Home' Domain South Coast Register : September 16th 2009 Contents 4 - Wednesday, September 16, 2009
Domain.com.au supplement to the SOUTH COAST REGISTER
. I've sold an investment proper ty and will
get $200,000. I've a home loan of $290,000.
Should I use the money to reduce my loan?
Though it makes sense to cut the
mor tgage, I'm apprehensive. If I sell my
existing home and move into another place
in about two years, I may be worse off in
the falling proper ty market. Should I leave
the money in the bank and use it as a
deposit when I buy another home?
. I assume you wish to maintain flexibility
in the event that you wish to keep your
existing house and rent it out at the same
time as you buy another. If that is the case,
you should place the money in an offset
account because then the interest will be
deducted from the interest being paid on
the mor tgage, instead of being paid to you
as taxable income. If you do decide to
move, buy another house and keep the
present one.You can then simply withdraw
the money from the offset account for a
deposit on the new proper ty.This will
enable you to maximise your interest
. We are in a two-bedroom unit valued at
$525,000.We paid $472,000 for it four
years ago.We would like to move to a
bigger proper ty as we have two kids and are
planning a third.We also have some debt we
would like to clear. Should we sell our unit,
clear the debt and rent a bigger house --
basically star t over again -- or should we stay
in the unit and str uggle for a bit longer so we
can eventually buy a bigger place?
. Renting is always cheaper than owning,
so unless you foresee a strong capital gain in
the unit, a better option may be to quit it
now and star t again. If your debts are
caused by poor management, you should
do strict budgeting, otherwise you will find
any surplus funds from the sale will be
slowly frittered away.
. My wife and I are in our mid-40s with a
combined gross income of $150,000 a year.
We own our own home, which is wor th
$500,000.We also have an investment
proper ty with an interest only loan of
$500,000 variable at 5.49 per cent. Our aim
view to retiring to it.We'd like to have the
proper ty paid out by then.We have
$175,000 in an online account, earning 3.5
per cent interest. Given mor tgage interest
rates are so low and may drop fur ther, and
given we eventually wish to live in the
home, should we put the $175,000 into the
mor tgage? We have considered putting the
money into super but as we are in good
defined benefit schemes we are keen to
look at other options. Insurance bonds have
been mentioned but we do not know
anything about them.What would you
. If your combined gross income is
$150,000 it is a vir tual cer tainty that one of
you at least is in the 30 per cent tax bracket.
Therefore there would be no benefit in
investing in insurance bonds, where the
earnings are taxed at 30 per cent from the
fir st dollar earned.They are more
appropriate for people who earn more
than $80,000 a year. The benefit of placing
the money into super is that you move it to
an environment where tax on income is
just 15 per cent but you do leave your self
open to changes in the law, which could
restrict access to large lump sums by the
time you retire in 15 year s time.This is
unlikely but still a possibility. If you can take a
long-term view your best option may be to
invest it in a por tfolio of Australian blue chip
shares in the name of the lowest income
earner. This will enable you to retain access
and at the same time will be highly tax
effective because of the franking credits.
AUSTRALIAN house prices are rising faster than
Donald Tr ump's hairline. But can this boom in
house prices continue?
Yes, it can. Because we simply don't have enough
houses to cater for our growing population.
Proper ty values grew at an astronomical rate of
4.2 per cent in the quar ter to June 2009, which
forces us to admit it's more proper ty boom than
proper ty doom.
... all that bluster about house prices falling 40 per cent.
Pah! It's as though Australians believe in house prices
the same way that naked emperor believed in his non-
existent new clothes.
The Housing Industry Association and Residex are
warning that some par ts of Australia are in a proper ty
price bubble, par ticularly Sydney and Melbourne.
"Sydney has grown more than 6 per cent to July and
Melbourne is in the high 5s -- if you annualise those
rates of growth, it's something like 28 per cent --- a
boom," says Residex's John Edwards.
"It's just dangerous. If the average mor tgage is
$354,000 then a 2 per cent rise in rates will make
things ver y stressful for most families."
Even the International Monetar y Fund says our house
prices are too high relative to rents and local incomes.
But the majority of proper ty commentators are
pleasantly surprised by how well Australian housing
keeps its knickers on and continues to grow.
RP Data analyst Cameron Kusher says it's better
for house prices to grow than to create a shock to
the more than $3 trillion of household wealth tied
up in housing.
Australian Proper ty Monitors economist Matthew Bell
says there is no evidence of a price bubble. "The IMF
and the proper ty doomsayer s fail to understand the
supply problems the Australian market has," says Bell.
That word 'supply' always sounds like someone's drug
stash, but is the real reason the prices of our houses
keep growing (while the rest of the world suffers
While proper ty developers can't get their hands on
finance to build more apar tments and townhouses,
Australia's housing supply will remain restricted and
theoretically prices will keep going up or at least
maintain their position.
ABS stats show our population growth is stronger
than any time since 1971, thanks to a mini baby boom
and strong overseas migration.
A Matusik Proper ty Insights repor t found the annual
housing demand for each state to 2014 is:
The capital cities facing the biggest supply problems
. Melbourne, which needs 15,207 houses and
13,875 attached dwellings
. Brisbane, which needs 12,791 houses and 11,745
. Sydney, which needs 12,603 houses and 11,552
. Per th, which needs 9,068 houses and 8,108
With interest rates at their lowest in almost 50 years,
prices have risen but the affordability of buying a
house has actually improved because we can all afford
to take on a bigger mor tgage while interest rates are
low. But all this does is push up prices.
With more than 8 million dwellings in this country,
there are plenty of households and investors who
faithfully believe proper ty builds long-term wealth.
But are we deluding ourselves? Neil Jenman has
argued that Australia does not necessarily have a
housing shor tage as there are plenty of spare
bedrooms in our over-sized suburban homes to take
up the slack.
Jenman worries more about rising house prices
locking out essential workers like nur ses, firefighters
and teachers from owning homes.
"When the value of all homes is going up, all it does
is widen the gap between those who own and
those who don't --- rising house prices are only of
benefit if you want to move into a cheaper house
and cash the difference," explains Professor of Public
Ethics Clive Hamilton.
Talking property with domain.com.au
Why are Australians fuelling their own proper ty boom?
Proper ty bargains: what they are and how to find them
By Alex Brooks
CAN houses or apar tments ever really be a bargain?
Unlike handbags on sale at David Jones, snapping up a
cheap residential proper ty could be like buying a used
car and getting stuck with a lemon.
Some may believe that paying $50,000 less than the
median price of homes nearby means they have
snared a proper ty bargain, but if that proper ty is on a
main road, has plumbing problems or a roof that's
caving in then the cheap price might not be wor th it.
In today's volatile residential proper ty market some
million-dollar plus homes can be 20 per cent or 30 per
cent cheaper this year than last year ... but does that
make them a bargain?
"You can really only claim you have bought a bargain if
you pay at least 10 per cent under what would be
considered 'fair value' for a proper ty," says Residex's
But if 'fair value' is a concept that moves up and down
with the market, how can you pin it down?
Bill Fatouros, of independent valuers LandMark White ,
says the technical definition of 'fair value' is what a
willing buyer would pay a willing seller at a cer tain
point in time to purchase a proper ty.
"A bargain is only ever relative to tr ue market value --
and for valuer s, market value is a moving feast," he says.
Mor tgage Choice's 2009 Proper ty Investor s Sur vey
found 76 per cent of Australians planning to buy an
investment proper ty in the next two year s are waiting
until the Fir st Home Owners Boost expires at the
end of this year, taking the heat out of the lower end
of the market.
All are hoping to get more of a bargain next year than
they could pick up this year. But does that mean there's
no such thing as a bargain in real estate?
There are real estate bargains available in any market --
boom or bust. It just takes clever research to pick
them out. Here are some examples:
CASHFLOW POSITIVE PROPERTIES: If the rental
income a proper ty can earn will cover the mor tgage
payments, management fees, repair s, and running
costs then a proper ty is definitely a bargain. "More of
these are coming on the market now that there's a
strong rental market and a poor buyer s' market,"
DISTRESSED PROPERTIES: A distressed proper ty is
one with a distressed seller. Job loss or transfer,
divorce, death, pending foreclosure, and lack of money
cause seller s to sell fast for less. Discovering the seller's
problem and finding a solution is the key to buying a
bargain proper ty.The old wisdom used to be that if
you bought a mor tgagee in possession proper ty, you
would get a bargain. But that's not always the case
because if first home buyers are all competing at a
mor tgagee in possession proper ty auction, it can push
up the price. It takes a lot of research and homework
to come across a true "distress proper ty" where a sale
can be had for less than fair market value.
UNDERVALUED PROPERTIES:This takes real market
exper tise and valuation excellence.These could be
locations that are undergoing change, such as St Kilda
in Melbourne or Paddington in Sydney, where
workers' hovels that could be bought for a song 20
year s ago are now wor th millions. Under valued
proper ties can also be those which appear to require
a lot of renovation work, yet may only need some
cost-effective cosmetic repair s. But remember this -- if
you genuinely believe it's under valued, why doesn't the
rest of the market?
These are just some of the examples of proper ties
that are bargains.They are rare.They aren't easy
The residential proper ty market is similar to the
market for fine ar t or antiques, where value is always
be determined by supply and demand. Markets such
as these will continue to be a cycle of ups and downs,
but true quality will always hold its own.
Rugs: adding a new dimension to your home
WHEN you first moved into your home a few year s ago,
you had all of the hardwood floor s refinished and bought
several nice area rugs for key places like in front of the
sofa and under the dining room table.
Besides an occasional vacuuming now and then, you've
done little to care for your area rugs and it's star ting
They are looking a bit dull. In order to maintain your
area rugs and extend their longevity, you need to care
for them properly.
Fir st, consider the placement of your area r ugs. Are they
in the path of direct sunlight? If so, then you may want to
move them to reduce fading and deterioration.To even
out the effects of the sun and provide more equal wear,
you should rotate all area rugs once a year. Make sure you
turn each r ug a full 180 degrees. For a new look, tr y
switching your rugs around from time to time.
To keep your area rugs in good condition, vacuum them
twice a week.This will get rid of dir t and reinvigorate
When vacuuming, r un with the nap of the rug, not
against it, which will force dir t back into the r ug. Never
take your area rugs outside, throw them over a
clothesline and beat the dir t out of them with a stick.
Eventually, you will destroy their form.
In the event that something is spilled on your area r ugs,
clean it up right away. Don't leave it for later and give
the spill time to set in. Blot the spill, don't rub it, with a
dr y towel. Continue blotting until all of the liquid has
been soaked up and use cleaner only if necessar y.
Although you could do it your self, many exper ts
recommend that you hire a professional to clean your
area r ugs once a year.They will have the necessary tools
and products for cleaning your r ugs properly.
Caring for area rugs requires a bit more than vacuuming
them occasionally.To keep your area rugs looking their
best for a long time to come, follow the tips above and
care for them accordingly.
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