Reports Forecasting Property Recovery

According to PRDnationwide’s first 2013 Quarterly Economic and Property Report there is a belief that the property  market has strong fundamentals in place for an upswing in Australia.

PRDnationwide’s Index “ Time to Buy a Dwelling Index” is  showing a significant increase in New South Wales and Victoria and a marginal increase in Queensland. The indicator  measures consumer sentiment regarding whether it’s a good time to buy a property.

National Research Manager for PRDnationwide Aaron Maskrey, says the index is reversing a long-held trend which has been falling over the past decade.

The index has shown Queensland having only a marginal increase, however has the highest overall index score indicating that Queensland is where most buyers believe the time is right for an acquisition.

According to Maskrey There are more qualitative reasons for Queensland property buyers to be bullish too. “I was talking to some colleagues from Sydney and Melbourne. They believe the recovery is going to be led by southeast Queensland because it’s more affordable compared to other states.”

The report is optimistic about a stronger second half of the year in 2013 for the Australian economy as a whole.

Official Cash Rate Stays On Hold

Hi All. Been busy in the new year with a rental property of mine as I have been getting it ready for a new tenant. You might say there has been issues with the current tenants. The real estate market in Australia appears to be entering interesting grounds. I think from what I have been reading the market will still be stable and has movement to grow which has been spurred with low interest rates. Talking about interest rates, I would like to report about the official cash rate which was announced recently. For those who aren't aware of what happened in Australia and in regards to our cash rate please read on what I discovered.

After a meeting of the RBA (Reserve Bank Of Australia) on the 5^th Feb 2013 the official cash rate remains unchanged at three per cent following a meeting of the Reserve Bank of Australia (RBA) today. Inflation is consistent with the medium-term target, with both headline CPI (Consumer Price Index) and underlying measures at around 2.25 per cent on the latest reading.

Factors such as inflation being contained (within the usual 3% upper limit), optimistic economic news coming out of the United States, Europe and China and a more robust housing market within Australia, are likely to have contributed to the RBA Board’s decision. Growth within Australia was close to trend in 2012, led by very large increases in capital spending in the resources sector, while some other sectors (e.g. retail) experienced weaker conditions. 

The majority of economists had tipped today’s decision but remain confident of further interest rate reductions throughout the rest of 2013. Some analysts are predicting within 2013 total cuts of up to 100 basis points.

Paul Smith of “ Loan Market” says despite today’s decision, some lenders may toy with the idea of making their own movements with interest rates. 

“With the cost of funds pressure easing for many lenders, there’s an opportunity for them to make adjustments to their variable rates in attempts to attract new customers,” Smith says.

“The action or inaction from lenders in the following weeks could be indicative of what’s in store for interest rate movements over the next several months.”

However whether the big four banks (aka pillars) will pass on interest rate adjustments to the consumer is anyone’s guess.

Merry XMAS and a Happy New Year

To all my readers out there I wish you a Merry XMAS and a happy new year. I hope you have enjoyed reading the blogs I have posted as of to date, and I look forward bringing you new material in the new year to further expand your knowledge.

Using a superannuation fund to buy property

Is using a superannuation fund to invest in real estate a good strategy for you?

In 1986 it was compulsory for an employer to contribute to an employees' superannuation funds. Self Managed Superannuation Funds (SMSFs) since then have become a popular choice for individuals wanting to take control of their financial situation at their retirement

The Superannuation Industry (Supervision) Act 1993 (SIS Act) under Section 67 sets out the conditions surrounding SMSFs borrowing to invest. http://www.austlii.edu.au/au/legis/cth/consol_act/sia1993473/. The act states that the borrower's funds are to be used to purchase an asset, and in this case that we are talking is property. The asset to be held in trust for the SMSF is by another entity; and in this case the property trustee.

The SMSF must have the right to acquire legal ownership of the asset by making payment and any recourse by the lender of the funds used to purchase the asset against the SMSF must be limited to the asset (or property) in question. This statement means that if any default on the loan occurs, the lender can only take possession of the actual property on which the default occurred; the other funds and assets held by the SMSF are protected.

The superannuation fund will be the beneficial owner of the property and is able to purchase a variety of real estate types such as: residential, commercial or even holiday units, provided you purchase it as an investment, and not for you to live in.  However you can transfer the piece of real estate from the fund to your own name after you retire and at that time move in and make it this property your primary residence.

How is the property purchased?  Well in the usual way where the investor selects the desired property and then their SMSF must satisfy the loan requirements as specified by the super-leveraged loan provider.

The SMSF pays the deposit, balance of purchase price, associated legal costs and stamp duty, as such for the case in a normal investment property purchase. Likewise the SMSF appoints the lawyer (or conveyance) and these bodies complete all the necessary legal work as usual.

Costs associated with the property are also paid through the SMSF. Costs such as: land tax, council rates, maintenance, mortgage fees and repayments, and repairs on the property and the property management fees.

Since the SMSF beneficially own the property, outside of the legal ownership of the property trustee, it also receives all rental income or other income and you can improve or renovate the property like any other investor who has not purchase a property under a SMSF.

The SMSF can also pay extra repayments into the mortgage or pay it out entirely, but these will be subjected to the lender's terms and conditions. Once the mortgage has been paid off, the property’s title can then be transferred to the SMSF or the property trustee can continue as registered proprietor.

Before you go off buying properties in a SMSF seek professional advice such as from your accountant to see if this strategy is ideal for you!

Property Insight Across Australia

Once every few months I would like to present an insight from my research on what is happening within each of the Australian state’s capital city property market. In general according to the Australian Financial Review home values across 5 of Australia’s capital cities up to September of this year are up .4 %. Anyway here  is a snapshot of what is happening in each of the state’s capital cities:

Sydney:

In general over the last year Sydney’s market has shown median house prices down by around 1%.
However the top end of the market is still  showing signs of increasing demand, particularly  the eastern and lower north shore suburbs. Also in the middle and lower end of the market there is an increasing demand for houses, but was interesting is that over the last few years Sydney’s apartment market has outperformed the housing market with stronger rental and capital growth. In  Sydney’s eastern, and beachside suburbs apartments are also performing well. However, buyers are being very selective and tending to avoid properties that are overpriced or apartments that are in secondary locations and not within prime locations. Overall still as a result of a combination of the following factors: Strong rental demand, Rental properties shortage. tightening vacancies and increase in rents means investors will go for the same apartments as owner-occupiers, underpinning prices.

Perth:
For the last 5 years The Perth property market has been in a slump and hibernating, but from reports it appears to be moving again with median house prices increasing by 3.17% and apartments by 10.05% over the last year again according to Residex. Western Australia is still being voted as the nation’s strongest economy, with a low unemployment rate and high wages. For both units and houses rents are rising and there is a shortage of accommodation for the increasing number of buyers and tenants. Residex is reporting that house rents last year in Perth have grown around 16%.

Brisbane:
Over the last year Brisbane median house prices fell 0.60 % and unit prices fell 0.61% over the last year according to Residex and is now hovering near the bottom of its cycle. However talking to other investors in Brisbane I am seeing more strategic investors recognising  that it’s a “buyers market” and taking advantage buying good valued property. Like Melbourne’s CBD there is an oversupply of apartments in Brisbane’s  CBD, Fortitude Valley and surrounding suburbs, with over 30 projects currently being marketed. Many of these apartments will remain unsold and this oversupply of properties will put downward pressure on prices and rentals. Overall  Brisbane is beginning to enter a stabilisation phase  i.e. prices are stabilising  but I am expecting that prices are unlikely to start rising until 2013.
For those property investors who already own rentals (me included) house rents in Brisbane have grown approximately 14% over the last year.

Melbourne:
Melbourne’s housing market has been a bit of a surprise, performing better than many expected with prices rising around 2.5% over the last quarter, clawing back half of their losses as a result of  values  falling over the first quarter of the year. Due to a substantial oversupply of newly built house and land packages in the outer suburbs, especially in the west and north property values in these locations may drop slightly due to oversupply. The top end of Melbourne’s property market is still quiet with an oversupply , however there is more demand for real estate priced between $500,000 and $900,000 in the inner- and middle-ring suburbs of Melbourne. With too many new apartment projects under construction there is an oversupply of CBD and near city apartments at a time when there is less demand. This will put downward pressure on prices and rentals for apartments, yet reports by Residex  are revealing that Melbourne’s house rents over last year have increased by 10.53%. As a result this oversupply of apartments will linger Melbourne’s market for a few years, causing prices to fall slightly as I said before.
However apartments with an element of scarcity and not commonly seen, are still selling well as a result of a limited supply of these unique properties. Overall I expect the property market in Melbourne from what I gather to be dull, but if you are smart there are properties out there that can be bought at good pricing, and with a renovation make over can add value to them thus making some money.

Darwin:
Darwin’s property markets have performed well. Residex has reported that  last year  median house prices has increase by 3.37% and unit prices by 5.95%. Darwin’s market has been supported by the increased activity in the resources sector, especially offshore resources.


Adelaide:
At present Adelaide’s property markets are flat.  According to Residex, median house prices fell 2.45 % and unit prices fell 2.1% over the last year. However median rents have remained steady. Since the  news that the expansion of the  Olympic Dam project has been put on hold, local’s confidence is lacking as many were hoping this project would turn South Australia into the next big mining state and boost the economy. Unfortunately there is nothing in the wings to suggest this market will change in the near future.

Hobart:

Median  house prices in Hobart fell 6.36 % and unit prices fell 6.68% over the last year. If you look over the longer term Hobart’s  property market has performed relatively well. However since Hobart’s economy does not shine or compare  the mainland’s resources economy  and its relatively isolated,  I believe there are better places within Australia to invest.

Canberra:

For the good old ACT (Australian Capital Territory) according to Residex median house prices fell 0.26 % and unit prices fell 5.47% over the  year. Since  Canberra has low unemployment, relatively high public service incomes and a shortage of accommodation, as a result of combination of these factors the market has stabilised and should be turning.

My conclusion:
From my own personal opinion I believe there is some very good buying opportunities for the astute and long term investor. Remember property investing is not a get quick rich scheme, but with reading, talking to other like-minded people,  and from people like myself presenting information when you put those together it helps one to make an informed decision.