Friday 25 June 2010 Quote of the Week It is important to keep the promises made to friends. This is the true meaning of friendship. To become people who can do so, however, we must first learn to keep the promises we have made to ourselves. 1. Investors arrest slowdown Price growth for residential properties may slow down in 2010, but investors will keep interest alive in the market, according to industry analyst and economic forecaster, BIS Shrapnel. According to the company's Residential Property Prospects, 2010 to 2013 report, lending activity is already easing, with first-home buyer demand in the March quarter of 2010 down by 44 per cent on the same period last year and `upgrader' activity plateauing. This is flowing through to softer demand for residential property. BIS Shrapnel senior project manager and study author, Angie Zigomanis, says a combination of factors have caused the momentum that built up in house prices in the second half of 2009 to stall in 2010. "The strong price growth in the second half of 2009 was a rapid adjustment to housing variable interest rates that were at 40-year lows," says Zigomanis. "With interest rates quickly lifting from these `emergency' levels, and the current variable rate of 7.4 per cent now being close to long term trends, the recent levels of price growth cannot be maintained." BIS Shrapnel does not expect house prices to fall, however. Investors are beginning to return to the market and pick up some of the reduction in owner-occupier demand - loans to investors were up by an annual 26 per cent in the March quarter of this year. While rental growth did slow in 2009, part of the slowing was due to first-home buyers moving from rental to owner-occupation, as well as the lower interest rates reducing the incentive for landlords to pass on further interest rate rises. "Even though overseas migration inflows are steadily easing, a deficiency of stock is still in place with dwelling construction below underlying demand," says Zigomanis. "This is expected to put pressure on vacancy rates and result in stronger rental growth later in 2010. The deficiency of dwellings, and improved rental picture, will continue to maintain investor demand and assist prices. "In addition, the current round of interest rate rises is expected to have run its course, with further rises expected to be more moderate," adds Zigomanis. "Our forecast is for the cash rate to increase by 50 basis points in 2010/11, and a further 50 basis points in 2011/12. The more stable interest rate environment is expected to underpin purchaser confidence as economic conditions continue to strengthen, and should continue to push through moderate house prices rises." In effect, the surge in prices in the second half of 2009 in most cities has `front loaded' price growth in this upturn, leading to a flatter cycle in prices as the economic recovery continues. Higher interest rates will maintain price growth at a more moderate level, despite the acceleration in economic growth driven by the recovery in resources investment. "Normally price growth is moderate at the beginning of the upturn and accelerates to a peak at the end of the cycle as economic growth also peaks," explains Zigomanis. "However, the very low interest rates in 2009 initiated stronger rises, so the sharp 1.5 percentage point rise in the cash rate between October 2009 and May 2010 has already begun to strain affordability, causing future price growth to be more muted." Among the state capitals, BIS Shrapnel forecasts those starting from the lowest price base will experience the most solid price growth. Real house prices in both Sydney and Perth are still below their previous peak levels, and this should underpin stronger growth relative to the other capitals. Price levels in Adelaide are below the other mainland capitals. More moderate growth is expected in Brisbane, Hobart and Canberra due to weaker underlying demand and local economic conditions over the next three years, while the very strong price rises in Melbourne and Darwin have pushed affordability and will limit further rises. 2. Darwin tops sustainable cities index Darwin and Brisbane are better than the other capitals, but no Australian city has done well in the Australian Conservation Foundation's (ACF) first sustainable cities ranking. ACF's Sustainable Cities Index tracks the progress of Australia's 20 largest cities across 15 indicators: air quality, ecological footprint, green buildings, water, biodiversity, health, density, wellbeing, transport, employment, climate change readiness, education, food production, public participation and household debt. Darwin scored well with clean air, strong biodiversity and low levels of unemployment and household debt, but lost marks on health and preparedness for climate change. Perth came last on the list because of a very high ecological footprint per person and the amount of water supplied to houses relative to annual rainfall. While Perth's public transport system is better than many cities', it still scored poorly on transport with 641 private vehicles for every thousand people. Melbourne came seventh; Sydney was twelfth. Most cities were clustered around the middle of the scoring range. "Australia's major cities consistently rate among the most liveable, but liveability is not the same as sustainability," said ACF executive director Don Henry. "Australians use more water and energy and own more cars per person than the citizens of almost any other developed country. "Many decades of being wasteful with resources, combined with booming population growth, poor planning and a lack of infrastructure investment has come at a real cost to our economy, society and environment. "Our cities could be transformed into clean, efficient places with great public transport and happier, healthier residents. "In this federal election year it's up to our political leaders to prove they have the plans to deliver world class public transport systems, clean up Australia's vehicle fleet and make our cities truly sustainable." 3. Money for `Cool Ideas' Architects, building designers and specifiers are being asked to submit their 'Cool Idea' for a thermally-efficient workplace in a new competition that could win them a cool A$20,000. The competition was launched by BlueScope Steel at DesignEx in April in conjunction with the launch of BlueScope Steel's latest roofing product, Colorbond® Coolmax™ steel, which has been found to considerably reduce the annual cooling costs of a building. Already over 130 entries have been submitted. The 'Cool Ideas' competition runs until 30 November 2010. The judging panel comprises Justine Clark, editor of Architecture Australia; Bill Tikos, editor of The Cool Hunter and Adam Haddow, director of SJB Architects and winner of the 2009 Property Council Future Leader Award. To enter or to view submitted entries, visit www.colorbond.com/coolmax and in 25 words or less, tell BlueScope Steel your cool idea for creating a more thermally efficient building. 4. Tax time: invest in your property strategy
In the lead up to a new financial year, Australia's largest independently-owned mortgage broker, Mortgage Choice reminds existing and potential property owners to make the most of their tax return. A great way for all residential market players to get ahead is to legitimately maximise any tax deductions before 30 June. Homeowners should also consider placing the resulting tax return directly into their home loan, while those looking to achieve home ownership status should contribute it into their deposit account. Investors may find a better use, depending on their goals. Mortgage Choice senior corporate affairs manager, Kristy Sheppard said that the end of the financial year presents an excellent opportunity to reassess your position and determine what strategies are available to you and how these can be used to benefit your property plans, being a time when many people consult their accountant and/or financial advisor for an annual financial health check. "Investors will be exploring tax deductions for their rental property or properties", Ms Sheppard said. "For example, you may be able to claim expenses such as outlay for travel to inspect an investment property, cost of advertising to attract a tenant, agent and/or management fees, body corporate fees, council rates, gardening, pest control, repairs and maintenance, water costs, home loan fees and loan interest. "For many, the potential tax benefits of negative gearing are the greatest lure to property investment. Negative gearing occurs when the combination of annual interest repayments plus any deductible expenses is higher than annual rent received from tenants. This allows eligible property upkeep and loan costs to be deducted from your gross income. Then you are taxed only on that reduced income. "This is especially popular with high income earners and those with larger loans, as the more money borrowed to buy a property, the more interest is owed, and therefore the bigger the possible tax deduction. For this reason and more, it is a good idea to consult a reputable tax adviser and mortgage broker before choosing a home loan and buying a property, to learn about the tax deductions available on your potential investment and what loan type suits your long-term strategy. "Moving on to prospective investors and homebuyers keen to enter the market, tax time presents a great opportunity to put a tax return to good use for the upcoming property purchase. "Firstly, lenders have tightened assessment criteria and now require borrowers to contribute higher genuine savings deposits accumulated or held over a period of three months or more. This is often 5% of the purchase price for homebuyers and up to 10% for investors. Keep in mind, equity from an existing property may be considered as genuine savings. So, it is worth considering assigning your tax return to a high interest savings account to reap the eventual benefits on your deposit amount. "Secondly, you may use your tax return to pay off other debts that feature a higher interest rate, so you have less debt when the time comes to apply for a home loan or mortgage top-up. "If you are already repaying a home mortgage, you may choose to contribute your return as a lump sum payment. Repaying your mortgage quicker speeds up the accumulation of your equity and reduces the length of the loan term and interest owed over that term. "If a borrower with a $300,000 home loan at 7% p.a. who is five years into their 30-year loan term contributes a lump sum payment of $500, they will save around $2,359 in interest plus one month off the loan term. However, if they did this every year, dividing the return by 12 and paying it each month over the entire term, they will save around $19,961 in interest plus 16 months. "Whatever your status, it is important to consult experts and ensure your decision is well thought out", she concluded. 5. Burger the candle at both ends While most fast food restaurants rely on visual images and past experience to draw people back to the counter time and time again, one savvy burger chain in the US has found a way to bring tantalising advertisements into homes via a different sense. Famous for their miniature burgers, White Castle are now offering burger-scented candles. Served up in a rectangular ceramic holder in the likeness of a box the burgers come in, it's one ad you can't avoid by changing the channel. According to NY Daily News, net proceeds will be donated to a charity for Autism. 6. Can an offer be too low?
Remember, a real estate transaction is basically a business deal - you make an offer, then if it is rejected, at least it's a starting point for both parties to negotiate. |
As a purchaser, you might feel a property is worth less than the asking price, based on your knowledge of past sales, available properties, condition, location, siting, design, etc. But how do you know what the seller will accept unless you make an offer? 
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