4 practical steps to increase serviceability when investing in property

With increased scrutiny by financial authorities on lending practices, banks have tightened their requirements, impacting investors trying to secure finance for property. Here are 4 practical steps investors can take to better their serviceability.

2017 marked a year of increased scrutiny of banking lending practices by the Australian Prudential Regulations Authority (APRA), resulting in banks implementing tougher procedures for obtaining investment finance. The guidelines had a profound effect, with numerous investors in our latest investor survey indicating that securing finance is now the biggest barrier to starting or growing a portfolio.

One key factor in obtaining finance approval is serviceability: banks must minimise the risk of defaults on repayments, and therefore will calculate how able you are to service (pay back) your loan over its lifetime. They use bank-specific calculators to compare your income (job income, rental income, child support etc.) to your outgoings, which includes living costs, debt and ongoing costs.

Due to the APRA interventions over the last 2 years, banks now take a far more conservative approach in their serviceability assessment and therefore, despite being able to service a loan based on your own calculations; in a bank’s system you may not pass the serviceability test.

Here are four practical steps you can take to improve your chances of success:

Step 1 – Easy credit is a liability

Credit cards are ubiquitous among Australian families but must be taken into account when applying for finance. A bank will consider any kind of ‘easy’ credit a liability and therefore each credit card you own will be calculated as being a debt to the value of the credit card limit. That means if you have 2 credit cards with a limit of $10,000AUD each, the bank will consider you to have a debt of $20,000AUD and calculate a percentage of that amount as ongoing expenditure. Paying off your credit card on time or not using your credit card at all will have no impact on the bank’s calculations.

An easy step to increase your serviceability is to cancel any credit cards you don’t use, and possibly lower the limit on the ones you do use. Make sure you pay off the credit cards you do decide to keep on time. Accumulating debt on your credit card will affect the bank’s assessment of your creditworthiness.

Step 2 – Keep a record of your income

This is particularly important for those who are self-employed: keep your financial records up to date so you can prove your actual take home pay. If your business has become more profitable and income has improved over the past months, you should be able to adequately demonstrate this or the bank will use your previously lower income in their calculations.

Step 3 – Pay down debt and decrease ongoing costs

Phone plans, subscriptions and ongoing costs will all be added to your monthly expenditure, each in turn slightly lowering the amount the bank will lend you. Non-deductible debts, such as car loans, will also weigh against you.

Check that you really need that new phone on the more expensive plan, and close off any recurring payments for services you no longer need. Pay down as much of your debts as possible. Potentially consolidating short term debt into longer term debt can help to lower your repayments which in turn helps your serviceability.

Step 4 – Get professional help

With the banking environment in constant flux in the last 24 months, it is now more important than ever to work with a specialised investment broker, who has the knowledge not only of the lending landscape but also understands your unique situation and requirements. They can help you find the right product and assist with any further questions you may have on how to increase your serviceability.

If you would like to know more about how the 2017 APRA changes may affect you or how serviceability tests have changed, we recommend you watch our FREE on-demand webinar titled “APRA crackdown – navigating the changes to lending”.

What is a retail investor?

Property syndicates, investment types that utilise pooled funds to purchase or develop property, are generally offered to two types of investors, either wholesale or retail. These types of investment opportunities are less commonly open to retail clients as the law necessitates more onerous compliance requirements for funds dealing with these investors.

The intent of the distinction is to protect individuals who don’t meet the wholesale investor requirements and may not have the financial flexibility or capacity to take on higher risk investments. In essence, all investors are retail investors unless they meet the wholesale investor criteria, in which case they would have greater access to a wider range and sometimes more complex financial products.

The notable differences for retail investors can include:

Paperwork requirements

Retail investors must be provided with a Product Disclosure Statement (PDS) that includes material on the product’s key features, fees, commissions, benefits, risks and complaints handling procedures, something a wholesale investor might choose to forgo in favour of a more simplistic Information Memorandum.

Greater investor protection

The Future of Financial Advice (FOFA) legislation is intended to improve the confidence and trust of Australian retail investors in the financial services industry, providing protection from poor financial advice and ensuring the availability, accessibility and affordability of high quality financial advisors. Wholesale investors have less protection in these areas.

Increased governance requirements

The Australian Securities & Investments Commission (ASIC) requires funds open to retail investors to meet increased governance requirements, including an approved constitution and compliance plan, an authorisation for licensee on the investment type, a mandated net tangible assets requirement, external board of directors, annual audited accounts to be lodged with ASIC and custody requirements. Wholesale investor funds are permitted to vary these requirements as part of the trust deed

The increased legislation alone can add a bureaucratic and economic cost to investment types such as property syndicates open to retail investors. However, property syndicates that are able to meet the legislative requirements for retail investors can still provide the benefits of a pooled investment asset that is generally lower-risk (compared to wholesale investment opportunities) to clients that meet this profile.

If you wish to learn more about property syndicates and pooled investments, our sister company Mair Property Funds has published an excellent guide to getting started in commercial property through property syndicates.

Please note: the information in this article pertains to General Advice only. Momentum Wealth and its affiliated entities are not solicitors, accountants or financial planners. While all information is provided in good faith, you should seek your own independent legal, accounting and financial advice in relation to any transaction you undertake.

Perth property market begins recovery in December quarter: REIWA

REIWA December quarter data in the key categories of median price, sales activity, listing levels and average selling days were all good news.

The Perth property market ended 2017 on a positive note, according to the latest data from the REIWA.

December quarter data showed improvements in the key categories of median prices, sales activity, listing levels and average selling days.

REIWA President Hayden Groves said it boded well for Perth that all key indicators had improved over the quarter.

“The Perth market found its floor and stabilised in the back half of 2017. We now appear to be entering a recovery phase, though REIWA remains cautious about expectations of rapid growth in the next 12 months,” he said.

Median house and unit price

Perth’s preliminary median house price increased 1.2 per cent to $516,000 in the December quarter 2017.

“Once all sales have settled, we expect the final December quarter median to lift to $520,000, which is a notable improvement on the September quarter median of $510,000.

“On an annual basis, the Perth market is very stable. We’ve observed consistent price levels between the December 2016 and 2017 quarters which is a strong signifier the market has turned a corner,” Groves said.

Perth’s median unit price is $405,000 for the December 2017 quarter which is a 1.3 per cent increase on the September quarter.

“It’s encouraging to see Perth’s house and unit medians increase over the quarter because it suggests one sector hasn’t recovered at the expense of the other,” Groves said.

Sales activity

There were 4,946 dwelling sales in Perth in the December quarter.

Mr Groves said this figure was expected to lift to 6,700 once all sales had settled, putting it significantly above the September quarter sales figure.

“Traditionally, the September quarter outperforms the December quarter, but that wasn’t the case in 2017. The December quarter is on track to record 14 per cent more sales than the September quarter,” Mr Groves said.

REIWA analysis shows the composition of sales shifted in the December quarter in Perth, with more transactions occurring above $700,000.

“We’ve observed a surge of activity in Perth’s aspirational suburbs, with buyers recognising there is good opportunity to secure a home in these areas which might have previously been considered unattainable by many,” Mr Groves said.

“This spike in sales above $700,000 has also contributed to Perth’s median house price increasing over the quarter.”

Listings for sale

There were 13,088 properties for sale in Perth at the end of the December quarter.

Mr Groves said this was on par with the September quarter figure and six per cent less than the December 2016 quarter figure.

“There were 800 fewer listings in Perth at the end of 2017 than there was in 2016 and some 1,300 less than there were at the same time 2015. We have consistently seen stock levels decline over the last two years as the market trends towards parity,” Mr Groves said.

“Declining listing levels combined with notable improvements in sales activity has helped restore net- demand. With buyer activity increasing, stock levels are being absorbed faster,” Mr Groves said.

Average selling days

It was 10 days faster to sell in the December quarter than it was in the September quarter, with it taking on average 60 days to secure a sale.

“It’s been two years since it was this quick to sell in Perth. The combination of sellers’ preparedness to meet the market and buyer appetite for well-priced property has significantly shortened days-on-market,” Mr Groves said.

As Sydney fades, Perth shows early signs of recovery: Hotspotting’s Terry Ryder

Generalised commentary masquerading as analysis is the curse of the real estate consumer.

Much of what appears in mainstream media about residential real estate discusses Australia as a single market. That’s an early clue for consumers that the commentator has shallow knowledge.

If you’re reading something from an alleged expert and they’re talking about what’s happening with “the Australian property market” or forecasting trends with “Australian housing prices”, turn the page because you’ve tuned into a charlatan.

Too much has been written about “the Australian property boom” and “the national affordability crisis”.

A core problem is that so much of the commentary comes out of the Sydney and the situation in our biggest city dominates the thinking and attitudes of commentators. We have outcry about a national problem that generally does not exist and “solutions” that will slug the whole nation to fix issues isolated to a small section of the national geography.

The 20 million Australians who don’t live in Sydney must wonder what the fuss is about. Any resident of Perth, Adelaide or Darwin would be bemused by the ongoing debate about soaring prices, affordability catastrophes and the need for major national action.

Many of the worst culprits for generalised and usually misinformed commentary are based overseas. Often they’re major international organisations or ratings agencies which seek to manufacture publicity by making dire warnings about Australian real estate based on generalised national statistics pumped up by the strength of the Sydney market.

There are plenty of local pontificators making the same mistake, most of them economists who should never be consulted for comment on residential real estate, a subject that’s not within their area of expertise, if indeed they have one.

Anyone who thinks Australian has had a national property boom recently should compare the price growth statistics for the capital cities in 2016 with the results in 2002 and 2003.

Back in 2002/2003, the last time we had a genuine nationwide boom, every capital city had sharply rising prices. In 2003, according to the ABS, house prices grew at least 13 percent in every one of the eight capital cities, including four where prices rose by more than 20 percent.

The ABS figures for last year have a very different look about them. Only Melbourne and Sydney managed double-digit growth and only just. Two cities, Perth and Darwin, recorded falling prices, while Brisbane, Canberra and Adelaide managed only moderate (4 or 5 percent) rises. Hobart rose 8 percent, according to these numbers.

When you compare this with that genuine boom at the start of the century, it’s apparent that even Sydney’s growth was tame compared with back then. Melbourne, meanwhile, has mostly been below 10 percent with its annual house price growth in the past four years, only recently bursting out into double digits (and now leads the nation, according to most sources).

Now the growing chorus among the generalised pontificators is that “the Australian property boom is over”.

If they’re talking about Sydney, they’re probably right. But out there in the heartland beyond the biggest cities, different things are happening, including places where markets are rising, even as Sydney is subsiding.

They include regional New South Wales, which now has far more rising markets than Sydney does.

The same is true of regional Queensland, which has many ascendant markets (as well as a few that you might still want to avoid), much more so than Brisbane at the moment.

Melbourne is less advanced than Sydney in its growth cycle, so has more time to run with price growth than Sydney does.

Both Hobart and Canberra have sparked to life recently on the back of improving local economies and are likely to continue heading in the opposite direction to Sydney.

Adelaide’s market is quite busy but is unlikely to deliver strong price growth, other than in selected pockets, because it lacks the economic and population growth impetus of other major cities.

Perth has been going backwards throughout the four years that Sydney has been advancing – and now, as Sydney fades, Perth is showing the early signs of recovery.

New report shows housing affordability continues to improve in WA

The Real Estate Institute of Australia (REIA), with support from Adelaide Bank, recently released a Housing Affordability Report which found Western Australia to be the most affordable state in the country for tenants and homebuyers.

Only the Northern Territory and Australian Capital Territory were more affordable.

The Housing Affordability Report showed buyers and tenants were in a fortunate position in WA, with affordability in the state’s housing and rental markets improving in the September quarter 2017 on both a quarterly and annual basis.

It found that in the WA housing market, the proportion of family income required to meet home loan repayments decreased from 23.8 per cent in the September quarter 2016 to 22.4 per cent in the September quarter 2017, despite wage growth remaining stagnant.

In the rental market WA tenants were also paying less, with the proportion of family income required to pay rent decreasing from 19.2 per cent in the September quarter 2016 to 17.4 per cent in the September quarter 2017.

This decline officially makes WA rent prices the most affordable in the country.

Another positive highlighted in the report is that the number of first homebuyers in WA increased by 7.4 per cent over the quarter and 17.9 per cent when compared to the same time in 2016.

Additionally, the average loan to first homebuyers in the September quarter 2017 was $330,074, which is a decrease of 0.9 per cent over the quarter and 4.4 per cent less when compared to the September quarter 2016.

Whilst the Perth property market is showing signs of recovery, buyers and tenants remain well favoured by the current market, with a good supply of housing and rental stock to choose from and, as showcased on

www.reiwa.com, at the more affordable end of the market.

Nationally, affordability improved overall across Australia as red-hot markets in Sydney and Melbourne cool, although in New South Wales homeowners still pay an average of 36.1 per cent of their family income on home loan repayments – significantly more than Western Australians do.

While the dream of homeownership remains a challenge on the east coast, it is very much alive and well in WA.

With our local market on the cusp of recovering, now is the time for buyers to take advantage of favourable conditions to secure their home before our local WA market becomes less affordable.

What can Census data reveal about investment locations?

The latest Census by the Australian Bureau of Statistics (ABS) was conducted in 2016, and results have been steadily released over the course of 2017. What insights can we gain from the data when it comes to selecting a property investment location?

The first comprehensive dataset from the 2016 Census was released at the end of June 2017, and included key characteristics on ‘person, family and dwelling’ such as age, sex, religion, language and income.

The remaining data was released in late October and contained useful figures on employment, qualifications and the mobility of the population, including internal migration and worker commute times.

These figures can be further broken down by state, region, and even suburb, providing valuable insights into the demographic profiles of particular areas. While the data from a single Census can paint a clear picture of an area at a certain point in time, it is by comparing the trends from one Census to another that the Momentum Wealth research team is able to map and follow key result indicators

For instance, in following the same metrics from previous Census data to the most recent, we are able to identify areas undergoing change to their demographic makeup. This change can be due to a number of factors including dwelling additions, the previous age structure (for example, a younger population may have more births resulting in more children in the area), birth and death rates, and migration. These factors affect the type of people moving in or out of an area, the overall age profile and its economic prosperity.

An important trend to look out for is the process of suburb gentrification, which is the influx of more affluent residents to an area.. This may be from the addition of new infrastructure, increased employment opportunities attracting more workers, and increased amenity improving an area’s desirability as a place to live.

Typically, areas undergoing gentrification will see an increase in property values as the process advances. Identifying these areas early on in the process can be hugely beneficial when selecting a property investment location. Read more about how Momentum Wealth Research tracks such gentrification processes in our case study

Festive fervour – the benefits of acting during the holiday season

With the silly season just around the corner, it’s a busy period for many as they prepare for upcoming festivities or plan a holiday away. Often, big decisions – such as choosing an investment property – are either put on hold or are simply the last things that come to mind at this time of year. But what are the benefits of purchasing while it’s relatively quiet?

If you’ve already made the decision to invest in property, not waiting until general market activity is back in full swing can reap huge rewards. Purchasing during the Christmas and New Year season presents a unique set of circumstances that, if taken advantage of, can be a great opportunity for the astute investor.

The number of properties listed for sale will typically take a dive over Christmas and New Year, with a noticeable drop in activity in the market. With people generally busy or away during this time, there are less buyers around which prompts many sellers to delay listing their property or even to take their already listed property off the market until it’s a better time to sell.

The reduced number of buyers results in less competition for those buyers remaining, and while less properties to choose from may not seem like an advantage, what it can mean is that sellers who are still advertising their properties while others aren’t may have a very strong motivation to sell. For example, they may have placed an offer on a property themselves and need to sell their current home to facilitate the purchase, or it could be due to financial hardship, a change in family situation, or other matters necessitating a speedy sale.

When it comes to negotiating a property purchase, finding a highly-motivated seller works well in your favour, as the buyer. Knowing how desperately someone needs to sell can give you the upper hand, but also knowing the reasons behind the sale can allow you to make an offer that meets the seller’s needs while securing yourself a great deal, thereby benefiting both parties.

While not all properties being sold at this time of year have strong motivations behind them, the chance of this being the case does increase considerably, allowing those who are willing to keep an eye out the opportunity to swoop in and snap up a great purchase.

In the event that you don’t find that great deal in the last few weeks of the year, the fact that you are already closely watching the market puts you in a good position in January, when a lot of the ‘on hold’ stock comes to market. There will be more choice available, and you’ll already be on the front foot while other buyers are still enjoying the remnants of their glazed hams.

In summary, it simply comes down to: if you don’t look, you won’t see the deals. Continuing to actively look for properties while others are taking a break over the festive season means you won’t miss out on any great deals that emerge.

A well-connected, well-serviced suburb packed full of amenity

Bateman is a family suburb benefiting from excellent educational facilities, attractive parklands and a well-connected public transport system. It’s one of the premium lower-density suburbs of Perth with a median price under $1 million and room to grow.

Located in the City of Melville, Bateman is approximately 12km south of the Perth CBD, with a median house price of $805,000. Its neighbouring suburbs include the similarly-priced Brentwood to the north, Murdoch to the west and Bull Creek to the east, with the southern periphery being Murdoch University and Fiona Stanley Hospital, which are part of the suburb of Murdoch.

With a population of 3,717 Bateman is a medium-sized suburb compared to the surrounds. 34.8% of the population identify themselves as professionals, which is well above the WA and national averages of 20.5% and 22.2% respectively. Due to the area being popular with the Baby Boomer generation, there is currently an abundance of empty-nesters which has pushed the suburb’s median age to 40 — much older than Perth’s overall median of 36.

The suburb is well connected, being bordered by three main arterial corridors allowing efficient access to the area. It is situated between Leach Highway and South Street to the north and south, with the Kwinana Freeway making up the eastern periphery. Buses run frequently along these roads, providing convenient public transport to the CBD, Fremantle and other major amenities. Two train stations, Murdoch Train Station and Bull Creek Train Station, also service the area as part of the Mandurah Line. More than 70% of the suburb is within walking distance (1km) to either of these stations, making the area highly accessible and favoured by CBD workers for efficient public transport to their place of employment.

The area is mostly zoned R20 (low density), with a few pockets of R40 zoning near Bull Creek Station. Dwelling stock comprises 87% houses, 13% semi-detached dwellings, and no units — making the area extremely low density. The whole area is built out to its current residential limits, with very few development options besides updating older stock. However, the City of Melville has released its Murdoch Activity Centre Structure Plan, which identifies residential areas within walking distance to the Education and Health Centre to potentially receive a zoning upgrade, creating greater development opportunities in the future.

Construction is dated from the 1970s with redevelopment common in the 2000s as well as high levels of renovations to the aged stock. The typical streetscape is a mixture of single- and double-storey houses.

Bateman benefits from abundant amenity in its neighbouring suburbs, including Murdoch University, Fiona Stanley Hospital, Garden City Shopping Centre and Stockland Bull Creek Shopping Centre. The suburb is also within the catchment zone for Rossmoyne Senior High School, which is one of the top-rated public high schools in the state. This high level of amenity has made Bateman a highly desirable suburb to live in.

Recent finance award makes it a hat trick for Momentum Wealth this year

Momentum Wealth was honoured to be named the WA Brokerage of the Year (<5 Staff) at the 2017 Connective Excellence Awards held last month, which was the third major finance accolade awarded to the team this calendar year.

The Connective Excellence Awards winners were chosen for their expertise, integrity and outstanding customer service standards. Connective is one of Australia’s leading mortgage aggregators, accounting for one in every 10 Australian home loans.

The accolade was a great achievement in a competitive category, and Momentum Wealth is proud to be recognised amongst the best in Australia’s mortgage and finance broking industry.

A big congratulations also to Momentum Wealth’s Ashleigh Patterson, who was named Best Newcomer of the Year at the awards ceremony. The award celebrates innovation in business practice that sets the broker apart from the rest.

It has been a successful year for our broking team, picking up two other major awards earlier in the year — these were the Best Customer Service award at the Better Business Awards in March, and Best Finance Broker (2-5 loan writers) at the MFAA Excellence Awards in May

Developing to hold? Consider ancillary dwellings

When looking to develop a residential property, the goal of many investors will be to hold some or all of the completed development to maximise rental yield. This is particularly the case with smaller projects, where the original lot is subdivided and developed into two new lots and two brand new dwellings are built.

A great way to maximise rental income in the above situation is to consider the addition of an ancillary dwelling to one of the two newly subdivided lots. The ‘granny flat’ as they are more commonly known, will require the relevant building and planning approvals, but will not require its own certificate of title as it is located on the same lot as another single house.

By opting to include an ancillary dwelling early in the project, the new dwellings can be properly designed and built to optimise the land area available. The result of such a project might mean that an old, highly depreciated home on a large single block is replaced by two lots with three brand new, attractive dwellings, achieving a great outcome for both the investor as well as the local residents of the area.

Provided it is financially feasible to do so, the developer has the option to hold the two new houses and granny flat, renting each of them out and effectively turning one original rental income into three. In this hold option, the investor avoids losing a large portion of the profits through sales agent fees, marketing, income tax and GST. Furthermore, provided the development is well located in an area with strong long-term growth drivers, they are rewarded with the capital growth the dwellings will achieve over time.

Investors in the early stages of exploring this option should keep the following state planning requirements in mind:

• The original single house associated with the granny flat must be located on a lot that is no less than 450sqm in area
• The granny flat must not exceed a maximum plot ratio area of 70sqm

Further to this, the Residential Design Codes outline a number of deemed-to-comply requirements for ancillary dwellings, and different councils will have their own set of regulations to be met.

If the strategy is to hold, and if the relevant planning and building approvals can be acquired, adding a granny flat into a new development can be an excellent way to boost rental returns.

A forgotten university-adjacent suburb

Located next to prestigious riverfront suburbs and packed full of amenity, including being opposite Perth’s largest university, this somewhat forgotten inner-Perth suburb has plenty to offer.

Karawara is located in the City of South Perth, approximately 8 kilometres south of the Perth CBD.

Being a small suburb, it features a population of 2,061 and a median age of only 27 which is much lower than the Perth average, primarily due to the amount of Curtin University student housing.

25.7% of the population identify themselves as professionals, which is above the WA and national average at 19.9% and 21.3%, respectively.

Its neighbouring suburbs include the more expensive Como to the north, Manning to the west and Waterford to the south, with the eastern periphery being Curtin University which falls into the more affordable suburb of Bentley.

The suburb features two main arterial corridors that allow good access to the area, being Manning Road, which runs to the Kwinana Freeway, and Kent Street. Buses run frequently along these roads allowing for easy public transport to the city, beaches and other major amenities.

The median house price is $670,000 with the dwelling stock comprising 73% housing, 26% semi-detached and 1% units. This shows an increased amount of semi-detached dwellings compared to the Perth average of 16%.

The area is predominantly zoned R20 (low density), with pockets of R30 and a very small amount of lots zoned R50 (medium density) which have already been developed into apartment dwellings. The whole area is built to its current residential limits, with very little development options remaining except updating older stock.

Construction is dated from the mid-1970s with pockets of early-2000 built stock in the northeast. The newer stock is a mix of single and double storey, whereas the older stock is primarily single storey.

The area does feature a higher than average number of State Housing Commission properties due to its proximity to the university and level of affordability. Many of these are now being sold as house values increase. The area is benefiting from gentrification, with Waterford Shopping Centre’s high-level upgrade headlining the trend.

Karawara features high-quality amenity including the aforementioned renovated Waterford Shopping Centre, Collier Golf Course, Curtin University and a large variety of parklands including George Burnett Park and Reros Park which occupies approximately 25% of the total suburb area.

5 essential due diligence questions to ask before investing in a syndicate

Investing in property syndicates is an alluring opportunity for savvy investors looking to gain exposure to the generally higher returns available with this strategy. However, comprehensive research and due diligence is essential to identifying risk and ensuring the opportunity is able to deliver on returns and performance.

Here are five preliminary questions to ask before investing in a syndicate that investors should consider during their research process.

1. What is the track record of the company involved? Have they managed similar syndicates in the past with successful project outcomes? Ask to speak with past investors or to see reports that can support any figures presented.
2. How will you be paid?
   What are the factors that your returns will be dependent on, and when can you expect to receive your returns?
3. How is the investment structured?
   It’s a good idea to have this reviewed by your accountant, financial advisor or lawyer. Ask if they can also contact the company directly with any queries.
4. Is the property a good price? In the case of a property purchase (as opposed to a development), has research been completed to establish the value comparable to other properties, and is there potential for future growth? Has the company done their due diligence regarding supply in the market and also the future forecast for this type of property?
5. What is the debt gearing on the investment? How much debt is proposed to be secured against the property? It is common for gearing to range from 50-65%. The debt gearing can assist in boosting returns, however the higher the debt the more the investment is at risk to interest rate rises. In a high interest rate environment, higher debt gearing can have a negative impact on returns.Investing in a syndicate is a different process to buying property directly and has its own set of considerations and liabilities that need to be considered before making a commitment.It’s important that investors have a clear and comprehensive understanding of the timeline and projected results of their investment, and that they have engaged qualified professionals to corroborate any claims and check compliance.

Restrictions placed on investors were only meant to be “temporary”, APRA’s chairman said, as the restrictions might have unintentionally caused additional profits for the big four banks.

Macroprudential measures were introduced in 2015 as a response to growing fears that the Australian mortgage market was becoming imbalanced. Little indication has been given since then about how long these constraints will be in place.

Now APRA says that it would like to start scaling back its intervention, provided that banks can continue to lend responsibly.

Speaking at the Customer Owned Banking Convention in Brisbane on Monday (23 October), APRA chairman Wayne Byres noted that since the regulator stepped in to curb certain types of credit, the quality of lending has improved and risk standards have strengthened.

“We would ideally like to start to step back from the degree of intervention we are exercising today,” Mr Byres said.

“Quantitative benchmarks, such as that on investor lending growth, have served a useful purpose but were always intended as temporary measures. That remains our intent, but for those of you who chafe at the constraint, their removal will require us to be comfortable that the industry’s serviceability standards have been sufficiently improved and — crucially — will be sustained.

“We will also want to see that borrower debt-to-income levels are being appropriately constrained in anticipation of (eventually) rising interest rates.”

Mr Byres stressed that APRA’s expectations apply across the industry — “to large and small alike”.

“Pleasingly, the industry is moving in the right direction to achieve that. Improved serviceability standards are being developed, and policy overrides are being monitored more thoroughly and consistently.”

The prudential regulator endorses positive credit reporting and believes that its take-up will remove a “blind spot” in a lender’s ability to see a borrower’s leverage.

Coupled with the higher and more risk-sensitive capital requirements, APRA is confident that these developments should provide an environment in which some of its benchmarks are no longer needed.

“The review of serviceability standards across the small ADI sector that we are currently undertaking will help inform our judgement as to how close we are to that point,” Mr Byres said.

His comments come after a parliamentary committee probed the major banks about their respective decisions to lift mortgage rates in response to APRA’s benchmarks.

Parliamentarians were eager to identify if the big four banks had profited from the regulatory measures.

MyState chief executive Melos Sulicich has called for government intervention as he believes that APRA’s actions have given the big four a competitive advantage.

The chief executive believes that APRA’s “speed limit”, restricting all banks’ investor lending to 10 per cent annual growth and interest-only lending to 30 per cent of flows, has “disproportionately constrained smaller banks’ ability to grow”.

“The larger banks’ investor loans are typically 35-45 per cent of their mortgage portfolios, while smaller banks’ investor loans are around 20-25 per cent of their loan portfolio.

“Instead of creating competition, this regulation has handed larger banks an advantage as rates on investor and interest-only loans increased.”

Now’s the time to buy a house in WA: Billionaire Kerry Stokes stakes reputation on perfect property market conditions

The chairman of Seven West Media said conditions now were never better.

Billionaire Kerry Stokes has added his weight to the view that conditions are ideal for entering the housing market, staking his reputation on now being the best time to take the plunge.

The Seven Group Holdings and Seven West Media chairman said the situation came as the State showed it was recovering from the shock of miners cutting their costs by a combined $10 billion in recent years.

“Right now any young person out there, any apprentice, worker, tradesman — the best thing they’ll ever do in their life is walk out this weekend and buy a home in Western Australia,” Mr Stokes told a WestBusiness Leadership Matters event on Tuesday.

“With interest rates low, housing prices low, this is the time to think of their future right now. I’d put my reputation on the fact this is the best time for them to do that,” he said.

Kerry Stokes urged young apprentices and workers that now is the best time to buy property in WA.

Mr Stokes’ remarks follow Housing Industry Association figures showing affordability in WA had improved dramatically, in part because of national efforts to tighten bank lending standards for investors.

In the past two years, loan repayments on a median-priced house in Perth fell by more than $260 a month, or $3120 a year. Elsewhere in WA, they fell to $1545 from $1773 a month.

However, a report yesterday showed Perth had the nation’s second-most expensive residential land prices at $730 per square metre, a 5 per cent gain over the year to June. The Housing Industry Association-CoreLogic Residential Land Report said land prices rose by 19.6 per cent in Melbourne and 9.8 per cent in Sydney.

Mr Stokes said the State’s economy was showing signs of improvement after miners’ efforts to improve efficiency had contributed to the downturn.

“So when they’ve saved some $10 billion in costs that’s supposed to come out of workforces in WA. That’s a shock we have to get over and we’re actually getting over it now.”

WA Treasurer Ben Wyatt told the event that competition in the retail gas market had largely offset the increases the McGowan Government had imposed on electricity tariffs.

Discounts of up to 30 per cent are on offer with new player Origin Energy this month, joining AGL, Kleenheat and Alinta in the gas price war.

Mr Wyatt said that situation could last until the early 2020s.

Incoming Wesfarmers chief executive Rob Scott said while the loss of disposable income and lower population had hit retail businesses hard, there was cause for optimism.

“We still see opportunities,” Mr Scott said. “We see a good path for growth.”

Spring listings surge where housing is softening: CoreLogic’s weekend auction preview

Research analyst Cameron Kusher noted that as housing market conditions transition, stock levels remain tight across the strongest markets but are rising in areas where housing market conditions are softening.

For this analysis, Mr Kusher measured the amount of advertised stock on 280,000 the market on a rolling 28 day basis. He said, “Advertised stock levels provide a unique count, meaning that listings are matched to properties and when a property is advertised in more than one place it is only counted once.”

“It’s important to note that typically these counts are more reflective of the 230,000 established housing market rather than off-the-plan where stock often isn’t 220,000 individually advertised.”

• Across the nation CoreLogic is currently tracking 226,007 properties advertised for sale which is 5.3% lower than a year ago and well down on 2012 levels at this time of the year for the past five years.
• Across the combined capital cities, total stock advertised for sale is 1.0% 40,000 higher than it was a year ago with 110,909 properties advertised over the past 28 days. Looking at stock at this time of year across the combined capital cities there is more stock currently for sale than there has been each year since 2013.

Mr Kusher said, “By comparing capital city and national data it indicates that the amount of stock for sale in the regional markets is substantially 20,000 lower than it has been over recent years.

The combined regional markets account for 50.9% of total listings, its lowest proportion of national listings 15,000 since December 2011.”

Across the individual capital cities the data varies quite substantially.

• Sydney – currently has 25,625 properties advertised for sale which is 19.5% higher than a year ago. In comparison to the same time over recent years, the amount of stock on the market is now higher than each of the past four years. 25,000
• Melbourne – with 30,570 properties advertised for sale stock levels are – 1.7% lower than a year ago. The volume of stock for sale is lower for this time of year than any of the past 5 years.
• Brisbane – the number of properties advertised for sale is 2.5% higher than a year ago with 20,611 properties currently on the market.

Compared to this time of year over the past five years, listings are at their highest level since 2012 however, they are – 15.2% lower than 2012 levels.

• Adelaide – with 8,794 properties for sale, listings are 8.0% higher than a year ago and at their highest levels for this time of year since 2013 although they are -7.7% lower than 2013 levels.
• Perth – the 20,309 properties for sale in Perth is -14.3% lower than a 24,000 year ago however, it is also 1.6% higher than volumes at this time of year two years ago.
• Hobart – with 1,157 properties for sale across the city the volume of stock for sale -33.6% lower than a year ago and at its lowest level over 18,000 each of the past five years. In fact Hobart stock for sale is -54.7% lower than it was two years ago.
• Darwin – the 1,581 properties advertised for sale is -1.9% lower than a year ago however, stock levels remain elevated. In fact stock for sale is 73.0% higher than it was in 2012.
• Canberra – the 2,262 properties advertised for sale currently is 14.4% more than there were a year ago. The number of properties for sale is up on 2015 and 2016 levels.

Mr Kusher found that listings trends vary significantly across the country.

As an example, Hobart, which is the housing market with the strongest value growth has seen a dramatic fall in listings over recent years.

Meanwhile, values have fallen over the year in Perth and Darwin and each of these cities is seeing heightened stock levels.

Sydney has seen a rapid slowdown in growth over recent months and at the same time the volume of stock for sale has increased relative to recent 600 years.

In Melbourne, value growth remains relatively strong (although it has slowed a little) and the volume of stock for sale remains lower than over recent years.

Mr Kusher’s findings highlight that the stock for sale (supply) does have a fairly significant impact on the change in dwelling values. He said, “As stock increases, growth slows and as stock falls growth has accelerated.”

Lenders continue policy changes following APRA restrictions

Most property investors are aware of APRA’s recent clampdown on lending in the Australian residential mortgage market, however some have been caught unprepared for the implications. What are the actual changes that have been implemented and how do they affect investors?

The Australian Prudential Regulation Authority (APRA) is the national regulator for banks, credit unions, insurance companies and most of the superannuation fund industry. It is largely funded by the industry it regulates.

Essentially, APRA provides guidelines to the banks and other institutions to ensure they are not over-committing themselves. Failure to adhere to these guidelines will result in substantial fines to the institution.

APRA has been closely monitoring residential mortgage lending in recent years due to heightened activity and growth in the Sydney and Melbourne markets, and has imposed restrictions in a bid to cool off some of this activity.

Lenders have been ordered to reduce their mortgage exposure and reign in investment lending growth, with interest-only loans being targeted in particular.

As of March this year, limits were put in place for interest-only loans to amount to no more than 30% of new loans – or roughly 1 in every 3 loans – and rates increasing substantially on this type of loan.

Servicing rates have also changed, which are what the banks use to calculate the repayments on the loan you are applying for, and this is then used to determine how much you can borrow. Currently, banks are using a pre-determined interest rate to calculate your repayments, regardless of your actual rate.

Such substantial changes can have a significant impact to investors, as demonstrated in a recent webinar held by two of our mortgage specialists, Ashleigh and Scott. They uncovered some real-life examples of the effects of these changes, and the advice they’re giving to clients. You can catch the webinar here.

Deals and Don’ts – Bassendean, South Perth, Greenwood

Here we take a look at just some of the different properties on the market and explain why they’re either deals (that represent a good investment) or don’ts (that should be carefully avoided by investors).

Deals

Bassendean Purchase price: $530,000 Purchase date: August 2017 Block size: 878sqm corner block Specification: 3 bedroom, 1 bathroom, lock up carport, built in 1971, zoned R20.

Deal: This property represents a good deal because of its corner block location. Under the Bassendean local planning scheme, corner blocks receive a density bonus, increasing this property’s zoning from R20 to R25 and giving it good development potential. Approximately 90% of its value exists in the land component yet the property is still in good rentable condition.

South Perth Purchase price: $677,500 Purchase date: April 2017 Block size: 227sqm Specification: 3 bedroom, 2 bathroom, double garage, built in 1993, zoned R25/40.

Deal: This street-front townhouse in a small complex of three represents a deal because of its excellent location. Tucked away in a desirable pocket of a blue chip suburb, it is situated within 3km of the Perth CBD, and within walking distance to the South Perth foreshore and café strip. The townhouse is in good condition and will be easily leased at a yield close to 4%.

Greenwood Purchase price: $538,000 Purchase date: July 2017 Block size: 689sqm Specification: 4 bedroom, 2 bathroom, double car port, built in 1979, zoned R20/60

Deal: This green title home represents a deal because of its location within the suburb and its significant development potential. Situated in a quiet cul-de-sac the property is within 600m of the Greenwood Tran Station and just a short walk to a local park. Its zoning means the land can be developed into multiple lots in the future.

Don’ts

Huntingdale For sale price: Offers above $350,000 Block size: 716sqm Specification: 4 bedroom, 1 bathroom, single garage, built in 1977, zoned R17.5

Don’t: This property doesn’t represent a good investment because it’s located on the busy Warton Road and would frequently be disrupted by noise and traffic pollution. The house is in original condition with no major improvements, so attracting quality tenants would be difficult. It has been on the market for over a year proving there is little demand from buyers.

3 questions to ask when investing in commercial property

When investing in commercial property, many investors seek out research and statistics to aid in their decision, only to discover the actual performance of the property is vastly different. Why does this happen and what should investors look for instead?

There is a myriad of statistics offered in property industry publications, such as rental yields, vacancy rates, capital growth, incentives, land value, and replacement value. The problem for many investors is they base their purchase decisions on these figures, only to find their commercial property performing very differently down the track.

It’s not that the statistics are necessarily incorrect – but they may often be incomplete or irrelevant if the investor simply takes them at face value. This data is only useful when you’re asking the right questions.

Here are 3 questions every commercial property investor should ask before their next purchase:

1. Are the statistics relevant to the investment location? Large research houses will generally focus on locations with a higher concentration of property. This means that numbers for the office segment, for example, tend to be from the city centre. Industrial figures may be from one or several key industrial locations.  But it’s important to keep in mind that commercial property vacancy rates and rental incomes can vary widely from one suburb to another – even when they are only a few kilometres apart. For instance, the Perth office market has rental vacancy rates ranging from 2% to well over 50% in different suburbs. If an investor has the CBD rental vacancy in mind but purchases a suburban office property, they may find this a poor indicator of the property’s performance.
2. How important is the size of the property? Most investors will have a budget which will likely influence the size of property they consider for purchase. In some cases, a commercial investor will choose to buy several smaller properties instead of one large one because it may seem less risky. This would be a good strategy if the performance of different-sized properties was consistent. Unfortunately, the yield and vacancy of a commercial property can be significantly affected by the property size and grade. For example, a smaller property that works well for an owner-occupier may not be suitable for attracting quality, long-term tenants. Generally speaking, rental yields are lower for smaller properties and they typically fall vacant more often, which means less income and greater re-leasing costs over time. So is larger always better? Having a larger budget won’t necessarily result in a higher return, but it does provide more opportunities to source a quality property. For some, this could mean opting for a different location in order to obtain a higher-quality property. For others, they may decide their best option is to invest with others in a property trust, and own a smaller percentage of a high-performing portfolio instead of owning 100% of a smaller property.
3. Are there any hidden factors influencing the rental yield? Commercial properties are often advertised with a passing yield percentage. Purely assessing this figure on face value might attract an investor to a property or make them dismiss it straight away. Unlike residential property transactions which are fairly transparent, there can often be factors influencing commercial leasing and sales listings which are not on record. For example:

• A vendor offers to lease back a property at an above-market rate, but a credit search shows the business is in trouble and may not be able to meet the terms of the lease long-term
• An office has a high rental yield, but there are several incentives built into the lease that will effectively lessen the yield over the next 2 years
• The yield for a retail property is below market, however it turns out that the supermarket tenancy is bringing on new managers which will have a positive impact on the performance and income of the centre

Without professional connections, it can be difficult for investors to access all of the relevant information on a property. Not having all the information can turn a commercial investment into a costly exercise, so it’s wise to seek professional advice before making any purchase decisions.

If you want to learn how to get started in commercial property, check out this useful guidebook from our sister company, Mair Property Funds.

Boom in Jobs as Resources Take Off

A new report revealed a 30% rise in job vacancies in the last year.

A jobs bonanza is about to be unleashed with thousands of construction and operational jobs forecast for at least 15 different mining projects.

Although the sector has been in the doldrums for several years, the Chamber of Minerals and Energy claims confidence has finally returned.

Analysis by The Weekend West of 15 mine projects that have been approved or are likely to go ahead within years shows about 10,000 new construction and operational jobs.

The list considers most of the major new projects due in WA within a few years but is not a comprehensive tally of all upcoming projects, expansions, extensions or upgrades.

Iron ore projects are leading the charge, after a resurgent spot price, which rose to $US75 a tonne last week from $US31.50 in January last year.

Lithium — a key ingredient in the batteries that power electric cars — is also responsible for thousands of jobs in WA, though gold producers claim they may have to cut positions if the State Government’s planned increase in the gold royalty goes ahead.

CME acting chief executive Nicole Roocke said most commodities — excluding gold — were in a strong position.

“The industry is a lot more optimistic now and is well-positioned for new growth opportunity and replacement mines,” she said. “There is a sense of stabilisation in the sector.

“We have to be careful about (calling it a) jobs bonanza, but there is an increase in job opportunities and advertisements, and with that we are seeing an impact on wage pressure as well.”

The DFP Resources job index out this week showed a 29.6 per cent rise in WA job vacancies in the year to August compared with the same period the previous year, in fields including geology, drilling, engineering, business support, operational managers and trades.

Pilbara Minerals managing director Ken Brinsden said lithium was an important new subset of WA’s resources economy.

Pilbara Minerals is investing $235 million in its Pilgangoora project, creating 400 construction jobs until mid next year.

It will create about 150 operational jobs thereafter.

“The lithium sector itself is the new kid on the block in terms of commodities that WA is investing in, but I am really optimistic about it being one for the future of WA,” he said.

“I think WA is going to be a really important global supplier to the global market.”

Mr Brinsden said the gold industry was partly responsible for buoying the WA resources sector last year by helping lift confidence. Changes in the global economy had also lifted it out of a slump.

“The market has definitely turned a corner, for sure,” he said. “We saw the bottom of the market about mid last year and in the period of time since there has been a general uptick in mining — in most commodities — and I think that is reflected in the level of activity.”

Northern Star Resources chairman Bill Beament said the State Government’s gold royalty hike could drastically undermine the sector that had been crucial in restoring WA’s resources confidence.

He said the royalty hike would affect coming decisions by WA’s three biggest gold mines over whether to extend mine life, which were due in the next six to 12 months.

“A lot of people made investment decisions based on a royalty scheme they were promised was never going to change,” he said. “So a 50 per cent increase is going to put a lot of people’s expansion’s and future extensions of life … into jeopardy.”

The Weekend West revealed last week the number of mineral exploration licence applications — known as the canary in the coal mine because the number indicates the amount of work in the pipeline — was up 45 per cent in the June quarter, at 669, compared with 460 in the June quarter the previous year.

The annual figure was up 29 per cent last financial year compared with 2015-16.

Mining tenure applications — usually the first step in setting up a mine project — rose 14 per cent from 3685 in 2015-16 to 4197 in 2016-17.

The demand for professionals involved in exploration has been so intense that skills shortages are starting to emerge in some fields, such as exploration geologists, drillers and underground engineers.

Mine projects that will definitely or most likely commence in the next few years in WA:

Rio Tinto – $US2.2 billion Koodaideri – 1600 construction jobs and a 600 operational staff if approved – 2017 to 2021

Rio Tinto – $US338 million Silvergrass – 500 construction jobs from early this year, operational job numbers not available

Rio Tinto — Yandicoogina mine – 470 construction jobs from this year, operational job numbers not available.

BHP Billiton – $US3.2 billion South Flank – several thousand jobs – 2017 to 2021

Newcrest — Jundee and Kalgoorlie mine expansions — 200-300 jobs (if gold royalty hike does not go ahead) — due late 2017/early 2018, operational numbers not available.

Pilbara Minerals – $235 million Pilgangoora project — 400 construction jobs and 150 operational jobs — construction until mid 2018.

Altura Resources – $139 million Pilgangoora project — hundreds of jobs — construction from March this year and operational from early next year.

Talison Lithium – $340 million Greenbushes expansion — 200 construction jobs from May 2017, 40-60 operational jobs from mid 2019.

Tianqi Lithium – $400 million Lithium Hydroxide plant and a possible $317 million expansion —500 construction jobs — phase one to finish late 2018 and the expansion would finish late 2019

Dacian Gold – $200 million Mt Morgans gold project — 330 construction jobs and 300 operational jobs — construction underway and due for completion early next year.

Gold Road Resources/Gold Fields – $532 million Gruyere gold project — about 500 construction jobs and 300 operational jobs — timing not available.

Gascoyne Resources – $100 million Dalgaranga gold project 180 construction from December until mid 2018, 250 operational jobs from March 2018.

Sheffield Resources — $350 million Thunderbird mineral sands project in the Kimberley — 200-300 construction jobs — commencing later this year

Iluka – $250 million – $275 million Cataby mineral sands project — 220 construction job, 120 operational jobs — construction likely to start next year.

Blackham Resources – $115 million Wiluna expansion — 100 construction jobs, 80-100 operational jobs — construction to commence mid 2018, operational from mid 2019.

Northern Minerals – Browns Range rare earth project Kimberley

Kidman Resources – Mt Holland lithium project

FMG – Eliwana or Nyidinghu replacement options for Firetail mine, both in feasibility stage.

FMG – Iron Bridge magnetite project, in feasibility stage.

WA Budget a Positive for Property Investing: Momentum Wealth

The WA Labour government’s first state budget is relatively positive as there are no direct increases to property costs for residents of Western Australia though foreign investors will face new taxes, according to property investment consultancy Momentum Wealth.

The government, recognising that the market was still recovering, decided to leave land tax, stamp duty exemptions and first home owner grants unchanged. Lobbying from key property industry bodies such as REIWA and Master Builders WA helped.

Momentum Wealth managing director Damian Collins said the fact that there were no major changes directly effecting domestic buyers was “important for the rebounding industry”.

A recent report by Momentum Wealth said that Perth’s property market had entered a recovery period amid tightening housing supply, with better affordability and a strengthening labour market being tipped to draw buyers back.

However, there will be a four per cent foreign owner duty surcharge introduced on purchases of residential property by foreign individuals and entities from 1 January 2019, which aims to increase state revenue by $48 million by 2020/21.

“While there could be a slight impact from this, foreign investment only represents a small proportion of the WA property market, instead, the billions of dollars’ worth of key transport infrastructure spending will put the property market in a strong position to continue its steady recovery,” Collins said.

“It is also encouraging to see such positive estimates for the economy which supports our view on the recovery of the residential property market as well,” Collins said.

He added competition was already increasing along with confidence.

Road and rail infrastructure has been the main focus of the budget with billions of dollars put aside to increase the networks, including 20 road projects totalling $2.7 billion.

The budget announcement also included the identification of the first stage of funding for Labour’s ‘Metronet Plan’ with a total of $1.34 billion over the next four years of the project.

“Property owners will also welcome the investment in infrastructure, in particular public transport infrastructure, as it adds to the amenity of the nearby residential areas and is a strong driver for property price growth as well,” said Collins.

The infrastructure improvements in the first stage include:

– $535.8 million for the construction of the Thornlie to Cockburn line with new stations at Nicholson Rd and Ranford Rd. – $520.2 million for the construction of a 13.8 kilometre rail extension from Butler to Yanchep which includes new stations at Alkimos and Eglinton. – Continual planning and detailed design for the next stages including the Morley-Ellenbrook Extension, the Midland Station Project and the Byford Rail Extension.

Vacant Perth rental properties drop below 10,000

For the first time since January 2016, the number of vacant rental properties in Western Australia’s capital have fallen below 10,000, which may be indicative of future rent rises.

Data from the Real Estate Institute of Western Australia shows the fall of vacant Perth properties to 9,990.

Shane Kempton, chief operations officer of Professionals Real Estate Group, said this fall is significant and attributes it to an increase of investment in the resource sector and improvement in WA’s state economy.

In comparison to this time last year, there were 10,924 vacant rental properties.

“Over the past two years, there has been a surge in vacant rental properties in Perth due to weak population growth and a boom in new home construction. The number of vacant rental properties in Perth peaked well over 11,000 earlier this year and has been on a steady decline since,” Mr Kempton said.

“With the number of vacant rental properties on a downward trajectory, Professionals is predicting that by mid next year landlords in Perth will be able to review their rents upwards once the rental vacancy rate falls below 3.5 per cent.”

Over the last two years, Mr Kempton said landlords in Perth have cut rents, discouraging new investors entering Perth, but now expects to see an increase of investor levels with the decrease of vacancies.

“Once rents start to rise, we should see an influx in property investors into the Perth market particularly as property prices in Perth are so competitive,” he said.

“For example, the median price of a home in Perth is around half that of Sydney and substantially below that of Melbourne.

“Now is a great time to buy an investment property in Perth, especially in the more affordable areas of Perth where there a still a plentiful supply of homes for under $400,000.”

Of note is the south-eastern corridor of Perth from Kenwick to Armadale Armadale, WAArmadale, VIC, to which Mr Kempton stated: “is very established with a high level of social infrastructure including a rail link to Perth as well as schools and shopping [areas] which appeal to renters”.

Kenwick in particular, Mr Kempton said, offers a median price for a home of $340,000, located 15 kilometres away from Perth’s CBD, and is in proximity to a train station and has access to the Albany and Roe highways.