The Ugly Truth behind Housing Affordability

Housing affordability in Australia

Successive interest rate hikes and surging home prices in 2009 and early 2010 have brought housing affordability close to a record low in the June 2010 quarter.

“There has been a dire lack of commitment in this Federal Election campaign to address the substantial hurdles aspiring home owners face. Helping Australians afford a roof over their head is surely a fundamental responsibility of government” said chief economist of the HIA Harley Dale.Housing Affordability Index 2010

“As housing affordability slips away, so too does the chance for many Australians to realise their dream of owning a home,” Dale added.

The HIA / CBA Housing Affordability Index, which combines interest rates, household income and home prices to determine affordability conditions,  fell by 9.5% over the June 2010 quarter across the nation’s capital cities and was down by 6.7% in regional Australia. The largest falls were:

  • Sydney                      -9.1%
  • Regional Victoria      -9.0%
  • Regional Tasmania    -8.8%
  • Adelaide                   -8.7%

First Home Buyers dilemmaHousing affordablity in Australia

First home buyers are again facing the brunt of surging home prices, rising interest rates and the end of the First Home Owner’s Grant last year. Already facing the prospects of further interest rate rises next month, this group of buyers are often confronted with whether to delay buying, if at all affordable even in the current market which appears to be slowing down after the bull-run last year. Saving for a deposit may sometimes appear totally futile when home prices are surging faster than income growth.

The Ugly Truth

Many first home buyers now comprise X and Y generation young professionals who may have double incomes and a young family. Compared to their baby boomer parents a generation ago where single income was the norm, then surely these couples can afford to buy a first home. However, home prices in Australia have grown at a much faster pace than wages and those home buyers and investors who invested fifteen years ago would have seen solid capital appreciation and soaring prices for their properties.

There is always a lesser urgency to buy for those investors who have already made tidy profits and have the luxury to scout for bargains with some built-up equity in the pocket. In contrast, first home buyers feel the urgency but are yet unable to get into the market due to crippling prices and will continue to be squeezed out of the market.

Investors will continue to scout to increase their wealth and unless first home buyers act wisely, the ugly truth about the rich getting richer and poor getting poorer as in most developed nations will perpetuate.

Implications for first home buyers

Most of the young first home buyers have grown up whilst living with their parents in inner city suburbs in major capital cities around Australia. These choice locations have accorded a certain way of life, familiarity and experience to these young people who would continue to aspire to live close to the CBD and within choice locations.

Unless they receive financial help from parents or join efforts with siblings and friends, it is extremely difficult to find Housing affordablity in Australiaaffordable housing because these choice locations with fond memories embedded are now almost unaffordable if loosely compared to average national wages of about $65,000.

There is no one simple solution for first home buyers. As the most popular locations within major capital cities where supply is scarce and demand continue to be steady and consistent, property prices will continue to rise. First home buyers may have no choice but to settle for suburbs which are slightly further away from the most popular areas and get in first. This may mean longer commuting times, relatively less public amenities and further distances from family and friends. On this same note, I believe that first home buyers cannot afford to continuously “aspire” without a commitment to action, which involves studying and researching about second and third-tier suburbs with the eventual intention of purchasing.

The fundamentals of eventually getting to that choice location have changed and may involve more creative avenues.

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Sydney’s undervalued suburb

39 Boronia street, Granville, Sydney

FOR SALE at $440,000: 39 Boronia street, Granville, Sydney

Located west of Sydney’s CBD, Granville’s median house price of $390,000* is relatively inexpensive for a location that is within the 20km benchmark from the CBD.

Property prices in the suburb has been growing at an average of 7.2% over the last 10 years with approximately 45% of all dwellings within the suburb designated as rentals. The median weekly rent of $380 gives investors a respectable return of 5% per annum.

Investors or home buyers alike would be wise to consider:

  • Locations within walking distance to parklands such as Granville Park, Mona Park, retail shops, restaurants and Granville or Clyde train stations.
  • Older properties on larger blocks of land with potential for future upgrade.

Why I like this suburb

  • A mere 3km to heart of Parramatta metropolis in Sydney’s west.
  • Convenience of retail, commercial facilities, cafe and restaurants.
  • Good public transport facilities with Granville and Clyde train stations located within the heart of the suburb.
  • Potential upside for capital growth over the next 5 – 10 years as overcrowded areas in the inner west begin to move further west of Sydney.

*Source: RP Data – median price for 12 months to May 2010

How to get off the rental rut

Jason Fritsch - First Home Owner at 18 years old

Jason Fritsch - first home owner at 18 years old!

I know of quite a few renters, mostly young X & Y generation youths with good paying jobs who simply can’t put together a deposit towards a first home. They have been renting for years either by themselves or share a house or apartment with friends and split the weekly rent among themselves. Not a bad proposition since it becomes relatively cheaper than being bogged down by a huge mortgage even though it means sacrificing privacy at times. There are both pros and cons with this arrangement and I will start with the good:

Pros of renting vs owning a home

  • The most obvious is not having the burden and responsibility of a mortgage each month and therefore, more disposable income, especially if a few friends share the weekly rent.
  • Long term renters can sometimes negotiate good rental rates from some landlords who value stability over a few extra dollars in rental income.
  • Renters do not need to pay for all the incidental costs that come with owning a home such as water and council rates, insurance, management fees, repairs and maintenance of property.
  • Renters do not need to worry about not being able to find good tenants and having an investment property vacant whilst having to service monthly mortgage payments or having to contend with bad tenants who may trash their property and not pay rent on time or at all.
  • Some renters seek out lifestyle properties as a matter of choice, such as a beachfront mansion or a large home in the country side which they can live in by paying relatively cheaper rent than trying to own such properties themselves.
  • There are also those who own their home but choose to rent to take advantage of tax benefits but these renters are not the focus of this article.
Tenants from hell!!

Tenants from hell - do you really need this??

Now for the bad news:

Cons of renting vs owning a home

  • Long term renters who rent not by choice, are  sometimes resigned to the fact that buying their own home may be out of their reach and see the weekly rent as just another bill they have to pay and become very comfortable with their renting situation. This eventually becomes a self-fulfilling prophecy of never having the need to own a home.
  • Generally, property prices trend upwards in the long run and in Australia, the current shortage of housing is seen by many to support long term price growth. This situation may not augur well for renters who do not put home ownership as a priority in their lives.
  • The housing shortage will also drive up rental rates and with a booming population, landlords are currently having the benefit to choose from many tenants applying for the same property to rent.
  • Renting obviously does not accord the same freedom to renters as owning your own home, such as installing fittings and having to abide by maintaining the property in good repair save for reasonable wear and tear.
  • Renting can sometimes be expensive and for some extra dollars, a mortgage may not be that far off for some renters, especially those who share rental premises.

The joy of home ownership

Getting in

To me, the most effective way to get into the property market for aspiring first home owners is to try and save for a deposit either with family help or friends and then, if necessary, buy the first property with friends if they are already renting together. Needless to say, friends who buy property together need to be “on the same page” in terms of personality, goals, financial capacity and long term commitment towards owning. By ditching the rent and sacrificing a little disposable income, it is not unrealistic for a few friends to pool resources and buy their first home.

There are also investors who have gone beyond owning their homes and are now pulling resources to buy lifestyle properties such as beach houses and holiday homes (See article below).

Ownership structure

If first home owners are sharing the burden of buying jointly with friends, the single most important consideration is ownership structure, that is whether the property is to be held as “joint tenants” or “tenants in common” and legislation differs in each state in Australia. The main difference if you own a property as joint tenants, you all own the property in equal shares and if one of the owners die, then their share will automatically pass to the surviving owner/s. Even a will cannot override a joint tenancy. This form of ownership is appropriate with married or long term defacto couples as it is often their wish that if one partner passes away, their share in the property goes to the surviving partner.

If you own a property as tenants in common, you can choose to own the property either in equal or unequal shares eg 50% / 50%, 20% / 80% or 30% / 35% / 35%. If one of the owners die, your will determines who gets your ownership as your proportion does not automatically go to the surviving owners. This form of ownership structure is more appropriate for friends who wish to pool resources, purchase and own property together.

As always, I would advise consulting a legal adviser and accountant to consider all the legal issues before jumping in and buying that first property with friends without fully understanding and being aware of all the legal and financial implications.


Of course, the pros and cons above are general reasons why some people may choose or not choose to rent. Indeed, I have come across renters who say they are so happy and comfortable with their rented premises, they really do not see any need to ever own their own home.

It brings us back to the question – “Why do I need to buy a property?” Therefore, I would advise any aspiring first home owner to carefully consider this question. Just as how some people choose not to drive, preferring public transport and hence not having the need to own a car at all, one may also find there is absolutely no necessity to buy a property, ever!

Some lucky renters have found their “dream rental property” and have grown to such a level of affinity to consider it their “home” or their “sanctuary”. They are perfectly happy to make  expensive decisions on decoration, furniture and furnishings which they would not otherwise be able to afford if they had to be paying a mortgage. This argument is well and good when it makes tenants as happy as owing their own home. Personally, I see home ownership as one of the most basic of one’s needs and livelihood. In Australia, 70% of people are either home owners or in the process of owning their home through a mortgage. Regardless of social status or background, one needs a roof over one’s head and I suspect that given a choice, the majority of us would choose owning over renting.

For more info and resources, visit our First Home Buyers section.

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Understanding property cycles

The Property Cycle


The old adage that property prices move in cycles is certainly true. However, there are many sub-cycles within the Australian property market cycle – state cycle, the cycle within a large cluster of suburbs and even individual suburb cycles.

Therefore, whilst understanding and appreciating general property cycles and where they are at a given point in time, investors also need to understand the sub-cycles which affect their investment portfolios. In boom times, there may still be suburbs which are laggards and vice versa, some suburbs may buck the trend in bear markets.

In general, June quarter figures show that Sydney median house price increased from $611,000 to $625,000, a rise of 2.3% or 13% for the year. However, this growth was contained in the most affordable areas:

Area / suburb

% growth

Inner west

0.6 %

Lower north shore




Sydney / eastern suburbs






Upper north shore


Northern beaches


Source: Australian Property Monitors, June 2010

Although  the above are merely quarterly figures, they do illustrate that in general, there exist sub-cycles within a lager property market. The affluent suburbs in the east experienced strong gains in 2009 and as a result, these areas may be taking a breather, whilst the inner west and lower north shore had very modest growth. On the other hand, the west and south-west areas of Sydney performed better compared to all other areas. The upper north shore which comprise suburbs like Lindfield, Warrawee, Turramurra and Hornsby showed the highest growth while northern beach suburbs like Seaforth, Manly, Dee Why and Collaroy were also strong.

The relatively more expensive and popular suburbs within the CBDs which are believed to hold their prices in slower markets may not always hold true. There have been some spectacular bargains for luxury apartments and penthouses in the city and the east recently. Although land scarcity is relatively lower in the more affordable suburbs away from the CBDs, some of these regional suburbs are more recession-proof in poor economic times. Home prices and rental rates may not experience significant falls as they are relatively more affordable and people still need to rent in such times.

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How to avoid buying a dud apartment


Sign of trouble ~ Sub-letting and unprofessional advertising practices by owners and tenants at Regis Tower in Pitt street, Sydney

When buying an apartment, the same principles and good common sense apply and these include the usual location analysis, good public transport and amenities, attractive floor-plans and unique points of differences, modern conveniences such as reverse cycle air-conditioning, gas cooking and lock-up storage.

However, you would be wise to understand and investigate some issues which are beyond the mere asking price and physical appearance of the property:

1. Understand the ratio of tenants vs owner-occupiers of the apartment block.

Some apartment blocks have an extremely high percentage of tenants, that is, mostly investors as opposed to owner-occupiers. In such cases, there is usually less control in terms of occupants abiding by-laws and regulations. Owners have less control over the quality of occupants / tenants and the performance of the strata manager. Tenants are also less likely to care for and maintain the premises the same way that owners do. When this happens, the building will “degenerate’ quickly as it will develop a bad reputation and stigma. Investors will avoid the building and in the long run, the apartments within the building will all suffer from poor capital growth. At best, it will have fairly consistent rental yield if it is located close to the CBD but it will attract low quality tenants.

2. Check the previous minutes of strata meetings

Minutes of strata meetings will usually reveal the history of how well an apartment block is managed. It will show the actions and tasks which were undertaken to resolve problems, adverse events such as looming capital repair bills, insurance claims outstanding, squabbles between owners and messy legal proceedings.

3. Strata levies and sinking fund

The age of the building, facilities such as lifts, swimming pool, gymnasium, concierge, security and compound  maintenance are the big ticket items which determines strata levies to a large extent. Comparisons of strata levies can be made with similar apartment blocks to determine the efficiency and effectiveness the performance of the strata manager and how active the Owners’ Corporation are in the affairs of the maintaining the property in a good state of repair.

Sinking funds are monies set aside to fund future repairs and maintenance of the building which are of a capital nature such as any structural additions, repairs and new facilities. There are laws and regulations governing the administration of sinking funds to ensure fund adequacy through regular and progressive payments so that owners are not caught with significant future shortfalls. Ascertain the level of sinking fund to ensure it is adequate and you will not be liable for large increases in the future should the fund be inadequate.

4. Local agent feedback

Local agents in the suburb will usually have the lion share of managing apartments in the suburb and usually have information which will help in your research. Visit and talk to these agents to find out how many apartments they are managing within the block, tenant profile, turnover, history of rental rates and reviews, historical apartment prices trends and other general information on the suburb.

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Most affordable suburbs to buy a house in Australia

15 Kurrajong Crescent Melton @

3-bedroom house on Kurrajong Crescent, Melton South, Melbourne

Based on research by Tim Lawless, Director of Property Research at RP Data an appropriate benchmark for affordable capital city houses in Australia is $350,000 whereby there are still many opportunities to buy a house below  this price in most cities. Hobart and Canberra are the most affordable and least affordable capital cities in Australia respectively based on the number of suburbs with a median house price of $350,000 or less.

Below is the list of most affordable capital cities in Australia:


Most affordable capital city

# suburbs < $350k

Total # of suburbs










































* Note: All analysis is based on suburbs with at least 10 sales over the 12-month period to January 2010.

As at January 2010, Gagebrook in Hobart was the most affordable capital city suburb in Australia where median price was $153,000.

Hobart is the most affordable capital city with a median house price of $342,000. The median house price for capital cities over the three months to January 2010 are as follows:


Most affordable capital city

Median house price $

























The 5 most affordable capital city suburbs for houses are as follows:




# sold

Median price $

12-month change %

Avrge 10-year growth %

Dist CBD

Gagebrook Brighton Hobart 26 153,000 7.7 15.9 16
Clarendon Vale Clarence Hobart 27 155,500 -4.9 14.5 10
Primrose Sands Sorell Hobart 51 180,000 5.9 14.3 28
Bridgewater Brighton Hobart 50 180,500 6.2 14.6 19
Rokeby Clarence Hobart 58 190,250 0.9 13.3 9
Elizabeth South Playford Adelaide 39 200,000 4.2 13.6 21
Smithfield Plains Playford Adelaide 42 200,000 8.1 15.7 28
Elizabeth North Playford Adelaide 56 200,500 -1.2 13.8 26
Davoren Park Playford Adelaide 125 202,000 2.5 14.4 27
Elizabeth Playford Adelaide 13 210,000 -6.3 12.7 24
Lamb Island Redland Brisbane 15 205,000 -3.5 n.a 39
Russell Island Redland Brisbane 87 220,000 -6.8 14.9 42
Macleay Island Redland Brisbane 94 240,000 -7.0 13.2 37
One Mile Ipswich Brisbane 53 245,000 -3.9 13.3 34
Leichhardt Ipswich Brisbane 91 249,000 0.0 14.1 34
Millgrove Yarra Ranges Melbourne 48 218,500 1.2 11.9 61
Melton South Melton Melbourne 206 222,000 10.9 9.4 35
Melton Melton Melbourne 236 225,000 3.9 9.5 35
Frankston North Frankston Melbourne 123 237,500 4.3 12.1 39
Diggers Rest Melton Melbourne 29 240,000 6.0 8.8 32
Hillman Rockingham Perth 51 280,000 2.0 12.7 38
Armadale Armadale Perth 219 284,000 2.2 14.2 26
Parmelia Kwinana Perth 141 288,000 2.1 13.8 33
Camillo Armadale Perth 109 290,000 -1.7 13.5 23
Brookdale Armadale Perth 48 297,250 2.5 14.8 27
Moulden Palmerston Darwin 75 392,000 17.9 11.7 15
Gray Palmerston Darwin 53 409,000 14.2 11.9 15
Humpty Doo Litchfield Darwin 113 419,000 -1.9 11.2 33
Karama Darwin Darwin 72 420,500 8.7 9.8 11
Driver Palmerston Darwin 62 437,500 19.9 10.9 15
Chamwood ACT Canberra 44 351,000 3.2 13.4 13
Macgregor ACT Canberra 227 370,000 9.0 10.6 14
Ngunnawai ACT Canberra 98 380,750 5.8 10.1 12
Holt ACT Canberra 72 392,500 5.9 12.0 13
Casey ACT Canberra 47 395,000 n.a n.a 13
Wilmot Blacktown Sydney 34 219,500 9.8 9.2 41
Tregar Blacktown Sydney 63 220,000 8.9 9.6 40
Lethbridge Park Blacktown Sydney 68 225,750 9.6 9.6 40
Whalan Blacktown Sydney 72 229,975 6.7 9.0 39
Blackett Blacktown Sydney 51 230,000 9.5 10.6 38

Things I learnt from Michael Yardney

Michael Yarney's book

In Michael Yardney’s book – How to Grow a Multi-million Dollar Property Portfolio – in your spare time, he shares with readers some of his most successful property investing principles. Although I did not agree with some of these principles, in general, most of them are founded upon his personal experience in property investing of over 35 years.

Here are some of Yardney’s principles:

1. Invest in areas where there is always strong demand from owner-occupiers and tenants alike. This strategy would include most areas or suburbs which are close to the CBDs with good public transport, amenities and job opportunities.

2. Always choose capital growth over rental yield. Michael Yardney advocates that residential property is a long-term proposition unlike investment in stock and shares. Invariably, good properties in choice locations command a higher value and as such, these properties have lower rental yields compared to properties in areas which are further away from the CBD. Investors are sometimes attracted to properties which give good cash flow but Yardney feels that, in general, capital appreciation for such properties may not as good as those in high-demand locations in the long run.

3. Have the mindset of a successful person and surround yourself with an A-team of advisors. By having the right mindset, Yardney is talking about having a burning desire to be successful, disciplined and decisive in nature towards attaining one’s goals. Being surrounded by an A-team means hanging around with like-minded people who share your passion and similar goals in life. A property investing A-team will necessarily include a good legal advisor who is very experienced in dealing with property law and regulations within the state you are investing in. Other professionals would include a good accountant who is familiar with taxation issues, a mortgage broker who is knowledgeable about the vast array of home loan and mortgage products in the market. Other people may include successful and experienced property investors, builders, architects, surveyors and real estate agents who have intimate knowledge of their respective fields of expertise.


Albert Wong with Michael Yardney, awarding winning author & CEO of Metropole Property Specialists

4. Buying the right property as opposed to buying well and the power of leverage. Yardney feels that the price is one of the last things to consider when choosing a property. Of course price is important but buying at the right time within a property cycle, in the right suburb and in the right locality within that suburb, then choosing the right property and finally at the right price is the most important process which investors invariably fail to follow. Most investors look at price as a deciding factor and the fact that a property is a “bargain” signals to these investors they are in for a good thing. There is always a reason (or many reasons) and sometimes a “trap” as to why one property is “cheaper” than another with very similar attributes. Buying the right property will ensure better than average / superior capital growth and hence offer the investor with more choices in the future – refinancing equity with leverage to acquire more properties and generate further wealth.

5. Have the right ownership structure, understand property cycles and manage risk. Having the correct structure means having adequate asset protection, ability to refinance without self-imposed limitations, flexibility in succession and estate planning and maximisation of tax benefits that come with property investment such as establishing and investing through Self-Managed Superannuation Funds (SMSFs) and family trusts. Real estate prices move in cycles and it is more than just anticipating prices which go up and down over time. It involves an appreciation of factors which affect supply and demand, demographics such as Australia’s aging population, recent strong immigration policies and population growth, interest and exchange rates as well as the intricacies of real estate climate within each Australian state. Understanding a host of investment risks such as prices, costs, interest rates and changing political climate some of which are beyond anyone’s control are just some of the issues an investor needs to take into account.

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Things I learnt from Steve McKnight


Steve McKnight and Albert Wong at the relaunch of McKnight award-winning book

Steve McKnight bought his first property in May 1999, a $44,000 house in West Wendouree, which is a suburb of Ballarat, a regional Victorian town about 1 hour’s drive west of Melbourne. From humble beginnings, the ex-Chartered Accountant has become one of Australia’s most successful property investors and award-winning author on property investment. I met McKnight in November 2009 at the re-launch of his book in Sydney  – From 0 – 130 properties in 3.5 years by Steve McKnight which happens to be Australia’s most successful real estate book ever.

Steve McKnight - 0_130_properties_3.5_years

Some of McKnight’s property investing principles which he shares include the following:

1. Buy an “ugly” house.  Buying the “worse” house in the best street of a good suburb is cliche advice. What McKnight really means is to look for property which is almost close to land value in itself in suburbs with high rental demand and growth potential. “Ugly” or “old” houses generally have a relatively higher land to asset ratio, that is, the land on which the house was built has a much higher value than the house itself.

For example, if you bought an old house for $400,000 and the value of the land was say $350,000, the cost of the old house would be $50,000. Therefore, the land to asset ratio would be $350,000 / $50,000 = 7. As land appreciates and houses depreciate, the value of the investment would increase more significantly if it has a high land to asset ratio. On the other hand, new land and house packages on the market have relatively lower land to asset ratin because the cost of building a new house is much higher and comprise a significantly larger portion of the total packages.  It is not unusual for the land value to comprise of only $200,000 for a land and house package which cost $400,000.  In this case, the land to asset ration is $200,000 / $200,000 = 1. Moreover, a new land and house package will also have significant depreciation charges and if an investor is not in a position to be able to negative gear or offset these charges against taxable income, the investment will incur tax losses.

As rental from an “ugly” house can cover the mortgage to a large extent, it is then up to the investor to “manufacture” new equity through renovation, redevelopment or subdivision. He advocates “buying problems and selling solutions” as one of his successful property investment strategies.

2. Negative gearing a flawed strategy for seeking financial independence. Negative gearing is a strategy created to make a certain loss today and hope for a profit sometime in the future. Most investors are attracted to this notion because it helps to reduce their tax bill. However, this method means you are investing a lost-making property and unless you have a high annual income with no leverage, investing in a loss making proposition is hardly wise at all. According to figures from the Australian Tax Office, 1.2 million Australians declared negatively geared property investments in 2008 – 2009, claiming total losses of more than $12.75 billion. On average, they claimed losses of more than $10,000 each. This loss strategy also requires the property to gain good capital growth in the future in order for you to make a capital gain or profit when you decide to sell. In addition, this strategy also requires you to stay in your job to generate an income to offset the tax losses. Therefore, this  is hardly a strategy for financial independence.

3. Sell when you can make a better return elsewhere. There are many investors who steadfastly hold on to the adage that one should always buy and never sell their properties. Being an accountant like McKnight, I believe that if you hold on to a loss making venture and are either too proud or stubborn to cut losses, the course of action may cost you even more in the future, let alone the opportunity costs of missing out on more profitable ventures in the meantime. My adage would be to always buy and seldom sell, but do sell when your money can generate better returns on investment elsewhere. Sure, there may be exit costs but these costs should also be taken into account during the acquisition stage, where if one buys the right property, then money is made when it is bought as opposed to when it is sold.

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Best-value beach suburbs in Sydney

Maroubra beach 1
Maroubra beach, Sydney

Based on median unit prices, the following are the best-value beach suburbs in Sydney:

Suburb Dist from CBD km 1999 2004


Cronulla 30 290,000 432,500 410,000
Dee Why 22 263,000 390,000 435,000
Freshwater (Harbord) 16 275,000 410,000 435,000
Maroubra 11 305,000 475,000 497,000
Narrabeen 22 307,000 484,000 500,000
Mona Vale 28 289,500 645,000 520,000
Balgowlah 12 350,000 485,000 530,000
Bondi 9 332,000 480,000 545,000
Bondi Junction 6 402,000 568,000 555,000
Coogee 9 309,000 507,500 580,500
Manly 15 395,500 605,000 600,000
Curl Curl 18 SNR* 562,500 613,750
Bronte 8 340,400 487,000 645,000
Clovelly 10 380,000 642,500 680,000
Tamarama 9 440,000 610,000 835,000

Source: Australian Property Monitors, April 2010    *Statistically Not Reliable

Related article

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!

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