Archive for May 31st, 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!