Property lands knockout blow to shares

March, 2018 by

It’s little wonder Australians love buying and investing in bricks and mortar. In fact, around 70% of Australians own real estate, while just 31% of us hold shares.

The plunge in share values in the first weeks of February generated much concern for investors, and rightly so given the speedy falls. From their highs to their recent lows, the US and Japanese share markets plummeted 10%, Eurozone shares fell 8%, Chinese shares dropped 9%, and Australian shares lost 6%, according to research from AMP Capital. And don’t get me started on the recent bitcoin and cryptocurrency madness.

Also, don’t overlook the fact these share market plunges are occurring in a matter of days, and have many investors, particularly those retirees, who endured the alarming impact of the Global Financial Crisis less than a decade ago.

Owner-occupiers underpin the stability of bricks and mortar

Of course, there are times when property values will run a steady line, such as the case with Sydney values now. CoreLogic tells us that values in NSW capital fell by 0.9% last month. However, I must stress that this is a monthly fall and is nowhere near the declines experienced by the share markets in early February.

Unlike shares, investors don’t dominate the property market, and this circumstance helps minimise the volatility of bricks and mortar. Rather owner-occupiers, who are live in their homes for the long-haul, dwarf investor numbers. Moreover, the dominance of owner-occupiers effectively provides property investors with a safety net of stability that isn’t available to them if they have their money in shares – or worse Bitcoin.

Safe as houses

Real estate is an essential human necessity, but companies and their shares often come and go. In comparison, everyone will continue to need a roof over their heads.

We’ve all either owned, rented or lived in a property. This level of familiarity is central to the safety of bricks and mortar. On the flipside, shares represent uncharted and volatile waters for many.

Moreover, you can accelerate the value of a property by buying well in a suitable location and adding some extensions or undertaking a savvy renovation. With shares, returns are entirely out of your hands as an individual investor. Instead, share returns depend on how well the company is run by the executives and directors, the market-place where it operates, and overall market confidence, which is impossible to gauge for individual investors.

Looking back over 2017

December, 2017 by

Angus Raine, Executive Chairman of Raine & Horne takes a rear vision mirror look at how the residential property market has fared around Australia in 2017.

The headline story of 2017 is Sydney, where the median home price is now $905,917. Values in the emerald city have risen 75% since 2012 though we saw values cool by -0.5% in October, bringing capital gains over the past 12 months down to 7.7%. It’s good news for first home buyers, but double-digit price falls are unlikely. Sydney’s population is expected to grow from 5 million to 8 million people by 2050, underpinning demand for more homes well into the future.

Melbourne is nipping at Sydney’s heels with home values climbing 11.0% over the past 12 months, taking the median value to $710,420. Record-breaking migration is supporting the market but with values rising by just 1.9% in the October quarter, the slowest pace since mid-2016, Melbourne seems poised for a breather.

Brisbane values have climbed just 2.7% over the past 12 months (median property price: $490,525).  However, the affordability gap between Brisbane and Sydney is fueling interstate migration, and with the Commonwealth Games likely to ignite the local market, Brisbane is a real growth prospect for 2018.

The Perth market currently offers exceptional opportunities. The median home value of $462,624 is vastly more affordable than the eastern state capitals, and though values have dropped 2.6% in the past 12 months, the market is now stabilising. Perth is superbly placed as a gateway for migration from Asia, and this should underpin property values as we look ahead.

Adelaide continues to enjoy steady gains, with values having risen 4.6% over the past year to a median of $430,303. There’s a lot to love about Adelaide, and better affordability helps the city avoid the cyclical swings we see elsewhere.

Hobart has been the surprise packet of 2017. Values having climbed 12.7% over the last 12 months taking the median value to $396,393. Much of this has been driven by the affordability of Tasmania, and more moderate price growth is likely across 2018.

2017 has a been a transitional year for Darwin real estate, with median values resting at $438,000, which many buyers have identified as the bottom of the market. Consequently, sales activity is more than double that of November 2016, with cashed-upped first-timers leading the charge. Moreover, the ongoing deployment of US troops to Darwin will help to realign the local market in 2018, while the NT government is ramping up infrastructure investment. In combination, these factors will underpin values long-term.

I encourage you to speak to your local Raine & Horne property expert to understand how values may move in your patch of Australia throughout the New Year.

First home buyers are back

November, 2017 by

The August 2017 housing finance figures released this month by the Australian Bureau of Statistics (ABS) show first home buyers are returning to the market.

The number of first home buyer commitments as a percentage of total owner occupied housing finance commitments rose to 17.2% in August 2017 from 16.6% in July 2017. The ABS suggests the increase is being driven mainly by changes to first home buyer incentives made in July by the New South Wales and Victorian governments.

This is music to my ears after a few challenging years for new homebuyers in the eastern states, and it’s also time to consider my five key steps for buying a first property.

  1. Figure out your borrowing capacity by obtaining a loan pre-approval before you start visiting open homes. A mortgage broker such as Our Broker can help you crunch the numbers by reviewing your employment history, wages and salary information, assets, and liabilities such as credit card debts.
  2. Be prepared to take a flexible approach to buying a first home – this can mean looking for more affordable properties in suburbs or towns that may not have originally been on your shortlist.
  3. Also, seek out properties that are close to shopping, schools, hospitals and restaurants and theatres, and if these facilities are in walking distance, even better. It’s always good be able to get to work as quickly as possible, so access to motorways and railway stations are valuable features to seek out.
  4. Do your research before taking the plunge, by immersing yourself in the business, economic and demographic data about a regional city or suburb that has taken your fancy. The ABS website is usually a good starting point, followed by state and local government websites, not to mention property and personal finance magazines such as Money.
  5. First-hand experience is vital, so don’t hesitate to attend and observe some auctions, as this will provide a good measure of the state of the market in your patch of choice.

For first time buyers, it was pleasing to see a senior member of the investment fraternity write recently that the chances of a real estate crash are far-fetched. “Calls for a property crash have been pumped out repeatedly since early last decade,” said Shane Oliver, Head of Investment Strategy and Chief Economist, AMP Capital. We should always be mindful that bad news sells and that those overseas commentators, who regularly call property market crashes, should stick to their own areas of expertise.

Moreover, RBA research shows that while getting a start in the housing market is challenging, however, ‘those who make it are doing ok’ and bad debts and arrears are low, noted Shane. Moreover, debt interest payments relative to income are running around 30% below 2008 peak levels thanks to low interest rates. “Sure, rates will eventually start to rise again but they will need to rise by around 2% to take the debt interest to income ratio back to the 2008 high.” The facts are that the fundamentals supporting Australian real estate remain in place – robust population growth, a consistent shortage of new properties and an economy that is into its 26th year of growth.

For first home buyers the message is simple – do your research and look for a quality, well-located property, and let time and capital growth do the work of creating some decent wealth for you.

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.


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.