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Changes in First Home Owners Grant

May 13, 2013 Posted by Ian James

Ian James

It has been announced by the State Government that the $7000 First Home Owners Grant (FHOG) will change on 1st July 2013. The grant will be increased to $10,000 but the eligibility criteria also changes substantially. First home buyers are only eligible for this grant if they are purchasing a new home. Considering there are reliable statistics out in the public domain that approximately 70% of first home buyers buy established homes, then this will be a big savings for the State Government. FHOG is only available to those who purchase a property to the value of $750,000 or less.

The State Government will take $7000 away from 70% of first home buyers and give an extra $3000 to 30%. The other change for first home buyers does soften things a bit but not as much as you think. The reduction in stamp duty for first home buyers changes from a 30% reduction to a 40% reduction. This reduction is only available to those first home buyers who are not spending more than $600,000.

This is truly a smart move for the government. Currently the biggest saving an eligible first home owner can get would be the $7000 grant and then approximately $9321 if they are spending $600k on their first home. And in theory the savings would rise $3107 as the 40% savings kicks in. BUT, if you purchase a new home, quite often there are substantial stamp duty savings anyway, as you pay stamp duty only on the value of the land and improvements at the time of purchase not the finished product, but you do pay GST on the value of the building!!

There is an unseen benefit here. There is a small window of opportunity for those who are buying before June 30th and settling after June 30th. If the contract date is prior to June 30th then you will be eligible for the current FHOG of $7000 and if the purchase price is under $600k then the stamp duty reduction, assuming you settle on July 1st or after will be 40%. If you are considering purchasing a new home, then obviously it will be a lot smarter to wait until July 1st to sign a contract and then you get $3000 more for the FHOG.

If you would like some assistance to purchase your first home, please feel free to call our office, or make an appointment for a no obligation meeting

Ian James
Director
JPP Buyer Advocates

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Categories: Buyer Advocates

Investors looking at Off-The-Plan Sales need to beware

May 6, 2013 Posted by Ian James

Ian James

Investors chase profit in three ways: Capital growth, Rental yield and Tax deductions. There was an old adage I once heard many, many years ago: Never buy an asset where the sole purpose is to lose money and get tax deductions!

In other words, long-term capital growth should always be your focus when buying property but short-term yield helps to pay the mortgage. The best way to do this is to choose properties that have potential for long-term growth, but immediately offer a rental return or taxable deductions that will allow you to meet mortgage repayments.

If we look at off-the-plan investments. These make sense for foreign nationals that have difficulty in complying with Foreign investment review board requirements as there can be up to a 50% exemption for the review board in certain developments. They also make sense for owner-occupiers who have always wanted to own something new. Similar to the person who buys a new car once in their life, then goes for the demo model every time after that. However, for an investor they may end up losing opportunity.

According to The Age reporter, Marika Dobbin, there were 23,325 new apartment approvals granted in the 12 months up to February this year. This is up substantially on last year and well up over the number approved through 2008. Many of these developers are starting the “give-aways”. Marina berths with docklands apartments, rental guarantees in Inner suburban developments, and furniture packages with the smaller townhouses. Anyone that was around the property market in 2000 – 2003 when Docklands and Southbank were gaining momentum will be reading this with trepidation.

If you need a rental guarantee, you should not be buying the property as an investment. These guarantees were thrown around with Docklands apartments and many investors were severely burnt when, after the twelve-month guarantee expired, after having the property vacant, the actual market rental return was in some cases less than half of what the rental guarantee had been.

Capital growth in the Docklands apartments has also been horrendously slow. In some instances, not even maintaining pace with CPI. This, during the 2000 – 2010 decade, where the majority of suburbs in Melbourne saw capital growth rates upwards of 9% p.a.

Newer style apartments, townhouses and houses will give good depreciation benefits, better rental returns and less maintenance costs than older style properties. However, this needs to be balanced with the higher initial capital cost. As interest rates continue to fall, (if the banks happen to pass on any rate cuts the Reserve Bank offer over the next couple of months,) then buying properties that are between 2 and 15 years old will be achievable with smaller on-going costs. Add this to good tax benefits and higher rents and you will improve your yield dramatically. If you have bought well and not pay the 20% builders’ premium that you usually have to pay for new and off the plan purchasers, you also give yourself a much better chance of capital growth.

If you are considering the purchase of an investment property, give our office a call and we can organise a no obligation meeting to discuss the pros and cons of property investing in Melbourne.

Ian James
Director JPP Buyer Advocates

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Categories: Market Forces

Time to drag out the crystal ball

April 29, 2013 Posted by Ian James

Ian James

This year we have seen clearance rates climb substantially from the past two lacklustre years bringing with it a small rise in prices across the better suburbs of Melbourne. Whilst earlier in the year, we were tracking for a substantial increase in turnover; there has been a lull since Easter that has endured longer than I thought it would.
Most selling agents are saying they have plenty of interest from vendors as an initial enquiry, but many are not following on to actually put their home on the market. At the same time there is a substantial increase in demand for property. Our enquiry levels have been substantially increased this year and the numbers of prospective purchasers walking through open for inspections has sky rocketed.

So what will this mean for the rest of the year and what factors will impact the most on those guestimates?

I think the market will continue to climb very slowly. By the end of the year I think we will look back and see a 6-7% increase including the approximate 3% we have already seen. The main factors pushing the price up will be lack of good quality stock, increasing demand, especially by first home buyers and downsizers, and finally the fact that many people have been sitting on their hands over the past three years and they are exasperated. I think the main factors holding back a normal 9-10% growth are worry about the overall economy and how politicians are running our country.

First home buyers may cause a small rush in the next 6 to 12 weeks. There is talk of a reduction in the first home owners grant that gives every first home buyer that is purchasing a home under $750,000 a $7000 grant. This may be removed altogether or simply changed to offer the grant only to those who are building new homes. Either way, our politicians are making promises in budgets they simply cannot keep and some things have to go. This seems an easy grant to withdraw without attracting too much heat.

Downsizers will become a huge force in the market place. Baby Boomers hold an incredibly large amount of assets and over the next 10 – 12 years these people will begin to retire. Part of their superannuation will come from releasing equity in their largely paid off family homes. These will be sold and then a smaller “town residence” will be purchased to take its place.

The federal election campaign (which we are not having now according to Ms Gillard) is continuing to drive people crazy. If the polls are any indication, it is fairly obvious there will be a change of government in September. On top of this we have rumours of tremendous deficits going to be running through our federal budgets. These facts and some of the uncertainty lingering from the GFC leads some people to avoid major decisions and change. Buying or selling a house is a major decision.

Overall, there will be reasonable turnover for the rest of the year and this will result in a slightly below average increase in the better suburbs of Melbourne. Again, I believe the newer “estate suburbs” where the developers are finding business quite challenging, may see a slight drop in value, that may be mitigated if the federal government offers grants only for new residences.

Investors can breathe a little easier, as I see rents holding out at around 4% gross yield and for those on very high incomes, there will be plenty of newer properties about to garner larger depreciation tax deductions on. Be very aware that you will do better buying a property that is 2- 10 years old than buying new. I know the spruikers will explain about the stamp duty savings when buying new, however they will not tell you that builders have to make a profit and after the cost of the land is added to the cost of the dwelling, there needs to be another 20% added for profit. Stamp duty savings will not save you 20%!

A further note to those investors buying from the property spruikers. Do not purchase anything from someone that has already purchased a dwelling on your behalf. If you do, you are most likely in one of two situations: You need to pay stamp duty twice (and it is the responsibility of the final purchaser to pay this) or you need to defraud the Victorian State Government.

Anyone thinking about purchasing an investment property or your dream home should seek competent real estate advice from someone who is working for you. Please call our office for a no obligation meeting

Ian James
JPP Buyer Advocates

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Categories: Future Trends

Vendors playing the waiting game

April 8, 2013 Posted by Ian James

Ian James

It is now obvious to those who spend much time in the Melbourne property industry that the market has changed since last year. Many who report on the market but do not actually spend time in it are failing to see the true changes that are occurring. After the media hype throughout 2010 & 2011 anyone that owned property that did not absolutely have to sell, sat on their hands. It was only through the spring selling season last year that vendors began to change this tune to that of starting to look at upsizing and downsizing again.

We have spoken about this earlier this year and we can see that the market really has jumped about 3% and that turnover volumes are up by nearly 10%, just as we predicted 2 months ago. HOWEVER, what we did not foresee was “THE BLOCK EFFECT”. There are now so many properties coming on to the market and about to come onto the market that have had makeovers. And the vendors are assuming they will see the same returns as what happens on THE BLOCK and other renovation shows. Vendors are looking for prices that can be up to 10% above the property’s value, and their reasoning is, “we have renovated and spent $100,000.”

The average person will almost never make money on a renovation or simple development. This is not to say, “don’t showcase your property in its best light.” It means that the average person who spends $100,000 will probably increase the chances of selling their property, but are highly unlikely to earn more than $100,000 above what they would have got anyway. In almost all instances of renovation shows, the actually property costs, plus holding costs, plus renovating costs are well above what the property sells for on the final night of the TV show.

I have spoken with many real estate agents throughout Melbourne, and all are doing an above average number of listing presentations. Most are saying they have picked up more work than last year, but many of the vendors want to renovate before they sell. I have been invited in to many homes prior to the renovation, then heard what the vendor wants to do to the home before putting it on the market, and how much they are going to spend, and I have to think, they are vastly overvaluing their property.

For the average person who is selling his or her own home, you should maximise its potential with the absolute minimum spending of money. The majority of times that vendors make money after a large renovation, it follows an upsurge in property values. This could be seen in most of the TV shows back in 2005- 2010. The market was moving up so quickly, that many of these shows could have actually done nothing at all and sold the property for a similar price.

In the current market, which has begun to move up very slowly, I would advise the majority of sellers to cosmetically update their properties, but shy away from large renovations. Some paint, a garden clean up and some new carpet and blinds can make a huge difference to how many people will be interested in your property. It rarely makes a significant difference in the price a purchaser wants to pay. However, a good agent that has two or three parties interested in your property can then make a huge difference to the final price that you get from the sale of your property.

It is all about competition, not what you spend on a renovation. If only one purchaser is interested in your property and they have a good advocate working for them, you, as a vendor, are going to need an extremely talented selling agent assisting you to get even market value. However, if you present your home well and two or more purchasers are interested, and you have a talented selling agent, then you should achieve above market value for your home.

As a buyer, you need to understand that quite often, good value is not represented by the value of a home plus the full cost of a renovation. Many times, vendors renovating things that do not require renovation, or that have no value to a “would be” purchaser waste money. You do not want to overpay for someone else’s mistakes.

Buyers and sellers alike, need good representation when getting involved in the property market. If you are interested in property, please feel free to give us a call

Ian James
Director
JPP Buyer Advocates

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Categories: Property Negotiation

Trouble at the top end of town?

March 26, 2013 Posted by Ian James

Ian James

No surprises were seen coming out of the weekends 1100 auctions.
Except 1! Whilst the market returned a resounding 68% clearance rate, it was the more affluent suburbs that faltered. Yes, there were some big ticket sales but the clearance rates of the normal auctions within these suburbs was well below the norm.

In Brighton, the clearance rate including those sold before Saturday was 55%, on the day, 48%. In Kew, the clearance total was 56% but in the day you only had a 50% chance of selling your property. In Toorak it seemed no agents could get any properties away before the weekend and then could only manage a 56% clearance rate for the suburb. Malvern agents managed to get 1 property sold before auction gives the suburb a clearance rate of 66%, however, again if you were actually putting your property to auction over the weekend you had a 50 / 50 chance of success. But the standout suburb for all the wrong reasons was Canterbury. There were 8 auctions reported to the REIV. None were sold prior and 2 of the 8 were sold over the weekend. Clearance rate of 25%.

This is not something new. As the overall clearance rate increases, the negotiations become more delicate. For any of you who are transacting a property, either buying or selling, do not assume that a property for auction, goes up for auction and sells on the day. NOTHING COULD BE FURHTER FROM THE TRUTH. In fact, we negotiated far more properties in a one on one fashion in 2007 than we purchased under the hammer. In fact in the first half of the year when the average clearance rate was in the 80% range, there was an average of over 100 properties bought prior to auction every week.

If you have a good selling agent who is looking after your best interests he or she will contact all buyers, and try to ascertain their interest levels. If you have two or more buyers at a similar level, and this is an acceptable level to the vendor, then the agent should almost always push through to auction, or the set date for negotiation. This means the auction should reach a better result with some emotional bidding near the end. A good auctioneer should feed these last $1000 bids to ascertain the best price.

If your selling agent informs you that there is one standout party and potentially others, but at a much lower level, then there is a very good reason to look for an offer before auction day. Passing in to the highest bidder only serves to prove to the public there is no better offer than what the property passed in at. If your agent is negotiating on the Wednesday or Thursday prior to auction, the single standout bidder does not yet know what the competition will bring. And any offer placed after midnight Tuesday still has no 3 day cooling off period.

Further to this line of thinking, the auction campaign is not always the only way to sell property. Most agents will try to get a fairly hefty advertising budget, usually in the vicinity of 1% of the value of the property, and then proceed to spend it all within the four week auction campaign period. If the property sells for what you wanted then everything seems fine, if it does not you are out of pocket up to $10,000 for a $1M property and you have nothing to show for it. Sometimes it may be better to investigate the market before going out with a full auction campaign. Most agents can get a property on the market with brochures, floor plans and internet marketing for a few thousand dollars. Most buyers in the market place will see the advertising on the internet and you may get some bites before a full blown marketing campaign.

Ian James
Director
JPP Buyer Advocates

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Categories: Auction Results
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  • JPP Announcements

  • Weekly Stats:

    Monday 13th May
    Total Auctions 653
    Passed In 185
    Passed in after Vendor's Bid 117
    Sold Before Auction 94
    Sold at Auction 374
    Sold after Auction 0
         Clearance Rate 72%
    Total Private Sales 613
    Source: REIV, week ending 12/05/2013
    It has been announced by the State Government that the $7000 First Home Owners Grant (FHOG) will change on 1st July 2013....Read More »

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