When you buy a property, your initial ‘equity’, or ownership stake, is whatever deposit you put down to qualify for the loan, which is often 20%.

Typically, your equity rises as the years advance, through a combination of you paying down your mortgage and your property increasing in value, as this hypothetical example shows:

So, after eight years, your equity has increased from 20% to 52%, or $200,000 to $650,000. At this stage, your equity gain is paper wealth. But there are two ways it can be turned into actual cash.

The first is to sell your home, repay the mortgage and pocket the difference – but you would need to find somewhere else to live.

The second is to borrow against the equity and use that money, including to fund the deposit on an investment property.

How to grow your asset base

To continue the hypothetical example, you decide to leverage $160,000 of the equity into a new $640,000 loan, and use those funds to purchase an $800,000 investment property. 

So your equity in your home falls from $650,000 to $490,000, or 52% to 39%, while your equity in the investment property is $160,000, or 20%.

Generally, when you ‘cash out’ equity in this way, lenders want you to retain at least 20% equity in the first property – which has been done in the hypothetical example.

The downside of your hypothetical investment property purchase is that your overall debt has increased from $600,000 to $1.24 million.

However, your asset base has jumped from $1.25 million to $2.05 million. Also, your debt level is still conservative, because your overall loan-to-value ratio is just 61%. 

Refinancing made easy

‘Cashing out’ equity is a popular wealth-building strategy that many Australians have used over the years to create property portfolios.

As part of the strategy, you’ll need to refinance your existing home loan, which means going through the standard mortgage application process once again.

I’ll help you with the entire process, from comparing home loans and shortlisting the leading options to structuring your loan and managing your application, to make it as smooth and stress-free as possible.

Rents and property prices are rising strongly in much of Australia due to an undersupply of properties, leading some commentators to call for reforms that would stimulate the construction of a significant amount of new build-to-rent (BTR) housing.

Generally, developers sell all the new housing they build, often during the construction period. But with BTR, developers – who may be backed by institutional investors – retain the properties and rent them out, often with a much greater guarantee of rental security than with traditional rental properties.

The theory is that if a lot of quality BTR properties came onto the market, that would put downward pressure on rents. It would also put downward pressure on prices, by making renting a more attractive proposition and therefore reducing the number of active buyers.

Government announces BTR stimulus

The federal government recently unveiled draft legislation to introduce tax incentives to encourage investment and construction in the BTR sector.

The incentives apply to BTR projects that:

“Industry estimates that changes to promote build‑to‑rent investment will make an important contribution to achieving this national target and could see an extra 150,000 rental homes built over the next decade,” Treasurer Jim Chalmers said.

“We have a plan to kickstart the construction of more homes, to attract more institutional investment, to cut red tape and planning hurdles, to help more Australians into home ownership, to support renters, and to help those who need a safe home the most.”

BTR snapshot

A Real Estate Institute of Australia report on the BTR sector in Sydney, Melbourne and Brisbane found it was still in its infancy but poised for significant growth.

So far, fewer than 3,800 BTR dwellings have been built in those three cities.

“However, the pipeline of projects either under construction, planning-approved or proposed is enormous compared to current stock levels. There are 44,139 units at various stages of the development journey, with 29% of these under construction. A further 24% have planning approval and 42% are in the process of seeking planning approval,” according to the report.

The report said institutional investors might prefer to invest in residential BTR property over commercial property due, in part, to the stable and predictable returns.

“While fluctuations in residential vacancy rates do occur, the long-term average vacancy rate is far lower than that of office property. Generous incentives have also become ingrained in commercial property leases in Australia, with incentives offered to tenants as high as 40% of the lease value not uncommon in office leasing deals in the current market.”

 

Sources:

https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/building-more-affordable-rental-homes 

https://reiv.com.au/our-industry/news/reia-build-to-rent-report-update

If you’re wondering how much money you need to earn to purchase property, new modelling has found the answer.

The following calculations are based on the median house price and assuming the buyer has a 20% deposit.

Buyers in Sydney would need a gross annual income of $192,400 per year to purchase a two-bedroom house, based on Domain property price data and Canstar analysis of mortgage serviceability rules. They’d need to earn $217,800 per year for a three-bedroom house and $281,100 per year for a four-bedroom house.

Melbourne buyers would need to earn $146,100 for a two-bedroom house, $153,100 for a three-bedroom house and $173,800 for a four-bedroom house.

Adelaide ranks third in terms of income requirements – buyers would need to earn $120,000 per year to purchase a two-bedroom house, $135,700 for a three-bedroom house and $167,000 per year for a four-bedroom house.

In Brisbane, buyers would need $113,000 to purchase a house with two bedrooms, $137,400 with three bedrooms and $153,900 with four bedrooms.

Domain and Canstar modelled one other capital city, Perth, where buyers would need an annual household income of $99,300 for a two-bedroom house, $111,800 for a three-bedroom house and $137,400 for a four-bedroom house.

Three tactics to beat out other buyers

Part of the reason it can be challenging to afford your dream home is that prices are rising in the vast majority of housing markets throughout Australia. Over the year to March, prices rose in 88.4% of markets throughout Australia, according to CoreLogic.

That means buyer competition is strong.

With that in mind, here are three things you can do to improve your chances of beating out other buyers:

  1. Make a fair offer – begin with a realistic bid, rather than a lowball offer, because real estate agents often favour buyers they regard as serious.
  2. Be flexible with settlement – you might be able to win over the vendor if you can offer them a special deal on settlement, such as an extended settlement or a buy-and-leaseback offer.
  3. Get ahead of the auction – if you make a strong offer ahead of the auction (assuming that’s how the property is being sold), the vendor might decide a bird in the hand is worth two in the bush and accept your deal.

One final point – it can make a difference to get a home loan pre-approval before you start your property search, because agents prefer buyers who are able to transact quickly.

I can help you with the pre-approval. I’ll compare loans from a diverse range of lenders, shortlist the standout offers and then manage your application.

The Northern Territory leads the way for housing affordability, with 100% of locations deemed affordable, according to the PropTrack Housing Affordability Index.

Next come Western Australia on 41%, Queensland on 23%, South Australia on 14% and the ACT on 10%.

They’re followed by New South Wales on 10%, Victoria on 8% and Tasmania on 7%.

A location is deemed affordable when calculations show buyers on a median household income spend no more than 25% of their pre-tax income on mortgage repayments and can afford to purchase at least 20% of homes in that location (based on sale prices recorded between July 2023 and March 2024).

Affordability is high in many outback locations, but low in most capital cities.

The most affordable locations in the five big capital cities

The most affordable parts of Sydney are in the west and south-west, with 18% of homes in Canterbury deemed affordable, 15% in Liverpool, 10% in Mount Druitt, 9% in Parramatta and 6% in Auburn, according to PropTrack.

Melbourne is unusual in that the inner city is the most affordable part of the city, thanks to the large number of units, while the western suburbs are also relatively affordable. Affordability hotspots included Melbourne City (24%), Maribyrnong (18%), Melton-Bacchus Marsh, Tullamarine-Broadmeadows and Brimbank (all 6%).

Brisbane‘s most affordable locations are in the south and west, and include Springwood-Kingston (20%), Beenleigh (17%), Beaudesert (12%), Ipswich Inner (10%) and Ipswich Hinterland (8%).

Adelaide has become a lot less affordable since the pandemic, thanks to the city’s strong price growth. The most affordable parts of the city tend to be to the north of the CBD, and include Adelaide City (12%), Playford (7%), Gawler-Two Wells (5%), Salisbury (4%) and Port Adelaide-West (2%).

Perth‘s most affordable locations are in the south, and include Belmont-Victoria Park (22%), Kwinana (20%), Mandurah, Armadale (both 17%) and Gosnells (16%).

How to afford a property

Understanding where housing may be more affordable could feed into your broader investment strategy, though it is important to also consider growth or yield. If you’re an investor, you may have equity in an existing property that could go toward a deposit.

If you’re looking to buy your first home, the federal government’s First Home Guarantee and Regional First Home Buyer Guarantee schemes give eligible buyers the chance to purchase a property with just a 5% deposit, without paying lenders mortgage insurance (LMI).

The federal government also helps eligible single parents enter the market with just a 2% deposit, without paying LMI.

Get in touch if you’d like to buy a property in 2024. I can explain your options to you, and will also be happy to manage your home loan application.

Stamp duty is both an increasingly expensive tax and a highly inefficient one, according to joint research by the e61 Institute and PropTrack.

Four decades ago, the average buyer in Sydney, Melbourne, Brisbane and Adelaide needed to work for about one month to afford to pay stamp duty, based on comparing the average post-tax income with the median-priced property of that time. Today, though, it takes about six months’ work in Sydney and Melbourne, five in Adelaide and four in Brisbane.

PropTrack Senior Economist Angus Moore said there were two reasons stamp duty had become more expensive.

First, property prices have grown faster than incomes. 

“Between the early 1980s and today, median prices have increased two to three times faster than incomes. That means that stamp duty has also increased faster than incomes,” he said.

Second, stamp duty tax brackets have not been adjusted regularly enough to account for higher property prices. 

“Each bracket pays stamp duty equal to the amount that a home just below the bracket pays, plus a higher ‘marginal rate’ for every dollar the purchase price exceeds the bracket threshold. These marginal rates get higher with each successive dollar,” Mr Moore said.

“This structure of higher marginal rates kicking in as the sale price crosses a particular threshold means that average tax rates – the stamp duty paid divided by the purchase price – increase as the price increases.”

 

Stamp duty vs land tax

Higher stamp duty costs aren’t just an irritant for buyers – they also have a negative economic impact, according to the e61 Institute-PropTrack report.

Stamp duty costs “dull economic vibrancy by reducing the frequency of purchases and moves,” the report said.

“Using a natural experiment when Queensland hiked stamp duty in 2011, we show that for each percentage point stamp duty rates rose, the volume of home purchases fell 7.2%. Separate data show that the rate of people changing addresses was similarly affected.”

Inhibiting the movement of people may reduce economic growth.

“Since the mid-90s, stamp duty has tripled relative to income and annual labour productivity growth has dropped from 3% to 1%. While many things determine productivity, we do know that: a) job switches are associated with wage and productivity gains; b) the productivity slowdown has coincided with a decline in job switching; and c) switching jobs can require moving,” according to the report.

As a result, the report argues the economy would benefit if stamp duty was replaced with a land tax.

One reason is that the revenue from a land tax would be more stable than from stamp duty, because it wouldn’t be subject to the volatility in property purchases.

Also, a land tax would be more efficient because it:

Get in touch if you’re planning to buy a property. I can advise you on how much stamp duty you’ll have to pay and manage your home loan application from start to finish.

For the past few years, Tesla has been synonymous with electric vehicles (EV) in both Australia and other markets outside China. But that may be changing.

In the December 2023 quarter, Chinese manufacturer BYD sold more EVs throughout the world than Tesla, while in January BYD outsold Tesla in Australia, according to the Australian Financial Review.

That said, Tesla is still the dominant local player. Tesla sold 46,116 vehicles in Australia in 2023; by comparison, BYD sold 12,438 last year and hopes to sell 20,000 this year.

It should also be noted that motorists continue to heavily favour traditional vehicles over EVs. During February, battery electric vehicles accounted for 9.6% of sales, compared to 6.8% the year before, according to the Federal Chamber of Automotive Industries.

 

New vehicles set to become more fuel-efficient

Meanwhile, the federal government has made progress on its plan to introduce a New Vehicle Efficiency Standard (NVES), after publishing an options paper and inviting public comment.

One of the goals of the NVES will be to incentivise global vehicle manufacturers to send cleaner, cheaper-to-run cars to Australia. Currently, passenger cars in Australia use, on average, 20% more fuel than those in the US, according to the paper.

Under the government’s preferred option, there would be a 61% reduction in average new car emissions from 2024 to 2029 to reach alignment with the US around 2028.

“An average new car buyer in 2028 will cut their fuel costs by around 40% compared to what they pay today,” the options paper said. “An average new car buyer in 2028 will cut their annual fuel costs by around $1,000. EV drivers could also save around $350 per year in maintenance. An average vehicle purchaser in 2028 will save $5,710 over five years.” 

The government hopes to make an announcement on its final position and introduce legislation this year, before launching the NVES on 1 January 2025.

Whether you want to buy a traditional or electric vehicle, I can help. My recommendation is to contact me before you visit a dealer, so I can help you get pre-approved for a car loan and confirm your budget.

 

Australia’s fourth-largest mortgage lender, ANZ, is one step closer to acquiring the country’s ninth-largest, Suncorp Bank, after winning an appeal against an earlier rejection of the deal.

ANZ and Suncorp agreed the deal in July 2022, but the Australian Competition & Consumer Commission (ACCC) decided, in August 2023, not to authorise the takeover because it was “not satisfied that the acquisition is not likely to substantially lessen competition in the supply of home loans nationally, small to medium enterprise banking in Queensland, and agribusiness banking in Queensland”.

However, last month, the Australian Competition Tribunal overruled the ACCC, after finding ANZ’s takeover of Suncorp “would not be likely to have the effect of substantially lessening competition.” It said it believed the benefit the merge offered outweighed the potential negatives.

Completion of the deal remains subject to legislative amendments by the Queensland parliament and approval by the federal Treasurer.

 

What to expect from the ANZ takeover of Suncorp

So what does it mean for consumers if their bank is taken over by another?

It depends.

That’s because each deal is unique. For this specific takeover, ANZ promised:

Often, when a larger bank takes over a smaller bank, the buyer aims not only to grow its customer base but also find efficiencies. That generally involves consolidating the two sets of systems, products and marketing into just one.

ANZ has licensed the Suncorp Bank brand for five to seven years; after that, it’s possible Suncorp branches and products will switch to the ANZ brand.

 

Toyota was the clear market leader in 2023, in what was a record-breaking year for new vehicle purchases.

Motorists bought 1,216,780 new vehicles last year, which was a 2.3% increase on the previous record, set in 2017, according to the Federal Chamber of Automotive Industries.

More than one in six of those buyers, or 17.7%, chose a Toyota.

Mazda achieved an 8.2% market share, Ford 7.2%, Kia 6.3% and Hyundai 6.2%.

The other leading brands in 2023 were Mitsubishi (5.2% market share), MG (4.8%), Tesla (3.8%), Subaru (3.8%) and Isuzu Ute (3.7%).

 

Tesla driving rise in alternative vehicles

Another interesting trend that played out during 2023 was motorists’ growing preference for alternative vehicles.

The market share of battery electric and hybrid vehicles rose from a combined 11.3% in 2022 to 15.3% in 2023, while petrol vehicles declined from 53.3% to 48.4%.

That had a lot to do with Tesla, which failed to crack the top 10 brands list in 2022 but ranked eighth in 2023.

 

How the brands compare on wait times

Average wait times rose steadily over the first eight months of the year, before plummeting over the final four, according to Price My Car. 

The average wait time for a new vehicle started at 118 days in January 2023, peaked at 159 days in August and fell to 63 days in December.

As of December, the average wait time for the top 10 brands mentioned earlier was:

Want to buy a new vehicle? Please contact me before you start your search, so I can compare loans for you, manage your application and make sure you get a competitive interest rate.

There’s been a noticeable slowdown in rental growth, although it’s not yet clear whether this is an out-of-the-ordinary result or sign of a trend.

Across Australia, the median rent in the December 2023 quarter experienced 11.5% year-on-year growth but only 1.8% quarter-on-quarter growth, according to PropTrack.

PropTrack Senior Economist Angus Moore said the rental market remains very tight in many parts of the country, due to “strong demand and very low vacancy rates”.

However, as far as tenants are concerned, “there are some signs that rent growth may be slowing, and some relief on the horizon.”

 

Five pros of investing in property

  1. Price growth. The median Australian property price has experienced incredible growth over the decades.
  2. Rental income. As a property investor, you not only enjoy capital growth, you also collect rental income each month.
  3. Leverage. You can use the power of leverage to acquire a very valuable asset with a relatively small amount of money (e.g. a 20% deposit) – while being entitled to 100% of the capital growth and rental income.
  4. Negative gearing. If the costs of managing your investment property exceed your rental income, you may be able to use that loss to reduce your taxable income (although please see a tax professional for personal advice).
  5. Depreciation. Depending on your scenario, there’s a good chance you can further reduce your taxable income by claiming for depreciation of the home, as well as its fixtures and fittings (again, please get professional advice).

 

How to buy your first investment property

There are two main ways to become a property investor.

The first is to save the money you need to fund a deposit.

The second (if you’re already an owner-occupier) is to borrow against the equity in your home and use that money to fund the deposit. That way, you can potentially buy an investment property without contributing any of your own savings. Of course, both options come with pros and cons, as does property investing in general. It’s also worth noting that while property investing is a great option for a lot of Australians, it’s not suitable for everyone. Don’t hesitate to reach out if you’re wondering whether property investing is right for you. I’ll be happy to answer any questions you might have, to help you make an informed decision.

 

One of Australia’s leading property economists, Ray White Group Chief Economist Nerida Conisbee, has given 10 insights about what to expect from the property market this year.

Price growth will continue. Market forces will lead to further price growth in 2024, according to Ms Conisbee. “At this point, housing supply remains extremely low and many people that would be new home buyers are being pushed into the established market. Big jumps in rents are pushing more first home buyers into the market and population growth is continuing to be strong,” she said.

The luxury apartment market will soar. “Demand is increasing for much larger, higher quality, more expensive developments,” Ms Conisbee said. “This year, fewer apartments being built, growing population and a desire to live in some of Australia’s most sought after inner urban areas will lead to a boom in luxury apartment demand.”

Buyers will snap up seachange homes. Ms Conisbee said some beachside holiday destinations are underpriced, because a lot of people who bought during the pandemic have sold in recent times, driving down prices. “While prices are much more affordable, it may not last long with housing shortages a problem in many of these highly desirable parts of the country,” she said. 

Interest rates will peak. “Inflation remains persistent but is starting to come down. This means we may see another rate rise in 2024, however it does look like interest rates are either at peak, or very close,” Ms Conisbee said. “While it is good news, the bad news is that we are unlikely to see a rate cut until late 2024 or early 2025.”

Housing supply will remain a hot issue. Ms Conisbee said Australia is “a world leader in not building enough homes and this is the key reason why housing is so expensive.” As a result, supply will remain a major policy focus in 2024.

Rental growth will slow. “With household size increasing again, we are starting to see a stabilisation in rents, however it will take some time for new home development to catch up,” Ms Conisbee said.

Investor numbers will remain low. One reason rents have been rising is because the vacancy rate is so low. Ms Conisbee said rental supply will remain an issue this year, due to limited investor activity. “Interest rates are too high and there are a lot of impediments to owning a rental property relative to other investments. While this should improve marginally in 2024, there will remain a shortage,” she said.  

The investor landscape will change. With fewer people in the office, commercial property has become less desirable, which has driven some institutional investors to the residential sector. “Spanning build to rent, retirement living, aged care and land lease, the ‘living’ sectors are hot property, driven by a shortage of homes and population growth. In the next 12 months and beyond, your landlord may be the company that previously owned the office building you worked in or the shopping centre you visited on the weekend,” Ms Conisbee said. 

More people will live alone. Ms Conisbee said long-term social and demographic shifts are leading to an increase in the number of people living alone. “Changing lifestyle preferences, delayed marriage and an ageing population are contributing factors,” she said.

Homes will become greener. Environmentally friendly homes will become more popular, according to Ms Conisbee. That’s because they’re not only cheaper to run but safer, as they’re more likely to be cooler in summer and (for those who cook with electricity rather than gas) provide better respiratory and cardiovascular health outcomes.