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Real Estate Online knows the importance of being kept informed with relevant news and correct information. Often we see articles and news stories designed only to be sensational and headline grabbers. Often they do not offer the understanding and ability to interpret the facts or events that an experienced industry person would. It is for this reason we will always try to select articles, press releases or events that are without influence and deemed highly relevant to Property Investors.
We monitor the media through a variety of channels but at anytime if an article comes to the attention of an Investors Club Member and you think it worthy of attention please notify us by email click here
Why is a rental surge happening, Housing Shortage? Interest Rates? Economy?
Wednesday, 21st of April 2010 - Martin Wyatt, Director of Real Estate Online Pty Ltd
All key indicators have now firmed to virtually make it certain that rents will continue to increase at pace. This will make it very tough for first home buyers trying to enter the marketplace and often delay their entry point meaning they are increasing the demand pool for rental properties thus self perpetuating the cause of rental growth.
The housing shortage of between 150,000 and up to 200,000 properties is begining to have considerable effect. The failure to make available titled land in sufficient numbers has recently seen building approvals drop for consecutive months meaning we have fallen even further behind in the supply of property in Australia. This can be seen in the direct surge in quarterly rental results show an increase of between 1.2% to as high as 1.7%. This comes off the back off a flatter second half of 2009 in rental growth due to the volume of first home buyers properties being completed. This mass exit from the rental market along with any flatmates commandeered to provide assistance in paying their mortgage has now been nullified by the demand for rental property.
As Property Investors please be aware of the key differences in talks on interest rates. All investors should now be on a professional discounted interest rate of around 0.7% below that of the market variable rate. This combined with an interest only structure that has negative geared taxation benefits assisting with your actual out of pocket means the property investors story is considerably different from that of the owner occupier.
As a Property Investor you should be well structured, establish current values of your properties, set up LOC or redraw facilities and have an advisor who understands investment property to assist you (15 years plus experience is recommended). Understanding your own situation is vital as increasing rents, tax benefits and smart leveraging of cashflow will be very beneficial at this time.
As the RBA is talking of potential increases in interest rates this may slow down the top end of the marketplace ($1 Million Plus property) to a lesser degree similar to that during the later part of 2008 and first quarter of 2009 but beyond this it is expected that the the owner occupier marketplace will remain very active. It is the property investors market that is currently being held back by lack of supply.
The busiest sector of the marketplace is from $300,000 to $600,000 which as the REIA reports has seen activity up by around 15%+ and this sector has all styles of purchasers involved including many retirees back trading to free up funds. This sector is expected to remain very active and the derease in first home buyers should be made up by an increase in investors. The location of most activity in property sales is expected to move more strongly towards the mid to outer suburban and fringing lifestyle regions with the flow on effect rolling through. This means everyone is expecting to pay more for property whether that be owner or tenant so your tenant will not be surprised by increases at this time and most tenants have already planned for this.
The econcomy has "said to have been lead by a housing recovery" for the last 18 months but it now appears that the mining industry is back in full swing also becoming a key driver. When we consider this factor along with lower unemployment than expected we must wonder if our economy was ever in any real concern of if we fell into the momentum gained by the worlds GFC and doubted the strength of our own well balanced economy. This will be a reason used by the RBA when interest rate increases are mentioned but when we look back on this time we may wonder did we see an artifical benefit from interest rates going lower than they really needed to go? We still enjoy remarkably low interest rates today in comparisom to historical rates and we can thank a very sound economy for this buoyant time for property investors. As the economy has amazing stability, low unemployment and real wage increases this definately assists with rental growth continuing to be sustained into the future.
Rental increases will primarily come from a combination of housing shortage and a strong economy with indicators, checks and measures along the way dictating what level of increase is sustainable. It is often best to remain very slightly behind to top end of rental increases as a single week without rent can take up to 3 months to make up!
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“Housing Boom, Poor Planning, Under Supply of Property or all of the above” – Tuesday 30th of March 2010
What is the catalyst driving the strong residential property sector? Is it foreign investors, Real Estate Agents under quoting, the supply of property or do we need to look at the overall lack of quality planning which seems to be effecting a great number every day.
Firstly the drivers of the property market differ from region to region! We can not paint the entire property market with the same brush. Examples of this are seen in many inner suburban locations of our major cities which are now facing the impact of poor planning. Considerable medium to high density development has taken place within 15 to 20km of most major cities with the inevitable scenario of higher demand for stand alone housing. Interestingly the higher density housing has not been achieving similar levels of capital growth to that of stand alone housing in the same region yet median prices can mask this from potential purchasers. Expansion in our population at a rate of 2.1% nationally, lesser numbers of quality property available, media driven campaigns and buyers coming face to face through the Auction experience are just some of the factors that continue to see the property sector setting a cracking pace. Each locality has its own drivers and it is important to recognise these elements as they can also assist us in making the decision if the given location is the right one for you.
The Auction element needs to be treated with due care as unfortunately in the heat of battle there is a tendancy to pay an inflated price in the effort to be the winning bidder. Beware the owner occupiers as they bring an emotional element that can often see the heart over rule the head on reason when bidding on property. Buying at Auctions can work very much against investors and if you believe the price is being emotionally driven then it is important to balance any offers you consider making to that of your research and your own limits. Investors do not need to buy the name of any given suburb where owner occupiers may be willing to pay more for this privilege! If you pay too much on the initial purchase this could delay any real capital growth. I the need arises to resell within a shorter period or the market slows with higher interest rates then the inflated figure on purchase could end up being quite costly.
In recent days we are hearing from Glen Stevens of the Reserve Bank of Australia (RBA) calling for purchasers to be wary of not borrowing too much and to have allowance for interest rates increasing up to another 1% before by December 2010. This seems to effecting the broader marketplace but more so the locations where the potential over inflation of pricing due to the Auction process is rampant.
It is vital to keep to your own program and keep the balance you need in your investment purchase. There are many locations around all capital cities and numerous regional locations that offer value and the correct infrastructure for an investment property. Investing in property is generally about building equity and creating a portfolio that can provide you a better future and this can be achieved by purchasing in a variety of locations and should be discussed with an experienced property investment specialist of 2 property cycles (15+ years) or more.
The housing shortage of an estimated 100,000 plus properties in yesterday’s official forecasts has been reported to actually be as high as 200,000 properties by groups such as HIA. Even the official figures are concerned it may reach 500,000 within the next 20 years or a generation. If this was to continue this could mean the current generation may be the last to know home ownership within a metropolitan region of a major city. Thus the continual call for more affordable housing and fast tracking of land releases but as yet neither the Federal nor State Governments have been able to achieve this causing further pain to purchasers. This should be the green light sign to all property investors to consider further property keeping in mind the balance of your portfolio and serviceability of higher interest rates.
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"Housing Affordability" - How is this achieved - 10th of February 2010
Wayne Swan has told industry executives he would outline four ways to overhaul existing rules blamed for making it more expensive for Developers which is passed on to new and first home buyers.
Thoughts - The Government has stated it backs the need for greater land release but at present it still needs to further enhance the process and cutting of red tape associated to larger scale land release. Only with more land and greater infrastructure commitments to the expansion areas will we see this flow.
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"RBA will increase rates to prevent a bubble" - says Glenn Stevens, 10th of Feb 2010.
Mr Stevens said "a relatively rapid fiscal consolidation" would assist in keeping interest rates down, lower the government burden and recue upward pressure on interest rates. The Government has certainly been sent a strong message here with the RBA signaling that they believe the GFC to have run its course and is now finished.
The public will now doubt be disappointed interest rates will rise but this is primarily an indicator of a strong and robust economy and should only be very moderate increases unless the current Federal Government reins in its debt.
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7th of February
Sunday Times reports on "Energy stars for homes".
All Australian homes will have to go mandatory efficiency assessments at an expected cost of up to $1,500. This would need to be complete before a home is either sold or rented under new laws to tackle carbon emissions. This could effect commercial properties in the late part of 2010 and residential properties in 2011.
Thoughts - This type of reporting exists in some parts of Australia at present when new homes are being built and more so recently when established properties extend or renovate with permits from councils. Better guidance is required through a centralised body which can easily simplify and maintain accurate records to provide the Australian public with a sustainable and streamlined solution.
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4th of February
The "Australian Financial Review" reported on the potential "Rise in building costs" with an added surprise in a quote from BIS Shrapnel in the story today.
The article discusses the building industries estimated increases in building costs potentially rising of up to 6% per annum in a similar way to 2003 to 2008. The huge surprise came in the quote from BIS Shrapnel senior economist Jason Anderson when he said "Price rises, other than the consumer price index, would not occur until 12 months after the building industry had reach capacity, which is unlikely until ....2011".
Thoughts - This represents a window of opportunity to secure building contracts between now and 2011 without paying extra building costs, in real terms saving these dollars and potentially building equity simultaneously.
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2nd of February - 3-20pm
Three of the big four banks have confirmed they will leave their variable interest rates on hold in alignment with the RBA decision.
"The Age" has also confirmed that National Australia Bank, Commonwealth Bank and Westpac have all said they would leave interest rates steady.
The ANZ Bank is also expected to follow the lead of the other three majors but we are still awaiting comment at this time.
Nicole Ismay from the Commonwealth Bank said "Our rates are always under review but there is no change at this stage".
Westpac spokesperson Jane Counsel said - "There will be no change on rates at this stage based on today's decision".
NAB spokesperson Luisa Ford took the statements one step further by saying "there would be no changes on interest rates on any bank product".
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2-30pm on 2nd of February the RBA has announced that the official cash rates are on hold and will not increase as per the widely touted speculation and therefore remain at 3.75%.
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House prices to take a breather after leap
February 1, 2010 - The Age reports:
House prices are likely to soften in early 2010 and pick up later in the year despite the big leap recorded in a house price index, economists say.
The Australian house price index rose 5.2 per cent in the December quarter, the Australian Bureau of Statistics said today. This compares with an upwardly revised 4.4 per cent in the September quarter.
In the year to December, the house price index rose 13.6 per cent.
The median market forecast was for the house price index to have risen 3.5 per cent in the December quarter, for year on year rise of 11 per cent.
However, CommSec economist Craig James said the ABS data were not considered as reliable as other data series.
‘‘At face value it looks like it’s going gangbusters but the RP Data Rismark series rose by 2.1 per cent in the quarter and 11.1 per cent over the year, so I think what this data does is overstate the true situation,’’ he said. Mr James said the ABS data could get quite distorted by the composition.
‘‘It is clear that house prices picked up pace through 2009, but certainly the RP Data Rismark series which is done on a monthly basis showed that a degree of softness was coming in later in the year with the expiry of the government’s first home owners boost.’’
‘‘I think we are going to see further softening in house prices in the market in the first couple of months of 2010.’’ Higher interest rates and the removal of the first home owners boost would lead to a slight ‘‘hangover’’.But later in the year, the strength of the jobs market and strong population growth would lead to annual house price growth of about eight to 10 per cent this year, he said.
‘‘To some extent a rise in the mortgage rate over the year will be serving to constrain prices, but fundamentally we haven’t been building enough homes in relation to our rising population and that will correct over 2010.’’
Melbourne leads rise
Among the capital cities, prices grew fastest in Melbourne which posted a quarterly rise of 6.8 per cent and an annual rise of 19.7 per cent. Sydney house prices grew 5 per cent in the last quarter and 12.8 per cent over the year, while Perth posted a 5.7 per cent quarterly rise and an 11.5 per cent annual jump.
Adelaide had the smallest gains, with 2.1 per cent for the quarter and 5.1 per cent for the year. In Brisbane prices advanced 3. 8 per cent in the December quarter and 10.9 per cent over the year.
Rates move looms
ICAP economist Adam Carr said the data suggested the Reserve Bank of Australia was more likely to hike interest rates by 25 basis points on when the board meets on tomorrow.
But he said the surge in house prices pointed to a housing shortage that was quickly becoming a national crisis.
"This is a market begging for more construction," he said. "We have a housing shortage" and "Our population is concentrated in a handful of cities".
"We have problems and it’s urgent that the federal government address it because the state government’s clearly aren’t doing their job."
Mr Carr said that should the RBA lift the interest rate by 25 basis points 4 per cent, the cash rate would still be stimulatory.
"The RBA will obviously be looking at house price growth quite closely and the associated construction growth.
"We already have a pretty decent idea about where they sit about house price growth along side the credit growth in the absence of construction.
"It’s not a good combination. So I suspect it would add to the case for the RBA to hike."
National Australia Bank senior economist David de Garis said the RBA would take the cash rate to 4 per cent, but its decision would be finely balanced.
He said a central bank would hold off on further rate rises for a few months, with a private sector survey showing that house prices might have cooled in December.
Late last week the RP Data-Rismark Hedonic Home Value Index showed home values fell by 0.3 per cent in December.
The Survey said the slowdown stemmed from a seasonal summer slowdown, rising interest rates and phasing out of the enhanced first home buyers grant which ended in December.
"Maybe the RP data is showing that the rate rises are just starting to cool the market a touch," Mr de Garis said.
"It’s just one month, but that series has been showing rises of one or more per cent a month and it leveled off in December."
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"Market skews to top end of the spectrum" - reported in Australian Financial Review on 30th of January 2010
Ben Hurley reported that he felt the top half of the housing market is expected to have the most capital growth in 2010.
Ben mentions figures provided by Australian Property Monitors and RP Data with growth
as high as 18.5% in Melbourne recorded by APM & 14.9% by RP Data for the year 2009. This reflects the difficulty of true figures being obtained as readily as is often assumed. The forecast in the article is expecting rises to moderate in 2010 after the stella growth of 2009.
This article points out well the two measures and provides a table highlighting growth in with APM + RP Data figures shown respectively: Melbourne 18.5% + 14.9%, Hobart 14.4% + NA, Darwin 13.5% + 13.4%, Sydney 12.1% + 10.6%, Canberra 10% + 12.5%, Perth 8.7% + 6.5%, Brisbane 7.7% + 7.2% and Adelaide 2.4% + 5.5%.
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3rd of December 2009.
"Melbourne rockets in population to 4 Million" - The bureau of statistics informs Real Estate Online that Melbourne is expected to reach the massive number of 4 Million in the suburban catchment before the end of 2009.
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"Third of Aussies plan to buy property" on 26th of November 2009
MORE than one third of Australians plan to buy a property in the next two years despite concerns over higher living costs and rising interest rates, a survey shows.
And 40 per cent of Australians plan to revisit their financial plans as the nation emerges with a more positive economic outlook, the survey, commissioned by mortgage broker Mortgage Choice, found.
Mortgage Choice corporate affairs manager Kristy Sheppard said more borrowers were now taking "ownership" over their financial situation.
"As a housing market service provider, Mortgage Choice is pleased to see 41 per cent of respondents planning to buy property in the next two years and 43 per cent of them planning on an investment property.
"Hopefully, increasing demand from this buyer group will stimulate more housing construction," Ms Sheppard said.
"The Australian housing market has emerged from the financial crisis relatively unscathed compared to its global counterparts, which would probably be part of the reason why 64 per cent of respondents believe house prices will rise in the period to November 2010."
The survey found 40 per cent of mortgage holders believed they could afford to make repayments at an interest rate of more than 11 per cent.
The online survey of 1025 Australians, conducted in early November, found 19 per cent of respondents were most concerned about rate rises while 16 per cent were concerned about job security.
It follows a similar survey last year that found 20 per cent of Australians had concerns over job security and 18 per cent were concerned by the federal Government's economic management.
Ms Sheppard said that while many borrowers were concerned about rate rises, 40 per cent were prepared for increases of at least five percentage points, a much higher figure than was forecast for the next few years.
"This suggests many borrowers can comfortably repay their home loan sooner, if they put their mind and budget to it," she said.
"Improved sentiment from Australians around their livelihoods is also terrific to see."
Almost three quarters of respondents were confident the Australian economy would be strong during 2010.
In a further sign of consumer confidence, 17 per cent said they could afford "any increase".
Two thirds of participants believed rates would rise by between 0.25 per cent and 1.5 per cent before June, 2010.
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"Peninsula housing hits the jackpot" -Announced on the 9th of November 2009.
THE Mornington Peninsula has been named one of Australia’s top 100 investment locations.
It is listed in the Australian Property Investor magazine’s third annual “Hot 100” list, published this month.
The area is one of only 11 “cluster” hotspots in the country, thanks to the inclusion of Frankston, Seaford and Hastings.
Property researchers from around the country were asked to name the suburbs they believed would show the best capital growth in the next 12 months. The suburbs also had to offer good growth in the medium- to long-term.
Terry Ryder of property forecaster hot spotting said the peninsula had “excellent” long-term growth prospects.
“Prospects are set to be enhanced through construction of the $700 million Peninsula Link freeway which, combined with EastLink, will make it much easier to get to central Melbourne.”
Garry Coates, managing director of national property valuation and advice firm Market Line - Opteon said the peninsula was affordable.
“There’s no doubt that the peninsula and Western Port and even the Bass Coast area have a huge attraction to Melbourne people who want to get away for weekends,” he said.
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"ACT leads the way in rental jumps with up to 41% increase" - As of November 2009
The ACT leads Australia in soaring rents and has recorded strong home loan growth despite a nationwide slump in new home starts, reports say. New data shows Canberra has some of the strongest rental growth in Australia. But the worst year for new home building since World War II will leave the country short of 50,000 houses, the Housing Industry of Australia says.
Figures issued by property information service RP Data yesterday showed rents on houses in the leafy suburbs of Griffith, Deakin and Farrer have jumped by up to 41 per cent in just one year.
Houses in Sydney's Rose Bay recorded the nation's highest increase with rents leaping 58.3 per cent to $950 a week. The median rent on a house in Griffith has increased from $780 a week last year to $1100 a week this year, a jump of 41 per cent. House rents in Farrer have gone up 38.3 per cent to $560 a week and homes in Deakin fetch a median of $725 a week, a 29.5 per cent increase. But rent on units in the ACT increased by 5-10 per cent in the past year, well behind the rest of the nation.
ACT Tenants Union executive officer Deb Pippen said it was more bad news for renters. "We are seeing more incidents of people contacting us because of rent arrears," she said. "I can pretty much guarantee that the moment some story hits the media about rent increases we'll start getting calls straight away from tenants saying we've just got a notice of $20, $40, $50 a week increases."
She urged renters to seek advice if they felt a rent increase was invalid. Meanwhile, the Housing Institute of Australia's latest quarterly outlook said new home building plummeted 18 per cent in the 2008-09 year. But new home starts in the ACT and the Northern Territory rose.
The Northern Territory increased by 69 per cent and the ACT had 25 per cent growth
compared with the same quarter in 2008. In contrast, Queensland experienced the worst slump, with housing starts falling by 47 per cent. The total number of loans fell 7.3 per cent in the ACT but construction loans were up 155 per cent and lending for new homes grew by 90 per cent. HIA ACT and southern NSW executive director Stuart Collins said first-home buyers had propped tip the market, accounting for 30 per cent of buyers rather than the traditional 15 per cent. He said many investors and trade-up buyers had sat on the sidelines waiting to see the fall impact of the financial crisis.
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8th of July 2009
"Property investors moving back into the housing market"
Bureau of statistics figures out today showed property investment rising in May by 2.4% the third straight month of growth.
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24th of April 2009
"Westpac joins banks trimming LVR" as reported by the Australian Financial Review.
Westpac has lowered the maximum loan-to-value (LVR) ratio for new home loan customers. Westpac advised it would drop the maximum amount it would lend towards a house purchase from 95% to 90% for new customers.
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