At its meeting today, the Board decided to leave the cash rate unchanged at 2.0 per cent.
The global economy is expanding at a moderate pace, but some key commodity prices are much lower than a year ago.

At its meeting today, the Board decided to leave the cash rate unchanged at 2.0 per cent.
The global economy is expanding at a moderate pace, but some key commodity prices are much lower than a year ago. This trend appears largely to reflect increased supply, including from Australia. Australia’s terms of trade are falling nonetheless.

The Federal Reserve is expected to start increasing its policy rate later this year, but some other major central banks are continuing to ease policy. Hence, global financial conditions remain very accommodative. Despite fluctuations in markets associated with the respective developments in China and Greece, long-term borrowing rates for most sovereigns and creditworthy private borrowers remain remarkably low.

The Federal Reserve is expected to start increasing its policy rate later this year, but some other major central banks are continuing to ease policy. Hence, global financial conditions remain very accommodative. Despite some increases in bond yields recently, long-term borrowing rates for sovereigns and creditworthy private borrowers remain remarkably low.

In Australia, the available information suggests the economy has continued to grow, but at a rate somewhat below its longer-term average. Household spending has improved, including a large rise in dwelling construction, and exports are rising.

But a key drag on private demand is weakness in business capital expenditure in both the mining and non-mining sectors and this is likely to persist over the coming year. Public spending is also scheduled to be subdued. Overall, the economy is likely to be operating with a degree of spare capacity for some time yet.

With very slow growth in labour costs, inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate. In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending.

Credit is recording moderate growth overall, with stronger lending to businesses and growth in lending to the housing market broadly steady over recent months. Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities.

The Bank is working with other regulators to assess and contain risks that may arise from the housing market. In other asset markets, prices for equities and commercial property have been supported by lower long-term interest rates. The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies.

Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices. Having eased monetary policy last month, the Board today judged that leaving the cash rate unchanged was appropriate at this meeting. Information on economic and financial conditions to be received over the period ahead will inform the Board’s assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.

Mortgage rates have been moving lower since late 2011, however the stimulus is only driving dwelling values substantially higher in Sydney and Melbourne. This week we investigate why the stimulatory effect of low mortgage rates is being most felt in the two largest capital city markets while housing markets in other cities are far less affected.

Across the combined capital cities it would seem that reductions in official interest rates (and the subsequent cuts to mortgage rates) are responsible for growth in home value. The combined capital city results certainly indicate this fact, however when you break the data down further it is clear that only Sydney and Melbourne are seeing significantly higher home values on the back of these rate cuts.

To set the scene we need to look at how official interest rates were positioned at the beginning of 2008 before the financial crisis really hit. At the end of 2007, the cash rate was recorded at 6.75% and rose to 7.25% between March and August 2008. By the end of the year the cash rate had been slashed to 4.25% and went even lower, reaching 3.0% in April 2009 and remaining there until the RBA started to once again lift rates in October 2009. By November 2010 official rates had reached 4.75% and remained there until October 2011. In November 2011 the RBA once again embarked on an easing bias, cutting the cash rate by 50 basis points over the last two months of 2011 and by a further 125 basis points in 2012, 50 basis points in 2013 and finally another 25 basis points in February this year to bring the cash rate to its current level of 2.25%.

         In 2008 home values fell across all capital cities with the magnitude and the length of decline varying between cities. Across the combined capital cities, home values peaked in March 2008 and fell by -6.1% to their low point in December 2008. Sydney (-6.2%), Melbourne (-8.3%) and Perth (-6.2%) recorded the greatest falls. Ever since the end of 2008 Sydney and Melbourne have recorded the strongest increases in home values. Across the combined capital cities, home values have increased by a cumulative 37.9% since the beginning of 2009, however, Sydney (56.9%) and Melbourne (51.8%) have led the way with Darwin a distant third strongest performer (24.0%). Interest rates are the same around the country so why is the growth so much a Sydney and Melbourne story?

The two largest cities have seen a significant increase in employment since the beginning of 2009. Sydney has created 3,045 new jobs a month over the period and Melbourne has created 3,511/month. Job creation in Perth (2,606/month) has also been strong while cities such as Brisbane (1,090/month), Adelaide (386/month) and Hobart (24/month) have seen much softer job creation over the period. The greater job creation and the fact that most large corporations are headquartered in either Sydney or Melbourne has likely been a contributor to the growing housing demand in these cities.

Although Sydney and Melbourne have had the strongest levels of job creations, they have had to because if we assume the state data is a proxy for the capital cities, they have also shown the largest increase in population due to migration. NSW and Vic have consistently attracted the greatest number of overseas migrants but migration has been particularly strong since the financial crisis. Of course new migrants spend money which has a multiplier effect throughout the economy, creating jobs.

While job creation and overseas migration in NSW and Vic has been strong since the end of 2008, NSW and Vic have also lost far fewer residents to other states. NSW and Vic have typically recorded a net outflow of residents to other state, however, since December 2008, Vic has consistently recorded a positive inflow of residents and is currently at a record high net gain. NSW still records a net outflow of residents but its outflow is at a record low. As a result, Qld is seeing far fewer interstate migrants. Much like overseas migration, a higher rate of net interstate migration results in more retail spending and subsequently more jobs in the state.

Lower interest rates have certainly contributed to growth in home values in Sydney and Melbourne. They haven’t driven growth exclusively, in fact job creation and demographic factors along with the associated retail spending have also contributed to the much stronger growth in these cities compared to all other Australian capital cities.

Demographics are favourable for housing demand in these cities and lower interest rates will likely further encourage an increase in demand and subsequent home value rises. APRA and the RBA have highlighted that they are now somewhat concerned about the growth in home values, particularly in Sydney. As a result, it is looking more likely that APRA may need to introduce explicit macroprudential tools to curtail the level of growth.

There are many elements that make up a home loan facility. Consider loan features that meet with your financial needs

Principal, interest, term & repayments.

Here we explain a number of the basic terms and definitions used in home loans, mortgages and business finance:

• Principal
• Interest
• Term
• Repayments
• Amortisation

Loan principal

“Principal” is the amount of money you borrow from the Lender when you take out a home loan, mortgage, or other finance.

Loan interest

“Interest” is the fee the lender charges you for the use of their money. The interest charge on your loan depends on the amount of money you borrow, the interest rate, and the term of the loan.

Loan term

“Term” is the agreed period you have to repay your loan. For some loans, this could be a year or less, while for most home loans it is 25-30 years.

Loan repayments

Over the term of the loan, you make repayments on a regular basis – typically monthly. These repayments generally cover the interest charge and a portion of the principal.

Loan amortisation

This is a scary sounding term but it’s just another way to describe the repayment of your debt. Over the term of the loan, your regular repayments are said to “amortise” the loan.

How Can We Help?

Request your personalised borrowing capacity report. Request your BEN Credit Capacity Analysis report to identify your BEN score which can help to maximise your credit capacity and reduce your credit risk.

The BEN Financial Stress Analysis provides you with a snap-shot of your financial capacity. It tracks your financial performance based on  market Lending Credit Assessment Criteria.

You may request  additional specific information on the BEN scoring analysis by simply submitting the inquiry form below.

1. Minimise Risk Through Portfolio Diversification

When investing in property, you’re able to minimise your investment risks by diversifying your portfolio.

The temptation for some first time property investors would be to stick with what you know best.

It is easy to imagine buying an investment property close to your principal place of residence – you would be able to keep an eye on the tenants, you know the area, and you might even be able to rent out the property to someone you know.

But in terms of managing risk through diversification, think about it like this.

If the suburb in which you have your principal place of residence suffered from a down turn then not only would your home be at risk, but so would your investment property.

Those wishing to manage their property investment risk through diversification can consider investing in properties:

• In different states or cities
• Within diverse areas or price ranges
• With different characteristics that would appeal to different types of tenants
• Overseas (Check out this on-demand webinar about investing in the New Zealand market)
• Using different property investment strategies (cash flow, capital growth, holiday homes, renovation etc.)

Whichever option, or combination of options you choose, diversification can help lower your likelihood of cash outlay and capital loss, whilst providing more flexibility when you decide to sell.    

2. Tangible Asset Value

For many people, real estate or shares are the two most popular investment options, and both should be regarded as longer-term investments.

An obvious difference between the two is the amount needed to get started.

An investor in the stock market can start small by buying shares worth a few thousand dollars whereas property investments generally involve a commitment of hundreds of thousands of dollars.

Of course, the fundamental objective of an investor should be to find an investment which generates maximum returns with the lowest possible risks attached.

It’s also worth considering the time you need to devote to different types of investments. The stock market can be extremely volatile, and driven by sentiment rather than rational financial thinking.  

By comparison, real estate investment can deliver an expectation of capital growth over time, combined with other attractive benefits which include:

• Consistent rental income
• Tax advantages
• Security of “bricks and mortar” and
• Capacity to manage and control your own investment

The aspect of control is a very important consideration.

Property is a tangible option, and as the owner, you can see exactly what condition your investment is in and have the option to improve its condition and potential value through renovations.

3. Income Through Rental Returns

The fundamental objective of property investment is wealth creation, achieved through a combination of income and capital growth.

For many investors, particularly in the early stages of building a property portfolio, regular rental income is the only means by which mortgage repayments and other ongoing property expenses can be met.

If an investor is not receiving a realistic market rent for the property, or if there are regular periods of vacancy, then this represents a cost or reduction in the overall investment yield in much the same way that operating expenses do.

Determining gross yield

A guide to the yield being generated by a property is obtained by dividing the total annual rent by the purchase price and expressing the answer as a percentage.

For example, a weekly rental of $350 ($18,200 per year) for a property purchased for $260,000 generates a gross yield of 7%.

The net yield is calculated in the same way, except that property expenses such as council rates, insurance, and maintenance are deducted from the yearly rent received figure.

The potential yield should be a critical part of any decision to purchase an investment property, and should help dictate the price an investor is prepared to offer.

4. Long-Term Capital Growth

Property investors rely on the capital growth of their investment properties as a steadfast means of investment return for the future.

Capital growth is the increase in value of your property portfolio over time.

Purchase a property for $200,000.  After 10 years, it will be worth:

• 5% Capital Growth –        $326,000
• 10% Capital Growth –      $519,000
• 15% Capital Growth –      $810,000 

 To explain capital growth it’s useful to refer to an old saying.  Buy land, they’ve stopped making it.

The supply of land is finite, whereas the population is ever-increasing and the demand for property generally grows at a faster rate than the supply.

The potential capital growth of a property is one consideration that should be taken into account when analysing the viability of a real estate investment.

To begin with, it is a myth that all properties will experience capital growth.

Likewise, just because a certain suburb has experienced a certain degree of capital growth does not mean that all properties in this suburb have reaped the benefits

Capital growth is also not constant

This means that your real estate investment will not necessarily appreciate in value each year, nor will it necessarily appreciate at a certain rate each year.

Depending on the price paid at the time and the location, the property value may not rise significantly enough to ever turn a profit.  Conversely, we have seen prices in certain areas of Australia, such as Sydney and Melbourne, increase significantly over the last 12 – 18 months.

It’s important to remember that the property market is cyclical with periods of booms and declines. 

The Property Cycle

What drives capital growth?

Capital growth of a property is driven by supply and demand and other factors including:

• Land size
• Location
• Development in the area
• Sales values of surrounding areas
• Infrastructure proximity
• Increases in wage levels
• Population demographics

Common tax deductions you can claim

• Interest on the money you have borrowed for your investment property.
• Tenancy costs – the costs of advertising your property and any letting fees paid to property managers.
• Repairs and maintenance costs are usually tax deductible in the tax year they are incurred. There is a distinction between repairs and maintenance expenditure, which can be described as restoring an item to its previous condition or standard, and the cost of capital works which result in an improvement in condition, such as a kitchen renovation.
• Depreciating assets – Depreciation can be summed up as a write off of the cost of an asset over its estimated economic life which can allow investors to claim a deduction on the amount of tax they pay.
• Holding costs – this is money you spend on owning a property and include body corporate fees, gardening costs, building and contents insurance and pest control. These costs are generally tax deductible.

Always talk to your accountant to ensure you are claiming your maximum legal entitlement when it comes to tax time.

6. Easy To Research

Real estate investors need to become information gathering experts when it comes to researching their next investment opportunity and negotiating the best deal possible on each and every purchase.

There are many different types of publicly-available information that can assist you to research your next property deal.

Use the research you collect to determine the absolute ceiling price you would pay for the property in question – don’t pay the seller the price they think the property is worth, pay only what you have determined it is worth thanks to your homework and due diligence.

7. High level of control

The minute you sign the dotted-line and settle on your property, the asset is yours and you have complete authority.

Having a high level of control means you can greatly influence a property’s worth, allowing you to increase your asset’s value through renovations.

To help you control your asset, it is important you structure your affairs correctly from the outset.

For example, structuring your finances properly can help you grow your portfolio and make subsequent investment property purchases easier and less expensive.

Consider whether your property investments will be made in your name, a company or trust structure or inside a self-managed superannuation fund (SMSF)?

Getting these decisions right at the start of your property investment journey will go a long way to helping you avoid costly mistakes and reach your financial goals sooner.

By Fallon Stovall

1. Swimming pools add no value

This is a generalisation which cannot be applied to all properties.  In some areas there may be evidence that buyers are prepared to pay more for a pool, however in other areas this may not be the case.

Prestige homes or suburbs catering to families may see the added value in pools, whereas inner city or coastal properties may not.

Consider the potential target market for your property. Pools can provide an opportunity for leisure with family and friends and encourage a healthy and active lifestyle – a feature that will attract a certain market. Just keep it well maintained and landscaped to maximise value.

2. Bank valuations are always conservative

A bank will engage an external valuer to provide an unbiased valuation on your property. Valuers must act independently and should not be influenced by the party seeking the valuation or concerned with the reasons why a valuation has been requested. A valuation report can be challenged in court and must be backed by comparative market data, therefore a valuer must be able to justify their valuation figure by providing evidence of comparable sales in an area. In compiling a valuation report, valuers must adhere to a strict process heavily reliant on factual data and appropriate methodology.

3. Valuers don’t spend enough time in a home to give a solid valuation

Before visiting a property a valuer will undertake extensive background research on your local market. Valuers have access to software and data which allows them to check recent sales data in your area and will have knowledge of comparable properties.

When the valuer arrives at your property they will have a very specific checklist of items they are looking for and may only require 20-30 minutes at your property to compile this information. The additional research the valuer has undertaken should be evident in the valuation report they provide to you.

4. More bedrooms = more value

Often property owners make the mistake of believing their property is worth more than another in their area because it has more bedrooms.

Thirty years ago this certainly was a consideration when home design was less sophisticated and family sizes on average were larger. In today’s market, property owners often choose to convert a spare bedroom into a study or office, home theatre or storage room, and there’s a trend to convert garages to bedrooms to accommodate older teens and adult children with personal space away from the main living area.

When comparing two properties, especially units, total floor area may be a better indication of value rather than the number of bedrooms in a dwelling. Valuers also consider location-based factors such as street appeal, street access and views when comparing properties.

5. The valuation doesn’t reflect my home’s presentation

Buyers have very personal preferences when it comes to interior design. It is very common for property owners to spend $20,000 painting the inside of their home in bright, bold colours expecting their home to increase in value by at least the same amount.

While the property owner may love their new colour scheme, buyers may not share their enthusiasm. For this reason valuers factor in design trends when valuing a property, and most will agree that neutral colours present best. Property owners are also urged to stay away from exotic furnishings for the purposes of adding value to their property, as this too is subjective.

6. Property prices never go backwards”

This view is often held by young investors who have only experienced strong market conditions.

Many parts of Australia were fortunate during the 2000’s to experience an unprecedented boom in property prices that seemed like it might continue forever. While in the long run property markets tend to go forward due to scarcity of land and increasing population, they tend to be cyclical in nature and often go backwards in the interim as experienced in late 2008 into 2010.

Economic factors both domestically and internationally can have a rapid and damaging impact on local property markets. A severe economic downturn in China, for instance, could see a decrease in demand for Australia’s resources. In some mining communities that would likely result in a decrease in property prices and rental yields.

7. “Commercial property is riskier than residential property”

This is a broad generalisation which should not be a guiding principal for investors. A well located retail showroom with a long lease and annualised rental increase could be a very sound investment. While the property may not see an increase in value during a downturn, the long term lease will help to ensure reasonable returns during this period.

Conversely, the marketers of a new residential unit development in an inner city area may claim to offer a risk free investment.  However a large amount of units may be in development in the area and could quickly lead to an oversupply.  Commercial and residential properties should be evaluated on their own merits.

8. “Market Value is the same as sale price”

Market value is an estimate of the price a property would likely attract in a rational and competitive market place. Sale price is the actual figure a property is sold for. As an example someone sells a property for $500,000 (sale price) when near identical properties have been valued between $490,000 and $510,000 (market value) in the same area.

The reason for a disparity between a valuation and sale price could result from human factors relating to the sale. A buyer may feel a personal connection with a property and happily pay above market value, or alternatively, a buyer may have personal circumstances which compel them to sell quickly and accept an offer below market value.

9. “Investors should only buy for capital growth”

While capital growth should always be considered in line with your wealth creation strategy, rental yields for a property should never be overlooked. Strong rental yields produce a greater cash flow, and therefore allow investors to pay off mortgages sooner and have access to cash flow for future investments.

In general, areas with higher capital growth are based in metropolitan areas, are more expensive than their regional counterparts and generate lower rental returns. A property in an area with strong rental yields can still deliver a good return on investment when property prices are stagnant or falling. The deciding factor of which one is of greater importance should be based upon your individual investment strategy and current requirements.

10. Buying interstate is a great way to diversify”

Buying properties interstate can mitigate the risk of some local factors, but investors should be aware that all properties are affected by the macro economy. Interest rates, inflation, taxes and large international events can all have significant impacts on property prices in any location.

This was evident in the wake of the Global Financial Crisis when property prices across Australia were negatively impacted. It is also important to consider that markets can vary within states and investing in different cities or towns can provide diversification. For example the resources boom in Queensland has seen many mining towns outperform Brisbane’s residential property market in recent years, so looking further afield in your own state could be worth considering.

Getting a pre-purchase property inspection completed however, can actually save you thousands of dollars in future expenses and help you during the negotiating process.

By investing in a professionally carried out property inspection, you avoid the possibility of expensive financial outlays due to repairs and structural damage, and also the risk of putting yourself and others in danger.      

What a property inspection involves  

Personal inspection

You should personally inspect each property that you are interested in buying, and consider taking someone else with you to gain another perspective.

As well as a thorough inspection of the interior and exterior of the property, consider the following checks:

• Windows and doors open and shut easily.
• Look for danger signs of sagging ceilings or bucking walls.
• Signs of damp or mold on walls or under carpets.
• Check under sinks for signs of rust on the pipes.
• Check hot water system for its size and age.
• Look at the roof for its general state, and also the condition of the gutters.
• Take note of noise levels when in different parts of the property.
• Check exterior walls for signs of cracks.

Professional inspection

A pre-purchase property inspection is carried out by a qualified, professional inspector who provides information on the property’s current condition. It enables you to make informed decisions about the property and be aware of any significant problems.

The format and detail contained in the report will depend on:

• Type, age and size of the property
• Property condition
• The reporting process used by the organisation preparing the report.

These factors will also influence the cost of the report. 

You should always ensure that the inspection report you receive complies with Australian Standards.

The person carrying out the inspection should inspect all accessible areas of the property, and the report should contain information on:

• Interior of the building
• Exterior of the building
• Roof space
• Under-floor space
• Roof exterior
• Gutters
• Garage, carport and garden shed
• Separate laundry or toilet
• Small retaining walls (non-structural)
• Steps
• Fencing
• Surface water drainage
• Stormwater run-off
• Paths and driveways.

The property inspection report summary

The summary is possibly the most important part of the report.

It should give you an overview of the major faults found in the property and its overall condition considering its age and type. Photographs may be included depending on the company you use.

Remember that the report you receive is based on a visible inspection of the property, and may not identify any structural defects or other hidden issues.

If you have further concerns about the property, consider having it checked by another suitably qualified specialist e.g. structural engineer or surveyor. 

It is also important to note that the pre-purchase property inspection is not the same as a pest inspection. Whilst the report should pick up any visible signs of damage that may have been caused by termites, it usually will not necessarily detect the presence of these pesky critters.

It can be advisable to get a separate pest inspection carried out by a qualified professional.

What the property inspection report will not generally cover

• Termite inspection
• Minor defects
• Swimming pools
• Appliances
• Air-conditioning
• Paint coatings
• Electrical wiring
• Carpet
• Alarm systems
• An estimate of the repair costs
• Any areas outside of the inspector’s expertise

However you can make specific requests to your property inspector if there are particular items that you want included.

How a property inspection can save you money

1. Ability to negotiate purchase price

When you invest in a property inspection, you gain knowledge and awareness of the property’s overall condition, including areas of the property that may need improvements and repairs.  

You can use this information as a tool to negotiate an appropriate, discount purchase price based on existing property damages and repairs that need to be carried out.

The seller could potentially be more likely to reduce the price, or in some cases, even pay for necessary repairs.

*Tip: When you receive the property inspection, call the inspector immediately. 

By doing so, you will receive insight into the property’s status since it will be fresh on the inspector’s mind.   

You can then read through the full property inspection report and digest all the details.

2. Identify foreseeable, costly repairs

As mentioned above, a pre-purchase property inspection lets you know of any serious damages or repairs that will need to be made in the future.

These foreseeable costs include repairs such as:

• Leaky ceiling
• In-wall dampness
• Rotting floorboards
• Pest infestations

Early access to such information lets you budget with a more reasonable estimate of potential expenses which could affect your cash flow.

3. Avoid safety hazards and medical bills

A property inspection shines light on unsafe areas in a home, such as presence of asbestos, mold, or any other harmful materials, which could lead to extra expenses in repairs and possible medical bills – which can easily be avoided.

Knowing about these safety hazards, especially before purchase, allows you to decide whether or not you’re willing to pay the necessary costs to keep the property safe – saving you money in the long-run.

4. Awareness of insurance coverage

Not all home insurance companies will cover a property due to certain conditions, which is why it’s important to be aware of the property’s condition beforehand.

Choosing the right person to inspect the property

Always use a suitably qualified person to carry out the pre-purchase property inspection.

Many property inspectors will require 2 to 3 days’ notice in order to carry out the property inspection, so make sure you give them enough time to get the report completed.

If you are interested in a property, get the vendor’s permission to have the property inspected as early in the sale negotiations as possible, so you can leverage the information in the property inspection report to your benefit if possible.

When investing in property, you can get peace of mind and knowledge by getting a building and pest inspection report carried out.  
By Fallon Stovall

CHECK THE CONTRACT CAREFULLY

1. Understand the inclusions, fittings, fixtures, and build materials you will be receiving. The more items that feature in a property’s inclusions list, the less you will need to arrange/fund once the property is settled. Full turnkey off-the-plans are fantastic because they leave the investor with almost nothing to install before tenants can begin living there.
2. Understand the sunset clause – how long will you be waiting? This could be anything from 18 to 60 months. If the development does not proceed how long is your money tied up? Are both the developer and the purchaser allowed to walk away at the end of the clause or just the developer?
3. Check penalty interest for late settlement of the property.
So, how do you avoid the inherent risk of buying off the plan?

MINIMISE AND MANAGE DEPOSIT

4. In some cases the developer will accept a deposit bond or bank guarantee so you are not required to exchange an actual cash deposit. This allows you to have your money working elsewhere (eg paying down bad debts, or sitting in an offset account against your PPOR mortgage).
5. Alternatively, if the developer has met their pre-sale requirements they may accept a 5% deposit. However, they will still require the full 10%.
6. If you do pay a cash deposit and you have a long sunset clause, check to see if the deposit monies are going to be invested. If so, are they passing on a percentage of the interest earned?

MINIMISE ONGOING CASH INPUT

7. Some developers offer no progress payments which can be of great benefit to the strategic investor.
8. Putting the construction finance back on vendor greatly improves personal cash flow until you are ready to settle. Instead of chipping in progress payments towards the build (which are not tax deductible) you can have this money working in other productive areas, or in the case of owner occupiers there is no need to pay rent and partial mortgage. It also lessens your risk as there is only a deposit that has been tied up in the venture.

RESEARCH THE DEVELOPER

Check out the developer. Are they properly funded? Will the property definitely be built? If not, how long are you tied to the contract by way of the sunset clause?
10. How long has the developer been in the industry and is it their core business or just a hobby?

RESEARCH THE BUILDER

11. How long have they been building? How many properties do they build each year? Check they have the correct builders’ insurances in place.
12. You may also want to check out some of their previous projects to get an idea of craftsmanship and style. The more tangible examples of the future build, the better. Things like previous developments and current under-construction jobs are very good examples of how investors can gain peace of mind over their purchase.

STAGE OF CONSTRUCTION

14. Understand exactly where the building is up to at the point of purchase (e.g. dirt, slab, frame, fix, etc.). This way you can determine exactly how much stamp duty you will be paying (Victoria only).
15. Ideally, off-the-plan purchases have their contracts signed before the slab is poured. Check owner’s corporation details
16. Check on any outgoings, rates and owners’ corporation fees that will be applicable upon settlement. At point of purchase the owners’ corporation may not yet be established, but there should be an estimate available.
17. What exactly will the arrangement cover (e.g. maintenance staff, grounds upkeep, insurance, individual building insurance)?
18. Take a look through a property similar to the one you are buying, and not a flashy ‘specked up’ display unit. Marketing renders and pretty brochures are nice, but they are sometimes not a true reflection of what you will get.

INDICATIVE DEPRECIATION SCHEDULE

See if you can get a copy of the depreciation schedule estimate – to glean a more accurate understanding of the tax benefits available. This is a handy source of information, particularly if you are comparing the net investment benefits of apartments versus townhouse versus house-and-land options.

POST-CONSTRUCTION ASSURANCE

19. Peace of mind post settlement is important, particularly when dealing with a brand-new dwelling.
Check the warranties and building assurances are satisfactory before signing contracts, because repairs can be expensive if the builder doesn’t get things correct.

VALUATION AND PRICING

20. When establishing value, take a look around and do some price analysis. When doing so, don’t just look at the ‘sticker price’ as this can quite often be misleading. Make sure you are comparing ‘apples with apples’, e.g. fittings, fixtures, finish, size, location.

EXCLUSIVE LEASING PERIODS

21. Some contracts contain a hidden ‘exclusive leasing authority’ binding you to a certain agency for a given period. It could also dictate the amount of rent you are able to ask. There are a number of positives and negatives to having a development controlled in this manner.
22. Before you sign, make sure that you fully understand your rights and obligations under the agreement.

After years of experience as a real estate agent, Simon Cohen co-founded Australia’s largest buyers’ agency, Cohen Handler. 

Simon’s first ever property was a brand new apartment in Rushcutters Bay purchased for $920,000 which he sold soon after for $1.1 million. He and his business partner Ben Handler are also the only ones to get a good deal on a sale from The Block, where Simon picked up a three-bedroom Tasman Street semi for $1.37 million.

True to form, mid-interview, Simon had to reject a call on another line relating to his latest ‘deal’. 

Here are his top tips for investing in property. 

GQ: What have you learnt from your personal experience buying and selling? 

Simon: I’ve learnt buying the ugly duckling always creates the best opportunity. So, that means buying a property that structurally is really good, but cosmetically is really bad. If you can make it look great, that seems to turn the property. 

The other lesson I’ve learnt is never sell investment property. If I look at the market from one year ago, two years ago, it’s the strongest it’s ever been. Anything I’ve ever sold, I probably should’ve kept because it’d be worth a lot more now. 

What type of properties should young people invest in?

Buy properties in areas that are up-and-coming infrastructure wise. A year ago, we were buying properties in Parramatta. A lot of our clients didn’t want to live in Parramatta, they’d never been to Parramatta, but as investments – they’ve stacked up.

We were buying two bedroom apartments for $370,000, and they’re now worth around $550,000 in twelve months. 

What should people do when renovating these properties? 

Just minimal, minimal work. Paint, carpet, things like that. Cheap, easy, cosmetic work. 

What’s the biggest misconception about investing?

That you should invest in the area you live in. You definitely should not. You should invest in the area that has the most capital growth and that’s going to be the safest investment even if the market turns. 

What sort of occupations your clients have?

Mostly they’re accountants, lawyers, doctors, bankers… people who have an income to help fund growing an investment portfolio. 

Does people’s greed ever stop them from being good investors?

Yeah, absolutely. A lot of people, especially in this market, don’t understand what their money buys them. They’re buying something that would give their ego more of a boost then their financial situation.

By that I mean buying something a posh area to tell their friends rather than buying an apartment in a not-so-posh area which would be a much smarter investment. 

How many investment properties do you own now?

Currently three, but that changes every day. 

What makes property a smarter investment than shares?

Very easy. I’ve never seen a property go to zero dollars. I see shares go to zero dollars all the time. 

Contributor: Natasha Gillezeau

Reforms set to rule out understated property prices Agents will have clearer requirements to adhere to as a result of underquoting Reforms.

The proposed laws announced by the Minister responsible for Fair Trading seek to prevent prospective buyers wasting time and money on inspections because a property price has been underquoted.

Under the current Property, Stock and Business Agents Act 2002, agents are not permitted to underquote – so nothing new here.

The reforms will restrict agents from advertising or communicating (in writing or verbally) any price for a marketed property that is less

than their evidence-based estimated selling price recorded in the agency agreement. This has always been, and is currently, illegal – so nothing new here either. It appears that the new reforms will highlight this.

About the requirements Under the new laws, agents will be required to:

• include their estimate of a property’s likely selling price in the agency agreement

• record the evidence that informed their estimate and provide the vendor with this evidence in writing

• Required now – no change

• Required now – no change

• ensure a price range is no greater than 10% of the bottom figure (eg. $500,000- $550,000)

• ensure advertising does not include any imprecise or unclear statements such as ‘offers over’ or ‘offers above’ or $XXX,000+. Importantly, an agent must never include any price in an advertisement that is less than the estimated selling in the agency agreement

• record all quotes provided while a property is marketed

• notify the vendor if the original estimated selling price is revised. The agent will be required to provide the vendor with evidence (eg. market feedback) for their revised estimate and amend the agency agreement.

Agents will also need to update any marketing for the property as soon as possible to ensure that no price is communicated that is lower than the new estimated selling price for the property.

• This is new. The 10% rule has only been a good guide up until now. The new reforms will make this a requirement

• This is new. This will significantly change how many agents advertise properties

• Required now – no change

• Partially required now – this will make the process more

transparent for vendors and purchasers. This will also mean that advertising will change during a campaign, based on feedback from prospective purchasers. There is no clarity here about what constitutes feedback – written offers or purchasers making ambit claims as to what they will pay. Hopefully there will be more clarity in the new reforms as to what this means for agents. 

NSW Fair Trading claims that the above requirements will create a level playing field for agents in a competitive market. They also preserve the vendor’s opportunity to work with the agent to gain the best price possible for their property. Fundamentally, they will enable true competition between buyers whose interest in a property is not solicited on the basis of an agent’s understated price assessment.

The reforms to the Property Stock and Business Agents Act 2002 will be before Parliament in the coming weeks. They are expected to commence in early 2016. In developing the reforms, NSW Fair Trading assessed comparable laws in other jurisdictions and consulted with key representatives from the real estate sector.