Australia property market price falls in Sydney and Melbourne are speeding up

Post to Facebook on 12/11/2018 at 5:00 PM
Commenting on “Australia property market price falls in Sydney and Melbourne are speeding up”
https://www.businessinsider.com.au/australia-property-market-price-falls-sydney-melbourne-2018-11

We are not alone! No, I don’t mean the aliens from different universe are dropping by to visit our planet. I mean the sustainability or boom and bust of our real estate market do rely on overseas investors, as well as local investors.

An agent’s representative was rather sarcastic in commenting in one of my blogs that she had not come across a property that had dropped by 20%. I believe she is still too green in the game.

Not being able to read the real estate market by the economists who probably have influence on the governor of RBA‘s monthly decision in setting the official cash rate, and advisers of government on money matter can lead to a big negative impact on livelihood of ordinary Australians.

The linked article highlights that the real estate downturn is spreading like a cancer, and if it is not checked, many cities, towns and industries will fall victim.

Just a few hours ago, I was talking to my bank customer relation manager about the current low bank interest rate.

Baby boomers are cash rich, but are reluctant to spend because they see their money keep dwindling, because their bank balance is not topped up with interest earned. As a result, they do not put money in the bank, and the bank do not have enough fund to lend.

Real estate markets affects many other markets. Once the real estate market declines, money does not flow in the economy and businesses will be affected, and consumer confidence gets eroded.

It is not high interest rate that deters investors and ordinary buyers from investing in the real estate market, but lack of consumer confidence that dampens their enthusiasm.

The downturn is an iterative process. The initial downturn lowers consumer confidence, which then leads to further downturn, and so on.

A WeChat friend posted this similar link in his WeChat Timeline, and asks me how low will the prices go, and when will the decline stop.

Well, I have discussed this many times, so I would like you to answer these questions just to make sure you do pay attention to my blogs.

Thank you for reading.

Housing slump set to be the largest in nearly 40 years

Post to Facebook on 12/11/2018 at 5:00 PM
Commenting on “Housing slump set to be the largest in nearly 40 years”
https://www.theage.com.au/business/the-economy/housing-slump-set-to-be-the-largest-in-nearly-40-years-macquarie-says-20181107-p50ejz.html

At the start of August, AMP chief economist Shane Oliver said he expected price falls in Sydney and Melbourne to max out at 15 per cent from peak to trough. Only two months later, in October, he expected price falls in those markets will reach 20 per cen

On 7 November, Macquarie Bank said the downturn in Australia’s housing market would be larger than it first thought, with price declines of between 15 per cent to 20 per cent likely in Sydney and Melbourne.

These two are financial and economic experts, and yet they have to revise their forecasts, not once but several times to come to similar magnitude of decline.

According to available data from CoreLogic, such decline will bring prices back to 2015 level.

Will the property prices go further down? I believe the chances are high. Recently, I read a report on Toronto and Vancouver real estate market, and it is just bad news. Melbourne market is very similar to those cities, and the light at the end of the tunnel for real estate investors has been turned off.

Is it good enough to place your bet on a property which has dropped to 2015 price?

If a property was bought in 2015, and returns to the market for sale in 2018, you must ask the question why it is back to the market so soon? There is nothing wrong to be suspicious and inquisitive to double or even triple check with the selling agent.

Most good properties or should I say good value properties do not return to the market after a short time, unless they have been renovated or flipped for a profit. If they are sold at a loss, they were likely to be overpriced previously. If the properties are renovated or flipped and return to the market at a lower price, you should be more cautious about the quality of materials used or workmanship - was it done with a shoestring budget, or ran out of money towards the end?

Sometimes it is better to buy a property that has not been renovated, because the defects are not hidden by a new coat of paint or a new driveway. Fresh pine bark or red gum chip in flower beds can mean abundant tears after you buy the property. Weeds will pop up because the bark or chip are for cosmetic reason and serves no purpose in stopping the weeds from sprouting. This needs to be completely removed and the garden beds redone.

I have said many times most properties were over priced or over valued in the past few years. This is bad for a property owner’s pocket because Council rate is based on the Capital Improved Value. It is very difficult, if not impossible, to argue with the Council about the real worth of the property and adjust the rate accordingly.

When you inspect a property, do check the Council valuation in the Vendor Statement also known as Section 32. Is the asking price comparable to the valuation? If the variation is too big, either to your advantage or otherwise, you should raise that question to the selling agent.

Thank you for reading.

Four first home buyers fight for Footscray apartment at auction

Post to Facebook on 12/11/2018 at 1:26 PM
Commenting on “Four first home buyers fight for Footscray apartment at auction”
https://www.domain.com.au/news/four-first-home-buyers-fight-for-footscray-apartment-at-auction-782489/

Should you do the same as this young couple, stretching the budget to get the apartment?

In my opinion (IMO), the short answer is NO, unless you have a budget with a plus 5% tolerance. It is not desirable to have a budget and not stick with it, especially at an auction. It is different to buy in a private sale or private treaty, which allows you 3 business days to cool off. Should you decide it is a financial risk or too much of a burden, and you may pull out within the period, but suffer a penalty of $100 or 0.2% of the purchase price, whichever is greater.

One simple question you may want to ask is why do other bidders pull out? Why don’t they want to pay above reserved price? Well, one answer is that you see value that they don’t. It could also be that you are too emotional, blinded by the hype or not familiar with the market.

The sales record of this property is without doubt amazing. The property started from $50,000 in 1994, sold the year after at $74,500. The vendor of the property was purchased in 1999, at $165,000. In 19 years, it jumps to $587,000, or 3.55 times the purchase price or 11.74 times of 1994 price.

One reason for the low price in early days is that Footscray was a working class suburb with factories and warehouses close by. The close proximity of the shipping dock also made Footscray a thoroughfare of trucks.

The suburb was originally dominated by Italians, Greeks and Yugoslavs, but the demographics changed with the mess arrival of Vietnamese and South Africans. Footscray also has many Indians who moved from Dandenong. The newer migrants transformed the once run down, sleepy suburb into a multicultural shopping hub.

Closure of factories and just about 5 km from CBD have made Footscray attractive to many house hunters. In fact I witnessed the transformation took place, because I used to market and deliver cakes to a couple of customers in the mid-80s to early 90s.

Once again, the price jump is due to the Asian influence. Will it jump further at such big rate in the future? My crystal ball tells me it will not, especially the apartment or more precisely known as flat will get older and older, and more maintenance headache will set in.

Many of the houses in Footscray are small and due for demolition. If Melbourne population grows a lot more and at greater rate, developers will be attracted to this suburb. In order to make a comparison of Footscray future, we can take a page from Richmond and Springvale where Vietnamese are very visible and dominant. Even with a big migrant influx, Footscray is not affordable, and price jump is very unlikely.

The following paragraphs estimate the financial commitment incurs for the winning bid:

An additional $27,000 over the reserved of $560,000 is close to over 4.8%. If borrowed that amount at 4% over 20 years paying principal and interest, the extra interest is about $12,200. The additional monthly repayment is about $165.

Assuming the couple has 20% equity and borrow 80% of $587,000, as a first home buyer, stamp duty $30,290 is exempted, but other charges like lender mortgage insurance, transfer fee or other incidental amount to $10,588.

Thank you for reading.

Melbourne auctions see more investors opting out

Post to Facebook on 5/11/2018 at 10:08 PM
Commenting on “Melbourne auctions see more investors opting out”
https://www.domain.com.au/news/selling-up-melbournes-auctions-see-more-investors-opting-out-780394/

If you go through all my posts, you should have come across that I have written several times about when the house prices will turn around for the better. Before this, the market is very turbulent, then bumpy. I also mentioned that it is time to wait, unless you need to buy urgently for your own accommodation.

It is always a nail biting experience, whether to wait or to buy now. Undoubtedly, every minute there are people making a profit or a loss in real estate transaction. The crux of the matter is how long does it take for such investment to achieve such outcome.

I have lost count in advising you the readers to buy within your budget, and make sure to add in all the costs and expenses during the initial purchase and subsequent ownership of the property.

When an investor buys a property not for own dwelling, it needs to be let out to generate an income in order to pay off the loan from the lender, unless he has plenty of spare money or property hoarding is his business, be the property a residential building, office, warehouse or even a car park.

There are far too many snake oil salespeople running free seminars, generally with ulterior motive. They give new comers and naive investors false hope of property ownership or making lots of money by flipping or developing, leading the unsuspecting to commit debts far beyond their earning capacity or repayment capability.

If an investor only listens to the attractiveness of negative gearing, and blindly buys a property which does not generate a positive bottom line even when it is let out, what will happen to the owner financially if the property is untenanted when the rental market turns sour, like now?

Apartment developers are very sleek in promoting and marketing their products. The marketing brochures show beautiful surrounds, parks, movie theatres, cafes, sports arena, but these are good for the eyes momentarily and the novelty will soon wear off. Obviously, the developers tend to leave out the actual eventual owner’s corporation fee.

Most developers also offer rental guarantee for a year or two at a return much higher than what the actual market can support. As there is no free lunch in this world, the so called rental guarantee is costed in, in effect, the apartment is not worth as much. Once the honeymoon period is over, the investor may not be able to let out at the suggested rent, except to reduce it, resulting in a lower or even a negative return.

First home buyers have been taking advantage of the attractive government incentives, and lured into buying properties they cannot afford, especially those hand-to-mouth wage earners. Many fall into the young or early family category, with rate of spending keeps going up on many fronts, and therefore the net balance to repay The mortgage continues to slide. To add to the wound, the interest rate in the foreseeable future is only up.

Many downsizes and upsizers make big mistakes of buying a property first without selling their own first. They do that because they fear of not having a roof over their head after they sold their property. Very likely, they believe ignorantly the appraised value of their property by some very enthusiastic real estate agents who just want to get the listing. When the time comes, they are short of money to settle the next property.

All the scenarios mentioned above are real, and now you understand why the hot market in the previous years cause more miseries than just housing affordability.

Time to let go and cut the losses. Someone’s misfortune is another person’s opportunity. Which side of the fence are you on?

Thank you for reading.

How your digital spending could affect your chances of your future home loan

Post to Facebook on 1/11/2018 at 3:49 PM
Commenting on “How your Uber Eats history could affect your chances of your future home loan”
https://www.domain.com.au/news/how-your-uber-eats-history-could-affect-your-chances-of-your-future-home-loan-779623/

I have been advising you, the readers, to save, save and save, so that you can raise as much as you possibly can for a higher share of equity and give the lenders the confidence to lend you the rest of the money for the home loan.

Many people do not believe in loyalty to a bank. Well, I am just another old school account holder; I have to confess that I keep money in more than one bank, but I have been a long time customer for each. In fact, close to 40 years or longer.

Not that I have a lot of money in each bank, I move my money around; I might have a huge balance at one bank for some time, and little in their other. Later, I do the same with another bank. The whole idea is to make my presence felt, and get to meet the manager of senior staff member.

The above paragraphs describe the direct opposite effect of what the article talks about. Such loyalty can counteract the negatives of one’s “bad” habit spending.

The convenience of online meal order, and the use of home delivery makes one unhealthy physically and financially. I still feel the pinch if I spend more than $30 for a meal in a restaurant. In general, my normal individual portion Malaysian meal does not exceed $18.

One cannot just develop the habit of saving overnight, but if one is not determined to achieve their target, the hope of owning a house is highly unlikely.

Lenders need to assess the borrower’s ability to repay the mortgage. With hardly any upward movement in wages, one‘s bottomline will only become less and less as cost of living just goes up and up.

The basic logic shows that if one does not get a promotion in his workplace, then the money spent daily will have to be reduced.

Online order does not just stop at meals. Purchases from eBay, Amazon, Gumtree, etc all leave traces and telltale signs, which may not leave a good impression for the potential lenders. However, if one is disciplined enough to use the plastic card for regular payments of utility, and essential expenditure, this may score well and be perceived as a responsible borrower.

I do not need any further loan from the bank; even if my spending is tracked, I cannot see how the bank can make use of the data collected. One thing the banks will notice is that I do not shop at Aldi, because it charges transaction fee.

Thank you for reading.