Stalled market puts focus on 2011

coin-houseRP Data estimates that house prices climbed a moderate 6.4 per cent Australia-wide in the year to October 2010. Price increases fell notably after the start of 2010-11. David Airey, head of the Real Estate Institute of Australia, says agents are too cautious to be “quietly confident” given interest rate and economic concerns. Australian Property Monitors anticipates price growth of roughly three per cent in 2011.

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Tags: buying, news, property, real estate, research, selling

Posted in News, Research

RBA minutes show focus of Europe’s woes

Rate RiseThe latest decision on interest rates appears to have been influenced by ructions in Europe.

The minutes of the December 7 monetary policy meeting of the Reserve Bank of Australia (RBA), released on Tuesday, said the medium term outlook for the Australian economy had been “little changed from that at earlier meetings”.

But the RBA is not just concerned with the most likely outcome.

It is also concerned about the risks surrounding that outlook.

And this is where Europe came into consideration.

“Conditions in financial markets were dominated by the situation in Europe, which had deteriorated markedly,” the minutes began.

The minutes went on to detail Ireland’s recourse to support from the International Monetary Fund, its debt-driven residential and commercial property boom, and the “contagion” that had spread to other economies in Europe, unsettling financial markets in Portugal, Spain, Italy and Belgium.

Later in the minutes, at the very beginning of the final section titled “considerations for monetary policy”, Europe again took centre stage.

“Members noted that the deterioration in the situation in Europe over the past month had increased the downside risks to the global economy,” the minutes said.

The RBA’s board acknowledged that it was possible that conditions in Europe might “settle down.

But it also noted that the current problems could escalate.

“If this prompted a fresh retreat from risk-taking in global financial markets, it would probably have more impact on Australia than any trade effect,” the minutes said.

In other words, the disruption to financial markets would affect the Australian economy more than any future reduction in demand for Australia’s commodity exports.

Whether the RBA would have left the cash rate at 4.75 per cent, as it did, on December 7 in the absence of Europe’s troubles is not certain.

The minutes show the RBA took into account the outsized bank lending rate rises that followed the RBA’s cash rate rise (from 4.50 per cent) in November, as well as the high level of the Australian dollar.

Monetary policy conditions were judged by the board to be “mildly restrictive” and “appropriate”.

The RBA also appeared to be relaxed about demand pressures for the time being.

Restraint in household consumption on borrowing was potentially providing “some scope for investment to rise without causing aggregate demand to grow too quickly and inflationary pressures to build,” the minutes said.

Even so, if Europe continues to experience financial instability, then the RBA will continue to have a good reason to stay its hand and leaves rates on hold for at least a few months, which is the consensus in financial markets.

The minutes included no direct reference to its expectations for the interest rate outlook.

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Tags: banks, economy, finance, interest rates, mortgage, news, property, real estate

Holidays could be your big break

holiday-moneyChristmas offers a few new possibilities for struggling vendors, writes Carolyn Boyd.

If your house has been sitting on the market for a while and you are worried it won’t sell before Christmas, now is the time to take a good look at your strategy.

There’s been a late flood of properties on to the market this year – with 2197 vendors holding auctions this month, a record for December. It seems that price jumps in the past year inspired many people to sell but they took their time doing it.

Many vendors delayed their decision until after the federal election.

The high volumes are weighing on auction clearance rates, with just 49 per cent of properties put to market last Saturday selling on the day. That’s the weakest figure since the financial crisis created market jitters in mid-2008. Falling affordability, rising interest rates and nervousness over continuing economic problems abroad have also dampened demand for houses.

‘‘We’ve already seen over the last two or three months that the amount of stock on the market is mounting quite a bit, indicating that it’s definitely harder to sell,’’ says a senior analyst with RPData, Cameron Kusher.

If it is passed in, all is not lost

When their apartment failed to sell at auction on the Channel Nine TV show The Block, Brenton needed to let off steam and Cheryl declared they had just wasted the past six months of their lives.

But all was not lost and the sales action continued behind the scenes.

Just a week later, the Melburnians sold the top-floor Vaucluse unit for $970,000, $90,000 above the auction reserve price. On auction night it was passed in on a vendor bid of $865,000.

In clinching the after auction sale, the duo moved from looking like show losers to achieving the third-highest price. It’s not just in TV-land that deals are secured after the auctioneer has left the room; it’s a strategy that could work for you, too.

Story by Caroline Boyd, source:

Tags: investiung, marketing, money, property, real estate, selling

Pricey homes look set to continue

ratesAustralians might be wealthier, but they also appear to be paying over the odds for their homes.

New Bureau of Statistics’ data shows household net wealth has rebounded by eight per cent in the September quarter, or by three thousand dollars per person to 44 thousand dollars, due largely to a jump in share prices.

A new analysis also suggests a 120 per cent jump for anyone owning the same house for the past 20 years.

But the International Monetary Fund analysis has found Australian house prices are overvalued by as much as 10 per cent, although strong population growth and rising income will continue to underpin the housing market.

Tags: banks, economy, money, mortgage, property, real estate

Posted in News, Research

Strategies for the property plunge

plungeFour experts advise wanna be home owners on how and where to get a toe in the water, writes Mary Costello.

No-one really knows whether Australia’s property bubble will burst or just slowly deflate but with potentially better times ahead for buyers, maybe you’re considering investing in property. So where do you start?

We asked four experts for advice for a hypothetical novice investor who wants to get into residential property with a modest $70,000 in savings. What should our investor be aiming for and where and what should they buy?

We received a range of responses and whether you’re risk-averse, adventurous or patient, you should find an approach that suits you.

Michael Yardney of strategist Metropole has written several books on the subject, including How to Grow a Multi-Million Dollar Property Portfolio—in Your Spare Time. He says our investor has to get his foot into the market.

‘‘If you want to grow your portfolio, you must grow your asset base through capital growth or cash flow,’’ Mr Yardney says. ‘‘My strategy is high capital growth. For the past 18 months, we’ve had higher than average capital growth. That will now slow and interest rates will increase.”

Our investor should buy in the best location money will allow, which means they must compromise on something. I suggest they compromise on land size, not location.

Some areas always outperform others. It’s the law of supply and demand. It’s true that houses appreciate but not all land is the same. There’s no shortage of land in the outer suburbs.

‘‘I’d look for a high land-to-asset ratio—not new high-rise blocks but older properties where you can renovate and value add”

‘‘You can get a one-bedroom apartment in the low-$400,000s in Melbourne’s bayside area or the inner east, or a two-bedroom apartment a little further out”

‘‘In the past three years, apartments in these areas have had as much capital growth as houses because of the way we live now. People are giving up land size for amenity. There are more one and two-person households, so apartments still make great investments.”

‘‘I suggest our investor use $40,000 to $45,000 of their money to put down as a deposit and borrow the balance of their investment purchase, using a loan-to-value ratio [LVR] of 90 per cent.”

“They can do this by using lenders mortgage insurance [LMI] —a one-off premium that allows you to leverage money better. This would leave them with funds for the acquisition costs [usually 5.5 per cent of the property price], the cost of the LMI and a small financial buffer for contingencies like vacant periods and repairs.’’

Karin Mackay of Australian Property Buyers advises our investor to buy into suburbs with an average of 10 per cent capital growth over the past 10 years.

‘‘When we look at the growth Melbourne has experienced, the suburbs that haven’t [achieved] an average of 10 per cent per year for the past 10 years will probably never achieve an average of 10 per cent,’’ she says. ‘‘Capital growth grows the wealth, not the rental income”

‘‘An investor with a $70,000 deposit and an income of $60,000 with no debt, including rent, could possibly borrow up to $500,000. The type of properties I would buy would be apartments that you can add value to, or those close to the CBD, good public transport, lifestyle, shops and restaurants.”

‘‘Don’t eliminate apartments that are already renovated or properties that are only a few years old.”

‘‘Two years ago, we bought a new property for a client for $358,000. The developer had used the cheapest white paint—one bucket of paint to 10 buckets of water—and the cheapest carpet.”

“It also had a study that was larger than the bedroom; however, it was open-plan and flowed into the dining/ living area. It was rented until last month for $400 per week. We’ve had it repainted, laid bamboo floors and installed shoji Japanese screens —two fixed and two sliding—and we now have a second bedroom.”

‘‘We rented it in less than a day for $500 per week and we’re expecting the bank valuation to come in at $535,000 to $550,000. The total expenditure for the cosmetic makeover was $12,000. Not a bad investment.’’

Ms Mackay tips a number of areas for strong future growth, including Port Melbourne, Elwood, Yarraville, Seddon, Brunswick, Northcote, Thornbury, Fairfield, Alphington and  North “Melbourne.

‘‘I’d also look in Altona between the railway line and the water and in Mornington between the Nepean Highway and the water, where you may get a smallish house”

‘‘Some people like to buy houses for the land value. The old saying ‘land appreciates and buildings depreciate’ is quite true. However, in the inner suburbs, the land is so very scarce, they can’t construct many more apartments, so avoid areas where there’s still a lot of land left for development.

‘‘I completed a scenario for a prospective client. He wanted to buy two blocks of land and build two houses in Tarneit.”

‘‘The cost for both was $550,000. I suggested an apartment in Port Melbourne, as there was very little land to develop into apartments.”

‘‘If he went ahead with Tarneit, he would have gained approximately $251,339 in equity in 10 years. If in PortMelbourne and [in] an apartment, he would have gained $413,006 in equity in 10 years. Both scenarios would have the same rental return. Which one would you prefer?’’

Portfolio Management Services acquisitions manager Phillip Almeida recommends our investor consider properties in the $200,000 to $300,000 range.

‘‘Focus on established property with a land component rather than off-the-plan,’’ he says. ‘‘A mixture of capital growth and solid income is recommended. You need to have both.”

‘‘Always consider where the tenant demand is going to come from and what . . . will drive value over the long term.”

‘‘Look at properties that you can potentially add value to by conducting a minor cosmetic renovation but stay away from properties that require major structural renovations.”

‘‘A minimum capital amount of 20 per cent should be invested to minimise your mortgage insurance costs and have a slush fund of roughly $5000 on call for any unforeseen items.”

“An excellent relationship with an experienced property manager is essential. Don’t necessarily focus on the cheapest fee out there.’’

Mr Almeida says certain regional areas in Victoria offer good value. ‘‘Frankston has performed well for our client base and Geelong is the area we’re focusing on at present,’’ he says. ‘‘You need to be diligent in stock selection, though, and building and pest reports are essential.’’

David Morrell of Morrell and Koren Buyers Advocates takes a cautious approach, advising our investor to be patient. ‘‘Don’t spend your $70,000 initially because by the time you get your loan ratio happening, you won’t have enough to get something decent,’’ he says.

‘‘They might lend you 70 per cent, which means you’d only have about $350,000 to spend, so it’s better to keep saving. You’d be very limited in what you can buy—a one-bedroom apartment in the inner suburbs. It will go up a bit in value but it won’t go up as much as a house”

‘‘I suggest saving more money because the market’s not going to change fundamentally. There’s really no clear indication of the way the market’s going, except [buyer sentiment] is running out of steam.”

‘‘With $350,000, there’s not a lot of choice out there at the moment and the caution lights are flashing. If I had $70,000, I’d sit back and wait like a tiger in long grass . . . Buy now and it could be a case of ‘March remorse’. That advice might cost me clients but I can’t tell them to do it; it’s not a smart play.’’

Tags: investing, marketing, money, news, property, real estate

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