HTW Month In Review August 2012

Herron Todd White Opinion’s On The Melbourne Residential Market

Property prices in Melbourne have generally shown steadying signs over the past few months after experiencing a decline early in the year.

The general consensus from property professionals and research data is that REIV data indicates median house prices have remained steady at $535,000 in the past quarter, which is 5% down on the year.

Consumer confidence within the market is still low due to local and global economic uncertainty, but signs are evident that consumer confidence is slowly improving.

With another rate cut not on the agenda, property professionals advise the market should continue to steady and possibly show slight signs of growth in the near future.

Supply and demand for Melbourne’s residential property  market indicate it is predominantly a buyer’s market as consumers have the opportunity to ‘shop’ around for longer for a better product at a better price.

Houses sold through private sale have recorded an increased median  price of 2.1%, while those sold at auction have seen a 2% drop.  This reflects buyers willingness to be conservative and adopt a wait and see approach when it comes to auctions, resulting in a low clearance rate of 60% for the June quarter.

Agents are indicating many vendors are still dreaming of post GFC property prices and are unwilling to settle for much less, even though market conditions have softened considerably since then. This is leading to extended marketing times as properties are sitting on the market for much longer than usual as buyers are being smart, knowing very well the majority of properties aren’t worth what they were 12 months ago.

Residential rental vacancy rates have slightly dropped  down from 2.2% to 2%, this will create more competition in the rental market.

Property professionals working the outer suburbs indicate there is an oversupply of new homes in the area which is driving prices down.

Highlights Summary courtesy Therese O’neill from Alphabroker Mentoring

HTW Month in Review July 2012

Herron Todd White Opinion’s On The Melbourne Residential Market

· The Melbourne metropolitan market is currently considered two speed. The inner suburbs are generally outperforming the middle and outer suburbs where there is continuing evidence of softening prices.

· Auction clearance rates are now generally around 60%.

· According to the REIV statistics, the Melbourne residential market cycle peaked in 2010 with an increase in the median house price of approximately 18% from $465,000 in 2009 to median house price of $550,000 in 2010

· However the trend from 2010 to 2011 has shown a decrease of 1.8% to produce a median house price of $540,853.

· So far for the March quarter 2012 the median house price is $535,000 which shows a 0.9% increase on December quarter 2011 of $530,000.

· This shows the Melbourne residential market is remaining steady in the short term, mainly caused by a steadying in the population growth and an improvement in the  supply of new homes.

· However consumer confidence continues to be low with weaknesses in Europe and a slowdown in China the main cause for concern with a cut to interest rates in July highly unlikely

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Homeowners Can Relax For Another Month As RBA Keeps Rates On Hold

The RBA made the decision to keep the cash rate at 4.75 percent after a slowing economy saw an underlying inflation rate of just 2.4 percent, well within the target band.

The decision came after the economy recorded its steepest three-month drop since 1991, brought on in large part by the Queensland floods.

The RBA’s announcement comes as no surprise to economists, with both consumers and business are keeping a tighter hold on their pursestrings.

ATO Warns On Mortgage Management Schemes

The Australian Taxation Office has included two mortgage structures among a group of unacceptable tax schemes in a guide to tax-effective investment published yesterday. It describes them as mortgage management plans and home loan unit trust arrangements.

In a mortgage management scheme, the promoter offers a means of creating deductible interest payments, equivalent to home loan interest repayments, using equity in the home to refinance and obtain additional funds for investment.

The initial step is to refinance and create two separate loan accounts (both secured over the home). Standard principal and interest payments are made on one loan account. The promoter uses the funds in the second loan account to purchase investment assets and undertakes to pay the interest on behalf of the borrower. The borrower does not derive any income from the investments.

The borrower claims a deduction for the interest paid on the second loan account. The ATO’s view is that the arrangement does not involve the purchase of a real investment.

In a home loan unit trust arrangement, the promoter sets up a unit trust as a vehicle for the client to borrow and buy a property. The borrower lives in the property and pays rent to the unit trust at a market rate, which the trust declares as taxable income.

The trust claims associated expenses and interest charges as a deduction against the rental income, and the borrower claims a deduction for the interest payments on the borrowing.

The ATO’s view is that the borrowing is for a private expense and there is no entitlement to a deduction.