Rental rates increased by a record 10.0% in the year to September, following an identical rise in August, according to CoreLogic.

The sharp increase in demand corresponds with a significant reduction in supply, with the number of for-rent properties in September 35.4% below the previous five-year average.

And PropTrack economist Angus Moore has forecast that rents are likely to keep rising, as migration ramps up and demand for rental accommodation increases.

As he noted, Australian Bureau of Statistics data for August showed:

Furthermore, while annual population growth has not yet reached the pre-pandemic level of 1.5%, the latest data show it has now increased for four consecutive quarters:

“That increase in population will put upward pressure on rental demand amid already tight conditions,” Mr Moore said.

Demand is growing, but more supply may be on the way

Mr Moore said this is already showing up in rental price data.

“Rents are growing especially quickly in areas that recent migrants typically move to – these are mostly inner-city areas, often near major universities,” he said.

“Unsurprisingly, this pattern is the reverse of what we saw during the pandemic when borders were shut. During 2020 and 2021, inner-city areas had very weak rental markets and saw large declines in advertised rent prices, particularly in Sydney and Melbourne.”

Mr Moore said there were signs of investors returning to the market, which would increase rental supply and therefore reduce demand – but that this would be a slow process.

“The number of new investors relative to the size of the rental market is small,” he said.

Are you considering buying an investment property? Book an appointment and we can get the ball rolling on a home loan pre-approval.

Worsening extreme weather is leading to a rapid increase in insurance premiums and even an insurability crisis, according to a report by the Climate Council.

The biggest insurance risk is expected to come from riverine flooding, followed by bushfires and surface-water flooding.

“As the risk of being affected by extreme weather events is increasing, insurers are raising premiums to cover the increased cost of claims and reinsurance,” according to the Climate Council. 

By 2030, the Climate Council has estimated that across Australia:

The Climate Council has forecast that the share of properties that will be uninsurable by 2030 in each state and territory will be:

Policy recommendations

Climate Council research has found that a significant share of new home builds aren’t being insured – about 20% in northern Australia and 11% across the rest of Australia.

“For high-risk properties, banks may reduce access to credit, and credit risk for existing loans may rise, leading to declining property values. In some severe instances, areas may even become uninhabitable as banks no longer consider high-risk properties sensible for lending,” it said.

As a result, the Climate Council has recommended a series of actions, including:

There are steps you can take to check if your property, or a property you are interested in is considered at risk of climate-related risks. Reach out to find out more.

The official cash rate has lifted again today to 2.60% for the sixth consecutive month. This is the highest the rate has been since July 2013 when it was 2.75%.

The increase will impact any homeowner with a variable-rate or split home loan, or anyone considering taking out a new loan. But it isn’t only repayments that will be impacted. The increasing cash rate also impacts borrowing power. But what is borrowing power and how much does an increase in cash rate and its flow-on effect to interest rates impact it?

What is borrowing power?

Borrowing power is the amount of money a lender is willing to let you borrow to purchase property. This is also sometimes referred to as your borrowing capacity. The way it is calculated varies depending on the lender, but in general it takes into consideration your income, assets, liabilities, credit health, debts, deposit amount and the value of the property.  

Lenders are also expected to apply at least a three percentage points interest rate serviceability buffer (according to the Australian Prudential Regulation Authority’s guidelines). This means the lender will add at least three percentage points to the current interest rate to calculate repayments and ensure you will be able to meet them, hedging against future rate rises (for example a 3% p.a. interest rate would be raised to 6% p.a. With the serviceability buffer). 

When you speak to your broker, we calculate your borrowing power across the criteria of a number of lenders to give you an idea of how much you could borrow and therefore the top value of properties you may want to consider in your search. 

How do rising interest rates impact borrowing power?

When interest rates rise, your borrowing power is likely to decrease. This is because the repayments will increase and if your income isn’t also increasing, your ability to service that loan will drop. Let’s have a look at how borrowing capacity can be impacted as interest rates rise.

In this example, Nancy earns $110,000 per year pre-tax with no dependents, debts or credit card and the average Australian annual expenses of $16,500. For a loan term of 30 years, her borrowing capacity would change depending on the interest rate as follows:

3.0% p.a. – $830,000

3.5% p.a. – $784,000

4.0% p.a. – $741,000

4.5% p.a. – $702,000

5.0% p.a. – $666,000

5.5% p.a. – $632,000

6.0% p.a. – $602,000

As you can see, an increase of just half a percentage point makes a huge difference in Nancy’s borrowing power. If the lender passed on the RBA’s full increase in cash rate in its interest rates, which was by half a percentage point last month, and Nancy had been considering a loan at 4% p.a., the interest rate would have increased to 4.5% p.a. and her borrowing power would have dropped from $741,000 to $702,000 – decreasing her potential bid by $39,000. 

What if I have pre-approval?

Pre-approval is when a lender indicates they are satisfied you meet their criteria to borrow a specified amount. This is very helpful in refining your property search and bidding with confidence. However, something to keep in mind is that pre-approvals are conditional. If your circumstances change or interest rates increase, it could impact your pre-approval. While one increase in the cash rate is unlikely to void your pre-approval, if the cash rate increased three times during the period of your pre-approval (which is usually up to around three months), you may find the amount the lender is willing to lend you has decreased.

Because of this, it is a good idea to get pre-approval when you are likely to start making offers rather than waiting until the end of the pre-approval period. If something has not become available until later in your pre-approval period, speak to your broker to find out if it could have been impacted.

The important thing to keep in mind is that increasing interest rates do not mean doom and gloom. We have a panel of over 60 lenders and can find the right one for your needs. There are still competitive deals available, and we can help optimise your borrowing power through a number of steps and matching you with the right lender.

Depending on your perspective, rising inflation is either a threat for commercial investors or an opportunity, according to one of Australia’s leading commercial property analysts.

Ray White Commercial head of research Vanessa Rader said that while commercial property has often been perceived as a good hedge against inflation, the current inflation rate of 6.1% would be testing some landlords, particularly if they’re invested in asset classes with high vacancy rates.

 

As a “hedge against this high inflationary environment”, she said a growing number of commercial property owners had repurposed their assets to allow a broader range of uses, such as childcare, medical and co-working, all of which are growth sectors.

 

Four high-level observations from Vanessa Rader

  1. Industrial properties are “likely to weather the storm”. That’s because they’ve experienced a growth in demand, notably from the freight, transport and warehousing sectors. So they have low vacancy rates and “have enjoyed strong levels of rental appreciation”.

 

  1. Now that a significant share of people are working from home, businesses are reducing their office footprint. “As a result, sublease space continues to climb and incentives will remain a key strategy to fill space”. Short-term rental increases are unlikely, but “there are opportunities for landlords to be more flexible or innovative in their lease terms and conditions to maximise future escalations”.

 

  1. Tourism assets have had a difficult two years, due to border closures, lockdowns and reduced occupancy limits. Thankfully, tourism tenants are now enjoying an increase in domestic and international visitor numbers. However, they’re also having to deal with labour shortages and rising prices, which are affecting their profitability.

 

  1. The retail sector has been experiencing an increase in turnover. However, retail vacancies are high, so “there is little sign of rental growth on the horizon”.

 

I can help you buy a commercial property, whether for your business or investment purposes. Get in touch to discuss your options.

Australia’s economy expanded 0.9% in the June quarter, according to the most recent data from the Australian Bureau of Statistics.

That was the third consecutive quarter of economic growth, following a contraction in the September 2021 quarter, which was caused by the Delta outbreak and lockdowns in Sydney, Melbourne and other places.

 

The economy ended up growing 3.6% over the 2021-22 financial year. That compares to growth of 2.2% in the 2019 calendar year – just before the pandemic started.

 

Performance by industry

 

While the economy as a whole grew 3.6% last financial year, performance varied markedly between industries. Those that experienced the biggest year-on-year growth were:

 

 

And the sectors that experienced the least growth were:

 

 

With the economy growing, this could be a good time to invest in new plant, stock, equipment or machinery. Reach out if you need help financing the purchases.

 

The Albanese government has advanced two small business tax incentives that were announced in the Morrison government’s final budget.

Draft legislation has been introduced to parliament for the Skills and Training Boost and the Technology Investment Boost.

 

Under the Skills and Training Boost, small businesses can deduct an additional 20% of expenditure incurred on eligible training courses for employees. Businesses can continue to deduct ineligible expenditure in accordance with the existing tax law.

 

This measure will apply from 29 March 2022 until 30 June 2024.

 

Under the Technology Investment Boost, small businesses can deduct an additional 20% of expenditure incurred on business expenses and depreciating assets that support their digital adoption, such as portable payment devices and cybersecurity systems.

 

Businesses can continue to deduct ineligible expenditure in accordance with the existing tax law. 

 

An annual $100,000 cap will apply to each qualifying income year. Businesses can continue to deduct expenditure over $100,000 under existing law.

 

This measure will apply from 29 March 2022 until 30 June 2023.

 

Tax breaks welcomed by ombudsman

 

The small business ombudsman, Bruce Billson, said these tax breaks would make it easier for small businesses to invest in growth measures.

 

“This will mean small businesses will get a $120 tax deduction for $100 spent on digital uptake and upskilling staff,” he said.

 

“Locking in these measures will ensure small and family businesses are digitally enabled, resilient and have the support, incentives, skills and training needed to be truly competitive and to grow.

 

“Deeper digital engagement has been the saviour for many small and family businesses throughout the pandemic and assistance to build their digital capacity is an important investment in their future.”

 

Do you need finance to expand your business? If so, I’ll be happy to help.

 

Sources:

https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/exposure-draft-legislation-small-business-tax-incentives 

https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/small-business-technology-investment-boost

Businesses and commercial property investors will have to come to terms with a new commercial finance landscape.

That’s one of the key findings from a CBRE Research survey of 33 lenders – a mix of local banks, international banks and non-bank lenders – to the Australian commercial real estate sector.

 

Lenders expect interest rates to rise and for their margins to increase. “Collectively, this will put more pressure on serviceability / interest coverage ratio,” according to CBRE Research.

 

The survey also found that over 80% of banks have an appetite for loans with an LVR of 40-60%, with non-banks willing to accept over 60%.

 

“But the majority now require at least a part of the credit to be hedged. In fact, a quarter require at least 50% of the loan value hedged.”

 

Banks have mixed appetite for loans

 

For the final quarter of the 2022 calendar year, 36% of lenders forecast their appetite for new loans would increase, 15% said it would decrease and 48% that it would remain flat.

 

But lenders have different levels of interest in different asset classes, as they feel overexposed to some and underexposed to others.

 

Lenders felt they were “underweight” in the industrial and residential-to-rent sectors, but “overweight” with office, residential-to-sell, retail and alternatives.

 

“Transaction volumes are currently subdued while the market debates asset prices,” according to CBRE Research.

 

“Nonetheless, we see continued appetite from domestic banks and alternative lenders for quality sponsors with track record, sound assets and a clear asset management strategy. We have also seen increased enquiry on green and sustainability-linked loan product.”

 

I work with a range of lenders, so whether you’re a business or a commercial property investor, I can help you finance your purchase. Reach out to discuss your scenario.

Australians turned to mortgage brokers in record numbers during the June quarter.

Research group Comparator found brokers originated 68% of new home loans in the June quarter, compared to 32% for lenders.

That was a record broker market share for the June quarter, and was significantly higher than the year before (59%) and the year before that (57%).

“This is an incredible result for mortgage brokers, particularly in an environment of rising interest rates and a slowdown in the property market,” said Mortgage & Finance Association of Australia CEO Anja Pannek.

“It is clear from the strong growth in the proportion of home loans written by mortgage brokers over the past few years that customers value the service mortgage brokers offer.

“Market conditions like we are seeing now further highlight the benefits of using a mortgage broker, who can explain the array of different lenders, products and options available to their clients.”

 

Why broker market share keeps rising

When interest rates are rising, like they are now:

As a result, it is a good idea for consumers to shop around and tap into expert advice.

Unfortunately, when you go direct-to-lender, they will only be able to recommend their own products, even if they know there’s a better alternative. And they won’t be able to mention how your borrowing capacity might be higher at a rival bank.

Brokers, though, can compare home loans from dozens of different providers and recommend a lender that is suitable for someone with your unique profile.

Once you’ve chosen your preferred lender, your broker can then handle the intricate and time-consuming work of managing the loan application process.

 

I can compare the market for you and provide you with expert home loan guidance. Get in touch if you want to buy a property or refinance an existing loan.

 

With the property market cooling in many parts of Australia, many people may be wondering if now is a good time to buy as either a first-home buyer or investor.

Australia’s median property price fell 3.4% in the August quarter, according to CoreLogic, which could be either good news or bad depending on your perspective.

On the downside, no one likes the idea of buying an asset that then drops in value. So it’s tempting to sit on the sidelines until there’s undeniable proof the market is back in growth mode.

However, there are five reasons why buying now might actually be a good idea, depending on your personal circumstances.

 

  1. It’s impossible to know at the time when the market has bottomed out – you only find out months later once the market has rebounded enough to make it clear it’s growing again. So while buying at the bottom sounds great in theory, it’s almost impossible to purposely do in practice.

 

  1. There’s much less buyer competition now than at the start of the year, making it easier to buy a good home at a fair price.

 

  1. If you hold off buying until you’re certain the market is rising, you’ll be forced to compete with all the other buyers who decided to do the same thing, making buying harder.

 

  1. If you’re a first-home buyer, the sooner you buy a home the sooner you get to escape a rental market in which prices are rapidly increasing (see previous story). If you’re a property investor, the sooner you get to earn those fast-rising rents.

 

  1. Australia’s median price increased by an astonishing 382% in the 30 years to July 2022, despite a series of downturns along the way, according to CoreLogic. If history repeats, and if you hold your property for the long-term, any price falls you might suffer in the initial months would probably be dwarfed by the gains you make in the following decades.

 

Whether this is a good time to buy depends on your personal circumstances. But if you have a secure income and financial buffers in place, this could be an excellent time for first-home buyers and property investors to enter the market.

 

Unsure if now is the right time to buy? Get in touch and I’ll be happy to help you evaluate the pros and cons.

 

Australia’s state and territory building ministers have agreed to improve the energy efficiency of new homes.

New homes will now have to achieve a seven-star Nationwide House Energy Rating Scheme (NatHERS) rating, up from the previous six stars.

New homes will also have an annual energy use budget for their major appliances such as:

Property Council of Australia chief executive Ken Morrison said these changes would not only lower Australia’s emissions but would also benefit homeowners.

“Lifting the energy rating from six to seven stars has the potential to slash the average household energy bill by up to $576 a year, so for homeowners and renters alike, a seven-star home means big savings, as well as higher levels of comfort,” he said.

 

How NatHERS ratings are calculated

NatHERS ratings are based on scientific research by the CSIRO (the federal science research agency), as well as how an individual home suits the local climate. That, in turn, reflects the:

Hot water systems, lights and household appliances aren’t taken into account in NatHERS ratings, because they’re usually replaced several times in the building’s lifetime.

Making your home more energy-efficient requires an upfront investment but can produce significant savings over the long-term. Reach out if you need help financing the construction.

Sources

https://ncc.abcb.gov.au/news/2022/building-ministers-finalise-ncc-2022

https://www.nathers.gov.au/owners-and-builders/home-energy-star-ratings