May 2012

Gap between lending rate and cash rate continues to grow…

Australian Housing Lending Rates

Although overall turnover has been lower this quarter than the previous three-year first quarterly results, with an overall clearance rate of 61% compared to 65% this time last year.

The median house price has stabilized and even shown a marginal increase of 0.9% This moves us from a revised December quarter median of $530,000 to a March quarter median of $535,000.

Due to Christmas and Easter both affecting turnover in the first quarter of any year, a drop in the median house price is usually expected. Therefore, prices’ remaining stable keeps us on a level playing field signifying it’s still a ‘buyer’s market’ – although for how long, is debatable.

Depending on various economic factors, which are hard to predict considering interest rate movements are subject – as never before – to the international arena and taking into account banks are now moving rates independent of the RBA, the next move in our property cycle is full of ‘unknowns’.

Albeit, reports from numerous selling agents indicate that stock is significantly lower than this time last year and this is likely to have an inflationary effect on the few quality listings available.

However, prices are not dropping – therefore it’s clear we’ve reached the bottom of the property cycle and taking advantage of current conditions is important if you want to get ahead before prices start to rise.

There’s still a lot of uncertainty in the market which has the ability to stagnate both buyers and sellers as they decide to ‘wait it out’ rather than take advantage of what is currently a ‘predictable’ terrain.

Prices are showing little movement, therefore for buyers ‘stepping in’ there is ample opportunity to employ strong negotiation strategies which are advantageous in securing good property at a good price.

Catherine Cashmore

Suburb by Suburb update

From the suburbs that have recorded more than 30 sales to date, a few are bucking the overall trend in their clearance rates to date.

In alphabetical order:

Melbourne property sales by Suburb

Catherine Cashmore

NPB 1st Quarter Clearance Figures

Property auction clearance rates Melbourne, Australia

72 per cent of auctions reviewed by National Property Buyers over the first quarter of 2012 sold under auction conditions. Each week we pick out a number of quality auctions to review and for some of these properties, competition has been strong enough to attract 6 or more bidders. However, Melbourne’s market place is fragmented and it’s important to understand the dynamics driving each area in order to take advantage of ‘good’ opportunities available.

We’ve noticed stock levels tightening in the inner south eastern and inner northern suburbs. Consequently, this is where we’ve come up against the greatest competition at auction. However, there are plenty of good opportunities in areas where stock levels are still exceeding current buyer demand. As such, we’ve been able to secure a number of homes under – what we would estimate to be current market value.

Looking ahead, I expect the clearance rate to remain steady for the foreseeable future. However, should stock levels tighten, it may move higher as we approach the end of the year.

Catherine Cashmore

NPB Staff News

Catherine Cashmore from National Property Buyers

National Property Buyers are pleased to announce the appointment of Catherine Cashmore to our team of property experts.

Catherine holds the position of Senior Property Consultant.

You’d be hard pressed to find an area of real estate that Catherine hasn’t been involved in.

Originally from the UK, she has resided in Australia for many years working in all areas of real estate industry – selling, managing and purchasing property.

Catherine is a a regular commentator in the media and regular contributor to many property publications including ‘Property Observer’ and ‘Australian Property Investment’ magazine.

She also appears as weekly ‘property expert’ on Channel 10’s The Circle.

Catherine’s expert knowledge and exhaustive research, ensures she is well adverse to ‘national’ market movements in the residential property sector.

Her appointment further strengthens NPB’s credentials as we expand our office network throughout Australia.

Antony Bucello

2012 – And beyond. Where is the Market Heading?

There is an incredible amount of concentration on the state of the world’s economic situation and what it bodes for the average mum and dad investor in our regional location.

However does anyone really understand all the implications of the data being both reported – and interpreted – by various journalists and economic commentators with pre-conceived ideas of their own?

Let me give you some idea of the range of opinions hitting the papers each week. A recent article in the UK Telegraph by Ambrose Evans-Pritchard – which circulated through ‘twitter’ at a rate on knots – suggested the US economy is not only rising, but “Within five years or so” America will be well on her way to “self-sufficiency in fuel and energy” The report makes plenty of other bullish assertions under the premise that the “American phoenix” is on the rise once again. “World power swings back to America” reads the title and indicates a return to prosperity which would no doubt hit the real estate sector (making purchasing US property now, a very appealing prospect).

However if you care to investigate a little deeper and read the EIA’s Annual Energy Outlook 2011, you’ll see anything but a bullish review of America’s journey to ‘self-sufficiency’ with the disclaimer American “estimates of technically recoverable resources and well productivity remain highly uncertain” The report is long, however in short, the ‘predictions’ outlined in Pritchard’s article are a long way from being set in stone and a close read of the ‘real’ statistics in the report makes this woefully clear. Hopefully no one acted too fast on the ‘mis–information’ it contained.

Closer to home we can also read two sides of the coin on the property market. Chief economist at Commsec Craig James came to the fore recently making the call that 2012 ‘should’ be a year for housing market recovery – the view is widely held by others such as ANZ senior economist Ange Montalti who claims economic growth will lift prices during the course of 2012. Figures have also been released from RP Data which show we’ve started ‘to turn the corner’. However less bullish ‘predictions’ come from Harry Dent and Steven Keen who have both warned we’re at the start of an impending crash – not to mention Prosper Australia’s continuous doom and gloom assertions which were part of a mooted ‘buyer strike’ early in 2011.

So whom do you want to believe? Well if you have pre-conceived ideas of your own, you’ll take the side that backs your personal perspective. It’s natural to do so – it’s incredibly hard to be completely subjective about anything. As the saying goes ‘we see and understand things not as they are but as we are’. It’s very difficult to lump a one-world outlook on any market and expect to hit the nail on the head like some modern day Nostradamus.

Take China for example, where stringent Government regulations have forced a fall in housing demand and subsequently prices. The issue split Chinese society in two. On the one side are the homeowners who want to see prices continue to rise. On the other are the renters, who not only want house prices to drop – they want them to drop some 50%! Sounds like Australia.

No-one’s been immune from the market malaise throughout 2011 – in fact on a par with other years, it was a very difficult atmosphere for industry professionals to ‘muddle’ through. Turnover was down over 20% for the year.

Buyers have sat on the sidelines perceiving prices may drop further and sellers have needed to ‘meet the market’ and make some hard decisions. However, assuming the Government doesn’t follow China’s example, I have only one outlook for the next year – and the subsequent 10 years following – and no doubt it will be brushed under the carpet by those who think we’re merely ‘spruiking’ the party line.

Providing we don’t have a catastrophe on monumental proportions (I’m talking earthquakes and tsunamis) – the only way for property to go in 2012 and beyond is up.

Our property market is based on a simple formula – supply vs demand. Australia is a mere teenager compared to Europe and we’re growing at a dramatic, unstoppable pace. Our population growth is higher than that even of India. In fact the only country set to outgrow Australia by 2050 is Saudi Arabia!

Much of this growth comes from Australia’s immigration program aimed at attracting people of working age with the needed skills to benefit our economy. The simple equation is the bigger the population, the bigger the economy. Whether this has a major effect on our wealth as individuals is arguable and indeed doubtful, but what cannot be argued is the overall effect the population boom will have on the housing industry.

Most are trying to squash into areas that are already straining at the seams (our capital metropolitan regions) and the best seats are taken. No wonder the property market in Australia swings between un-sustainable booms followed by periods of negative growth and sharp market corrections – for decades no one has planned effectively for the growth and we’re some 20 years behind the eight ball.

Unlike areas in Europe and the USA where first home buyers are able to move out of the capital cities and feasibly live in locations with a lower median whilst taking advantage of reliable public transport systems and the decentralisation of jobs, Australia has ensured the bulk of her population and jobs remain confined to inner urban regions. Therefore, when the market’s not growing, rents are rising and an increasing number of first homebuyers find they’re unable to build up a sufficient deposit to get a foothold into real estate.

Since last year, rents have increased up to (and in some cases beyond) 10.1% in Perth and a more modest 5.9% in Sydney (R P Data). Affordability is constrained and the market may well see only marginal growth throughout the course of 2012 – especially if confidence remains on a knife-edge due to factors largely out of our control (both at home and abroad). However if interest rates drop further (and the banks pass them on) – logic alone assumes we’ll see a revival of those desiring to pay their own mortgage and not someone else’s!

We’re already hearing from various mortgage brokers such as Anthony Smith from Mortgage Choice in Cheltenham, Melbourne that pre-approvals have increased dramatically. It’s hard to assess at this point how many of those pre-approvals will turn into transactions – and we’re not out the doldrums yet. However it’s reasonable to assume once the starting gun fires an air of confidence and certainty into the atmosphere, we’ll see upward pressure on house prices across the board. The only question is how fast those rises will be and when they will occur.

There may be a good proportion of our population who are suffering, but equally so are a large proportion of our population reaping the rewards of a booming economy. This doesn’t mean by any stretch that you can’t lose money through property investment, it simply means that the right property, in the right location, for the right price, will continue to grow as demand grows – if you don’t believe me get a newspaper from 10/20/30 years ago and look at the prices.

It’s true growth in Australian property has to some extent been fuelled by investor speculation along with easier lending conditions; however that speculation is backed by pretty sound fundamentals. Take away the ‘speculators’ and long term you’d still be looking at ‘home’ buyer demand outpacing supply in the metro regions. This is why property is such a widely accepted model for long term investment.

As time progresses – like Europe – we’ll see a greater split between those who can afford to purchase and those who can’t. We’ll see a growing number of young adults move into the rental market, or wait until their late 30’s and 40’s before they purchase. I also suspect we’ll see a change in demographics, with more joint purchases and a greater number of people sharing property as family’s pool funds to ‘afford the dream’. Less will own their home outright and more will hold the burden of a mortgage. It’s already started to happen.

As for 2012 – if you’ve been thinking of taking the plunge don’t expect the market to stay on a level foothold perpetually. Pondering whether our housing market will crash is an on-going debate that will do the rounds for years to come. The only way to reduce risk when investing in property is to invest in those areas which have the best potential to maintain consistent solid demand. At the moment there is little to suggest that our population will diminish or demand for property decrease so the more time you spend worrying about tomorrow, is time away taking advantage of today.

Catherine Cashmore

The Three Types of Investor

Establishing your needs – what to buy

Buyers often want a solitary answer to the ‘golden egg’ of investment. Some ‘experts’ recommend apartments, whilst others swear by land. However there is no ‘one size fits all’ scenario in the world of real estate. Plans must be formulated for each individual based on long term objectives. If you’re thinking of investment you probably fit into one of the three following camps.

Set and forget – You want something that appreciates in value with little or no maintenance.

  • Look for large one bedroom, or two bedroom apartments close to the city located away from main roads in boutique blocks of 8-12 with off street parking and an outdoor area.

    Pros; Units tend to attract a higher yield than houses and maintenance issues are generally taken care of by the property manager and owners corporation.

    Cons; There is little potential to value add to a unit hence the term ‘set and forget’. Options are limited to renovating or updating the interior.

Value add – You like the idea of purchasing to renovate, extend or ‘make over’ a home.

  • Look for opportunities in middle-ring established suburbs with good facilities located on tree lined streets. A good example would be an older style villa unit or small house.

    Pros; Renovating a property can add significant value to your investment increasing the on-sale price and improving rental yield.

    Cons; The property is usually vacant whilst renovations take place and if not careful, costs can blow over budget. Take care not to over capitalise.

Developers – Would be developers want subdividable blocks with the potential of ‘2 for the price of 1’. Sometimes the aim is immediate subdivision however an increasing number let the land appreciate in value for a few years and rent the existing dwelling in the meantime.

  • Search a little further from the city in suburbs that appeal to families with larger blocks of land close to schools and transport. Stick to established suburbs where land has already been built out and subdivision has started to occur.

    Pros; Development creates significant equity giving numerous options – sell for profit or refinance to increase your property portfolio & start on the next project.

    Cons; Development is not for the feint hearted or inexperienced. The road is full of potential pit falls so it’s vital to establish a good team of professionals before you start. Houses generally attract a lower yield than units because your initial outlay is higher due to the land size, however rent is only calculated on the accommodation offered.

Property investment can be extremely rewarding, however there are many shades of gray in-between the above examples, so research is essential. If you’re not sure where you fit in, reduce the risk of making mistakes and seek expert advice.

Catherine Cashmore

PROPERTY HUB – for Property Owners

Following on from our exclusive launch of Property Hub for Property Buyers, we’re pleased to announce the launch of Property Hub for Property Owners, enabling them to keep track of their investment portfolio.

Clients of our Property Management service enjoy their own personal online investment property database which is accessed with their own username and password via our website.

National Property Buyers Portal

Repository of Information & Tracking System

PropertyHUB acts as a central online repository of information and is where clients access information and are kept completely up-to-date about the status of their investment properties.

Melbourne property portal

Information our Property Managers are able to keep their clients informed about include:

  • When a Property is Vacant.
  • Open for inspection times.
  • Number of parties who inspected the property.
  • Number of applications taken/received.
  • Applicants status.
  • When a Property is Leased.
  • Lease status and/or Lease expiry date.
  • Maintenance items requiring attention.
  • Schedule of Routine inspections.

Clients are able to insert and record comments about properties after viewing detailed photos and comments about them. propertyHUB is available to clients at anytime from anywhere you have internet access. Whether you are the owner of one investment property or you own multiple, propertyHUB keeps track of all properties in a simple and very efficient manner.

Client/Advocate Automatic Alert

Advocates are able to alert clients by email of new information relating to their properties on their database with an inbuilt automatic alert system. Similarly, clients are able to alert their property managers in the same manner.

Document Library

PropertyHUB features an easy to use document library. Every property that appears on a client’s database has a document area and this is where all documents relating to specific property are uploaded for clients to access. Documents typically include monthly and year end statements, photos and images, lease agreements, condition reports, routine inspection reports and comparable rentals.

For a full demonstration of the capabilities and benefits of propertyHUB, please contact us directly.

Antony Bucello

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Antony Bucello and Catherine Cashmore

EVERY week Antony Bucello, State Manager of NPB and Catherine Cashmore Senior Property Consultant provide expert commentary on what has happened over the weekend including facts and figures from the REIV and from NPB’s exclusive clearance rate snapshot of premium investment grade listings.

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