PRETORIA (Reuters) - South Africa's economy exited its first recession in almost two decades, growing by 0.9 percent in the third quarter on a seasonally adjusted and annualised basis, Statistics South Africa said on Tuesday.
Analysts said the better-than-expected GDP figure for the third quarter meant the country's monetary loosening cycle was over.
The third quarter growth came after three consecutive quarters of decline and from a revised decline of 2.8 percent in the second quarter, better than the 3.0 percent first estimate.
On an unadjusted basis, the economy fell by 2.1 percent year-on-year.
The unadjusted real GDP for the first 9 months of 2009 was down 1.8 pct on the same period last year, pointing to a contraction for the year roughly in line with the Treasury's forecast of a 1.9 percent fall.
A Reuters poll of 17 economists last week showed the GDP number was expected to come in at a rise of 0.2 percent on a seasonally adjusted quarterly basis and fall by 2.7 percent on an unadjusted year-on-year basis.
Statistics South Africa also revised annual economic growth for 2008 upwards to 3.7 percent and 5.5 percent for 2007. The agency said the economy grew by 5.6 percent in 2006.
"The short-term indicators seem to tell us that the economy is picking up but long-term indicators tell us the economy is still (weak)," said Joe De Beer, head of economic analysis and research at Stats SA.
Stats SA rebased and benchmarked GDP to 2005 and included illegal activities such as drugs trade and prostitution for the first time. It said these activities only added about 3.5 billion rand to the economy, 0.2 percent of GDP.
"South Africa's better-than-expected GDP outcome closes the door on any further interest rate cuts, and potentially brings the timing of the first rate hike closer," said Annabel Bishop, economist at Investec.
The central bank has since December cut interest rates by 5 percentage points to help stimulate the economy and left rates unchanged at its three previous meetings.
She added however that "a sharp, V-shaped recovery is still unlikely" due to the country's heavy dependence on global demand and the high job losses and company failures locally.
The rand firmed slightly after the data, trading at 7.4875 against the dollar at 1010 GMT, compared to 7.51 before the figures were released. The yield on the 2015 government bond fell to 8.45 percent from 8.46 percent.’
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Tuesday, November 24, 2009
Monday, November 9, 2009
House price inflation resumes
ABSA Housing Index – 4th November 2009
After almost a year of nominal year-on-year house price deflation in the South African housing market, some price inflation was recorded in the past two months, according to Absa’s calculations. Based on recent price trends, it was expected that annual nominal price growth would resume shortly. On the back of these developments as well as declining consumer price inflation in recent months, real price deflation slowed down further in September.
House prices in the middle-segment (see explanatory notes) were up by a nominal 2,6% year-on-year (y/y) to R991 200 in October 2009, after rising by a revised 1,3% y/y in September. Month-on-month price inflation came to 1,1% in October. In real terms, house prices in the middle segment of the market were down by 4,6% y/y in September (-6% y/y in August).
The average nominal price of small houses (80m²-140m²) were down by a nominal 3,1% y/y in October, compared with a decline of 3,6% y/y recorded in September after revision. This brought the average nominal price of small houses to about R657 200 in October. In real terms, the average price of houses in this segment was 9,2% y/y lower in September, after declining by a revised 9,8% y/y in August.
In the category of medium-sized houses (141m²-220m²), the average nominal price declined by 4,4% y/y in October (-4,5% y/y in September after revision), which brought prices in this segment to around R908 300. Taking account of inflation, this resulted in a real price decline of 10,1% y/y in September, unchanged from August.
Nominal price growth in respect of large houses (221m²-400m²) accelerated to 3,2% y/y in October this year, after increasing by a revised 2,6% y/y in the preceding month. This caused the average nominal price to rise to R1 417 400 in October.
The average price of large houses was down by a real 3,3% y/y in September, compared with a drop of 4,2% y/y in August. The latest trends with regard to house prices are encouraging, which are based on a further rise in transaction volumes in October, compared with September. This came after transaction volumes appear to have bottomed in August this year.
Despite massive job losses recorded in the third quarter of 2009, there are indications from various economic indicators, such as the South African Reserve Bank’s leading and coincident business cycle indicators, that the economy is on its way to recovery. Although the household sector is still very much under pressure on the back of declining employment, while real disposable income growth is negative territory, housing market conditions are expected to improve further towards the end of the year and into 2010. Better economic conditions, as well as banks’ less tight lending criteria and the lagged effect of lower interest rates, will provide much needed support to the property market during the course of the next twelve months.
Taking account of house price trends in the first ten months of 2009, nominal price deflation of less than 1,5% seems possible for the full year compared with 2008. Average nominal house price growth of up to 3% in 2010 is attainable if the latest trends prove to be sustainable. Real price deflation of around 8% is forecast for 2009, while prices may decline further in real terms next year on the back of nominal house price and inflation projections.
After almost a year of nominal year-on-year house price deflation in the South African housing market, some price inflation was recorded in the past two months, according to Absa’s calculations. Based on recent price trends, it was expected that annual nominal price growth would resume shortly. On the back of these developments as well as declining consumer price inflation in recent months, real price deflation slowed down further in September.
House prices in the middle-segment (see explanatory notes) were up by a nominal 2,6% year-on-year (y/y) to R991 200 in October 2009, after rising by a revised 1,3% y/y in September. Month-on-month price inflation came to 1,1% in October. In real terms, house prices in the middle segment of the market were down by 4,6% y/y in September (-6% y/y in August).
The average nominal price of small houses (80m²-140m²) were down by a nominal 3,1% y/y in October, compared with a decline of 3,6% y/y recorded in September after revision. This brought the average nominal price of small houses to about R657 200 in October. In real terms, the average price of houses in this segment was 9,2% y/y lower in September, after declining by a revised 9,8% y/y in August.
In the category of medium-sized houses (141m²-220m²), the average nominal price declined by 4,4% y/y in October (-4,5% y/y in September after revision), which brought prices in this segment to around R908 300. Taking account of inflation, this resulted in a real price decline of 10,1% y/y in September, unchanged from August.
Nominal price growth in respect of large houses (221m²-400m²) accelerated to 3,2% y/y in October this year, after increasing by a revised 2,6% y/y in the preceding month. This caused the average nominal price to rise to R1 417 400 in October.
The average price of large houses was down by a real 3,3% y/y in September, compared with a drop of 4,2% y/y in August. The latest trends with regard to house prices are encouraging, which are based on a further rise in transaction volumes in October, compared with September. This came after transaction volumes appear to have bottomed in August this year.
Despite massive job losses recorded in the third quarter of 2009, there are indications from various economic indicators, such as the South African Reserve Bank’s leading and coincident business cycle indicators, that the economy is on its way to recovery. Although the household sector is still very much under pressure on the back of declining employment, while real disposable income growth is negative territory, housing market conditions are expected to improve further towards the end of the year and into 2010. Better economic conditions, as well as banks’ less tight lending criteria and the lagged effect of lower interest rates, will provide much needed support to the property market during the course of the next twelve months.
Taking account of house price trends in the first ten months of 2009, nominal price deflation of less than 1,5% seems possible for the full year compared with 2008. Average nominal house price growth of up to 3% in 2010 is attainable if the latest trends prove to be sustainable. Real price deflation of around 8% is forecast for 2009, while prices may decline further in real terms next year on the back of nominal house price and inflation projections.
Thursday, October 29, 2009
South Africa cuts forex controls to curb rand
Business Day, 28/10/2009
THE Treasury unexpectedly announced sweeping new measures to relax exchange controls yesterday in a bid to weaken the rand to a more “competitive” level and cut red tape for investors.
“We are concerned about the fact that the exchange rate is as strong as it is — we wish we had the capacity to intervene in a more assertive way than we are able to do at the moment,” Finance Minister Pravin Gordhan said.
He was speaking to reporters at the release of the Treasury's medium-term budget, which makes it easier for companies and individuals to invest offshore.
The rand weakened nearly 1% to R7,69/ in response to the news, which was widely welcomed.
The measures included removing a 180-day time limit during which local companies were required to convert foreign exchange earnings into rands, although they still have to repatriate the money within a month.
South African companies will now be able to open foreign bank accounts without prior approval. Local firms can also now invest up to R500m anywhere offshore without prior approval, up from R50m previously.
A foreign capital allowance for residents — last adjusted in 2006 — was doubled to R4m.
“This is definitely unexpected and a pleasant surprise. It shows the authorities are being more long-term in their thinking,” said Razia Khan, Standard Chartered regional research head, Africa.
The rand has been one of the best-performing currencies in the world this year, scaling a 14-month peak at R7,15/ earlier this month.
Its sustained strength has threatened to erode the competitiveness of local exports and undermine SA’s fragile economic recovery.
Reserve Bank officials have said it is expensive for them to mop up the excess rands generated by foreign exchange purchases, which would normally help weaken the currency.
Treasury officials said they were “confident” there would not be a big outflow of capital at a time when the global financial crisis has forced many other countries to tighten financial regulations.
“We are confident South Africans will invest in our country, they’ve seen the grass is not so green on the other side,” Treasury deputy director-general Ismail Momoniat told Business Day.
“We are confident we can relax these things ... we think South Africans will see this as a good place to invest.”
The decision to loosen exchange controls was seen as a masterstroke that would keep markets, business and labour unions happy. It also signalled that the authorities were confident the rand would find its feet regardless of the global circumstances.
“This will be welcomed by investors. The shift to the left — if there is such a thing — has not detracted from market-friendly policy so far,” Khan said.
Analysts say the rand has appreciated or depreciated 20% in seven of the past 14 years. Its volatility is a much bigger concern than its level as it makes it difficult for business to plan ahead.
“A more stable and competitive real exchange rate is important for growth,” the Treasury said. “Reform of exchange controls can facilitate greater two-way flow of capital and help to reduce volatility.”
Treasury officials said they had not taken a view on the most desirable level of the rand. Treasury director-general Lesetja Kganyago said there were no official estimates of capital outflows. “Who knows, there may be capital inflows,” he said.
“What’s important is to undertake reform with a goal in mind ... you want to lower the cost of doing business, and remove the hassle factor with respect to exchange controls.”
There were rumours last week of a plan, backed by Economic Development Minister Ebrahim Patel, to fix the exchange rate of the rand at a particular level, which is impossible in the face of global market forces.
Gordhan said the Treasury would assist the Reserve Bank in any way it could to build its foreign exchange reserves, which help cushion the economy from external shocks and make foreign exchange intervention possible. They stand at about 40bn.
Scott Picken, CEO of IPS says, “The new changes in the reserve bank legislation are very exciting for South Africans. Now they can take out R4 million per person and also R750 000 per year as a travelling allowance. This allows them a far greater opportunity to take advantage of the opportunities overseas, especially if they had reached the original limit of R2 million. With a strong Rand and good growth prospects in Australia, along with the guaranteed market related rentals through the leaseback program, this is certainly something South Africans should be looking into at the moment. We also have some very exciting prospects which we are about to Launch in the London!"
Go to www.ipsinvest.com for more information.
IPS
THE Treasury unexpectedly announced sweeping new measures to relax exchange controls yesterday in a bid to weaken the rand to a more “competitive” level and cut red tape for investors.
“We are concerned about the fact that the exchange rate is as strong as it is — we wish we had the capacity to intervene in a more assertive way than we are able to do at the moment,” Finance Minister Pravin Gordhan said.
He was speaking to reporters at the release of the Treasury's medium-term budget, which makes it easier for companies and individuals to invest offshore.
The rand weakened nearly 1% to R7,69/ in response to the news, which was widely welcomed.
The measures included removing a 180-day time limit during which local companies were required to convert foreign exchange earnings into rands, although they still have to repatriate the money within a month.
South African companies will now be able to open foreign bank accounts without prior approval. Local firms can also now invest up to R500m anywhere offshore without prior approval, up from R50m previously.
A foreign capital allowance for residents — last adjusted in 2006 — was doubled to R4m.
“This is definitely unexpected and a pleasant surprise. It shows the authorities are being more long-term in their thinking,” said Razia Khan, Standard Chartered regional research head, Africa.
The rand has been one of the best-performing currencies in the world this year, scaling a 14-month peak at R7,15/ earlier this month.
Its sustained strength has threatened to erode the competitiveness of local exports and undermine SA’s fragile economic recovery.
Reserve Bank officials have said it is expensive for them to mop up the excess rands generated by foreign exchange purchases, which would normally help weaken the currency.
Treasury officials said they were “confident” there would not be a big outflow of capital at a time when the global financial crisis has forced many other countries to tighten financial regulations.
“We are confident South Africans will invest in our country, they’ve seen the grass is not so green on the other side,” Treasury deputy director-general Ismail Momoniat told Business Day.
“We are confident we can relax these things ... we think South Africans will see this as a good place to invest.”
The decision to loosen exchange controls was seen as a masterstroke that would keep markets, business and labour unions happy. It also signalled that the authorities were confident the rand would find its feet regardless of the global circumstances.
“This will be welcomed by investors. The shift to the left — if there is such a thing — has not detracted from market-friendly policy so far,” Khan said.
Analysts say the rand has appreciated or depreciated 20% in seven of the past 14 years. Its volatility is a much bigger concern than its level as it makes it difficult for business to plan ahead.
“A more stable and competitive real exchange rate is important for growth,” the Treasury said. “Reform of exchange controls can facilitate greater two-way flow of capital and help to reduce volatility.”
Treasury officials said they had not taken a view on the most desirable level of the rand. Treasury director-general Lesetja Kganyago said there were no official estimates of capital outflows. “Who knows, there may be capital inflows,” he said.
“What’s important is to undertake reform with a goal in mind ... you want to lower the cost of doing business, and remove the hassle factor with respect to exchange controls.”
There were rumours last week of a plan, backed by Economic Development Minister Ebrahim Patel, to fix the exchange rate of the rand at a particular level, which is impossible in the face of global market forces.
Gordhan said the Treasury would assist the Reserve Bank in any way it could to build its foreign exchange reserves, which help cushion the economy from external shocks and make foreign exchange intervention possible. They stand at about 40bn.
Scott Picken, CEO of IPS says, “The new changes in the reserve bank legislation are very exciting for South Africans. Now they can take out R4 million per person and also R750 000 per year as a travelling allowance. This allows them a far greater opportunity to take advantage of the opportunities overseas, especially if they had reached the original limit of R2 million. With a strong Rand and good growth prospects in Australia, along with the guaranteed market related rentals through the leaseback program, this is certainly something South Africans should be looking into at the moment. We also have some very exciting prospects which we are about to Launch in the London!"
Go to www.ipsinvest.com for more information.
IPS
Tuesday, October 27, 2009
To rent or to buy: weighing up the options
By Anthony Keane
News Limited newspapers
October 26, 2009 12:00am
Renting v buying
"We have an absolute affinity with owning our own castle," says Ironfish's Damon Nagel / Your Money
IT'S a lie to say that numbers don't lie. This is especially true in the real estate debate about whether you are financially better off renting or buying a house.
Crunching the numbers for this argument can produce almost any answer you like, depending on the assumptions made for factors such as interest rates, house prices, rental costs, investment growth and tax deductions.
And, of course, there's the matter of trying to save up the tens of thousands of dollars it usually takes to build a deposit.
The "rent money is dead money" line is a fair claim in many cases, but things can get murky when the money saved by renting is invested elsewhere typically shares or an investment property that have tax incentives.
It's easy enough to compare the basics. For example, Brisbane's median asking rent for a house is $360 a week, according to a report by Australian Property Monitors. The median house price for Brisbane is $419,000, says the Real Estate Institute of Australia.
Related Coverage
* Readers' Comments: Renting versus buying - PerthNowPerth Now,
* Readers' Comments: 'Rate rises will hurt property' - PerthNowPerth Now,
* Lower age, higher risksThe Australian, 30 Sep 2009
* Love affair with houses not always bestNEWS.com.au, 14 Sep 2009
* Reader's Comments: Housing taxes under spotlightNEWS.com.au,
Your Say
this is depressing, what single person earns 70k a year? i'm 20 and earning just under 50k, i've got a couple k in saving...
(Read More)
jeff of brisbane
The interest cost of a $419,000 loan based on a 6.5 per cent interest rate is $524 a week, and for an 8.5per cent interest rate it is $685 a week. But the basics just don't tell the full story.
Damon Nagel, managing director of property investment firm Ironfish, says most people don't consider the long list of other factors that affect the renting versus buying decision.
He says people can benefit by owning investment property while themselves living in a rented residence, although these "rental investors" are uncommon.
"We have an absolute affinity with owning our own castle."
Home ownership offers a sense of security and the ability to change your living environment without seeking permission, Nagel says, which often outweighs any financial benefits.
He has calculated that a single person earning $70,000 a year who buys a $400,000 home with a 20 per cent deposit will spend $469 a week, based on a 6.5 per cent home loan rate and taking into account all the extras such as council rates and mortgage set-up costs.
But a renter in an equivalent $400,000 property would pay $420 a week a saving of $50.
"When interest rates go higher than 7 per cent, it's even more of a no-brainer to be a rental investor," Nagel says.
"The argument shifts back to buying your own home when rates are low."
Tax deductions worth considering
The key factor is the tax deductions property investors can claim something that owner/occupiers cannot do. But a big benefit of being an owner/occupier is that you pay no tax on your property's capital growth.
"What you save on a swing you lose on the roundabout," he says.
So what is his verdict rent or buy? "It's a Russian roulette question. If I was young and starting out I would do a rental investment. If I had my own home I would keep my own home."
Making your first home an investment property is a strategy also recommended by the chief executive of property company Investa Solutions, Ian Lloyd.
"People tend to do things the traditional way and are scared of doing something a different way, but this strategy means you still own property, and at the worst you can go and move into your investment property," he says.
Young Australians can benefit from having a tenant help repay their property. "I'm trying to encourage my youngest son at 18 to buy his first property at 19 he will be able to set it up to work for him before he leaves university."
Lloyd says the tax deductions are usually the biggest when the investment property is new. "A lot of people forget that you can take your tax benefits in your weekly, fortnightly or monthly pay packet. You don't have to wait until tax time to get the benefit," he says.
An income tax variation form is available on the Tax Office website, although Lloyd suggests people get their accountant to have a quick look at this strategy.
"Another thing that people miss is the growth you are getting is on a very big asset," he says.
"It only has to go up 10 per cent on a $300,000 property and you have gained $30,000."
Renting a low-hassle option
Smartline Personal Mortgage Advisers managing director Chris Acret says renting can be attractive for people who want to avoid maintenance costs or want the flexibility to move without the costs and hassles associated with selling a property.
"Renting may also be a good option for people who want to live in a suburb close to the city or the beach, but can't afford to buy a property in that area," he says.
"You could buy a property in an adjoining suburb which isn't as expensive but still has good scope for capital growth and rent that out while you rent a property in your preferred suburb."
Of course, the money saved by renting should be channelled into investment, he says.
"The most important thing is to be doing something proactive about creating wealth for you and your family. The biggest mistake people make is doing nothing."
AMP financial planner Darren James says people should remember that property is not a get-rich-quick strategy.
"At present the cost of borrowing is relatively low, but this environment won't last forever," says James, of MBA Financial Strategists. "Another factor that makes real estate risky in the short term is transaction costs.
"These tend to be pricey often thousands of dollars for stamp duty and agents' fees so buyers need to consider the financial implications," he says.
"Those wanting better short-to-medium-term investment returns could consider other strategies such as managed funds or putting money into a high-interest savings account. For those who are prepared to wait to reap the rewards, home ownership remains a reliable long-term investment.
"At the end of the day, the unique needs of the people have to be taken into account, as well as time frames, tax effectiveness and an investor's attitude to risk."
Club Financial Services director David Garner believes in buying rather than renting.
"People might worry they will be in debt for 30 years, but the alternative is you rent for the rest of your life," he says.
While house price inflation will lower the relative size of the home loan over time, renters always have their costs adjusted upward.
"You are always paying a percentage of your income in rent," he says.
Garner says people who end up choosing the renting option need to make sure their savings are properly invested.
"Do people have the discipline to do that or does it just get blown on lifestyle?" he says.
"It's very rare that we would come across someone in a fantastic financial position who rents their home and has an investment property. Most people have equity in their own home."
Scott Picken from IPS, says, "Remember there are also huge advantages to owning investment property prior to immigrating to Australia and you can make sure you are getting the best return on your capital. When you are ready to buy you dream "house" your investment properties can really assist you."
Contact IPS on www.ipsinvest.com for more information.
News Limited newspapers
October 26, 2009 12:00am
Renting v buying
"We have an absolute affinity with owning our own castle," says Ironfish's Damon Nagel / Your Money
IT'S a lie to say that numbers don't lie. This is especially true in the real estate debate about whether you are financially better off renting or buying a house.
Crunching the numbers for this argument can produce almost any answer you like, depending on the assumptions made for factors such as interest rates, house prices, rental costs, investment growth and tax deductions.
And, of course, there's the matter of trying to save up the tens of thousands of dollars it usually takes to build a deposit.
The "rent money is dead money" line is a fair claim in many cases, but things can get murky when the money saved by renting is invested elsewhere typically shares or an investment property that have tax incentives.
It's easy enough to compare the basics. For example, Brisbane's median asking rent for a house is $360 a week, according to a report by Australian Property Monitors. The median house price for Brisbane is $419,000, says the Real Estate Institute of Australia.
Related Coverage
* Readers' Comments: Renting versus buying - PerthNowPerth Now,
* Readers' Comments: 'Rate rises will hurt property' - PerthNowPerth Now,
* Lower age, higher risksThe Australian, 30 Sep 2009
* Love affair with houses not always bestNEWS.com.au, 14 Sep 2009
* Reader's Comments: Housing taxes under spotlightNEWS.com.au,
Your Say
this is depressing, what single person earns 70k a year? i'm 20 and earning just under 50k, i've got a couple k in saving...
(Read More)
jeff of brisbane
The interest cost of a $419,000 loan based on a 6.5 per cent interest rate is $524 a week, and for an 8.5per cent interest rate it is $685 a week. But the basics just don't tell the full story.
Damon Nagel, managing director of property investment firm Ironfish, says most people don't consider the long list of other factors that affect the renting versus buying decision.
He says people can benefit by owning investment property while themselves living in a rented residence, although these "rental investors" are uncommon.
"We have an absolute affinity with owning our own castle."
Home ownership offers a sense of security and the ability to change your living environment without seeking permission, Nagel says, which often outweighs any financial benefits.
He has calculated that a single person earning $70,000 a year who buys a $400,000 home with a 20 per cent deposit will spend $469 a week, based on a 6.5 per cent home loan rate and taking into account all the extras such as council rates and mortgage set-up costs.
But a renter in an equivalent $400,000 property would pay $420 a week a saving of $50.
"When interest rates go higher than 7 per cent, it's even more of a no-brainer to be a rental investor," Nagel says.
"The argument shifts back to buying your own home when rates are low."
Tax deductions worth considering
The key factor is the tax deductions property investors can claim something that owner/occupiers cannot do. But a big benefit of being an owner/occupier is that you pay no tax on your property's capital growth.
"What you save on a swing you lose on the roundabout," he says.
So what is his verdict rent or buy? "It's a Russian roulette question. If I was young and starting out I would do a rental investment. If I had my own home I would keep my own home."
Making your first home an investment property is a strategy also recommended by the chief executive of property company Investa Solutions, Ian Lloyd.
"People tend to do things the traditional way and are scared of doing something a different way, but this strategy means you still own property, and at the worst you can go and move into your investment property," he says.
Young Australians can benefit from having a tenant help repay their property. "I'm trying to encourage my youngest son at 18 to buy his first property at 19 he will be able to set it up to work for him before he leaves university."
Lloyd says the tax deductions are usually the biggest when the investment property is new. "A lot of people forget that you can take your tax benefits in your weekly, fortnightly or monthly pay packet. You don't have to wait until tax time to get the benefit," he says.
An income tax variation form is available on the Tax Office website, although Lloyd suggests people get their accountant to have a quick look at this strategy.
"Another thing that people miss is the growth you are getting is on a very big asset," he says.
"It only has to go up 10 per cent on a $300,000 property and you have gained $30,000."
Renting a low-hassle option
Smartline Personal Mortgage Advisers managing director Chris Acret says renting can be attractive for people who want to avoid maintenance costs or want the flexibility to move without the costs and hassles associated with selling a property.
"Renting may also be a good option for people who want to live in a suburb close to the city or the beach, but can't afford to buy a property in that area," he says.
"You could buy a property in an adjoining suburb which isn't as expensive but still has good scope for capital growth and rent that out while you rent a property in your preferred suburb."
Of course, the money saved by renting should be channelled into investment, he says.
"The most important thing is to be doing something proactive about creating wealth for you and your family. The biggest mistake people make is doing nothing."
AMP financial planner Darren James says people should remember that property is not a get-rich-quick strategy.
"At present the cost of borrowing is relatively low, but this environment won't last forever," says James, of MBA Financial Strategists. "Another factor that makes real estate risky in the short term is transaction costs.
"These tend to be pricey often thousands of dollars for stamp duty and agents' fees so buyers need to consider the financial implications," he says.
"Those wanting better short-to-medium-term investment returns could consider other strategies such as managed funds or putting money into a high-interest savings account. For those who are prepared to wait to reap the rewards, home ownership remains a reliable long-term investment.
"At the end of the day, the unique needs of the people have to be taken into account, as well as time frames, tax effectiveness and an investor's attitude to risk."
Club Financial Services director David Garner believes in buying rather than renting.
"People might worry they will be in debt for 30 years, but the alternative is you rent for the rest of your life," he says.
While house price inflation will lower the relative size of the home loan over time, renters always have their costs adjusted upward.
"You are always paying a percentage of your income in rent," he says.
Garner says people who end up choosing the renting option need to make sure their savings are properly invested.
"Do people have the discipline to do that or does it just get blown on lifestyle?" he says.
"It's very rare that we would come across someone in a fantastic financial position who rents their home and has an investment property. Most people have equity in their own home."
Scott Picken from IPS, says, "Remember there are also huge advantages to owning investment property prior to immigrating to Australia and you can make sure you are getting the best return on your capital. When you are ready to buy you dream "house" your investment properties can really assist you."
Contact IPS on www.ipsinvest.com for more information.
Not as rosy as it sounds
MARIKA DOBBIN, property market editor
October 26, 2009
SOME in the real-estate game may have experienced deja vu in the lead-up to this weekend. Not the pleasurable kind, but an eerie feeling that inspires the biting of fingernails and twirling of hair.
The market hit peak supply on Saturday, only the 10th time in the past five years that auction listings have approached 1000 or more.
It was bigger than even the 820 that went under the hammer on the weekend before this year's AFL grand final, in a rush to sell before the Federal Government's first home buyers grant was cut in half.
The last time Melbourne had such a blockbuster auction event was on the same weekend last year, when the property market was in the depths of the slump. Back then, the glut of stock was not met by a surge in demand, and the clearance rate fell to 53 per cent, the worst result for vendors in many years.
This weekend's clearance rate of 82 per cent is evidence of how much the market has recovered, largely due to low interest rates and grants for first home buyers. Given the result, it seems safe to say the sustainability of the recovery towards Christmas is solid, with demand seemingly unabated despite interest rates now on the rise and the grants being wound up.
It has been a remarkable purple patch for vendors and agents, who have been so spoiled by clearance rates of 80 per cent or more for five months that some have come to think of it as normal. Far from it. Instead, the phenomenon is an indication of a market way out of balance, with supply nowhere near enough to satisfy demand.
Beyond that, there are some other key differences in the current market compared to the meltdown this time last year. Firstly, there is much less uncertainty about the economic outlook. Back then, it was the global picture that rattled Australian property market nerves, evidenced by the fact property was the first sector to bounce back.
Secondly, unlike 2007 and the first half of 2008, the market has been starved of stock for the year, with enough pent-up demand to carry into next year.
Another difference now is that investors, who retreated last year and have been wary of overpaying due to first home buyer enthusiasm, are on the charge. Data for August showed while the value of lending to owner-occupiers fell by a seasonally adjusted 1.7 per cent, lending to investors rose by 7.6 per cent (it's been rising for months).
Investors own 30 per cent of Australian real estate and that stake is getting bigger, according to Property Planning Australia. Their number and comparative wealth make them a much more powerful market force than first home buyers, who have driven competition for a year but traditionally make up less than 10 per cent of the market.
''First home buyers are very small in number, so they can enter the market with momentum but then die out very quickly,'' PPA director Mark Armstrong says. ''When investors compete with first home buyers, that is the start of a moving market. When investors compete with other investors, that is when a market really moves.''
Cumulative interest rate rises of 1 per cent are likely to knock many first home buyers out of the market. But investors are better protected and history shows that rates could increase by as much as 2.5 per cent before it cools investor demand.
The grants for first-timers have had no discernible effect on the rental squeeze. While rental growth slowed to a crawl in the first half of the year, rents are still at record highs and could start to move up again, as those prospective first home buyers who were priced out now look to sign new leases.
Yet for investors, the big problem will be a lack of investment-grade stock. The market has been skewed this year by a shortage of stock across all sectors, one reason that prices have climbed to new highs, with $30,000 growth to the median price in just three months.
Current listings show a scattering of affordable apartments and houses within 12 kilometres of the CBD. Property adviser Monique Wakelin says investors with more than $600,000 to spend will be at an advantage: ''The six weeks from now until the end of November is going to be the best buying time in that mid-priced bracket we are likely to see for quite some while.''
But investors playing in the $300,000-600,000 range may have to sit on their hands until next year - not good news for those wanting to grow their fingernails.
October 26, 2009
SOME in the real-estate game may have experienced deja vu in the lead-up to this weekend. Not the pleasurable kind, but an eerie feeling that inspires the biting of fingernails and twirling of hair.
The market hit peak supply on Saturday, only the 10th time in the past five years that auction listings have approached 1000 or more.
It was bigger than even the 820 that went under the hammer on the weekend before this year's AFL grand final, in a rush to sell before the Federal Government's first home buyers grant was cut in half.
The last time Melbourne had such a blockbuster auction event was on the same weekend last year, when the property market was in the depths of the slump. Back then, the glut of stock was not met by a surge in demand, and the clearance rate fell to 53 per cent, the worst result for vendors in many years.
This weekend's clearance rate of 82 per cent is evidence of how much the market has recovered, largely due to low interest rates and grants for first home buyers. Given the result, it seems safe to say the sustainability of the recovery towards Christmas is solid, with demand seemingly unabated despite interest rates now on the rise and the grants being wound up.
It has been a remarkable purple patch for vendors and agents, who have been so spoiled by clearance rates of 80 per cent or more for five months that some have come to think of it as normal. Far from it. Instead, the phenomenon is an indication of a market way out of balance, with supply nowhere near enough to satisfy demand.
Beyond that, there are some other key differences in the current market compared to the meltdown this time last year. Firstly, there is much less uncertainty about the economic outlook. Back then, it was the global picture that rattled Australian property market nerves, evidenced by the fact property was the first sector to bounce back.
Secondly, unlike 2007 and the first half of 2008, the market has been starved of stock for the year, with enough pent-up demand to carry into next year.
Another difference now is that investors, who retreated last year and have been wary of overpaying due to first home buyer enthusiasm, are on the charge. Data for August showed while the value of lending to owner-occupiers fell by a seasonally adjusted 1.7 per cent, lending to investors rose by 7.6 per cent (it's been rising for months).
Investors own 30 per cent of Australian real estate and that stake is getting bigger, according to Property Planning Australia. Their number and comparative wealth make them a much more powerful market force than first home buyers, who have driven competition for a year but traditionally make up less than 10 per cent of the market.
''First home buyers are very small in number, so they can enter the market with momentum but then die out very quickly,'' PPA director Mark Armstrong says. ''When investors compete with first home buyers, that is the start of a moving market. When investors compete with other investors, that is when a market really moves.''
Cumulative interest rate rises of 1 per cent are likely to knock many first home buyers out of the market. But investors are better protected and history shows that rates could increase by as much as 2.5 per cent before it cools investor demand.
The grants for first-timers have had no discernible effect on the rental squeeze. While rental growth slowed to a crawl in the first half of the year, rents are still at record highs and could start to move up again, as those prospective first home buyers who were priced out now look to sign new leases.
Yet for investors, the big problem will be a lack of investment-grade stock. The market has been skewed this year by a shortage of stock across all sectors, one reason that prices have climbed to new highs, with $30,000 growth to the median price in just three months.
Current listings show a scattering of affordable apartments and houses within 12 kilometres of the CBD. Property adviser Monique Wakelin says investors with more than $600,000 to spend will be at an advantage: ''The six weeks from now until the end of November is going to be the best buying time in that mid-priced bracket we are likely to see for quite some while.''
But investors playing in the $300,000-600,000 range may have to sit on their hands until next year - not good news for those wanting to grow their fingernails.
The Australian Property Market and the Global Recession
Australia is one of the few countries, along with Canada, who has felt the credit crunch less than the rest of the world. There may be many reason for this, such as stricter property lending rules or because there is such a large amount of space and supply of land to be able to be used for homes that the vast increases the majority of the world saw from 2004 – 2006 did not happen.
While Australia has not been completely sheltered by the economic downturn, it has weathered the storm quite well. There is a divide amongst experts as to how the property market will react in 2009 and 2010 in Australia. Most financial analysts tend to think that property values will fall from 5 10 . Most agree, however, that an increase in value to the property market is not likely before 2011.
In the end, the Australian property market will be affected, either positively or negatively by four overriding factors: debt, employment, the global economy, and housing price stability. In reference to debt, the main issue that is facing the majority of Australian households is that the debt levels are at record highs. In a property market where housing prices are rising, the number of eligible buyers may drastically fall as people are financially unable to take on any more debt.
Employment is a very strong factor in whether the Australian property market will rise or fall. Unemployment rates are on the rise, but because there have been labour shortages in the mines, there has been work for those able to do manual mining labour. Unfortunately, due to the uncertainty in the economy, some businesses are protecting themselves by making full time employees part time, as this saves on health care and tax expenses. If the economy does not begin to strengthen, more business will have to move to measures such as this, in addition to redundancies and lay offs.
The global economy, but specifically the economies of the US and China, needs to strengthen in order for the world to come back to financial order. Many countries are introducing stimulus plans to help revitalize their country, get spending under control, and to help bring financial strength back to their currencies. While the Australian property market will not feel the immediate affects of a strengthening US or Chinese economy, the medium term affects will help to maintain or increase property values.
In order to keep housing stability in Australia, interest rates have to remain low and repossessions must remain few. Banks that are working with their customers in order to allow them to keep their homes are helping bring back the economy. If banks repossess a majority of homes and hold on their books a large amount of overvalued, non saleable stock, the market will surely fall.
Half way through 2009, the Australian property market has been able to maintain a solid ground. If employment can continue and the stimulus packages of other countries begin to kick in, the property market will remain strong. Although significant rises in the Australian property market should not be expected, a modest increase next year should be an attainable goal.
Author Resource:- Michael Sterios is a writer for http://www.moneynet.com.au
While Australia has not been completely sheltered by the economic downturn, it has weathered the storm quite well. There is a divide amongst experts as to how the property market will react in 2009 and 2010 in Australia. Most financial analysts tend to think that property values will fall from 5 10 . Most agree, however, that an increase in value to the property market is not likely before 2011.
In the end, the Australian property market will be affected, either positively or negatively by four overriding factors: debt, employment, the global economy, and housing price stability. In reference to debt, the main issue that is facing the majority of Australian households is that the debt levels are at record highs. In a property market where housing prices are rising, the number of eligible buyers may drastically fall as people are financially unable to take on any more debt.
Employment is a very strong factor in whether the Australian property market will rise or fall. Unemployment rates are on the rise, but because there have been labour shortages in the mines, there has been work for those able to do manual mining labour. Unfortunately, due to the uncertainty in the economy, some businesses are protecting themselves by making full time employees part time, as this saves on health care and tax expenses. If the economy does not begin to strengthen, more business will have to move to measures such as this, in addition to redundancies and lay offs.
The global economy, but specifically the economies of the US and China, needs to strengthen in order for the world to come back to financial order. Many countries are introducing stimulus plans to help revitalize their country, get spending under control, and to help bring financial strength back to their currencies. While the Australian property market will not feel the immediate affects of a strengthening US or Chinese economy, the medium term affects will help to maintain or increase property values.
In order to keep housing stability in Australia, interest rates have to remain low and repossessions must remain few. Banks that are working with their customers in order to allow them to keep their homes are helping bring back the economy. If banks repossess a majority of homes and hold on their books a large amount of overvalued, non saleable stock, the market will surely fall.
Half way through 2009, the Australian property market has been able to maintain a solid ground. If employment can continue and the stimulus packages of other countries begin to kick in, the property market will remain strong. Although significant rises in the Australian property market should not be expected, a modest increase next year should be an attainable goal.
Author Resource:- Michael Sterios is a writer for http://www.moneynet.com.au
Base rate rise 'will stabilise Australian property market'
Article Date : 22 October 2009
Australia's property market will benefit in the longer run from the recent interest rate rise, it has been claimed.
Brian White, the chairman of real estate firm Ray White, said the decision of the Reserve Bank of Australia (RBA) to hiked the Cash Rate from three per cent to 3.25 per cent will help to stabilise the sector.
He remarked: "There's nothing worse than a market getting out of control and the residential market has been remarkably strong over the last four or five months."
A stable situation may help the Australian real estate market to grow gradually without a boom-and-bust scenario arising, something that could encourage those keen to invest in the country.
In the minutes of this month's board meeting released yesterday, the RBA said it had raised the interest rate partly because a "sizeable gap" has emerged between its relatively strong performance and the weaker ones of other developed countries.
Australia's property market will benefit in the longer run from the recent interest rate rise, it has been claimed.
Brian White, the chairman of real estate firm Ray White, said the decision of the Reserve Bank of Australia (RBA) to hiked the Cash Rate from three per cent to 3.25 per cent will help to stabilise the sector.
He remarked: "There's nothing worse than a market getting out of control and the residential market has been remarkably strong over the last four or five months."
A stable situation may help the Australian real estate market to grow gradually without a boom-and-bust scenario arising, something that could encourage those keen to invest in the country.
In the minutes of this month's board meeting released yesterday, the RBA said it had raised the interest rate partly because a "sizeable gap" has emerged between its relatively strong performance and the weaker ones of other developed countries.
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