ANZ Bank has announced it will increase interest rates on its variable mortgage and small business lending by 0.06%.

It also announced a drop to its 3-year fixed rate mortgage package to 0.15%.

Boy will this create a stir!

Effective February 17, ANZ’s new standard variable mortgage rate will be 7.36% per year.

New small business rates are also effective from 17 February 17. ANZ and Westpac now have the highest variable mortgage rates of the big four.

CBA‘s standard variable rate is 7.31%, and NAB‘s is 7.22%.

The bank blamed the rates it has to pay on deposits and higher wholesale funding costs for increasing the variable rate following the RBA leaving rates unchanged earlier this week.

ANZ CEO Australia Philip Chronican says the decision may leave some people “frustrated and even angry but believe Australia needs safe, well-run commercial banks that aren’t a burden on taxpayers and that can continue to lend”.

Damian Smith, RateCity’s CEO said this was potentially risky by the fourth-largest lender of owner-occupied home loans in Australia.

“RateCity estimates that there are approximately 400,000 variable rate home loan customers with ANZ who will be affected by this rate rise (not including those with a business loan).

“While the rate rise will only add marginally to most of these customers’ monthly repayments – around  $12 per month for a $300,000 mortgage or $24 per month for a $600,000 mortgage, for example – it still sends a signal that the big four banks will push up rates by more than the Reserve Bank cash rate in future.

Only by comparing and switching to a better deal will borrowers be able to stop this “rate creep”.

“The rate increase will add an extra $2.36 million in interest revenue per month for ANZ or $28.3 million per year. ANZ is relying on customer inertia to allow this and future increases, but borrowers should remember that it would only take around 2,500 of ANZ’s variable rate customers to switch in order to make ANZ worse off” said Smith.

via propertyupdate.com.au

At least twice a week I get recommendations in my inbox to invest in US property and for the last 2 years I’ve been writing blogs explaining why I would avoid investing in the US at present.

I recently wrote an article explaining how the American property markets are sinking.

Today I’d like to share with you something I received in an email that’s the best (and simplest) explanation I’ve seen on what’s going on in the US economy.

Look at it this way…

- U.S. tax revenue…….    $2,170,000,000,000

- Federal budget……….    $3,820,000,000,000

- New debt………………    $1,650,000,000,000

- National debt………….  $14,271,000,000,000

- Recent budget cut…….       $38,500,000,000

 

Now, let’s remove 8 zeros and pretend this is a household budget…

- Annual family income…………………..   $21,700

- Money the family spent…………………   $38,200

- New debt on credit card………………..    $16,500

- Outstanding balance on credit card…  $142,710

- Total budget cuts………………………….         $385

This put things in perspective, doesn’t it?

Not the ideal household budget is it?

Just to make things clear… I have long term confidence in the US and its level of entrepreneurship and the American economy will eventually rebound. It is expected that the number of millionaires in the US will almost double in numbers by 2020.

And while there is not “one” US property market, most are in the doldrums, especially the low end ones that are being promoted to Australian property investors.

After considering cash flow, capital growth, tax implications, financing options, the currency risk and all other factors, investing back home has a better chance of being more a profitable, more predictable and more manageable option. 

via propertyupdate.com.au

1. Don’t see a budget as being about what you can’t have, but instead, working out what you can afford.

2. Don’t deprive yourself completely. Factor in the odd treat, otherwise you will never stick to your budget.

3. Don’t use ATMs, or only use them once a week.

4. Leave your credit card at home; the less temptation, the better.

5. Only shop when you have to.

6. Shop during sales, especially for major purchases.

7. If you see something you want, look at your budget first. If you can, save the money rather than use credit.

8. Pay your bills on time. You can save hundreds of dollars a year in charges.

9. Go back through your bills and work out where you can cut costs.

10. Don’t be afraid to ask for a discount.

There have been several short reports for public consumption of late, discussing off-the-plan buying.  Most have been masquerading as buyer tips or advice, but they take a very pro-developer side of things.

Now, without wanting to peeve too many of our developer clients – we have helped, after all, over 550 new residential developments (nearly all of which involved pre-selling) come to fruition over the past 15 years – below are my thoughts as to what a buyer should be asking when considering buying a dwelling before it has started construction.

I haven’t bothered to comment on the obvious here – stamp duty concessions; building depreciation; potential for growth before settlement (don’t we all wish!); time to sell your house or other investments or even the need to match the dwelling type to demographic/economic demand – but have touched on some less covered ground.

There can be great benefits to buying off the plan, but inherent in such purchases is risk.

One of the biggest risks is that the project is cancelled – or that the completion date will be delayed for lengthy periods of time, during which you may be required to commence paying fees without the ability to live in or rent out the property.

Another risk is that the development will not be built to a high enough standard to reflect the price you paid.

A third risk – which applies to investors – is that your property won’t attract the actual rent and yield you were told it would.

It is important to do your own homework in order to limit your risks – ascertain information regarding the property you are interested in and comparable sales/rents in the area.   It is also important to seek legal advice regarding the terms of any contract.  Okay, now that the basic caveats are out of the way, here we go.

Risk 1 – the building is late or doesn’t happen

Right off the bat, a buyer should question the number of sales being reported.  A fast sales rate, with only a few remaining for sale, is one of the oldest spruiks in the book – it’s project marketing 101.

It used to be that a new off-the-plan dwelling sale was only reported as “sold” when a contract went unconditional, the full deposit was paid and all the necessary documentation was signed by both parties.  Too often today a “sale” is reported, based on a holding deposit only – sometimes as little as $1,000.

One service my business conducts is “mystery shopping”.  We send buyers to new projects to critique sales techniques and to ascertain the real sales status.  Often, and increasingly of late, our mystery shoppers have been able to purchase “sold” stock.  Sometimes up to a third of the sales claimed to be made had not really occurred at all.

In addition to challenging the number of reported sales, a buyer should also ask if the proposed project has all the necessary development and building approvals to go ahead.

Another good thing to query relates to multiple sales being made to the same buyer.  Also, ask if any sales have been made internally i.e. to people directly associated with the development; and whether any of the reported sales actually reflect unsold stock taken off the market.

A buyer should also question the time period for the reported sales.  Often developers will “soft” launch their new project to interested buyer groups many months before going to the open market.  Many of the sales might have been made during this period, yet the sales spruiking is often based on the public launch date.  Don’t always believe the “50 sales made in the first two weeks” or similar headlines.  Fifty sales might have been made but our experience is that they took many months, if not up to a year, to make.

Finally, in relation to this first risk, a buyer should ask about the financial conditions needed to be met before start of construction.  And although somewhat obvious, too few ask about the exact planned start and finishing dates.

Risk 2 – building standard

First and foremost, make sure you know the answers to these questions:  Who is the developer and/or builder?  What are their track records?  Have they developed/built buildings before, and do they have any history of being sued over defects?

Also important is to check that the three-Fs (fixtures, fittings and finishings) in the display and printed material are guaranteed.  Beware of glossy leaflets with annotations along the lines of “artist impression” and “subject to change or availability”.

Ask, too, whether the construction will merely meet Australian standards.  These standards are, in the main, inadequate for the realities of modern urban living; and in particular, for those residing in large apartment complexes.  You are better off paying for higher than the prescribed building standard. 

Risk 3 – rent and return

Paramount questions when building an off-the-plan apartment or townhouse are: Who will manage the complex?  What is their track record?  And under what circumstances could these arrangements change?

Sometimes the management rights are sold early in the piece.  That is okay, as selling the rights to manage a complex forms an integral part of a developer’s income stream.  But you should be told who they are and make sure that you have full voting rights at the first AGM.

Whilst many buyers ask how much the body corporate fees are; like they do with council rates; too few ask for a breakdown of the body corporate costs.  Nor do they ask about cost projections.

Also, make sure that your view – for which you will pay a premium – is unlikely to be blocked by any future development.  And also ask an independent agent for their opinion on the suggested rent.

In most cases, you will receive honest and satisfactory answers to these questions.  But in those rare examples that you don’t, our experience is that it might be best to move on.

via matusikmissive.wordpress.com

According to The Economist, Australian house prices are more overvalued than the US housing market at its peak.

According to the economic journal, there are two ways to track valuations: price-to-rent ratio and price-to-earnings ratio.  Just as a share price reflects a company’s future profits, house prices should reflect expected return.  If both measures are well above their long-term averages, then the property market is overvalued.

Australian house prices, The Economist says, are 53% overvalued relative to rental return and 38% overvalued relative to income. Australia, today, has more household debt than America at its housing-market peak, which leaves it – again according to The Economist – more vulnerable to a credit crunch, higher mortgage rates or a recession which drives up unemployment.  Either of which, The Economist says, could send house prices tumbling.

What balderdash!

I am not referring to the premise that a credit crunch, higher interest rates or rising unemployment would have a negative impact on the housing market, but rather the two measures used by The Economist to measure housing value.

According to our most recent Matusik Snapshot (Matusik Snapshot 499 – House price update) – how could you not subscribe ? (Snapshot Subscription form 24 issues $100) – Australian housing is becoming quite affordable again.  Falling end prices, coupled with falling interest rates and rising household incomes, have now made housing across Australia – and especially in Queensland, Western Australia, South Australia and Tasmania – much more affordable. For example, it now only takes 30% of household income to buy the median priced dwelling in Brisbane, even less in Perth, Adelaide and Hobart.

Prices are starting to get to the point where people will start buying again.  That doesn’t mean that prices will necessarily rise quickly, but they are unlikely to crash as strongly suggested by The Economist.

The Economist’s other housing value measure – the ratio of average house prices to average rents model – is seriously flawed.

There are several logical reasons why our house price to rent ratio is high; the sum of which dismisses The Economist’s claim.

Now, as recently outlined, the value of investment property (that is, stock held by investors) should be determined by its return (i.e. rent) but not owner-resident or even secondary homes.  Why?

Close to 70% of Australia’s dwellings are held by owner-residents, of which half are owned outright.  A third of Australia’s dwellings are held by investors and are rented out.  We can sell our principal place of residence tax-free.  Investment property is subject to capital gains tax.

In addition, two-thirds of the Australian housing dollar is spent on renovations, a trend which has accelerated since the introduction of GST on new dwellings about a decade ago. We estimate that close to 80% of this renovation money is spent on owner-occupied homes.

In contrast, very little is spent on improving investment dwellings.  Improvements to Australian investment property are done to increase the rental return, not necessarily the sales price.

Given the current tax laws, it makes good economic sense for owner-residents to improve their homes.  Hence, there is a large difference between the price of owner-occupied homes and investment property across Australia.  Many rental properties sell for prices in the mid-to-high $400,000s.  Most owner-occupied properties sell for much more, with close to 70% selling for prices over $500,000 and near to 40% selling for amounts in excess of $600,000.

Owner-residents generally prefer detached houses over attached stock.  The reverse is true for investors.  Attached stock is, more often than not, cheaper than detached housing.  More renters live in attached stock than detached product.  This further exacerbates the reason why end prices – when pooled together – far exceed rents in this country.

So there is little wonder that the average price of Australian houses is much more than the average rent.  Our rental stock is inferior – for the most part – to the dwelling stock held by owner-residents.  A simple drive around any of our cities will illustrate such.

A house of horrors it is not!

via stocktrader.co.nz