Archive for May, 2009
CASHED-UP Melburnians keen to snatch beachfront holiday homes from struggling vendors could be in for a big disappointment.
Plunging average prices for regional seaside homes don’t tell the full story.
Valuer-General Victoria sales figures released this month by Land Victoria show median house prices rose in a third of seaside towns!
From the end of 2007 to the end of last year, prices fell in 16 of 30 coastal towns and stayed level in four others!
Hardest hit is Port Fairy with a 34.6 per cent drop from $390,000 in late 2007 to $255,000 at the end of last year. Average house prices also fell dramatically in Blairgowrie, Barwon Heads, Portarlington and Rosebud West.
Anne Murphy of Stockdale & Leggo said Port Fairy sales during the summer were the best in the eight years she’s been there, with the big drop in the median house price for Port Fairy not because property values have fallen. Instead, figures have been skewed by tightly held, top-end properties being kept off the market.
“We’ve been recommending they delay selling because demand isn’t strong.”
People have owned houses here for 30 to 50 years. They’re kept in the family and passed down. So unless unforeseen circumstances such as a divorce occur, why sell in this market if you don’t have to?
But Murphy says those Port Fairy vendors on the market are more realistic than past years.
“We’re not expecting a good summer season with the economy the way it is, but we’ve had extremely good results in the number of sales and most sales were within 10 per cent of asking prices.”
“In the last 18 months in our office there has been only one sale of a property that sold for less than the vendor paid for it!”
“Most properties here are about $450,000. You don’t get much for your money under $400,000.”
That still hasn’t stopped holiday-home hunters prowling Port Fairy.
“We’ve had people come in looking for that bargain,” “I personally don’t have any bargains but there are realistically priced properties and motivated vendors who’ll negotiate.”
A historic fishing port, Port Fairy is now a popular holiday and retirement town famed for its annual folk festival about 290km west of Melbourne.
What will happen if rates go up? In today’s low-interest-rate environment one of the common questions property investors ask is, “What happens if we buy now and interest rates skyrocket, like back in the 1980’s?”
An understandable concern and today’s historically low interest rates can’t be sustained forever because at some point the economy will begin recovering, inflation will grow and rates will rise!
That’s the economy’s cyclical nature for you.
When rates do rise it’s doubtful they’ll hit the dizzying heights of the late 1980s. The major lenders certainly don’t think so; they’re setting their 10year fixed rates about 7per cent.
With vast resources and access to the world’s top economic minds, it’s highly unlikely that major lenders will make the wrong call about the future direction of interest rates.
But for argument’s sake that they do and rates climb back to the heady levels of 20 years ago.
If interest rates go up that far it’s a sign that business and consumer confidence is high. When rates go up so does inflation. And when inflation rises, so do property values. Sure, your holding costs will be higher because of higher interest rates but as an investor you will benefit on three fronts.
High rental returns
First-home buyers won’t be prowling the property market for a buy as it’s less affordable in a high-interest-rate environment. This will keep them in the rental market, put pressure on the available rental accommodation and drive up asking rents. The higher the interest rates the higher the investment yield!
Negative gearing benefits
If your expenditure on the property exceeds your rental income, you’ll be able to soften the impact and increase your cash flow by claiming the difference as a tax deduction.
Substantial sale proceeds
If you can’t afford to hold the property …sell it. Whilst not an ideal scenario, your property will have grown substantially in value during the time of high inflation so you’ll be better off than when you purchased it and that’s the aim of investing!
Melbourne’s outer suburb vacancy rates have improved from 0.7 per cent to 1.8 per cent in the past six months, according to the Real Estate Institute of Victoria’s April vacancy rates.
Vacancy rates across Melbourne are reasonably steady having been between one and 1.4% for 12 months. However it‘s significant that there’s a noted improvement in the outer suburbs.
The improvement more than likely due to the number of first homebuyers moving from rented accommodation into their own homes with the assistance of the grants, bonus and boosts.
The March quarter median prices showed that most of the activity in the marketplace has been in the outer suburbs; for instance Craigieburn, Melton South, Hillside, Epping, Caroline Springs, Werribee and Meadow Heights – all outer suburbs of Melbourne very popular with first homebuyers.
It‘s great news for renters if a by-product of the grants, bonus and boosts is an improvement in availability of rental accommodation, however monitoring of the situation over the next few months will tell of any continual improvement..
We’d consider that the rental market would be in balance once we reach a Melbourne-wide vacancy rate of 3%.
The last month’s REIV members figures show a very minor change in the inner suburbs where the vacancy rate moved from 1.5 to 1.3 per cent and in the middle suburbs where it moved from 1.4 to 1.3 per cent.
The value of commercial building permits in Victoria increased in the March quarter, despite there being a fall in the state’s building industry overall.
Victorian Building Commissioner Tony Arnel said that when compared to the same period in 2008, the value of building permits in the state has decreased by 11 per cent to reach under $4.2 billion!
Looking at data for building use, commercial building permits are the only building use category to increase, up 8% to $793 million!
Hospital and healthcare recorded the biggest fall of the quarter dropping 55%, industrial fell 46%, public buildings by 4%, retail by nearly 27%, residential by 17% and domestic by 3%!
According to Mr. Arnel, North Central was the only Victorian region experiencing an increase in the value of permits issued with nearly a 23 per cent increase when compared to the same period of 2008.
Property investors should start planning now and take advantage of the next upturn in the property cycle, according to quantity surveying firm Asset Economics.
“Property booms never last but neither do property busts.”
To take advantage of the next boom, investors need to make sure they’re buying for long-term capital growth remembering to take in account the ripple effect.
As our next property cycle comes around, it‘ll be the most desirable and sought-after areas that start growing first, and these are generally the most affluent suburbs too.
From there, capital growth starts to ripple outwards!!
551 Punt Road SOUTH YARRA
Renovated from the ground up with no expense spared, this stunning home has been re-stumped and rewired with new double glazing. It features a stunning gourmet kitchen opening on to a large family room at the rear and overlooking a picturesque back garden with entertaining area …accommodation includes three huge double bedrooms plus study (master with ensuite) formal sitting room, all with 12 ft plus ornate Victorian ceilings!
There’s 4 open fire places perfect to share a glass of red and fall asleep in front of, stunning new timber floors with brass inlay and ducted heating!
There’s off street parking for a number of cars including a car port, as well as a double storey
cottage / studio.
This beautiful home is a truly beautiful example of a timeless triple brick “Victorian” superbly decorated with feature gold leaf!
It’d seem the stars are aligned: low rates, population growth, low vacancy rates, strong rental market and a shortage of housing in the majority of capital cities.
Since the latter 2008, the number of loans to first home buyers has outweighed substantially those to existing owner-occupiers and investors as first-time buyers rush to take advantage of the increased government grant. These numbers are set to surge in the next two months after the Prime Minister indicated that the increased grant will end June 30. In previous interest-rate cycles, lending to investors and existing home buyers increased alongside that to first-home buyers.
Partly, the reason is that investors aren’t getting the first-home-owner grant, and when laying your own money down instead of the governments’, you think more carefully before deciding to take the plunge. Unemployment concerns and fears about how the economy will evolve this year are also reasons why investors aren’t yet entering the market.
Consumer sentiment figures released earlier this month by the Westpac-Melbourne Institute Survey found pessimists still outnumbered optimists and, with the prospect of more unemployment, that’s unlikely to change anytime soon.
Interest rates are one of the crucial aspects investors consider. During the past month or so, several of the big banks have increased their fixed mortgage rates, even though variable rates are expected to go even lower.
Banks say it’s due to an increase in the rates in the wholesale market where they access funds. Not everyone accepts that that is the reason, but most acknowledge it’s a signal borrowing costs are near their lowest levels!!
Some economists believe fixed rates will continue to rise as banks manage their risk, and it is just a matter of the speed at which it happens. Fixed rates are not popular at the moment even with investors who traditionally used this option.
That’s not a surprise, given the cash rate is expected to fall to 2 per cent by the end of the year.
But fixed rates are a bit of a barometer of the longer term trend in interest rates, so they’re worth watching. It also pays to remember that just because the Reserve Bank of Australia cuts rates’, that doesn’t mean banks have to follow suit.
Only time can tell, whether or not property buying will be better next year!
Maybe investors are waiting for a sign that unemployment will stop rising, or for first-home buyer activity to dry up!
The value of Aussie homes increased in the first quarter of the year, bucking a global trend downwards!
House and flat prices in Australia increased in value by 1.6% in the first three months of the year, helped by a scarcity of supply, lower interest rates and incentives to first-home buyers.
The slight recovery in Australia “has been driven by the 40% fall in home loan rates down to 5.7%, which are now at their lowest levels since July 1968!”
March’s three-month gain follows a 0.1% rise in the three months to February in the RP Data-Rismark’s national dwelling value index, and a 3% fall in the value of “cap” city homes in 2008.
The strength of Australian housing prices is a world away – so far – from the 2.7% drop in British home prices over the first quarter, capping a year to March a whopping 17.5% plunge!
US housing didn’t fare too much better either, with prices in the top 20 cities sinking 1.9% in February, which brought the 12-month fall to 18.6%, according to the most recent S&P/Case-Shiller index, a widely followed measure.
RP Data-Rismark said the first-home buyer’s grant, ending June 30th, has acted like a catalyst for new home buying in Australia, but lower interest rates are sustaining the market’s growth.