ISSUE 5 I APRIL 2009
HORIZON THE
FORTUNE FAVOURS THE BRAVE - ARE YOU READY?
NEWSLETTER
OFFSIDE! ARE THE BANKS DOING ENOUGH? INTEREST RATES HOW LOW CAN THEY GO? FIRST HOME OWNERS GRANT UNLIKELY TO BE EXTENDED! INVESTORS GAIN IN MELBOURNE!
Sydney is heading for a rental boom! WIN AN APPLE iPOD NANO. SEE INSIDE FOR DETAILS
THE HORIZON NEWSLETTER I ISSUE 5 I APRIL 2009
Welcome. And are you ready? Welcome to our latest edition of The Horizon. Autumn is upon us, Easter has come and gone, and as we race through the year, every passing month brings us one month closer to economic good news and recovery as some of the ‘green shoots’ of progress take root and grow. Stephen McCarthy, CEO McCarthy Group. Are you ready for recovery? As investors who have prioritised the future and have put a strategy in place to provide for future needs, it is vital that you are constantly reviewing and checking where you are on the road to financial independence, and that you are tuned in and alert to the opportunities that abound. As I have mentioned before, we are moving through times that we will look back on as one of the best opportunities to accelerate our strategies and do more, with interest rates at 50-year lows, with housing accessible and affordable, and with renters clamouring for a place to live, with rents and yields travelling on a constant north east growth path. If you would like help to get ready, why not give us a call and we’ll sit with you and review your portfolio, review your goals and your progress towards reaching them, and help you set new actions that can be brought to life in these times of abundance.
Don’t wait until the markets are clearly up and running. By then everyone’s in, the value’s disappearing fast, and investors start to hesitate due to rising prices in what will then be a seller’s market. The time to get ready is now. If you would like some help we can offer you a cost-free, obligation-free review of your current position and your goals and discuss options to accelerate and take advantage of current conditions. ‘Fortune favours the brave’. You have already taken bold and decisive action and have become a landlord. It’s easy to call on the favourable experience and outcomes that you have enjoyed through your first moves and simply….repeat them. ‘Time and tide wait for no man’. Let’s go forward together. With confidence. Call (02) 9687 3601 or email: info@mccarthygroup.com.au to arrange an appointment.
Thank you for the feedback... We had some great feedback on The Horizon newsletter from our clients and some really positive words of encouragement as well. Thanks to all those who filled in the survey. Of note is the positive light that The Horizon shines into what has been a gloomy and worrying landscape. It’s seen as relevant and informative with some great tips and pointers for investors. Many people felt the newsletter made them feel proud to be a property investor, proud to be part of McCarthy Group, and
that reading it gave them confidence that they had made the right decision. Your positive feedback gives us lots of confidence too. It’s a self-fulfilling prophecy, and if we can all stay positive, confident and motivated through some of the toughest times on record, then just watch us all fly when the cycle turns. Onwards and upwards. Stephen McCarthy.
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THE HORIZON NEWSLETTER I ISSUE 5 I APRIL 2009
Offside! At the same as the $10 billion+ Cash Splash 2 starts flowing, the Reserve Bank of Australia met to consider all the latest jobs figures, the views of the IMF and the G20, and after lots of discussion, they reduced the bank rate by 0.25%. The goal? To support businesses, jobs, mortgage holders, and to underpin the economy. So what do the banks do? They stick out their hands, snatch the ball, and race off for an intercept try, saying “Thanks guys, we’ll take that. Our funding costs have gone up”. The goal of the RBA was not to boost bank profits. It was to spread the benefit of lowered interest rates to the furthest reaches of the economy in the interest of all Australians. The 4 major banks will be generating collective profits well in excess of $1 billion per month. Even as they foreclose on homes, on businesses, and change the rules of lending to shield themselves from any risk. Referee Rudd politely requests them to reconsider, they ignore him, and within a day the media is more interested in how rude he was to a RAAF hostie than this daylight robbery from the banks. Then a Fujitsu Consulting report suggests that the banks are making $450 more annually on each mortgage than they did before the financial crisis. And then they move again, to reduce LVR’s, and to increase fixed rates by up to .40% with 1 day’s notice. My conclusions: 1. The banks’ cash grab will improve their results and share price 2. This improves the basis for bank executive pay 3. We Australians must be very passive and acquiescent to accept this outrageous move without a murmur 4. The government support for the banks has not been reciprocated when needed most. 5. The banks are player, coach, franchise owner, touchie, referee, the lot. They make the rules, and the rest of us abide and play by them. 6. The banks are effectively running the show – what they say, goes. So we all stand quietly in line, fill in the paperwork for the next loan and pay the higher interest bill while the banks laugh all the way to the …. bank!
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THE HORIZON NEWSLETTER I ISSUE 5 I APRIL 2009
Interest rates – how low can you go? If you are still on this side of the big Five O, these are the lowest interest rates of your life. The bank rate is now at 3%, and those in the know expect that it will keep heading south in 0.25% reductions until it bottoms at 2%. The key points to note are: • No matter what interest rates you are paying on your home and investment property mortgages, the rates on offer today are likely to be far lower than you have experienced before • The low rates bring a dramatic improvement in affordability to your next investment property decision • There are opportunities to refinance some or all of your loans • The decision to choose a fixed or a variable rate, or a mix, is a very important one Mortgage Planning is one of the foundation cornerstones of McCarthy Group. We have a lot of experience in this field and would be willing to meet with you to discuss the options open to you as well as working through the current opportunities that exist due to the affordability of low interest rates. Call us on (02) 9687 3601 or email us at: info@mccarthygroup.com.au to make an appointment.
FHOG fuels mini boom; buyers beware With market intervention comes market distortion. The First Home Owner’s Grant (FHOG) hit the sweet spot as it offered big financial grants to those desperate to get a foothold on the property ladder at a time when interest rates made housing purchases more affordable. Bingo. Before you know it over 25% of all loans granted are to first-home buyers, and 50% of all property transactions are priced at under $500,000. The problem is that prices have risen in response to the government support as well as due to the strong demand and competitive pressure from would-be buyers. When the party’s over and the music stops some people will have a hangover. Our suggestion to you at this time would be to; • Be aware of the boom-like conditions driving pricing at the lower end • Be very cautious about what represents real value at this entry level • If you have friends or family planning to buy using the FHOG support, make sure that they get sound advice before they proceed There could be nothing worse than waiting so long to get into the market, to finally crack it with government support, only to then get ‘burnt’ through market changes when the subsidies fall away. We are here to help if you need support.
BUILDING FAMILY ASSETS
THE HORIZON NEWSLETTER I ISSUE 5 I APRIL 2009
FHOG unlikely to be extended Recent statements by Prime Minister Rudd indicate that the FHOG won’t be extended beyond the 30 June deadline. So expect a scramble over the next two months as the bell for the last round is rung, and as those young buyers desperate to move from renting to ownership queue up to bid for whatever is available in their price band. With some banks taking 4 to 6 weeks to process loan applications due to the rush, one must feel sympathy for how hard it must all seem to those trying to become home owners for the first time. The construction industry has already made it known that the end of the government grants will be a set back for the industry, and have called for new measures to be put in place that favour the construction of new homes over existing stock. The government will feel the need to do something given the support that the grants have given to the housing sector, and also to avoid the prospect of prices falling as the grants come to an end and demand falls away.
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THE HORIZON NEWSLETTER I ISSUE 5 I APRIL 2009
Yesterday. Today. And Tomorrow I love music, and am reminded of that classic ‘Don’t Stop’ by Fleetwood Mac with words that say, Don’t stop thinking about tomorrow. Don’t stop, it’ll soon be here. For me it captures the essence of those who do think about tomorrow, and plan for it, so that when the future does arrive – in the form of a daily supply of new Todays – that every day can be lived out in relative comfort thanks to the time that we spent planning and preparing for them. Then there are those who don’t. This group could be described as those who choose to ‘Live for Today because Tomorrow never comes’. I am a big fan of present-moment living. Today is all we have, because Yesterday is a memory, and Tomorrow is simply a dream. However, like many of you, I do believe that we have to invest part of Today in planning for Tomorrow, because it does come, and when it does, we will either be grateful for our situation, and be thankful that we planned for it, or we will be unhappy, and regret that we didn’t do more to provide for the future when there was enough time to do something about it.
BUILDING FAMILY ASSETS
THE HORIZON NEWSLETTER I ISSUE 5 I APRIL 2009
K!
ON THE RECORD... Your house is safe, RBA says
Australia’s house prices will hold up better than those overseas, despite the slumping economy, the Reserve Bank said today, largely due to the soundness of the loans underpinning the market. In a speech to the Urban Development Institute of Australia in Brisbane, RBA deputy governor Ric Battellino said we did not have the same deterioration in lending standards that had occurred elsewhere. “By and large, the great bulk of Australians who took out housing loans have been able to afford the repayments,” he said. With fewer defaults knocking values down, Australian housing prices have only dipped 3% in 2008 compared to the 20% falls seen in the US and Britain, he added. In addition to higher lending standards and the absence of the sub-prime mortgages which imploded in the US, there is also a shortage of available homes in Australia, helping to keep demand high, industry analysts say. The National Housing Supply Council released a report this month estimating an 85,000-house shortage in Australia at June 2008. Fears about the economy and job security have put a lid on further home buying, but sales have increased in recent months. www.brisbanetimes.com.au 31 March 2009, as quoted in The Matusik Report, itp, I April 2009
Investors gain from Melbourne renters’ pain Rents in Melbourne shot up by almost 11% over 2009, delivering pain to tenants and a boost in yields for private investors. Latest figures reveal the median rent at $315 a week, up 10.9% on a year earlier. The greatest demand appears to be for two-bedroom houses (up 12.2%) and onebedroom apartments (12.2%). The Australian Financial Review, Page 53, 27 March 2009, as quoted in The Matusik Report, itp, I April 2009
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THE HORIZON NEWSLETTER I ISSUE 5 I APRIL 2009
States still have standout areas The latest residential hot-spot property list has been crunched by last year’s 2.9% fall in nationwide property values, but according to researchers RP Data, some individual suburbs in both city and country areas had recorded exceptional levels of price growth, citing standout performers in each state. These included Sydney’s McMahons Point with a jump of 47% in median price in a 12 month period; River Heads at Hervey Bay, where a 43.1% increase resulted in a median price of $415,000; and Victoria’s Portsea with a 37% increase to a median price of $1.455 million; and for units, Brisbane’s North Lakes received a mention, where a 47% increase pushed the median price to almost $461,000. The Australian, Page 29, 26 March 2009, as quoted in The Matusik Report, itp, I April 2009
Residential investors on solid foundations Australia has about 1.6 million individual property investors, according to the Australian Taxation Office –and most of them would be pretty happy. While the global financial crisis has wiped at least 45% off the value of equity portfolios in the past year, the value of most residential real estate – excluding top end houses and coastal apartments – has fallen only about 3%. The ATO’s just released Taxation Statistics 2006-07 shows that one in every 10 adults in the country included rental income in their tax returns. Just over half had a taxable income of between $25,000 and $75,000. Most – 72.5% held only one rental property. The Weekend Australian Financial Review, Page 13, 28-29 March 09, as quoted in The Matusik Report, itp, I April 2009
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THE HORIZON NEWSLETTER I ISSUE 5 I APRIL 2009
Sydney is heading for a rental boom By Pino Tedesco Director Metropole Buyers Agency Sydney Good news for property investors – rents are going to increase significantly over the next 4 years due to a shortage of properties and in particular Sydney rents are set to soar.
Property investors have already enjoyed rising rentals throughout Australia over the last few years as strong population growth, a lack of new home construction and cautious investors not putting as many investment properties into the rental market have caused rentals to increase in all our capital cities. But figures obtained by The Daily Telegraph show an estimated 7,300 new dwellings will be built in Sydney this year, the lowest rate of growth in more than 50 years and roughly a third of the homes built in 2003. Interestingly, across the border in Adelaide - a city with a population one quarter of the size of Sydney - about 7,500 new homes are scheduled, while Brisbane expects 13,450 new homes to be built and an estimated 23,000 new dwellings will be built in Melbourne this year. With Sydney’s population expected to rise by close to 23,000 this year and rental vacancies already running at a historically low 1.1%, economists suggest Sydney rents could shoot up a further 12% per cent in 2009, on top of last year’s 8% rise, taking the average rent for a 3-bedroom house to over $400 a week. The undersupply of properties is likely to underpin property prices and rentals for some time. The National Housing Supply Council report out earlier this month estimated an 85,000 dwelling shortage in June 2008 and suggested that this gap will grow to 203,000 by 2013. In particular, Sydney requires more medium-to-high density development and with the high cost of new development plus the funding restrictions to developers it is unlikely that we will see many new major projects for some time. Putting all this together there is only one way for Sydney rents to go – and this is UP! And while this may be bad news for tenants, it is good news for property investors.
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THE HORIZON NEWSLETTER I ISSUE 5 I APRIL 2009
TEAM McCARTHY As we celebrate our 10’th anniversary of growth, I would like to give recognition to my colleagues, many of whom have been with McCarthy Group for many years and have seen the company grow from our humble start in Parramatta to the position we enjoy today as a national firm in the investment property market. I am constantly reminded of the importance of having a strong and committed team of experienced and loyal professionals, and one such experience was the surprise 10’th birthday celebration that was sprung on me while I was busy coaching some new recruits. I have enclosed some pictures of the celebration – including a picture with Peter Scarfo, who has been with us right from the start, and with our call centre team, who have played such a big role in making appointments with prospects, many of whom have subsequently gone on to make life-changing investment decisions as a result of the appointments and who are now McCarthy Group clients. Thanks team! Good luck and Happy Investing. Stephen McCarthy
Win an Apple iPod Nano here’s how. We’d love to hear your views on the investment property market or any other subject that you feel would be of interest and relevance to Horizon readers. Simply email your contribution to info@mccarthygroup.com.au and we’ll send a colourful 16GB iPod Nano valued at $275 to the sender of the best entry. We’ll also publish the story in the next edition of Horizon. If you have friends or relatives who you feel would benefit from an obligation-free review of their future financial circumstances, please feel free to forward them a copy of this e-newsletter, or email us at info@mccarthygroup.com.au or call (02) 9687 3601.
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