Consumer Affairs Victoria has added a new section on its website with information on buying and selling property, it’s definitely worth a look.
It contains some essential basics for first home buyers (and sellers), including
The link to the site is here.
Nearly missed some really important information in this whole house-hunting business of securing a loan.
The two things that usually come to mind when we think about our borrowing capacity are the size of your deposit, and your income.
And sure, there are other things lenders consider, like whether you own or have owned a property before, your credit history, number and age of children and type of property (urban or rural, house or apartment).
But no one ever told me that the size of the property matters! Until yesterday.
So I did some homework, and found out about the LVR or loan-to-value ratio lenders will most likely apply when considering how much you can borrow.
Got the info from eChoice. For a standard residential property, the LVR is generally 95 per cent. For high rise apartment less than 50 square metres in size or a residential rural property, the LVR can be much lower (typically 70 per cent or less).
What that means is that you may have to fork out a hefty 30 per cent deposit for a studio or one-bedder. Not great news if you’re thinking of buying one of those shoebox-type units in the city, which, even if off–the-plan, could cost you more than $300,000. That works out to $90,000 for your deposit. Ouch. Definitely makes the first home buyer think twice doesn’t it?
Lesson learnt is this. Check check check. Check the size of the apartment you’re buying off the plan, especially in the city. They are not only expensive, but many of the new ones are small too. The difference between a 20 per cent and 30 per cent deposit is huge, and may price out some first home buyers.
If you don’t already yet know, the results of the week’s auctions across the state are reported on REIV every Saturday evening
Here’s a snippet from the REIV website that I found immensely useful when it comes to making sense of auction results that are reported week in week out:
Clearance rates
Clearance rates are published for the properties sold at auction, providing an overview of the level of demand for property on offer on any given day. When looked at over a period of time, it can also be used as an indictor to understand the overall strength of the auction market.
For instance, the clearance rate this year is tracking at around 82 per cent. This represents a stable market, with reasonable level of underlying demand.
What makes up the clearance rate?
The clearance rate is a figure that includes properties that are sold before auction, sold at auction, and sold almost immediately after auction. To ensure transparency, the different segments of the clearance rate are also broken down and reported, as are the number of auctions where no result was received.
Sold before auction. Properties listed as sold before auction are those listed for sale then sold in the week preceding the scheduled auction date.
Sold at auction refers to properties sold on the day of the auction, either under the hammer or by later negotiation.
Private sale. Those listed as private sale refer to properties listed on the market that invite prospective purchasers to make an offer. This also includes properties passed in at auction and subsequently sold two or more days afterwards
Passed in. Properties listed as passed in failed to attract offers at a level the vendor was prepared to accept. These properties are often subsequently listed for private sale or withdrawn from the market.
Pick who you will choose to believe, but International Monetary Fund economist Prakash Loungani has predicted that home prices will fall much farther and for much longer (you can read the full article here).
The latest boom he says, has been so much bigger than the previous one that it’s logical to anticipate an even more brutal downturn. He quotes shocking figures – a 113 per cent surge in house prices over the last ten years compared with the 39 per cent average price increase in the last boom.
So what has gone up must come down, right?
And I really hope he is right.
The prospect of ever-increasing house prices is frightening – and it will only exacerbate the rich poor divide, even here in Australia. How many more people are we going to price out of a home?
Social housing is in short supply – or should I say viable social housing is in short supply. A lot of existing homes need renewing, if not torn down and rebuilt altogether, and we also have to be mindful of building ghettos or pockets of disadvantage. But I don’t think the issue can be resolved by simply providing more social housing. The deeper issues include the stigma that comes with living in social housing, the resignation and resentment at never being able to afford private rental, let alone home ownership. How are we going to help lift people out of poverty and disadvantage?
According to Mr Loungani, house prices in OECD countries in 2009 were substantially out of whack with rents and incomes in those countries, compared to average values from 1970 to 2000.
In the long run, incomes and rents will act as weights on home prices, bringing them back to earth, he said.
I’m inclined to agree. It’s all going to break down somewhere, when things become unsustainable not just for the disadvantaged, but everyday folk who are scraping by with little more than an honest living.
Young people are staying with their parents longer, and for those whose parents cannot help chip in for a home deposit, it would mean an eternity of saving up. Australia’s market outlook has been pretty cheerful compared to the chaos surrounding it, but the same optimism has not trickled down when it comes to spending on wages and employment. I think businesses are still cautious, and would prefer to operate prudently, keeping their workforce lean.
The crash – I guess it’s just s matter of when? And in the meantime, what do we do? Buy? Or hold out?
The appraised value, or mortgage valuation, refers to the estimated value of the property by a qualified appraiser.
Factors taken into consideration in an appraisal include census data of the neighbourhood the property is located, sale prices of other homes in the area, the current market value for a similar home in the area, the demand of that type of property, and sale history of the property in question.
A property report can actually be purchased, and the last time I did it, I found it extremely helpful, even though it set me back a good $60 or so. It’s worthwhile if you are seriously considering a property. The cost is also a drop in the ocean compared to what you are potentially going to sink in should you secure the deal. It helped me to see the property I wanted in the context of the housing market. It also forced me to seriously think about how much higher I was willing to pay above the actual value of the property. When the market is really hot, you could be paying a whole lot more than it’s really worth.
The outcome of the appraisal will also have bearings on your ability to secure a home loan.
Before your mortgage is approved, the bank will assess the value of the property. If the appraised value is low, the bank may refuse a loan as it it too high in relation to the real value – unless the buyer comes up with the difference of course.
So I finally did some homework on the Viva Carlton development on the corner of Rathdowne and Princes streets.
It looks like it’s part of the Living Carlton resident project – a $300 million joint venture between Australand, St Hilliers and Citta Property Group - and expects to create about 240 social housing and 500 private residential units across three sites in Carlton including Viva.
The project will be developed in seven stages, with the first commencing at the end of last year, and the final stages of development earmarked for completion by 2017. But the majority of social housing should be completed before then, it seems.
And all the private apartments have already sold out.
The dwellings are said to incorporate leading edge environmentally sustainable features such as solar and wind energy, grey water recycling and a minimum six star energy rating. The three sites will also include new public parks, a community garden and pedestrian and bicycle pathways.
You sometimes see the term P.O.A printed in place of the property price. And if you’re scratching your head wondering what it stands for, P.O.A simply means Price On Application.
Vendors use it when they don’t want to advertise the sale price publicly.
Driving to work daily, I’ve seen an inordinate number of homes advertised for sale in Maribyrnong, Monee Ponds, Carlton North, Parkville and Blackburn.
Looking at the latest figures from the REIV has onfirmed my observations – the more than 1860 auctions scheduled for the next two weekends is an unprecedented number for this year of the year.
I wonder if it’s been fuelled by homeowners hoping to cash in at a time when the market is booming. But I think those hoping to make a tidy profit from the sale of their house will need to consider what that money would buy them. You’d by selling it at a high price yes, but you can expect to be forking out a lot more for your next house too. Then the next question you’ll have to consider is, do you sell first then buy? Or buy first then sell your existing property?
But whatever it is, there’ll be definitely now be a lot more choice and opportunities for homebuyers. I don’t think the verdict is out yet on whether higher interest rates and supply will have an impact on demand.. The clearance rate may have fallen slightly from the high 80s, but at the mid 70 per cent mark, competition is still pretty hot.
At an auction not too long ago, I was surprised by what people were willing to pay. Which makes me wonder how much higher than the real value should we really be paying (prudently)? And how long before the market becomes unsustainable?
I saw a ground floor one bedroom unit in Parkville that went for $414,000.
The location was no doubt worth salivating for. It was on a quiet street just outside the CBD, but I had mixed feelings about the design of the unit and the apartment building overall.
The kitchen was spacious for a one-bedder, with new benchtops, rangehood, stove and oven.
The living room was modest, but the bedroom left hardly space anything else if you planned to fit a double bed into it.
I was also unsure about having the shower right next to the wooden door – and the only thing keeping the water splashing and seeping out was the shower curtain and a slight angled slope on the floor to funnel your suds into the drain.
The unit had been refurbished yes, but the fresh paint on the walls were an obvious DIY job. There was no room for a washing machine – and the communal laundry was old and dingy. The emphatic no that erupted from my partner after sticking his head into it was telling.
I think there’s a bit of a panic coming out of single first home buyers in particular, who fear finding themselves priced out of the market and are desperate to get in as early as they can.
I’ve always thought a ten per cent deposit payment had to be made upon signing the contract after successfully bidding for the house at an auction.
But what if you don’t have a cheque book? The closest alternative would be payment via bank cheque – but how would you determine the monetary sum before the auction takes place?
Also tricky if you have money locked away in a term deposit, and you risk losing your interest if you break the term and were unsuccessful at the auction.
Luckily, things have changed quite a bit – and real estate agents understand that few people actually have cheque books nowadays.
Speaking to a real estate agent last week, I was told you could sign a (legally binding) promissory note – like an IOU – which allows you to transfer funds electronically into the real estate agent’s trust account the next business day (usually Monday since most auctions take place on the weekend).
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