Growing up, out and about

Growing up, out and about

Cities and suburbs in Australia are showing different trends in terms of real estate. While Melbourne is showing signs of growing outwards, Sydney is growing up. What’s in store for an investor?

Melbourne has been the best performing city in Australia. No city has grown more than 10 per cent in last 12 months, but Melbourne is the closest to hitting that number. Sydney prices have risen by 49 per cent and Melbourne prices by 36 per cent since the last downturn.

The Economist is predicting a 40 per cent fall in Melbourne and Sydney Market, Would this happen?

Well, economists have been predicting a housing crash for the last four decades and they will continue to do so. In saying that, there will some correction in outer suburbs where there is too much stock of house and land packages still left to sell.

We will see slowing down in price growth in Melbourne and Sydney in 2017. But there won’t be any crash.

In that case, one wonders what could trigger a house prices crash. The way I see it, three things can — oversupply of houses in a particular area; high-interest rates where people can afford to hold the properties anymore; and recession.

All the above are not going to happen, so we should not worry about any house price crash.

The next question that arises is how to estimate the value of property. Rough estimates can be availed from your bank for free. All the banks do offer unlimited property appraisals for free. There are two websites — www.realestate.com.au and www.onthehouse.com.au — which offer the rough estimate of your property.

There are only 5 per cent of properties which are investment grade properties. About 95 per cent of the properties on the market are below average and not a good property to invest. In the boom markets, we have only 1 per cent of properties, which are investment grade.

According to the pain and gain report in the last quarter, 8.4 per cent of properties in Australia were sold at a loss. This is a surprising fact because even in boom times we have this property losing in value, even though it was held for 6.7 years. So, buying investment grade properties is very important.

Across the country, pain and gain reports show that property hold for less than 6.7 years will show a loss when selling and for a gross profit sale average length of ownership of a property is 10.1 years. For a double the gross profit property should be held for 17.7 years. So, property is not a short term investment.

Beware of buying off the plan profits and properties which are on the fringes of the city. Always buy in well-established suburbs.

Where is the interest rate heading this month? 

We predict the cash rate to be steady at 2.0 per cent. The Australian dollar is at a nine month high sitting at 76.69 as of 3 April. This is the only concern RBA has, which can trigger a rate cut. But RBA will wait and see until June to decide if the other rate cut is important, to save the export market and rising dollars.

We might see one more interest rate cut in 2016 and from 2017 onwards expect rate rises.

While the labour party would like to pursue and stop the negative gearing on established properties from July 2017, they are expecting some votes from the 13 million voters, don’t own an investment property or don’t claim negative gearing against 2 million voters who are property investors.

Around 16 per cent of people who are lodging tax returns or 2,033,973 individuals owned a rental in FY2014. the vast majority of them owning one or two investment properties. The negative gearing and rental losses are not going to impact any rich as the debate is heating up in the political circles. According to ATO data, people who are claiming rental loss are:

~ 707,000 individuals with income bracket of $37,000 – $80,000 (61 per cent)

~ 42,000 individuals with income bracket of $80,00 – $180,000.

~ 9,000 individuals with income bracket of $180,000 – $250,000

~ 5,000 individuals with income bracket of $250,000 – $500,000

If you look at the statistics, it is the middle-income Australia which is investing in real estate, with 82 per cent of all the investors between the age of 18 to 29 are declaring a net rental loss.

The government tax benefits are helping middle income earners and young generation. Not the way the media and politicians portray about rich income earners are benefiting with the negative gearing policies.

 

BOX1

What to check out online this week

Website: Buymyplace.com.au is an ASX listed company which is fast real estate online company.

App for Budgeting

~ 1) pocketbook

cost: free

~ 2) GoodBudget

cost :free

~ 3) Wally

cost : free

~ 4) TrackMySpend

cost : free
BOX: 2

How are Melbourne and Sydney growing?

Melbourne is growing OUT

Sydney is growing UP.

Melbourne green fields in the south east, north and west are growing out. Population increase in 4 suburbs is noticeable from 2014 to 2015. Cranbourne East (VIC) +32 per cent, South Morang (VIC) +7.6 per cent, Epping (VIC) + 9.3 per cent, Point Cook (VIC) +7.3 per cent. Inspire of Apartment boom in CBD. Victorians are moving out.

Sydney population growth has come from green square earmarked for new Metro Station. Waterloo – Beaconsfield (NSW) population increased by 11.4 per cent for the year 2014 – 2015.

City-wide growth in the last 12 months

Melbourne : +9.8 per cent

Sydney : +7.4 per cent

Hobart : +4.8 per cent

Brisbane : +4.5 per cent

Adelaide : +3.2 per cent

Canberra : +1.7 per cent

Darwin : – 1.8 per cent

Perth : – 2.0 per cent