Lenders clamp down on investor loans

Property investors across Australia are facing tougher lending tests as the nation’s banking regulator moves to moves to rein in the booming Sydney market.

The Sydney property market had a strong start to 2015 as annualised house-price growth rebounded in the March quarter.

While extremely high, Sydney’s annualised growth rate of 12.4% in late 2014 had actually been slowing before increasing again to 13.9% at the end of the recent March quarter.

The rebound in annualised growth rates in Sydney can partly be attributed to the Reserve Bank of Australia’s (RBA) decision to cut the official cash rate to 2.25% in February.

Another cut, which was announced in May and reduced rates to just 2%, is likely to continue to spur property investor appetite, particularly in Sydney where there has been a large amount of investor activity.

Conscious of reining in an overheated property market, the finance lending regulator, the Australian Prudential Regulation Authority, has required that lenders apply tougher lending standards, specifically for investors.

This will apply across the board for all Australian property investors. Even if you’re a property investor living in Perth and wanting to purchase an investment property in Perth, you’ll still have to meet these stricter lending standards.

So what do these stricter standards include?

Most lenders have begun utilising more conservative figures when evaluating loan and refinancing applications, which in turn have reduced the borrowing capacity of some investors.

Lenders are also increasing their buffers, which test how applicants would cope with repayments when interest rates rise.

Some lenders have increased these buffers from about 180 basis points (1.8%) to 200 basis points (2%) or more.

For example, an investor applying for a loan with an interest rate of 5% would now have to prove they could make repayments if interest rates increase to 7%, rather than 6.8%.

Finally, lenders have also withdrawn discount offers and incentives for investor loans and are applying much more stringent loan-to-value ratios (LVR).

Bankwest, for example, has changed its LVR for investor loans from as much as 98% to just 80%, which means investors will require far bigger cash deposits or equity interests in their existing properties.

Because of these tougher lending standards, it’s important for property investors to engage mortgage brokers who specialise in investment finance to ensure finance and investment options are optimised.

5 reasons to buy an investment property in Perth in 2015

The current conditions in the Perth property market represent an opportune time for investors to start or build their portfolios.

Although Perth house prices are widely tipped to remain steady for the next 12 months, investors should take stock and capitalise on the softer market conditions.

Here are four reasons why it’s a good time to buy an investment property in Perth.

• Record-low interest rates mean investors can access extremely cheap finance to purchase property.

• Stock levels have risen by one-third over the past year to about 13,600 at the end of March, which provides buyers with a much wider range of choice.

• Those who decide to buy property in the softer conditions will encounter less competition as many investors will choose to delay purchases until market conditions improve.

• More ‘bang-for-buck’ as less competition means buyers can ‘upgrade’ and purchase larger properties or secure properties for less. The average vendor discount for houses has increased to more than 6% as of March.

• More control over contract negotiations as less competition allows buyers to weigh contract clauses in their favour.

Investors who take advantage of these favourable conditions and invest wisely in the next 12 months will be best placed to reap the rewards for the next upswing in the property market.

Established suburb with youthful population undertakes transformation

This well-established suburb with a young population is transforming into an active social hub.

Queens Park, sitting within the City of Cannington and just 11 kilometres from Perth CBD, has a population at 5,380 with a median age of 30 years.

The area encompasses Maniana Park and has well-established infrastructure including Queens Park Recreation Centre, sports grounds, Queens Village and schooling options.

Its neighbouring suburbs include Cannington and Welshpool.

The suburb has good accessibility to Welshpool Road, Seven Oaks Street, Railways Parade and Roe Highway, as well as buses down urban corridors and easy access to two main train stations – Cannington and Queens Park.

With 73.5% of dwellings listed as houses, the suburb is mostly low/medium density.

Queens Park is currently in a transformation stage as many of the medium-density lots are being developed into grouped dwellings.

Assisting this development is the recently drafted structure plan, which will help guide future developments within the area and improve streetscapes.

The structure plan for Carousel Shopping Centre, and the surrounding residential area, has outlined plans to develop additional amenities and increase housing densities to create a new Cannington City Centre, which will ultimately be a vibrant mixed-use hub.

School facilities include St Norbet College, Queens Park Primary School, St Joseph’s School and Gibbs Street Primary School.

Responsibilities beyond the walls

While the division of responsibilities between landlord and tenant for all ‘dwelling-related matters’ are commonly known, what about those of the land?

Gardens typically aren’t at the top of a tenant’s priority list when searching for a rental property.

Subsequently, if a tenant leases a house with a high-maintenance garden, the ongoing upkeep and care may fall by the wayside.

Given this, it’s important that all parties hold a comprehensive understanding of their responsibilities regarding garden maintenance – any good property manager will ensure this is the case.

Generally, unless the tenancy agreement states differently, tenants are responsible for the maintenance of lawn including mowing, edging, watering, weeding, and fertilising.

This is also the case for garden beds and bushes and shrubs, which are to be pruned by the tenant.

These tasks fall under the ‘general maintenance’ responsibilities, which usually require the tenant to ensure the garden is maintained to a standard set at the start of the tenancy.

On the other hand, landlords are generally responsible for providing some equipment, such as hoses and sprinklers.

In some tenancy agreements, though, it’s the responsibility of the tenant to replace broken sprinkler heads.

Landlords also typically need to maintain reticulation systems, clean gutters and lop overgrown trees.

While landlords are generally responsible for keeping gutters clean, it’s the tenant’s responsibility to advise the property manager of any potential blockages or water leaks.

If the tenant doesn’t report an obvious issue, they may be liable for any damages.

Given the divide of responsibilities, it can be easy for confusion or misunderstandings to occur, which is why landlords and tenants need to be aware of their garden-maintenance duties from the beginning.

Renovating to add equity to your investment property

Renovating can be a great way to increase equity in your investment properties – it can even help you achieve your next property purchase sooner.

Property investors primarily choose to renovate for two main reasons.

Firstly, so they can demand higher rent from tenants, or remain competitive within the market.

Secondly, to increase the value of their property – from which point they can use the added equity to purchase their next investment property sooner.

Utilising the right renovation strategies and techniques can help investors achieve great success.

Even in flat real estate markets when capital growth is sluggish, renovations can be a fast and cost-effective way to increase the value of your investment properties.

However, the wrong strategy can lead to budget blowouts or poor returns, which can be highly costly.

When renovating, investors must ensure any changes they make to a property are appropriate and fit the surrounding neighbourhood.

For example, there’s no point installing granite benchtops and premium kitchen appliances in a house that’s located in a low socio-economic area. Spending $50,000-plus on a new kitchen in a house that’s located in a ‘working-class’ suburb won’t necessarily be reflected in the value of your property.

Furthermore, the rent returns needed to recover the cost of such a renovation would likely be far higher than what you’re likely to receive.

So it’s important to avoid overspending and knowing the target market you’re renovating for.

Likewise, when renovating to increase equity in your property you must focus on the areas that will generate the best capital growth.

For example, completing major renovations on the backyard, such as adding a dining-alfresco area, isn’t likely to be the best option if the dwelling has an aging interior.

Typically, it’s best to focus on aging kitchens and bathrooms to reflect a more modern appearance.

If the budget allows, extensions can also be a great way to add equity to your property, particularly if you can add an extra bathroom, bedroom or living space.

When completing major renovations, it’s also important to remember the minor aspects as well.

A fresh coat of paint, new carpet and replacing dated blinds or light fixtures can go a long way to creating a complete transformation to your property.

Taking these factors into consideration can help save you thousands of dollars and may mean the difference between your project achieving major success or ending up a costly exercise.

Kick-start your property portfolio

If done right, property investment is a great way for anyone to build huge personal wealth.

However, given there is so much conflicting information, newcomers to property investment can easily become overwhelmed and discouraged.

To assist those considering purchasing their first investment property, Momentum Wealth is holding an informative seminar for beginner investors, ‘Introduction to Property Investing (Property Stripped Bare)’.

The seminar uses simple, jargon-free language to explain the essentials of property investment and how these can help anyone to significantly build their personal wealth.

The seminar will explain the fundamentals of property investment, how to identify the best investment locations, why property prices rise in some suburbs but not others and the key considerations for successful property investment, among other important issues.

Momentum Wealth managing director Damian Collins will present the seminar in Perth on Wednesday, June 17, and anyone considering property investment is encouraged to attend.

For more information or to book your ticket, click here.

The seminar will prove to be a highly-informative evening and a launching pad for beginner investors to build large property portfolios.

An opportune time to review your mortgage

Even if your circumstances haven’t changed, now is a great time to review your mortgage to ensure you’re receiving the best deal – what do you have to lose?

Reviewing your mortgage could save you thousands of dollars and help you to reach your goals sooner, but many property investors simply don’t reassess their loans as often as they should.

Too many investors treat their mortgages as ‘set and forget’ and only consider a review if their circumstances are about to change, such as refinancing for another property purchase, for instance.

Reviewing your mortgage will ensure your loan products are still the best on the market that are most suited to your circumstances.

Changes to your personal circumstances, such as a new job, a promotion or the arrival of new children, can affect your financial position, and may mean your existing loan structure is no longer the best suited for you.

Even if your circumstances haven’t changed, there may be new products that could save you thousands of dollars.

With record-low interest rates and healthy competition among lenders, now is an opportune time review your mortgage.

It is a simple process that can deliver huge financial gains, unlock equity in your existing portfolio and help to purchase your next investment property.

If you’re interested in reviewing your loans, please contact a Momentum Wealth mortgage broking specialist today on 08 9221 6399.

2 common pitfalls of property investment

Property investment is a great way to significantly grow your wealth, however there are many common mistakes that investors continually make.

While property investors generally focus on the features and requirements needed to become successful, many often forget to consider the aspects and strategies that should be avoided.

Here are two common pitfalls of property investment that investors should generally avoid.

• Taking advice from the wrong people

Selling agents and property spruikers are usually working in the best interests of the seller or developer, not working in your interest as a property investor.  No matter how helpful these people may seem, they don’t work for you. Selling agents work for the seller and are legally obliged to act in the best interests of their client. Developers, on the other hand, are interested in selling their stock and making profits – they aren’t usually motivated to sell you a great investment property that will experience strong capital growth. Similarly, property spruikers generally make their money by receiving commissions from developers or selling agents. Some property spruikers also just want to make a quick buck and provide ill-informed advice or sell you sub-standard investment properties.

• Following the herd

Property investors all too often follow the herd. When the property market is hot, many investors will make irrational decisions fearing that they will miss out on capital growth. On the other hand, when the market slows, many investors will defer investment decisions until the next upcycle. To build your wealth through property investment, you need to remain focused on your goals. You shouldn’t purchase your next property simply because the market is hot. You need to consider how this fits in with your broader investment plan. Similarly, you shouldn’t shy away from a cool market. Generally, there are many benefits of buying in a soft market including increased housing stock, less competition, more bang for your buck and more power in contract negotiations. Buying in a soft market helps ensure you don’t miss the next upcycle.

Location and large blocks provide appeal

This established riverside suburb is just a stone’s throw from Perth city and still offers large residential blocks at reasonable prices.

Bayswater has a population of 13,500 residents with a median age of 38 years. The suburb covers 10 square kilometres and essentially comprises three areas – east of Tonkin Highway, western riverside and the western inland side.

The suburb is located just 6 kilometres from the Perth central business district and has access to three strain stations – Bayswater, Meltham and Ashfield.

The area is also serviced by buses down the urban corridor including Guildford Road, which connects to East Perth.

Bayswater is also split by Tonkin Highway, providing further access to the north and south, including the airport, Great Eastern Highway and Roe Highway.

There is little state housing in Bayswater and one of the suburb’s biggest drawcards is its river frontage, which totals about 3 kilometres.

Infrastructure in Bayswater is also well established, which provides excellent access to a number of valued services and employment centres including Morley Galleria, Bayswater industrial zone and Perth CBD.

With more than 78% of dwellings in Bayswater listed as houses, the suburb provides good investment opportunities for larger, low density blocks. These will be particularly sought after as Perth’s population continues to grow and its surrounding suburbs increase in density.

Some high density dwellings already exist in the suburb, primarily around Bayswater local centre and Bayswater Train Station.

About 30% of the dwellings in the suburb are leased, as well, which is about average for suburbs in Perth’s metropolitan area.

With an average median dwelling price of just over $600,000, Bayswater sits slightly above the broader Perth median price.

School facilities for Bayswater include Durham Senior High School and Bayswater Primary School.

Should I lease my property as a share house?

The thought of a share house immediately invokes images of neglectful and problematic tenants, so is it ever a good idea to pursue?

Share houses are usually the domain of university students or young professionals that might not be ready, financially or otherwise, to purchase their own home, and are prepared to rent out a property on a room by room basis.

There can be specific suburbs or locations that may be suitable for share houses.

In the case of university students, for example, properties located near a university campus and in an affordable area are typically sought after.

Young professionals, on the other hand, might be willing to pay a little bit extra and therefore demand a more modern property that is in a better area but close to transport links.

The benefit of leasing your property as a share house is that you can receive higher rental returns as tenants in share houses may be willing to pay slightly higher rents.

Higher rents are not guaranteed, though, and leasing your property as a share house usually presents more disadvantages than benefits.

A share house, for example, is inclined to experience more wear and tear because there is generally higher foot traffic.

This means you may have to replace carpets, window treatments and fixtures and fittings more often.

When leasing to university students, you may also face a higher turnover of tenants and longer vacancy period. This is because students may only want to lease a property during the university semester, which could leave you without a tenant over the summer holidays.

Share houses may also attract neglectful tenants that don’t maintain or care for the property as well as older tenants or a young family. If it’s the first time they have lived out of the family home, university students and young professionals may not be aware of the level of upkeep required to maintain the property to an acceptable standard.

Also, if you are renting the property out on a room-by-room basis, there may be disputes as to who is responsible for any damages to common areas, such as kitchens and bathrooms.

Generally, while the extra cash flow looks appealing on the surface, for the vast majority of investment properties it makes more sense to rent the whole premises to a family or group who are all on the lease and responsible for the whole property.

DAP threshold changes take effect

Proposed changes that allow more property developers to bypass local councils and apply to an independent panel for building approvals have taken effect this month.

The reforms have widened the threshold in which developers can choose to bypass Local Government Authorities (LGAs) and submit buildings applications to Western Australia’s Development Assessment Panel (DAP).

Property developers can now choose to have their building applications, valued between $2 million and $10 million, determined by the DAP. The previous range was for projects valued between $3 million and $7 million.

The revised regulations, which took effect on May 1, apply to all property developments in Western Australia, excluding the City of Perth local council where the upper limit is $20 million.

The DAP is responsible for assessing all projects that are valued above the upper thresholds.

The reforms were flagged in the January edition of Momentum Wealth’s Property Wealth News after the WA state government revealed it was seeking to make the changes sometime in 2015.

The DAP was established in 2011 and was formed to provide better decision-making outcomes for development applications.

The changes to thresholds are expected to create a more flexible system for property developers and allow them to choose whether their applications are determined by the DAP or relevant LGA.

Success Story: Investor reaps higher yields with distinct strategy

How does a rental yield of more than 10% sound? This Momentum Wealth client said he was “shocked” following such strong demand for his Perth property.

Last year Momentum Wealth client Adam Bishop decided to take advantage of what’s known as a dual-income strategy, and the decision has paid off.

At the time, the fly-in fly-out worker wanted to purchase another investment property to grow his portfolio but didn’t have enough borrowing capacity.

Instead, he decided to build an ancillary dwelling on the back of his existing investment property, which would cost a fraction of the price.

Recent changes to planning and development legislation in Western Australia mean ancillary dwellings, more affectionately known as granny flats, can now be leased separate to the main residence.

By building an ancillary dwelling, you’ll receive two rental incomes from one investment property, hence the name dual-income strategy.

After engaging Momentum Wealth’s planning and developments division, a two bedroom, one bathroom ancillary dwelling was designed that would fit in with the existing investment property, located in Forrestfield.

Following the recent completion of the ancillary dwelling, Momentum Wealth’s planning and developments division officially handed the keys to Adam.

The completed turnkey solutions come ready for tenants to move in and include a premium-brand air conditioner, stainless-steel dishwasher, fully painted internally and externally and 2.7 metre (31 course) high and raked ceilings.

When it came time to leasing the ancillary dwelling, Momentum Wealth’s property management team received very strong demand.

In the first and only viewing, fifteen groups attended the home open and seven applications were received.

“I was shocked that it had such a big turnout and the applicants were quite diverse, so I had a lot to choose from,” Adam said.

After thorough consideration, the ancillary dwelling was leased to a single male for $300 per week, which represents a rental yield of 10.75% on the cost of the ancillary accommodation.

Including the main residence, which is rented for $400 per week, the property’s total rental yield stands at 6.3%.

“It’s definitely a good return,” Adam said. “If I could find the right property I would definitely do it again.”