The Most Expensive Street in the Country

Wolseley Road, Point Piper, is the most expensive street in the most expensive suburb in Australia. It's also a who's who of Sydney real estate.

Wolseley Road is the dress circle where the rich and famous sit high on a thin-necked peninsula jutting deep into Sydney Harbour with mega-million-dollar views back to the bridge, the Opera House and the silhouetted CBD skyline.

Established in 1890 and named after British field marshal Garnet Joseph Wolseley, this wide, hooked street is a row of lavish estates, deluxe apartments and theme-park palaces.

Of the 10 highest-priced house sales in 2007, it is the only street with multiple listings, including $25 million handed over in December by stockmarket trader David Trew for a 1921 harbourfront mansion.

24 houses have traded in the past five years on Wolseley Road at an average $12.33 million - including the $21.5 million recruitment queen Julia Ross paid in 2004 for Villa del Mare, still a non-waterfront Sydney record.

It is also a place where construction never stops, with many residents wanting to display “their legacy”, say Michael Marquette, Director of Marquette Turner. Ultimately, “the more it costs and the more people that know how much it costs, the better”.

Take a stroll and and have a look to see who you can recognise (that is if you're tall enough to catch a glimpse beyond the high security walls and fences!).

Simon Turner simon@marquetteturner.com.au

How to Build a Property Portfolio

If your long term strategy is to build a portfolio of investment property then it is important to have a long term finance strategy to match.

Investors frequently hit a brick wall with their lending and can't move forward to the next property. It is often their current loan structure that is holding them back. Incorrect structuring usually results from short-term planning with a focus on completing the immediate purchase rather than asking "How will we do the next one?"

Understanding lender differences

As you acquire more property you also acquire more debt. In most cases lenders will be looking for evidence that you have the capacity to meet this increased commitment. Where you are acquiring high growth property that may be cashflow negative in the early stages this becomes more challenging. Each additional property will effectively eat into your income reducing the loan capacity.

Each lender has their own method of assessing serviceability. This means the amount you can qualify for can vary significantly from lender to lender. Even between the major banks there can be significant variations.

eg. across a panel of over 30 lenders, a couple earning $75,000 per annum could potentially borrow anywhere from $308,879 to $522,124, based on the same information. Therefore you can actually rank your potential capacity across these lenders from lowest to highest.

In building a portfolio you would start by using the lower rank lenders first. As you reach capacity with these lenders you then place your next purchase through the next lowest lender where you can qualify. And so on moving up through the rankings.

Avoiding cross-securitization

Cross-securitization is where more than one property is used to secure a loan. If you have a property with a lender and buy another property, in most cases that lender will secure the new loan against both properties.

This can present a number of complications going forward:
1) By linking all your properties together you have probably limited your loan options to that lender. As highlighted above if this lender has a more restrictive servicing test then your future investment plans may be slowed

2) The lender will generally assess any future borrowing plans on the aggregate value of the properties. Let's say one of the properties experienced strong price growth but the other property was located in an area that was experiencing a down turn in value. The loss on one would cut into the gain on the other, reducing the amount of additional equity that could be released. If the properties were separated then you could take full advantage of the property with the gain to release additional equity and acquire further property.

3) If you want to change things with either property or the loan structure it is likely to involve more costs in terms of additional documentation and valuation fees.

4) Having your properties separated gives you greater flexibility. It means if you need to make changes to your portfolio or your loans going forward you can do so without significant complication. If you find that there is a better option for you with another lender you can move one of your properties without disrupting the rest of your portfolio.

It must be remembered that these are general principals only and will not be practical or apply in all situations. The range of options available to you will depend on your specific situation.

This article is not a substitute for independent professional advice. Marquette Turner does not warrant the accuracy, completeness or adequacy of this information. We disclaim liability to all persons or organisations in relation to any attraction(s) taken on the basis of currency or accuracy of the information or material, or any loss or damage suffered in connection with that information or material provided. You should make your own enquiries before entering into any transaction on the basis of the information or material provided.

Simon Turner

simon@marquetteturner.com.au

Where The Smart Money Will Go in 2008

With so much happening around both Australia and the world – wars, sub-prime financial crisis, changing governments, assassinations and very unforgiving stock market investors, where is the hot money tipped to go?

On the domestic front we have just come through to our 17th year of consecutive growth. We defied the Asian economic crisis and continued building and growing as demand for our natural resources reached record highs. The resilience of the Australian economy will again be tested to some extent if predictions of a recession in the United States come to bear. Decreased US demand will affect Asian manufacturers including China however their domestic demand for Australian resources and products has every chance of shielding our economy and seeing yet another year of continued growth.

So the big question is where will the HOT (or smart) money go in 2008?

Typically we would be asking – shares or property? We have seen some of the property trusts like Centro take major hits on the stock market which is now extremely watchful and cautious.

We’d expect a flow of money into property with any stock market wobble and I am hoping that will occur in 2008. Prior to the Federal election I predicted that interest rates would continue to increase regardless of which party won and with inflation at current levels The Reserve Bank is likely to increase rates further.

The last property cycle came to an end in 2003 and historically property has doubled in price every 7-10 years depending on location, so we can reasonably expect that Sydney prices would have doubled by around 2013 as compared to prices in 2003. With that in mind property yet again looks like being a winner for those fortunate enough to capitalize on the current situation. Mortgage foreclosures in 2008 will create opportunities for investors with rental demand outstripping supply, increased yields and an excellent outlook for long term growth. Our population has now reached over 21,000,000 and people will inevitably continue to invest in Sydney.

The hot suburbs for me are those in the typical hot spots like Surry Hills, Darlinghurst, Potts Point and now Redfern. Rental demand in these suburbs is enormous and there are still some great buys for those willing to look and wait. And of course, sydney luxury homes continue to do well.

The surprise suburbs for 2008 will be those that have an inherent cultural need like Lakemba and its surrounds. The Muslim Mosque creates a natural need for accommodation around the area and the Eastern Distributor and M5 have now made it very easy to reach the city from that area.

Suburbs like Penrith, Glenmore Park and Kellyville are much further from the city and will hurt as interest rates increase.

My tip for 2008 is to invest in property where you know that demand will be constant – especially where a cultural need exists. Many of these suburbs are undervalued and provide enormous opportunity for those willing and able to look outside the square.

Michael Marquette

michael@marquetteturner.com.au

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Buy Low to Make Big: How To Find a Bargain

Finding a bargain property, one that is being sold well-below its worth or potential worth, is not as easy as riding a bike or watching T.V. Not that it is that difficult either, but the task of getting a good deal on an investment property can at times be cumbersome.

In the brief list below, four methods for finding and grabbing that good deal are explained, and although the descriptive nature of the list is brief, it will give you just enough to ignite your thought.

1.) Distressed sellers – These are people who are eager to sell due to personal reasons, such as changing jobs, upsizing or downsizing, family issues.

2.) Vacant Properties – Here’s a simply one: drive around an area and look for homes that have tall grass and a crummy exterior. You can then go to the Land Titles office to search for the owner, get in contact with them and see if they are open to an offer being made. Often it is a case of the owner not having the time, means or inclination to renovate the property, which is a prime opportunity for someone with all three! Win-Win is the best!

3.) University Towns - Here there are often an abundance of rentals and a plentiful stock of professors and students to rent the properties. In these areas, there are always landlords wanting out of the game for various reasons. Not only can you get a property that is already a rental, but often you can buy them with a tenant under lease, lessening the risk of an upfront vacancy. Usually these properties are priced around their actual value, but the bargain is the fact that they usually demand a higher-than-average rent because of the continuous demand for housing.

4.) Repossessions – Homes that have been repossessed by banks due to mortgage defaults will almost certainly be auctioned by a real estate agent, and clearly advertised. Simply search the internet, or ask agent’s to keep you informed of any upcoming repossessions.

Whilst these options may seem somewhat unconventional, remember that you generally make money when you buy a property rather than when you sell. Good luck. Simon Turner

Bleak House

It is widely known that houses prices in Australia, particularly Sydney are becoming increasingly unaffordable to an increasing number of the population. Higher interest rates have begun to limit the extent to which demand for housing can be financed. Rates have risen six times in just a short space of time.

Given that household debt now exceeds approximately 150% of disposable income (a historical high), and that the mortgage interest burden stands at 20% of gross income (up from 11% in 2003), even if demand were strong enough to continue to push up house prices, the recent credit crunch has reduced the funds available to potential house buyers as lenders have reined in borrowing.

Increased mortgage repayments are set to deal current homeowners a further blow.
Given the current credit squeeze and sup-prime mortgage crisis in the US, Australian banks will feel the pinch.

From a consumer’s point of view, this will mean that there will be few attractive offers from banks to refinance for a better deal. Indeed, many lenders have tightened their lending criteria as a result of the problems in the US subprime mortgage sector.

These trends will inevitably lead to an increase in the number of defaults in Australia —although it is unlikely that there will be a surge in defaults to the extent witnessed in the US, where many subprime mortgage holders are being hit by higher "reset" repayment rates.

Faced with higher mortgage repayments, Australian homeowners will be in less of a position to release their equity to purchase additional homes. Simon Turner

Australia's Real Estate Cartel: Part I

It is astounding in Australia today to contemplate the existence of a fully functioning cartel. In fact many people would only associate cartel-like operations with oil companies or in countries where the rule of law is not at the forefront of society. So what is a cartel and how could they exist in this country? How has this situation been allowed to happen, slipping under the noses of regulatory authorities? The answer to all of these questions are extremely complex and hit at the heart of the failures of governance of all areas of real estate. The aim of this examination of the industry is to expose the issues that have been ignored for too long and put forward a set of solutions to the multi layered problem which will require co-operation between all levels of government.

The first piece in the puzzle involves the fundamental issue of power sharing between the State and Federal Governments. Every State and Territory has its own set of laws covering real estate which can vary significantly. There is not a Federal set of guidelines to govern real estate agencies or real estate agents. and there are completely different training requirements in every State and Territory. This means that in some jurisdictions it is extremely easy, taking only 3 days for a person to be qualified as a real estate agent. This person then has the legal right to advise vendors on the best method of selling their home. That means that the three days course miraculously takes you from novice to industry expert, able to give advice to clients on what is generally their largest asset.

It would seem outrageous to visit a Doctor for medical treatment knowing that all they did to get their qualification was a three day crash course in first aid. Wouldn't it be alarming to know that your Accountant had completed a three day correspondence course in company tax law - never having been formally assessed under exam conditions? How about being represented by a Barrister who had completed a 3 day course in legal practice? All of these examples would be considered totally unacceptable in almost every country in the world, however real estate seems to be the exception. Understanding that each State or Territory has it's own guidelines and that no Federal guidelines exist is the first part in piecing together the evidence of cartel-like behaviour and finding a way in which to transform the real estate industry nationally. The second part is in understanding the training requirements to become a real estate agent as it forms the base upon which every other issue within the industry is built upon.

In the next part of our examination of the Real Estate Cartel in Australia I will discuss the ramifications of the low entry standards in the industry and will start piecing together the lobby groups who actually have a vested interest in maintaining the status quo. I will talk about the groups that benefit financially from this extraordinary situation and start the process of piecing together the links between these groups and the reasons behind their co-operation. This is a must read for all those involved in real estate in any way in this country and it is only when these issues are put into the public forum for open discussion and debate that we will be able to push for change protecting both consumers and the industry as a whole. Michael Marquette

Housing Affordability Worst in 22 Years

Home affordability lowest in 22 years
AUSTRALIANS looking to buy homes are needing the highest portion of family income in 22 years to make average mortgage repayments, according to the Real Estate Institute of Australia (REIA).

The Deposit Power/REIA Affordability report for the September quarter found 36.6 per cent of household income was needed to cover average home-loan repayments. Home affordability dropped in every state and territory, except Tasmania, with a 2.2 per cent decline in the quarter and 8.1 per cent over the previous 12 months.

NSW was the most expensive state with 38.3 per cent of a household’s income needed to meet average repayments, as affordability fell 0.8 per cent in the quarter and 5.4 per cent over the year.

As interest rates continue to rise, as seems likely on the horizon, home affordability is likely to drop even further in the near future. Benefits of schemes such as home savings and land release programs will only appear in the longer term, which means that the new Labor government has it’s work cut out to find a solution that assists the Australian public now. Simon Turner

All Hands on Deck: How Safe is Your Balcony or Deck?

A Melbourne balcony rail collapse that injured three people has prompted a pre-festive-season warning from architects about the safety of Australia's balconies and decks.

Pre-purchase inspections conducted by the Royal Australian Institute of Architect's buyer inspection service revealed that 6per cent of Australian homes had a timber balcony, and 2 per cent of these had the potential to cause life-threatening injuries.

These figures indicate around 8000 balconies in Australia could be life-threatening, and last week 3 people were injured when they fell 7m after a balcony rail collapsed. And this is not the first time: balcony collapses in several states in recent years had resulted in several injuries and deaths.

Coastal properties had the greatest risk because of the harsh environment and corrosion caused to metal fittings.

Clearly, people need to inspect their balconies and decks for rotting timbers and rusting fittings.

Particularly given the approaching festive season, these areas would be used for Christmas drinks, lunches and dinners, and many are likely to be overloaded, with people leaning on balustrades or balcony rails.

Clearly apart from possible injury or death to family members or friends, home owners would be foolish to ignore the legal liability which could arise from a collapsing deck which is proven to be in poor repair.

While balconies and timber decks had become important parts of Australian homes, many timber decks built in the 1960s and 70s were illegal because they had been built using inappropriate timber, some of which was now rotten and unsafe.

Whether you have a balcony or raised deck, whether timber, concrete or steel, please inspect the structure for shaky hand rails and balustrades, rust stains and cracking. If you find faults please take immediate action to repair them or seek professional advice if you are unsure. Simon Turner

Consumer Watch: How Fair is the Office of Fair Trading?

I have had an extremely interesting last couple of weeks in dealing with the NSW Office of Fair Trading. It has resulted in me wondering if it truly is all that fair? I have had cause to email members of the Specialist Support Unit almost daily and getting a response has been like pulling teeth. In fact I have had meetings or discussed the situation with various State, Federal and Territory MP’s and have also spoken with the New South Wales Ombudsman in order to clarify what we can expect as “reasonable” from the NSW Office of Fair Trading and it’s Officers.

A myriad of problems have arisen including bias, where comments have been made by one Officer indicating that guilty until proven innocent is the accepted way of thinking. There has been a complete unwillingness to assist a mother of 7 children in St Helen’s Park, near Campbelltown who as a tenant has been bullied and harassed by a local franchise agency. She is facing the prospect of being homeless just before Christmas and all of this through no fault of her own. This is just one example why major reforms are necessary to the powers, processes and manner in which complaints are handled by the Office of Fair Trading. Changes to training guidelines and compliance assistance for real estate agents are a must and
I will continue to speak with MP’s at all levels of Government to lobby for urgent reform.

It is not too much to expect those policing our industry to return calls, emails and conduct investigations in a timely manner. It is also not too much to expect a “Fair Go” which includes immediate assistance for all people needing urgent care. Surely a mother of 7 children in crisis would be considered urgent enough to be first priority. It’s time to cut through the red tape and the culture of secrecy surrounding the actions of Fair Trading Officers and if you have an Office of Fair Trading horror story please email me with the full details and I will ensure it is passed onto the Minister and other appropriate authorities as soon as possible. Michael Marquette

The House of 2020: An Education Revolution, Marquette Turner style

Following the lead of Prime Minister elect Kevin Rudd and the new Labor Caucus each Director or Partner of Marquette Turner will be visiting one Government and one Private School by next Wednesday.

We are determined to do our part in assisting primary school children to start developing an understanding of real estate, with a particular emphasis on “green living” and “environmentally friendly homes”.

In next week’s E-Magazine we will report back on the feedback we received and announce the details of our “Year 2020 Green Home” competition where there will be prizes at different levels including the school, class and individual who comes up with the best all round “2020 Green Home”. This will be an annual Marquette Turner initiative and we are incredibly excited about helping to create a greener Australia.

Michael Marquette

Supply & Demand

When you market your property, you need to employ a strategy that can run counter to your emotional perception of the home’s value.

This sometimes means listing at a price far below what you have emotionally anchored upon.

Like any commodity, a home’s price will follow supply-and- demand trends. In theory, custom homes in desirable neighborhoods should hold their value. Other properties should be discounted depending on how many similar homes or untis are on the market.

Every market is different, though. If there are no "bites" even after only a week of marketing, then drastic action is required. Most agents will wait until week 4 (or after the auction!) to tell you that, in actual fact, the good news that they had been telling you no longer applies.

Do not wait until your property is stale before adjusting the strategy as by then you may have missed the boat. This also requires you as a vendor to be pragmatic and commercial (but not bullied of course into accepting a price that you are unhappy with). Simon Turner

Landlord Insurance

I have just received a notification from my property manager suggesting I take out landlord’s insurance for an investment property I have recently bought. I already have building, contents and public liability cover. Is this just another unnecessary product that I’m probably already covered for?

No it isn’t just another unnecessary product! One of the biggest mistakes I see is investors assuming that a standard home and contents policy will cover them for any eventuality. The reality is that there are circumstances that are unique to investors as opposed to home buyers. The type of coverage landlord’s insurance gives relates to events such as rental default or any accidental or malicious damage caused by tenants. The cost of this protection is very little compared with the potential losses it covers. Simon Turner

Housing Stress Continues

Housing affordability has been talked up by both major parties as a key fixture of the election campaign. It is, however, an issue that will not simply go away as quickly as the election battle.

For an increasing number of Australians rising interest rates and inflation on the back of rising fuel and grocery belts, are tightening many belts. Those with mortgages are being consumed by mortgage stress, and with low vacancy rates fuelling big spikes in rents, tenants are not being left behind either.

A report by the National Centre for Social and Economic Modelling and the Housing Industry Association (HIA) predicts that the number of households spending more than a third of income on rent is set to rise over the next three years. There are expected to be another 230,000 households facing rental stress over the next three years, and that takes the total in Australia to three quarters of a million.

Chris Lamont of the HIA states that almost one in two tenants throughout both metropolitan Australia and regional Australia, are really struggling just to put a roof over their head.
Whilst traditionally rental stress has been more an issue in the major capital cities, we have to now take into consideration that a lot of regional centres, as a consequence of the mining boom rents have also been rising at very fast rates. In some areas, wages have kept up with those increases, in most, they haven't.

Regardless of which party occupies the powerful side of parliament following the federal election, the rental crisis is really going to rear its ugly head at the beginning of 2008.

The majority of tenants are looking for new properties at the beginning of the year, and given that the market is already very inflated and strained in addition to a vacancy rate at its lowest on record at 1.7%, the stress is only going to get worse.

Some form of targeted assistance, perhaps in the form of a rental rebate scheme would certainly assist many and deflate the issue, as would further assistance to first home buyers.
Unfortunately, it’s definitely time to batten down the hatches and tighten those purse strings as such relief will unlikely be forthcoming quickly enough. Simon Turner

The Zero Energy Tower

Burj Al-Taqa: Middle Eastern Zero-energy Tower

The recent building boom in the Middle East has given rise to some of the world’s most extravagant and innovative buildings. The latest proposed tower to sprout up among the ever-changing skyline is the Burj Al-Taqa Energy Tower for the Middle East.

Designed by Eckhard Gerber and cutting a 322 meter high silhouette, this commercial high rise will produce zero emissions and use sun, wind and water to create all of its own energy. The 68-story structure will use natural air conditioning based on Iranian wind towers which draws wind in and down to cool interiors. Gerber’s cylindrical design uses this principal to ventilate the tower.

A central atrium will provide fresh air inflow. The incoming air will be pre-cooled with seawater, dispersed throughout the building and ventilated through a double-skin glass façade. Tubing throughout the ceilings will run cool water for additional radiant thermal comfort. Solar gain control is dependent on a new type of vacuum glazing that is still in development but expected to be over 60% more efficient than current technology.

A rotating solar shield covering one sixth of the building circumference will provide shade at the highest incidences and use an integrated photovoltaic array to capture the sun’s energy for electricity. And yes, that is a wind turbine on top. The Darrieus-type rotor, together with two more roof-mounted photovoltaic arrays and a floating array in the nearby sea, will equip the Burj Al-Taqa to meet its energy needs. Any excess electricity will applied to generating more energy – extracting hydrogen from seawater for fuel cells.

Gerber’s ambitious projections for the Burj Al-Taqa depend on unproven techniques and untested materials. However, if the Energy Tower for the Middle East lives up to expectations, it will require 60% less energy than comparable buildings, produce no CO2 emissions and, from a lofty height at number 22 on the list of the world’s tallest buildings, can boast complete independence from non-renewable energy. Read more Simon Turner

The Rental Bond Con

A 34-year-old woman who accumulated $47,420 by tricking more than 200 victims in a crime spree was last week given a suspended jail sentence.

Magistrate Pat O'Shane said the woman had taken bonds from people, purporting to be leasing properties she did not own. Among her victims were financial institutions.

The magistrate stated that the woman had been "naive" as she had dealt with people in her own home, used her own name and deposited all the monies into a single personal bank account. Nevertheless, she had exhibited "a high degree of planning and criminal conduct".

Ms O'Shane accepted Prince had had a troubled history and had suffered from a bipolar mental disorder for which she had had inadequate medication, and at times she had not kept up with the medication.