you pay, according to industry insiders and psychologists.
"Dress does have an impact," says University of Melbourne consumer psychologist Dr Brent Coker. "I would tend to think that going dressed smartly in a suit would be more beneficial than turning up like a poker player with your dark sunglasses and cap, which I've seen quite a lot of actually." While auctions can be won by wealthy people in casual or even scruffy attire, your auction opponents are trying to size up how deep your pockets are and dressing for business creates a perception of wealth. "It's a similar principle to what we call the price-quality heuristic in psychology," says Dr Coker, which is where consumers tend to perceive products as having higher quality based solely on having a bigger price tag. In auctions, other punters are more likely to become deflated and bail out earlier if they think you have more resources.
Bringing the family along to the auction is probably not the best idea either as other bidders could perceive you as financially stretched with school fees. Your nearest and dearest are also more likely to unravel your plans to stick to a limit. When the offspring gaze up at you with pleading eyes, desperately wanting that backyard for their bunnies, it makes it harder to deny them and stick to your budget.
"If you are there with the family, you might say 'OK, that is what we are prepared to pay' and then suddenly your wife or your husband or your kids say 'Come on dad, one more bid' and suddenly you find you are going beyond your limit," says Mike McCarthy, CEO and director of Barry Plant.
"There's all sorts of tactics you can undertake but in my view when you enter the bidding you need to be strong and bold, you need to know what your limit is," McCarthy says. Hesitation is a sign of weakness and the biggest mistake that inexperienced buyers make at auction. "Once you get to the point where you are hesitating and you are umming and aahing about your next bid, you are really sending a message to the other buyers there and potentially other people who haven't entered the bidding at that point that you are near the end," he says.
Melbourne's weekend bidding wars are not exactly Game of Thrones but everyone still wants to seize the castle. Be bold and stand up the front near the auctioneer where other bidders can see you rather than hiding down the back of the crowd. Your bids should be delivered loudly and confidently immediately after your opponents' bids, which robs them of a potential sense of victory that comes with holding the highest bid for any length of time. However queasy you might feel as you bid your way into a monstrous mortgage, it's important not to show it.
Auctioneer Andrew McCann, the Jellis Craig Bennison Mackinnon managing director making his auction debut on The Block this year, puts it like this: "I think the best bidding strategy is to bid until your maximum and do it looking like you've got a lot more to spend than you really do."
One seasoned all-rounder of the auction scene is David Morrell, a self-described poacher turned gamekeeper who started out as a licensed real estate agent at age 21 before switching sides to become a buyers' advocate 17 years ago. He has been attending two or three auctions every weekend for the past 36 years and has turned the act of bidding into a form of performance art.
Morrell's auction theatrics range from loud, aggressive bidding to humorous antics. With auctioneers that employ the two-steps-forward, two-steps-back dance, he imitates their steps and gets a laugh from the crowd. When auctioneers with a "slow hammer" launch into a spiel about the property's highlights after the "going once", "going twice" calls after bids have ended, he interrupts by yelling out "SOLD!". "I think that is grubby, unfair and misleading and can cost another $100,000," he says.
You have to control the situation and control what the auctioneer does is Morrell's advice to buyers. "Don't be afraid to take the momentum out of the auction – if they are taking $50,000 increments, you can take control and drop it to $10,000." Another trick is to make a higher bid that isn't a round number (for example, throw in a $14,000 bid when it's rising by $10,000 increments) which can result in the auctioneer dropping the increments in order to round up for easier maths. "Auctioneers aren't neurosurgeons," he says.
Morrell also has no qualms about talking to other bidders mid-auction. "Humour helps," he says. "I will go over to the other bidder and say, 'Will you please go home? Someone is going to pay more than they need to here'."
An auction is all about presence and bidders should never be timid. "Take control, slow it down, open with a loud aggressive bid, ask if it's on the market, interrupt the auctioneer – you own it," says Morrell. If you can't, get someone else who can says the man proud to be described by some of his clients as their "personal Rottweiler".
While a few psychological approaches might increase your chances of winning an auction, it ultimately comes down to who wants it most and can afford to win. "If someone's got more money and they've got more desire to own the property then they are going to get to buy it," says McCann. "That's the way the auction system works and that's why it has worked for such a long period of time."
Posted by Lorna Edwards - The Age on 3rd November, 2014 | Comments | Trackbacks | Permalink
The art of securing a home loan
Mortgage lenders are aggressively chasing new customers as property prices continue to strengthen in the main capitals but that doesn't mean lending institutions are letting their credit standards slip.
The truth is that gaining approval to borrow the sum you need to buy property isn't always as easy as the advertising campaigns of the big banks suggest. This is certainly the case if you have little equity and are asking for a loan that requires repayments that cannot be supported by your income. But these tried-and-tested ways to prepare for a loan application will boost your chances of success:
- Equity is everything. If you own a property or part of one, or have a deposit of 20 per cent or more of the value of the asset you intend to buy, your loan application is far more likely to sail through.
- Before you approach a lender, "stress test" your finances. Can you meet the repayments if interest rates go up by 1 per cent? What happens if your income falls? What if one half of your household leaves work to have a baby?
- Borrowers must demonstrate consistency of income. Patchy employment records aren't helpful. But it's a competitive finance market - lenders now ask self-employed applicants for one year's proof of financial returns. The standard used to be two years.
- Many people are applying for interest-only loans in the hope that property's value will rise. It's easier to qualify for these than for a principal and interest loan, but if you buy a dud property with an interest-only loan you can quickly end up out of pocket.
- The banks can't lose in a market in which prices are rising - and they know it. Beware of incentives such as "free" holidays or a bonus $1000 credit card for borrowing $300,000. It isn't free if you pay back more interest than you need to.
- Lenders balance risk and reward. You might think securing a new job is great news, but lenders may want to know if you're going to stay in the position long-term.
- Banks are more attuned to their customers regularly changing jobs than they used to be. Even so, some won't give you a loan until you've completed a three-month probation, so try to arrange loans before changing jobs.
- If you've left work to have children and are now returning to the workforce, most lenders will apply the standard three-month employment restriction before approving a loan. You may get around this rule, however, if you return to a similar job with a former employer.
- Mortgage brokers take the legwork out of negotiating loans and can greatly help investors and owner-occupier buyers. Brokers charge the lender a commission for signing you up for a loan, so it's vital to ensure a broker isn't making conflicted recommendations based on commissions received.
- Consider every lender: big and small banks, online banks, credit unions and building societies. A savvy mortgage broker can help to identify lenders who may be prepared to loosen their loan criteria.
Posted by Chris Tolhurst - The Age on 2nd November, 2014 | Comments | Trackbacks | Permalink
There is a magic formula that turns bad debt into good
We are all taught that we should aim to reduce our debt levels and some of us are better at it than others. There are however a number of strategies to reduce debt effectively and in some instances holding debt can make sense as a wealth creation strategy.
There are effectively three types of debt, good debt, bad debt and very bad debt. So what is the difference?
Good debt is generally debt that attracts a tax deduction because it has been used for a tax deductible purpose such as acquiring an income producing asset such as a rental property or shares. If you are on the top marginal tax rate the tax deduction will, in effect, halve the interest rate. In our current low interest rate environment that may not sound like much but it has a dramatic effect over the longer term.
Bad debt is really any other form of borrowing that does not attract tax relief. The exception is very bad debt, namely credit cards. With interest rates anywhere between 15 per cent and 20 per cent, they will slug you three to four times the typical home loan rate.
It is very difficult to argue against placing a strong priority on repaying personal loans or credit cards that have been used to fund lifestyle choices. At an interest cost of more than 15 per cent it would be unlikely that money could be used elsewhere to provide a higher return rather than reducing the high cost of this debt.
One effective strategy is to move very bad debt to bad debt. This is available where you have equity in your home and simply involves borrowing against your home at a cheaper interest rate to repay the very bad debt.
Another strategy that is available is the conversion of very bad or bad debt to good debt. A common way of achieving this is to use existing assets. For example you may own a number of shares from various floats such as Telstra. These can be sold to repay bad or very bad debt.
A new "good debt" loan can be obtained and used to repurchase assets equivalent to the value of shares sold. This will, in effect, mean you have the same value of investable assets but your debt mix has changed. Transaction costs and capital gains tax will of course need to be considered.
Many people establish a "good debt" line of credit secured by their home but split from their "bad debt" mortgage to facilitate these arrangements. In this way your overall cash flow will improve as the after-tax costs of your "good debt" will be lower, enabling you to channel further funds into reducing your "bad debt" home loan.
Careful management of your borrowings can result in very significant savings that will compound over a long period of time. Savvy wealth creators are disciplined and work hard to reduce non tax deductible debt as quickly as possible while building a tax deductible line of credit.
Posted by Allan McKeown Money Manager (Fairfax Digital) on 29th October, 2014 | Comments | Trackbacks | Permalink
Auction tips from those who know
Maybe once there was an element of mystique to property auctions. No longer. Programs such as The Block and the difficult hunt for affordable property have exposed us to every trick in the book.
Have auction tactics lost their potency? In pursuit of fresh perspectives, Money spoke with auctioneers who are experts in fields outside the cauldron of residential property. This is what they would do themselves to gain an edge.
Peter Ruaro, a stock and station auctioneer for almost 40 years, operates in the high country. He has sold 250 cattle in 10 seconds and 10,000 head over three days, and he advises, "A buyer should know the going rate for the property – whether it's dollars per kilo or residential property". Do your research, set your limit.
When to start?
According to Martin Farrah, auctioneer with Lawsons specialising in fine art and antiques, "Trade buyers hang back, while novices are more likely to jump in first so as to get things going. Personally, I would normally hold back."
Ruaro starts low, "but if the auction became really heated, I'd be prepared to go for the punch and a big figure near my limit".
Science of bidding
"I am a fan of getting the card up quickly following someone else's bid, rat-a-tat,' suggests Farrah. "This is what the professional buyers from state art galleries do."
George Savva is the auctioneer and principal of LJ Hooker Coogee and has worked in Sydney's eastern suburbs since the 1970s. His tip? "When the bidding gets down to increments of $1000, don't bother making your own $1000 bid.
"Everyone can find another $1000! No. This is the time to go up by $5000. Respond rapidly, like you have an inexhaustible supply of bundles of $5000, even if you don't."
But how do you battle against a professional? "Intimidation," says Scott Andrews of Andrews Office Furniture.
"Most of the buyers at my auctions are dealers," says Andrews.
'"Dealers often have already mentally sold the furniture to a customer and they can lose their cool against a bidder who comes at them relentlessly. This is income for them, but they can throw in the towel and move on if you make it too hard. Wait till they think they've won … then trump them solidly.
"This is demoralising, affecting a person's emotions and ego."
Andrews also believes in using the momentum generated in a heated auction. "This is what will drive the inexperienced buyer past their 'walk away' point," he says. "But sometimes it's a good tactic to disrupt the momentum too."
Savva agrees. "Near the end, say your bid in full – not '$750' but "seven hundred and fifty thousand dollars". Remind everyone just how much money they are contemplating spending." This tactic serves as a warning to those who have surged past their limit and are bidding on adrenaline and caffeine.
If the auction lulls, "Go doggo and lie quiet," recommends Andrews.
'It's like the situation where the traffic light turns green and you're the only one driving forward; you ask yourself, 'Am I doing the right thing here?'."
Where to stand
All agree with Farrah: "If you are hesitant or reserved, stand at the back. But if you are boisterous or more of a show-off, stand at the front and place your bids with confidence. Give the impression that 'this person is never going to stop, so they might as well have it'."
Body language is an unreliable indicator. "But I can usually tell when someone makes their last bid – their body language changes. You see them work up to this point and then they seem to drop their shoulders and relax," notes Farrah.
"A good stock auctioneer knows where the buyers have come from and should have a fair idea if they can afford to pay more because their region is doing well," cautions Ruaro. In other words, buyers and agents are watching you too. If you have big-noted yourself earlier or appear wealthy, you can expect pressure to draw you out.
"Show up," encourages Savva. "People make a mistake when they assume they will miss out at auction. News about an auction boom can discourage buyer numbers. The story is not just about the centre of Sydney or Melbourne."
Vendors commit much time and money to get their property ready. At the tail of an auction boom, prices drop and buyers diminish. Be there.
All the experts agree: if you are not calm and confident, then have someone represent you who is icy – a friend or buyer's agent. Licking your wounds hurts a few weeks …but paying beyond your limit is 30 years of pain at 5.90 per cent per annum. ACTION PLAN
Tips from art auctions
- Obtain expert advice on condition and value.
- Hold back initially
- Meet other bids with a rapid response
- A knock-out bid can be effective
Tips from livestock auctions
- Know the value of what you are buying – others will.
- Start the bidding low
- When bidding gets heated, respond with a large bid
- Gauge the mood from previous sales that day
Tips from office furniture auctions
- Come out early with a low bid
- Be bold and intimidating
- If the auction lulls, watch and wait.
- Let doubt build.
- Even professionals can be encouraged to spit the dummy and walk away
Posted by Peter Cerexhe - Money Manager (Fairfax Digital) on 29th October, 2014 | Comments | Trackbacks | Permalink
Should you manage your own investment property?
Nothing warms the cockles of a property investor’s heart more than the idea of reducing holding costs by ‘cutting out the middleman’. There are instances where this is possible, such as if you are handy and can do some or all of the maintenance work, but regrettably not when it comes to the management of your rental property.
One key reason is that the potential savings are negligible when compared to the management fees currently charged by real estate agencies in a highly competitive market – and even more so because by DIY-managing, you will forego any tax rebate on professional fees.
Giving a manager the flick will, for example, save you $20 on a $400 weekly rent at a 5% management fee, or $32 on an 8% fee, or $48 on 12%. If you owned 10 rental properties, each rented at $400 per week, and you dispensed with a manager on an 8% fee, you would save yourself a paltry $320 per week on a weekly income of $4000 – or $16,640 per 52-week year on a rental income of $208,000 (again, before any tax rebate you forego). The impact of DIY-management on your running (rental) yield is equally paltry. A saving of $32 on an 8% fee on a $400,000 property with a weekly rental income of $400 will reduce your 5.2% yield by 0.4%.
Time and resources
Should any of these savings above appear attractive to you, the next thing to be aware of is the workload, responsibility and legal liability risk that is involved in DIY-managing a rental property – let alone a 10-property portfolio. Real estate agencies are able to offer their services on such slim margins because of the economies of scale they achieve by typically having hundreds of properties on their rent rolls.
Even at these slim margins, agencies in many areas are readily offering discounts on the average 7% management fee, giving landlords even less reason to DIY-manage their properties. This is because the ongoing general shortage of rental properties affects real estate agents as much as it does renters, only for different reasons.
An agency’s rent roll usually represents the ‘bread and butter’ income for an agency – more so than property sales – and therefore forms the true-value basis of the resale price of an agency. The larger the rent roll of an agency, the better the potential resale price. In times of a shortage of rental properties, therefore, an agency principal will often encourage the property managers to offer generous discounts to landlords on the advertised management fee.
Never mind that a property manager is worth their fee many times over in juggling the many day-to-day tasks, which, incidentally, include advertising properties, vetting tenants, chasing rents and deposit bonds, coordinating repairs, doing property inspections and, when necessary, attending the tenancy tribunal. They’re ‘worth their weight in gold’ in facilitating an arms-length relationship between a tenant and landlord, says Linda Tuck, property investor, commentator and director of Cairns-based specialist residential property management group Property Ladder Realty.
As Ms Tuck reveals, professional property managers serve as a neutral intermediary in negotiations between a landlord and a tenant. This removes the emotions that can quickly erupt between tenants and landlords even over trivial tenancy issues. If left unresolved, these issues can become potentially dangerous, resulting in legal and financial consequences for a landlord.
Professionals balance the interests of the landlord with the needs of the tenants and in so doing they remove a lot of the stress, confusion and time-wasting of an emotional confrontation, she says. By contrast, a DIY manager is usually much less likely to be able to put aside his or her self-interest to negotiate a balanced settlement.
For some, managing their own investment properties can be financially rewarding. Depending on your other commitments DIY investment property management can save you money and let you be more involved in your property. Not everyone has the time to be so hands on, so before you jump in consider your options and weigh up the benefits.
Posted by Liam Egan - Domain (Fairfax) on 28th October, 2014 | Comments | Trackbacks | Permalink
Finding the perfect fixer-upper
Renovating an ‘ugly duckling’ property can boost the value of a house and let you create your ideal home. How can you tell a genuine bargain from an overpriced wreck?
Quality home renovations can drastically improve a property’s value and liveability. However, it’s all too easy to get caught up in a downward spiral of expensive works. Here’s the Domain guide to buying the perfect fixer-upper. Find your ugly duckling
As with any property, location is king. Buyer agent and reno guru Patrick Bright suggests targeting shabby properties in suburbs with general upside potential.
“The inner ring of capital cities is a good place to start, as it’s the most bulletproof part of the market,” he says. “Look for areas with decent infrastructure, but make sure you’re not on top of it. A new rail line is great, but not if you can hear it.”
Do you research to understand critical background information; filtering your Domain search with keywords like ‘renovator’s dream’ is also a good way to start. Look out for deceased estate sales, as these properties are often ripe for renovation. Do the maths
Your budget must be nailed down before you even think about putting in an offer. A key part of that is working out how much renovating will cost and how much value it will add.
To do this, you need to know the value of renovated properties in your target suburbs. To find these, filter your Domain listing search using keywords like ‘new kitchen’, ‘freshly renovated’ and so on. You can also research actual sale prices.
Inspect as many ‘finished’ properties as you can to check out the quality of fittings and fixtures. When you get home, price-check key renovation zones like kitchens and bathrooms and work out how much it would cost to carry out that renovation.
Once you know what a renovated property in a given suburb is worth and how much it’s likely to cost to bring a run-down house to that level, you can work out your maximum purchase price. Every dollar you save under that figure is pure profit. The biggest bang
It’s all about looking for the opportunities when inspecting a potential buy. Cosmetic renovations usually give you the biggest bang for your buck, so an old kitchen or bathroom should be a big tick for aspiring renovators.
Bright suggests looking for opportunities to add walls to create new bedrooms (or studies) or removing walls to make open-plan spaces. Also look out for small windows – especially if there’s an outlook. “You can introduce natural light or a view by installing a larger window,” he says. Avoid hidden costs
Bright’s major no-no is any property that harbours ‘hidden costs’. “I avoid properties that involve invisible work such as rewiring or new plumbing. If I spend a dollar, I want people to see it.”
A pre-purchase building inspection is therefore essential. You should also investigate if there are any legal or heritage restrictions which could stop your grand designs in their tracks. Don’t spend too much – or too little
Staying within your budget when renovating is critical. Anyone who has watched a prime-time renovation show knows the danger of going over budget. However, skimping on your reno can be just as dangerous.
“I see a lot of renovations where people try to save money, usually because they’ve paid too much for the property,” says Bright. “For example, they install cheaper tapware, tiles and carpet, or skip on installing a bath.”
A cheaper reno may save you money in the short term, but it will also reduce the appeal to potential buyers – and therefore the eventual sale price. Cheaper fixtures and fittings may wear faster too.
Your worst enemy when viewing property is yourself. It’s all too easy to get carried away and see a potential goldmine when it’s actually a run-down wreck. Those rose-tinted glasses will soon shatter once you’re knee-deep in paint cans and bad wiring.
Keep your emotions out of the selection process and your fixer-upper will become your palace – and a profitable investment in the long term.
Posted by Kevin Eddy - Domain (Fairfax) on 28th October, 2014 | Comments | Trackbacks | Permalink
Australian house prices: Then and now
We take a look at the price of property in Australia from 40 years ago to today and the factors that have contributed to this upward surge.
Fifty years ago, you could nab a house for tens of thousands of dollars. Today, headlines tell us that house prices are soaring through the roof, especially in Sydney.
Interestingly, CEO of the Real Estate Institute of Australia (REIA) Amanda Lynch says that housing-affordability issues have actually been brewing in Australia for quite some time. Factors at play
“Although the level of affordability can vary cyclically, house-price and household-income data suggest that there has been an underlying structural affordability problem in Australia over the past half-century. From 1960 to 2006, real house prices increased at an average of 2.7 per cent per annum, ahead of a 1.9 per cent per annum growth per household real income,” Lynch says.
According to Lynch, myriad factors have affected the housing system and property prices in the last 50 years. These include an undersupply of housing, land-development processes and policies, the cost of construction and property-related taxes, as well as outside factors such as comprehensive taxation reform. Spot the difference
To break it down, in 1973, median house prices across Australia’s capital cities looked something like this:
- Sydney – $27,400
- Melbourne – $19,800
- Brisbane – $17,500
- Adelaide – $16,250
- Perth – $18,850
- Canberra – $26,850
- Hobart – $15,200
- Darwin – $87,500 (information unavailable until 1986; this value reflects 1986 housing costs)
Nowadays, we’re looking at much higher digits and another set of zeroes added to the price, according to September 2014 numbers from Domain Group’s House Price Report:
- Sydney – $843,994
- Melbourne – $615,068
- Brisbane – $473,924
- Adelaide – $459,258
- Perth – $604,822
- Canberra – $573,326
- Hobart – $322,274
- Darwin – $667,115
Now, before your eyes start rolling into the back of your head, let’s put it all into some perspective: back in 1973, the average weekly wage was $111.80 (including full- and part-time workers), according to the Australian Bureau of Statistics (ABS). Today, a full-time worker makes on average $1453.90 weekly (before tax). However, in the house price report, Dr Andrew Wilson, senior economist for the Domain Group, predicts that housing-market activity will continue to decline as affordable housing falls, joblessness increases and consumer confidence wavers. The times, they are a-changin’
“There have been many changes within the property landscape over the last 50 years. We’ve seen a welcome increase in the level of foreign investment in commercial real estate, which has allowed for many inner-city apartment projects and new housing developments in the outer suburbs. We’ve also seen an increase in the level of single-person households, both with retirees living longer and often alone in their family homes as well as with younger professionals who are increasingly living alone in inner-city areas. This, in turn, places extra demand on housing supply,” explains Lynch.
There’s also been growing concern about the low levels of first-home buyers entering the market in recent years. Having said that, Lynch points out that the ABS is currently looking at the methods used to collect information on first-home buyers, due to the fact that they may be buying as investors rather than as owner-occupiers.
All in all, immense changes in the social structure of Australian society, the rise and fall of ‘boom’ industries such as mining, new ways of entering the property market and other financial factors over the years have all had an impact on Australian property prices.
Posted by Nicole Thomas - Domain (Fairfax) on 28th October, 2014 | Comments | Trackbacks | Permalink
Negative gearing is not so negative
Poor old negative gearing, carrying the can for perceived housing affordability problems, fitted up as a convenient scapegoat, so much easier to blame it than to deal with the myriad factors bearing on housing supply and demand.
The ability to offset losses on one investment against income made elsewhere has actually served the overall Australian economy well and done plenty of positive things for housing affordability as well. (That probably sounds like heresy, but I'll come back to it.)
Anyway, there's no need to expend too much energy attacking negative gearing as the market is in the process of sorting out any excesses – a process that could see recent property investors retreat from buying in the same way that punters flee the stock market when it takes a turn.
Basically, there's a good chance negative gearing the average residential property won't make much sense for most investors over the next few years.
The tip is in the title: "negative gearing" – the investment loses money unless there's a fat capital gain above and beyond capital gains tax. And the tax benefits of the deduction for losing money on housing aren't really that flash on anything less than the top marginal tax rate, a privilege enjoyed by relatively few.
Given increasing supply and flat or falling rents in key investor markets and subdued capital gains forecasts for at least the next couple of years, negative gearing is looking negative indeed, especially when punters can positively gear into equities instead.
Some of the most investor-centric real estate markets are already showing strain. Reserve Bankers have fingered Melbourne CBD apartments as a potential worry, BIS Shrapnel has issued warnings about Sydney CBD units and Brisbane property analyst Michael Matusik has been ringing the alarm bell with increasing urgency over "investor specials" there.
With an echo of every investment scheme on the edge, Matusik recently wrote to clients that his firm had been approached with offers to become involved in several off-the-plan Brisbane developments.
"The conversation starts with how much commission is available, with the starting figure often 6%, sometimes more," said Matusik. "This, to me, is a bellwether.
"New apartment sales across inner Brisbane are about to get harder. And they should, as for mine, this market is already saturated. And despite everybody and their dog trying to put a sunny face on things, it looks pretty grim – investment wise – for some time to come."
Australia doesn't have a housing market; it has hundreds, perhaps thousands of them. Some of our housing markets get more carried away than most – witness the Gold Coast pre-GFC. For that matter, the Gold Coast every decade or so.
Investors who piled into mining towns have seen prices slashed. Negative gearing won't have done any favours for anyone who bought into a mining town over the past couple of years.
But it's Brisbane that is shaping up as the more general warning to investors just when the Reserve Bank is jawboning investor excess.
Resales of recently-purchased Brisbane CBD units have been at a loss. There has been a rush of apartment towers completed recently with more on the way.
Michael Matusik reports local real estate agents as saying it's taking longer to rent units and that rents are falling. Quality but older riverfront apartments are typically empty for four weeks between tenancies and then rent for 10 per cent or more below the previous lease. Some owners are offering a month's free rent.
And he has an interesting twist to the foreign buyers scare campaign:
"When the foreign investors come to sell, they will not be able to sell to other foreigners. This is currently not allowed under FIRB regulations. So the pool of potential buyers will be much smaller. This could cause significant price decreases for resales of apartments, particularly in larger projects."
Maybe Kelly O'Dwyer's parliamentary committee looking into foreign investors should consider freeing them up rather than further restricting their buying.
There's nothing wrong with an individual losing money on an investment, unless, of course, you are the individual.
Or unless there are a large number of investors losing at the same time, causing a broader economic problem. The one thing worse than sharply rising housing prices is sharply falling housing prices.
Former economic adviser to the Gillard government, Stephen Koukoulas, has pointed to why the RBA and others should not get too excited about hosing down the housing market - or perhaps he has described why the RBA is doing more jawboning than acting on macro prudential means of reducing housing demand.
Roughly two-thirds of Australians own or are in the process of buying their homes and there's an overlapping 10 per cent who own at least one rental property. Rising housing prices have been and are vital for maintaining their consumption desires – the wealth effect – when real wages are falling.
With the economy expected to grow below trend this financial year, the RBA has no interest is further sabotaging consumer confidence.
And then there's the matter of negatively-geared property investors improving housing affordability for those who are most disadvantaged by the high cost of housing: renters.
There is a general media and political bias towards looking at the housing affordability problem from the angle of one minority group: would-be first home buyers.
Of the roughly one third of Australians renting, many are not in the trying-to-buy-a-home class – they are on one form or another of social welfare or at a transient stage of their lives. Excess investor activity, allegedly fuelled by negative gearing, ends up providing excess rental properties that eventually make it cheaper to rent.
There is a rational economic decision for people to make here: if it is cheaper to rent than to buy, including expectations of capital gain and the cost of money, go ahead and rent.
And there is the matter of Harris' Law, as I've named it, after Tony Harris, the former NSW auditor general who coined it: Everything is capitalised.
All government policies end up being built into the price of the goods or services affected by those policies.
Fairfax colleague Gareth Hutchens nicely described examples of that in his article last week claiming that negative gearing should be abolished – give first home buyers a special grant and it is very quickly built into the price of the properties they are seeking, so the FHBs are no better off. First home buyers' grants would be better titled "first home sellers' grants".
Hutchens attacked negative gearing, quoting the esteemed economist Saul Eslake, because it increased demand for housing, which in turn forced up prices.
But right now, we need increased demand for housing, both because of population growth and an otherwise below-trend economy.
More fundamentally, the article homed in on the negative gearing scapegoat because it only addressed the housing affordability question from one side of the equation – demand – and did not mention the other side – supply. Fixing the supply problem is a better way of solving the housing affordability problem than trying to arbitrarily restrict broad taxation principles for one particular sub-set of an asset class.
Negative gearing does increase demand, but in doing so, it also increases supply. Increasing supply is a good thing, but there are many other factors affecting it, ranging from NIMBYs to merely incompetent and gutless state and local governments, plus the decline in government investment in social housing.
What concerns the RBA is the possibility that, maybe, perhaps, too many investors are becoming too exposed to a potential correction, but the Martin Place mandarins are not so concerned as to actually do anything much yet.
Last Tuesday RBA deputy governor Philip Lowe was sounding alert but less than alarmed about housing investors' animal spirits in a speech that was swamped from a news point of view by Gough Whitlam's death.
Lowe said the increased demand for existing housing assets was translating nicely into increased demand for new housing construction, with residential construction up by 9 per cent over the past year with further increases expected. Monetary policy was working.
But the strong recent increases in prices "together with pockets of higher borrowing" posed questions about financial or macroeconomic risk.
Said Lowe, after a qualification or two: "The judgment we have reached over recent times is that at least some aspects of the housing market have become somewhat unbalanced and that this has generated some increase in overall risk.
"The area that has attracted most attention is the very strong demand by investors to buy housing for the purposes of renting. Currently, loan approvals to investors buying properties to rent out account for nearly 45 per cent of total loan approvals, with most of the investment properties being existing properties.
"Perhaps not surprisingly, the biggest increases in housing prices have occurred in the city where investor demand has been strongest – namely Sydney. Overall, investor credit outstanding is growing at an annual rate of close to 10 per cent, around twice the rate of increase in household income. A fairly high and increasing share of these investor loans do not require the repayment of any principal during the life of the loan. And this is all occurring in an environment in which growth in rents has slowed and the ratio of housing prices to income is at the top end of the range experienced over the past decade or so...
"It is important to make clear that I am not saying that this will end badly, or even that is likely to end badly – just that, on average, recent loans are probably a bit more risky than those made earlier…it is prudent for both borrowers and lenders to be careful."
Yes. And just abolishing negative gearing, if a government could in some future fairy land, would be a poor and inequitable stab at the bigger problem.
There are plenty of ways of reducing demand for property - scrap the capital gains tax concession, boost land tax, amputate the little fingers of every tenth buyer, and so forth. However, in the short-term, parts of the market will do it as a lesson in the cost of exuberance.
Increasing supply, given our population growth, is a much better way of equitably dealing with housing affordability.
Read more: http://www.smh.com.au/business/the-economy/negative-gearing-is-not-so-negative-20141028-11csr4.html#ixzz3HQ5euwKR
Posted by Michael Pascoe - Business Day (The Age) on 28th October, 2014 | Comments | Trackbacks | Permalink
Parents increasingly helping kids to buy a house
More Australian parents than ever are stumping up large sums of money or providing "family pledge" loans to help their adult children buy property, mortgage brokers and real estate experts say.
Financial strategist and mortgage broker Mario Borg told Domain "there is definitely more of this going on."
He said many parents were offering a portion of the homes they owned outright and which had increased in value by up to 25 per cent in the past two years, as pledge loan security to support their children's home loan applications. Others were buying property in a joint venture with a child.
"I also see many parents provide a cash gift to their kids," said Mr Borg, who runs a training business for mortgage brokers.
He said real estate prices in the major capitals had increased since 2012 but official numbers for first home buyers gaining housing finance approvals had fallen.
He noted that many family-assisted first-home purchases were not being counted in the first home buyer, or FHB, data collected by the Australian Bureau of Statistics.
"If I bought a property jointly with my son, that wouldn't involve a first home buyer loan, so you wouldn't know about it," Mr Borg said.
The widening access younger Australians have to the bank of mum and dad, coupled with the introduction of more restricted first home buyer grants, appears to be hiding the true extent of FHB purchasing.
Domain Group senior economist Andrew Wilson said the eastern seaboard states now only offered FHB grants for the purchase of new properties.
Established properties no longer qualified for the grants. He said this had made it more difficult for the ABS to identify buyers who were purchasing established property for the first time.
Dr Wilson said baby boomers (born between 1945 and 1964) had a cultural connection to home ownership.
"They have reaped the highest rewards from the booms of the past three decades," he said. "There is an enthusiasm to help out, particularly now that you don't get the first home buyer grant unless you are buying a new property."
Dr Wilson said some first-time purchasers in Sydney and Melbourne were buying $600,000 properties. If they borrowed $480,000, lenders required them to be earning about $2000 a week.
"I can't see the typical first home buyer having $150,000 in cash and earning $2000-plus a week," he said.
Paul Nugent, of Wakelin Property Advisory, agrees it has become much more common for parents to partner with adult children to buy property or to lend or give them money.
"Over the past three years, you have seen more fathers bidding at auction on behalf of adult children," he said.
In a statement on housing finance last week, the ABS asked lenders to report all loans to first home buyers.
"Concerns have been raised that under-reporting could occur if some lenders were only able to accurately report on those buyers receiving a first home buyer grant," the statistics body said.
The latest ABS data shows the number of housing loans approved nationally for FHBs fell by 9.9 per cent over August to 6054, the lowest monthly result for six months.
Officially, first-time buyers now account for just 8.1 per cent of all national finance for housing sales, which is the lowest proportion on record and below the long-term average of 15.4 per cent.
The average first home buyer loan for NSW fell to $318,400 over August - down by 4 per cent. FHBs now account for just 4.3 per cent of all housing sales finance.
FHB numbers in Victoria were down by 2.1 per cent over August to a four-month low of 1656. The average FHB loan in Victoria is $291,100 - the lowest since October last year - and first-time buyers account for just 8.2 per cent of all housing loans in the state.
Posted by Chris Tolhurst - The Age on 27th October, 2014 | Comments | Trackbacks | Permalink
Investing in property? Don’t touch these
There are many strategies available for investors. Some strategies can be considered opportunities and produce good cash flow or capital growth; others can be considered a waste of time and detrimental to an investor’s property objectives.
Student accommodation and serviced apartments are considered by many to be a waste of time. investors may be lured in by low entry prices, higher yields and rental guarantees, but there are several reasons why you should think twice.
Consideration 1: Banks will generally not lend more than 60 per cent debt against the value of either type of property. The underlying reason is it is considered one of the most risky residential investment property decisions that an investor can make and lenders do not wish to expose themselves to such risk.
Consideration 2: As lenders will consider only 60 per cent loan to value ratio (LVR), generally an investor must contribute 40 per cent plus costs to the deal. This is a waste of equity/cash as these monies could have been contributed to other investment properties with more capital growth potential, with possible lending to 95 per cent LVR.
For example, (excluding costs and loan mortgage insurance): a $400,000 serviced apartment with a 60 per cent LVR means the investor would have to contribute $180,000 to the deal. Consider a normal residential investment property type assuming a 95 per cent LVR, the borrower would only need to contribute $20,000 toward the $400,000 purchase. The $160,000 difference is a huge amount.
Consideration 3: When the investor wishes to sell the property, there may not have been much capital growth, which is bad enough, but the resale market is considerably smaller than the normal property market.
There would be far fewer buyers mad enough to put in 40 per cent themselves; they would also find it difficult to obtain finance, as the original investor would have found as well, and very few lenders will lend on such a security as already mentioned.
So the seller would not be in a position to demand what they want, and it would most likely, potentially always, be a buyers’ market, meaning sellers would not be in a strong position to negotiate.
Few investors want to plough in 30–40 per cent of their own money, and many won’t have that much money anyway. So don’t think about it in terms of whether you can afford to do it – think of it in terms of how many others can financially or will want to financially do it. The answer is not very many.
The prospect of capital growth potential is connected to the rental increase of the property, which is limited with serviced apartments. Let me explain why. While some serviced apartment contracts have built-in rental increases over a given period of time, the rental increase directly affects the capital growth. The increase is, effectively, the capital gain.
Be aware that the value may not increase at the same rate, in the same time, as a normal apartment. The added risks with serviced apartments, over and above normal apartments, are: the quality of the management service provider, the use of the dwelling, whether it can be owner-occupied, and the exit strategy. These are very onerous, limiting, controlling and expensive (yet more reasons why lenders don’t like them).
Investors, depending on the type of serviced apartment provider, may be required to spend thousands every few years for the refurbishment of furniture and appliances. What a burden!
Serviced apartments can be good cash flow vehicles, on the surface, but after management and body corporate fees and forced upgrades, the true value of the higher cash flow can be very quickly eroded.
It is always recommended that investors undertake normal research and due diligence as to where they are and how many there are in the location. Their proximity to amenities must be considered.
Sometimes the management contract reverts to the owner, after five to 10 years, which can eliminate the enforced requirement to refurbish (after this period). But, on the other hand, you then have to spend time and effort finding someone to manage the property on your behalf. This may prove difficult if the dwelling is in a building with other dwellings that still function as serviced apartments.
The fact the dwelling itself may have reverted to a normal apartment may not reduce the difficulty in obtaining finance, as it may be in a building which still has other serviced apartments. This is a deterrent for lenders.
Student accommodation can be a good income-earner, but these are often very small inside (usually under 50 square metres), which limits the appeal in the aftermarket and can make it difficult to find a lender, as I explained earlier.
Student accommodation may have less onerous contracts, depending where the accommodation is. Some investors turn a house into room-by-room leases, but structurally the dwelling is still a suburban house. This can be a time-consuming responsibility and may not appeal to most property investors.
This is, however, better than a designated student accommodation scenario as it allows the flexibility to borrow normal debt levels.
Furthermore, specific student accommodation purpose securities are not unique.
They are often the same as all the others in the building. Often, there is a large supply of these and strong competition to rent them out, forcing the investor to lower the rent to attract a tenant. The same rule applies when selling. These may always be a monkey on the back of the investor – a perennial hindrance to obtaining a loan, renting it out, and selling it.
In summary, it’s difficult to recommend pursuing an investment in either a serviced apartment or student accommodation. They both provide good cash flow, but investors are likely to encounter resistance in obtaining finance, plenty of fees, a weak aftermarket and a need for continuing investment.
Posted by Andrew Crossley - Australian Financial Review on 23rd October, 2014 | Comments | Trackbacks | Permalink