Schools Add Value in Real Estate

From the API Magazine (www.apimagazine.com.au) March 2007 edition. Real estate investors find that buying near popular schools can help prop up property values, according to Raine and Horne.

Parents will pay a premium of 5 per cent for a home close to well-regarded public or private schools, said Angus Raine, chief executive of Raine and Horne. The plethora of quality schools on Sydney’s north shore, for instance, kept that real estate market in demand, Raine said.

“This area is an evergreen for sales – almost irrespective or real estate market conditions,” he said. Lesley Bassam from Raine and Horne Turranmurra said excellent public schools were also part of the appeal.

“Parents with their mind focused on schooling will pay premiums of around 5 per cent to et a home in their school’s catchment area. And it’s not limited to owner-occupiers. We get enquiries from renters looking for a home that’s in the catchment for particular schools.”

David Meldrum of Raine and Horne in Beecroft said some parents refused to buy real estate properties that weren’t located in the catchment area of their chosen school.

Tenant Damage Claims Rising in Real Estate

The number of landlords making insurance claims for accidental damage their tenants have caused has jumped 73 per cent over the past year, according to figures from Terri Scheer Insurance Brokers.

The average cost of an accidental damage claim also climbed from $721 to $850, a jump of 18 per cent. The tight rental real estate markets in most cities at the moment were no guarantee against damage to a landlord’s property, Terri Scheer marketing and operations manager Carolyn Majda said.

“While landlords can have their pick of tenants in current rental market, they should not let this give them a false sense of security that nothing unforeseen will ever occur,” Majda said. “These figures show that despite their best intentions, more tenants are causing accidental damage to the properties they are renting.

“Even a model tenant can unintentionally damage a property, lose their job or suffer other financial hardships that leave them unable to keep up with their rental payments.”

Majda said it was vital landlords ensured their insurance policies covered accidental damage, as general building insurance policies exclude such claims.

Vancouver West End Real Estate A Secret Gem

Published in the 24 Hours newspaper in June 2007, this article talks about the ongoing problem with increasing real estate market prices in Vancouver, but how you can find the diamond in the rough to make your purchase worthwhile and affordable.

No question about it, in today’s overheated housing market it’s tough to find a bargain. But for those willing to search and think beyond convention, there are still deals to be had. One of the most surprising is, according to Sutton Group West Coast Realty realtor Maureen Stout, Vancouver’s West End. “It’s become a little bit of a secret gem because people have forgotten all about it. When you think downtown Vancouver, most often you think of Yaletown or Coal Harbour. But if you’re willing to look at older buildings, there are a surprising number of charming, well-maintained condominiums with far more space than you’ll usually find in newer construction in the West End Vancouver.” If you’re wiling to put some sweat equity into light renovations, she adds, you can often do even better on price.

Within Vancouver proper, South Main and Commercial Drive remain popular among bargain seekers, although most industry watchers suggest as these neighbourhoods continue their rapid development, they are no longer quite the ‘real steals’ they once were.

Moving towards the burbs, Surrey and New Westminster are two communities, Jennifer Podomore, MPC Intelligence principal, says are worth keeping your eye on. “When you see real estate developers putting in multi-phase towers [like Quattro and Agenda in Central Surrey] you know an area is on the move,” she says. “The challenge is to be willing to change your perspective. Surrey has had a huge stigma attached to it for years – so get over it. Fifteen years ago, Yaletown was considered an awful place to live –look at it today.”

Although prices are clearly beginning to escalate, Chilliwack still represents an affordable option for people either working in the Fraser Valley or willing to battle the daily commute. According to the Chilliwack & District Real Estate Board, on a per square foot basis, average prices in 2006 were $303 for single-family dwellings, $209 for attached, and $141 for apartments, a bargain compared to Vancouver, whre home buyers were forking out approximately 300 per cent more with single-family detached commanding an average of $974 per square foot, attached getting $549, and apartments logging in $366 (more than 20 per cent higher than the per square foot cost of a house in Chilliwack). And with new, city savvy condominium and townhouse development booming, you no longer have to sacrifice luxury for affordability.

Whatever your preference in housing and neighbourhood, though, Podomore offers one final piece of advice. “Some of the best deals will continue to be found in smaller, boutique style infill developments,” she says. “This type of property typically doesn’t have a large advertising budget, so the best way to find them is pick a neighbourhood you like and then simply get out there and walk it.” Published by Susan M. Boyce, the most respected and experience reviewer of Vancouver real estate and pre-construction condo projects in the Lower Mainland.

Asset Protection – Warning on Trusts

From the API Magazine from Australia June 2007 Edition by Julia Hartman. Discretionary trusts may lose their asset protection ability if the person being sued is considered to be in control of the trust.

This finding has come from Richstar Enterprises Pty Limited v Carey (No.6) [2006] FCA 814 where a single judge made an interim decision to preserve the assets of a trust pending further court decisions on whether the assets could be distributed by the creditor.

The matter is far from certain. Nevertheless you should avoid setting up a trust where the person likely to be sued or their spouse is both the appointer and the trustee or a director of the trustee company. Further, the person likely to be sued should not be a default beneficiary.

The best real estate investment strategy at the moment is wait and see. If you must act now, you may not be considered to be in control of the trust if you and your spouse aren’t the a pointer and the trust doesn’t have a default beneficiary. Giving appointership over to someone else means they will have control; this requires considerable trust. Whoever takes on the role of the appointer shouldn’t be a beneficiary or he or she will be considered to control your turst so the assets would be vulnerable if your appointer is sued.

To effectively protect real estate assets held in other entities from people who may sue you personally, you must make sure you don’t own, in your own name, anything that would give creditors access to these other entities.

For example, if you hold your real estate assets in a unit trust and you own the units your creditors would be entitled to those units in the case of bankruptcy and it’s quite probable that the units will give them the right to demand redemption which could lead to the assets beings sold and proceeds distributed to your creditors because they now own the units.

Similarly, if your real estate assets are in a company and you own the shares your creditors would be entitled to the shares which would give them control of the company, allowing them to liquidate the assets and distribute the proceeds to shareholders.

In a discretionary trust the beneficiaries have not fixed entitlement so a creditor can’t force the trust to distribute money to them. But be careful – if you have loaned money to the trust, a creditor can demand that money be repaid. This is also the case for loans to companies or unit trusts.

Real Estate Affordability | Wages Not Keeping Up

House prices have grown more than twice as fast as wages over the past decade – making it harder to save a deposit and harder to pay off a loan. By Mark Armstrong and Fiona Marsden for the API Magazine February 2007 edition.

Housing affordability across Australia seems to worsen each year – yet real estate house prices in several Australian cities haven’t moved substantially since 2003. We crunched some numbers to find out why.

According to the Real Estate Institute of Australia, the national median house price in 1996 was $161,312. By 2001 it was $248,993 and by 2006, it had climbed to a whopping $407,538 – an average annual increase of almost 10 per cent.

A look at wage growth statistics tells a different story. Figures from the Australian Bureau of Statistics show that average annual earnings were $35,251 in 1996. By 2001, they were $43,555 and in 2006 they had risen to $54,668.

That’s an average annual increase of around 4.5 per cent – less than half the growth in real estate prices for the same period. Small wonder affordability is getting worse, even in major cities like Sydney and Melbourne where the last property boom finished in 2003.

The real estate affordability squeeze is hitting first homebuyers on two fronts. First, they have to put aside a higher proportion of their earnings to save a deposit. In 1996, someone on average weekly earnings needed to put aside 9 per cent of their income to save a 10 per cent deposit for a median priced home over a five-year period. By 2006, they had to put aside 15 per cent. Second, even if they do manage to enter the real estate market, homebuyers have to put a higher percentage of their earnings into loan repayments. In 1996, someone buying a median priced home had to devote 34 per cent of average earnings towards their real estate mortgage. In 2006, this figure has jumped to 47 per cent.

Moreover, these figures refer to the official cash rate set by the Reserve Bank. The retail rate set by lenders is generally 1 to 2 per cent higher, so the actual percentage of earnings going towards loan repayments would be much greater.

In this context, the prevailing real estate interest rate also plays a role. In 1996 when homeowners spent 34 per cent of average earnings on a median priced home, the cash rate was 7.5 per cent. In 2001, when the cash rate had fallen to 5 per cent, the percentage figure dropped to 29 per cent. Interestingly in November 2006 when the cash rate was 6.35 per cent, real estate homeowners had to devote a higher percentage of their earnings towards loan repayments than they did in 1996 when the cash rate was higher. Clearly, the slow increases in wages relative to house prices is now the most significant factor in determining real estate affordability in Australia.

In this environment, real estate markets that are out of sync with the national norm will start to experience major corrections in 2007. Perth and Darwin, where house prices have increased far more quickly than other cities in the past few years, will be in for along period of adjustment if the mining sector starts to come off the boil as industry pundits predict.

At the other end of the scale, newly real estate developed outer suburban areas that rely mainly on young homebuyers for their chief source of demand will also suffer the fallout from plummeting affordability. If would-be first homebuyers can’t save a deposit quicly enough to keep pace with prices, they’ll stay away and values in real estate will fall. With eight increases since 2002, we believe the current interest rate cycle is nearing the end and the Reserve Bank will reduce rates in 2007. If it doesn’t, a growing number of young Australians will have to downscale their home ownership dreams – or face the prospect of permanent tenancy.

Mark Armstrong is a director of Property Planning Australia(www.propertyplanning.com.au) Fiona Marsden is an experienced property writer.

What affects real estate values and property values in the eyes of a home purchaser

By Terry Ryder for API Magazine January 2007. The second part of this two part article.

Public Transport Nodes and Real Estate Values

Matusik has investigated house values several times in the past five years to determine the importance of being next to public transport nodes. The evidence suggests home buyers are paying 10 per cent more to be within 500 metres of railway stations and 19 per cent more to be near major busway stations.

Over the past five years, real estate values near a railway station have increased 12.6 per cent a year – compared to the Brisbane average of 10.3 per cent.

“Higher prices are being paid to live near the major busway stations of Woolloongabba, Greenslopes, and Holland Park. Five years ago houses close to these stations weren’t much more than the Brisbane average but the median house price near these transport hubs this year was 19 per cent higher than the Brisbane average,” Matusik says.

Real estate values for these properties rose almost 12 per cent in the 2006 financial year, compared to the Brisbane average rise of 3.5 per cent. Bright says Sydney homes need access to some mode of public transport to be desireable – either train, bus or ferry.

“The more the merrier – it’s mandatory to have at least one ofthose modes of transport available, preferably two,” Bright says. “If you don’t have train or bus or ferry, you’re making it hard.”

Lifestyle Precincts, shops, parks are important for real estate buyers

Brisbane house values within 500 metres of noted lifestyle precincts – suburban high street or café strips – have risen 13.5 per cent a year over the past five years, compared with the Brisbane average of 10.3 per cent.

The median house price in these precincts is $584,000 – compared with the Brisbane average of $354,000. House values and real estate properties rose 9.2 per cent in these precincts in the 2006 financial year, while prices rose only 2.5 per cent across Brisbane.

“Home buyers in these higher-priced inner-city locations were paying 61 per cent more than the average in 2002,” Matusik says. “This premium has lifted to 81 per cent when compared to today’s median price. When comparing the results against the inner-city median house price, we find that the premium paid to live near a high street was 10 per cent in 2002 and 16 per cent today.”

The research showed there was a premium paid to live close to major shopping centres as well. This wasn’t the case in 2002 but today Brisbane, Gold Coast and Sunshine Coast real estate home buyers will pay 18 per cent above the area’s average to be close to regional shopping centres.

There was a similar result for homes close to major public open spaces. There was no premium in 2002 but now home buyers pay a premium of 18 per cent. “Annual price growth has been similarly impressive, with the results being 15.1 per cent a year over the past five years,” Matusik says.

Bright says lifestyle precincts are becoming more and more important in Sydney, because Generation X and Y want it and baby boomers are moving towards them as they edge closer to retirement.

Noise a No-No and will decrease property real estate values significantly

Home and apartment buyers are finding themselves victims of noise rage. Archicentre, the building advisory service of the Royal Australian Institute of Architects, says pre-purchase inspections of real estate show this is a growing issue.

“Often it’s only when people move in that they find their new home is subject to noise which can lead to stress, poor relationships with neighbours and in some cases physical confrontations,” says Ron Tanton of Archicentre.

Noise problems arise from poor real estate building practices with inappropriate acoustic separation between apartments, the tendency for people to invest thousands in home entertainment systems, noise-producing polished floors in units and balconies built like clusters on high-rise condo buildings.

“Noise is an issue everyone needs to assess before signing on the dotted line for a real estate property,” Tanton says. He suggest home buyers speak to neighbours and see how they feel about living in the apartments – as they’ll soon tell you if they’re suffering sound rage.

Bright says he visits residents living in apartments above the one he’s examining for a client and asks them to walk about so he can assess noise transfer. It’s important for home buyers to check whether the walls have noise-dampening insulation and concrete floors which lessen noise transfer. Kelaher says noisy apartments will sell for 20 to 25 per cent less than quiet ones.

Water tanks worth watching ... most so in Australia

Water-wise features will attract a premium and may, in the future, be a major contributor to achieving a sale. As the drought and global warming become top-of-mind for many Australians, this factor will gain increasing importance in the real estate market.

A recent website poll by Matusik Property Insights examined whether rain tanks added value to a home. Two-thirds of respondents thought they did. Of the ‘yes’ voters, 30 per cent thought they added between 2 and 5 per cent to the property’s overall value, while 20 per cent thought a rainwater tank would add 5 per cent of more. Matusik notes, however, that a 2 per cent premium would add $6500 to the average Brisbane home – twice the current cost to install a typical water tank. As the consequence of drought and water restrictions become more apparent, the value of having a water tank in a real estate property grows. Archicentre says one of the outcomes of water shortages will be more cracks appearing in Australian homes and real estate. It predicts cracking in homes will rise 10 per cent.

Archicentre’s latest survey of 75,000 homes across Australia found South Australia suffered the worst cracking problems in the country, with almost half of homes affected. The next highest was Tasmania, with 45 per cent of real estate affected.

Archicentre’s manager in SA, Jim Jovanovic, says that as water restrictions are implemented throughout Australia, the moisture in the ground is ‘changing quite dramatically.’

“When the soils dry out, strain is put on the real estate property structure and cracks can appear overnight,” Jovanovic says, “In many cases, cracks up to 10 millimetres in brickwork could close up once the soil regained moisture content. More serious cracking might need some form of structural repair.”

Terry Ryder is author of four books and creator of hotspotting.com.au.

For more information about Australia pre-construction condominium residences.