Thousands of off-the-plan apartment buyers could face losses as a glut forces many Melbourne projects into limbo.

Two major property players have broken industry ranks to warn buyers about an oversupply of poorly located apartments in the development pipeline aimed at property investors.

Rob Pradolin, general manager of developer Australand, which has $400 million in projects under way in Victoria, predicted that 30 to 40 per cent of apartment projects currently advertised for Melbourne would not go ahead.

”All those people who have paid deposits are locked in and can’t pull their money out until the sunset clause in the contract expires in three, four and sometimes five years’ time,” he said.

Mr Pradolin predicted banks would control the market by confining lending for construction work to less risky developments in prime locations.

His comments come less than a fortnight after Melbourne property stalwart Max Beck, who founded Becton Property Group, warned in The Australian Financial Review of a potential slump in apartment values if the banks funded all the ”mega-projects” proposed.

Proposals for 33,451 new apartments in 293 Melbourne buildings are now being advertised to buyers. The figure has leapt from 18,585 apartments in June 2008, according to research by property agency Oliver Hume.

The surge is a boon for the more than 500 real estate agents spruiking apartment developments to local, interstate and international property investors. However, just 13 per cent of projects launched in the past two years have started construction, a report by Oliver Hume showed.

Competition between projects for buyers, combined with stricter laws for foreign property investors, a slow-down in migration levels and the strength of the Australian dollar have resulted in disappointing off-the-plan sales for many of the developments.

Freehills property partner David Sinn said major banks were worried about a potential oversupply in Melbourne and looking to reduce their exposures by taking a hard line on lending to start construction.

Banks were shying away from projects where developers had little equity to put in or where off-the-plan sales had been largely to overseas buyers.

”The sheer volume of projects trying to get up at the moment is amazing and there is only a certain pool of money available,” he said. ”The pool is insufficient to service all those projects.”

Mr Sinn said most banks were now refusing to lend to individual buyers for inner-city apartments. Buyers who had paid deposits could do nothing but wait their contracts out.

The head of property research at Macquarie Bank, Rod Cornish, said steep price rises for Melbourne apartments in the past year had enticed developers to launch more projects.

The trend was reflected in a record spike in building approvals, but did not mean all the projects would commence. ”Melbourne’s been through the strongest migration ever seen,” he said. ”But we expect a slowdown in overseas migration and negative growth in interstate migration, so that will impact the underlying demand for apartments in the inner city.”

He said lower international student enrolments were forecast to dampen the rental market, another factor making banks nervous to lend.

Mr Pradolin said that after a rush of apartment proposals to meet the housing shortage, there may now not be enough renters for one and two-bedroom apartments. He said apartment projects targeting owner-occupiers would fare better.

”Good apartment projects in good locations will always be in demand, but it’s the projects in secondary locations that have increased in number and that is where buyers need to be more much more cautious.”

Oliver Hume’s report showed that 90 per cent of all apartment sales in the inner city in the first half of this year were to property investors, many from overseas.

A proposed $85 million Southbank tower, the Verge Development, is believed to have been delayed by six months because not enough people have registered interest to begin construction.

The owner, DEC Australia, is also believed to be trying to sell another site, the City Wedge site on City Road, for which former planning minister Justin Madden approved a $600 million development up to 39 storeys high. A nine-storey development, 3181 Prahran on Commercial Road, has been deferred indefinitely and its building contracts cancelled.

Buyers of apartments in Baracon’s Wrap tower at Southbank, which had reportedly been up to 90 per cent sold out for more than a year, were in limbo while the developer tried unsuccessfully to on-sell the site mid-year. It is now believed to be reconfiguring the mix of apartments.

Story by Marika Dobbin www.domain.com.au

Tags: apartments, marketing, property, real estate, units

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UPDATE FROM CAMBODIA
The trip to Preah Vihear was absolutely amazing and completely bizarre!!!!!

We all set off at the crack of dawn, Cheryl, myself, Pha, a driver and 8 of my students.

The drive to the temple was about 4 hours. From about 50kms away you could begin to see the escarpment the temple is built on. It is in fact older than Angkor Wat. The escarpment is 550m high and is the end point of a chain of mountains that separates Thailand and Cambodia. Cambodia is much lower than Thailand. The Thais and Khmers have been fighting over this very sacred temple for centuries and in 2008 UNESCO declared it a World Heritage site and gave it to Cambodia much to the chagrin of the Thais. They have been fighting over it ever since. Many lives have been lost on both sides but at the moment there is a ceasefire and the troops are pulling back.

At the base of the escarpment we all piled into an army vehicle and a soldier began the drive to the top. Luckily Chery and I got to sit in the cabin while the boys stood in the back. There were people selling cartons of cigarettes everywhere before we began the ascent. Pha explained we could buy them and give them to the soldiers on the way up and at the top.

We began our ascent. it was incredibly steep and at one spot we had to wait while they rebuilt the road in front of us with huge bull dozers. All the way up were soldiers at the side of the road and we could see their little tents and huts along the road. We began throwing the packets of cigarettes to them. Pha had also bought a bag of lollies which he was scattering along the side of the road, for the spirits he said.

Once we were at the top we all piled out and ahead of us was an ancient avenue of stones leading upwards to the first chamber of the temple, this was followed by another avenue of stones leading to the next chamber and then steep steps up to the next part of the temple and then more steps and more steps and more steps. Pha kept saying we were at the top but just how many tops did this temple have?? Finally we made it to the last “top “. Below us was Cambodia, to the left of us was Thailand. We all sat in a cave with a group of soldiers and enjoying the incredible view.

All along the walk up through the temple were groups of very bored Khmer soldiers. They are only given rice to eat so we bought them boiled eggs and dumplings and gave them out with the cigarettes. They were really appreciative and I had my photo taken with what seemed like the whole Khmer army. I asked Pha if there was a general around who was in charge of these men. Cheryl quickly replied, yes, General Chaos! And that’s what it seemed. Some of them had semi automatic guns which we were able to have a good look at but could see no sign of which country had supplied them. One soldier explained that many of them have malaria and are very sick with lots of illnesses. I saw the stinking putrid water they had to drink so it was no wonder. Sometimes they don’t get paid for months. A soldier’s salary is $80 per month. Many of the families around Mondul Bei are army families

They are in the process of building a border crossing at the base of the temple. Razor wire was rolled along the border with big rolls for about 5 metres inside Thailand. We could see Thai soldiers about 500 m away. As well there were landmine warning signs nailed to the trees. This area was the last stronghold of the Khmer Rouge with the second in command, Ta Mok, known as the Butcher, having a residence close by.

It was a huge day, we got home about 7pm. The boys were fantastic!!!! They were teenage boys, singing, laughing, teasing each other, rolling around but at no stage did they put a foot wrong. One even piggy backed me when I thought I couldn’t take another step. But only for a few metres. The joy I got from watching them having such a great time was priceless.

Now I begin the process of saying good bye to everyone. It’s going to be an emotional week!!!!

Home on Friday,

Lots of Love,
Robyn

Sydney has some of the world’s best beaches and time and time again, they’ve turned out to be a peach of an investment, too. As the city slides into summer, we ask some beach-loving celebrities to nominate their favourites and find that it’d be hard to go wrong buying by the Sydney seaside. “They often show good capital growth or excellent rental returns,” says the head of research at Fairfax-owned Australian Property Monitors, Yvonne Chan.

“They generally outperform other suburbs as demand is high for the kind of lifestyles they offer. They’ve risen by an average of 13 per cent over the 12 months to September, compared with Sydney houses overall, which have gone up by 10 per cent.”

Tom Williams: Freshwater

Television host and pin-up Tom Williams launches his new travel show, High Road, Low Road, on Channel Seven tonight.

The former The Great Outdoors reporter and Dancing with the Stars winner nominates his favourite beach as Freshwater – with a median house price of $1,283,000 – just north of Manly.

A keen surfer, it’s only natural he’s drawn there – after all, it was the place where surfing officially began in Australia in the early 1900s when Hawaiian surfer Duke Kahanamoku demonstrated the sport to spectators.

“I’ve been surfing since the age of six and I’m now doing a lot of ocean kayaking, too, paddling around North Head with a group of close mates,” he says. “It’s great fun and living near the ocean has always been a part of my life.

“It’s a whole world away from beaches like Manly or Bondi, too, in that it often feels like the valley that time forgot.”

Serge Dansereau: Balmoral

Multi-award-winning celebrity chef Serge Dansereau can think of no place he’d rather be than at Balmoral beach, the beautiful harbour beach on Sydney’s north shore.

“It’s a very good swimming beach and it feels like a community down here,” says Dansereau, who’s run the popular restaurant The Bathers’ Pavilion there for the past 11 years. “You see the same people all the time, so you always stop for a chat and it’s very friendly.”

With a median price for houses of $2,075,000, everyone agrees it’s a stunning place. “But it also has an old-time 1930s feel with the rotunda … and there’s a real mix of people, from the fishermen who used to be here to the swimmers, kayakers and sailors and then the celebrities,” Dansereau says.

“We used to get Tom Cruise and Nicole Kidman down here with their kids and we’ve had Bono … and Kofi Annan. It’s a superb beach.”

Claudia Karvan: Gordons Bay

One of actor, writer and producer Claudia Karvan’s favourite Sydney spots is a secluded waterside refuge away from the crowds: Gordons Bay.

South of Clovelly beach – with a median price in Clovelly of $1,852,000 – it’s accessed by a pretty coastal walk.

“I first discovered the bay through scuba-diving, as it’s really popular for the underwater trail,” says Karvan, who stars in the Foxtel TV drama series Spirited, which she co-created and produces.

“It’s very rugged and has a link chain you can go down on and it’s also really wonderful for snorkellers.

“It has really friendly blue gropers you can feed under water.

“I like to go down there with the kids and sit on the grass, chase crabs and scramble over the rocks. As an added bonus, there’s no sand either, which is great!”

Arj Barker: Bondi

Australia’s most frequent-flying visitor, American comic Arj Barker, makes straight for Bondi every time he arrives in Sydney. He’s been dropping by for years and every time he’s awestruck by its beauty.

“I like to go to Bondi and then walk or run to the right, along the coast, to another beach called Bronte. There’s a cemetery right on the coast and not only is it beautiful and quite dramatic, it’s a great reminder that one should take more walks along the coast!”

Barker, who starred in his own Comedy Central special as well as the HBO hit Flight of the Conchords, is performing his new show, Let Me Do the Talking, in Sydney from December 7-11.

He says Bondi, which has a median house price of $1,505,000, is also the best beach for people-watching, which provides great material for his act. “People flock there, sunshine or rain,” he says.

Slava Grigoryan: Bronte

When Australia’s finest classical guitarist, Slava Grigoryan, has time off, he loves to go down to Bronte beach with his children. “They love Bronte, too, as they can play cricket on the grass and it’s wonderful for a picnic,” he says. “And for me, the cafes are great and they serve really good coffee.”

Mo Award- and ARIA-winning Grigoryan, who’s performing tonight at the Independent Theatre in North Sydney with his brother Leonard and Austrian guitarist Wolfgang Muthspiel, also enjoys what he calls the Bronte to Bondi walk. “When I’m in Bronte, I love looking at all the houses,” he says of the properties with a median house price of $1,862,000.

“Each one is so different. And when I’m with the kids, we all love the Bronte train, the miniature railway on the circular track at the southern end of the park. It’s been going now since 1947!”

Todd McKenny: Bayview

For singer, dancer, musical-theatre star and TV personality Todd McKenney, Bayview, just north of Mona Vale on the northern beaches, can’t be beaten.

It’s peaceful and a real locals’ hang,” he says. “It’s a mix between a city beach and a local fishing village with kids playing ball games, families working on their boats, people swimming and it is really, really pretty. I could see myself living in Bayview at some point in my life.”

The Dancing with the Stars judge, who’s about to reprise the role of Peter Allen in The Boy from Oz in Sydney from March 2 for two weeks at the Capitol Theatre, also loves that Bayview, with its $1,468,000 median house price, is a great place to take his newly adopted greyhounds, Joey and Chrissie. “It’s very dog-friendly,” he says.

Lara Bingle: Cronulla

Fashion model and Speedo swimsuits ambassador Lara Bingle grew up in the Sutherland shire and Cronulla and North Cronulla are her favourite beaches. “That’s where my mum still lives, so I have a special bond with the place. Even on the busiest day you can run [on] the beach from North Cronulla past Elouera and Wanda and see almost no one.”

Although she lived for a while at Bondi Beach, she still loves the quiet of Cronulla, with its median house price of $1.25 million. “When you get to the end it is relatively untouched.”

Story by Susan Wellings www.domain.com.au

Tags: marketing, news, property, real estate, research

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After a surprise interest rate rise on Melbourne Cup day, the Reserve Bank has delivered mortgage holders some relief today by deciding to keep rates on hold until at least February.

The decision comes on the back of economic data out last week showing that the growth in the Australian economy has fallen behind many of the world’s advanced economies. Consumer data out last week also showed the biggest drop in retail sales since July 2009.

Each 0.25 per cent interest rate rise adds another $50 to the monthly cost of an average Australian mortgage. The official interest rate is now 4.75 per cent. Mortgage holders on variable interest rates are being charged a standard variable rate of about 7.83 per cent by their lenders.
Rates will now remain on hold until at least February, as the Reserve Bank takes a break in January.

Source: http://www.domain.com.au/

Tags: economy, interest rates, money, mortgage, news, real estate

Posted in News, Research

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WOOLWORTHS has taken the unusual step of forming a joint venture with a property developer to build a shopping centre and specialist shops in Western Australia, as it moves to safeguard its expansion plans in the face of the banks’ tighter lending for property deals.

Woolworths will take an 80 per cent stake in the planned shopping centre in Geraldton, after forming a joint venture with local businessman Barry Humfrey and his company, Humfrey Land Developments & Real Estate.

The partners will build a shopping centre that will include a 3200-square-metre supermarket and 1800 square metres of speciality shops and community facilities.

Mr Humfrey has been involved in the development of a range of commercial properties in Geraldton and Exmouth, including tourist resorts.

Woolworths and Mr Humfrey have created a company called Fabsky to build the shopping centre, BusinessDay has learnt, with Woolworths finance director Tom Pockett and company secretary and general counsel Peter Horton named in ASIC documents as directors. Mr Humfrey is named as the third director.

Woolworths’ stake in the partnership is held through Fabcot, the retailer’s development arm. The joint venture was formalised last month.

Woolworths has used several methods to protect and accelerate its new-store developments, buying up parcels of land in its own right on which to develop supermarkets or forming deals with property developers.

The joint-venture model, as forged with Mr Humfrey, is more unusual.

Woolworths has also used its massive cash flows to save distressed property developments from bank foreclosure, although there is no suggestion the site in Geraldton was facing financial problems.

Following the global financial crisis, it was feared that skittish banks and other lenders would refuse to lend large sums of money to property developers or would demand much greater equity from developers before credit was provided.

This could have capped the expansion plans of Woolworths, as well as those of rivals such as Coles.

Many development deals have fallen over since the financial crisis, with developers reporting much stricter lending conditions from the banks.

Woolworths has been engaged in an aggressive supermarket development program, as well as a plan to build more than 150 big-box hardware stores over the next five years.

Story by Eli Greenblat www.smh.com.au

Tags: investment, marketing, news, property, real estate, supermarket

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The Australian property market is being swamped with enquiries from overseas buyers including many purchasers from the UK, according to the Real Estate Buyers Association of Australia.

According to data compiled by the Real Estate Buyers Association of Australia, foreigners purchased £14.5 billion worth of properties in Australia during the peak of the global financial crisis in 2009.

In total last year, overseas nationals bought 3,639 new and existing homes in Australia, along with 988 parcels of land.

Byron Rose, president of the Real Estate Buyers Association of Australia, commented: “We see a lot of interest from Singapore, Hong Kong, Tokyo and the UK. They know the market is depressed and as they are making huge capital gains many are reinvesting into the market.”

Because interest rates have risen in recent month, the cost of taking out a mortgage to buy property in Australia has increased considerably for many local buyers, and as a consequence many Australian property firms are now targeting more overseas buyers.

Consultancy firm CB Richard Ellis recently held a major Australia property exhibition in Hong Kong in an attempt to woo more foreign buyers.

Story source: www.aplaceinthesun.com

Tags: housing, investment, marketing, property, real estate

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The Real Estate Institute of Australia (REIA) has made their own suggestions to improve flexibility of the the government’s proposed First Home Savers Account.

The Real Estate Institute of Australia (REIA) has made their own suggestions to improve flexibility of the the government’s proposed First Home Savers Account.

The First Home Savers Account is an initiative that was introduced by the Government to assist first home buyers in saving for a home through a combination of Government contributions and low taxes.

The Treasurer recently released an exposure draft of legislation for public consultation aimed at increasing the flexibility of First Home Saver Accounts.

“REIA welcomes the opportunity to be involved in matters that affect the property market, in particular, assisting first home buyers to achieve the goal of owning their own home,” said REIA President, David Airey. “Whilst the proposed changes to the First Home Savers Account will not have a direct affect on housing affordability, it will enable first home buyers flexibility in the timing of their purchase to take advantage of house price fluctuations and/or reductions in fixed rate mortgages without having to wait for the minimum of four years to qualify.”

He added: “We look forward to working with the Government on this matter and believe that the First Home Savers Account is an important initiative for young Australians looking to realise the dream of owning a home.”

The group supports the slated new measures for the First Home Saver Account, adding that more revisions will make it effective. REIA suggests changes including: The cap on these accounts to be linked to movements in house prices rather than the CPI and that first home buyers have access to their voluntary superannuation contributions for the purchase of a home.

Tags: economy, home buyers, housing, marketing, property, real estate, reia

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So the foreign private equiteers and those who make money servicing them are off to Canberra, seeking some dumb, pliable politician to save them from the nasty tax man. Poor diddums.

The really interesting thing though would be if the Australian Tax Office was to extend some of its thinking about the foreign private equity rort to residential real estate. To be consistent, maybe real estate investors shouldn’t be entitled to the 50 per cent tax discount they currently receive on capital gains. For real estate investors, “capital gains” are simply income, just as TPG’s Myer lick’n’flick “capital gains” profit was really just income that the ATO is trying to tax accordingly.

In taking on the foreign private equity tax avoiders, the ATO is having to work around and under poor 2006 legislation that the was the result of the Federal Government of the day listening to finance industry lobbyists and falling for the old furphy about making Australia a regional finance hub. Compared with challenging Australia’s landlord class, it’s easy.

As usual with any change in our mountainous tax legislation, opening or closing a door tends to breed a raft of loopholes and cat flaps that will inevitably be exploited by the smart money. The Dutton/Costello 2006 legislation wiped out capital gains tax for foreigners investing in anything here other than real estate – the sort of change likely to spring open a series of Roll-A-Doors rather than mere windows of opportunity.

Yes, it was dumb. Among other things, it immediately gave foreign private equiteers an immense advantage over domestic investors. And if anyone has seen any evidence that it sparked a boom in Australian regional financial hubbery, please tell me. Another part of the lobbyists’ story was that we had to give foreigners tax free capital gains or they wouldn’t invest here. The government apparently fell for that line too.

In the TPG episode and now with a broader ruling, the ATO is trying to fix that mistake on a case-by-case basis. It’s limited to examples such as TPG’s Myer bonanza where the equiteer channels the profit through tax havens to also minimise tax in whatever jurisdiction it calls home, but the interesting part is that the tax man is looking at whether the typical private equiteer’s buying and selling of assets is their normal business, and thus the profit becomes “income” rather than “capital gains”.

There’s nothing new about that sort of distinction – as any share trader or real estate speculator should know. To get the 50 per cent capital gain discount, it is necessary to hold the asset for 12 months. (Hold a share for 51 weeks, you’re a trader; hold it for 53 weeks, you’re an investor and pay half the tax. Of course its arbitrary nonsense, but that’s our tax system that the major parties aren’t game to tackle.)

The ATO’s move on TPG could be a precedent to get beyond such random rules. The residential real estate investment industry is built upon the expectation of income from capital gains – with relatively rare exceptions, rent doesn’t cover the cost of money, which is where the blowout in negative gearing comes in.

Just as TPG’s standard operation is to buy an asset and sell it a bit later for more, many real estate investors would be hard pressed to convince the ATO their motive is otherwise. Unlike share investors who expect/hope their companies will grow and become more profitable and therefore worth more, the standard investment unit tends not to grow much at all.

It’s just a thought, the idea of more consistent treatment of income, but it will never catch on. The next logical step would be the equally-arbitrary 12-month rule for avoiding capital gains tax on the principle residence – and why should the principle residence be exempt at all?

Michael Pascoe is a BusinessDay contributing editor, source www.smh.com.au

Tags: economy, money, property, real estate, tax

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THE Reserve Bank has dismissed claims by the big four banks that their costs are climbing faster than the cash rate.

In a submission to the Senate banking inquiry the Reserve says the banks’ funding costs have moved ”broadly in line with the cash rate” since the middle of last year.

The submission is at odds with inferences drawn from the RBA’s board minutes, suggesting it believed over-the-odds rate rises were justified.

”Most of the increase in the major banks’ funding costs occurred during 2008 and early 2009, at the peak of the dislocation in markets,” the submission says. ”Since mid-2009 the major banks’ overall funding costs are estimated to have moved broadly in line with the cash rate, reflecting offsetting factors.”

Deposits have become more expensive for banks relative to the cash rate, as has wholesale funding, but at the same time the cost of short-term debt has been falling, resulting in a steady cost of funds relative to the cash rate for over a year.

Regional banks’ funding costs have been increasing faster.

The statement suggests the RBA does not believe the claim made by the Commonwealth Bank on Melbourne Cup day that it lifted its mortgage rate 45 basis points instead of 25 because of an increase in ”wholesale funding and retail deposit costs”.

Submissions from the big four are yet to be published on the inquiry website.

The RBA said the big banks’ total funding costs had climbed 90 to 100 points above the cash rate since the first rumblings of the financial crisis in mid 2007. But they had more than made up for that by lifting their mortgage rates 120 points beyond the cash rate over the same period.

The RBA expects the big four’s wholesale costs to rise from here on as cheaper long-term loans expire and are replaced by more expensive ones. But it expects the higher cost to be modest, ”around 5 points over the next year”.

The Reserve expresses concern about an easing in lending standards before the crisis, saying it led to housing stress, particularly in ”parts of south-west Sydney”.

Story by Clancy Yeates and Peter Martin www.smh.com.au

Tags: banks, economy, finance, interest rates, money

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The Reserve Bank of Australia (RBA) now has just about all the data it will get ahead of its board’s monetary policy meeting next week.

And the way the figures stack up, the chance of an interest rate rise on Tuesday are exceedingly remote.

The odds still favour a rate rise eventually, but the recent run of data has pushed the move out well into next year.

The futures market puts the point when the cash rate is more likely to make the jump to 5.0 per cent from its current 4.75 per cent at around August next year, and has it staying at 5.0 per cent until around the middle of 2012.

This is good reason to expect the RBA to hold its fire.

The November RBA meeting was preceded by inflation figures that came in toward the low end of the RBA’s stated expectations.

This led to a decision that, like the no-change decision in October, was “finely balanced”, something RBA governor Glenn Stevens confirmed in testimony to parliament on Monday.

There has been little since then to make the RBA any more firmly committed to raising interest rates, and plenty to bolster the case for staying on the fence.

The labour force data released the week after the rate rise in early November surprised forecasters with a blip up in unemployment to 5.4 per cent, a six-month high, from 5.1 per cent.

A blip it may have been, but it confirmed the trend in unemployment is flat, at best, and not downward as had appeared likely given the apparent strength of demand for labour and anecdotal evidence of skills shortages.

And this week we had the national accounts, confirming the indications of the rash of data releases leading up to it, that gross domestic product (GDP) growth in the September quarter would be slow.

And slow it was – a real-terms rise of 0.2 per cent, compared with a 1.1 per cent surge the quarter before.

That was partly due to likely one-offs such as a faster run-down in inventories and a dip in the volatile exports category.

But there was no getting around the message from the data that the economy wasn’t speeding along quite as quickly as supposed.

A surprise fall in retail trade in October, revealed by the Australian Bureau of Statistics (ABS) on Thursday, continued the theme.

Widespread heavy rain across the country most likely dampened the enthusiasm of shoppers, and the soaring exchange rate probably reduced the dollar value of spending.

But a 1.1 per cent fall in retail turnover is still a setback to retailers – and the rain continued through November.

Sooner or later the economy will pick up.

But the RBA clearly has plenty of time to ponder its next move, confident that the coming mining investment boom will not hit an economy already at full stretch.

Story source: www.ninemsn.com.au

Tags: banks, finance, interest rates, money, mortgage, news, property

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Australia’s largest independently-owned mortgage broker, Mortgage Choice today released the results of its national 2010 Consumer Sentiment Survey. The company has run the annual study since 2004.
This year’s survey questioned 1,061 Australians, 536 of whom had a mortgage, about a range of finance and property related matters. It was completed during the seven days preceding the November cash rate rise.
Contrary to last year, the biggest concern for the next year was ‘other costs of living such as utility bills, clothing, etc’ (27% of respondents vs. 17% in 2009). Interest rates came in second, having dropped from first place in 2009 (16% vs. 19%).

This was followed by economic management at Federal Government level (15% vs. 15%), job security (8% vs. 16%) and food costs (7% vs. 7%).

35% of respondents intended to purchase property within the two years to November 2012, with 36% planning an investment property, 33% their next home and 31% their first home. It was interesting to note potential investors were the most concerned about rates, with 27% ranking it as their biggest concern, compared to 19% of next homebuyers and 8% of first homebuyers.

Mortgage Choice senior corporate affairs manager, Kristy Sheppard said, “Despite widespread expectations of interest rate rises throughout the next 12 months, our annual Consumer Sentiment Survey found the concern over utility bills and other living costs outweighed concern about interest rates.”

“It’s possible this was the case because the November cash rate rise had not yet been announced, which in turn would illustrate how much of a surprise that and subsequent lender rises were to Australians.

“The moves would have been a great disappointment to the 9% of mortgage holders surveyed who said that, based on an interest rate of 7%, they could not afford any rate rises before considering selling up.

“This sad situation says so much about the need to be prepared for a variable interest rate rollercoaster ride before you enter a home loan contract, and of steering clear of extra debt commitments unless certain you can afford it should the rate landscape change.
“On the flipside, this finding will be music to the ears of people who intend to buy property soon and have already factored in rising repayments. It means they may be able to take advantage of discounted stock.”

Major findings – home loans

4% of those with a mortgage said that, based on a 7% interest rate, they could afford only one 0.25 percentage point rate rise before considering selling their property. 5% could afford 0.25 to 0.5 points, 6% could afford 0.5 to 0.75 points and 8% could afford 0.75 to 1 percentage point.On the other hand, 20% could afford rate rises of over 5 percentage points.The top two resources for home loan research were lenders’ and loan comparison websites.11% believed rates would rise by up to 0.25 percentage points in 2011. 33% said 0.25 to 0.5 points, 21% said 0.5 to 0.75 points, 15% said 0.75 to 1 point and 19% saw rates rising by over 1 point.

“It is disheartening to find that, although almost everyone surveyed was aware to a certain extent of the interest rate environment expected over the next year or so, a significant proportion of mortgage holders may need to put their property on the market should that become reality,” Ms Sheppard said.

“The majority of economists and commentators predict cash rate rises of at least 0.5 percentage points during 2011. That would be enough for around 18% of Australian mortgage holders to consider selling up.”

Major findings – buying property and shares

59% said the GFC had made investing in property seem safer than investing in shares.30% will renovate an existing property as an alternative to buying one in the next two years.16% will buy shares instead of property while 20% will buy both.60% of those buying property in the next two years (35% of respondents) were making some kind of sacrifice in order to do so.

The top five property purchase sacrifices were:
1. Cut back on spending – 84%.
2. Miss out on an overseas trip – 50%.
3. Purchase a less expensive property than desired – 35%.
4. Remain in my current job – 30%.
5. Take on an additional job – 20%.

A higher portion of people this year said the GFC made property seem a safer investment than shares (59% vs. 57%), perhaps a result of the property market’s strong capital growth in the 18 months or so to mid 2010. Females were more likely to say so than males (66% vs. 52%), as were Baby Boomers (64%) and South Australians (62%).

“This finding is good news for the industry at a time when the number of housing finance commitments has slowed, as is the fact that over one third of respondents intended to buy property in the next two years. The Great Australian Dream is definitely still alive and kicking,” Ms Sheppard said.

The top five motivations for buying were:
1. To set myself up financially for the future – 50%.
2. I see more benefit in investments such as property than I do in the share market – 31%.
3. I want or need to relocate – 26%.
4. To add to my portfolio to set myself up for retirement – 23%.
5. I want to get my foot in the property market door – 22%.

Major findings – housing prices and affordability

31% said the housing affordability issue was underrated while 13% said it was overrated.49% expected housing prices to increase over the next 12 months.

Clearly signalling the dominant mindset of Australians, around half the respondents (49%) said talk about housing affordability was ‘about right’ and almost one third found it underrated. Males were more likely to believe it was underrated than females (34% vs. 27%), as were Baby Boomers (34%) and Victorians (36%).

Around half the Mortgage Choice Consumer Sentiment Survey respondents expected the country’s housing prices to increase over the next 12 months and only 13% said prices would decrease. 30% saw them remaining stable while 9% weren’t sure. Males were more likely to believe prices would increase (54% vs. 45% of females), as were Generation Y (57%) and South Australians (57%).

In the 2009 survey, an increase in housing prices was anticipated by 64% of respondents.

Major findings – personal finances and the economy

Of those with a mortgage, 55% planned to make changes to their financial situation next year. The top ranking changes were reviewing their budget (69%) and reviewing their mortgage/s (61%).Of those without a mortgage, 48% planned to make changes to their financial situation next year. The top ranking changes were reviewing their budget (59%) and cutting back on spending (51%).Of all respondents, 8% said they didn’t have any savings and don’t plan to start in 2011.36% said rising interest rates and/or the economic recovery would see them saving more in 2011.75% were either ‘very’ or ‘fairly’ confident that Australia’s economy would be strong in 2011.

“The proportion of mortgage holders planning personal finance changes increased significantly year on year, with 55% in the 2010 survey comparing favourably to 40% in the 2009 survey,” Ms Sheppard said. “It’s terrific to see so many people taking ownership of their finances and making changes where necessary, especially in today’s uncertain landscape. However, it would’ve been great to see everyone saving and even more proactive management among mortgage holders. It’s clever to get a home loan health check annually.”

The most popular personal finance developments for 2011 among those with home loans were:
1. Review my budget – 69%.
2. Review my mortgage/s – 61%.
3. Cut back on spending – 53%.
4. Pay off my credit cards – 43%.
5. Refinance my mortgage/s – 31%.

“The proportion of mortgage holders reassessing their budget in the next year rose 10 percentage points on 2009′s sentiment survey result and those planning a mortgage reassessment rose six percentage points. The proportion looking to refinance increased by only one percentage point, but this was probably due to the survey being completed just before the surprise November cash rate rise,” said Ms Sheppard.
Of those with a mortgage, Queenslanders were most likely to be planning a budget review (77%), as were Generation Y (76%) and males (71% vs. 66% of females).
Major findings – mortgage broking

The number one reason for using a mortgage broker, for 34%, was it ‘saves me from researching a range of lenders and loans myself’.61% would consider using a mortgage broker in future.64% knew what services were provided by mortgage brokers, 24% did not and 12% were unsure.59% said national regulation of this industry would make them more likely to use one.

The groups with the highest percentage of respondents who understood mortgage broking services were males (66% vs. 63% of females), Generation X (72%) and Western Australians (69%).

“The survey results make it clear that national regulation will have a powerful influence on mortgage broker usage. It’s been a long time coming. Today, around 40% of all new Australian home loans are sourced by brokers. Hopefully this will rise to 50% and beyond in the near future, as the industry better promotes itself and consumer perceptions of a mortgage broker’s role and value proposition improve,” Ms Sheppard said.

Call Mortgage Choice on 13 MORTGAGE. Or, visit MortgageChoice.com.au, Facebook.com/MortgageChoice or Twitter.com/MortgageChoice.

Tags: brokers, finance, interest rates, mortgage, research, survey

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Buyers seeking the $7000 first home owners grant will be able to buy homes worth up to $835,000 from January 1.

Because home prices have risen across the state, the cap will rise from the present $750,000.

The cap is reviewed annually.

The NSW Treasurer, Eric Roozendaal, said first home buyers were also eligible for stamp duty savings worth up to $17,990, while those who built their own homes were eligible for total savings of up to $29,490 under the NSW home builder’s bonus, which was included in this year’s state budget.

Aaron Gadiel, the chief executive of the Urban Taskforce, a developers lobby group, said: “Eligibility for the first home owners grant has widened because the housing undersupply has made all homes more expensive than they need to be.

“Logically the zero stamp duty initiative – the NSW home builder’s bonus – should also have been adjusted at the same time.” Since July 1, stamp duty has not been payable when buying an off-the-plan home worth up to $600,000, and stamp duty was cut 25 per cent for those who buy once construction starts or a home is newly completed.

Also when people over 65 buy a newly constructed home worth up to $600,000, they are exempt from stamp duty, whether they are buying off the plan or not.

Mr Gadiel said these limits should be raised to $835,000 to bring them into line with the first home buyers grant.

“The abrupt cut-off at $600,000 is distorting housing supply,” he said.

story by Brian Robins www.domain.com.au

Tags: grant, home, housing, money, property, rent

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The man who sets our interest rates has good news for summer: we can relax. Rates are not going up again ahead of Christmas and probably not until well into the new year.

The plain message, delivered three times during his three-hour grilling by the Parliament’s economics committee, appears designed to reassure shoppers, borrowers and retailers put on edge by the outsized mortgage rate increases imposed by the big four banks on top of his Melbourne Cup day lift in the cash rate of 25 basis points.

The Reserve Bank governor, Glenn Stevens, came close to defending the banks in his testimony, saying if he had to choose between ”banks with good profits and banks with no profits” he would ”choose the former every time”, and that his board expected the banks to top up their margins when it took the decision.

Asked why the bank expected wider margins he said the members ”just read the newspapers”.

The extra imposts would not hurt because the Reserve Bank would be more gentle in its own decisions to compensate.

”When we were raising rates in 2007 and 2008, we raised by less than we otherwise would have. We cut by more subsequently and we have raised by less since, because of the recognition of these shifts in margins,” Mr Stevens said.

”The question is whether all those people with a mortgage are paying seriously higher rates than they should be from an economic management point of view. What I am saying is that I do not think they are, because we pretty much offset the change in the margins.”

The governor also poured cold water on moves to increase competition in banking ahead of an announcement by the Treasurer, Wayne Swan, expected next month.

”In many areas it is probably the case that more competition is always better for consumers, but in banking more competition is good to a point – but beyond a point more competition pushes down lending standards and banks end up lending money to people who really should not get it,” he said.

Bank margins had fattened in the last two years but were still much better than ”10 or 15 years ago”.

”We are arguing about a small backtrack a little way back up that curve,” he told the committee.

The profits of the big four banks were ”good” but ”many Australian corporates would be looking to earn those kinds of rates of return, not just banks”.

Asked about the outlook for interest rates, Mr Stevens said ”at the moment most commentators do not anticipate and market pricing do not anticipate any further near-term change by us for quite some time”.

”I think that is probably a reasonable position for them to have based on the information we have,” he added.

There would probably be some more rate rises ”next year and maybe a little bit more after that” but it was ”unlikely there will be anything from us imminently – I think that is probably a reasonable expectation of people just now”.

The Australian dollar slumped US1¢ on the governor’s words to US97.16¢ as futures traders wound back their expectations of future interest rate rises, cutting the implied probability of a rate rise before May from 74 per cent to 42 per cent.

Mr Stevens said while he did not want to get into ”political debate” Australia’s government debt did not worry him at all. ”I have never felt in recent years that the size of the public debt that we have outstanding is a material problem,” he said.

Tags: banks, economy, finance, interest, money, mortgage, rates

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The exit fees lenders put on their fixed-rate home loans are rarely considered a cash grab by the ombudsman.

Moves among the big banks to scrap exit fees on variable home loans have been welcomed but, in the meantime, an increasing number of borrowers are turning to fixed rate loans that have a history of even higher “break costs”.

The shift has prompted the credit ombudsman to write to mortgage brokers to enlist their help in ensuring borrowers understand the costs they face if they find a better deal before the term of their fixed rate loan expires.

While some people expect the new National Credit Protection Reform Package and unfair contract terms law to be the death knell for exit fees on variable loans, break costs on fixed rate loans will remain lawful as long as they continue to reflect the true cost to the lender of the contract being broken.

Less than two years ago there was a surge of complaints to the credit ombudsman and the banking ombudsman as borrowers learnt it would cost them, in some cases, tens of thousands of dollars to get out of fixed rate loans that had become increasingly uncompetitive as interest rates dived.

While such complaints have tapered off now that interest rates are rising rather than falling – so people are happy to have fixed – there’s some concern the latest move towards fixed rate loans may be laying the foundations for a similar round of complaints once the interest-rate cycle turns.

“The danger is that a few years down the track, when we’re into another round of interest rate cuts, people will want to go back to variable,” says the credit ombudsman, Raj Venga.

Early last year, people were trying to get out of loans fixed at 9 per cent because they could get a rate of about 5 per cent. As of last week, the three-year fixed rates on offer ranged between 7.1 per cent and 8.1 per cent.

The most recent housing finance statistics show the proportion of properties being funded with a fixed rate loan at its highest in a year. In September, fixed rate loans accounted for 4.4 per cent of financings, compared with 3.4 per cent just a month earlier.

“The break costs for the loss the lender suffers as a result of a fixed rate loan being broken – because they have arrangements sitting behind it – will still apply,” says the banking ombudsman, Philip Field. “The new law doesn’t really change that. Lenders are still entitled to their reasonable costs.”

Venga, who oversees non-bank lenders, says people may believe break fees are just to stop customers moving to another lender but there is a genuine reason for them.

Non-bank lenders try to compete with banks in terms of interest rates but don’t have depositors to help them fund their lending, he says, which means they have to borrow money themselves.

“In order for them to [compete], they have to be able to recoup their costs,” he says. It can take three to five years for a lender to break even on a loan.

“If you don’t break off the loan, you don’t pay,” he says. “The trouble is a lot of people do refinance within three to five years.”

When considering complaints, Venga and Field say their offices look at whether the charges reflect the reasonable costs to the lender, whether the potential liability was disclosed when the loan was arranged – this is where lenders need to be upfront and where brokers can help – and whether the calculations are correct.

“The lender can’t profiteer, the fee can’t be unconscionable,” Venga says. “As long as it was disclosed and the lender can show us a breakdown where they have incurred the costs, we can’t say it breaks the law.”

Both Venga and Field say that in almost every recent case, the lender has been found to have applied the correct charge, legitimately.

“With fixed rate loans, it’s very hard for the consumer to get out of it,” Venga says. “Lenders don’t tend to get it wrong.”

Field says the cost of breaking a fixed rate loan can be very high without being incorrect or unlawful.

Venga says that’s why he’s writing to brokers “to say, ‘This is the time people are taking out fixed rate loans, these are the things you should tell them.”’

One way borrowers have gone wrong in the past is to ask the lender for a pay-out figure on their fixed rate loan then not act until some time later, when the break cost may well have changed.

When interest rates are moving quickly, the cost can change significantly in a short period, Venga says.

By the same token, Field says lenders sometimes miscalculate break costs by using the full amount still outstanding, rather than recognising that they would have been collecting interest on a debt that was reducing in size over time.

Field’s advice to borrowers is to remember that fixed rate loans are about achieving certainty, not about trying to beat the bank in a game of interest-rate speculation.

“Banks have professional money-market people who make their best predictions about these things – and they don’t always get it right,” he says.

“I don’t think ordinary consumers are necessarily as well-informed to take that gamble.

“If you’re doing it because you want to bet against the bank, you might win, you might lose.

“If you’re doing it because you don’t want to pay more than X dollars for the next three years because you’re going to have a baby and you want to manage whether interest rates go up or down, that’s a good idea.”

The research manager for Canstar Cannex, Chris Groth, says it can be tempting to fix a loan when interest rates are rising but “timing is crucial”.

The company’s research found there were only nine months in the past 36 months when a borrower would have had a lower monthly repayment by being on a fixed rate rather than the variable rate.

“Borrowers shouldn’t be discouraged from looking to fix at least part of their loan, as fixing delivers repayment certainty, the potential to save money on repayments and an interest-rate buffer should rates rise further,” Groth says.

“[But] borrowers should remember that they run the risk of losing money if rates decrease and that exiting early from a fixed loan may attract high fees.”

Researcher RateCity’s lowest three-year fixed rates are: Pacific Mortgage Group, 6.89 per cent; RESI Mortgage Corp, 6.98 per cent; Quick Direct Online Mortgages, 7.03 per cent; Reduce Home Loans, 7.04 per cent; and AMO Group, 7.07 per cent.

Key points

Banks may be reviewing exit fees on variable loans but break costs on fixed rates still apply. Break costs can be much more substantial than any exit fee. Lenders are entitled to recover the costs of sourcing the now-discarded finance. Many people end up refinancing within three to five years. Fixed rate loans should be about certainty, not about interest rate speculation.

Story by Lesley Parker www.domain.com.au

Tags: banks, fees, finance, money, mortgage, research

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Capital gains tax benefits even apply to the family home when it’s rented out.

The capital gains tax exemption for a person’s home is extremely valuable, and as I have learnt very generous.

In a recent article I placed too conservative an interpretation on section 118-145 of the Tax Act that extends the exemption. The exemption even applies when someone rents out their home.

This extension was primarily inserted to cover people who had to leave home for work purposes.

To be eligible for the extension of the residence exemption, a taxpayer must have occupied the property and used it as their main residence.

There does not appear to be any minimum length of time that is required for this period of occupation.

After having used the property as your main residence you can choose to treat it as your main residence even if you stop living in it.

If you make this choice there is no mechanism in place that requires the Australian Taxation Office to be notified of this choice.

For this exemption to apply you cannot have another property that is your main residence, for tax purposes.

If the property is not used to produce assessable income the exemption will last for as long as it is owned.

If the property is rented out the exemption will last for six years.

Another six-year exemption period will apply if you cease renting at the end of the first six-year period, live in the property again, and then relet the property.

The maximum six-year period applies even if you never return to the property and sell it.

This exemption applies whether you have shifted within Australia or have moved overseas.

Q. We have been living overseas for seven years and have a townhouse that was our primary residence for about one year and we then moved to Hong Kong. We have had tenants in our property for seven years. Is it better for us to move back in and make it our primary residence again to limit the capital gains?

A. You will not have to move back to Australia and live in the townhouse to benefit from the main residence exemption. If you sold it now your ownership period will have been eight years. Counting the one you lived in the property, and the six years you can claim under section 118-145 of the Tax Act, seven eighths of any capital gain you make would be exempt.

Q. We bought our house in Sydney in 1999 for $240,000 and lived there until December 2002. We moved to California and rented our house from January 2003 until the present. It has a market value now of $450,000. What tax exemptions apply considering we are both non-residents for tax purposes? How do you calculate CGT in this scenario?

A. If you sell the property now you will have owned it for 11 years. Counting the six years exemption, while it was rented, and the three years that you lived in it prior to leaving Australia, nine elevenths of the capital gain will be tax-free. You will pay tax on half of the remaining gain at the tax rates applying to non-residents.

Q. My wife and I have owned our primary residence in Sydney since 1990. We left for overseas employment in 2007. We return to Australia after eight years in 2015. If we sell our home, what proportion of the gain is subject to capital gains tax?

A. If you sell your home before the six-year period expires none of the capital gain would be assessable. If you sold it after your return in 2015 you pay tax on two fifteenths of the gain.

Investment tax questions can be emailed to
investing@taxbiz.com.au

Story by Max Newnham www.domain.com.au

Tags: housing, news, property, property management, rentals, tax

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