Mercia | Taxation, Business & Finance Advisers

Many people have been feeling uneasy with recent happenings in the international economy, in particular the situation in the United States (U.S) and throughout parts of Europe. Some worry that should affected countries see their economies collapse, Australia will go down with them and so will our property market.

Indeed, the situation in these countries does not look crash hot. They’re suffering from a multitude of problems from huge amounts of debt to slow or even negative economic growth, to high levels of unemployment and flat-lining property prices. In today’s highly mobile and interconnected world, it would be foolish to think that Australia would be completely immune from any fallout. In fact, just recently news about the deteriorating state of these countries shook our Stock Market, albeit temporarily.

However, we probably don’t need to worry too much. Why? Because Australia is just about the only stable and resilient developed economy in the world.

Yet with all this global uncertainty – now and over the past few years – Australians have understandably been concerned. But, we overlook just how good our economy really is and how we’re doing much better than the rest of the world. We forget that when the GFC hit in 2008 and many economies were going into recession, Australia was one of the very few that didn’t. We disregard the strength of our economic policies and our financial institutions. We gloss over the fact that we have some of the lowest unemployment in the western world, that household wealth is at near record highs, and that we have one of the lowest public (sovereign) debts in the developed world. If you go back in time and tell someone that this is where we would be after one of the biggest global financial disasters in history, I think they’d probably tell you that you were dreaming!

Australia has also experienced continual expansion of our exports and unprecedented growth in the mining industry over the past ten years that not even the GFC could hinder. Our ties with markets in China, India and other ASEAN nations are burgeoning while those with the U.S and Europe have been declining. Economic changes in these primary export markets will be far more important to Australia than those in the U.S and Europe.

Should the situation in the U.S and Europe grow worse, we must be realistic and anticipate some impact. But the effect will probably be small compared to other parts of the world. Additionally, we are in a good position to cope with room for another fiscal stimulus if needed as well as interest rate cuts to keep our economy afloat. Not many other countries have these fallbacks. The Stock Market may show some volatility which is normally painted negatively by the media, but on the flipside it can often be a positive for property investors. In such times, people tend to shun the Stock Market and look to more stable places to invest their funds which are typically gold and property. This increase in demand for property can turn around consumer confidence and lift the property market.  

In the short to medium term, assuming the global situation stays much the same, I expect Australians will continue to remain cautious. This is evident with Australians saving at the highest rates they have in years. People will continue to sit and wait, delaying expenditure wherever possible. The good news is that any talk of rate rises should become a distant memory. The futures market is anticipating that by the end of the year the cash rate will drop to around 4.0% and drop further still to 3.5% by June next year. This will certainly help improve consumer confidence and spending and in turn our economy. The longer term is harder to predict as it will depend to some degree on the state of the global economy but in particular our main trading partners China and India. I expect though that any negative effects will be more ripples than waves, and that the property market will improve with low vacancy rates and rising rents, while low interest rates will continue to attract more investors back into the market.

Although we may not be entirely shielded from the poor economic performance of some developed nations around the world, I am confident that if any country can power through it Australia can. I know there’s no other place I’d rather live right now.

The popularity of buyers’ agents has increased in Western Australia over the past few years. So much so, that many suburban sales agents are now turning their sales staff into dedicated buyers’ agents for their office. With this new trend occurring in what is still a relatively unfamiliar area for many, questions are being raised about the role of a buyers’ agent and how they differ to a sales agent.

Buyers’ agents search, evaluate and negotiate the purchase of a property on behalf of a buyer, or they can commence work from the negotiation stage only if a buyer has already located a property. The primary difference between a buyers’ agent and a traditional sales agent all comes down to who each party represents. A sales agent is employed to work for the vendor (the seller) and is legally obligated to act in the vendor’s best interests at all times.  On the contrary, a buyers’ agent is legally appointed to work exclusively for the buyer.

So is there any difference between a buyers’ agent working in a suburban sales agency, versus a buyers’ agent operating in an independent buyers’ agency? We believe there is and there are a few key differences which investors should seriously consider when making their choice.

Firstly, buyers’ agents in suburban sales offices are usually very locally driven. They have excellent knowledge of the typical suburbs their office services but tend to be more limited when it comes to suburbs outside their catchment area. If they stick to their usual area, buyers need to consider that the small set of suburbs they happen to service may not offer the best performing investments going around. If they do look further afield, there’s a risk their limited knowledge may be no better than your own.

Secondly, a buyers’ agent working in a sales agency (particularly if the buyers’ agent’s recent history is as a sales agent) may not have as much of an investor focus.  They may genuinely want to help, but not have the knowledge or initiative to ensure they can. For example, independent buyers’ agents have a variety of legally compliant clauses to insert in purchase contracts to protect the buyers’ interests. They are also strong negotiators for buyers and have ample experience to easily manage situations such as holding back money from the seller for repairs and other issues that may be uncovered.

Thirdly, buyers should be aware that all agents are legally obligated not to act for, or accept, payment from both parties in a transaction (eg. the seller and buyer). This is because it could give rise to a serious conflict of interest where buyers’ agents push buyers towards only properties in which they’re also receiving a sales commission from. Therefore, there is no advantage to choosing a buyers’ agent in a local suburban agency as they can not buy properties for the buyer that are listed with their own agency. If they do, it’s likely they will not ask for payment from the buyer. However, that does mean they are then legally obligated to do what’s best for the seller – not the buyer.

And last but not least, sales agents and their agencies may be fantastic at selling and in knowing their local areas, but not necessarily as knowledgeable when it comes to identifying what makes a sound investment for purchase and in knowing what is right for you. For example, do they understand the taxation system with regards to property investment? Can they accurately estimate renovation costs? Can they undertake a feasibility study for a proposed development site? In other words, a great salesman doesn’t necessarily make a great investor or buyers’ agent.

If you’re thinking of buying an investment property, a buyers’ agent can be worth their weight in gold. They can not only save you the legwork, but save you money on the initial buy, save you tax, and secure you an investment that pays excellent dividends for years to come. But be aware, not all buyers’ agents are the same. The wrong choice of buyers’ agent could leave you saving little money and stuck with an investment that consistently underperforms throughout its lifetime.

After Nigerian scammers pocketed the proceeds of at least two property sales without the owner’s knowledge, Landgate has finally stepped in to bump up security in an effort to protect homeowners overseas.

After a number of Perth property owners found their properties were sold without their knowledge while overeseas, WA Lands Minister Brendon Grylls has finally stepped in to protect absent home owners.

New anti-fraud measures introduced by Landgate now require all property transfers executed from oversees to undergo a 100 point identity check with signatures witnessed by an Australian Consular officer, and verification by at least two senior Landgate officers.

Property owners can also pay $160 to lodge a new caveat on their property to prevent registration of any change of ownership, mortgage or lease. The caveat can only be removed by attending Landgate’s office in person and undergoing a 100 point identity check, said Mr Grylls. 

These changes come after one Perth property owner lost their investment property in Karrinyup last year to scammers based in Nigeria, and just weeks after investigations began into another property sale in Ballajura which also occurred without the owner’s knowledge.

Landgate is also considering offering email alerts through its TitleWatch service to notify homeowners of any activity on the title deeds of nominated properties. This notice is designed to occur prior to settlement and the transfer of any title.

Mr Grylls commented, “While no-one can completely eliminate fraud, Landgate is working with industry to minimise the likelihood of further occurrences.”

Landgate will now be reviewing all property transactions since September 13 last year, which could amount to more than 200,000 transactions.

RBA Update 

The Reserve Bank of Australia (RBA) has again left the cash rate unchanged at 4.75%.

RBA Governor Glenn Stevens commented that whilst the global economy is facing uncertainty, “Prices for key Australian commodities have remained very high thus far, with growth in China continuing to look solid. As a result, Australia’s terms of trade are now at very high levels and national income has been growing strongly.” 

Mr Stevens went on to say that, “Investment in the resources sector is picking up very strongly and some related service sectors are enjoying better than average conditions. In other sectors, cautious behaviour by households and the high level of the exchange rate are having a noticeable dampening effect. The impetus from earlier Australian Government spending programs is now also abating, as had been intended. Overall, the near-term growth outlook continues to look somewhat weaker than was expected a few months ago. Beyond the near term, growth is still likely to be at trend or higher, unless the world economic outlook continues to deteriorate.” 

The Futures market is forecasting a 1.5% rate cut over the next eight months.

Just a few months ago, a client from a country town outside of Perth approached buyers agent Andrew Gill to help him and his family select their first investment property in Perth.

Andrew focused on the suburb of Rivervale as it had strong fundamentals and a history of solid performance that was anticipated to improve even further with the revitalisation occuring in the area. He found an ideal property to suit the client’s needs, a well-maintained 3×2 street front villa on a quiet street. 

Upon finding the property, Andrew placed a well considered offer on the eve of a long weekend. Upon finding out the vendor was in need of a quick sale, Andrew negotiated hard and was able to secure the property under market value and well under the asking price. As Andrew’s client was also from out of town, Andrew astutely included a clause that allowed the client the opportunity to personally view the property the following week and if not satisfied, simply walk away from the deal. On the Monday public holiday, Andrew and finance broker Elizabeth Rutten (the client was also organising their finance through Momentum Wealth) met the client first thing in the morning at the property and with the client’s tick of approval, all proceeded as planned. The client also chose Momentum Wealth to manage their property once settled and property manager Bianca Patterson was able to promptly secure tenants for a higher weekly rate than first anticipated.

Result:

Purchase of a street front 3×2 brick and tile home in Rivervale, 5km from Perth CBD.

Purchase price: $458,000

Estimated market value at time of purchase: $480,000 – $490,000

Savings: $22,000 – $32,000