Paul Castran - CEO - Castran Gilbert

With affordability at its lowest level on record, first-home buyers are thinking outside the square.  And by outside the square, we’re talking inside the family!

The home-ownership dream rarely used to feature a sibling in your bathtub and a parent on your certificate of title. These days though, first-home buyers are becoming more flexible.

Housing affordability fell to record lows in the March quarter this year according to the latest Housing Industry Association-Commonwealth Bank report.                Mortgage payments accounting for 30.7 per cent of total first-home buyer income these days!

Generations X and Y are also settling down later meaning for many home ownership is a solo battle.

It’s not surprising then that increasing numbers of first-home buyers are teaming up with siblings, parents or friends in a bid to break into the property market.

“There’s been a noticeable trend towards family members buying property together, as property prices are still very high, particularly for first-home buyers,” says Aussie Home Loans boss John Symond.

The number of family members taking out mortgages together has jumped from about 1% of all loans originated by ‘Aussie’ to 5 per cent over the past two years!   Mortgage Choice has reported a similar trend. A survey carried out by the company last year revealed more than 6 per cent of people who bought property within the past two years had done so with family or friends. And of those who intended to buy property within the next two years, over 8 per cent intended to do so with family or friends!

INVESTORS own around two million homes in Australia and every year thousands of them claim deductions they’re not entitled to, falling foul of the Australian Taxation Office.

The result can be a kind warning or a significant fine and large interest bill.

The tax office says investors’ should be responsible in getting their tax returns right and they can’t blame their accountant or plead ignorance if they get it wrong.

One of the most common mistakes investors make is claiming items that should be depreciated over several years.

According to the ATO, initial repairs to fix damage, defects or deterioration that existed when a property was bought are capital expenses that should be claimed as capital-works deductions over either 25 or 40 years.

Capital improvements like re-modelling a bathroom or adding a pergola should also be claimed as capital-works deductions.

Other mistakes include:

Interest

Taxpayers at times use loans for investing and private purposes — for example, to buy or renovate a rental property or to buy a motor boat.

The interest expense on the private portion of the loan (the boat) is not deductible!

Legal expenses

Conveyancing expenses incurred when buying and selling a property aren’t deductible. These form part of the cost for capital-gains tax purposes.

Travel expenses

If you take a holiday and visit your investment property while you’re there, you cannot claim a deduction for the full trip.

The tax office says you may claim only those expenses directly related to the property inspection and a proportion of accommodation expenses.

CASHED-UP Melburnians keen to snatch beachfront holiday homes from struggling vendors could be in for a big surprise!

Plunging average prices for regional seaside homes really don’t tell the full story.

Valuer-General Victoria sales figures released this month by Land Victoria show median house prices rose in a third of seaside towns!

From the end of 2007 to the end of last year, prices fell in 16 of 30 coastal towns and stayed level in four others!

Hardest hit  …Port Fairy with a 34.6 per cent drop from $390,000 in late 2007 to $255,000 at the end of last year. Average house prices also fell dramatically in Blairgowrie, Barwon Heads, Portarlington and Rosebud West.

Anne Murphy of Stockdale & Leggo said Port Fairy sales during the summer were the best in the eight years she’s been there, with the big drop in the median house price for Port Fairy not because property values have fallen. Instead, figures have been skewed by tightly held, top-end properties being kept off the market.

“We’ve been recommending they delay selling because demand isn’t that strong.”

People have owned houses here for 30 to 50 years. They’re kept in the family and passed down. So unless unforeseen circumstances such as a divorce occur, why sell in this market if you don’t have to?

But Murphy says those Port Fairy vendors in the current market are more realistic than past years.

“We’re not expecting a good summer season with the economy the way it is, but we’ve had extremely good results in the number of sales and most sales were within 10 per cent of asking prices.”

“In the last 18 months in our office there has been only one sale of a property that sold for less than the vendor paid for it!”

“Most properties here are about $450,000. You don’t get much for your money under $400,000.”

That still hasn’t stopped holiday-home hunters prowling Port Fairy.

“We’ve had people come in looking for that bargain,” “I personally don’t have any bargains but there are realistically priced properties and motivated vendors who’ll negotiate.”

A historic fishing port, Port Fairy is now a popular holiday and retirement town famed for its annual folk festival about 290km west of Melbourne.

In today’s low-interest-rate environment a common question property investors ask is, “What happens if we buy now and interest rates skyrocket, like back in the 1980’s?”

An understandable concern and today’s historically low interest rates can’t be sustained forever because at some point the economy will begin recovering, inflation will grow and rates will rise!

That’s the economy’s cyclical nature for you.

When rates do rise it’s doubtful they’ll hit the dizzying heights of the late 1980s. The major lenders certainly don’t think so; they’re setting their 10year fixed rates about 7per cent.

With vast resources and access to the world’s top economic minds, it’s highly unlikely that major lenders will make the wrong call about the future direction of interest rates.

But for argument’s sake that they do and rates climb back to the heady levels of 20 years ago.

If interest rates go up that far it’s a sign that business and consumer confidence is high. When rates go up so does inflation. And when inflation rises, so do property values. Sure, your holding costs will be higher because of higher interest rates but as an investor you will benefit on three fronts.

High rental returns

First-home buyers won’t be prowling the property market for a buy as it’s less affordable in a high-interest-rate environment. This will keep them in the rental market, put pressure on the available rental accommodation and drive up asking rents. The higher the interest rates the higher the investment yield!

Negative gearing benefits

If your expenditure on the property exceeds your rental income, you’ll be able to soften the impact and increase your cash flow by claiming the difference as a tax deduction.

Substantial sale proceeds

If you can’t afford to hold the property …sell it. Whilst not an ideal scenario, your property will have grown substantially in value during the time of high inflation so you’ll be better off than when you purchased it and that’s the aim of investing!

MELBOURNE’s auction market had its highest clearance rate over the weekend since the end of the property boom in December 2007.

Of 452 properties up for auction, 83 per cent sold and 77 properties passed in!

However, the number of properties for auction was 126 fewer than at the same time last year!

The CEO of Real Estate Institute of Victoria attributed the high clearance rate to the extension of the first-home buyer’s grant announced in last week’s federal Budget, combined with low interest rates and an increase in investor numbers.

“It’s off a low base. There were not a lot of auctions,” Mr Raimondo said.

The part of the market performing really well is priced at or below the medium of about $410,000.

The next two weeks we expect to see just under 1300 auctions, which is a very high number of auctions at this time of the year.

“I expect the clearance rate to remain high until the September 30 when the full first-home owner’s boost will be phased out.”

Flat and apartment clearances were also very strong: 90 per cent of 136 properties at auction sold.

The latest residential land report from the Housing Industry Association revealed Melbourne’s median land price grew 0.7 per cent in the December quarter to a record $152,000.

The HIA-RP Data residential land report showed the price of land in Melbourne was up 4.8 per cent over the year.

The median land price in regional Victoria fell 2.8%in the December quarter to $97,250, the lowest price since mid-2007!

Home buyers are flocking back to variable rate mortgages which now account for 91% of the residential lending market, their highest proportion in four months.

Mortgage broker Mortgage Choice reported in April basic variable mortgages accounted for 48.15 per cent of all home loans approved - up nearly one per cent from March, while standard variable mortgages comprised 42.77 per cent of the market, down 1.47 per cent from March.

Basic variable loans generally have less loan features than a standard variable loan.

Fixed rate loans accounted for four per cent of all approvals.

Basic variable loans have been the most popular loan type though for the last four months after overtaking standard variable for the first time in January 2009!

Rates charged on variable home loans move in line with interest rates set by the Reserve Bank of Australia which successively cut its overnight cash rate since September last year to a 49-year low!

And despite interest rates being at their lowest in decades, the sensitive global and domestic economic climate is having a strong influence over loan product preferences.

Consumer conservatism with rates and fees continues to win out against loan flexibility and extra features.

Line of credit loans in April, popular with property investors, posted a fall, five per cent down from the previous month.

Commitments for owner-occupied housing rose 4.9 per cent in March, seasonally adjusted, to 59,793, Australian Bureau of Statistics data showed this month.

Total housing finance by value rose 6.7 per cent in March, seasonally adjusted, to $20.688 billion, based on the latest data available.

Melbourne’s outer suburb vacancy rates have improved from 0.7 per cent to 1.8 per cent in the past six months, according to the Real Estate Institute of Victoria’s April vacancy rates.

Rental vacancy rates across Melbourne are reasonably steady having been between one and 1.4% for          12 months.  However it‘s significant that there’s a noted improvement in the outer suburbs.

The improvement most likely due to the number of first homebuyers moving from rented accommodation into their own homes with the assistance of the grants, bonus and boosts.

The March quarter median prices show that most of the marketplace activity has been in the outer suburbs; for instance Craigieburn, Melton South, Hillside, Epping, Caroline Springs, Werribee and Meadow Heights – all outer suburbs of Melbourne very popular with first homebuyers.

It‘s great news for renters if a by-product of the grants, bonus and boosts is an improvement in availability of rental accommodation, however monitoring of the situation over the next few months will tell of any continual improvement..

The last month’s REIV members figures show a very minor change in the inner suburbs where the vacancy rate moved from 1.5 to 1.3 per cent and in the middle suburbs where it moved from 1.4 to 1.3 per cent.

Buying properties within 10km of capital cities is generally a good investment, but where ARE these affordable areas …and do they exist?

There’s some suburbs within 5km of capital city centres where the median unit price is $200,000 and the gross rental yield 5.33%?

You don’t have to buy that far from the city centre to pick up a bargain!

And it’s not a bad strategy for identifying best value properties to find ones located in affordable suburbs within a 10 kilometre radius of the city!

For some cities, the inner circle can be more or sometimes less, depending on the size of the city, however, generally it’s a good rule of thumb because it’s these areas that are more likely well serviced by transport, have social and retail amenities close by AND benefit from strong rental demand!

Below are the five most affordable suburbs for houses and units within a 5kay radius of Melbourne City.

Melbourne - houses

Melbourne - units