Foreign buyers of Australian real estate plummet

Post to Facebook on 29/5/2018 at 11:39 PM
Commenting on “Foreign buyers of Australian real estate plummet, Foreign Investment Review Board figures show”
https://www.domain.com.au/news/foreign-buyers-of-australian-real-estate-plummet-foreign-investment-review-board-figures-show-20180529-h10ogr-436208/

Back in early 2016, my wife and I were invited to lunch by the owner / CEO of an real estate agency. The housing boom led by overseas Chinese was showing sign of decline with no trace of recovery. He confirmed what I had been saying all along that the time of decline took place around October 2015.

What does this mean in terms of overall real estate market? The simple answer is that the real estate downturn was in sight. Anyone continued to rush in to buy would cop paying too much, and for those who bought properties with the intention to flip could face a loss or not being able to unload it.

I try to be unbiased, and give my honest opinion when approached by a potential investor. In a declining market, a number of pockets may appear to perform well, but these are no more than laggers. It is a matter of a year or so later, their turn will come.

Despite my good intention advising a Chinese lady to take a break from investing in Glen Waverley, she ignored my advice and bought one costing over $1M a few months ago. She did not tell her husband about the purchase only after she paid the deposit. I was then told by her husband, but I could only send them my condolence because I believed its worth was no more than $1M. Besides, I could not see further rise in that pocket in the future, and the net rental return would be far from satisfactory.

Many real estate agents or representatives know how to suck up to their clients, especially those who behave like an expert real estate investor, or show off the depth of their pockets. Good investors are good business people. They know the market and worth of their products / services.

When you meet a real estate agent or sales representative, the following points are worthwhile remembering:

1. Be humble and honest, but not gullible;
2. DO NOT tell everything that the person does not need to know.;
3. Keep private matter private, including your real worth;
4. Not telling does not mean lying. However, not telling the truth is.

Thank you for reading.

St Kilda: I am embarrassed about my neighbourhood

Post to SinFongChanRE.Wixsite.com on 27/5/2018
Commenting on “St Kilda: I am embarrassed about my neighbourhood”
https://www.theage.com.au/national/victoria/st-kilda-i-am-embarrassed-about-my-neighbourhood-20180524-p4zhbe.html

I am biased. I am never keen to make St Kilda or surrounding suburb as my place of residence.

During my university first, and spent about half a year sharing a flat in Elwood with some former Malaysian friends. Some of the buildings formed "wind tunnels", and horrific to listen to the howling wind at night. When summer came, the wind blew from the sea towards the "wind tunnels" and carried that stench of rotten seaweeds.

Before I moved to Elwood, I was already working part time at a Chinese restaurant as a waiter. So my knowledge about this suburb goes back a long way, over 45 years.

Bosses at the Chinese restaurant did tell me a bit of St Kilda Junction. They started the business when the junction underwent massive reconstruction. The suburb was a working class area, and the St Kilda football club, nicknamed the Saint had its first Premiership in 1966, but then there were real success in subsequent years. During Saturday nights, the restaurant could get rather noisy with football goers came in to celebrate a win in a game. It was not a place where a waiter could get a tip.

My second full time job was with a computer company situated at St Kilda Road. I did not pay much attention to the surrounding; that's the distinct disadvantage in working in a high rise office building. One tends to meet people in the lift, normally total strangers who do not utter a word or even exchange good morning.

I can recall there were computer bureaus and computer companies just near the St Kilda Junction then.

I know Acland Street quiet well. The tram until now still terminates at the T-intersection with Barkly Street, at the end of the Acland Street. When I was in my cake decorating business, I did deliver wedding cakes and novelty cakes to a couple of cake shops / bakeries on Acland Street. I normally arrived early, and the Austrian cake shop owner would packed me a couple of piping hot almond croissants for breakfast. Takeaway coffee was non-existent then.

Acland Street was famous for the European cakes, until the retirement of those German and Austrian bakers. The standard started to decline when the horrible and sloppy cream sponge cakes and lamington started to appear made by the the Aussies. In recent years, the mainland Chinese make it worse.

Even after I sold my business, I still drove all the way to Acland Street for a piece of vanilla slice, a plain croissant, an almond croissant and a rum cake, as takeaway. I could describe these with only one word, "divine". These are very rich cake, and my wife and I just sliced them into small pieces, and enjoyed them in a couple of days over a cup of coffee.

In the early days, flats were known as flats, not apartments. Flats were built to accommodate more people per sqm of land. It was a cheaper form accommodation, or in today's words, affordable housing. What this means, they were for people who only had smaller budget. In fact, many of the flats were not owner occupied, not much different from today's trend.

Despite all these good memories, I must not forget the ugly side of St Kilda. It was well known to be a red light district. The street walking girls used to be victims of circumstance, but now drugs do not discriminate anyone who had the will power to resist.

Although I learnt about high homelessness rate in St Kilda, I have not met any homeless person, because I never walked in the suburb during night time.

Thank you for reading.

Melbourne homeowners dropping prices to sell in ‘house of cards’ market

Post to Facebook on 27/5/2018 at 1:14 AM
Commenting on “Melbourne homeowners dropping prices to sell in ‘house of cards’ market”
https://www.domain.com.au/news/melbourne-homeowners-dropping-prices-to-sell-in-house-of-cards-market-20180526-h10jn0/

Many people who have some experience in property investment laughed at me when I said house prices would fall, and some would go down a lot more than the others.

Property prices have fallen and now the press are jumping in the band wagon, and confirmed what I have been saying / writing.

Predictably, there are still ignorant non-believers, who have the backing of the Mum-and-Dad banker, who bid outrageously well above the reserved price at weekend auction.

Not all properties would fall at the same rate. While artificially inflated high end properties at Glen Waverley, Box Hill may fall in prices, some old family homes with reasonable size blocks are not falling fast enough, but my gut feeling tells me the time will come. I have heard stories that some are still bidding over the reserve prices, but for those who read the auction results in Domain and realestate.com, there are about half of the auction properties in those areas are passed in.

A word of caution who may have a windfall and go crazy over committing themselves in property investment. Some seminar gurus advise the audience to use the same successful "duplicate and replicate" method to grow the portfolio. Those words of wisdom has some truth, but must be not taken as gospel.

Every property locates at a different location, with own design and ambiance, neighbourhood, surrounding, and eventually different tenants with their own set of financial circumstance, family makeup and behavioral character.

If you do not like to hear / read what I say / write, please go to read more about why franchise businesses fail. Franchise model is based on duplication and replication. In fact, even some McDonald franchisees can suffer ill fate, too.

Thank you for reading.

How much Victorian landlords negatively gear and what they claim on tax

Post to Facebook on 12/5/2018 at 9:14 AM
Commenting on “How much Victorian landlords negatively gear and what they claim on tax”
https://www.domain.com.au/news/how-much-victorian-landlords-negatively-gear-and-what-they-claim-on-tax-20180511-h0zxn9/

Personally I prefer to make a profit from my investment property and pay tax, than to make a loss to offset other profits to reduce tax.

A loss from an investment say up to 5 years over the life of 25 years of an investment is considered my worst case limit, or 20% of its life; otherwise, I have to reassess my option to cut my losses or switch to more profitable investments.

Many people talk about life is too short, or they don’t have any idea what can happen to them in the next minute or so, and therefore they tend to make short term pessimistic investment decision.

Property investment is meant to be for long term, and therefore those who make statements like the previous paragraphs should forget about such investment option.

How long can an investor afford to rely on negative gearing throughout the life of the investment? Can the eventual sale attracts a capital gain that is greater than the opportunity loss?

Negative gearing is an incentive for investors. The benefit is one of the hot debate policy during budget time. In fact, Labor intends to abolish it should the party win the next election. The removal of negative gearing will further reduce the housing demand by investors, and deteriorate the construction industry and all other industries that rely on on the same.

If negative gearing is removed, many property investors with large mortgage debt will be in financial dilemma, thus forcing them to let go of the properties. However, that does not translate to more affordable housing in the market.

For property investors who want to hang on to their investment, they will have no choice but to increase the rent to cover the lost ground. This has a negative impact on affordable rental market.

Removal of negative gearing is a bad move. It does not concern me, becausea none of my investment property is negative,y geared.

By the way, I am very income poor!

Thank you for reading.

‘Housing slump’: Mortgage lending plunges, further weakness expected

Post to Facebook on 11/5/2018 at 9:27 PM
Commenting on “Housing slump set to be the largest in nearly 40 years”
https://www.domain.com.au/money-markets/housing-slump-mortgage-lending-plunges-further-weakness-expected-20180511-h0zxxu/

All the gloomy news just resembles the grey sky in Melbourne. When I was talking about housing slump few months ago, I was more like those who had been predicting the Coming of the End of the World.

There are always more followers than initiators and leaders. Those who follow last will suffer the most.

The recent Royal Commission on Banking Industry reveals some unethical practices by some lenders. That explains why so many borrowers were able to obtain loan so easily, and the number drops substantially now.

The outlook for mortgage lending can only get worse if the “rumour” of removal of negative gearing continues to in the news. It deters potential property investors to enter the market, and experienced one to back off.

The housing slump is also an opportunity for genuine firsthome buyers, if you have the initial deposit. Do be brave to approach your bank managers or lenders to discuss the possibility of getting a loan.

Just in case you have not come across my blog on Bank Mum-and-Dad, I briefly mention here. If your mum-and-dad have some idle money, borrow some from them top up the deposit. The more you have for the deposit, the better the chance you get a mortgage.

If you obtain finance from Bank Mum-and-Dad, do go to a solicitor to prepare a legal document stipulating how you are going to repay the money in future.

Thank you for reading.

https://www.domain.com.au/money-markets/housing-slump-mortgage-lending-plunges-further-weakness-expected-20180511-h0zxxu/

Credit availability and impact on property prices

Post to SinFongChanRE.Wixsite.com on 8/5/2018 2:20 AM
Commenting on “Credit availability and impact on property prices”

Many economists talk about supply and demand of commodities in a market. Speaking more specifically, the commodity in question is property, and the market is the real estate. If there are many properties for sale, the price will go down. Unfortunately, it was not the case as history revealed in the past few years. So, what can bring the price down?

It is a matter of buyers' perception. Loaded foreign buyers, especially those from mainland China, were able to splash their money buying up properties because the property prices were considered low, and good value for money when compared those back home. During the past few years, these foreign buyers were able to channel their money out of their country without much interference by their government. Compounding this was that Australian government, as usual, was not quick enough to recognise the dilemma and respond accordingly.

Prices kept rising because the foreign money supply was there. Unfortunately, many local buyers feared of losing out, jumped in to join the bandwagon, and paid unrealistically high price.

With the stroke of the pen, Chinese government curb the outflow of money, and targeted those laundering money which did not legally belong to them. Australian government soon woke up and declared amnesty to those illegally owned and bought properties in Australia, and later tightened the laws further which enable the authority to prosecute the offenders.

Foreign Investment Review Board (FIRB) was once a toothless tiger. After December 2016, ATO has taken over full responsibility for residential real estate purchases by foreign citizens. New civil penalties were introduced at the same time for investors found to be in breach of the foreign investment regulations. 

The present phenomenon does not follow the normal supply-and-demand curve behaviour.  It is NOT the excess supply of properties for sale that brings the prices down; the increased housing stock supply is the effect of lack of credit availability.

Credit is getting extremely difficult to get, and for many who show no loyalty to any lending institution before, may find their application not being favourably looked at. There are ways you can be seen as loyal by several banks - keep moving your money around the banks regularly without running the balance dry.

Some borrowers reckon that the lending institutions are looking at how they spend their money, to ensure they are able to repay in future. The lending institutions are taking less risks than before, especially the Royal Commission of the Banking Industry has pulled the banking practices back in line, making sure the unethical tactic used is weeded out.

Thank you for reading.

House prices forecasts slashed in all but three capital cities

Post to SinFongChanRE.Wixsite.com on 7/5/2018 7:23 AM
Commenting on “House prices forecasts slashed in all but three capital cities”
https://www.domain.com.au/money-markets/house-price-forecasts-slashed-in-all-but-three-capital-cities-20180507-h0zqjo/

Only if the experts read my blogs, they would not have to change their mind about the state of real estate market.

I have great doubt about the ability of some these so called experts. I do not apologise for my seemingly bold and arrogant statement.

When population grows, say by 20%, does a city need to have 20% growth in housing construction? When a baby is born, or a family grow by another two or three members, they can all live in the same house. Can’t they? In fact, to argue this point in isolation, there is not a need to have any extra house for this growing family.

I am just a logician, and therefore I do not even need powerful mathematics to see cracks in some of the experts’ prediction.

Look around your neighbourhood and see how many houses are filled to the brim? The most ludicrous scenario is that many people seem ok to live in dog-house like apartments, and yet so many complain that their houses are too small and want to upgrade to more spacious semi-McMansion!

The present situation demonstrates that many people can do without buying properties, and in fact the crazy, frenzy buyers of the past few years were mainly speculators and investors, plus some ignorant people.

It is definitely not good in the coming months, especially cold dreary days are just around the corner. As a pessimistic optimist, I saw all this coming months ago, and I have said enough that you must save as much as possible and get ready to strike.

When the market cools, and becomes cold, it is time for the prepared to negotiate with the sellers. Many property owners buy before they sell, and that is a big no no. Some buy and take a rather long settlement, thinking that it is a wise move. They hope by then their properties will be sold. Unfortunately, in a down cycle, these people actually buy high, and eventually sell low, on the proviso only if there is interested buyer.

If you are not in any urgency to sell your property, just hang on to it. Have you considered using the money you intend to give to the agent as commission, money to the government as stamp duty and part of the money you profit as capital gains to update and renovate your existing house? After all, don’t you feel sad to say goodbye to a place you have been calling it home?

Thank you for reading.

Melbourne’s auction clearance rates at their lowest level in five years

Post to SinFongChanRE.Wixsite.com on 27/5/2018
Commenting on “St Kilda: I am embarrassed about my neighbourhood”
https://www.domain.com.au/news/melbournes-auction-clearance-rates-at-their-lowest-level-in-five-years-20180514-h101dd/

On 26/5/2017, Domain auction results is as follows:
Number Listed Auctions: 963
Number Reported Auctions: 749
Sold: 468
Withdrawn: 15

If we assume 963 does not account for the 15 withdrawn, the actual number that goes on auction is 948.

Very likely, if a property is sold at auction, the agent will be over the moon, and quickly "boasts" about it by reporting to Domain. So, we can assume that 468 properties are actually sold. By dividing the number sold by the number goes on auction then multiply by 100%, we end up with actual clearance rate of 468 / 948 x 100% or 49.4%.

Gone are the days when crummy Glen Waverley and Box Hill houses that went for over $2M. However, there are day dreamer from Truganina expects to sell but pass in at just slightly over $1M.

I do encourage you to read the auction results, and spend some time researching the suburbs that suit your budget, whether it is for own dwelling or rental investment. There are properties less than $400K around, but for a first home for occupation, it may cost you at least $500K to $600K.

It must be kept in mind that there are a lot more houses for private sale, so check out from REAL real estate agency, not just on the internet. You have to be mindful too that internet advertising costs money, and therefore those who cannot afford the expense, will not be found on the website.

Thank you for reading.

FOMO is out, FOOP is in: How to avoid paying too much when buying your new home

Post to SinFongChanRE.Wixsite.com on 4/5/2018 1:46 PM
Commenting on “FOMO is out, FOOP is in: How to avoid paying too much when buying your new home”
https://www.domain.com.au/advice/fomo-is-out-foop-is-in-how-to-avoid-paying-too-much-when-buying-your-new-home-20180429-h0zelf/

I am not a qualified valuer, and therefore I cannot carry out a “valuation” on your property. In fact, almost all real estate agents and agents representatives are not allowed to value your property, but they can “appraise” it and give you an estimation.

My my favourite real estate subject was Valuation, and therefore my blogs that discussed properties being overvalued were not based groundless guesses.

The worth of a property or Capital Improved Value (CIV) is a combination of the worth of the land (Site Value SV) and the improvement. The market value is not the real worth, but a perceived value paid by the final buyer. The guess what a buyer is willing to pay for a property is more than working on the hard figures based on CIV, but a good knowledge of marketing and human psychology.

The real estate market is frequently reported in the media and reflected in the market trend, while buyer psychology relates to demographic / buyer needs and wants of that time. In a buoyant market, the guesstimation of the psychological aspect is a tough call, and that is the time of Fear Of Missing Out FOMO.

While market is settled, there should not be any fear of over paid FOOP, if you are using the SV or CIV as a guide,

SV is more important; just imagine the property is destroyed by fire, flood or tsunami, the land will still be there even if all the improvements are gone. Another important factor should be taken into consideration is that land appreciates and improvements / building depreciates.

Many buyers are naive to pay a total amount for the land, building / improvements, plus the furnishing or chattels. Why should you pay more on stamp duty on irrelevant non-fixtures?

So, when you go for an open-for-inspection, read the Vendor’s Statement, also known as Section 32 carefully, and identify the site value shown in the Council Rate and Valuation. Add your perceive as the amount on the property, and you come out with a realistic price.

Thank you for reading.

Tips on real estate investment

Post to SinFongChanRE.Wixsite.com on 3/5/2018 10:46 PM
Commenting on “Tips on real estate investment”

The last boom was the most usual and can’t expect to eternity for decades to come.

Property investment is for long term, and for those who have the foresight, always invest in the neighbouring suburbs of the boomed suburbs. I do not mean immediate neighbours, because they are still pricey. It is important to recognise the rate of return rather than absolute dollars.

If it is an investment property for rental, a lower price property is easier to rent out than the more expensive one. Therefore the occupancy rate has to be factored in, because the tenants are helping out to repay your mortgage.

Spreading the risks instead of putting everything in one basket. Smaller parcels are easier to liquidate, and should the time come when a better opportunity knocks, swap the investments.

Thank you for reading.

As Australia's house prices fall, watch the bottom pickers start to emerge

Post to SinFongChanRE.Wixsite.com on 14/5/2018 1:54 PM
Commenting on “As Australia's house prices fall, watch the bottom pickers start to emerge”
https://www.domain.com.au/advice/fomo-is-out-foop-is-in-how-to-avoid-paying-too-much-when-buying-your-new-home-20180429-h0zelf/

I predicted the fall of house prices months ago, and expected the prices might rise slightly after April 2018, but just for a short time. The rise and fall will be bumpy, but overall, the fall will be greater than the rise.

Like investing in the share market, one needs to set target price to buy and sell. However, I do discourage you to borrow money to invest in shares, because unlike investing in property, share market carries a greater risk.

When investors perceive the property market has reached the bottom, they will move in to pick. As a result, the prices tend to get pushed up. Many so called investors are inexperienced and they rush in too soon. There is still plenty of room for the prices to go down.

If you think you have saved enough money to approach the bank for a loan, then this is the right time to knock on a bank manager’s door for a serious discussion. You may not buying now, but it is nice to know how much loan you can raise, and when the time comes, you can strike without worry.

Globally, the US economy has come out from the doldrums and the interest rate is rising.

The Chinese is still performing very well and meeting annual growth target. However, it is a concern that her wealth has great political influence over the rise and fall of other nations.

The latest development between North Korean and South Korean relationship is a suspect, and creates political uneasiness to the Chinese.

All these foreign economies and geopolitics can have an impact on our interest rate and demand of real estate. We have seen how the combined effect of curbing of outflow of money by the Chinese government and tightening of the loan lending by the Australian government led to the present market downturn. Will the fall be more than 20% by 2020?

If the current downward trend is to continue, 20% is not achievable. Without the sudden surge of mainland Chinese pouring money in the real estate market I The past few years, the growth was steady until reaching the peak around the end of 2009. When I was estimating house prices then, I had to add 20% to 25% on top of what the real worth of the property in order to reach the final sale price. Depending on the size and location of the property, I even estimated some properties to be around 50% over the valuation by the Council.

In short, I do hold the view that many properties were 20% to 25% overvalued in the very hot market. For some, they were 50% overvalued. The auction results show that the days of frenzy buying is over. Properties will sell only if the price is right! In plain English, the prices have to fall by at around 25% or more.

Thank you for reading.

Disclaimer. Please consult a qualified financial adviser for your personal investment needs based on your financial circumstances.

Australians in the mid-20s still live at home with parents

Post to SinFongChanRE.Wixsite.com on 1/5/2018 2:09 AM
Commenting on “Australians in the mid-20s still live at home with parents”
https://www.domain.com.au/news/more-than-onefifth-of-australians-in-their-mid-20s-still-live-at-home-with-parents-survey-20180426-h0zaxi/

I am in favour of charging kids to stay in their parents’ homes. After all if they live away from “home”, they have to pay rent and other living expenses.

Most may be considered as free loaders - not only do they get free accommodation, but also get free food, laundry and ironing done, no utility bills to worry about and not do any household chore.

Parents doing all these for the kids are not doing them a favour, because the kids miss the opportunity to be independent, and they may not know how to handle their finance and balance their budget.

For those simple reasons, parents should consider charging rent and portion of utility bills at close to if not equal to the market value. They can throw in other services for free if so desire. If the kids can not afford, they will have to find ways to earn the money to fulfill the financial obligation.

The utility paid by the kids can be used by the parents to subsidise the running cost. As for the rent payment, it can be handled differently.

One can assume that most parents do not need the rent received to pay off the mortgage, so they can put away in a separate bank account on behalf of the kid who stay with them. In effect, this is “forcing” the kid to save the money for rainy days, or the day to pay for the deposit of a property purchase.

I know of a mother who opened an account in joint name with her daughter. Withdrawal of money required both signatures. When the amount was enough to pay for the deposit for a piece of land, the money was released. Subsequent rent still went into the account for monthly repayment of the loan for the land.

Finally, the land was sold and the money was used as the deposit towards a house. The daughter purchased her first home in her mid-twenty.

Thank you for reading.