Ignore the noise – property is an excellent long-term investment

October, 2017 by

Media reports suggesting days of doom and gloom are imminent for Australian real estate, may have alarmed some owners and investors about the value of their properties.

The current market cycle started in May 2012, and for the past five years, some sections of the media, stock brokers, and other so-called investment commentators have been predicting a market correction would arrive anytime soon. We’re still waiting, and I find the constant need to talk down bricks and mortar to help attract attention far from helpful for the consumer.

Take the headlines in the first couple of weeks of September, lamenting lower auction clearance rates in some of our major capital cities. While they might be marginally below those of early spring 2016, they are still above 70% in Sydney and Melbourne. The current clearance rates are a more than a respectable result and hardly a cause for concern.

At the same time, the majority of Australians have given real estate a big tick of approval by investing more than $7 trillion in the asset class. At last count, we owned about $1.8 trillion in shares. Australians prefer property because it’s a safer asset class. Historically, Australian shares may fluctuate by over 40% in any one year, offering investors a white-knuckle ride and little clarity about the value of their portfolio. Furthermore, the mad histrionics of an East Asian communist dictator or long-standing money laundering scandals that seem to have ensnared a sharemarket favourite won’t impact the value of your property portfolio.

Our low-interest rate environment, along with our falling unemployment and 26 years of consecutive economic growth, continues to underpin demand for real estate. The Reserve Bank has not increased the official cash rate since 3 November 2010. Regardless of banking regulator APRA’s imposition of restrictions on investment and interest-only lending, mortgages interest rates are still well below the long-term averages. Moreover, there are very few economists tipping the RBA will start tightening interest rates anytime soon.

I was also pleased to see some sensible comments from a former prime minister on the issue of housing affordability. Speaking at a property industry symposium in Sydney in late August, John Howard said any big city should expect property price rises. The facts are that cities such as Sydney and Melbourne are growing by thousands every week. These people need to be housed, either in owner-occupied or tenanted accommodation. This population growth won’t be slowing anytime soon, which is the best insurance policy for property values in our major capital cities.

My advice is to ignore the short-term noise and stick solid with quality, well-located real estate. It produces excellent long-term returns without the volatility of other growth asset classes.

Millennials set to change the face of Fijian real estate

September, 2017 by

In late July, Raine & Horne Fiji launched offices in Lautoka and Nandi, and will be opening in Suva, Savusavu and Rakiraki, in Fiji’s cane-belt region.

Rakiraki is halfway between Suva and Nandi, on Kings Road, and future development is expected to take off there. It will be mostly leasehold title, although there are some chunks of freehold land in Rakiraki, too, noted Director, CJ Shergill, who has launched Raine & Horne Fiji along with his business partners, Sanjay Krishnan and Aveet Goundar.

Raine & Horne Fiji plans to establish offices in Vanuatu, the Solomon Islands and Samoa, as there is substantial trade and commerce opportunities between these countries. To support this growth, CJ said the current team will be extended from 10 licensed real estate agents to 30.

There are also plans to build Raine & Horne Fiji’s portfolio of investment properties, although property management is still in its infancy in Fiji. “There is room for big real estate brands such as Raine & Horne in Fiji and the Pacific region, as there are many smaller players in local markets. The delivery of commercial broking services are other opportunities that Raine & Horne could deliver to Fiji through its broking arm, Our Broker,” said CJ.

 

Changing face of Fijian real estate

Raine & Horne Fiji is launching at a time when cultural shifts are changing the Fijian property market. In the past, a father would decide where family members would live in Fiji. This is changing and Fijian Millennials are making their own decisions about where they want to live and buy property, according to CJ. “If you are a younger person buying residential property in Fiji, you should look at native title properties, which have more affordable 99-year leases.

A freehold three-bedroom house in Martintar, near Lautoka, for example, will be FJ$450,000 (AU$283,000) to FJ$500,000 (AU$315,000) and the land will be FJ$250,000 (AU$157,000). A quarter-acre block in the same region on a leasehold arrangement will cost between FJ$70,000 (AU$44,000) and FJ$150,000 (AU$94,000), and it will be FJ$120,000 (AU$76,000) for a house. This appeals to younger buyers.”

 

Advice to foreign buyers

If you’re thinking about adding a property in Fiji to your property portfolio, it’s worth noting that foreigners can only buy “freehold,” land which is 9% of the total land in Fiji. Foreigners are allowed to buy this type of land, but if they wish to buy over one acre, this must be approved by the Minister of Lands. Foreigners have the right to buy apartments in Fiji, but this category of real estate is still in its infancy. To find out more about buying real estate in Fiji, contact Raine & Horne Fiji on (+679) 708 8888 or (+679) 908 2284.

Rising mortgage rates

July, 2017 by

There was a time when the Reserve Bank of Australia (RBA) moved the official cash rate up or down that most lenders would typically follow suit, shifting their mortgage interest rates in the same direction too.

Moreover, when the cash rate was increased, you could always rely on the lenders to pounce, passing the hike onto their customers immediately. This remains the case. On the flipside, when the cash rate is cut by the RBA, lenders often take at least a month to pass on the savings. We haven’t seen a cut since September 2016, but I can almost guarantee that if another cash rate cut eventuates, that the lenders will be slow to pass it on.

Out of cycle cuts

Yet despite the 10-month rate respite, the major banks have increased their rates over the past couple of months. Not only are they penalising investors, who provide public housing, but now owner-occupiers are taking a hit too. Even small business variable loans have increased.

But there is not point getting mad. Rather it’s time to get even with the lenders by shopping around for more competitive rates. Yet, a recent industry study reported that 90% of home owners don’t know their current interest rate[i].

In my book, an even bigger concern is that fact that the average Aussie pays up to 1.75% more interest on their home loan than the lowest rate available. That’s just over $5,000 annually for an average home loan in NSW of about $435,000. It will be less in Tasmania, Northern Territory and South Australia, but you get my drift.

Time to act

You would also be aware that if you have dealt with Our Broker before, that the lowest interest rate is not always the best interest rate. However, when we see research results indicating 90% of Australians don’t know their current interest rate, then it begs the question… when was your last finance review?

If it hasn’t been in the last 18 months, then it is easy to suggest that there may be additional savings we could find for you. While the cash rate has been stable since last spring, it has dropped 100 basis points (1%) in the last 2 years. Moreover, can you be certain your lender has passed these savings on to you, while there could be a more suitable mortgage with your name on it.

Sometimes we don’t even have to change your lender to secure you a better rate. Just ask us and we will negotiate this for you. We also know that your current lender won’t call you and tell you they are offering better deals to new clients. Loyalty to longer-term banking customers seems to have gone the way of the Dodo Bird and into extinction.

The Our Broker difference

Also, your lender will not tell you if there is a better deal with a competitor, be it a Big 4 bank, a credit union, building society or a regional bank. This is the job of a mortgage professional such as Our Broker.

There are many other lenders in the market place and it is our job is to put you in touch with the right lender who can provide you with the right mortgage for your circumstances. As part of our service, we can also guide you through your financial journey, as life and the world around us changes.

To find out how Our Broker can help you improve your financial position, call us today on 1800 913 677.

[i] www.thehippocket.com.au/australians-dont-know-mortgage-rate

Economic engine

July, 2017 by

There are hundreds of thousands of Australian workers who argue otherwise. These include architects, solicitors, builders, accountants, bookkeepers, painters, landscapers, mortgage brokers, bankers, public servants, quantity surveyors, valuers, carpenters, bricklayers, plumbers, as well as research analysts, real estate agents and property managers. Also don’t forget the mega hardware and supermarket chains and other retailers who are directly or indirectly indebted to the housing sector for their revenues. Real estate is big business and a vital cog in the Australian economy.

Moreover, we all need a roof over our heads, whether we’re renters or owner-occupiers. Yet listed companies come and go – anyone recall One.Tel or HIH, which took large wads of investor’s cash with them into liquidation?

Property investors have more control

July, 2017 by

By buying a quality, well-located property or by means of a shrewd ‘fix and flip’ renovation strategy, you can accelerate the rate of capital growth of your investment. On the other hand, the value of your equity investments are totally outside your control — it depends on how well the executives and directors who lead the company you own shares in, perform.

Unlike most businesses listed on the ASX, real estate is a vital commodity. Equally, I can’t agree with those who advocate that investing in property doesn’t help spin the wheels of our economy.

Defending real estate

July, 2017 by

It’s an age-old question: which is a better investment — property or shares. Angus Raine gives some reasons why property is a better investment than shares. Last month the value of ASX-listed stocks, as measured by the All Ordinaries Index, fell 3.1% in May 2017. If the Australian real estate market copped a monthly loss of this magnitude, there’d be hell to pay in the media.

For what it’s worth, the average for our combined city markets dropped by 1.1% in May, although it’s up more than 8% year-on-year, according to real estate data provider, CoreLogic.

It strikes me that with plenty of experts tipping rocky times ahead for shares that it’s an opportune time to remind investors why bricks and mortar makes for an excellent investment.

For starters, owner-occupiers dominate the real estate market, which means that if investors leave it in large numbers, it won’t necessarily collapse. This unique situation helps manage down the volatility in the property market. On the flipside, a mass exodus of skittish investors from the ASX would be disastrous for that market.

For what it’s worth, the value of the national housing market reached a massive $6.7 trillion at the end of 2016. There are 9.7 million residential properties in Australia. By comparison Australia’s superannuation pool is worth $2.1 trillion and listed equities $1.7 trillion.

The Federal Budget starts to take housing affordability seriously

May, 2017 by

The Federal Government through the May 2017 Budget has recognised the need to address housing affordability through several complementary measures that will address supply and demand issues, according to Angus Raine, Executive Chairman, Raine & Horne.

Super breaks for downsizers

There are two Budget initiatives aimed at freeing up housing supply, which could ultimately address housing affordability. The first initiative aims at encouraging older Australians to downsize out of big homes they no longer need. From 1 July 2018, individuals aged 65 and over will be able to make an additional non-concessional contribution of up to $300,000 to their superannuation fund from the proceeds of the sale of their home, if they’ve owned it for at least 10 years.

This initiative looks great on paper, however the immediate costs of buying a new home is prohibiting cash-poor empty nesters from selling an existing home. The trouble is downsizers will still need to pay stamp duty on the new home, moving costs, legal fees and so on, which represent immediate hits to their retirement savings. I realise that stamp duty is a state government impost, which limits what the Federal Government can achieve for older homeowners. However, this initiative means we are still only tinkering at the edges of the issue. Over 65s need stamp duty breaks now.

Vacant home tax on foreign ownership

The budget has targeted vacant dwellings owned by foreign owners. Foreign owners who do not occupy or make their properties available for rent for 6 months or more each year will be charged an annual fee of at least $5,000. This new tax has some merit but won’t probably won’t concern those foreign buyers who own higher valued properties in Sydney and Melbourne and to a lesser extent in Brisbane. This charge will seem like a drop in the ocean against the excellent growth returns they’re enjoying.

Assistance for first home buyers

To assist first home buyers entering the property market, the Federal Government announced the introduction of the First Home Super Saver Scheme on budget night, which will commence on 1 July 2017. The scheme allows first home buyers to use their superannuation fund as a vehicle to save for a house deposit.

The super-saver scheme will allow first time buyers to salary sacrifice $15,000 a year into their super account, capped at $30,000 in total. Again, this will only be a start for new home buyers, especially in Sydney, Melbourne and some parts of Brisbane. In Perth, Hobart and Adelaide, where median house prices are significantly lower than the east coast capitals, this initiative might help first timers accumulate a deposit for a property.

Budgeting can fast track Millennials into a first home

April, 2017 by

While many bemoan the uncertain future of home ownership for younger Australians, it seems many Millennials still aim to own the roof over their heads, writes Dawn Inanli, General Manager, Our Broker.

According to the recent report Beyond the Bricks from global investment bank HSBC, 83% of Millennials in Australia intend buying a home in the next five years. This is higher than the United States (80%), Canada (82%), the UK (74%) and France (69%). Yet the number of Australians aged 19-36 who currently own their own home is among the lowest.

Slash insurance costs with a bigger budget

April, 2017 by

A larger deposit will potentially assist first-time buyers to avoid or minimise the expense of Lenders’ Mortgage Insurance (LMI).

LMI is usually only charged if a borrower is unable to pay a deposit equivalent to about 20 percent of the property’s purchase price. It’s an insurance that protects the lender, not the borrower, if a loan is defaulted.

The amount of LMI payable is calculated on the purchase price of the property and the loan amount, and it can potentially cost buyers many thousands of dollars over and above the expense of buying the home.

Budget your way into a home

April, 2017 by

Interestingly, many Australian Millennials identify the challenge of saving for a deposit for a home loan as their biggest barrier to home ownership, but only 17% of Australian Millennials who intend to buy a home have a precise budget.

Establishing a budget is a vital step in the home ownership process. A budget shows you where, when and how much you’re spending and how to trim your expenditure so you can reduce your debts faster. If you’re not sure what’s involved in developing a budget, you can find an online budget tool on the Our Broker website by clicking here.

In terms of where you might be able to shave back some spending, the HSBC research says many Millennials are willing to consider making sacrifices to afford their own home. More than half (55%) of millennials who intend to buy a home would consider spending less on leisure and going out; 33% would be prepared to buy a place that’s smaller than ideal; and 21% would consider renting out one of their rooms. Eighteen percent would consider buying with a family member and 11% with friends.

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