Is 2008 Set To Be A Year To Forget?

Unemployment is now at 6.1% nationally - the second consecutive quarter that this has increased. Should we be blaming the new Rudd Labor Government? Should the knives be at the ready? Will interest rates reach the heights of the early 90’s and what does all this mean for property in 2008?

In the last few Marquette Turner e-magazines I have looked closely at what 2008 will bring for property owners and with only 10 days gone in 2008, we can already see the validity of the predictions I made for 2008 at the end of last year.

As interest rates increase and inflation stays above 3%, fuelled by the pressures of high oil prices it’s inevitable that unemployment will increase. Employers are tending to play a waiting game or are battening down the hatches and getting ready for what comes next. But what will come next?

At the end of 2007 I predicted interest rates to hit somewhere between 9-9.5% and with the Banks increasing rates even before the Reserve Bank announces its decision on official rates this is looking very likely.

Is the Rudd Government to blame? The answer to this is no. The Australian economy is now into its seventeenth year of growth which is remarkable and home owners have been able to cope on the most part (only just in many cases) with recent rate hikes. Interest rates increased 6 times under the former Coalition Government and it was inevitable that further increases would occur in 2008 regardless of which party formed Government. The price of oil filters through every area of the economy with the result being higher prices for consumers. Higher prices result in inflationary pressure which means higher interest rates.

What does this mean for property in 2008? Marquette Turner's first open home for 2008 was run in Neutral Bay last weekend and to our amazement we were inundated with over 30 groups of buyers all eagerly searching for property.

Buyers are still very much in the market, however the attraction to fixed interest rates has increased and I am urging all those that ask to lock in rates as quickly as possible - this is by far the best way to bullet-proof yourself and ensure that you are not feeling undue financial pressure as 2008 rolls on.

Rental demand is extremely strong and rental returns have increased but these gains will quickly be swallowed up by increased interest rates with the result being that many landlords will find the situation too tough, forcing them to sell. 2008 is going to be a year where property prices are steady and those that are willing and able to take advantage of distressed sales will benefit greatly.

The property outlook is mixed – rents will continue to be high, housing affordability is now at its worst point in over 20 years and this is likely to become even worse as interest rates and unemployment continue to increase.

The likelihood of a US recession is high and the sub prime (Lo Doc) mortgage market has caused significant damage in the US and this will likely result in tougher lending criteria for Low Doc products in Australia. The Australian economy has stood firm against the Asian Economic Crisis and we can get through a US recession.

With over 40% of our National exports coming out of mineral rich Western Australia and with demand for our natural resources greater than the rate at which we can supply them we may just sneak through when other countries stumble.

My advice for 2008 is lock in your interest rates and be sensible when spending. Ensure there is plenty of money in the tin for a rainy day and do everything possible to cut excess.

Michael Marquette michael@marquetteturner.com.au

Lock Your Home Loan: Shield Yourself From Further Rises

Home owners should look at locking in the interest rates on their mortgages as the banks get set to raise home loan and business rates.

NAB, the Commonwealth Bank and ANZ have all responded to the tightening global credit market by lifting their variable home loan rate in excess of the Reserve Bank's last raise in December.

Federal Treasurer Wayne Swan has urged Australian banks to take into account the financial pressures that people will face as interest rates get set to rise, although he recognises that the rise in variable mortgage rates is a direct result of the US sub-prime crisis and not directly the fault of the banks.

Marquette Turner believes that there is more hurt to come as the US sub-prime crisis works its way through the financial systems, therefore a shift away from variable home loans is a reflection of uncertainty and caution.

Simon Turner simon@marquetteturner.com.au

The Outlook for Rental Propery in 2008

Increasing demand and lower vacancy rates will cause many rents to increase during 2008.

With the population growing and rising interest rates putting some investors off the residental market, vacancy rates, (currently running at an average 1.7 per cent) are unlikely to improve.

Increases in median rents can be expected in all states, the Real Estate Institute of Australia says in its 2008 real estate market outlook. The likely rise follow across-the-country increases last year with rents for three-bedroom houses increasing by an average of 12.6 per cent to September 2007.

Darwin is now the most expensive rental location in Australia (the median rent for houses is $440 per week and for other dwellings $340 per week) although Sydney and Canberra renters also pay $340 median weekly rent for two-bedroom other dwellings.

The cheapest rental location is Adelaide at $255 per week for a three-bedroom house and $205 per week for a two-bedroom dwelling.

Some investors are being turned off from the housing market as interest rates have risen and are seeking to take advantage of other investment opportunities which have more favourable taxation treatment.

On the upside, however, with a fluctuating stock market, residential real estate in Australia is looking decidely stable!

Simon Turner simon@marquetteturner.com.au

Australian Property: Some Positive News

Australia's home-building approvals unexpectedly surged in November by the most in nine months as higher employment, wages and immigration encouraged investment.

The number of approvals to build or renovate houses and apartments rose 8.9 percent from October (when they slipped 3.6 percent), according to the Australian Bureau of Statistics.

WHAT THIS MEANS

An acceleration in construction increases pressure on the central bank to raise borrowing costs to stem inflation, already above its 3 percent ceiling. This report also suggests investors may be switching into property amid stock market volatility that is seeing Australia's benchmark index falling.

This will ultimately ensure that interest rate rises continue to creep up this year, so long as such trends remain, comments Michael Marquette of Marquette Turner. He continues that "for those investors concerned about the Australian stock market, the residential housing market looks like a good place to be''.

Approvals to build private houses rose 0.3 percent to 9,340 in November, today's report showed. Approvals for apartments and renovations advanced 28.4 percent to 4,882.
Another report today showed Australia's construction industry accelerated in December, boosted by new infrastructure projects and commercial property building.

The construction index rose 6 points to 59.2, according to a report by the Australian Industry Group and Housing Industry Association released in Sydney. A reading above 50 indicates the building industry is expanding.

It is also the view of Marquette Turner that rental vacancy rates, which are averaging 1.7 percent, are unlikely to improve significantly during 2008.

Simon Turner simon@marquetteturner.com.au

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

View our listings

Scrooge: Will the RBA Lift Rates Before Christmas?

Homeowners could yet face a pre-Christmas interest rate rise from commercial banks, after evidence they are in their strongest market position for nearly a decade.

While the funding squeeze on wholesale money markets has forced non-bank lenders to lift their prices, banks, with their large deposit bases, have been keeping prices low in an attempt to steal customers.

Figures from the Australian Bureau of Statistics show the strategy has paid off, with the market share of banks, by value of loans extended, rising to 84.9 per cent in October, the highest in seven years.

As banks continue to hold regular weekly internal meetings to set their standard variable mortgage rates - which so far have remained unaffected by the credit squeeze - some economists think a move before Christmas is likely.

The chief economist at Deutsche Bank, Tony Meer, said banks were likely to put rates up by between 10 to 15 percentage points above the official rise in interest rates last month.

An economist at JP Morgan, Helen Kevans, is tipping a rise of between 10 to 25 percentage points above movements by the Reserve Bank.

"It is becoming increasingly likely that major Australian banks will attempt to alleviate the current pressure on their spreads by passing on the significant rise in funding costs to borrowers," she said.

The prospect of higher rates, along with the official rise last month, has already deterred some new borrowers.

And even if the RBA keeps rates on hold before Christmas, they could still spoil the New Year by increasing them before 31 December. Marquette Turner believe the latter to be more likely

Simon Turner, Marquette Turner

How to Have a Hassle-Free Christmas

Entertaining friends and family during the festive season is a lot of work.

Aside from the planning that goes into a festive event, post-party cleanup can be a full-time job. If you feel the holiday tension, you aren’t alone: Nearly half of Australians report experiencing stress during the holidays, according to a Gallup survey.

Help keep your Christmas hassle-free with Marquette Turner's time-saving party-preparation and clean-up tips:

House Guests:
Resist the temptation to wait on out-of-town guests hand and foot. As the host, you need to relax and enjoy the spirit of the season and the cheer that comes with houseguests.

When your houseguests offer to help with meals, graciously say “yes” and allow them to prepare their favorite side dish or dessert. Take them up on offers to help set the table or clean dishes. This offers extra time to catch up with your guests while you’re all in the kitchen and dining area contributing to a great celebration.

Highlight your home’s best assets:
Instead of tirelessly trying to make every room of your home spotless, concentrate on the areas where guests will spend the most time.

Focus on the bathroom:
Your guests will likely visit this room before they head home. Pay attention to little details like refilling soap dishes and having fresh hand towels.

Have a solid plan:
When creating a guest list, consider your options ahead of time. Buffet-style meals are easier for larger groups, while you can better host a sit-down dinner with six or fewer guests.

The holiday feast is not a time to try out an all-new recipe. The key to being a less stressed hostess is building your menu around foods you are comfortable making.

Cook ahead:
Make dishes in advance of the big celebration to cut down on the time spent in the kitchen when your guests arrive. Many hors d’oeuvres, desserts and side dishes can be made and frozen until ready to serve.

Control mishaps:
A good host handles disasters with grace. Do not fear the dreaded gravy stains on the white linens or the cranberry sauce spilled on grandma’s white blouse. Use the internet to find the quick solution.

Good luck and happy holidays!

Simon Turner, Marquette Turner

The Real Estate Cartels: Part 2

A cartel is a coalition of political or special-interest groups having a common cause, as to encourage the passage of a certain law.

In Australian real estate the cartel is indeed alive and well. I posed the question in part one - "how has this situation been allowed to happen"?

The answer to the overarching problem has two origins:

1. The different guidelines governing real estate in every State and Territory
2. The different level of training required to be an agent in every State and Territory

The formation of the Commonwealth of Australia in 1901 gave the States the power to regulate real estate. The States made little if any effort to pass uniform laws governing the industry and as a result we have a mish mash of requirements across the country. There is the Office of Fair Trading in NSW which is charged with the responsibility of looking after real estate agents in NSW.

There are equivalent bodies in every State and Territory and co-operation between these departments seems limited at best. Therefore the laws under which agents operate and the training required for real estate have been vastly different across the country since Federation. Bringing the States and Territories together and gaining agreement for a National system has been impossible to achieve.

Like any industry lobby groups act to alter decisions in favour of themselves. Each State has a Real Estate Institute and there is also a National Body. The Real Estate Institute of NSW has always been a major advisory body to the NSW Government when decisions have been made to alter the requirements of real estate agents or the real estate industry.

The Real Estate Institute of NSW like any organisation relies on the money it receives from memberships from real estate agents and other related bodies and as such it would unwise of them to get offside with a large number of agents by pushing for reforms which would revolutionise the industry - reforms which might be unpopular with their paying members and thus reduce the amount of money received in the form of annual memberships. Even worse would be to get a major franchise chain like LJ Hooker or Ray White offside as the risk to membership monies would be all too great.

So in understanding who is acting to advise and lobby the Office of Fair Trading and other Government bodies we start to see the cracks start to appear in the assurance of the integrity of any advice. It is also important to note that the Real Estate Institute in each State is a major training organisation, making considerable money from providing training courses like the Certificate of Registration and the Real Estate Licensing programs.

Would it be in the interest of these bodies to advise the Government in every State and Territory to form a national system? By doing so each State and Territory Body would be unnecessary and in doing so they would all be out of a job. Would it be in their interest to advise the Government to increase the educational standard of real estate entrance to Bachelor level, thus reducing their training revenues and moving education across to Universities?

As we begin to pull the process apart it becomes very apparent that the entire advisory system has self interest at heart and changing the status quo will be extremely difficult indeed. It takes just one person to start a revolution and as we continue to examine and expose the real estate cartel next week we will look more closely at the influence of the large franchise chains and existing real estate agents in maintaining the status quo. In doing so a National Forum in 2008 may be possible and true change as part of the "Education Revolution" might be just around the corner.

Michael Marquette
michael@marquetteturner.com.au

Marquette Turner Launches "Home-Page"

Marquette Turner is extremely excited to launch "Home-Page", a service allowing EVERY SINGLE property listing to have it's very own website.

Managing Director Michael Marquette said yesterday that "in keeping with our philosophy of providing an individual and personalised experience at all times, and with our constant pursuance of improving the technology with which our business operates, Home-Page is to property listings what our ground-breaking Concierge service is to people."

With immediate effect ALL vendor's and landlord's properties will be presented using a Home-Page, as well as the traditional internet marketing services. This will allow their properties to stand-alone in all their glory, and for prospective purchasers and tenants to fully appreciate the property online.

Another reason for you to enjoy our company!

Click here to see the very first Home-Page property.

Simon Turner

How To Get On The Property Ladder

THE HARD FACTS

• More than a third of a family's income goes to mortgage (In NSW it is 38%)
• Affordability has dropped in every state except Tasmania
• NSW is the most expensive state, ACT has the least affordability
  

In Sydney, with almost 40% of the household income going towards housing it is little wonder that there is any money left for anything else after living expenses are met (food, utilities, schooling etc).

Additionally, credit card debt is increasing hand-in-hand with the increase in the cost of living.

The new Rudd government promises action, and Marquette Turner remain hopeful that their election promises of first home-owner saving’s schemes are just the tip of the iceberg of a myriad of plans to improve housing affordability.

In the short-term, however, here are some suggestions to help you improve your chances of buying a property.



WHAT TO DO


Rent and Invest.

If renting, don’t wipe investing from the equation. You CAN do both! While rents have also gone up over the last year, the rise has not been anywhere near as steep as increase in mortgage payments (due to increasing interest rates) and rising property prices.


Renting can save you money in the short term so use the savings, no matter how small, to:



a) pay off any credit card debt (as the interest on this is likely to be far higher than any savings account can offer)

b) invest the money in an internet savings account (around 7.25% currently). Do not leave in a standard bank account as the interest returned to you is barely worth the cost of a stamp.

c) for those with more confidence, the stock market is returning almost double such saving’s account: on average 14% this year. Money invested in the stock market can quickly be withdrawn (i.e. is liquid) and can be used for the down payment of a mortgage.

d) some of you may even be in a position to consider to investing in a cheaper city to the one you're renting in.



Budget and spend carefully.
In times like this it is especially important to keep a budget and spend wisely. The more you save now, the more can save and invest meaning that your money is working for you now so that when affordable opportunities present themselves later you will be ready.



Move back in with your parents.

If this is still an option, don’t dismiss it. Rather than pay rent to a stranger – help out the parents by providing an extra income source for them.


Move.

Yes, the major cities in Australia are expensive. So move to a smaller city that is growing. Both cities are relatively cheaper and jobs are available. While this is probably the most difficult option, it may be the best long term solution for finding that affordable dream house.

Keep looking.
Despite high prices there will always be a potential bargain out there if you are willing to compromise a bit. The big thing when buying is Location, Location, and Location. Look for old houses which with some renovation. This could be the affordable option you were looking for.

Don’t Stop Researching

Whilst housing affordability may be at its worse, one’s ability to research and make sound investment decisions is probably the best it has ever been. Use the internet to educate yourself on processes, ideas and trends. Marquette Turner's blog's can provide you with useful insights, regardless of your experience, intentions, or available funds.

Maybe things are looking up after all! Good luck.

Simon Turner

What Women Want: Guess Who Makes the Investment Decisions!

A survey by Suncorp Metway has uncovered that women make most of the big decisions when it comes to investing in property.

A staggering 85 per cent of all purchasing decisions are influenced by a female despite the findings that most women are ignored during the purchasing process.

Real estate agents and mortgage lenders seem to think that women who come along are just there to support their partner meaning that they are treated fairly poorly.

Quite simply, anyone ignores a woman at their peril, as they can make or break a transaction. And reversely, any woman that finds she is being ignored or that the agent is looking to her husband for approval can also potentially use this to their advantage. She can be silently but deadly, her moves poorly followed.

The investigation also showed that women tend to research more when it comes to buying, meaning they’re more likely to find a good balance between their head and their heart.

They are most interested in features of the property, such as living areas, number and size of bedrooms, kitchen appliances, and off-street parking with the ultimate deciding factors being the size of the block or house, overall aesthetics and proximity to amenities.

Simon Turner

The Hit List: Latest Buyer Trends

HOME buyers are looking for fewer but bigger rooms, a bedroom with a view and the latest in technology. Not to mention a great location and water tanks!

The trend is for fewer but larger rooms, and while the formal dining room went out of fashion a long time ago, spare bedrooms and the third bathroom are the next to be crossed off the home buyer's shopping list.

A master bedroom with a view is the ultimate desire. And while it doesn't have to be on another floor, there does have to be a bit of distance between it and other bedrooms. The ensuite must have plenty of room, where owners can sit in the bath and see outside. And, despite current water restrictions, they like to have a spa.

Home theatres are still on the "must have" list but now we also want plasma or LCD screens throughout the house: in nearly every nook and cranny, including in the kitchen, bedroom, near the pool and even in the bathroom.

Technology continues to affect our homes and it is also now important to buyers that their home has a wireless connection so they can work from home, throughout the home without having to compete with the rest of the family for cable access.

When it comes to looking into the crystal ball to see what will be the most desirable asset of your home in the future, the location remains the ultimate key.

Schools in particular, shopping centres, public transport, parks and lifestyle conveniences such as, cafes, restaurants and gyms are all desirable aspects.

From most buyers' viewpoint, the really important features for the location of their home are that the neighbourhood is safe, close to schools, medical services and shops, and also close to their workplace or to reliable public transport.

The aesthetic characteristics of a suburb or street also rank high on most homebuyers' list of desirable features.

A recent survey by Archicentre asked home buyers about what feature they would place above others. Almost 80 per cent said a water tank for gardening while 14 per cent said a spa in the en-suite and 6 per cent went for the large plasma screen.

Sustainable housing practices, such as rainwater tanks, are becoming more popular across the board given that water restrictions are unlikely to disappear in the near future.

Simon Turner

Interest Rates Remain Unchanged

Yesterday morning the Reserve Bank of Australia (RBA) announced that the official cash rate will remain at 6.75%.

The renewed volatility of international financial markets, concerns about the US economy and uncertainty about the likely path of fiscal policy and labour costs here in Australia are acceptable reasons for delaying any further rate hike.

The RBA Board warned, however, that rates may rise early in the new year, due to its concern about the outlook for inflation

Recent information continues to indicate strength in demand and output in Australia, with the economy having relatively little surplus capacity. Inflation on a year ended basis, as measured by the CPI and underlying measures, is likely to be above 3 per cent in the first half of 2008, and to decline somewhat thereafter. Simon Turner

Property Vs Shares: And The Winner Is...?

I was talking to a friend in the last week who has just purchased a great 1 bedroom apartment in Surry Hills. I visited him there just after he moved in and while showing me around asked the BIG question - which is a better investment for me, shares or property? The question took me back a little as he had just purchased his first home and yet still felt uncertain enough to ask the question. We then sat down and discussed what it had cost him to purchase his first home.

He had $50,000 to invest and he could have chosen property or shares. The property cycle and share trading cycles over the last 100 years or so have shown study after study that similar returns are achieved in the long run by investing in either area. Property prices typically double every 7-10 years depending on where you are in the country and share prices tend the same way over a similar period. The issue for the person with $50,000 to invest is gearing.

Gearing is what I believe makes the big difference for the average long term investor. Given that no stamp duty is payable up to $500,000 for a first home buyer, combined with the first home owner's grant there is an immediate incentive of up to $30,000 approximately. The big deal is financial institutions of all types will lend you up to 100% of the purchase price of property and most will lend at or above 90% LVR (Loan to Value Ratio). What this means is that you can take advantage of the capital growth of a property worth $500,000 with no stamp duty payable and legal and mortgage fees all paid with the first home owner's grant. At an LVR of 90% you would owe $450,000 to the lender and the property should be worth around $1 million in 7 to 10 years following on from past trends.

This sort of capital gain would simply not be possible for those investing in shares without significant security such as existing property or other assets. Few if any financial institutions would lend at such a high LVR to anyone purchasing shares and therefore I have to say that property comes out on top well and truly for the average Australian. Of course we have seen some huge success stories with people making millions from shares and it would be unwise to ignore shares as part of your total investment portfolio when you have the means to do so. Shares are cheap and easy to trade and if traded well can return enormous sums of money. The winner for the average Australian starting out their financial life in 2007 is property! Michael Marquette

Education Revolution: School Visit Update

Last week each of us at Marquette Turner committed ourselves to visiting one Public and one Private School within the week. We are awaiting confirmation of the times from the schools and will let you know more as soon as we can. Michael Marquette

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 Mortgage Blackspots

NSW home owners are the most stressed, and WA by far the least, according to a new study by Fitch Ratings, with home owners in south-west Sydney are by far the most likely in the country to miss more than one mortgage payment.

The Sydney suburb of Guildford topped the list, with 5.65% of mortgagees there missing more than one mortgage repayment. The NSW areas of Granville, Wetherill Park, Cessnock, Belmore, Greenacre and Punchbowl take up the next six spots on the list, all with payment default rates of between 4.63% and 4.91%.

Fitch managing director Ben McCarthy states that “This report, for the first time, confirms the anecdotal evidence that south-west Sydney is the most stressed part of the country in terms of residential mortgages. In south-west Sydney, mortgages that have missed more than one payment at 30 September were almost twice that of the national average.” Simon Turner