BY MICHAEL YARDNEY

I expect the economic side of the equation to win out in the near term, influenced in the first half of 2012 at least by continuing global financial turbulence. This is likely to cause the Reserve Bank of Australia to drop interest rates once or twice in the first half of the year and this should underpin our property markets.

However renewed economic strength is likely to return in 2013 and with it higher interest rates.

Amongst all the bad news, there is always good news…

While I can see value of some properties falling further in the first half of this year (2012 is likely to be another bad year for top end and holiday property), prices have stabilised in some suburbs and they haven’t stopped rising in others – in particular Sydney’s inner suburban market.

What’s ahead?

The long-term trend of our property markets is fuelled by the fundamentals of supply and demand (and this will be driven by our population growth) and our ability to pay more for housing (which will be underpinned by a nation that’s going to become wealthier as the resources boom takes hold).

However in the short term, market sentiment will affect our property markets, as it always does.

Last year ongoing economic uncertainty, the worry of rising interest rates for much of the year, decreasing affordability and political uncertainty were a volatile mix that stalled the property markets.

So here are the factors that will affect our property markets this year:

1. The European situation

Every time it seems that our friends in Europe have reached agreement on a deal to solve their problems, another bogeyman jumps out from the shadows.

If the European Union breaks up or the region slumps into a prolonged recession, the consequences could be:

• A further dampening of general business and consumer confidence.

• A knock-on effect to other economies including the US and China, which both export a significant amount of goods to Europe. The Eurozone only accounts for less than 10 per cent of Australian exports, but we could be affected by the impact on our trading partners in Asia.

• Effects on the global financial system. It’s possible it’ll be more difficult to get loans from Australian banks because international inter-bank lending could freeze up as it did at the beginning of the global financial crisis.

What this means is that now may be a good time to top up your financial buffers while you can, even if you don’t intend to buy more properties this year.

Topping up your line of credit shouldn’t cost you anything, and of course you don’t pay interest on your unborrowed limits.

Wise investors use these lines of credit to buy themselves time. Maybe that’s what you need, just in case 2012 pans out to be a difficult time for Aussie banks.

2. A slowing in China

China’s growth and its requirement of our resources has bolstered the Australian economy.

China is slowing down now and catching its breath but this won’t be helped if Europe falls into recession.

By the way, it looks like the USA is turning around and it should strengthen over the year (with a US election looming), however unforeseen global events could slow the US economic recovery.

3. Interest rates

Interest rates are likely to remain low worldwide and I expect the Reserve Bank to try and bolster both consumer and business confidence by dropping interest twice more in the first half of this year.

This, in addition to flat property prices, should underpin housing affordability and put a floor under property prices.

One question many are asking is: will the banks pass on all of these rate cuts?

4. Inflation

One of the reasons the Reserve Bank lowered interest rates is because inflation sat within its ‘safe range’ and local inflation should again remain under control for much of next year.

However, our improving economy and the ongoing resources boom may cause inflation to take off again over the next few years, which could make things more difficult to live with if you’re in the ‘low speed’ non-mining part of the economy.

The time may come to lock in some of your loans and take advantage of fixed interest rates when they are at historically low levels.

It may also be a good time to get set for the next stage of the economic and property cycle and buy the right type of property – one that will be a good hedge against inflation.

5. Watch out for the X factor

Many years ago I learned from economist Don Stammer that we need to allow for an X factor: the big influence that hadn’t been generally predicted or allowed for but which comes out of the woodwork and has a marked effect on the economy and our investment markets.

This means I’m going to allow for uncertainty and surprises throughout the year.

What does all this mean?

There’s no sugar coating it – last year most of Australia was in the slump stage of the property cycle, but this year the cycle will move on, as it always does. And the next stage is the stabilization phase of the cycle.

© Metropole Property Strategists

You see, the markets don’t move directly from the downturn phase to a property upturn. There is a period of time where buyers return and take up the slack before prices start rising.

And I expect more buyers to return to the market this year when they realise prices won’t fall any further.

By the way, the stabilization phase is a great time for savvy investors to get set for the upturn stage of the cycle.

This year may be a good time to buy property – I’ve always found it a good time to buy when everybody tells you that property is a bad investment. Now is the time to get set for the future.

Michael Yardney is the director of Metropole Property Investment Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Investment Update blog

BY CATHERINE CASHMORE

Of course there are many reasons individuals find themselves without shelter. Some come from abusive families, many being women and children, and some are what are commonly known as ‘couch surfers’ – sleeping a night here and there.

However as the price of housing increases, not to mention the shortage of affordable rental accommodation, we can expect an increasing number to join the queue. It’s inevitable, because although housing affordability has improved slightly throughout 2011 with marginal falls across our capital cities, subsequent interest rate cuts, with more predicted for later this year, will slowly swing the balance of power back into the hands of the vendor as part of the typical cyclical nature of the ‘property clock’.

The primary reason we have such a shortage of affordable housing is down to limited supply in the places people want, and more importantly, need to live – the city. Over 65 per cent of Australia’s population live in and around our major capitals. Australia is a mere teenager compared to Europe which has evolved with a network of smaller towns and cities to soak up a comparatively even spread of businesses and thus job opportunities. Due to a consistent underestimate of our growing population from those who plan for growth, we haven’t prepared effectively for the population surge. For example, unlike other countries, most of the job centres are centralised in and around the capitals. On the outskirts of the city where land is in abundance, the cost of housing is pushed up by limited land releases and hefty development overlays which are designed to compensate for the current lack of facilities such as schools, shops, parks, and transport – which are needed to create a much needed sense of community for those moving into the new estates. As a consequence housing in the areas stretching – in particular – beyond the train lines fails to attract the demand needed to produce an adequate turnover of stock or attract the surplus of buyers.

Consequently inner-city areas are growing in density with a dramatic increase in high-rise accommodation, often going against complaints from local councils and residents who protest in vain as their once leafy suburban localities start to evolve into something akin to Manhattan in New York – they no longer have a choice. Those that commute daily into the CBDs have to leave extra time to battle traffic, or accept standing room only on the local train/tram network. Many homebuyers have accepted the traditional Aussie house with a backyard for games of cricket and a family BBQ has been replaced with either a flat or small subdivision and courtyard at most. For those who want a larger property the compromise is usually a move into an outer suburban estate and accept being far from friends, family and work – as well as slower capital growth. Most first homebuyers stuck on the rental ladder are only able to afford to enter the housing market if they have either help from family/friends to raise a deposit, or meet someone with whom to combine wages and savings. Rents have increased over four per cent this year and it’s unlikely this will ease as the trend towards saving rather than spending continues to place a strain on affordability. And furthermore, it’s been predicted that by 2020 we’ll have a shortfall of 105,000 much-needed social housing homes.

Considering all this, it may surprise some to hear of the massive numbers of vacant residential stock in Australia. At the 2006 census around 10 per cent of housing stock was recorded as vacant. Due to difficulties in collecting the data, such as assessing which properties are reserved as holiday homes, temporary rental accommodation, or are simply in the process of renovation, it’s hard to correctly assess the numbers, however it’s fair to assess a significant minority have been abandoned altogether. Considering the stresses caused by a shortage of available accommodation outlined above, I doubt anyone would argue that wherever possible, vacant accommodation should always be used to house those who need it most. The problem isn’t limited to Australia. In the UK there are 930,000 empty homes – 350,000 of which have been vacant for six months or more. Therefore there’s been a massive innovation to bring derelict homes that have been acquired, but due to financial constraints sit vacant and unused, back to liveable condition. In some cases where families are unable or unwilling to renovate, grants have been offered by various government schemes to assist the process, and in some circumstances, properties have been re-acquired for the purpose of social housing.

More concerning however is a growing trend – particularly amongst Chinese investors – to acquire housing (in China and elsewhere, including Australia) as a safe place to bank funds with no intention of ever marketing for tenancy. For these investors, there’s little benefit in struggling to find a good tenant, it’s more important to keep the property in tip-top condition for when they decide to sell.

We should encourage investment in residential property, providing the consequence is an increase in the available rental supply, which can keep vacancy levels more in balance with affordability. However too many investors are using our precious limited housing supply merely as a ‘bank account’ with no intention of navigating the difficulties associated with finding an appropriate long-term occupant. There should be restrictions on this practice and also more energy focused on initiatives to make use of disused or neglected homes. Identifying where the derelict homes are would be the first step – thereafter perhaps government initiatives could be proposed to set a plan in place to encourage practical moves toward getting the home occupied. After all, it’s far more cost effective (and environmentally friendly) than building from scratch.

Property can be an excellent investment, however its primary purpose should never be neglected and therefore there should be a requirement on every homeowner, wherever possible, to ensure houses don’t remain vacant without valid reason for extended periods of time. Yes, we have a homeless issue in Australia, but we have arguably enough empty properties to provide housing for all. Let’s start making use of the thousands of homes that are left empty and abandoned and make 2012 a year of new positive initiatives for housing.

Catherine Cashmore is senior buyer advocate and property advisor for Elite Buyer Advocates. With extensive experience in all matters regarding real estate, Elite Buyer Advocates ‘move you ahead of the competition’, successfully purchasing and negotiating more than $100 million worth of property each year for their clients. http://www.elitebuyeradvocates.com.au/

BY RICH HARVEY

Some areas will enjoy solid growth driven by latent demand or resources while other areas will languish.

Last year’s market was dominated by natural disasters, mixed economic signals and fragile consumer sentiment. Australian Property Monitors (APM) noted that national median house prices were down by 4.2 per cent but were predicted to rise by three to five per cent in 2012. Sydney’s median house price only declined by 0.9 per cent last year compared to 3.1 per cent in Brisbane, 1.2 per cent in Melbourne, 2.2 per cent in Perth, 1.4 per cent in Adelaide and 3.5 per cent in Darwin.

The traditional spring selling season in 2011 did not eventuate. It was more of a fizzle and pop that saw lacklustre results. Auction rates hovered around 50 to 60 per cent during 2011. Year on year results from October saw Sydney’s median house price fall 2.3 per cent as reported by APM. In contrast, Rismark International house price model recorded a 0.5 per cent decline in median house prices over the year to the end of November. Sydney was one of the most resilient property markets of all capital cities over 2011. Brisbane and Melbourne recorded 7 per cent and 5.6 per cent decreases respectively over the same period. Rismark International recorded a very small 0.1 per cent increase in national house prices in November, which is signalling a projected rebound in property prices.

Here are my predictions for the year ahead:

• The national economy is set to grow strongly on the back of the mining and resources sector. Treasury estimates are for around three to four per cent growth in gross domestic product (much to the envy of the rest of the developed world).

• Immigration is likely to increase as the demand for skilled workers intensifies from economic growth. This will flow on to increased housing demand.

• The prestige market will continue to struggle to gain traction. With a subdued sharemarket, the level of executive bonuses is limited and buyers are cherry picking the stock that’s available at the top end of the market.

• Affordability will continue to be an issue for households on average incomes. However, interest rates are likely to decline in the first quarter of this year, which will improve market confidence and turnover. I’m tipping around a 0.5 per cent reduction in rates this year.

• Sydney’s median house price is likely to increase by around five per cent this year, spurred on by the chronic undersupply situation and extremely tight rental vacancies. Expect rents to continue to rise and confidence to resume once lower interest rates filter though the state economy.

• Perth is also likely to experience solid price growth, created by the record levels of investment in the resources sector. APM predicts growth of five to 10 per cent on the back of low construction levels and a flood of new workers chasing higher paying jobs in the mining sector in Western Australia.

• Melbourne is likely to go sideways in terms of price growth in 2012, following several years of strong price growth and large numbers of new apartments entering the market. Its median house price at $533,000 is just $100,000 behind Sydney at $643,000. APM expects price growth of up to three per cent.

• Brisbane this time last year was under water with the devastating floods. Key price drivers including interstate migration, reconstruction programs and the massive resource sector investments in regional areas should see solid price growth in Brisbane of over five per cent.

• Adelaide is a bit like a lady in waiting for the resource sector investment to really take effect. The announcement of the Olympic Dam site expansion augurs well for potential growth in Adelaide and surrounds. APM predicts growth of up to 3 per cent.

• Darwin has solid prospects for capital growth due to a significant housing undersupply, but is a much more volatile market due to the seasonal nature of employment patterns with its defence and resources sector industries. APM predict growth of five to 10 per cent.

The potential impact of the European debt crisis continues to plague consumer confidence. If credit markets are affected, then property price growth will be subdued in Australia because the cost of bank funding will be higher. If credit flows more easily, then property prices have more ability to rise.

While economic uncertainty continues to abound, the savvy investors are out there following a strategy, researching opportunities and positioning themselves for further growth. It’s important you have the right panel of experts on your side to help you navigate the way forward, whether you’re a homebuyer or property investor in 2012.

What are your predictions for this year? Do you think prices will rebound, or will consumer sentiment continue to impact on the market?

Rich Harvey is a buyers agent, economist and CEO of propertybuyer ®. Rich was awarded the 2009 national “Buyers Agent of the Year”, the “Award for Excellence” 2004-2008 by the REINSW and the 2007 National Telstra Business Award. Find your next property faster: http://www.propertybuyer.com.au

BY MICHAEL YARDNEY

The simple answer is that market movements are far from an exact science.

The fundamentals are easy to monitor. Things like population growth, supply and demand, employment levels, interest rates, affordability and inflationary pressures. However one overriding factor that the experts have difficulty quantifying is investor sentiment.

In a recent report, Dr Shane Oliver, AMP’s chief economist, explains that people often suffer lapses of logic when investing and many of their investment decisions are driven by emotion.

For example, we tend to extrapolate the present in the future. When things are booming we think the good times will never end and when the market mood is glum, we have difficulty seeing the light at the end of the tunnel.

Think about it… when the media reports falling property prices or an impending housing crash, many investors become scared and sit on the sidelines, believing the end of property is nigh and things will never improve, when in reality much of the risk has been removed from the market.

Conversely, when property markets are booming and stories of investors seemingly making large gains overnight abound, people want to jump on the bandwagon and cash in – often at a time when the market is near its peak.

Other emotional traps include becoming overconfident, wishful thinking and ignoring information that conflicts with your current views. In other words, many investors create their own ‘reality.’

Can you see how this type of activity, influenced by investor psychology, drives booms and busts? How the dominant investor mentality of the time helps drive the property cycle?

Simply, when investors put on the brakes, housing values tend to stagnate or fall due to lack of demand. And when they jump back into the market, demand rises and up go prices.

Obviously one or two misguided investors won’t be able to influence property prices, but investor sentiment is contagious. People tend to want to do what others are doing – they ‘follow the crowd’ because going against popular opinion is seen as risky. What if you make a mistake? What if the others are right and you are wrong?

Oliver says this ‘collective behaviour’ is magnified by several things including:

Mass communication, enabling the behaviour to become infectious. Now more than ever we’re bombarded with messages from the media influencing how we think and feel about things. When we hear real estate is doomed, all but a handful of sophisticated investors get scared out of the game. And when the media tells us housing markets are booming, everyone wants a piece of the action.

Pressure to conform. If your friends or family are doing it, it must be right. Right? Human nature makes us reluctant to do the opposite of what our peers are doing.

A major precipitating event can give rise to a general belief that motivates investor behaviour. The global financial crisis saw waves of investors scared out of the markets. On the other hand, the resource boom enticed thousands of investors into west coast housing markets to cash in on the resulting property boom.

A general belief that grows and spreads. When the belief that property values can only go up spreads through an uneducated new generation of investors they enter the market pushing prices up even further, perpetuating the belief and helping make it a reality! Similarly when the crowd believes the market is going to crash, they steer clear, this gets reported in the media and the negative sentiment feeds on itself.

Oliver observes that these “lapses in logic” by individual investors and the magnification of such lapses by crowd psychology feeds property cycles and goes a long way in explaining why we see booms and slumps at different points in time.

When investor sentiment is positive, the crowd jumps in feet first, pushes up demand and places upward pressure on prices, causing boom conditions. Conversely when sentiment is negative, the crowd backs off and frequently sells out of the game due to concerns they’re about to lose everything, causing market slumps.

What can an investor learn from this?

Our property markets are not only driven by fundamentals, but also by the often irrational and erratic behaviour of an unstable crowd of other investors.

Booms never last forever, neither do busts. Don’t be surprised when they come around and don’t overreact. According to Oliver this will help you avoid being sucked into booms and spat out during busts.

Treat your property investments like a business and stick to a proven strategy to take the emotions out of your investment decisions.

Recognise that property is a long-term play and set up financial buffers to help you ride the property cycles.

Invest counter cyclically.

Warren Buffet once said: “We attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

This is also the investment strategy of many successful property investors. I’ve always been an advocate of counter-cyclical investing. I’m often sceptical of conventional wisdom – not because the crowd is always wrong but because the crowd is always late.

Sure, it takes some courage to do the opposite of what everyone else is doing, but the results of your contrary behaviour will ultimately speak for themselves.

Michael Yardney is the director of Metropole Property Investment Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Investment Update blog

Dear API,

Thanks for raising the issue of ‘dodgy landlords’ and ‘dodgy property managers’. You always seem to hear the stories about ‘tenants from hell’, but you very rarely hear about the other side of the coin.

I’m a homeowner (two years now) and used to be a tenant for about five years. Being a migrant here, I was extra careful to make sure that I kept the place clean and tidy because if you don’t get your lease renewed, that can cause problems with your visa (if you have nowhere to live and considering that I have no family here, you can’t just go to mum and dad’s house). I now have my own home and I feel so much more secure than I used to. I also only have to answer to myself to pay the mortgage and keep the place clean.

I was fortunate in that I had two really good landlords, but it was always a worry as to whether or not your annual lease would get renewed, less so what the price was. It was the hassle of having to go and find another place if eventually (in one case), the property was sold.

I think that both landlords and tenants should realise that it’s not an ‘us versus them’ game on either side. We both need each other – one to provide a roof over their head, the other to actually fund the landlord to be able to provide that. Very few landlords would build a house without a loan, let alone build it for the sole purpose of not putting anyone in there (the exception being some mainland Chinese buyers who keep a house brand new with the purpose of selling it).

Tenants, most landlords are not millionaires who drive past your (their) house in a BMW, gloating and saying “SUCKERS!” whilst laughing evilly and thinking about going home to count their money. Most are the kind of people you meet next door, who just want to do a bit better in life.

Landlords, it’s not a ‘feudal system’, where you had slaves who were ever so grateful to have shelter, but some act like it is. Do you really think that tenants need you personally, more than someone else? They can always leave… and remember the story of the Golden Goose.

Some property managers throw their weight about and take a sick glee of threatening to put someone on the tenant’s blacklist for very minor things or the fact that they ‘have the right to choose who they let the property to’.  I’ve had some realtors treat me (a professional person) like dirt or give me the run around merely because I was a tenant, being shown leases that had already been signed up for – in one case the tenants were already there sitting on the sofa! – and wasting my time. It’s a very sad situation when people (tenants) are labelled as ‘scum’ on internet forums or blogs, but they are.

The bottom line is this: your tenants are not ‘scum’ and are actually a very critical part to your business, just like ‘employees’ are.

Real estate agents don’t seem to realise that tenants often become buyers (investors or owners) and will remember the agents who treated them like dirt, especially when it comes time to sell the property. I do, and I don’t trust some people in Adelaide. In fact, I refuse to do business with them full stop.

Having a tenant in a house is not a right; it’s a privilege that you’re even making any money off the asset.

Having a nice house to live in as a tenant is not a right; it’s a privilege that someone has gone and got off their butt, took a risk and took on a big mountain of debt to try and get ahead in life.

Having a listing to look after is not a right, because you work for me, the landlord, and that job can be given to someone else very easily.

Yes, sometimes it is a renters market, sometimes it is a landlords market, depending on the vacancy rate – but this always has and always will be the case.

But since the market has been flat, most of the sensationalist stories produced by a certain Australian news website have eased off considerably.  Some of the comments that used to appear on the ‘comments’ section of the property stories were so nasty and spiteful to each other, along the lines of “you’re paying my mortgage off, suckers”, “I’ll come around and kick you out onto the street”, “I just jacked their rent up 20 per cent because I could”, “when something goes wrong with the property, I just call and they have to fix it NOW or I’ll go to the tribunal”. Whether any of this is true or not is anyone’s guess because some of it strikes me as being ‘big-noting’, but my overarching sentiment is that overall, both sides should drop the nastiness – that we both need each other, whether we like it or not.

I don’t see why it can’t be a symbiotic, harmonious relationship – you pay your rent and keep the place clean, I give you shelter. You want to stay here, I won’t gouge you for it because an empty house produces no income (as people in Melbourne’s west are finding out right now), and also, an empty house gets broken into and stripped of fixings (like in parts of Detroit in the US) or squatted in.

We all need each other to get what we want.

Yours Sincerely,

Chris.

Tell us what you think about the tenant versus landlord relationship. Do you agree with Chris?

BY MICHAEL YARDNEY

Here’s why… while certain knowledge, techniques and strategies are critical in becoming a successful property investor, it’s just as – if not more – important to have the right mindset.

The fact is that both poverty and riches are the result of a state of mind, which means you must develop a prosperity consciousness and become financially successful in your thinking before you can achieve it in reality.

Why you must change first.

One of the most important steps you can take along your road to financial independence is a change in your mindset – your way of thinking. This must happen before anything else happens because most of us were programmed to fail in our early childhood.

Much of what we know about money is based on false assumptions because we’ve been taught a range of myths and misconceptions about what it takes to create wealth.

Most Australian’s were taught to think ‘poorly’ by their parents, teachers and the media. And they just take for granted what they were told in much the same way as others assumed the world was flat. As a consequence, only a small percentage of Australians join the ranks of the wealthy.

Let’s have a look at some of the false assumptions you may have been taught:

1. A good job will make you wealthy. Many of us were taught to get an education, find a good job and work hard at it. But this rarely leads to wealth. You become rich when small efforts produce large results. Poverty is when large efforts produce small results. You should see a job as a temporary inconvenience, a method of generating cash flow for living expenses while you grow your property portfolio, which will eventually become your source of financial independence.

2. Saving is good. How many millionaires do you know who became wealthy by saving their money? Don’t get me wrong – saving is a required discipline when you begin your investment journey because you need to save your funds to develop a big enough kitty to invest in growth assets, but you can’t save your way to wealth.

3. Debt is bad. While there’s some truth to this, it depends on what kind of debt you’re talking about. Consumer debt is bad, so avoid borrowing money to buy things that go down in value. But borrowing money to invest is another story. You can never become wealthy without some form of investment debt. Leverage, borrowing other people’s money to purchase investment properties, is a wise use of investment debt.

4. Failure is bad. I’ve had my share of failures and mistakes and I used to be ashamed of them, until I realised that failure is a part of success. A very important part.

If you develop a positive mental attitude about failure you can learn a great deal from it. One of my early mentors had gone broke three times before he became one of Australia’s most successful property developers. In fact I don’t know any successful person who hasn’t risen to the top without some failures.

Successful people often have more failure than failures do. But they keep going. Failure isn’t bad. In fact one good failure can teach you more about success than years of studying at university. Failing can be the best thing that ever happened to you.

5. Wealth is measured by material possessions. It took me many years to realise that wealth is much more than money. Money is just one of the appearances of wealth, which is really a state of mind, an attitude. Wealth is your thoughts, not your things. You can become wealthy without having lots of money and you can be rich yet not wealthy.

6. Abundance not scarcity. Successful investors have a feeling of abundance, while many Australians have a scarcity mindset. They see wealth as a win-lose game. A dirty business in which the rich take advantage of the poor. That’s why they have come up with the expressions such as ‘filthy rich’ or ‘dirty money’.

The truth is whatever amount you get has nothing to do with how much or how little anybody else has. It never has and it never will. Those with an abundant mindset believe they don’t have to steal from your pile in order to create a larger pile for themselves. Your wealth is in addition to and not in subtraction to anybody. Unless you truly believe this you’ll always suffer from wealth inhibition.

The sad reality of life is that because of their programming many people assume that wealth is the result of luck, connections or inheritance. The last thing they want to hear is the plain truth that the rich think differently from the average Australian, or that they have a different mindset and different expectations when it comes to money.

How do you develop a wealthy mindset?

The first step is to understand how your programming as a child has caused you to make certain assumptions that have now become your reality – the way you filter what comes into your mind from the outside world.

Then you need to model wealthy people who have gone before you and done what you want to do. Look at successful investors and study what they do, how they behave and how they think and then do the same.

And guess what? By taking this approach you can often repeat their success.

Michael Yardney is the director of Metropole Property Investment Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Investment Update blog

BY VANESSA DE GROOT

My dilemma, however, is how to go about it. I really don’t feel comfortable buying a property that I haven’t seen, but let’s be honest, I can’t fly to another destination every time I find a property that looks worthwhile to check it out.

That could get very time consuming and expensive. I’ve thought about engaging the services of a buyers agent, but in the area I’m thinking about buying in there doesn’t seem to be many around. So should I just rely on doing my own research and the information I can find on the property listing and perhaps buy sight unseen?

One of my concerns about doing this is that the information on the listing might only portray the positive elements of the property and not the potential drawbacks. But in particular, I also worry about the accuracy of the information in the listing – and I want to hear from all the readers out there about their thoughts on this.

My concern stems from real estate listings I’ve seen of units in a complex that I’m an owner in. Just this week I saw one of the units up for rent and the blurb for the property started with “This two-year old two-bedroom unit…”

I was quite shocked by this, as the unit is actually nearly five years old, more than twice the age that this advertisement is claiming!

And that’s not the first time I’ve seen that sort of thing – I’ve seen it in several ‘for sale’ and ‘for rent’ ads for units in the complex. From these ads it seems that my unit is actually the oldest in the complex by far!

This makes me wonder how often these inaccuracies happen in other advertisements, but I’m not able to identify it because I have no prior knowledge about the property. What else are they claiming to be true that isn’t? Now, to all the real estate agents and property managers out there, please don’t get defensive, because I’m not laying blame on anyone for the inaccuracies in these ads – for all I know, it’s the property owner that’s providing inaccurate (or false) details and the agents are simply using what they’ve been given. But then again, it may be real estate professionals embellishing to attract interest in the property.

I do know, however, that when I first put my unit in that complex up for rent, the property manager sent me the advertisement before it went up on the internet and I went through it carefully to make sure it was all accurate. In fact, I recall that she’d said there were fans in all rooms and I asked her to take that out because it wasn’t the case at all.

And don’t even get me started on the spelling mistakes I find on real estate listings! I know property managers and agents aren’t paid for their spelling skills, but would a quick spell check go astray? I think not. Accurate spelling and grammar makes you look 100 times more professional. I believe it’s very important.

Do these little inaccuracies not really matter, I wonder? Am I just pedantic? Perhaps being a journalist has made me much more sensitive to spelling and grammar mistakes, and inaccuracies? (And yes, for all those thinking journalists don’t care about accuracy, this one at least does!)

What are your thoughts on this matter? Has anyone noticed inaccuracies – big or small – in real estate listings? And if so, do you think it really matters, or is it fairly irrelevant in the grand scheme of things?

Vanessa De Groot is the deputy editor of Australian Property Investor magazine, www.apimagazine.com.au

BY ROLF SCHAEFER

Suggesting that the rising cost of funding prohibited them from passing on the two central bank rate cuts in full, the Commonwealth, NAB and Westpac tried to dig their heels in, but were forced to reconsider their position when the ANZ set a precedent, painting themselves as the finance sector’s very own St Nick.

Buckling under the pressure of public opinion and political scrutiny, all the banks were forced to follow the ANZ’s lead and come to the party on reducing their variable rates for customers in the lead up to Christmas.

But just as they started to look like the people’s champion, the ANZ announced they’ll no longer use the RBA’s official rate changes as a barometer to gauge whether their own retail mortgage rates should go up, down or remain unchanged.

Explaining the controversial decision, chief executive of ANZ’s Australian operations, Philip Chronican, said the public’s perception that banks should pass on Reserve Bank rate moves was “dysfunctional” given that other, more significant influences on bank costs had to be accounted for when assessing their own retail rates.

He described this expectation as a “nexus” that the ANZ has been planning to break for some time.

“There’s a fairly tenuous link between the Reserve Bank cash rate and the cost of funds of a variable rate mortgage, and yet we’re all stuck in the same routine of waiting for an RBA cash rate move before we move,” said Chronican.

Adding fuel to the cost of funding fire, Australian Bankers’ Association chief executive Steven Munchenberg has said there could come a time in 2012 when banks are forced to increase their rates in order to absorb the rising cost of funding due to Europe’s ongoing debt crisis.

“If the situation in Europe deteriorates, we may face a situation next year where the cost of funding is going up at the same time as the Reserve Bank is cutting rates,” he said.
In fact Munchenberg predicts that, in the foreseeable future, the banks will be forced to distance themselves from the RBA in terms of interest rate moves irrespective of public and political pressure.

The ANZ plans to review interest rates on the second Friday of each month (10 days after the RBA meets), at which point its 700,000 odd customers will be given good, bad or indifferent news according to whether the bank decides to cut rates, increase rates or keep them on hold. In its first such announcement last week, the bank left rates on hold.
Experts suggest other lenders will benefit from using ANZ as a litmus test to see how this policy reform is received politically and publicly, before deciding whether or not to lift their own interest rates independently of the RBA.

For the time being though, Westpac and the NAB are merely hinting at the possibility that a parting of the ways will occur down the track should the RBA continue to slash interest rates, even though offshore funding costs are likely to rise.

Both banks have come out with statements about “carefully balancing” the needs of customers and shareholders. As most of us are well aware however, it’s the latter that generally takes precedence when the banks are making policy decisions to do with their bottom line!

While cost of funding considerations may be the catalyst for the ANZ’s new, hardline tact with interest rates, I think this is more an attempt by the bank to position itself as a true independent entity and drill home to consumers that home loan interest rate movements will not always be in line with the RBA.

But what does it all mean for borrowers?

Well, chances are all three banks will risk being called out for collusion and follow the ANZ in order to keep their bottom line healthy and shareholders happy, particularly if the ANZ manage to pull off a rate rise independent of the RBA.

Of course consumer backlash could have the opposite effect than the banks are hoping for, with lenders potentially being forced to compete harder to retain existing customers and attract new ones looking for a better interest rate deal. It will also give smaller lenders the competitive advantage they’ve been hoping for, with the chance to steal more of the market share away from the big four.

At the end of the day, regardless of whether the banks have a legitimate gripe in regard to public and political sentiment failing to acknowledge how much they have to fork out for offshore wholesale funds, it’s virtually impossible to re-educate the masses overnight.
And let’s face it, the interest rate debate would be far less heated if the banks would come to the party and disclose their cost of funding, but of course this information is ‘commercial-in-confidence’.

But it certainly doesn’t help to get consumers offside by swooping in and banging them overhead with a big interest rate stick. It’ll be interesting to watch this play out and see just how serious the ANZ is about its latest attempt to, once and for all, convince us that the cost of funding argument is a legitimate basis for increasing interest rates.

Will they be successful? I’m not so sure…

Rolf Schaefer has a wealth of knowledge about property investment, property finance and complex structures. His ‘can do’ approach has helped many property investors through the finance maze. Rolf has rated among the top Australian Mortgage Brokers for the past five years. For more information about Rolf visit www.metropolefinance.com.au.

BY MICHAEL YARDNEY

Now this is not a play on words.

Let’s face it… each year hundreds of thousands of Australians turn to property investment as a way of developing financial freedom, getting more choices in their life or building a retirement nest egg. But very few achieve their goals.

Look at the facts…

About one in four property investors sell their property within the first year and almost half have sold up within five years. Of those who remain in the game, less than 10 per cent own more than two properties.

Most property investors fail

Putting it bluntly, most property investors fail to reach their objective of financial freedom. And my concern is that in the current turbulent economic environment this will only get worse.

The good news is that there’s a way to make property investment work and I’ll explain how, but first let’s look at what not to do.

Currently our property markets are a confusing place, yet property investors are still being bombarded with messages of easy money, which has led to a worrying trend where some investors are so keen to do something – in fact to do anything – that they are heading for property investment disaster.

Even if they don’t have enough money, or haven’t developed the discipline to save, or they’ve already borrowed to their limit, some investors feel they’ve got to do something and in their bid to get into the property market they’re speculating rather than investing.

I understand why they’re keen to share in the profits others have achieved, but sometimes the right thing for an investor to do is nothing.

Here are eight sure-fire ways to lose money in the current property markets:

1. Off-the-plan purchases

Sure it sounds enticing – buy at today’s price then settle or onsell at a profit in a few years time. But does it work?

The problem is when the project is completed some purchasers won’t be able to obtain finance and have to sell. Others, who intended to flip their property for a profit, never planned to settle.

This means that when many projects are completed there’ll be a group of desperate vendors who lower their prices to sell at whatever the market offers.

And even if you are one of those who does settle your purchase, the banks will only lend you against the prevailing market price of your property, which will be the lowest sale price achieved by one of the desperate vendors, rather than the price you paid.

Add to this the fact that banks often only lend on a 70 per cent loan-to-value ratio in many of the big new developments and what initially looked like a good investment starts to turn sour.

Other reasons I would avoid off the plan purchases include the uncertainty of completion dates, the level of finishes and the market conditions when you eventually take possession.

2. House and land packages

Some investors buy new homes because they’ve heard that land appreciates in value. But when you think about it, the land component usually accounts for less than half the purchase price, giving these properties a very low land-to-asset ratio.

While they may be great places to bring up a family, in general new or outer suburbs aren’t good places to invest.

One of the big factors that enhances capital growth is scarcity and that’s something missing in these suburbs.

3. Buy, renovate and sell

I’m all for adding value through renovations but you can’t buy a property, do minimal work and then sell it at a profit, because stamp duty, buying and selling costs, and tax eat away at your profits. On the other hand, buy renovate and hold in the long term is a great investment strategy.

4. Positive cash flow properties

You can’t save your way to wealth with a few dollars a week positive cash flow.

The best way to financial independence through property is to accumulate assets and, in Australia, properties with higher capital growth usually have lower rental returns.

5. Options

Another way to lose money is to follow some of the creative schemes being promoted.
People with little or no money are being tempted by the prospect of bypassing the step of developing the discipline of saving. They’re happy to hear the promoter’s suggestion that you can control millions of dollars worth of property using none of your own money when you buy using an option.

There’s nothing new about these schemes. And if history repeats itself the promoters of today will become very rich while their students will learn a very expensive lesson.

6. Rent guarantees

This is where the developer guarantees a certain rental for a period of time, pandering to inexperienced investors’ concerned about vacancies.

But these guarantees come at a cost – they’re factored into the purchase price.

7. Regional properties

Some regional towns have clearly exhibited better growth than some underperforming suburban areas, but on the whole capital city properties have outperformed in the long term.

Since two important drivers of capital growth include strong population growth and a diverse strong local economy, I only invest in capital cities.

8. Investing in mining towns

Yes I know we’re going through the mother of all resource booms and mining towns will grow in size in the future.

But if history repeats itself, and it usually does, the property market in these towns will be driven by speculative investors. While there will be some short-term booms, property prices in these towns tend to be very volatile.

Well if these methods don’t work, what does?

There is one proven, time-tested method that has made average Australians very wealthy…

If you want to grow your own significant property portfolio, you need to buy a well-located property below its intrinsic value, in an area that outperforms the average over the long term in terms of capital growth and a property to which you can add value so you can manufacture some capital growth.

Then over time borrow against your property’s capital appreciation and grow your portfolio one property at a time.

Michael Yardney is the director of Metropole Property Investment Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Investment Update blog

BY NICOLE NAVARRO

It’s New Year’s Eve and laughter from the terrace drifts inside with the sea breeze, glasses full of crisp wine clink in celebratory spirit, and singing attempts of Auld Lang Syne warm up. The clock ticks over to midnight and while the fireworks explode in the distance and embraces are shared all round, your investment properties across the state are at that very moment being lumped with a hefty land tax on the year now just a memory. The New South Wales Office of State Revenue sure knows how to dampen the party mood.

The reality is most property investors acknowledge that property taxes need to be paid as a means to feed both Commonwealth and State Government revenue streams, however most will also argue that paying a tax on a tax is a principle bordering on insanity and one that needs to be more equitable.

In NSW, arguably the state most burdened by land tax, this year the land tax threshold moves up a notch to $396,000 from $387,000 in 2011. These threshold figures represent the combined land value of all your investment properties owned in NSW, so unless you own one investment property only and its land value is lower than $396,000 – a tough challenge in Sydney – chances are you’ll be lumped with a tax of 1.6 per cent of that taxable land value and once your property portfolio breaks through the $2.421 million ceiling in the 2012 land tax year then it’s a two per cent tax on the value above $2.421 million.

What many people probably don’t know is that land tax was only meant to be temporary.
According to Property Owners Association NSW president Chris Young, “In the year 2000 when the GST was introduced we all understood that the GST would be collected to cover all taxes including land tax. Every state was supposed to remove it (land tax), but that never happened.

“We’re finding that many property investors are getting assessed (for land tax) out of a commercial reality, with many investors withdrawing from the rental market altogether.”
Having investors withdraw from the rental market is bad news for tenants, with rents increasing as a result.

“If the government did remove or reduce land taxes from residential properties and opened the door to allow developers back into the market again, the cost of real estate and rents would be driven down and affordable housing wouldn’t be a consideration,” says Young.

Young says that in NSW private landlords provide approximately 80 per cent of the rental properties, and it’s when private landlords retreat from the market that affordable housing issues arise and government housing is more heavily needed to accommodate ‘essential workers’ such as teachers and nurses.

Real Estate Institute of NSW president Tim McKibbin suggests the land tax treatment on a residential rental property should be the same as it is on an owner-occupied residential property – exempt or broader based, because it only further pushes up the rents making it more costly to the tenant.

Young says that when rents are determined the landlord’s costs are certainly factored into the rent charged to tenants. This includes land tax.

The landlord might directly pay the lump sum land tax but it’s the tenant who suffers greatest from the NSW Government’s land tax addiction because to recoup the annual land tax the landlord is forced to increase rents, he says.

The Tenants’ Union of NSW agrees with the idea of broadening the land tax base across all residential properties, cutting the rate to be more equitable, economically efficient and result in more affordable housing.

Once this is done, it says, the rate can be dropped without reducing the government’s revenue.

While some say a broader-based land tax should be applied, others say land tax should be abolished altogether. What do you think?

Nicole Navarro is a journalist and subeditor of Australian Property Investor magazine, www.apimagazine.com.au