Each month our panel of tax, property and finance experts answer readers questions. You can submit your question to editor@PropertyUpdate.com.auIf you have a question you'd like to ask one of our property experts relating to tax, law, finance or just investing in general, please send it to editor@propertyupdate.com.au
Where to invest?
We have recently sold in Perth (although we are about to complete the building of an investment property also) and are living in Sydney. We will use most of the cash from the sale to help my in-laws make the move to Sydney also. ….We have $50K or so left and are thinking about what to buy. Should we buy into Sydney's two-speed market?
I accept that supply is falling behind demand in Sydney given limited development and overseas migration. I also accept that rentals are tightening and that Sydney is at the bottom of the cycle. So, as Michael is implying, it looks like a god time to buy in Sydney right now. Except for one thing…. I read an article which states that:
"according to figures released this week by the Australian Bureau of Statistics...for the year ended March 2007...New South Wales had a net loss of 140,500 people"
That is a "net" loss - i.e. the population is going down!
If this is the case, then why would anyone bet on Sydney? Why should house prices rise and tenancy rates fall and therefore house prices go up if there are less people? As any economics student knows, if demand falls and all else remains the same, prices will drop. Given that we can't afford to buy into the Sydney boom market (properties $850K and up) I don't think that Sydney is a good choice.
"Queensland again recorded the highest growth rate of all the states and territories, at 2.3 per cent...The most popular destination was Queensland which had a net gain of 160,600 people"
Maybe Brisbane makes more sense - top of the market or not... What does Michael think?
Thanks, Simon Cullen
Simon
Thanks for the question. A couple of points of clarification…
1. The net loss from NSW was for internal migration only, but once you take into account the gain to NSW from overseas migration, the population of NSW grew by 1%. This is still behind the Australian average of 1.5%. By the way Australia grew by an estimated 307,100 people for the year ended March 2007, the largest increase since record keeping began.
2. Brisbane is not at the “top of the market” – it is in the early upturn phase of the next property cycle and has a long way to go before its market tops.
So what do you do with your $50,000?
I accept your comments now could be a good time to make a countercyclical investment in Sydney. The challenge is what can you buy with $50,000?
You need around 20% deposit plus acquisition costs – so that doesn’t really allow you to buy much in Sydney does it?
In general property markets recover from the top down. Typically house prices recover first in the more affluent suburbs inner ring suburbs that are less affected by affordability issues and interest rates. This top- down recovery is characteristic for this stage of the early upturn phase of the property cycle, and it will possibly be a few years before the lower value suburbs pick up.
So first see a good finance broker and check what you can buy for your money and it may be work looking interstate where you can get more bang for your bucks.
Michael Yardney
Director – Metropole Property Investment Strategists
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Valuations
A quick question for you. Why is it when banks send a valuer in to assess you properties when you are trying to get more funds to buy more properties that 1) the property owner has to pay for the valuations and
2) the banks don’t tell you what the valuation is.
Is it because the banks take a percentage of the valuation off the final valuation to cover themselves?
Kym DAWSON
ADELAIDE
Kym,
I have been asked this question a thousand times before. The simple answer is whoever instructs the valuer, owns the valuation. It is a document for them to make a lending decision. The bank cannot release it to a third party such as you, because the contract ional relationship is between the Valuer and the bank. Similarly, you don’t get a copy of the banks conveyancing / legal advice for which you are also often charged under the guise of an application fee.
The valuer , like all professionals have a third party disclaimer in their reports which says that the valuation is for the party to whom it is addressed and cannot be released to third parties. The Valuers professional indemnity insurers also advise Valuers not to release reports to third parties as it may invalidate the valuers insurance. The bank does not change the lending value, nor should the valuers assessment be different if it is addressed for mortgage purposes. The solution is for the customer to instruct the valuer direct. The valuation is then owned by the customer and can be taken to any bank you chose after it is readdressed to the preferred lender.
Hope this helps.
Regards
Greville Pabst
CEO/Director WBP Property Group www.wbpproperty.com
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Auction Bidding
Hi,
We attended the Property Expo in Perth this year and thoroughly enjoyed our day. We were contemplating paying off our house until Michael Yardney got up and said “Do not pay off your house!” Well that answered that pretty straight forward… At the break I spoke to Michael just to confirm my suspicions and he said “You do not have debt? That is no good.”
Since then we have purchased our first investment property in Melbourne. My parents were over there and I got them to bid at auction for a mortgagee sale. I listened to the auction over the phone and despite the fact that my father had only put in one bid, and was the only bidder in attendance, the bid price just kept going up and up. As it turned out the house got passed in and we purchased it for the reserve price the bank required. We had it valued and made a $30k profit on the purchase price.
Four weeks later, my mortgage broker flew to Melbourne and also purchased a property at auction in Melbourne, and experienced the same situation. She spoke to me and was asking me if I knew what was going on?
How does the auction process work over there? Can the auctioneer just up the bids by himself with no one actually bidding? We are both a little confused by this.
Maria Goodall
Hi Maria
In the past the practice of dummy bidding was rife at auctions. This is where the auctioneer pulled fake bids “out of the air.” Some times a tree would bi, sometimes a dog, and occasionally a real person on behalf of the vendor.
The aim of this was to get the auction bidding going and to engender a spirit of competition to raise the eventual selling price.
Of course usually the real bidders did not know hey were bidding against a fictitious buyer and this was seen as unfair and outlawed.
Now only the auctioneer can bid on behalf of the vendor and only if he announces that he is going to do so and only if he clearly states when he is making a “vendor bid.” This makes the system more transparent and helps push the bidding up towards the reserve, as the property wouldn’t usually be sold below this price anyway.
Michael Yardney
Director – Metropole Property Investment Strategists
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Land Tax Queensland
“I was told that in Queensland it is illegal to recoup land tax on commercial properties from the tenant even if it was written into the lease agreement. Is this correct?”
Sauw
“For all leases entered into before 1989 it is still legal for the landlord to pass onto tenants any land tax payable in respect of the property however in 1989 the Queensland Government changed the law to make it illegal for landlords to pass on land tax under leases for commercial property. Therefore any provision in a lease entered into after 1989 requiring the tenant to pay land tax is illegal.”
Rob Balanda. Solicitor and Author of Made Simple Series of Products. www.mba-lawyers.com.au
Send your question to editor@PropertyUpdate.com.au and we'll get one of our experts to answer it.
Where do I start?
Hi,
First of all, thank you so much for your website and email newsletters. They are a fantastic source of information.
I know absolutely nothing about property investments. Myself and my wife are very keen to buy our first property to rent out as an investment.
Our trouble is where do we start? Finding the right property, getting a tennant, getting the loan for the investment, who looks after the rent, us or the real estate people?
We are very nervous about it as we are worried that if we don't have a tennant we wont be able to afford the rent.
Is there a percentage we should be looking at as a return in rent? eg, 6%?
Someone also told us that if we negatively gear it, we can pay our own home mortgage off quicker. Is this true? how does it work?
We are very keen to do this but are very nervous at starting as we do not know much about it and need some good advice from people that know what they are talking about.
Is it best to do it ourselves or go through people that find us a property and tennant, put us onto accountants to work out the tax benefits progressively and we pay $100 per week which covers everything including body corp, rates etc.
Is there someone we can speak to about these issues or can you help via email?
I hope you can help us.
Regards,
Wayne Davis.
Wayne
Thanks for the email. That's one of the most cmmon questions I hear!
You start by educating yourself and this website is a great place to start. Lot's of great information for free.
Then read some good books - I'm biased but I would suggest you start with my book - "How to Grow a Multi Million Dollar Property Portfolio - in your spare time"
Then get a good team of people around you - don't be afraid to pay for good consultants - a good accountant, a good finance broker and a proeprty investment strategist.
Then take action - buy the best proeprty you can afford.
Michael Yardney
Director – Metropole Property Investment Strategists
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