More Give and Less Take...who is NAB kidding?

In view of recent events, it's interesting to consider some of the bank slogans.  NAB for example has introduced "More Give and Less Take".  I guess opinions will vary and depend very much on whether you perceive the glass to be 'half full OR half empty'.  NAB obviously perceive the glass to be half full AND it's not that difficult to justify.  By 'More Give' NAB obviously means:  we GIVE you far more stress than we have in the past because we increase interest rates without justification AND fail to correct computer problems in an timely manner.  By 'Less Take' NAB obviously means:  we TAKE far less crap from you when you're unhappy with our service.  

The conclusion...an excellent slogan NAB and an even better interpretation above (even if I do say so myself)!

 

Next we have CBA who's slogan is "Determined to be Different" AND they certainly are (different that is).  They are the first to increase interest rates and come up with some lame excuse to justify doing so...well done Ralph Norris.  At least Ralph could tell the truth and tell us what we already know - CBA wants to increase profits (and Ralph's bonus of course).

I could go on, however I'm making myself depressed.  Merry Christmas to the 'BIG 4', oh and let's not forget the Reserve Bank - well done guys in raising interest rates because the economy might grow sometime in the future...oh dear, here I go again.  This is supposed to be a happy time of year.

Have a very safe and happy Christmas and a very prosperous 2011.

A New Definition For ‘Bank’ – totally out of touch AND downright greedy!

There is a new definition for the word ‘Bank’…out of touch, uncaring and greedy!  OR maybe it’s now so new.  If you read the media release issue by the Reserve ‘Bank’ (click the link below), it goes to prove just how out of touch these people are.  The media release reads like a university lecture in Economics 101.  What these people fail to address is existing ‘real world’ implications – the increasing struggle of many folks just to maintain mortgage payments (let alone the impending increase).  AND this has a follow-on impact on all of us.

 

Media Release – 2 November 2010

 

http://www.rba.gov.au/media-releases/2010/mr-10-26.html

 

AND that’s only half the problem.  As you are no doubt aware, the CBA increased its interest rates by an additional 0.20% taking the total increase to 0.45%.

 

Just consider comments by AFG managing director Brett McKeon where he identifies its mortgages are down by 17.5% from the same time last year due to (in his opinion) ordinary folks concerns about rising interest rates.  AND what is the Australian Government doing about it?  Pretty much allowing the big 4 banks to get stronger by allowing takeovers and (let’s not forget) providing lots of rhetoric about how they intend to monitor the banks…in other words – they are doing nothing except make things worse!

If I were a betting man (and I'm not), I would put good money on Westpac being the next of the 'Big 4' to raise rates...mainly because they just announced an after tax profit of in excess of $6.3 billion (they really are struggling).  The announcement will more than likely occur on a Friday so we have the weekend to get over the shock.

 

Want to learn more about Real Estate Buyers Agents and how to develop amazing Australian property strategies?  

Claim my popular FREE Report: ‘The 7 Most Costly Mistakes That Property Investors Make And How To Avoid Them’ identifying strategies you can implement immediately guaranteed to save you thousands, available at: 

http://www.ifyl.com.au

 

The Benefits of Using a Sydney Buyer’s Agent

Sydney, Australia is a huge city! If you are planning on moving there, the fastest and most hassle-free way of finding somewhere to live is going through a Sydney Buyer’s Agent. These are the professionals that know the area, what property is really worth, and whether you are getting what you really want from a seller.

 

Sydney has literally thousands of immigrants coming to live there each year. Because of the rapid population growth, real estate in Sydney has had to adapt. The Sydney Metropolitan Strategy plan is demanding that large infrastructure be built near convenient amenities like schools and stores in order to accommodate the incoming population. This makes Sydney a great place to live because housing is available near essential facilities and in close proximity to employment opportunities. The Sydney Metropolitan Strategy is also a financially sound concept - the economy is fed with more people buying from and working in businesses, and because of the large amount of new infrastructure being built, it is possible to live close to everything that’s important to you including schools, shopping, hospitals, etc.

 

Buyer’s Agents in Sydney know the businesses erecting these infrastructures - and who the reliable ones are. The biggest benefit of using a Buyer’s Agent in Sydney is that they understand the area inside and out. They know where all the businesses are and what neighborhoods are best suited for their clients. In your initial meeting, describe your needs to your agent. What do you do for work? What kinds of places do you absolutely need to live near? What is your budget? What must your housing include in terms of number of rooms, appliances, utilities, parking, and other amenities? How many people are you living with? An agent will try their best to find a place well-suited to your needs. They will search primarily for listings that accommodate your budget and location needs. Because they know the neighborhoods, they will be sure to find a safe one for you. If you are a student looking for a place to live, an agent will find you affordable housing in a neighborhood that is popular for certain university students. If you are part of a family that seeks a house, a buyer’s agent will be sure to find one near a school. Sydney is such a large city that it can be overwhelming looking through listings, contacting sellers, and inspecting homes yourself. Or if you are not currently living in Sydney, it is difficult to locate and inspect homes before making your decision. A Buyer’s Agent knows the city and will rule out any properties that are in a less-than-ideal location, are out of your budget, or are from an unreliable seller.

 

Living in any major city is expensive, and no one should have to pay more than they are required to. Buyer’s Agents in Sydney know how much property in certain neighborhoods is really worth. They can run comparative market reports to compare property you are interested in to similar properties all over Sydney. Comparative market reports are useful in making certain you are not paying more than what the property is worth. They can also help you find deals on better homes!

 

You will have to pay a fee when you use the services of a Buyer’s Agent, but it is worth the extra cost! A Sydney Buyer’s Agent knows the city inside and out. Their knowledge will ensure that you find a home within your budget, in a great location, that fits all of your personal and work-related needs!

 

 

Want to learn more about Real Estate Buyers Agents and how to develop amazing Australian property strategies? 

Claim my popular FREE Report: ‘The 7 Most Costly Mistakes That Property Investors Make And How To Avoid Them’ identifying strategies you can implement immediately guaranteed to save you thousands, available at:

http://www.ifyl.com.au

How to Buy a House in Australia – The Fundamentals

Buying a house in Australia is not too dissimilar to buying a house in other countries.  The terminology and considerations are similar. There are fewer economic complications in Australia, especially since many cities have a lower cost of living compared to other major cities in other countries.

 

First, create a budget. Two key economic fundamentals determine house prices: supply and demand.  Supply and demand determine prices for everything from cars to video games to electric shavers. Determining prices for houses is no different. When considering where you would like to live, it’s wise to examine the balance between supply and demand. A house by the water might sound great, but the demand is usually high while supply is low. Low supply and high demand results in a higher price. Apartments in a city tend to have a lower demand and higher supply. High supply and lower demand equals lower prices. Create a budget and browse around on the internet. Once you see general prices for specific neighborhoods and locations, you can deduce where exactly you might want to buy a house that meets your budget.

 

You need financial stability to buy a house. You probably are not going to pay for it in cash. It’s common for buyers to provide a deposit of between five and ten percent (although the later is more realistic in recent times), when they sign a contract of sale. The money a buyer pays up front preferably (from the agent’s perspective), covers the sales’ agents commission. What usually happens is the buyer takes out a mortgage from a bank or other financial institution and a mortgage payment becomes due every month. You can expect to pay interest based on the amount borrowed. If you are looking at moving into a major city, houses tend to cost significantly more than those in surrounding suburbs or regional areas. The good news is Australia is one country that is economically sound.

  

Now we’ve considered some of the cost issues, next you need to be introduced to the basic process of finding and buying a house.

 

Step one: The first thing you need to do is to make sure you have a good credit rating. To this end, you should access your credit file from Veda Advantage (go to www.mycreditfile.com.au). You need to check your credit file for accuracy because this is one document that lending institutions access when deciding whether or not to lend you money. Good credit is needed because no one will offer finance to someone if they have any reason to believe that they might have trouble making their monthly financial commitments.

 

Step Two: Go to your Mortgage Broker or bank and tell them you would like to buy a house and they will have you fill out a loan application. This ultimately determines whether you actually qualify for a mortgage. I prefer to deal with a good Mortgage Broker because they can recommend a wider variety of loan products and can tailor a loan product to more accurately meet your needs.

 

Step Three: Find a good Real Estate Buyers Agent – make sure they are licensed. You can find a good Buyers Agent through friends, the internet, and other forms of advertisements. A Buyers Agent will charge you a fee, however this is money well spent – particularly if you’re new to property buying or have limited time. A Buyers Agent will help you by finding houses that suit your goals and budget. They will also negotiate the very best price which will potentially save you thousands of dollars. When you meet with a Buyers Agent tell them where you want to live, describe your dream home, and tell them how much your financier said they will lend you.

 

Step Four: When you find a house that meets your requirements, check for damages like chipped paint, leaky ceilings, cracked tiles, electrical faults, etc. If you are using a Buyers Agent, they will be able to give the house the ‘once-over’ because they are experienced with these sorts of issues. It is also critical that you arrange for a professional Building and Pest Inspection prior to purchase. Compare several houses that are similar to determine how much the house is worth – again your Buyers Agents will do this for you!

 

Step Five: Signing the contract: You make your offer when you sign the contract and the Vendor (seller) has the option to accept or reject your offer. It’s important to understand that every state of Australia has slightly different rules regarding the purchase of real estate. The best advice I can offer is to have your solicitor look over the contract prior to you signing.

  

Step Six: The lender will appraise the house and tell you if it is worth what you are paying for it. This is called a ‘Property Valuation’ and is a critical document because it (amongst other things), determines how much the lender will be willing to lend you.

Then you need to shop for insurance to ensure you are covered against damages, fire, etc. Again each state of Australia can have different rules regarding insurance so it’s best to discuss this with your solicitor.

 

Step Seven: The long-awaited settlement! Your solicitor usually handles the paperwork here. You will need to pay the balance of your deposit (if applicable) as well as buying costs at this time. Once settlement is complete (this is also dealt with by your solicitor), you are the legal owner of the property. It’s advisable to inspect the property the day of settlement or the day before settlement to ensure the house is in the same condition it was when you originally inspected it.

 

So there you have it, a seven step process describing how to buy a house in Australia. While the buying process is fundamentally the same throughout each Australian state, real estate laws are state-based and differ – it is wise to seek professional legal advice prior to signing a contract of sale.  Additionally, as already mentioned, a professionally licensed Buyers Agent is well worth your consideration, particularly if you’re time poor OR inexperienced in terms of the buying process.

 

 

Want to learn more about Real Estate Buyers Agents and how to develop amazing Australian property strategies? 

Claim my popular FREE Report: ‘The 7 Most Costly Mistakes That Property Investors Make And How To Avoid Them’ identifying strategies you can implement immediately guaranteed to save you thousands, available at:

http://www.ifyl.com.au

RBA Leave Rates On Hold BUT… will the big banks follow?

Great News!  The Reserve Bank of Australia (RBA) has again left interest rates on hold…the ‘cash rate has been on hold for the past 3 months at 4.5% - this is very good news for property owners. 

 

However don’t get too excited because it’s very possible that the big banks will raise rates independently of the RBA some time in the next six months.

 

Should we be critical of the big banks?

Overwhelming community opinion appears to portray banks as large uncaring bureaucracies with a licence to print money.  While I’m the last one to demonstrate sympathy for the banks, let’s attempt to bring some level of objectivity to the table.

 

Good banks…

According to the Australian Bankers’ Association Inc, approximately eight million Australians hold shares (either directly or indirectly) in Australian banks and each year Australian banks share in excess of $9 billion in dividends with their investors.  This has a domino affect because these investors spend or invest a good proportion of these dividends thus creating jobs and enhancing economic growth.  Additionally well performing banks provide employment and training opportunities for many Australians AND you only have to look at the situation with US banks during the recent Global Financial Crisis to realise how important a strong financial sector is to Australia’s economy.

 

Bad banks…

Not that huge profits are a bad thing, however you do have to ask…how big is big enough – especially when the banks increase interest rates independently of the RBA OR fail to follow the RBA when it reduces rates.

 

Over the past 10 years (to 2009), BIG FOUR bank profits (profits before tax) have experienced HUGE increases, eg in 1999 ANZ was $2,162m while in 2009 the result was $4,380 ( 103% increase) with CBA, NAB and Westpac experiencing profit increases of 139%, 68% and 200% respectively – total profits of the BIG FOUR increased by 116%  (Source: Historical performance – profit before tax (David Richardson in The Australia Institute March 2010)

 

The future?

Even if rates do rise again in the near future, it is extremely unlikely we will ever see rates as high as the mid to late 1980s and early 1990s.  In fact interest rates are approaching their long-term average which is where the RBA ideally likes to see them. 

 

The reason many Australians are concerned about rates is primarily because (in more recent times), we are used to unusually low rates.  However this situation was never going to be sustainable AND according to most economists, is not good for the overall economy because it creates a false demand. – this is certainly the case with the property market.

 

When crunching the numbers – prior to making a property purchase decision – we always recommend adding a buffer of 1.0 to 1.5 percent to your interest rate calculation…not that we believe rates will rise that much (in fact we don’t).  However, it’s always better to be safe than sorry and you MUST be as certain as possible that you will not get yourself into trouble by going into (good) debt!

 

This takes us back to our original question…’will the banks raise interest rates independent of the RBA?’  In attempting to answer that question, we can all speculate AND your opinion is certainly as valid as mine.  For what it’s worth, I believe there will be 2 more interest rate rises of 25 basis points each over the next 6 months – one by the RBA and another by the banks (independent of the RBA).  So I’m factoring a 0.5% rate rise into my (best scenario) investment calculations right now.

 

The bottom line is that only time will tell, however let’s revisit my opinion 6 months from now and see how close I was.

Beware The Median Price

One of the most common statistical measures pertaining to property investment is the good ol’ median price.  Median price reflects the ‘middle’ price in a sequence of prices.  It is important to understand that it is not the average price – which is calculated by adding all prices together and dividing by the number of prices involved.  As a licensed Buyers Agent, we never rely on median prices...they provide a starting point only. 

The median price is supposed to provide a more accurate reflection (than average prices) of property values in a particular location.  However, based on 20 years ‘real world’ experience, I offer a word of warning.  While the median price does provide a better indication of property price movements, it is only an indicative measure.  In fact median prices really tell us more about the type of property being sold rather than value of property in a particular location.   

To clarify how the median (or middle) price is calculated, let’s consider an example -

During the month of August, five houses sold in the suburb of Blacktown in Sydney:

House #1:      $300,000

House #2:      $350,000

House #3:      $375,000

House #4:      $450,000

House #5:      $550,000

 

To establish the median price, you need to identify the price that sits in the middle of the sequence of numbers.  In this case the median price is $375,000 (House #3).  

To calculate the average (or mean) price, add the 5 house prices together and divide by 5 (ie the number of houses in the sequence).  This results in an average value of  $405,000 which is substantially different to the median price.

 

There are a number of potential problems with median prices including the various ways they can be calculated, not to mention the fact that prices below and above the middle price are virtually ignored – which can be very misleading! 

One of the most commonly asked questions is… why do different organisations report median values that are quite different?  The answer to that question lies in the methodology used to calculate medians.  

If we consider three well known research-based organisations – the Australian Bureau of Statistics, Australian Property Monitors and Residex – each one uses a very different approach in their calculations which provides different results. 

 

So which one is most accurate?  It’s a matter of personal choice – personally I’ve been using Residex for many years and while I find them to be quite reliable, ‘real life’ is the only accurate measure.  In other words, the value of a specific property gets down to what someone is prepared to pay for it – the market determines the price. 

There are two reasons I choose to rely on Residex more so than other organisations:

1. Through experience I’ve found them to come close to reality
2. I like the methodology they use – based on same property sales

 

The moral to the story is to consider median values as a starting point to your property price research, however just like all your due-diligence, you need to look further to uncover the most up-to-date and accurate pricing information.  The only way to do that is to do what we do as Buyers Agents – get out amongst it, drive the streets, ask questions and uncover the very latest (not yet reported) sales figures for comparable properties.

Housing Shortage? Smart Real Estate Investors Can Profit AND A Professional Buyers Agent Can Help!

While lenders contribute to housing undersupply, smart property investors have an opportunity to profit AND a Buyers Agent can help!

According to the Housing Industry Association (HIA), the demand for Australian housing exceeds supply by approximately 40,000 each year. For those of us who have studied basic economics, when demand exceeds supply, prices increase. This adds further pressure for house prices to increase which in turn raises the level of unaffordability.

Property industry professionals understand and accept that lenders are now under more scrutiny than ever before – with new lending legislation (Credit Code) introduced recently, not to mention the Global Financial Crisis (GFT).

However there is an irony here – especially when you consider this country’s desperate need for housing.  On the one hand it is absolutely essential that Australia continues to regulate its finance industry to ensure we never end up in a situation similar to America. On the other hand, the tighter the lending market becomes, the more desperate our housing shortage becomes.

By way of example, according to a recent survey by the Master Builders Association of Victoria, there is an undersupply of 29,000 homes in Victoria with 5,000 too few homes being built each year. If you are interested in where Victoria will be in 10 years (the average time it takes for property to double in value), it’s a pretty simple equation: 29,000 + (5,000 x 10 years) = 79,000…that’s a 79,000 housing shortage in Victoria alone.

According to Executive Director of the MBA Victoria Brian Welch, the MBA survey clearly showed the impact of tighter lending practices.*

An opportunity to profit

So the question is…how can property investors profit from the housing undersupply?  The answer to this question gets back to basic economics – when demand exceeds supply, prices increase.

The world’s greatest investor Warren Buffet advocates not following the crowd, ie doing the opposite to the majority. In terms of the property market, right now is a buyers market and smart investors are getting into the market, while not so smart investors (the majority) are sitting on their hands.

 

So cutting to the chase, now is the time to be buying property in Australia BUT with one very big caveat…do your research AND if you’re unsure as to what you’re doing, hire professionals to help.

 

Even those of us who do this for a living (as professional buyers agents) surround ourselves with a team of professionals including lawyers, accountants, building/pest inspectors, mortgage brokers, quantity surveyors, etc.

 

Let’s face it, buying real estate is the most significant purchase most Australians will ever make. If you make a mistake, the penalty is both very costly and long-term. So it pays to get it right AND a professional real estate Buyers Agent can certainly help!