Market Comment

 "Statistics."

"Whos house price statistics do you believe to assist with your property market decision making?"

[OR, perhaps I should have used the old quote "lies, lies and damed statistics!"]

 For example, just what did the miriad of quotes and differing interpretations on the June 2011 quarter house price movements from so called, often self proclaimed, real estate "experts" tell us and just how much credability can we give these opinions & market predictions appearing almost daily in the press, on radio and TV?

Often, within a matter of days, differing headlines can be a little confusing and sometimes at odds with each other.

A better understanding of how the raw information is gathered and then interpreted, and by whom, might be of some help.

Quarterly house price data is usually released within 1-2 weeks of each other by the four main providers Australia wide plus, here in Victoria, by the REIV, who release residential real estate sale statistics on a weekly and quartly basis.

All use nearly the same basic sales data with the exception being the REIV who relies heavily on its members reporting sales, focussing on  Auction results, within hours or a few days of their occurance. [Not all real estate Agents are members of the REIV, about 75% in fact.]

All use slightly differing methods to interpret the "raw data"collected, each with its own strengths and weaknesses.

Australian Property Monitors and the Australian Bureau of Statistics release price growth [or decline] quarterly while Residex and RP Data-Rismark release monthly and quarterly figures. [APM also provides monthly figures to the Reserve Bank.]

The REIV releases Auction "clearance rate" figures each week, in addition to its Victorian quarterly figures but these can best be described  as an "indication of market sentiment" as between 12-15% of Auctions held each week go "unreported" at the time of publication. Additionally, the REIV acknowleges it does not collect all Auction or all private sale results held in Victoria each week, and, there is no legal requirement in Victoria for a public auction to be reported or the result disclosed.

Information released monthly can theoretically provide an insight into more recent trends but its weakness is that it calculates the most recent monthly price movements based on only a small percentage of the actual sales that occurred due to differing settlement terms from the actual date of sale and the time lag for a more complete set of figures  to flow from the Valuer Generals department, post settlement.

Clearly then because of this time lag, quarterly price movements offer a more accurate and consistant interpretation of the marketplace, especially when viewed over two or more quarters.

Auction "clearance rates" are more of a "quick fix" but can indicate when anaylised over just a few consecutive weeks changes in market sentiment, [especially downturns] much faster than either method used by "the big four".

CONCLUSION. If you intend to make a very large finiancial decision based on newspaper or media market reports its vital you know the source of the data that give rise to the commentry & headlines and, better still, have some knowledge of the property skills and experience of the quoted "expert"! 

 

Comment 2

SOME TIPS on selecting the right PROPERTY MANAGER for your real estate assett.

1. Consult at least three local Real Estate Agents, including at least one whos core business and specialisation is Property Management. Its worth remembering that not all prominant local  Real Estate Agents who  may have an excellent reputation for property sales & marketing enjoy a similar, well earned reputation achieved via the different people & administrative  skills required for outstanding property management!

2.Ask for a written submission from each to enable you to directly compair fees and services.

3.This submission should include a written rental appraisal based on their first hand knowledge of similar rentals achieved locally, complete with examples for comparison.

4.Be crystal clear on just what duties you wish your chosen property manager to perform. These should then be detailed in full on the leasing and management authority & is required by law.

5.Ensure you know fully the costs envolved in engageing a professional property manager.

  These include [a] All the agreed agents fees, costs and expenses which must be recorded on the Authority.

                      [b] A leasing fee for finding, vetting and letting your property. This is NEGOTIABLE & usually "upfront."

                      [c] Simarly a re-leasing fee for the establishing of a fresh lease with an existing tennant.

                      [d] The management fee, also, NEGOTIABLE and usually a percentage of the monthly rental payments.

                      [e] if you require the agent to facilitate property maintanence and repairs limit the $s in writing.  

 

Comment 3  "YES, you can now borrow money to successfully GEAR INVESTMENT PROPERTY through your SELF MANAGED SUPERANUATION FUND".

There is considerable additional planning and effort necessary to take advantage of limited recourse borrowing within your SMSF but to many the tax benefits and potential to finish with an income tax and capital gains tax free income producing investment property in their retirement is very tempting!

Recently revised legislation has allowed, with some restrictions, this potentially highly rewarding investment strategy to be implemented with the acquisition of commercial,industrial and importantly residential property.

Of all of the possible tax benifits associated with property ownership through a SMSF perhaps the most significant is the potential capital gains tax concession on a propertys capital appreciation, especially if the property is held and sold after the SMSF has reached the pension phase [retirement], when 0% tax applies!

HOW?  Briefly, the super fund needs to establish a new trust, commonly known as a custodian,bare or security trust.That trust must have a new corporate trustee as opposed to individual trustees. even if the super fund already has a company in place to act as trustee, this company must be new and independant specifically for the trust.

The new trust is required to act as the legal title holder of the property and the SMSF has a beneficial interest in the property until the debt is satisfied, when the property can then be transferred into the name of the SMSF.

If multiple propertys are acquired, multiple trusts are required as each trust can own only one property but for tax purposes the SMSF is deemed to own the property.

There can be potential adverse consequences for stamp duty and tax etc  and, I AM NOT A LICENSED FINIANCIAL ADVISOR, and, there is  more to it than set out here! Please seek independant advice.

But, yes its possible and potentially very profitable and facilitates "not having all your eggs in the one basket!"

 

COMMENT 4 from "The Age" 2nd February 2011. "Flats and Townhouses outstrip Stocks".

Apartments and townhouses in Melbourne have outperformed the stock exchange as an investment in the past 30 years, according to Oliver Hume research.

Between September 1980 and September last year the price of a unit in Melbourne rose by an average of 8.9% a year compaired to the sharemarkets 7.7%

By comparison, Adelaide and Sydney apartment prices did not fare as well as the sharemarket,at respectivly 7.1% and 7.4%.

The 2007-8 collapse in the equities market also highlighted the steadier returns from property, according to the Oliver Hume anaylsis. A comparison of the S&P/ASX200 Index and the Real Estate Institute of Australia medium price of units found the sharemarket outperformed units until September 2007, when the Global Finiancial Crisis struck.

Oliver humess national general manager of research,Andrew Perkins,said that at various points in the past three decades shares and unit prices intersected during market highs and lows."It shows that the set and forget nature or property can provide less spectacular returns but it also highlights the volatile nature of the ASX", he said.

In the 1982 recession,properties and equities intersected while in the late 80s,equities dropped in value as property prices surged.

Mr.Perkins said a unit bought for $50,000 in 1980 was now worth about $450,000. "Thisprice growth is without taking into account depreciation and income that would further boost revenue returns", he said. END

Well, as Ive always maintained..."Its all in the timing!" GS.