Strategy for impending rate rise on Melbourne Cup Day 2009

The impending rate rise this coming Tuesday will have significant implications on the property market where home prices have increased by over 3% in the September 2009 quarter. Key points to note:

  • The Reserve Bank is targeting inflation and not trying to curb rising home prices.
  • Due to the current state of the economy being stronger than any developed nation in the world, the RBA feels that interest rates are no longer justified to be at 49-year lows.
  • A 50 basis point increase will be the largest hike since February 2000 and will add $90 a month to a $300,000 mortgage. However, experts feel this is unlikely to have a significant dampening effect. Home buyers have already factored in a series of rate rises into their budgets.
  • However, a rate rise is likely to induce certain people to make snap decisions, which experts agree is unwise. Unless you are getting into the market for the first time, the notion that buying now to avoid impending rises in home prices will only contribute to a property bubble which will burst sometime in the future. Previous burst bubbles have wide-spread effects on all people.
  • BIS Shrapnel predicts that Australia is at the verge of a property bull market and that prices will double in 12 years. This prediction coupled with rising home prices are fuelling the anxiety to buy now. To me, buyer urgency is only justified if you do not currently own a home and is paying high rents due to the acute dwelling shortage all over Australia.

If you are looking for your first home and want to get out of the rental trap, I would advice doing a thorough financial check to ascertain your affordability for getting finance, then do the mandatory research and consider buying your home along established principles. The why, where, when, how and what to buy are now important considerations in view of upward pressure in interest rates. Good luck and I wish you all the best in the hunt for your new home.

Median Sydney house price hits A$610,000 for the first time

Apartments at Walsh Bay, Sydney

The average house price in Sydney has broken the $600,000 mark in September 2009 for the first time.

This increase augurs well for existing home owners who have bought into the property market in earlier years and this new equity will allow them to upgrade into more expensive dwellings.

However, this news is not good for those who are trying to get into the property market for the first time when interest rates are on the way up as the First Home Owner’s Grant is being wound back.

Factors which are driving prices up include an acute shortage of new dwellings being built. Nationally, new dwellings have decreased from 173,000 in 2002 to 124,000 in 2009. At the same time, net migration into Sydney has increased. Another factor contributing to price increases is strong investment demand from Chinese investors. Reports have shown real estate agents in both Sydney and Melbourne taking on Mandarin speaking agents to cater for a surge of buyers from China. Record low interest rates and the FHOG over the last year have also supported the property market to a large extent.

The unfortunate truth to this price rise phenomena is that established home owners will continue to become better-off while those who are trying to get into the property market will be forced to move further away from suburbs which are close to Australia’s capital cities.

Granted there are those who prefer to stay away from the urban areas and enjoy a more relaxed and laid back lifestyle. However, the reality of a much higher concentration of job opportunities means that many who work in our capital cities have no choice but to either pay higher rents, juggle a huge mortgage with the family budget or forced to commute longer distances often with longer traveling time and having gradually less time for family and friends.

How to get finance for your property

Australian currency

A few years back, banks and non-bank lenders were keen to finance homeowners who can demonstrate a steady income each month to repay their home loans. Since the global financial crisis, financial institutions are a lot more vigilant these days and have tighten their lending criteria.

Based on my own experience, the following areas were key to getting a home loan approved for your home or investment property:

1. Develop a relationship with your chosen bank / lender / mortgage broker.

In the course of shopping for a home loan, try to talk to a few banks / financial institutions to get a feel for competitive mortgage rates and other pertinent terms and conditions of the loan. If you decide to use a mortgage broker, he will be able to advise you on the most appropriate package for your needs.

Finding a mortgage broker is a lot easier these days with the internet and healthy competition in the home loan market. I have found that developing a relationship with my bank manager or an agent which acts exclusively for a particular bank to be a useful partnership.

Over time and a few home loans, the manager / agent understands your needs, your financial background and your ability to service your home loans. By earning commission for the life of your home loan, the manager / agent is incentivised to take care of your needs so that you don’t go to a competitor.

2. Understand your financial capablities.

Be upfront and honest with the bank with regards to your financial capabilities. You obviously do not need to tell the bank “everything” but the point here is to make the bank feel comfortable that you are able to repay the home loan in a timely and consistent manner.

Therefore, it pays to do some initial homework, number-crunching and work out a reasonable monthly budget for your family which takes into account the home loan BEFORE seeing the bank.

I always think “help yourself by helping the bank”. You can do this by working out your monthly living expenses, existing debts eg. credit card and personal loans after deducting all your superannuation and tax to get a good feel for your disposable income.

This will provide a lot of clarity to both you and the bank as to the level of your affordability. Mortgage calculators will help you work out how much you can borrow according to your earning capabilities and existing financial obligations.

3. Prepare and organise all your documentation.

The documents required to process a home loan will vary according to different financiers. As a general guide, you will need documents to verify your identity such as birth certificate, driver’s license, passport, Medicare card and credit cards. Your financier would like to see your pay slips, tax returns, bank statements, letter from employer confirming salary, statements of asset & liabilities, title deeds, records of savings etc in order to process your loan.

Organising these documents effectively provides confidence to the bank manager that you have a good understanding and are in control of your own personal finances.

Good luck and happy loan hunting!

How to find a good property manager

Good property manager

Apart from charging a reasonable rate for managing your investment properties, I value the following criteria which makes a great property manager:

1. Service and responsiveness

The time when you need your property manager most and the acid test to his capability is in finding you quality tenants. A good property manager will not accept the first or any tenant that comes along but will diligently check references to ensure your tenant is of good repute, will pay rent in full and on time and will take good care of your property over the course of the tenancy. Responsiveness in putting up advertisements, conducting inspections with tenants and having good knowledge and information about your properties is key to being able to effectively market your properties to the desired tenants. Good property managers will have intimate knowledge of rental and vacancy rates in your suburb, understand local trends and attractions and be able to advice you on your obligations as a landlord to attract and secure quality tenants.

A good property manager will also never hand out keys to tenants for them to do inspections unattended. Yes, believe me that some property managers do just that and if and when that occurs, it’s time to look for a new manager.

Property managers are usually a part of a real estate agency whose core business is in buying and selling properties for their clients and earning good commission from that process. Therefore, the property management aspect of a real estate agency is usually a support function or a secondary priority business and can sometimes be viewed as being “less glamorous” by certain agencies.  One way to ascertain good property managers is whether there is a separate function within the real estate agency with staff specifically dedicated to taking care of rental properties and maintenance.

Good property managers also have their preferred listing of plumbers, electricians, locksmiths and other important tradesmen with proven and tested quality workmanship to call upon in the event your properties are in need of repair or maintenance. This will ensure repair and maintenance work on your properties will be carried out effectively and at competitive prices.

2. Attention to detail and documentation

Keeping proper records such as repair bills, utilities, providing detailed monthly statements, yearly summaries for tax purposes are all part of a good property manger’s traits in keeping a client informed and having your properties under good care.

Periodic inspections with updated photos  on the state of repair of your investment properties are part of the service accorded by some of the better property managers.

3.  Website

A good indication of a good property manager is the quality of his website. Needless to say that you should not even bother with property managers who do not have a website. Check  your property manager’s website to ascertain if he has an objective or mission for customer / landlord care, staff who are dedicated to property management, the number and type of properties for lease, testimonials etc.

4. Tenant care

A good property manager not only has your interest as the landlord at heart but will also attempt to understand and appreciate your tenant’s reasonable needs and requirements. As a landlord, you should also appreciate that any reasonable request by a tenant should be considered because a happy tenant as opposed to a disgruntled one will also have your property at heart. This will ultimately develop into a win-win situation for both landlord and tenant over the long run and minimise tenant turnover which costs more time and money than keeping a good tenant happy.

Overall, a good property manager will ensure your properties are always tenanted, rent monies paid on time by the tenants and deposited into your bank account in a timely manner, repairs and maintenance carried out effectively and most importantly, keep good records on your behalf and keep your tenants happy for a mutually beneficial relationship.

The Waterfront development at Homebush Bay

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The Waterfront overlooking Homebush Bay, Sydney

The building design, colours and materials used, landscaped gardens and the water foreshores  at Waterfront apartments in Homebush Bay is inspired by a lifestyle that is typically Mediterranean. The names of each building block such as Palermo and Valencia is also reflective of the mood of a sundrenched holiday resort by the Mediterranean sea.

The Waterfront will eventually be gazetted as a new suburb in this Sydney inner west location which is approximately 17km from the CBD. This suburb is relatively quiet with a village feel because it is tucked away to one corner of Homebush Bay. The calm and serene water foreshore atmosphere is perhaps is most attractive feature of living in this suburb. Other than that, there are a host of reasons why apartment prices at this suburb has not taken off despite it being almost a decade old where the older apartments were constructed during the time of the Sydney Olympics in 2000. Prices of newer apartments in its neighbouring suburb of Rhodes, which is a much newer suburb, is well and truly higher than those at the Waterfront development and Homebush Bay in general.

Drawbacks on living at the Waterfront development:

  • Although the suburb is serviced by local community buses, public transport may be an issue due to its location at Hills road / Bennelong Pkway. The ferry wharf is approximately 1km from the development whilst the Olympic Park train station is too far a walking distance by any measure.
  • Traffic and access to the development via  Australia Drive can be very congested during peak hours. Worse still, you are better off delaying your trip home during these hours if there is an event or a football game at nearby ANZ stadium in Olympic Park.
  • Although serviced by a few local shops, cafes and restaurants, this suburb lacks the array of amenities to cater for local residents.

The median unit price in Homebush Bay as at June 2009 was $470,000.

1 Trillo Road, Subiaco, Perth

Front of house

I recently inspected this stylish  award-winning home which is located on the western end of Subiaco at the corner of Trillo road. In addition to 4 double bedrooms, this house has a home theatre, study and covered alfresco areas on both levels.

Distinctive features which I like about this house:

  • The house is built on an elevated vantage point from the Trillo road level.
  • Good architectural design and layout – the open plan living and kitchen areas are seamlessly integrated with the north-west aspect of the outdoor area, a conducive feature for entertaining.
  • Master bedroom and study is privately located at one corner on the second level while the other 3 bedrooms are located at the ground level.
  • Very high quality finishes in the kitchen, bathrooms with spa, double showers and quality tapware. Main ensuite has separate WC.
  • Theatre room has built in surround sound system, recess ceiling design, mood lighting, ceiling projector and kitchenette with French doors opening onto a covered outdoor alfresco area.
  • The north-west aspect accords ample natural light to all living and outdoor areas.
  • Under stairs storage / wine cellar.
  • Private elevator connecting ground to second level.
  • Feature corridor on ground level leading to stair well and elevator access to second level.
  • Location wise, this corner of Trillo road is approximately 700m stroll east to the conveniences of retail and commercial areas of Subiaco.

The vendors are considering offers of around $1.8 million upwards. The land area of this property is approximately 300sqm. This property is listed under local agents Coakley and Martin. Council  and water rates: $2655.20 & $1,352.75 per annum respectively. The median house price for Subiaco in June 2009 is $1,225,000, 5-year growth is 125% and annual average growth is 13.8%. For more information on the suburb of Subiaco, please visit this post.

How to conduct a pre-settlement inspection – Useful checklist

One of the most important aspects of property investment is to ensure the final product is in accordance to what was agreed upon at the point of exchange of contracts. This applies to all types of residential property – houses, semi-D’s, townhouses and apartments and is especially so for units bought off-the-plan.

The pre-settlement inspection is a process to allow the buyer to inspect and identify any defects, flaws in workmanship and variations to contract specifications. These issues are the responsibility of the vendor / developer to rectify to the satisfaction of the purchaser within the terms and specifications of the contract of sale. Although purchasers are generally protected against building defects by a 7-year home builders’ warranty, it pays to identify defects at the onset so that all rectification works can be carried out prior to or immediately after final settlement.

Current building and pest reports are also useful for buyers to ascertain issues such as termite infestation, rising damp and structural integrity of building and construction.

A copy of Strata Living – What you need to know about living in your strata community can be obtained from the NSW Office of Fair Trading, Department of Commerce. It is a comprehensive guide to assist residents to deal with issues arising from apartment living.

Here is a general checklist of items which should be inspected and tested to be in good state of repair and working condition to assist home buyers conducting a pre-settlement inspection. This checklist of items should be used as a guide or reference only and to prompt the buyer for other items which may have been omitted. I make no warranty this checklist is neither exhaustive nor complete as it is based solely upon my experience and research. Buyers should make additional notes against these items and conduct further detail inspection if required.

A. Electrical and systems

  • Main electrical switch board location
  • Water mains
  • Lighting
  • Air-conditioning
  • Gas ducting
  • Heating
  • Powerpoints
  • Telephone / TV / antenna ducts
  • Intercom, security video systems
  • Ducted audio / hi-fi system

B. Utilities, appliances, fixtures

  • Current utility company for a. Electricity b. Gas c. Telephone d. Water
  • Storage, closets, wardrobes, linen cupboards, cellar, attic, basement store, garden shed, pool shed
  • Security keys, locks
  • Toilets
  • Bathtub, shower heads, basins, tapware
  • Kitchen equipment – fridge, freezers, dishwasher, microwave, oven, stove-top, rangehood, insinkerator, filtered and hotwater system
  • Laundry – washing machine, dryer, laundry sink, retractable clothes lines
  • Fireplace – gas heaters and maintenance
  • Collection days for: a. Garbage b. Bottles c. waste and used papers d. bulky items
  • Gardening, lawn mowing and landscaping

C. Structural and internal fittings

  • Roof tiles, roof gutters, down spouts, splash blocks
  • Wall paint – scratches, cracks, nicks
  • Wall tiles, floor tiles
  • Windows and door seals
  • Glass doors and windows
  • Ceiling and floor skirting
  • Carpet installation and seams
  • Floor surfaces
  • Ceiling height
  • Wooden floors, outdoor wooden decks
  • Wood joinery
  • Bench / countertops

D. List of current / useful contractors / tradesman and contact numbers and warranties

  • Remote control gates
  • Pool repair and maintenance
  • Airconditioning / heating
  • Spa / sauna maintenance
  • Kitchen equipment and appliances warranties
  • Private elevator maintenance
  • Gym equipment
  • Automatic / electrical blinds, shutters, overhead roofing maintenance

Brand new Erskineville 2 bedroom apartment leased at $650 per week

Front of building

The recently completed Motto apartments in Erskineville by Austcorp is now ready for occupation. Most of the 2 bedroom apartments within this development are maisonette style – double storey living with its own internal stairs and the master bedroom usually on a separate level from the living and dining areas for added privacy.

The  Motto apartments are beautifully constructed, with quality kitchen equipment, bathroom finishings and spacious living areas. It is also approximately 5 minutes stroll to the Erskineville train station.

Apartment C420/2 Nassau Lane within this development is a 2 bedroom, 2 bathroom and 1 secure car space unit and has recently been leased at $650 per week through property management company Let’s Rent. This apartment is a maisonette style with internal laundry, ensuite and private balcony.

Please refer to this post for more details of Motto apartments.

Verve Apartments in Erskineville almost completed

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I visited the Verve apartments in Erskineville yesterday and inspected several apartments within the development. This development by AV Jennings appears to be well ahead of schedule whereby the initial target completion date of 20 December 2009 has now been revised to 4 December 2009. Many units are now open for inspection by purchasers who have bought into this development. Based on my inspection of several units, it appears the finishings are of good quality. Ceasar stone benchtops are used for the kitchen and are complemented by Smeg / Omega kitchen appliances. Bathroom fittings, toilets, basins and tapware are of good quality and design. Floor plans are generally well designed with ample living space, good size bedrooms and open plan kitchens. Balconies facing with the west aspect overlooks the serene internal gardens, tennis court and swimming pool of the neighbouring Zenix development. This development is approximately 350m to St Peters train station and also within walking distance to the cafes and restaurants along King street in Newtown. Other amenities include Sydney Park across the road to the south of the development and a short stroll to the Erskineville cafes and restaurants. Sydney University campus is also a short drive from this suburb which is approximately 4km south of Sydney CBD.

See a comparison of Verve vs Motto apartments in Erskineville.

Aussie house prices on the way up

Sunset at Federation Square, Melbourne

Sunset at Federation Square, Melbourne

Auction clearance rates in Melbourne and Sydney last weekend were 80% and 62% respectively despite the Spring racing carnival and Caulfield Cup in Melbourne.

The Housing Industry Association’s affordability index dropped 3.3% (from 153 to 147.9 index points) in the September 2009 quarter from a mere 0.4% drop in the June 2009 quarter. According to a senior HIA economist, the outlook for housing affordability is not good as interest rates are expected to increase over the next 6 months, whilst the first-home owner’s grant will be faced out completely by 31 December 2009. In addition, the process to increase housing supply is still facing a lot of barriers.

Over the last year and a half, the RBA has reduced interest rates by 425 basis points to a 49-year low prior to the recent 25 basis point increase. Coupled with the Federal government’s boost to the First Home Owner’s Grant and significant growth in immigration, the property market has been very strongly supported by these factors.

Victoria recorded the biggest drop of 9.3%, followed by 5.5% in New South Wales, 5.1% in Tasmania and 3.9% in Western Australia. On the other hand, ACT and South Australia’s affordability improved by 3.8% and 2.2% respectively.

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