Welcome to our monthly informative feature articles highlighting the latest trends & updates pertaining to the Real Estate industry....
Soft Landing - Houses Slip But Rents Rise
August national results released by RP Data on 30 September showed that Australian capital city home values declined 0.2 per cent (seasonally adjusted) in August, bookending a strong run that saw home values rise by 8 per cent in the preceding year, despite poor global conditions. At the same time, homes outside capital cities stood still, showing exactly zero per cent growth.
The good news for investors is that rental markets are showing signs of recovery with capital city rents lifting by 2.9 per cent in the past 12 months.
It could be said that the Australian housing market has experienced a broad-based soft landing.
The big surprise for October was the Reserve Bank’s decision to leave rates on hold at 4.5 per cent. Markets had factored in a 76 per cent probability of a 25 basis points increase, and now, despite markets reducing the probability of a November hike to less than 50 per cent, Westpac indicates in its October economic update that everything still points to upward movement in November. The reasons are threefold.
Markets will focus on the next CPI, employment and consumer sentiment figures – all due this month.
The RBA Governor’s speech and September Board Minutes contained a very clear signal that the primary concern remains inflation risks associated with the mining boom. Its policy will be set to pre-emptively avoid inflation while rebalancing growth away from consumer/housing to investment/exports.
Westpac is of the belief that even lower than expected inflation or evidence of slowing credit and moderating housing/retail markets will not divert the RBA from its objective of improving growth with investment/exports at the expense of housing for years to come.
All of this comes as no great surprise to First National agents who have been observing a parallel shift in the marketplace towards an increasing investor presence. Both residential and commercial markets show considerable promise for the years ahead.
Key statistics from RP Data’s September Quarter Rental Review highlight that Darwin still leads the pack when it comes to the most expensive rental houses in Australia. Canberra is hot on its heels. Key statistics reveal that city and regional rental markets are in recovery:
• Weekly rents up 2.9% over last 12 months
• City unit rents increased more than houses – past five years
• Canberra and Melbourne houses recorded rental increases in September quarter
• Western Australia’s Pilbara has the most expensive rents - $1500pw
• Adelaide has the cheapest capital city rents at $320pw
Changes in capital city housing values (three months to August) are detailed below:
Sydney +0.2% to a median of$505,000
Melbourne -1.5% to a median of $470,000
Brisbane -2.3% to a median of $434,000
Adelaide -0.2% to a median of $387,500
Perth -4.8% to a median of $460,000
Darwin -1.4% to a median of $485,000
Canberra +1.2% to a median of$480,000
Hobart +1.4% to a median of$325,000
So, the weakness seen since the end of the first quarter has materialised in all cities as the effects of higher interest rates and the absence of the first home buyers boost make themselves felt. While capital growth has broadly halted, property owners are still realising positive total returns due to the effect of direct or imputed rents.
Gross rental yields across capital cities are estimated to be 4.9 per cent and houses 4.0 per cent, but on a total return basis, Australian housing has outperformed most other asset classes in the past ten years. However, if the resources boom combines with excessive consumer spending, the RBA may lift rates 4 to 6 times before the end of 2011, which could lead to further modest declines in property values.
Home Ownership Still Within Grasp
Home owners and buyers are once again feeling the pinch to keep their dreams of home ownership alive as housing affordability returns to the property market agenda. But, First National Real Estate Bribie Island Principal, Lyn Petrohilos says it’s a matter of rethinking options and developing creative strategies.
Impending future rate rises, along with tightening lending conditions and increasing mortgage stress concerns have started to take their toll on home buyers’ ability to own their own home. According to Lyn, home buyers need to take action on an individual level to tear down the wall of housing affordability in any way they can.
Recent research has found a decline in the number of home loans with a high loan-to-value ratio (LVR) of 95 per cent or above. LVR refers to the amount of money borrowed for a property, compared to what the property is worth.
Lyn says while lending criteria has toughened in recent months, there are still lenders willing to negotiate a better deal around a number of factors such as fees or rates or the actual LVR itself.
“Lending institutions need to be willing to negotiate and be a little more flexible,” Lyn said. “And there are plenty of lenders out there who are willing to do just that, if home buyers are willing to shop around a little and do a bit of homework themselves. It’s up to the individual to take matters into their own hands and ask.
“But they need to have the facts that support their case as well.”
Some key tips for overcoming housing affordability concerns include:
- Time your purchase for when there is a lull in the market, such as Winter, when the market generally slows and lower demand can potentially tip the balance in favour of buyers.
- Calculate what you can afford to spend, factoring in any interest rate increases, probably 2 per cent higher than current levels. Match this to your list of preferred suburbs and concentrate on properties that are genuinely within your range.
- Be flexible and adjust expectations as required. You may dream of buying a home in a particular area, but consider a smaller home, or even a unit or apartment, with a view to upgrading later. Alternatively, consider an area a suburb or two removed from your where you would like to live.
- Start a disciplined saving strategy immediately. Set realistic savings goals and set up an achievable budget for household expenditure.
Lyn also had some sage advice for home owners currently experiencing mortgage stress.
“Home owners can consider extending the life of the mortgage,” Lyn said.
“In recent years, all the focus has been on how quickly a family can pay back the mortgage and then move another rung up the ladder.
“Obviously, that is the most desirable situation, but times are changing and it may be more useful to focus instead on how to get into the market in a way that is financially manageable.
“But whatever they do, they should seek the services of a qualified, reputable and trustworthy financial advisor.”
Renting With Pets
With around two-thirds of Australian households owning a pet, there are plenty of tenants out there looking for pet-friendly accommodation – a tough ask, but one that Schrags Bribie Island First National says can be overcome by being responsible.
“Landlords aren’t out to rid the world of pets, they just want to know that you are a responsible pet owner that will respect their concerns, and their property,” Lyn Petrohilos, Schrags Bribie Island First National, said.
“Responsible pet owners make excellent long-term tenants and tend to abide by the housing rules, because they know it can be difficult to find animal-friendly accommodation elsewhere and want to avoid the difficulty of having to look for it.
“So, they will go to greater lengths to look after the property and keep their landlords happy.”
According to Lyn there are a few tips pet owning tenants can keep in mind to show a prospective landlord their properties will be in safe hands.
· Be a good neighbour. Provide your pet with plenty of attention and exercise, so that its physical and social needs are being met. By doing so, you will cut down on nuisance barking, one of the most common complaints of neighbours. Clean up after your pet, preventing not just a messy smelly yard, but also a serious health issue. Consider enrolling in obedience training and grooming. Nothing says ‘responsible’ to a landlord and neighbour better than a well-behaved well-groomed pet.
· Honesty. Do not try to sneak your pet into a ‘no pets allowed’ property and do not misrepresent your pet’s breed. Some pet friendly properties restrict certain breeds or have weight limits or restrict the number of pets allowed. If you are not completely honest with your landlord and get caught, this just makes landlords more hesitant to rent to pet owners. Remember, this may not just be your landlord’s rules, some municipalities have Breed Specific Legislation or Pet Limit Laws. Check with the local Council.
· Show goodwill. Write up a Sample Contract to present to your potential landlord stating that you agree to abide by all of the property rules including cleaning up after your pet, keeping your pet secure and supervised at all times, ensuring your pet is friendly and approachable to neighbours and to keep your pet vaccinated and free of fleas, ticks and parasites. If it is not in your rental agreement, offer your landlord a pet deposit to make it perfectly clear that you are responsible for any damage to the property caused buy your pet. This will not only make a lasting impression, but show your landlord that you are serious about renting and that you will care for the property.
Landlords should also keeping in mind that a well-managed, pet-friendly rental offer can help improve their returns, broaden the pool of prospective tenants and also promote a sense of tenant safety and security.
“Responsible pet owners make excellent tenants because caring for pets takes as much, or more, effort and responsibility as caring for where we live,” Lyn said.
“What’s important for the landlord is to have a clear set of guidelines on keeping pets on the property.”
6 Ways To Make A Profit In Real Estate Investment
Many homeowners get into real estate investing by buying a home and using this home as a rental when they upgrade to a larger home. Called “serial purchasers”, they continue to buy (and hold onto) additional properties.
Other investors prefer to find a quicker path to real estate riches through one of the following ways.
Buy and Flip
Flipping means selling the property you just bought for a higher price as soon (or in some cases before) you take title on the property. While flipping allows you to make money fast in a hot market (or on a property you purchased well below market value), you may need to pay capital gains (talk to your tax advisor).
Buy and Scrape
Scraping is tearing down an existing home and building a new home. To capitalize on this idea look for areas where home prices are rising, vacant lots are few, and there’s an inventory of older homes. While there are many permits you need to obtain, scraping can be a very lucrative process.
Buy and Split
Just as you can buy one lot and split into two, you can also buy one house and subdivide into two homes right down the middle, or buy a larger house and develop each floor into several apartments. Another variation is to buy a house with a large lot, subdivide the lot, rent out the house, and sell off the land.
Smart real estate investors look at existing properties with new uses in mind (and they check into all building and zoning regulations).
SPRING AWAKENING - MONEY GROWS ON TREES
With the election and winter behind us, the property market is once again set to spring into action. Increased buyer activity, improved market conditions and stronger competition means those seeking a top price for their property have to work extra hard to catch buyers’ attention.
According to Lyn Petrohilos, Principal, money can be made with plants, shrubs and trees, especially with Spring in the air. So, now is the time for seeds to be sown and money to take root.
“Home owners should never underestimate the importance of landscaping a property to maximise the value of their home,” Lyn said.
“Street appeal, especially landscaping, has the potential to add up to 10 per cent, or more, to an achievable sale price of a property.
“Make first impressions count starting from the letterbox. Make sure fences, gutters, paths and gardens are well maintained and make the right type of statement about your property.
“Then, stand at the front of your yard where a potential buyer will first set eyes on your property and cast a critical eye over it to see what improvements can be made.”
Lyn says a rule to remember is to keep things simple, allowing buyers to feel they can add their own touch to a garden.
According to Lyn, more and more buyers are seeking native drought tolerant gardens, which are best planted in springtime. But, she cautions, make sure you know your product.
“Design the garden for the market you are selling to. If it’s a family home, make sure there is plenty of room and grass, for the kids to run around.”
Cottage gardens with flowering shrubs and long blooming perennials are great for country style homes, while desert type plants finished with pebbles or river rocks are an excellent way to finish a Mediterranean style property.
Another tip, Lyn said is to add colour, which can be added with the use of flowers and foliage plants, and tend to suit more contemporary homes.
“Your local garden centre is the best place to go for advice on the types of plants that will suit the positioning and soil type in the local area,” Lyn said.
“Colour is also an excellent means of creating or reflecting moods.
“Softer cool colours such as blue, lavender and pink are ideal for relaxing areas of the garden, while yellow is a happy colour and provides a welcoming vista for visitors.
“Reds and oranges are perfect for tropical gardens and in areas generally used for family fun and high activity.”
An effective, yet inexpensive, way of sprucing up a garden is weeding, trimming and edging, applying a layer of mulch to finish it off and clearing away unsightly eyesores and toys.
“Mulch immediately neatens up the garden and is especially useful on sites that have not been particularly well prepared or where the ground is a little uneven,” Lyn said.
“For an immediate tidy up, mow the lawn, pressure-clean paths and the outside of the house and put away belongings or children’s toys.”
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Issued by: First National Real Estate
For further information contact Lyn Petrohilos, Principal, First National Real Estate Bribie Island on 3408 7000