Vip Consulting - Buyer’s and Vendor’s Advocates
E-Newsletter Issue - 8
“Taking the guesswork and legwork out of buying and selling property!”
Welcome to our VIP Newsletter Spring Edition 2008!
the Spring Carnival is around the corner, and the traditional Spring auction season is about to get into full swing. With an unusually quiet Winter for many real estate agents, we have secured many fantastic properties for our clients, taking advantage of the current situation.
With many buyers wondering when would be a good time to jump into the market, we cannot stress enough that the best time to commit to buying real estate is when your ready. Investing in the stock-market or the property market should be long term to reap the full benefits, so the sooner you get in the better.
As properties in major cities generally double in price every 7 years, on a purchase price of $400,000 in 2001, the same property would be worth around $800,000 today.
How much longer do you want to miss out on the capital gain & growth of a property you should have bought years ago?
Market Update
Author: Michael Yardney
Apart from their concerns about interest rates, which now seem to have peaked, the most common concern property investors are mentioning to me is that Australia will have a property crash similar to that experienced in America.
And this concern doesn't surprise me given everything that is written in the press.
What does surprise me is that some economists are still predicting a property crash in Australia, with a few even suggesting that the crash may be as significant as that in America.
Well let me tell you my thoughts...
Yes Australia is going to have a property crash - but no it's not this time around. A crash will happen one day - sometime in the future - because that's what happens with property cycles.
At some time in the future fear and greed will drive our markets to unsustainable highs.
But currently the fundamentals of supply and demand should continue to see property prices in most Australian capital cities start moving upward over the medium to long term. And at the same time rentals will skyrocket.
As you can see from the table below, global house prices have soared over the last 10 years in what the Economist Magazine has dubbed the greatest bubble in history.
This magazine has suggested that the end of cheap money and the re-pricing of assets is now going to burst this bubble and property values are going to crash.
| GLOBAL HOUSE PRICE GROWTH SINCE 1997 | |
| South Africa | 401% |
| Ireland | 220% |
| Britain | 202% |
| Australia | 174% |
| USA | 138% |
| New Zealand | 125% |
| Hong Kong | -23% |
| Japan | -33% |
Interestingly I've read similar commentary from the Economist Magazine year after year after year, and in the meantime property values have just kept increasing.
I guess their argument could be "Yes the bubble is just getting bigger and bigger which means Australia is heading for a bigger property crash just like overseas."
There is no doubt that there has been a collapse of property values in America. In Los Angeles and Santiago the fall in property values is more than 25%, and in Miami and Las Vegas values have fallen by up to 30%.
So why don't I think houses in Melbourne, Sydney, Brisbane, Canberra, Adelaide and Perth are going to drop significantly? Especially if you look at the table above and see that house prices in Australia actually rose further than those in the United States during these 'bubble years'?
Well in some area's, in particular Sydney's south western suburbs, some homes bought at the height of the 2003 property boom have already been re-sold at a 30% loss, and some commentators are suggesting this could happen in other areas in Australia.
However I am of a different view, and many property analysts I respect feel the same. The current property fundamentals, including our strong economy and the chronic shortage of housing will insulate Australia from a property crash.
There are reports of around 1.1 million American homes sitting empty, up for sale or rent. I've even read other reports suggesting the actual figure could be around 8 million homes.
Australia doesn't have suburbs full of empty houses awaiting mortgagee sales. Instead we are not building enough houses.While we need something like 200,000 new homes each year to supply accommodation for our growing population, we are only building in the order of 145,000 new dwellings each year.
Another big difference between Australia and America is the way our home loans work. Here, home owners have to personally guarantee their loans. In America they have 'non recourse' lending, which means you don't personally guarantee your home loan and this of course encourages borrowers to simply walk away and hand in their keys if their property falls in value.
From a supply and demand perspective America is over-built - there are just too many houses. In Australia it's the exact opposite - we are not building enough houses and our vacancy rates are at historic lows.
Sure many Australians currently have issues with housing affordability and are putting off their home buying decisions. But people still need a roof over their heads. People are still getting married and people are still getting divorced and others have to move house for their jobs. If they can't afford to buy a house, they rent one, hence vacancy rates are at unprecedented lows. Putting all of this together means that we are having booming rental increases.
More and more property commentators now seem to agree that our house prices will hold up. BIS Shrapnel property analyst Angie Zigomanis was recently reported as saying that, "in the medium term as interest rates stop rising and the housing shortage becomes more acute, prices will start rising".
Similarly ANZ bank economist Alex Joiner explained that the chronic shortage of housing would push up house prices and also rentals. Tim Lawless, national research director of RP Data was quoted as saying, " I think the under-supply will put a floor under price falls. As the prospect of interest rate cuts increase demand for real estate will rise".
But our property markets have changed – don't expect the type of capital growth many of us enjoyed in 2006 and 2007. Even though interest rates have topped, I don't think they are going to drop as quickly as some commentators suggest. The Reserve Bank has put these speed bumps on the road deliberately. They are slowing the economy on purpose.
What this means is that buying any property and hoping it will make a good investment just won't work in this new era in property.Now is the time to buy well in areas that will outperform the averages and add value.
Some Recent VIP Success Stories…
A big congratulations to Justyna on her first property purchase. Being a first home buyer is a daunting experience, and many are left to their own devices. We secured a townhouse in Kensington for $350,000. A comparable townhouse sold a week prior for almost $400,000. Here's what she had to say:
"From the beginning David was very personable, helpful and informative. He kept selecting properties that fitted our criteria and organised viewing schedules for us.He answered all our queries and helped us to understand the property buying process. He was always there for us, assisting in any possible way, knowledgeable and keen to help. Within 4 weeks, instead of an apartment we secured prior to auction a fantastic townhouse in a great location"
A great purchase in Maribyrnong by the Crevatin Family. Initially this property was on the market for $730,000. Over a 6 week period whilst searching for other properties we kept negotiating on this magnificent property in Bloomfield Ave. Persistence, patience and through our professional negotiation, we successfully secured this 4 bedrom home for $665,000, saving our client $65,000 below the reserve.
Well done!!
When Jim & Sheri approached VIP Vendor Advocates, we initially valued the property in Clifton St Prahran in the low to mid $500,000 range. We were then alerted that one of the tenants was interested in buying the property. Through our mentoring and consultation, we successfully assisted Jim & Sheri sell their own property through diligent negotiation direct with the buyer, to achieve a magnificent result of over $580,000, almost $30,000 over their reserve. With no Advertising costs, and saving on the cost of using an agent, Jim and Sheri achieved a magnificent result.
VIP Wrap Up
If you are thinking of buying or selling real estate, and need independent & impartial advice that you can trust to make one of the most important decisions in your life, don't hesitate to call us, or feel free to pass on our details to anyone who does.....Enjoy the magnificent Spring season, and happy buying and selling. Best wished from the VIP Team
David & John Melatti
Property Advocates & Directors
VICTORIAN INDEPENDENT PROPERTY CONSULTING P/L
Ph: 1300 736 638 David Mb: 0414 708 091 or John Mb: 0416 053 555
Visit www.vip-consulting.com.au or email us at email@vip-consulting.com.au