Investors still chasing Sydney apartments: Meriton

Australia’s biggest apartment developer believes investor demand is still extremely strong for apartments in Sydney’s south.

Despite nearby suburbs such as Zetland, Waterloo and Green Square being home to a seemingly never ending supply of new apartment projects in recent years, developer Meriton is speeding up the launch of a major development in Pagewood.

Meriton this week announced that it is bringing forward the sales launch date for Pagewood Green, which at a cost of $3bn and consisting of more than 3,000 apartments to be built over the next 10 years will be the developers biggest ever project.

The sales date for stage one has been bought forward by several weeks to September, with Meriton founder Harry Triguboff claiming strong investor demand was one of the main reasons behind that decision.

“We’ve almost been caught off guard by the rental demand we’re experiencing for our projects, especially from families, in areas like Mascot, Zetland and Waterloo,” Triguboff said.

“Investors are delighted – rents are up 5%,” he said

“Pagewood will be the same and investors will be chasing the rental returns.”

Stage one of the project will consist of 487 apartments across four towers between 16 and 20 storeys tall and will feature a large number of three-bedroom apartments.

“Bigger apartments are in short supply and, because of this, they are achieving the strongest rental increases,” Triguboff said.

“The formula we’ve been applying elsewhere, in the form of larger apartments, five-star resort-style facilities, child-care centre, and on-site retail precinct and cafes, will help make our Pagewood Green residents one big happy family,” he said.

Meriton bought 10.5ha of the Pagewood Green site for $140 million in 2013 and bought a further 6ha for $90 million in 2015.

The larger portion has approval for 2223 apartments and up to 5000sqm of retail space.

Meriton is expected to retain some of the Pagewood Green apartments but, with the imminent completion and opening of its serviced apartments in Mascot, the developer is yet to announce if it will offer serviced apartments in the development.
 
 

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Brexit could make UK property the pick for Aussie investors

The decision by the British public to vote in favour of leaving the European Union may hold some positives for Australian real estate investors looking to make an overseas play.

With the British Pound having weakened against the Australian Dollar in the aftermath of the Brexit decision and some speculation of a possible correction for house prices to come, the United Kingdom may very well be a market for Australian investors to keep an eye on.

“It’s certainly something I’m going to keep my eye on. I definitely think there will be some opportunities there at some stage, but right now there’s a still a lot of uncertainty and a lot of things are still up in the air,” Todd Hunter, founder of buyer’s agency wHeregroup, told Your Investment Property.

“At the moment there might be some opportunities at the higher end of the market where people just want to get out straight away, but for the everyday mum and dad investor it’s a market they should monitor for a little while longer before making any decisions,” Hunter said.

While global share markets dived following the Brexit result, Hunter said investors shouldn’t expect the property market to follow suit.

“You don’t usually see price corrections of 30% or 40% over night, outside of the GFC we haven’t really seen anything like that,” told Your Investment Property.

“It’s going to take a little while for things to settle and to really see what will happen with prices so you’ll need to have a little bit of patience.”

While Australians may have to wait things out a while before conditions really suit them, Hunter, who is an experienced overseas investor having been very active in the market in the United States in recent years, said they should put that time to good use in researching the market in the UK.

“You do need to do your research. It’s more than just saying you want to buy overseas, you need to really know the market. Really know where over there are the good areas to buy and which aren’t.

“There were thousands of Australians who were burned buying in the US recently because they’ve bought in the wrong areas.

“They’ve bought in neighbourhoods that are dangerous and they’re just never going to see any improvement from what they’ve bought.”

While researching the actual property market is vital, Hunter said any investor considering entering an overseas market needs to go further in that and ensure they are working with quality operators and that they have a comprehensive understanding of other aspect such as the lending market of the country in question.

For Australian investors with dreams of a UK property in their portfolio, that last point in particular will likely be important as UK lenders currently have little appetite for foreign borrowers.

While Australian investors looking to buy in the UK won’t have the same hoops to jump through that foreigners looking to buy in Australia face as there is no British equivalent of the Foreign Investment Review Board, British lenders are even less welcoming to offshore buyers than Australian lenders are.

“The four or five major lenders won’t lend to Australian residents for a number of different reasons. Some of the smaller regional lenders might, but then you’re getting into a real patchwork of different arrangements then,” Shane McNally, director of Exfin, told Your Investment Property.

“The way the Australian lending market is now, it is trending towards becoming as difficult here for foreign borrowers to get access to finance as it is in the UK now,” McNally said.

“This was all pre-Brexit as well. With the uncertainty that is around now we would anticipate that arrangements would get even tighter.”
 

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Renters tired of being “viewed as second class citizens”

While housing affordability and property taxes have been a major part of this year’s election campaign, results from a new survey show a large proportion of Australians who currently rent property feel their needs have been ignored.  

According to the 2016 Federal Election Survey from rental portal Rent.com.au, 83% of renters believe their needs have not been acknowledged by the major political parties during the election campaign and feel unsupported as a renter living in Australia.

More than half of tenants (57.5%) believe that renting is still not an accepted lifestyle choice in Australia and Rent.com.au chief executive officer Mark Woschnak said the survey’s result show that a significant portion of the Australian population feel as if their decision to live in a rental means they are not entitled to the same respect as homeowners.

“Our data confirms renters are tired of being viewed as second class citizens and disregarded as not having the same respect towards their property as an owner. A rental property is a person’s home and lifestyle choice. A more balanced view is required and we’re committed to proactively addressing it,” Woschnak said.

“While housing affordability remains a major priority, renters are also calling for improved services, more options and the acceptance of renting as a respected lifestyle choice, as it is in other parts of the world, he said.

According to the survey, 95% of tenants believe rents are too high and more than a quarter (26.6%) of current tenants have no intention of ever buying their own home.

“Australia’s 7m renters make up a significant proportion of around 30% of the population and this number is steadily increasing,” Woschnak said.

“This upward trajectory in renter demographics, particularly in the 18-35 age range reflects a growing market, and one in need of more advocacy and recognition.”

As part of their election campaign, the Labor Party has indicated they will work to introduce national minimum rental standards in areas such as rental contract lengths, fair processes where landlords seek termination and ways to provide greater freedom of choice for tenants, and while tenants may feel their needs at present are being ignored, Woschnak said there may be light at the end of tunnel.

“Renting has long been a major part of the real estate industry, albeit largely overlooked and underserviced when compared to the property sales and home buying sector, and looks set to increase in its importance and prominence.

“In Australia, we appear to be at a point of increased momentum in the vocalisation of the needs of renters and we’re seeing a shift from the traditional stereotypes that have existed around home ownership. There is no doubt that an increase in housing affordability issues, job mobility, lifestyle and investment preferences, is causing this trend.”
 
 

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What is LVR?

LVR is an acronym that stands for Loan to Value Ratio.house_investment_2.jpg

It is the proportion of money you borrow compared to the value of the property, and expressed as a percentage.

Lenders use this to help assess the risk factor of borrowers before deciding whether to approve a loan. 

 

 

How to calculate LVR

In this example, the value of the property is $400,000 and a deposit of $40,000 is available.


LVR.png


A LVR of 80% is considered to be a benchmark for many lenders, above which you may have to pay extra fees, including Lenders Mortgage Insurance (LMI).

What is LMI?

LMI protects the lender in the event of a customer defaulting on a home loan.

Whenever a lender loans a customer money for a property, there is a risk that they wont get the money back if the customer cannot afford the repayments.

Although the lender has the property as security, there is a chance that the value of the property could decline, so it would not cover the value of the loan if the lender had to sell it.

LMI covers the lender in this eventuality.

How will the LVR affect you as a property investor?

Lenders place a large emphasis on the LVR.

As well as influencing whether or not you will have to pay LMI, it can also impact the interest rate you will be paying on your loan.

The lower the LVR, the lower the lender’s risk, which can result in the customer receiveing other benefits such as lower interest rates or reduced fees on their loan package.

Real Estate Investar subscribers can use our Property Analyser tool to get immediate access to their financial KPIs, including surplus equity, borrowing power, debt service ratio (DSR) and LVRs. 

Pain increases as loss-generating resales rise

The vast majority of Australian’s who resold a property during the first three months of 2016 came away with a profit, though the proportion of people who lost money on their deals grew.

Released this week, CoreLogic’s latest Pain & Gain Report, which measures the profits and losses of sellers by comparing the most recent sale price of a property to its previous sale price, showed that 90.8% of properties resold over the March quarter delivered a profit.

Over the quarter just 9.2% of properties were resold at a loss; however that is up from the 8.3% of resales that came at a loss in the December 2015 quarter and the 8.8% recorded over the March 2015 quarter.

Over the quarter, the total value of residential real estate resold at a profit was $12.9bn, with the average gross profit recorded at $239,855.

Nearly one third of resales (31.9%) over the quarter resulted in a dwelling selling for more than double their previous purchase price.

For those who sold at a loss the average figure was $66,073 with the value of real estate sold at a loss over the quarter totalling $362m.

Regional areas were more likely to deliver pain to seller, with 13.1% of all resales over the quarter coming at a loss, though that was a slight improvement from the 13.4% recorded over the December 2015 quarter.

Across dwelling types, 19.2% of regional units were resold at a loss over the quarter, while losses were recorded on 11.8% of regional house resales.

In capital city markets, 6.9% of all resales over the quarter generated a loss, up from 6.7% over the previous three-month period.

For houses in capital cities losses were recorded on 5.8% of resales, while 9.4% of capital city unit resales resulted in a loss.


Source: CoreLogic

The average profit and loss in from a capital city resale in the March quarter was $294,045 and $72,042 respectively, while in regional areas it was $140,992 and $60,689 respectively.

While resale losses are more common in regional markets, Corelogic research analyst said not all regions were suffering equally.

“The trends in regional areas are shifting with the proportion of loss-making resales trending lower in areas linked to tourism and lifestyle,” Kusher said.

“On the other hand, housing markets linked to the resources sector are generally seeing an elevated level of loss-making resales after housing market conditions in many of these locations have posted a sharp correction,” he said.

In some regional areas dominated by resource industries up to 40% of resales came at a loss, while the highest proportion of resales at a loss for regional areas associated with lifestyle and tourism industries came was 23%.

While some regional markets are reporting a high proportion of resales resulting in a loss, there are also certain capital city markets where sellers face a high probability of losing money.

Over the quarter, all inner-city unit markets analysed by CoreLogic, with the exception of Sydney-Inner and South (1.6%) and Adelaide-Central and Hills (8.4%), recorded more than one in 10 unit resales at a loss.

In inner city Melbourne 19.1% of unit resales recorded a loss, while in inner city Brisbane it was 11.1% of unit resales that were loss-generating.

Conditions were worse in Hobart where 14.1% of unit sales came at a loss, while in Canberra it was 21.8%, 24.6% in Perth and 26.6% in Darwin.

For those considering selling in the future, it may pay to have a look at how long you’ve held the property for, with the report showing losses were more likely to be recorded when the time between sales is shorter.

Nationally, houses that were sold at a loss over the March quarter had been held for an average of 5.8 years prior to the sale, while for houses resold at a profit the average hold period was 10.5 years.   

For units, a loss-generating resale came after an average hold period of 6.7 years, while an average hold period of 9.3 years resulted in a profit at resale.

“Property ownership, whether for investment or owner occupier purposes, should be seen as a long-term investment,” Kusher said.
 

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New home sales fall for second straight month

Demand for new housing is continuing to wane, with figures showing new home sales fell in May for the second straight month.

Released this week, figures from the Housing Industry Association’s (HIA) May New Home Sales Report show new home sales fell 4.4% in May, a slightly smaller fall than the 4.7% decline seen in April.

The May fall was driven by a fall in sale numbers for new detached dwellings, which declined 6.7% over the month.

New multi-unit dwellings saw a 4.9% increase in sales over the month.
 

Source: HIA 
 
HIA chief economist Harley Dale said there was “nothing alarming” in the overall decline in sales and the slowdown was a predicted part of the residential construction cycle.

“There is a cyclical downturn ahead for new residential construction activity, as new home sales signal, but the early pull-back will be mild by historical standards,” Dr Dale said.

“We remain of the view that a decline in new dwelling commencements will gather momentum in 2016/17 and 2017/18, following four years of growth which has delivered enormous benefits to the broader Australian economy,” he said.

“This economic benefit delivered by new home construction in recent years is unprecedented. It creates a platform for the Federal government to provide leadership on the key issues of new housing supply, affordability and home ownership, which will in turn benefit Australia’s economic growth and future standard of living.”

In the month of May 2016 detached house sales declined in three of the five mainland states: New South Wales (-11.5%); Victoria (-8.2%); and Queensland (-11.0%). Detached house sales increased in South Australia (+3.8%) and in Western Australia (+5.4%).
 

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New home sales mark fall for second straight month

Demand for new housing is continuing to wane, with figures showing new home sales fell in May for the second straight month.

Released this week, figures from the Housing Industry Association’s (HIA) May New Home Sales Report show new home sales fell 4.4% in May, a slightly smaller fall than the 4.7% decline seen in April.

The May fall was driven by a fall in sale numbers for new detached dwellings, which declined 6.7% over the month.

New multi-unit dwellings saw a 4.9% increase in sales over the month.
 

Source: HIA 
 
HIA chief economist Harley Dale said there was “nothing alarming” in the overall decline in sales and the slowdown was a predicted part of the residential construction cycle.

“There is a cyclical downturn ahead for new residential construction activity, as new home sales signal, but the early pull-back will be mild by historical standards,” Dr Dale said.

“We remain of the view that a decline in new dwelling commencements will gather momentum in 2016/17 and 2017/18, following four years of growth which has delivered enormous benefits to the broader Australian economy,” he said.

“This economic benefit delivered by new home construction in recent years is unprecedented. It creates a platform for the Federal government to provide leadership on the key issues of new housing supply, affordability and home ownership, which will in turn benefit Australia’s economic growth and future standard of living.”

In the month of May 2016 detached house sales declined in three of the five mainland states: New South Wales (-11.5%); Victoria (-8.2%); and Queensland (-11.0%). Detached house sales increased in South Australia (+3.8%) and in Western Australia (+5.4%).
 

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RBA forced to act in Brexit aftermath?

The Reserve Bank of Australia may be pressured to cut the cash rate amid global turmoil unleashed from the Brexit vote.

The central bank’s board is expected to reinstate its ‘easing bias’ when it meets next week, the Australian Financial Review (AFR) has reported. The next cash rate cut is expected to come in August, as many believe it is too soon to pull the rate trigger next Tuesday with policy makers continuing to assess the Brexit fallout.

July’s meeting will be nine weeks after it lowered the cash rate to a record low 1.75% in May.

The aftermath of the Brexit vote continued to upheave financial markets on Tuesday, the AFRreported, with the benchmark S&P/ASX 200 index down 0.7% following falls across European and US bourses on Monday night, and major plunges on Friday. 

Su-Lin Ong, a senior economist in Sydney at Royal Bank of Canada, told the AFR that she expects the RBA to cut the cash rate to 1.25% by mid-2017. 

“Any glimmers of the end of this global easing cycle have quickly been extinguished with Brexit,” she said. 

“Central banks are set to continue to provide more rather than less accommodation and the RBA remains part of this global narrative.”

Ong previously expected the cash rate to bottom out at 1.5%.

However, the possibility of further interest rate cuts increases the risk that the Australian dollar will start to rise, which would weigh on economic growth. 

Even before the Brexit vote, according to the AFR, 21 of 22 economists surveyed by Bloomberg on June 17 forecast an August rate cut.

Pricing on a cut as soon as next week has climbed to 24%, from 12%, since the Brexit vote.
 

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Property market set for generational shift as young people reassess options

Australia’s property market may very well be undergoing a generational shift, with figures seemingly revealing the ranks of investors in the country are increasingly being made up of younger people.

Figures from Mortgage Choice’s latest Investor Survey show that in 2016, 50.8% of investors were 34 years of age or younger when they purchased their first investment property.

In comparison, the survey revealed that in 2013 just 33.8% of investors were aged 34 or younger when they first purchased an investment property.

John Flavell, Mortgage Choice chief executive officer, said the survey’s findings were surprising given current market conditions.

“With property price growth outpacing wage growth over the last few years, saving a deposit and buying property has become very difficult for a lot of younger Australians,” Flavell said.
 
“Furthermore, the recent spate of investment lending changes has made it tougher – in some instances – for younger Australians to obtain finance to buy property,” he said.

But while Flavell said he thought roadblocks may have been working against young people trying to break into the market, Helen Collier-Kogtevs, managing director of investment advice firm Real Wealth Australia, said recent years have seen more and more young people look to build wealth through property.

“I have certainly noticed that more and more young people seem to be interested in property investment. For me, it is great to see people planning forward and looking towards their retirement earlier,” Collier-Kogtevs told Your Investment Property.

“It may not be sexy to be thinking about retirement when you’re in your 20s and 30s, but it is so important to consider your financial future when you’re younger,” she said.

In terms of price growth, Collier-Kogtevs said there is no doubt some areas of Australia’s property market are now out of reach for young people, but she also said that may have led to many young people to reassess their opinion of the property market.

“The cost of housing has certainly increased in the last five years, particularly in places labelled ‘hotspots’ and inner-city dwellings,” she told Your Investment Property.

“If the generational change hasn’t happened yet, I think it will. I believe that this generation like to live closer to the city or places where there is a lot of infrastructure, opportunity and cultural and social things ‘happening’.

“Because of this, they may choose to purchase an investment property, where they can afford – in the suburbs or even regionally – in the hope that it generates enough income to assist them in purchasing a place where they want to live in future – say the inner-city.”

For those who disagree with her, Collier-Kogtevs said it’s likely that people, no matter their age, would find the property market much more accessible with some small behavioural changes.

“I believe that if most people actually did a budget and lived within their means – as opposed to thinking that they do and continually overspending ­– then they could afford to purchase a house.

“It might not be their dream house, but it could be a growth asset nonetheless that will bring them closer to their long-term financial goals.”

Similarly, Collier-Kogtevs said the issue of affordability is also likely used as a get out card by those who aren’t willing to tone down their expectations.

“There are many people who are wanting to buy property and complain that they can’t get what they want, because it’s unaffordable – and these are the people who perhaps need to lower their expectations.

“I don’t think this is necessarily limited to younger people, either. Investing in property is about being realistic.”
 

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Property market likely to be spared Brexit blow

While last week’s Brexit decision resulted in immediate turmoil across global financial markets, the impact it has on property markets in the United Kingdom and across the globe could take longer to materialise.

Since the shock decision at the referendum last week, trillions of dollars have been wiped from global equity values while the strength of the British pound has plummeted to its lowest point in three decades, but it appears property markets will remain relatively stable for the time being at least.

In a statement released after the decision, major real estate franchise LJ Hooker said Australia’s property market would not see any immediate Brexit impact given that property is not an asset that can be traded quickly.

“This result will have very little effect on our property markets over the next week. Real estate is not as volatile or liquid as equity, currency or commodity markets. This means they cannot be ‘sold off’ or react at the same speed,” the LJ Hooker statement said.

“The key indicators to watch in the short term are buyer enquiry volumes and property appraisal numbers; these will tell us if market confidence has been affected.”

Over the longer term, LJ Hooker said the economic impact Brexit has in Australia will likely be minimal, however economic turmoil offshore could see buyer confidence in Australia fall, which could have an impact on the market.

“For Australia, the Brexit result is all about confidence and sentiment. Buying, selling, investing and consuming are all driven by confidence.

“The more confident you are with the security of your own income and the destination into which you want to invest, the more you are likely to do so.”

But an extended period of global economic woes could also have somewhat of a positive for Australian property as poor performance across financial markets could see our real estate become a safe haven for investors, especially Chinese buyers looking for a stable destination for their funds.

“London is close to top of the list for Chinese real estate buyers, so the referendum result will make Australian property look more stable and less risky to those weighing up options,” the LJ Hooker statement said.

But not everyone believes conditions in the UK would result in cashed up Chinese buyers deserting the market there and moving their attention to countries such as Australia.

Gavin Norris, head of Australia for Juwai.com, an online portal that markets real estate to Chinese buyers, told Your Investment Property that the weakening British pound could make UK real estate more attractive to the Chinese and that early signs point to Chinese buyers showing faith in UK property.

“Australia competes directly with other nations for Chinese investment, but it is too early to tell if Brexit will help the UK attract buyers that otherwise may have come here — or allow us to attract investors from there,” he told Your Investment Property.              

“So far, it seems that most investors from China are confident that the UK remains good long-term value, regardless of market fluctuations caused by Brexit in the shorter term.”

While there may not be an immediate uptick in the flow of Chinese capital into Australian property following the Brexit decision, Norris said with the right policy settings the Australian market still has the potential to attract more Chinese investors.

“What Australia should focus on is maximizing its own value offering, with persistent marketing and good public policy,” he told Your Investment Property.

“Our proximity to China, good schools and accessible property prices make Australia attractive in its own right. Data shows that 62% of Chinese high net worth individuals last year invested in overseas property. With the number of millionaires in China growing by 57% per year, there are more than enough investors from China to go around.”

“What Australia should focus on is maximizing its own value offering, with persistent marketing and good public policy,” he Your Investment Property.

“Our proximity to China, good schools and accessible property prices make Australia attractive in its own right. Data shows that 62% of Chinese high net worth individuals last year invested in overseas property. With the number of millionaires in China growing by 57% per year, there are more than enough investors from China to go around.”

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