Mercia | Taxation, Business & Finance Advisers

When the honeymoon is over

You’ve probably seen the television commercials or maybe the full-page newspaper advertisements. The headline is always the same, a home loan interest rate so low that it’s difficult to ignore.

In a bid to acquire market share from their competitors, lenders are aggressively advertising home loans with very low introductory or ‘honeymoon’ interest rates. But are these attractive loans worth all the hype?

The idea behind these types of loans is simple. They essentially offer a discounted interest rate for a short period of time, normally the first 12 months of the loan.

The catch is that once the honeymoon period is over, the interest rate reverts to a much higher rate, such as the lender’s standard variable rate. These loans may also have excessive fees, making them surprisingly expensive.

Overall, they can cost a borrower hundreds of dollars more each month, or tens of thousands of dollars over the course of the loan.

Savvy borrowers treat introductory-rate home loans with caution as the short-term reprieve rarely makes up for the long-term financial strain.

Introductory-rate home loans can be of value to certain borrowers, such as those who plan to pay off their mortgage during or shortly after the honeymoon period, or those who plan to later switch to a better deal.

But it’s important to be aware of any fees or penalties that may be triggered on such an event.

Your broker is the best person to talk to about whether an introductory-rate home loan is suitable for your specific needs.

Confession: What buyers’ agents really think about auctions

The popularity of auctions seems to be increasing in the Perth market, despite the wariness of some locals.

And while the vast majority of properties are still sold via private treaty, there is a feeling that over time auctions will take an increasing share of the market.

But what do local buyers’ agents, who buy property for a living on behalf of their clients, really think about auctions? Do auctions provide good opportunities to snap up a bargain or do they stack the cards in the seller’s favour?

We can’t speak for all buyers’ agents in Perth, but given Momentum Wealth has the biggest team around, we can certainly shed some light on the pros and cons of buying at auction.

Overall, it’s fair to say that the auction process is designed to be in favour of sellers. The aim is essentially to flesh out as many potential buyers as possible (by not quoting a price) and then put these buyers in a competitive environment to hopefully trigger a bidding war. And there are many ploys used by selling agents and auctioneers to encourage the process.

There is often considerable pressure and emotion involved with auctions, which is why they can be a buyer’s worst nightmare. And it’s because of this pressure that buyers’ agents are often employed to represent buyers at auction.

Given the choice, most local buyers’ agents would probably prefer to buy via private treaty over auction. This is because they have better control over the negotiation process and can ultimately achieve a better result for their client, the buyer.

Critically, with private treaty, a buyer’s agent can include conditions in the contract that protect the interests of the buyer, whether in regard to finance or inspections. Under auction conditions, offers are generally cash and unconditional.

That said, with the right bidding strategy, auctions can provide excellent buying opportunities. However, you need to do your research and prepare for the unpredictability of the process.

Perhaps the best scenario for a buyer is when a property is passed in at the auction and the seller, becoming increasingly desperate to sell, happily entertains a lower offer.

It is worth remembering, however, that smart property investment is about acquiring the right type of assets, not necessarily getting a great deal upfront. So the focus should also be on the property and not the method of sale.

Momentum Wealth makes history to win REIWA awards

Momentum Wealth is honoured to have received two awards at the Real Estate Institute of Western Australia’s (REIWA) 2014 Awards for Excellence.

Momentum Wealth was presented with the Best Large Residential Agency of the Year award, which recognises excellence in customer service, property management and agency achievements.

It is the first time a buyer’s agent has received the award breaking a long history of selling agents winning the accolade.

Furthermore, Momentum Wealth property wealth consultant Kent Cliffe won the Buyer’s Agent of the Year award, which acknowledges excellence in leadership, contribution and innovation to the property industry and the ability to overcome business challenges.

The awards ceremony was held at Crown Perth on September 18 and was attended by more than 300 delegates, including WA attorney general and commerce minister Michael Mischin and REIWA president David Airey.

Following on from the state awards, Momentum Wealth and Kent will represent WA at the national finals, to be held in March next year in Perth.

At Momentum Wealth, we’d like to thank our clients for their on-going support and helping us to win these highly-esteemed awards.

Five things you need to know about a damaged fence

Dividing fences can often be an area of contention for adjoining property owners, especially when they are damaged and in need of expensive repairs. Here are five things you should know about it.

#1 – Who is responsible?

Generally speaking, when a shared fence is in need of repair, owners on each side of the fence are both responsible, whether the owners are investors or owner-occupiers.

According to the Dividing Fences Act 1961 (the Act), owners must contribute in equal proportions to the repair of the fence, and a ‘repair’ in this sense includes situations where the fence simply needs realignment or re-erection.

#2 – Disagreements

Consider a situation where the owner on one side of the fence wants to replace a damaged fence, but the other owner doesn’t believe the fence is in need of replacement. What happens?

In cases like this, if an agreement can’t be reached, the owner wanting to replace the fence can refer the matter to the Magistrates Court to seek an order. But the Magistrate will first need to be convinced that the need for replacement exists.

#3 – Emergency repairs

If a shared fence is suddenly damaged or destroyed by an event, such as a flood, fire, storm or accident, one owner can immediately repair the fence without giving notice to the neighbour.

The owner who repaired the fence can then recover half of the expenses from the other owner, either by mutual agreement or, if necessary, through the Magistrates Court.

However, because there is the potential for disagreements, it is always advisable that neighbours speak to one another before performing any repair work.

#4 – Neighbour at fault

What happens if the fence is damaged due to the fault of your neighbour? Should the neighbour pay for the entire cost of repair?

The Act only recognises a limited set of circumstances where one owner may be forced to repair or replace a shared fence at their sole cost. These are where the damage is caused by fire, or by the falling of a tree or branch. However, there must be evidence of neglect on the part of the owner deemed to be responsible for the damage.

#5 – Should your tenant contribute?

Tenants are not responsible for the cost of repairing a shared fence, except when the term of the lease is for a period of five years or more.

According to the Act, if the term of the lease is between five and seven years, the landlord must pay three quarters of the cost and the tenant one quarter.

The importance of a perfect finance application

It goes without saying that obtaining finance is a critical and often challenging step for any development project. It’s a very different prospect to a typical home loan application.

If you don’t have a strong track-record as a developer, securing finance approval may hinge on the quality and professionalism of your finance application.

The application matters greatly because lenders need to fully understand their potential risks, and the application will help them assess this risk and convince them of your credentials.

What to include?

What should a development finance application include? This, of course, depends on the size and type of the development. While this list is certainly not exhaustive, here are some of the main components that can form part of a professional loan application.

• Summary of the project highlighting the key points • Detailed feasibility showing the profit potential (lenders will want you to use conservative figures and show plenty of breathing room if things don’t go to plan) • Full set of costings • Information about the site and its zoning • Your credentials as a developer • Your financial contribution • Experience and expertise of your team • Project timelines • Exit strategy • Evidence of pre-sales (if required) • Signed builder’s contract • Necessary documents (such as the DA consent and council stamped plans)

Getting help to save time and ensure success

Given the importance of, and the level of detail required for, a development finance application, it certainly pays to have an experienced broker on your side. Your broker needs to understand exactly what lenders look for when lending to a development project.

By keeping the lender’s criteria and expectations front-of-mind when compiling an application, you’ll have a better chance of the processes running smoothly. And this will help you avoid unnecessary delays and hopefully complete your project as quickly and efficiently as possible, which is what every developer wants.

Suburb snapshot: Kallaroo

Relatively unknown compared to its more prominent neighbours, Kallaroo is a small, established beachside suburb that sits in between Hillarys and Mullaloo, with Craigie to its east.

Located 22km from the Perth CBD, Kallaroo was predominantly developed during the 1970s and 1980s, and it is often considered by locals to be a suburb of two distinct halves.

On the ocean side of Dampier Avenue, which bisects the suburb, you will find many multi-million dollar homes on large blocks, especially close to the ocean. This is the part of the suburb locally known as ‘Northshore’, in reference to an earlier estate name.

If you cross to the eastern side of Dampier Avenue, towards Marmion Avenue, you’ll find smaller, less expensive homes, as well as a higher proportion of homes being rented. Many people mistakenly think of this area as an entirely different suburb.

The median house price in Kallaroo currently sits at around $700,000, however, this figure can bounce around dramatically from quarter to quarter due to the diversity of housing in the suburb. It’s not unusual for the suburb to appear either on a list of top-performing suburbs or worst-performing suburbs depending on the composition of sales.

Kallaroo residents have direct access to Marmion Avenue, a major north-south arterial road, and have proximity to the Mitchell Freeway and train network (via Whitfords station).

Some of Kallaroo’s features include Whitfords Beach, substantial parklands along the coast and a small country club. On the suburb’s border with Hillarys sits Whitford City, one of Perth’s major shopping centres.

Developers have taken an interest in Kallaroo in recent years as the south-east corner of the suburb is subject to planned rezoning under the City of Joondalup’s Local Housing Strategy.

Last year, Australian shopping centre group, Westfield, submitted plans for a $190 million expansion of Whitford City, which could provide a boost to Kallaroo. However, the plan was rejected by the City of Joondalup and a development assessment panel but the decision is currently being appealed through the State Administrative Tribunal.