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PROPERTY A FIRM FAVORITE

5/29/2015

PROPERTY A FIRM FAVORITE

Following a strong run in many locations in 2014, sound investment fundamentals and low interest rates continue to make well-selected property an attractive investment selection in 2015.

A record number of investors hit the real estate market last year, creating a buying and selling frenzy across many parts of the country. According to Domain Group’s senior economist Andrew Wilson, a colossal 14,500 homes were listed for auction over September to December, compared to 12,584 for the same period in 20132.

Over the course of 2014, capital city house values grew by 7.9%3. Gains were strongest in Sydney, with year on year growth of 12.4%.

With the Reserve Bank of Australia reducing the official cash rate to a historical record low, and a rise in interest rates unlikely in the short to medium term, property is likely to remain a popular investment options.

But it’s not just low interest rates that make property a popular investment option. Here are some of the key reasons for property’s persistent appeal:

It’s simple: Property has proven itself to be a trusted wealth creation tool that is often easier to understand than other complex investment options. And with a long-term investment approach and a good property manager it can largely be a set-and-forget type asset, that doesn’t require daily input on an investor’s behalf.

Steady returns: Property offers both the potential for capital growth over times as well as ongoing passive income in the form of rent – a compelling combination for long-term wealth creation.

Your dollar goes further: Many lenders will finance up to 90 per cent of the value of the property based on the lender’s valuation – generally more than is available for other asset classes.

Manufacture capital growth: Smart improvements can quickly push a property’s price upwards, enabling investors to speed up returns. With the heady spring and summer months now behind us and low borrowing costs continuing, autumn could prove a good time to buy for many. Remember, if you’re looking to explore the property market, it pays to have your finances in order so you can be ready to act when the right property pops up.

Getting an indication of your borrowing capacity will also help you to narrow your property search appropriately.

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A CRACKDOWN by the banking regulator could mean cheaper home loans for first home buyers.

5/20/2015

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A CRACKDOWN by the banking regulator could mean cheaper home loans for first home buyers. The Australian Prudential Regulation Authority (APRA), which oversees the banks, has imposed new rules to slow the growth of lending to investors, which could mean a better deal for owner-occupiers, who are often first home buyers.

This means that people paying off the home they live in are likely to become the new prime customer of banks, Fairfax reports. This fiercer competition could lead to cheaper home loans for owner-occupiers than what is offered to investors.

First home owners are increasingly competing against investors for the same properties. March housing finance statistics showed investors accounted for 40 per cent of property sales.

The National Australia Bank is among the lenders that has offered a better deal to owner-occupiers, with a 0.15 per cent interest rate discount offered to people living in the home they are paying off.

APRA has imposed a cap to slow the growth of credit offered to investors to less than 10 per cent a year, in order to rein in the risk that loans will not be repaid.

It is yet to be seen how each bank will respond to the measure.

NAB’s Anthony Waldron told Fairfax that he believed more banks would offer “differentiated pricing” to comply with the new rules.

“Within a 10 per cent cap, I think you will see that play out more and more over the next few months, as we see people really try to grow their owner-occupied books and operate within the guidelines set out by the regulation,” he said.

However, Michael Rafferty, of the University of Sydney’s School of Business, said the banks’ change in priorities was more to do with mitigating risk than giving first home buyers a fair go.

“They’re not interested in the fairness of housing. It’s about who are the lowest risk borrowers,” Dr Rafferty toldnews.com.au.

He said APRA argued that owner-occupiers were more likely to repay their loans because they tended not to walk away from home ownership, while a person taking on more debt for a second or third home was a riskier proposition.

“People hang on to home ownership as long as they can: they stop going out, and stop buying cars … So the argument is being put that selling homes to new young couples to live in is considered a safer bet than an investor,” he said.

Dr Rafferty said there had been a significant change in the way Australians looked at the property market, which had made it increasingly difficult for younger people to buy their first home.

“We’ve allowed housing to become a form of saving, when it used to be seen principally as place to live in,” he said.

“As a consequence, you’ve got all these investors and all sorts of other people securing housing like they’re playing the stock market.

“A young person in their 20s trying to pay off their HECS debt is looking at the housing market and seeing it whizzing past. It’s changed housing in less than a generation and that’s a big concern.”

Dr Rafferty said unions were involved in securing affordable housing for their members in decades past, but now it was seen as a dilemma for individuals, or considered only a concern for people on welfare.

“Today, I don’t see any institutional champion for people wanting to change the direction (of housing affordability),” he said.

Despite the difficulties, Dr Rafferty said younger Australians should continue to pursue the dream of home ownership, because it had it had other social benefits, such as offering security of tenure in the one home and helping people support themselves in retirement.

Record-low official interest rates of 2 per cent continue to make property an attractive investment.

Investors have led unprecedented growth in Australian home loan approvals, which has led to an overheated property market, particularly in Melbourne and Sydney.

The amount of home lending grew 3.8 per cent to a record $31.3 billion in March, helped by a $12.9 billion surge in borrowing by investors.

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PROPERTY A FIRM FAVORITE

A CRACKDOWN by the banking regulator could mean cheaper home loans for first home buyers.

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