The federal government has recommitted to previous pledges on affordable housing, setting aside more than $1.7 billion towards state projects in this year’s budget.
But despite Treasurer Josh Frydenberg declaring that “affordable housing is a priority for this government”, the budget papers contain limited new policies addressing the issue.
Mr Frydenberg highlighted the $300 million raised last week for the National Housing Finance and Investment Corporation, saying it was the largest social bond in Australia’s history.
The NHFIC, announced in the 2017-18 Federal Budget and also known as a bond aggregator, is a mechanism to provide cheaper finance for the community housing sector.
No significant announcements in relation to the NHFIC appeared in this year’s budget but an estimated $225 million will be spent on the program over 2019-20.
Meanwhile, more than $1.7 billion of federal government funding will go towards supporting state affordable housing services.
This includes a government pledge to deliver almost $1.6 billion towards the National Housing and Homelessness Agreement, as foreshadowed in last year’s budget.
The NHHA, announced in the 2017-18 budget, aims to increase the supply of new homes through working with state and territory governments.
NSW will receive the largest slice with $484.2 million, followed by Victoria and Queensland at $406 million and $319.8 million, respectively.
WA will receive $165.9 million, $108.7 million will go to SA and Tasmania will receive $33.7 million. The ACT will get $26.7 million and NT $20 million.
Other funding for state and territory governments around affordable housing over 2019-20 include $300,000 for a review of community housing regulation in NSW and $113.5 million for remote housing in the Northern Territory.
The government has also reaffirmed to provide $529.9 million over 11 years from 2018-19 to support projects under the Hobart City Deal. Of that, $30 million in funding will go towards providing more than 100 new social housing dwellings in Greater Hobart.
While house prices across most capital cities declined last year, according to the latest Domain figures they increased by 8.8 per cent over last year in Hobart and rents jumped 6.3 per cent over the same period. The Tasmanian capital also has the tightest rental vacancy rate in the nation at 0.3 per cent.
Despite house prices falling across the nation, housing affordability continues to remain an issue.
According to the most recent Domain House Price Report, prices have fallen nationally by 6.5 per cent with Sydney and Melbourne leading the fall at 9.9 per cent and 8.4 per cent, respectively. Even so, the income to median price ratio remains elevated in these capital cities.
In the budget economic outlook, the government touched upon the fact falling house prices could detract from the forecast that predicts a real GDP growth rate of 2.75 per cent.
Labor has promised to put housing affordability high on the agenda if it comes to power at next month’s federal election, with a policy to curtail tax breaks for negatively geared investment properties a major campaign platform for the party.
The Reserve Bank of Australia has today opted to keep interest rates on hold at 1.5% as the Morrison Government prepares to announce a date for the upcoming federal election.
Rates in Australia have been on hold for a record 32 months, since August 2016, when the RBA cut the official cash rate by 25 basis points.
While most experts had anticipated the RBA’s decision to maintain the status quo, it is also a reflection of the precarious state of the economy, according to realestate.com.au Chief Economist, Nerida Conisbee.
“The RBA held rates today with economic data still too mixed to make a move. In particular, employment data remains strong with unemployment data low and job vacancies now at their highest level ever recorded,” she says.
“While employment is strong and not many people fear losing their jobs, this is not flowing through to consumer confidence, retail spending or wages growth. All these factors remain subdued.”Tips to keep ahead of the property market
Reserve Bank Governor Philip Lowe says the RBA was also swayed by the continued decline in house prices.
“Conditions remain soft and rent inflation remains low. Credit conditions for some borrowers have tightened a little further over the past year or so. At the same time, the demand for credit by investors in the housing market has slowed noticeably as the dynamics of the housing market have changed,” he says.
Global markets & flat wages won’t help
While the official cash rate will remain on hold for yet another month, that doesn’t mean home owners won’t see a change in their mortgage repayments.
In fact, with wage growth sitting at 2.3% and major lenders raising their rates outside of the RBA’s monthly meeting, most home owners are more likely to see their housing costs rise and will rein in their spending accordingly.View image on Twitter
Australian lenders get a significant proportion of their funding from overseas markets, and with the US economy continuing to recover and rates in the UK and the EU likely to move as Brexit negotiations are finalised, the wholesale cost of debt for banks here will soon rise.
With 41% of realestate.com.au visitors surveyed in March predicting major lenders will raise rates, Australians are probably expecting further rate rises from their banks, despite the monthly decision of the RBA.
Affordability is rising across the country as dwelling values fall, but experts warn of major headwinds for housing in the lead up to the Federal Election.
The latest CoreLogic Hedonic Home Value Index, released Monday, found that national dwelling values had been trending lower for 17 months and fallen by a cumulative 7.4 per cent since peaking in October 2017.
But “despite the broad based weakness, the national index remains 15.9 per cent higher relative to five years ago, highlighting that most property owners remain in a strong equity position.”
“The silver lining here is that housing is now very affordable and first home buyers are proportionally much more active relative to other areas of the country,” especially in markets where values peaked much earlier (2014) such as Darwin (-27.5 per cent) and Perth (-18.1 per cent).
“As dwelling prices trend lower or level out, household incomes are edging higher and mortgage rates remain around the lowest level since the 1960s,” said CoreLogic head of research Tim Lawless. “First home buyers are clearly taking advantage of the improved levels of affordability and less competition in the market.”
The good news for Brisbane was that while values were softening, the apartment sector seems to have recovered from over-supply.
The good news for homeowners was that the pace of the decline in property values was now easing off relative to the past four months, especially across Sydney and Melbourne.
The fear though was that the market downturn was “becoming geographically more widespread”, according to CoreLogic head of research Tim Lawless.
He said housing values were lower across six of the eight capitals and five of the seven ‘rest of state’ markets in the past month.
Brisbane was down -0.6 per cent in the past month, with dwelling values dropping by -1.3 per cent in the past 12 months, putting the median value at $489,832. Over the past five years though, dwelling values had actually grown by almost double digits, 9.9 per cent.
Mr Lawless said Brisbane was “previously seen as a level market”.
Weakness in Sydney and Melbourne was now spreading, mostly because of credit availability in the owner occupier market. Picture: AAP/Matthew Vasilescu.
“Values have really been edging lower in the last four months. We do see acceleration in the rate of decline in Brisbane despite Brisbane showing strong population growth, affordability, and generally improving conditions, it does look like there are some headwinds based on credit availability.”
But he said the apartment sector’s headwinds appeared to have eased, with it “starting to look healthier in Brisbane”.
“There’s been a rapid slowdown in construction, and the local unit market is looking a lot healthier,” he told The Courier-Mail.
CHANGE IN DWELLING VALUES
Capital city Month Annual Median value
Sydney -0.9% -10.9% $782,473
Melbourne -0.8% -9.8% $624,425
Brisbane -0.6% -1.3% $489,832
Adelaide -0.2% 0.8% $426,990
Perth -0.4% -7.7% $442,716
Hobart 0.6% 6.0% $464,168
Darwin -0.6% -6.8% $400,316
Canberra 0.0% 3.1% $595,212
Combined capitals -0.7% -8.2% $597,860
Combined regional -0.4% -2.1% $376,728
National -0.6% -6.9% $524,149
(Source: CoreLogic Hedonic Home Value Index, March)
He expected the housing market to “continue to be affected by uncertainty related to the federal election, lending policies and more broadly, domestic economic conditions”.
“Federal elections generally cause some uncertainty, which is likely amplified more so this time around considering the potential for a change of government which will also involve significant changes to taxation policies related to investment.”
“No doubt, some prospective buyers and sellers are delaying their housing decisions until after the election, however, there is no guarantee that certainty will improve post-election, considering the impact of a wind back to negative gearing and halving of the capital gains tax concession is largely unknown.”
“It seems a reasonable assumption that removing an incentive from the market would result in some downwards pressure on activity and prices for a period of time.”
“If elected, the Opposition have flagged that changes to the capital gains tax discount and negative gearing would take effect from January 2020.”
The reduction in owner occupier lending was creating widespread impact across major cities.
Credit availability was also a major headwind, with one indicator of reduced activity coming of the number of housing valuation events “which provides a timely proxy for mortgage activity”, Mr Lawless said. Those valuation events were “around 14 per cent below activity a year ago” — a trend that was also showing in ABS housing finance data in terms of both investor and owner occupier lending through to the end of January.
Mr Lawless said it was the downturn in owner occupier lending that was of concern.
“The value of owner occupier lending is around 2.6 times the value of investor lending, so the substantial drop in owner occupier mortgage commitments perhaps explains why the housing downturn is becoming more widespread.”
Owner occupier housing finance commitments (excluding refinance) were down 17.1 per cent compared with January last year while investment credit was 24.6 per cent lower, he said.How much do I need to retire?
There is even better news for those borrowers who do decide to refinance or follow through with housing loans, with Mr Lawless expecting all the headwinds plus general weakness to see the Reserve Bank cut its cash rate target “later this year”.
“While any cuts to the cash rate may not be passed on in full, a lower cost of debt will provide some positive stimulus for the housing market. Arguably, this stimulus won’t be as effective as previous interest rate cuts due to the high serviceability buffer applied to borrowers, whereby lenders are still required to assess serviceability at a mortgage rate of at least 7 per cent despite mortgage rates which are now available around the 4 per cent mark or even lower.”
An array of Sydney churches have been accused of exploiting loopholes to become pseudo-property developers and keep their tax-free status, prompting renewed calls to examine whether religious organisations should retain such exemptions.
Opponents pointed to four developments across the city as examples why further examination of churches’ ability to pay no tax is warranted.
A leading expert, University of Melbourne taxation professor Ann O’Connell, said churches were beneficiaries of significant tax exemptions on projects that were in competition with entities required to pay tax.
“It’s most obvious at the local government level of concessions. If they’re not paying rates then other residents are subsidising them and you can make the same arguments at the state and federal levels,” Ms O’Connell said.
She said if revenue was collected from churches and other charities, it would reduce the burden on existing taxpayers.
“But because we don’t even collect data on their income, we don’t know how much tax that we’re not collecting,” Ms O’Connell said. “We don’t know the income of the Catholic Church that we could levy tax on and I think it’s less than desirable.”
Ms O’Connell said despite several reviews suggesting a reassessment of charities’ exceedingly generous tax-free status, nothing has changed due to the lack of political will.
NSW Greens MP David Shoebridge has also questioned whether sweeping tax concessions are appropriate for some church developments.
“It is one thing for an entirely charitable development to get a tax concession but this is very rarely the case,” he said. “Many of these developments are large mixed-use projects with a minority of the project having a charitable aim, but the whole lot gets tax-free status.”
He pointed to four examples of tax-free church developments in Sydney:
Catholic Health Care Seniors Housing, Maroubra Bowling Club Site
Catholic Health Care outbid 39 others to acquire the 10,850-square-metre site in 2016 for $28.5 million;
It later lodged plans worth $76 million with Randwick City Council for a dual aged care precinct with a 108-bed facility and 63 seniors living units;
In 2018, Catholic Healthcare Limited reported a gross income of $291 million, with 85 per cent from tax-free goods and services.
Artist’s impression of Catholic Healthcare’s $76 million development. Photo: Supplied
Seventh-Day Adventist Church, Wahroonga
The Seventh-Day Adventist Church’s current proposal with NSW Planning is in the eighth modification of its original 3A approval – a now-defunct planning law;
The modified application can be approved regardless of local planning laws, if the Planning Minister agrees to it;
It currently seeks approval for 175 apartments in four buildings, six storeys high;
There were no up-to-date financial details available.
An artist’s impression of the proposed apartment development next to the Wahroonga Adventist School, which is opposed by parents, residents and members of the Wahroonga Seventh-Day Adventist Church. Photo: Capital Bluestone
Catholic Cemetery Trust proposal, Varroville
The trust’s proposal to develop a $30 million cemetery consists of two chapels, an office, landscaped parklands and walking tracks as part of a five-stage plan in the Campbelltown Scenic Hills;
In 2017, Catholic Cemeteries & Crematoria reported a gross income of $31 million, with 82 per cent from tax-free goods and services;
A spokeswoman for the Catholic Metropolitan Cemeteries Trust said it was an independent organisation, not a church entity, and any surplus funds were reinvested back into the Trust;
Its website says the trust was established by the Archdiocese of Sydney and is a not for profit Catholic organisation.
Varroville site and artist’s impression of Macarthur Memorial Park. Photo: Supplied
In 2014 the foundation bought a historic waterfront house and the associated pristine bushland on the shores of Kyle Bay, totalling almost 24,000 square metres;
It was previously operated by a trust as a small respite home for convalescent children;
The foundation subsequently negotiated and gained council approval to rezone the land to redevelop it a $2.5 million respite care centre comprising five new buildings on the ground and surrounding the heritage home;
In 2017, Estia Foundation reported gross income of $4 million, with 80 per cent from government grants.
View of Estia’s development site from Kyle Bay. Photo: Supplied
But Mr Shoebridge argued the religious organisations were also often given generous planning concessions to facilitate developments like senior housing at densities that would otherwise be unacceptable.
Urban Taskforce chief executive Chris Johnson said there should be an even playing field when it came to lucrative developments by churches.
“It depends how much development is occurring … if the churches do get a leg-up then it’s probably OK if it equates to producing social or community housing [for good],” he said.
“A line does need to be drawn somewhere particularly now when apartment dwelling is much more accepted, which means land values go up. Churches have had a lot of land that were worth a small amount but are now probably worth a lot more [because of high-density developments].”
Gosford Anglican Church’s Father Rod Bower said some property transactions were now occurring to create an income-producing venture to fund compensation schemes.
“The Anglican Diocese of Newcastle absolutely wants proper redress for victims. In order to do that we need to liquidate property and we are prepared to that.”
But he believed a review of tax concessions for not-for-profit organisations should occur when there was complete rethink of the general taxation system.
“Looking at [it] individually is not really going to achieve anything at the moment … because what we have to do is if we take money away from the non-profit sector then we have to look at what we replace that with.”
But Victorian MP Fiona Patten called for greater transparency and accountability of the complex tax structures to re-instill trust that has been lost after the Royal Commission into Institutional Responses to Child Sexual Abuse.
“Given the cover-ups in the church, given the attempts by the church to not recognise the victims of abuse warrants greater scrutiny of those organisations,” Ms Patten, who has long campaigned on these issues, said.
“No one would question the benefits of health, education and other charitable acts like feeding the poor. But I would question what benefits ‘advancing religion’ has on a largely secular society.”
The charitable head of most churches are tax-exempt for the purpose of “advancing religion”.
But subsidiaries, such as Catholic Healthcare Limited and Adventist Health Limited, which are one of the main income-producing vehicles for their respective churches, are granted tax exemptions for other purposes, including relief of poverty, advancing social and public welfare and provision of aged-care accommodation.
Ms Patten said profit-making businesses owned by churches should be transparent as current requirements were insufficient.
Domain contacted all four religious organisations for comment. A Seventh-Day Adventist Church spokesperson said it operated a wide range of services to the benefit of communities around Australia.
NSW Treasurer Dominic Perrottet said charities, benevolent organisations and churches made invaluable and irreplaceable contribution to communities and excessive taxation would put them out of business.
FOR 17 consecutive months Hobart has been the best performing capital city for home value growth. And March was no different, with Hobart taking the crown for the largest percentage of growth.
After leapfrogging Adelaide, Perth and Darwin last year, the southernmost capital city continues to close in on Brisbane’s median dwelling value (houses and units).
Six months ago the difference between the two cities was over $51,000. But in CoreLogic’s latest report, their March medians were separated by $25,664.
Hobart’s median dwelling value was $464,168, with the report showing an annual change of 6 per cent and a quarterly change of 1.2 per cent.
Canberra had the next best annual results, with 3.1 per cent growth, followed by Adelaide with 0.8 per cent. The remaining cities posted negative results, including -10.9 per cent in Sydney and -9.8 per cent in Melbourne.
CoreLogic head of research Tim Lawless said dwelling values remained at record highs across Hobart and regional Tasmania.
He said although housing market conditions remained relatively healthy, conditions had noticeably softened over the past 12 months with values either slipping or the pace of growth slowing materially.
Real Estate Institute of Tasmania president Tony Collidge described the results as “another strong performance from Tassie”.
He said the report’s findings were in line with REIT expectations.
“Tasmania has one of the strongest performing economies in Australian and this forms the basis for our success,” he said.
March was another ‘strong performance’ from Tasmania’s residential property market, says REIT president Tony Collidge. Picture: ROGER LOVELL
“While our residential real estate market may slow, it will not derail like the Sydney, Melbourne, and Perth markets have.
“It is possible that the popularity of Hobart may see it surpass Brisbane in the foreseeable future.
“And the real estate market in regional Tasmania continues to excel.”
Fall Real Estate property consultant Christine Huxtable.
Fall Real Estate property consultant Christine Huxtable said she was not surprised to see that Hobart was still the best performing capital city.
“There are still many more purchasers in the Greater Hobart than properties for sale,” she said.
“Interstate and overseas buyers explain their relocation to Hobart as ‘climate refugees’.
“This expression was used occasionally a couple of years ago but now I hear it more and more often as our temperate climate has great appeal to many, including young families.”
Hank Petrusma in action at the 2019 Australian Wooden Boat Festival. Picture: RICHARD JUPE
EIS director Hank Petrusma said well-priced Hobart homes were still selling in just a couple of weeks, however “the froth was now off the beer”.
He said 12 months ago the competition to buy was fierce.
“The market is still good but it is calmer than it was,” he said.
“We are not seeing as many Melbourne and Sydney buyers as we were, perhaps because they are now able to look at buying in their own market.”
Mr Petrusma said the right house in the right location would still attract strong competition and fetch an excellent price and there were pockets around Hobart where interest was sensational.
The CoreLogic report showed a 5.1 per cent rental yield in Hobart and 5.4 per cent in regional Tasmania. Darwin was the only city with a stronger result than Hobart (6 per cent).
Meanwhile, the latest Finder RBA Cash Rate Survey has forecast property prices to fall throughout the year across the nation, but not in Hobart where the expectation was a modest rise.
HOME VALUE INDEX MARCH
Change in dwelling values month, quarter, annual, median value
A DERELICT inner city property, vying for the title of Australia’s worst house, sold for less than its land value yesterday after a gruelling auction in the rain that saw 26 bids in 13 minutes.
Is this the worst house in Australia? It certainly is the cheapest in this part of Brisbane since 2016. Picture: Mark Cranitch.
The boarded-up 405sq m property at 22 Deighton Rd in the tightly held suburb of Dutton Park was sold sight unseen for $665,000 to a Carina couple buying their first home.
It was the cheapest house sale in three years for the inner city suburb according to CoreLogic property data.
Just half an hour earlier on the same street, a property previously dubbed “Australia’s worst house” also went to auction.
Just down the road, 50 Deighton Rd, Dutton Park used to look like this.
In 2015, the knockdown pre-war building at 50 Deighton Rd, was bought for $668,000 and then demolished to make way for a brand new five-bedroom house.
And now 50 Deighton Rd looks like this. The street is now looking to the new owners of 22 Deighton Rd, to see what they turn it into.
With no registered bidders, that property was passed in with a vendor bid of $1.45 million.
The Public Trustee of Queensland took 22 Deighton Rd to auction with 10 registered bidders among more than 60 standing in heavy rain on the footpath.
Public Trustee auctioneer Simon O’Kelly almost lost his voice in the rain, trying to get the best price for the worst house in a million dollar suburb. Pic: Mark Cranitch.
After a long pause to start, Public Trustee auctioneer Simon O’Kelly suggested $600,000, then a bidder called out $400,000, which was left ‘in the pocket’ until another bid of $550,000 started the auction.
Of the 26 bids, almost half were jumps of $1000 or $2000 each.
More than 60 people crowded around a skip and a caravan which were set up outside 22 Deighton Rd, Dutton Park. Picture: Mark Cranitch.
The rain eased only when Mr O’Kelly raised his wooden gavel to announce the property was on the market at $657,000.
A further six bids were made before the property sold for $665,000, well below the suburb’s median house price of $1.028 million.
The land alone has been valued by the State Government at $700,000.
“It was definitely nerve-racking knowing how much there is to do with it,” Adam Barbaro said after securing the winning bid with his wife Laura.
“What do they say, you buy the worst house in the best street? It’s a good street and if we can work hard and put some value into, that’s our way to get a leg up in the market isn’t it?”
While the property was a bargain for the buyers, it has also become a gift for three beneficiaries including Woolloongabba resident Tom Carter who was present at the auction.
Buyers Adam and Laura Barbaro with one of the beneficiaries of the property, Tom Carter. Picture: Mark Cranitch.
“This house belonged to my grandmother’s cousin,” Mr Carter said.
“She passed away in 2010 but even when she lived here it looked like this.
“I’ve been underneath but she never let anyone upstairs.”
The other beneficiaries are a friend and a Catholic missionary society.
Saving for a first home can seem an insurmountable task. Whether you’re in Sydney, Brisbane or Adelaide, scraping enough together for a 20 per cent deposit can — and usually does — take years.
So Australians hoping to buy their first home will be buoyed by a new report which has found the average time needed to save a deposit has fallen over the past 12 months in major capital cities.
According to the Domain First-Home Buyers Report, released on Friday, a dual-income couple aged between 25 and 34, who were each saving one-fifth of their post-tax income, would now reach their dream of owning a house faster in Sydney, Melbourne, Perth and Darwin.
For couples in Canberra, Brisbane and Adelaide, it now takes one month longer to save for a house deposit than it did this time last year.
Certainly, getting that foot on the ladder is a tough task, wherever you are in Australia. Here’s how first-home buyers across all of our capital cities have managed to make the great Aussie dream their reality.
Anthony Medina and Jenny Gao
How long to save: 5 years
Sydney couple Anthony Medina and Jenny Gao bought their first home in March after years of saving.
Mr Medina decided to start saving for a deposit the moment he finished school and began working as an electrician, but he said it was hard at the outset to save much as an apprentice.
“I’ve been a bit lazy … I always thought of doing [it] but never really pursued anything,” Mr Medina said.
It was not until he met his partner Jenny two years ago that he seriously began saving and looking for property.
“I ran it past her and she thought it was a good idea as well,” he said.
Mr Medina said the combination of a few years of savings under his belt and the property downturn in the past year had created the perfect timing to get his foot in the door.
“I was planning on doing it a couple of years ago but now that prices have dropped, it seemed like a perfect time,” he said.
After saving $150,000 for their deposit, the young couple began looking in November in several areas, including Riverwood, St George and even Concord, where they are currently renting.
They had a budget of $650,000 to $700,000 in the hope of avoiding paying stamp duty.
In the end, they snapped up a two-bedroom unit in Kogarah for $658,000, paying just $1600 for stamp duty.
Mr Medina said they ended up settling for a unit because they wanted to stay within their budget and not live too far out west.
He said the past year of saving for a deposit was the hardest as they were paying $350 a week in rent.
“It was a lot easier maybe prior to a year ago because I was living with my parents; I still had a bit of flexibility but now paying rent, it’s hard to save when you’re paying rent,” he said.
They are a few weeks away from moving into their new home and are already thinking of ways of reducing the stress of their initial mortgage repayments, which will be about $2500 a month.
“We’re thinking of renting out the second room to get a bit of breathing space. if we can rent out just one of the rooms that would help us a lot.”
— Tawar Razaghi
Sarah and Nicholas McLoughlin
How long to save: 18 months
Melbourne couple Sarah and Nicholas McLoughlin bought their first home last November.
They snapped up a four-bedroom, two-bathroom home in Eltham through an expressions-of-interest sale for $855,000.
The McLoughlins had been renting in Eltham for 18 months before buying to save money for a deposit. This allowed them to save more money than when Ms McLoughlin had been renting a separate apartment in South Yarra, while Mr McLoughlin had been sharehousing with his brother in Eltham.
“We did save a bit. We just kind of re-prioritised going out so we saved that for special occasions – for friends’ or families’ birthdays – instead of going out for dinner once or twice a week,” Mr McLoughlin said.
Both have a career with the Department of Health and Human Services, working with people with disabilities.
They made an unconditional offer on the property to buy it.
“We started off by attempting to buy a place in October last year at auction. We didn’t know what we were doing and we sent my parents,” Mr McLoughlin said.
The couple watched the bidding action via an app as they were away when the auction was on. Mr McLoughlin’s parents made the highest bid for the property but, as the price didn’t reach the vendors’ reserve, it was passed in.
“After that we were a bit disillusioned,” he said.
The couple went to other auctions and decided to use a buyers advocate to help them out. They also used a mortgage broker who was a friend to get their finance.
They decided on a 30-year mortgage. As Nicholas is 45, he was asked how he planned to make the mortgage repayments after retirement age.
“We told them Nic would work longer than retirement age,” Ms McLoughlin said with a laugh.
The McLoughlins wanted the type of mortgage where they could still enjoy a good lifestyle.
“We still wanted to be able to save for holidays and have a good quality of life and not be overstretched,” Ms McLoughlin said.
“Saying that, our budget increased quite a bit on our journey of buying our house.”
They have so far only made one mortgage payment since moving into their home a month ago.
“It’s not too bad. It’s more expensive than renting but it’s easier than we expected. We’ve been adding a bit more to the joint account,” Ms McLoughlin said. “We’ve only got one bill so far and we haven’t paid the rates yet.”
— Melissa Heagney
Jess Carmichael and James Mulligan
Saved for: 2.5 years
Jess Carmichael and her partner James Mulligan had been living together in London for four years but buying a house back home in Brisbane was always part of the plan.
The couple, both town planners, did not have a specific goal in mind for their savings but had been putting money away for two years before they moved back to Brisbane in September last year.
For the next six months, they lived with her parents and made the most of the opportunity, saving like mad while researching in earnest.
“It certainly helped a lot. We paid a little bit of board but it was a nominal amount, certainly not equivalent to renting,” Ms Carmichael said.
“We spent a lot of that time researching where in Brisbane we wanted to buy, the average market values in those areas, and that informed our approach in terms of what we could realistically achieve within our budget.”
Settling on the character suburbs around Brisbane’s inner to middle-ring north, they had a list of features that were important to them, such as accessibility to public transport, proximity to parks and having an outlook.
“We looked from September to January, seven different houses every Saturday. It was exhausting but you need to do the research,” Ms Carmichael said.
“To be honest I don’t think a lot of agents took us very seriously because they could tell we were in that research phase.”
The couple enlisted a mortgage broker to help them navigate the home loan process and were conscious of not stretching themselves. They had a 20 per cent deposit, which Ms Carmichael said opened up better interest rate deals for them from banks.
After missing out on a house at Stafford, they snagged a gorgeous two-bedroom character home in a sought-after Kedron street via private treaty for $635,000.
“The only thing this house doesn’t have that the other one did was an outlook. We don’t have a view here. But we’re seven kilometres from the city and in a really nice spot, so we’ve done pretty well,” Ms Carmichael said.
“In hindsight we’re glad we didn’t get the house at Stafford. For the price we paid for this house, I don’t think we compromised really.”
Adjusting to mortgage life has been easy for the couple.
“We’ve actually worked out that our mortgage repayments are less than our rent was in London,” Ms Carmichael said.
“And I think we’ll find the bills more manageable to be honest. The challenge will be to work through a sequence of what we want to do for renovations and planning and saving for those things now.”
— Ellen Lutton
Alicia Manning and Brendon Dawson
Saved for: 2 years
For Perth high school sweethearts Alicia Manning and Brendon Dawson, saving a deposit and buying their first home was the result of sacrifice and discipline.
The 27-year-olds moved into their new home in Victoria Park last August after years of savings and a shared dream of home ownership.
On completion of their university degrees and after finding jobs in their respective fields – Dawson is a solicitor and Manning a scientific advisor– the pair rented and saved hard to build on their savings.
“We were just out of uni, so we basically kept living our uni lifestyle,” Mr Dawson said.
“We were fairly frugal and basically saved one of our incomes while using the other person’s income to live.
“It was hard because effectively we were living on the one salary for the two of us but I think the big advantage was for us was we’d been in a stable relationship for a long time, and we had shared money so it was much more doable and coming out of uni we didn’t have many expenses lifestyle-wise.”
After two years of knuckling down for a deposit, the pair embarked on their home search journey.
“We starting looking around for houses but ended up buying a block, which was probably a bit cheaper because it had an old service road that hadn’t been developed and probably won’t be for a couple of years,” he said.
The state government’s $10,000 WA First Home Owner Grant was an added bonus for the couple and helped sway their decision to build rather than buy an established home.
After securing the block, which cost $304,000, the couple spent another six or so months saving and searching for a builder.
Today, Mr Dawson and Miss Manning are loving living in their three-bedroom, two-bathroom home, which they built for about $250,000.
“It’s great to have somewhere nice that we are actually making payments for, that’s going towards an asset for us,” Mr Dawson said.
— Lisa Calautti
How long to save: 3 years
Chad Nicolle considered his options carefully before taking the plunge to buy his first home.
He paid $235,000 for a two-bedroom villa in the southern suburb of Morphett Vale, settling in October and moving into the home in February after the previous tenant moved out.
A lifelong Adelaide resident, he had rented on his own for the previous nine years.
“It took me a very long time to make the decision to buy a house,” Mr Nicolle told Domain. “I weighed up all my options and got into the habit of knowing what it would be like before I started.”
A redundancy payout from a previous job a few years ago gave his nest egg a boost, and he saved for three years before buying.
So far, paying off a mortgage “hasn’t been too bad” for the 35-year-old, who works as a customer service manager for a fibre optic company and arranged his home loan through Sam Walker at Aussie in Prospect.
He estimated that he pays about $60 to $70 more a week to own rather than rent, and he sets aside cash for council rates and strata fees.
“I don’t feel any different from renting. The only difference is I have two quarterly bills I wouldn’t have otherwise,” he said.
This means he isn’t able to save as much money as in the past towards holidays or other goals. He is also in the habit of taking his lunch to work, but says his social life hasn’t changed.
“I’m still living my life, I’m still doing the things that I want to,” he said. “It’s not as scary as what I thought it would be.”
— Elizabeth Redman
Joshua and Natalie Graham
How long to save: 18 months
Paying off a mortgage can be a daunting task for many first-home buyers, but for those in the ACT you might be surprised to know it could mean more money in your pocket with some loan repayments less than the weekly asking rent.
“The price of homes in Canberra is quite high and so that would’ve helped us. We obviously had the option to defer our stamp duty but because we got it at a pretty good price we decided to pay upfront,” he said.
“But if we were still renting we would wait until the exemption came into place.”
— Lucy Bladen
Thomas Webster and his partner Whitney
How long to save: 18 months
Thomas Webster and his partner Whitney recently bought their first property in Howrah, in the wider Hobart area. The couple, who are both in their 30s, paid $430,000 for the three-bedroom, one-bathroom estate through Charlotte Peterswald for Property.
Mr Webster points to challenges around affordability as a motivator for buying. “The rental market in Hobart is just crazy. There’s not much available and the cost is pretty ridiculous.”
The couple were on a rolling lease, which gave them the impetus to buy.
Mr Webster and his partner started seriously saving for a home about 18 months prior to buying. They originally tried saving money for their home loan individually, but soon found that approach wasn’t working.
“It was only once we starting saving together that we really gained momentum,” he said. “We set up a purpose specific account that we both contributed to fortnightly. We couldn’t withdraw money from it unless we both signed off on it.”
Mr Webster said the most challenging part of buying their first home was the time required to develop an informed understanding of the property market, as well as managing the stakeholders involved. “We’re fortunate that Whitney was a teacher on school holidays, which allowed her to dedicate a fair portion of her break dealing with the bank, real estate agents and conveyancers.
“It was a steep learning curve but the reward of home ownership is well worth the journey.”
Mr Webster said the couple’s combined income and job security – from TasNetworks and from teaching – should make mortgage repayments feasible, but that if they had taken out a larger loan it could have been a different story.
Owner-occupier buyers were in the driver’s seat in Sydney’s home auction market at the weekend as some property investors held back.
A spacious apartment in Cremorne Point sold to downsizing couple for $2.11 million, some $110,000 above reserve.
Across town, a period Kensington home changed hands for the first time since it was built in 1913. The property, at 32 McDougall Street, was purchased by a family with renovation plans for $3.2 million, $350,000 above reserve.
The city’s auction clearance rate was 59.5 per cent from the 353 auctions reported to the Domain Group (639 were scheduled). This was just below last weekend’s preliminary auction success rate of 60.9 per cent, subsequently revised down to 49.2 per cent.
Damien Cooley, of Cooley Auctions, said the number of registered bidders at auctions had spiked up through March.
Owner-occupiers, including downsizers and upgraders, were showing greater confidence in bidding, he said, but some investors were continuing to observe the demand levels for properties rather than purchase.
“The market is definitely better in 2019 than it was,” Cooley said. “That doesn’t necessarily mean that the prices are increasing but more properties are selling. I think this is coming off the back of buyers seeing value: the market has come back and vendors are recognising that the market is not as good as it was and they are more willing to sell.”
Belle Property Neutral Bay co-principal Matthew Smythe said the unit attracted six registered bidders, three of whom participated.
After kicking off with a starting bid of $1.5 million, the property drew bid rises of $25,000 and $10,000 before selling under the hammer for $2.11 million to downsizers from Cremorne.
Smythe said the apartment was inspected by 96 groups and had proved popular because of its quality renovation, attractive outlook and double garage.
“This was a strong auction and it sold for close to what it would have achieved at the top of the market in 2017,” Smythe said.
The McDougall Street house in Kensington was bought by a local family planning a renovation. The house had initially been expected by Ray White Kingsford to sell in the range of $2.7 million to $2.8 million but with a final hammer-fall price of $3.2 million, it did substantially better.
Meanwhile, a 1890s-built home on 840 square metres, at 47 Meymott Street, Randwick, fetched $3.37 million through McGrath Eastern Suburbs.
AMP Capital chief economist Shane Oliver said there had been a slowing in the rate of decline of median house prices in Sydney, while auction clearance rates had bounced off their lows.
“Some might see that as a positive sign,” Dr Oliver said. “And, perhaps the market has been helped by talk of rate cuts, bargain hunters moving in and the possibility that there will be easier bank lending conditions with the royal commission being out of the way.”
Cooley Auctions runs dozens of auctions each weekend and, according to Damien Cooley, a flight to quality is clearly evident.
“All the buyers are flocking to the quality homes and they’re selling well whether they are a house or an apartment,’ he said.
Bad financing can be one of the most lethal mistakes possible. I have personally seen more real estate investors lose money or go out of business from bad financing than from any other mistake.
What is bad financing? For me, it includes a combination of the following:
High interest rate
Adjustable interest rate
High monthly payment
Most residential bank mortgages at least save you from the first four mistakes because the interest rates are low, fixed for 30 years, with amortizing payments, and there are no balloons. But they almost always require personal recourse, meaning you personally guarantee the loan with your other assets and future earnings. This is probably a reasonable trade-off.
Many commercial, portfolio, hard money, and private lenders, however, do not meet any of these criteria. And that could be a problem, especially on your first deal.
If you borrow at 12 percent interest with a large monthly payment, a balloon due in one to three years, and full personal recourse for the loan, you are likely taking too much risk.
Why? Because the property will likely have negative cash flow with the high interest rate. A balloon note means you will have to refinance or sell in a very short period of time. As many learned in the 2008 credit crisis, trying to refinance when credit dries up is very difficult even with perfect credit and good income. And personal recourse means that if anything goes bad and your lender loses money, they could chase you around and take your other assets in order to collect.
I have always used a lot of private and seller financing for my real estate deals, and I keep this list of financing mistakes in mind. For example, I might trade off a little higher interest rate and a larger down payment in exchange for a longer loan term and no personal recourse.
Mistake #2: Bad Location
Real estate value always begins with location. The people and businesses who will rent or buy from you begin with location, and then they evaluate other criteria like the lot and the house.
Because it’s so important, you should study the best and the worst locations in your area before buying. There are investors who make money in bad locations, but it’s a challenging game that beginners should probably avoid.
I bought a lower-priced single family house once at a below market price with excellent seller financing terms. But the location was awful. I could not consistently attract good tenants because the neighbors were not pleasant (or safe) to live around.
On the other hand, I have bought properties in good locations that I made mistakes on, like paying a little too high of a price. The good location helped to bail me out of some of those mistakes.
Mistake #3: Misjudging Resale or Rent Value
I would argue that our number one job as investors is to understand how our end customers (renters and buyers) make buying decisions and then to translate that to a value. If we can’t determine the full value potential, we will have a hard time making a confident purchase offer that earns us a profit.
This job is important. But it’s not easy. It’s a skill that you must commit to learn and then continue to refine every day for the rest of your investment career.
On your first deal, it’s likely you are not yet an expert on value, so there are a few things you can do to help yourself:
Reduce your target market to a relatively small, manageable area.
Study all of the transactions in your market daily using tools. For me, this is like the daily weight training of real estate that keeps me fit and competitive.
Hire professionals for assistance. For resale value find a very competent real estate agent and/or appraiser. For rental values find property managers with multiple units in your area.
Take courses on valuation at your local Associate of Realtors or other continuing education school.
Mistake #4: Underestimating Repair Costs
It is inevitable that you will underestimate repair costs at some point. But you want to avoid enormous cost overruns that could cause you to run out of cash or face other problems.
To avoid large mistakes, learn a good repair estimating system.
Also be sure to get help from other more knowledgeable investors or contractors. Don’t be afraid to pay these people for their time and knowledge.
You can meet these people by:
Attending local meetups
Attending local real estate club meetings
Driving neighborhoods looking for remodel projects
Asking on the Forums
Mistake #5: Running Out of Cash
Your investment properties are like your race car. Cash is like your car’s fuel. When out of fuel, even the most powerful race car in the world sits still. If you run out of cash, even the best investment property will hurt your wealth building.
So you want to avoid running low or running out of cash.
This usually happens for a couple of reasons:
Underestimating repair costs (see mistake #3 above)
Underestimating future capital expenses on a rental property
Capital expenses are big ticket items like a roof or a heating-air system replacement. If these costs hit you unexpectedly, it can become a big problem.
Mistake #6: Letting Emotions Drive Your Decisions
This is a huge mistake for newbies. And it’s understandable. I mean it IS an exciting chase to look for your first deal.
But you have to balance your enthusiasm with cold, hard, and objective analysis.
I love enthusiasm. It’s critical as an entrepreneur because it helps you push ahead through the many obstacles you will face.
But I have also learned to never make big financial decisions with emotion alone. I use a process of analysis that filters each of my deals. I also run every deal by someone else, which typically means my business partner but sometimes includes other mentors and advisers.
My process begins with basic criteria, including general locations, neighborhoods, housing types, construction quality, etc. This helps me to filter down the enormous number of properties out there.
Then I use a deal analysis process to analyze the numbers. Here is my basic go or no-go system for a deal.
Mistake #7: Choosing the Wrong Real Estate Strategy
Real estate investing has MANY strategies. And it’s easy to get overwhelmed or waste time chasing the wrong strategy.
Here’s a tip: You won’t find a perfect strategy. But you can find one that pretty well suits your unique strengths, your short-term needs, and your long-term goals.
So, instead of borrowing the perfect strategy for someone else, think hard about what you really want and which real estate strategy will get you there.
Mistake #8: Choosing Bad Contractors
Finding contractors who will do good work, finish up on time, clean-up after themselves, and charge reasonable prices is harder than finding buried treasure on a beach. Yet the people who do work on your fix-flip or rental deal will make or break its success.
Mistake #9: Not Using Your Due Diligence Period
Some experienced investors make offers with fast closings, in as-is condition, and with no due diligence period. This may help them get a lower price, but for your first deal this is probably not the best route to go.
Instead, include a short but reasonable due diligence period that allows you to get out of the purchase contract if you find a problem.
Here are a few of the important things I usually do during due diligence:
Obtain a very good professional third party property inspection
Repair estimates (see mistake #3 above)
Evaluate zoning and local ordinances (for example, the college town where I invest has a law that you can’t rent to more than two students in a residential zoning district)
Get a professional third party opinion of value and rental comps
Basically, you want to double check all of the key assumptions you used to make your offer. If you find that you made a bad assumption, you may need to renegotiate or walk from the deal.
Mistake #10: Not Learning From Your Mistakes
You have just read 9 mistakes to avoid, and I could probably tell you another 20. But no matter what you learn, you will still make mistakes. I guarantee it.
Real estate is an entrepreneurial venture. We entrepreneurs shoot for the stars, but we also take risks that could turn out badly. This can be a difficult pill to swallow on your first deal. But risk doesn’t have to be a bad word. I see it as a barrier to entry. It means that the less committed, pretender-investors don’t bother. They drop out when it gets too tough.
The successful real estate entrepreneurs aren’t perfect. They have scars to prove all of their past mistakes. But they learn to avoid the fatal mistakes that would knock them out of the game. And they learn to always keep moving forward.
Forward movement. That’s what entrepreneurship is all about.