Puzzle Finance Blog

How to use redraw

Redraw has been growing in popularity for Australians since the 1990s, according to the ABS. An Australian Social Trends 2014 report prepared by the ABS has found the increased use of home equity loans, redraw and offset accounts have allowed households to build mortgage buffers, “enhancing their ability to cope with income shocks”.

Robin Lim, head of mortgages product management at National Australia Bank says “redraw is effectively how much you can draw on your loan … it is calculated based on the difference of your schedule, or how much you are required to pay over the life of your loan, and how much you may be ahead of your repayments.” 

Redraw has been growing in popularity for Australians since the 1990s, according to the ABS. An Australian Social Trends 2014 report prepared by the ABS has found the increased use of home equity loans, redraw and offset accounts have allowed households to build mortgage buffers, “enhancing their ability to cope with income shocks”.

Robin Lim, head of mortgages product management at National Australia Bank says “redraw is effectively how much you can draw on your loan … it is calculated based on the difference of your schedule, or how much you are required to pay over the life of your loan, and how much you may be ahead of your repayments.”

Domain’s senior economist Dr Andrew Wilson says: “Redraw means using the existing equity in your property as a redraw, as a financial resource. That’s a good thing for everyone. You’re on a mortgage, your repaying your property, your equity is increasing, so it’s a good thing to have that capacity to have access to that capital you are your accumulating in your home.”

Wilson explains that strong prices growth in property markets such as Sydney and to a lesser extent Melbourne has meant more Australian’s can access their equity. “It gives home owners the capacity to access those funds without taking out a second mortgage.”

Robin Lim says it is important to understand the ways you can access redraw facilities. Perhaps the ease with in which Australian’s can now tap into their capital through internet banking, ATMs or even directly at the bank branch has been why this has become a trend.

Whilst your bank might have these options available, it’s also good to know if you’re entitled to this service with your current home loan product. “[It’s] good to remember,” Lim says “some products do allow redraw and others don’t.”

“Fixed-rate home loans, you might not have the ability to make additional repayments, which means you don’t have the ability to redraw on that loan. On a variable loan, you do have the ability to pay ahead of the curve which means you can redraw on your home,” he says.

“It is important to realise that when you redraw your home loan, you are actually drawing on more debt,” says Robin Lim says.

Household debt came in at $79,000 per capita in 2013, according to the ABS Social Trends 2014 report, that’s $1.84 trillion nationally. It’s important to talk to your financial provider regarding redrawing loans from your current home loan.

Posted by Cassandra Byrnes - Domain (Fairfax) on 12th October, 2015 | Comments | Trackbacks | Permalink

How to make a winning pre-auction offer

Sneaking in an offer to beat your competition before hammer time isn’t just about having the deepest pockets – preparation and tactics are also important. If you intend to make a pre-auction offer, those in the know share some advice:

Be the early bird

David Wood, director at Hocking Stuart Albert Park, says buyers should “go hard and early” and always do their homework on comparable sales. 

He says sellers will be more reluctant to take their property off the market if an auction date is just around the corner. 

“When [they’ve] had big numbers through [their] open for inspections, vendors would be encouraged by that,” he says.

“They get close to a date where they can say ‘we can see the finish line in sight now’, we’ll let it run through to auction.”

Mr Wood says a vendor may be more likely to consider the offer if it is made during the early stages of the campaign because they will still have four weeks of inspections left and need to keep the house ready. 

That buyer may also not be in the same position to purchase in a month’s time, he adds. 

Don’t make a low-ball offer

Buyers who believe they’re always going to pay less before the auction date should think again.

Some owners who need an urgent sale might consider a pre-auction offer if it is in their range, Mr Wood says. But generally, buyers are more likely to pay market price or a touch higher. 

Gary Peer director Philip Kingston says there is no point making an offer if it isn’t aggressive, especially in a strong market.

“Go with … a price you would contemplate paying under the pressure of an auction because you’ll only get the vendor’s attention with an offer that they think is at the top end of their expectations,” he says. 

Offer a larger deposit

If the offer is made on a long settlement, sometimes a larger deposit can be appealing to a vendor, Mr Kingston says. 

A deposit (usually 10 per cent) would be put into a trust account, but after 30 days it is usually released to the vendor.

“Often, a vendor sells on a longer settlement so they’ve got time to go and buy something, and they use that deposit being released to them,” he says. 

“So sometimes a sweetener can be a larger deposit than 10 per cent, depending on the vendor’s circumstances.”

Don’t include a string of conditions to your offer

Valuer and buyers’ advocate Greville Pabst, of WBP Property Group, says purchasers should consider what conditions of sale would make their offer more appealing. 

Other than a larger deposit, he says, it could be an unconditional offer, or a shorter or longer settlement period, depending on the seller’s requirements. 

“If your purchase is for investment purposes you could also rent the property back to the current owner in need to sweeten the deal,” he says. 

Offer the vendor/agent a time ultimatum on the offer

Some buyers use this tactic to make sure their offer doesn’t get leveraged against them with other purchasers. 

Mr Wood says the timeframe needs to be fair, like 48 hours, so the agent can sit down with both parties. 

Mr Kingston believes deadlines can work against the buyer because vendors often don’t take the pressure well. 

Consider going to the auction

Even though auctions can be daunting, Mr Pabst says it is more transparent because buyers can see how much interest there is and avoid overpaying. 

Putting in a pre-auction offer also means showing your hand to the agent should the auction proceed anyway, he adds. 

Posted by Christina Zhou - Domain (Fairfax) on 12th October, 2015 | Comments | Trackbacks | Permalink

Borrowing to invest — what are your options

BORROWING to invest has fallen from favour, despite the numbers surrounding it now stacking up better than ever.

Horror stories from the global financial crisis — where retirees lost their houses after dodgy advisers told them to use aggressive home equity loan strategies to buy shares — have haunted the psyche of many Australians.

Reserve Bank data shows that margin lending — once popular among investors — is still at less than one third of the levels achieved during the sharemarket’s peak in 2007.

Indeed borrowing to invest is not for the faint-hearted and you will need to do your research or talk to a financial adviser. However, today’s low interest rates and high share dividends present a compelling argument for borrowing.

When you can borrow money at less than 5 per cent to buy a blue-chip share that is effectively paying 8 or 9 per cent a year in income, some investors see it as a no-brainer.

“I can’t see why you wouldn’t do it, as long as you are not going to be a forced seller,” says Middletons Securities adviser David Middleton.

“Borrowing improves your cash flow — it doesn’t make it worse,” he says. You can’t claim for negative gearing, but it’s better to pay tax on a profit rather than get a tax deduction for a loss.

Borrowing magnifies investment losses and investment gains, so it must be a long-term investment. For investors who borrowed before the GFC, that “long-term” is stretching towards a decade because the overall market’s value is still well below its 2007 peak. If you can stomach the volatility and look long term, here are some options:


Borrowing against your home gives you the lowest interest rate and the most secure loan. As long as you pay the interest it’s all good.

People who lost their homes in the GFC typically borrowed against their home and then borrowed again through a margin loan, coming unstuck by this double-gearing strategy when share prices halved.


You’ll pay higher interest than a mortgage and your shares are used as security, so if they fall too low you get a margin call — where you have to stump up extra cash or your shares get sold from under you.

Margin lenders generally allow borrowings up to 70 per cent of a share’s value, but Middleton says it’s best to limit your debt to no more than 30 per cent of the value so you can withstand a significant downturn without suffering a margin call.


Geared share funds take your money and typically borrow against that so you own twice the shares you could otherwise buy. This means you can win big and lose big.

“You can get very volatile valuations from these because they amplify returns,” Middleton says.

Posted by Anthony Keane - News Corp Australia Network on 9th October, 2015 | Comments | Trackbacks | Permalink

Basic Training: How to pay your mortgage off at speed

Thinking creatively helped Peter Horsfield and wife Roz pay off the mortgage on their Sydney home in just seven years. The young couple was keen to get the mortgage monkey off their backs as soon as possible.

"Being under 30 and having a $600,000 mortgage and being newly married was a fairly freaky kind of experience," says Horsfield, a financial planner.

So after a year, they rented out their furnished three-bedroom apartment to executive clients for $1200 a week. Meanwhile they moved into a one-bedroom apartment in the same block, paying about $450 a week in rent.

They also set strict savings goals, invested in study to improve their salaries and ploughed any bonuses or extra money into the mortgage until it disappeared.

Horsfield said the strategy worked so well that they did it again with a second property.

"It's a wonderful feeling – it just opens the door to other opportunities," says Horsfield.

Sharon Walker, a financial planner with NAB, says there are plenty of easy strategies you can use to pay off your mortgage quick-sticks.

First, complete a budget so you know where your money is being spent, says Walker.

Next, change any monthly payments to fortnightly, a simple move that could potentially save you tens of thousands of dollars.

"The other thing I suggest is to round up the repayment. For example, if you're paying $564 a fortnight, increase that to $570 or $600 depending on your affordability," says Walker.

"Over time, even a little bit extra every fortnight makes a huge difference." Walker suggests using a money calculator to work out how much you'll be paying in interest over the life of your loan.

"That can give you a little bit of a shock and motivate action," she says.

Posted by Larissa Ham - The Age on 6th October, 2015 | Comments | Trackbacks | Permalink

Landlord tricks for managing tenants in a tough rental property market

Landlords need to become more professional and commercially savvy to attract and retain tenants in an increasingly competitive market, rental professionals warn.

A spike in the number of disputes over end-of-lease bond repayments highlights the need for better communication of landlords’ expectations and tenants’ responsibilities, they say.

Stand-offs between owners and their tenants about bond repayments are now more common than rows over used cars, disputes about household appliances or even disagreements between merchants and consumers about clothing purchases, according to NSW Fair Trading. It’s a similar story in other states and territories.

A bond is a security deposit paid by a tenant at the start of a tenancy. It is paid back at the end of the tenancy provided no money is owed to the property manager/owner for rent, damages or other costs.

“It is a much bigger problem with private landlords who manage their own properties,” says Gerri Keays, a rental specialist and director of Ray White Real Estate.

Keays says private landlords often have an emotional attachment to their properties and their own ideas on what constitutes reasonable wear and tear and cleanliness, the two most common causes of dispute at the end of a tenancy.

Of course, Keays has a commercial interest in lauding the merits of using an agent. But it also makes sense for the commercially minded landlord because all property agents’ fees and commissions they pay are fully tax deductible. The website of the Australian Tax Office has a section on property rentals that includes a list of more than 20 deductions.

Cleanliness tricky as it’s subjective

But making deductions against income assumes the property is earning rent and not unoccupied due to a costly and protracted dispute before a tribunal or court over its condition at the end of a tenancy.

“Deciding on whether [a property] is clean is one of the most difficult issues to assess because it is subjective and often hard to quantify,” Keays says.

For example, the Victorian Civil and Administrative Tribunal recently dismissed a $1500 claim against a landlord by a tenant who claimed the rental property was infested with pigeons.

It ruled the condition of the property was “substantially” the same as at the start of the tenancy and that because the landlord had not been informed of the infestation there was no breach of duty.

Booming property markets in some Australian capitals, negative gearing and incentives offered by property developers have contributed to a huge increase in the number of investment properties being built and purchased.

Investment property sales have increased threefold in recent years and borrowing through DIY super to buy property has grown by more than 50 per cent a year over the past three years, according to government analysis.

‘Doomsday trifecta’

Many younger buyers fearful of being priced out of the market are deferring the purchase of their first home and instead investing in property in cheaper and less desirable areas in the hope that rising prices will help them bridge the deposit gap.

Rents for houses and apartments in former mining boom cities such as Perth and Darwin are tumbling and are flat in most other capitals except Sydney. There are some niche markets, such as providing student accommodation near campuses outside the major cities, where demand is strong during the academic year.

Keays says the rental market is “soft and getting softer” and recommends landlords do what is necessary to attract and retain good tenants.

Property managers typically charge about 5 to 8 per cent of gross rent.

Property owners considering using an agent need to do some homework because the sector is not covered by a nationwide set of regulations, a code of practice or restrictions on entry.

Worth checking:
  • The percentage of an agent’s properties in arrears. If it’s more than 5 per cent, ask why;
  • How often an agent’s tenants go to tribunals and why;
  • How much of rental payments are kept for maintenance;
  • How often the rent goes into the landlord’s account;
  • How easy it is to access information held by the agent. For example, are records of the tenants’ rental payments up to date; and
  • How often rents are reviewed.

Buyers’ agent Richard Wakelin, director of Wakelin Property Advisory, believes a good agent needs to be commercially savvy and strategic. That includes being up to date on market conditions and tenant expectations.

Keays adds that a good agent will provide a thorough inspection of the property before the tenants move in, and then meet them before they vacate the property at the end of the lease to inform them on what they need to do to have their bond refunded.

“The best strategy is for the tenants to get a professional cleaner and ask for a receipt they can show the landlord,” she says.

Landlords also need to review their insurance cover to make sure they are covered for all contingencies. For example, most general house and contents policies do not cover loss of rent and malicious damage, which are the top claims from landlords renting to students.

Finally, anyone considering becoming a landlord needs to be aware of the myriad rules, regulations and authorities. There are also thousands of rules and regulations issued by state governments, councils and professional bodies.

In addition to NSW Fair Trading and other state tribunals, aggrieved tenants can petition consumer affairs bodies, local councils, equal opportunity and human rights commissions and the courts. 

Case study

Tenants were ordered to pay $5000 in damages and rent arrears after leaving a house in the west Melbourne suburb of Point Cook with chipped tiles, littered with cigarette butts and reeking of pet smells.

Tenants Daniel and Alayne Burns agreed they should pay the landlord for internal and carpet steam cleaning but disputed the $850 bill, the Victorian Civil and Administrative Tribunal heard. They also disputed having to replace security lights and the chipped tiles.

A representative of the tribunal, which resolves disputes between landlords and tenants, inspected the property and agreed with the landlords, Michael Bray and Jessica Van Meersbergen, that the property needed cleaning.

The tribunal ordered compensation plus rent arrears of $2700.

The dispute is typical of the thousands that are negotiated between the parties or end up before tribunals and courts every year.

They are regularly caused by misunderstandings about the rights and responsibilities of the owner and the occupier.

More than 4000 disputes between landlords and tenants about bonds and tenancy agreements were reported to NSW Fair Trading over the past 12 months, nearly 25 per cent more than the number of complaints about household appliances, the next highest category of dispute.

Disputes about house construction and purchases and sales also featured prominently in NSW Fair Trading’s top 10 list of complaints.

Posted by Duncan Hughes - Domain (Fairfax) on 5th October, 2015 | Comments | Trackbacks | Permalink

Sneaky property investors are lying to the banks to get lower interest rates


SNEAKY property investors are getting around strict new lending rules imposed by the banks by masquerading as owner-occupiers to get lower interest rates.

Insiders have revealed a clampdown on loans to investors ordered by Australia’s banking regulator is being subverted by wealthy investors who falsely claim they plan to live in properties when they are actually buying to rent out.

The big banks are offering lower interest rates to borrowers who want to own the roof over their heads after being ordered by the Australian Prudential Regulation Authority (APRA) to reduce the proportion of loans going to investors.

This gives owner-occupiers a better chance at breaking into the highly competitive and expensive property market.

It is unknown how many investors are falsely claiming to be buying for themselves, but the practice could impact the stability of Australia’s property market by sabotaging the new rules, which aim to averting a dramatic fall property prices that could spark a GFC-style meltdown.

But the temptation to rort the system has proven too great for some, according to several high profile insiders who spoke to news.com.au on condition of anonymity.

Mortgage Choice spokeswoman Jessica Darnbrough agreed to speak on the record about the practice, which she confirmed had become a talking point in the industry.

Ms Darnbrough said accessing the loophole — which the company does not endorse — could be as easy as having mail redirected from the loan property’s address, a tactic employed in the past to access the first homebuyer grant.

“It’s not something our brokers would engage in, but I have heard that it is happening,” Ms Darnbrough said.

“There are a lot of grey areas in lending ... And with interest rates as much as 40 basis points higher for investors, I can see the reason behind it.”

The likeliest offenders are understood to be wealthy investors buying rental properties in their own state, making it easy to fudge their living circumstances.

Investors must have strong enough cashflow to convince the bank they can pay off the loan without renting the property out — even if this is what they plan to do.


Investment mortgages are considered to carry a higher risk of default, so APRA has required banks to cap the growth of lending to investors at 10 per cent by the end of this year.

The measure was announced amid concerns of a speculative property bubble in Sydney and Melbourne, where investors have piled into the market.

It aims to prevent the housing market from becoming dangerously overheated, as high investor activity can have the effect of inflating prices.

Regulators want to stop problems in the housing market affecting the rest of the financial system, as happened during the global financial crisis.

When assessing a loan application, lenders require borrowers to provide proof of residence such as a drivers licence, pay slip or utility bill.

But news.com.au has been told that there are several ways of getting around this, such as redirecting mail, or striking an agreement with tenants for mail to be collected at the property.

Ms Darnbrough said that while interest only loans were once a red flag, this was no longer the case.“These days, a lot of borrowers opt for interest only loans, especially when they have just bought their first home and are giving themselves some time to get used to making mortgage repayments.”


Oasis Property chief executive Gavin McPherson said it was inevitable that some investors would claim to be owner occupiers, as the new regime was not “an incremental or mild change” for many borrowers.

“For some investors, it is the difference between investing or not investing,” Mr McPherson said.

“With stock markets volatile and bank deposits paying so little, I see it as inevitable that some investors will look to call themselves owner occupiers to realise these investments.”

He said banks and brokers would be alert to inconsistencies, such as when properties were purchased interstate — but “they will always be reliant on the applicant making truthful statements in the application”.

Ultimately, he advised against the approach, warning that anyone who needed to lie on a loan application was “probably not ready to invest”.

“If an investor doesn’t have a full deposit in cash or equity, then maybe they should sit this cycle out,” he said.

“Their time will come, and my money is on more price downside than upside in NSW and Victoria in the near to medium term.”


Westpac chief economist Bill Evans this week spoke out against APRA’s clampdown, arguing that it could jeopardise the settlement of new off-the-plan apartment sales.

Mr Evans warned the tightened lending rules could create a “distortion” by artificially cooling the market, in comments made at a construction industry breakfast and reported by the Australian Financial Review.

Whether this is a good or bad thing largely depends on which side of the property ownership fence you are on; for would-be first home buyers, arresting the growth of house prices could be a godsend.

Pair that with lower interest rates and perks like free airfares, and you’re onto a winner.

The prospect of investors crashing this little party, by effectively stealing a spot among the banks’ new target customer base, does not sit well.

On the other side of the equation are the investors who have bought off the plan and find themselves unable to settle.


The banks have chosen different approaches to dealing with the crackdown, with NAB opting to hike interest rates on interest-only loans, which are often — but not exclusively — used by investors.

The Commonwealth Bank, ANZ, Westpac and Suncorp raised interest rates for investors, while HSBC banned loans to investors who are not existing customers.

Non-bank lenders such as credit unions do not have to comply with the regulation.

In August, NAB revised its loan books for the 2014-15 financial year by almost $30 billion, informing APRA that there were 40 per cent more investor loans than previously reported — meaning they had been incorrectly classified.

Misclassification includes the scenario of a first homebuyer who does not declare the fact that they are planning to put tenants in the property, or where they initially live in the property but move out after a period of time and rent it out.

Equally, borrowers who have moved into homes they initially bought an investment — but had not bothered to tell their lender — have been contacting banks to change their status after being hit with higher interest rates.

Reserve Bank governor Glenn Stevens has noted that APRA’s new rules appear to have slowed the growth in lending to investors; it grew by 10.7 per cent in the year to August, down from 10.8 per cent in July.

Only time will tell whether the banks manage to get this down to 10 per cent — on paper and to the best of their knowledge — or face potential fines.


When contacted by news.com.au, all four of the big banks declined to reveal whether they had knocked back any loan applications by investors posing as owner occupiers, nor would they detail their verification processes.

Westpac spokeswoman Fiona Macrae said in a statement that the bank had “appropriate checks and balances in place to ensure customers’ loan profiles are accurate”, but would not give further detail.

“We are seeing an increase in the number of customers re-categorising their loans — this increase is industry wide,” the statement said.

“Westpac is proactively seeking out customers in order for them to update their records, as you would expected after such a change in policy.”

A spokeswoman for NAB said the bank had not seen evidence of” a change in the proportion of loans that have switched loan purpose between investor and owner occupier”.

“We operate in a highly regulated market and take our lending obligations very seriously,” the spokeswoman said.

“Under national consumer protection legislation, we are required to thoroughly assess a customer’s financial situation and needs to ensure that we are providing suitable products and solutions.”

ANZ, the Commonwealth Bank and HSBC declined to comment.

Posted by Dana McCauley - News Limited Australia on 2nd October, 2015 | Comments | Trackbacks | Permalink

What to consider when researching your next property

What’s the most important thing you need to do before buying your next property? Research of course. Robin Lim, Head of Mortgages Product Management at National Australia Bank says “the most important thing to do when you are looking to purchase a new property is to prepare.” 
What’s the most important thing you need to do before buying your next property? Research of course. Robin Lim, Head of Mortgages Product Management at National Australia Bank says “the most important thing to do when you are looking to purchase a new property is to prepare.”

Lim recommends researching the following categories in order to make an informed purchase when you buy your next property.

The Area

Lim says you need to ask yourself “what area suits your needs, what area suits your lifestyle.” Get organised. Write out a list of all the things you are looking for in your next property and then research how you are going to achieve this.
  • What are house prices like in the area?
  • What are the local infrastructure options available to you, such as parks and schools?
  • What kind of lifestyle will the area provide you? You can check out Domain’ suburb profiles here
  • How have Auction results been tracking in your area?

The Home

Once you’ve looked at what’s going on in your preferred suburb, it’s time to scope out the house itself. “What are the needs you bring to the home?” asks Lim.
  • Have you attended an auction?
  • How many people will be living in the home?
  • How much space, how many bedrooms do you need?

“Make sure you’ve got the specific requirements for your household, in your household checklist,” says Lim. 

Home Loans

Understanding the borrowing requirements is the next step. “Home loans are very complicated things,” says Lim.
  • What home loan is best for your needs?
  • Which repayment schedules are available?
  • Do you know the jargon?
  • Have you talked to an expert?

Where can you get all this information? Domain’s Senior Economist Andrew Wilson says the internet has a wealth of knowledge for those that are buying and selling.  Everything you need to know is online, what’s available, pricing, general market information, interest rates, and on costs such as repayments and stamp duty.

“People should be aware of the market environment, because estimates are only just that.  It’s important to know the big picture, current clearance rates in the area, which gives you a good weekly indicator of how the capital cities are going currently. It’s always good to be monitoring the auction clearance rates,” says Wilson.

Home Price Guide is a good tool because it gives you the opportunity to get an estimate, of current market value. That of course reflects the number of sales recorded on that property.” says Wilson. 

Posted by Cassandra Byrnes - Domain on 28th September, 2015 | Comments | Trackbacks | Permalink

Basic Training: How to have a second bite at your mortgage cherry

 The task of finding a better home loan deal is not right up there in the excitement stakes.

Sometimes the easiest thing to do is to forget about it, and keep paying too much. Or – as most of us do when buying petrol, milk, or any number of smaller things – you could shop around, and save a bundle.

Refresh your memory Check what your current interest rate is, and what the loan includes. Are you on a fixed or variable loan? If it's fixed, are there discharge fees?        

The fine print "The key to finding the cheapest home loan is that it's not just about finding the cheapest interest rate – you also need to take into account the fees and charges associated with the loan," says Shelley Marsh, a former stock market analyst who writes personal finance blog Money Mummy.

"This is why you should look at the comparison rate as well as the interest rate."

She says the comparison rate reflects the actual cost of the loan as it takes into account fees and charges, plus the interest payment you'll have to make over the entire life of the loan.

Featuring… If you want to pay your home loan off quickly (who doesn't?), Marsh suggests looking for three top features: unlimited extra repayments without fees, a redraw facility and a 100 per cent offset account.

Play the field Do your research before tackling your bank. Comparison websites such as Finder, Mozo, Canstar or RateCity can link you directly to lenders.

New website HashChing, "Australia's first online marketplace for home loans" – advertises special deals, and puts you in touch with a local mortgage broker who can help you get that deal.

Chief executive Mandeep Sodhi says mortgage brokers have access to better rates, and can do the heavy lifting for you.

Negotiate hard. Sodhi says if you're dealing directly with a bank, dig your heels in, and don't take the first offer.

Threatening to jump ship remains a smart tactic. "Do you want to stick with the bank that's not looking after you?" says Sodhi.

Posted by Larissa Ham - The Age on 25th September, 2015 | Comments | Trackbacks | Permalink

The secrets to successful house flipping

Buying, renovating and selling homes is what Tom Hall does for a living. In the past 10 years he has flipped five houses and made an enviable profit.

His most recent project was a four-bedroom house in Melbourne’s bayside Hampton, which he purchased for $1.25 million in 2013. Hall made major improvements to the house, including a revamped al fresco dining area and new kitchen, at a total cost of $230,000.

He’s hoping to recoup these expenses and turn a sizeable profit when the house goes on the market for more than $2 million this spring.

Hall, an electrician and former real estate agent, says successful house flipping takes hard work, perseverance and a handful of simple rules.

Start small

Amateur renovators shouldn’t bite off more than they can chew. Select a small property as your first project with a view to buying a bigger one for your second.

"If you start with something small there’s less risk,” Hall says.

“I started with a one bedroom apartment in Carnegie. I had to earn my own deposit, bought it, sold it and doubled my money in three years so it was a good start.”

Buy at the right price

Research the property market to find a place that offers good potential capital growth. Familiarise yourself with sales data so you know a good deal when you see one.

Thorough research could see you bag a bargain, which means reaping a bigger reward once the renovations are complete.

“One of the most important things is buying at the right price, that’s one of the main things I look for,” he says.

Negotiate a long settlement period

A 90-day settlement will give you time to draft designs and organise trades well in advance of your start date.

“If you have a 30-day settlement, you haven’t got as much time,” Hall says.

Tailor to a target market

Some renovators make the mistake of customising their improvements for their own purposes. But Hall recommends keeping a specific demographic in mind. A couple without children was the prime market for a one-bedroom property in Windsor, which he purchased for $475,000. Adding a loft-style bedroom for guests or to use as a study helped fetch a sale price of $850,000.


Every little bit counts when it comes to shaving down costs. Always ask for a trade discount when you’re buying supplies, keep an eye out for sales and make the most of connections who can offer you wholesale prices.

Posted by Kate Jones - Domain on 21st September, 2015 | Comments | Trackbacks | Permalink

You get to buy with a little help from your friends

Those who build together, stay together, with property syndicates paving a way into the market.  
Friends who build together, stay together.

Mates and relatives who want to break into the property market are pooling money to buy and develop homes in trendy suburbs that they would otherwise be priced out of.

Property syndicates, aimed at commercial investors and the rich, have long existed.

But in a hot market, joint residential ventures are gaining popularity as a way to break into a dream, inner-city suburb.

A group formed by boutique developer Tim Riley, of Property Collectives, moved into their custom-built townhouses in McCracken Avenue, Northcote, about two years ago.

Andrew Ashcroft and his wife Tanya Wilson, who have a 15-month old daughter Aurelia, are part of the McCracken cooperative and are embarking on another real estate syndicate, also in Northcote.

Mr Ashcroft said he would not have considered a new, off-the-plan build.

“If you go off-the-plan you can’t be sure of the quality or if you are going to hear your neighbours, but with this, you have more control and involvement,” he said.

“You have something that you would otherwise have not been in the position to source or buy.”

Members of Mr Riley’s other syndicates, in Northcote and in Thornbury, were first home buyers in their 20s struggling to purchase in postcodes close to the CBD, so they teamed up with their parents.

The initial outlay for a project – between four and eight dwellings – is significant, requiring $250,000 capital, with about half a million dollars borrowed.

The end result is a three-bedroom townhouse, including land, for roughly $750,000. Mr Riley says the final cost is 20 per cent cheaper than an open market price.

“I have a number of partners who are doing it to get into their first home, and their parents are coming in and helping them out with the capital,” he said.

“A lot of the partners are doing that and I am doing that, too – I partner up in all of my projects. I have partnered up with my Mum, my Dad, and friends. We share a unit and split it according to how much capital we’ve each contributed.

“It is probably going to be worth up to mid $900,000 when finished.

“I think that is the main driver. Without creating that capital and paying basically wholesale costs for townhouses, they probably wouldn’t be able to buy in as a good a location or as big a place. From a design perspective, it is very attractive for people to get involved in the process of the design of their future home.”

Property expert Justin Lawrence, partner of legal firm Henderson and Ball, said residential syndicates were gaining popularity as real estate prices rise.

“A lot of people are finding it very difficult to get into good property, in good areas, without being properly advised and guided into them,” Mr Lawrence said.

“It comes down to the structure. I am telling people that a unit trust set-up is the way to go.

“I had clients who had a property in Glen Iris and the idea that their 22 year-old daughter could buy in Glen Iris was the same as her buying a Rolls-Royce – there was no chance.

“So they decided to pool their resources to enable her to buy in that area – Ashburton as it turned out, the next suburb over. But without that set-up, there wouldn’t be an opportunity for her to buy a fairly rudimentary property but in a very good area.”

Mr Riley was an underbidder at the recent auction of an unrenovated, century-old Victorian in Barkly Street, Brunswick East, which sold for $3.4 million, and is currently searching in Collingwood.

The process can take up to three years, from assembling buyers, to selecting the site, undertaking a feasibility study, obtaining planning permits approval, valuation for construction finance and building quotes.

“Before we bought the McCracken Avenue site we did about 13 or 14 feasibility studies and lucked​ out at maybe five auctions – it took about 10 months,” Mr Riley said.

Posted by Emily Power - Domain (Fairfax) on 20th September, 2015 | Comments | Trackbacks | Permalink

Get loan fixed first

As mortgage lenders tighten their lending criteria, it is more important than ever for buyers to secure finance before putting down a deposit on a property.

Purchasers who fail to come up with the money by the date of settlement risk losing their deposit.                                                                

Sheldon Rodrigues had a scare when the mortgage he thought had been organised through a mortgage broker fell through.       

Sheldon and his wife, Michelle, went to see a mortgage broker who told them how much they could afford to spend on a house.

The broker told them that all they would have to do is to put down a deposit for a house within their borrowing capacity and then return to him for the mortgage to be arranged.  

However, the broker did not go the next step to arrange a formal assessment with the lender that the broker had identified.

The Melbourne couple, who have twin five-year-old boys, were just about to pay the 10 per cent deposit on their dream house.

However, on returning to the mortgage broker the story had changed. They were told their borrowing capacity was less than they had been led to believe and the lender would not be able to provide the mortgage. 

The couple did their research online and, at the suggestion of a friend, made contact with ME, which sent around a mobile lender.

After three days, ME gave the couple a written "conditional" approval.

Sheldon says his experience shows how it is absolutely necessary to arrange approval from the lender in writing before handing over the deposit on a property.

Lenders provide "conditional" approvals in writing that are usually valid for up to three or four months.

But the approvals are more "conditional" than they may seem. Lenders can apply new lending criteria at any time within the three or four-month period of the approval.  

Re-assessment can mean the buyer is not allowed to borrow as much.

A much higher level of comfort is provided for buyers with an "approval in principle".

The names that lenders use for this stage of the application process vary, but it is the stage where the lender has verified the information provided by the applicant such as income and credit checks.

These are usually good for up to three or four months. This gives buyers a high degree of certainty to buy a property up to an agreed limit; providing the buyers' financial circumstances remain unchanged.

Lenders' lending criteria have tightened recently, making it even more important than usual to lock in finance before going property hunting.

Most lenders have lifted the mortgage interest rates they charge investors, sometimes including existing investors who have variable rate mortgages.

The higher mortgage interest rates are part of their response to increasing their capital adequacy at the behest of the regulator, the Australian Prudential Regulation Authority.

Lenders have also been tightening their lending criteria across their mortgage products because of concerns by the regulator that lending standards were becoming too lax.

Under new lending criteria, for example, interest rate "buffers" have been increased. 

Normally, lenders like to know that the household finances can withstand an increase in their mortgage rate of about 1.5 to 2 percentage points above the mortgage interest rate they will be paying.

But that buffer is now more likely to be 2.25 to 2.5 percentage points. Also, for investors, the rental income is being discounted by 20 per cent and some lenders are not taking into account the benefits of negative gearing.

Those who have previously bought property should not assume that the loan assessment criteria and processes will be the same as before.

Mortgage brokers say consumers have to be careful. Lenders started increasing their mortgage rates for investors and tightening lending criteria across the board about a month ago.

Kevin Lee, the principal of Smart Property Adviser and a Smartline broker, says those who obtained an approval recently should check with their lender to make sure the borrowing capacity is unchanged.

Another Smartline broker, Grant Matthews, says that he has re-adjusted purchase prices downwards after some approvals expired.

His says, one client, an owner-occupier, had his maximum purchase price reduced from about $1 million under an old conditional approval to about $920,000 under the new approval from the same lender.

Michael Hendricks, general manager of credit risk at ME, says buyers have to make sure they have all of their "financial ducks in a row" before putting down a deposit on a property.

"Our advice has always been talk to your lender or to a trusted broker and have as much as your financing needs locked away before you bid at action or negotiate for a purchase through a real estate agent," Hendricks says.

Posted by John Collett - The Age on 20th September, 2015 | Comments | Trackbacks | Permalink

Victorian first home buyers take on record high mortgages

The tough road to buying a first home is over for Nicole Govan, 25, and boyfriend Jacob Lumsden, 23, who will be  unpacking at their new Pascoe Vale address this weekend. 

The two have been living with Ms Govan’s family in Aberfeldie and have spent about 20 Saturdays at open for inspections and arranging private viewings on weeknights. 

After stretching their budget from the low $400,000s to the higher end of the range and missing out at two auctions, they secured a two-bedroom townhouse a few kilometres from their ideal location. 

It is a familiar story for many Victorian first home buyers, who are taking on record high mortgages to pay for soaring house prices in Melbourne. 

First-timers took out an average loan of $347,600 in July, up $9200 from June. They now make up 11.7 per cent of the market, according to the Australian Bureau of Statistics. 

The number of young buyers breaking into the market this year has  also jumped 6.4 per cent compared to  the same period in 2014. 

Domain Group senior economist Andrew Wilson said the rising proportion of first home buyers came  as investor finance commitments fell. 

With the banks moderating lending to landlords, he said first home buyers were facing less competition from investors. 

Buyers advocate Cate Bakos has seen first-hand the results of the Australian Prudential Regulation Authority’s measures to restrict the growth of investor lending to no more than 10 per cent a year. 

“The investors have absolutely tapered off. We even had a few clients on our books who have either downgraded their brief due to borrowing constraints or they’ve put their plan on hold because the APRA changes have meant that they can no longer borrow,” she said. 

At the same time, Ms Bakos said, she was fielding more inquiries from first home buyers, who were also having more success because many investors had left the market. 

Despite rising house prices, she said, there were still plenty of options for young buyers within 15 kilometres of the CBD for smaller properties, such as a townhouse or by going further west. 

Though Ms Govan and Mr Lumsden’s decision to buy in the north wasn’t affordability driven, they found themselves being priced further out. 

“We’ve both been brought up around this area; we want to be close to the city and be close to all our friends and family,” said Ms Govan, who works in childcare. 

“We’d prefer to be in Essendon, Aberfeldie or Moonee Ponds but, because it’s a lot more pricey around that that area, we just had to go to the outer suburbs.”

Other first home buyers such as Chris Morris, 30, and wife Jennifer are looking south-east and have chosen to buy off-the-plan.

After renting in Toorak for two years, they have paid a 10 per cent deposit for a three-bedroom townhouse in Cedar Wood’s Jackson Green urban renewal development in Clayton South. 

The couple had plans to buy a house they could do up in the south-east, and attended about 15 auctions and at least 60 open for inspections. 

Mr Morris said they realised houses within their price range would have needed a significant amount of work, so they decided to buy a new home expected to be built in two years. 

“We have a deposit ready, but we could save up for longer with that extra two years,” the policy adviser said.

“And when it is built, we won’t have to do any renovations or changes to it.”

Posted by Christina Zhou - Domain (Fairfax) on 19th September, 2015 | Comments | Trackbacks | Permalink

Real estate agents who can’t give an estimated selling price are ‘in the wrong game

With proposed new laws aimed at stamping out underquoting passing through the lower house of parliament this week, the NSW government has a blunt message for real estate agents. That is: if they can’t provide a reliable price guide on what a property will sell for, they’re “in the wrong game”.   

“If an agent can’t work out the estimated selling price, then maybe the agent needs to go back to school and work out how to do it,” Fair Trading Minister Victor Dominello said during an exclusive interview with Domain.   
In the March election campaign, the Baird government promised to take a hard line on an issue that continues to rattle every hopeful home buyer who fronts up at an auction. Based on a dodgy price guide, many pay hundreds of dollars for a pre-purchase inspection, only to see the property sell for $100,000 more than the figure an agent had quoted.

Properties will still sell for a higher figure than both the guide and the reserve price, but importantly, the price guide will always be exactly the same as the figure that goes on the Agency Agreement, the document that vendors sign when they give an agent the job of selling their home.

Mr Dominello has the full support of the head of the Real Estate Institute of NSW, Malcolm Gunning, in his efforts to end underquoting for good.

“Most agents do have the ability to price property, and Victor’s comment, it’s not a flippant comment – if they can’t price property they shouldn’t be in the business,” Mr Gunning said.

“They should be able to give a clear indication as a professional as to what the market value is of a particular property.”

As the  Property, Stock and Business Agents Amendment (Underquoting Prohibition) Bill 2015 says, the only figure that the agent will be able to provide to buyers is “the agent’s reasonable estimate of the likely selling price of the property (the estimated selling price)”.

And the legislation explicitly bans terms such as “offers above”, “offers over” or any other similar statement.

Having been debated and passing through the lower house on Wednesday, it is scheduled to be debated in the upper house on October 16.

The reforms won’t apply this year, but are expected to begin in the new year.

“This whole reform is about stopping price baiting,” Mr Dominello told Domain. 

In a common collusion between agents and vendors, the true price that an owner will sell for has gone on the Agency Agreement, but agents have quoted a lower figure to the market to entice buyers to an auction.

The reforms mean the price guide will not be allowed to be the “starting price” for an auction. So other terms such as “we expect bidding to start from” should also disappear.

As well as the current threat of a $22,000 fine, agents who underquote would face another penalty, losing their commissions and fees.

The government has conceded that the current laws aimed at keeping underquoting at bay are too vague.

“Provisions that relate to underquoting exist under the current regime, but the point is there’s been no successful prosecution in 13 years, because it’s very difficult to prove,” Mr Dominello says.

“The reforms we are putting forward now, makes it much clearer for both the agent and the potential consumer.

“I think that it’s good for the agents because it provides them with a lot more clarity and they can look the vendor in the eye and say ‘we can’t do this anymore, it is prohibited’.”

He acknowledged there had no doubt been instances when the vendor had “probably been putting pressure on the agent, saying ‘I want you to do this, otherwise I’m not going to use you’.

“Now, it’s a level playing field … you can’t do it at all.

“And more importantly, it provides protection to the consumer so I think it’s a good law.”

Mr Gunning agrees that the reforms will also make it easier for the agents to stand up to vendors who encourage them to mislead buyers. 

“The agent needs to take control of the sale process and be transparent with the whole procedure,” Mr Gunning says.

“The biggest criticism the public has with a lot of real estate agents is a lack of transparency.”

He says agents will be required to update buyers during the auction campaign if price guides need to change because of interest during the campaign. If a property sells for a figure way beyond the price guide and the figure on the agency agreement, that’s “a good auction”. “The great unknown is always the level of competition.”

Mr Dominello has been working closely with the Real Estate Institute and other industry groups on the reforms, which will require aspiring real estate agents to do a 12-unit diploma course and two years’ of work experience. “At this stage it’s at certificate level,” Mr Gunning said. “You can work in a real estate office with as little as one day of training.”

Last year alone, Fair Trading received 200 complaints in relation to underquoting.

“I imagine that’s just the tip of the iceberg because a lot of people out there would just assume it’s just normal practice, even though it’s shark practice, they just assume it takes place,” Mr Dominello said.

Mr Gunning commended Mr Dominello for the consultative process and setting up a specific real estate division within his department headed by Fair Trading Assistant Commissioner Andrew Gavrielatos​.

“Before the new division, the compliance officer may have also been working with tattoo parlours and used-car yards … they may have walked out of the real estate office and then gone to check a tatooist had spelt ‘mother’ correctly on someone’s arm,” he said.

“They require fairly different levels of expertise I would have thought.”

Posted by Stephen Nicholls - Domain (Fairfax) on 18th September, 2015 | Comments | Trackbacks | Permalink

Do you call investment property home? Watch out

The big banks' move to lift investment loan rates is bad news for families who've chosen to live in their "investment" property.

Thousands of Australians are reportedly repaying more than they need because they've not told their lender that they are now living in a property bought with an investment loan.  

While interest rates for home owners are at very low levels, the big banks have in the past few weeks raised the rates they charge investors.        

Those with variable mortgages over investment properties have been hit with higher mortgage interest rates as lenders respond to the regulator's cap on investment lending to help take some heat out of the runaway property markets in Melbourne and Sydney.

Lenders are reporting that they have been fielding calls from owner-occupiers with investment loans. The lenders have been re-classifying these loans as owner-occupier mortgages which have lower interest rates.

Lenders have also been identifying from their records those customers living in their properties that have investment loans.

The typical scenario is where borrowers are now living in properties that they used to rent to tenants. There are likely to be many thousands more in this situation where their lenders are not aware they are now owner-occupiers.

These customers previously had little incentive to tell their lender they had moved into the home as the investor and owner-occupier rates of many lenders were the same.  

Sam Boer, CBA's general manager of broking, is reported in Mortgage Business as saying that that at its peak, CBA was seeing a couple of hundred requests a day, although that has now started to drop off.

"Just through our own data mining, we've found a lot of customers – and we're talking in the tens of thousands – who are living in their investment properties. So we've been busily reclassifying them," he told Mortgage Business.

"Usually the call comes in because they've noticed something has happened to their interest rate, so we talk them: 'Are you living in the property?' And they say: 'Yes', Boer says.

"Okay, they answer a few questions, they sign a declaration and then we switch it over and they're happy with the world again. And so that's a very simple and easy process," he says. 

St George Bank's head of credit, Rob Love, told Mortgage Business the bank had had to implement new procedures for dealing with an influx of investors seeking to switch to an owner-occupier mortgage. 

Posted by John Collett - The Age on 18th September, 2015 | Comments | Trackbacks | Permalink

What it’s really like to be a home owner in your 20s

Being a first-home buyer gets you sympathy by the truckload, but what about being a first-home owner?

Finally on the ladder and dealing with more debt than ever before encountered – the struggle is real.

Here are nine things to expect when you take the plunge. Debt will be scary

At some point, the debt will legitimately make you freak out. Even if the fear is completely unfounded and you’ve “done the numbers” over and over. There’s something about a mortgage that makes you feel simultaneously like both an adult and a child play-acting as a grown-up. 

It’s the fear of knowing you can’t quit your job at a moment’s notice – even if you weren’t planning to anyway – because you have a financial commitment that won’t relent. The trick is ensuring you don’t end up resenting your job, your partner or other factors in your life.  If you thought you were a real estate aficionado now, wait until you have actual skin in the game.

This is normal, relax and realise that we all feel the same. 

Opening your letterbox becomes an ordeal

There used to be a time when receiving a letter was exciting. What could it be … A pen pal from overseas? A love letter? Uh … no. Now it’s just bills, rates, more bills and the occasional pile of junk mail to keep the front of your fridge full of depressing bills that you can’t halve or blame on someone else.

This may even include a whole bunch of insurances that, let’s be frank, you probably didn’t even know existed before. Life insurance, income protection and home/contents insurance are just some of the necessities that may soon pour through your door. Get a filing cabinet and save yourself some angst.

You’ll feel like a social pariah

In a time when first-home buyer numbers are at record lows and more people buy in their 30s than their 20s, you’re bucking the social trend. And you’ll know about it every single time you hang out with your besties. 

Your friends will want to complain about their share-house disasters, whinge about their landlords and talk about being forced to move every year to a new home. On some level, you’ll actually be jealous. On another level, you’ll sit there feeling a little smug. All of your 20-something friends will think you have it a lot easier than them and when you see their inner-city digs, in pristine condition, that they’re renting for something similar to the cost of your 50-minutes-from-the-CBD mortgage – you’ll be gritting your teeth. Just try to remember the long-term benefits.

Baked beans – otherwise known as “making sacrifices”

It’s a rite of passage to eat every single pantry item until the next pay day. So goodbye artichokes and quinoa and hello baked beans and sriracha​. You’ll not only start eating like a university student again, you’ll also become one of those people who gets excited by $2 coupons for ketchup and does regular visits to Costco.

But the sacrifices won’t just be to do with your grocery spend. Evenings out with friends will have to be carefully timed to match the budget, you may need to cancel that gym subscription and sometimes having Foxtel isn’t going to happen.

DIY fails

It is a truth universally acknowledged that when a pipe bursts in your home, your first port of call is going to be YouTube and not a plumber. Even if you end up taking four trips to the hardware store, spending a fortune and still not fixing the pipe two months later.

If you’ve bought a doer-upper (read: anything in “original condition”) then expect a lot of familiarity with socially inappropriate behaviour, such as having to brush your teeth in the kitchen sink, using superglue as a remedy for various household ailments (broken wall panels, cracked tiles, toilet roll holders) and powering your entire house with one extension cable.

Just beware that some of this activity isn’t just dangerous (a certified electrician is always recommended), it will sometimes cost you more to try and miserably fail than if you’d just brought in the professionals in the first place.

Your neighbourhood becomes your identity

If you thought you were proud of where you grew up, wait until you own a home where you live. Be ready to jump on forums to defend your area, fighting off claims about its unsavoury characters.

You’ll quickly learn to love the quirky aspects of your suburb, whether it be that it’s home to the only drive-thru Starbucks in Sydney (Mount Druitt) or that the local busker once starred on Australia’s Got Talent (Byron Bay).

But the pride you have in your area will also manifest itself in not-so friendly ways. Others’ messy front yards and disregard for trash cans will quickly peeve you off and conversations with friends and family may actually involve the “house down the road” that “never mows their front lawn”. 

Everything is your responsibility. And your choice

With great power comes great responsibility. Or … with no one inspecting your home to ensure you shouldn’t be evicted, there’s every temptation to let your home go to hell and live like the dirty adolescents we all secretly are. Although  it is acceptable to be a slob some of the time, the novelty quickly wears off for anyone who isn’t you.

Without a landlord nagging to keep things clean, it’s your responsibility to keep up appearances and make sure your home isn’t turning into a toxic wasteland. And, yes, this includes keeping the yard tidy, facilities working and calling council to cut the trees at the front that are sagging into the power line. 

And whereas it can seem stressful and time consuming to be in charge of so many different things, it also provides you the ultimate freedom. You can make improvements, choose to replace whatever you like and install a dishwasher when you can afford it – without having to bargain with a landlord. It’s up to you.

Overnight, you will become an ‘expert’ on house prices

If you thought you were a real estate aficionado now, wait until you have actual skin in the game. Astute home owners are acutely aware of what they think their home is worth and what other properties around them are selling for. If you’ve ever been to an auction, you’d have noticed that at least a couple of the attendees were neighbours. Don’t be surprised if you end up sticky-beaking at your neighbour’s auction – after all, you may just realise that house prices have gone up in the area.

And get ready to end up in heated “debates” about house prices and where they’re headed – even with close family members and anonymous strangers online. Everyone has an opinion about just what the market is about to do and you’re going to hear them all.

You’ll be expected to play host

Family and friends may expect to visit … but they may not expect they’ll be sitting on a bean bag, a sofa bed and a scratched up massage chair. You may not be able to wow them with your interior decorating skills quite yet, so try showing off your movie collection, culinary creations or, if all else fails, conversational skills.

It’s your first home, not necessarily your last, so don’t feel embarrassed inviting your loved ones over to celebrate.

Posted by Jennifer Duke - Domain (Fairfax) on 17th September, 2015 | Comments | Trackbacks | Permalink

How to keep your home loan on track

 A RESIDENTIAL mortgage is not a short-term arrangement: the average term of an Australian home loan is 30 years. Clearly it is a major and long-lasting commitment. But it certainly isn’t a ‘set-and-forget’ situation, for two main reasons.

Firstly, because your personal and financial situation can change — and your current loan may no longer suit you best. Secondly, home loans are a very competitive market — there are hundreds of mortgage products on offer in the Australian marketplace — and your loan may simply have fallen out of competitiveness with other products.

Every home-loan borrower should review their loan regularly. The loan is not a favour to you from the bank: it is a financial product that is supposed to be performing a job for you. Think of a regular review as putting your loan to the test — how well is it doing that job, and does it deserve to keep your business?

Reviewing your loan regularly is important because people’s lives are constantly changing. As your personal circumstances change, so can your financial needs — and you might find your financial flexibility being affected. Your employment status could change, or you might start a family: leading to increased costs, with less income coming into the house. This could affect your loan repayments.

On starting a family, it might be a natural progression to want to move to a bigger dwelling: a larger property inevitably comes with higher costs, and a bigger loan. Other changes, such as an increase in salary or a higher valuation on your property, can work to lower your risk, and encourage lenders to offer a better deal.

Knowing this, it’s a good idea to keep challenging your mortgage broker or your lender to demonstrate that your current loan is the best one for you.

On average, Australians change their home loan every three to four years — as recently as 2009, that figure was once every seven years. Heightened competitiveness in the mortgage market is one reason for that, but so is increased savviness on the part of borrowers.

Interest rates are the obvious first comparison that many people would assume in assessing loans.

We are in a period of low interest rates: the long stretch of low interest rates since the global financial crisis has continued well into 2015, and Australia’s official cash rate has stood at a record low of 2 per cent since May 2015.

The last time the Reserve Bank of Australia (RBA) increased the official rate was in November 2010.

The markets for variable-rate loans — priced off the official Reserve Bank of Australia (RBA) cash rate — and for fixed-rate loans, which are priced according long-term interest rates in the money market, are both highly competitive. Banks and other lenders move rates around constantly.

The ‘comparison rate’ is a handy tool to help borrowers identify the cost of a loan. It is a rate that includes both the interest rate and the fees and charges on the loan, combined into a single percentage figure. Lenders are required by law to include a comparison rate when advertising a loan interest rate.

The rate incorporates:

•the amount of the loan;

•the term of the loan;

•the repayment frequency;

•the interest rate; and

•the fees and charges connected with the loan.

But even the comparison rate doesn’t tell you the whole story.

The loan amounts and terms shown on a comparison rate schedule don’t represent all of the possible combinations of amounts and terms. If your loan is for a different amount or term, the true cost of your loan could also be very different. Different fees can also result in a different comparison rate.

Borrowers have to remember that comparison is not always about the interest rate — fees, loan features and functionality can also be very important. It pays to be very aware of how “functional” your loan is: whether it offers a redraw and offset facility, and whether it has any restrictions on repayments, whether it or restrictions on a split between fixed-rate and floating.

If it does have any restrictions, get a very clear understanding from your mortgage broker or your lender as to what trade-offs you are getting for this lack of flexibility. When reviewing your home loan, ask whether there are any features it has that you don’t use; that’s just as important as knowing what features it doesn’t have. Flexibility is very important, particularly the ability to switch your repayment schedule from monthly to fortnightly, which can significantly decrease both your loan term and the interest owed.

Likewise, you should always assess your mix (or preference) between fixed and floating — does it suit the current situation? The fixed proportion of your loan gives you the certainty of knowing your repayments. At record low interest rates, fixing part (or all) of your loan may make sense: again, interrogate your mortgage broker or your lender on whether it suits your particular situation.

When you compare lenders’ loan rates make sure you compare their rates over the long term. Many lenders offer short-term incentives to lure customers, but over the long term you may end up paying more.

Posted by James Dunn - Daily Telegraph on 15th September, 2015 | Comments | Trackbacks | Permalink

A guide to the methods of sale used by real estate agents

A growing number of sales methods and terminology are hitting the property scene, some gaining popularity, but others make prospective buyers scratch their heads. Here’s a quick guide to coding some of the most frequently-used real estate sales jargon. 


A public sale held at a specific place, time and date after a marketing campaign over several weeks. An estate agent acting as an auctioneer conducts the auction, which is governed by strict rules. Buyers call out bids to the auctioneer, who can also make vendor bids to move the auction along. The auctioneer will announce the property is “selling” or “on the market” when it reaches vendor’s reserve, and knock it down to the highest bidder after calling it three times. If the bid fall short of the reserve, the property is passed in to the highest bidder, who has exclusive rights to negotiate with the vendor. 

Pro: Buyers can see who their competition are, so it’s very transparent. 

Con: There is no cooling-off period. 

Private auction

It’s an auction for only registered bidders with doors closed to the general public. It’s a sales method favoured by vendors who value privacy and don’t appreciate the fact that anyone can walk through their property. Private auctions are often held mid-week rather than on a Saturday. 

Pro:  It is transparent and private because there won’t be a large crowd of gawkers. 

Con: Auction conditions apply, including no cooling off period.  

Boardroom auction

Another example of a private auction where all serious buyers gather in a room, usually in the agency office. It is often triggered before an auction when a buyer makes an acceptable offer, and it gives other interested buyers an opportunity to bid. An auctioneer conducts the auction and the property is “on the market” from the get-go. If the boardroom auction is held more than three days before the auction, there is a cooling off period. 

Pro: Like a private auction, it is a transparent and private way of buying property. 

Con: Can be a little bit intimidating being in the same room with a number of people who are also serious about your dream home.  

Private sale

The property is either advertised with a price range or to contact the agent and interested buyers can make an offer by signing the contract of sale. The seller and buyer negotiate on a price – usually through an estate agent – and the contract can be conditional, subject to a building inspection report or obtaining a loan. For residential and rural properties less than 20 hectares, there is a cooling off period of three business days. 

Pro: There is more flexibility for negotiation on the terms of the contract. 

Con: Buyers can’t see who their competition are and may be paying above market value. 

Expression of interest/Tender 

This sales method can vary from agency to agency, and may not be as rigid as what some property websites say. Prospective buyers are invited to make offers by a specific time and date over a marketing campaign spanning several weeks, but the buyer and seller can reach an agreement before then. Serious buyers put forward their best and final offer in writing, which can include terms and conditions such as settlement dates and finance conditions. If no acceptable offers are received by the EOI closing date, the property could go back onto the market for private sale. 

Pro: Buyers can make a conditional offer, subject to a building approval certificate or financing. 

Con: All bids are confidential and the seller has control over the process.  

Sale by negotiation

Sales by negotiation is a private sale method, so the same rules around cooling off periods and conditions apply. It is one way for agents to start a conversation with buyers about price just like properties advertised with “Price on Application”. Agents will guide the buyer around price but won’t necessarily reveal what the vendor will accept because it may be lower than what several buyers are willing to offer. 

Pro: Less urgency means potential buyers aren’t compelled to make a decision on the day like an auction. 

Con: No advertised price range can be frustrating for buyers, though an advertised price should only be used as a rough guide. Savvy purchasers would do their own research and look at recent comparable sales. 

Sale by set date 

It’s essentially a private auction, a combination of both the private sale and auction methods. A home is usually marketed over four weeks and advertised with a deadline. Buyers can submit offers at any point of the campaign, which the vendor can choose to accept. If the vendor receives an acceptable offer, all registered buyers are contacted and have 24 hours to the close of business the following day (except Sundays) to submit their best final offer, which won’t be disclosed to any other buyers. “Sales by set date” is a registered trademark by Barry Plant. 

Pro: Great for sellers who value privacy, without loosing the urgency and competition of an auction campaign.

Con: Buyers lose the transparency of a public auction where they can see who their competition are.  

Off-market sale

These are properties that never hit the market and where deals are quietly reached behind closed doors. It’s another private sale method where buyers and sellers negotiate through an agent. It could be initiated by a proactive buyer who is asking about upcoming listings/ on an agent’s database or a private vendor who prefer to sell quietly. 

Pro: There could be less competition because it hasn’t been advertised. 

Con: Buyers who don’t do their research thoroughly risk paying too much. 

Posted by Christina Zhou - Domain (Fairfax) on 15th September, 2015 | Comments | Trackbacks | Permalink

Commission-free Hello Real Estate wants to become the Uber of the real estate industry

  FIRST they came for the taxis ...

Last week, the biggest names in Australian real estate joined Sir Richard Branson in Brisbane to discuss the future of the industry.

The key theme? Real estate is a “ticking time bomb waiting to be decimated by an outside force”. According to a recent mystery shop, “less than 20 per cent of agents chosen at random in any way came close to showing value for their $10,000-$15,000 commissions”.

“Is this industry just a sitting duck waiting to be picked off by a well-trained sniper?” was the question posed by the Titans of Real Estate conference to its line-up of heavyweight speakers.

Well, they may have an answer sooner than they hoped.

A new company billing itself as the Uber of real estate is aiming to disrupt the $6 billion home sales industry in Australia by abolishing the lucrative commission structure, potentially saving sellers tens of thousands of dollars.

Hello Real Estate, which plans to list on the Australian Securities Exchange next month, charges a fixed fee of $9,900 to sell a home from start to finish. It’s not the first flat-fee agent, but it’s got some big names and big bucks behind it.

Based on the latest CoreLogic RP Data for Sydney sales over the four weeks to Sunday 6 September, real estate agents pocketed an ‘extra’ $68 million in commissions. Hello claims it could have saved sellers an average of $12,939 in that period.

Unlike most real estate agents, which work on appraisals, Hello provides independent home valuations, as well as conveyancing and legal services to see the sale through to the end.

It’s ditched the stuffy old ‘agent’ tag, instead calling its agents ‘mentors’, there to gently guide the seller through what it calls a “hi-tech, high-touch”, semi-DIY process. Help us to help you, sort of thing.

Josie last week sold her Terrigal home on the NSW Central Coast for $1.25 million, saving $22,625 in agent commission fees, based on the traditional real estate model of 2 per cent plus GST ($28,325), marketing and advertising costs ($2,640), and conveyancing and settlement ($1,650).

Crucially, that extra $20,000 has greatly increased her spending power, equating to almost an extra $180,000 on her new home loan.

Brett, an ambulance driver also from the Central Coast, recently sold his Wamberal home for $770,000. He says he and his wife used the $15,000 they saved to go on holiday.

“By my reckoning it was nearly $22,000 I would have had to pay in agents’ commissions, plus the costs of conveyancing, plus all the brochures that would have had to be made up,” he told news.com.au.

“And the agents I did talk to were talking a couple of thousand in levies on top of the commission. All rolled in, it figures to $15,000. That’s a big difference. We went on holiday. We wouldn’t have been able to do that before.”

Brett said he had sold houses in the past, and found the experience “miles better”. “I suppose once upon a time you had to book your ads in the paper and all those sorts of things, but now with most advertising and everything being online, there’s not a lot really that you can’t do yourself,” he said.

But you still need some support with the uncomfortable “to-ing and fro-ing”, he said — the part the mentor takes care of.

Hello currently has 12 licensees — some former real estate agents, others mortgage brokers — who are assigned postcode territory. Each own 70 per cent of their business, with Hello holding the other 30 per cent.

After developing the pilot model in South Australia, Hello is now operating across NSW and Victoria, and will soon roll out in the ACT and Queensland.

Advertising agency Y&R also owns a 10 per cent stake in the company, which has the high-profile backing of business guru Bob LaPointe — the man who brought KFC to Australia in the 1960s, later followed by Pizza Hut and Sizzler.

Mr LaPointe is chairman of the board, and helped develop the model along with founder Phil Horan. “We see the appraisal model as quite outdated,” said Mr Horan. “We’re quite different in that all of our clients get a valuation by a licensed valuer.

“We mix that valuation with all the latest RP Data market sales, and somewhere between those two pieces of info is the price of the house. We’re not discounting anyone’s house, we’re getting the best market prices we can.”

Mr Horan said the idea came to him several years ago when he was trying to sell his $2.5 million Adelaide Hills home through an agent.

“It had been on the market for about a year, and one day I asked the agent what the open house was like,” he said. “He sat there and in absolute detail described the five groups that had gone through the house — one was a teacher, and so on — what he didn’t realise was I’d been sitting in a car just down the road. No one had come.”

He sacked the agent immediately, and sold the house himself a month later to someone who lived just down the road. “The industry themselves realise it’s game over in terms of how they’ve been doing it,” Mr Horan said.

Posted by Frank Chung - News Corp Australia on 12th September, 2015 | Comments | Trackbacks | Permalink

Breadwinners need to protect their income

Ask anyone about their most important asset, and the most common replies will be the home, the superannuation and the car. It amazes me that so many of us overlook our income. Income is actually the key asset.

We spend most of our lives working or commuting or thinking about work. And the income we earn makes possible a mortgage, a car and some superannuation, not to mention raising a family, building a business and going on holidays.

So why would you insure your home and your car, but not your income?        

If you couldn't work for a year, who or what would pay the mortgage, the car finance and all the bills?

Research from KPMG shows that 35 per cent of employed Australians have no disability insurance, and 19 per cent of households have no life insurance. And that isn't the whole problem: when they add underinsurance to non-insurance, KPMG finds Australians are underinsured for disability by $304 billion, and underinsured for premature death by $800 billion.

Why do Australians ignore their income as an asset? Over the years I've heard many reasons:
  • Creative avoidance - when you refuse to discuss negative things such as disability or death. This becomes easier when you don't have an adviser.
  • Cost-benefit, when having compared the expense with the likelihood, people decide insurance isn't worth it.
  • Aggressive sales techniques, which make us baulk.
  • The "already covered" syndrome, where people think that worker's comp, private health insurance or their employer will take up the slack if they are incapacitated. The way I look at life insurances (which cover death and disability) is to focus on the asset to be protected, rather than trying to look into a crystal ball.

Start with what you know. The asset is your income. You can quantify your income, you can see the size of your mortgage and other expenses and you can see the shortfall should the income be removed.

This is what you're protecting.

What you can't do is predict the manner of your passing, or the accident or illness that means you can't work. So don't focus on the unknowable.

If you don't like aggressive sales techniques then perhaps find an adviser you can deal with. And if you think worker's comp, your employer or health insurance will cover you, then quantify exactly what these sources will pay you, under what circumstances and for how long.

In any event, most breadwinners need four insurances: death benefit, total permanent disablement (TPD), trauma cover and income protection insurance.

There's a lot of emotion attached to life insurances. So start from the financial angle: your income is an asset and it must be protected.

Good luck.

Mark Bouris is executive chairman of wealth management company Yellow Brick Road.

Posted by Mark Bouris - Sydney Morning Herald on 10th September, 2015 | Comments | Trackbacks | Permalink

Taken in – hook, line and stinker

Small investors have been left exposed to some particularly risk investments over the past decade-and-a-half.

The approach in Australia is one of allowing markets and market participants to operate with as little regulation, red tape and oversight as possible.

It is a policy that has bi-partisan political support and continues to be endorsed by the regulator, despite ample evidence that it fails investors. 

It is mostly about ensuring proper disclosures about the risks of the investment. It is about prohibiting misleading or deceptive conduct rather than banning risky investments or limiting access to them for wealthy investors.

Over the past 15 years, billions of dollars belonging to hundreds of thousands of Australians have been lost.

We are not talking about losses from markets. Often, life savings have been lost through failed investment schemes and dodgy financial advice.

While the disasters have prompted improvements in consumer protections, particularly with respect to financial advice with the phasing out of sales commissions, for example, it remains the case that investors are on their own. Starved for yield

With interest rates at record lows, investors and savers are starved for yield. That leaves them particularly vulnerable to investment scheme promoters offering higher yields while talking-down the risks.

They are usually marketed under the guise of being just as safe as bank deposits. They spruik much higher yields than the 3 per cent paid on term deposits.

However, unbeknown to the investor, the investment promoter is putting their money into risky activities - such as property development - or taking on a lot of debt.

The danger is not just one of being caught in an investment collapse that makes the headlines. Even licensed providers operating fully within the law have half-a-dozen tried and proven ways of profiting at the expense of investors.

Sometimes the risks do not become apparent until markets suffer big declines, after which it is too late.

That was the case during the global financial crisis when Australian share prices dropped almost 50 per cent. It brought to the surface the risks that were always embedded in the investments or financial advice.

Re-visiting some of the biggest disaster of recent times, hopefully, will better equip investors this time around. Property disasters

It is not just shares-related investments and their investors that come unstuck.

Property development is always a risky activity. Westpoint was a property developer that collapsed losing investors hundreds of millions of dollars.

Financial planners put their clients in Westpoint in exchange for outsized commissions. Some financial plans had two thirds of investors' life savings in property development.

Then there were the investments that lent money to property developers.

One of largest of the many that collapsed was Provident Capital, which issued debentures to retail investors.

Similar sorts of investments are advertised heavily today, often on daytime radio.

Provident Capital lent most of the money to property developers. It also ran a mortgage fund.

It went into liquidation in October 2012, leaving 3000 debenture holders with losses of $130 million. The likely return to debenture holders is not more than 19 cents in the dollar.

Dozens of mortgage-backed debenture schemes were "frozen" during the global financial crisis. Freezing is where investors can only withdraw capped amounts of their money at regular intervals.

Mortgage funds were popular with retirees because they paid steady interest, while keeping the capital invested stable.

Most of the money was lent to property developers.

The funds always had a contradiction. Investors could get their money back on a daily basis. However, the money was lent as mortgages to property developers, which is repaid over several years.

That is not a problem, normally. But when the Rudd government, as part of its response to the financial crisis, guaranteed bank deposits in 2008, investors pulled money from mortgage funds, which are not covered by the guarantee, to invest in term deposits covered by the guarantee.

Seven years later, most of the money has been returned to investors, at least by the big mortgage funds which continued to pay investors their interest along the way.

However, with the smaller funds, progress has been slower. Investors in some of these funds are unlikely to receive all of their money back. Tax advantaged

Tax should never be the main reason to invest.

Just before the end of the financial year the ads for the latest tax-effective investment schemes would start appearing. Each year there would be new themes, one year macadamia nuts, the next, tea-tree plantations.

They were pitched at higher-income earners, such as pilots and dentists, who had a "tax problem" (paying too much tax) and were in need of a quick fix prior to June 30. Accountants and financial planners were involved, taking big commissions for recommending them.

It was the spectacular crash of the two giant sharemarket-listed schemes - Timbercorp and Great Southern, in 2009, that marked the death knell for the whole tax-driven investment industry; at least for the time being.

In the end, they were caught out by excessive levels of debt, the sharemarket crash and a crackdown by the Tax Office. Too-clever-by-half

Then there are the too-clever-by-half investments. These include the securities based on derivatives.

And many local councils in Australia were also caught out with CDOs.

A derivative is nothing more than a piece of paper whose price derives from an asset. They can have a legitimate role in helping companies spread their risks to others.

The same goes for other types of derivative such as contracts for difference (CFDs) and securities that speculate on currencies, futures and commodities.

There has been rapid growth in the number of software trading platforms in recent years offering all types of derivative-based investments and other exotica to Australian retail investors.

Some financial instruments allows traders to bet on markets falling, so called "shorting" and differences or spreads in markets.

They do have 'stop losses', where the downside can be limited, and they do have their place. But they are really more appropriate for traders than set-and-forget long-term investors.

One particular type of derivative, called collateralised debt obligations (CDOs) may be familiar.

That is because CDOs played a key role in the global financial crisis.

Australian-based fund manager Basis Capital invested in them before first striking trouble in 2007, eventually collapsing and losing several hundreds of millions of dollars of investors' money.

Basis Capital invested in CDOs over American "subprime" mortgages.

They are priced on the underlying parcel of mortgages, in this case high-risk US mortgages.

ANZ Bank compensated thousands of investors in New Zealand, mostly retirees, who lost hundreds of millions of dollars in 2008 in funds invested mostly in CDOs and other high-risk investments.

Here is what the Australian Securities and Investments Commission has to say about them: "CDOs are complex products. Even big institutions have lost fortunes when trading them. We recommend you do not invest in these products unless you have a written statement of advice from an independent, licensed financial planner stating that the product is suitable for you."

And so ends our potted history of some of the biggest disasters of recent times, but the list is much longer.

With each new generation of scheme promoters comes the same greed, deceptions and misleading disclosures. With them comes another generation of investors who invest more on faith than than merit. They are left much poorer, or sometimes with debts, with their dreams of a comfortable retirement destroyed. Out of the ordinary

There are a host of high-yield investments today that are coming from non-traditional sources.

There are schemes such as those where investors can buy or lease their own ATM and even shipping containers. Money does not know if they are good investments or not. But they certainly need to be approached with caution.

They are being pitched particularly at those with self managed superannuation funds where the entry costs are less than, say, an investment property.

There are schemes that allow people to buy or rent ATMs.

Some make claims about minimum investment returns. Usually, there is another party involved that looks after the ATM. The machines are usually installed at clubs, RSLs and supermarkets as well as in remote areas where there are no other ATMs.

This usually allows the operator to charge more for withdrawals compared to locations where there are several machines.

There are even companies that allow investors to own shipping containers, sometimes promising fixed returns of more than 10 per cent a year.

These physical investments are usually unregulated; without the usual disclosures and protections of regulated investments. The promoters are often based overseas. All in all, they are usually a gamble. Six signals that scream 'Stay Away'

GUARANTEES Nothing is guaranteed absolutely, except for Australian government and state and territory bonds. The first $250,000 on deposit with a bank, credit union or building society is covered by the government guarantee.

Guarantees are often used to give comfort to investors to invest in risky investments that without the guarantee they would not make.

They are usually provided by another party, such as an insurer, with its own interpretation of how the guarantee will be triggered.

TAX-EFFECTIVE Investing for tax savings is almost always the wrong reason to invest. Numerous tax-driven schemes have fallen over in recent years, particularly those connected with the agricultural and forestry industries.

The single exception is superannuation, which is very tax-effective for most people and is well regulated.

OUTSIZED RETURNS Any investment promising a yield of much more than about 3 per cent a year is taking on more risk.

It may seem like a conservative investment that is "just like having money with the bank", but there are always risks.

LIQUIDITY MISMATCH Generally, listed investments are to be preferred over unlisted.

Listed markets do sometimes fall spectacularly, but at least they are much more transparent than unlisted investments, which usually have minimum periods when the investor's money is tied-up.

HIGH COSTS There is no more sure-fire way of reducing returns than high fees and costs. Over time, the fees and costs compound and really eat into the returns. Investment's markets returns are out of the investors' control, but costs are within the investors' control.

COMPLEXITY Simplicity in an investment favours the investor.

Complexity favours the provider as it leaves the investor will very little chance of being able to understand how the investment works.

The greater the complexity, the easier it is to hide fees and charges

Posted by John Collett - The Age on 8th September, 2015 | Comments | Trackbacks | Permalink

Tax office targets 'excessive' rental property deductions

Over the past couple of years the Tax Office has been giving particular attention to the  almost 2 million people who own rental properties.

Rental property deductions have increased in recent years as investors take advantage of low mortgage rates.

An increasing proportion of those landlords are holding investment properties in the low-tax environment of DIY super funds.

Whether or not that makes sense will depend on many factors – the least of which should be tax.

Tax losses from the property held in a DIY fund, for example, cannot be offset against taxable income outside the fund.

On the other hand, capital gains on a property sold after the fund is in pension phase will likely be tax-free. 

More than $40 billion is claimed by landlords each year in deductions. About two-thirds of the landlords report losses on their investment property.

Those with loss-making properties are hoping to sell the property one day and realise a capital gain that is large enough to more than make up for the losses accumulated along the way.

The Tax Office is again, this year, targeting "excessive deductions" on investment property.  

It is excessive deductions for those investment properties in popular holiday areas that are of most interest.  

The main area of concern is that rental property owners can only claim costs for the period that the property is rented out or available for rent; for example, where the property is advertised for rent.

Expenses that cannot be claimed include those incurred while the owner is occupying the property. Deductions are allowed only on a pro-rata basis for the period the holiday house is genuinely on the rental market.

Adam Kendrick, an assistant deputy commissioner at the Tax Office, says some taxpayers are claiming rental deductions for holiday homes that are higher than expected when compared to the rental income reported.

 He says the Tax Office is taking a "prevention before correction approach". It will be  sending letters to taxpayers in about 500 postcodes across Australia, reminding them to only claim the deductions to which they are entitled.

Mark Chapman, the director of tax communications at H&R Block Tax Accountants, says: "Periods of personal use can't be claimed and accurate records need to be kept of when it has been rented out over the last year.

"Be careful of claiming deductions when nominal rent has been charged for friends and family staying at the property," Chapman says.  

He says it is also important to remember that the costs to repair damage and defects existing at the time of purchase or the costs of renovation cannot be claimed immediately, but are deductible, instead, over a number of years.

Individual tax returns for the 2014-15 year are due to be lodged by October 31. If the taxpayer is using a tax agent the deadline can be as late as May next year, provided the taxpayer is not in dispute with the Tax Office.

Posted by John Collett - The Age on 8th September, 2015 | Comments | Trackbacks | Permalink

Higher interest rates for property investors make sense: NAB's Gavin Slater

It "makes sense" for banks to charge property investors higher interest rates because their loans have a different risk profile to those being paid off by people living in their home, says National Australia Bank's head of personal banking, Gavin Slater.

As banks are forced to put the brakes on lending to investors, Mr Slater also said lenders were increasingly competing for owner-occupiers, a trend likely to pick up over the spring property season.

One of the biggest recent changes in mortgage lending in recent months has been the emergence of a two-tier home loan market, as banks charge housing investors higher interest rates than owner-occupiers.

NAB raised interest rates on interest-only home loans by 0.29 percentage points in July, and has curbed the interest rate discounts offered to new property investors.        

While the higher rates are partly a response to the Australian Prudential Regulation Authority's 10 per cent a year cap on housing investor loan growth, Mr Slater said NAB's decision also reflected the riskiness of lending to landlords in the current economic environment.

Mr Slater noted that investors had previously been charged higher interest rates, until competition forced the two types of home loan interest rates to converge.

"We're back to looking at it now and we're saying, well, interest rates are still low but having a bit of a dislocation between investor and owner-occupied makes sense," Mr Slater said in an interview.

Depending on the bank, many investor borrowers are paying interest rates that are anywhere between 0.27 and 0.6 percentage points higher than those charged to owner-occupiers, and mortgage brokers have predicted this gap will widen.Mr Slater said he could not predict if the gap would widen over the next year or two but it was a "safe assumption" the gap would remain over the medium term. Two-tier makes sense

He argued the two-tier market made sense because owner-occupier and investor loans were used for "fundamentally" different purposes.

For people paying off a home they lived in, the mortgage was "where people go to first in terms of meeting their financial commitments". Investor loans were affected by different factors including rental yields and the need to find a tenant.

NAB had always appreciated the different risk levels of lending to investors and owner-occupiers, he said, but the bank was now also taking into account the fact that economic conditions for property investors were almost "as good as they get".

"From a property investor point of view, conditions are, particularly in recent times, very favourable," he said, noting the low level of interest rates and relatively low unemployment.

"Our perspective is that you look to the future, at some point interest rates will go up, and [we are] recognising that now is a really appropriate time to adjust our pricing to reflect what we believe is the underlying risk in that book."

While banks must slow their growth in housing investor lending, there are no such restrictions on lending to owner-occupiers, and Mr Slater said this was a key focus of competition.

He said the bank was gearing up for the spring auction season and would put some "very attractive" offers in the market, alongside an emphasis on customer service.

"It probably feels more competitive than it ever has been, because all the lenders now are really going hard at the owner-occupiers, to offset the flows around the investor book," Mr Slater said.

Of the major banks, NAB had the quickest investor loan growth in the latest July figures, growing by more than 14 per cent a year.

Mr Slater said the monthly rate of investor loan growth was slowing as a result of its decision to raise interest rates, and it would comply with APRA's cap.

Posted by Clancy Yeates - The Age on 8th September, 2015 | Comments | Trackbacks | Permalink

No stopping Melbourne CBD oversupply: ‘Get out as soon as possible’

New laws to clamp down on Melbourne CBD’s skyscrapers won’t stop a predicted drop in prices of up to 20 per cent in the next three years, according to a property research house.

Strict new density regulations  announced by Planning Minister Richard Wynne on Saturday that limit the height of future towers to 24 floors unless open space offsets are provided won’t stop a “correction” for inner city apartment prices, said BIS Shrapnel managing director Robert Mellor.

Building approvals hit record highs under former Planning Minister Matthew Guy,  dubbed Mr Skyscraper because of his aim to make Melbourne “the tallest skyline in Australia”, as property industry pundits warned of an oversupply.

These planning approvals were still coming through the pipeline and would keep adding to the apartment supply, Mr Mellor said.

“This financial year we will reach an oversupply,” he said. In the next financial year, 2016/2017 he said there would be a “significant excess” of apartments. “Get out as soon as possible [otherwise] it will take 10 to 15 years before you get your money back.” Paul Nugent, Wakelin Property Advisory

“This will get worse in 2017/2018 and towards the end of 2018, when investors will start to struggle to get sufficient numbers of tenants,” he said.e

Investors looking at buying in the market will see rising vacancy rates will few prospects of capital gains, while apartment owners will struggle to hold onto the apartments without tenants.

On the back of this, he said it’s “possible we’ll see a 15 to 20 per cent correction any time over the next year to 2018/2019″.

Buyers’ agency Wakelin Property Advisory director Paul Nugent also expects a drop in prices of “at least 10 per cent” that wouldn’t be softened by the new restrictions.

“It’ll take a generation until things settle down to a point where the apartments have a genuine value,” Mr Nugent said.

Smaller apartments in larger blocks with little natural light would be those hardest hit, while three-bedroom apartments with more generous floor plans might weather through, he said.

“Get out as soon as possible [otherwise] it will take 10 to 15 years before you get your money back,” he said.

Despite these warnings, Domain Group senior economist Andrew Wilson did not predict any significant drop in prices for inner city apartments.

He said offshore buyers are changing the investment dynamic in the inner city.

Where local buyers typically require decent levels of cash flow and a steady tenant, he said offshore buyers were “a whole new ball game” and were more than happy to keep apartments vacant.

“Our international investors aren’t as tuned in to finding a tenant,” he said.

Posted by Jennifer Duke - Domain (The Age) on 8th September, 2015 | Comments | Trackbacks | Permalink

Victorian first homebuyers ‘devastated’ by plans to axe stamp duty tax break

Any move by the state government to axe first homebuyer assistance would “devastate” first-timers and further squeeze them out the market, economic and property pundits say. 

Fairfax Media on Saturday revealed the Andrews government is considering  dumping the 50 per cent stamp duty tax concession offered to first homebuyers, or lowering the price threshold to access the discount.

The tax break applies to properties purchased under $600,000 and can save buyers up to $15,500 off their first home. The argument for cutting the concession is that the assistance only allows first homebuyers to pay more, which in turn further inflates prices.

But experts say the discount helps first-timers – who account for just 6 per cent of the Victorian market – compete with other buyer segments.

AMP Capital Investors chief economist Shane Oliver conceded such support increased first homebuyer purchasing power, which only benefited developers and existing home owners. “The one thing that’s working in their favour will be taken away.” Dr Shane Oliver

“That said, what we do have right now is first homebuyers squeezed to very low levels, struggling to get a foothold, and these measures give them a boost relative to other buyers,” Dr Oliver said.

He said while axing stamp duty savings would reduce pressure on prices to some extent, it would also make life tougher for the buyer group that needed it most.

“The one thing that’s working in their favour will be taken away,” Dr Oliver said.

As well as axing stamp duty concessions, it is understood the government is also examining the $10,000 first home owner grant for newly built houses.

Domain senior economist Andrew Wilson said the Victorian economy was boosted by first homebuyer construction on the fringes of the city, and any move to curb that building boom would have a negative impact on the state.

“There seems to be a growing trend of the Victorian government targeting property for tax revenue,” said Dr Wilson.

He questioned the argument that first homebuyer assistance was putting pressure on the overall price growth because Melbourne’s sharpest rises were not in the budget first homebuyer market.

LJ Hooker Werribee/Hoppers Crossing director Adrian McEvoy said stamp duty was often the extra hit that kept first homebuyers out the market.

“Adding $20,000 to a property $350,000 property out here does equate to a bit of money and it can make the difference,” Mr McEvoy said.

Buyers advocate Cate Bakos said her clients would “quite devastated” if either benefit was removed.

“I can’t believe they’d even put that on the cards,” Ms Bakos said. “The people who really need it will feel it if it goes.”

Planning Minister Richard Wynne denied any plans to axe the tax break “at this stage”.

“There are no plans to change the arrangements that are in place,” Mr Wynne said.

Posted by Kirsten Robb - Domain (The Age) on 5th September, 2015 | Comments | Trackbacks | Permalink

Family trusts mix well with SMSFs

Family trusts and self managed superannuation funds (SMSF) are both popular options for investors who want to control and direct their family wealth.

All too often however, they are considered an either/or investment choice.       

If used together they can often prove very beneficial in maximising wealth creation and wealth preservation.

Most people are well aware of the tax advantages of super for accumulating investment wealth. SMSFs have the added advantage of maximising the benefits you obtain from super due to the flexibility and control they arm you with. But there are downsides to super.

Your money is essentially locked away until retirement, you are limited regarding how much you can contribute, and your superannuation account must be paid out upon death.

Conversely, family trusts are not subject to preservation, so your family money is not locked away.

They are relatively simple to establish and operate and there are no limits on how much you can put in.

While beneficiaries of distributions from a trust are required to pay tax on that income, distributions don't have to be made equally to all family member beneficiaries. This can be extremely tax effective when distributions are passed on to family members on lower marginal tax rates.

Family trusts have the advantage of being able to hold personal use assets such as a holiday home, as well as businesses. Finally, family trusts can continue past your death making them an excellent vehicle for intergenerational wealth transfer.

The downside of family trusts is that they may not be as tax effective as super.

What many wealthy families understand is that if you have both a family trust and a SMSF, you can mould your financial affairs to benefit from the combination of investment structures.

Both structures assist in protecting a family's wealth as personal creditors may be hindered. With improved financial reporting and investment options, and cheaper systemised compliance, family trusts and SMSFs are no longer the domain only of the wealthy.

Family trusts are particularly useful early in the family's wealth-building process. At this stage, people are hesitant to put extra into superannuation because of the preservation requirements, and family trusts provide a tax advantaged structure for wealth creation.

As retirement approaches, wealth can be systematically moved from the family trust to the SMSF as extra discretionary contributions thereby building up the concessionally taxed retirement nest egg.

But this is not the end of the usefulness of the family trust structure. Post retirement, any extra wealth that can't be recontributed to superannuation can be placed in the family trust.

As money is drawn down from super as a pension the family trust investment portfolio may be increased. Upon death, the family trust can be useful as it can continue on. Investments can be kept in place and control passed to the next generation.

This differs to superannuation which is designed to be run down throughout retirement then sold up and paid out upon death.

For many families, a family trust used in conjunction with an SMSF can be a very beneficial approach, providing intergenerational transfer of wealth benefits, assisting in wealth creation and management, as well as creating the most tax advantaged outcomes.

Michael Hutton is head of wealth management at accountants and business and financial advisers HLB Mann Judd Sydney.

Posted by Michael Hutton - The Age on 4th September, 2015 | Comments | Trackbacks | Permalink

APRA figures: investor lending set to slow

Loans to property investors across Australia kept on rising in July, according to figures released on Monday, despite banks starting to try to discourage landlords.

The Australian Prudential Regulation Authority (APRA) monthly banking statistics show that $539.5 billion worth of loans to property investors were on the books in July 2015, a jump of 11.4 per cent since July 2014.   

Experts such as AMP Capital chief economist Shane Oliver were expecting the start of a slowdown in the figures.

Dr Oliver said APRA had indicated was planning to tighten the rules for investors in the months leading up to July, though he pointed out higher interest rates for those buyers weren’t introduced until that month and there is a lag effect on the data.

“APRA is determined to see investor lending slow,” Dr Oliver said.

“APRA’s measures didn’t get aggressive until July – there will be more to come,” he said.

In late-July AMP Bank  put lending to investors on hold and increased interest rates for existing landlords.

APRA introduced a 10 per cent annual growth limit on bank loans to property investors in December 2014.

In June 2015, investor loan exposures of banks were recorded at 19 per cent higher than June 2014. In the same period, loans to owner occupiers grew 2.5 per cent.

Finder.com.au spokeswoman Michelle Hutchison said out of 30 banks monitored by APRA, 26 had increased their investment lending over the year to July.

“While APRA has implemented measures to curb investment lending growth, many banks have clearly not responded as their lending has continued to rise,” Ms Hutchison said.

“For borrowers, it means that some lenders will do more to try and curb their lending growth by making it more difficult to secure an investment loan by tightening their lending criteria, increasing their investment home loan rates or cease lending to investors for a period of time.”

However, Domain Group senior economist Andrew Wilson was not surprised that investor numbers were yet to be reined in.

“The trend is clearly upwards and we’re becoming a nation of residential investors,” Dr Wilson said.

“I don’t think [APRA measures] are going to deter a growing trend for higher rather than lower investment.”

July 2014 

$781.2 billion – owner occupied

$484.2 billion – investor loans

June 2015 

$824.1 billion – owner occupied

$536.7 billion – investor loans

July 2015 

$827.7 billion – owner occupied

$539.5 billion – investor loans

Source: APRA

Posted by Jennifer Duke - Domain (Fairfax) on 4th September, 2015 | Comments | Trackbacks | Permalink

The party may be over

Recent gyrations in world share markets aren't unexpected and follow the warnings of major super funds that future investment returns are likely to be lower than they've been for several years

While unsettling for retirees already struggling to cope with historically low interest rates, a more important concern for many investors is the impact of the APRA crackdown on lending to property investors.       

In the past, a strong property market has been associated with a growing economy and buoyant share market and investors flush with cash. Now, however, the situation is totally different.

The economy is slowing, the share market is struggling and the banking system is funding property investments at record low interest rates. The government has added to the general investment demand by limiting the attractions of voluntary super savings, reducing the maximum annual deductible contributions and subjecting higher income taxpayers to a 30 per cent contributions tax. Investors' sensible response, especially in younger age groups, is to use the negative gearing tax shelter providing unlimited tax deductions.

Apart from these annual tax benefits from borrowing which generate tax losses, gearing also allows access to the net equity at any time whereas for most people, super is tied up and untouchable until at least age 60. When the investment is profitable, concessional capital tax provisions apply.

The profits from gearing come from the appreciation of the value of the investment funded by the borrowing. This is where the APRA intervention is likely to have its greatest impact, especially for off-the-plan apartment investors.

By forcing the major lenders to apply tighter credit standards including for high loan valuation ratios and interest only borrowings, APRA is making investors pay greater attention to the risks involved. While attention has been focused on the increase in borrowing costs for investors, this isn't very relevant because of the tax deductibility of the borrowing costs.

Given how low after-tax borrowing costs now are, a much more relevant consideration for new investors is how the tightening of lending standards will impact on the growth in apartment prices. As is already happening in the oversupplied Canberra apartment market, investors with off-the-plan purchase commitments are being required to provide larger deposits than originally indicated in the loan pre-approval process.

This development adds considerably to the already high risks of off-the-plan purchases. Purchasers now need to deal with the uncertainty of the building completion timing and obtaining lender funding on the rules applying at the time of completion.

With apartment supply increasing and sharply tighter lending terms for investors, the easy and certain profits of heavily geared property purchasers are in fact disappearing. Time will tell but there are already signs that the party is ending for off-the-plan investors.


Daryl Dixon is the executive chairman of Dixon Advisory

Posted by Daryl Dixon - The Age on 4th September, 2015 | Comments | Trackbacks | Permalink

Basic Training: Seven tips for buying your first home

Thinking of buying a place of your own? Worried about all that entails? Fear not.

Sky-high property prices in many parts of Australia mean that saving for your first house can seem like a daunting experience.

Here are seven tips to make it happen.       

Start now It doesn't matter if you don't know exactly where or what you want to buy.

It's going to take you a while to scrape together a deposit, so start a regular savings plan and sort out the finer details later.

Cut down your expenses Saving the big bucks is going to involve some sacrifice.

Try cutting out a little luxury each week – perhaps you could make your own coffee this week, then give up dinners out the next – and switch. It all adds up.

Avoid paying rent "One of the hardest parts about saving for a deposit is saving cash while also paying rent for the place you're living in," says financial planner Michael Miller, of MLC Advice Canberra.

If living with your parents isn't an option, signing up to sites such as Aussie House Sitters or Mind A Home could help supercharge your savings.

Stash your cash somewhere sensible Miller says investing short term in the sharemarket is not usually a good option.

"An online savings account doesn't pay much in interest, but is still often the right place as it gives you access to your money when you need it."

Don't forget lenders mortgage insurance If you can get 20 per cent of the purchase price, you'll avoid pricey lenders mortgage insurance (LMI).

"It's fantastic to avoid paying for LMI because the insurance isn't actually for you, the borrower, it's for the lender – but you have to pay," Miller says.

Allow for other extra costs Pesky extras such as conveyancing and stamp duty can add up.

"Find the solicitor you intend to use in advance and ask them for an estimate of their costs,"  Miller says.

Stamp duty varies according to state or territory so check the website of your state revenue office.

Think outside the square Can't afford to buy where you want? Consider co-investing with friends or family (but get a watertight contract).

You could also take on a flatmate or two, rent your spare room on Airbnb, or buy an investment property and keep renting in the location you want to live.

Posted by Larissa Ham - The Age on 4th September, 2015 | Comments | Trackbacks | Permalink

Risky behaviour can be rewarding

All too often people think that taking risk means they are in danger of losing all their money. Technically, with some investments this is true.    

But there are varying degrees of financial risk, just like there are varying degrees of risk associated with what we do every day of the week. Walking down the street is considered a low-risk activity; riding a motorcycle less so.        

It is all about degrees. In investment terms it is also about understanding the risk that you are taking and the potential reward, so you can weigh up the upsides and the downsides and decide if the investment makes sense.

It helps enormously if you have some idea of your time frame. If you buy an apartment and it declines in value in the short term, it doesn't really matter if you are intending to live there for five to 10 years. You have no intention of selling, so you can ride out a temporary downturn. Ditto with other investments.

"Risk is good for you when you have a long-term outlook," says Deborah Kent, founder of Integra Financial Services.

There are also ways that risks can be mitigated. Let's take my imaginary friend (disconcertingly, I have several such friends) Lisa, who wants to own an apartment, but is afraid that she won't be able to afford the mortgage if she is made redundant.

Lisa could reduce the level of risk she is taking by making sure that she can afford the loan repayments even if interest rates rise (Kent recommends having at least a 20 per cent deposit and making sure the lovely Lisa can afford the repayments even if mortgage rates rise from 4.5 per cent to 7-7.5 per cent).

Lisa could also take out income protection insurance that would provide an income in case she gets sick or is injured.

Even if something unfortunate did happen, the chances are Lisa will not be in dire straits. If she needed help with the mortgage, she could take in a tenant, she could rent out the whole property and take a cheaper room somewhere else.

Lisa's potential reward for buying an apartment is that over time, property prices tend to rise and because she has borrowed to buy the property, her return will be magnified. If the price of the apartment rises from $400,000 to $450,000 and Lisa has put down a deposit of $100,000, she will have made a $50,000 gain on an investment of $100,000 (transaction, interest and bank costs notwithstanding).

A survey by Roy Morgan Research shows that just 2.4 per cent of home loans in Australia in the 12 months to April 15 were taken out by women  aged between 18 and 29, against 4.3 per cent by men. "Men are more likely to give it a go," says Roy Morgan's Norman Morris.

The figures would suggest he is right. 

'I'm very independent and don't rely upon anyone'

Buying an investment property at age 50 while still single-handedly paying off the home mortgage may seem risky but Anne-Marie Tolsma is hoping it's a calculated risk that will ensure an independent retirement.

The nurse unit manager took the step after an overhaul of her financial situation on her milestone birthday. "I started to look at my lifestyle. I'm a single person with no children and I'd like to retire at 60 – that's only 10 years away," Tolsma says. "I don't want to be caught short, where I'm having to watch every single thing I spend. I want to continue travelling.

"I thought I better start that day and get things happening." A financial adviser recommended a three-prong approach: negatively gear an investment property, salary sacrifice into super and pay off the mortgage on her home, a four-bedroom house with pool in Cairns.

Some changes had to be made to meet the ambitious plan, including taking in a boarder. Contributing to super required a shift in attitude. "I'm not a huge fan. I've always thought if I put anything into super I'm not in control because it's subject to the market." This is also why Tolsma shies away from the sharemarket. Property, however, is "something tangible to sell so I'm comfortable".

Tolsma bought a new house in an up-and-coming estate for $380,000, for which she receives $420 in weekly rent.

"I'm hoping it goes up in value, I sell in 10 years and have my home paid off," she says. "I'll do some after-hours nursing, where a lot of money can be made from penalties, and then gradually go to part-time and transition to retirement.

"I'm very independent and don't rely on anyone. I'm not a great risk taker. This is a plan which should enable me to still travel, enjoy life and pay for my retirement." 

Case study by Natasha Hughes

The information in this article should not be taken as financial advice. Please consider your personal circumstances before making any financial decisions.

Posted by Sally Patten - The Age on 1st September, 2015 | Comments | Trackbacks | Permalink

Why stamp duty is good for us

OK, everyone, rotten tomatoes at the ready. I'm about to commit "Barbecue stopper" heresy, and I fully expect to be set up in the stocks in the town square. 

You see, stamp duty isn't the evil tax that many – but particularly politicians, real estate agents and home builders – think it is.

A cook's tour

There was a time, before focus groups and 24-hour news cycles, when income tax wasn't even a twinkle in a Treasurer's eye. Back then – as early as the mid-late 1600s – governments raised revenue by charging a combination of property taxes, import duties and "stamp duties" on financial transactions. Before such a transaction could be valid, it needed to be literally stamped by a government body, which cost money.

Fast forward about 350 years, and most stamp duties have been abolished. Certainly, income taxes and consumption taxes (such as GST) have taken over as primary revenue raisers for governments to finance their spending.

But notably, stamp duty remains on most property sales, levied by state governments. It's a significantly large amount, but particularly so during a good old-fashioned property boom! So state Treasurers are particularly fond of this version of revenue raising.

The tax to remove all taxes

It seems a long time ago, but it was only in 2000 that the then-Howard government introduced GST. The new tax was designed to give state governments a steadily increasing flow of revenue (the federal government promised that all of the revenue raised would be shared among the states) and allow the states to remove stamp duty as well as other so-called inefficient taxes, levies and duties.

These "inefficient" taxes, it was also claimed, were "frictional" in nature – they influenced the free flow of economic activity.

That was the plan, but you probably won't be surprised to know that the state governments didn't exactly deliver on their promises, and stamp duty remains, in various forms, across the country.

Now, I could spend another column (or two, or three or four…) talking about government promise-keeping and breaking, but the states' recalcitrance might have worked in favour of home owners.

Careful what we wish for

To see why, let's look at the US precursor to the Global Financial Crisis. Until 2008, Americans were enthralled by their ability to borrow money at low rates, buy a heap of houses, wait for prices to skyrocket, then sell for a tidy profit. Rinse and repeat.

Books, courses – even television programs – were devoted to this "can't-lose" strategy called flipping. Americans bought, waited for prices to rise, then sold. It was like taking candy from a baby.

Now there are significant differences between the US and Australia. But one important element is those so-called "frictional" costs. In the US, they don't exist – at least not in any material way. There was no reason not to roll the dice. In Australia, those costs make buying and selling a little harder.

If you're going to sell your house and buy another, you have to pay stamp duty. Want to flip it? Then you'll need another whack of stamp duty for the next place. And in the process, if house prices rise anyway, at least a decent (though still very small) chunk of the gains goes to government – acting as an "automatic stabiliser" for the economy and government spending.

Foolish takeaway

In short, stamp duty provides a reasonable source of government revenue and acts as a handbrake for speculation. It might be what economists call "inefficient", but I'd call that a public service.

Let the tomato throwing begin!

Investors, don't miss out: Low interest rates mean dividend-paying shares are very attractive, compared with term deposits. We've just released a brand new report naming The Motley Fool's Top Dividend Stock for 2015-16. Click here now to claim your free copy. Scott Phillips is a Motley Fool investment adviser. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).

Posted by Scott Phillips - Money Manager (Fairfax) on 25th August, 2015 | Comments | Trackbacks | Permalink

Consumers downbeat on housing outlook

As house prices scale new heights in Sydney and Melbourne, consumer attitudes towards the property market appear to be getting much gloomier.

If history is any guide, this could translate into softer demand from many buyers over the coming months, at a time when regulators are also working hard to rein in a surge in mortgage lending. 

That is worth remembering if you're someone looking at buying in Sydney or Melbourne's property markets at a time like this, after a period of strong price growth.

The closelywatched Westpac Melbourne Institute consumer sentiment index this year has reported a steady decline in the share of respondents who believe now is a "good time to buy a dwelling."  

The sub-index for this topic last month dipped to a reading of 94.8 points, where a reading of 100 means pessimists balance optimists. That is its lowest level since mid 2010.

As the graphic shows, this measure has declined from more than 140 points in the last two years or so – the same period in which house prices have gone through the roof.

The decline has been especially sharp in NSW and Victoria – which makes sense when you consider prices have leapt 18.4 per cent in the last year in Sydney and 11.5 per cent in Melbourne.

What is the significance of the decline?

Over the several decades these researchers have been asking this question, some clear correlations have emerged.

When people become more pessimistic about property, it tends to be followed by softer period of housing demand, reflected in lower turnover and home loan approvals.

Westpac economist Matthew Hassan says it is a signal that demand from buyers, especially owner-occupiers, is likely to come off the boil over months ahead.

"It's sending a pretty clear message that the cycle has peaked and we are moving into some sort of downturn," he says.

There are also some reasons to think there will be softer demand from the group of buyers that has put a rocket under prices recently: housing investors.

Banks are being forced to curb growth in their housing investor loan books to less than 10 per cent a year. These rules have prompted them to raise interest rates for investors and tighten loan policies.

Over the coming months, economists expect this clampdown will slow housing investor credit growth, taking some of the heat out of the market.

What might softer demand mean for someone thinking about buying a home?

It could mean auctions are not quite as competitive - there have already been tentative signs of lower clearance rates in Sydney and Melbourne in recent weeks.

Hassan says there is no evidence yet to suggest there will be outright price falls.

He says that would probably require some other factor aside from softer demand, such as rising interest rates, a sharp economic slowdown, or an oversupply of properties.

Nonetheless, the prospect of softer demand from owner-occupiers – at a time when investors are also likely to find it harder to get credit – is a reason for caution from buyers.

Posted by Clancy Yeates - The Age on 25th August, 2015 | Comments | Trackbacks | Permalink

Don't let debt fears paint you into a corner

In a time of low interest rates, we can be swept up by the notion that we need to pay all of our debt down as quickly as we can. Particularly if we've just bought a property and have the big mortgage to go with it, or we're about to go spring property shopping and buy an investment property.

But what if I was to suggest to you that paying all your debts down at once is not as smart as you think? As Australians particularly, we've been taught that all debt is bad and you need to get rid of it as quickly as you can. 

However, it's important to understand the different types of debt you have because while some debt might in fact be bad debt, some debt is actually good debt.

It's a strange concept I know, but stay with me while I explain. Let's say you have a mortgage on your home of $300,000, an investment property loan of $400,000, credit card debt of $10,000, a HELP loan of $15,000 and a car loan of $25,000.

Most people would generally be making at least the minimum principal and interest payments on all of these loans which means each individual debt is gradually reducing each year.

Now that might seem like a reasonable solution to gradually paying down all of the loans. However,  when we understand the difference between good debt and bad debt we can make strategic decisions around what should be paid down faster and perhaps what debt shouldn't be paid down at all. I know that might be an odd concept but it's one that can save you potentially tens of thousands of dollars in the long run.

So if you're off to buy a property in the spring sales and will end up with a mortgage or an investment loan, how do you know if it's good debt or bad debt? What debt should you be paying down and what should you be paying interest only on or maybe even making no repayments at all?

Bad Debt

Bad debt is generally any type of debt that you won't receive a tax deduction for. So in the example above it would be the mortgage of $300,000, the credit card debt of $10,000, the HELP loan of $15,000 and potentially the car loan of $25,000.

Of course, just because all the debts are bad debts doesn't mean they're all equally bad. It's important to look at all of your bad debts and work out which ones should receive the most attention in the form of extra repayments rather than just paying them down at the same rate with maybe a little more added to your home loan.

How you determine which is bad debt and which is worse debt is by looking at the loans themselves. So for example the mortgage of $300,000 might seem the scariest because it's the biggest but if it's at an interest rate of 5 per cent and your credit card debt of $10,000 is at an interest rate of 15 per cent then it makes sense to pay the credit card debt off first.

Similarly, HELP debts generally only increase with CPI, so while this is low, it makes more sense to pay off the credit card, car loan and mortgage first than make additional repayments here only once they're gone.

OK Debt

If the car loan of $25,000 was for a certain type of ute you're using for work or you've kept a log book on the car and can prove business use, then this loan may convert from bad debt to OK debt. Now I call this OK debt and not good debt because it's still for an asset that is going to depreciate in value so you still want to pay it off even if you do receive a tax deduction for it.

However, if you have a mortgage, credit-card debt and other loans then it would make more sense to make additional repayments to your bad debt first rather than making additional repayments to your OK debt.

In some cases, your mortgage might fall in the OK debt category, particularly if you're going to retire in a few years' time and you're still working. That's because with the current low interest rates, it may make more sense for you to make the maximum contribution to superannuation and receive a tax break then it would to be making extra contributions to your home loan. Of course, once you retire you can then withdraw these extra super contributions in a lump sum and dump them straight on to your home loan.

Good Debt

Investment loans almost always fall into the category of good debt which in our example is the investment property loan of $400,000. Some people may want to pay this loan down first because it is the biggest loan and psychologically the scariest one. However, the interest on this loan is a tax deduction which means it's effectively cheaper than your home loan.

If you still have bad debts then it almost always makes sense to convert good debts like investment loans to interest-only to maximise any interest claim you can make. This might seem strange to not want to pay down a loan – of course you want to reduce your debt, right?

However, this strategy only makes sense if you take the extra money you saved by switching to interest-only and putting them towards your bad debt. That way the entire debt amount is still reducing, but you are maximising any tax advantages you might have.

It might seem like a strange concept to think of debt in terms of good and bad when we're conditioned to think of all debt as bad. However, by being strategic with your debt you can ultimately ensure that your entire debt disappears faster, simply by choosing the rate at which your individual loans are paid off – and that's always a good thing.  Melissa Browne is an accountant, adviser, author and shoe addict.

Posted by Melissa Browne - The Age on 25th August, 2015 | Comments | Trackbacks | Permalink

How to make a flipping profit

Sydney's outer suburbs and Melbourne's middle-ring are the most popular for real estate "flippers" – those who hope to buy property and reselling it quickly for a profit. 

An analysis for Money by researcher CoreLogic RP Data shows Sydney's outer west and south west are sweet spots for properties resold within two years.

Edmondson Park and Busby in the city's south west and Jordan Springs, a new suburb near Penrith  in the west have resale rates of about 20 per cent.

Leading suburbs in Melbourne for flipping are Seddon, Box Hill North and Yarra Junction with two-year resale rates of about 10 per cent.

Seddon and Box Hill North are close to Melbourne's centre. Sydney's flipper suburbs are generally further out because Sydney's inner and middle suburbs are just too expensive.

Another factor behind flipping closer-in to central Melbourne is that in Victoria, off-the-plan purchases attract a discount on the stamp duty.

With strong price rises, particularly in Sydney, it seems like money for jam - speculators have been able to buy houses without doing much to improve them before selling for a profit.

"Dwelling" prices, which includes houses and units, rose 18.4 per cent for the  year to July 31 in Sydney and Melbourne prices were 11.5 per cent higher over the same period, figures from CoreLogic​ RP Data show.

Louis Christopher, the managing director of specialist property researcher SQM Research, says given the high transactions costs of real estate, the market needs to be moving up strongly for flippers to make money.

"The only place flipping really works is in strongly-rising markets, such as Sydney," he says. Even there, flipping is confined to the relatively cheaper regions of the city, such as western Sydney, he says.

As flippers will usually claim the property as their principal place of residence, there is no tax on profits. However, there is no avoiding the  transaction costs, such as stamp duty.

There is little evidence of much flipping at the "upper end" as the purchase prices and transactions costs are too high, Christopher says.  

Experienced property analysts say flippers who choose well and manage the risks will continue to make money as long as price rise remain strong. But at some point, the big surges in prices will end.

In June, the Treasury secretary John Fraser said Sydney and some parts of Melbourne were "unequivocally" in a house price bubble. 

Given it may take at least 12 months to flip a property, the risk is that interest rates rise in the interim and prices cool.

Robert Mellor, BIS Shrapnel managing director, says he is "getting a bit more concerned as we are in unchartered territory with annual price rises of about 15 per cent in Sydney".

"There will be higher interest rates in 12 months' to two years' time; although they could be only a bit higher," he says.

Kevin Lee, the principal of Smart Property Adviser, says many people have become seduced by the thought of becoming an "instant hero"; that they will make a killing simply by signing a contract to buy a property.

"It used to be called greed; now it's normal," he says.

Lee says flipping is a risky game. There are many risks that have to be managed and only some people are good at it. It takes tenacity and perseverance to be successful, he says.

 Buying a "renovator's delight" cheaply may turn out to take a lot more time and money than the renovation TV shows make it seem.

Financial pressures that often come with flipping can put relationships themselves at risk, he says.

Lee knows of someone who had three successful flips; but went "horribly wrong" on the fourth flip when during the last interest rate cycle, rates rose and the market cooled.

Posted by John Collett - The Age on 25th August, 2015 | Comments | Trackbacks | Permalink

Are four walls still safe as houses?

When the stock market experiences its worst run since the GFC it's no wonder many investors prefer property. Its virtue is that in a bad market, home owners tend to pull up the drawbridge and refuse to sell, disguising any fall in values.

So although you can rule out property prices dropping 7.5 per cent in a day – as shares in ANZ did the other day – whether they can keep on rising in Sydney and Melbourne is the question.

Surely there's a natural limit where houses just become too expensive? Yes, but not while rates are so low, there's a building backlog, jobs are safe and the cheap dollar pulls in foreign buying. And perhaps most of all, the sharemarket has seemed a non-event, though after taking dividends into account it's been doing far better than it looks.

Take Sydney because it seems the most bubbly and prompts all the hand-wringing in the Reserve Bank. Yet which is stranger: the double digit annual increases of the past three years, or the fact values were stable for the previous eight years and fell in real terms?

You can see the connection. Little was built when prices stagnated because developers couldn't see a buck in it – and were hard pressed to find labour, thanks to the mining boom – so there was no new stock for the increasing numbers of migrants. Just last year NSW attracted more than 70,000 migrants but built only 20,000 homes, according to Andrew Wilson, Domain Group's senior economist.

This housing shortage, also shown by unusually low vacancy rates, will only slowly be filled by the building boom that's under way.

Melbourne had the opposite problem of a later but deeper slump, due to an oversupply of apartments but recently house price rises in the suburbs have been outstripping even Sydney. 

If record low interest rates are here to stay then homes are affordable and jobs safe. The bond market, a usually reliable witness in these things, can't see rates rising for at least three years.

The market is "being driven by the very few alternatives for people who want to diversify or don't like the sharemarket", property expert John Wakefield says.

"There's the chance of a capital gain and roughly the same yield as a long-term deposit so why wouldn't you invest?"   

Rental returns

The rental returns from property have rarely been higher and never so competitive with term deposits.

"The whole nature of property investing has changed. It will be driven more by yield than capital growth," Domain's Wilson says.

That's why you need to look beyond your own, er, backyard. Go bush or interstate and the yields reach 8 per cent in parts of Adelaide and Tasmania. Investing interstate also escapes land tax.

Even if property is becoming more a hunt for yield than capital gains, no doubt most investors would still expect some of those too.

Either way, the old rules about location haven't changed, especially being close to transport, having a growing population and jobs.

You want properties with potential, not ones you'd necessarily want to move into yourself.

"Look for things that need a spit and polish that will give you value, not something that's been milked already," says Wakefield.

Buying off-the-plan makes it easier but what you save on stamp duty can be more than offset by the developer's premium.

Besides, what Wakefield calls the "mass concrete block stuff" typically means at least one-fifth of the apartments are sold to investors so the chances are they'll be renting them out just when you're also looking for tenants.

"You're competing with too many others with the same logic," he says.

In Wakefield's experience, two-bedroom units are best because they attract young couples who are likely to stay put for a while before starting a family and buying their own place.

That's another thing. Property investing is becoming self-sustaining as investors push up prices, elbowing out first-home buyers who, with no choice but to rent or stay in the family home, provide a captive market.

That's why rents and prices are rising simultaneously, keeping investors in the game.

Wilson says recent auction results show Sydney's "prices growth is flattening" but tips rental yields will stabilise at 3.5 per cent to 4 per cent. Melbourne is seeing a price "resurgence".

Not even the banking crackdown on investors is expected to make much difference.

Rather, it's just squeezing out first time investors – a double whammy for the often frustrated would-be first-home buyers driven out of the market – but not those who already own a home.

"The reality is, most investors are already owner-occupiers and have a lot of equity in the home. They can use this to get their loan to valuation ratio down," says Tony Harris, principal of Easy Living Finance.

"You can secure an investment loan against an owner-occupied property and still claim the tax deduction on the interest," he says.

As for higher rates on interest-only investment loans, these can be passed on to tenants or absorbed by negative gearing. Metropolitan rental markets, apart from Perth and Darwin, are tight.

"I don't think the market will decline but I don't know how much more it will rise," says Wakefield.

But commercial real estate "is where people should go. Yields have moved up very strongly in the last couple of years and leases are much longer."

 'I've lived in a building site for 25 years'

Buy a dump, live there while you renovate it yourself and you'll make a motza out of property, Dean and Sally Lewis will tell you.

Although only in their late 40s with two children, the couple have lived in seven houses at last count, renovating all but one which had risen so quickly in value they sold it anyway.

"I've lived in a building site for 25 years," Sally, who runs Events and Beyond, says.

Along the way they've tried a project home builder and even a short-stay accommodation unit though they'd never do either again because of the hassles and costs.

As for some of their tenants… well, you wouldn't want to know.

Dean bought his first six-unit block of flats in Geelong when he was 21 - before he became a qualified architect and builder. He did them up at night and sold them one by one while he had a day job at Village Roadshow. And that was when mortgage rates were a record 17 per cent.

"I lived in one, did it up and then moved to another," he says.

The block cost $60,000 and he sold each for about $250,000.

By doing the renovations himself, Dean keeps the costs well down.

Since he lives in the properties there's no tax on his sometimes spectacular capital gains either.

"I look for rundown places that I can add value to. I never buy someone else's refurbishment. The bigger the dump the better," he says.

He looks for properties in what he calls the "gentrification corridor" where there's population growth.

But serendipity plays a role too. The couple overpaid $20,000 on an inner city house bought over the phone by a friend on their behalf when they were on holidays. But after the magic touch, the $220,000 home in what was in "a very original condition" was sold for $750,000 four years later.

And the eight-unit block in Perth they snapped up when they saw it on the way to the airport has been such a rental success that 16 years on they still can't get in to renovate it. It's near a university, on a bus route, close to shops and opposite a park.

"They're mostly long-term tenants. One still pays his rent with a postal order," Sally says.

Their properties are funded by interest-only loans because Dean says "it lets me buy and sell without onerous paperwork."

Here they got lucky. A former workmate turned Smartline​ adviser, Julie Deppeler, re-financed his Westpac loan with Macquarie "which saved me $10,000 a year", Dean says.

Property investing isn't for the faint-hearted. They've had to evict bikies manufacturing ice "and we get calls on Christmas Day that the hot water has gone or somebody has been locked out", Sally says.

While their Byron Bay acreage "will be a place to put our feet up and grow avocados," according to Sally, Dean says "this will do me for a couple of years - but I'm always looking for a bargain".

'It's easy to get tenants'

Frustrated first-home buyers are getting a foot in the Sydney and Melbourne property markets through the backdoor.

Instead of living there they're renting their properties so the tenants help pay off the mega mortgage.

But Joseph Radd, a financial planner at Mortgage Choice, has gone a step further. The 29-year-old has bought a home in Sydney's west where he says "it's easy to get tenants". In fact, within a week of settlement he'd found someone.

His novel solution is to build a granny flat in the back as well.

"The frame went up last week. It'll be my home. I wanted assistance to pay off the mortgage," he says.

When he eventually gets married, Joseph says he and his partner will buy a home together and keep the property which will then have two lots of rents coming in.

Joseph saved furiously for the deposit using a high-interest online savings account "that I can't touch" although "the increase in prices was faster than I could save, so I wanted to purchase sooner rather than later".

But living at home kept expenses to a minimum.

He had no trouble getting finance since his brother-in-law is a mortgage broker, finishing up with splitting the mortgage between a five-year fixed-rate loan at just under 4.5 per cent and a variable, interest-only component.

Posted by David Potts - Money Manager (Fairfax) on 25th August, 2015 | Comments | Trackbacks | Permalink

Is an SMSF property investment worth it?

If you're dead set on investing in property through your SMSF make sure you know what you could be in for, writes Richard Livingston

Residential property investing through an SMSF is a fertile ground for deception. Type the words 'SMSF property misleading' into your Google search bar and you'll find pages of articles and notices about ASIC fines, investigations and actions against financial advisers, property promoters and assorted spruikers.

If you're going to play in this space it's important that you understand the rules, what needs to go right and what could potentially go wrong.       

Keep in mind that investing in residential property through an SMSF can be a pain in the neck and wallet, compared with buying the property in your own name. In addition to the usual hassles – bad tenants, unexpected bills and strata fights – there's an additional layer of rules around what you can and can't do.

Members of the SMSF can't use the property, nor can they lease it to family members. Employing related "tradies'' can lead to unintentional breaches of the SIS Act (the governing legislation for super funds) by the SMSF trustees.

If the SMSF is borrowing, you'll need to set up a costly limited recourse borrowing arrangement and ensure you don't spend borrowed money on items the Australian Tax Office might classify as improvements. Properties on multiples titles and property development can also cause SMSF trustees to breach the SIS Act.

For the most part, SMSF property investing is all negatives. So why do people do it?

The answer is tax. A super fund only pays 15 per cent tax on its ordinary income and 10 per cent on capital gains. If the fund is in pension mode, it pays no tax at all. This means if you make a bundle, the taxman sees very little (or none) of it.

But you need to be confident that the profit and tax benefit will ultimately be worth it. Your financial adviser may show you a nice looking set of numbers but that's of little help if reality doesn't follow suit.

If you're able to buy an SMSF investment property without borrowing, your main worry is whether it's a good investment. But if you're borrowing – especially if you're borrowing a large part of the purchase price – the success of your "SMSF punt" hinges on two key factors: the capital growth rate of the property and the future for SMSF loans.

When you're borrowing to invest in property, the interest on the loan typically offsets the rental income or if it's greater, creates a "negative gearing" deduction. As a result, in the early stage of the investment there's little benefit in using an SMSF, and if it's negatively geared, you may be worse off than if you bought the property in your own name.

In these cases, whether you get an overall tax benefit from investing through an SMSF will depend entirely on the capital growth achieved. You'll save a lot of tax if you make a big profit on sale, but if you're borrowing a large amount and achieve low (or no) capital growth, you may find the pain and hassle of investing through an SMSF was pointless.

SMSF property investing may also be a bad option if differential pricing on property loans becomes the norm, or if SMSF lenders withdraw from the market altogether.

AMP recently announced it was increasing the interest rate on investment property loans by 0.47 per cent. If you have the ability to draw down on your home mortgage to buy an investment property, then by using an SMSF you'd be paying half a per cent extra every year you have the loan.

The trend towards differential pricing could in the future see SMSF loans charged an even higher rate. It's a grim scenario, and one that could become worse if lenders start exiting the SMSF lending business altogether.

National Australia Bank stopped writing SMSF property loans earlier this year and as regulators tighten capital requirements or the market slows, other lenders may decide to follow suit. Remember, SMSF loans aren't as "locked in" as regular home loans. They typically include "review events" that allow the lender to reassess (and potentially terminate) the loan for things as simple as the fund switching into pension phase.

Imagine going through the hassles of an SMSF property investment only to find you're paying a higher interest rate down the track or your loan is pulled, forcing you to sell the property?

Of course, in addition to whether you achieve enough capital growth or the SMSF loan market changes, you've got the politicians to worry about. The budget can only cope with so many forest fires at once, and down the track we could see higher taxes on capital gains or super generally.

Borrowing within an SMSF to invest in property is a bet on strong capital growth and no adverse changes to the SMSF loan market or super rules. Make sure you understand this reality, and the consequences – before you start out.

Richard Livingston is a founder of Eviser.

This article contains general investment advice only (under AFSL 469838).

Posted by Richard Livingstone - Money (The Age) on 25th August, 2015 | Comments | Trackbacks | Permalink

What to consider when buying property with friends

As we all know, getting on the first rung of the Australian property ladder these days is tough. Astronomical prices, tightened lending and competition from cashed-up investors means fewer first-time buyers are able to enter the market, and those who do are having to take on crippling mortgages to make it possible.  RBA's May 2015 Housing Finance Commitments report showed an 11 per cent drop in the number of first-time buyers, adding to what was already a record low for first home buyer loans. In short: house price growth has dramatically exceeded wage growth and the disparity is almost definitely going to continue.

Although the dream of owning bricks and mortar may be elusive to many, smart wannabe investors are looking at other options, and one in particular: buying with friends, otherwise known as "co-owning". Most of us are used to the idea of buying property with our spouse or partner, but co-ownership is where two or more people buy a property and own separate and defined shares, which can be equal or unequal depending on the agreement reached. In addition, if one party dies, their share of the property can be passed on or left to whomever they like. Sounds simple, right?

"One of the biggest advantages is that you can combine and pool your financial resources to significantly increase your purchasing and borrowing power." Says Peter Boehm, financial editor at Onthehouse.com.au. "This will help you buy in more established and/or expensive areas where price growth potential and longer-term profitability is likely to be greater.

"You're also able to enter the market earlier. For instance, you won't have to wait to save the full deposit or cover all the purchase costs (because your friends or co-owners are covering any shortfalls), which enables you to become a property investor or owner-occupier sooner."

The benefits of purchasing in a group are obvious. Firstly, increased finances, which equates to a strengthened loan application and an increased deposit. Secondly, the day-to-day costs associated with owning a property are shared.

Despite buying in a group being advantageous, it doesn't come without potential pitfalls. Firstly, each co-owner will be individually and collectively responsible for meeting all loan repayments and other obligations. The fact that you may own a greater or lesser share of the property than your partners is irrelevant. If one or all of them skips town, unfortunately you'll be left holding the bag. And though you may be BBFs when you sign on the dotted line, further down the road that may not be the case. As with financial woes being a big contributor to marital breakdowns, the same principles apply when it comes to friends in a co-ownership arrangement. And exiting such an arrangement is problematic, as Boehm warns: "In a worst-case scenario the property may have to be sold, even if it's not in the best interests of everyone involved. Remember, you're financially committed to the venture and to your co-owners as well."

So, before you schedule a house hunt with your posse of friends, tread cautiously; buying together is a big commitment and as such, there's a lot to consider.  To safeguard both your investment – and your friendship – Boehm advises any potential co-owners to consider five key points before making the leap:

1. Buy with as few friends as possible

"Keep the numbers to a minimum – no more than three or four – to help reduce complications and complexities."

 2. Choose your partners carefully

"Look for those you can trust and who share your views and passions about property (if you're investing), or that you could live with if the plan is to become an owner-occupier. Always look to protect friendships and relationships."

3. Take the emotion out of the equation

"You have to be objective and think with your head and not your heart. Make sure everyone gets independent legal advice and draw up an agreement that sets out everyone's expectations, rights and obligations. A formal agreement is a great way to put issues on the table, identify problems you may not have considered, and to map out the way forward if things go bad."

4. Consider the risks

"There are a number of things that could go wrong and you need to be comfortable these problems can be dealt with amicably and sensibly. What happens if someone wants to sell and you don't, or someone doesn't meet their share of the mortgage payments and you're the one who has to pick up the slack? These can be serious issues not easily resolved that could put you in a great deal of difficulty both personally and financially."

 5. Buy and borrow sensibly

 "As with any property purchase, choose wisely and borrow wisely. The same rules apply whether you're buying on your own or with others."

Posted by Paul Ewart - Domain (Fairfax) on 23rd August, 2015 | Comments | Trackbacks | Permalink

Banks target owner-occupiers with interest rate deals

As banks put the brakes on lending to property investors, borrowers buying a house to live in are being offered some of the sharpest deals in the market.

Owner-occupiers are being targeted with lower advertised interest rates and cash-back offers, and mortgage brokers say these customers can also negotiate bigger interest rate discounts.

RateCity figures show a significant gap opening up between the interest rates charged to owner-occupier and investor customers of most banks. 

More than 15 lenders, including Commonwealth Bank, Westpac and ANZ Banking Group, are offering owner-occupiers rates that are at least 0.22 percentage points lower.       

"While the providers are trying to curb investor lending they are looking to rebalance their book back towards owner-occupiers," says RateCity spokeswoman Laine Lister.

"The flipside of investors paying more is that owner occupiers are getting a better deal in some cases."

For example, HSBC has variable rate of 3.99 per cent for owner-occupiers, and Loans.com.au is offering 4.02 per cent.

Larger lender Suncorp has an advertised rate of 4.15 per cent for owner-occupier customers who are borrowing more than $750,000, with a deposit of more than 20 per cent.

Beyond their advertised rates, banks are also scaling back interest rate discounts for investors and offering deeper discounts to owner-occupiers. The exact size of the discount will depend on the bank and the customer's financial circumstances.

A mortgage broker in Sydney, Andrew Woods, says investors taking out loans are generally paying interest rates about 0.27 percentage points higher than what owner-occupiers pay, but the gap is wider for the most sought-after customers.

"Even larger discounts than that are available for owner-occupiers who are strong clients with larger loans," Woods says.

The principal of consultancy Digital Finance Analytics Martin North says his surveys of customers have shown that typical interest rate discounts offered to owner-occupiers have climbed from between 0.35 to 0.4 percentage points to 0.6 to 0.7 percentage points in the past few weeks.

"There's no doubt in my mind that the battle ground now is absolutely owner-occupied loans," North says.

Banks are also offering "cash back" offers targeted at owner-occupiers. For instance, Westpac-owned Bank of Melbourne, St George and BankSA are offering $2000 cash back for owner-occupiers borrowing more than $200,000.

As well, a two-tier market has emerged in fixed-rate mortgages. Commonwealth Bank, Westpac and ANZ have all raised fixed rates for investor loans in the past month, while at the same time cutting various owner-occupied fixed rates.

Posted by Clancy Yeates - The Age on 21st August, 2015 | Comments | Trackbacks | Permalink

Victorian government announces review of property laws

The state government has announced a review of Victoria's property laws, including those covering prices and conduct of real estate agents, on the cusp of the peak spring selling season.

The main acts that cover real estate transactions will be scrutinised, as buyers' tensions simmer around suspicions of underquoting, rocketing auction prices and the presence of international buyers in the market. 

The laws covering estate agents, land sales, conveyancing and owners corporations are outdated and need to be modernised to avoid inconsistencies, according to the Andrews Government.

Consumer Affairs Minister Jane Garrett said in a statement that the three broad areas of review will include land and real estate sales, the powers and functions of owners corporations, and licensed agents and owners corporation managers.

The public will be invited to comment on how the laws can be improved.

Of the four acts that will come under review, the Sale of Land Act is 52 years old and the Real Estate Agents Act was introduced in 1980.

Rules around agents giving price guides and estimates to prospective buyers and sellers is covered in the Real Estate Agents Act.

Buyers advocate Mal James said the current laws were working well, save for some issues around under quoting.

A more pressing issue than pulling agents into line was offshore buyers and their impact on young people trying to enter the property market, Mr James said.

The Real Estate Institute of Victoria chief executive Enzo Raimondo said the review was timely.

"Certainly in the last decade there has been enormous change in the property sector in terms of new technology and business processes, which will need to be considered in light of the review and the way the industry conducts itself compared to how it has in the past," he said.

A spokeswoman for Consumer Affairs Victoria said the review was proposed to ensure the acts "meet the needs of the modern market".

"As the older Acts were introduced at a time that pre-dated modern drafting techniques, they lack clearly-stated purposes by which we can measure their effectiveness. They have also both suffered from the passage of time, and many amendments."

The issues papers for public consultation will be released later this year, ahead of a public options paper next year. 

Posted by Emily Power - Domain (Fairfax) on 21st August, 2015 | Comments | Trackbacks | Permalink

How to choose an agent for your spring campaign

Hooked on The Bachelor? Forget it. There's a much bigger challenge than finding love: finding your ideal real estate agent ready for a spring sales campaign.

But just like true love, there's "something you just can't quantify" when you're looking for your perfect agent, says Ray White Double Bay director Elliott Placks. "It's often about how you feel.

"You want someone you feel isn't going to undersell your property, will get the maximum price for it and will communicate with you throughout the whole process. Everyone has different wants when they're selling – do you want someone who'll consult you about every aspect of the sale, or who'll work hard behind the scenes and understand what you only want to know?"

An excellent agent will really have many of the best traits of a good potential husband or wife, according to LJ Hooker Mosman settlement specialist Mary-Jane Hamer. 

"You need someone who's a good listener, someone who follows through on what they say they're going to do, is dedicated to you, knows all your good qualities and is hard-working," she says. "People often think they can go it alone but what you need is a good result with someone who can squeeze the last cent out of a buyer; not just a result."

It can be a false economy to try to save on a good real estate agent's fee, she advises. "Yes, you can buy a cut-price suit in Target, but you can also buy one in David Jones, and which one will you remember?"

There's little as seductive as a suitor who completely focuses on your wants and needs, and with agents it can be pretty similar. Alison Coopes, of Agency by Alison Coopes, says, "I think the agent has got to have a sense of complete focus on your intentions.

"They have to ensure that the vendor has had every possible door opened to allow them to close, which includes attention to detail in the presentation [of the property], the consistency to be 100 per cent there at every inspection."

They also have to be there for the long haul, for better or worse. "It's absolutely non-negotiable that they'll give up if it doesn't pan out quickly," says Coopes. "A client needs to know you'll hang in there even when it gets tough."

Relationships are often all about negotiation and sales are no different. "An agent needs to be a very good professional negotiator," says Christian Payne of Payne Pacific. "You want someone who'll achieve the highest price, and takes pride in doing that, rather than someone who's just looking for commission."

It's all about looking as good as you can, too. "An agent also needs to understand marketing – not just advertising – but marketing," he says. "That's why someone will pay $14 in a restaurant for a bottle of water when they could have got the same thing for free from the tap. It's about a perception of value."

Finally, choose someone with an attractive twinkle in their eye. "You want someone who looks hungry and driven with a bit of a spark in their eye," recommends Santos Sulfaro of Richardson & Wrench Leichhardt.

"If they present themselves well, then there's also more of a chance they'll present your property well too."

But in one important aspect, finding the perfect agent is completely at odds with hitching up with the best bachelor – or bachelorette. While you wouldn't want either of them to have a bulging little black book, an agent with a large database at their fingertips, says Rebecca Harrison of Raine & Horne Chatswood-Willoughby, can only add to their attractiveness. The Top Ten Questions To Ask Prospective Agents

1. What do you like about my property?

If an agent can't look around your property and assess, in five seconds, its best qualities, then maybe he or she shouldn't be a candidate for your sale, says Santos Sulfaro.

2. What's your track record with previous sales in the area?

Elliott Placks believes the answer will show whether the agent really is an area specialist – or just saying they're one.

3. What are your fees and what are you offering for them?

We all need to know, but Mary-Jane Hamer says she admires an agent who'll stand by the fee they charge. If they can't back themselves on their fee, and negotiate their own price with you, what chance do they have of   successfully negotiating  a great price on your property?

4. Will you be attending every inspection personally at all times?

It's completely unacceptable for an agent to send their PA or a secretary to an open-home, says Alison Coopes. They need to be completely focussed on selling your property.

5. Can you unlock a value for my home beyond comparable sales?

You need to find this out, otherwise you may as well go with a cheaper agent, says Christian Payne.

6. How well do you know the area?

It can be a big advantage if your agent actually lives in the area, says Kate Webster of McGrath Inner West. They'll then know the neighbourhood intimately and all its plus points.

7. Do you have a good database of potential buyers?

Already knowing people who'd be interested in your property, and who trust the agent's advice, is a major advantage, says Rebecca Harrison.

8. What do you see as the negatives about my property, and how will you overcome them?

A good agent will know and be confident about that, says Sulfaro.

9. How can you guarantee that you won't undersell my property?

An agent will then go through their pricing strategy to show how they deal in the realms of possibility, rather than what neighbours received, says Payne.

10. If we require a conjunct agent, will you be dealing with them fairly?

Some people like to list their property with two agents, but sometimes the main agent might play games with the other in order to try to win the sale for themselves. "Get a confirmation in writing that will allow the 50 per cent conjunction fee," recommends Coopes.

Posted by Sue Williams - Domain (Fairfax Digital) on 15th August, 2015 | Comments | Trackbacks | Permalink

Buyers should pay bigger deposit for off-the-plan apartments

 BUYERS should have to pay a bigger deposit for an off-the-plan apartment and make payments during construction of the large-scale complexes, one of the major banks suggests.

That would reduce the risk for developers and increase the likelihood that projects go ahead, ANZ argues.

Buyers in all states except Queensland currently only require a 10 per cent deposit for an off-the-plan purchase, with the remaining 90 per cent paid on practical completion of the development.

ANZ deputy CEO Graham Hodges said there was a reasonably substantial risk that conditions could change during the approximately four-year period and the value of an apartment purchased off the plan today could be worth 10-20 per cent less.

ANZ says the 10 per cent deposit has proven to be an inadequate pre-estimate of the loss a developer suffers if a buyer does not complete a contract, and banks therefore require high levels of equity from developers to finance apartments given the presale settlement default risk.

Other markets require purchasers to make payments during construction, ANZ’s submission to a federal parliamentary inquiry into home ownership also noted.

“In Queensland they looked at not requiring but having up to a 20 per cent deposit which derisks the project for the developer to some extent, enables easier finance for the project and therefore contributes to a likelihood that projects would go ahead,” Mr Hodges told the inquiry on Friday.

He said one of the factors constraining housing supply was that risk on bigger developments was being borne by the developer and not shared as equally as under a normal home build.

“To ensure the sustainability of the supply chain, and to protect the industry against a downturn in Melbourne or Sydney, consumers should carry more of the risk,” ANZ’s submission said. “This is likely to lead to increased funding availability, reduced funding costs and earlier funding of projects.”

Posted by Megan Neil - AAP on 15th August, 2015 | Comments | Trackbacks | Permalink

ANZ says proposed bank capital rules to push up mortgage costs for first-home buyers

ANZ Banking Group says proposed rules being negotiated by global financial regulators could force up the cost of loans for customers with smaller deposits, especially first-home buyers.

Deputy chief executive Graham Hodges on Friday said changes under discussion dealing with how much capital banks would have to carry could disadvantage borrowers who had smaller deposits.

Mr Hodges made the comments before a parliamentary inquiry into housing affordability, which is also scrutinising the banking regulator's clampdown on lending to property investors.

"We are working within the new regulatory framework to adjust lending requirements, especially for investment loans in a market that's moving quickly," Mr Hodges said in Melbourne.

"Looking further ahead, the committee needs to be aware that proposals under consideration by the international Basel committee could lead to further significant changes to bank capital requirements applying to housing."

"This could have the effect of increasing the cost of finance, particularly for those customers borrowing at higher loan-to-valuation ratios.

"Over time, this will likely disadvantage those buyers, namely some first-home buyers, with smaller housing deposits."

The changes Mr Hodges was referring to are being considered by the club of global banking regulators known as Basel, after the city where it meets in Switzerland.

Local analysts have previously said the changes, which are not expected to be implemented for several years, might force banks to put greater weight on loan-to-valuation ratios when determining the riskiness of a loan, and how much capital is held against it.

That compares with the current approach, in which the banks determine a risk weight, which measures the riskiness of a loan, by "probability of default" 

JP Morgan analyst Scott Manning said in a June report that "first home buyers may further be locked out of the market" if the changes went ahead.

Such a policy is by no means certain, and Mr Hodges outlined various steps the bank had taken to slow its growth in lending to property investors in response the Australian Prudential Regulation Authority's 10 per cent a year speed limit in this part of the home loan market.

As well as requiring new investor borrowers to have a 10 per cent deposit, he said the bank used a higher minimum interest rate to assess whether borrowers would cope if interest rates rose.

He said ANZ used a minimum interest rate at 7.25 per cent – up from its previous practice of adding 2.25 percentage points onto the actual rate the borrower paid.

ANZ is one of several lenders that was growing its investor loan book at a faster pace than APRA's 10 per cent speed limit at the most recent figures from June.

Mr Hodges indicated APRA wanted banks to demonstrate within the next few months that their investor financing had slowed.

​The regulator's cap on housing investor credit, which was announced last December, became a "hard limit" only around May, as opposed to a "guideline", he said.

In its submission to the committee, ANZ argued the "fundamental" reason housing prices in Sydney and Melbourne had surged was a mismatch between supply and demand.

Mr Hodges said it was not yet clear what the effect of recent changes for investor borrowers would be, because banks had not faced such credit restrictions in decades.

"This is the first time, I think, since the late 1970s, that we've actually had a quantitative restriction on what we can lend," he said.

"There may be some investors who would like to get an investment loan from the banks, but the banks are not overly happy to lend to it.

"I presume it will force some investors outside the regulated market into the non-regulated market."

Posted by Clancy Yeates - The Age on 14th August, 2015 | Comments | Trackbacks | Permalink

Puzzle Finance Blog

About Puzzle Finance


October 2015
September 2015
August 2015
July 2015
June 2015
May 2015
April 2015
March 2015
February 2015
January 2015
December 2014
November 2014
October 2014
September 2014
August 2014
July 2014
June 2014
May 2014
April 2014
March 2014
February 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012
October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010


Purchase or Rent (1)
The Age (1)

Recent Puzzle Finance Blog Posts

12 Oct 15: How to use redraw Redraw has been growing in popularity for Australians since the 1990s, according to the ABS. An Australian Social Trends 2014 report prepared by the ABS ha... [More...]
12 Oct 15: How to make a winning pre-auction offer Sneaking in an offer to beat your competition before hammer time isn’t just about having the deepest pockets – preparation and tactics are also impor... [More...]
9 Oct 15: Borrowing to invest — what are your options BORROWING to invest has fallen from favour, despite the numbers surrounding it now stacking up better than ever. Horror stories from the global financia... [More...]
6 Oct 15: Basic Training: How to pay your mortgage off at speed Thinking creatively helped Peter Horsfield and wife Roz pay off the mortgage on their Sydney home in just seven years. The young couple was keen to get the mo... [More...]
5 Oct 15: Landlord tricks for managing tenants in a tough rental property market Landlords need to become more professional and commercially savvy to attract and retain tenants in an increasingly competitive market, rental professionals wa... [More...]
2 Oct 15: Sneaky property investors are lying to the banks to get lower interest rates EXCLUSIVE SNEAKY property investors are getting around strict new lending rules imposed by the banks by masquerading as owner-occupiers to get lower inter... [More...]