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CapitaGrowth Until 2012 – Are They Right?
But When Is A Good Time To Buy?
Double digit capital growth up to 2012 is the latest claim being made in the property market. So what of it? Is it true? Is there growth to be had? Are we living under a delusional bubble?
Well according to the experts we need to don the flanny and fire up the Holden Ute – Adelaide is set to lead the Capital Growth Charge over the next three years according to property experts.
In an article published in the Sydney Morning Herald online, Chris Zappone suggests all major capital cities will experience double digit capital growth between now and 2012. We have used this article and added in our own comments, however you can review the entire article online here (link to article)
The article “House Prices Set To Jump” suggests house prices may surge about 20 per cent or more in some of Australia’s larger cities over the next three years, driven higher by on-going shortages.
Adelaide, the surprise packet, previously considered among the more affordable cities, may lead the advances, with prices likely to be 23 per cent higher by June 2012 from a base of June 2009, according to the QBE LMI Housing Outlook.
The increases are likely even with the expected rebound in interest rates as the economy recovers. Although interest rates are rising – we would expect them to stay relatively low. Remember our current rates are at 49 year lows.
Why The Price Rises
Well basically Australia looks to continue to experience strong population growth thanks to migration (over 250,000 people in the last 12 months) and subsequently a chronic housing shortage the article suggests is currently estimated to be 56,000 homes.
Are We Creating a Bubble?
Well maybe – although to date Australia has failed to follow the lead of other developed nations experience only an easing in price rises against double digit drops in nations like the US and UK.
If properties rise too fast there is a greater risk of a price bubble being created. Glen Stevens, Governor of the Reserve Bank suggested ”pose elevated risks of problems of over-leverage and asset price deflation down the track,” in July. As we know they have already commenced raising interest rates to help stave off a potential bubble.
What’s In Store?
We still believe there are more turbulent times ahead and caution should be paid to the market.
In the long run there are a number of factors that influence property prices include interest rates, supply and demand, government policy, employment levels, and other economic factors. The world is still in a fragile space financially and any further major hiccup in the global economy could spark reactions worse than what we saw coming out of 2008. Only this time there is no more room for spending to leverage a stimulus.
In the article Bis Schrapnel senior project manager Angie Zigomanis said that even if a housing price bubble popped, a correction would not necessarily mean huge price falls. The median Sydney home price in 2009 is $544,000, lower than the 2004’s median house price of $552,000.
”Corrections are not like share market corrections, where people sell off all their shares,” he said.
”People just sit in the property and wait for things to improve. You don’t have this turnover, aside from people who are forced to sell.” But then clarified this with the statement “anything that had an impact on Australia’s overall economy could affect home prices.”
So is it a good time to invest in property?
Well it depends on your outlook.
If you want capital growth then we would suggest maybe not – particularly if the current activity is a bubble forming that is about to pop.
If you can afford to hang on through higher interest rates and perhaps the loss of a job then go for it – the market is hot and your property investment journey awaits.
Source: Sydney Morning Herald “House prices set to jump: report”
By CHRIS ZAPPONE

Capital Growth Until 2012 – Are They Right?

Double digit capital growth up to 2012 is the latest claim being made in the property market. So what of it? Is it true? Is there growth to be had? Are we living under a delusional bubble?

Well according to the experts we need to don the flanny and fire up the Holden Ute – Adelaide is set to lead the Capital Growth Charge over the next three years according to property experts.

In an article published in the Sydney Morning Herald online, Chris Zappone suggests all major capital cities will experience double digit capital growth between now and 2012. We have used this article and added in our own comments, however you can review the entire article online here.

This week the RBA has decided to increase the cash rate by 0.25% in an effort to dampen down an economy that appears to be moving back into a growth cycle.
A growing economy is a good thing for our general prosperity but growth can be quickly neutralised by the affects of inflation. Unfortunately for us mortgage holders and property people, the primary anti inflation weapon the RBA has at it’s disposal is to increase interest rates.
As property people we are closely looking at ; property segment bubbles, stock levels, tight credit, new lending policies for low doc lending and the performance overseas.
As some people may say we appear to be coming out of the global financial crisis, we dont agree and thought you might find it interesting to view the new landscape. Just like a storm passing through a town, the GFC has forever changed the Australian home loan environment.
RAMS is now owned by Westpac.
Wizard is now owned by Aussie.
Aussie is now 33% owned by CBA.
St.George is now owned by Westpac.
CBA now owns Bankwest.
The big 4 banks now write over 92% of our home loans compared to 60% before the GFC.
The margin between the RBA cash rate and the variable rate available to bank customers is now approximately 2.1% compared to approximately 1.1% before the GFC.
NAB has purchased approximately 35% of all mortgage broking groups.
Most lenders now require borrowers to contribute 10% of the property value compared to 5% (or even 0%) before the GFC.
It takes twice as long to get a loan looked at and the overall process has blown out from 21 days to over 41.
Each and every loan is reviewed with a fine tooth comb and they are asking for documentation and letters to support the application never seen before. Most well over the top. Id they dont like you or the deal they just say typically without any real justification
Options for development and project funding are rare and tough on requirements especially presales and servicing
The one thing that has remained after the GFC is the profits being generated by our big four banks. The extraordinary revenue margins and increased market share created by the GFC has allowed the banks to maintain profits despite a large increase in bad debts of approx 1.4% across their loan books/ portfolios
Profits: CBA – $4.4 Billion, NAB – $3.7 Billion, WBC – $4.5 Billion, ANZ – $3.3 Billion, Total = $15.9 Billion
It is interesting to note that the ANZ Bank is forecasting a 1% increase in the cash rate over the next 12 months (see graph below). Further Westpac are forecasting a 0.50 to 0.75% increase by July 2010. Many borrowers might be tempted to jump into a fixed rate in an effort to avoid the increases but as you can see from the graph below,as we have been saying to people whi enquire about fixing their rates, the big banks are well ahead of that idea. The five year fixed rates and the three year fixed rates have been shooting up since March, so dont be fooled as their margin are well locked in at up to 2.5% + above the variable rate
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This is a bitter sweet decision by the RBA.
Contact the team at Portfolios to discuss and any property and finance related opinions and options for you.
Now more than ever a sound level of understanding of property and finance as a whole is required for you to … Make it Happen

As some people may say we appear to be coming out of the global financial crisis, we are not so sure and thought you might find it interesting to view the new financial landscape. Just like a storm passing through a town, the GFC has forever changed the Australian home loan environment.

Last week the RBA has decided to increase the cash rate by 0.25% in an effort to dampen down an economy that appears to be moving back into a growth cycle.