House prices may have hit bottom
Australia’s house prices fell in every quarter last year but they may have hit bottom, new figures show.
Housing data released by RP Data-Rismark today shows that the rate of decline in house prices across the nation slowed towards the end of last year.
“The December quarter was the year’s smallest quarterly decline,” RP Data research director Tim Lawless said.
Capital city house values fell nationally, in seasonally adjusted terms, in the last three months of 2011 by 0.5 per cent, RP Data-Rismark’s figures show.
That followed a larger decline in the previous June and September quarters of 0.8 per cent and a substantial national drop of 1.5 per cent in the March quarter for 2011.
Last week, rival data provider Australian Property Monitors released figures for the same period which showed national house prices stayed largely the same for the December quarter.
The figures suggest the rate of decline in house prices is tailing off.
Sydney’s house prices, the country’s most resilient because of a shortage of housing and state government first home buyer incentives, rose in the December quarter by 0.7 on seasonally adjusted terms, RP Data-Rismark’s figures show.
According to RP Data, Melbourne’s prices fell 0.5 per cent in the December quarter, contradicting figures from APM and the Real Estate Institute of Victoria which show house prices rose by 1.1 and 1.9 per cent respectively in the same period.
The housing market in all other Australian capitals apart from Sydney continued to soften in the last few months of 2011, RP Data said.
Perth values fell 2.1 per cent, Melbourne’s 1.4, Brisbane’s 1.3, Adelaide’s 1.2, Darwin’s 1.1, Hobart’s 1 per cent and Canberra by 0.1 in the December quarter, RP Data said.
Revised figures show November was better than previously reported, with growth of 0.5 per cent seasonally adjusted, the figures show.
“One of the things we’re expecting to see following the interest rates cuts last November is more activity,” Rismark managing director Ben Skilbeck said.
“We expect transaction volumes to pick up in February and March,” he said. “We would expect the negative growth to abate.”
Written by Simon Johanson, Sydney Morning Herald, 31 January 2012
State by state guide to 2012 house prices
CALLING the residential property market for this year is a simple matter: things are going to get better, unless they get worse, and some parts of it will just go sideways.
Industry specialists are quick to allude to economic uncertainty stemming from Europe, but are also fairly quick to abandon commentary on that and concentrate on the strengths they see in the domestic market. And most, having delivered the European caveat, are surprisingly confident of a strong and robust year and are quick to name places that show the most promise.
“The best bets for 2012 are Perth followed by Brisbane. Sydney is solid as a rock. But don’t expect much in Melbourne ’til the third or fourth quarter,” says Andrew Wilson, senior economist at research house Australian Property Monitors.
“Canberra is a good prospect: there’s always a shortage of housing,” he says.
Jason Anderson, senior economist at property research and forecasting house Macroplan, says: “Sydney and Perth are the two that will outperform in 2012 and, for Sydney, it will be the first time in years.”
Anderson says Perth’s rental market is getting tougher and with interest rates coming down, more people will seek to buy. “The equation looks quite good. A 5 per cent price growth this year is a reasonable expectation.”
“And,” he says, “we’re very optimistic about the Hunter Valley in NSW.” Unemployment is at 4 per cent, there is a very strong construction cycle starting in upper Hunter mines and in road, rail and ports. Housing shortages there are as bad as in Sydney, he says, so the Hunter is suffering Sydneyesque rental pressures. “Strong wages growth will attract people and tighten that pressure. We expect price rises of 7-8 per cent this year. The Hunter is on the cusp of a breakout. It is the standout area in NSW,” Anderson says.
L. Janusz Hooker, chief executive of LJ Hooker real estate group, says Newcastle, the Hunter hub, is a main beneficiary and, while still affordable, is under strong knock-on pressure from the Hunter’s mining boom.
What is very clear is that the closer experts are to a particular market, the more sanguine they are about it.
Wilson says Hobart and Adelaide will “move sideways for most of the year” with a slight chance of some movement in Adelaide by the end of of the calendar year, and Macroplan’s Anderson believes Adelaide is “in for a bit of a rough time for the next 12 to 18 months. There’s no point beating about the bush: it will have trouble. If Adelaide can keep house prices flat, that would be a good outcome.”
But the South Australian Property Council’s chief executive, Nathan Paine, says Adelaide is “looking pretty solid”. Housing starts are holding their long-term average and he sees the possibility of more strength with new buyers entering the market.
The Canberra-based Real Estate Institute of Australia couldn’t be more forceful in its position. “Well, despite what you’ve heard, there is no housing bubble so don’t expect to see the housing market crash this year or next year,” says REIA chief executive Amanda Lynch. “Property is a sound investment, particularly in Canberra because, despite small hurdles along the way, the ACT has higher wages than the rest of the country and a low unemployment rate,”
Wilson believes Darwin will resume its usual growth pattern and strengthen. “I wouldn’t be surprised to see double-digit growth in house prices there,” he says.
“As for Perth, it’s a no-brainer. Its housing market is still 10 per cent below where it was four years ago, so there are good bargains there but it will soon catch up to its old level. There’s $100m in infrastructure projects in the pipeline for this year; there’s corporate growth and a significant influx of labourers looking for gold, all of which is putting pressure on housing. I expect double-digit price growth in Perth by the end of the year.”
Not everyone is confident about Brisbane. Brian White, chairman of the Ray White real estate group, describes Brisbane as “subdued” and Hooker says “it’s not taking off by any means but after the big price falls there, we might at last be seeing a floor”.
Those lower prices, Hooker says, mean “there are some great bargains to be had as there are also on the Gold Coast and, to a lesser extent, the Sunshine Coast”.
Kevin Seymour, executive chairman of the Seymour Group, a Queensland development and investment company, believes the overall Queensland market will be sluggish except in mining boom towns such as Mackay, Rockhampton, Townsville and Gladstone, where he expects to see strong price growth.
UBS’s head of property analysis, John Freedman, thinks Brisbane’s outlook is constrained and that at best we will see a “mean reversion rather than a recovery”.
What all seem to agree on is Victoria.
“Melbourne? Oh dear,” says Macroplan’s Anderson. “More interest rate cuts would help but, if we don’t get them, I can see Melbourne’s house prices falling a further 5 per cent.”
Harley Dale, chief economist of the Housing Industry of Australia, believes there will be bigger declines in Melbourne than anywhere else and, according to RP Data’s senior research analyst Cameron Kusher, even rental yields in Melbourne are low.
Wilson, however, says houses around Macedon and Wood End northwest of Melbourne offer good buying now.
For JPMorgan economist Ben Jarman, a characteristic of the Australian market is poor housing starts. These fell 6.8 per cent in the September quarter last year, “the fourth significant decline in five quarters”, and he predicts more weakness to come.
This weakness in housing starts has little to do with confidence or the economy: it is largely the result of planning and regulatory complexities and costs.
According to the HIA’s Dale, “more than 40 per cent of the final cost of a new house is taxation”.
Bob Rose, chief executive of the family-run development company The Rose Group, says the situation is critical. “The NSW requirement is for 25,000 new dwellings to be built each year but we’re only building 13,000. Approvals in September per 10,000 people were 47 in NSW, 109 in Victoria and 73 in Queensland. This is crook for NSW. In new growth centres in Sydney’s west, government and council levies on each house/land package are more than $100,000, and that’s without extra huge costs if special reports are required.
“The system desperately needs review. Big listed developers might survive but I can’t see the small ones making it. And if the development industry closes down, who will build the houses?”
To sum up, with the economy comparatively solid, rates falling and housing stock in short supply, the likelihood is that prices will continue to hold or, more likely, rise.
Source : Jo Studdert of the Australian Newspaper. 14 January 2012
Tips for borrowing through your DIY super for property investment
Suddenly, borrowing to invest in direct property through self-managed super funds is much more appealing. Following the recent release of a SMSF draft ruling, countless fund trustees would be feeling more confidence in the strategy – particularly when investing in older properties.
In the draft ruling, the ATO explains in detail its interpretation of the SMSF borrowing laws in relation to the purchase, maintenance, improvement and other fundamental changes to geared real estate.
And the regulator effectively provides a blueprint for SMSF trustees on how far they can go in looking after and improving their properties within strictly-controlled borrowing arrangements – according to its interpretation of the law.
For most SMSF investors in geared direct property, the draft ruling suggests they can maintain their assets with a fair degree of freedom using money borrowed under the original loan arrangement.
Meg Heffron, co-principal of specialist SMSF administrator Heffron and a former member of the Cooper superannuation review, puts the draft ruling into perspective.
“This is a ruling – and a draft ruling at that – rather than a legislative change,” Heffron emphasises. “It is simply the view that the ATO intends to take in regulating SMSF borrowing.”
Although noting that a court could one day reach different interpretations on some issues, Heffron realistically adds that many SMSFs prefer to follow the ATO’s thinking rather than risk a clash with the regulator.
Sydney tax lawyer Robert Richards succinctly adds: “The value of the draft ruling is the examples [see case studies below] as to what will, and as to what will not be, acceptable to the Tax Office.”
In other words, SMSF trustees who are considering gearing property should pay close attention to the draft ruling.
Although the final ruling will no doubt contain some changes after consultations and submissions, it will almost certainly mirror what has been described as a pragmatic and practical approach to interpreting the laws involving maintaining and improving geared property in SMSFs.
Previously, many SMSFs would have been uncertain about the extent they could go to with renovations, maintenance, improvements and changes to geared properties without contravening the law – or at least the ATO’s interpretation of the law. (The final ruling will apply to gearing from July last year when key changes were made to the SMSF borrowing laws.)
SMSF advisers are typically expecting a marked pickup in the gearing of properties by funds. It would be difficult to believe otherwise.
Here is our three-point, no-nonsense guide to the draft ruling:
Understand what is an acceptable geared asset
Detail: In July last year, superannuation law was amended to stipulate that a SMSF is only permitted to borrow to buy what is called a “single acquirable asset”. This means that a separate borrowing arrangement is necessarily for each geared asset. A difficulty is that it is not always clear to fund trustees whether a property – such as a building constructed across two titles – is a single asset or not.
Draft ruling: Here the ATO displays its pragmatism. “Fortunately,” says Heffron, “the ruling indicates that the ATO will take the view that where the two [assets] cannot be separated, they will be treated as a single asset.” This is the position even if a property is over more than one title.
“This is a new, far broader and more practical interpretation,” Heffron adds. “Previously, the ATO has effectively equated ‘asset’ with ‘title’.”
Case studies from draft ruling: A factory is built over three titles yet, under the draft ruling, the ATO would treat the property as a single asset that could be acquired with a single borrowing arrangement.
An apartment and its car park are on separate titles. And state law, in this case, does not allow the properties to be sold separately. Under the ruling, the ATO would treat the properties as one asset.
A SMSF wants to buy two adjacent blocks of land that the vendor will only sell together. However, there is no physical or legal reason why the blocks are not sold separately. The ATO would treat the blocks as separate assets. And therefore, the fund must enter into separate loan arrangements to gear the properties.
A SMSF wants to buy an off-the-plan apartment. Under the draft ruling, the ATO would allow the fund to use its own cash to secure the purchase. And then the fund could enter a borrowing arrangement to buy what the ATO would treat as a single asset.
Source : By Michael Laurence. Property Observer Wednesday, 12 October 2011
Sydney & Perth house prices to rise by 20 per cent
RESIDENTIAL real estate has created more millionaires in Australia than any other form of investment but there may be bigger money to be made over the next decade.
Residential property has eclipsed shares as Australia’s highest-returning asset class over the past 24 years, but over the next decade it will be outperformed by commercial property, according to research by ANZ.
ANZ forecasts that equities will become the strongest performer over the next 10 years, but suggests that when risk is factored in commercial property will also generate similar returns.
Commercial property covers a range of options from office and retail space through to car parks and industrial properties like warehouses and factories.
The report, Asset returns: Past, Present and Future, said owner-occupied housing had made annual average returns of 12 per cent over the 24 years since 1987 even when costs and taxes were factored in.
Simple historical comparisons of equities and property are often used by property analysts to demonstrate housing’s superior capital returns but ANZ included costs, taxes, interest on loans and factored in the risk associated with investing, the SMH reports.
It found that owner-occupied housing had the highest returns in part because of capital gains tax exemptions. Investor housing was the next best asset class, performing slightly better than equities over the time analysed, the report said. They were followed by government bonds, term deposits and commercial property.
But the bank’s analysis of future asset-class returns suggested equities would be the strongest performer over the next 10 years.
Commercial property also shows strong returns, sitting between equities and owner-occupied housing,” the report said. Risk-adjusted forecasts show that equities and commercial property will have similar returns.
However, considering the housing shortage, it is likely there will be many Australians who will make their fortunes out of residential property within the next decade. New data points to house prices rising by up to 20 per cent in some capital cities within the next two years.
Economists are predicting a double-edge sword for Sydney’s property market, forecasting the median price to boom from $644,000 to $770,000 in the next three years – on the back of the housing crisis.
The report, prepared by BIS Shrapnel, says the underlying strength of the Australian economy, stable interest rates in the short term, high immigration and a dire shortage of houses in Sydney, will be the main drivers of this growth. It forecasts the Sydney median house will lift by 19 per cent to $770,000 over the three years to June 2014.
The rise in home prices and shortage of accommodation is also expected to force up rents. This compares with 20 per cent in Perth, 16 per cent in Brisbane, 8 per cent in Canberra and only 6 per cent in Melbourne. It also predicts that first home buyers will start to re-enter the market in greater numbers next year as the outlook for the economy improves. This will in turn encourage others to return, especially upgraders, as demand for their properties improves.
”Sydney hasn’t fallen in a hole and house price growth has been minimal but has held up over the last 12 months,” said Robert Mellor, the managing director of BIS Shrapnel.
But he predicts this will jump to about 5 per cent in 2011-12 and 7 per cent the year after, before growth will start to slow as a result of higher interest rates in 2013.
”At some point in the next few years rising interest rates will become a concern and that will bring a slowing in residential property markets,” Mr Mellor said.
BIS Shrapnel chief economist Frank Gelber warned the Melbourne market was “running out of steam” as supply levels for new homes increased to satisfy demand.
Would-be house buyers would be deterred by a likely 100-basis point increase in interest rates over the next few years. Such a rise would take the official rate to 5.75 per cent.
“The property market will stay stronger over the next few years but there will be no huge increase in (residential) property prices over the next five years in Melbourne,” Mr Gelber said, speaking in Melbourne.
“The next big increase in Melbourne property prices won’t be until the next upward phase of the economy.”
Separately yesterday, the number of home loans approved in August rose 1.2 per cent to 50,965 from an upwardly revised 50,363 in July, official figures show.
Economists’ forecasts had centred on a one per cent rise in housing finance commitments for the month.
The Australian Bureau of Statistics (ABS) said total housing finance by value rose 1.0 per cent in August, seasonally adjusted, to $20.848 billion.
Source : Money Matters. News.com.au, 12 October 2010
A slice of the auction
With demand remaining low, and your research done, now’s the time to do your bidding.
‘I’m cleaning up at the moment,” buyer’s agent Amanda Segers says.
”There’s some good properties out there and nobody is making decisions, so I’ve got no competition.”
Segers is buying about two houses a week for her clients and is finding the best deals in the $750,000 to $3 million range. One of these was a three-bedroom townhouse in Wollstonecraft that she bought for $895,000, down from $950,000.
Despite there being some strong sales across Sydney this spring – with some going hundreds and thousands over reserve – the market generally is full of opportunity for buyers. Auction clearance rates have nudged 60 per cent recently. But an auctioneer and the director at Cooley Auctions, Damien Cooley, says the market is not as strong as he had expected and there are ”some exceptional buying opportunities compared with previous years”.
So if buyers are going to capitalise on this opportunity, they need to understand the auction process.
Pre-auction
Rather swallow razor blades than bid at an auction? Then buying beforehand will seem like a great idea. With agents often struggling to find enough buyers for an auction, many will jump at the chance to secure the sale beforehand.
But Rich Harvey from propertybuyer.com.au warns you must do your research on comparable sales in the area to ensure you aren’t paying too much.
”We find in many cases the vendors will want a premium price prior to going to auction,” he says.
Another risk of making a pre-auction offer is that it allows the vendor’s agent to use it as leverage with other interested buyers – whose counter offers you are not privy to – and, ultimately, to drive up the price, says a buying consultant with Rose and Jones, Stuart Jones.
You could find yourself, in effect, in a silent auction, he says – one that isn’t transparent like a real auction.
”A fictitious other buyer may appear to try to make you bid up and you don’t want to be bidding against yourself,” Harvey says.
You could ask the agent to show you the offer in writing. If that doesn’t work, the best thing to do, he says, is to make your best offer and tell the agent you will not be making others. If someone else has deeper pockets, so be it. Or it could proceed to auction. If you’re still interested but don’t want to bid, you could ask a friend or a buyer’s agent to do it on your behalf.
Don’t forget, in the current uncertain market, you could get it for less than you expected.
The auction
There are many strategies when it comes to bidding at auction but one thing all experts agree on is that buyers need a spending limit and need to be firm about sticking to it.
A buyer’s agent from Homesearch Solutions, Henry Wilkinson, says he is always amazed at how many bidders don’t have this limit nutted out before the action starts and instead are guided by others.
This indecision is a recipe for ”buyers’ remorse”, Jones says, which can happen if buyers just miss out or pay slightly more than they can afford. His suggestion: walk away when you’ve reached your limit.
As well as having a maximum price, you should always bid confidently and strongly, buyer’s agents say.
Segers also cautions against talking between yourselves while the auction is under way as it gives an air of uncertainty and could tip off other buyers, the auctioneer and agents that you’re close to your limit. ”Make it look like you’ve come in with plenty of money and you’re there to buy the property,” she says.
Cooley says auctioneers read the body language and confidence of bidders to gauge who are the most likely to buy the property.
Another big no-no, Jones says, is bidding against yourself, which can happen if a vendor’s bid is placed after yours and you are asked to bid again. Auctioneers also encourage this by telling bidders to raise their last bid so they have a better chance of buying. In this instance, Harvey says, bidders should resist offering more until the property has passed in or there are other bidders.
However, Cooley says raising an offer is sometimes necessary at an auction if a bidder is going to buy the property.
When deciding how to bid at auction, buyer’s agents say there is no hard-and-fast rule. One strategy is opening the bidding low – but not ”offensively low”, Cooley says – and then offering small bids rapidly after the previous bidder.
Another is to wait until the bidding has slowed to small increments and then come in with a strong bid over the top.
Whatever the method, Wilkinson says it’s important to try to push the bidding increments down. For example, if the bids are going up in lots of $25,000, ”you may have paid $24,000 too much”.
However, Harvey says, a big bid at the end can often knock out the competition: ”It depends on how much you want the property.”
Passed in
If the bidding has stalled before reaching the reserve, after asking the agent to consult with the vendor an auctioneer will pass in the property. The highest bidder is usually then given first opportunity to negotiate a price. But Segers says this is not a ”right” or a law, just ”agent talk”. Anyone can make an offer. ”They’re not going to say, ‘Go away, we don’t want your money,”’ she says.
But McGrath agent Ben Collier says giving the highest bidder the first chance to negotiate is ”a protocol that most agents adhere to”.
Segers’ strategy if a house has passed in is to decide on an amount with her buyers, then write the offer on a contract, get the buyers to sign it and hand the contract to the agent: ”If they choose to exchange, that’s up to them.” Once the auction has finished, the advantage goes to the buyer ”big time”, she says, as most buyers walk away at that point.
However, Collier says, buyers don’t always walk away. At an auction he held recently, none of the eight parties made a bid before it was passed in. Afterwards, six of the eight groups wanted to make an offer, turning the negotiations into a silent auction. Each group was told the reserve price and asked to give their best offer.
”That was frustrating for the other buyers once it got to that stage because they couldn’t see if they were going to miss out by $2000 or $20,000,” Collier says. ”Then they felt they should have put their hand up at the auction.”
The property ended up selling for $50,000 more than reserve.
Good advice
- Do your homework: find out how much the house is worth.
- Always have a spending limit and stick to it.
- Never bid against yourself.
- Always bid confidently and strongly.
- Don’t talk to the auctioneer or agents during the auction.
- Never talk, or look, at your spouse or partner during the auction.
- Have a plan of how you are going to bid.
- Try to bid in small increments.
- Consider a knockout bid.
‘You have to be ready to walk away’
With a decade of buying and selling under her belt, the principal of Good Deeds Property Buyers, Veronica Morgan, is no stranger to the auction process.
In her other guise, as a presenter of Relocation Relocation Australia, a new show on Foxtel’s LifeStyle channel, she has more eyes on her than at a typical Saturday auction.
For example, in the show’s first episode, which screened on September 28, she bid on a house in the inner-Brisbane suburb of Paddington – for a Sydney couple, Rae and Karl – and managed to win the property right on her clients’ limit of $540,000. Watching her, however, you would think she had thousands more to spend.
Morgan started confidently against another bidder, quickly jumping in after every opposing bid, upping the price by $5000. At one point she stopped to see whether the house would be put on the market. When it was, she came back quickly with a knockout bid.
”What the other buyer didn’t know was that that was all I had in the tank,” she says. ”One of the things we often do is make it look like we’ve got bottomless pockets. My goal is to psych out the other parties … [show] I mean business, I’m going to keep bidding.”
Morgan says her strategy depends on a host of factors, such as who is bidding and how many bidders there are. She always has an upper limit above which she does not bid. This is decided after ”very rigorous price research” and discussions with her buyers.
”And if someone’s prepared to pay more than you, you have to be very comfortable to walk away.”
Source : Antony Lawes, Sydney Morning Herald (Domain), 8 October 2011
Tamarama loses some glamour as post-GFC prestige sales find their feet
The architect-designed Tamarama house (pictured above) owned by Dan White, the Bellevue Hill-bound great-grandson of the founder of the Ray White real estate empire, and his wife, Sam, has been sold.
At $6.6 million it was a little short of its desired $7 million selling hopes when initially listed through Ray White Double Bay’s Elliott Placks.
The suburb’s record $11 million sale – and another at $10.5 million – were achieved in mid-2008 just before the global financial crisis and its ensuing prestige price re-adjustment.
While certainly no longer commanding ambitious boomtime prices, it’s the second prestige home to sell at Tamarama in the past month.
The Bellevue Hill-bound plastic surgeon Robert Drielsma has sold his Tony Masters-designed Tamarama house (pictured above) for about $6.75 million.
The four-bedroom house last sold for $6.1 million in 2004 when it was bought from the Rubicon bigwig Gordon Fell and his wife, Pip.
The contemporary, three-level house in Wolaroi Crescent was built after the 501-square-metre block was bought for $1.45 million in 1997.
Bordering the gully reserve of Tamarama Park opposite the beach, the three-level house is set in landscaped gardens designed by William Dangar.
The house sold through Pauline Goodyer of GoodyerDonnelley Real Estate and Belle Property’s David Vereker, who were aiming for $8 million.
Its initial hopes last year were $11 million.
It’s now been listed at $5,000 a week through Sydney Slice Executive Rentals by its new owner.
The White couple sold because they’re upgrading to a 2,460-square-metre Victoria Road property in Bellevue Hill with tennis court.
The four-bedroom, four-bathroom Tamarama residence constructed three years ago has interiors by Briony Fitzgerald, the interior designer daughter of the acclaimed designer Ann Gyngell.
Drielsma and his wife, anaesthetist, Debbie Hong, have upgraded to a Bellevue Hill residence they bought for $9.85 million earlier this year. It had been listed in August last year with $14 million hopes.
Source : Jonathan Chancellor, Property Observer, 4 October 2011
How a granny flat can double your rental returns
This week I was really excited to find a fabulous property that we could add value to. “Add value? In what way,” I hear you say. Perhaps you are thinking through renovation – new kitchen, new bathroom, paint throughout, perhaps a deck out the back or even maybe add another bedroom? Yes, this kind of work would usually add value to a property. But actually, I was thinking along other lines and two words had sprung to mind: granny flat.
By adding a granny flat to this property, we could literally double the rental return.
This four-bedroom house, in a Hunter Region of NSW town, was renting at $260 per week. But as soon as I saw it, I knew it could achieve much more. It is a large block, more than 1,000 square metres, with dual access. By building a 60-square-metre, two-bedroom granny flat on the property it could be rented for around $270 per week on its own, just for the flat. But it does get better – the house is way under-rented. You see, I’m finding right now that as rental markets have continued to tighten over the past few years, there are some owners and managing agents who haven’t bothered to increase rents. This house was being rented by a long-term tenant and quite frankly, she is on a very good wicket! The market rent in this town for a four-bedroom house isactually up to $350 per week. So the house is under-rented by a whopping $90 per week.
So if we spruce up the house a little, and this one only needs a paint and new carpet, we can increase the rent to $350 per week. The purchase price is $250,000 and we may spend $8,000 of a cosmetic reno, so already that’s gives us a 7% gross yield. Not a bad return when the average yield for houses in Sydney, for instance is 4.18%.
The granny flat will cost us $92,000 to build, this includes the design and complying development application fees. It also includes separate service connections for the flat so that we can rent it to a different tenant to the house if we need to. Remember, the flat will rent for $260 per week. If we add the cost of the flat to the purchase price of the house plus the small renovation costs, and include purchasing costs of stamp duty, legal fees, reports etc then we end up with a gross yield of around 9%.
Did I already mention that the average rental yield on houses in Sydney is around 4.18%?
OK, here is the twist. If you have a self-managed super fund or are thinking of setting one up, you may be able to do all this from within your fund.
On September 14, 2011 the ATO released draft Ruling SMSFR 2011/D1 clarifying its views on key issues surrounding borrowing arrangements (Limited Recourse) as they apply to self-managed super funds, allowing fund monies to be used to renovate property.
Importantly the ATO has given clarity to concerns of fund trustee’s in regards to repairs, renovations and improvements to properties held in SMSF’s under Limited Recourse borrowing arrangements. It is clear these can now be done within such arrangements. Borrowed monies cannot be used in all cases for such work; however other monies within the SMSF can be utilized.
This information comes from Nic Ellis, director of The 2020 Group, who tells me he’s had more enquiry than ever on this topic. People want to utilize their Super to not just invest in property but to renovate and add value. With such a volatile global situation and stock market, Australians want more security around their retirement funds. Nick says he’s happy to see the draft Ruling as it falls in line with his company’s interpretation. The SMSF Limited Recourse borrowing for purchase of property has seen significant growth in recent years and this draft ruling will help turbo charge this sector of the market.
However, the area remains complex and care needs to be taken to ensure expert advice, appropriate structures and experienced administration of this process.
Source : Jo Chivers, Property Observer, 22 September 2011
Dollar to slip below parity ‘within days’
Online shoppers and overseas travellers are watching with dismay as the Aussie dollar slides back towards parity with the greenback amid predictions that the local unit will sink below $US1 within days – and stay there.
Since climbing almost to $US1.11 in late July, the dollar has weakened as the European debt crisis rattled global markets and the Reserve Bank of Australia has softened its tone on the need to push interest rates higher.
The Aussie dollar caught the latest down-draught earlier today, dropping its lowest level in more than five weeks when US ratings agency surprised investors by cutting its debt rating for Italy. That announcement saw the dollar dip to as low as $1.014 before bouncing higher.
Part of the currency’s recovery was courtesy of the RBA. The release of the minutes from its September meeting – when it left its key cash rate on hold for a ninth straight meeting - were interpreted by traders to mean a rate cut is not imminent.
That view pushed the dollar back above the $US1.02 mark, but Westpac chief currency strategist Robert Rennie said the rebound may be temporary with little news on the horizon that would keep the dollar from slipping back to parity.
“Europe is heading towards a recession; [the] US economy is heading towards a double-dip recession and Asia is slowing. That makes the Australian dollar less attractive,” said Mr Rennie. “We will continue this slide back towards parity.”
A drop in the dollar, of course, will be cheered on by companies trying to export, including those dependent on foreign tourists or students. Still, the relatively strong Australian dollar has helped keep a lid on inflation through cheaper imports – without which, the RBA may well have lifted official interest rates even higher than they are now.
And of course, market analysts change their view on the outlook for the dollar and other assets almost by the minute. Just a couple of months ago, some commentators were tipping the dollar would go to as high as $US1.20 as the US deliberately drives down the value of its currency in a bid to help spark faster growth.
Mr Rennie, though, thinks the Aussie dollar is pointed very much in the other direction, and may drop as low as 95-97 US cents by June next year if not sooner.
“As we move into October, November and December we’re going to see the low moving to the 95 US cent level with $US1.01 to $US1.02 upper end of the very volatile swings we’re seeing at the moment.”
One of the biggest drags on the dollar has been the diminishing chance of an interest rate rise. Speculation is swirling that the Reserve Bank will cut rates to spur a slowing economy in which confidence – both for businesses and consumers – is fragile.
The market gives a rate cut a 60 per cent chance when the RBA meets next month, down from 90 per cent just before the release of the RBA minutes.
More to the point, though, investors remain certain that the cash rate will be well below the current 4.75 per cent level in a year’s time, pricing in the equivalent of six rate cuts by then to 3.25 per cent, according to Credit Suisse data. So long as the market’s take such a dim view on rates, the Australian dollar will struggle to regain its earlier appeal.
Source : Chris Zappone, The Age Newspaper, 20 September 2011
NSW Stamp duty date causes a stampede in auction clearance rates $140.5 million worth of properties moved
THE state government’s move to force first home buyers to pay stamp duty has sent auction clearance rates soaring – moving $140.5 million of Sydney property in one day after months in the doldrums.
The first auction weekend after the NSW Treasurer’s announcement that first home buyers would cop stamp duty on existing homes after January 1 has caused a rush of buyers to get in quick. Sydney auction clearance rates leapt to 60 per cent at the weekend after remaining below 50 per cent for the past eight weeks.
Australian Property Monitors senior economist Dr Andrew Wilson said the stamp duty revelations and 10 months of stable interest rate policy as well as the beginning of spring had given Sydney its highest auction clearance rate in two months.
“With their concessions ending, those first home buyers looking for established units or houses may feel like now is the time,” Dr Wilson said.
“That concession can be up to $18,000 and they will lose that at the end of this year – that is an inducement to have a look at what is around at the moment.”
Dr Wilson said prices would rise at the affordable end of the market if first home buyers did rush into the market.
Listings are also on the rise with a bumper weekend at the end of September and sellers buoyed with new confidence as buyers emerge. “We do have reasonably high levels of stock at the moment,” Dr Wilson said.
“Buyers have been sitting on the sidelines over winter and it has been a quiet market over the year. Sellers have waited for a bit more competition for their properties.”
Real Estate Institute of NSW president Wayne Stewart said agents were expecting a new generation of property hunters who are keen to escape being slogged an extra $17,990 in stamp duty.
“We feel there is going to be a lot of first home buyers getting out there,” he said. “We have a positive and a stable 12 months ahead. We will see a rush on properties in the lower quartile, prices will inflate and we’ll see a hangover period after that.”
Ray White Concord principal Joel Hollis said he had seen a boost in inquiries for homes priced between $300,000 and $500,000.
“The stamp duty will be a hit of $15,000 – that’s a lot of money for anyone these days,” he said. “People who haven’t bought or can’t buy by this time have no choice to go back on the rental market. People that don’t buy before January will see rent increase.”
Richard Matthews Real Estate director Matthew Everingham said strong sales results in Sydney had convinced vendors the market would hold its ground.
“I think there is also now an element of sellers thinking about the effect the reduced stamp duty rates may have early next year,” he said.
Source : Vikki Campion, The Daily Telegraph, 12 September 2011
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