When Is A Property HotSpot Luke Warm

I read an article today naming Cremorne on Sydney’s north shore as this week’s HOTSPOT and if you look at recent figures you have to agree:

  • Median 12 month growth:10.46%
  • Median 3 year growth: 15.74%
  • Median 5 year growth: 32.74%

However the 10 year average growth is only 4.07% and if you take the average inflation rate since 2004 is around 2.75% then the real return is only 1.32%.  You can then add the rental yield which is claimed at 4.09% gross, so net will be around 3.50% so actual return over 10 years is 4.82%, not much different to what you would have made on cash….. I read elsewhere some advice that the old adage that “time in the market” is not as valid as many believe and that “timing the market” over a short term 3 year  predictable forecast is much more important and likely to result in better returns.  On that basis it may be that Cremorne should have been on the radar 3 years ago rather than today.

Change of Queensland Real Estate Rules

Under the new law that has been passed couple of days ago, real estate agents are no longer obliged to reveal their commission rates to their buyers. Furthermore, they are no longer obligated to follow an extreme commission limit.

The modifications made in the Property Occupations Act and its associated regulations will surely affect how buyers and sellers make a deal, since the agents are no longer required to reveal their fee to the prospective buyers.

With the latest changes, agents can now ask any amount as commission fee from the seller as the maximum commission limits have been dissolved. These changes will also affect how agents participate in an auction as they are no longer required to issue price guides.

The goal of these changes, according to Jarrod Bleijie, Queensland’s attorney general, is to get rid of red tape as the changes will also include stricter disclosure policy, elimination of warning statement written in the contract and longer agency agreements. He said, “Contracts can often do more harm than good, with many people either skimming over important information or in some cases not reading the finer detail at all”.

According to Jarrod’s statement, these changes will greatly protect Queenslanders in purchasing a house. When the process of buying a house becomes simpler, people living in Queensland who want to invest in a house will be secured with the changes as stated in the Act.

On the part of real estate agents, the changes are well-respected. In fact, the president of Real Estate Institute of Queensland, Anton Kardash, considered the changes, specifically the price guide ban, as a way to promote transparent relationship between the buyer and the seller. For him, it is a win-win situation for consumers as they will enjoy better transparency when they purchase a property at an auction.

However, the changes may also hurt the merchants, according to Tony Panos, who is a real estate coach. He told the Real Estate Business publication that buyers might be disappointed if they would not have a way to know whether or not such property is in their price range. “They would stay away from properties where they were given no idea at all of the selling price. So, I think it would be against the vendor’s best interests,” Tony commented.

Given previous allegations of developer support for the Campbell-Newman government one has to question who benefits most from these changes

Ridiculous that CHOICE slams family guarantee home loans

A recent AAP report quotes consumer advocate CHOICE as saying “family guarantees could see the borrower and the relative lose their homes”.  If this quote is correct then we believe it is quite misleading and in many ways hypocritical as it was not too long ago that CHOICE had an uncomfortably cosy relationship with a mortgage broker itself.

We have a very highly regulated mortgage market in Australia where every mortgage broker and lender must comply with the National Consumer Protection Act and must be licenced or registered with ASIC under the Australian Credit Licence regime. These two instruments place an enormous, some may argue over-arduous emphasis on ensuring that any borrower can afford to repay their loan. The penalties for failure are very significant and include penal provisions.

With home prices in most capital and larger regional cities continuing to grow at well above inflation the cost of entry for most first home buyers is a major barrier. This has been compounded by the removal or restriction of concessions on State imposed stamp duty and the reduction of availability of lenders mortgage insurance above 95%.

For many first home buyers there is little possibility of raising the required 5 percent deposit plus a further 4 percent stamp duty and possibly 2 to 3 percent LMI. As a result for these borrowers the family guarantee may offer the only stepping stone onto the property market.

We agree that family guarantees should not be taken or treated lightly and that the guarantor must be fully aware and capable of making an informed decision. Not all lenders offer good guarantor outcomes however there are some very good options where the guarantee is limited only to the amount required to cover the deposit gap.

In a recent blog article our head broker, Andrew Hunter describes his experience when arranging a guaranteed home loan for his own son see http://keychange.com.au/will-you-guarantee-my-home-loan/. In this article he points out that parents have been guaranteeing car loans, personal loans and home loans for decades. The difference now is that consumer protection legislation is more than ever in  favour of the borrowers. As a result lenders impose significant padding in both income and equity calculations when considering a guaranteed home loan.

Of course circumstances can change but this is true for every mortgage and as a result there is a risk, however the risks can be mitigated and managed. The secret is ‘get good home loan advice‘ and don’t take populist one line throw away comments too seriously.

Borrowers advised make additional repayments

With record low interest rates now is the most suitable time for Australian mortgage holders to repay their loans or make additional repayments.  Every dollar that you repay at the moment is substantially reducing the loan principal where as with higher interest rates a larger proportion of the repayment is lost to interest.

What’s  more by making additional repayments now you are conditioning yourself to be better prepared financially when interest rates do eventually rise.  Not only are you more used to making the higher repayments but in the case of hardship or unforeseen financial problems your advance payments provide you with a buffer – this can be either in the form of a repayment holiday or redraw those funds for other purposes.

So, now is an ideal time for Australians with a mortgage to pay off their debt as much as possible.


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