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Has the Demand for Houses During the Pandemic Widened the Gap between Unit Prices?

The record real estate boom in 2021 saw prices increase nearly in all regions in Australia and while units were not excluded from the booming market, it’s the prices of houses that were mind blowing.

In a span of just 12 months, house median prices soared by $214,250, exceeding $1 million.

Unit prices also increased but not as much – by $44,317 in the 12 months to December 2021.

It has been quite challenging, especially in capital cities, where the price difference between units and houses has significantly widened since the pandemic started. The swift rush of buyers for homes with bigger spaces led to demand for houses picking up and prices climbing sharply while demand for units weakened.

This is quite obvious in Sydney, where the price gap between the median prices of units and houses has increased from $400,000 in December 2019 – pre-Covid – to $799,000 in December 2021.

Currently, the price of a house is double that of a unit. In some Sydney suburbs, like Strathfield, Collaroy, etc., the price difference between houses and units reaches millions of dollars.

Forster

There is a 2.3%, or $15,000, price gap between the median price of units and houses. This is because the suburb’s coastal location makes its property market diverse.

A homebuyer with a budget of $850,000 could get either a unit or a house. You can purchase both for the same price, but they both won’t be located by the water.

A significant portion of the apartment market in Forster is influenced by location. Because it is a high tourism area, it has many apartment blocks on the waterfront or near the water, which drives up the average unit prices higher. Thus, you can purchase a house for the same price as a unit but the house will not be in the same area as the unit.

Plenty of the areas in NSW where the price gap is smaller between units and houses are in the coast, including Ballina, Yamba, Terrigal and Tweed Heads South, which all had differences of less than 30%.

Like Forster, the median apartment prices in these locations are likely to be higher due to a greater concentration of units near to the beach.

We see this in Newcastle too where there is a high concentration of units near our beaches and harbour!

Alternative Ways to Enter the Property Market

Though interest rates are low, it’s not easy for most first home buyers to save for a home deposit. Though home values are rising, there’s no reason why you can’t get into the property market.

If you’re looking for an affordable way to enter the property market, here are alternative ways you can do it.

  1. Have others buy with you

You can buy a property with friends or family easily with the help of some leading lenders. This way you can divide the debts across two or more people. However, you have to be aware that this type of loan is creating a business partnership, which can be risky. For example, problems could arise if only one party is willing to sell in the future.

Banks have different rules that affect both lending requirements and the terms of a joint loan, so having a solicitor study the terms first will be beneficial.

To avoid future problems, draw up an exit strategy and an agreement in case there is a change in circumstances before you sign up for this loan.

  1. Family equity loans

Family equity loans let parents guarantee a loan and use their own home as security. This leaves the principal borrower as the only name on the loan and the title.

This option is ideal for those who have difficulty saving for a deposit, which is probably most young people. These include people who are not ready to rentvest or live out of the city.

This loan allows first-time homebuyers to avoid lender’s mortgage insurance.

  1. Consider the various property types

There are different types of properties, and one type to consider is off-the-plan purchase. This is when you buy a property before it has been built, typically as part of an apartment block or a series of townhomes or units.

It is worth considering because of the significant amount of stamp duty concessions for these property types. However, note that their prices are not determined by market forces, but by whatever price the developer sets on it.

  1. Rentvesting

Rentvesting is another way to enter the property market. This is when you rent where you’d like to live but can’t afford while owning and renting out property in an area where you can afford but wouldn’t like to live.

Investment property is generally cheaper to own, thanks to tax deductions, the tax deductible on the interest, and the rent you are receiving. These three items combine means that you can afford a $700,000 investment property, but probably not a $700,000 home loan.

  1. Homes in the rural and regional areas

You can find more affordable homes in rural and regional areas. For investors, the returns can also be favourable, if the property is in the right location.

This is an option for people looking for a lifestyle change or want to live in a commuter town, but buyers should carefully consider this approach.

Make sure the property you choose meets your lifestyle requirements. Whether you want to live in a beachside area, on a large block or in a slightly far off rural town, you should factor in in your choice of property.

 

 

5 Things to Consider When Rightsizing

Rightsizing is replacing upgrading and downsizing as the hottest trend in lifestyle change. Home buyers are trading big, high-maintenance homes for spacious high-end apartments.

Experts share the 5 essential things you need to consider when rightsizing your property.

  1. Your Spending Power
    Having equity, and plenty of it, is a big advantage when rightsizing. You can unlock your equity by selling your family home and using the proceeds to purchase a new home in cash.  Apartments are generally less expensive than houses, so at a comparable price point, you can afford a more luxurious address in the apartment market.  Or, if you have a family home with rental appeal, you can refinance and keep it as an investment property. This will allow you to buy another property without using your savings.  It gives you purchasing power without reducing the value of the asset and not losing the potential for future capital gains.
  1. Design and layout
    You’re not swapping your home for a shoebox when rightsizing – you are searching for a space that is right for you.  Rightsizers can include retirees, families and even young professionals. It can be diverse, so choosing the right floor is important. The common preference is two-to-three bedroom apartments with house-like sizes, particularly the kitchen, bathroom and living area, as well as a laundry and storage for their hobby and recreational belongings.  The varying requirements of rightsizers are motivating developers to focus on flexibility and not on the “one-size-fits-all” approach.
  1. Lifestyle amenities
    The exclusive perks on offer is one of the major drawcards of rightsizing. Unlike normal homes, apartments provide extra amenities such as pool decks, gyms, dining rooms and barbeque areas that can use for entertaining with friends.  Some apartment complexes even have a rooftop bar, spa, outdoor cinema, playground, dog run, visitor parking, garden clubs and more. These facilities and amenities not only offer long-term appeal but are also important for creating a sense of community among residents.
  1. Location
    According to research, rightsizers prefer to be near the city, in walkable suburbs, and in proximity of cafes and shopping. This makes inner-city suburbs attractive to rightsizers.
  1. Incentives
    New builds commonly offer buyer incentives, including appliance upgrades, gift cards and even cash amounting to tens of thousands of dollars. You should allot time to explore the kinds of deals on offer.

 

 

Common Fears When Investing in Property and How to Overcome Them

Real estate agents help identify and solve their client’s worries about the property market.

Here are the top 5 common fears that are holding back buyers.

  1. Fear of paying too much

Many buyers feel that they are navigating the property investment market blind because of the lack of accurate price guides and the usual method of buying via auction which has no price guide.

The result is that some buyers become overly cautious, spending too much time on researching on an ever-changing market and end up with analysis paralysis in which they are unable to decide whether they should move forward or not.

The only way to conquer this fear is by conducting market research diligently. Don’t take price guides too seriously; do your own sales research, seek experts for advice and rely on current data. Just make sure your research doesn’t hold you back from acting if you come across the right property.

  1. Fear of purchasing the wrong property

 Another common fear among buyers is the fear of missing out on the right property.

Buyers tend to be undecided on many issues. Do they buy a smaller house closer to the city or do they choose a location much further where houses and lands are bigger? Do they buy a house that they renovate or something that is already complete? Which suburb is better to live in?

Real estate agents advise buyers to make time to outline a strategy for their property purchase. Your strategy should take into consideration several factors including where you’re at in your life right now, your short term personal/family goals and things that are important to you, etc.

It comes down to understanding your priorities. There are not many people that can afford to compromise when it comes to buying property.

  1. Fear of past experience with selling agents or auctions

Some buyers can be overwhelmed by the process of buying a property. These buyers include those who are entering the market for the first time or those whose experience with an agent, purchase or auction were not so good.

Some people think that they will be scammed by an agent because they’re not transparent.

You can overcome this fear by doing research on the common buying processes such as negotiating for a private sale or bidding at auction.

Get to know your local agents and you will soon learn how they do business, each of their differences, and become more comfortable in dealing with them.

  1. Fear of the property market crashing

No one can accurately forecast the movement of the property market, leaving some buyers fearing a bubble or a crash.

Some buyers fear purchasing at the peak of the market and paying a high price and that the market might crash. Or if the economy weakens, they might lose their job and become unable to pay their mortgage.

While investors may need to watch the market to know the right time to buy, others might not need to do this. For example, if you’re purchasing a home and plan to live in it for a long time, the market is less of a worry. The perfect time to buy is when you’re financially and emotionally ready.

  1. Fear of missing out – FOMO

The intangible fear of missing out is the most emotional of all property fears. This when buyers feel that the right property is coming soon and they will miss it if they purchase now.

You shouldn’t focus on what properties have already been sold or what properties may be for sale next week. This is pointless. What you can do is to ensure you have carefully covered the whole existing market and learn what the pipeline looks like over the next few weeks.

Fighting the fear

A little fear is all right, normal even. But as everything in life is, too much of anything is bad. What are the fears that are holding you back from the property market and how can you overcome those fears?

 

 

 

Everything You Want to Know About Duplexes?

A duplex home is one of those underrated dwelling types in the property world. It can generate solid value growth and high rental yields for less than the price of a couple of similarly located detached homes.

What is a duplex home?

A duplex is a residential structure with two homes that has a common central wall. The two homes will either be on one land title and be owned and sold together, or be on two titles and separately owned and sold.

Owners must get a building insurance policy that covers the two homes in the duplex.

There is usually no need for a body corporate, but this is dependent on how old the duplex is and its jurisdiction.

The difference between a duplex and a house

A house has only one dwelling under one roof, instead of two dwellings under one roof. A duplex has a common wall that separates the two dwellings, which have their own entrances and amenities.

You can purchase and own half a duplex but only if the property is on a separate title. If the duplexes are on one title you cannot purchase half a property.

The pros of buying a duplex

There are numerous benefits in buying a duplex. For investors, they will take two rental incomes from one property. You will also save thousands on land costs because a duplex requires a smaller land than two separate houses.

The main benefit for ordinary buyers is the price tag, which is considerably cheaper than what you’d pay for a detached dwelling in a similar location. This makes a duplex worth considering by first homebuyers, people on a modest budget, or people who prefer low-maintenance living in a good quality location, like singles, downsizers and retirees.

However, you also need to weigh the benefit of saving money against a possible loss of privacy.

Other benefits include:

  • Only one next-door neighbour, compared to multiple neighbours in an apartment building
  • Potentially easier to make changes in your own home because there is only next-door neighbour to consult
  • Getting the security benefits of having one close neighbour, without too close for comfort
  • You can have your own pets because you own your land
  • Potential increase in rental income because there are no corporate body fees to pay
  • Low garden maintenance because you own just half of an average-sized block

Potential disadvantages:

  • Duplex configuration is important. Choose side-by-side or corner positions.
  • To get the most from capital gains, try to purchase where duplexes are not common
  • Stay away from duplexes with different front facades. For maximum value, both homes should have the same colours

Duplexes are a smart investment, if they are in the right location.

People who are considering duplexes are comparing them to apartments. One main benefit that a duplex has over an apartment is the land component size. Generally, homes with a higher land component value appreciate much quicker.

However, you should be aware of the downsides of duplex investing.

Owning just one of the homes in a duplex can limit your ability to perform outside works to the property because it may be part of a strata complex. This means the ways you can add value to your property is limited.

Just like any type of property investment, you need to do your research on duplex investing. The right duplex property can no doubt be a good investment.

 

Investors From Sydney Ordered to Stay Out of Newcastle

The introduction of the new regional permit system means that for the duration of the Greater Sydney lockdown, investors are not permitted to inspect property in Newcastle and regional NSW as of tomorrow 21 August.

Property investors have been ordered to stay out of our regions and wait –  they will not be able to exit the Greater Sydney region and enter regional NSW to inspect a property.

Residential Sydneysiders who genuinely need to find a new home to live in are allowed to travel to our region to inspect property and will be required to carry a new permit allowing them to leave the Greater Sydney lockdown region.  Those who breach the new rules risk a $3,000 on-the-spot fine.

The increased fines and police presence are to ensure people who exploit the rules are caught and punished.

There is however an exception for Central Coast buyers who are now excluded from the Greater Sydney region.   Another exception is for property investors from the Great Sydney region who need to travel to a second home located in regional NSW, but only to use it as work accommodation or if the home requires urgent maintenance and repairs.  They are allowed to apply for a permit but even then, only one person is allowed to make the trip.

 

 

Tough Competition for First-Home Buyers as Investors Make a Comeback

Investors who have returned to inspections are squeezing out first-home buyers in the property market.  A rising number of investors are securing property by offering higher, causing prices to increase. Some are trying to purchase a property rather than keep their money in the bank, where it is only earning low interest.

It comes following the property boom that has been triggered by owner-occupiers, determined to capitalize on cheap mortgages to move into bigger homes with space to work remotely. Investors usually come back to the market when prices increase and they see the probability of capital growth.

According to the latest Australia Bureau of Statistics data, investor loans throughout Australia grew 2.1% in April, hitting a record four-year high of $8.05 billion. In the same month, first-home buyer loans dropped by 1.9%.

 

 

 

In NSW, investor loans saw a 2.5% increase. While investor activity had improved in the past month, investors are coming back to purchase duplexes, villas and smaller homes. Though it is anticipated that they would drive growth in the unit market specifically in the coming months.

Investors will start feeling the pinch as they try to keep their eligibility for lower-priced stamp duty and government grants by paying less than the appropriate price limits.

The competition against investors will be difficult, and that could surely push prices over those limits.  We saw this the last time investors dominated the property market in Newcastle.  Many of those are cash buyers, which is noteworthy. The likely reason may be that keeping money in the bank doesn’t make sense given the low-interest rates and rising inflation.

With regards to rising prices, it will begin to trickle down, and with regards to driving competition up, this has been happening for the past month.

Another contributing factor are the rent-venters, comprising of first-home buyers priced out of their preferred location who rent where they want to live and purchase in another area.

Many have set their sights on purchasing investment properties in more reasonably priced states, including Queensland where prices have been increasing more modestly. Investor loans in the state rose 7.1% in April.

In Victoria, loans to investors increased 2.2%. Investors picked houses over units as they continue to feel the impact of the pandemic.

Numerous investors in Melbourne were searching beyond in country Victoria. People are buying property out of Melbourne with an eye to moving there in four or five years. This strategy offers good growth and good yield. It is practical for these lifestyle destinations.

However, investors were suffering FOMO like owner-occupiers, squeezing out first-home buyers as they are impacted first by affordability issues.

Investors who are returning are focusing more on the traditional property market than the apartment market. This indicates that what’s involved is likely Boomer money. Many of these investors were small, self-managed funds that were aiming to invest their cash on properties instead of keeping it in the bank.

These people are heavy hitters joining the same auctions. It means they can afford to pay more than the reserve and are more likely to be emotionally entangled in a bidding war.

In April, Melbourne posted a 69.9% clearance rate, according to Domain figures, and a 1.8% increase in housing prices to $750,562, according to CoreLogic data.

 

 

 

Survey Says: It’s a Buy Market Despite Record Property Price Hikes

According to two in five Australians, now is a good time to buy property, despite record-high buyer competition and prices.

The number of Aussies polled in a recent survey who believed it was a good time to buy was higher than those who doubt that it’s a good time to buy.

The Edentify survey commissioned by Mortgage Choice, which polled more than 1000 Australians, also found that the 42% with a positive outlook was also higher than those who think it’s a bad time.

The results showed that Australians had varied opinions on the property market.

The participants’ view that it was a good time to buy may have been influenced by record low-interest rates and the fear of missing out.

According to figures from property group CoreLogic, home prices grew across Australia in March at the fastest rate since late 1988. Listings, which were rising, continue to be low in a number of markets.

Buyers’ outlook may also be mixed because of the type of properties they want to purchase and how they plan to pay for them.

In a different study by comparison site Finder.com.au, nearly one in 10 of participants with plans to purchase their first home were intending to buy as investors.

The most likely to be first homebuyers-investors were the Gen Z, people born after about 1996, followed by Millennials and Gen X.

The Finder study also showed that it is not common for Baby boomers to consider “rentvesting”: renting in one place while renting out another place.

Investing was a typical strategy for people who don’t have the funds to buy in the location they desire.

The concept of reinvesting is gaining momentum among many first-time buyers, as it offers another way towards homeownership for people who have been priced out of the market, particularly in inner-city suburbs.

By “rentvesting”, you can use the rental income to help pay the mortgage, while as a first home buyer you can keep on living in your current home or rent someplace else.

 

 

Are Pre-Purchase Inspection Reports Really Necessary?

Your home loan is secured, you’ve researched the market and you’ve been checking out homes. Then, you’ve finally found your dream home and are ready to purchase.

But there is one remaining item: the pre-purchase inspection reports. Do you really need it, or is it an added cost that you can do without to help you stay within your budget?

 

Pre-Purchase Inspection Report Explained

There are many types of reports that can be done on a property before it is purchased.

  • Building inspection. Involves checking the state of the home, including looking for damage on the roof, floors and walls, deterioration, cracks or growing moisture.  Some may also include the plumbing and the electrical wiring but check with your inspector first.
  • Pest inspection. Entails finding signs of any infestation, mostly termites or termite damage.
  • Strata inspection. Checks the finances and the minutes of the Owners Corporation operating the apartment or strata townhouse, to notify the buyer of any issues in the building, or the possibility of problems in the future.

Other inspections may be required, depending on the age, or type, of the home, including an asbestos inspection or pool inspection.

 

Reasons to Get a Pre-Purchase Inspection Report

Knowledge is power.

If you decide to forego inspections when you buy a house, you could end up with hundreds or even thousands of dollars of unforeseen expenses. You might think you got lucky with a bargain, but you find out you’re facing $300,000 to $400,000 in repairs, and suddenly it comes to you that you purchased a lemon.

If you believe you bought well the first time, you got a good property and you’re more likely to enjoy a thriving financial life. But if you purchased something with significant problems, recouping your losses could take a long time.

It’s important to stand firm against a dodgy real estate agent who might be pressuring you to decide quickly, who might promise you that there is no need for reports and who helps you get swept up into a rush of emotions and urgency – about purchasing.

After you have purchased the home and moved in and then you see problems, it’s too late. It’s always a case of buyer beware.

 

Things to Look for in a Pre-Purchase Inspection Report

 

A good quality report should itemise any defects clearly and evaluate the possible cost of repairs. It should be detailed and examine every feature of the house you’re considering purchasing.

It can be difficult for a prospective buyer to grasp the extent of issues so it’s crucial for the report to provide a strong indication.

Most properties will have some issues, even brand new homes, and those issues can be big or small.  The big problems like rising damp or termites can be expensive to fix so you really need to know what you’re getting before your purchase.

 

Strata Report Explained

 

For strata, expect another layer of complexity. In addition to having to know whether your individual apartment or townhouse has no defect, you have to find out whether the building it’s a part of has any significant issues.

Along with the unit, a building inspection should check the building’s façade, foundations, roof and other common areas that, as a strata owner, you’ll have to share in the maintenance costs. These can be separate buildings within the complex or village.  Plus, a strata inspection has to check the owner corporation records to look at all previous documents and minutes to make sure the building isn’t under-insured or there are no claims being made by, or against, the property, as well as possible issues or disagreements.

However, having a strata inspection doesn’t mean you can’t have a building inspection done anymore.  When I bought my strata property I had both strata and building reports completed.

If there is an issue, like concrete cancer, the owners might not include it in their documents so as not to threaten the value of their units.

 

The Cost of Pre-Purchase Inspections

 

Costs differ, but when evaluating which inspector you’ll hire, you have to understand that you get what you pay for. A report that you got for a bargain might turn out to be not worth the paper it’s written on – and cost you hundreds, or even thousands of dollars, in the end.

Some property sellers have reports conducted in advance to provide at no cost to prospective buyers however, I would always recommend getting your own report.  

Alternatively, many inspectors feature the properties on their website that they had written reports on, so you can purchase them at lower cost than if you commission your own. You could also talk to your real estate agent if they know any inspector that had previously written a report.

 

Bottom line, make sure there is a pest and building report before you buy the home and that you actually talk to the inspector about any concerns you may have.  The best question I would ask is: Would you allow your mum to buy this house based on the findings in your report?

Warning Signs to Watch Out For When Buying a Renovated House

You might consider a freshly refurbished house as a dream purchase, but you have to look beyond the new paint, shiny tiles, and polished floorboards before parting with your money.

While many homeowners make sure their properties are renovated to high specifications, there are still those who cut corners or ignore major issues to try to get the highest possible price for their property.

Being aware of the warning signs and having experts to help you can boost your chances of buying a quality home instead of a problematic house.

Look Out for the Flip

A home that had been refurbished prior to sale can fall into one of three categories, which may impact its quality.

The 3 categories are:

  • A DIY renovation by the owners who lived in it and loved it. This is normally not bad because the renovation has been made according to the owners’ standards.
  • A renovation that the landlord did for their renter. This is fine too because renters will tell you if they aren’t satisfied.
  • A flip, can be a warning sign. This is because someone who is doing a flip is trying to maximise their profit, and maximising profit sometimes means minimising costs.

Discovering Problems

It’s not uncommon to see pre-sale renovations where many corners get cut. They are done to hide problems or sometimes use cheap, low-quality products to save money. The house might be lived in, so you might find it hard to ascertain if all is in good working order. You have to be prepared to check everything.

One example is painting over problems without properly fixing the surfaces. There is a correct way of removing mould, but people renovating their homes may not know this. Mould can remain inactive on a dry surface but can spring back to life once moisture is introduced.

Another hotspot for problems is bathroom renovations. Some of the issues you need to check out are improperly repaired subfloors, insufficiently waterproofed surfaces, and joint failures or leaks due to the use of the wrong adhesives and sealants.  Having a pre-purchase building and pest inspection done on any home is a wise move.

Experts suggest that buyers ensure that the renovations are council-approved, ask for the information of any engineers, architects, or tradespeople hired for the project, and find out if there is any warranty related to the project.

Pricing Refurbished Homes

You shouldn’t believe that a renovation will add more value than it costs. Unless you have the related experience and qualifications of a tradesperson, you tend to realise that the money you spend on refurbishing a home is about what you add to it. People making more is the exemption rather than the rule.

Buyers should be aware that a cosmetic renovation doesn’t make them overlook the major issues that haven’t been fixed.

That is where buyers become victims of a flip. If there are costly problems hiding under those renovations, you will still pay the premium.  But homes that have undergone high-quality renovations will command wide-ranging interest, and buyers of high-quality refurbished homes should expect to face plenty of competitors.

If you’re purchasing a property that has been refurbished or reconstructed, search for high-quality construction, fixtures, and fittings.  You might even consider asking the sellers if they have any before, during and after photos – particularly when it’s structural work and behind or in walls.