Category Archives: Finance

BEST TIME TO BUY IN FIVE YEARS

2019

What is really going on in the market? When is the best time to buy? Should you wait a little longer? The burning questions every Perth buyer has can easily be answered.

Before we delve into those questions, we sat back and thought about the market and real estate and what it really all means. In Australia, most properties are seen purely as investments. Sure, we want our homes to suit our needs but money and return on investment always seems to be the driving factor in determining where “home” will really be. When we think of a home, we think of a private place to express ourselves, we think of a sacred space, a place to make memories with our families and a place where we can truly be ourselves. Irrespective of the market, it is important to differentiate between a home and a property.

Now, let’s get on to the market! Due to the decline in housing values over the past five years, Perth properties are now more affordable whether you’re a first home buyer, a growing family or a downsizer which means this is an excellent time to buy. A mistake many buyers are at risk of making is choosing to hold off a little longer to see if prices further decline as there are absolutely no indications that this is going to be the case. If anything, a steady rise is predicted and no one wants to get their proverbial foot into the door of their new home when prices are on the up.

The latest Buy-Rent Index compiled by Curtin University and the Real Estate Institute of WA is further evidence of this.

The Buy-Rent index attempts to measure when it is more financially advantageous to buy rather than rent.

REIWA president Damian Collins said the index showed median house prices in Perth would only need to rise 2.9 per cent annually over the next 10 years for house purchases to be considered more financially viable than renting.

“This bodes very well for Perth buyers, considering the 15-year annual average house price growth rate is 5.1 per cent,” Mr Collins said.

Getting back to the upsizers and downsizers, there is a valid strategy which should certainly be considered. Buy now and secure your dream home or location with the aim of renting the property out for a few years and then move in when you’re ready. It’s a great way to get what you want whilst pocketing some extra cash.

When it comes to the main driving force behind the reviving market, growing families are leading the way due to the affordability in popular suburbs which are seen as upgrades or dream final destinations. The stigma around subject sales is certainly one which needs to be broken. If you are in a position where upgrading means you would have to sell your current home and you’re letting the fear of your potential sale price hold you back, it’s important to assess the saving and investment potential of your desired new home and analyse the benefits versus losses.

With the differential between the low, middle and high areas of the market decreasing, now is the time.

Statistics sourced from thewest.com.au

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MARKETING YOUR PROPERTY TO SELL

 

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It’s a cliché but it’s true, you can’t sell a secret. Or to put it more accurately, you can’t sell a secret for a premium price.

There is a big difference between simply marketing your property and marketing your property TO SELL. Gone are the days of hammering up a generic “For Sale” sign and placing a four line advert in the local paper. Don’t get us wrong, signage and print media are still relevant when it comes to advertising your property in today’s day and age, however, it takes a far more measured approach to achieve a great outcome.

Right about now you’re probably thinking one of two things, either “a good agent will have a database of buyers they can market our property to” or “we already have so many expenses, we really don’t want to pay for advertising”. It’s important to understand that whilst almost every agent will have a database of buyers at their disposal, you are far more likely to gain a better result when your property is placed in competition versus isolation – we’ll explore this a little more later on. When it comes to the expenses associated with advertising your home, it is crucial to understand that the marketing component is an investment in not only your eventual sale price, but also the terms and conditions of the sale.

Getting back to competition versus isolation, it is vital to create competition amongst buyers due to basic human behavioural traits and beliefs and the need to create urgency – especially in today’s market. An excellent example of this is walking down a popular café strip in search of a cup of coffee. One coffee shop has a line out the door and the other is virtually empty. Which coffee shop will the vast majority of people enter? The really busy one because the immediate perception is that the coffee must be better. That same perception needs to be created with your property, it’s important to ensure you’re getting enough people through the door to create competition, whether it be perceived or real.

How do you ensure you get enough people through the door? Simple! By implementing a strategic marketing plan designed to put your property in front of the right audience. The aim is to drill down to the demographic of your likely purchaser and target that group of individuals via multiple advertising platforms with a high level of frequency which means that your particular property is being placed in front of that specific buyer group more than once.

Advertising campaign requirements and components will differ depending on the price range, location, main features and age of your property. Any agent who is worth their weight in gold will be able to construct the right advertising campaign for your property based on these factors together with market trends. When interviewing potential agents, make sure their proposed marketing campaign is on your list of questions and carefully review all proposals.

 

2019, the Year of Recovery

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As active players in the Perth property market, we have seen multiple signs of recovery in the latter half of 2018. We aren’t the only ones who have noticed with other credible sources including Premier Mark McGowan and Real Estate Institute of WA President Damian Collins both speaking out about the direction the Perth property market is headed.

Let’s start with some good news for Investors. Over 2018, Perth’s best quality was its rental market, said REIWA president Damian Collins. Perth’s successful rental market is expected to keep its momentum going through 2019 due to steady population growth and a slowdown in new building construction, according to REIWA data.

Mr Collins said that during 2018, the steady median rent of $350 per week, increased leasing activity, and decline in listings and vacancy rates all contributed to Perth’s rental success.

“With population growth in WA expected to remain stable and new dwelling commencements slowing, available rental stock should continue to decline. This should see competition amongst tenants increase, putting further downward pressure on the vacancy rate, which recently dropped below four per cent for the first time in four years,” Mr Collins said.

Mr Collins also noted that Perth’s median rent price has remained at $350 per week for 19 consecutive months, which is the longest period of consistent rents in Perth since REIWA began collecting rental data in 2001.

“If listings continue to decline and leasing volumes remain healthy, we should see the overall median rent price increase in 2019 for the first time since September 2014,” Mr Collins said.

Moving onto the sales market, Mr Collins said “While we expect sales activity in 2019 to largely reflect what we’ve seen this year, there is a possibility that rising consumer confidence levels, coupled with improved housing affordability, could translate into increased sales volumes in 2019. If weekly sales remain at current levels or better, Perth’s median house price could improve during the next 12 months.”

According to The Sunday Times, the State’s domestic economy expanded 1.1% in 2017-18, a considerable turnaround given the 7.1% drop during 2016-17 after four consecutive years of decline.

More good news? WA could be set to reclaim it’s AAA credit rating due to the $4.7 billion GST reform package. Premier Mark McGowan tipped a turnaround in the property market stating “It is actually a good time to buy a house, I would encourage people. Prices are low yet economic activity is picking up and so that will inevitably be followed by demand for housing.”

All signs point towards an improved Perth property market in 2019. The year is drawing to an end and Christmas is on the horizon however we are yet to see any signs of the market slowing down with an increase in available properties for sale and a significant decline in our rental vacancy rate which now sits at just 2.4%.

*All figures are accurate at the time of publication. Sources include The Sunday Times, The West Australian, REIWA and Smart Property Investment

New credit reporting changes and what they mean for you!

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Once again, we sat down with Finance Specialist Terry Gardiner in order to provide you with the latest information on the implementation of Positive Credit Reporting.

Applying for a credit card, a loan or buying goods and services on credit? No matter who you are, your credit report can either make or break your application.

Let’s break it down from the beginning!

What is a credit report?

Whenever you apply for a loan or credit, providers will check your credit report. It’s created by a credit reporting body and documents your credit history e.g. how many times have you applied for credit and which loans were opened, your history of making repayments, defaults and how much debt you have available. Credit reporting bodies or credit providers may condense your credit report into a credit score. Your credit score compares you to other borrowers and assess your creditworthiness to help credit providers to decide who to lend to and how much to charge for interest.

What’s changed this year?

New credit reporting changes which commenced 1st July, 2018 provide a clearer picture of your credit history. These changes may make it easier for some people – or harder – to get credit or a loan.

As of 1st July 2018, recording positive credit information on credit histories is mandatory for all credit providers. This is intended to allow lenders to better assess this risk using a clearer picture on any potential borrower’s credit history. It could be beneficial for people who have the means to take on a loan, however, it could also reveal a few blemishes in the past such as one or two missed payments.

Negative credit reporting in Australia operated until March 2014, which was based around only making a note of negative credit events. Lender’s based assessments of a potential borrowing applicant solely on whether the applicant had any negative reports on the credit history, such as missed repayments.

Australia switching to comprehensive credit reporting (CCR) has brought a credit reporting system in line with other OECD countries, many of which have some form of positive credit reporting. It’s common practice in the USA and UK for consumers to use a positive credit rating as leveraging looking for a loan of any sort and CCR will potentially allow for Australians to do the same.

The system was originally recommended in 2014 and the Government subsequently imposed deadlines for CCR. The major four banks were required to provide 50% of the credit data to credit bureaus by July 2018 and 100% by July 2019.

Potential Benefits of Comprehensive Credit Reporting (CCR)

  • Recent positive behaviour is registered which may balance out some previously negative slip ups.
  • People with a very ‘thin’ credit file or a very short history of credit will now potentially have more information in their file concerning their creditworthiness which may make it easier for baked with then put it to them.
  • The credit scores of individuals may not be significantly impacted by just one single negative event. Instead it will generally take the credit report listing repeated missed payments or a general pattern of credit stress to impact on an individual’s credit rating.
  • An individual’s credit score or credit rating is potentially more accurate and comprehensive compared to a credit score that was constructed using negative reporting.

Potential benefits of CCR for lenders

  • Having access to more comprehensive pictures of consumers and their credit related behaviour could support more responsible lending.
  • Lenders can differentiate their products and offers using the new, comprehensive depiction of consumer credit worthiness and consumer behaviour in general.
  • CCR allows lenders to identify credit stress or over-committal at a much earlier stage, potentially leading to fewer bankruptcies and financial stress.

What are some ‘positive’ things a customer could do to boost their creditworthiness?

  1. Pay your bills on time – always, and no exceptions. Direct debit is a great option to ensure timely payments with no room for forgetting. Remember both ‘good’ and ‘bad’ repeated behaviour is shared with the credit bureaus under CCR.
  2. Regularly check your details with the three credit bureaus (Veda, D & B and Experian). Consumers are entitled to a free copy of the credit file once a year and it is vital to check the accuracy of information. The report will list all credit enquiries current/past addresses any default/bankruptcies and in some cases, positive reporting data to.

Why do we think traditional lenders have been slower to implement CCR?

If you are a traditional lender, one of your major competitive advantages is your customer data, making this accessible to other lenders is not easy sell. No bank wants to make it easier for new innovative lenders to win market share. There’s also the argument that the banks own this data rather than the consumer.

How can consumers protect their credit report?

Your credit file is an incredibly important and valuable asset – identity theft (where a person uses your personal details to fraudulently apply for credit in your name) is a growing trend across Australia. Be aware of how much information you provide to social media websites (e.g. date of birth, addresses etc.) as well as taking care of physical ID’s like your driver’s licence as those details can aid fraudsters in assuming your identity.

Terrence Gardiner is a Credit Representative (No. 399006) of Money Quest Australia Pty Ltd, Australian Credit Licence 487823.

INVESTMENT LENDING

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Our most recent blog post was dedicated to everything you need to know about owning an investment property, what we didn’t touch on was the lay of the land when it comes to investment lending in today’s financial climate.

To get an experts insight on the subject we sat down with our favourite Finance Specialist, Terry Gardiner of Money Quest. Terry spoke to us about the Interim Report from the Financial Services Royal Commission (you’d have to be living under rock if you’ve managed to escape hearing about the Royal Commission) which was recently released however he did note that since then, there have been many changes to investment lending which have significantly changed the investment lending landscape.

As a result, many individual banks have applied policy changes including: –

  • Variations to lending ratios for investment properties
  • Variations to interest rates applied
  • Introduction of the requirement for borrowers to ensure they commence principal reduction to investment debt, particularly if a borrower has had investment debt paying interest only for 5 years or longer
  • Essential focus on Living Expenses for all borrowers, with self-declaration

For a more in depth understanding of these changes, keep reading!

Lending Ratios

Very few lenders today will lend on a Loan to Valuation Ratio (LVR) over 90%, their preferred option today is for lending below an 80% LVR which means a deposit of 20% of the total purchase price is preferable. Lender appetite for lending up to 80% LVR is certainly stronger than lending above 80% LVR. Depending on LVR, significantly different interest rates are subsequently applied.

Interest Rates

Interest rates for investment lending with interest only (IO) repayments can be anywhere around .50% higher than rates for lending with principal and interest (P & I) repayments although it is worth noting that interest rates with P & I repayments for owner occupied (OO) lending can be a further .30% lower than the above rates. Today, it is very difficult to obtain IO borrowing for OO borrowing and significant substantiation is required with clearly defined reasons for IO repayments with an OO loan. Heavy focus is placed on the requirements of responsible lending.

Interest Only Lending

The majority of lenders today are reviewing existing lending and seek to ensure the life of a loan is maximised to 30 years from inception. However, if a borrower has had IO lending for 5 years, in many instances, they are advised lending requires P & I reduction, with repayments calculated to ensure the life of the loan does not exceed 30 years.

Living Expenses

Up until approximately 12 months ago, many lenders would apply Household Living Measurement (HEM) to living expenses to satisfy cost of living to borrowers. Today, a self-declaration is required from all borrowers, although lenders will also carefully scrutinise bank statements to confirm the self-declaration is deemed accurate. The best solution when it comes to finance is to take the time to carefully discuss any borrowing requirements with a Finance Specialist, as the information above is generic in nature and individual circumstances always differ.

For more information from Terry Gardiner, check out https://www.moneyquest.com.au/broker/terry-gardiner/

Terrence Gardiner is a Credit Representative (No. 399006) of Money Quest Australia Pty Ltd, Australian Credit Licence 487823.

Investing? Here is what you need to consider!

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Whilst it’s great to listen to the advice of others, and we certainly recommend you do (from the right people – we’ll delve into this a little further on), it’s also really important to remember that no two experiences are ever the same. You may have a friend who had an absolutely woeful experience, for any number of reasons, and, on the opposite end of the spectrum, you may have a friend who says investing in property was the best thing they ever did.

In order to set your expectations and avoid disappointment, we say it’s best to assess the prospect of investing with a clear, open mind and make your decision from a more factual perspective.

Rule #1  – Finance

Before considering purchasing an investment property, it’s important to make sure you’re financially in a position to do so. If it turns out that you’re not quite there yet, have a clear and achievable plan in place to get you there. Many people underestimate the value of a good broker, similarly, many people don’t realise that the structure of a loan can vary vastly depending on circumstances so it’s important to do your research and find yourself a broker who is well versed in investment loans, construction loans and debt consolidation.

Rule #2 – Research, research, research

If you’re not tech savvy – start learning or align yourself with someone who is! It is ridiculously easy to monitor the market with no more than the click of a button. It’s also really important to align yourself with a Real Estate professional, someone who is experienced and transparent who will be able to point out the pro’s and con’s of a particular suburb or property. If you’re looking at building or purchasing off the plan, a depreciation schedule never goes astray.

Rule #3 – There is no such thing as the “perfect time”

In an ideal world, we would all own our first home at a young age and be on to our second soon after. Whether you’re barely of legal drinking age in the USA or you’re a little more mature (like a fine wine), we all have to start somewhere and it’s never too late. Don’t let age or the residual pain from prior choices which may have been less than advantageous stop you from investing if your finances stack up and you’ve done your research.

Rule #4 – Be Prepared!

It’s easy to underestimate the level of time and attention which goes into having a property portfolio. Even if you have one investment property and you’ve engaged a phenomenal Property Manager, you need to be clear on the following:

  1. Have a firm understanding of the potential expenses you as the landlord could incur and be held responsible for
  2. Be prepared for an economic down turn – if you were no longer able to achieve X amount in rent, could you afford the repayments at a lower rate and hang in there until things pick up?
  3. Whilst your Property Manager (if they’re doing their job properly) will qualify prospective tenants before discussing applications with you, at the end of the day it is your decision when it comes to who will be living in your home and you need to be armed with the right information to make the right decision
  4. If you’re not already doing so, be prepared to roll up your sleeves and become active in your financial health. Keep up to date with interest rates and policy changes for investment loans
  5. Be prepared to constantly monitor the market, not just overall, but keep your finger on the pulse in the suburb in which your investment property is located. The last thing you would want to do is miss out on a prime time to liquidate an asset in your own suburb because the media tells you the market is performing poorly in general. A good example is a suburb located in Perth’s North Eastern corridor which will be on the receiving end a train line – it’ll be great for the suburb overall but how easy to sell is it going to be for the properties which will directly back on to said train line once it’s up and running? Knowing when to call it quits while you’re ahead is just as important as being patient enough to play the long game!

Rule #5 – Protect Yourself

An investment property is just that – an investment! It’s also one of the biggest assets you will ever own. It is for this reason that it is imperative to protect not only your asset, but yourself. The first step is engaging a Property Manager to not only effectively manage your asset on a day to day basis, but also, to adequately market the property to ensure you receive the best possible rent return and a high quality, qualified tenant. The second step is taking out a Landlord Insurance policy, you wouldn’t purchase a car without taking out insurance and Landlord Insurance is no different, it’s all about mitigating your losses in the event that things don’t go according to plan.

Rule #6 – No Risk, No Reward

Unless you win the lottery, you won’t get to where you want to be until you jump in and start making moves. Doing your research and aligning yourself with trusted professionals is key but none of this matters or means anything until you just do it. Every great financial reward or game of monopoly involves an element of risk!