Climbing house prices seem to scare people but houses are relatively more affordable today than they were in 1990, it’s actually interest-rate risk that’s the bigger problem for first home buyers.
If you look at latest numbers on house prices, as a measure of affordability, they use a “median measure” – that is, the ratio of median house price to median salary. According to the latest demographic survey, the price of the median Sydney house is 12.2 times the median salary, and it is 9.5 in Melbourne.
But it’s simply misleading to compare median-based measures of housing across different time periods in the same location. These simple median measures do not take into account differences in interest rates in different time periods.
A house in 2017 that costs nine times the median salary, when mortgage interest rates are less than 4 per cent, is arguably more affordable than a house in 1990 that costs six times the median salary. Interest rates in 1990 were 17 per cent.
Consider this simple example. In 1990 a first home buyer purchases an average house in Sydney priced at $194,000. With mortgage interest rates at 17 per cent, the monthly mortgage repayments were $2,765 for a 30-year mortgage. But in 1990 the average full-time total earnings was only $30,000 per annum, so the buyer’s mortgage repayments represented over 111 per cent of before-tax earnings.
In 2017 a first home buyer purchasing a Sydney house for $1,000,000, with interest rates at 4 per cent, is only required to pay $4,774 every month, or 69 per cent of their before-tax average full-time total earnings.
So, relatively, houses are substantially more affordable today than they were in 1990. The lower interest rate means the costs of servicing a mortgage is lower today than it was 25 years ago, or even 50 years ago.
Interest rate risk is the potential impact that a small rise in mortgage interest rates can have on the standard of living of homeowners. This does not consider the likely direction of interest rates, rather how a 1per cent change in interest rates affects the repayments required on a variable rate mortgage.
When interest rates rise so do mortgage repayments. But the proportional increase in repayments is higher when interest rates are lower. For example, if mortgage interest rates were 1per cent, then increasing interest rates by another 1per cent will double the interest costs to the borrower. When interest rates are higher, a 1per cent increase in interest rates will have a lower proportional affect on their repayments.
If we go back to the example from before, the interest rate risk of the first home buyer from 1990 is much lower than that of the 2017 buyer. If mortgage interest rates rose by 1 per cent in 1990, repayments would rise by only 5.7 per cent to $2,923. For the 2017 buyer on the other hand, a 1 per cent increase in interest rates would see their repayments rise by over 12 per cent to $5,368 per month.
This has the potential to financially destroy first home buyers and, due to the high reliance of the retail banking industry on residential real estate markets, potentially create a systemic financial crisis.
Interest rate risk has an inverse relationship to interest rates – when interest rates fall, interest rate risk rises. As a result, interest rate risk has been steadily increasing as mortgage interest rates have fallen. Given that we have record low interest rates at the moment, interest rate risk has never been higher.
Putting it all together
Compounding all of this is the general trend of interest rates.
In 1990 mortgage interest rates were at a record high and so our first home buyer could reasonably expect their repayments to decrease in the coming years. They could also reasonably expect that, as mortgage interest rates fell, demand for housing would increase (all else being equal) and so would house prices, generating a positive return on their investment.
But our 2017 first home buyer is buying when interest rates are at record lows. They cannot reasonably expect interest rates will fall or for their repayments to go down in future years. It’s also unlikely that house prices will increase as they have for previous generations.
So while the current generation of first home buyers find housing much more affordable than their parents, they face substantially higher interest-rate risk and a worse outlook for returns on their investment. If we wish to address the concerns of first home buyers we should look into these issues rather than exploiting misrepresentative median-based measures of house affordability.
Apart from addressing issues with the supply of housing, governments need to investigate ways to reduce interest rate risk over the longer term.
WITH 13 months to go until the 2018 Commonwealth Games, the Gold Coast property market is showing no signs of slowing with house prices in some suburbs jumping more than 30 per cent in the past year.
According to CoreLogic’s latest statistics, the Gold Coast recorded a 5.5 per cent increase in median house prices over the past 12 months and a 16.1 per cent increase over five years. Unit prices jumped 5.1 per cent over the 12 months but also 5.1 per cent over five years.
If you own a house in Mermaid Beach, Broadbeach Waters, Springbrook or Tweed Heads you could be sitting on gold, with property prices surging in those suburbs.
Mermaid Beach was the biggest mover, soaring 33.5 per cent over 12 months with a median house price now $1.395 million.
It was followed by Broadbeach Waters on 24.8 per cent and Springbrook on 20.4 per cent.
Tweed Heads, Hope Island and Tallebudgera also fared well and all recorded solid increases in median prices.
We adore life on the southern end of the Gold Coast, though, it’s fair to say, once the sun goes down the coastal stretches below Burleigh can fall into somewhat of a semi-slumber.
Yet there’s one beachside postcode we’ve totally got our eyes on right now, where rapidly rising real estate prices might have been the first indicator of things to follow. With a promising café scene already, Palm Beach has certainly come a long way in recent years. You’re reading it here first ‘cause the tail end of 2016 will witness one of the suburb’s biggest foodie evolutions yet. It seems the rumour mill has been working into overdrive, so we’ve sorted fact from fiction to bring you news of no less than a half dozen new cafés, restaurants and night spots!
We could very likely see Palm Beach emerge as the Gold Coast’s next Nobby Beach. Oops, did we just say that? Plus there’s another thing PB has squarely on its side, and that’s PARKING. Hallelujah! What’s best, you won’t have to wait long with several new venues working hard towards an early spring opening (read: September), when they’ll join the 4221 extended family including some of our fave Palm Beach hotspots—Lester and Earl, Burgster, Pablo Pablo, Espresso Moto, Barefoot Barista, Hendrixx, and Feather and Docks.
Hold onto your felt fedoras folks, ‘cause the remainder of 2016 = excitement levels skyrocketing!
Owners of long-standing Palm Beach restaurant Avvia have so much faith in the precinct, they are opening a second venture just down the road. There’s several ideas circulating about who’s undertaking a mammoth renovation of the orange-brick building a few doors north of Hendrixx. We can confirm the development will soon be unveiled as a fab pizzeria, Balboa Italian. Keeping only the original foundations and the brick and concrete pillars to uphold an old industrial look, the two-story venue will feature a forno (wood-fired pizza oven) sourced direct from Italy, exposed beams, chandeliers, imported lighting, plus a private dining room and a mezzanine level with an open void overlooking the ground floor dining room and bar. With a pizzaiolo (pizza chef), bar manager, and head waiter all hailing from the mother country, plus menu stars like home-made pastas, share-style plates, a stellar wine list (including some interesting imports from Israel), and a charcuterie cabinet with fresh prosciutto, cheeses, and classic Italian desserts, we are already drooling in anticipation.
Where: 1069 Gold Coast Highway, Palm Beach
We’ve already hinted about this neat new addition to Palm Beach. Vaughan and Rihannan, co-owners of much-loved café Feather and Docks, together with their cool tatted crew are just weeks away from unleashing their next venture. They too have trust in the exciting future of 4221 nightlife, opening a late-arvo-and-into-the-evening kinda venue. It’s intended the restaurant-bar hybrid will offer relaxed fine-dining with a firm focus on locally-sourced produce, including cheeses and beers. The chef plans to work closely with farmers in the region to take advantage of the freshest seasonal ingredients available. Currently under construction across the road from Feather and Docks, we’re told the crafty designer behind funky restaurant Bonita Bonita now has his hands on Bestow, so we can’t wait to see how the space evolves.
Where: 1170 Gold Coast Highway, Palm Beach
WILDERNIS CAFÉ + BAR
We’re intrigued to check this joint out when the doors slide open mid-September. Wildernis Café + Bar is the brainchild of Palmy locals Josh and Andy, two young local builders who design and construct on a daily basis. Developing their new baby during every spare waking moment of time, they’ve been both improvising and merging some of their fave architectural elements into the build, while taking inspo from their extensive world travels. These guys are holding their cards close to their chests at this point in time, but we expect there’ll be strong coffee, local brews, and plenty of kickin’ good times in between. And that’s totes cool, ‘cause we love surprises!
Where: Seventh Avenue, Palm Beach
HENDRIXX’S NEW ESPRESSO BAR
By now we hope you’ve discovered Palm Beach’s gorge new café, Hendrixx. So many have, in fact, you might agree the café’s hip interior is busting at the seams some weekends. Fortunately, the owner has a little wiggle room and will be expanding into the adjoining space previously occupied by a pop-up surf wear store. Intended to alleviate pressure from the front counter, the new barista bar will be perfect for treats and takeaways if you prefer your morning caffeine fix with a side of toes in the sand. There’s even whisper of a liquor license which may soon see Hendrixx’s luxe glass-tiled bar realise its full potential. Stay tuned.
Where: 1063 Gold Coast Highway, Palm Beach
BUT WAIT… THERE’S MORE!
Okay, folks. If you’re anything like us, you’re already overwhelmed with excitement in light of Palm Beach’s well-deserved coming of age. We also know this is simply too much to absorb in one go, so we’re holding back on a few surprises.
Let’s just say we’ve got it on solid authority there’s at least THREE additional ventures to be joining the line up (maybe more…) and, trust us peeps, they too will be freakin’ epic! Not only are both additional venues backed but some solid players in the local industry, but the teams are undertaking some serious construction works and going all out in an effort to impress.
We’ll be sharing deets with you as soon as these fine hospo folks give us the green light. In the meantime, get excited southern Gold Coasters ‘cause September, and the immediate months to follow, are gonna be SA-WEET!
Stage 3 Light Rail
Great news, $600,000 has been committed by City of Gold Coast for a feasibility study into Stage 3 of the Light Rail – Broadbeach to Gold Coast Airport and Coolangatta.
Tugun to Bilinga Oceanway
For those that enjoy riding a bike or walking along the beachfront, the council removed all encroachments from public land and turf laid in areas along this 1.7km stretch to form a natural walkway. The City’s Infrastructure and Planning offices are to present a report to the City Infrastructure Committee on 28 July. This was in response to a petition presented to City of Gold Coast in December 2015 in regards to installing a permanent oceanway.
What a great idea the Gold Coast City Council has just released.
New safety cameras and additional lighting at skate parks across the city will improve public safety and deter anti-social behaviour.
Cameras at eight skate parks will be linked to the wider Gold Coast safety camera network and monitored from a central control room.
The $438,000 project includes a 40 per cent funding contribution by the State Government.
Mayor Tom Tate said safety cameras already installed at five skate parks are proving effective.
“A skateboarder was recently injured at one of our parks and our camera monitoring staff quickly called an ambulance to assist,” said Cr Tate.
“Our skate parks are very popular, particularly with young people, so these spaces need to be safe for them and the rest of our community.
“The cameras have successfully deterred anti-social behaviour and vandalism in other parts of our city and we’re hoping they’ll have the same effect in our skate parks.”
In another boost for safer suburbs, Cr Tate announced an increased commitment towards the safety camera network in the coming budget.
“We’re committing more than $2 million towards safety in the coming budget. That’s a 10 per cent increase on last year’s budget,” Cr Tate said.
Cameras have been installed at skate parks at Helensvale, Miami, Elanora, Runaway Bay and Upper Coomera. The City is installing more cameras than initially anticipated after achieving cost savings in the current budget.
Three cameras at parks in Nerang, Mudgeeraba and Varsity Lakes have been added to the rollout with installation expected in coming weeks.
“The Gold Coast is one of Queensland’s most popular tourist destinations, as well as being a great place to live. It is critical that the city’s public spaces are safe for residents and for the vitality of the region’s tourism industry,” Ms Jackie Trad MP, Minister for Infrastructure, Local Government and Planning, said.
“I am pleased the State Government has contributed more than $175,000 to help Council make its popular skate parks safer through the Local Government Grants and Subsidies Program so residents can feel safe and live in a vibrant and connected community.”
There are 242 safety cameras monitored across the city’s major entertainment precincts including Surfers Paradise, Broadbeach, Southport and Coolangatta.
8 steps to getting started in property investment.
Admit it, you’ve been thinking about investing in property.
You’ve read the books, magazines and reports. You’ve been religiously checking real estate portals for properties.
Yet when push comes to shove, you get stopped.
You’re not alone. In fact less than 6% of Australians, or roughly 1.3 million people, own an investment property, even though property is a national past-time.
It’s not surprising. A lot of people get overwhelmed by the process and quit before they even begin. But it doesn’t have to confound. Reality is, property investing is relatively straightforward.
To help you begin your journey, here’s eight steps to starting a property portfolio on a solid ground, without losing your mind.
1. Check your finances
This can be as simple as listing all your assets, including incomes and work out your expenses.
This will give you an idea how much cash you have available to invest. Don’t immediately assume that you can’t afford to invest. As long as you have a stable and reasonably good paying job with solid employment history, you shouldn’t have a problem getting a loan.
2. Get a pre-approval
You can get pre-approval through your lender directly or through your trusted mortgage broker. Going through a broker before applying for a pre-approval can be beneficial if you’re not sure you’re financially ready to invest.
Applying for multiple pre-approvals is not a good idea. Each time you apply, the lender will check your credit record. If there are multiple inquiries, this sends a red flag to the lender and may refuse your application.
- Find out if you qualify for a loan
- Check your credit rating
- Consider reducing your debt or credit card limit
3. Set your goals
What are you looking to achieve? What does success look like to you? Property investors generally invest in property to secure their financial future or to be free to do what they want, when they want it.
In order for you to achieve your goals, you must first articulate what your goals are. More importantly, you need to set a deadline as to when you want to achieve these. Then you can work backwards.
For example, if you’re looking to replace your income and retire on your investments within 10 years, you can start by creating a 10-year plan, broken down further to 5-yearly, yearly, bi-annual all the way down to weekly timeline. This way you don’t get overwhelmed by the enormity of the task.
4. Understand your attitude to risk
Your risk profile will dictate your strategy. What sort of risk can you tolerate?
Getting an understanding of your own attitude to risk will help you create a strategy that reflects this.
5. Start budgeting
It’s not sexy. It’s not even remotely interesting. But budgeting is the only way to ensure you’re able to balance your income and expenses. It allows you to see where you’ve been spending your money and helps you to plan for bigger expenses down the line.
6. Create a purchase plan
What does an ideal purchase plan look like?
It should facilitate your goals of growing your portfolio to a point where it’s producing the growth or income you’re aiming for. It should serve as a structure for you to stay in the game.
Here’s an example of a purchase plan you can follow:
- Define your strategy
- Set up your criteria
- Do your research
- Cull your list
- Get appraisal
- Do your due diligence
- Make and offer and negotiate
7. Be informed
Use the tools available to you to make an informed decision. Knowing the market can be key to making the right investment choice.
Being informed also means being wary of get rich quick schemes and property peddlers. If someone is promising you guaranteed returns and overnight riches, walk away; the only person getting rich is them.
There’s no such thing as a property psychic and while there are tried and true methods to research, no one can make guarantees. Understanding your tolerance for risk will help you shape how much you’re willing to take on over the shorter and longer term.
8. Stay focused
Make sure you stay focused. Investing in property is a business decision, not an emotional reaction.
- Get clear about what you want to achieve
- Set a date as to when you want to achieve this goal
- Identify milestones you need to do to get to your goals
It’s easy to get overwhelmed when you’re starting something new and as massive as property investing.
But don’t give up. Just imagine in 10 years, if you buy the right properties this year, you could be sitting back, feeling happy, secure and even proud that you bought properties that more than doubled their values while your peers and everyone else wishes they’d bought back in the day.
How good would that feel?
You can’t change your property’s location or aspect, but you can change its presentation.
A fresh coat of paint
Grubby, marked, faded walls can really bring down the look of a property – and its selling price. A fresh paint job is reasonably cheap, but can make a house much easier to sell for a higher price. You can also cover up that feature wall that seemed like a good idea three years ago, but looks dated now.
Cleaning your house from top to bottom until it sparkles, and getting rid of the mess, is one of the best things you can do to improve the aesthetics of your home.
Consider hiring a professional cleaner to whip through the main areas, including the kitchen, bathrooms, living room and master bedroom. The cost is minimal compared to the potential gain.
Set the stage
If you show people how your property can best be lived in, you’ll create an emotional connection – making it easier to sell for a premium. Consider hiring furniture for the living room, master bedroom and patio.
“Many vendors overlook the fact that the first glimpse the eventual purchaser takes of your property is a photograph – usually on a website or in a newspaper,” says Helen Farquhar from Instant Property Staging on the Gold Coast. “This image must convince time-poor buyers to put your property on their must-view list. In other words, it allows your property to make the cut for a site inspection.”
Create an ambience
On the day of an open inspection, present the property in its most attractive light; this means turning on fans or air-conditioning units if it’s a hot day, opening the curtains and blinds to let the cool spring breeze in, and turning on lights in any dark, dim spaces.
Eynas is the editor of property investment magazine, Australian Property Investor (API). As an investor herself, Eynas is passionate about all things property and enjoys being able to apply what she learns on the job to her personal life.
Burleigh Heads to Gold Coast Airport
Personally I would love to see option A route go ahead, not only would it give access to the airport it would encourage people to venture south to enjoy the nightlife.
Approximate distance: 14km Idea 5 route would continue the current north-south route along the Gold Coast Highway connecting Burleigh and Gold Coast Airport. The extended track from Burleigh to the airport would directly service the suburbs of Tallebudgera, Palm Beach, Currumbin, Tugun and Bilinga, with further bus links to North Kirra, Kirra and Coolangatta. It would also enable southerly connections by bus to Tweed, Kingscliff and Northern NSW tourist areas opening up the city to business from the south. Along the route, it would take in popular entertainment precincts along Palm Beach, Tugun and Currumbin. It would also provide easy access to the popular Coolangatta beachfront markets and major events such as Cooly Rocks On. It would link all the universities – Southern Cross University, Bond University and Griffith University to the north. It would provide easy access to tourism and resort locations including Rainbow Bay, Greenmount and Kirra. In terms of employment, this extension would improve access to the light industrial areas around Currumbin and the airport. Most notably, it would provide a link for inbound and outbound visitors accessing and departing the airport for the tourist centres along the entire coastline.
Another great boost for the community. Get your kids active they will love it.
The Coplick Family Sports Park located on Tallebudgera Creek Road is currently undergoing a major redevelopment and expansion. This quality, fit-for-purpose sporting facility will deliver a key objective of the Gold Coast Sport Plan 2013 – 2023, by providing sporting infrastructure that will offer optimal sporting programs and activities for the southern Gold Coast. In April 2012, the City of Gold Coast purchased the golf course (Lot 7 Plan SP187063) adjacent to the Coplick Family Sports Park for the purposes of expanding the park and the number of sports fields, to create a major public sporting venue for the southern Gold Coast.
• additional soccer fields and practice field
• new playing fields
• connecting pathways
• storm water drainage systems improvements
• new entry and intersection upgrades from Tallebudgera Creek Road
• internal roads and car parks
• sports field, road and car park lighting
• power supply and distribution
• irrigation water reservoir and drainage control structure
• sports field irrigation systems, including irrigation shed and pump well
• water supply and effluent rising main
• associated landscaping throughout the park.
Schedule of works:
Commenced: July 2015 Completion: June 2016 (subject to favourable weather conditions) Cost: $7,820,000