Puzzle Finance Blog


Homebuyers warned of buyers’ agents pushing up house prices


BUYING property, especially in a heated housing market, can be a tough slog.

Enter buyers’ agents. Sort of like a real estate agent for the buyer, a buyer’s agent can give you advice, help you work out a budget, search for suitable properties, and make offers or attend auctions your behalf.

And in a market crazier than ever, buyers are appreciating the help. Rich Harvey, President of the Real Estate Buyers Agent Association of Australia (REBAA) said the popularity of their members is “absolutely” increasing.

“One [reason] is people are very time poor and just don’t have the time or inclination to go out every weekend and look for property,” he told news.com.au.

“Buyers get very frustrated when they can’t find the right property. We find that most people on their own take at least 12 months to buy a home but a buyer’s agent can speed up that process. Our average turnaround time is around 42 days from start to finish.”

The association, which was founded in 2000 with just six members, has grown to a network of 70 members and counting.

But as popularity increases along with prices, buyers’ agents have been called into question over a conflict of interest.

The CEO of ASX-listed online property agency iBuyNew, Mark Mendel, said buyers agents may play a role in pushing prices up because of the way they are remunerated.

“Buyers’ agents charge between 1.5 per cent and 2 per cent of the purchase price of the property if they find your home and negotiate the deal or secure the property at an auction, which means the fee they charge is linked to the price you pay for the property. That is the less you pay the less they make, which seems counter intuitive to me,” Mr Mendel said.
 
“Their fees can end up being very costly, especially for people who have struggled to save to get on the property ladder.”

Veronica Morgan, Vice President of REBAA, didn’t deny that this sort of bad practice does happen within the industry.

“I have been to auctions myself and I have had selling agents telling me that was a buyer’s agent that bought that property at that price,” Ms Morgan told news.com.au.

“I’ve got selling agents saying to me these buyers’ agents, these new people in the industry, they don’t get it. They think their only job is to secure the property ... They don’t get that they are meant to be advising their clients. But [the selling agents] are going ‘bring it on’. They are happy to deal with these people; they are opening up their clients’ wallets.”

It is the same as rogue operators arising in any industry, Ms Morgan said. And the reason it arises in the buyer’s agent industry is because of the pitiful education standards to become a licenced agent.

“The problem is in this industry that there is a very low barrier to entry and it does my head in. It is the reason I joined REBAA in the first place and the reason I became vice president.

“Unfortunately at the moment it is very easy to get a real estate licence or a buyer’s agent licence in pretty much every state of the country without having any experience whatsoever. You can an online licencing course in most states and you could knock it over in a week.”

As an industry association, REBAA advocates for higher standards and applies its own barriers to become a member of the association, including new-to-industry buyers’ agents having to go through compulsory mentoring as well as having to demonstrate adherence to the association’s code of ethics before they can become a full member.

REMUNERATION MISCONCEPTION

While there are instances of buyers’ agents pushing up house prices under a conflicted remuneration model, Mr Harvey and Ms Morgan said most of REBAA’s members — including themselves — operate on a fee-for-service basis.

“The reason for myself, why we use a fixed fee model, is we don’t want there to be any perception of bias when we’re negotiating for the property,” Mr Harvey told news.com.au.

This fee-for-service, or fixed fee, model means the cost is scaled according to the buyer’s price bracket or determined by individual search parameters. This fee is communicated to the buyer prior to engaging in the service and includes a retainer fee the buyer must pay upfront. It equates to around 2 per cent of the price expectation.

“Let’s say you are buying an apartment for $1 million, you’d pay around a $2000 retainer fee upfront and then the success fee would be around $18,000,” Mr Harvey said.

However, that fee is just for the full service — which includes finding a property, appraising it, negotiating it, and going to auction or making an offer.

If the buyer only wants an agent to attend an auction on their behalf, the fixed fee model has nothing to do with the property price at all. For Mr Harvey’s agency, the auction-only fee includes a $550 attendance fee and $550 success fee (or $950 success fee for a purchase over $1 million).

But whatever model a buyer’s agent uses — fixed fee or percentage of sale — he said it “needs to be in writing and made clear to the client upfront”.

But fees aside, Mr Mendel has also questioned whether buyers’ agents are even necessary for most ordinary homebuyers.

“For the buyer that is incredibly time poor or the buyer that is looking for something really, really particular and it doesn’t matter whether it takes them months or years to find, a buyer’s agent is a good option,” he told news.com.au.

“But for the regular mum and dad purchasing a home or an investment property, is a buyer’s agent really necessary? You need to pay them 1.5 per cent or 2 per cent to help you find a property that is 90 per cent of the time on market anyway? [It is] probably not.”

Posted by Julia Corderoy - News Australia Network on 24th November, 2016 | Comments | Trackbacks | Permalink
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Agents, sellers and buyers reveal the seven deadly sins of selling a home


EVERY homeowner wants to make the most of selling in a competitive property market. 

But with competition sizzling, making one of these easy mistakes could cost you thousands.

Research from online real estate comparison service, Open Agent, reveals the “seven deadly sins” a seller can make when putting their property on the market.

USING THE WRONG REAL ESTATE AGENT

Real estate agents are not a one-size-fits-all service.

Open Agent co-founder Marta Higuera said one of the most common mistakes sellers make is not doing their research properly when it comes to selecting a real estate agent to work with.

“We see a lot of people who end up going with someone they know, like a family friend, who actually operate a long distance from where their house actually is, and they are not the right person to sell the property,” Ms Higuera told news.com.au.

“That’s the most common thing; people making emotional decisions and not doing their research.”

As a seller, it is important to use an agent who operates locally and specialises in selling the type of home you are listing.
 
REMOVING ALL FURNITURE

Believe it or not, removing all your furniture and leaving a blank canvas is not letting the potential buyer be imaginative and creative.

“It allows people to be creative if you have something in place that is not too personalised. Empty houses look smaller,” Ms Higuera said.

“The reality of selling a home is it is a very emotional decision and people need to be able to see themselves living there and it is hard to visualise that if you walk into an empty bedroom.”

BEING AT THE OPEN HOUSE

Hanging around at your own open home telling buyers about the hidden values or sentimental values of the home isn’t adding a personal touch. In the same way it is hard for a buyer to visualise themselves living in the property if there is no furniture, it is hard to do that with the current owner there.

“People want to buy a house and see themselves living there. They don’t want to see the last person that lives in there.”

Ms Higuera said it is better to convey what you love so much about the property or neighbourhood to the real estate agent and let them do the job for you. 

GETTING EMOTIONALLY INVOLVED

Our homes may be a reflection of our unique personalities, but while this can make you feel warm and fuzzy, personal touches are a big turn off for buyers.

“You want [the buyer] to feel it is something they can own and move in to straight away,” Ms Higuera said.

This includes getting rid of personal artefacts around the home, such as photographs and collections, as well as some of the more personalised style elements of the home, such as bold feature walls.

HAVING YOUR DAY-TO-DAY LIFE ON DISPLAY

It seems contradictory to say buying a home is a personal process in the same breath as saying you have to make your home look impersonal. But showing any part of your day-to-day life in open inspections will dissuade buyers. This includes dishes and cutlery, toys, gadgets and clothes. You have to make your house look like a house but not lived in.

“You do need to manage selling with having a family life ... Having a few packing boxes ready [before an inspection] where you can hide these things can do the trick. You should wash and put away all dirty dishes before an open home. Just try to take those sorts of things away before an open home,” Ms Higuera told news.com.au.

OVERLOOKING SMALL AESTHETIC ISSUES

Something that seems insignificant and inexpensive, such as loose plug sockets or loose cupboard doors, can actually knock thousands off your sale price. Ms Higuera said that this is because it can make buyers assume there are deeper problems.

“We are not talking about big renovations but when people see those red flags, they extrapolate and wonder what else they cannot see, and if the house has been properly cared for and maintained.”

So just spend the few extra bucks fixing up those tiny aesthetic things, even if you think it is insignificant.

NOT UNDERSTANDING THE IMPACT OF DIFFERENT ROOMS

Understanding which rooms have the biggest impact on buyers and investing the most in making these rooms sale ready can have a big impact on your sale price. According to Open Agent’s real estate agents and sellers, investing in your kitchen and bathroom will see the biggest return.

“These are the rooms that will be most costly for the buyer to update,” Ms Higuera told news.com.au.

“What we are talking about here is not doing complete renovations yourself but to make it look like renovations are not needed in the buyer’s mind, such as changing the cupboard doors or updating the cupboard handles.”

Posted by Julia Corderoy - News Australia Network on 22nd November, 2016 | Comments | Trackbacks | Permalink
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Australian house hunters and sellers warned about using real estate agent comparison websites


Real estate buyers and sellers have been warned to be wary of online companies promising to connect them with the best possible agent in their area to help with their property transactions.

Most consumers assume the firms, once contacted, check all the agents operating in their suburb, carry out due diligence on them and then work out which ones best suit their needs. But sometimes they turn out to be simply computer programs aggregating agents in the suburb and passing their details and fees on with no checks or balances – and then claiming commission from any successful agents.

“Some of their claims are very misleading,” says agent Doug Driscoll, CEO of real estate agency Starr Partners. “To read their ads, you’d assume they do all the legwork for you as the consumer. But most of them don’t.

“They’re just automated systems that, once you’ve put in your details, spit out agents and then demand to be paid from the agents – who have often already been in touch with those vendors — and threaten legal action.”

One of the services, Local Agent Finder, says they’re in the process of improving their operation. Chairman and one of the founders Rupert Greenhough says more information will be provided to consumers, with endorsements from other customers later this year or early next.

“And on the agent side, a new agent portal is being progressively rolled out at the moment,” he says. “From time to time, we’ll inevitably have disagreements but over time we’re working to increasingly reach out to our customers.”

But NSW Fair Trading is now monitoring operators after being notified about their actions. A spokesperson said they’ve been alerted to the business model used by “various real estate aggregator services”. 

“Enquiries to date have not identified any breaches under the Property Stock and Business Agents Act or Australian Consumer Law,” she said. “[But] as this business model is relatively new in the property sector, Fair Trading is continuing to monitor operators.”

In Victoria, some companies have been sending out emails and then demanding that agents pay it commission.

Ash Marton of Ash Marton Realty in Frankston was so outraged by the demands of Local Agent Finder, he refused to pay, despite threats of court action.

“They’re trying to make money from jam, from doing nothing,” says Marton. “They’re preying on people who are too busy to do the searches and instead just send out a batch of automatic emails and then think they can charge us a 20 per cent referral fee.

“They said they’d given us 200 ‘leads’ in the last 12 months but, of course, they were only able to supply us with the consumer’s details with 55 and of those only nine were serious and most of those we knew the people anyway, and had been already talking to them. We call it the ‘bottom feeder’ model of business.”

Local Agent Finder then took action in the Victorian Civil and Administrative Tribunal against Marton, on five claims, totally $11,000. Marton decided to contest all five.

“I thought I have to fight them on principle,” he says. “It’s not fair to either estate agents or to their customers that they operate this way.”

At the Tribunal, on the day of the hearing, Sellmycastle Pty Ltd, trading as Local Agent Finder, suddenly withdrew all its claims. When Marton posted his victory on his agency’s Facebook page, it received 423 ‘likes’ and comments from a variety of both consumers and fellow agents, outlining their outrage after also having dealt with the company.

Greenhough says his company is now working with franchise groups to see how they can address such problems. Currently, if an agent hasn’t conducted an appraisal on a property within the last 60 days, it’s considered that the agency doesn’t have a prior relationship with a customer. That’s now being increased to 90 days.

“There have certainly been situations where we have ended up taking recovery action because we can’t reach agreement with an agent,” he says. “There is tension, but we try to strike a balance. Over time, we’re increasingly reaching out to our customers and, as a growing business, I can’t say we don’t have disagreements along the way, but we are very attuned to them and are finding ways to improve our service.”

Driscoll, however, says that outrage is now being voiced around the country about Local Agent Finder. “I’m all for disruptive business models entering the real estate industry but when they run on an automated system that doesn’t take so many factors into account, it can be very  deceptive,” he says.

“I think a lot of consumers are being misled.”

NSW Fair Trading says that anyone who has a complaint about vendor listing agencies can contact them at fairtrading.nsw.gov.au or phone 13 32 20.

Posted by Sue Williams - Domain (The Age) on 21st November, 2016 | Comments | Trackbacks | Permalink
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Building jargon and what it really means


Building is like any other industry; there’s a lot of terminology used and it’s easy to feel lost and anxious about what you are embarking on. Here are some terms that are often misunderstood (even within the industry at times), but will become very important once they appear in building contracts awaiting your signature. Understanding the proper use of these terms will put you on a level playing field with builders when you start to consider quotes and sign contracts, helping you to reduce stress and eliminate budget blow-outs.


‘Prime cost’

The term ‘prime cost’ (PC) is used a lot in the quoting and contractual stages of building. Prime costs are dollar allowances that are made for the supply of items where the final selection is yet to be confirmed. Common examples include appliances, taps, sinks and tiles. A prime cost allowance is for the cost of the item only, so the builder needs to allow for the installation of the item separately. Importantly, because a prime cost is an allowance only, it is subject to change depending on the final selection of the item. So if you select an item that costs more than the prime cost allowance, you will need to pay the difference as an extra.

PRO TIP: Ensure the prime cost allowances in quotes are realistic in terms of the quality you expect (I use the ProSpex Inclusions Specification tool on buildingquote). 

‘Provisional sum’

‘Provisional sums’ (PS) are similar to prime costs in that they are also allowances that are made for tasks where the final selection is not yet confirmed or where there is detail lacking at the time of quoting. The big (and important) difference however is that provisional sums are an allowance for both materials and labour to complete the task. Examples of areas where provisional sums get used include retaining walls, structural steel and other detailed elements of a building.

Just like prime costs, provisional sums are allowances only and are therefore also subject to change depending on the final cost of completing the required task. Because you will have less control over the actual costs of provisional sum expenses, the key tip here is to eliminate as many provisional sums from your quote as possible by having them included as fixed items. If your drawings are sufficiently detailed there should be little need for provisional sums in your quote as builders will be able to quote what is required without needing to rely on provisional sums.

However, keep in mind that seeing a couple of provisional sums in your quotes is not such a bad thing if they are informed estimates rather than guesses; but if you see lots of provisional sums in your quote it may be a sign of lazy quoting.

Unfortunately, the use of provisional sums is an area where some builders take advantage of clients. By including unnecessary and unrealistically low provisional sum allowances in their quote, builders are able to make the quote appear more competitive while at the same time also shift the risk to the client, knowing that any shortfall in the final costs will be passed directly onto the client. This strategy is supported by the ability for builders to then also charge the client a ‘builder’s margin’ on top of the difference between their allowance and the actual cost of completing the nominated task. Photo: Farnan Findlay Architects

‘Builder’s margin’

The most commonly used building contracts in Australia are the HIA & MBA contracts, both of which make provision for builders to charge a margin of up to 20 per cent for ‘variations’ (or changes) to the contract in addition to the cost of the difference in what was allowed as a provisional sum and the final cost of that item. For example, the builder includes a provisional sum for the installation of feature cladding of $5,000 in their quote. The final cost of supplying and installing the cladding (remembering that the PS includes supply and labour) ends up being $7,700; which is $2,700 more than what was allowed.

The client will need to pay the $2,700 difference, and because the cladding was nominated as a provisional sum, the builder may also charge the client with a builder’s margin of $540 (20 per cent of $2,700), bringing the total cost of the variation up to $3,310. This highlights the need to be wary of how provisional sums are used in quotes. If they really must be in there – which is the case for some items – you should be confident that the builder has invested some time into working out a realistic allowance rather than simply guessing an allowance. Photo: Anson Smart/Arent & Pyke

‘Variations’

‘Variations’ are simply additional costs on top of the contract (quoted) price, and they may take the form of materials and/or labour costs. Under the provisions of most building contracts, a variation occurs when work outside the scope of the original contract is introduced, or when items within the contract are adjusted, which includes our friend’s prime costs and provisional sums. Generally speaking, if the cost of a variation is a result of the client changing their mind or altering the scope of work, the client will be exposed to being charged a variation and a builder’s margin of up to 20 per cent.

If the variation is due to a miscalculation or mistake from the builder, then the builder will be responsible for the variation and will need to absorb the costs. In the case of unforeseen costs that cannot reasonably be accounted for at the time of quoting (more likely with extensions and renovations than new builds), the client will generally need to pay the variation.  

Here are six key examples of how variations may be applied:

1. If the builder has miscalculated the number of roof tiles required to complete the new roof of an extension and needs an additional 220 tiles, the builder will be responsible for the additional costs and a variation and margin cannot be charged to the client, as the drawings and scope of work have not changed. The additional cost must be absorbed by the builder as it was his error in quoting.

2. If you ask the builder to install terracotta roof tiles for an extension instead of the concrete roof tiles shown on the drawings, a variation and margin can be charged for the difference in the cost of roof tiles, as the drawings stated concrete tiles and they were what the builder quoted.

3. If you request two garden taps to be installed on the external walls, a variation and margin can be charged if the taps were not indicated on the drawings. However, a variation and margin cannot be charged if these taps were included as required in an inclusions schedule.

4. If the electrician finds that, upon commencing a renovation project and exposing the electrical wiring, it does not comply with current standards, he is bound by law to replace and upgrade the wiring throughout the house. In this case, a variation and margin can be charged as the requirement to replace the wiring was not known at the time of quoting and no allowance was made in the quote for such work.

5. If the bricklayer has increased his laying rate and the builder wishes to pass that additional cost on to the client, a variation and margin cannot be charged, as the quote included the laying of bricks as shown in the drawings.

6. If the electrician has increased his cost to install each light point by 10 per cent and the builder wishes to pass on this cost increase, a variation and margin can be charged if the builder has noted a cost per light point as a provisional sum in the quote. However, a variation and margin cannot be charged if the cost per point is not nominated as a provisional sum in the quote.

You can see the important role that understanding industry terminology has in ensuring high-quality and sufficiently detailed documentation, ensuring you and your builder are on the same page. Thoroughness and transparency is critical.

‘Fixed price’



Builders will sometimes use the enticement of a ‘fixed price contract’ to attract potential clients. The idea of a fixed price contract is a wonderful thing, however it is very rare that any building contract will truly be fixed price because prime cost and provisional sum allowances are written into most contracts. As mentioned above, the more provisional sums in the contract, the more exposed you are to cost variations and budget blow-outs, even when signing a fixed price contract.

When a builder includes a task in his quote (i.e. not nominating the task as a provisional sum), he is taking responsibility for the cost and accepting the risk of a change in cost; so he is more likely to have quoted it accurately and to be diligent about completing the task cost effectively.

By contrast, when a builder includes a task as a provisional sum, he is dissolving his responsibility and shifting the risk to you if there is any increase in the actual cost of that task. Because he doesn’t bare any of the additional costs, he may also be less diligent about controlling the cost to complete the task.

Ultimately, you should try to limit the number of provisional sums in the quote. As you negotiate with builders, you may need to ask them to reconsider some of the provisional sums and have them included in the quote as part of the fixed price.

Posted by Adam Hobill - Houzz Australia on 17th November, 2016 | Comments | Trackbacks | Permalink
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Top reasons why Aussies get declined for home loans


 NOBODY likes to be rejected.

And while getting rejected by your bank might not be as painful as confessing your unreciprocated undying love, it can still be pretty heartbreaking. A home is more than mortgage to borrowers, so to save up for your dream home only to have your mortgage application declined, can be defeating.

These are the main reasons Aussie homebuyers get their home loans rejected and how you can avoid the heartbreak.

CAPACITY TO SERVICE LOAN

This isn’t about whether or not you physically can repay your home loan, but whether it is realistic to your lifestyle. Sure, you can promise to never eat out or to cut your own hair but let’s be honest, that isn’t entirely realistic. And the banks factor that in.

“It is really that balance of [the borrower] maintaining their lifestyle — the cost of that, their income, and then whatever they have left to service the loan,” ME Bank Head of Home Loans, Patrick Nolan told news.com.au.

“How much of your income are you using to maintain your lifestyle per week? We look at those expenses and marry that up to your income. Then in addition to that we look at how much you can afford to service that loan and those repayments.”

On top of determining if you can realistically afford it, the banks will also want to see evidence of genuine savings. This point is particularly important right now with younger generations increasingly relying on parents to help out with a deposit.

If your parents have gifted you the cash to help you get onto the property ladder, that doesn’t necessarily mean you will be approved. You have to prove you can afford a mortgage and manage money by yourself.
 
“You might be asset rich or your might have cash — for example, you might have just received inheritance — but the bank will not only take that into consideration,” Mr Nolan said.

“They also really want to be able to see your savings history and see if you have got an ability and a capacity to save. That’s where they may ask to look at your transaction accounts or some of your other accounts. A customer must be able to prove they can save over a period of time.” 

DODGY CREDIT HISTORY

This should be pretty obvious but if you have a tainted credit history then it is going to raise red flags. What may not be so obvious is that the banks will look at your internal and external credit history, meaning your history both within the banks (credit card or loan defaults) and outside the banks (outstanding bills).

“There is a lot of data and a lot of science behind this that really illustrates that your previous history is usually a very strong indicator of how you will perform going forward,” Mr Nolan said.

But while this is hugely important, the good news is that an adverse credit history is not the end of the world. You can still successfully apply for a home loan if you understand your credit history. This includes actually knowing your credit score and what’s on your file and being proactive about it.

“The real opportunity for a customer if they have had a ‘black mark’ is to establish and be able to demonstrate a really good savings pattern. And then, in that situation, to be able to explain to the bank why that event occurred which meant you weren’t able to pay off that loan or that debt owed and to illustrate what has changed between now and then.”

Checking your own credit history prior to applying for a loan is also important because there can sometimes be mistakes.

“If you’ve got something on your credit history which is not right, you do have the opportunity to correct it to ensure it is not reflecting poorly on your ability to take out a loan,” Mr Nolan said.

UNACCEPTABLE SECURITY

Banks aren’t big risk-takers so if they don’t think it is a wise investment, they won’t approve your loan or they’ll make it harder for you to borrow. This means where you want to buy or what type of property you want to buy could affect your chances of being approved.

A major example of this currently is apartments in inner-city areas where there are concerns of oversupply.

“There has been a bit of a boom in the building of [apartments], particularly in Melbourne, Sydney and Brisbane. A lot of the banks now in the CBD area want to understand who built the developments, what it looks like and how many apartments are in there so they can get a handle of what that looks like,” Mr Nolan told news.com.au.
 
Another example is mining towns in Western Australia and Queensland, where employment and house prices are declining due to the mining downturn.

“They needed a lot of people to come in to those areas to build the infrastructure and there was a lot of population growth but the community is now starting to shrink. They have built that infrastructure but they don't need people to run those facilities they’ve built.”

Last month, news.com.au reported on NAB sending out a list to mortgage brokers of 600 “risky” suburbs and towns where it would be hiking its minimum deposits.

UNACCEPTABLE LOAN STRUCTURE

The type of loan you might want, or think you might need, can also affect your chances of being approved. Again, this comes back to risk and the banking sector’s prudent approach to assessing risk.

The most common reason a first homebuyer gets rejected because of loan structure, according to Mr Nolan, is the assumption they can borrow more than they actually can, i.e. a higher loan-to-valuation ratio (LVR).

“There was a period a couple of years ago where institutions like ourselves would lend up to 100 per cent LVR, so you were borrowing 100 per cent of your debt.

“But that has wound back now. A lot of institutions are sitting at the 95 per cent mark and even below. If you are a first homebuyer and you are wanting to lend 100 per cent of your loan, then that is something that a number of institutions today probably won’t take the risk on.”

The other big one is wanting interest-only loan structure, whereby you only have to repay the interest charges for a specified period of time.

Interest-only loans are more commonly used by investors and can be useful for tax purposes — as the interest can be claimed as a tax deduction — or because they only plan on holding onto the property for a short time before selling. It can also free up money for investors to invest there money elsewhere, which may not be tax deductible.

An interest-only structure can, in certain cases, also be helpful for owner-occupiers to help them get onto the property ladder or enable them to take out home renovations.

However, generally speaking, it is better to try and actually pay down your mortgage. This means banks will reject applications for interest-only loans if there isn’t a valid reason for that type of loan structure.

“The interest-only terms is a big one,” Mr Nolan told news.com.au.

Posted by Julia Corderoy - News Limited Network on 17th November, 2016 | Comments | Trackbacks | Permalink
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'Tracker' home loans shouldn't be put on the scrapheap yet


Corporate cop Greg Medcraft has a suggestion for the banks – one that he reckons would help their image problem, boost competition and improve transparency.

If they followed his advice and offered  "tracker" home loans that moved in lockstep with changes in the Reserve Bank's cash rate, we could largely ditch the tiresome cat-and-mouse game on mortgage pricing that follows every RBA change, Medcraft says.  


 Such a change would have many benefits. It could help rebuild public trust in the industry, it might resolve the age-old debate about funding costs and it could make it easier for consumers to compare loans, he said last week.

What's not to like? Well, quite a bit, if you run a big bank, or even if you regulate one.

Chief executives of three of the big four banks poured cold water on the idea at this month's banking inquiry.

Medcraft, the Australian Securities and Investments Commission chairman, hasn't had much support from fellow regulators, either. The Reserve Bank and Australian Prudential Regulation Authority both failed to support his push in public.
Yet despite the cool reception for tracker loans among much of the finance establishment, it would be a shame if this proposal joined the list of "junked ideas for improving our financial system".

That is because some sort of tracker loan could help resolve one of the biggest public gripes about banks in this country – how home loan costs are set.

Mortgages that track some sort of benchmark rate by a fixed margin are common in Britain and the US, and are also offered in parts of Europe.

Yet despite Australia's very large pile of mortgage debt – $1.5 trillion and counting – they've never caught on here. A non-bank offered the products briefly before the global financial crisis, and niche Queensland bank  Auswide grabbed some free publicity by launching one last week. The bosses of CBA, Westpac, and NAB told the government's inquiry tracker loans wouldn't stack up.  Photo: Paul Rovere

The bosses of Commonwealth Bank, Westpac and National Australia Bank told the government's inquiry that tracker loans wouldn't stack up because the RBA cash rate is not the same as their cost of funds, which also reflect deposit costs and wholesale borrowing costs.  

So, if they were to offer a tracker loan, it would have to be priced at a higher rate than a standard variable mortgage rate, they said. Therefore, they don't think it would be popular – with the exception of ANZ, which is looking into the idea.

Now, what the banks are saying about funding is essentially true. Their funding costs do vary outside the cash rate, so there are risks in linking loan interest rates to this particular benchmark.

Even so, it is possible to hedge against these risks and still offer a reasonable interest rate of 3.99 per cent, as Auswide did.

Would there be demand for a loan like this? Perhaps. A new survey conducted by Finder.com found 30 per cent of customers would be interested if such a product were more widely offered.

Why then, aren't the banks keener to even offer some sort of tracker product?

​Kevin Davis, an academic and member of the Financial System Inquiry panel, suggests it is because the current arrangements work very nicely for banks.

Davis says Australia is  unusual in giving our banks such sweeping power to unilaterally change customers' interest rates as it suits them. He argues banks should set their lending rates at a fixed margin above some benchmark of their costs, such as the bank bill swap rate (in contrast, Medcraft says they should use the cash rate as their benchmark).

Various other advantages (for banks) of the current system were highlighted by Medcraft when he appeared before Senate estimates last week.

It allows banks to  pass on increases in interest rates in a few days, while taking their time to pass on cuts.

It makes it difficult to compare which bank has the lowest home loan rate, because you never know how your bank's rates will stack up compared with others in the future.

And it is hard for the public to know if the bank's funding costs have really changed materially, or if the bank is just charging them more interest to inflate profits.

All this has led to a recurring fight about whether the banks are ripping us off when they move their rates by a different margin to the RBA. A fight, by the way, that in August triggered the government's banking inquiry.

So, what should be done?

The RBA and APRA don't want banks forced to offer particular products linked to the cash rate. That makes it unlikely there will be regulation requiring banks to offer tracker loans.

Instead, it would seem a good opportunity for a major bank to step forward and show they are serious about responding to public concerns about the highly profitable mortgage market.

I'd add a final reason why some sort of tracker product makes sense: banks will probably never win the public argument on home loan pricing, anyhow.

For years banks have sworn black and blue that their funding costs are forcing them to make unpopular interest rate moves. And for years successive governments and the media have taken them to task over their response to Reserve Bank decisions. 

A bank that offered a competitive tracker home loan would have a ready-made and convincing defence for the next time they are inevitably attacked over their interest rate settings.

Posted by Clancy Yeates - The Age on 25th October, 2016 | Comments | Trackbacks | Permalink
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Five things you should NOT tell a real estate agent when searching for a house


THE property market can be a delicate balancing act. The seller wants to get the highest sale price while the buyer wants to get the most competitive purchase price.


And in a booming property market, the scales tend to fall in favour of the seller. As a homebuyer, this makes it important to know the subtleties of how to play the real estate game.

In order to secure your dream property at your dream price, there is a fine line between what you should tell the selling real estate agent and what you should keep to yourself, according to Queensland-based buyers agent Meighan Hetherington, director of Property Pursuit Buyers’ Agents.

“Say too much and it might be used against you in a negotiation,” Ms Hetherington told news.com.au. “Say too little and you may end up missing out on your dream home.”

So here are five things a homebuyer should NOT tell the selling real estate agent when in the market for a new home. 

Don’t reveal your budget

You might think keeping something as important as your price limit a secret is counter-productive. If the real estate agent doesn’t know exactly how much you can afford, how can they find you your perfect property? But being too specific about your budget can give the real estate agent too much power, Ms Hetherington warned.

“It is important to be careful with how you frame your answer to the question “what is your budget?”

“Under-pitch and the agent won’t tell you about higher priced properties. Over-pitch and they will use that information during negotiations.


But that doesn’t mean you shouldn’t give the selling agent anything to work with. The best way to handle the budget question is to give a healthy price range.

“Let’s say your budget is $1,600,000. The best response is to ask them to talk to you about all the properties that are in the mid to high $1 million range. That way you will get access to properties above and below your budget.”

Don’t be specific about timing

If you have a deadline to meet, such as the settlement of your own property, you should not reveal this to the agent during your search.

“It makes you a target for emotional pressure during negotiations,” Ms Hetherington told news.com.au.

“Instead, be prepared to rent if you don’t find the perfect home in the right time frame. That way, you won’t feel pressured to make a poor choice or pay too much just to solve what is a short-term problem.” 

Don’t reveal too much personal information

Again, revealing too much personal information about yourself can make you a target for emotional pressure, Ms Hetherington has warned.

“A real estate agent needs to establish if you have the financial capacity to buy the property that they are selling, but they should not know too much about your family structure, what schools your children go to, who you work for or what you do.

“There may be a beneficial time to reveal some of these aspects during a negotiation, but not during your search.”

Don’t give price feedback

Ever walked around an open home with no price guide and commented on what you think the property is worth? That is a big no-no. Never, ever give offhand feedback about price.

“If you are too high, the agent will grab you with both hands and get every cent out of you. Too low and they won’t take you seriously,” Ms Hetherington said.

Instead, you should identify a couple of comparable sales and discuss the superior and inferior aspects with the agent.

“With this approach you are likely to get a lot more information from the agent about where they think the price range should be.”

Never tell an agent you are ‘not interested’ in a property if you are

The real estate game isn’t like the dating game, so don’t play hard to get. Feigning lack of interest could potentially mean you lose your dream home.

“I once heard a buyer blow up at an agent because a property sold prior to auction and the agent had not contacted the buyer to see if they wanted to buy it,” Ms Hetherington told news.com.au.

“Thinking they were outsmarting the agent, they had made the mistake of not returning the agent’s phone calls after their inspection of the property. They thought they would do all of their research and turn up on auction day to bid, without having to talk to the agent. Big mistake.” While the selling agent is working in the interests of the vendor, they aren’t your enemy. A big part of making the vendor happy is ensuring the buyer is the right person for the home — and that makes them hugely helpful to you too.

“How can you possibly be sure that you have uncovered all of the background information about the property if you haven’t spoken to the agent?” Ms Hetherington said.

“One way of informing the agent that you are interested without revealing your price position is to say that you are interested at the right price.”

Posted by Julia Corderoy - News Limited Network on 15th October, 2016 | Comments | Trackbacks | Permalink
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Common misconceptions about property auctions


Many buyers don’t love auctions because they believe properties will always sell at a premium with competition. 

Others head in armed with strategies; holding off on bidding until the last second or when the property is declared on the market. 

Agents say there are several misconceptions about auctions, from the vendors’ reserve to the requirement of a 10 per cent deposit on the day.

A vendor’s reserve is not a price they’re ‘happy’ to sell it for 

The role of the reserve price is a misconception from vendors and buyers, Nelson Alexander’s Arch Staver says.

Buyers believe it’s what the owners want, and vendors sometimes think it should be the price that gives them reason to celebrate – it’s actually not, he says. 

The reserve price is often “the worst case scenario”, Mr Staver says, and what vendors are not prepared to sell their properties less than.

You don’t ‘need’ to pay a full 10 per cent deposit on auction day 

Buyers will need to check with the agent or vendor before the auction if they can’t pay the full deposit on the day. 

RT Edgar’s Joanne Royston says buyers may be able to do a small transfer on the day, with the balance transferred over the weekend or on Monday to make up that 10 per cent. 

Buyers may also alternatively call their bank and organise a large transfer over the internet if they win the keys on the day. 

Don’t count on buying on the scheduled auction date 

It is possible vendors will accept a pre-auction offer, and several acceptable offers may trigger a boardroom auction a week or fortnight before its scheduled date. 

Auctioneer Damien Cooley says more than 30 per cent of their listings are selling before auction.

“These things can all change; it all depends on the owner’s motivation to sell and the buyer’s motivation to try and secure the property,” he says.

Some agents are also more inclined to sell properties before auction, Mr Cooley adds. 

Holding back from bidding does not guarantee you will buy it for cheaper 

Some people hold back and don’t bid until later in the auction because they believe the price will be pushed higher if there are five people bidding it up early on, Drakos Real Estate’s Chris Kazonis says.

“But it doesn’t happen that way because a lot of people wait until it’s on the market – others don’t,” he says. 

Mr Kazonis believes a good, strong bid can knock out several competitors. 

Ultimately there is a reserve, he adds, and, if the property passes in, in many cases the vendor doesn’t have to sell. 

You will always pay more at auctions 

Buying a property privately as opposed to at an auction does not necessarily mean there is no competition. 

“You may put an offer in to the agent and there still may be multiple buyers from a private sales perspective,” Ms Royston says. 

“But it’s not transparent or out in the open, it’s not in the public forum for you to see the other buyer and see that participation and get a feel for it yourself.”

Some buyers may end up paying more than they like, but being the highest bidder also means you can negotiate at the vendor’s reserve.

Some people have a perception that there are dummy bidders in the crowd – there are not, no one would run that risk today, Biggin & Scott’s Russell Cambridge adds. 

Posted by Christina Zhou - Domain (The Age) on 14th October, 2016 | Comments | Trackbacks | Permalink
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First home buyers on what they wish they’d known before they bought


Saving for a deposit isn’t the only Herculean task involved in buying a home for the first time. From untangling red tape to deciphering loan documents, there are plenty of potential hazards to trip up rookie purchasers.

Domain asked 10 recent first-home buyers what they wish they’d known before they bought.

Tessa Kelman bought an apartment in the Sydney suburb of Rose Bay. She now knows more about property finance than she ever thought she would.

The complexities of fixed and variable loans can be a steep learning curve, while everything from bank fees to interest rates, loans, electricity prices and internet is negotiable.

“It was complex learning about fixed and variable loans and the fact you can mix the two together,” Kelman says. “We held off buying a little longer so we could save enough to avoid having to pay lender’s mortgage insurance. My advice would be to seek financial advice early so you’ve got a more realistic and refined target.”

When Dylan Malloch bought a house in the Queensland suburb of Griffin, he struggled to find information about dealing with the existing tenants.

“Information regarding what rights tenants have versus what rights purchasers have is difficult to find, particularly regarding bond, cleaning, repairs and exit dates,” Malloch says. “I advise purchasers to seek good legal advice prior to settlement to make sure they know their rights and what is reasonable to request.”

Melissa Davey bought an apartment in Brunswick West in Melbourne. She wasn’t prepared for the sexist attitudes she encountered from some agents.

“They would ask me questions like, ‘Is someone coming to help you at the auction?’ and expected me to refer my decisions to others,” Davey says. “I also wish I had prepared a better plan of attack for what to do if a property I bid on passed in. That happened with the apartment I bought, and I just had to wing it from there.”

Rachael Nesbitt, who bought an apartment in Ashfield, Sydney, says she should have decided on her must-haves from the outset.

“I’d never even thought about sunlight before but we eventually decided we wanted somewhere that got a lot of light and was close to public transport,” she says. Next time, she’ll also have more realistic about how long it can take to find the right place (hint: ages). “Lastly, everything is negotiable: from bank fees to interest rates, loans, electricity prices and internet. You just have to ask.”

After Penelope Collaros signed a contract to buy an apartment off the plan at Botanica in the Sydney suburb of Lidcombe, she switched from permanent employment to contract work.

“I’m told this could present challenges when it’s time to apply for a loan,” Collaros says. “There are also sometimes delays with off-the-plan projects and I probably didn’t pay enough attention to researching the growth potential of apartments versus houses.”

Lukas Szymanek says he wishes he had been more decisive during his year-long search, which ended when he bought a new house at Fairwater in Blacktown, western Sydney.

“During that year, property prices went up by 30 per cent,” Szymanek says. “If I had acted sooner, I could have saved a lot of money. Of course you should always look for a good deal and a bargain price, but you’re not always going to find one. If you keep waiting, you’re going to miss a lot of opportunities and waste a lot of time.”

After the disappointment of missing out on several properties at auction, Sarah Greenaway decided it would suit her better to limit her search to places for sale via private treaty. She ended up buying a townhouse which had passed in at auction in Botany, in Sydney’s east.

“If I had my time again, I wish I’d known that a lot of real estate agents will send you on a bum steer,” Greenaway says. “Several times we were lured to auction on the premise that we were virtually a ‘shoo-in’ and numbers would be limited, only to end up outbid in the end by up to $150,000.”

Riannon Nicolacopoulos decided to scrap her five-year plan to buy a property by herself when she found an off-the-plan terrace at Shell Cove in Shellharbour, on the NSW south coast, while house-hunting for her partner.

“I learnt the importance of being flexible in my plans and ready to act quickly,” she says. “I had saved enough to go halves in the deposit, and we don’t have to make any more repayments until the project is finished. With Frasers Property, it all fell into place fairly quickly and easily. I know that doesn’t always happen when people buy off the plan.”

Lauren Gallinar recently paid a deposit for an off-the-plan apartment in Wollongong, south of Sydney. The experience has taught her to be open to paying more if the right property presents itself.

“I went $20,000 over what I had originally estimated as my maximum,” Gallinar says. “I thought it was worth going over my limit for the beach view, and I’ll have at least an extra 2½ years before it’s completed to save.”

Swee Soo says she and her husband underestimated the amount of work it would take to renovate an old house in the outer Melbourne suburb of Vermont.

“We did not anticipate things to go wrong the way they did,” she says. “Delays, shoddy work, problems with tradies, discovery of asbestos in our kitchen, unexpected repair work – issues seemed to crop up one after another on an almost daily basis … It had to be the most stressful and frustrating experience in our lives.”

Posted by Elicia Murray - Domain (The Age) on 13th October, 2016 | Comments | Trackbacks | Permalink
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The types of properties that the banks would prefer not to lend money for


No one wants to buy a real estate dud. And in the game of buying bricks and mortar, some properties are a safer bet than others.

To spot a property lemon, it’s a good idea to look at the attitudes of the people stumping up the money for them: the banks. It’s in a bank’s best interest to make sure an investment won’t go belly up.

“It’s not really you and me buying the property, it’s the bank,” Starr Partners chief executive Doug Driscoll says. “The bank buys a house and you pay them back over 30 years.”

But mortgage lending is a crucial part of how banks make money and homeowners are very important customers to keep and grow, according to AMP Capital chief economist Shane Oliver.

“Housing has been an important source of growth for the banks in recent years, particularly as the property markets in Sydney and Melbourne took off,” Dr Oliver says.

“There would have to be a good reason for a bank to turn a customer away … Whilst they want to continue to grow their businesss, they don’t want to do so in a way that involves a lot of risk.”

Perhaps the best red flag, then, is if a mortgage application — otherwise all in order — gets stamped with a big fat rejection.

So what properties are more heavily scrutinised by lenders and mortgage insurers? Is there a real estate blacklist?

We asked the banks — and most said they look at each mortgage application on a case by case basis.

But these are the things property pundits say have Australia’s lenders breaking out in a cold sweat.

1. An apartment smaller than 40 square metres

The exact square-meterage is up for debate, but most property advisors say a very small apartment will have the banks concerned.

“Each bank varies, but 40 square metres can be a cut off for many,” Greville Pabst, head of property advisory WBP Property Group, says.

“Because they’re really small, therefore their marketability is challenged in the future and banks don’t like that. In the situation where they might have to take possession, they want to be able to get their money back.”

Bessie Hassan, money expert at finder.com.au, agrees: “The more attractive the property is to the market and the greater demand there is for that property type in the area, the more likely they will be to finance the property,” she says.

“Generally, the apartment needs to be at least 45 or 50 square metres, excluding the balcony and any car spaces, in order to qualify for a loan. If [you] want to invest in a studio apartment smaller than this, accessing finance may be difficult.”

Empower Wealth director Ben Kingsley says the minimum is about 40 square metres and also believed studio apartments — accommodation without separate sleeping quarters from the main living area — were on the hit list.

Size matters particularly for Melbourne buyers, given the Victorian state government recently decided to not to introduce minimum dwelling sizes.

But Jellis Craig chief executive Nick Dowling says banks generally won’t go below a 40-square-metre internal floor plan, even in Melbourne.

“That’s for standalone clients, if it’s mixed into a bigger portfolio, it’s not so much of an issue,” Mr Dowling said.

2. A student apartment or serviced apartment

Mr Pabst says the banks will view properties attached to a business element, such as student accommodation or serviced apartments, as more risky.

“Because in the event that the business has any financial problems, that impacts on the accommodation as well,” he says.

“So, for example, if the government changes their policy on migration or the number of students allowed in to the country, that’s something the banks don’t have control of, and then that will affect their security.”

Serviced apartments are often leased through a business operator, he says, which the banks also don’t have control over. Many commonly include furniture packages in the purchase price, which banks don’t like to lend on, he says.

3. A property in a ‘bad’ or ‘risky’ neighbourhood

A property within a high crime or high unemployment area, or ones that pose a greater credit risk, may raise a red flag to a lender, Ms Hassan says.

“For example, last year NAB identified postcodes where it will restrict loan-to-value ratios due to concerns that homeowners may default and due to limited sellability potential,” she says.

At the time NAB said certain postcodes, from inner-Sydney Glebe to Cabramatta in the south west of Sydney, were areas “where significant deterioration in credit risk has been observed”.

“Some individual banks do have overexposure to a particular areas,” Mr Dowling said. “They need ensure they have the right balance between owner occupier loans and investor loans in areas.”

Mr Kingsley added mining towns as a possible concern. “Exposure to one-industry economies and the subsequent economic shocks these towns do go through, leave banks exposed.”

4. Cookie-cutter apartments in oversupplied suburbs

“The main reason for nervousness on behalf of the banks is the ongoing increase in supply of apartments,” Dr Oliver says. “The banks are particularly wary of postcodes where there’s a lot of cranes and a lot of new supply coming down the pipeline.”

Those areas are mainly inner ring suburbs, he says. “Their concern there is buyers might find themselves vulnerable if the property market does eventually turn down.”

Buyers considering investing in apartments or units should first consider the scarcity of what they’re buying, according to Mr Pabst.

“With cookie-cutter apartments, there’s no scarcity, they’re homogenous and that’s why they don’t perform,” he said.

Mr Dowling said the issue was with bigger projects, not smaller suburban boutique projects, which were very healthy.

5. Properties with unusual titles

The property experts flagged stratum titles, company share titles and tenants in commons titles as presenting a risk to lenders, because they may take longer to sell later.

“Banks are certainly more wary and cautious of those forms of ownership,” Mr Pabst says. “Because quite often the bank won’t have first right of priority.”

6. Properties with structural issues

Ms Hassan says people should avoid buying properties sight unseen because they may not be able to vouch for its structural integrity.

“This could get you in hot water when it comes to getting approved for a loan,” she says. “If the property has structural or other issues, such as if it doesn’t comply with building code or if it contains asbestos, lenders may be hesitant about offering finance as this minimises the saleability of the asset.”

7. A property with geological issues

Mr Driscoll says that banks will increasingly look at certain geological risks with properties, such as those built on marshland or on the coast. For example, he said, Sydney’s northern beaches experienced damaging storms earlier this year that left properties in ruin.

“A bank [lending] there to someone with a 10 per cent deposit, who is buying a $2 million or $3 million property, will think, ‘geez, only a few months ago that place got absolutely decimated’,” he says. “Their lending criteria is built on risk assessments, so if there’s a history of [natural disasters], they’d have to factor that in.” What the banks said…

Domain contacted the four major banks — Commonwealth, ANZ, NAB and Westpac — as well as ME Bank.

A ME Bank spokeswoman says buyers looking at properties with commercial usage (for example, aged housing or serviced apartments) and apartments smaller than 40 square metres may be declined a home loan, however, sometimes lending policies could accommodate an exception.

“Banks need to ensure they can sell properties easily and at a similar value in the event a customer can no longer repay their loan,” the spokeswoman said.

A Commonwealth Bank spokesman says: “We constantly review and monitor our home loan portfolio to ensure we are maintaining our prudent lending standards and meeting our customers’ financial needs. We assess every home loan application on a case-by-case basis.”

A spokeswoman for NAB said: “As a responsible lender, we adopt a range of strategies that seek to reduce the risk to our customers and our business, and consider applications for lending based on a range of factors, including the value, type and use of a property, and local market conditions.”

We received no response from Westpac or the ANZ.

Posted by Kirsten Robb - Domain (The Age) on 12th October, 2016 | Comments | Trackbacks | Permalink
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Life-long renters face financial stress in retirement, new report says


If you do not own a home by the time you are in your late 40s, you will probably never own one — and you will probably be significantly poorer than those who do.

That is according to a paper released on Monday by Swinburne University, which found more Australians are renting in retirement and facing financial stress.

The study’s authors have called for the axing of the capital gains tax concession and the reinstatement of death duties, or a small inheritance tax, to reduce what they see as the widening wealth gap between homeowners and non-homeowners.

If you don’t own a property by about 49 years old, chances are you never will, new research says.

“Housing is a probably the key way of generating wealth, but people who are unable to purchase or fall out of home ownership will find that they don’t have as much wealth in retirement,” research author Andrea Sharam said.

The paper showed if you had not purchased property by mid life (45-49 years old), there was a strong likelihood you would not purchase thereafter.

Financial experts have previously advised “generation rent” — the growing cohort of young people priced out of the property market — would find it difficult to retire as wealthy as a property owner, largely because Australia’s retirement income system is predicated on owning a home outright in retirement.

Older Australians are increasingly renting in retirement and facing financial stress.

But the study, from Swinburne’s Institute for Social Research, shows an increasing number of older renters are already experiencing housing insecurity and impoverishment.

There are close to 426,000 Australians over the age of 50 years living alone or with a partner in private rentals, but population projections suggest there would be 832,319 by 2050.

“That will put a lot of pressure on the pension system and even more pressure on the rental market, which does not cater to older people on low incomes as it is,” said National Shelter executive officer Adrian Pisarski said.

It’s not just ‘Generation Rent’ that is facing housing stress in retirement.

For Leigh Evans, 41, purchasing a property has never been an option. She is currently house sitting in Coburg, in Melbourne’s north, but sees her housing future as insecure.

“I grew up poor, both my parents never owned a home when I was younger … so I never had that expectation,” the business analyst and author said.

Ms Evans said the research made her retirement situation appear bleak.

“I look forward to dying early,” she laughed. “It’s gallows humour but the situation is real — it’s homelessness.

“I think that it’s well beyond time that Australia stopped keeping alive this delusion that the quarter acre block dream still exists for many people.”

The study also showed that in the older age brackets, 65 to 69 year olds, the wealthiest segments were those who owned both their own home and other properties. Yet the net wealth of such owners slipped between 2003 and 2013, likely because they had taken on more debt relating to the leveraging of those other properties, Ms Sharam said.

Several policy recommendations have come out of the analysis, including increased investment in social housing, as well as tax policies that discouraged people buying property for capital gains.

“Because that’s just creating house price inflation, which makes it hard for people to enter into home ownership in the first place,” Ms Sharam said. “These people have been given a lot of public money in effect [from tax breaks], so its entirety reasonable that they could give some of it back at the point in time where it does not hurt them and their heris, and it goes into social housing.”

But the Victorian Property Council executive director Sally Capp said removing the capital gains concession would be counterproductive and would result in less investment in residential property construction.

While the council had no formal position on reintroducing death duties, Ms Capp said, the Victorian government did not need to introduce new taxes to fund its affordable housing ambitions.

Posted by Kirsten Robb - Domain (The Age) on 10th October, 2016 | Comments | Trackbacks | Permalink
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A functional floor plan key to getting a good price for a house


Every homeowner knows the driving factor that fuels real estate prices is location. But in today’s market a handy position near transport and amenities is no longer enough. A good floor plan is also essential if a property is to spark strong competition and achieve a high selling price.

Houses and apartments that have a functional floor plan – what architects call “good front-to-back flow” – are far more likely to achieve above-market sales results.

James Buyer Advocates’ Mal James says houses with convoluted floor plans that require major changes can struggle to pull in buyers and often sell at a discount. He warns against purchasing properties that have a “disconnect” between the living and kitchen areas and the bedrooms.

Houses and apartments that have a functional floor plan are far more likely to achieve above-market sales results.

So, what precisely is good flow? “It’s having a direct path from the front to the back of the home that is not interrupting other room spaces,” says architect and buyers’ advocate Adam Woledge. “You shouldn’t have to walk through these rooms to get to the rear of the property. Rooms need to coexist harmoniously.”

There are other golden rules. It is bad form (not to mention unhygienic) to have the bathroom coming off the kitchen. Bedrooms that open onto living spaces don’t work well, either.

Another no-no is for homeowners to be compelled to walk diagonally across the living room to reach the kitchen. Similarly, bathrooms, laundries, walk-in wardrobes and pantries shouldn’t enjoy the finest outlook to the garden or to the north light. And flats and units almost always do better in the market if they have an entrance hall or foyer.

People are okay with having a small back yard, but one thing they’re not compromising on is bedroom sizes.

Buyers are taking greater notice of floor plans. As families forget the big backyard and make trade-offs on block sizes to be close to the city and transport hubs, they are demanding space-smart living. It’s little wonder that when a property sits on real estate marketing websites for a long time, it is typically because the bedrooms are too small or there is some other flow issue.

Woledge, of Melbourne-based Woledge Hatt, urges house-buyers to go for wide hallways and to make sure they can walk to the informal areas without twisting and turning.

“The house should be well zoned: the bedrooms need to be in a logical position, not next to informal areas, and there should be no bathrooms off living spaces,” he says. “People are okay with having a small backyard, but one thing they’re not compromising on is bedroom sizes. Three-metre-by-three-metre rooms are seen as too small.”

Many would-be buyers also don’t consider how their furniture will fit.

“Sellers often put double beds in instead of queen-size beds, so it’s really important to step away from a floor plan and maybe take your own measurements and visualise the property with your own furniture.”

Posted by Chris Tolhurst - Domain (The Age) on 9th October, 2016 | Comments | Trackbacks | Permalink
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