CITYLIFE INVESTOR NEWS:
13 March , 2009
CITYLIFE INVESTOR NEWS
The Australian Investor and Property Buyers
Newsletter **************************************************** 13 March 2009 In this issue: - 1. Amid the Credit Crisis, A Home Loan Rush.
2. What Type of Property to Buy? 3. Is Inflation Coming?
-------------------------------------------------------------
1. Commonwealth Bank hires staff in home loan rush
As reported in the Daily Telegraph, March 9 2009:
"The nation's largest lender has been forced to hire more staff, as demand for the Federal Government's first home buyer grant has seen processing times for loans blow out.
The Commonwealth Bank of Australia has been inundated with people seeking home loans - hitting a 40 per cent increase in applications last month.
The bank's head of retail products Michael Cant said its first home buyer volumes had more than doubled since the grant was introduced in October and aggregate mortgage volume was up 40 per cent since the middle of February.
He defended the bank against suggestions it was now unable to cope with the flood of applications.
"On the whole I think we have been coping well for the volumes that are coming in," he said. "We've had to put on more staff and we've been looking to increase staffing levels through temps and contractors." Mortgage Choice chief executive Paul Lahiff said more than $8 billion worth of home lending had been completed by the end of January, and he believes more than $2 billion was to fund purchases of new houses."
Read the whole story here: -
www.australianpropertyinvestor.com/public/325.cfm
For people with off plan properties due to settle (complete) in the next 6 months, the lesson is clear: Allow significant EXTRA time to finalize your loan.
For those wanting to buy at present, you can also assume your loan pre-approval will take extra time, meaning you may miss the best opportunities unless you apply early.
Want a loan?
www.AustralianMortgageinfo.com
2. What type of property to buy?
In the current economic situation, many people are interested in taking advantage of the lower interest rates, rising rents, and housing shortages, but are unsure of WHAT to buy. Should they look for an off plan property with a long completion? Or a short completion? What about a "bargain" property on the resale market? A mortgagee sale? Or what about a commercial office, as an alternative? Or something cheap as a hedge against inflation, with rentals tied to the CPI? It can get very hard to decide what is best.
Rents across Australia have risen more than 8 per cent in the last year, the fastest rise in more than 20 years and many properties have instantly become "cash-flow positive" due to the combination of dropping interest rates, and rising rents.
These two factors alone have meant a huge boost to the average investor's cash flow. For mortgage home loan holders in Australia it is equivalent to a 15% pay rise.
Commsec chief economist Craig James has pointed out that home buyers with secure jobs and little exposure to the share market will be wondering what all the fuss is about. No doubt he's right.
Whilst everyone sympathizes with those who have lost their jobs, the facts don't change: even if unemployment doubled to 10% and many believe that 7% is more likely, that still leaves 90% in the workforce.
(see the latest unemployment figures for Australia here: www.citylifeproperty.com/pp_33.asp)
Remember, back in 1996 when the previous boom began we had over 8% unemployment and the banks standard variable mortgage rate was over 8% (inflation was around 2%).
And in the big boom of the late 1980's, we had unemployment at 7.95%, inflation at 8%, and interest rates at 15%! And prices jumped over 70% in less than 2 years.
Recently, the combination of lower interest rates and the First Home Owners Grant has provided a massive increase in the number of "first home buyers".
So what does that mean for investors?
These first home buyers tend to gravitate toward the more affordable housing sector within our major capital cities, meaning that properties around the $350,000 to $500,000 price range will continue to attract higher levels of demand into 2009.
Outer suburbs
Although many first home buyers look for cheaper, affordable housing in the outer suburbs of our capital cities, we feel this will not equate into higher growth. What it will do is free up 'sellers" of these properties, enabling them to upgrade.
And so the "ripple effect" takes place, with buyers upgrading higher up the line, with the benefits eventually coming through in middle priced properties over $500,000.
But if you want "bargains" and can live with increased risk, this is where you are more likely to find motivated vendors, as some people who over-extended themselves when times were more prosperous, are now being forced to sell up.
"Off the plan"
Another area to look at in the current market is buying an "off the plan" property. Whilst more expensive than a resale (due to higher land costs and construction rates) tenants flock to new properties, higher rents can be achieved, and the whole construction cost is given back to you in the way of tax relief.
In addition, if inflation is indeed coming (see next story) then this is a great way to hedge by locking in a property on a very low 10% deposit and secure a property at today's price (inflation pushes the price up) and reap the reward on completion. This is when the longest possible completion is best.
Well we live in very different times now, with property values down in some of our top suburbs, but the middle and lower end of the markets are strong.
We see the overall best opportunities for capital growth around the $400,000 - $700,000 market, in locations with some degree of scarcity value, near infrastructure and in close proximity to the CBD or water.
Quality inner urban apartments in established locations, represent great buying right now. You can find these brand new from around $370,000 (one bedroom) in Melbourne, Sydney and Brisbane.
Look for areas that offer:
- Excellent amenity and infrastructure, including public transport, shops, schools and recreational and cultural facilities, restaurants, etc. These should remain with "full house" signs through the next few years.
- Easy access to the CBD.
- Scarcity value in terms of land and overall supply in the area.
- Close proximity to water.
As reported in Business Review weekly special Property review February 26 2009, the Reserve banks Chairman Glenn Stevens says:
"The local (Australian) economy will be well placed when the upturn begins. There may not be too more interest rate cuts, but it's a better place to be in than most of the developed world. The long run prospects for Australia have not deteriorated as much as we may all be feeling just now. There is no reason for any downturn to be a long one"
3. Is Inflation coming?
With all the talk in recent months about "deflation", there is a growing groundswell of opinion that inflation may be coming back to the US. We are not economists, but according to analysts with the monetary base in the US recently exploding at a rate unprecedented possibly in history not even in the 1930s was so much money created so quickly.
But the point has been made that this cash is eventually going to work its way into the economy.
The American government shows no signs of cutting back on spending anytime soon.
Since a powerful new inflationary trend is very likely to occur in the U.S.A., the prudent investor looking at Australia should probably take steps to not only guard against it, but to benefit from it. "But wait a second!" some readers will be saying, "What if a powerful deflationary trend occurs first?"
Good question. It might. But we'd begin preparing for inflation anyway.
To read more on this topic, and to see how you can protect yourself with your Australian investments, and even how to benefit, go here:
www.Inflation101.com
We suggest all subscribers do their own research, as if inflation DOES in fact comes roaring back, there are implications for all investors.
We are currently researching some prime location real estate inflation hedges that offer a low entry price, and have long guaranteed leases, with rents indexed to the inflation rate. In low inflationary times over the past 5 years, these have not been as popular, as increasing rent to the inflation level has not been critical, but this may soon change. Press Articles about the property market:
www.australianpropertyinvestor.com/public/department70.cfm
Unemployment rates:
www.citylifeproperty.com/pp_33.asp Video market updates:
www.citylifeproperty.com/pp_32.asp Interest rate graph:
www.citylifeproperty.com/ss_lowestrates.asp
Properties now for sale:
www.citylifeproperties.com
Migrating? Important information for new migrants:
www.australianmigrationtips.com
Inflation information:
www.inflation101.com
--------------------------------------------
Copyright 2009 The Citylife Property Group. All rights reserved. ~~~~~~~~~~~~~~~~~~~~~~~~~~~ Own an investment property already? Need the best PROPERTY MANAGER? Here is Citylife's recommended Property Managers, Australia wide: www.citylifeproperty.com/pp_34.asp ----------------------------------------
Off plan properties for sale: www.citylifeproperties.com ----------------------------------------- Looking for a Mortgage? www.australianmortgageinfo.com ----------------------------------------- Contact Us: If you have specific requirements, wish to ask any questions relating to your personal situation, or have any questions, email us direct at:
info@citylifeproperty.com -------------------------------------------
This message and any attachments may be confidential and/or legally privileged. If you received this message in error, please do not copy or distribute it. To the extent that this email contains information for investors Citylife does not warrant that it is accurate or complete and no responsibility or liability is accepted for the consequences of any actions taken on the basis of this email. Information provided is of a general nature only, and investors should seek their own advice.
| 