HOUSE PRICES RISE AND FALL ON SCHOOLS, PLANES, THE WEATHER AND EVEN MURDER

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As house prices start taking off again, especially in Australia's two biggest cities, many first-time buyers are wondering how they can break into the market.

But what if there are tricks to save tens, or even hundreds, of thousands of dollars on a home, without trading off size, location or quality?

Behavioural economics offers some hope to astute buyers who can exploit other people's unconscious biases to snap up homes at a discount.

On the other hand, it also offers clues to savvy sellers about how to maximise their return.

It turns out that, despite housing being the biggest single investment most people make in their lives, we generally aren't completely rational in our decision-making.

"We are just people, we don't have a finance background or any sort of mathematical background," says Adrian Lee, an associate professor from the School of Property and Real Estate at Deakin University.

Professor Lee describes the cumulative effect of this irrationality as "shocking".

"It does mean that you are susceptible to your behaviour and on aggregate this does mean that prices can become erratic," he tells .

So, what kind of seemingly irrational factors can affect how much people will pay for a house?

Sunny weather for sellers

Professor Lee's research shows even the weather on auction day can have a substantial effect.

"It's roughly in the thousands of dollars, the difference between a cloudy or sunny day or a very cold or a very hot day," he observes.

"So, it's not insubstantial."

To be precise, Professor Lee's paper shows a 1 per cent increase in prices on very sunny days when compared to overcast ones, which equals about $9,000 on a typical Sydney house.

Going to auction at all, rather than buying by private treaty, also tends to ramp up the price, especially when the property market is on the way up.

Professor Lee's work shows auction sale prices in Sydney were 6.9 per cent higher than private treaty sales, even after controlling for the fact that auctions are more commonly used to sell larger homes in more expensive neighbourhoods.

He says it's likely that he couldn't fully control for the fact that agents typically auction the more desirable properties, but there's still likely to be a "winner's curse" where people who buy at auction overpay.

"This pressure that you have on buying and there is no cooling-off period, it makes you vulnerable," he warns, offering this advice: "Don't have your feelings affect the auction, think of the price that you can afford and set that price."

Making a killing on your purchase

You obviously can't control the weather on auction day and if you make a private treaty offer before the auction there's no guarantee the vendors will accept it. So what other tricks are there to get a cheaper home?

Dr Anastasia Klimova from the Economics Discipline Group at UTS says crime can offer a buying opportunity.

While ongoing property crimes, especially visible ones like vandalism and graffiti, do lower prices that is because they also reduce the long-term amenity of living in an area.

But Dr Klimova's research shows a one-off serious crime, such as a murder, can have the same effect but for a limited time.

"The impact will be short-lived, for about one-year only, and we find that, overall, prices fall about 5 per cent within 0.2 miles from the murder house," she tells me.

Dr Klimova is currently working on a paper about the effect of new public housing on real estate values in the surrounding area, finding it has a similar "shock" value to prices.

"The idea came after an announcement by the ACT Government in March 2017 to build public housing in certain areas in Canberra, so that allowed us to have a quasi-experiment," she explains.

What they found was a 4.9 per cent decrease in prices over the following year in areas where the new public housing was to be built.

The effect was even larger in more affluent areas.

"We observed a fall in housing prices as much as 7 per cent, compared to poorer neighbourhoods where the decline was only 4 per cent," Dr Klimova says.

While the public housing will be there for a long time, Dr Klimova believes the sizeable price discount may only be temporary, as existing residents overestimate negative effects from their prospective public housing neighbours.

"That could be just a shock response from the public," she hypothesises.

Dr Klimova plans to revisit this research to see whether prices later recover after the initial shock and once the public housing has been in place for some time.

She expects the longer-term effect on home values will depend on the design of the public housing, with some overseas studies showing no negative effect.

"[It depends on] what type of public housing, how it is built ... do we have a concentration of public housing in one place," she says.

"Also, management of public housing is very important — so if it's managed well, if it doesn't create problems for people and to their lives, then the effect will be even positive."

Planes crash prices

There's also a lot of more rational, long-term factors affecting home prices that can be much more valuable to certain groups of buyers than others, creating an opportunity to save money.

"I know for a first home you've got to compromise on some stuff, right? Like plane noise, or rail noise or high density," prospective buyer Mason tells me after visiting an open home in the inner-Sydney suburb of Enmore.

His priority is convenience, so he is willing to consider trading off other features such as peace and quiet — a common trade-off in Sydney's inner-west, within a few kilometres of the airport and directly under the main flight paths.

Economic studies differ greatly on the estimated price effect of aircraft noise.

One QUT study commissioned by Brisbane Airport, perhaps unsurprisingly, found almost no effect.

However, an independent study of Melbourne's Essendon Airport found prices were about 10 per cent lower for properties within 1 kilometre of the end of the main runway compared to those a little further away and less affected by noise.

That more closely aligns to international studies, some of which have shown house price and rent discounts of as much 1 per cent per decibel of aircraft noise once a baseline threshold is crossed.

Educate yourself on school zones

If you like your tranquillity and that means you don't plan to have children — or if your children have already moved out — then you should consider school zones when looking at homes, particularly avoiding popular ones.

"A 5 per cent increase in school quality scores [as measured by NAPLAN testing] increased house prices by around about 1 per cent," says Daniel Melser, from Monash University's econometrics discipline.

But his study is based on data from Sydney, which has a lot of selective schools where entry is based on test scores not catchment area.

Real estate agent Daniel D'Assisi says, anecdotally, the effect is much larger in his part of Melbourne around Doncaster East — so much so that some developers deliberately target properties within top school catchments.

"If this home was only a couple of streets away, outside of the school zone, we would anticipate probably 30-40 per cent less inspections and inquiries, which in turn would result in probably a sale result somewhere between 5 and 10 per cent less," he says.

Of course, if you do have children, then buying into an area with quality public school could be an excellent investment.

"That's a one-off payment — you just pay that when you buy the house and move into a particular area," Mr Melser says.

"That's much, much less than the cost of sending a child to private school, which probably is in the order of $10,000 or $20,000 per year."

When you add it all together, prospective buyers could save tens, or even hundreds, of thousands of dollars by thinking carefully about attributes they don't value and avoiding them.

So, if you're struggling to afford a home, try negotiating a private treaty on a rainy, cold winter's day, for a house under the flightpath, in an unpopular school zone, next to a new public housing development, somewhere near a recent murder.

Or just keep renting.

(ABC News – Oct 19)

PROSPERA FINANCE — Geoff Norman

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FIRST-TIME HOME BUYERS TAP THEIR PARENTS FOR HELP WITH DEPOSIT

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Countless studies have shown the central role of home ownership in securing a comfortable retirement.

Owning your own home in later life is very important, not only because a retiree does not pay rent or make mortgage repayments but because of the family home's unique status regarding the tax and super systems.

Not only is capital gains tax not paid on the sale of a family home, it's not counted in the assets test for the age pension.

The government has launched a review of the retirement incomes system, but has explicitly ruled out any changes to the way that the family home is treated with respect to social security.

Ownership of the family home is likely to continue to be one of the best routes to securing a comfortable retirement for most people. Yet home ownership rates are falling.

Not only do more people retire with mortgage debt, but today's younger people are also more likely to rent for life than earlier generations.

For those thinking of getting into the property market, now may be best time in years. That's because prices in Sydney and Melbourne are still down about 10 per cent on what they were two years ago and, following recent cuts to interest rates, mortgages are cheaper to service than ever.

However, Sydney and Melbourne home prices are now rebounding faster than expected. The interest rate cuts have fuelled a rapid rise in prices over the past three months, with prices in both cities up by about 3.5 per cent.

Those still thinking of getting into the market risk prices getting away from them once again. Even though they are able to afford the mortgage repayments, often the obstacle is saving a deposit, which, for first-home buyers, is usually 20 per cent of the purchase price.

Research shows that almost 40 per cent of all recent first-home buyers relied on parental or family assistance, either as a loan or a gift, to either supplement their savings towards a deposit or by family members going guarantor for the mortgage.

The figures from the Genworth First Home Buyer Sentiment Report for September are based on a survey of 3000 prospective and recent first-home buyers by national researcher CoreData.

The report underlines how coming up with a deposit remains the biggest block to getting a foothold on the property ladder.

During the May federal election campaign, the Morrison government announced it would establish a scheme to help first-timers into the market with as little as 5 per cent deposit.

The proposed legislation has been introduced to Parliament, with an intended start date of January 1 next year.

Under the scheme, the government goes guarantor on the first-home buyers' loans.

However the scheme is limited in scope. It is designed to help only 10,000 first-home buyers a year and eligibility is restricted, likely limited to singles earning less than $125,000 a year and couples earning less than $200,000.

Restrictions would also apply to the value of properties that could be purchased under the scheme, with the caps varying by region.

The government will likely see how the scheme operates and, depending on how it goes, could expand it to more first-home buyers in future.

(SMH – Oct 19)

PROSPERA FINANCE — Geoff Norman

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DO BLUE-CHIP SUBURBS HAVE THE BEST PROPERTY PRICE GROWTH?

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Some of the best opportunities for property buyers over the past five years have been outside sought-after blue-chip suburbs, new research shows.

Although conventional wisdom suggests price growth is stronger in leafy, expensive neighbourhoods close to city centres, the property boom over recent years sent buyers flocking to the most affordable suburbs in some Australian cities.

In Melbourne, prices in the less expensive suburbs increased the most since 2014, research from Domain economist Trent Wiltshire found.

Sydney saw the most significant price rises in very cheap and very expensive neighbourhoods, with mixed results in the mid-tier price ranges.

But Perth and Adelaide saw affluent areas hold up better, underscoring the mixed performance of housing markets across Australia’s cities.

In Melbourne, the outer suburb of Melton South had a median house price of just $240,000 in 2014, but this soared 71 per cent over the following five years, the research found.

By contrast, exclusive Toorak’s median price was $2.56 million five years ago and is only 10 per cent higher now.

Affordability has played a part in Melbourne’s trend, Mr Wiltshire said.

“When prices have started to rise in the more expensive areas, people started to look to the outer suburbs for cheaper options,” he said.

But the five-year time frame also affected the result, missing the start of the price boom in 2012 but capturing the end of the bull run, when the top end started to fall while cheaper areas were still growing.

“It’s a unique feature in Melbourne, that the top end does move first,” he said.

“So, it’s captured that big downturn over the past two years in the top end, and it looks like the top end’s turned fastest over the past few months.

“Clearance rates are the highest in more expensive areas, and prices look to have jumped more.”

The trend might reverse in coming years if the top end continues to rebound strongly, leading to faster price growth among the top 20 per cent of Melbourne homes, he suggested.

In NSW, strong price rises were recorded at either end of the spectrum.

On the Central Coast, Budgewoi had a median house price of just $312,000 in 2014, but this jumped 60 per cent over the next five years.

In harbourfront Vaucluse, prices skyrocketed 77 per cent from the 2014 median of $3.39 million. But mid-tier suburbs saw mixed results.

The top end of the Sydney market is unique, Mr Wiltshire said.

“Median house prices are so high in Vaucluse and Mosman; it’s a separate market almost.”

Resources-affected Perth showed little signs of buyers clamouring for affordable suburbs, as prices dropped 14 per cent across the city over the past five years.

Cheaper locales on the city’s outskirts have been hard hit by job losses in the mining downturn, and have generally seen the largest price falls, he said.

More affluent areas held up better and beachside Cottesloe was an outlier with 26 per cent price growth from its 2014 median of $1.75 million.

“It’s very different to what’s going on in other states – it’s really the outer suburbs have been hit hard,” he said.

“And population growth has been very weak as well, so that means there’s not as much demand for new housing on the outskirts of the city.”

For potential buyers, Mr Wiltshire says it is not necessarily the case that blue-chip suburbs perform better over a short time frame.

“For someone looking to invest in property or an owner-occupier, property is a long-term investment, so price trends over five years aren’t necessarily that important for potential buyers,” he said.

(Domain – Sept 19)

PROSPERA FINANCE — Geoff Norman

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NATIONAL HOUSE PRICES BOUNCE AS CHEAP CASH FLOODS THE MARKET

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The resurgence of Australia's largest two property markets appears to be gathering strength, helping push national house prices higher.

Australian property prices rose for the first time since October 2017, lifting 0.8% in August, according to CoreLogic's latest figures.

“The significant lift in values over the month aligns with a consistent increase in auction clearance rates and a deeper pool of buyers at a time when the volume of stock advertised for sale remains low," CoreLogic research director Tim Lawless said in a note.

That was even higher in the cities, with values increasing a combined 1.% in August, lifting in five of the eight capitals. Sydney was the top performer lifting 1.6% in August, and nearly 2% across the quarter. Melbourne wasn't too far behind, with prices up 1.4% during the month.

Index Results.jpg

The only declines were seen in Adelaide - where previous falls have been relatively modest - and Darwin and Perth which have been consistent underperformers.

It comes after prices nationally fell by more than 5% for the year. Just as those declines were led by Sydney and Melbourne, the bounce is now being generated by those same two markets.

A flood of cheap money has helped pick prices off the ground, according to Lawless.

“It’s likely that buyer demand & confidence is responding to the positive effect of a stable federal government, as well as lower interest rates, tax cuts and a subtle easing in credit policy,” he said.

That's helped Sydney, Melbourne, and Hobart all notch three consecutive months of gains.

"While the ‘recovery trend’ is still early, it does appear that growth trends are gathering some pace, particularly in the largest capital cities," Lawless said.

“The rapid recovery across higher valued properties makes sense considering this sector of the market recorded a more substantial correction.”

While softening market conditions certainly hurt investors, there's a big upside for those looking to buy.

“Although values have fallen across the board over recent years, the larger declines amongst more expensive properties mean that they are relatively more affordable for those looking to upgrade,” Lawless said.

That could now be about to change, however.

Auction clearance rates - the percentage of successful auctions - recorded another blockbuster result.

While the preliminary figures are subject to some small consolidation, early numbers indicate 80% of Sydney and 76% of Melbourne auctions sold.

That will mark the seventh successive week of above 70% rates for both cities. Given that rates above 65% are associated with modest price growth, any increased affordability could soon be erased.

(Business Insider – Sept 19)

PROSPERA FINANCE — Geoff Norman

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SYDNEY’S MOMENT OF TRUTH

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In a decade, Sydney will be home to an extra 1.3 million people. How we accommodate them is causing angst in our suburbs and presents a huge challenge to government.

A dozen cranes branch into the sky where tenants Bri Voto and Jason Martin look out from their front porch. Their yard spills onto an empty block that touches James Ruse Drive, near where the highway crosses the Parramatta River. A plank forms a makeshift bridge over the railway at Camellia station behind them - Sydney’s least visited train station - and leads to their house, the lone residence among 320 hectares of industrial land.

If the house is still standing in 10 years, it will likely be among unrecognisable surroundings and 8000 people. A new Camellia town centre will eventually service 10,000 households and provide jobs for 5000, planning documents say. There will be a new primary school, light rail stop and two 40-storey towers, with more in Parramatta to the west and Olympic Park to the east.

Sydney's planners envisage its future as a metropolis of three cities, where everyone can reach jobs in the CBD, Parramatta or the western city in half an hour. The hope is that high-rise development will cluster around new transport links, themselves knitted together by a green grid of bike lanes and pathways.

But if planners are painting a rosy picture, demographers are more sceptical. Will we instead be restricted to poorly built shoeboxes, resenting hour-long traffic queues and our more stratified city?

“Whichever way you cut demographically - whether by money, age or cultural diversity - it’s leading to a more segregated city,” says Dr Somwrita Sarkar, a researcher from the University of Sydney’s urban housing lab.

Sydney’s population will be 5,878,238 by 2031, projections say, with half a million new dwellings needed by then.

"Six or seven million people is not really a very large number by world standards,” Dr Sarkar says. “But when we look at where people live, where people travel and how development is being coordinated, we’re creating this mismatch and imbalances in the system."

Our slowest growing areas will be among the fastest ageing, even though they're closest to the CBD and lucrative employment. The north-west and south-west will evolve fastest, places such as in Kellyville and Camden, when new housing springs up along transport corridors for young families and immigrant populations priced out of the inner city.

Of the near-1.3 million new people living in Sydney by 2030, two-thirds will settle west of Parramatta. But Transport for NSW predicts more new jobs will be created in the CBD than anywhere else.

“We need options which ensure we’re not segregating the city into rich areas and poor areas. A diversity of housing and financing options that encourage more mixing of people are most desirable, because then it’s intergenerational,” Dr Sarkar says.

Will we fill the ‘missing middle’?

Planning Minister Rob Stokes has warned Sydney will become divided both spatially and socially, unless its need for lower density attached housing is met. But a suburban revolt against Mr Stokes’ medium-density code casts doubt over this vision.

The president of the Planning Institute of Australia, Steve O’Connor, says Sydney’s attachment to the Australian dream means it is yet to take full advantage of medium-density solutions, such as villas and townhouses, in its middle rings.

The need for new housing types will be spurred by our ageing population. Canterbury-Bankstown, Blacktown and Parramatta will host the most residents over 60 in 2031, corresponding to population size.

However the areas home to the highest proportion of people over 60 will be Hunters Hill (35 per cent), Mosman (29 per cent) and Woollahra (22 per cent). These are also projected to have the highest levels of lone person households (30 per cent), compared to their proportion of family households.

“The suburban development, with a detached house on a block of land and nice backyard for the kids to kick the ball around, is only going to satisfy about a third of the population's needs in future,” Mr O’Connor says.

A successful transition will require political grit. Sydney’s increasing density has so far created conflict in established communities that don’t want densification in their neighbourhood. They might not have much choice.

“There’s a desire for smaller households, living closer to employment and commuting less,” Mr O’Connor says. “People with big backyards will take advantage of being able to accommodate another dwelling in the backyard. Where there are three houses there might be eight townhouses developed on the same area.

“Perhaps local residents won’t like it, but that’s the more sustainable way to proceed. ‘It’s always been this way and we want to keep it this way’ – I’m afraid that line of argument just isn’t founded.”

But pushback from both sides of the ‘missing middle’ debate means there’s no guarantee we’ll take this route: developers’ interest in high-density blocks and spot rezoning will be there in 2030 regardless of what planners see as sustainable.

Digital disruption and its limits

Technological disruption and the sharing economy will be “huge” factors shaping housing options in the next 10 years, Mr O’Connor says. Autonomous vehicles and car sharing could make parking stations redundant and free up swathes of inner city land.

“That can be re-allocated for other uses, and it could be affordable housing,” he says. But Dr Sarkar says peer-to-peer interaction opens opportunities for exploitation as well as efficiency. It’s happening today: in apartments around Sydney’s city, international students are paying hundreds per week to share a bedroom with more than four other people.

Gumtree and flatmates.com are enabling behaviours to respond to affordability stress faster than policy can. While the City of Sydney has attempted a crackdown, students can only afford to accept unsafe and unhygienic conditions.

“There would be 10 students living in a two-bedroom apartment, saying ‘our landlord doesn’t allow us to cook because even in the kitchen there are a couple of mattresses’,” Dr Sarkar says.

Such sharing is not restricted to the CBD. “Even in the Parramatta area it’s not uncommon for young professionals to arrive from a place like India and live two families in a two-bedroom apartment,” Dr Sarkar says. “And we’re not talking about 20-year-olds here, but people in their 30s.”

Who can afford to live in Sydney?

People on social housing waiting lists today might finally reach the top of the list by 2030. Sydney has a shortfall of 80,800 social housing dwellings and 55,300 affordable rental homes. By 2036 this is projected to blow out to 141,000 for social housing and 75,800 for affordable homes.

Mark Degotardi, CEO of the Community Housing Industry Association NSW, says the social housing waiting time in most local government areas is now a decade. “The notion you can wait for 10 years while you’re in that income stress is not realistic,” Mr Degotardi says.

While families were once the predominant group accessing social housing, the numbers of single occupant households and tenants over 55 have increased significantly.

Some changes are afoot: the state government’s Communities Plus redevelopments of housing in Telopea, Arncliffe, Waterloo and Ivanhoe, and new sites in Redfern and Villawood, will deliver thousands of new homes in the next 15-20 years better suited to tenants’ needs.

Creeping affordability stress warns of worse to come.

“Population growth is going to affect people throughout the housing spectrum,” Mr Degotardi says. "We’ve got housing stress for people who, 30 years ago, would have been well-off. Key workers – police, firies, teachers, nurses – aren’t able to live within proximity to where they’re needed."

Bri Voto, 21, moved to Sydney from the Gold Coast six months ago. She works at Rosehill racecourse and earns more money since moving, “but the extra I get each week is poured into overpriced rent, tolls and living expenses", she says.

"Sydney has the most beautiful landscapes and nearly has everything to offer. I wish I could say everything was right at your doorstep, but having to constantly travel makes it hard to settle."

Will she still be here in 2030? "It's a no-brainer really, if I found something affordable in Sydney I'd hope to stay. But I couldn't think of anything worse than trying to raise a child in a shoebox."

(SMH – 9 Sept 19)

PROSPERA FINANCE — Geoff Norman

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SYDNEY AND MELBOURNE HOUSE VALUES ROCKET ON LOWER RATES

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The Reserve Bank's back-to-back interest rate cuts have super-charged the Sydney and Melbourne property markets with house values in the nation's two largest cities surging in August.

The monthly CoreLogic report on the national property market showed house values in Sydney lifted by 1.5 per cent last month. Over the past three months, values have climbed by 1.6 per cent.

There is a similar situation in Melbourne where house values increased by 1.3 per cent in August to be 1.6 per cent higher over the past three months.

Unit values in the two cities also jumped. In Sydney they increased by 1.8 per cent to be 2.5 per cent higher over the quarter while in Melbourne they improved by 1.5 per cent in August to be 2.4 per cent better over the quarter.

CoreLogic's research director Tim Lawless said buyer demand and confidence was responsible for the lift in values as people took advantage of the RBA's recent interest rate cuts and the Morrison government's personal income tax reductions.

"While the recovery trend is still early, it does appear that growth trends are gathering some pace, particularly in the largest capital cities," he said.

While stronger over the past quarter, values in the two cities are still down over the year. House values in Sydney are off by 7.7 per cent since August last year while in Melbourne they are down by 8.7 per cent.

There was a solid lift of 1.1 per cent in Canberra house values over the month while in Hobart they increased by 0.8 per cent.

But elsewhere values were down. They dropped another 1.6 per cent in Darwin with total house values down by 11.1 per cent over the past year. They dropped by 0.6 per cent in Perth, by 0.3 per cent in Adelaide while they were flat in Brisbane.

Mr Lawless said expensive properties had the biggest increases in values, up by 1.9 per cent over the past three months. The most affordable properties, however, were down by 0.4 per cent.

"The rapid recovery across higher values properties makes sense considering the sector of the market recorded a more substantial correction," he said.

"Although values have fallen across the board over recent years, the larger declines amongst more expensive properties mean that they are relatively more affordable for those looking to upgrade."

Nationally, more than half of the 46 capital city sub-regions recorded higher values over the past quarter.

In Sydney, only the central coast was down in value while there were none in Melbourne.

But over the past year, values in Sydney's inner south-west are down by 11.3 per cent, the largest drop in the country, while Mandurah in WA (10.6 per cent), Ryde in Sydney (10.2 per cent) and Perth's south-east suburbs (10.3 per cent) have all recorded double digit declines.

The largest fall in Victoria has been across the Mornington Peninsula where values are off by 9.9 per cent.

(SMH – 2 Sept 19)

PROSPERA FINANCE — Geoff Norman

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AUSTRALIAN HOMES FLY AT AUCTIONS IN BOON FOR PRICES

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Australia's housing market seems to have come out of its doldrums with the hard-hit cities of Sydney and Melbourne set for their third months of gains as sales at auctions pick up remarkably.

An end to the long downturn could be a boon for Australia's struggling economy given the erosion of housing wealth has undermined consumer confidence and spending power.

It will also prove a blessing for the construction sector, which has seen a severe downturn in new home approvals, particularly for the once red-hot apartment sector.

Data from property consultant CoreLogic out on Monday showed home prices across the capital cities rose 0.7% in August so far, much stronger than July's 0.1% increase. The gains come after almost two years of relentless losses.

Values in both Sydney and Melbourne have so far risen 1% in August, a major turnaround. Prices in Sydney have been falling since mid-2017 and are still down 7.6% from a year ago.

The improvement in August reflects a revival in clearance rates at property auctions, a popular method of sale in Australia's major cities, with capital cities just shy of 80% last weekend.

Melbourne was host to 665 auctions last week, returning a preliminary clearance rate of 79.7% and marking the fifth consecutive week of above 70% clearance rate, CoreLogic data showed.

Sydney recorded a preliminary clearance rate of 84.7% across 500 auctions this week, the highest since February 2017.

"Historically such strength has been consistent with house price gains in the order of 15–20% year-on-year," economists at ANZ wrote in a note.

The pick up will be welcomed by the Reserve Bank of Australia (RBA), which cut interest rates in both June and July to an all-time low of 1% and has pledged to do more if needed.

Analysts generally expect auction volumes, which have remained subdued so far, to start picking up as the market heads into the spring-selling season.

However, most economists expect this upturn to be modest despite the recent surge in activity.

"This reflects our view that tighter credit conditions will act as a constraint," ANZ economists said. "But there is considerable uncertainty given that interest rates have never been this low."

While a strong housing market will likely boost Australia's A$1.9 trillion economy, the returning frothiness could pose a policy challenge for both the RBA and the country's banking regulator.

Reflecting these concerns at a meeting of global policymakers over the weekend, RBA Governor Philip Lowe said "monetary policy cannot deliver medium-term growth. We risk just pushing up asset prices."

(Reuters – Aug 19)

PROSPERA FINANCE — Geoff Norman

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SEA CHANGES DON'T ALWAYS ADD UP

sea-changes-dont-always-add-up-loan-mortgage-broker-sydney-prospera-finance

Buyer's agent Richard Wakelin outlines lessons learned from those quitting cities almost 20 years ago, inspired by the popular TV series.

SeaChange is back on TV and it’s given me a slight sense of trepidation. Although the show’s original run was a mere three years between 1998 and 2000, its impact on the imagination and ambition of the property-trading public lasted far longer.

The fictitious exploits of erstwhile citysider Laura Gibson in isolated Pearl Bay inspired many prospective downsizers. In the early-to-mid noughties, I would regularly sit across from couples contemplating trading in their suburban homes and lifestyles for a place beside the seaside or its tree-change equivalent.

In Barwon Heads, the location of the original Sea Change series, the median price jumped from just $116,250 in 1998 to $897,000 in 2018. That’s an average annual price growth of more than 10.5 per cent.

My unease stems from my memory of the somewhat sketchy planning I would encounter: professionals intending to leave well-paid roles in the city and dispose of quality town-based assets to take their chances in sleepy villages often several hours’ drive from the nearest capital.

Perhaps I worried too much. There’s evidence that some sea changers from 20 years ago did quite well financially. For instance, Barwon Heads on Melbourne’s Bellarine Peninsula was the shot location for the original SeaChange.

According to Domain Group, the median price jumped from just $116,250 in 1998 to $897,000 in 2018. That’s an average annual price growth of more than 10.5 per cent, superior to the performance of many city suburbs. It's especially impressive if you'd also traded down from a comparatively expensive suburb beforehand.

Commuting distance

Proponents of the sea-change approach could no doubt point to dozens of other waterfront regional locations around the country delivering similar results: say Noosa Heads and Burleigh Heads in Queensland or Avoca Beach in NSW.

But the hard data shows that these places were the exception rather than the rule. CoreLogic has been tracking annual changes in dwelling values for the combined capitals versus combined regional areas over several decades. Since the mid-90s there have only been two sustained periods when annual growth for the combined regionals has outshone the combined capitals. The first was the early noughties – when no doubt the SeaChange-inspired phenomenon was a factor – and the second occasion was the past two years.

The best-placed sea changers are those who were able to retain a wealth-generating asset in the city, such as a rental property.

Further, the regional places that did outperform tended not to be the far-flung and isolated nooks idealised by SeaChange’s Pearl Bay, a place literally cut off from the nearest metropolis because the bridge was always down. They aren’t a half-day drive from a capital city. Rather they tend to be within commuting distance of a capital city like Sydney or Melbourne, or major satellite town like Geelong or the Gold Coast.

Look at genuinely remote seaside towns like Eden in NSW, Warrnambool in Victoria and Hervey Bay in Queensland and the performance is far poorer, somewhere between 2 and 4 per cent average annual price growth over the last 10 years.

Of course, money isn’t everything and there are many sea changers at peace with the trade-off they've made. But I’ve also spoken to several long-time sea changers who would like to come back to the city – say to be closer to grandchildren or medical specialists – but now feel locked out.

Indeed, the best-placed sea changers are generally those who were able to retain a wealth-generating asset in the city, typically as a rental property.

 

So enjoy the new SeaChange: Paradise Reclaimed, but be careful of forming any romantic plans that burn your bridges to the city.

(AFR – 21 Aug)

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

THE IMPORTANCE OF DOING YOUR RESEARCH IN A GROWING LENDER MARKETPLACE

the-importance-of-doing-your-research-in-a-growing-lender-marketplace-loan-mortgage-broker-sydney-prospera-finance

A dramatic increase in the number of lenders has highlighted the need for greater research and consideration, or ‘due diligence’, when searching and applying for a loan.

The act of purchasing a property, commonly requiring the production of significant personal information, coupled with the commitment of large sums of money can be stressful.

And now, with a wide variety of new lenders entering the marketplace, confidently choosing a lender you are comfortable with can feel downright overwhelming.

Fortunately, there are steps you can take to help you make the right choice and reduce your risk of misfortune.

Trust your gut and be wary of behaviour or hints that may suggest something isn’t quite right

Your first step should be to speak to a mortgage broker who is a member of the Mortgage and Finance Association of Australia (MFAA).

The MFAA maintains high ethical standards for its brokers and ensures its members meet industry-leading educational criteria – they are the best-educated brokers in Australia.  MFAA member mortgage brokers will be able to educate you on the variety of reputable lenders available to you.

There are also a number of government-operated organisations and websites that provide tools and opportunities to help you to conduct due diligence checks.

The Australian Prudential Regulation Authority (APRA) is an independent authority that supervises deposit-taking banking institutions. After a bank is licensed by APRA it is subject to ongoing supervision to ensure it is managing risks and meeting regulatory requirements.  APRA-regulated banking institutions are licensed, so you can check the APRA site to see if a potential bank is licensed and adhering to APRA's requirements.

There are lenders out there who are reputable but aren't deposit-taking institutions or banks, and therefore don't need to be licensed and supervised by APRA. There are generally two types – private lenders or mortgage managers/white-label lenders. Private lenders are able to provide you credit and operate as a lender because they lend their own private money and they aren’t deposit-taking organisations (that is, you can’t deposit and save money with them). Mortgage managers and white-label lenders, on the other hand, offer credit and loans, such as mortgages, but do so on behalf of other financial institutions such as banks. Again, they don't take deposits.

Whilst private lenders and mortgage managers/white-label lenders don't need to be licensed by APRA, they do need to be licensed by the Australian Securities and Investment Commission (ASIC) and require an Australian Credit Licence (ACL) if they engage in lending regulated by the National Credit Code, which includes making loans to buy a residential property.

If you find that a potential home lender is not licensed by APRA, this should not be a concern provided that they hold an Australian Credit Licence. You can check this via ASIC’s search tool.

Also, all Australian companies must be registered with ASIC. Helpfully, the ASIC website has several registers that you can search for free, including the Organisations and Business Names register, which indexes Australian corporate and registered business names. It also includes some incorporated associations.

If the business is not a company (such as a sole trader, a joint venture or a partnership), it will need to be registered on ASIC’s Business Names Register.

Search the Organisations and Business Names register on the ASIC website or the Australian Government ABN Lookup website.

ASIC also hosts a search function for unlicensed companies. If a company is on this list, you should not deal with them.

Lenders that engage in home lending (as well as many other types of lending such as some short-term or ‘payday’ lending) must be a member of the Australian Financial Complaints Authority (AFCA), which provides access to a dispute resolution process if things do go bad.

They must also provide an Internal Dispute Resolution (IDR) service. Check the lender’s website and call and ask their representatives. If the entity you are considering dealing with is not an AFCA member, the MFAA recommends you seek appropriate legal and/or financial advice or steer clear of that particular entity, as AFCA membership is a statutory requirement for such lenders.

Finally, it is always advisable to deal only with a business that has publicly listed contact details. Be sure to call the number provided, to confirm its legitimacy and consult with your broker.

If there is anything you are unsure about, contact Geoff, your MFAA accredited broker.

PROSPERA FINANCE — Geoff Norman

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STATE BY STATE: A JULY UPDATE ON AUSTRALIA’S PROPERTY MARKETS

state-by-state-a-july-update-on-australias-property-markets-loan-mortgage-broker-sydney-prospera-finance

Our property markets are on the move.

In fact, almost everyone involved in property has noticed a marked change in consumer confidence, buyer enquiries and general interest.

Most property economists believe the worst of the housing downturn is over, with a stabilisation of the Sydney and Melbourne real estate markets, and property-price falls now levelling off elsewhere.

Melbourne and Sydney enjoy the strongest economic conditions in Australia, and despite being the two most unaffordable markets, are the only locations which so far to have shown green shoots.

Firstly, there was a strong rise in auction clearance rates in our two big capitals, and as of June, housing prices are up by 0.1% in Sydney and 0.2% in Melbourne.

Factors that led to this change in the market momentum include:

  • Increased confidence now that the Coalition has won the federal election;

  • The Australian Prudential Regulation Authority (APRA) easing the bank’s assessment criteria for new loans, which should commence in the next month;

  • Two interest rate cuts and the prospect of more to come;

  • Tax cuts are on the way, meaning more money in our pockets;

  • The best housing affordability nationally since 2016;

  • Positive messages in the media stoking consumer confidence; and

  • First-home buyers returning to the market encouraged by government incentives.

And this will only get better in the next few months, as APRA’s changes haven’t really worked their way through the system yet, many homeowners and investors aren’t yet enjoying the lower mortgage rates, and the tax cuts are yet to hit our hip pockets.

Source: Corelogic

Source: Corelogic

Source: Corelogic

Source: Corelogic

What’s ahead?

We’re at an interesting stage of our property cycle with signs we’re nearing the bottom.

While there may be a little more downside in our two capital city markets, it looks like the best time to buy counter-cyclically in Sydney and Melbourne for over a decade and to ride the Brisbane property cycle.

Canberra property should continue to perform well and Adelaide should hold its own, but it’s likely Hobart will now slowly move to the slump phase of its own property cycle and there is still more downside for Perth and Darwin.

Of course, property will remain a sound asset for long-term wealth creation. But now more than ever, correct asset selection will be critical, so only buy in areas where there are multiple long-term growth drivers, such as employment growth, population growth or major infrastructure changes.

Similarly, suburbs undergoing gentrification are likely to outperform.

PROSPERA FINANCE — Geoff Norman

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LOW RATES HERE TO STAY AND COULD GO LOWER, RBA CHIEF SAYS

low-rates-here-to-stay-and-could-go-lower-RBA-chief-says-loan-mortgage-broker-sydney-prospera-finance

The Reserve Bank has signalled it is open to cutting official interest rates even further while in effect committing itself to keep them at ultra-low levels for an extended period.

RBA governor Philip Lowe told the annual Anika Foundation address in Sydney on Thursday that although the economy's overall fundamentals remained strong, the RBA was prepared to produce faster growth by taking the official cash rate below its current level of 1 per cent.

Dr Lowe said the most recent back-to-back cuts in interest rates, a reduction in tax rates for millions of low- and middle-income earners, higher commodity prices and stabilisation in the housing market would all support the economy.

But if they failed to generate enough activity, the bank stood prepared to take rates lower.

"It remains to be seen if future growth in demand will be sufficient to put pressure on the economy's supply capacity and lift inflation in a reasonable timeframe," he said.

"It is certainly possible that this is the outcome. But if demand growth is not sufficient, the [RBA] board is prepared to provide additional support by easing monetary policy further."

Markets put the chance of a rate cut at the RBA board's next meeting on August 6 at just 20 per cent, but they fully expect the cash rate to be reduced to 0.75 per cent by its November meeting.

They also put the chance of the cash rate reaching 0.5 per cent at 50:50 by the middle of next year.

Dr Lowe used his address to reject some suggestions for the RBA to change its inflation target, which is currently 2 to 3 per cent. Its preferred measure of inflation, the trimmed mean, has not been within the target since early 2015.

Declaring the RBA was not made up of "inflation nutters", he said there would be dangers in either reducing the inflation target or actually increasing it.

"Some have argued that a lower inflation target would be a good idea given the ongoing low rates of inflation; that we should adjust our formulation of 2-3 per cent, on average, over time," he said.

"Lowering the target might have the short-run advantage of allowing us to say we have achieved our goal, but shifting the goalposts hardly seems a good way to build long-term credibility. Shifting the goal posts could also entrench a low inflation mindset."

Dr Lowe defended the bank's decision not to cut rates earlier. Until earlier this year, the bank had been laying the groundwork for a possible rate increase.

He said a surprising increase in the number of people in the workforce meant the overall unemployment rate had not fallen as expected. This had led to less pressure on wages and overall inflation.

"More demand for workers has been met with more labour supply. This has contributed to the subdued wage outcomes over recent times, which in turn has contributed to the low inflation outcomes," he said.

"The more flexible supply side means that employment growth can be stronger without fears of overheating."

Regardless of whether the RBA moved rates again this year, Dr Lowe told homeowners, workers and banks to expect interest rates to remain at record lows for the foreseeable future because the board remained committed to pushing up inflation back within the 2 to 3 per cent target range.

"Whether or not further monetary easing is needed, it is reasonable to expect an extended period of low interest rates," he said.

"On current projections, it will be some time before inflation is comfortably back within the target range."

The consumer price index grew by just 1.3 per cent in the three months to March.

"It is highly unlikely that we will be contemplating higher interest rates until we are confident that inflation will return to around the midpoint of the target range."

(SMH – 25 July 19)

PROSPERA FINANCE — Geoff Norman

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BUYING A HOUSE MIGHT SEEM IMPOSSIBLE FOR SOME. BUT THIS YOUNG WOMAN DID IT BY RENTVESTING

buying-a-house-might-seem-impossible-for-some-but-this-young-woman-did-it-by-reinvesting-loan-mortgage-broker-sydney-prospera-finance

Have you been renting for years, feeling like buying a property is getting further and further out of reach?

Despite the recent dip in property prices, the median price in Sydney is still over a million dollars and in Melbourne, about $810,000.

But what if there was another way? For a growing number of Australians, rentvesting allows them to experience the best of both worlds — renting where they want to live and buying an investment property where they can afford.

As part of the ABC's personal finance project, we've taken a look at what it takes to be a rentvestor.

Buying a house can seem impossible when you're single

Cayla Owins loves living in Melbourne, but couldn't afford to buy there.

So instead, the 33-year-old spent five years saving up about $35,000 for a house deposit and used it to buy an investment property in Bendigo, in regional Victoria.

She bought the house for $355,000 in 2014 and since then has continued to rent an apartment in the eastern suburbs.

"For me, working as a professional, Melbourne was where I needed to grow professionally, and personally [and affordability] was in Bendigo."

And Ms Owins has done it all on her own — with no help from her parents.

"I'm still single and have no other interested parties in my property," she said.  "I saved for a deposit by myself."

Ms Owins saved slowly, cutting down expenses and using a high-interest bank account.

"I've never gone without treating myself either," she said.  "If a friend said, 'do you want to go out for dinner to celebrate a birthday' or something, I would never be knocking back an opportunity either.  "It just meant I wasn't going around splashing money where it wasn't needed, so I chose what I spent my money on and spent it wisely."

She says her dream would be to have her own place, but for the moment she's happy.

"I enjoy this suburb and if it means I have to rent, that's what you do," she said.

She chose Bendigo because she knew the area, having grown up there.  "It has good infrastructure, good public transport and so forth," she said.

Despite it taking two months to find tenants for the property, Ms Owins says she's been lucky enough to find people willing to rent long-term.

In the five years she's owned the place, she's only had two sets of tenants.   "The fear is always there — 'what happens if I lose my job or can't meet the repayments,' but I haven't had to face that day yet," she said.  "The tenant's rental payments meet a fair amount of the mortgage repayments and I just top it up.  "I focus on the payment first and I pay it in reverse, I pay off my mortgage and her rent comes in to subsidise my income."

Ms Owins is paying both principal and interest on her loan, and one day she hopes to use the equity in the property to buy her own place, and ideally have a rental portfolio which would act as her nest-egg for retirement.

"I can build from here," she said.  "My dream has started."

Rentvesting is a growing trend

According to ABS figures, around 340,000 Australians are rentvestors, or up to 15 per cent of all private tenant households.

Many are young people, who are using this strategy to get a foothold in the property market, University of NSW Professor Hal Pawson said.

Professor Pawson, who has studied the phenomenon, says rentvesting also gives people access to generous tax concessions that are only available to investors.  That includes negative gearing and the ability to offset taxable income with expenses.

"Rentvesting is attractive largely because it provides access to the tax advantages of residential property ownership and the scope to share in wealth gains from generally rising property values, even if the area where you want to live for work and lifestyle reasons is a place affordable to live in only as a tenant," he said.

Rentvestors might also be pushing others off the property ladder

But despite the success stories, underlying the rentvesting trend are some worrying economic factors.  It appears more people are being locked out of home ownership, with the number of people in long-term private renting (for longer than 10 years) doubling since the 1990s as property prices soared, particularly in the big cities.

And income hasn't kept up, with property costing around seven times the average salary, Thalia Stanley Group founder Marion Mays says.

"The economics of home buying is now a failed formula," she said.  "The cost of living and wage growth are out of balance with housing prices.  "But also culturally we are seeing a trend amongst Gen Y and millennials where they want fluidity and flexibility of lifestyle.  "They don't want to buy a house and be stuck in it for 20 years — with the advancement of technology we can work anywhere."

Dr Nicole Gurran, a housing expert from the University of Sydney, says investing in property is "part of the national psyche".  But she warns people that investing in property hoping it will help them build wealth can be part of the problem.

Dr Gurran says rentvestors tend to purchase in lower-value markets, which increases prices in those areas and pushes someone else off the property ladder.  "It's a symptom of a sick housing system," she said.  "If you're buying somewhere cheaper, you'll be competing with people who really want to live there … so someone further down the housing system will miss out."

'We didn't want to miss out on the Australian dream'

Sydney couple Vibhav and Shivani Sharma are among the growing number of Aussies rentvesting.

The Sharmas, who are in their late 30s/early 40s, moved to Australia from India a decade ago and work in IT support services.

They rent in Sydney's north-western suburbs and own — wait for it — eight investment properties across Australia.  They bought the first property in Mango Hill in the outskirts of Brisbane just five years ago, for about $360,000.

"The Sydney market in 2014 was completely overheated," Mr Sharma said.  "But we didn't want to miss out on the Australian dream so we thought maybe we could buy something which comes into our price range somewhere else.  "From that time onwards, we've never looked back.  "We've averaged out [buying] at least two properties each year and now our price range is going a bit higher too."

The couple, who have a young daughter, now own three properties in Queensland, three in Victoria and two in New South Wales.  They have saved up for each new deposit, except for one, where they refinanced the other properties.  The properties are all positively geared, which means the rent covers the interest and other expenses.

But they warn it takes some serious planning.

"I maintain a crazy excel spreadsheet — I do it 'to a T,'" Mr Sharma said.  '"Even if I'm spending $99 for an annual smoke alarm check, it will be on my spreadsheet."  All the properties are on the outskirts of cities that the couple hope will become growth areas.  "We look for semi-metropolitan areas with good potential," Mr Sharma explained.  "Either on the virtue of some infrastructure project the Government is investing in, or some big hospitals, or other investments that are coming that will eventually drive growth and drive the demand for housing."

For the Sharmas, it all comes down to affordability and flexibility.

"I like to move houses every 3-4 years, get a fresh house, new surroundings, get to know the place, local coffee shops and all those things," Ms Sharma said.  "I don't like to anchor at this stage in time, thankfully age is on our side.  "I still want to check out a few suburbs before we circle in on a suburb, which we would like to finally settle — we haven't reached that point yet."  But there are still risks with buying property

Ms Mays also warns investment properties don't always make money and investors have to be careful about how much debt they take on.  "If they're geared at 90 per cent, all that has to happen is tenant vacancy rates increase, or interest rates lift, or there's a change in legislation — they're exposed," she said.

Mr Sharma says what helps him sleep in peace is that "if one of us does not have a stable income, these properties don't need us to support them".  They are also paying principal and interest on all their loans.  "Unless there is a huge disruption of something at a macro level, where interest rates change very significantly — that would be a major risk for us," he said.  With eight properties, the Sharmas are heavily exposed to the property market, although they say they have small investments in shares and bitcoin. 

And they're not worried about the possibility of paying capital gains tax either.  In fact, despite already owning eight properties, they plan to buy another seven houses in the next three or four years to take their portfolio to 15.  "I won't say it's become an addiction but it's fair to say we're bordering it," Mr Sharma said.  "Then in about 1-15 years we might look at selling a couple of them.  "We'd use that equity to knock off and refinance a place for ourselves, which could be a very humble apartment."  So what else should you consider?

If you're thinking about rentvesting, you should ask yourself the following questions:

  • Are you looking in the right area? Is it "up and coming" or established?

  • Find out vacancy rates in the area: will it be easy to rent out?

  • Can you afford to cover loan repayments if you can't find a tenant or if there are maintenance costs?

  • Be careful: investor loans generally have a higher interest rate than owner-occupier

  • There could be tax implications: there are tax deductions, but you may also pay capital gains tax when you sell

  • The first home owners grant may not apply

This article contains general information only. It should not be relied on as finance advice. You should obtain specific, independent advice in relation to your particular circumstances and issues.

(ABC News)

PROSPERA FINANCE — Geoff Norman

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INVESTORS FEELING POSITIVE ABOUT THE PROPERTY MARKET

investors-feeling-positive-about-the-property-market-loan-mortgage-broker-sydney-prospera-finance

The results of a new survey have revealed what property investors are most concerned about in the current market but also found that they feel more positive than other property owners.

According to the latest edition of ME’s Quarterly Property Sentiment Report, perceptions of the market is mixed. A slim majority feel neutral towards the market (37 per cent), while more than a third feel positive (35 per cent) and 28 per cent feel negative.

However, investors feel more positive than owner-occupiers or first home buyers, at 44 per cent of respondents.

According to ME’s general manager of home loans, Andrew Bartolo, the positivity in investors and younger age brackets shows the sentiment that price declines provide a good opportunity to purchase property.

Property investors are also optimistic about property prices. More investors expect the value of their property to rise over the next 12 months more than those who think they will hold steady or decline; 32 per cent are expecting a rise, as opposed to 30 per cent expecting declines and 30 per cent not expecting any movement.

Overall, property owners in metropolitan Tasmania are expecting value rises the most at 50 per cent, followed by those in metropolitan NT (40 per cent), and then metropolitan South Australia and Queensland, both at 36 per cent.

“Enduring positivity about price expectations is possibly linked to Australians’ long-held belief that property prices will always go up,” Mr Bartolo said.

“Sentiment has also likely improved since we conducted the survey, given negative gearing now seems to be off the table and APRA has proposed changes to home loan serviceability.”

Given that a large proportion expect prices to rise in the next 12 months, 58 per cent of respondents plan to sell their property, while 34 per cent plan to buy property.

For investors, 44 per cent plan to buy property and 23 per cent plan to sell. Two-fifths (39 per cent) said they do not plan to buy or sell.

The largest property fears

First home buyers are most concerned with housing affordability (94 per cent), followed by owner-occupiers (87 per cent). Investors are least concerned, at 83 per cent.

Affordability was a greater concern for investors than many other issues, such as: switching from interest-only loans to principal and interest loans (at 74 per cent), the value of their property declining (64 per cent), declining property prices resulting in owing more on a property (53 per cent), and tighter credit policies making refinancing more difficult (53 per cent).

“People often forget house prices doubled in recent years, so falls of 10-15 per cent won’t do much to improve affordability over the long term,” Mr Bartolo said.

“Concerns about credit may change given the recent APRA announcement on serviceability.”

Meanwhile, 59 per cent of investors were happy that property prices were declining, which could make property purchases a more appealing option.

“Cooling property prices present new opportunities for those trying to get into the market,” Mr Bartolo said.

“If you’re planning to buy, it’s important to think long-term and always buy affordable.”

“Consider whether you can comfortably repay your mortgage over the long term regardless of changes to interest rates, your lifestyle, and without having to rely on less dependable sources of income like rent and bonuses.”

(Smart Property Investment – June 19)

PROSPERA FINANCE — Geoff Norman

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HOME LOAN BORROWING CAPACITY TO BE BOOSTED AS APRA SCRAPS RULE

home-loan-borrowing-capacity-to-be-boosted-as-apra-scraps-rule-loan-mortgage-broker-sydney-prospera-finance

A key constraint on borrowing limits that was put in place during the property boom has been removed by the banking regulator. It's another move that may stimulate the soggy mortgage market.

The changes could allow a household on an average income to borrow up to $77,000 extra from a bank, while an average full-time worker could borrow up to $66,000 more, figures from comparison website RateCity suggest.

The Australian Prudential Regulation Authority (APRA) on Friday confirmed it would scrap a rule introduced in late 2014, which had meant new mortgage customers were assessed on their ability to manage repayments with 7.25 per cent interest rates.

APRA said that instead of that interest rate "floor," it would require banks to test if customers could manage repayments with rates at least 2.5 percentage points above a loan's current rate.

The decision, which is effective immediately, is in line with APRA's proposed changes flagged in May.

With many mortgages currently attracting interest rates of about 3.5 per cent, the change is likely to mean banks will need to test whether borrowers can afford their loan at a rate of about 6 per cent, instead of 7.25 per cent. As a result, a customer's borrowing capacity could increase by about 10 per cent or more, analysts have estimated.

RateCity estimated that if a bank used an assessment rate of 6 per cent instead of the current 7.25 per cent, a family of four with an average household income of $109,688 would see their borrowing capacity rise by $77,000.

This would lift the maximum loan available to this hypothetical household to $636,000, though banks say most people do not borrow as much as a bank will lend them.

Someone earning the average full-time wage of $83,455 could see their borrowing capacity rise by $66,0000, to $544,000, it said.

“APRA has eased off the brakes slightly, but that doesn’t mean it will be a complete field day for borrowers. There are still a number of checks and balances in place to make sure people aren’t jumping into home loans they can’t afford to repay," RateCity research director Sally Tindall said.

The Commonwealth Bank, Westpac, ANZ Bank and National Australia Bank all welcomed the change and indicated they would be reviewing the rates they use to assess borrowers.

A NAB spokeswoman said: "Now is the right time to change the approach to how the affordability rate floor is determined, given the continuing low interest rate environment." An ANZ spokesman said the change was "sensible," and would give more people the opportunity to buy a home or refinance.

The prospect of the rule change is seen by experts as one of the reasons behind the recent increase in confidence towards the property market, which has led to early signs of stabilisation in Sydney and Melbourne house prices. The election result and the back-to-back interest rate cuts have also buoyed sentiment towards housing.

APRA chairman Wayne Byres said the previous interest rate "floor" was higher than needed, while also noting that the policy had been complicated by the fact that banks charge so many different interest rates, according to the type of loan.

“In the prevailing environment, a serviceability floor of more than seven per cent is higher than necessary for ADIs [authorised deposit-taking institutions] to maintain sound lending standards," Mr Byres said.

Mr Byres said the changes were not intended as a signal that the regulator would be putting less emphasis on sound lending standards by banks.

(SMH – 6 Jul 19)

PROSPERA FINANCE — Geoff Norman

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SYDNEY AND MELBOURNE PROPERTY VALUES LIFT FOR FIRST TIME SINCE 2017

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Property values across Sydney and Melbourne have lifted for the first time since 2017 amid signs the re-election of the Morrison government and cuts to official interest rates have boosted confidence in the housing sector.

But the turnaround in the nation's two largest property markets has yet to spread to the rest of the country with the CoreLogic measure of values showing sharp falls in Brisbane, Adelaide, Perth and Canberra.

Nationally, property values dipped by 0.2 per cent in June to be down by 1 per cent over the past quarter and by 6.9 per cent over the past year.

In Sydney, values lifted by 0.1 per cent, the first increase since June 2017.

The lift was driven by the apartments' sector with the value of units across Sydney up by 0.3 per cent through the month. Values of houses were flat.

In Melbourne, values lifted by 0.2 per cent with houses up by 0.1 per cent while apartments jumped by 0.5 per cent.

Despite the improvements, both Sydney (minus 9.2 per cent) and Melbourne (minus 11.8 per cent) are still well down over the past 12 months.

Elsewhere, house values fell in Brisbane (0.5 per cent), Adelaide (0.5 per cent), Perth (0.7 per cent), Darwin (1.7 per cent) and Canberra (0.9 per cent).

CoreLogic's Tim Lawless said several factors, including continued strong population growth in Sydney and Melbourne, were contributing to the stabilisation of the property market.

"Stability within the federal government, along with the removal of uncertainty surrounding changes to negative gearing and capital gains tax discounts, has brought about increased certainty and boosted confidence in the housing market," he said.

"Aided by the housing downturn, we have also seen an improvement around housing affordability, although dwelling values remain high relative to household incomes in Sydney and Melbourne; add to this lower mortgage rates and the high likelihood that interest rate serviceability tests are set to improve."

While Sydney and Melbourne overall were up, CoreLogic reported differences between key parts of the two markets.

Melbourne's inner east experienced a 2.7 per cent lift through the quarter while Sydney's inner city and inner south both lifted by 1.3 per cent.

Mr Lawless said it was the top end of the two markets holding up prices.

Values in the bottom quarter of the Sydney market dropped by 1.7 per cent over the quarter compared to a 1 per cent fall in the top quarter. Melbourne's top quarter fell by 0.1 per cent over the same period compared to a 0.6 per cent drop in the bottom quarter.

"Potentially, we are seeing the first signs that the top end of Sydney and Melbourne's housing markets are leading the recovery trend," he said.

The figures come ahead of the Reserve Bank of Australia's July board meeting on Tuesday with markets putting the chance of an interest rate cut at 70 per cent.

Such a cut would take the official cash rate down to a fresh record low of 1 per cent.

PROSPERA FINANCE — Geoff Norman

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HOW MUCH WILL YOUR HOME BE WORTH NEXT YEAR?

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After almost two years of doom and gloom, there is finally light at the end of the tunnel for Sydney homeowners.

Domain’s Property Forecast, predicts house prices across the city are expected to bounce back by up to 5 percent next year.

With the median price likely to remain just above $1 million, that equates to an extra $50,000 in the value of a family home in 2020.

The apartment market is also expected to recover, lifting by up to 4 percent next year.

In the meantime, prices in the Harbour city will bottom out this spring according to Domain – traditionally peak time for auctions – and will pick up by 2 percent over the next six months.

The eastern suburbs, northern beaches and north-west are showing the strongest signs of a recovery, economist Trent Wiltshire has predicted.

With auction clearance rates now at their highest levels since the beginning of last year, open inspection attendance and market sentiment are improving.

Monthly data from Core Logic also shows prices are stabilising.

Lower interest rates, no changes to negative gearing following the Coalition’s election victory and the loosening of bank lending rules are expected to further boost market confidence.

Sydney’s market is forecast to have among the quickest capital city recoveries, along with Canberra and Brisbane.

Domain cites strong population growth, continuing low unemployment and fewer apartments hitting the market as driving price growth in Sydney over the next 18 months.

Tempering this increase, however, is the ongoing problem of housing affordability in Sydney despite the city having undergone the biggest correction in house prices since the 1980s.

At a national level, Domain expects price falls in most capital cities to come to an end by Christmas before modest growth kicks in next year.

PROSPERA FINANCE — Geoff Norman

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WHAT ARE LENDERS DOING FOLLOWING THE JUNE RBA RATE CUT?

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Home loan lenders have continued to cut rates following the RBA rate cut announcement on 4 June 2019.

The big four banks all cut within a few hours following the decision for the RBA to cut rates to 1.25%, the lowest in history and the first time they've moved since August 2016.

ING, Bank of Queensland, Virgin Money, Qudos Bank and Newcastle Permanent have moved their variable interest rates since the last RateCity.com.au update.

ING, the nation’s fifth largest home loan lender chose to pass the full 0.25 per cent cut on to their variable rate customers, effective 25 June 2019.

BOQ is only passing 0.15 per cent on to their most popular product, the Clear Path variable rate package, while all other variable rate loans will be cut by the full 0.25 per cent.

Virgin Money is passing on 0.22 per cent to their variable rate customer.

Popular banks still yet to announce their intentions include BankWest, Bendigo Bank, Adelaide Bank, ME Bank, HSBC and AMP.

Lenders Table.jpg

The first to cut was Athena, a small Sydney-based non-bank lender who only entered the market this year. They cut their rates by the full 25 basis points within 15 minutes of the RBA decision.

The online lender announced a new headline variable rate for owner-occupiers at 3.34 percent.

The first big four bank to cut was the ANZ, just nine minutes after the RBA's announcement, however they've been outed by Treasurer Josh Frydenberg because they only cut 18 basis points, as opposed to the 25 basis points the RBA cut by.

“I think the ANZ has let down its customers,” Frydenberg said.

Commonwealth Bank were next, announcing their 25 basis point cut at around 3.30pm. 

Effective from June 25, CBA's standard variable rate will drop by 0.25%.

NAB joined CBA with a full 25 basis point cut for their standard variable rate which will be the lowest rate they have offered in four decades.

Westpac were the last to cut, only passing on a 20 basis point cut.

TERM DEPOSITS

We saw a huge flurry of cuts to term deposits in the lead up to Tuesday’s RBA rate announcement, as banks moved to price the expected cut in. Over 50 banks have cut term deposit rates in the past two months.

This week, the term deposit rate cuts continue to come in, particularly from Westpac and ANZ. A stocktake of the big 4 banks below:

  • ANZ – ANZ has cut almost 20 term deposit rates and has hiked just a couple since Tuesday. The biggest cut on our database is 0.60 per cent;

  • Westpac – Westpac has also changed a range of term deposit rates since the beginning of the week, cutting by up to 0.50 per cent and increasing one by 0.25 per cent. Westpac’s at-call deposits remain under review;

  • CBA – no change to date;

  • NAB – no change to date.

RateCity.com.au’s research director Sally Tindall said Tuesday’s rate announcement was like rubbing salt into a wound for savers.

“It’s been a tough slog for savers over the last three years, and while a range of factors influence deposit rates, we’re expecting them to sink even further," Tindall said.

“It is especially frustrating to see ANZ and Westpac hold back part of a home loan rate cut with one hand and slash some of their deposit rates with the other.

“It does still pay to shop around. Right now, you can find term deposit and savings rates that offer up to around 3 per cent, however, these rates are unlikely to last for long,” she said.

(Property Observer - June 19)

Contact Geoff regarding any of your lending needs.

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

IS ONE PHONE CALL REALLY ALL IT TAKES TO SECURE A LOWER INTEREST RATE?

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With official interest rates trending downward, shrewd mortgage holders may take the opportunity to call their lender to ask for a better deal.

But when even a small interest rate reduction means potential savings of thousands of dollars, is a simple phone call really enough to get you there?

In 2019, ‘your interest rate should have a three in front of it’, is common advice for home owners considering the competitiveness of their loan settings.

But while a number of lenders offer lower rates to new customers, it’s not always so simple for existing customers to secure the same outcome.

A leading mortgage and finance broker says that if people want a better deal on their mortgage, there are basically two options:

  • Call your bank and ask them to match the new rate, or

  • Contact your broker and vote with your feet.

And although the first option is commonly recommended, lenders aren’t always so obliging when it comes to rate-matching to get you a more affordable mortgage.

“As an existing client, it can be disheartening to see your bank offer new customers a lower rate to the one you currently have.

“Lenders regularly try to ‘win’ new customers by offering low rates. It is a great acquisition strategy.

“But if they refuse to match your current rate to this new offer, you can always contact a broker and refinance with a lender who is hungry to win your business.”

Mortgage brokers, on average, have access to a panel of 34 lenders and this creates competition amongst lenders.  Mortgage brokers are also in a position to offer you a more in-depth and customised level of service.  This can allow them to find their customers a mortgage product that may suit their current needs, wants and circumstances.

So speak to an expert now. Call Geoff, a MFAA Approved finance broker, who can help you get a competitive rate on your home or investment loan.

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE

 

THREE MUST-KNOWS FOR PROPERTY INVESTORS TO PREPARE FOR END OF FINANCIAL YEAR

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Crunch time has come for property investors with June 30 fast approaching. If you are a property investor, you will know what a hectic time end of financial year (EOFY) can be. However, with a little forward planning, you will be well on your way to a smooth tax lodgement come EOFY.

Read on for the biggest must-knows for property investors this tax season, helping you stay out of trouble with the ATO and minimising your tax bill while maximising your long-term savings.

Must-know #1 - Records you should keep 

From 1 July until 31 October, you will need to lodge your tax return for the previous income year. If you’re using a registered tax agent, you may be able to lodge later than 31 October. Whether you prepare your tax return yourself or use a tax agent, you need to have on record up-to-date correspondence, income and bills related to your investment property over the period you own it. This includes rental income, deductible expenses and documents relating to ownership of the property, including all purchasing and selling costs.

It is important to note that documents pertaining to rental income and deductibles need to be kept for five years from 31 October or five years from when the tax return is lodged, if after 31 October. Any documents relating to property ownership need to be kept for five years from the date you sell your investment.

If you have a property manager, they will likely provide you with an EOFY summary. If you misplace a receipt or invoice, the ATO allows you to substantiate your claims with a bank statement. Having these documents handy, whether in a physical or digital file, throughout the year means it will be easier to make accurate calculations come tax time.

Must-know #2 - Not all accountants are created equal

According to the ATO, one of the common mistakes that investors make is choosing an accountant with limited property experience, as this experience is often invaluable come tax time. What deductions property investors are allowed are subject to change, and if you don’t have an accountant who understands property, you could be in for a shock. For instance, a landlord is no longer able to claim travel deductions for inspecting, maintaining and collecting rent.

Before settling on an accountant, take the time to find out what their experience or level of expertise is. Ask different accountants questions about property investing and gauge if their responses are thorough enough.

Must-know #3 - To claim or not to claim

If you are DIY-ing your tax return, having a good understanding of the ins and outs of the tax rules is important. Even if you are working with an accountant, having this understanding will put you in a good position to make smarter decisions that could have a positive impact on your tax circumstances.

For instance, you might want to bring forward expenditure to before 30 June, if you’re planning repairs for your property. Before doing this, however, determine whether the job is deductible as a maintenance or repair, or if it is considered a renovation or of a capital nature. To help you understand the difference, the ATO publishes a guide on how rental property owners need to treat rental income and expenses at ato.gov.au.

As a rule of thumb, things you may be able to claim for immediate tax deductions include rates and taxes, including council and water rates and land tax, repairs and maintenance. Some tax deductions that may be claimed over several years include capital works or building costs and borrowing costs.

There are many deductible items which slip the mind of the savviest of property investors. For instance, around 80% of property investors don’t claim the depreciation of their rental at tax time, despite it being one of the most valuable deductions property owners can claim.

Estimating declines in the value of assets is complex, so it might be worthwhile to engage a qualified quantity surveyor to create a depreciation schedule. This allows you to claim the depreciation of fixed items within your property including carpets, blinds and fixed appliances, reducing your taxable income.

Again, planning ahead is crucial. If you know you have expensive, depreciable purchases around the corner, the best time to buy is always early in the financial year to ensure you are maximising how much you can claim.

Despite being one of the busiest times of the year, EOFY also offers a great opportunity to review how your investment property has performed throughout the year with a property manager, if you have one. It is also a good time to check in with your mortgage broker to ensure your existing loan is still servicing your needs and discuss any future plans to expand your investment portfolio.

PROSPERA FINANCE — Geoff Norman

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THINKING OF BUYING COMMERCIAL PROPERTY FOR RENTAL? HERE’S WHAT TO CONSIDER

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When it comes to property investment, people tend to think of residential. But commercial property can offer some big advantages as well, either as a space for your own business or as an income provider. We examine the pros and cons of going commercial.

From warehouses and offices, retail to car parks, there are some serious potential benefits to non-residential property when you’re considering investment options.  If you already have residential investments, adding commercial property is a way to diversify your portfolio. Plus, if you own a business and are currently leasing premises, owning your own place can deliver another set of rewards.

Financial specialist Patrick Clarkson says many people overlook commercial property when looking to invest.

“It flies a little under the radar,” he says, “but it’s a different way of thinking, a different asset class, just with higher returns and capital growth and more consistency.”

Here, Clarkson outlines the pros and cons of investing in commercial property.

THE POTENTIAL BENEFITS:

Higher yields

The highlight of investing in commercial property, Clarkson argues, is higher rental returns.

“As long as you’re in the right market, you’ll get a better rate of return than residential,” he says, pointing out that with residential property in capital cities, return can be anywhere between three and four per cent, but with commercial you can earn about six per cent.

Greater consistency

While a residential lease can turn over every six to 12 months, a business leasing a commercial property will want a longer lease period – generally three or five years, possibly 10 – so there’s a lot more security.

“A business moving into an office or a warehouse won’t want to be asked to leave in six or 12 months,” Clarkson says, “so three years is probably about the minimum.”

Better tax incentives

Another positive is the better level of depreciation a commercial property can return, i.e. there’s more you can write off, so you’ll get better tax benefits.

“Carpets, air conditioning – everything has to be replaced more often in commercial properties, and you can write them off over a few years,” Clarkson explains.

Be your own landlord

If you’re investing in a property to operate your own business from, there are additional benefits (though Clarkson points out you do need to do your homework first to check it’s the right strategy for your business).

If you’re planning to be in the location for, say, 15 years, buying and then leasing it after you’ve moved on (rather than paying rent to someone else for those 15 years) could make perfect sense.

As the property belongs to you, you can make changes without needing permission from a landlord – you have full control and an asset appreciating for the business.  One purchase option is to fund it through your self-managed superannuation fund (SMSF). The ATO lets business owners buy a commercial property through their SMSF for business use if they meet the criteria.

“You’re building wealth,” Clarkson says, “getting a diversified return on your super and also not having to pay rent.”

THE POTENTIAL RISKS:

Finding new tenants

While you’ll get longer leases with commercial properties, it can also take longer to find a new tenant, so vacancies represent the biggest risk.

“That’s why it’s important to do your research and take time to understand the market and vacancy trends,” Clarkson says.

Be sure to undertake that extra level of due diligence so you know as much as you can about the area and the demand there.

Lease loss affecting value

A commercial property’s value is closely aligned with its lease so if it’s about to expire, or your premises becomes vacant, its value will decline.

“Most valuers ask about your lease contract and that will be part of the valuation as well as market demand,” Clarkson says. That’s why it’s important to make sure you have a good, solid lease in place.

Vulnerable to business climate

When business is booming the demand for commercial properties booms too, but a downturn can translate to a demand fall.

Currently, the business outlook is strong. According to the latest NAB Quarterly Business Survey, business conditions remain well above average with trading conditions, profitability and employment conditions “favourable”.

Retail, however, remains weak, according to the report, making investing in commercial retail property riskier.

“Retail is a rollercoaster,” Clarkson argues, “but offices, warehouses, those sorts of thing, are good.”

Commercial property can be a smart investment, delivering plenty of benefits, but it’s very important to do your research and get the right advice to achieve its full potential. Your mortgage broker will be able to help with that as well as finding the best loan for this kind of investment.

Commercial property: the pros

  • Higher yields

  • Greater consistency

  • Better tax incentives

  • Be your own landlord

Commercial property: the cons

  • Challenge of finding new tenants

  • Lease loss can affect value

  • Vulnerable to business climate

PROSPERA FINANCE — Geoff Norman

MOBILE LENDER PROVIDING MORTGAGE BROKERING SERVICES TO NORTH SYDNEY | CROWS NEST | ST LEONARDS | GLADESVILLE — FINANCING HOME LOANS — FIRST HOME BUYER LOANS — CAR LOANS — LOW DOCUMENTATION LOANS — EQUIPMENT LEASE