Many small businesses operate from the owner’s home. This could mean the factory is a shed in the backyard and the office a corner of the kitchen or dining room table.

For others the business can have a separate section of the home or permanent structure on the property used exclusively by the business. The facts of each case will determine what costs can be claimed as a tax deduction.

Business owners are often keen to claim a percentage of the interest on a loan where a mortgage has been taken out to purchase the property. The ability to claim property related expenses will depend on two tests being passed.

The first requires part of the home or the property to be set aside exclusively as a place of business. This would mean the part of the home used for business purposes could not have a dual private usage component. Setting up half of a large rumpus room as an office, with the rest being used for private purposes, would not satisfy this test.

In addition to the exclusive use test the section used for business purposes must be clearly identifiable. This can often mean that there is an entrance for the part used as a home and a separate entrance for the section relating to the business.

Building a shed that is used exclusively by a business for manufacturing or storage purposes would result in part of a property being classed as business premises.

If these tests are passed a portion of the property related expenses can be claimed including interest on the loan to purchase the property and rates. The method used to apportion the expenses must be able to stand up to the scrutiny of the ATO. An accepted method is calculating the area used for business purposes as percentage of the total area of the home.

In addition to the property related costs a tax deduction can also be claimed for the occupancy costs such as electricity, gas, telephone and internet usage. For these costs the owners must again be able to prove how they apportioned them between business and private usage.

Where the business property tests cannot be passed a business can still claim a portion of occupancy costs.

The ability to claim property related expenses does however come at a cost. By establishing a home or property is used for business results in a loss of the main residence capital gains tax exemption for that part of the home or property.

This will mean the owners of the business need to have the home valued at the time it starts to be used for business purposes. When the property is sold a portion of the difference between the net sale proceeds and the value when the business was started will be taxable as a capital gain.

Thankfully in this situation if a business owner passes the small business capital gains tax exemption tests income tax may still not be payable.

Tax for small business, a survival guide, by Max Newnham is available in bookstores.

Story source: www.domain.com.au

This week, thousands of cities across the globe will dim their lights at 8.30pm for an hour, joining in the world’s largest voluntary environmental action: Earth Hour.

Scheduled for the last Saturday of every March – closely coinciding with the equinox to ensure that most cities are in darkness as it rolls out around the Earth.

The growing importance of this global environmental action is reinforced by the unprecedented challenges our planet faces.

Our growing population is consuming at a rate that requires much more than one planet can provide. We are not living sustainably. While our carbon footprint grows, biodiversity is shrinking while our hunger for natural resources expands. Living beyond our planet’s means is putting increased pressure on food security, water security and climate security.

Earth Hour’s growth from 2 million people in Sydney, the city in which it all started, in 2007, to hundreds of millions in more than 5000 cities across more than 130 countries and territories shows that individuals across the globe recognise the challenges our planet is facing.

This year Earth Hour organisers hope to see this initiative grow further, with new countries taking part and landmarks from Las Vegas, Times Square, the Brandenburg Gate and the Eiffel Tower to the Burj Khalifa and even the International Space Station committing to switch off for the planet.

But the real value of Earth Hour does not lie in its sheer scale. The real value is in individual, grassroots actions. When you consider the potential of hundreds of millions of people all making small changes, it gives us hope for the future of our planet.

Earth Hour is about much more than an hour of darkness, it is about people showing their commitment to sustainability and environmental action. It is about individuals moving beyond NGOs, governments and businesses to express their personal commitment to living more sustainably.

So just remember – do your bit this week for the planet and switch off.  For further information have a look at www.earthhour.org

Source: www.smh.com.au

Source: www.yonderr.com.au

The Australian Government has chosen to simultaneously introduce three significant tax changes that directly affect the Australian Construction Industry. See what those big tax changes are and how they will affect you.

According to the Australian Bureau of Statistics the construction industry is the fourth largest contributor to Australia’s GDP accounting for around 7% of Australia’s total economy and over 9% of Australia’s employment. Construction has been a backbone of the Australian economy and the Australian way of life. Notwithstanding, the Australian government has chosen to simultaneously introduce three very significant tax changes that directly affect the Australian construction industry.

As of July 1, 2012, the construction industry will be hit with the implications of:

• Carbon Tax
• Mining Tax
• Compulsory reporting of subcontracting arrangements

This is a time when the government has already withdrawn support from those in the building and construction industry through:

Eliminating the free home insulation scheme.

Not continuing or increasing the School Building and Renovations program.

Being extremely inconsistent on when and if they are going to subsidise solar.

Taking longer than expected to roll out the National Broadband Network (a major infrastructure project consuming huge construction industry resources)

It has also come at a time when the Federal and State Governments are applying increasing requirements for builders to build green home and green renovations such as Victoria’s recent upgrade to a minimum 6 star rating for new homes at the same time that consumers are trying to build bigger homes with smaller budgets.

The Carbon Tax and the Construction Industry

Service Central has already published a review of how the Carbon Tax will affect the Construction Industry here, however let’s go over the key points once again.

Manufacturing the materials used in construction of new homes and renovations is extremely carbon intensive. As a result the carbon tax will add thousands of dollars of new costs to a new home. The HIA estimates that with the introduction of carbon tax the price of a new home will increase by between 0.8% and 1.7%.The Allen Consulting Group have released a carbon price mechanism report that estimates that the carbon tax will add around $3,821 to its model two storey detached brick veneer 200m2 house.

The Allen Consulting Group report found that in building a two storey home in NSW you would see increases in a broad variety of building costs, including:

• Direct Energy: 6.8%
• Aluminium: 4.1%
• Bricks: 4%
• Concrete: 3.2%
• Steel: 3%
• Carpet: 2.6%
• Paint: 1.5%
• Timber: 1.5%
• Glass: 1.1%
• Plasterboard: 1%

The Mining Tax and the Construction Industry

Whilst the Mining Tax is not directly related to the Construction Industry, the Government’s Mining Tax will increase the costs to an industry that supplies materials to Australia’s Construction Industry.

The mining tax that is set to commence from July 1 2012, imposes on select sectors of the Australia’s Mining Industry a 30% tax on extraordinary profits, specifically in the coal and iron ore sectors.

Similar to the Carbon Tax, this Mining Tax could have a flow-on effect to the Construction Industry that causes price increases in building materials and construction costs. An increased cost of production in the coal industry could lead to even further increases in the cost of Direct Energy as a significant proportion of Australia’s electricity is produced using coal. Building products that use a lot of energy in their production such as aluminium, steel and glass could be hit hard.

Targeting the iron ore sector also could have a direct flow-on to the cost of steel, a major component in the manufacture of Australian homes.

Tax Office targets Construction Industry in Sub-Contractor Crackdown

The third prong in the Government’s three-prong attack on Australia’s Construction industry is a significant crack-down on payments to subcontractors by builders with the introduction of mandatory reporting to the ATO of all payments made to subcontractors.

The new tax regime starts on July 1, 2012, and requires builders to report to the tax office all of the following:

The details of sub-contractors used by the builder.

The ABN of each subcontractor.

The exact amounts paid to each subcontractor.

It is proposed that the ATO will be using this information to data-match against the tax returns of each subcontractor. It is possible that discrepancies in the amounts reported by the builder and the subcontractors could lead to further scrutiny of their accounts by the Australian Tax Office.

The ATO has also indicated that it may share this information with various State and Territory authorities that could, for example match with payroll tax and workers compensation payment records.  Should this information also find its way into the hands of construction industry run superannuation and insurance schemes, significant additional costs could be imposed on small businesses.

Accountants have said that this extra reporting requirement will cost builders on average of $300-$500 per year extra in compliance costs. There are also risks that builders will be hit with extra costs as a result of increased audits from the ATO of their businesses and the businesses of their subcontractors. Furthermore, subcontractors may seek to increase their rates to builders as a result of the extra risk of the builders reporting their payments directly to the tax office.

The guidance from the ATO as to what needs to be reported and what doesn’t has been confusing to say the least. For example, the ATO has said that domestic building projects will be exempt from the program, however if the domestic building projects involve the use of subcontractors then they will need to be reported. Given that nearly every building project (of any size) involves the collaboration between various contractors (plumbers, electricians, painters, tilers, etc) it would seem that this “exclusion” actually might still capture the vast majority of projects.

This change comes into operation on July 1, 2012, so we would highly recommend that everyone in the building industry (builders as well as subcontractors) speak to their accountant about how this is going to affect them. If you’re accountant is not experienced in these matters then it is important that you post a job request for an accountant and get some quality advice for your business.

Resources:

Carbon Tax

http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/1350.0Feature+Article1Oct+2010

http://hia.com.au/media/Industry-policy/~/media/Files/documents/Carbon%20Tax%20documents/carbon_tax_price_adjustment.ashx

http://www.allenconsult.com.au/resources/acgcarbonprice2011.pdf

Subcontracting

http://www.smartcompany.com.au/construction-and-engineering/048605-the-building-industry-gets-ready-for-changes-to-tax-reporting.html

According to the Australian Bureau of Statistics the construction industry is the fourth largest contributor to Australia’s GDP accounting for around 7% of Australia’s total economy and over 9% of Australia’s employment. Construction has been a backbone of the Australian economy and the Australian way of life. Notwithstanding, the Australian government has chosen to simultaneously introduce three very significant tax changes that directly affect the Australian construction industry.

Story source: http://www.servicecentral.com.au

Knowing your limits and the market will help to expand your property portfolio.

Why do some people struggle to buy one investment property and yet others manage to own five or six? The answer isn’t simply that they have more money.

Investors who are creative in their approach to financing and who thoroughly research the important real estate indicators routinely achieve their goals faster and with less hassle.

There are several well-known ways to increase a property portfolio. You can take out an interest-only loan, buy with partners as ”tenants in common” or tap into your home equity.

Owning an investment property is not out of reach, it simply requires an astute approach. Photo: AFR

All of which help free up cash flow, enabling you to make more substantial contributions to a principal place of residence or to access cash flow for other investments. Coupled with buying investment properties in the right place at the right time, these tactics have reaped financial rewards for many people.

But savvy investors take their strategies to the next level. Let’s look at some of the less-traditional approaches to more profitable property investing.

Varying your income tax

If you’re negatively geared, a good way to improve immediate cash flow is to ask your accountant to submit an income tax variation form to your payroll office.

This reduces the tax rate charged on your wages by estimating your total end-of-financial-year tax position in advance. Rather than receiving a lump sum tax refund, you receive money evenly throughout the year.

Line of credit with a global limit

This is a line of credit home loan with a ”global” or ”umbrella” limit and several sub-accounts. It gives you maximum access to your equity to optimise your investment opportunities. The loan can be operated with multiple accounts under one global limit.

Mortgage Choice spokeswoman Belinda Williamson says line of credit accounts can be attached to a credit card. ”If you earn a decent income, using a credit card for expenses should mean that most of your income stays in the loan until the credit card payment is due, which helps to reduce the loan balance.”

Targeting distressed vendors

Successful investors don’t appraise the properties on the market in an area, they try to work out why they are for sale. Paul Osborne, of the buyer’s advocate firm Secret Agent, says it’s a smart move to understand household indebtedness in specific areas to snare a bargain.

He says many households are managing to service only the interest repayments, not the principal amount, of their home loans. As a consequence, the best buying opportunities tend to be in suburbs that have high proportions of household debt.

A secondary dwelling as an investment

Building second dwellings, such as granny flats, on the land held by either an owner-occupied or an investment property has become a growing trend. These dwellings can generate extra rental income and increase the property’s future value.

They also provide depreciation benefits and must be council-approved. Lending criteria for secondary dwellings varies from lender to lender and it’s smart to monitor how such additions in an area have shifted property values.

Choose a loan tailored to your needs

Depending on your finances, lifestyle and investment portfolio, there are a range of property loans to consider. Ms Williamson recommends checking the health of your home loan at least once a year.

”You should make sure that your loans not only meet your current needs but also take your future needs into consideration,” she says. ”Make sure that you are managing your loan, rather than letting it manage you.” Always be aware that new products are entering the competitive housing finance market constantly.

Story source: www.domain.com.au Story by Chris Tolhurst

There are times that cause you to take a reality check on Australia’s overriding view of bricks and mortar as investments.

As brown swirling flood waters force thousands of people from their homes in NSW and northern Victoria last week, the images of rivers breaking their banks and gushing through gardens and into homes are enough to make you cry.

When one devastated homeowner declared on national television that he "wasn’t going through this again", his pain was raw for all to see.

Imagine being forced to grab a few precious belongings and leave your home to the will of nature.

Yes, it’s only brick and mortar, and not lives, but for many people – if not almost everyone – a home is part of what defines you. It’s full of memories. And most poignantly, brimming with dreams of times ahead.

A spokeswoman for the Bureau of Meteorology says the recent high rainfall is a result of La Niña and is not necessarily related to longer-term climate change.

Nevertheless, given that this week’s widespread flooding follows last year’s wave of floods, cyclones and bushfires, the question facing many Australians is whether this is situation normal, and if so, do we need to adapt our style of housing, or the infrastructure around it?

In a speech given by Insurance Australia Group chief executive Mike Wilkins late last year, he called on governments to learn the lessons from our recent experience to make our communities safer.

"If we don’t take action, we’re doomed to repeat this cycle of destruction, devastation, slow rebuild and lost productivity over and over again into the future," Wilkins told the American Chamber of Commerce in December.

"In recent times we’ve seen significant new areas of land being opened up for development in the rapidly growing areas around the north west of Sydney. Much of this region is located on the Nepean floodplain and has historically been subject to severe flooding.

"We believe the planning authorities responsible for releasing these areas of land must ensure mitigation work is conducted prior to any new building, so it is not subject to flood if the outskirts of Sydney experience a wet summer similar to Queensland’s."

Wilkins also highlighted the tragic Queensland floods of last summer.

"[They] were not the first times that many of the areas around Brisbane, Ipswich, Toowoomba and Emerald had been severely flooded. It will also not be the last time. In these areas, it is not a question of if; it’s a question of when the next flood will come.

"Notwithstanding this inevitable pattern, plenty of development – homes, sheds, businesses, even infrastructure like substations – was allowed to spring up in areas of unacceptable risk around Brisbane and Ipswich over the intervening drier years."

Wilkins said it was irresponsible to rebuild in a way that "ignores clear historical records". "We do a great disservice and potential harm to our community if we grow apathetic in our approach to rebuilding," he said.

Wilkins put forward a number of solutions, which are listed verbatim below:

• Increasing the woefully inadequate level of investment in mitigation infrastructure. Protective works could include barrages for unusual tides, levee banks, sea walls, properly maintained fire breaks and access trails, improved drainage and dams.
• Planning authorities must be a lot tougher and more transparent about their planning and zoning decisions. Development simply shouldn’t be allowed in areas of unacceptable danger.
• Strengthened building standards will ensure we are adequately prepared for changing risks.

"The improvement to building codes in cyclone-prone areas in north Queensland following Tropical Cyclone Larry meant that – notwithstanding its enormous size and destructive wind speeds – the level of damage incurred during Tropical Cyclone Yasi … was surprisingly low," Wilkins argued.

Story source: www.domain.com.au

It’s one of the quickest ways to give a home a facelift, but painting like the pros requires patience, attention to detail, a steady hand and yes, tedious preparation.

It’s a messy business, with lots of bending, twisting and negotiating ladders, and inevitable dithering over the crucial colour scheme.

Decide up front who lands the back-breaking tasks of heavy sanding and painting the ceilings.

Painting is not just about getting the paint onto surfaces successfully. There’s an awful lot of work involved in not getting paint where it shouldn’t be.

To start

Start your painting project with some measurements. You will need to know how many square meters you will be painting.

Asses the surface you want to paint, is it fresh plaster or cement, is it old flakey paint or wall paper, is it a relatively new finish?

Tools of the trade. A wall scraper and painter’s tape

How dark is the current colour compared to the new colour you’ve chosen? If the old paint is very dark and your new paint is light, you may need an undercoat or have to apply more coats of paint.

What’s the quality of the surface? Is it a nice smooth surface or is it a bit rough?

If you can’t decide on a colour scheme, get some sample pots and experiment.

Surface prep is time consuming but will give the end result a more professional look.

Remember, colours can look quite different in different lighting conditions, don’t just rely on looking at the paper samples in the shop.

Paint comes in a number of finishes from matt to gloss and are either acrylic or enamel or oil-based.

Flat paint hides flaws in old walls. A semi- or high-gloss paint works best on woodwork, such as door and window frames, and skirtings. Low-sheen is the most popular finish for walls.

Careful cutting in gives a much better finish.

Wear and tear is another point to consider. For example, high traffic areas or walls subjected to small sticky fingers will call for a tough, easy maintenance finish.

Most surfaces require two coats of paint, and if you’re painting over a dark colour or a new wall, you’ll probably need an undercoat.

That said, many paint companies now offer "one coat wonders", so it’s worth having a good browse of the paint shelves.

Fantasy land: you will not look this cute or happy when you’re painting. Wear old clothes or overalls and cover your hair. Gloves are a good idea too.

Preparation

You might be a wiz with a paint brush and roller, but all your efforts will be in vain if you haven’t meticulously prepared the surfaces.

Cover the floor
Be generous with the drop sheets, taping them to the walls so they don’t slide around. Make sure the drop sheets are tough enough to resist tearing if you’re going to be moving a ladder around.

Good lighting is essential to ensure even coats of paint.

Light and ventilation
Make sure you’ve got good even lighting where you’re working so you see what you’re doing clearly. Wall surfaces and paint colours will look different in different lighting conditions, especially if it’s daylight coming from a single window.

Use a good bright portable light for best results. And check what you’re doing from different angles in the room.

Whenever using chemicals and stirring up dust make sure you have plenty of fresh air.

Move the ladder, don’t risk a fall or back strain by reaching too far.

Surfaces
Older walls will need any loose paint scraped off. Holes and cracks need scraped out to remove loose material and then patched with a suitable filler.

Blade scrapers are great for tidying up old paint jobs that left paint on window glass.

Be very careful painting over old paints, some of them are oil-based and cannot be painted over directly.

Not all fun and games: Don’t be fooled by DIY shows on TV, painting is hard work … hijinks with a paint roller in the an episode of The Block.

Water-based paint will stick to oil-based paints but only if the surface is prepared correctly. Get some professional advice on this one.

Filling and sanding
The rougher the overall wall surface is to begin with, the more your nice neat filled spots will stand out as shiny patches. Roughen up your patching a little if you want it to blend in.

Old, chipped woodwork will look exactly that if you don’t give it a really rigorous sand, starting with coarse sandpaper and finishing with a fine grade.

Use a smaller bucket to carry with you as you paint.

Give the walls a good sand over rough or shiny surfaces too and a quick sand over all the rest.

Vacuum up all the dust and lose bits of paint and plaster once you have finished preparing the surfaces.

Follow this by washing with sugar soap.

Painter’s tape
Use masking tape to protect surfaces such as light switches and skirting boards. In fact if you aren’t 100% confident of having a very steady hand… tape up the edges of everything you don’t want paint on.

A quick wipe with a rag will remove some stray brushstrokes on glass or other shiny surfaces, but it’s much easier to remove painters tape than unwanted paint, wet or dry.

This sounds like a lot of fiddling – and it is – but you just won’t get really good results without it.

Painting

Tools
Before you take the lid off the paint can, make sure you are ready to go with all your tools and equipment.

There’s nothing worse than starting to paint only to find you need to make another trip to the hardware shop or garage.

The type of surface you’re painting and the type of paint on will determine they types of brushes and rollers you will need. Always buy the best brushes and rollers you can afford, they will make the paint job look more professional.

Buying cheap rollers might seem like a good idea but not when you’re left with fuzz in your fresh paint or extra work because the roller won’t hold enough paint.

Don’t put too much paint in a roller or brush. You want the paint applied evenly but not too thick on the walls. Use a nice firm pressure when using a roller.

Step one – edges
Start painting by cutting in around all the edges with a brush or a paint edger

Make sure your cutting in doesn’t dry before you start filling in with the roller.

Using a small container for your paint as you walk around the room is easier than moving a heavy tin of paint with you and is less dangerous to carry up a ladder.

Step two – walls
then use a roller to apply the paint in long, even zig-zag sweeps, finishing in parallel strokes that even out any overlapping paint edges.

Rollers will make painting walls much faster and give a far better finish than brushes.

You don’t want it dripping down the wall or on the floor and certainly not flying off the ends of the roller in globs.

Cutting in around light fittings and wall fixtures at the same time as you roll will help to avoid a patchy finish if you have a large area and won’t start using the roller before the edges dry.

Using a straight edge tool will help keep paint off adjacent areas if you haven’t taped them up. This tool is especially useful for painting right down to the bottom of walls in carpeted rooms.

The paint is for the wall not for the tool, just put paint on the wall side of the brush. Wipe the straight edge frequently to make sure it’s paint-free against the surface you are protecting.

Extension poles are a must if you’re painting high ceilings, it will be faster and much kinder on your back and neck, not to mention reducing the dangers of trips up and down a ladder.

Use roller tray liners for easier clean up and less waste.

Drop sheets are essential but they don’t save floors from paint you walk from the room you’re painting to another.

Try to clean up spills on your drop sheet as they happen, but always check your shoes or take them off before you step off the drop sheet onto unprotected surfaces.

Wrap brushes and rollers in plastic to prevent drying out or needing to wash if you’re taking a break or continuing the following day.

Do…

• Thoroughly stir the paint before starting
• Always work your way down, starting with the ceilings first
• Choose the best quality paint brushes and paint you can afford
• Paint in manageable patches to ensure you’re not going back over paint that’s started to dry already.
• Tie up/cover your hair unless you want paint speckles that don’t wash out once dried.

Don’t…

• Use a cheap masking tape. Buy proper painter’s masking tape that won’t remove the paint or chunks of plaster when you pull it off
• Overload your roller or brushes with paint
• Stir paint with a brush
• Try to paint over crumbly surfaces you will just get ugly lumps in your paint

Safety tips

• Always wear a dust mask or respirator when sanding or using products with fumes warnings
• Ensure rooms are well ventilated
• Use a fan to assist with ventilation
• Check your ladder is rock-steady before you step on it
• If your building is old, allow for the possibility of toxic lead paint. Further information can be obtained from the Environment Protection Agency on 1800 803 772
• Reduce trips up and down ladders by using smaller paint pots when painting with a brush, use and extension handle with a roller and avoid the ladder completely.

Story Source: www.domain.com.au

There’s still money to be made out of property if you are careful and hard-headed.

It has been the wealth strategy of a generation. Buy a home. Look after it, improve it, upgrade it. And if cash flow allows, gear up to your eyeballs to buy more property for other people to live in. For the baby boomers and for many from generations X and Y, it has been an easy path to success.

But the prospect of lower rates of capital growth and possibly even falls, if the doomsayers are right and the global economy takes another big turn for the worse, has changed the outlook for property investment.

Home owners and investors will need to be smarter about property. Solid rental yields, buying the right property at the right price and less dependence on gearing will be the key to making money. The days of certain returns made by gearing up and hitching a ride on the market boom are gone. At least for now.

THE OUTLOOK FOR PROPERTY

In November, The Economist magazine said Australian housing prices were still 38 per cent overvalued when compared with incomes and a hefty 53 per cent when compared with rents. Household debt levels in Australia exceeded those in the US at the peak of the boom, which makes us highly vulnerable to falling prices if the worst case of a second crisis – worse than that of 2008-09 – happens.

In December, ratings agency Moody’s said Australian house prices were unsustainable and last month a leading US real estate analyst, Jordan Wirsz, predicted Australian house prices could fall by as much as 60 per cent.

Last week, the Demographia International Housing Affordability Survey found Australia was one of the least affordable countries in which to buy a home. The median house price in capital cities was 6.7 times the median annual household income – with only Hong Kong being more expensive. Sydney was the least affordable city in Australia, with a median house price 9.2 times the average annual household income.

Many commentators say prices might be fully valued, or overvalued, but a crash is not the only way the market can correct itself. The head of property and financial system research at ANZ, Paul Braddick, says talk of a big crash assumes a doomsday scenario for the economy. While not impossible, he says it’s unlikely.

”Our base case is that the labour market will remain soft for the next six months but will start to pick up again in 2012-13,” he says. ”It won’t be a boom in any sense but [the economy] should bottom and start to pick up again.

”But there are risks and that does overlay sentiment. There’s a fear of the unknown and if Europe does implode, how will that affect us? As we saw in 2008 at the height of the global financial crisis, if overseas conditions get worrying enough, the Reserve Bank will react. In 2008-09, it lowered interest rates and boosted the housing market, though that was also helped by the new first-home owner boost and changes to the foreign investment rules, which are less likely to reappear this time.”

Given that, Braddick says the most likely scenario is that house prices will fall further in the next six to 12 months but once they have found a floor, prices should start to rise in line with household incomes. He says that means longer-term growth of about 4 per cent to 5 per cent a year on average, though there will be cycles around that.

The chief economist at AMP Capital Investors, Dr Shane Oliver, says historically, prices get ”stuck in a range” for five to 10 years after they have been pushed to extremes. He says research on house prices since 1920 shows they have risen about 3 per cent a year after inflation in the longer term.

He says in the 1990s, prices were below that long-term trend (see graph below) but they took off in the early 2000s and are now about 25 per cent above the trend line. Though not predicting a US-style collapse, Oliver says it is hard to see prices growing at the rate they were because affordability is so poor and people are more reluctant to take on debt.

Australian Property Monitors (APM) is predicting national growth this year of 3 per cent to 5 per cent (see table above).

It says Brisbane, Perth and Darwin have the potential for higher growth while Melbourne, Adelaide and Hobart are likely to underperform.

POTENTIAL STUMBLING BLOCKS

The managing director of SQM Research, Louis Christopher, says buyers need to ask what would trigger a major selloff in housing and assess the likelihood of those events happening. One strong trigger (thanks to high levels of household debt) would be a return of rising interest rates. ”All it took was the cash rate to get to 4.75 per cent to cause problems in this country,” he says.

He says buyers also need to watch for signs of the banks reducing loan-to-valuation ratios. He says house prices in most big British cities fell by about 20 per cent when British lenders suddenly cut lending ratios from 100 per cent or more to 80 per cent.

”Think about it,” he says. ”If you had a $50,000 deposit and someone was willing to lend 95 per cent, you could borrow up to $950,000. But if they would only lend 80 per cent, you could borrow $200,000 and your maximum purchasing power would be cut from $1 million to $250,000. You can see the havoc that would cause in the market.”

Why would banks cut their loan ratios? Like most things, it comes back to Europe. At worst, if Europe unravelled, we would be likely to see significant bank defaults that would limit the ability of other banks to raise finance outside their own countries. Australian banks have already raised the threat of another credit squeeze.

Other risks include unemployment rising to levels in which forced sales become a problem (Christopher says SQM Research’s modelling suggests problems would occur if unemployment broke through 7 per cent) and banks lifting interest rates independently of the Reserve Bank’s changes.

Oliver says the most vulnerable are heavily geared buyers, because they are most exposed to negative equity and forced sales. RP Data recently found slightly less than 5 per cent of Australian houses were worth less than their purchase price. Queensland had the highest levels of negative equity while Victorian households had the strongest equity positions. In Melbourne, 1.9 per cent of houses were worth less than their purchase price. However, the figures did not take into account debt, especially mortgage redraws.

The research director at RP Data, Tim Lawless, says coastal lifestyle markets are also vulnerable to a downturn and have already suffered from a downturn in tourism and sea-change migrants, as well as weak demand from second-home buyers. He says many of these lifestyle markets experienced dramatic appreciation before the GFC.

He says markets that had a big run-up in prices during the most recent growth periods are now also potentially more exposed to weaker conditions. ”The Melbourne market, for example, has seen home values appreciate by almost 50 per cent since the start of 2007,” he says. ”Rental yields in Melbourne are now the lowest of any capital city and new housing supply has been much more sufficient than [in] other cities.”

WHERE THE OPPORTUNITIES ARE

In this market, most analysts say the old strategies no longer guarantee success.

Buyers will need to do their sums and ensure they are buying well rather than simply picking the next ”hot suburbs” and riding the boom.

Success will also depend on having the flexibility to decide when to sell. That means buyers will need to keep borrowings at a manageable level so they are not forced to sell at the worst possible time.

Christopher says he is loath to tip particular areas, given that any recovery might not be long-lived. But he does favour the outer ring of Sydney, particularly the western and south-western suburbs.

”We see a big movement to more affordable housing,” he says. ”Rents there have already been rising by about 5 per cent a year, infrastructure has been improving and they have the potential to outperform over the next five years. We think 7 per cent growth there is possible.

”More average and above-average income earners are moving west because they don’t want to raise a family in a unit and it makes the mortgage more manageable.”

APM forecasts growth in Sydney this year will come mostly from middle- and lower-band suburbs, supported by high rents and an undersupply of housing. In his 2012 outlook, the senior research analyst at RP Data, Cameron Kusher, also predicted Sydney might perform better than in 2011. ”Home values across Sydney have increased at an average annual rate of just 4 per cent over the past 10 years,” he says. ”Although value growth has been limited, rents have increased by 5.4 per cent for houses and by 6.4 per cent for units in 2011. Estimated sales activity as at September 2011 was 6 per cent above the five-year average. Sydney’s market continues to be hampered by an undersupply of new housing at a time when demand remains strong.

”Although we don’t expect property values to increase at a rate above inflation, we anticipate Sydney will continue to be one of the better-performed markets, especially considering that when adjusted for inflation, values remain below their 2004 peaks.”

A property adviser at Lachlan Partners, Ana Bennett, says areas along the main Sydney transport corridors ”should do well”, given the undersupply of housing – ”areas that aren’t reliant on having two cars to get to work” – though she says Melbourne is a different prospect.

”The large volume of stock coming onto the market in Melbourne is a concern,” she says.

For investment, she favours ”the groovy, funky areas with a younger demographic”, such as South Yarra, Richmond and Middle Park.

”The other opportunity is the old house on the corner block in suburbs like Cheltenham where there is the potential for multi-residences down the track,” she says. ”Investors can rent them out for five years or so with a view to either selling the site or developing themselves. People are saying they’ll build one residence for themselves and sell the second for profit.”

Braddick says buyers should be aware that states are likely to perform differently. ”NSW has the advantage of being the most undersupplied market but it’s tricky to look at particular sectors.” He says if the construction and resources sectors continue to boom, this could support the upper end of the market, while soft conditions in retail and manufacturing could dampen the middle and lower parts of the market.

”But ultimately it will come back to the ‘atmospherics’ – the number of properties on the market, current sentiment and so on,” he says. ”Over the short term there could be significant increases or falls but on average the market is unlikely to achieve much.”

A GREATER FOCUS ON YIELD

To a large extent, buying a home is a lifestyle decision and you can afford to trade off slower capital growth against the desire for a place to call your own.

But if you’re considering putting your hard-earned money to work in investment property, you’ll need to be hard-headed.

Braddick says investors in the 2000s ”got away with non-focused property buying because most prices were going up.” But with capital gains likely to play less of a role, investors will need to focus on yield for more of their return.

”You need to look at the yields now and what they will be in the future,” Bennett says. ”The initial yields in the inner city may be lower but newer stock can balance that with depreciation allowances and if you get income growth, the yield will bounce back.”

Lawless says units have outperformed detached dwellings in terms of value growth in recent years.

”This is probably due to both improving demand related to price sensitivity [units are generally more affordable than houses] as well as the fact that units generally provide higher rental yields than houses. With more focus on urban renewal and higher densities around transport hubs and employment nodes, we would expect that well-located units will continue to be a popular choice for investors,” he says.

”Another tactic that is likely to remain popular among investors is buying within close proximity to the capital cities. The 10-kilometre to 15-kilometre ring should continue to provide reasonable housing demand with tight supply constraints. Public and private transport options are becoming even more important and these factors will be one of the primary drivers of long-term capital gain.”

Oliver says investors might also want to consider looking outside the residential box.

”You can argue that if you’re going to buy investment property, you’d be better off looking at commercial property where the yields are higher and there is less evidence of overvaluation,” he says. ”Listed property trusts have gone back to their roots after going through a more speculative period and are offering yields of 5.5 per cent to 6 per cent, unlisted property trusts and syndicates are an option [though you have to be careful], or you can invest directly in something like a shop, warehouse or strata office.”

The new rules to property success

When it comes to gearing, less is more. ”It’s not what you own but what you owe,” Shane Oliver, of AMP Capital Investors, says.

Think affordability. The more expensive your property, the smaller the list of potential buyers or renters.

Buy well. What’s the point of being in a weak market if you don’t get to dictate terms? ”You make money in property when you buy, not when you sell,” Ana Bennett, of Lachlan Partners, says.

Don’t count on making a quick buck. ”If you think you’re getting a bargain, you’re usually not,” Bennett says. She says property should be regarded as a long-term investment. ”Particularly for investors, you have to ask whether you can really afford it,” she says. ”There’s no point struggling and realising you have to sell in two to three years.”

If you’re investing, think income. In the absence of strong capital growth, investment returns will increasingly depend on a decent, and growing, rental yield.

Do your homework. While average returns might not look promising, the property market is highly segmented and demand for the right properties will remain strong. Look for properties that are in undersupply, not a dime a dozen. ”I would be wary of locations that have recently experienced a large surge in home values or where rental yields are lower than average,” RP Data’s Tim Lawless says. ”Areas where housing can easily become oversupplied should also be treated with some caution.”

Understand that property prices can be volatile – especially in the short term. Just because your house price isn’t quoted on the news each night doesn’t mean it can’t go up and down. ”If you put a large proportion of your money into a particular investment, it is a risky position, particularly if you’re also leveraged,” Michael Sherris, from the Australian School of Business, says. ”There may be half the volatility that you get with shares but people think there’s no volatility at all.”

Look for areas with strong population growth, strong demand and good infrastructure that is improving.

Think outside the box. Will it be possible to add value to the property in the future? If residential property doesn’t stack up, what about commercial?

Don’t expect history to repeat itself.

Story by Annette Sampson, source: www.domain.com.au

From the Boardroom – 2012 Summer Edition

To read the full story, please click on the link!

The preliminary capital city dwelling value index result for December was -0.2% (s.a.) following an upwardly revised +0.4% rise in dwelling values in November (was +0.1%). Revised regional house values for November increased from +0.3% to +0.5%. Sydney housing has been the nation’s best performer with dwelling values up 0.4% in December and by 0.7% over the quarter (s.a.).

In the generally seasonally weak month of December, the preliminary RP Data-Rismark Home Value Index result for capital city dwelling values was -0.2 per cent (s.a.). Low sales volumes in December mean that this number will likely see a more significant revision than normal.

The November result from the RP Data-Rismark index for dwellings in capital cities has revised up from +0.1 per cent (s.a.) to +0.4 per cent (s.a.) based on additional sales information. This marks the largest month-on-month improvement in Australian home values since May 2010.

The RP Data-Rismark ‘rest-of-state’ index, which covers Australia’s regional markets, has also revised up in November from +0.3 per cent to +0.5 per cent (s.a.). This is the most significant increase in regional house values since November 2010.

Over the December quarter, Australia’s capital city home values declined by -0.5 per cent (s.a.).

RP Data’s director of research Tim Lawless, said, “The December quarter was the year’s smallest quarterly decline. According to our index, capital city home values fell by -1.5 per cent (s.a.) in the March quarter, and by a further -0.8 per cent (s.a.) in each of the June and September quarters. This rate of decline had decelerated to -0.5% by the final quarter of 2011.”

In 2011, Australian capital city dwelling values experienced a capital loss of about three and a half per cent. Regional house values fared a little better, correcting by around three per cent. This compared to the 14-15 per cent decline in Australian shares. Adding in rents, the gross total return to Australian property investors was slightly less than one per cent over 2011.

Rismark’s managing director Ben Skilbeck said, “The month of December is characterised by a significant lull in activity and the preliminary index results have likely been influenced by some more volatile Melbourne and Perth estimates. We expect to get better clarity on the monthly movements as more information is reported.”

“Sydney currently has the largest volume of reported sales in December. In seasonally-adjusted terms, Sydney dwelling values rose by 0.4 per cent in the month of December. In the December quarter, Sydney dwelling values are up a total of 0.7 per cent (s.a.)” Mr Skilbeck said.

RP Data’s Tim Lawless observed that rental markets continued to strengthen in December.

“Weekly rents across the capital cities were up 1.0 per cent over the December quarter and are now 6.3 per cent higher than at the same time last year.”

“These higher rental rates combined with the slide in property values have improved investors’ yields. The average capital city dwelling is now offering a gross rental return of 4.6 per cent after a consistent trend upwards since mid-2010 when the typical capital city dwelling was yielding just 4.1 per cent. Darwin and Canberra are the highest yielding locations for property investors while Hobart, Brisbane, and Sydney provide gross yields that are better than average,” Mr Lawless said.

On the outlook for the year ahead, Rismark’s Ben Skilbeck commented, “We expect that the RBA’s interest rate cuts in the final two months of 2011 will lend further momentum to housing activity as transaction volumes pick up over February and March after the seasonally slow months of December and January. If financial market pricing for substantial additional RBA rate cuts proves accurate, we could see a stronger-than-expected bounce-back in housing conditions.”

“Housing affordability in Australia has experienced a striking improvement in recent times. While disposable household incomes on a per household basis rose by five per cent over the year to September 2011, Australian dwelling values have declined by 3.4 per cent since September 2010. As a result of the RBA’s rate cuts borrowers can now get fixed- and variable-rate home loans as low as 5.9 per cent and 6.14 per cent. Rismark’s research shows that disposable incomes per household have risen about 15 per cent further than Australian dwelling values since the end of 2003. This helps account for the decline in Rismark’s national dwelling price-to-income ratio, which is as low as its been since 2003” Mr Skilbeck said.

RP Data’s Tim Lawless added, “While global uncertainty and a stagnant local labour market could weigh on the consumer’s mindset, we are nevertheless observing improvements in monthly housing finance commitments. RP Data’s leading indicators on average selling times and vendor discounts are also starting to look healthier. There is no doubt that additional interest rate relief in 2012 would afford a very welcome cushion to the housing market.”

As we head into 2012 pondering where the housing market is headed – will it be down 10 per cent as some commentators are expecting, or will others be on the money with predictions of 5-7 per cent growth – there is some interesting news emerging about home loans.

Out today are figures showing mortgage holders are increasingly being lured by fixed rates.

Despite predictions about one, two or even three rate cuts coming over the next six months, a growing number of homeowners are locking in their rates now. Data from the Australian Bureau of Statistics shows fixed loans grew from 10.6 per cent of new housing loans before the most recent rate cut in November to 11.1 per cent.

And mortgage broker AFG reveals that 19.2 per cent of loans arranged through its business in December were issued at fixed rates, a big jump from 8.2 per cent six months earlier.

An odd move you may think given all the predictions are for official rates to fall further this year. But CommSec economist Savanth Sebastian argues people are simply getting in at what they can afford.

“It’s more about ensuring you can purchase a place within your budget and within your limits," he says. "While the risks are to the downside [for rates to fall], I think the fixed rate market has already priced in a couple more rate cuts,” he says.

In addition “even though the Reserve Bank will cut rates, the banks need to pass it on. So the fixed market is looking very attractive, not only do you need a couple more rate cuts [for variable rates to match fixed] but you need it all to be passed on as well to justify where the fixed market is.”

Many homebuyers may also be wary that should there be a swift change in the economy, rates can easily shoot back up. 

“We saw straight after the GFC how rates rose, it certainly would have caught some home buyers that were on the edge in terms of repayments, so at least this way they can sleep easy,” says Sebastian.

Further news on the home loan front could point to a slightly more positive year for property than last, where we saw prices fall across the board. Australian Bureau of Statistics figures have revealed that the number of new owner-occupier housing loans rose by 1.4 per cent in November while the value of loans rose by 2.2 per cent.

However, home loans aren’t being drawn down – rather potential buyers are simply getting their finance sorted and sitting back and waiting until the right time to buy.

So while for the past eight months there’s been consecutive jumps in the number of home loans being approved, in November the value of loans that had actually been drawn down was two per cent lower than a year ago, and commitments not advanced were almost 11 per cent higher than the previous year.

With all the concern about the state of the US and European economies, it’s little wonder buyers have been taking a cautious approach.

So just what will entice all these cashed-up potential home buyers to jump? Could a February rate cut be enough?

CommSec’s Sebastian thinks so. “Even the thought of rate cuts should prompt activity levels to increase over the next few months,” he says.

Story source: www.domain.com.au

We’ve been so worried about plastic shopping bags, but what about the plastic we use to wrap our lunches?

As a Mum there are some things I am not imaginative enough to work out. What do you suggest as substitutes for freezer wrap to put meat or cakes etc in, and for lunch?

Like their shopping bag counterparts, plastic products such as freezer bags and cling film are not environment-friendly.

While technically it’s possible to recycle plastic bags, the reality is not simple.

Linda Edwards from the National Packaging Covenant explains: “No Australian plastic is biodegradable. Traditionally in Australia it’s been very difficult to recycle because of the sorting and collection system needed. Also there is a lack of plants able to reprocess it.”

Fortunately, there are alternative, environment-friendly options.

Substitutes such as 4MyEarth Wraps (www.4myearth.com.au) are a good choice for keeping sandwiches fresh. These reusable wraps are machine washable, and they not only wrap sandwiches but also act as a placemat to eat them off! The wraps come in sandwich and snack sizes.

A sandwich-sized hard plastic container would also do the trick.

When storing food in your fridge or freezer, consider investing in plastic containers rather than plastic bags – containers are endlessly reusable so you don’t need to discard the plastic every time you take something out of the freezer.

Multiple use freezer bags can be found in your local supermarket, although these have to be thrown out eventually.

Look out for biodegradable freezer bags that have recently come onto the market. They’re made of cornstarch, a renewable resource.

But if you can’t give up the cling wrap, remember that you probably don’t need to use very much – it only needs to cover the food, not mummy-wrap it!

Story source: www.yonderr.com.au

AUSTRALIAN housing markets displayed a generally resilient performance in 2011, reflecting the inherent security of residential real estate in this country, particularly when compared with housing markets in similar open-market economies.

The year was always set to be a period of correction for Australia’s housing markets following the unsustainable growth in house prices recorded through 2009 and 2010.

Between January 2009 and June 2010, Melbourne’s quarterly median house price rose by nearly 30 per cent, with Sydney’s up by almost 20 per cent over the same period. All other capitals also recorded big rises in house prices over those 18 months.

Housing affordability crashed by the end of 2010, with surging house prices and rising interest rates combining to send buyers into hibernation.

Australian Property Monitors data has revealed that capital city housing markets have generally performed encouragingly in 2011 despite the pressure on housing affordability generated in 2010 and a mixed economic performance in 2011.

The national median price for houses over the year to October 2011 fell by just 1 per cent compared with the previous year, with median unit prices rising by 1.2 per cent over the year. The 2011 result follows a 17 per cent rise in the national median house price over the year to October 2010 and a 12.2 per cent rise in the median unit price over the same period.

The best capital city performers were Melbourne and Sydney, where annual median house prices rose by 1 per cent. Darwin and Adelaide house prices were flat and Hobart down 1.5 per cent.

The worst performers over the year were Brisbane and Perth, where annual median house prices fell by 3.5 and 4.75 per cent respectively.

The unit market clearly outperformed the housing market over the year to October 2011, with Sydney recording median unit price growth of 2 per cent followed by Melbourne and Darwin up by 1 per cent. Brisbane and Perth were again the underperformers, with annual unit prices falling by 1.3 per cent and 3.5 per cent respectively.

Bureau of Statistics data confirms the solid performance by Australian housing markets in 2011, with the number of owner-occupier housing loans rising by 2.4 per cent over the 10 months ending October compared with the same period in 2010.

New South Wales was the best performer with an increase of 8 per cent, with Western Australia surprisingly in second place with growth in home loans of 7 per cent over the year, courtesy of a surge in the past three months – indicating perhaps growing late-year momentum in that market.

By contrast, the number of home loans approved in Queensland in the year to October fell by 8.4 per cent compared with the same period in 2010.

The nature and strength of Australian housing markets in 2011 was always to be determined by the underlying supply and demand characteristics of individual markets and the strength of national and local economies.

In addition to the affordability barriers created by the prices surge and interest rate rises of 2009 and 2010, housing markets have had to encounter unexpected headwinds in 2011. The impact of the central Queensland and Brisbane floods was not restricted to the local housing markets. National economic output was affected through reduced coal exports and the cost of the reconstruction levy. Higher prices for fruit and vegetables also affected household budgets nationally.

The impact of catastrophic natural disasters on the national psyche and confidence cannot be underestimated, particularly given Australia’s recent propensity for financial conservatism, especially when it comes to buying or borrowing.

The Japanese earthquake and associated tsunami in March also contributed to lower economic growth and reduced consumer confidence.

Stalling economic growth in 2011 was also a product of continued mixed performances by various industry sectors, particularly retail, manufacturing, tourism and construction. As a consequence, all capitals recorded rises in unemployment through mid-year. All these factors combined to subdue consumer capacity and confidence and consequently dampen home buying activity through 2011.

Most Australian capital city housing markets are, however, set to record growth in median prices over 2012 as the national economy gathers strength. The Australian economy is primed to expand strongly on the back of a significant resources boom with the Organisation for Economic Cooperation and Development predicting gross domestic product will increase by 4 per cent over the year.

Melbourne, Adelaide and Hobart will be the underperformers in 2012, with median house price growth of between zero and 5 per cent.

Melbourne’s balanced housing supply and demand mix offers buyers a wide choice and it remains the most tenant-friendly capital city rental market. Affordability barriers, however, remain for home buyers.

With the Victorian economy showing signs of running out of puff, particularly as the recent construction boom abates, the housing market is set to drift sideways though 2012. The possibility remains of some growth in median house prices by the end of 2012 as the impact of a strong national economy filters through.

Dr Andrew Wilson is senior economist for Australian Property Monitors.

Source: BusinessDay

www.news.domain.com.au

If you’re a parent, you likely have several giant bins filled to the brim with toys for your little ones. And with Christmas (ho ho ho!) over you’re likely to have gotten toys in all shapes and sizes.  And while I’m no bah humbug, the relative size of our children’s toy boxes has become incredibly large given their small stature, and the environmental problems are equally ill-proportioned:

• Mountains of trash: Of the 40 million toys thrown away annually, 13 million are put into the rubbish according to green living website www.ecolife.com.
• Difficult recycling: Because toys are made from many different materials – plastics, metal, glass, computer components, and more – they are incredibly difficult to recycle and in many cases are not accepted by recycling facilities.

Once Christmas is over, we try to keep the toys under control (as well as our carbon footprint) by having a post-Christmas clean-up and getting rid of toys that haven’t been used or the children have simply grown out of.

Donating used toys to a good cause can be one of the most effective ways to recycle toys. Not only does this prevent garbage from being sent to landfills, it provides a second life for your used toys, which means the materials will go on functioning for many months or years to come. The sky’s the limit when it comes to donating used toys – use your imagination to find a person or charity who could use your second hand toys:

• Children’s charities
• Children’s hospitals
• Churches
• Day cares
• Family members
• Friends
• Neighbours
• Playgroups
• Thrift shops like those through St Vincent de Paul or the Salvation Army

Not all toys can be donated to charities for various health and ethical reasons. To ensure that your toys have the best chance of being given away rather than trashed, consider these toy donation guidelines:

• Toys should be nontoxic
• Ensure that the toys are clean and are not missing parts
• Broken toys are unlikely to be accepted, especially if they pose a choking hazard
• Avoid toys with a religious theme unless you’re donating to a faith-based charity
• Toys that require batteries are not as suitable for donation as they will require the parents of the child to purchase batteries (which may be out of their budget)
• Toys made from things like fabric, cardboard, paper, and other absorbable materials are often rejected as they are difficult to clean and disinfect

In addition to donating used toys, there are many ways you can recycle toys so that they don’t end up in the landfill:

• Contribute to a toy library: Some communities have toy libraries that are like book libraries – you can check toys in and out so that your child is never bored with their personal stash. Each toy library is unique to the local community, so the best way to find one in your area is to do a search online for your city/town name + “toy library.”
• Sell or trade: Sometimes a toy is too valuable to simply give away, in which case you could try to sell it.
• Recycling centers: Some communities have set up recycling programs for large plastic toys and metals toys as well, though you will need to call ahead to determine your recycling centre’s toy recycling policy.
• Deconstruction: If your recycling centre will not take your toys as is, sometimes you can dismantle them yourself to recycle the various components, such as the paper, cardboard, metal, and plastic which can then be put with other recyclables of the same kind. Cardboard and paper components can also be composted.

If you have any good ideas for what can be done with second hand toys we’d love to hear from you.

Source:  www.ecolife.com

Read more on how to be green at www.yonderr.com.au

Ongoing discount loans lose momentum

Borrowers’ preference for fixed rate home loans is continuing at an unrelenting pace regardless of recent cash rate cuts, national loan approval data from Mortgage Choice has revealed.

Fixed rate loans accounted for 24% of all new home loan approvals during December 2011, up from 21% in November and well above the 12-month average of 15%. Demand for this loan type has risen for seven consecutive months, increasing 13 percentage points since May 2011.

Company spokesperson Belinda Williamson said, “Consecutive cash rate cuts in November and December 2011 have not swayed Australian borrowers’ desire for fixed rate loans.”

“It is possible borrowers’ need for certainty around their home loan repayments, coupled with the affordability of fixed rate loans are the driving forces behind demand for this loan type.

“During December fixed rates were significantly lower than variable rates, in some cases the difference was one percentage point or more.

“Our loan data shows fixed rates are now more in demand than they have been in over three and a half years at the expense of variable rates, which have lost popularity among new borrowers.

“Customer demand for variable rate loans fell from 79% to 76%, well down on the 12-month average of 85%. The most popular variable rate home loan with new borrowers, ongoing discount rate loans, slipped from 44% to 41%, also well below the 12-month average of 35%.”

Basic variable loan demand rose marginally to 15% of all approvals in December, up from 14% in November while standard variable loan demand fell slightly to 16% from 17%. Interest in line of credit loans dropped to 3% from 4% and the uptake of introductory rate loans was steady at 1%.

For more information visit: www.mortgagechoice.com.au

What do you do if you are young and thinking about investing in property?

A 19-year-old I know has plans to save up to buy his first property, and mentioned that he’s not too sure where to start. Should he do a property course, he wondered? And how do you know where is a good place to buy? Let alone what you should pay.

He’s thinking not of giddily purchasing his first property to live in, but of buying an investment property and slowly, over his lifetime, purchasing some others.

What do you do if you are young and thinking about investing in property?

A 19-year-old I know has plans to save up to buy his first property, and mentioned that he’s not too sure where to start. Should he do a property course, he wondered? And how do you know where is a good place to buy? Let alone what you should pay.

He’s thinking not of giddily purchasing his first property to live in, but of buying an investment property and slowly, over his lifetime, purchasing some others.

We’ve been hearing for a little while now how this is a trend among 20-somethings, and those into their 30s. Buy a place as an investment, often a cheaper unit in a less desirable area, and then tap into the tax advantages of negative gearing (by keeping your outgoings on the property higher than the rent coming in) and either rent yourself in an area you want to live, or stay at home with the baby boomer parents where the board is minimal and the washing comes for free.

So for Jake, and any other young people wondering which way to go, here’s a few tips. And I’m sure readers will offer up plenty more in the comments space below.

1. Ask yourself, should I be investing in property at all, and what do I expect to get from it?

If it’s a road to quick riches you want, then this is not the path to take. Yes, we have seen some huge run-ups in prices over the years, and it’s true that property prices, like the economy, tend to run in cycles, so we will obviously see increases in years to come, even despite the current negativity enveloping much of the globe.

Because property buyers are human, and love to follow a trend, and for some bizarre reason feel more comfortable buying when prices are running hot, there is no doubt there will be price rises once again in the future.

There are a whole bunch of other factors pointing to future price increases too – in some cities the lack of building will keep the supply lower than it should be, the population continues to grow meaning so does demand, and in Australia at least, we remain a wealthy country still experiencing household income growth.

However, don’t bet everything on this happening and by how much prices will go up – instead expect to see, over a longer period of time, steady increases with plenty of troughs along the way as the economic cycle rises and falls.

And now, here’s the cue for all the readers who argue the market is about to tank and that now is not the time to buy property. And with Europe perched on a precipice and the US still in an uncertain state, you do have to question whether the bottom of the market has been reached yet despite the pretty strong fundamentals underpinning the Australian economy at the moment.

However, if you are a young person just starting to save for your first property, you have a bit of time to sit back and watch the market while you save anyway, so don’t fret too much at this juncture.

2. Educate yourself

The mere mention of "property course" sends shivers down my spine. Often it’s run by property spruikers taking hundreds or thousands of dollars off gullible people who are then, at best, fed information they could find themselves by reading widely, or at worst, the poor souls are flogged the company’s own products or services, all with the shiny promise of sky-high returns.

There has never been an easier time to learn the whys and wherefores yourself. The internet has opened up a world of information, and young people wanting to learn a bit more about property should be heading there (to reputable sources) as well as to the property lift outs in newspapers, and better quality magazines.

Want prices? Find them on websites like Domain.com.au or Australian Property Monitors (both owned by Fairfax Media). Want to find the best loan? Check out a loan websites such as ratecity.com.au. And need to know where the market is headed? Read plenty of stories and opinion pieces and rather than taking just one as gospel, glean the general themes from what all have to say.

If there’s a few property terms you don’t understand – such as negative gearing – look them up and get your head around what they mean. That won’t unlock a magical key to property investment for you and land a bag of gold at your feet, but it will stop spruikers taking advantage of your youth and naivety.

3. Take a balanced approach

Property holds a certain glimmer for some young people – perhaps under the encouragement of their parents who prefer a bricks-and-mortar approach. And also because everyone has lived in a house or a unit, but not everyone has held shares or gold or even superannuation.

But if you are young and have the advantage of having your head screwed on the right way and are already thinking about investing, you should be looking at all investment classes impartially. Sure, consider property, but look at it as part of building a balanced portfolio.

Even at 18, 19, you’re not too young to start putting a few extra dollars into super, keeping some of your money in cash in the highest-paying account you can find, and also thinking about a small parcel of blue chip shares to start you off, all while saving to buy your first property. Education, it must be said, can also be considered an investment class in the fact that you are boosting your own potential earning capacity.

And when I say dollars, I really do mean just a few dollars. Even small amounts each week from a meagre income are better than nothing.

This is a smart approach because it lets you spread your risk, and not put everything into the one basket. Sure, this mean it will take you a little longer to save for the first property, but time is on your side if you are young, and to use a cliché, Rome wasn’t built in a day.

4. Save as much as you can before buying

If you plan on being a landlord, you will need to have some extra cash available to cover the loan in between tenants, and also to pay for any repairs to the property. If you are buying into an apartment block or townhouse, you may need also extra money to pay for special levies such as building repairs not covered by the sinking fund (the general fund amassed by the body corporate from strata levies).

So the smart thing to do is to save a good amount of money before purchasing so you’re not taking an uncomfortable risk.

5. Research where to buy

The old adage is buy as close to the city as you can and look for properties that don’t have huge outgoings due to lifts and fancy add-ons such as gyms and pools, but do have the advantage of being near good infrastructure.

Closeness to the city can be good but I would also focus on the infrastructure side of things, and whether or not the suburb has the potential to develop over time.

Buying near rail (heavy or light) infrastructure is always a good bet as the infrastructure will stay there for a long time, and as populations continue to grow and further congest areas, the infrastructure will become even more important.

Do carefully think before buying in areas with inherent negatives, such as heavy flight paths or a lot of noise. Also very busy roads can be a problem – it can be smarter to buy just off them.

Keep your tenant in mind – what type of person would like to rent this and do those people generally live in this area?

Do try to buy something that would be easy to sell again in a hurry if you needed to, should your circumstances change. If a property you are buying has sat on the market for months and months, be sure to find out why and be realistic about encountering the same selling problems if you should buy it.

For that same reason it is good to try to buy something that is around the median price for a suburb, as it should have a larger pool of potential buyers.

6. Keep some cash aside after buying

When you buy the property, don’t sink all your money into the loan if you can help it, keep a good chunk in a flexible high-interest earning account (not a term deposit, as you may need to access it at short notice).

Use this as your maintenance fund, and to top up the property loan if you need to (and for many properties, in the early years at least, the rent won’t cover the mortgage, council rates, strata and water supply charges, so you need to be in a position to pay for the gap yourself).

The cash you keep, though, must strictly be for investment and as a reserve for maintenance and loan top-ups, not for holidays or random spending, as you always need a buffer so you aren’t forced to sell at the worst possible time.

7. After you buy, keep saving

Direct any spare cash to your savings account, not your investment loan. Or if you decide to buy a property to live in, use the cash to pay down your own home loan as fast as you can, rather than the investment loan.

By doing this, you make negative gearing work for you because, by keeping the loan against the property larger, you are paying the highest amount of interest you can, while earning interest off your other money you are keeping in cash.

Or in the case of living in your own property you do want to pay that off as soon as possible to get rid of non-tax-deductible debt.

While I’m advocating not dumping all of your extra cash into your investment loan, it is prudent to pay the property off over time to gradually reduce your liabilities, rather than remain solely focussed on negative gearing.

For that reason, interest-only loans on investment properties may not be wise in the longer term, as you are basically betting on price increases to cover you. Yes, price hikes will probably happen over the longer period but you don’t want to bank your entire savings on them.

8. Get your hands dirty

If you buy a property that needs to be fixed up, and you have time on your side, get in and do it. Many things such as pulling up carpets and painting can be achieved with little experience – you just need to have a go.

You might be surprised at just how much painting kitchen cupboards, tired tiles and old baths can rejuvenate a property.

Do be aware of any dangers that lurk in the property though, such as asbestos, and treat them appropriately. And do call in trades for jobs that are beyond you, such as electrics, plumbing and larger tiling jobs.

9. Be a good landlord

Be prepared to spend on maintenance over time and keep your property up to scratch. You’ll attract better tenants, and your property will also hold its value better. Rundown rentals look shabby and often don’t command a good price come sales time.

10. Take your time before buying again

If you have your sights set on owning more than one property, don’t be in too much of a rush. Keep your investing balanced, putting some funds into other classes such as cash, shares and super.

And when you have built enough equity you can then consider buying a second property. Balance your risk though and don’t get yourself in over your head. You want the power to hold each property for as long as you see fit, rather than be forced to sell should disaster strike.

Story by Carolyn Boyd, a property journalist and keen follower of Australia’s housing market.

Source: www.domain.com.au