Despite Mortgage Downturn

Property investors are continuing to grow in numbers despite an overall decline in the number of mortgages across Australia on the back of successive interest rate rises.

We look at why this is the case…

Portfolios is part of Australia’s largest independent brokerage network Australian Finance Group (AFG). Throughout March, April, and likely to continue in May, AFG confirms the emergence of a two tier mortgage market, with the proportion of investors surging as sales to owner occupiers decline.

Property investors accounted for 36.9% of all mortgages arranged in April, the highest such figure AFG has ever recorded.  This compares with 10.2% for first home buyers and 16.3% for up-graders.

The remaining mortgages in April, 36.6%, were for refinancing purposes.

Why The Confidence in the Investment Property Market?

In our opinion there are a number of reasons to be confident in the Australian property market, we offer some below and welcome your comments:

• The volatility in the share markets always serves as a reminder of the stability and strength offered through a property portfolio
• When company profits fall dividends stop – amongst all of this property investors continue to take in rental income and experience changes on an anualised basis not day by day
• Property investors – buy and hold particularly – are long term investors – minor fluctuations in the market, and they tend to be minor in Australia, do not pose a threat to long term investors
• The Australian population continues to grow at rates outstripping the supply of housing
• Australian lenders continue to operate on the conservative side of the market meaning there is confidence in the capacity for Australians to repay their debt – unlike the scenarios witnessed in the American sub-prime market collapse. See the comment by Paul Braddick below.
• Rents are continuing to climb across most markets regional and metropolitan meaning investors can get in and hang on for longer.

Property Investors Still Making Money

Property investors are continuing to see potential in the Australian property market, particularly in key market areas such as rural mining communities, growth cities such as SE Qld and Brisbane. Major growth centres, or smaller towns receiving substantial financial and infrastructure investment are good bets.

This is not so obvious as in the resource rich state of Queensland where property prices in the mining communities are still reasonable and rentals are beginning to climb even on the back of the existing investment.

Confidence Amongst Bankers

Paul Braddick, Head of Property and Financial System Research, is upbeat about the state of the housing market and is cautious when discussing the need for deleveraging of debt in the market place.

Braddick says “Economy wide debt to income ratios, gearing ratios and even debt service ratios tell us little about the underlying sustainability of household debt. The distribution of debt across the household sector, lending criteria applied and the strength of the labour markets are far more telling for debt sustainability.”

“Relative to offshore  experience, lending into the Australian household sector has remained very conservative.  This is reflected in the virtual absence of a sub-prime mortgage market and extremely low delinquency and default rates.”

Braddick’s sentiments are echoed across the banking sector.

What Next?

Braddick sums it up well:

“In the near term, Australia’s growth prospects are bright and much will depend on the RBA and government’s ability to effectively manage the expansion. Higher household debt means the RBA has considerable leverage over the household sector and their actions during the GFC should instill confidence that the present upswing in growth will be handled well”

Source AFG Mortgage Index April 2010.

Source ANZ Australian Housing Update April 21 2010

In the property investment market buying the right investment property should be more about where should I invest not so much when should I invest.

See what Portfolios has to say about the current market and where you should be looking.The Portfolios Property team has many developers and project marketers present their best offerings nationwide each month. It allows them to scour the Australian property investment market place to find you the best properties to a set criteria.

So lets look at an area of Australia we see great potential now as a good property investment opportunity. Gladstone NE Queensland.

Gladstone should become Australia’s next super infrastructure town. If all the projects are confirmed, it very well could be. The number of future projects (15 in total) means that Gladstone is rightly classified as a ‘super infrastructure town ‘, which will struggle to cope with the enormous influx of future workers.

Where Gladstone differs from other resource “ boom towns” is in the medium house prices. In other infrastructure towns the medium house prices are from $800,000 to $900,000, not so in Gladstone where the media house price is currently $360,000 with plenty of potential for growth.

Portfolios Property has investment properties available in and around Gladstone including the Stoneybrook and properties in nearby Calliope.

Paul Pritchett himself has been investing in Gladstone for the last 5 years with a few spec builds and some buy and hold. Paul is also planning to add more property within Gladstone to his own portfolio.

To view these and other great property investment opportunities go to Portfolios Property and view our Monthly Top 10 Properties.

Multiple investment property finance strategies can be complex and require that extra understanding. It takes finesse, especially in the current lending climate.

Direct experience and a long term track record of financing multiple property portfolios and strategies is what sets Portfolios apart in the Australian Property Investment finance market.Delivering To New Clients

Portfolios has had many clients coming from our peers because of our proven track record of delivery. Our clients are telling us about their finance experience like waiting 5 months for a refinance, little or total lack of communication from their broker, and mostly a general lack of experience in delivering complex strategies. These issues are common place issues. Further, the brokers seemed to blame the lenders for the outcome… which begs the question ‘was it presented to the lender/s correctly in the first place’?

A Case In Point

We have a case in point where we documented a strategy for a client to grow from 5 -7 proprties. At the time they may not have seen our value and gave it to their existing broker, all they had to do was follow the document.

Last week they contacted us for help as after 4.5 months its was not delivered. The implementation was totally incorrect and only 1 of the 4 refinance loans were settled. To add to the insult the loan splits were incorrect and none of the 2 new purchases were even at pre approval, all to the extreme frustration of our new client.

The property investment game is not easy. Having access to the mind and experience of the figure head is paramount.

Being The Best – Not The Biggest

At Portfolios our aim is to be the best not the biggest, with an experienced tight knit team that pride in delivering on what we profess. The summary below is our view on how we view you, your portfolio and your strategy

1. Never cross collaterise your loans, we untangle them.
2. Maximise available funds within calculated reason
3. No fixed interest rates
4. Documenting the fine print for loans – in, ongoing and out.
5. Interest only loans
6. A clear written strategy to follow, decided upfront
7. Transactional line of credit and then basic term loans for the rest
8. Clear on the numbers and the costs for refinancing and include all costs
9. Maximising valuations, lender service calculations and current policy
10. The strategy we offer has been extensively researched, and reviewed by the lender credit manager to ensure it will ‘fly’.
11. The strategy needs to allow for YOU. Not just the loans, see previous Blog ‘How are you placed’.
12. No inflated current industry timeframes for loans. We currently allow 6 weeks for a refinance from submission to when funds are cleared in your bank account. The same for a purchase, any time stated under this … well not consistently achievable

The market is heating up and we have seen loads of activity from our existing and now new clients. Being armed with a sound strategy and loan preapprovals in place are giving them the edge with their purchase negotiations

How is you finance team going ?

Are they delivering what they profess, confirmed and documented upfront and in reasonable timeframes?

We welcome the opportunity of working with you and your property investment to make it happen.

The Property Investment Market

Continuing to Surprise in 2010

The property market has been nothing short of a surprise packet over the past twelve months. Whilst the world has experienced one difficulty after another economically the Australian economy has gone from strength to strength.

Whilst the global western housing market has experienced declines in excess of 40% in places such as the UK/Europe and the US – the Australian market has experienced an increase?

What is it about the Australian market that is so resilient at a time like this and are the indicators still good?

We refer now to an article issued by leading Australian Real Estate personality John McGrath – CEO of McGrath Estate Agents. In this article he outlines a number of interesting factors in the Australian market. We beleive this is an excellent summary of the Australian property market.

A strong Australian economy is the driving force according to McGrath. Most Australians have been relatively unaffected by the GFC and people have had their optimism in the property market restored very quickly.

Interest rates are still low. Even with the rise in rates experienced in the past four months, interest rates are still historically low.

Australia’s population is still growing rapidly. Nationwide – demand for housing dramatically outstrips supply and does not look like abating for some time yet. In cities such as Sydney this is even more pronounced as the lag between demand and the supply of new dwellings will take some time to filter through the market.

With the GFC people did bunker down somewhat and the result as a drop in the supply of houses for sale – 34% down on 2007, the restoration of confidence is bound to bring restoration in listing levels well into 2010.

I believe there are still plenty of good opportunities in the market for property investors both for rental yields and capital growth.

At Portfolios we have launched a property division which has the sole purpose of finding our clients premium investment opportunities. We select our properties based on strict criteria (see criteria article) and offer them to our clients.

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.

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. However if we are wrong and this is our destiny then jump right in.

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. As they say with greater risk comes greater potential reward.

But there is help at hand. You can play your best hand in this market. Contact the team at Portfolios to review your potential, your outlook and get a strategy to… Make it Happen.

Source: Sydney Morning Herald “House prices set to jump: report” By CHRIS ZAPPONE