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Five potential Melbourne hotspot suburbs

Thursday, October 04, 2012

Five potential Melbourne hotspot suburbs

By Frank Valentic
Wednesday, 05 September 2012

We’re all aware Melbourne is facing a shortage when it comes to affordable housing, especially if you have your heart set on buying within 20 kilometres of the CBD.  However, there are still some affordable hotspot suburbs that fall well below the average Melbourne median price and will make it easier to help secure your next property. From the outset, you need to know how much you can really afford to spend, as this will dictate the properties available to you.

At Advantage Property Consulting, we are regularly trying to locate hotspot suburbs and have assisted over 2,000 clients in achieving their dream of owning a property.

So what is a hotspot?

A hotspot can best be described as an area that has not attracted the same level of attention as traditional blue-chip locations. They are often identified as areas that are underperforming, usually within close proximity to more popular suburbs.  When an area becomes too expensive for people to afford, they usually move to these neighbouring suburbs that are more affordable, causing a positive outward ripple effect.

What are some important things to look for before buying into a hotspot area?

Pick a diamond in the rough Choose a well-positioned property that represents good buying value.  An unrenovated property can often be purchased under market value, offering the chance to improve and increase equity over time. If it is well supported by strong infrastructure and lifestyle amenities, then the chance of gaining a good investment return is higher.

Follow the ripple effect outward If you’ve been priced out of a more expensive inner-city suburb, look to its surrounding areas to try and pick up a bargain.

Choose an area with good quality stock/dwellings For example: buying a period-style apartment in a block of four versus buying an apartment in a high-rise precinct where you are the owner of one of 100 similar apartments. Period homes tend to fetch better prices and are in much higher demand than other property types.

Easy access to employment opportunities It is important to have easy access to a diverse range of employment opportunities near your property.  This will attract reliable tenants/investors to the area and offers better growth potential over the long term.

Look for areas with solid or expanding infrastructure Having good, reliable access to nearby arterial roads, highways and satellite cities will always add more value to a suburb.  Look out for planned developments in the area as well as new infrastructure improvements such as freeways, as this often indicates the area is on the up.

Don’t always go for the cheapest property Focus on what comparable properties are actually selling for in the area to figure out if a property is overpriced, has met the current market or is at under market value.

Focus on the property not the hotspot You are buying a property, not an entire suburb. The key is to identify potential for capital growth and rental returns. If it is well positioned, then the desirability factor increases.

Look for signs of the next “Williamstown or St Kilda” and trust your intuitio Look for a feeling or indicators that a suburb is on the move. Lifestyle features such as being close to the water, bars, restaurants and retail outlets will always add substantial money to your investment.  It is not unusual for unwanted locations to become hotspots over a 10- to 20-year period, so think long term.

With these key factors in mind, here are five potential “hotspots” in Melbourne worth taking a look at:

1. Thornbury

Thornbury has shown an impressive 21% growth per annum over the last 22 years.  Units and flats are still very affordable with an average median price of $432,000.  Located just seven kilometres north-east of the CBD, it has easy access to transport, an attractive lifestyle vibe and is very family friendly. The ripple effect from more expensive suburbs such as Northcote, Fitzroy and Carlton has caused Thornbury to become a more financially viable and affordable alternative. It has all the right features and qualities of a prime suburb, making this an ideal entry-level suburb for first-home buyers and investors.

2. Spotswood/Newport

Positioned just seven kilometres west of Melbourne’s CBD, both Spotswood and Newport have shown steady growth of 14% per annum growth over the last 22 years.  It is one of the few affordable inner-city suburbs left in Melbourne. Apartments and flats are still available well below the $535,000 median. It has very good transport connections to the CBD, with a new multi-line train station, nearby Westgate Freeway, Western Ring Road and City Link arterials. Neighbouring satellite city of Footscray is close by.  You can still find older-style cottages on good- sized blocks, proving popular with first-home buyers and investors.

The ripple effect from wealthier suburbs such as Williamstown and Yarraville has caused both Newport and Spotswood to become future hotspots.

3. Box Hill

The ripple effect from Camberwell and Surrey Hills has put Box Hill in a good affordability category. The median price for units and apartments is still relatively affordable at $467K.   Located 14km east of the CBD, it is a major commercial centre and transport hub.  It has excellent access to Maroondah Highway and is home to the local Box Hill Hospital.  In addition to all the wonderful amenities, it is also a growing satellite city with the local council introducing further relaxed planning controls to help promote and build medium density development.

4. South Yarra

The reason why we have chosen to include the inner “blue-chip” suburb of South Yarra is that prices have fallen considerably.  You can now buy one-bedroom apartments well under its median price of $620,000. This holds great appeal to those seeking an affordable entry in to a highly desirable location. Located just three kilometres south-east of the CBD, you can’t go wrong with the close proximity to trendy Chapel Street and Toorak Road.  Established infrastructure such as The Alfred Hospital and Swinburne University are also nearby.

5. Frankston

Located 41 kilometres south of the CBD, Frankston is slowly becoming a major commercial, retail, educational and transport centre. This satellite city will have the Peninsula Link opening in early 2013.  As a result, you will see travel time cut by up to 40 minutes between Carrum Downs and Safety Beach.  The median price for a home is super affordable at $350,000, and apartments can be purchased at less than  $270,000.  Close to the beach, the future development of a local marina will also add significant value to the area.  The ripple effect from neighbouring Mount Eliza and popular Mornington Peninsula suburbs (Portsea, Sorrento and Flinders) is offering potential buyers a much more affordable option.

In summary, you can still make money in a flat market.  Boom suburbs always happen for clear reasons, and picking one before it becomes popular, is one of the simplest and quickest ways to make money in real estate. In fact, if you remember the following winning formula –purchase at the right price, in the right place and at the right time, you will no doubt reap good financial rewards.

With this in mind, make sure you choose under-performing suburbs and stick to affordable areas under Melbourne’s median price.  Do your due diligence and research thoroughly before you buy.

What other strategies can you use to make money in the current flat property market?

Find distress sales Chase vendors who need to sell quickly due to divorce, finance issues and impending deadlines due to other purchases or commitments.

Buy wholesale, not retail For example: Buy a whole block of flats in a group syndicate and purchase in the $1 million to $6 million price range, as this will reduce your competition.

Add value with subdivisions Buy properties that need to be subdivided.  This will simultaneously increase the properties’ value instantly.

Add value with renovations Buy “ugly ducklings” that need internal and external renovations, as this will add instant value and equity.

The best opportunities for property investors

Thursday, October 04, 2012

The best opportunities for property investors are outside major cities: Terry Ryder

By Terry Ryder
Thursday, 06 September 2012

There are lots of loud voices advocating big cities as the best places for investors to target. 

Indeed, they say, the big cities are the only places to invest. Some even suggest you’re crazy to buy anywhere else. 

These people have one thing in common: they have businesses that benefit if you follow their advice. This is the loudest noise in real estate – the voice of vested interests. 

Apart from the ethical issues of seeking to benefit from giving tainted advice, it’s foolish to have such hardline attitudes. 

Nothing is that black and white in real estate. Situations are always evolving, and the best opportunities at a given point in time can be found in myriad places: a regional city, a seaside town with an important export port, an outer suburb boosted by new transport infrastructure, an inner-city area with an evolving university-hospital precinct.

But, generally speaking, I have no doubt that many of the best opportunities for long-term capital growth with solid yields are found outside the big cities. 

Regional Australia is the most under-rated option for investors. Investor surveys that asked people where they expect to find the best capital growth always rank the regions last, behind popular choices like inner-city suburbs and sea change icons. 

It emphasises how misinformed the average punter is and how little homework they do. These choices contradict all the research evidence. I suspect “research” for most investors consists of absorbing media sound bytes – which means they have their heads crammed with negativity and misinformation. 

To put things in simplistic terms, this is what the research shows: outer suburbs outperform the inner-city, hill change out-does sea change, and the city v. country clash is usually won by country. 

There are plenty of exceptions you could find, but those are the general rules of thumb that emerge from research. 

To compare city and country, let’s look at New South Wales. Sydney property professionals tend to gag at any suggestion of going west of Parramatta to buy real estate. If it’s not the beaches, the inner city or the north shore, you’re a nutter. 

This is despite the miserable capital growth performance of Sydney over the past decade. There are very few suburbs anywhere in Sydney that have managed a long-term average even as low as 6% a year. There are none with double-digit averages. 

Among the so-called “better” areas that have delivered only 3% or 4% a year to property owners are Manly, Balmain, Palm Beach, Vaucluse, Gordon, French’s Forest, Sutherland … it’s a very long list. 

Doing only marginally better, with averages around 5% a year, are places like North Sydney, Leichhardt, Bondi, Randwick and Cronulla. At growth rates like these, you’d be better off leaving your money in the bank. 

Regional NSW, however, is full of cities and towns with double-digit growth rates for the past 10 years. Among them are Muswellbrook, Singleton, Lismore, Casino, Branxton, Greta, Gunnedah and Glen Innes. 

A second-tier list of places with growth rates around 9% to 9.5% includes Goulburn, Wagga Wagga and Murwillumbah, all of them out-performing any Sydney suburb you care to nominate. 

One of the best has been humble Broken Hill, which has averaged 13% per year over the past decade. 

Melbourne overall has been a better performer than Sydney, but the same city v. country pattern applies. If you want a double-digit growth rate long-term, you have to head bush. 

Consider the suburbs of Melbourne’s inner south-east, much beloved by property professionals and local media who see auction activity there as the barometer of all things real estate. Toorak, the standard bearer for everyone who loves pretentious property, has a Sydney-esque growth average of 4.9%. 

Others, like Armadale, Brighton and St Kilda, are a little better, averaging in the 5% to 6% range. 

Some, including Balwyn, Canterbury and Malvern, has touched the intoxicating heights of 8%. 

Compare that to workaday Gippsland towns like Traralgon, Churchill, Maffra and Sale, which have averaged 11-12% over the past 10 years. 

Portland, down in the far south-west, has been chugging along unnoticed (except by city people who love to fish) with a growth average of 10% a year. 

Scattered around the regional areas of Victoria are plenty with double-digit averages: Woodend, Kyneton, Camperdown and Barwon Heads among them. 

I’ve heard it said that regional areas are risky because their economies are based on a single major industry like agriculture or mining. 

For many regional cities, this is untrue. There’s nothing one-dimensional about Orange, Tamworth and Dubbo in NSW, or Ballarat, Bendigo and Warrnambool in Victoria. Their great strength is the diversity of their economic base, along with their affordability.

Terry Ryder

Dangers of investing in property in single industry mining towns

Thursday, October 04, 2012

Moranbah and Port Hedland unsustainable 'single-industry' mining boom hotspots: Westpac

By Larry Schlesinger
Friday, 07 September 2012

Moranbah, the heart of coal mining activity in Queensland's Bowen Basin region, was recently added to a list of WA and Queensland mining towns deemed by Westpac to be risky “single-industry” towns.

This means that investors will find it harder to get loans to purchase investment properties in Moranbah, with the bank deeming the town to have a potentially unsustainable housing market.

Its inclusion comes shortly before RP Data calculations that placed Moranbah top of a list of regional Queensland towns where it is cheaper – by an average of $4,000 – to buy a house than rent.

However, Westpac will now discount rental income listed as security on investor mortgage applications by 40%, taking into account the risk of rising vacancies.

“An application with security in a single industry town will have all rental income assessed at 60%,” says the bank in a note to mortgage brokers.

The new requirement is in addition to the rule that a 30% deposit is required in these postcodes for property to avoid the added burden of lenders mortgage insurance (LMI) – well above the usual 20% deposit requirement.

The policy changes apply to two investment loans – Westpac’s variable rate Equity Access Loan (EAL) and its fixed rate Investment Property Loan (IPL).

Westpac spokesperson Danny Johns told Property Observer recently the decision to add Moranbah and other mining towns to the list is due to concerns that in these locations the mining boom is driving house prices and rental yields to relatively unsustainable levels.

As an example, he says house prices have jumped 44% in Moranbah with yields at 13.5%, with property valuers telling Westpac that these figures are not sustainable.

Other towns added to the list recently include another Queensland coal mining town Dysart in the Isaac region south of Moranbah and Port Hedland and the East Pilbara region.

The full list of new towns included on Westpac’s list of “single-industry” postcodes are in Queensland:

Blackwater (4714)

Moranbah (4744)

Dysart (4745)

Middlemount and May Downs in the Isaac region (4746)

And in Western Australia:

Roebourne (including Karratha, Baynton, Bulgarra and Pegs Creek, 6714)

Port Hedland (including South Hedland, 6721)

East Pilbara (6753)

Real Estate Institute of WA president David Airey says the changes probably reflect a view from within the bank that “housing prices and rental returns in particular, in places like Karratha, Port Hedland, South Hedland and Newman are unsustainable”.

“The state government is anxious to address affordability in the Pilbara, and while this won’t happen overnight it’s clear that housing demands will be better met over the next few years.”

Airey says Westpac has the right to “calibrate its business model as it sees fit”.

“But it would be a pity if the result meant that investors were less inclined to supply much needed housing in the state’s northwest. In some ways it’s a catch-22 situation,” he adds.

Real Estate Institute of Queensland (REIQ) chief executive Anton Kardash says lending criteria for remote areas has been restricted for some time, given these areas are often reliant on single industries for employment.

“Investors in these areas need to be aware that lenders will require a larger deposit dependent on the element of risk lenders attribute to buying property in a specific region.”

Jane Slack-Smith, director at Investors Choice Mortgages, says the change in policies indicate that Westpac is less keen to lend in mining locations.

“The bank is discounting rental income to allow for vacancies,” she tells Property Observer.

Slack-Smith says Westpac is implementing these changes in places like Karratha despite her clients being able to ask rent of $2,000 per week over a five-year lease.

“Some lenders will take 100% of rental income, but Westpac only takes 60% of income.”

“Some lenders don’t have postcode restrictions,” she says.

Property Investment and the Resources revolution

Thursday, October 04, 2012

Property investors will thrive in areas benefiting from LNG boom: Terry Ryder

By Terry Ryder
Tuesday, 18 September 2012

One reason the simplistic “mining boom is over” rhetoric is causing so much concern is that many people don’t understand what’s driving the resources sector. 

Essentially all that’s happened is that prices for iron ore and coal have fallen off their peak. In the overall context of the resources revolution, which will extend beyond my lifetime, this is a short-term phenomenon and will cause only a minor hiccup, just as the GFC was a small speed bump in the rise of the resources sector. 

Nevertheless, it has caused some miners to re-evaluate the timing of some projects. Each announcement of a downsizing or project deferral – and there have been relatively few – is seen as confirmation that the party is over. 

But the upsurge in investment in the Australian resources sector is not being driven by iron ore or coal, important though they are. The resources revolution is really about gas. 

The largest resources projects around Australia are all liquefied natural gas (LNG) enterprises. They dwarf anything happening in Western Australia’s iron ore industry or Queensland’s coal sector. 

Nine gas mega projects entail capital expenditure totaling $220 billion, and the general theme coming out of those ventures is expansion, not contraction. 

The $23 billion Australian Pacific LNG project – one of four giants focused on Gladstone – has its first train under construction and has just approved plans for a second train, having secured a 20-year supply contract with Japanese company Kansai Electric Power. 

The $34 billion Ichthys project, which will extract gas off WA but process it in Darwin, is moving forward, handing out some pretty big contracts in the Northern Territory capital. The $29 billion Wheatstone enterprise is doing likewise in WA. 

Three of the four LNG projects targeted on the Surat Basin (extraction) and Gladstone (processing and export) are well under construction and the fourth is advancing steadily towards a construction start in 2013-14. 

The four Gladstone ventures together involve around $70 billion in capital expenditure. 

The three mega gas projects in WA – Gorgon, Wheatstone and Browse – total around $106 billion. 

There is nothing remotely on this scale happening in coal or iron ore, the resources sector currently taking a hit from lower prices. 

This is why Australia is forecast to become the world’s biggest LNG producer within the next seven or eight years, overtaking Qatar, Indonesia and Malaysia. Australia has known reserves likely to last the next 100 years, and new discoveries are happening regularly. 

Australia now has seven of the world’s 10 largest LNG projects. Resources Minister Martin Ferguson said recently: “By 2017, based on proposed and committed new projects, Australia’s LNG production capacity is projected to quadruple.”

Apparently he momentarily forgot that minor point when he made his now-infamous statement on radio that the resources boom is over. 

The only non-gas Australian project in the league of the LNG ventures is the proposed expansion of Olympic Dam, which – contrary to the general media line – is not scrapped but is being re-worked to find less expensive ways to exploit the vast resource at Roxby Downs in South Australia. 

In real estate terms, the locations most likely to thrive from this ongoing upsurge in capital expenditure on LNG are Darwin, Gladstone, Karratha, Toowoomba and the towns of the Surat Basin, such as Dalby and Chinchilla.

Terry Ryder

Property Bubble? What property bubble?

Thursday, October 04, 2012

Just about every time an American property guru arrives in our lucky country they start talking about our “Property Bubble”…… And we start fielding questions from clients about when “the bubble is going to pop?”.

The short answer is that we can only speculate about the future direction of Australian property prices. We are not even sure there is a bubble.

However, in relation to the existence of a bubble, there is one statistic that seems to surprise just about everyone.

The median Sydney property price has only risen by 21% since the end of 2004. Yes, that is an average of 2.6% per year for the last 8 years. This is almost exactly the same as Australia’s inflation rate for the same period.

This doesn’t look like a property bubble to us.

In fact, with the combined forces of;

1. strong population growth,
2. low unemployment,
3. sub 2% rental vacancy rates,
4. median rental yields at 15 year highs and
5. interest rates at 10 year lows,

one could easily argue that upward pressure on Sydney house prices is a more likely outcome.

Think of this simplified investment scenario.

A median house in the Sydney suburb of Hassall Grove will set you back $356,000.
Let’s assume that a 10% deposit was paid and there is a 90% LVR loan of $320,400.
The median rental yield for this suburb should provide you with a weekly rent amount of $390 per week.
The interest bill on the lowest 3 year fixed rate of 5.39% would be $332 per week.

Note, this calculation has not taken into account the potential tax benefits or the potential ongoing costs of the property but it does demonstrate how this market has developed some cash flow value. Something you rarely see in the middle of an asset bubble. source: smartlineblog

Queensland Booming Property Market

Thursday, October 04, 2012

Retail investment in Queensland contributed the highest share nationally over F2011/12, according to Colliers International.

Colliers International’s National Retail Investment Review 2011/12 says that for transaction activity over $10 million, Queensland recorded 26 sales over the period – three of which were among the top 10 biggest sales nationally.

Major sales included Industry Superannuation Property Trust’s purchase of a 50 percent share in the Myer Centre Brisbane for $366 million, Australian Prime Property Fund Retail’s acquisition of 50 percent stake in the Cairns Central Shopping Centre for $261 million and the sale of Noosa Civic to Queensland Investment Corporation for $200 million.

The 50 percent stake in the Myer Centre Brisbane was the largest retail acquisition in Australia over the period.

Nationally Colliers recorded a total of 83 major retail investment transactions over the period, with a total value of $4.244 billion. This is an increase of 8 percent on the previous financial year.

Queensland, New South Wales and Victoria accounted for around 77 per cent of sales by number, Colliers says.

Stewart Gilchrist, Colliers International National Retail Director said investor demand for quality shopping centres was resilient over the 2011/12 financial year despite volatility in retail trade data.

“Investor demand for quality shopping centres was buoyant, but there was also strong interest in underperforming centres with repositioning potential,” Gilchrist says.

“There has been strong interest in prime regional shopping centre assets from institutional investors from Australia and overseas, with demand continuing to exceed supply.”

Neighbourhood centres led activity with 35 sales over the period, but a historically high number of regional centres were sold, with seven centres comprising 44 per cent of all sales by value.

Fifteen sub-regional centres sold, up from five the previous financial year. The sub-regional category saw the biggest jump in sales volume of all sectors.  Source:Property Ezine

2012 Tax Changes - Superannuation

Saturday, July 28, 2012

Superannuation changes

There will be plenty of changes made to superannuation this July.

The Government has deferred the start date of maintaining a cap at $50,000 for individauls aged over 50 years with balances below $500,000. So that means for everyone, the concessional contribution cap will drop to $25,000. 

The government will also provide a low income superannuation contribution for individuals earning up to $37,000, so they’ll effectively be refunded the 15% contributions tax.

It will also reduce the super co-contribution by 50%, to just 50c per $1 contribution, effectively reducing the top benefit from $1,000 to $500.

There will also be some changes for high-wealth individuals. People with income greater than $300,000 will have contributions reduced from 30% to 15%

2012 Tax Changes - Building Industry Reporting

Saturday, July 28, 2012

Building industry reporting

If you’re a business or entrepreneur operating in the building or construction industries, then you’ll need to start reporting on every payment made to contractors in the New Year.

As for who needs to report – any business primarily operating in the building and construction industries, including businesses making payments to contractors. If more than half of your business activity relates to building and construction, then you need to start reporting.

The details you need to report for each contractor include:

  • ABN
  • Name
  • Address
  • Gross amount paid in the financial year
  • Total GST included in the gross amount paid

You’ll also need to report worksheets and other records, including payment details for work done in relation to any sort of building or structure. That includes construction, demolition, design, destruction, erection, improvements, maintenance and repair.

Contractors who pay other contractors may need to fill in all this information as well.

Businesses will need to make this report by July 21 each year, but don’t fear – the first report isn’t due until July 2013.

2012 Tax Changes - Living away from home allowance

Saturday, July 28, 2012

Living away from home allowance

The government will be making a few changes to the Living Away From Home allowance come July.

Access to the concession for temporary residents will be limited to those people who maintain a residence for their own use in Australia, but are required to live away from work. These workers are known as “fly-in, fly-out”.

Also, employees will be required to justify their spending on accommodation and food beyond the statutory amount, and a year limit will be placed on how long an employee can receive the benefit at any one work location.

These changes will affect anyone signing an agreement after May 8, 2012, and from July 1, 2014 for any contracts before that time.

2012 Tax Changes - The loss carry back

Saturday, July 28, 2012

The loss carry-back

The loss carry-back scheme is one of the most anticipated tax changes by SMEs – one of few.

At the moment, businesses can only carry losses forward to offset future income and profits. They can’t carry their current loss back and offset it against past profits.

But under the new scheme, businesses will be able to claim losses of up to $1 million against tax paid in the past two years.

To be eligible, a business needs to have made a profit and then a loss from July 1, 2012. So while that provides some relief for SMEs, it doesn’t mean anything for businesses that have made a loss in the past few years.

Of course, there are a few caveats – businesses structured as partnerships, sole traders and trusts are ineligible.

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