Monthly Archives: August 2012

L J GILLAND REAL ESTATE PTY LTD Re Property discounting information for Valued Friends and Clients

Property discounting down in most capitals: APM

By Cassidy Knowlton
Friday, 31 August 2012

Vendors were able to sell their properties in July without discounting as steeply as they did in June in most capitals, according to data released by Australian Property Monitors this week.

The amount of discounting required fell slightly in Sydney (from 6.7% to 6.4%), Melbourne (7.5% to 7.3%) and Canberra (5.2% to 5%).

The drop was a little more pronounced in Brisbane (7.9% to 7.5%) and Hobart (10.2% to 9.7%).

The average amount of discounting increased sharply in Darwin (from 5.5% to 6.5%), which was also the only capital city where the number of days property lingered on the market increased.

The amount of discounting remained virtually the same in Adelaide (from 7.6% to 7.7%) and Perth (from 6.4% to 6.5%).

Click to enlarge

Source: APM

Best regards,

Linda J. & Carlos Debello, LJ Gilland Real Estate Pty Ltd

Tel: (07) 3263 6085 | Mobile: 0409 995 578 & 0400 833 800 http://www.ljgrealestate.com.au

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Buy or Rent RPData update as at 29th August 2012 for Friends, Clients and Associates

Research Article for Friends, Clients and Associates of LJ Gilland Real Estate Pty Ltd

Queensland and NSW dominate the RP Data suburb locations where it is cheaper to buy than rent

By Jonathan Chancellor
Wednesday, 29 August 2012

There are between 238 and 1,759 suburbs across Australia where it’s potentially cheaper to buy than rent, according to RP Data research.

Queensland and NSW dominate the comprehensive list, as do regions over capital city suburbs.

It’s the outcome of home values being 5.9% lower than their previous highs and rental rates having continued to increase across most regions of the country.

"With capital city dwelling values almost 6% lower than when they peaked back in October 2010, discounted variable mortgage rates 100 basis points lower from their 2011 peak and fixed mortgage rates 160 basis points lower, many renters and prospective home buyers are likely to be doing their sums to work out whether it is better for them to pay a mortgage or pay a landlord," Tim Lawless, RP Data national research director, says.

Lawless notes that lower interest rates will not only further improve home loan affordability but also potentially attract more buyers into the housing market.

"For those that are renting, any further cuts to mortgage rates will make the cost of a mortgage more affordable and will further improve the relative comparison between the cost of buying and the cost of renting," he says.

For the full list of all suburbs, visit RP Data’s website.

The analysis looks at the results across four scenarios, specifically:
1. Servicing a principal and interest loan on a variable mortgage rate;
2. Servicing an interest only loan on a variable mortgage rate;
3. Servicing a principal and interest loan on a three year fixed mortgage rate; and
4. Servicing an interest only loan on a three year fixed mortgage rate

Lawless says the benefit of using these different scenarios is that it highlights to potential purchasers the different options that are available when contemplating purchasing a property and taking on a mortgage.

"It also highlights the differences in results when choosing different types of loan products."

The report concluded that it is currently cheaper to buy than rent:
1. Servicing a principal and interest loan on a variable mortgage rate in 238 suburbs;
2. Servicing an interest-only loan on a variable mortgage rate in 1,320 suburbs;
3. Servicing a principal and interest loan on a three year fixed mortgage rate in 328 suburbs; and
4. Servicing an interest-only loan on a three year fixed mortgage rate in 1,759 suburbs.

RP Data stressed it was important to note that interest only loans may not be appropriate for all borrowers because of the risks associated with the non‐repayment of the loan principal during the interest only period.

The analysis included seven key assumptions:
1. A loan to value ratio (LVR) of 90% which means that the purchaser is borrowing 90% of the value of the home (i.e. they have a 10% deposit).
2. A variable mortgage rate of 6.15% per annum.
3. A three year fixed mortgage rate of 5.9% per annum.
4. The loan period is 30 years.
5. The repayment schedule is monthly.
6. The principal is calculated based on the suburb’s median house and unit value as at June 2012.
7. Rental costs are based on the median weekly advertised rental rate across the suburb over the past 12
months to June 2012

Lawless also notes the analysis did not provide consideration for costs associated with either home ownership or renting such as:
1. Maintenance
2. Council rates
3. Electricity
4. Water and sewerage
5. Land tax
6. Body corporate levies
7. Stamp duty
8. Legal and conveyancing fees

For the full list of all suburbs, visit RP Data’s website.

A first-quarter survey of homebuyers and sellers done by HomeGain.com, a real estate services website, revealed that 76 percent of homeowners believe their home is worth more than the list price recommended by their real estate agent.

Homebuyers usually have a better grasp of current market value in the area where they’re looking to buy than do sellers who own and live there. Buyers look at a lot of new listings. They make offers, know what sells quickly and for how much, and what doesn’t and why. Homebuyers still think sellers are overpricing their homes.

Your home is worth what a buyer will pay for it given current market conditions. This may not be the same as your opinion of what your home will sell for, or what you hope it’s worth. Relying on emotion rather than logic when selecting a list price can lead to disappointing results.

The prime opportunity for selling a home is when it’s new on the market. This is when it is most marketable. Buyers wait for the new listings. Usually, listings receive the most showings and have the busiest open houses during the first couple of weeks they are on the market.

This is the opportunity to show your house off to advantage with a list price that attracts buyers’ attention. Listings that sell today are priced right for the market. Buyers need to feel comfortable that they are getting a good deal.

Buyers won’t overpay if they feel home prices are still declining, and in some areas of the country, they still are. In areas of strong sales, buyers may shy away from multiple-offer situations if they feel the recovery is fragile and that prices may slide further before stabilizing. Even in areas where home sales have been strong in the first half of 2012, local practitioners wonder how long the uptick will last.

HOUSE HUNTING TIP: When selecting a list price, it helps to understand how real estate agents and appraisers establish an expected selling price or price range for your home. They research the recent listing inventory for homes similar to yours that sold. The most recent sales give the best indication of the direction of the market.

They analyze these comparable sales giving more value to your home for attributes that it has that the comparables don’t, like a remodeled kitchen. Value is subtracted from your home for features it lacks when compared to the sold comparables, like an easily accessible, level backyard.

It’s difficult for sellers to step back and take an attitude of detached interest in their home. But it’s essential to do so if you want to sell successfully in this market. For example, your home could actually sell for less, not more, than a comparable sale because you added a swimming pool in an area where most homebuyers would rather have a yard with a generous lawn.

If the comparable sale information suggests that the value of homes like yours is declining, select a list price that undercuts the competition to drive buyers — and hopefully offers — to your home. You can take a more aggressive stance on pricing if the comparables show that prices are moving up.

If there is high demand for homes like yours, you may receive more than one offer. But don’t list too high. It’s better to stay in the range shown by the comparables and expose the house to the market before accepting offers. The market will drive the price up if it’s warranted.

THE CLOSING: Don’t rely on rumors circulating in the neighborhood about how high a home sold. Prices tend to get inflated when passed from one person to another. Select your list price based on hard facts.

Best regards,

Linda Debello

http://www.ljgrealestate.com.au

http://twitter.com/GillandDebello

http://au.linkedin.com/in/lindajanedebello

http://gillandrealestate.wordpress.com/

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Confidential email:- The information in this message is intended for the recipient name on this email. If you are not the recipient please do not read, copy distribute or act upon the message as the information it contains may be privileged. If you have received this message in error, please notify the writer by return email. Thank you very much for your assistance in this matter and your co-operation.

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Price you home to sell quickly

A first-quarter survey of homebuyers and sellers done by HomeGain.com, a real estate services website, revealed that 76 percent of homeowners believe their home is worth more than the list price recommended by their real estate agent.

Homebuyers usually have a better grasp of current market value in the area where they’re looking to buy than do sellers who own and live there. Buyers look at a lot of new listings. They make offers, know what sells quickly and for how much, and what doesn’t and why. Homebuyers still think sellers are overpricing their homes.

Your home is worth what a buyer will pay for it given current market conditions. This may not be the same as your opinion of what your home will sell for, or what you hope it’s worth. Relying on emotion rather than logic when selecting a list price can lead to disappointing results.

The prime opportunity for selling a home is when it’s new on the market. This is when it is most marketable. Buyers wait for the new listings. Usually, listings receive the most showings and have the busiest open houses during the first couple of weeks they are on the market.

This is the opportunity to show your house off to advantage with a list price that attracts buyers’ attention. Listings that sell today are priced right for the market. Buyers need to feel comfortable that they are getting a good deal.

Buyers won’t overpay if they feel home prices are still declining, and in some areas of the country, they still are. In areas of strong sales, buyers may shy away from multiple-offer situations if they feel the recovery is fragile and that prices may slide further before stabilizing. Even in areas where home sales have been strong in the first half of 2012, local practitioners wonder how long the uptick will last.

HOUSE HUNTING TIP: When selecting a list price, it helps to understand how real estate agents and appraisers establish an expected selling price or price range for your home. They research the recent listing inventory for homes similar to yours that sold. The most recent sales give the best indication of the direction of the market.

They analyze these comparable sales giving more value to your home for attributes that it has that the comparables don’t, like a remodeled kitchen. Value is subtracted from your home for features it lacks when compared to the sold comparables, like an easily accessible, level backyard.

It’s difficult for sellers to step back and take an attitude of detached interest in their home. But it’s essential to do so if you want to sell successfully in this market. For example, your home could actually sell for less, not more, than a comparable sale because you added a swimming pool in an area where most homebuyers would rather have a yard with a generous lawn.

If the comparable sale information suggests that the value of homes like yours is declining, select a list price that undercuts the competition to drive buyers — and hopefully offers — to your home. You can take a more aggressive stance on pricing if the comparables show that prices are moving up.

If there is high demand for homes like yours, you may receive more than one offer. But don’t list too high. It’s better to stay in the range shown by the comparables and expose the house to the market before accepting offers. The market will drive the price up if it’s warranted.

THE CLOSING: Don’t rely on rumors circulating in the neighborhood about how high a home sold. Prices tend to get inflated when passed from one person to another. Select your list price based on hard facts.

Best regards,

Linda Debello

http://www.ljgrealestate.com.au

http://twitter.com/GillandDebello

http://au.linkedin.com/in/lindajanedebello

http://gillandrealestate.wordpress.com/

http://www.facebook.com/pages/LJ-Gilland-Real-Estate-Pty-Ltd/169194919788253

Confidential email:- The information in this message is intended for the recipient name on this email. If you are not the recipient please do not read, copy distribute or act upon the message as the information it contains may be privileged. If you have received this message in error, please notify the writer by return email. Thank you very much for your assistance in this matter and your co-operation.

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Your investment magazine news article re Mining & Qld Mortgage performance- LJ Gilland Real Estate Pty Ltd

Dear Clients, Friends and Associates as follows:-

The Isaac Council, which includes much of Queensland’s Bowen Basin, was the country’s best performing mining region for property prices growth over the last 12 months, according to a leading researcher.

RP Data’s latest Property Pulse also showed that all mining regions have showed 10-year growth exceeding 10% – except for Muswellbrook (9.7%) and Kalgoorlie (9.6%). The Whitsunday region, home to the township of Bowen and Port Pirie, were the only two mining affected regions to record a decline in median selling prices.

RP Data analyst Cameron Kusher said the stand out region over the last 10 years was once again the Isaac Council region, which saw median prices increase at an annual rate of 32.3%.

Kusher also commented that good performance across the majority of mining regions was a result of supply and demand factors. “A lack of new housing supply has had an impact on rental rates, which have seen robust growth over recent times,” Kusher said. “Rents have increased over the past year across each region, except in Port Pirie and have risen by 88.2% across the Issac council region.”

Kusher added that unit performance told a much different story. There is typically a much lower supply of these types of properties in mining regions, he said, which meant unit growth was not typically as good as for detached houses.

“Despite the typically sluggish growth in prices over the past year, most have seen strong increases over the past 10 years, albeit not typically as strong as the growth in house prices,” Kusher said.

Mortgage Performance in Qld:-

Queensland remains the worst-performing state in mortgage performance, according to a leading measure of mortgage arrears.

New figures from Fitch Ratings show that the rate of mortgage delinquency in the Sunshine State surpasses the nation-wide average and is up 1.42% on September 2011 figures.

Fitch Ratings reported that the current rate of mortgage delinquency – the proportion of mortgages that are more than 30 days in arrears – is at 1.86%.

The researcher also found that regions south of Brisbane, such as Ipswich, Logan and the Gold Coast are among the worst-performing in Australia.

Rates in Brisbane, on the other hand, are below the national average.

Bank Valuations Articles which are very interesting as follows:-

[…] here and here for some thoughts on valuations – and here to see what was said about Australia’s high

there was a lot of discussion about valuations currently coming in well under purchase price. The difference between the price paid by the buyer and the bank valuation is often high – over 20% – and the differential is spreading.

Firstly, bank valuer’s should be paid more – they carry the risk, not the bank – and this, in theory, would allow them time to conduct the appropriate research, and secondly rental return should determine value, not what a previous buyer paid.

If you require finance to purchase a dwelling, all financiers seek a valuation to ascertain the value of the property that is being offered as security for the loan. Licensed valuer’s must base their opinion on hard evidence and take legal responsibility for any information they provide.

Australia’s four major banks have a panel of valuer’s who are assigned to value a particular property through a process called “Valuation Exchange” (Valex). Smaller financiers often use the same valuer’s as the “big four”, although there are many valuer’s who are not part of the Valex system.

To assess a property’s value, a valuer must inspect the property, record details on the number of rooms, along with fixtures, fittings and any improvements. A property’s unique attributes will also be taken into account, such as:

  • location
  • building structure and its condition
  • standard of presentation and fit-out
  • standard of fixtures, fittings and facilities
  • zoning and whether and planning restrictions apply

The valuer combines these attributes together with recent comparable sales in the surrounding area and prevailing market conditions to produce a valuation report. Several photographs must also be taken to support their findings.

The identification of appropriate comparable sales is often the most contentious issue, especially in relation to new apartments purchased “off-the-plan”. There are a number of reasons for this, as detailed below.

  • Comparable sales should be recent (less than six months’ old). This is problematic when the number of sales is low (perhaps because of a limited supply of dwellings for sale) or because of economic factors. The number of dwelling sales last year in Brisbane, for example, was well below historical averages as a result of the flood. This has meant that identifying the required number of comparable sales has become that much harder.
  • Sufficient analysis of alleged comparative sales must occur so that family transfers and distressed sales are not shown as market transactions. For example, one of our developer clients arranged for one of its newly-completed apartments to be valued by several valuers independent of the banks. The first valuation came in at $720,000. The second at $730,000 and the third at $595,000! Why was the third valuation so low? Because the valuer in question had erroneously based the valuation on a “distressed sale” in a nearby project. Such sales are considered to be inconsistent with the concept of ‘Market Value’ as defined in the Australia and New Zealand Valuation and Property Standards.
  • Banks and their valuers are reluctant to use developer sales (either made “off-the-plan” or after completion) in competing projects as comparable sales. This is based around the mistaken belief that a developer sale does not represent the “true market“. In some locations – especially where there is no sales history for dwelling types such as a new subdivision in a green-field area – or where sales volumes are lower than usual – this leads to valuations that do not truly reflect a property’s worth.

However, the Australia and New Zealand Valuation and Property Standards state that where the property to be valued is within a new development and is being purchased from the developer, sales from other comparable developments should be considered as a cross-reference. In our view, this means developer sales in other projects can be used as sales evidence to support a valuation.

  • Valuers usually do not use sales made to interstate and overseas buyers as comparative sales, based again on a mistaken belief that non-local buyers are uneducated and pay higher prices than local buyers.
  • In Queensland, clause 27c of the sales contract requires all agents to list how much commission they charge. Valuers – on instruction from mortgage insurers and banks – often reduce the purchase price by the amount the agent is paid in excess of the standard Queensland sale fee of 2.5%. This is based around the belief that the developer is increasing the purchase price by anything higher than the standard REIQ commission. Our understanding is that this clause only applies in Queensland.

The distribution of costs should have no bearing on the end value of a product.

Finally, remember that you as a buyer can challenge a valuation if it appears too low. In particular, keep in mind that comparable sales evidence needs to be “like for like” as far as possible, especially insofar as proximity (to a railway station for example) or height above ground, view, aspect, ceiling height, facilities and so on. Furthermore, valuer’s can utilize a much wider range of data than just comparable sales in any valuation report.

1. Michael says:

February 22, 2012 at 8:31 am

We had an issue with a bank valuation yesterday at a property we have under contract, it came in at $665,000, and we sold a very similar property with less potential four doors down two months ago for $700,000! The Valuer took no notice of this sale as another more recent sale in a less desirable area sold in the low $600,000′s which isn’t comparable! The buyer still wants the property, but how do we fix this valuation situation?

Reply

2. Paul says:

February 22, 2012 at 10:39 am

This is from Paul (not me) some are having problems posting here…we will look into it

This is a very interesting topic. I am with NAB Private Bank and had to recently get a valuation on one of our properties as we were refinancing. The Banks valuer did a ‘drive by’……they did not even enter the property and look at the quality of the interior fit out. How can this be an accurate valuation? As a result, NAB’s so called valuation was about $400K less of what I believe an accurate valuation is. The so called ‘Valuer’ even compared our property against other properties that bore no comparison to ours. Of course the problem is then compounded as the Bank will only then lend against 80% of their valuation! And NAB’s solution…..pay for your own valuation! My fixed loan will expire mid year and I will then be actively looking for a new Bank. Any ideas who i should be talking to?

Fon says:

August 23, 2012 at 10:51 am

That is only a kerbside assessment & it’s not a valuation – that is the bank trying to save money by only paying for half a job. A legal valuation involves a Valuer pysically inspecting the property & measuring up to determine the size. If this has not happened – it’s not a valuation & you should complain before swapping lenders. Note: The decision to do a Kerbside assessement is the banks call, not the Valuers. The lender gets what they pay for & kerbside assessments are an insult to both the Valuer & client to save a buck.

Secondly, if you know about a sale that will help your cause – tell the Valuer when they inspect your property eg. address / sale price & date and / or the agent involved. They may not know about it ! Under the valuation of land acts in various states they must have regard to all information when doing the valuation. Also be aware they need to provide 3 sales – but those sales must be able to be confirmed through an agent / sales data info or Valuer General data. The things that are becoming out of a valuers control are extremely tight deadlines, low fees & greater expectations within shorter time frames. Time is required to do a job properly regardless of what job is being undertaken.

3. hesed says:

February 22, 2012 at 10:44 am

Tell the people to go to a good mortgage broker, they should be able to use a fair valuer and get the deal done.Some lenders will allow you to choose the valuer from their panel of valuer’s.
I used to be a broker I am not any more, sick and tired of the over regulation.
Money hotline is a good broker, Gary has 15 or so years in the business and if he cant help you, then no one can.

Reply

4. A Caboolture developer says:

February 22, 2012 at 11:12 am

Another post – again not me – but from a Caboolture developer

I had a loan approved In relation to the construction of a pair of a 4 bedroom ;3 bathrooms plus study , double storey duplexes with a very high level of finish.The bank instruction was to go back only 3 months history of sales and to value the duplexes which are to be subdivided to be valued in a line.

This project was in relation to 12 water and parkfront house size duplexes in very unique location with fantastic unobstructed views of park and trees and Caboolture River.The valuer compared with houses which just did not compare ,and did not look at similar park and riverfront developments in SpringField Lakes, North Lakes, SandStone Lakes or other similar developments .The valuation came in at $525k for the two and the valuer went as far as saying that the construction price was too high.Since when did a valuer become a QS.
To make things worse the valuer only compared with a 5 year old 3 bedroom; 2 bathroom single garage much smaller single storey duplex of much inferior finish.Ironically I had built a similar duplex in Rothwell in 2006.

When I made a complaint to API they advised that since it was a bank valuation I could not lodge a complaint ( although I paid for it) and the Betty Warner who handles the complaint advised that based on my facts she would support the valuer.

I have also been informed that a lot of these valuers are also not able to get PI insurance.
I BELIEVE THE WHOLE VALUATION PROCESS IS OUT OF CONTROL AND IS HAVING A DETRIMENTAL IMPACT ON THE RESIDENTIAL PROPERTY MARKET.

Reply

5. tmd says:

February 23, 2012 at 9:05 am

Rather than bag the valuers, who are only doing their job afterall, bear an inordinate amount of risk and are necessary for banks to even lend, perhaps Michael the valuation industry needs an industry body to support them.
The profit margins on a valuation for them are extremely low and their employers – big name property valuation firms in Australia – are ever persistent about meeting budgets and deadlines. They work ridiculous hours and drive incredible distances to get a job done. Some of those jobs are locked in with the banks at less than $1000 – and that is for a commercial property where the methodologies are far more advanced then what you’ve outlined above! The jobs take them hours for hardly any return.
The valuation industry needs an overhall – sure. But they also need support under ever increasing pressure. How the valuers have missed out on an industry body, I don’t know. Accountants, lawyers, even property developers have industry bodies. Perhaps it needs the firms to get together, rather than fight each other, to better advance their industry.

Reply

6. Katrina says:

February 24, 2012 at 12:15 pm

We had a problem with a valuation also. We were buying our first house and using my parents as guarantors. The valuer visited their property on 4 acres in BCC and came back with a valuation of $740k. This was $200k under what it would sell for and around the actual UCV value. It was compared to a suburb in LOGAN with 1 acre blocks, with 100k – 200k lower UCV’s, and about 5km away! That’s like comparing Annerley with Salisbury – Not comparable at all! At the time of the first valuation there were no comparable sales in the area as “Sold” as it is a small suburb so we, ourselves, did further research. My partners mother is a real estate agent and she gave us two sales which were unconditional and had just shown up on RPData in the suburb that sold for $930k and $960k (far smaller homes on these blocks) which we passed on to the valuer to get a revaluation of the property. The Valuer ignored these sales saying the people had paid a “premium” for the properties (which I would understand if it was just the 1 figure not 2, but if he had researched the suburb, properties were selling $1.1 – $1.2 million in the peak of 2010 so it was obvious this “premium” was the norm).
At the end of the day we ended up borrowing the money from our parents as we could not get the guarantor equity. We have not really had an issue, but if it weren’t for them having a line of credit we could access we would not have been able to purchase at all. I understand Valuers may not get paid enough and are liable, but I was able to come up with a more realistic valuation in about 1hr. $1,000 in an hr is good money to me! They need to get a better understanding of the places they are valuing. Seems lazy

February 24, 2012 at 1:11 pm

Katrina if the valuer did the wrong thing, then that is bad service and you are entitled to complain. It is not a reflection of valuers generally though, who require a university degree together with 2 years practical experience before they become registered as valuers. What you and I think is market value is all well and good, but the science and methodologies behind a valuation are far more complex than we realise.
You should know for future reference that if you’re not happy, you are entitled to obtain your own valuation and if that valuer is from the bank’s panel, then the bank may adopt it rather than the initial valuation.
$1000 is for a small commercial valuation where the risk over a residential valuation is exponentially higher. A residential valuation fee is usually around $250. The valuer receives maybe 40% of that, if they’re lucky. Would you put your career on the line and risk being personally sued for $100 bucks?! I don’t know anybody who would.
I could stick up for valuers until the cows come home but the point is, neither valuers nor the general public (including you and I) will have a voice to our concerns without an industry body.

Reply

7. Michael says:

February 24, 2012 at 3:17 pm

There is little doubt that the conditions that valuers are working under are less than ideal and this may be having some influence on the reported valuations in some instances. Like all industries there are inexperienced operators who don’t do things well.

Further to some comments here, collectively several property bodies – including the PCA, UDIA, MBA and the API – are working on the problem. Workshops are being conducted to better train valuers and there is serious talk about setting up a Valuation industry body – which for mine is long overdue. Sadly the Australian Bankers Association doesn’t seem interested at all.

As I mentioned in the this post, valuers need to get paid more – fees today are less than ten years ago and a valuation of a residential property usually ranges from $150 to $180. If I was running a valuation practice, I too would expect valuers to do 8 to 10 valuations per day.

For mine the best way to determine an assets value is based on its income. This should be simple. If a property would attract $500 per week rent, over 50 weeks per annum and at a 5% gross yield then it is worth $500,000.

No need for the subjective mumbo jumbo about general presentation and care, being tidy, unusual features, being too close to a bus stop or a T-junction. I kid you not, as this list – factors affecting values in 2011 – appeared in the Westside News earlier this month.

I am not into bank bashing – we need a profitable banking industry – but on this issue the banks, in general, deserve a thorough beating.

8. Bob says:

February 24, 2012 at 4:27 pm

Some more things to know about valuations. 1) A valuation of a residential apartment ‘off-the-plan’ may also be negatively impacted by a Lender’s standard Valuation Instruction to value such properties “in-one-line”. An in-one-line valuation is essentially a further 15-25% ‘hair-cut’ to reflect the possiblity of more than one unit in a complex coming up for sale at the same time. 2) In the NAB Private Bank example above, “drive-by” valuations are used when the Loan to Valuation Ratio isn’t likely to be a problem. The bank saves money by simply establishing the address is real and there is a building on the block.

Please have a look at our LJ Gilland Real Estate Pty Ltd facebook page or wordpress blog for all our updates.

Best regards,

Linda and Carlos Debello

http://www.ljgrealestate.com.au

http://twitter.com/GillandDebello

http://au.linkedin.com/in/lindajanedebello

http://gillandrealestate.wordpress.com/

http://www.facebook.com/pages/LJ-Gilland-Real-Estate-Pty-Ltd/169194919788253

Confidential email:- The information in this message is intended for the recipient name on this email. If you are not the recipient please do not read, copy distribute or act upon the message as the information it contains may be privileged. If you have received this message in error, please notify the writer by return email. Thank you very much for your assistance in this matter and your co-operation.

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We are so proud of you Alexander

Alexander’s report card from teacher 22nd Aug 2012

Best regards,

Linda and Carlos Debello

http://www.ljgrealestate.com.au

http://twitter.com/GillandDebello

http://au.linkedin.com/in/lindajanedebello

http://gillandrealestate.wordpress.com/

http://www.facebook.com/pages/LJ-Gilland-Real-Estate-Pty-Ltd/169194919788253

Confidential email:- The information in this message is intended for the recipient name on this email. If you are not the recipient please do not read, copy distribute or act upon the message as the information it contains may be privileged. If you have received this message in error, please notify the writer by return email. Thank you very much for your assistance in this matter and your co-operation.

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What has gone wrong with Brazil, India and China? from http://www.ljgrealestate.com.au

by Shane Oliver

Key points

  • Brazil, India and China have slowed sharply on the back of weakness in advanced countries, the lagged effect of past monetary tightening and structural constraints.
  • While their long term growth potential has been reduced a bit, emerging countries still offer better long term growth prospects than Europe, the US and Japan given a lack of major debt problems & lots of catch up potential. Given very low valuations, emerging market shares continue to offer value & growth for long term investors.

Introduction

For years we have had a two speed global economy composed of constrained advanced countries offset by strong growth in the emerging world. The emerging world now accounts for more than 50 per cent of world GDP and it was hoped it would keep the world growing at a reasonable rate. Over the past year though it has become readily apparent that even emerging countries, led by Brazil, India and China are struggling, with all seeing a sharp slowing in growth.

Source: Thomson Reuters, AMP Capital 



This slowing is also evident in business conditions indicators.





Source: Bloomberg, AMP Capital



So what’s gone wrong and how big a threat is this to global growth and investment markets?

Common factors

The slowdown in the emerging world and specifically Brazil, India and China (BICs) has a number of common factors:

A big part of it is the growth slowdown in advanced countries driven by recession in Europe and more modest growth in the US. Apart from dampening business confidence this has directly affected exports, particularly in China and Brazil where 20 per cent or more of exports go to the European Union. This has adversely affected export demand resulting in a slump in exports to just 1 per cent year on year growth in China and 10 per cent growth in Brazil from a 20 per cent plus pace a year ago.


A lagged response to policy tightening to slow growth. The BICs and most emerging countries saw a strong rebound in growth coming out of the GFC. This along with the post GFC rebound in commodity prices resulted in rising inflation which in turn led to policy tightening in order to bring economic growth back to a more manageable level. As a result interest rates were moved higher in all three countries and fiscal policy was tightened. Currency appreciation also added to the tightening in China, and particularly in Brazil as the Real surged in value.

Structural change has also played a role, as a combination of the need to aim for more balanced growth (China) and a lack of further economic reforms and imbalances has highlighted that potential growth in these countries is somewhat below what had been achieved in the years before 2008.

In terms of the latter the issues vary from country to country and range from mild in the case of China to significant in the case of India.



China – can boost growth, but reluctant

For some time China has been seeking to focus on quality growth as the 10.5 per cent pa growth rate of the 2006-2010 period resulted in various imbalances, particularly in terms of a mild pick up in inflation and excessive reliance on exports and more investment, and social tensions. As a result it has lowered its growth rate for the current five year plan to 7 per cent and its growth target for this year to 7.5 per cent. While investors may be disappointed at the lack of an aggressive 2008 stimulus program the authorities in China are clearly wary of going down such a path again given the risk of overheating the economy once more. In the meantime there is no sign of a hard landing. Growth has slowed but not collapsed. Real retail sales growth remains solid. Property market indicators have slowed but not collapsed. Growth in bank lending and money supply appears to have bottomed. And inflation has fallen to just 1.8 per cent – see the next chart – suggesting plenty of room to stimulate the economy, Premier Wen Jiabao has acknowledged. With feed prices rising partly in response to the US drought inflation is probably at or close to bottoming but non-food inflation is likely to remain low given spare capacity in the economy so the US drought is unlikely to significantly impact the Chinese economic outlook. The most likely scenario remains one of continued gradual stimulus with two more rate cuts and reserve ratio reductions each this year. But in the absence of much weaker growth don’t expect a dramatic stimulus. The Chinese authorities seem quite content to see growth around 7-8 per cent pa.

Source: Thomson Reuters, AMP Capital



India – wants to boost, but constrained

India is more problematic. While there was talk a few years ago that it was becoming the next China and that its potential growth rate may be around 8 per cent pa, it is clear that this is not the case. To maintain decent economic growth India needs radical economic reforms to cut subsidies, reduce regulation and red tape, reform its tax system and boost infrastructure spending. But in recent years reform has ground to a halt, erratic government policy has scared foreign investors and the government sector has been running a 9 per cent of GDP budget deficit, such that ratings agencies are threatening to remove India’s investment grade credit rating. The combination of these factors has meant a worsening current account deficit (next chart) and hence reliance on foreign capital at the same time that a lack of competition and investment has led to a chronic inflation problem (previous chart). These factors suggest that India’s sustainable medium term growth rate is closer to 6 per cent than 8 per cent.





Source: Thomson Reuters, AMP Capital



And while India’s inflation rate has slowed it is still too high to allow an aggressive reduction in interest rates from the Reserve Bank of India. Growth looks likely to be around 4 to 5 per cent over the year ahead rising to 6 per cent through next year thanks to rate cuts & the recent 20 per cent plunge in the currency.

Brazil – in between 

Brazilian economic growth has decelerated dramatically since 2010 thanks to a combination of earlier monetary tightening and strength in the Real and a fall in export prices. While Brazil’s budget deficit at 2 per cent of GDP, current account deficit and inflation rate are much lower than those in India they all warn that its potential growth rate is much less than the 6 per cent pa pace it saw before the GFC, probably around 4 per cent. Brazil has also slacked off on the economic reform front and underinvested in infrastructure in recent years. After growing around 1.5 per cent this year, growth should pick up next year to around 4 per cent thanks to lower interest rates and a 25 per cent fall in the Real over the last year. A just announced stimulus program focussed on infrastructure will also help.



No disaster

However, while growth in Brazil, India and China and more broadly the emerging world has disappointed and longer term sustainable growth rates have come down a bit, the underlying fundamental picture is far stronger than in the US, Europe and Japan. Firstly, public finances are far stronger than is the case with Europe, the US and Japan so the need for fiscal austerity is not a constraint on growth and there remains room for further fiscal stimulus if need be. India is an exception on this front though given its budget deficit problems, although it should be noted that when economic and population growth are strong it is much easier to sustain public debt at around 68 per cent of GDP as is the case in India.

Source: IMF, AMP Capital

Second, official interest rates remain relatively high (at 6.5 per cent in China and 8 per cent in Brazil and India) in contrast to official interest rates of zero in advanced countries suggesting there is plenty of scope for further monetary easing if need be.

Finally, the emerging world still has plenty of catch-up potential. India’s per capita GDP at around $3700 on a purchasing power parity basis is still below the $5000 level at which the mass purchase of TVs, washing machines and cookers occurs. China at $8400 is still below the level where mobile phones, cameras and cable TV become common. And Brazil at $11,800 is well below the $22,000 level at which the mass ownership of cars occurs. They are all a long way from the $40,000 per capita GDP experienced in Australia. This means that while they may not be growing as strongly as thought a few years ago the growth potential in the BICs and the emerging world generally is still very high.

Conclusion

While growth in the emerging world, led by Brazil, India and China, has slowed it should still come in around 5 per cent this year and slightly more next year. This is actually in line with what I have been assuming, which in turn underpins a 3 per cent expectation for global growth this year. While the uncertainty about growth in the BICs may linger for a few months – weighing on share markets, commodity prices and resources stocks – price to earnings multiples of around 9.5 times and long term real growth potential around 5-6 per cent pa suggest there is plenty of value for long term investors.

Published: Monday, August 20, 2012

Best regards,

Linda and Carlos Debello

http://www.ljgrealestate.com.au

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Excessive Housing taxes must be removed

For Clients, Friends and Associates perusal, information and empowerment as follows:-

Excessive taxes on the housing industry must be removed to stimulate growth: Harley Dale
By Harley Dale
Thursday, 16 August 2012
Against a backdrop of strong aggregate economic conditions, at least as measured by the latest National Accounts update, momentum in Australia’s residential construction industry is still clearly heading in the wrong direction.

The latest national accounts figures show dwelling investment still detracting from Australia’s economic growth. As a whole, residential dwelling investment fell over four consecutive quarters to be down by a significant 6.2% in the year to the March 2012 quarter.

New dwelling investment drove this result, falling over four consecutive quarters through to March this year. However, investment in alterations and additions (renovations) declined at an accelerating rate over three quarters to March. We will likely see in early September that dwelling investment declined further in the June 2012 quarter.

Ten of thousands of businesses in Australia, predominantly but by no means solely small businesses, rely on housing for their livelihood.

Housing also has a broad multiplier reach through to the wider economy in terms of activity and employment – into significant parts of the retail and manufacturing sectors, for example.

A weak residential construction industry therefore doesn’t paint the Australian domestic economy in a favourable light, especially when you consider the basic product (and service) new housing provides – additional shelter for Australia’s population.

In other words, housing is the provision of a necessary “good”. However, supply is going backwards. Job losses in the sector are consequently mounting.

Right now, the new housing sector in Australia is experiencing its second recession in four years. Housing starts in the March 2012 quarter fell to their lowest annualised level since the new home building recession of 2000-01, considerably passing along the way the milder recession mark of 2008-09.

Despite what was an awful March quarter, leading housing indicators, poor weather conditions on the east coast, and a substantial problem with the new building act in Western Australia suggest housing starts weakened further in mid-2012.

So what’s going on and what can be done about it?

After all, it is clear to all those who can accurately count that Australia doesn’t exactly suffer from an oversupply of housing. Some people point to the current weak demand for housing (which exists across new housing in all eight states and territories, renovations, and existing property transactions) as the reason, and that’s part of it. Others point to seemingly intractable supply side constraints, and that’s a big part of it. Those, such as the Reserve Bank, who recognise that both weak demand and high supply costs (i.e. excessive tax) are responsible for the parlous levels of new housing activity are spot on.

From the demand side, it is difficult to enjoy healthy levels of new home building activity when the household sector is cautious and nervous in the post-GFC world, as they travel down a deleveraging path that likely has some way to go.

There are a myriad factors driving weak household confidence. Historically low levels of household confidence is in turn having a clear negative impact on housing expenditure as opposed to household consumption, the latter of which appears in an aggregate sense to be very robust in 2012.

However, weak housing demand (including transactions of existing residential property, which are a driver of new home building activity and which are currently at historically low volumes), doesn’t get you to the sub-140,000 mark for housing starts, which we are unfortunately again seeing in 2012. To get to that recessionary level, especially for the second time in four years and the third time in 12 years, you need to bring the supply side into the equation.

The cost (tax) of new housing is excessive, continues to increase, and is more transparent now in an environment of flat to easing existing property prices. Research conducted for the HIA by the Centre for International Economics (CIE) found that up to 44% of the final price of a house-and-land package is represented by federal, state and local taxes, with around half of these taxes described as “inefficient”.

The general equilibrium modeling of the taxation on housing conducted by The CIE showed that new housing is the second most heavily taxed of the 27 large sectors of the Australian economy. Where is the sense (or equity) in that?

New housing is a very efficient, competitive, dynamic sector of the Australian economy.

The most prominent recent example of this fact is the stimulus measures implemented to combat the GFC. Those policy measures directed at new housing were quickly reflected in increased housing employment, and in manufacturers turning casual employees into permanent employees and hiring new staff, well ahead of aggregate labour market conditions in Australia displaying signs of improvement.

The temporary tripling of the first-home owners’ grant for new dwellings (often mistakenly lumped in with the doubling of the grant for existing property, even though the price outcomes were very different) was greeted aggressively by a very competitive sector that was facing a negative demand shock. The outcome was new homes to first-time buyers at a lower price than prior to the GFC. The social housing initiative, another GFC-related policy measure aimed at new housing, came in under budget.

However, a sector can be as competitive as a Bledisloe Cup match, but if up to 44% of the final product represents taxation, much of it inefficient, and the principal competitor – in this case existing property – is less heavily taxed, then intuituvely the end result won’t be good. As the empirical evidence clearly demonstrates, the end result isn’t good and unfortunately it is being keenly felt by tens of thousands of businesses and well over 1 million labour market participants in the Australian economy.

As it stands, there are many reasons why new housing demand won’t come roaring back. It will, however, recover. The lagged impact of lower interest rates will prove positive, for example, but the inherent cautiousness of households and the large, unfavorable gap between official rate reductions and what mortgagees (and businesses) have received, means an easing in monetary policy is no panacea.

Taxation reform is a key requirement to bolster confidence and lift activity.

The federal government could well do to reignite its appetite for leading by example in this regard. Meanwhile state (and territory) governments that have made a start, such as New South Wales, need to keep the foot down and those that have done little or nothing need to get on with it for the sake of wider domestic (non-mining) economic activity.

All the while, short-term investment in new housing is warranted to lift activity above the recession bar.

Well-constructed investment targeted at boosting new home building demand, through policies with a clear, short and finite timeframe, can lift new home building activity without spruiking final prices.

The cost of doing nothing now far exceeds the cost of implementing short term measures to complement a focus on wider policy reform aimed at creating a more efficient and equitable environment for new home building.

Harley Dale is chief economist at the Housing Industry Association.

Best regards,
Linda and Carlos Debello
http://www.ljgrealestate.com.au
http://twitter.com/GillandDebello
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Confidential email:- The information in this message is intended for the recipient name on this email. If you are not the recipient please do not read, copy distribute or act upon the message as the information it contains may be privileged. If you have received this message in error, please notify the writer by return email. Thank you very much for your assistance in this matter and your co-operation.

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