Home Loans from Resi - Resi Reporter Archive

Support

Useful links

Find a local branch

Get a mortgage specialist to call me

Our awards

How much Can I borrow?

Select a Home Loan

Update my profile

Unsubscribe

Welcome to the Resi Reporter Archive!

Click on the edition you wish to read to view the full articles.

Enjoy!

SEPTEMBER 2008

Article 1 - OFFICIAL INTEREST RATES CUT FOR THE FIRST TIME SEVEN IN YEARS

Source: Lisa Montgomery, Resi Mortgage Corporation

Yesterday the RBA announced the first cut to official interest rates in more than seven years. Many fixed loans had already come down over the last quarter and with this rate cut directly affecting standard variable rates, it’s a positive indication for the future.

Resi’s Head of Consumer Advocacy, Lisa Montgomery, says yesterday’s rate cuts signals the beginning of a predicted downward trend in rates, but acknowledges there are many borrowers still credit stressed, so every rate reduction from now on will provide new opportunities for them to address their financial situation.

All lenders will be looking at what they can realistically do for their customers, but it’s important that the borrowers themselves see this rate cut for what it is – a step in the right direction.

Borrowers whose lenders pass on the full 0.25 % rate cut announced yesterday will see a reduction of $52 per month on a $300,000 mortgage taken out over 25 years.

In terms of how mortgage holders respond to any financial advantage gained by the announcement, lenders and the government would urge borrowers to crawl before they walk and continue to exercise restraint with their discretionary spending. If borrowers are in a position to continue repayments on their mortgage at their current levels and do not have to service other high interest debts, they should continue with their current repayments, enabling them to pay off their mortgage sooner.

Despite the impact the credit crunch has had on all lenders over the last year, competition still exists in the marketplace and hopefully yesterday’s cut will kickstart new opportunities for borrowers across both the bank and non-bank segments.

Article 2 - BUSINESS CONFIDENCE LEVELS STRENGTHENED

Source: Infochoice (http://www.infochoice.com.au)

While the property market is currently viewed with a pervasive gloomy outlook, the underlying fundamentals remain sound to support growth in values, according to a leading property analyst.

Tim Lawless, national research director of RP Data, pointed out that just like any other market, the property sector is subjected to the basic law of supply and demand. At the moment, he said demand remains "exceptionally high" for Australia's property market, while new supply is shrinking fast.

"With so much conjecture and speculation about where Australian property values are heading, and with economists and commentators divided right now on this very topic, it's important to note that opinions can often be based on observations rather than an empirical examination of the market fundamentals," said Lawless.

He urged investors to get back to basics such as understanding the key drivers of demand being population growth and changes in household sizes as well as the rate of divorce.

"Australia is currently undergoing a population boom with a population increase of more than 330,000 last year. In raw numbers, Australia's population growth has never been higher. Over the 2007 calendar year, almost 180,000 net migrants arrived in Australia."

He added that migration is further boosted this year by the government's plan to increase the skilled migrant intake by 30% for 2008/09. At the same time, he said that the rate of natural increase is also rising rapidly with over 140,000 more births than deaths last year.

"At a time of record population growth, there are simply too few new dwellings being built to house this growing population," he said. "Add a shortage of land to the equation and this presents as another constraint."

Lawless cited an analysis conducted by the Commonwealth Treasury which estimated that demand for housing will increase to over 200,000 homes per annum by 2010 due to the demands of a growing population. In contrast, new supply is forecast to be only around 150,000 to 160,000 dwellings per annum.

"This demonstrates that the imbalance between supply and demand will be a fundamental driver, placing upwards pressure on Australian property values. When viewed in light of the ongoing shortfall in dwelling supply, Australian property values can only go one way, and that's up," he said.

Article 3 - DEMAND FOR AUSTRALIAN PROPERTY MARKET HIGH

Source: Your Mortgage (http://www.yourmortgage.com.au)

While the property market is currently viewed with a pervasive gloomy outlook, the underlying fundamentals remain sound to support growth in values, according to a leading property analyst.

He urged investors to get back to basics such as understanding the key drivers of demand being population growth and changes in household sizes as well as the rate of divorce.

Article 4 - REBOUND FOR COMMERCIAL PROPERTY PREDICTED IN 2009

Source: Your Mortgage (http://www.yourmortgage.com.au)

The commercial property market is expected to rebound next year, according to the LJH Commercial Property Market Monitor 2008, which reports a bullish short-term outlook for the commercial property market and an even stronger rebound in 2009.

Chairman of LJH Commercial Glen Peterson said the report - released in association with BIS Shrapnel - emphasises current market sentiment.

"The global credit crisis has certainly interrupted this year's upswing, and as a result we're seeing plenty of opportunities from our network of commercial offices across Australia," Peterson said.

"The report highlights that the current credit squeeze is only a temporary setback to the overall upward trend, with conditions pointing towards a strong rebound next year. There are astute investors in the market who are continuing to benefit from this year's setback, with some unique property investments delivering good value."

According to the report, current demand for commercial property is strong and vacancy rates are tightening, which is pushing up rents.

"Demand levels remain strong at this stage, which means vacancy rates should remain low and rental returns should continue to grow for investors," Peterson said.

The medium-term outlook paints a different picture, however, with the report highlighting that some commercial markets across Australia will have moved into a new, downturn phase of the property cycle.

Sydney's commercial market is likely to shift upwards and perform strongly.

"This predicted upturn in Sydney's commercial property market five years from now is a good reminder that each market is in a different phase of the property cycle," Peterson added.

"Some markets are up while others are down, and there isn't a single national property market, but rather a divergent series of markets across Australia that are at different stages of the investment cycle. A good example is the continuing buoyant conditions in markets associated with Australia's resources boom - those markets continue to benefit from many businesses expanding as a result of the increase in activity driven by the resources sector."

Article 5 - TO HAVE AND TO HOLD? - A SENSIBLE OPTION FOR INVESTORS?

Source: Your Investment Magazine (http://www.yipmag.com.au)

Commonly regarded as the sensible option for investors, is buy and hold ever not a sound strategy?

For many investors, buy and hold is the most appealing investment strategy available.

David Stafford, general manager – sales and marketing, Indigo Group, points out that property in Australia tends to double in value every 7–10 years, which means that the average person “should look to property investment as a 3–7 year strategy to realise good growth”.

Angelo Piazzetta, CEO and founder of The Property School, adds that buy and hold “is the best way to build long-term wealth”. But he warns that due to the negative cash flow in most situations it may restrict the number of properties you can buy.

“With buy and hold you are looking for long-term capital growth, so the focus is on properties that deliver that objective,” Piazzetta says. “Positive cash flow properties do not always fit into this strategy.”

How long should you hold on?

The longer you hold generally the better growth you will achieve, says Stafford. “It’s a matter of understanding the property cycle you have bought into and where it is at when you want to sell.

“A lot of experts say to never sell and simply leverage the growth in your property into another property or other investment. As long as you keep an eye on cash flow you should maximise every dollar in equity to make it work as hard as it can for you.”

Piazzetta agrees. “If you want to make the most amount of money then hold for as long as possible,” he says. “Time is your best friend.”

Opting to hold won’t guarantee you property riches, however, as Stafford explains. “Nothing is fail-safe and people do lose money in property,” he says. “But usually this occurs because they have over-extended their debt to an unmanageable level or tried to move in or out of property at the wrong time of the cycle without good advice.”

Timing matters

Timing is key, says Piazzetta, particularly for investors who have a short or medium-term strategy. “If the strategy is long term then the timing is not as important but the objective should always be to make as much money as you can when you buy, that is, buy the best value property you can.”

Stafford agrees that market timing is important, saying it plays a big part in turning a good property deal into an absolute winner. However, he believes that there is “never a bad time to buy property. How many people wish they bought into markets like Noosa Heads or Byron Bay 15 years ago and would have said then it’s too expensive or the returns aren’t high enough?

”Julie-Ann Cronin, director, The Home Straight, agrees. “There is nothing worse than looking back in years to come to see that a property you sold earlier would sell for $X now or be worth $X if it had been kept,” she says.

Cronin adds that buy and hold enables investors to ride the cycle and sell when they feel comfortable with the market value of a particular property. “With this in mind you don’t need to time your entry into the market,” she says. “Ideally you would not want to purchase at the top of the cycle as you will pay top price for a property.” Investors who do purchase at the top of the cycle need to ensure that they sell when the next cycle peaks to reap the benefit of maximum growth, she says.

One way of avoiding purchasing at the top of a cycle is to study the market Australia-wide and purchase in another state or area that is not currently at the top or nearing the top of the cycle. “There will always be an area that will provide you with a good buy if your research is substantial,” says Cronin.

Weighing up the costs

In terms of the comparison of cost involved in buying and selling versus buying and holding using equity there are many additional variables that need to be studied, says Cronin. Depending on the price of the bought and sold property, there are buying and selling costs that need to be taken into consideration. These include stamp duty, mortgage fees, building and pest inspections, agent’s commissions, conveyancing fees and the cost of any cosmetic renovations. If you can afford to hold, then it would be “far more advantageous” to do so, says Cronin, particularly if you’re able to use the equity to purchase again. “Equity is a powerful tool,” she adds. Ultimately, the decision on whether or not a property should be held onto is a personal one, but the fact of the 7–10 year cycle is unavoidable. “It is a fail-safe strategy unless the purchase was made in an area that does not provide the growth indicators, for example, population growth, infrastructure development and economic growth,” she says.

A different perspective

“For many investors, ‘buy and hold’ means buying a good asset such as shares or property and holding it for the long term and hopefully never selling, because in general good assets always go up in value over the long term,” says Bill Zheng, CEO of Investors Direct.

Most property investors have interpreted buy and hold as ‘buy and hold properties’. Zheng says this is not quite correct and he explains why.

“Over the last 20 years, if you did not borrow money to invest, statistics show that residential properties and shares performed pretty much the same. So it wouldn’t matter whether you bought and held shares or properties – you would have achieved similar results.

However, if you did borrow money to invest, the result could be quite different. Let’s examine how a property investor makes money over time.

Did you know that an average Australian home worth $400,000 today was valued at around $10,000 about 40 years ago? $10,000 in cash back then was a lot of money. But if you only needed to pay that $10,000 back today, it would have been a lot cheaper, because money loses its value through inflation. The amount of money that could have bought a house 40 years ago could only buy a double garage today.

Imagine someone had lent you the $10,000 to purchase a house 40 years ago, and all you had to do was to look after the interest repayment. Let’s assume the interest rate was 8% a year for the 40 year term.

The first year:

• property value = $10,000

• interest repayment = $800

• if inflation was 3%, the $10,000 you borrowed is now worth $300 less because of inflation. By not contributing $10,000 of your own (and maybe better using it elsewhere) you have saved this loss of $300. This is a difficult concept to grasp, but basically your lender has just lost $300 and you have saved $300 by not using your own funds

• so your interest payment is really $500 ($800 less $300 ‘profit’)

• rental income at 4% is $400

• so technically it has only cost you $100 to hold on to your property ($500 less $400). If your property increased in value by 10% in the first year, you would have an additional $1,000 in equity

The second year:

•property value = $11,000

• interest repayment = $800

• if inflation was 3% it would have cost the lender a further $300 – you saved this loss on your money

• you’re still paying $500 in interest ($800 less $300 ‘profit’)

• rental income = $440 (4% of the increased property value of $11,000)

• so technically it would only cost you $60 ($500 less $440) to hold on to the property in the second year. If your property’s value went up by another 10%, you would have an additional $1,100 in equity.

We can continue the example for 38 more years, but you should get the picture: each year, mortgage interest repayments look cheaper and the principal outstanding becomes less valuable, thanks to inflation.

Let’s take an example based on real data (national standard variable interest rate and the median rental yield and median price for Melbourne, over the last 30 years) from Residex and the RBA.

Assume that:

• you were renting a median price house 30 years ago and then secured a 100% mortgage on the property;

• instead of paying off all the interest and principal, you only pay the amount you were paying as rent to the lender (so your mortgage is not an additional financial burden); and

• the lender does not require you to pay any more off the mortgage and the additional money owed is accumulated into the existing loan.

The graph shows that the inflationary pressures on rent and house prices over the last 30 years mean that even if you only used your rental payments to service your mortgage, you would still have paid off your mortgage within 30 years … and generated almost $430,000 in equity.

The important point to understand is that money loses its value through inflation – this includes the money others have lent you.

Apart from the basic rule of supply and demand, you can probably see your profits being made in two ways:

1. over time property prices and rental values gain monetary value due to inflation. This means that they become worth more (or more expensive); and

2. over time your mortgage and repayments lose monetary value due to inflation. This means that they get cheaper.

So property investors relying on supply and demand as their only strategy would have probably missed the main reason why property investors make more money than most other types of investors – because they can leverage inflation through the effective use of mortgages.

If you can find a way to effectively delay interest and principal repayments of a mortgage, you will make more money due to inflation alone. A simple way to delay repayment of the principal is to pay interest only forever and never pay back your mortgage or sell your properties.

An effective way to delay interest repayments is to use a ‘cash flow mortgage’ where you can delay a portion of your interest repayment.

Property investors will make returns similar to those of other types of investors if they only buy and hold properties, but they will make a lot more money if they buy and hold mortgages (which include interest repayments).

So for property investors, buy and hold properties is not an effective strategy, but buy and hold mortgages is.”

AUGUST 2008

Article 1 - PROPERTY VALUE INDEX RELEASE

Source: RP Data (http://www.rpdata.net.au)

Most markets fall slightly in value through winter but US experience won't happen here

The RP Data/Rismark International end of month property indices report released today confirms what most people know to be true already; we are seeing modest declines in most property markets.

However, RP Data National Research Director Tim Lawless said that the good news for buyers is that property is not a homogenous market and if you look at the flipside of this downturn, it may well prove to be the ideal buying window as speculation that interest rates may stay on hold and rents continue to surge.

Based on the combined Rismark International and RP Data findings all capital cities apart from Adelaide and Darwin fell in value recording a national drop of 1.24 per cent, however this is not at the levels of the S&P/ASX 200 Index which over the same period dropped by 17.7 per cent.

Rismark International’s Dr Matthew Hardman said the fundamental basis of supply and demand should continue to see Australian property prices moving upwards over the medium to long term.

He said, "Based on the forecasts for Australian housing demand from the Commonwealth Treasury, over 200,000 homes per annum will be required for new housing. New housing starts are currently running at about 145,000 homes per annum."

"The latest June data indicates that building approvals (supply) in NSW are at 25 year lows. The Treasury are forecasting a big disconnect between Australia’s housing demand and housing supply over the next few years."

"Looking at the economic fundamentals such as high immigration and low unemployment, we expect property prices to rise in the medium term, obviously surrounded by some volatility. It is, therefore, next to impossible to justify sensationalist forecasts of price falls of 10 per cent produced by other commentators in the marketplace."

"To understand the effect of interest rate rises, we need to distinguish between houses, where only 20 per cent are rented and home units, where 60 per cent are rented. The strategies of investors and owner-occupiers will be different."

"There will be problems for some owner-occupiers as fixed rates reset to variable this year. However, given the severe rental shortage, where are these people going to live if they sell their homes? Some may downsize from houses to townhouses or home units, or move further out from the CBD. For the vast majority, their employment status has not changed. Their response will be to dramatically decrease their discretionary spending in order to stay in their homes. You cannot apply models which do not take this into account," Dr Matthew Hardman said.

RP Data’s Tim Lawless takes the view that although the broad level index results show minor falls in property values across the country, this market should not be considered as one single market. Right now there are strategic micro markets that will stand out due to price growth opportunities over the coming year. These areas will be characterised by population growth, quality transport and social infrastructure combined with a controlled supply of housing.

"Some of the most strategic markets to be buying into right now are within 10kms of CBD's where recently values may have dropped marginally, but historically these areas have proven to be safe buying bets.

"The current market conditions present an ideal window of opportunity for buyers particularly those who have ability to take advantage of the lack of competition in the market place due to the weaker than normal conditions right now. With fewer buyers actively seeking out properties, there is currently little competition amongst buyers. For active buyers or those wanting to upgrade, buying conditions certainly favour the purchaser."

'Potentially the greatest volatility in the market will be experienced in the outer mortgage belts where there is higher levels of supply and market segments are much more price sensitive"

Rental yields across the country are in great shape and continue to improve as chronic shortages of rental supply drive up prices. RP Data's Tim Lawless said although renters will be squeezed even further out of the market, landlords and investors looking to buy into the market should take advantage of the current buyers market.

Around the Nation

Sydney Property Market

On average over Sydney as a whole, house values are down about 2% and units 1% in the first 6 months of this year. Overall, prices have been flat to slightly negative through winter.
Houses in the Eastern Suburbs appear to have fallen in value last month, after rising in previous months. There is significant volatility in higher priced areas as the market searches for direction.
Values at Canterbury-Bankstown, Western and South Western Sydney are still falling slightly, between 2 and 5% in the first 6 months of 2008.
Our view is that the Sydney market will begin to turn around strongly in the more affluent areas by Spring 2009, largely due to supply shortages and continued high wages and low unemployment.
We do not believe prices in the Western and South Western Sydney regions will fall much further, due to increasing rental yields, high construction costs and demand for new housing.

Melbourne Property Market

Melbourne values have fallen on average less than 2% in the past 3 months.
House values in Inner & Eastern Melbourne and Boroondara City have fallen around 5% so far this year, after previous very strong growth.
Melbourne is experiencing the same problem as Sydney did after its spectacular growth: affordability constraints.

Brisbane Property Market

Brisbane house values have fallen on average 2% and 0.2% for units over the last six months, versus an average rise of 7.5% over the past 12 months.
Prices of home units in the inner and south eastern suburbs have held and in many areas risen as prospective buyers choose a unit over a house due to affordability.

Adelaide Property Market

Adelaide property values are still growing, 3% for houses and 8% for units since Christmas.
Growth in Northern & Western Adelaide is slightly stronger than the East & South, however the Adelaide market is still remarkably consistent, albeit with some recent volatility, partly due to seasonal factors.

Perth Property Market

Perth overall has not slumped as heavily as some commentators have suggested it might: it’s off an average of 4% so far this year.
House values in the southern suburbs have fallen more: about 5%.
Unit values in the eastern suburbs have also fallen by over 5% in 2008.

Canberra

Overall, Canberra house and unit values have fallen by about half a percent during the first half of 2008.

Darwin

Growth in Darwin has slowed significantly in the past few months, with house values actually falling slightly during the June quarter.

NOTE:

*RP Data and Rismark recommends that caution be used when interpreting property indices results as these results can
vary depending on the methodology used and sample size.

In all RP Data and Rismark published indices, methodology is clearly indicated. More information on the RP Data‐Rismark indices can be found here: http://www.rpdata.net.au/indices/

Article 2 - ARE YOU STRETCHED TO THE LIMIT

Source: Your Mortgage (http://www.yourmortgage.com.au)

Back-to-back interest rate rises are visibly taking their toll on many Australian households, as shown by the soaring levels of mortgage stress. Your Mortgage looks at some of the long-term strategies to consider so that you can avoid being stretched financially beyond your means.

The Reserve Bank’s decision to raise the cash rate by a further 25 basis points to 7.25% in March has left a sour taste in the mouths of Australian homeowners. Many are finding it increasingly difficult to swallow the rising cost of jacked-up mortgage repayments. This latest hike marks the 12th rate rise since May 2002 when the benchmark rate was a mere 4.25%.Although ‘battlers’ were the first to encounter the damaging effects of mortgage stress, the pain has now seeped into middle Australia’s family groups – families who would not ordinarily be affected. Couple this with the tendency to overuse and underpay credit card balances and the impact of higher rates becomes impossible to ignore.

Stressed to the limit

The Australian Bureau of Statistics defines mortgage stress as occurring when a borrower pays more than 30% of their household income towards servicing a home loan.

According to Martin North, managing consulting director at Fujitsu Australia and New Zealand, a recent mortgage industry survey shows that this year’s interest rate hikes have already pushed Australia’s mortgage stress to record levels.

“The global credit crunch combined with recent rate rises, strong domestic inflationary pressure and rising petrol prices spell worrying times across Australia as families try to balance their budgets,” says North.

Fujitsu’s survey estimates that approximately 300,000 Australian homeowners could lose their homes within six months if mortgage rates continue to escalate. While mildly stressed households are managing to make mortgage repayments almost on time, they are also resorting to borrowing heavily on credit cards and severely curtailing their spending.

Prevention is better than cure

According to Robert Projeski, managing director, Australian Mortgage Options, in order to avoid becoming another statistic, before you even commit to a mortgage, ask yourself seriously – are you overstretching? “It is easy to be dazzled by your dream home when you see it,” Projeski says. “You can already visualise having friends around for dinner by the pool, enjoying postcard views from the terrace. The flipside is being stretched financially and leaving little or no room for changing circumstances, like a growing family, interest rate rises and unexpected costs.”

North agrees that many people are initially in a state of denial. “They may have refinanced over the last year and are again finding it difficult to meet their mortgage repayments. This being the case, they are twice as likely to experience stress over the following 12 months.”

Borrowers who are starting to feel the strain should approach the right people at the outset of a potential default to avoid bigger problems down the line. t’s vital to speak to your lender at the first signs of trouble in order to negotiate a payment plan.

The short-term fix

A dollar in the hand is worth two on your loan

Cut back on discretionary expenses and curb your spending habits by creating a weekly or monthly budget. Also ensure that you understand exactly what fees and charges you are paying and how they can be minimised. If your mortgage repayment has increased by $35 per week and you’re a coffee drinker or tend to buy your lunches most days during the working week, it only takes refraining from buying several takeaway lunches and making your own coffee to save that amount.

Exercise credit control

The temptation to thrash the plastic to support monthly bills and regular expenses is a big mistake, even when you’re not overstretching. Given the extremely high rates of interest levied on your credit card balance, your priority should be to keep on top of your monthly repayments by reducing the total amount rather than relying on your card. Consider switching to a credit card with a zero-interest balance transfer rate, which will provide you with a brief interest-free respite.

Split the risks

Unfortunately, rate fluctuations are inevitable. While analysts hint that locking yourself into a higher rate may be a futile exercise, considering we are already experiencing an upward interest rate cycle. A more viable alternative could be to split your loan between fixed and variable rates. Providing the best of both worlds, fixing a portion of your loan can give you some security against imminent rate rises while still retaining a degree of flexibility.

Calculate what your mortgage repayments will be over the next few years, but bear in mind that this will not completely take into account changing lifestyle factors you have little or no control over. These include losing your job, divorce or sickness, having a baby, losing a family member or spouse, or moving interstate.

The long-term fix

Direct salary crediting

This consists of having your salary directly credited into your loan account on a weekly, fortnightly or monthly basis. A loan cash-back, or redraw, will provide funds as required.

From the day you credit your mortgage account with your salary, you will be saving interest, reducing your repayments and whittling down the overall length of time it would take to pay off your loan.

Refinancing

The option to refinance your home loan is a long-term strategy that works by lowering your regular repayments or building equity more rapidly. This is a great way to save money provided you take into consideration the actual cost of refinancing into your calculations. Refinancing will always cost money. You will nearly always be better off financially if you can come to an arrangement with your existing creditors. If you can’t negotiate an arrangement yourself, get advice from a broker or a financial planner before you make any hasty decisions.

Make the switch

Switching to fortnightly instead of monthly repayments automatically creates an extra two payments per year, reducing the amount of interest you will pay over the life of your loan. These additional contributions will save you time and money on interest in the long run while helping to build equity faster.

As a rule of thumb, the more extra repayments made, the bigger the reduction of the mortgage principal. Consult your lender about the terms of your mortgage, which may stipulate certain fees should you exceed a set number of extra repayments per year.

Rent the spare room

Renting out one or more rooms can be an excellent short- or long-term way to positively counteract crippling mortgage repayments.

For empty-nesters living in large homes that no longer require all that extra space to accommodate families, or first homebuyers who are looking for innovative ways to reduce the financial impact of interest rate rises, renting out a spare room to a lodger or student is an excellent way to lessen the load.

Exploring online ‘flatshare’ websites, like Flatmate Finders, will give you an indication of the going rate of rental prices in your area and the type of people looking for accommodation.

Alternatively, weigh up the prospect of letting out your own home and renting a smaller or cheaper property so you can draw in an income while saving on monthly outgoings.

Ensure a written agreement is drawn up prior to a tenant moving in. The main cause of disputes is money, so remember to include all the necessary details including deposit and weekly or fortnightly rent amount, payment deadlines, which rooms or facilities the lodger is entitled to use and share of household bills.

Reverse your mortgage

A reverse mortgage is an equity-release product that allows asset-rich, cash-poor retirees 55 years and above to borrow a percentage of the value of their home to fund their retirement. The money is paid to the borrower as a series of installments, a lump sum or a line of credit that can be drawn down at leisure.

Reverse mortgages allow borrowers to access cash while continuing to live in their home and retaining ownership of their property. However, on average, reverse mortgage interest rates are at least 1% higher than the rate charged on a standard variable home loan.

This is a complex option, and retirees should always take into consideration their health, probable lifespan and changing lifestyle circumstances. While reverse mortgages offer asset-rich, but cash-poor seniors access to funds to support their retirement, there are serious downsides. Upon default, a lender may be authorised to request immediate payment of the entire loan balance and may impose penalty charges until paid. Additionally, the lender may initiate proceedings to sell your home.

Don’t wait

Lisa Montgomery, consumer advocate at home loan specialist Resi, says the biggest mistake borrowers make is calling their lender when it's too late.

“Most borrowers will have an idea well in advance and should call their lender before anything happens,” she says. “More than likely it will be a combination of events such as an increase in rates in tandem with another event such as job loss or unforeseen financial commitment.”

She adds that it is natural for a borrower to “bury their head in the sand and hope that things improve” – but in reality this strategy rarely works. Montgomery says there are some good strategies that can be suggested by your lender to assist you in getting back on your feet.

“Things like debt consolidation, changing to interest-only or in extreme situations ‘making an arrangement’ for reduced payments for a time can be worth exploring,” she says.

Hanging on to your home – in most circumstances – is the preferred outcome. However, once all aspects of the situation are assessed and all options have been exhausted, selling the home may relieve a significant amount of pressure. For a minority of homeowners this may indeed be better in the short to medium term.

Whatever the outcome, talking to your lender is the first step. In fact even if there is no material sign that a problem is near, calling your lender just for peace of mind will help you sleep a little better at night.

Article 3 - OVERPAYMENT AND REDRAW FACILITIES

Source: Your Mortgage (http://www.yourmortgage.com.au)

In these turbulent times, overpayment and redraw facilities give flexibility. Daniela Aroche discovers their benefits and how to make them work for you

Whether discussing working hours, holidays or many other aspects of modern life, you'd be hard pressed to find someone who wouldn't prefer to have flexibility. This is especially true when it comes to how you structure a mortgage.

Although the word 'mortgage' comes from the Old French for 'death pledge', these days there are ways to make your mortgage work in your favour. A mortgage doesn't need to have a limiting repayment plan. Overpayment and redraw facilities are just two options which give flexibility. Used correctly, they can enable you to have a mortgage that's easier to manage.

Additional repayments
Most mortgage products will allow borrowers to make extra repayments. By paying more off your mortgage than the required periodic minimum, you can save money in the long term by decreasing the amount of interest you pay over the duration of the mortgage.

And shorten the time needed to finish paying it off.

You can do this overpayment in two ways. One way is to increase the amount you pay each time, whether this is weekly, fortnightly or monthly. Even a small sum, such as $5 or $10 a payment, can make a significant difference to what you will save on interest over an extended period of time.

This is explained by Dean Gillespie, head of mortgages at BankWest.

"Overpayment facilities allow borrowers to pay more money into their home loan account than they're required to for their minimum monthly repayments, making the loan balance lower than it's contractually required to be."

The other way is to make a lump sum payment off your mortgage in addition to your regular payments. Whether the lump sum is your tax rebate, a bonus or a generous gift, it's worth using it as an overpayment on your mortgage. This holds true even if it is not a large amount.

The long - term benefits of the short - term strategy of putting financial windfalls towards repaying your mortgage can be very rewarding.

Paying any extra into your loan is always an advantage, no matter what method you use. An overpayment facility offers a convenient system that can help you save on your overall mortgage.

"This type of facility can definitely allow borrowers to save on their mortgage. By paying more than the minimum required, customers reduce their loan balance, and so reduce the amount of interest they must pay over the life of the loan," says Mark Jones, banking portfolio manager at AMP.

If you get a $50 a month pay rise and use it as a regular additional payment off your mortgage, you'll save $68,183 on your home loan, and reduce the loan term by two years and 10 months.

It's possible to model scenarios such as these using the Advanced Repayment Calculator on the Your Mortgage website at www.yourmortgage.com.au

Redraw facilities
Paying any extra money that you have into your home loan may be an easier decision when you know you have the ability to withdraw this additional money at a later date.

A redraw facility allows you to withdraw the additional money you've put into your mortgage repayments, whether this has been an additional amount with each repayment or one - off repayments.

It's important to note that redrawing your additional repayments will reduce the benefit of making additional repayments. However, knowing that you're able to redraw additional repayments if necessary can give you the confidence to increase the amount of money you pay. "A redraw facility is an additional feature which allows borrowers to take the money back out again to use whenever the need arises," says Gillespie. "The ability to pay extra money into a mortgage is a fantastic way for borrowers to save interest and potentially reduce their loan term, and the redraw allows convenient access to funds if they're needed later."

Understanding redraw facilities
As the terms and conditions of redraw facilities differ significantly among lenders, it's important to understand what redraw involves before you take out the loan.

When considering a product with a redraw facility, make sure you ask the following questions:

Is a fee charged when this facility is first 'activated'?
How many redraws can be made each year before a fee is charged?
What is the fee per redraw?
Is there a maximum number of redraws that can be made each year?
What is the minimum amount that can be redrawn?
What is the maximum amount that can be redrawn?

It doesn't usually cost any extra to have a redraw/overpayment option as part of your home loan, but some banks or lenders might charge for over - the - counter transactions when you redraw.

"Generally, overpayment/redraw facilities are available on most variable rate loans, although if customers are going to deposit large amounts of money into it, they should make sure they don't choose a lender who charges deferred establishment fees," Gillespie warns.

"Also, fixed rate home loans generally have a maximum amount that you can deposit into the loan per year, such as $10,000; otherwise a fee is charged.

"It generally doesn't cost anything to have redraw added onto a loan, but customers might pay for each time they use it. Some banks charge a fee for transactions over the counter while other banks offer online free redraw."

The fee per redraw
The fee per redraw is the amount a borrower must pay each time they withdraw funds from their loan account using the redraw facility. This fee varies significantly between lenders and loans. Some lenders charge up to $50 per redraw, while others do not charge.

The number of free redraws per year
Some redraw facilities grant the borrower a number of free redraws per year. Once the quota of free redraws is exceeded, the borrower must pay a fee per redraw.

For example, if a redraw facility grants four free redraws a year and has a $25 redraw fee, the borrower pays $25 fee for each additional redraw they make in any one year.

Maximum number of redraws per year
Some redraw facilities limit the number of redraws the borrower can make within a set period, usually a year. Once this number is exceeded, the borrower can't access additional repayments they have made.

The minimum redraw amount
Redraw facilities often have a minimum amount that can be withdrawn. With some loans there's no minimum; with others, it's as high as $5,000. This affects the flexibility of a redraw account, and is the main aspect that sets it apart from an all - in - one account.

The maximum redraw amount
The maximum redraw amount is the largest amount you can withdraw at any one time. In most cases, this is equal to the total of the additional repayments you've made. For example, if you're $3,000 ahead of your minimum loan repayment, you can redraw $3,000.

Some redraw facilities set the maximum as the total of additional repayments less one month's repayment while others set a fixed amount, say $5,000, that you can withdraw, regardless of how much extra you may have paid.

What to look for
When it comes to finding the best type of overpayment/redraw facility, there are a few basic points to look out for, according to Wayne Alpine of Money First Loans.

"You'll need easy access, and monthly mortgage charges should be small or nil. As for the redraw fees � a high redraw fee might be more beneficial for a borrower who knows that their self control is lacking, whereas the reverse is true of someone with good self control," he says.

Knowing that an overpayment facility with redraw may cost you, should you need to take money out, may leave you wondering whether the redraw option is worth having. As Gillespie explains, it again comes down to your own attitude and circumstances. While the option to overpay and redraw might suit some, it could become a problem for others.

"It really depends on how often the customer wants to use the redraw facility. Some borrowers only want to deposit and withdraw once every blue moon, so the fee makes little difference. But other borrowers will want their salary to go in each fortnight, and then pull out money when they need it, which could be every few days," Gillespie says.

"If they're going to use the facility frequently, they should pick a bank with online free redraw, as it's free every time. Basically, different loans have different facilities, so when choosing their loan, borrowers should talk to their bank or broker and get the loan that suits them."

Some loans charge a flat fee for having a redraw facility. This may or may not be charged upfront. If not, it's described as a redraw activation fee and charged only if and when the borrower wishes to use the redraw facility. Once the redraw facility is activated, you can use it as often as you like.

Avoiding the traps
To choose the most suitable redraw facility, you need to have a good idea of how you'll use it. There's no point paying for something you won't need. If you're unlikely to be able to make additional repayments on your home loan in the foreseeable future, you can save by not choosing a home loan that has a redraw facility but also has a higher interest rate.

The fact that you have the option to overpay, as well as unlimited access to these funds, is clearly an advantage. However, this freedom can cut both ways. Industry experts warn that you need a certain level of self control to keep from dipping into your 'extra funds' too often.

"A problem only arises if you take money out and do something with it that you didn't really need to, such as purchasing a 'want', not a 'need'," says Lisa Montgomery, head of marketing and consumer advocacy at Resi Mortgages.

"However, most redraw facilities actually have a minimum, anyway, that you can redraw, such as $1,000 or $2,000. So people generally don't treat it as a transactional account, and instead tend to look at it as a sort of savings account that's doing them good and that they want to see grow."

Jones agrees with this, but says that although overpayments can offer several options outside the rigid boundaries of a regular repayment scheme, borrowers need to be aware that this isn't a 'get out of jail free' card from repayments.

Commenting on the freedom from a rigid repayment structure, Jones says: "It really depends on each individual customer's circumstances with redraw facilities, customers are still expected to make the minimum required repayments on loans, but these facilities provide far greater flexibility for customers in how they use their funds."

Is this the strategy for you?
Although overpayment and redraw facilities offer many advantages, the benefits work best if you're a particular type of borrower. Consequently, it's important to determine whether this facility will suit your circumstances and personal approach.

"Customers who are more disciplined in their finances can gain more benefit from this type of facility," Jones advises."

Any customer can use facilities of this type, but the appropriateness of such a facility very much depends on the customer's needs, objectives and circumstances at the time. So all customers should take independent advice about what type of loan product and facilities are best suited to their particular circumstances."

Gillespie agrees, and adds that borrowers considering redraw and overpayment facilities need to be aware of their own weaknesses in terms of financial discipline."

Some borrowers may find that having access to a redraw facility makes it too convenient for them to access their funds," he says. "Many people like to get ahead in their loan by putting extra money in, but then prefer it to be difficult to take out again! It's a matter of personal preference. Customers should have a chat to their bank if they're unsure."

A mortgage and other savings
A home loan which allows you to make additional payments and has a redraw facility can be an excellent savings tool. There are three main benefits of putting your money into your home loan rather than a savings account.

The first benefit is that by putting excess funds into your home loan you make them effectively earn the interest rate on your home. Savings accounts generally pay much lower interest rates.

The second benefit is that although you're effectively earning a higher interest rate than if your money was in a savings account, you don't have to pay tax. Interest earned in a savings account is considered income and is usually taxable.

The third benefit is that you can use the overpayment facility as a savings strategy for purchasing something that isn't related to your home loan. If, for instance, you're planning to save up for 18 months in order to buy a new car, using a home loan with a redraw facility can be an effective way of doing this.

By putting in $100 a week extra into your mortgage towards your purchase, after 18 months you'll have made close to $8,000 in extra repayments, enough to buy a reasonable second - hand car. As a bonus, you'll have reduced the amount of interest you pay on your home loan and the time you take to repay it.

Article 4 - AUSTRALIA IS 'A BUYERS MARKET'

Source: Your Investment Magazine (http://www.yipmag.com.au)

Falling sales volumes mean that the Australian property scene is very much a buyer's market, but investors have been slow on the uptake, according to the latest RP Data report.

RP Data's Property Pulse has found that sales volumes in the mainland capitals fell by 24% during the first quarter of 2008, "indicating slower market conditions and less competition in the property marketplace".

Sales volumes hit a four-year peak in the second quarter of 2007, with a total of 86,241 houses and units being sold, according to RP Data's figures.

But by the end of the first quarter of 2008, this number had dropped dramatically to 58,072 - a decrease in sales activity of more than 30% in the space of six months.

"The slowdown in market activity comes as no surprise, considering factors such as the US sub-prime meltdown, the sharemarket collapse and ongoing domestic inflationary pressures, which have attributed to the erosion of consumer and business confidence," said RP Data national research director Tim Lawless.

Lawless also pointed to a decline in the number of new housing finance commitments as a sign of the property market's slowdown.

According to ABS figures, the total value of all housing finance commitments dropped from $18.1bn to $6.5bn between June 2007 and May 2008, with only 52,000 new mortgages being recorded in May.

However, Lawless said he believes that this reduction in housing demand means it's very much a buyer's market, especially as the slowing national economy makes interest rate rises an unlikelihood for the near future.

Fixed rate loans saw their share of the mortgage market fall from 24% to 13% between March and May; Lawless said this is a clear sign that the property buying public believes rate rises have been put on hold.

"It appears that more borrowers are selecting a variable rate of interest, which is a sign of improving confidence that rates may be stabilising," said Lawless.

While Lawless said that a big increase in consumer confidence and economic conditions, and "a levelling in inflation, which will offer some certainty as to the direction interest rates will take" are required for investors to come back to the property market in force, his message is that fortune may favour the bold.

"For confident buyers not deterred by interest rate increases, the current conditions are likely to offer great buying opportunities. We can safely say this is a buyer's market," said Lawless.

Article 5 - MOVING ON? REMEMBER THE SIX YEAR RULE FCGT RULE

Source: Australian Tax Office (www.ato.gov.au/corporate/content.asp?doc=/content/00150825.htm)

People move around a lot these days so it’s possible your home may become your rental property one day.

Renting out a house that was your main residence means you receive rent, can claim deductions and when it comes to sell, you might not have to pay capital gains tax (CGT) either.

But there are a few requirements to be met before you qualify.

The property must have been your main residence.

To qualify for a full CGT exemption, the property must have been your main residence from when you bought it or acquired it.

If you move out of the property and rent it out, you can continue to claim an exemption from CGT for up to six years after you move out. If you don’t rent it out, you can claim a CGT exemption for it for an indefinite period after you move out.

Example: Full exemption – moved out and returned within 6 years

Bill purchased his house in Brisbane in January 2001. He moved in immediately and after six months went on a working holiday around Australia for one year. While he was in Tasmania he met his future partner Maria and lived with her in her rented flat for five years.

During this time his home in Brisbane was rented out and was producing income.

He returned to Brisbane with Maria and moved back into his home. Several months later, he decided to sell his home. Bill did not own any other properties during this time and is able to treat his home as his main residence and be exempt from CGT on the house as he moved back in within six years.

Renting for more than six years

If you rent out your home for more than six years, you may still be entitled to a partial exemption.

The amount of the capital gain that is taxed depends on the proportion of time the home was neither your main residence nor covered by a six-year period of absence.

If you owned the home for more than 12 months, you may also be eligible to reduce your capital gain by the 50% CGT discount.

The Tax Office’s Guide to capital gains tax has more information to help you work out part exemption.

Moving out of your home more than once

Your circumstances may change so if you move back into your home after it has been rented out and then move out again, a new six-year period commences.

There is no limit to the number of times you can do this provided you don’t use another home as your main residence and each absence is less than six years.

Moving into your rental property

On the other hand you might buy a house and rent it out immediately. Later on you decide to stop renting it out and move in. In that case you can’t treat the house as your main residence before you lived in it – no matter how long you live in it after you move in. The amount of the capital gain that is taxed will depend on how long you rent it out.

Claiming deductions

As with any rental property, the costs you incur when your home is rented out, such as repairs and maintenance, are deductible even though you are claiming the main residence CGT exemption.

You need to keep accurate records and remember, you can’t claim:

an immediate deduction for initial repairs, renovations or construction costs (although you may be able to claim the cost of ‘capital works’ for certain construction expenditure over 25 or 40 years), or

any deductions for periods the home is not rented out or not available for rent.

You never know...

Even if you intend to live in a property when you purchase it, it’s important to keep all records relating to the purchase and the costs of owning the property — such as maintenance costs and interest on money borrowed to buy it. If your circumstances change you may have to pay tax on some of the capital gain when you sell it.

More information

For more information on capital gains tax visit the Tax Office website www.ato.gov.au or call 13 28 61.

Publications including the Guide to capital gains tax and Rental properties can be downloaded from the Tax Office website or by calling the Tax Office on 1300 720 092.

JULY 2008

Article 1 - SOFT JOBS NUMBERS SUGGEST RATES ON HOLD

Source: Infochoice (http://www.infochoice.com.au)

Signs that the economy is cooling and the Reserve Bank is winning its war against inflation are good news for RBA governor Glenn Stevens. A surprising fall in job numbers during May will take some pressure off the RBA to act. The official cash rate looks set to stay steady at 7.25 per cent in the short term.

The latest labour force data released this week indicates that the Australian labour market is softening. The total number of people employed fell by 19,700 which is in stark contrast to the 13,500 new jobs that economists expected to be created during the month.

The workforce participation rate shrank from 65.5 per cent in April to 65.2 per cent in May. The unemployment rate was 4.3 per cent, seasonally adjusted in May, which represents no change from the revised 4.3 per cent figure recorded at the end of April this year.

Economists were not expecting a contraction in jobs growth so soon and pundits seem to have pulled back their expectations of two rate rises this year. The money's on at least one rate rise, depending on what happens with wages growth.

A continued tight labour market, particularly in the mining sector will be one of the largest threats to inflation. If wages get pushed up, then the RBA will be forced to act. If recent union pressure for wage hikes turns into a wages outbreak, and in turn a rise in prices, the Reserve Bank will not be happy.

Greater clarity about the RBA's intentions will emerge when the Board next meets on July 1. The Bank will continue to scrutinize inflation data, with particular focus on the next round of figures which are due out at the end of July.

Article 2 - PROPERTY INVESTORS RETURN TO THE MARKET

Source: Your Mortgage (http://www.yourmortgage.com.au)

A recent lull in interest rate hikes from the RBA has spurred property investors to return to the market, according to the latest report from CommSec.

CommSec's latest Economic Insights report highlights that while the value of overall housing finance commitments fell by 3% in April, the total value of investment loans increased by 1.4% over the same period.

"Housing finance may have fallen over the latest month, but on a positive note it was encouraging to see a marginal pick-up in investor housing loans," wrote CommSec Equities economist Savanth Sebastian. "In recent months the rate hikes have ensured that the housing sector remains the least favoured asset class. However, with increased speculation that the Reserve Bank may have retired to the interest rate sidelines for at least a few months, investors may begin crawling back to the housing market."

CommSec believed that stagnant interest rates will only encourage property investors to show increased interest in the housing market.

"The rental market remains extremely tight and with vacancy rates at record lows, any speculation that the rates are on hold will increase investor focus on housing," wrote Sebastian.

The notion that interest rate rises may have stopped for the time being also seems to have affected the number of homebuyers opting for fixed rate mortgages, with the fixed loan market seeing its overall proportion of all dwelling finance drop to 17.5% in April - its lowest proportion since August last year, according to the report.

"The growing sentiment that rates may have peaked or [are] at least close to the top of the cycle is also being priced in by borrowers, with the proportion of fixed rate loans to all loans falling to their lowest level in nine months," wrote Sebastian.

Interestingly, CommSec's statistics show that while the total value of housing finance commitments fell during April, the total value of home loans approved but not advanced reached a record high of $39bn. This was a 21.4% increase on the previous year's figure. The average housing loan was also up on the previous year's figure, rising by 4.1% to $236,900.

Loans for house building were also up in April, rising by 1.8%, suggesting that the construction industry believes that the need for housing in Australia will continue despite some difficult market conditions.

"The compelling fundamentals suggest property will be very much in focus in 2009 despite the headwinds of higher interest rates. Population is growing at the fastest rate in 18 years but supply of homes isn't keeping up, resulting in soaring rents and property prices," wrote Sebastian.

Article 3 - WHY A PROPERTY CRASH IS NOT LIKELY

Michael Yardney is Director of Metropole – Property Investment Strategists, a leading property commentator and publisher of Property Investment Update. Subscribe for free at www.PropertyUpdate.com.au

He is also author of How to Grow a Multi Million Dollar Property - in your spare time and co author of All you need to know About Buying and Selling your Home.

This makes for scary reading and I understand why many home owners and investors are nervous, but a property crash is not on the cards for Australia.

Sure our property boom is over - but that doesn't mean we're going to have a property crash.

There is no doubt that property markets have a lot to contend with this year. Apart from rising interest rates, our property markets had to deal with a global credit crunch, the US sub prime crisis, a US economy heading into recession, the stock market down turn, plummeting housing affordability, unprecedented rental supply shortages and lenders tightening their belts.

So it is not surprising that one questions whether Australia's property market can survive all of these blows or will it suffer the same fate that is happening overseas?

The recent USA National Association of Realtors house price survey recorded an average 7.7% drop in property values for the year of March. This is the biggest on record since 1982. In some states, including California and Florida, property values have plummeted by up to 30%. There are even reports that some financiers are repossessing homes and then asking the owners to stay on rent free just to protect the property from vandals.

Property values have also crashed in Britain, but not to the same extent as the USA. Britain is also suffering from the fallout of the American sub prime crisis with lenders severely restricting funding for investment properties.

So…... why do I think The Economist and other property commentators have got it wrong?

Firstly, I could say The Economist was wrong when it made similar predictions 2 years ago. At that time they forecast a property collapse in Australia, yet property values in most of our capital cities have increased by ten, fifteen and in many cases over twenty percent in the last year alone. Of course a counter argument could be: " Well all this means is that we are now in for a bigger crash!"

I believe the doom-sayers have got it wrong because they don't understand the difference between the fundamentals of the Australian property market and those overseas and the difference between this property cycle and previous property downturns.

In America many residential housing loans are "non-recourse loans." In other words lenders don't have to personally guarantee their loans. They can walk away from their loan commitments, leave their house to the lender and the bank can't make them pay for any shortfall when (and if) they sell the property.

This is why you will often see different investment strategies used by property investors in America where the mortgage stays with the house and not with the borrower.

Obviously, here in Australia you can't just walk away from your loan. If you can't make the re-payments, the banks may take over your property and the day of reckoning will eventually come when you will have to pay the bank for any shortfall they have after repossessing your property.

Our local housing market is underpinned by the fact that 70% of Australians own their own homes or are paying them off. Considering the strength of our property markets over the last few years, unless they bought recently or over committed, many Australians have a large amount of equity in their homes and a significant proportion have no debt against their homes.

We are investing in a market dominated by non investors. As opposed to shares investors, home owners don't just sell their house when the news is bad or property market is flat.

If you think about it, at any one time only about 5% of property owners are going to need to buy or sell their homes. This means the majority of property owners are not really affected by what is happening to property values as they are in it for the long term. They won't need to sell their properties if conditions in the property market get worse. This is obviously very different to the stock market, where as the share prices plummet, more investors have to sell to cover their margin calls accelerating the drop in share prices.

There are many other strong fundamentals that should prevent our property markets from crashing. Our market conditions are very different to previous property downturns.

Currently we have a robust economy, strong population growth, changing demographics, a huge deficiency of properties for both owners-occupiers and tenants and rising building costs. All of this points to a short downturn, with strong fundamentals underpinning the next stage of the property cycle.

In previous property market downturns we had an economy in recession, while today our economy is strong and buoyant.

In previous property market downturns immigration fell, as people didn't want to come to a country with an ailing economy. This time 'round Australia is experiencing a population boom, with the current rate of population growth the highest in almost 20 years.

Recently released Australian Bureau of Statistics figures reveal that the Australian population increased by 331,872 new residents or 1.6% over the 2007 calendar year. Our rate of population growth has not been this high since 1989. In general, highly skilled cashed up business migrants who are keen to buy houses are coming here. Many of these migrants are from Generation X or Y and are balancing our aging natural population. This is a good thing and something the ailing property markets in the USA and Britain would be desperately jealous of.

At the same time our changing demographics, with an increase in single and two people households, means that we need more dwellings for the same number of people.

In previous property market downturns we experienced an oversupply of properties. Over- enthusiastic builders constructed too many apartments and excited property investors put too many new properties onto the letting market. This increased supply of stock in the presence of decreasing demand meant that both property prices and rentals had to fall.

This time round we have a deficiency of stock in the presence of strong demand.

If we combine the low number of new constructions with the shortage of available property supply, accentuated by higher building costs and banks tightening finance for new development, we have a volatile mixture that can only lead to a much higher cost for the next round of new dwellings to be built.

What about all the news of rising interest rates and mortgage stress?

In previous property slumps we had low employment. Rising unemployment with no wages coming into the household meant families were forced to sell their homes. Today we have full employment, which means that even though there are higher loan repayments stretching family budgets, with household incomes rising it's not likely that owners will walk away from their homes.

Another factor suggesting this property downturn will be short lived is the strongly rising rentals that property investors are receiving all around the country. Rental increases usually lead to rising property values as investors come back into the market chasing more robust yields.

Putting all this together, it is unlikely that a property crash is on the cards.

On the contrary, our property markets are behaving normally; working their way through the individual property cycles. Within each state the property markets are fragmented with some suburbs, in particular the more affluent inner city and bayside suburbs, still performing strongly, while other suburbs will languish.

Understanding these cycles means that there are great opportunities out there for property investors who are selective and have the ability to think long term.

Article 4 - NSW URGED TO SCRAP MORTGAGE STAMP DUTY

Source: Your Mortgage (http://www.yourmortgage.com.au)

Leading property experts are calling for the NSW government to follow Queensland's lead and bring forward the abolition of mortgage stamp duty to help stimulate activity in the property market.

The Queensland government recently announced that it was bringing forward the abolition of mortgage duty from 1 January 2009 to 1 July 2008; accordingly, in less than four weeks, NSW and South Australia will be the only jurisdictions in the country that still impose this form of duty.

Unlike SA and all other jurisdictions that have abolished mortgage duty over time, NSW continues to levy the duty at the full rate of $4 per $1,000, or $400 per $100,000 borrowed.

Peter Faludi, senior counsel at law firm DLA Phillips Fox, urged the state government to bring forward its plan to abolish mortgage duty in 2009.

"Given the additional costs to borrowers in raising debt finance in the current markets, it's difficult to understand why NSW continues to impose this form of duty," Faludi said.

"Although there are some minor concessions, the acute housing shortage and the lack of property development should indicate that any tax breaks that can be provided to the property industry should be seriously considered."

The NSW government delivered its State Budget last week; however, there was no move to bring forward the abolition of mortgage duty, or reduce the rate, from the current proposed abolition date of 1 July 2009.

Article 5 - DISPLAY HOMES: A MODEL INVESTMENT?

Source: Your Investment Property (www.yipmag.com.au)

Next time you look around a display home, stop and think: you may be standing in the middle of your best investment yet.

Display homes offer a range of extremely tempting advantages, from guaranteed rent for a set period, to high yields of around 7% pa, as well as reliable tenants with a vested interest in keeping your property ship shape.

“Display homes represent an excellent opportunity for investors and are highly regarded as a prized addition to any investment portfolio,” says Ted Anderson, sales manager, Burbank, a leading builder and developer.

How it works

For an investor who’s only ever bought property via more conventional means, the method of purchasing a display home may seem a little odd. Typically what happens is that a developer buys some land in a high-profile area and puts together a display village, marketing all the properties on the site directly to buyers.

Builders will usually look for a display home site “where the action is, in a quality development with access to a large number of blocks of land,” explains Dennis Carter, manager, international sales, Metricon, a leading home builder. “At some stage during the building process, or when it’s just finished, we’ll sell it and then lease it back from the owner (lease-back option).”

Lease-back option is when you purchase the house and rent it to the builder for anywhere between 12 months to five years. The builder uses the house as a display home and in return pays you as the owner a fixed rent. The rent varies but is generally higher than what you would earn renting the property to a tenant on the normal rental market.

“Because it’s such a large investment, Metricon endeavours to maintain it as a display home for a minimum period of 18–24 months,” adds Carter. “Some homebuilders will also write extension options into the lease-back agreement to enable them to extend. This may be for another 12–18 months.” Once the estate has been fully developed, the display home is no longer required, and the developers will be ready to move on to their next project.

Until then, one of the major incentives for investors is the promise of a high quality tenant who will treat the property with the utmost respect, because it’s in their own best interests to do so. “It’s guaranteed that you’ll always have a very good tenant in there,” says Carter.

Top quality

Anderson agrees that, for an investor, having a major builder as a tenant is ideal. “The property will be maintained in pristine condition throughout the tenancy, and when the home is handed over it will be in ‘as new’ condition,” he says. “Extensive landscaping and external features such as alfresco areas, timber decking, BBQ areas and paving are included and will save the investor thousands of dollars.”

The quality of the finish is a major drawcard and, by their very nature, they’re there to attract buyers to a new development – after all, display homes tend to be of the highest quality.

“They always occupy a prime location within the developing estate, and are surrounded by homes of similar quality,” says Anderson. “Display homes are constructed to the highest standards and all inclusions and fittings reflect the quality that’s expected of such a home, and in most cases will include a number of upgrades that all add to the appeal of the home.” Angus Raine, CEO, Raine & Horne agrees that display homes have a lot to offer. “Top of the range display homes will have the very best fittings and inclusions such as floor coverings, appliances and light fittings,” he says. “They’re also usually professionally landscaped and interior designed with the best colour schemes so they look as good as possible.

“The best homes are often found in the best locations in a development. Mid-range display homes won’t have as many inclusions while those at the value end will have standard inclusions that come with any new home.”

Some developers will also include rates and insurance for the term of the lease – and there won’t be an agent grappling for their 8%. “The fact that we take care of all maintenance, rates and insurances and there are no agents fees charged, together with the higher rate of depreciation that a new home brings, all make display homes very attractive,” says Carter.

High yields

And of course the other major incentive is the guaranteed high rental yield. “A return of 7% pa for a residential investment is excellent,” says Anderson. “Most residential property will show a much lower return, plus in this case, there’s no maintenance issue for the investor. The rental is guaranteed for the lease period, and in many instances the lease may be extended subject to the life of the display village. After hand over, the investor will have an imposing home suitable for re-leasing or, as many investors do, moving into.”

However, due to the relative scarcity of display homes, they can be hard to get hold of. “They’re usually keenly sought after,” confirms Carter, adding that market forces will also play a part in availability issues. He advises keen investors to register their interest with a reputable builder.

Anderson says that, as the supply of display homes is sometimes so limited, “often investors will pay a holding deposit to secure first selection in the next release of display homes”.

Do the numbers stack up?

It depends, according to author and educator Helen Collier-Kogtevs. As an owner of two display homes, both in Sydney, she says her experience with investing in display homes has been very successful.

Collier-Kogtevs bought the two display homes when the property market was booming and it was difficult to find cash flow opportunities in capital cities. “The idea of purchasing a property with a fixed rental return of 7.5% for three years when the five-year fixed interest rate at the time was 5.99% was very attractive,” she says.

“The added bonus was that the builder also paid all the outgoings. Recently, one of the lease-back options came to an end and the display home went onto the open rental market. It didn’t take long to find a tenant – especially now that we’re experiencing a rental boom – paying $450 per week. The return isn’t as good as the lease-back arrangement, however it’s much better than had we not had the lease-back option in the first place.”

Collier-Kogtevs says it would have been difficult to achieve a weekly rent of $300 just over three years ago. The second display home has a five-year lease-back option with all outgoings paid by the builder, so it’s still ticking over quite nicely. “We purchased the second display home from the same builder due to the success of the first display home,” she says.

But are all display homes that good a deal?