equity

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Hi Margaret, My wife and I are in our late 20's and have a small mortgage and a lot of equity in our Sydney home. We are keen to use the equity in our home to invest. A while ago I heard you talking with Steve Price on 2GB about investing around Logan or about 25km outside Brisbane. But we have had a few discussions with people and they have suggested to keep out of that area. Do you still think it is a good place to invest? From memory you also mentioned to search for a place where population growth exceeds the national average, is this still the case? Do you have a new list to keep and eye out to invest in and one to keep away from? Thanks for your help.
Mike
 
Hi Mike,
It's great news that you are ready to invest in property and I am really glad that you wrote to me before you took the plunge.  So many people leap right in without getting good, independent advice, and later suffer the consequences of having purchased a property from a spruiker who subsequently got a greater financial advantage  from the sale than the investor ever will! While that statement is likely to raise the hackles of the majority of self- styled property experts, that's ok - I'd rather have you forewarned than make friends! So, having said that, now for a pep talk!  If you are serious about building a portfolio of sound, well performing properties, then you should not be deciding where to buy based on some expert's hotlist, and that includes my own!  If you are only going to be buying according to what any expert has to say about an area, then you are very likely far too late, as everyone else is also hearing that expert and buying there too. You should also not be buying, or as is your case, NOT buying based on your discussions with 'people' who say not to buy in an area.  I'll hazard a guess that those people are well meaning friends, or perhaps locals who are providing suspect 'advice' based on their emotional feelings about an area.  Using Logan as an example, if you know what drives growth it's easy to see that Logan has growth drivers in spades, and these same drivers are likely to exert influence over the area for many years to come.  If you live in Brisbane, though, your view is likely tainted by the unpopularity of the area as a place to live in, and this view does not allow people to see past this inappropriate summary of an area's investing potential.  For my money, I'd prefer to buy in an area which can offer to me years of what I like to call 'generational' growth, than follow the sheep into the latest, upmarket area which may go great guns in the good times and plummet dismally the moment the economy turns in any way. And so for you, your first port of call is education!  Learn how to become a successful property investor before you even start - all the ins and outs, what drives growth, how to negotiate, spot a bargain, and put in place the right structure - and this way, you won't need to ever take advice from anyone again.  You'll be less exposed to the danger presented by the spruikers, and more able to find, on your own, the next hotspot, buying there before the crowd descends and enjoying the very early growth that you get when you buy into a not-yet-known future hotspot. You'll also learn all of the factors which result in a great long -term investment, including how quickly the population grows, how the demographic mix affects property prices, how to identify meaningful infrastructure and much more. But, be warned - spruikers are wolves in sheep's clothing.  They look just like the good guys and they certainly have an amazing gift which will seduce you and make you feel like your best interests are foremost in their minds. A good way to start in weeding out the opportunists is to ask a simple question - Does the advice being given also have a property sale attached to it?  It's simply not possble for any expert who ultimately sells a property to you, for which they gain a commission, to be providing independent advice which is also appropriate for your own personal circumstances!
Have a property question?      <a href="mailto:askmargaret@propertyobserver.com.au" target="_blank">Ask Margaret!</a>
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mlomas-KC9MUPZ6Ca

Ask Margaret: Where is a good place to invest with home equity?

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GUEST OBSERVATION
<a href="https://treasury.gov.au/coronavirus/homebuilder">HomeBuilder</a> is a good idea gone bad. It is possibly the most complex and least equitable program the government could have devised to deliver construction jobs.
It gives $25,000 to people who already own a home or already have enough money to buy one while delivering a minimal stimulus to extra construction. It isn’t a program to create jobs, it is a way of making people who are reasonably well off richer.
It does not address homelessness, precarious rental or any of the other pressing problems that are caused by our current housing mix.
It might build more nice decks for sipping Chardonnay (most already planned), it might deliver ritzy new bathrooms with imported taps or even new kitchens with the latest European appliances, but it won’t help those suffering housing stress.
Construction is Australia’s <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/6291.0.55.003">third-biggest employer</a>, after retail and health care and social assistance. It employs one in every 11 Australians, and it generates other jobs in the building supplies industry and in design and engineering.
The Master Builders Association says construction is facing a decline of <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2020-06-03/government-coronavirus-construction-stimulus-renovations-25k/12317786">40%</a>, with potentially horrendous implications for employment.
The industry has three main components:
<ul>
<li>
residential – apartments and houses
</li>
<li>
commercial – including offices, airport terminals, retail, tourism, education and factories
</li>
<li>
engineering – including roads, railways and airport runways.
</li>
</ul>
Engineering construction is doing reasonably well.
Across the country, governments are delivering a veritable infrastructure <a href="https://iview.abc.net.au/show/utopia">Utopia</a>. Continuing projects include the <a href="https://bigbuild.vic.gov.au/projects/melbourne-airport-rail">Tullamarine Airport Rail Link</a>, the second stage of the <a href="https://www.sydneymetro.info/citysouthwest/project-overview">Sydney Metro</a>, the <a href="https://northeastlink.vic.gov.au/">North East Link</a> motorway in Melbourne, the <a href="https://www.westconnex.com.au/">WestConnex</a> motorway in Sydney, the <a href="https://www.metronet.wa.gov.au/">Airport Metro</a> in Perth and <a href="https://crossriverrail.qld.gov.au/">Cross River Rail</a> in Brisbane.
All governments have to do is keep this pipeline going, which, by and large, they are doing.
On the other hand, commercial construction will be in deep trouble by the end of the year as current projects finish without new projects to replace them.
Outlook bleak, then COVID
The outlook for residential construction is desolate, although for some people with secure jobs working from home, COVID-19 appears to have ignited a mini home renovation boom.
Prior to COVID-19, commercial construction was <a href="https://www.masterbuilders.com.au/MediaLibraries/MB/Forecasts/Australia-Forecast_August-2019.pdf">forecast</a> to shrink from A$48.77 billion in 2020-11 to $41.3 billion in 2023-24.
Residential construction was forecast to bottom out in 2021-22 with only 168,000 dwelling starts, down from a peak of 233,872 starts in 2016-17.
Now, both forecasts will be slashed.
The tourism sector is dead, the education sector is near death and the multi-unit residential market, already badly impacted by confidence issues around <a href="https://theconversation.com/to-restore-public-confidence-in-apartments-rewrite-australias-building-codes-126678">construction quality</a>, is in terrible shape with many projects on hold.
Not big enough, not broad enough
The HomeBuilder scheme is not big enough or broad enough to do much to reignite residential construction. To be useful for jobs, it would need to deliver an extra 60,000 housing starts.
Given the only people who will benefit from the grant will be those some way down the track to either buying or building, it is hard to guess what the additional outcome will be, but it would be surprising if the scheme generated much additional activity.
Even if the full budget allocation of the scheme is taken up, it would fund only about 25,000 projects. Many would have gone ahead anyway.
Among the peculiarities of HomeBuilder are that it won’t work in much of Sydney where many houses are likely to be valued above the <a href="https://treasury.gov.au/coronavirus/homebuilder">$1.5 million</a> limit and it won’t work in regional towns where the required spend will overcapitalise existing houses.
Complexities aplenty
It will encourage people to build in fridges, microwaves, coffee makers and washing machines (many of them tastefully European) to bump the contract price up above the <a href="https://treasury.gov.au/coronavirus/homebuilder">$150,000</a> minimum.
It is a potential administrative nightmare for state governments that are already stretched administering existing emergency relief programs.
Who will establish that the value of an existing house is less than the $1.5 million upper limit? Will it be the value now in the middle of the COVID downturn or the value last year, or the value used to set local government rates?
Contracts are meant to be arms-length, but who will ensure the builder is not the cousin or the in-law of the owner, something that might be impossible to avoid in a small country town? If a garage is built on the side of a house, rather than as a separate structure, will it comply with the rules? And on and on and on.
Few extra homes
While these are legitimate questions, they ignore the big, central problem with the scheme: the opportunity to deliver a substantial program of social housing that would address real problems, including homelessness, has been missed.
And the government has done it in a way that will minimise the jobs created and maximise the wealth transfer to Australians who are relatively well off.
For a government that has mostly managed to do the right thing ever since COVID-19 hit, this has been a terrible policy clanger.
It will encourage everyone who cannot afford to buy a home, or who is homeless, to believe the government has forgotten them.<img src="https://counter.theconversation.com/content/140162/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
<a href="https://theconversation.com/profiles/geoff-hanmer-90647">Geoff Hanmer</a>, Adjunct Professor of Architecture, <a href="https://theconversation.com/institutions/university-of-adelaide-1119">University of Adelaide</a>
This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/homebuilder-might-be-the-most-complex-least-equitable-construction-jobs-program-ever-devised-140162">original article</a>.
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j.ballantyne1990-6AQqhLzZaK

HomeBuilder might be the most-complex least-equitable construction jobs program ever devised

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EXPERT OBSERVER
When it comes to their golden years, there are three essential factors retirees should take into account when choosing property.
Lifestyle, relative affordability and building equity should all be considered by those leaving the workforce behind for the easy life.
Our analysis has identified 10 suburbs which offer a combination of all three.
Lifestyle varies from person to person. Some are looking for a seachange, others a treechange and there are many who want to be within easy distance of family.
When it comes to ‘relative affordability’, that too can depend on the individual purchaser. For example, Bryon Bay is relatively affordable for a well-off downsizer from Sydney and Melbourne, but not necessarily for those moving from other areas.
There has certainly been an increase in the number of residents leaving Sydney for other destinations, with the latest ABS figures showing 27,300 people left the Greater Sydney area through 2017-18.
And, of course, building wealth or equity over time is just as important as the two other factors. In other words, they offer good lifestyle options, value for money and solid long-term capital growth projections.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/11/27/Top%20suburbs%20for%20Retirees.jpg" alt="">
We have identified three suburbs in Queensland, five in NSW, one in Victoria and one in Tasmania. There is no particular order, as each retiree must make their own decisions based on personal preference and budget. However, it should be noted, that this list relates only to houses, and not units.
Despite the recent downturn in the property market, these areas had either shown resilience or had already experienced good recovery and that strong long-term projections were “very clear”. And, in fact, some of these areas now presented even better opportunities thanks to the recent price reductions.
For example, the Mornington Peninsula, which has a median price of $691,200, experienced a price reduction of 10.2% in the past 12 months. This is compared to Greater Melbourne which delivered a price reduction of 11% in the past 12 months. Now, with the strong recovery of the market, the increasingly popular area of the Mornington Peninsula is able to provide good buying opportunities.
These areas will most likely reach a new peak or price level in about 12 months and will have fully recovered from the downturn.
Top places to retire for lifestyle, relative affordability and capital gains:
<ul>
<li>1) Sunshine Coast, QLD</li>
</ul>
Both Peregian and Coolum beaches are based in this popular retiree area, drawn by its year-round idyllic climate, beautiful sandy beaches and lush hinterland subtropical forests. The region is only 100 kilometres from Brisbane, meaning they can enjoy the quiet life while still being only an hour’s drive from the hustle and bustle of a big city and all it has to offer. The Sunshine Coast offers a variety of housing styles and price ranges from the multimillion-dollar mansions to two-bedroom cottages depending on budget.
<ul>
<li>2) Gold Coast, QLD</li>
</ul>
Miami on the Gold Coast has a median price of $722,570 which makes it relatively affordable for those migrating from higher priced areas such as Sydney or Melbourne. The Gold Coast is popular with retirees thanks to its beautiful beachside and waterside suburbs, unrivalled lifestyle and good infrastructure. An hour’s drive from the state capital Brisbane, Australia’s sixth largest city is appealing to active mature-aged people, who can enjoy walking on the beach or in the bush, fishing, boating and cultural pursuits with an appealing climate year-round.
<ul>
<li>3) Central Coast, NSW</li>
</ul>
North Avoca, Terrigal and Wamberal on the Central Coast all offer superb lifestyle properties significantly more affordable than the beachside suburbs of Sydney and which still offer reasonable access to NSW’s capital. The area is popular with retirees and is characterised by rugged coastlines, sandy beaches, national parks, bays, inlets, waterfalls and lakes.
<ul>
<li>4) Mornington Peninsula, VIC</li>
</ul>
The suburb, Mornington, is one of the most popular on the Mornington Peninsula and is about 80 kilometres southeast of Melbourne. It is a popular tourist and retiree destination thanks to its numerous attractions which include beaches, wineries, national parks, heritage sites and a plethora of golf courses.
<ul>
<li>5) Byron Bay, NSW</li>
</ul>
This popular suburb is part of the northern region of NSW which is often referred to as ‘the Grey Coast’. Of all the suburbs on the Top 10 list, Byron Bay received the highest capital gains over the past five years of 83.1%. While its median house price was also the highest at $1.5 million, compared to Sydney and Melbourne prices, this is relatively affordable for those moving from these capital cities.
<ul>
<li>6) Hobart, TAS</li>
</ul>
Thanks to its greater affordability when compared to Melbourne, Hobart has increasingly become a popular destination for retirees despite its colder climate. Originally a penal colony founded in 1804, the city is steeped in history and heritage. It is also a major drawcard for boaties, given its harbour is the second-deepest natural port in the world. The city is known for its arts and culture, its majestic scenery such as Mt Wellington, picturesque waterways including the Derwent River and rich café and restaurant scene.
<ul>
<li>7) Hunter Valley, NSW</li>
</ul>
Louth Park in the Hunter Valley is about 120 kilometres north of Sydney. The region is one of Australia's major wine growing areas and is an attractive destination for retirees who enjoy its relative proximity to NSW’s capital city. As a popular tourist area, regular events and festivals are held throughout the Hunter Valley each year while World Heritage-listed parks provide tranquil areas to take in nature.
DORON PELEG is the CEO of RiskWise.
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The top 10 suburbs to retire and build equity: RiskWise's Doron Peleg

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The crowdfunding platform DomaCom have launched their newest financial product, Senior Equity Release.
The Senior Equity Release will provide an adviser accreditation course that will enable financial advisers to provide sign-off to seniors 60 years and over looking for an equity release on their home.
DomaCom CEO Arthur Naoumidis said Senior Equity Release is the first financial product in this space.
"It will give financial advisers a significant place at the table in a growing and vulnerable sector that in many cases is asset rich and cash poor. 
"Hence accreditation is crucial and the first group of advisers will be going through that over the next few days”. 
The announcement comes six and a half years after DomaCom sought to get the necessary reliefs from ASIC, who have substantially reviewed the product.
Senior Equity Release enables advisers to engage and connect senior aged clients with wealth accumulation clients such as SMSFs as both have a similar time horizon in terms of their respective needs.
Seniors can apply to sell a fraction of their home and must nominate the amount they wish to receive and how they wish to receive it, either as a lump sum or a regular monthly payment.
"The obvious investors for many would be family and friends who take an equity position in the property, perhaps using their super to do so," Mr Naoumidis said.
"For investors the benefits are also obvious. 
"They can choose properties in locations that interest them. 
"They can limit investment in residential property in accordance with their asset allocation and they can spread their investment across multiple properties in different jurisdictions to increase diversification."
 
The monthly payment is a staggered settlement of the equity release and has the flexibility to be dialled up or down to give the senior access to additional funds as may be required.
Investors in a senior equity release receive monthly rental income of 3% net of all fees and “own” a share of the capital value through units in a segregated sub-fund of DomaCom.
When the property is sold in full the vendor and investors receive their share of the sale price. This may occur when the vendor passes away or if they decide to move.
Investors also have the option to sell their units via DomaCom’s online liquidity facility which operates in a similar manner to an equities page with market depth and buy/sell order screens.
The company says the benefits to seniors and investors are quite compelling. 
Seniors can unlock equity and stay in place for as long as they like and can rent out the property and retain the rent. 
It is suggested that this may present a good opportunity to trial retirement village living before they sell.
Maintenance, repairs and building insurance is shared by the vendor and the investors.
One of the biggest advantages to DomaCom’s SER is there are no postcode restrictions on the property.
DomaCom currently have a <a href="https://www.urban.com.au/news/99482-domacom-sapphire-wind-farm-co-investment-opportunity-closes-this-month" target="_blank">crowdfunding opportunity</a> at Sapphire Wind Farm, the largest wind farm in New South Wales.
To read more about DomaCom <a href="https://domacom.com.au/" target="_blank">click here</a>.
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jrobinson-rf4aSBido9

DomaCom launch home equity release product for seniors

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In a departure from architecture’s traditional hierarchies, the benefits of adopting a more collaborative approach to design within practices is becoming increasingly apparent.

A key part of this is mentoring which is critical to ensuring this new culture becomes a reality within architectural practice, according to Technē Architecture and Interior Design director Steve McKeag.

McKeag highlights the culture at Technē, where team leaders will often ask younger staff to identify goals and key tasks early on, as providing staff with the confidence to undertake projects of any size and budget.

The creative side of architecture can be very time exorbitant, so communicating with staff in a way that gets them to lift their heads up and identify the critical task at hand is very important.

McKeag is keen to share a number of initiatives the practice has implemented; initiatives he believes can improve culture across the sector.

Additionally, the studio follows a deliberate policy of project exposure and knowledge building. Wherever possible, junior staff are brought in on meetings with clients and contractors.

<a href="https://www.urban.com.au/news/technes-steve-mckeag-discusses-his-appointment-as-director-and-his-favourite-pubs">Speaking previously</a> with urban.com.au McKeag discussed how fellow directors Nick Travers and Justin Northrop provide a lot of autonomy which in turn fosters a supportive and nurturing workplace environment in which team members share skills, knowledge and experience.

The leadership team encourages an open dialogue between employees at all levels, creating a space where resources and knowledge can be easily shared. According to McKeag, contributing to open forum type discussions assisted his own development and progression to director. 
 

<figure><a class="colorbox colorbox-insert-image" href="https://res.cloudinary.com/dz9xllyip/image/fetch/q_auto:good/https://s3-ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public//pictures/article-images/techne_directors-2.jpg" rel="gallery-all" title="Technē's directors (L-R) Justin Northrop, Steve McKeag, Nick Travers"><img alt="" class="image-article-full-width-580px" height="387" src="/sites/urban.melbourne/files//styles/article_full_width_580px/public/pictures/article-images/techne_directors-2.jpg?itok=bmi0fdZi" title="Technē's directors (L-R) Justin Northrop, Steve McKeag, Nick Travers" width="580"></a>

<figcaption>Technē's directors (L-R) Justin Northrop, Steve McKeag, Nick Travers</figcaption></figure><blockquote>
Across the industry we’re beginning to see inspiring outcomes that are the result of intelligent collaboration, of multiple architects and designers pooling their talents, rather than as the expression of a single architect’s ‘genius’. Such collaboration begins early with mentorship

We take a collaborative approach on our projects that is almost the reverse of the old-fashioned model. When they establish a new project, Technē founding directors Nick [Travers] and Justin [Northrop] might outline the core challenges along with the client’s needs, but from there we open it up so that whoever comes up with the best concept is given the opportunity to develop that in collaboration with the project leaders. It’s design led and not top-down. 
We give everyone as much exposure as possible to the different facets of the decision making process. It’s part of learning on the job.

Opening up a project to studio-wide feedback has the advantage of inviting a fresh perspective. Brainstorming outside the project’s known constraints can generate new ideas, which the team can then tailor within the boundaries of the brief or the client's expectations.

And if you’re retaining staff that’s a competitive advantage, because of the flow-on effects of greater corporate knowledge, which in turn leads to innovation.

These are skills so important to project communication and which senior practitioners can cultivate simply by helping their mentees.

It’s really bringing back some of those tactile processes and focusing on the concepts – then sharing that through conversation and mentoring – rather than concentrating on photo-realistic renders from the outset.

- Steve McKeag, Director Technē Architecture &amp; Interior Design
</blockquote>

Mentoring benefits both parties, McKeag stresses, and the benefits for both the mentor and the wider practice have been shown to result in a better workplace culture, improved staff morale and reduced turnover. 
For the mentee, working collaboratively has shown to improve career advancement, job satisfaction, promotion and pay increases. Additionally, those who receive mentoring are far more likely to persist with their chosen career.

The industry’s peak body, the Australian Institute of Architects (AIA), recognises the importance of mentoring, with various state chapters overseeing different schemes. Mentoring can help overcome barriers to gender diversity and, 
alongside a focus on graduates entering the industry, the AIA Victorian Chapter looks for mentors to mature-age women returning to the field after a period away, perhaps after parental leave.

Other advocacy groups such as Parlour have also long lobbied and promoted equity in the industry and fair rights for all irrespective of age or gender. Parlour is also a strong proponent and advocate of mentoring, with the topic discussed in a series of essays on their site which you can read <a href="http://archiparlour.org/topics/mentoring/">here</a>.

Other initiatives implemented at Technē which are designed to encourage collaboration and enhance project outcomes are the Friday design reviews. These present an opportunity for studio members to express their interest in joining a project team, or simply to share relevant experience or ideas.

Technē’s Carlton studio also features pin boards which run the length of the work area and exhibit projects currently in progress, encouraging staff to share their insights and experience to colleagues passing by throughout the day.

The office's workshop provides a space where physical models and prototypes can be tested and has been designed to facilitate and promote both digital design and older more traditional methods of learning, something McKeag considers to be a point of difference with many other studios.
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Laurence Dragomir

Technē's Steve McKeag discusses the importance of mentoring within architectural practice

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<div class="cq-article-content-paras section">
The Mark Bouris-led Yellow Brick Road Holdings has attracted the attention of an offshore-based suitor.
The Australian Financial Review's Street Talk suggested financial services group Squirrel was the potential acquirer of Yellow Brick Road.
</div>
<div class="related-quotes section">But it pointed out it would not be an easy proposition as Macquarie Group, Nine Entertainment and Bouris all hold large stakes and may not be sellers.</div>
<div class="related-quotes section"> </div>
<div class="related-quotes section">The column advised no approach had been made to the board of the mortgage broking and financial advice group.  
<div class="cq-article-content-paras section">
Local stockbroking firms, including Blue Ocean Equities, and private equity giant Apollo Global Management are among those approached to get involved in a potential move on Yellow Brick Road. 
</div>
</div>
<div class="cq-article-content-paras section">
The company delivered its maiden profit for the 12 months ended June 2017 when the company's underlying loan book grew 17 per cent to $44.1 billion over the year.
</div>
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YBR attracts interest of Squirrel 

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BRW rich listers the Gandel family have taken a 6.6 per cent stake in listed property valuation and advisory firm Landmark White, which recently acquired rival MVS National.
Tony Gandel - the son of property developer John Gandel - and his wife Helen, bought into LMW, according to The Australian Financial Review. John Gandel ranked seventh on the recently released 2017 BRW rich list with a net worth of $6.05 billion.
The five million shares in Landmark White that the Gandels bought for $3 million make them the third biggest investor in the company, behind co-founder Glen Joseph White (14 per cent) and fund manager Microequities (16.5 per cent).
Tony Gandel runs the family's Gandel Invest business which, according to its website, "makes strategic, non-controlling investments in growing businesses".
"Gandel Invest typically seeks to acquire a 30-40 per cent shareholding and assist the company to grow and achieve the goals of all shareholders," according to its website. 
The investment by Gandel came a day after Landmark White <a href="https://www.urban.com.au/news/71128-property-valuation-firm-landmark-white-acquires-rival-mvs-national" target="_blank">completed the acquisition of MVS National</a> for $35 million that would create the largest ASX-listed valuation services business.
The acquisition, which was struck on an earnings multiple of 4.5, adds 85 valuers to LMW's staff of 250 and expand its revenue stream to incorporate government and statutory valuation work, the AFR reported.
Shares in LMW fell 1 per cent on Wednesday to close at 61.5¢.
According to Greville Pabst, executive chairman of national valuation firm WBP Property Group, industry consolidation is being driven by the scale required to fund technology platforms and the cost of professional indemnity insurance.
 
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jonathanchancellor-7SQnKwU6yx

Billionaire Gandel family buy stake in valuation firm Landmark White

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<img src="https://counter.theconversation.edu.au/content/77784/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
In its 2017 federal budget, the Australian government included a 0.06 percent levy on Australia’s biggest five banks: ANZ, the Commonwealth, NAB, Westpac and Macquarie Bank.
The levy will collectively cost the banks A$1.6 billion a year, and by some estimates will raise the overall cost of funding for the affected banks by around 0.03 percent. Many commentators have suggested this cost will be passed directly onto customers.
In an interview on the ABC’s Insiders program, Treasurer Scott Morrison said the banks could absorb the cost of the levy, given the size of their profits.
He said Australia’s large banks have between a 0.2 percent to 0.4 percent advantage because of the way Australia’s regulatory regime works and that Australian banks have a return on equity about twice that of banks in other advanced developed economies.
Is that right?
Checking the source
When asked for sources to support his statement, a spokesperson for Scott Morrison referred The Conversation to evidence presented by the Reserve Bank of Australia to the House of Representatives Standing Committee on Economics at its hearing on September 28, 2016.
In the report, the Reserve Bank included a chart provided below.
The spokesperson added that:
Importantly, the chart doesn’t adjust for M&amp;A [mergers and acquisitions] activity, given NAB’s 2016 sale of Clydesdale brings down average (unadjusted) ROE [return on equity] for Australian banks quite substantially.
Let’s check the facts.
What is the return on equity for Australian banks?
Return on equity, or ROE, is a measure of profit, expressed as a percentage of shareholder equity. It shows how much profit a company generates with the funds invested by its shareholders.
The figure below (from the Reserve Bank’s Financial Stability Review) shows the return on equity of the large banks in Australia was around 15 percent in 2015.
Including the smaller Australian banks, which have about 20 percent of the market, the average return on equity is somewhat lower and more variable than for the big four only, but it is above 12 percent.
<a href="https://www.propertyobserver.com.au/images/2017/05/19/return%20on%20equity.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/05/19/return%20on%20equity.png" width="452" height="425">
A decade ago, Australian bank returns on equity were a few points higher, and not much different from those earned by banks in other developed markets.
However, during the global financial crisis, banks in the US and Europe sustained large losses, leading to negative returns for couple of years. US banks have since recovered somewhat. European and UK banks, however, continue to perform weakly: the returns on equity of large banks in Europe are about 5 percent, compared to about 3 percent in the UK. The ROEs of large Canadian banks have, like those of large Australian banks, remained higher and more stable.
Looking ahead, the Reserve Bank notes that:
Analysts’ expectations are for Australian banks’ [return on equity] to remain on average around 12.5 percent over the next couple of years. While this is high by international standards and appears to be above banks’ cost of equity, it is lower than the returns to which Australian banks and their investors have become accustomed. Do Australia’s biggest banks have an added advantage over smaller rivals?
The treasurer also claimed that “our major banks have about a 20 to 40 basis point [funding cost] advantage because of the nature of the regulation and structure of our financial system”.
Big banks do indeed appear to be able to borrow more cheaply because their lenders expect them to receive government support during crises.
In 2010, the International Monetary Fund (IMF) used a range of approaches to estimate the value of “implicit government support” – such as the bailouts provided to some US banks during the global financial crisis – for banks and other financial institutions in the Group of 20 nations, including Australia.
While the answers from the different approaches varied, the IMF concluded that implicit government support “provides too big to fail financial institutions with a funding benefit between 10 and 50 basis points, with an average of about 20 basis points”.
Here in Australia, the Reserve Bank has concluded that “the major banks have received an unexplained funding advantage over smaller Australian banks of around 20 to 40 basis points on average since 2000”.
Macquarie University researchers James Cummings and Yilian Guo found that the funding cost advantage was about 30 basis points from 2004 to 2013, but has declined to about 16 to 17 basis points since then, in part due to prudential reforms that obliged banks to increase the share of lending contributed by shareholders.
Verdict
Scott Morrison was correct: Australian banks do “have a return on equity which is about twice, if not more than that, what you see particularly in other parts of the advanced developed economies of the world”.
Australian banks currently have higher returns on equity than banks in many other major developed markets. Those returns are about twice as high or more than the returns of the troubled European and UK banks. But returns in Canada are close to the Australian level, and the returns earned by large US banks are only a few points below the Australian level.
The treasurer is also correct to point out that the major banks enjoy a funding cost advantage on the basis of expected government support in financial crises. However, the size of the support is less clear. While IMF and RBA studies are in line with the treasurer’s range, there is some evidence that the funding cost advantage may now be somewhat lower.
Jim Minifie is Productivity Growth Program Director at the Grattan Institute. You can follow him on Twitter <a href="https://twitter.com/jimminifie?lang=en" target="_blank">here</a>. 
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jchancellor-FAypfDUnLy

Do Australian banks have double the return on equity of banks in other developed economies?

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More than 300,000 home loan customers have little or no equity in their homes, because they either failed to keep up with mortgage repayments or values in their area have fallen, new research by Roy Morgan has found.
Equity in this context is the difference between the value of your property and how much you owe on it.
In the 12 months to October 2016, it was revealed that 6.9% (302,000) of Australian mortgage holders had little or no real equity in their home, says a post on the website of Roy Morgan Research. The figure has improved just a little from around the same time in 2015, when around 345,000 home loan customers had no equity. 
This is based on the fact that the value of their home is only equal to or less than the amount they still owe, placing them at considerable risk if they have to sell or prices decline. 
Roy Morgan communications director Norman Morris said, “this represents a considerable risk to these households and their banks, particularly if home values fall or households are hit by unemployment”. 
“With some early signs that home loan rates are rising, the problem is likely to worsen as repayments increase and home values may decline, which has the potential to lower equity levels even further.”
<a href="https://www.propertyobserver.com.au/images/2017/02/02/Feb3Equity1.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/02/Feb3Equity1.png" alt="">
Morris added that there were several reasons that some borrowers were not gaining equity in their homes despite a generally strong property market. These include being in areas with declining values, apartments in Sydney and Melbourne losing value, borrowing more than the real value of the property, falling behind in mortgage payments, and increased borrowing for renovations that haven’t been reflected in increased property values.
The analysis was based on the Roy Morgan Single Source survey of more than 100,000 interviews over the last two years. 
Over the last 12 months, Roy Morgan said it interviewed more than 10,000 owner-occupied mortgage holders.
Western Australia had the largest proportion of such homeowners, with 10.4 percent of mortgage holders, or 54,000, having little or no equity in their home, the highest in Australia and 2.1% points higher than the same period in 2015. 
“The slowdown in WA’s mining sector is seeing the highest proportion of mortgage holders faced with little or no equity in their homes, and this position has deteriorated further over the last twelve months,” said Morris.
South Australia also recorded an increase in proportion over the last 12 months, up by 1.8 percent points to 8% (27,000), according to the analysis.
Among the states and two largest cities included in this analysis, Sydney had the lowest proportion of mortgage holders with little or no equity in their home: just 3.9 percent (33,000), down 1.1 percent points in the last year. 
“This improvement is due to home prices increasing faster than in most other areas of Australia and outpacing the growth in the average amount owing on mortgages,” Roy Morgan’s research said. 
<a href="https://www.propertyobserver.com.au/images/2017/02/02/Feb3Equity2.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/02/Feb3Equity2.png" alt="">
Tasmania was the second-best performer with 4.7 percent (5,000) of mortgage holders facing equity risk, followed by NSW with 5.1 percent (73,000), Victoria with 6.0 percent (65,000), Melbourne with 6.1 percent (50,000) and Queensland with 7.2 percent (63,000).
The research also observed that mortgage gearing or risk was lowest in Sydney (28.9 percent) and Melbourne (32.4 percent), mainly because of the rapid rise in property values.
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prateek24-ezbwHMbNAk

300,000 mortgage holders have no equity in their homes: Roy Morgan

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<img src="/images/2016/07/20/Holdencapital_banner.jpg" alt="" width="618" height="130">
SPONSORED POST
According to Wikipedia, “Sweat Equity” is defined as:is a party's contribution to a project in the form of effort and toil, as opposed to financial equity such as paying others to perform a task.
Sweat Equity is normally initiated as a cost saving exercise, where in the case of property development, the developer shoulders the task of achieving the “highest and best use” for a property. Whilst this will often involve the collective efforts of industry professionals such as architects and town planners, it is almost always in consultation and at the direction of the property developer that first identifies the opportunity, and at the end of the day will speculatively outlay the cost of engaging such professionals.
So when does sweat equity via uplift in land count?   
It should not be overlooked that in many cases successful developers are already on the path to creating sweat equity in negotiating a Vendor to a price that recognises the current “value” of a site based on its highest and best use today, versus what can be achieved in the future.
Taking strategic control of a property through an option agreement or instalment contract while you work up an appropriate town planning or design strategy can also provide potential uplift which can later be included as part of the developers sweat equity.
That sweat equity effectively represents the uplift in value that is created without changing the visual presentation of a property. It should also be noted that a change in market conditions and specifically a rising market should not be construed as sweat equity where these changes occurred over a long period of time or were unrelated to the developers strategy to redevelop the property. Buying a property at the bottom of the market and holding it through an improving market in the hope that it will improve in value is not sweat equity. 
Quantifying sweat equity in terms of property will normally be proven or measured by comparing a purchase price or value at a point in time to the current value of the property at the point in time where that sweat equity is required to be assessed for the purpose of securing a funding outcome.
In most respects HoldenCAPITAL and prospective lenders view on sweat equity is similar to that of a valuers, on the basis that it is an art not a science. It requires an analysis of things like the market, the developers experience in undertaking a project of that size and scope and the planning and research they have put into conceiving the project (i.e. not just dumb luck), as well as the time and costs incurred including the retention of appropriately credentialed professionals engaged by the property developer.
To further define sweat equity we think it is important to qualify it by suggesting that it is value created that was perhaps not obviously apparent and easily achievable by the “common man”.
To use another art analogy, “one man’s art is another man’s trash”. Whilst this is perhaps a little extreme, it is fair to say that while most Lenders will recognise the sweat equity others, for reasons known only to them, will not. It is therefore, extremely important to clearly articulate the effort and contributions that have been made by the developer in order to justify the quantification of their  “sweat equity” when the valuation uplift is being assessed.  
It should also be pointed out that hard work and the expending of cash equity will not always result in an uplift in valuation.
Some examples of sweat equity can include but are not limited to:
<ul>
<li>a change in permitted use of the property;</li>
<li>rezoning;</li>
<li>changes in planning such as increased heights, configuration allowances, product mix, etc.;</li>
<li>a change in design of the proposed redevelopment; and</li>
<li>amalgamation of adjoining sites;</li>
</ul>
This is an area where developers often fail to accurately articulate where their sweat equity has been added so that it should be recognised by lenders. Seeking advice from an experienced construction finance broker can ensure that this doesn’t happen and make a significant difference to the final equity contribution the developer is required to contribute.
This article was written by Dan Holden of HoldenCAPITAL, who are a bespoke construction finance firm, they arranged over $300 million of construction finance in 2015 across 52 projects. To discuss your project finance requirement please call (07) 3171 4200 or visit <a href="https://www.holdencapital.com.au/" target="_blank">www.holdencapital.com.au</a>
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