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First home buyers are fighting with a 100 pound gorilla with one arm tied behind their backs as they compete with investors who have the luxury of negative gearing and superannuation funds.
I believe the answer to improving affordability lies in rethinking superannuation laws and first home buyer grants.
Historically the family home has been the corner stone of ones wealth but this is in danger of being lost. Superannuation was implemented to help people self fund their own retirement and compliment the wealth in their family homes. I believe that allowing first home buyers to access their super and assist them in laying that foundation keeps within the spirit of superannuation.
A worker who earns the average Australian income of $50,000 a year will have around $36,000 in super by the time they are 30 not including any return on their investments. As a couple that is $72,000! They also have the benefit of diverting more of their income into a tax-sheltered environment. It would not be unreasonable for a first home buying couple to have in excess of $100,000 in super by the time they want to purchase their first home.
A large deposit like this would mean first home buyers have more equity in their home and as a result in a more stable financial position. It would also save a significant amount in interest. For example if a first home buyer had a $100,000 deposit they would only need to borrow around 80% of the property value rather than 90% or more. On a $500,000 home that would save them $2,500 to $3,000 per annum in interest.
They would also avoid paying a hefty mortgage insurance bill of around $5,000 to $10,000 in most cases.
Buying a property is only the first step to home ownership. Keeping up with the mortgage payments is where the real pain starts to bite. If governments really want to help with home ownership they should look at providing ongoing assistance and review first home buyer grants.
First home buyer grants have evolved over the years but on average they provide first home buyers with around $10,000 cash or stamp duty saving benefits. Rather than paying first home buyers a lump sum payment that is usually paid to the banks for mortgage insurance, I believe annual payments will be more effective and a better use of taxpayer money. An annual payment of $2,000 a year for the first five years would help first home buyers establish themselves in the market.
While the devil is in the detail the points outlined above provide a win-win outcome. The government wins as it helps solve first home buyer affordability at no extra cost. The economy wins, as more money will flow into the important building industry. First home buyers win as they will enter the market without paying mortgage insurance and save around $5,000 per annum in holding costs for the first five years.
There is a potential downside in that it would place further pressure on property prices. However this is already happening even without first home buyers and these ideas will go a long way to levelling the playing field between first home buyers and investors.
They would help young Australians into the market and start the process of building wealth in one of our most powerful tax-free investments – our home.
MARK ARMSTRONG is a director of <a href="https://ratemyagent.com.au/" target="_blank">ratemyagent.com.au</a>, Australia’s number one real estate agent rating website.
This article was originally published on Property Observer in October 2013.
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marmstrong-sd3emVLPPb

Allowing first home buyers access to super is the answer to the affordability dilemma

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When Australia’s biggest underwriter of lenders mortgage insurance rules a line through an entire asset class of property then investors should take note.  
Recently Genworth announced that from December 19, 2013 they would no longer accept off-the-plan or new properties as security when purchased in self-managed super funds. The announcement reads:
“Off-the-plan purchases and new properties that have been completed for less than 12 months are no longer acceptable. A “new property” is defined as being any property (including any house, unit, villa or townhouse) that has been fully completed for less than 12 months and/or has not been previously sold since construction (i.e. the vendor is a developer/builder or a related party of the developer/builder).”
Genworths’ role in the finance world is to ensure a bank does not lose any money if a borrower cannot meet their loan repayments. If the bank is forced to sell the property and is still left short the mortgage insurer fills the gap.  
Lenders mortgage insurers are very conservative by nature and they are sending a clear signal that they do not see a positive capital growth outlook for these types of properties.  
Genworth is looking to protect its own bottom line and are ruling out allowing their SMSF clients to invest in properties they think are risky investments. While the main reason for this is self-preservation it does provide a level of protection for these investors.  
At the same time that Genworth is waving a red warning flag to wealthy SMSF investors the government is still encouraging first homebuyers to buy this exact kind of property.  
Our government knows how important the building industry is to our economy so they are making it appealing for first homebuyers to invest in new properties only.  
For example a payment of up to $10,000 is available for eligible first home owners in Victoria for contracts entered into on or after July 1, 2013 to build or purchase a new home valued at up to $750,000.  In NSW the grant is currently $15,000 for first home buyers who build or buy new property.  
The government is leading first home buyers to focus on one particular type of property. Again the focus is to underpin the building industry but the byproduct is many first home buyers are in danger of being placed in a dangerous position.  
This is because new properties tend to have a low land to asset ratio meaning most of the value is tied up in the building not the land. It is land that appreciates in value and buildings depreciate. The result is capital growth that is more likely to fall behind the rest of the market. In addition new homes and apartments tend to be clustered together and can often be located in areas where there is an over supply of similar property.  
The current first home buyer policy solves a short-term problem by creating jobs in the building sector. However in the long run it is likely to place young first home buyers under financial pressure. The policy fails to acknowledge the dynamics of the property market and lures them into buying properties that well educated investors are avoiding.    
 
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 Mark Armstrong is a director of <a href="https://www.ipropertyplan.com.au/">iProperty Plan</a>, which provides independent analysis and tailored advice to investors and home buyers.
 
 
 
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The first home buyer policy is luring people into properties investors know to avoid

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First home buyers are fighting with a 100 pound gorilla with one arm tied behind their backs as they compete with investors who have the luxury of negative gearing and superannuation funds.
But laws around negative gearing and super are unlikely to change so it’s time to revisit the issue.
I believe the answer lies in rethinking superannuation laws and first home buyer grants.
Historically the family home has been the corner stone of ones wealth but this is in danger of being lost. Superannuation was implemented to help people self fund their own retirement and compliment the wealth in their family homes. I believe that allowing first home buyers to access their super and assist them in laying that foundation keeps within the spirit of superannuation.
 A worker who earns the average Australian income of $50,000 a year will have around $36,000 in super by the time they are 30 not including any return on their investments. As a couple that is $72,000! They also have the benefit of diverting more of their income into a tax-sheltered environment. It would not be unreasonable for a first home buying couple to have in excess of $100,000 in super by the time they want to purchase their first home.
<blockquote>
Buying a property is only the first step to home ownership. Keeping up with the mortgage payments is where the real pain starts to bite.
</blockquote>
A large deposit like this would mean first home buyers have more equity in their home and as a result in a more stable financial position. It would also save a significant amount in interest. For example if a first homebuyer had a $100,000 deposit they would only need to borrow around 80% of the property value rather than 90% or more. On a $500,000 home that would save them $2,500 to $3,000 per annum in interest.
They would also avoid paying a hefty mortgage insurance bill of around $5,000 to $10,000 in most cases.
Buying a property is only the first step to home ownership. Keeping up with the mortgage payments is where the real pain starts to bite. If governments really want to help with home ownership they should look at providing ongoing assistance and review first home buyer grants.
First home buyer grants have evolved over the years but on average they provide first home buyers with around $10,000 cash or stamp duty saving benefits. Rather than paying first home buyers a lump sum payment that is usually paid to the banks for mortgage insurance, I believe annual payments will be more effective and a better use of taxpayer money. An annual payment of $2,000 a year for the first five years would help first home buyers establish themselves in the market.
While the devil is in the detail the points outlined above provide a win-win outcome. The government wins as it helps solve first home buyer affordability at no extra cost. The economy wins, as more money will flow into the important building industry. First home buyers win as they will enter the market without paying mortgage insurance and save around $5,000 per annum in holding costs for the first five years.
There is a potential downside in that it would place further pressure on property prices. However this is already happening even without first home buyers and these ideas will go a long way to levelling the playing field between first home buyers and investors.
They would help young Australians into the market and start the process of building wealth in one of our most powerful tax-free investments – our home.
Mark Armstrong is a director of <a href="https://www.ipropertyplan.com.au/">iProperty Plan</a>, which provides independent analysis and tailored advice to investors and home buyers.
This article was first published on Property Observer in October, 2013.
YOU MAY ALSO LIKE TO READ:
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<a href="/expert-insights/buying/65-first-home-buyers/31872-how-will-rising-student-debt-affect-first-home-buyers" target="_blank" data-cturl="https://www.google.com/url?q=https://www.propertyobserver.com.au/forward-planning/investment-strategy/65-first-home-buyers/31872-how-will-rising-student-debt-affect-first-home-buyers.html&amp;sa=U&amp;ei=4lSOU9OGBoLh8AWz04LoBw&amp;ved=0CBYQFjAI&amp;client=internal-uds-cse&amp;usg=AFQjCNGpdo7JW0MfB1BezFddwp63td8zaA" data-ctorig="https://www.propertyobserver.com.au/forward-planning/investment-strategy/65-first-home-buyers/31872-how-will-rising-student-debt-affect-first-home-buyers.html">How will rising student debt affect first home buyers?</a>
<a href="/expert-insights/buying/31603-the-national-guide-to-first-home-buyer-grants" target="_blank" data-cturl="https://www.google.com/url?q=https://www.propertyobserver.com.au/finding/residential-investment/1st-home-buyer/31603-the-national-guide-to-first-home-buyer-grants.html&amp;sa=U&amp;ei=B1WOU4udC5Pf8AXF_YDYDg&amp;ved=0CAYQFjAA&amp;client=internal-uds-cse&amp;usg=AFQjCNFHQorVTsJrTVRgPVX0IFEiP5Ph8w" data-ctorig="https://www.propertyobserver.com.au/finding/residential-investment/1st-home-buyer/31603-the-national-guide-to-first-home-buyer-grants.html">The national guide to first home buyer grants</a>
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It's time to re-think first home buyer grants

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It is land that drives property values, and a  Kensington, Sydney property going to auction this weekend is the kind of land many buyers are looking for.
For those who want to have a harmless punt, there's now a tipping website, <a style="font-size: 14px; text-align: left;" rel="nofollow" target="_blank" href="https://www.propertytycoon.com.au/">www.propertytycoon.com.au</a>, where punters can guess auction five results in Melbourne and Sydney, with no outlay. It's mostly about testing your market knowledge with a small cash prize as a sweetener. 
One of the five Sydney properties going to auction this weekend in round six of the competition is <a href="https://www.realestate.com.au/property-house-nsw-kensington-110887663" target="_blank">10 Koorinda Avenue, Kensington</a>, which has 600 square metres of north-facing rear land within about five kilometres of Sydney. That should prick of the ears of astute home buyers looking to make a sound investment play into the market.
The three-bedroom solid brick Edwardian, in fair but liveable condition, has three bedrooms and one bathroom. The bones are all there, it just needs a touch of imagination to see what this property could become.
Nelson Dueza from Century 21 Randwick will auction the property and has buyer interest around $1.4 million.
<img src="/images/stories/2012/07/koorinda.jpg">
If you think you know what it will sell for place a tip at <a target="_blank" href="https://www.propertytycoon.com.au/" rel="nofollow">Property Tycoon</a>.
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Sydney auction tipping

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There is expected to be first-home buyer and investor interest for a one-bedroom Carlton North property this weekend.
For those who want to have a harmless punt, there's now a tipping website, <a target="_blank" href="https://www.propertytycoon.com.au/">www.propertytycoon.com.au</a>, where punters can guess auction five results in Melbourne and Sydney, with no outlay. It's mostly about testing your market knowledge with a small cash prize as a sweetener. 
One of the properties going to auction this week in round six of the competition is <a href="https://www.realestate.com.au/property-apartment-vic-carlton+north-110871279" target="_blank">3/20-28 Earl Street, Carlton North</a>, is not a big property but it should be highly sought after on Saturday. Good one-bedroom apartments provide an affordable entry point for first home-buyers and investors. They tend to have a consistent level of demand regardless of the wider market conditions.
While this kind of property is easier to find in the inner east of Melbourne, it is rare to find a good one-bedroom apartment in the inner north. According to the Valuer-General’s statistics, an apartment only becomes available is this block every three to four years.
The unit was last sold in 2006 for $275,000, and agent Jason Sharpe from Woodards is quoting $360,000 to $390,000.
<img src="/images/stories/2012/07/carltontycoon.jpg">
If you think you know what it will sell for place a tip at <a target="_blank" href="https://www.propertytycoon.com.au/" rel="nofollow">Property Tycoon</a>.
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Melbourne auction tipping

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When you’re buying residential property, you’re understandably focused on what to buy, where to buy it, and how much you’ll have to spend.
In the effort to get the ‘what’, ‘where’ and ‘how’ right, it’s easy to overlook the ‘who’—that is, the name that will appear on the title as the property’s legally recognised owner.  
There are four forms of ownership: personal name, company, trust and self-managed super fund (SMSF). Each one has different implications for your property’s security and tax effectiveness. It’s important to determine the appropriate form of ownership before you buy, because by changing it afterwards, you could be up for thousands in additional stamp duty and/or capital gains tax (CGT).  
Each form of ownership suits different personal circumstances, and has a range of pros and cons. Let’s look at each in turn.  
Personal name
Under this form of ownership, you as an individual, or with other individuals, appear on the title to the property. Generally speaking, personal name ownership is suitable for the vast majority of residential property owners. This includes people who are buying a home to live in, because personal name ownership enables them to claim a full CGT exemption. It also includes people on high salaried incomes who are buying an investment property and want to use negative gearing benefits to reduce their tax bill.  
On the flipside, owning a residential investment property in your personal name means that when the property becomes positively geared or is sold, you must pay tax in your name at your marginal rate.  
Company
A company is a separate legal entity. It can own assets, must pay tax on them, and lodge tax returns. However, company ownership is not appropriate for owner occupiers, because companies aren’t eligible for a full CGT exemption. Nor is it suitable for residential property investors, because companies can’t get the 50% CGT discount applicable to property held for more than 12 months.  
In some cases, company ownership may be suitable for commercial properties; for example, for businesses who want to own their premises. This is a complex area, so it’s important to seek advice.  
Trust
Unlike an individual or company, a trust is not a separate legal entity. It’s a vehicle to hold assets on behalf of nominated beneficiaries (that is, the individuals or companies whom you wish to receive income or capital gains from the trust’s assets).  
It’s difficult for creditors to get hold of assets in a trust because they are not owned by the beneficiaries. Trusts also enable you to minimise the tax liability from rental income and capital gains by distributing them amongst a multiple beneficiaries with the lowest marginal tax rate.
On the downside, trusts can only distribute profits, not losses. This makes them unsuitable for most residential property investors, who rely on negative gearing benefits to hold their assets.  
SMSF
Most Australians have their super in a fund managed by a third party. However, a growing number are running their own funds.The main reason to buy residential property in an SMSF is because of the concessional tax rate: 15% on monies held in the fund and zero when they are withdrawn upon retirement.  
SMSFs aren’t appropriate for owner occupied property or holiday homes, because assets in the fund cannot be used for personal use, even if it’s only for a week or two each year. And they are better suited to people who already have a sizeable amount of money in an SMSF, because lenders generally require a higher percentage deposit from borrowers. There may also be higher loan setup costs and higher interest rates. What’s more, complying with SMSF regulations can be complex and costly, so it’s not for the faint hearted.  
The form of ownership has a significant impact on the security and tax effectiveness of your residential property portfolio. What’s more, this impact can change in accordance with your circumstances, so it’s vital to seek advice from your tax adviser or solicitor.  
 
MARK ARMSTRONG is a director of <a href="https://ratemyagent.com.au/" target="_blank">ratemyagent.com.au</a>, Australia’s number one real estate agent rating website.
This article was originally published on Property Observer in November 2013.
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Four forms of legal ownership: Which name should you put on your property's title?

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A sharp lift in supply and the opportunity to lock in rates for an extended period means this spring will be a great time to buy.  
There’s a certain rhythm and flow to Melbourne’s social, sporting and cultural life and this is reflected in our residential property market.
Activity levels, auction clearance rates and price growth are influenced by what pre-occupies vendors and purchasers at various times of the year.  
These factors are so deeply ingrained that you can pretty much set your calendar by them.
The trick is to understand that the behaviour of vendors and purchasers is influenced by different things, so the two groups don’t move in synch. This means there are better times of the year to buy, and better times to sell—but they’re the opposite of what you may think.  
Melbourne’s property market calendar kicks off in January–February, when people have time to down tools, take stock and set goals for the coming year.
During this time, many Melburnians make a New Year’s resolution to upgrade or downsize their family home, or to buy an investment property. They begin entering the market in large numbers, hoping to get their purchase out of the way relatively quickly and avoid months of disheartening house-hunting.  
When they start searching, they find that there isn’t much to choose from. This is because would-be vendors are pre-occupied with re-establishing back-to-school and work routines.
They’re reluctant to take on the added burden of preparing and presenting their home for sale.
The resulting mismatch between purchaser and vendor behaviour creates an undersupply of property relative to demand.  
From March through to May, vendors are well into the swing of the year and are ready to put their homes on the market. The level of supply increases and becomes pretty much even with the level of demand from purchasers who couldn’t find what they wanted earlier in the year.  
Then comes winter.
From June to August, the level of demand stays consistent as purchasers continue their search.
However, the level of supply drops significantly, because vendors stay out of the market in the mistaken belief that people don’t want to buy in winter. In the inner and middle suburbs, where auctions make up a substantial proportion of property transactions, supply can fall by as much as 50%.
Buyers who have been in the market since early in the year become increasingly frustrated.
When an opportunity presents itself from amongst the limited choices available, they are inclined to pay more to secure a property they really like, or to buy a home they’re not overly keen on, simply because they’re tired of looking.  
As a consequence, property prices rise—meaning that vendors who are savvy enough to go against the wider convention and put their homes on the market during winter stand a good chance of achieving a strong result.  
Once spring rolls around, the behaviour of purchasers and vendors shifts again, and so does the balance between supply and demand.
With warmer weather and the ability to show off blooming gardens, vendors believe more buyers will be searching. They reason that it’s a better time to sell, so the level of supply increases.
In reality, demand from buyers doesn’t increase significantly. Yes, some purchasers begin searching in the warmer weather. However, many are pre-occupied by their children’s school exams, major sporting events and the like, so most enter the market at the beginning of the year.  
At this point, supply and demand become more evenly matched once again, and price growth tends to moderate. In the coming weeks auction levels will increase dramatically and we will see some weekends where over 1,000 properties go under the hammer.  
Purchasers will not only have the luxury of choice this spring but they will also be able to lock in their interest rate at incredibly low levels.
Spring is only four weeks away so now is the time to get prepared so you are in a position to move when the right opportunity when it presents it’s self.  
MARK ARMSTRONG is a director of <a href="https://ratemyagent.com.au/" target="_blank">ratemyagent.com.au</a>, Australia’s number one real estate agent rating website.
This article was originally published on Property Observer in July 2013.
 
 
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This spring will be a great time to buy

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When owner-occupiers and investors enter the market they want to achieve different things. 
Owner-occupiers want to buy a property they like and that suits their lifestyle requirements, while investors buy property to make money.  
The problem for many investors is they enter the property market as an investor but they make decisions as a home buyer. They develop an investment strategy based on what they like and let their heart take over the decision-making when it really should be the head that’s in control.  
Unfortunately the location and features that appeal to you on an emotional or lifestyle level may not be those that stack up on an investment level. Here are a few tips to help you make clear-headed decisions.
<ol>
<li>
Don’t buy near your own home  Many investors buy close to where they live because they like driving past the property, admiring their investment and keeping an eye on it. The problem is that many investors live in areas with strong demand from owner-occupiers, but little demand from tenants.   What’s more, owner-occupier strongholds are often some distance from the infrastructure tenants look for, such as public transport, shopping and entertainment precincts.   
</li>
<li>
Don’t fit out the property according to your own tastes  Too many investors buy a property and renovate it according to their personal tastes. For example, installing granite bench tops and expensive appliances in the kitchen, or putting a spa in the bathroom. This is fine if it’s your own home, but it’s a potential waste of money for an investment property.   Tenants rent for primarily for location, proximity to infrastructure, and price. There’s little point spending thousands on items that tenants don’t need — particularly when those items are depreciable and will lose value over the time you own the property. Instead of focusing on expensive fittings and fixtures, focus on buying a property with strong capital growth potential, located in an area where land values are driven by strong ongoing demand from owner-occupiers and investors alike.   
</li>
<li>
Don’t buy where you like to holiday It’s one thing to fall in love with a holiday spot, but quite another to buy there and expect it to perform like a prime investment location. Most holiday homes are owned by people who don’t live there full-time. When finances are tight, many owners will sacrifice their holiday home so they can hold onto their family home.   If you’re forced to sell, you may not be the only one. The more properties for sale in a particular area, the harder it will be for you to achieve your desired price. Worse still, you may be unable to sell at all.   
</li>
<li>
Don’t pay an emotional premium  When you fall in love with a property, you may be prepared to pay more than its true market value, to be sure of securing it. If it’s going to be your family home, overpaying may be justified, because you’re buying for lifestyle reasons.   If it’s going to be an investment property, however, overpaying doesn’t make sense. Not only will you have to take out a bigger loan and pay more interest, but you’re eating into the profit you’ll make when you eventually sell. That’s not an investment; that’s a millstone around your neck. Research the market before throwing your hat in the ring, then set a limit and stick to it.
</li>
</ol>
MARK ARMSTRONG is a director of <a href="https://ratemyagent.com.au/" target="_blank">ratemyagent.com.au</a>, Australia’s number one real estate agent rating website.
This article was originally published on Property Observer in September 2013.
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Use you head, not your heart: Four tips for buying the right investment property

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When conducting due diligence into property, most people think getting the contract checked by their solicitor is enough to cover their legal backsides, but the reality can be painful.
I recently inspected a property in Melbourne’s eastern suburbs and thought it was a good piece of real estate that needed further investigation.
My main concern was that the neighbouring property was on a substantial parcel of land with an old, rundown house on it. When I took a closer look I noticed the back fence that led to a laneway had completely fallen over and there was no sign of it being fixed.
Alarm bells started to ring as I thought this property could be a potential development site.
I asked my solicitor to review the section 32 to determine if there were any planning permits in place that may affect the property and was informed that nothing was disclosed in the paperwork.
In most cases if there is no disclosure in the section 32 then you can rest easy. However, a quick five-minute check on the local council website was all I needed to discover that there was, in fact, a permit in place that had been issued last year and this had not been fully disclosed.  If the vendor is aware of a planning permit that will have a material impact on the property, they have a legal obligation to disclose this information.
The local council was able to email me the full plans of the neighbouring development within a matter of minutes and I was able to determine that this new development will have a detrimental impact on the property I was looking at.
The discovery of this information does not necessarily mean the property should not be purchased, however it can – and in this case did – have a dramatic impact on the value of the property. This information is vital, as it will influence how much you should be prepared to pay for the property.
So, what happens if you sign a contract to buy a property and then discover some mandatory information was not fully disclosed?
If you discover the omission prior to settlement then you are standing on reasonably solid legal ground. If it is determined that the non-disclosure will have a material impact on the property you can notify your solicitor and instruct them to rescind the contract on the grounds that the section 32 did not make all mandatory disclosures. You are then in a position to re-negotiate the contract taking into account the new information or walk away from the property completely and get your deposit back.
However, if you settle on the property and then realise there is a non-disclosure issue, the solution will not be so straightforward. Given the property has already settled, the onus comes back onto you to enforce your legal rights. This means although you do have a legal recourse to sue the vendor, the cost of taking this action could well exceed the financial benefit. Also, working your way through the legal system is very time consuming and not something in which you really want to get bogged down.
For most people, buying property is the biggest financial commitment of their lives, so it pays to take the time to do that extra bit of research. As with most things in life, preventing a problem is much better than trying to find the cure.
MARK ARMSTRONG is a director of <a href="https://ratemyagent.com.au/" target="_blank">ratemyagent.com.au</a>, Australia’s number one real estate agent rating website.
This article was originally published on Property Observer in April 2013.
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Mark Armstrong

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