ISSUE 7 I JUNE 2009
HORIZON THE
Helpful tips on how you can retire mortgage free
NEWSLETTER
THE GOOD NEWS ON HOUSE PRICES mcCARTHY GROUP RETURNS TO ITS ROOTS WHY PROPERTY IS SET TO TURN OUR TOP 20 REGULATOR ADVISES ‘INVEST BETWEEN THE FLAGS’
And the global gong goes to Australia! WIN AN APPLE iPOD NANO. SEE INSIDE FOR DETAILS
THE HORIZON NEWSLETTER I ISSUE 7 I JUNE 2009
The good news on house prices BIS Shrapnel has just released a very positive outlook for property prices in Sydney, Melbourne and Adelaide, adding further support to growing investor confidence. The forecast is for property prices in these cities to increase by an average of 19% over the next 3 years, with Sydney leading the way at 22%. You can be sure that savvy investors are preparing to move before prices do. The FHOG has already put a strong base under the market, with 28% of all finance approved going towards first-home buyers. The demand has fuelled entry-level prices as the combination of hefty subsidies and low interest rates proves irresistible to those who thought they were locked out of the market. In NSW there is a further boost ahead as the state budget made further concessions to first-home owners as well as slashing stamp duty by 50% on new homes up to $600,000. This move is expected to add 10,000 new housing starts into the pipeline. What is of great interest, however, is that the mid-tier market also appears to have stabilised due to a return of confidence and low stock levels. This can be seen in exceptionally high auction clearance rates (Melbourne hit 85% on the weekend of 20 June and Sydney almost 75%).
The news that the ‘Lucky Country’ has escaped a technical recession has also boosted consumer confidence, posting its biggest increase in 22 years. However, in our view some people are getting a bit ahead of themselves - with unemployment rising, business investment falling, and rising interest rates on the horizon, we are not out of the woods yet. However, smart investors know that if we wait until all the signs are pointing in the same direction, the best opportunities will have been snapped up, leaving us with the regret of not acting sooner. If you would like to discuss the outlook for investment property in our capital cities and regional hotspots over the next few years, contact us on (02) 9687 3601 or email us at info@mccarthygroup.com.au
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THE HORIZON NEWSLETTER I ISSUE 7 I JUNE 2009
McCarthy group returns to its roots
We are excited to confirm our return to the Sydney market after an absence of almost 10 years. Sydney is where our story began, and it is with pride and pleasure that we have written to all our clients to offer an exclusive first opportunity to indicate your interest in a property in our soon to be announced Sydney project. We will announce further details regarding location and pricing once they are finalised, but suffice to say the planning for this has been underway for the past 6 months, and well ahead of the confirmation by BIS Shrapnel that the Sydney market is set to grow by 22% over the next 3 years. McCarthy Group has achieved success for its clients through its ability to pick future hotspots before they are recognised and before they take off. That’s why we moved from Sydney, to Noosa, then to the Gold Coast, Cairns, Townsville, Darwin, Melbourne, and now back to Sydney. Our clients are invested across the eastern seaboard, and it is mainly the timing of the growth in the various cities that determines where we recommend clients buy property. If you have not responded to Stephen McCarthy’s invitation of last week to indicate your interest in our upcoming Sydney development, please contact us on (02) 9687 3601 or email us on info@mccarthygroup.com.au
Baby Ozzies and immigrants arrive in great numbers A new baby boom is upon us, with the birth rate being at its highest since the post-war boom of the ‘fifties and ‘sixties. Remember Peter Costello asking us to have ‘One for mum, one for dad and one for the country?” Well it seems we’ve taken him at his word, with 152,700 net additions to the local population last year. To this must be added a further 253,400 new arrivals, for a total gain of 406,100. With an average of 3 people per household, last year’s increase alone means the need for over 135,000 new homes. In this climate home construction has actually been falling, with NSW housing starts the lowest in 25 years. So as the demand builds and supply falls, it’s no surprise that property prices have withstood the worst the recession could throw at us, and why rental yields are rising. Who’d want to own investment property in this market? Me, for one, and lots of it!
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THE HORIZON NEWSLETTER I ISSUE 7 I JUNE 2009
Time’s running out as Kippers set to be fried*
A new study by St George Bank has shown that the “Kids in Parents’ Pockets Eroding Retirement Savings”, or Kippers as they are popularly known, are living on borrowed time, and will soon be forced to flee the nest and fend for themselves. The global financial crisis is the cause, and the parents of the Gen Y offspring feel the need to put their financial health and retirement needs ahead of the wishes of the Kippers. Concerns over retirement and debt are the new priorities for most mums and dads. The study of 1,000 Australians by St George showed 70% of baby boomers believe the global financial crisis has seen their assets shrink in value, and 71% are now concerned about their financial health. As a result, just 6% of parents rate providing financial assistance to their adult offspring as a top priority. Almost half of those parents with adult children said they were focussed on saving, either for retirement (25%) or other future expenses (24%). Another 41% favoured paying off debt, either their credit card (24%) or mortgage (17%), the survey showed. Most parents want to help their adult children,
but the global recession had made it increasingly difficult, St George’s general manager of retail bank distribution Andrew Moore said. “Circumstances have changed for many and it’s understandable that parents are now having to focus on their own needs and financial health to manage their way through the tough economic climate, particularly as we don’t know when it will end,” he said. “As a result, when it comes to paying for things like weddings, first home deposits, overseas travel and childcare, many Gen Ys must now stand on their own two feet.” Most parents said they wished their children were more responsible with their money, and had urged them to save more. Almost one quarter of Gen Y respondents said they had never had to budget or save money before, while a further 35% said they had only saved for short periods for one-off items like holidays.
*Acknowledgement to the Lending Central team, 11 June 2009
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THE HORIZON NEWSLETTER I ISSUE 7 I JUNE 2009
The real problem with the Commonwealth Bank surprise rate rise We have become almost immune to banks behaving badly, particularly in recent years where they have enjoyed unprecedented protection and advantages that have almost driven out the smaller banks and non-bank lenders from the market. However, the problem with the shock move by the Commonwealth Bank on 12 June 2009 to tweak its variable rate up a bit was not the extra $18 dollars a month that it will cost its mortgage holders for every $300,000 they have borrowed (not that the borrowers will be amused, anyway!). No, the real problem is the psychological impact on the country as a whole. Termed ‘greedy’ by Deputy PM Julia Gillard, we think it’s worse than that. The rapid lowering of interest rates over the past year and the cash handouts and other measures have all been made to encourage spending, thereby reducing the impact of the recession. So we think it’s irresponsible to increase variable rates in the midst of the slowdown, as it signals to all Australians that the tide has now turned, that interest rates are now going up, and money is set to become more expensive. Not only is this a damaging signal in terms of consumer and business confidence, it is also a wrong signal. People in fear of losing their jobs, or who were considering spending, will hear it and close their wallets and defend themselves against higher repayment costs. That the bank advertises its rates are now competitive is beside the point. This was not a smart move, and we would expect the Commonwealth Bank to be punished by its customers and in PR terms as a result.
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THE HORIZON NEWSLETTER I ISSUE 7 I JUNE 2009
And the global gong goes to... Australia! We don’t mean to downplay the severity of the downturn in Australia, but a recent study by Servcorp highlights that there is more than luck to being the Lucky Country. Aside from being rated the most resilient economy of over 20 million for six of the past eight years, Australia has emerged as the number one in terms of which country is perceived to be weathering the storm best in these times of global financial hardship. Servcorp surveyed over 7,500 people from 24 countries, and the top 10 countries are listed below. Once again, accepting that we have a global recession, we know which country we’d like to be sheltered in while the storm passes. The latest forecasts from the Organisation for Cooperation and Development (OECD) have also named Australia as having the strongest economy of its 30 members, and says that we will see a 0.4% reduction in growth this year and return to a positive 1.2% growth rate in 2010. By this measure, Australia will have been late into the global downturn, and early out of it. Good news indeed.
Rank
Country
1 Australia 2 China 3rd equal India and Singapore 5
Hong Kong
6 Canada 7th equal 9
Japan and Qatar
New Zealand
10th equal Malaysia, Sweden and Vietnam
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THE HORIZON NEWSLETTER I ISSUE 7 I JUNE 2009
Helpful tips on how you can retire mortgage free Entering retirement with the family home paid off is the ideal situation for any retiree. Despite the cost of property and the size of outstanding loans, it is a goal worth striving for. There are a number of ways to get there, an investment property strategy being one. Another is reducing the overall term and cost of the mortgage by paying more than the minimum required payment. When we consider that the average Australian has over $1000 per month more in the pocket than before the downturn, and before any handouts, you have to wonder how this cash surplus is being used. The government wants us to spend it; however using it to pay down mortgage debt is a very smart move.
Mortgage Choice has offered up some interesting tips that highlight how it is possible to nail the family mortgage by doing a few small things well. On a loan of $300,000 at a standard variable rate of 5.85% over 30 years, the monthly repayment is $1,770. If the rate drops by 0.25%, that reduces to $1,723. However, maintaining the repayment at the higher level reduces the total interest bill by $42,206, and approximately 2 years off the loan term. Ms Kristy Sheppard of Mortgage Choice offers the following tips to accelerate outright home ownership.
HELPFUL TIPS a) Increase the frequency of payments - investigate paying fortnightly rather than monthly. Monthly payments are made 12 times a year, while fortnightly means 26 payments a year. This can lead to the equivalent of 13 monthly payments a year, saving you thousands of dollars. b) Pay a bit more - instead of dropping your repayments, increase them a bit. Round them up to the nearest $50 or $100. By increasing a payment from $1770 to $1800, you can save $17,000 and 10 months off the loan. c) Make lump sum payments for example, the $900 tax refund paid into the mortgage could reduce the term by 2.5 months and save $4,278.
d) Use an offset account - this allows you to link a savings account to your mortgage account. A savings balance of $5,000 can reduce your loan term by a year and save $22,789. e) Use a hole-in-one account this provides for payment of your income into the loan account, which immediately reduces the loan balance. The loan account effectively becomes your main banking facility, and you can make payments on it using cheques and credit cards. f) Shop around - it pays to look for an alternative loan depending on the product and features you signed up for. Calculate the switching costs first to see it makes sense. A simpler, lower
interest facility will reduce the amount you pay overall. g) Look for package deals - there are deals aimed at professionals that offer reduced interest rates, reduced fees, a Gold credit card and discounts on home insurance. The bottom line is that every dollar saved counts in the long run, and the saved dollars multiply exponentially, making your goal of a mortgage free retirement a real possibility rather than simply a dream. With acknowledgement to Lending Central team and Kristy Sheppard of Mortgage Choice for the calculations and tips above, 25 May 2009.
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THE HORIZON NEWSLETTER I ISSUE 7 I JUNE 2009
“These boots are made for walking”....continued Remember this story from our first issue of The Horizon in December 2008? Recent RP Data from Australian Property Monitors shows that nationally the median house value has fallen just 0.71% in the year to April 2009, while units have risen 2.18%. Many commentators now believe that property is set to turn upwards, so it is unlikely that Prof Keen will be the winner in his bet. Jokes aside, the figures below tell a remarkable story. The year to April 2009 brackets the worst the world slowdown could throw at us, and in contrast to virtually every other asset class, residential property has come through almost unscathed. I think that’s what meant by the saying, “As safe as houses”. Prof Keen can reflect on this on his way to the top of Mt Kosciuszko, but we recommend he waits until the thaw before he sets out as it’s rather cold there at the moment. It’s hard to imagine how you ‘forget’ about houses you’ve bought. However, according to the ATO, some people claiming the First Home Owner’s Grant have had a bit of a lapse in memory. OK, maybe you can be forgiven for forgetting about one previous property. But three? This was the case of one WA couple, and reported in a newspaper*, who had forgotten that they already owned three properties after “innocently” applying for the FHOG.
Whoops! Sorry, we forgot about those ones
Others claimed the grant but ‘forgot’ that they had to then live in the house for at least 6 months. When questioned why they hadn’t, one said it was “too far from work”, while another simply felt “the vibe was not right.” Less amusing are the penalties that apply, with fines up to $20,000, a criminal record and the repayment of the grant. Our advice? Take Vitamin B to improve your shortterm memory so you don’t make the kind of lapse that has caused over 100 people to get bust so far. The Weekend Australian Financial Review, reported by Julie-anne Sprague
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THE HORIZON NEWSLETTER I ISSUE 7 I JUNE 2009
Why property is set to turn our Top Twenty We have drawn up a list that supports our view that Australia is on the cusp of the next phase of housing growth. Yes, unemployment is rising, probably interest rates too, and we have some way to go before we can declare the recession over. However, when taken together, the facts below provide food for thought for those who are considering further investments in the property market, and suggest an early move is justified. 1. House prices have hardly fallen in Australia compared to markets like the UK and USA 2. We have an overall shortage of accommodation, not oversupply 3. The increase in the domestic population and inward migration in the last year alone means demand for 135,000 new homes 4. Home construction has fallen to historical lows despite the backlogs and rising demand for accommodation 5. 50-year lows in interest rates have made housing far more affordable 6. Mortgage stress has fallen as a result 7. Rental growth and gross yields have been strong 8. The FHOG has brought strong demand from first-time buyers 9. The FHOG support is provided at both federal and state level, with some additional measures from developers and builders 10. The NSW budget has halved stamp duty on new homes up to $600,000 between 1 July and 31 December 2009 BUILDING FAMILY ASSETS
THE HORIZON NEWSLETTER I ISSUE 7 I JUNE 2009
Why property is set to turn our Top Twenty 11. The average Australian has about $1000 more per month in hand than before the slowdown began 12. Housing has always been the sector to lead Australia out of recession 13. Auction clearance rates are exceptionally high 14. RP Data and Rismark International data confirm that prices are not falling a. The national home value index rose 2.8% b. Sydney’s rose 3.9% c. Melbourne’s rose 4.5% 15. The government has reduced the opportunity to contribute to superannuation, meaning tax effective alternatives are needed. Negative gearing is likely to be the first port of call 16. There is an increasing move to Self Managed Super Funds, with investment property an obvious addition to the portfolio mix 17. Many investors have suffered big losses through shares, super and exotic investment schemes. Property stands as a stable alternative for those who have been badly affected 18. Australia has weathered the slowdown better than any other country in the world. We were strong going into it, and the 3-stage economic stimulus has been very effective 19. Australia has avoided going into technical recession 20. Consumer confidence has jumped 12.7% in June, the biggest increase in 22 years If you’d like to add to our list, email us on info@mccarthygroup.com.au and we’ll share your insights with our readers.
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THE HORIZON NEWSLETTER I ISSUE 7 I JUNE 2009
Regulator advises, ‘Invest between the flags’ After the disastrous impact as retail investors lost over $73 billion in savings, the Australian Securities and Investments Commission has announced the launch of an awareness campaign that will classify financial products as either ‘between the flags’ or ‘outside the flags’. This is seen as necessary after the failure of the disclosure-based system and the huge losses that have befallen unwary investors in schemes like Storm Financial, Westpoint, Timbercorp, Great Southern, Opes Prime and many others. We think that this is a good idea, although there is a long way to go and many discussions to decide which products fit in which location. Stay tuned for more news on this development. Good luck and Happy Investing Stephen McCarthy CEO McCarthy Group
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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