The reverse mortgage industry, worth of $3 billion, is set for a major overhaul with new laws and tougher disclosure rules expected in the new year.
A reverse mortgage is money lent against the value of the property and no repayments are made as the interest is added to the total debt. The lender receives its money and interest back when the property is sold. Given the nature of these loans, lenders generally don’t offer these loans to customers under the of 60.
The shake up here is that the Australian Federal Government plans to ban contracts which allow negative equity to build up on a reverse mortgage, and will also beef up information disclosure requirements to ensure people fully understand what they are getting into.
It appears that these tough new regulations may increase the rate at which lending institutions are already existing this type of loan. Earlier this year, several major reverse mortgage lenders have withdrawn this offering, and the bank regulator has also warned lenders about the risks involved.
Positive cash flow property appeals to most, the ability to own a piece of brick and mortar and have it put money in your pocket each week is an attractive prospect. Well according to an article in the Herald Sun (http://www.news.com.au/heraldsun/story/0,21985,25684245-5013926,00.html), here is an extract:
INTEREST rates are so low it’s possible to buy an investment property and end up with money in your pocket each week, thanks to rising rents and the lowest interest rates in a generation.
Financial planners say interest rates are so low that if you have a stable income and can afford it, now could be the ideal time to buy an investment property.
Huge shifts in the property market last year caused property prices to fall 2.6 per cent. Rents rose 11.2 per cent. Add generous tax rebates and it’s now possible to own new apartments for next to nothing — and in some cases receive a payment for buying.
MAB Corporation’s Richard Marshall says many investors are cashing in on the capital growth and unsurpassed tax benefits that buying property now delivers.
"In the current environment of tax concessions and low interest rates, property investment can actually be positively geared," he says. "An investor can buy a new apartment and have $50 extra in their pocket each week."
Frank Hellier of Malcolm’s Real Estate says many properties are moving into positive cashflow.
"The property you buy returns cash in your pocket every week, from day one," he says.
Investors looking at positive gearing can opt for bigger rental returns and earn money immediately from their investment without relying solely on future capital gains.
With affordability at its lowest level on record, first-home buyers are thinking outside the square.
The home-ownership dream rarely used to feature a sibling in your bathtub and a parent on your certificate of title. These days though, first-home buyers are becoming more and more flexible.
Housing affordability fell to record lows in the March quarter this year according to the latest Housing Industry Association-Commonwealth Bank report. Mortgage payments accounting for 30.7 per cent of total first-home buyer income these days!
Generations X and Y are also settling down later meaning for many home ownership is a solo battle.
It’s not surprising then that increasing numbers of first-home buyers are teaming up with siblings, parents or friends in a bid to break into the property market.
“There’s been a noticeable trend towards family members buying property together, as property prices are still very high, particularly for first-home buyers,” says Aussie Home Loans boss John Symond.
The number of family members taking out mortgages together has jumped from about 1% of all loans originated by ‘Aussie’ to 5 per cent over the past two years! Mortgage Choice has reported a similar trend. A survey carried out by the company last year revealed more than 6 per cent of people who bought property within the past two years had done so with family or friends. And of those who intended to buy property within the next two years, over 8 per cent intended to do so with family or friends!
INVESTORS own around two million homes in Australia and every year thousands claim deductions they’re not entitled to and fall foul of the Australian Taxation Office.
The result can be a kind warning or a significant fine and large interest bill.
The tax office says investors’ should be responsible in getting their tax returns right and they can’t blame their accountant or plead ignorance if they get it wrong.
One of the most common mistakes investors make is claiming items that should be depreciated over several years.
According to the ATO, initial repairs to fix damage, defects or deterioration that existed when a property was bought are capital expenses that should be claimed as capital-works deductions over either 25 or 40 years.
Capital improvements like re-modelling a bathroom or adding a pergola should also be claimed as capital-works deductions.
Other mistakes include:
Taxpayers sometimes use loans for investing and private purposes — for example, to buy or renovate a rental property or to buy a motor boat.
The interest expense on the private portion of the loan (the boat) is not deductible!
Conveyancing expenses incurred when buying and selling a property are not deductible. These form part of the cost for capital-gains tax purposes.
If you take a holiday and visit your investment property while you’re there, you cannot claim a deduction for the full trip.
The tax office says you may claim only those expenses directly related to the property inspection and a proportion of accommodation expenses.
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!