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February 2009

Welcome to the new year. I trust you and your family had a much deserved break over the Christmas holidays. While the current global economical crisis puts doubt in people's minds over their financial future, property is again back in the spotlight again as people generally consider bricks and mortar to be generally safe. The federal government's increase in the FHOG has also fuelled the market as people want to get in before the FHOG reverts back to $7000 in July. So imagine for a moment that you or a family member is planning to buy a new $500k property in Sydney to live in (and maybe rent it out later). Here are figures to ponder. The federal government gives you $21k, the state government gives you $3k and on top of that, you will save around $18k in stamp duty on a $500k owner occupier property. In total, that is around $42,000 in savings just for buying a NSW property now.

With interest rates falling to a new 49 year low of 3.25% (cash rate), there has never been a better time to buy. In fact, because the big lenders have dropped theirs rates to around 5%, you will find that many investors may be neutrally geared or even positively geared. This is due to falling rates and increased rents, making investing in property a very good move considering how far south the equities market have moved in recent times.

If you would like to find more about the FHOG or about current investment opportunities, please call or email me.

kind regards,

Nelson Luc

Buyers, investors go head to head

First-home buyers and investors will go head-to-head in 2009 as they compete for affordable property in established areas. Throughout this year first-home buyers will begin to recognise the rent they pay is very close to the interest they would be paying if they bought the same property.

And investors are realising that interest rates and rental returns are almost at parity, meaning they can buy a blue-chip investment property that is almost neutrally geared from the day they buy it.

Investors and first-home buyers will conclude now is the right time to enter or re-enter the property market.

Investors traditionally focus on properties in lower price ranges where capital growth, rental demand and rental yield are consistent and strong. These properties tend to be in well-established areas close to public transport, shops and other amenities.

More first-home buyers are thinking like investors and viewing their first home as a stepping stone rather than their dream home. They are focusing on homes in established areas with access to amenities such as cafes, restaurants and parks. These areas are more likely to give them a greater level of capital growth to help them buy their dream home.

First-home buyers and investors are on a collision course and the growth of affordable inner- and middle-suburb property in Sydney will be driven by this competition.

It will be investors who come out on top because they usually have a home with significant equity, so their borrowing capacity is greater.

They also get the benefit of rent and have access to negative gearing to help them with their cash flow.

First-home buyers, on the other hand, are often short on equity or large deposits and receive no income or tax benefit. In this environment, first-home buyers need to beat the investors to the punch - they will fare significantly better if they enter the property market before the investors return en masse.

Source: The Sun-Herald, Feb 12 2009

Median Brisbane house price to hit $36 million by 2050

It's hard to get your head around, but according to a new report, to be launched tonight, Brisbane's median house price will be over $36 million by the year 2050.The Johnston-Dixon Capital Growth Index 1970-2050 says although the average weekly wage in 2050 will be as high as $17,400, home ownership will be "generational".

The report says from 2030 "buying a home [will no longer be] counted in years, but in generations".

House prices are first and foremost demand driven and population growth drives demand. Brisbane's population has grown steadily at around 2.2% in the almost 4 decades since 1970. Such population growth is predicted to continue at current or greater levels in the short to medium term (Over recent years, population growth has accelerated to more than the long term average). From time to time in the future, population growth may slow to below long term averages in response to the economic conditions prevailing in our state and to a lesser degree elsewhere in Australia and around the world.

Affordability, the capacity to service home acquisition, is a further consideration. Whilst interest rates have gone up a couple of percent in recent years, the long term trend in most of the western world, including Australia, is down. This has greatly improved housing affordability. Wages have increased in Australia steadily over history, a situation which has gathered pace over recent years. This again adds to capacity to purchase a home.

Lastly, Brisbane currently has a large deficit of new housing being constructed, a situation not likely to improve in the short to medium term. A negative imbalance of supply over demand generally causes prices to rise.

Whilst exceptions to the norm can happen, all of our projections are based on historical fact. History shows that there is no greater prediction of the future than history.

Click here to download full report.

Interest rate cuts going to our loans, not pockets

Mortgage holders are taking advantage of lower interest rates to pay off their loans faster, rather than pocketing the savings upfront. This has prompted some economists to call for automatic reductions to monthly loan repayments to help better stimulate the economy.

Some lenders do automatically reduce mortgage repayments in line with interest rate cuts but the default position of most banks is to maintain repayments at previous levels and then offer people the option to reduce repayments.

Minutes from the latest Reserve Bank board meeting, released yesterday, show board members thought that "households had not as yet scaled back their loan repayments after recent falls in interest rates, preferring instead to pay off debt faster".

So while there had been "a very significant macroeconomic stimulus" from interest rate cuts and the Government's $42 billion spending package, "this stimulus would take time to be effective and could be expected to have only a modest effect on the near-term outlook in Australia".

Figures from the owner of Australia's biggest database of credit histories, Veda Advantage, confirm consumers are becoming more debt shy.

There were 150,000 fewer credit enquiries on applications for personal loans and credit cards in the final three months of last year compared with the same period in 2007.

The chief economist at ANZ, Saul Eslake, said it was in mortgage holders' interests to keep making home loan repayments at the higher rate, if they could afford to.

"If people are able to keep their mortgage repayments up as interest rates decline, then they're saving themselves tens of thousands over the life of the loan," he said. However, "that does magnify the increase in saving that occurs when interest rates fall, that's true".

An interest rate strategist at Macquarie Bank, Rory Robertson, said interest rate cuts would "pack more of a punch" if banks had to automatically reduce repayments.

"If the Reserve Bank is cutting by 4 basis points and no one's taking the option of lower loan repayments, it means that the policy is not particularly effective in putting cash in people's pockets. I would have thought that was the point of the exercise. Just as you squeeze budget constraints by rate hikes, you remove budget constraints by rate cuts. If the money's burning a hole in pockets, you have got a better chance of it being spent."

Nicholas Gruen, the chief executive of mortgage broker Peach Home Loans and the economic consultancy Lateral Economics, said that while in the longer term it was better if people paid down debts, in the short term it was better if they spent the money.

"It's pretty unfortunate that some of this is happening from inertia, not because anybody particularly wants it to happen," he said.

Dr Gruen said it was actually in the interests of the banks for borrowers to take longer to pay off their loans, because they would end up paying more interest over the life of the loan.

The Opposition's treasury spokesman, Joe Hockey, said he intended to quiz the Reserve Bank Governor, Glenn Stevens, at a twice-yearly appearance before a parliamentary committee on Friday on the effectiveness of interest rate cuts if people were simply saving them. "It might suggest easing of monetary policy might not have the impact that may be factored into some people's thinking," he said.

Financial markets expect the Reserve Bank will cut interest rates again by another half a percentage point when it next meets on March 3. However, an economist at Commonwealth Bank, John Peters, predicted the bank would "take a breather" and wait to see the impact of previous substantial rate cuts.

Source: The SMH, Feb 18 2009

Focus on Property - Adviser and Client Event on Tuesday 17th or Wednesday 18th March 2009

Luckorp and Pacific Eastcoast are pleased to invite you to our Focus on Property sessions. This event will provide an overview on the current market, details on what the experts are predicting for 2009 and feature new project information.  

This quarter, we are making it easier for you to come along, by holding two sessions at two different locations.

Session 1 
Date: Tuesday 17th March 2009

Time: 5:30pm SHARP - 6:30pm 

Venue: Rydges World Square
389 Pitt Street, Sydney
Meeting Room 

Session 2 
Date: Wednesday 18th March 2009

Time: 6:30pm SHARP - 7:30pm

Venue: Rydges Hotel
James Ruse Drive, Rose Hill

Tea and Coffee will be provided for both sessions upon arrival.

To register, please reply to this email with the names of the guests who will be attending, and contact details.  Please ensure you state which session you will be attending.   Seats are limited.  Please register before 13th March.

Please feel welcome to forward this email to your family and friends, so that they too can register themselves for one of these exciting and informative events.