Beecroft in the Best Schools region!

An analysis of the top ten schools in each area, using the Government's new rankings, shows that the Central North region, including Beecroft and Cheltenham, is top of all Sydney.
Lower North, Eastern Suburbs, and Inner Sydney also scored well.
Regarding individual schools, using the overall State Ranking for secondary schools, James Ruse Agricultural of Carlingford came top of all ranked, Arden Anglican School of Beecroft came 40th, and Cheltenham Girls School of Cheltenham came 48th. Beecroft Primary came 31st out all the primary schools in the state.
Using the Government's Index of Community Socio-Economic Educational Advantage, Cheltenham Girls came 12th.
Of course Ray White Beecroft Real Estate know how significant the area's impressive record is for individual top schools, but this top mark for the whole region is obviously a huge boost for the area. A large proportion of people wanting to rent in the Beecroft and Cheltenham areas are seeking to put their children into our excellent schools.

First Home Buyers already in Mortgage Stress

Did the Government's First Home Owner grant really assist young people into the housing market, or did it just entice buyers who were not yet financially ready for home ownership? That's the question posed by Nick Gardner in the Sunday Telegraph. A survey has revealed that 45% of first home buyers who took advantage of the Government's stimulus grant are already experiencing mortgage stress, and those numbers are likely to worsen as interest rates continue to rise.
"The dream of home ownership has turned sour for many thousands of first home buyers now the reality of rising interest rates is kicking in", says Martin North of Fujitsu Consulting, who conducted the survey. The survey found that thousands of young home-buyers are using credit cards and other loans to meet their increasing mortgage payments.
Last year Steve Keen of the University of NSW said that the homeowner grants were a disaster waiting to happen, and already it looks as though his prediction is coming true.

Property Sales fell by a third!

Annual sales of retail, industrial, and office property were down 34% last year, according to an article in the SMH today. Sounds bad, but the accompanying graph shows that they fell to the level they were at in 2000, after peaking in 2007. Looked at like that, the fall is not so surprising.

Bathroom Renovation Problems

We gather that Oxford Bathrooms of Thornleigh still have not offered adequate compensation to the owner of the property whose patio they wrecked with white grout. The owner is now taking out a Statement of Claim against the company.

What would you say is fair compensation for having half the bricks on your patio coated with non-removable white grout?
Here is what it was like before the owner spent many hours with a high pressure Karcher and a Phosphoric Acid Substitute special cleaning compound, which worked really well but couldn't shift the last bits.

Upper North Shore House Prices up 13%

According to Australian Property Monitors, house prices in Sydney have soared, and recently recorded its biggest jump since 2003.
In the area around Beecroft, median house prices moved as follows:

Upper North Shore Dec 08 $660,000, Dec 09 $750,000.
Lower North Shore Dec 08 $1,100,000, Dec 09 $1,337,500.

Of course we know that house prices in December 08 were down because of the financial crisis, so it would be interesting to see the figures for Dec 07 as well.

Inflation Fears leading to Interest Rate Rise

The SMH today says "a rise in interest rates next week is a virtual certainty". CPI rose 0.5% nationally (0.6% in Sydney) in the last quarter 2009, mostly due to fruit, house prices, rents, beer, holiday travel and accommodation. Petrol was down, as were computers, televisions, and pharmaceuticals.
The CEO of the Australian Industry Group called on the Reserve Bank to leave rates unchanged.

Underwater Mortgages

There was an interesting talk from William Weaver of MIT discussing the American housing market.
In America you can just walk away from the mortgage and the bank can't pursue you for the outstanding debt. So the fear is that people will do just that when the house value sinks well below current sale value.
Although a huge number of American home owners now have negative equity in their property ("underwater", in his parlance) Mr Weaver doesn't expect many of them to walk away from the mortgage. A lot of properties have foreclosed in USA, but those are mostly people who have lost their jobs or had margin calls and so on. He believes that those who can afford to pay their mortgage regular payments will continue to pay them rather than abandon the house.
Here in Australia the law is different, and you can't just walk away from a negative equity mortgage. So if Mr Weaver's thinking is right, most people will just hold on until house prices rise, or if they don't think prices will rise soon, they may just cut their losses and sell the property for the best price they can get.

Hornsby's Special Rates Levy

Hornsby Council is proposing a "one-off" levy of 5.8% rates increase, to pay for the purchase of Hornsby Quarry. Of course all future rate increases will be on top of this increase.
The levy will cost residents about $65 a year. The levy should have paid off the quarry by end 2015, but council intends that the increase be permanent. After paying off the quarry, the levy will then be used to rebuild the Hornsby Aquatic Center and the George St overpass, and to develop recreational facilities at Old Mans Valley. It will also be used generally to construct and upgrade footpaths and playgrounds, and the community centre. It would be nice to be sure that the levy will continue to be used for these purposes in perpetuity, these promises tend to be forgotten with time and one can imagine the money ending up just going to general revenue in time.
Apparently there were very few responses from the community (on yoursay@hornsby) so the council assumes the community is not concerned by the increase. A final decision on the levy will be made in May or June, so if you do have any views on this topic now is the time to send an email to the yoursay@hornsby site.

Interest Rates to go up soon

Several sources are predicting that the Reserve Bank will increase interest rates next Wednesday, and again soon thereafter, in order to constrain inflation. It all makes predictions of significant house price rises seem dubious.

Second-tier home lenders

An article in SMH on Wednesday reports that second-tier lenders like Liberty Financial, Credit Union Australia, and Homeloans Ltd, are returning to the Australian home lending market. This came soon after RAMS (now backed by Westpac) announced they had stopped marketing home loans through mortgage brokers.

House Price Predictions

Real Estate Business Daily quotes McGrath Real Estate chief executive officer John McGrath saying he expects house prices to rise by as much as 10 per cent in 2010.
“Historically, rates are still low. Of course we’re expecting some more rises, which we’ll see in a short space of time. But we’re finding 7 to 9 per cent is what most people are used to in terms of the mortgage cycle, so that will still be at the bottom end of that range.
House prices across Australia’s eight capital cities rose 6.2 per cent in the third quarter of 2009 from a year earlier, snapping three straight quarterly declines, according to the Australian Bureau of Statistics, unfortunately without quantifying those three declines - did they
three falls exceed the recent rise, or are we now ahead of this time last year?
“There has been very little construction over the past few years. While home building rose towards the end of 2009, the building cycle is a slow one, so I suspect that over the next couple of years, there will continue to be a lack of supply. But there is development opportunity in abundance, once the lending frees up, and people start building again,” he said.
No mention of Westpac's decision to freeze lending, as per my blog earlier today, which some predict could cause a serious drop in house prices!

Beecroft Village in Shire Housing Strategy

This post on 21 May 2009 on http://bangthetable.com/topic/precincts-in-mt-colah
proposes Beecroft Village as an alternative to Mt Colah.

"This Housing Stategy is a Draft document and not a done deal. Now is the time for sensible communtiy input. For example, why was Cheltenham and Beecroft not included in the Housing strategy".

Not really a comprehensive case for inclusion, just offering up a sacrificial goat, which Hornsby Shire seems to have accepted.

How Beecroft Village Could Look

This picture is taken from the Hornsby Shire Housing Strategy document Appendix "draft 5 storey Development Controls", showing how they envisage mixed retail and residential developments, as recently proposed for Beecroft Village, would look.
It certainly looks attractive in the artist's drawing but does it fit in for Beecroft Village, and the general village atmosphere of Beecroft and Cheltenham?

Each development would have one underground floor for carparking space, a retail floor, the second floor can be mixed commercial and residential, then three residential floors with typically six two or three bedroom dwellings per level.

There is nothing in this appendix about other parking arrangements, but it looks as though all these residents and the staff working in the retail shops would fully occupy that single floor of car parking, so customers would mostly park on the street. That hardly solves Beecroft Village's car parking problems! At present Beecroft shopping center works well at least partially because of the open air parking spaces around the Module, but that would probably be one of the first places to be redeveloped. What will the area be like after that entire car park is turned into a five storey development?

If this is to happen, multi-storey underground parking should be absolutely mandatory!

Banks cutting back on home loans

Westpac bank has cut its loan-to-value ratio (LVR) for new customers to 87% of the property value. This means average borrowers could be lent $200,000 less to buy a home. Steve Keen of UWS explains "if you have a $50,000 deposit, and can get a 95% loan, you can buy a $1M property. With an LVR of 90%, you can only buy a $500,000 property without additional funds."
According to an article in the Sunday Telegraph, if the other banks copy Westpac, credit to house buyers will be cut off and property prices could collapse.

Beecroft Village added to Hornsby Shire Housing Strategy

At the bottom of the minutes of the Shire BUSINESS PAPER Planning Meeting Wednesday, 2 December, 2009 is an update of the Shire's draft Housing Strategy document that was exhibited for public comment from 16 March 2009 to 17 July 2009.

The original document listed 25 precincts as under consideration for changed policy, including Thomsons Corner and the shopping centre to the south of Carlingford Road. Mostly the change is to allow 5-storey development. Some have been deleted from the new list, and a small number have been added.

Beecroft Road is one that has been added, for which it is proposed to "Allow 5 storey, part residential, part mixed use development". The attached map shows this refers to the entire Beecroft Village, between Beecroft Road, Chapman Avenue and Wongala Crescent.

Time To Overhaul Negative Gearing?

Further to the last blog, a bit of research found this excellent series of articles and views on this topic, posted by Michael McNamara on April 13, 2007 on Domain.
http://blogs.domain.com.au/2007/04/time_to_overhaul_negative_gear_1.html
The point is made that negative gearing drives much more than just property prices, with share investors also negative gearing their borrowings to buy shares.
Households with cash in hand are penalised, paying full income tax on received interest from bank accounts or investments, which only encourages households to spend the money and borrow when they need more.
The events since 2007, where excessive debt caused world-wide financial devastation, lost immense amounts of investors' money, and cost millions of jobs, might be seen as evidence of the problem of this debt-structured society!

Sydney to be the best for house prices

So says a management consultant recently arrived from England, preparing to buy his fifth Australian house. "The tax breaks are just fantastic. You can offset losses on rental income against your tax, which you can't do in England."
Is this the real reason for the ridiculously high prices of houses for sale in Australia, and for the distorted ratio between house sale prices and the equivalent rental prices, reported in an earlier blog (2nd Jan)?
In the 1980's the labour government tried to do away with negative gearing for houses, but was shouted down and relented. Maybe if, instead of trying to impose a snap change, they had phased things out slowly, we wouldn't be in the present crazy situation where average house prices are eight times average income instead of the three or so which is generally accepted as normal. That attempted change was 20 years ago, so if the government had announced a progressive 5% reduction each year, negative gearing would be gone by now, and house prices might not have risen nearly 200% in the last ten years. Slowly slowly just might have caught the monkey!

The Outsiders

An article in the Sunday Telegraph argues that skilled immigrants from Britain, India and China are forcing up Australian house prices "to some of the highest levels in the world when compared with average incomes". During 2009, 115,000 permanent skilled visas were issued, compared to 40,000 ten years ago. In that time, median house prices rose from $156,000 to $420,000.
The article argues that, because these people are paid above average wages, they are happy to pay above average prices for houses. The argument is that a relatively small number of highly paid buyers can have a disproportionate effect on house prices.
"Experts say property price inflation is driven not by what the average buyer can afford to pay, but by the highest bidder. You need only two highly paid buyers at an auction to take the price of a property well above what any other party could afford to pay."

Buying Property is like buying a Pig in a Poke

As you walk around a nice new house, it's easy to be seduced by the glossy surface veneer into thinking you don't need to have a building survey done. After all you can always sue the builder or the insurance. Yeah, sure.
The Sunday Telegraph recounts the story of an owner who bought into a large modern appartment block built in 2001, in which serious structural faults were found. By then the builder had, of course, gone into liquidation. It cost $400,000 in legal fees to recover $1.2M in repair costs. The story doesn't say whether the owner was an original owner, or bought in later, in which case the content of the strata sinking fund would be very relevant - the person he bought from might well have sold simply to get out from under the problems, leaving the new owner to pay.

Vacancy Rates

At present vacancy rates are very low in Sydney, and properties are being snapped up as soon as they come on the market. But only if the rent is right. Ray White Beecroft was recently given a property to manage that had been on the market with another agency, grossly overpriced, and unlet for three months. When transferring the management agreement, the owner agreed to drop to a sensible rent and the new managing agency is confident the property will rent very soon. But it will take a long time to recover the three months without any rent income!

Tenants in Arrears - Know your Tenants

Fujitsu Consulting predicts that 50,000 tenants in NSW could fall into arrears due to unemployment or reduced working hours. This is significantly less than their forecast early last year, mainly because the forecast for unemployment then was 7.5% which proved pessimistic.
How to deal with a tenant in arrears is a significant matter for the property management department. The first time a tenant falls behind can be simply because they forgot to pay, or it could be that they just lost their job and will make no further payments until they are evicted. So how to respond? Surely a tactful phone call is better than a curt warning letter that could sour the agency/tenant relationship for years.
Ray White Beecroft has a high rent tenant they describe as spasmodic. In all other respects this tenant is ideal, looking after the house immaculately and making no unreasonable demands for improvements, but he is just "casual" about paying his rent, with arrears sometimes considerably more than the bond! The owner is kept informed of the current arrears, and for several years now has each time reluctantly accepted the property manager's advice to be patient. And indeed so far the tenant has always eventually paid a large cheque covering the arrears and usually some months in advance. But it always gets a bit tense in the last few days before that cheque finally arrives! Will this be the time the tenant finally vacates without paying the arrears?
Yes, it is important to know your tenants.

Landlords Returning to the Market

Australian Property Monitors predicts that rents will rise more this year than last, as rising costs of purchasing and owning homes force people back into the rental market. A good article in today's Sunday Telegraph recaps the costs and problems inherent in owning an investment property. Repairs and maintenance can be a significant element, especially if you don't have a good property management department managing your property. Real estate agents with just junior staff trying to coordinate repairs are at the mercy of contractors who can easily inflate repair bills by claiming major work is necessary when cheaper alternatives exist. A tenant of Ray White Beecroft real estate reported damp in a basement wall, and the first builder called in by the property management department recommended virtually a rebuild of the adjoining patio to improve drainage. Calling in a second opinion, a simple change to the guttering system seems to have eradicted the problem for a few hundred dollars. Do your property management officers have the background to judge which solution was best?

Land Tax Obligations

Properties in NSW are liable for land tax if the land is worth more than $368,000. Typically a property purchased for say $1.2M might be assessed as land value of $800,000, on which the land tax last year would have been $6,000. It is the responsibility of the owner to register, and if they don't register and pay dues each year, they can later find themselves presented with a bill for all the unpaid tax. With many landlords living abroad, conscientious estate agents like Ray White Beecroft send their landlords the necessary forms, but has had several owners complain that, because they didn't submit the form, they finally received a bill of $25,000 or more.

Steep Rent Increases Coming

New figures from Australian Property Monitors show rental prices rose 2.2% in the December quarter. However Mathew Bell of APM forecasts that the healthier economy, rising interest rates, and increased land taxes would combine to cause rents to increase at a faster rate in 2010. "Sydney rents are likely to increase by at least double the 2009 rate."
Supporting that forecast, Brian Redican of Macquarie Group said that first home buyers in 2009 took demand out of the rental market, but that will change this year.
It is worth remembering that rents were rising at an average 12% a year in 2007 and 2008, before the GFT bit. Through 2009 investor landlords were holding back waiting to see how the financial crisis worked out, but now it seems clear that confidence in the future is back.

Solving Sydney's traffic problems

Lydia Merrill of Ray White Beecroft spent Christmas in Kerala and Goa, India. She took this photo of the rush hour in Mumbai railway station.

Apparently 5 million commuters enter Mumbai through this station each morning, and yes it't pretty crowded. But notice the clock, 10:15am, and still the commuters are flooding in. These people are not late for work, they just start work later. Mumbai overcomes its traffic congestion by staggering start hours. Look at Sydney roads and trains at 10:15 in the morning, and they are empty. Food for thought?

Building Approvals Dropping

Nationally, approvals for appartments rose 27% in November, after falling 22% in October. Shows how statistics can prove whatever you want them to. For new residential houses, approvals for new building rose 3.3% in November, compared to 4.6% in August. With the end of the main First Home Buyer's Grant, and three successive interest rate increases, that drop was to be expected, but probably just reflects how the 4.6% reflected optimistic expectations for interest rates.

House Prices going UP

RP Data's hedonic index shows Sydney house values have gone up 12% in the eleven months to last November. The hedonic index compares similar properties, not just average prices in an area. Using average prices gives misleading results when some suburb experiences a major new development, with lots of new Macmansions replacing shacks. Suddenly the conventional indices show that suburb as having experienced "200% price rises in a year", simply meaning that the average price of the new mansions is much higher than that of the shacks they replaced.
The hedonic index avoids this problem. It is necessarily based on a much smaller sample in each area, and so probably would not be too reliable suburb by suburb, but overall this 12% rise for all of Sydney is a very promising sign if you are a home owner.
Of course this eleven month period goes from the depths of the Global Financial Crisis to the recent recovery, and 12% probably just means houses are back at their pre-crash value. House prices fell 5% by end of December 2008.
In the same way shares have gone up about 50% since March, which is only of interest to those few brave people who bought shares in March! At that time most people were still desperately trying to sell their shares to meet debt repayments and margin calls!

House Prices Worldwide

The Economist on 2 Jan, page 54, gives an interesting report on house prices around the world, how they have moved over the recent past, and to what extent they are over or under valued. The latter is based on comparison between rents and sale prices, on the assumption that "house prices should reflect the expected value of benefits that come from home ownership". Rents earned by investors are equivalent to tenancy costs saved by owner-occupiers.
On that measure, Australian homes are over-valued at 50%, more than anywhere in the world except Spain (55%) and Hong Kong (53%)!
By comparison Britain is at 28% over-valued, and France 40% over-valued. Houses in USA are given as 14% or 3% over-valued, or 3% undervalued, depending on the agency providing the figures. Japan is 33% undervalued!
The report justifies this assessment method as follows. "A housing boom turns into a bubble when prices are driven up by expectation of future price gains. Scarcity of supply or population shifts are often used to rationalise high house prices, but such fundamentals should push up rents too."
So on that basis, given the ongoing immigration flow into Australia, and the land shortage around our capital cities, rents should be going up, rather than house prices coming down! Ray White Beecroft reports a shortage of rental properties that is already leading to increasing rents.
In USA with relatively stable population and lots of land, house prices crashed dramatically and now seem to have reached sensible levels. Spain is likely to see continuing collapse in house prices.