The Block Auction Results

What is the main lesson from the failure to sell three of those four properties at auction? Surely it is that sensible people won't buy a property that's been renovated at the rush by a group of amateurs!
One problem with auction is that you have no cooling off period, so you need to inspect the property thoroughly before bidding. How can you do that when the renovations are still in progress under the watchful eye of the attendant television crew?
This blogger recently had a major home renovation done by a professional company with excellent results. A side benefit was that they brought to my attention significant, and clearly verifiable, problems in my old house of which I had been unaware. They offered solutions with no obligation to use them for rectification. I am sure that when, in some distant time in the future, I come to sell the property, my renovation money will have been well spent.

Fair Trading disqualifies agents

Two central coast real estate agents have had their licenses revoked by NSW Fair Trading.
Kevin Barnes and Nicole Mars were disqualified from practising as estate agents for 10 and six years respectively, after the duo were found to have obtained $500,000 profit in a property sale.
Fair Trading took action against the pair after a compliant came through from Housing NSW concerning the sale of a property at 1-3 Walmsley Road, Ourimbah.
Fair Trading deputy commissioner Steve Griffin said Fair Trading would continue to take decisive action when real estate agents and businesses acted inappropriately in putting their own interests before that of their clients.
Nice to see Fair Trading showing teeth! There is a great need for this in the real estate industry!

New Legislation will impact Buyers

This post is taken straight from Real Estate Business:
The National Consumer Credit Protection Act has come under scrutiny, with industry pundits arguing the new laws will negatively impact both buyers and sellers.
RE/MAX WA managing director Geoff Baldwin is concerned that the newly introduced NCCP Act will negatively impact any borrower over the age of 35, and could potentially impact those who are selling to upgrade.
“Effectively the new responsible lending obligations on banks and brokers depict that a borrower should have the capacity to repay the loan in full at retirement age without selling their owner occupied property,” Mr Baldwin said.
“These changes mean that a borrower aged, say 55 can no longer take out a loan over 30 years but will be restricted to a much shorter term unless they can demonstrate that they will have superannuation or other assets they can sell to finalise the loan at retirement.”
According to Mr Baldwin, the impact that these legislative changes could have to the property market has been totally underestimated.
“There has been little or no public education or communication to ensure people are aware of how they may be affected,” he said.
“Obviously this would mean much higher repayments and in many cases it will disqualify people and exclude them from the market."

Better Homes Realty

In November Better Homes was advertising a property in Cheltenham Road for $700,000 prior to auction, but after it was passed in they increased the price to a more realistic $875,000. I thought that method of conning would-be buyers into paying for building surveys was actually against the law?

Sales Agreements

In October I reported on a McGrath exclusive sales agreement that requires vendors to give thirty days notice of terminating the agreement. What the vendor telling me this didn't know was that, once you give that notice, McGrath remove the sign from outside the property and take the listing off the internet! Meanwhile the agency agreement is still in force and the owner can't risk signing up with anyone else!

PS Soon after posting the above, McGrath sent the vendor a letter releasing him from the agency agreement, but including the phrase "if the property is purchased by somebody that has been introduced by McGrath (agency name) during the period (dates of the original contract) or within the next 90 days commencing (date of this letter) a commission fee of (commission in the contract) will be payable on completion of the sale."
Taken to its extreme, this allows McGrath to claim the full commission if anybody who entered their office over this entire seven month period ever buys the property at any time into the distant future!
The only redeeming feature is that the paragraph does not specify to whom the commission is to be paid, so the vendor would meet this 'obligation' by paying commission to the agency that negotiates the sale!
Even without that flaw in the wording, I am assured that this sort of open ended 'payment for nothing' clause would never be enforced by a court, but it has caused deep distress to the vendor.

Sales Soft

Interest rate rises sent a tremor through the property market yesterday with softer auction clearance rates reported. Clearance rates were 54.6%, down on the 57.5% last weekend.

Buyers Fooled by Low Quotes

Posing as a potential buyer, a Sunday Telegraph reporter phoned 85 real estate agents and asked for a price guide on a property. Almost one in three of those agents turned out to have significantly underquoted.
The NSW Minister for Fair Trading responded "A blitz on under-quoting and dummy bidding earlier this year uncovered no evidence of under-estimating prices." One wonders how the OFT failed to find any evidence at all, when the Telegraph found one in three agents doing it.
She also said "The onus should be on the buyer to do their price research instead of relying on real estate agents." Thanks Virginia. All the buyer wants is that the agent be required to tell something approaching the truth, isn't that the definition of Fair Trading?
The problem is the conflict under which the agent operates. If he underquotes to the owner, he won't get the listing. So the agent puts an optimistic price on the agency agreement, just to get that precious listing, and then starts "conditioning" the vendor to accept less.
Meanwhile the agent quotes below the likely price to prospective buyers, to persuade them to invest in a building survey before going to the auction. Having made that investment, buyers are more likely to bid up rather than throw away that initial expense.
There is an easy answer for this. Vendors have to display the contract at the sale property during Opens. Why not also require them to display the Sales Agreement?

Exclusive Sales Agency Agreements

The Real Estate Industry of New South Wales provides a standard sales agreement that is used by most real estate agencies. This standard 'REINSW Sales Inspection Report and Auction Agency Agreement' form provides for an exclusive sales agency agreement, usually for 90 days. If the property is to be put to auction, the agreement may also stipulate an intended auction date but the auction date does not influence the duration of the exclusive contract.

Under this agreement the vendor can terminate the agreement immediately after the 90 days.

McGrath use their own form, which is subtly but very significantly different. Their exclusive period is for 90 days after the auction. Typically the auction might be six weeks into the contract, so McGrath sign vendors up for well over five months.

Under McGrath's special contract, a vendor wishing to get out of the contract earlier has to give 30 days notice in writing AFTER the first 90 days are over. So the very first time a vendor can get out of a McGrath exclusive agency agreement is after four months.

Aussies keen to crack property market

Belinda Luc of Real Estate Business reports:
More than half of Australia's renters are struggling to get into the property market, new research has found.
According to the Bankwest/Mortgage and Finance Association Home Finance (MFAA) Home Finance Index, just 19 per cent of renters are happy to keep renting in a bid to maintain their lifestyle, while the rest are keen to crack the property market.
Bankwest Retail chief executive Vittoria Shortt said rising rents were the reason so many Australians wanted to buy.
“There has been a strong shift in the desire of first time buyers to get onto the property ladder since the March Bankwest/MFAA Home Finance Index,” Ms Shortt said.
“First time buyers also changing their expectations, and are prepared to make trade-offs to enter the property market, like looking further away from the city centre or for a smaller property."

Ad Valorem NSW State Tax hitting home sales

The NSW government quietly imposed a new tax on home sales in July, called the "ad valorem" tax. Already the tax, applicable on all sales above $500,000 (so on all sales in Beecroft and Cheltenham) has affected 13,000 property purchases, adding an average of $1,150 to each purchase.

Over the same period, the NSW property market has fallen 2.07%, the worst quarterly fall since the GFC! Residex Chief Executive John Edwards says "this Government is crucifying the property market." There are many experts talking about a crash in house prices, and one wonders if Kristina's new tax could be a trigger for this. The Liberal Party has promised to abolish the tax when they win power in March 2011, but will the damage already be done?

You have to question the logic of such new taxation on the Government's house sale cash cow. On the average Beecroft / Cheltenham house, Stamp Duty is about $35,000, so the new Keneally tax is adding about 3% to revenue, which is only marginally above the lost revenue from the drop in sales. If house prices start to fall, there could be a cascading general loss of confidence as people see their equity, and their prospect of capital gains, plunging.

Housing Market "flat".

According to the Australian Bureau of Statistics, the value of investment housing commitments fell by 3.9 per cent in August 2010, seasonally adjusted.
Real Estate Institute of Australia president David Airey said while investment housing had been "the bright spark" of housing finance earlier this year, this is no longer the case.
"We are seeing the cumulative effect of six increases in official rates between October last year and May this year and concerns about further increases in the months ahead, particularly from first home buyers and investors" Mr Airey said.

Housing shortage to worsen

This is a direct extract from Real Estate Business that you can find at http://www.rebonline.com.au/:
According to the Housing Industry Association's (HIA) National Outlook report, housing starts are forecast to decline by a further 4 per cent as federal stimulus for housing construction starts to wind back.
"The fact remains we are not building enough homes to match demand, and going forward our national housing shortage is expected to worsen," HIA chief economist Dr Harley Dale said.
"Renewed weakness in new home starts in 2011 would mean there were only two years in ten when starts have risen. That is an appalling result, which highlights the challenge Australia faces in addressing a large and growing housing shortage that will place considerable further pressure on rental markets."
The report found that by calendar year, housing starts are forecast to increase by 24 per cent in 2010 to a level of 171,442, before dropping by 9.5 per cent in 2011 to a level of 155,155.
"Stimulus measures drove a short-lived recovery in new home building and helped Australia avoid a recession. However, if we want to address Australia's housing shortage then the Federal Government needs to lead from the front on a range of policy areas including further investment in skills and training, reform of the tax system, an end to excessive regulation, increased land supply, reduced planning delays, and ensuring greater competition in the banking sector so there's adequate finance for development," Mr Dale said.

Big Drop in Home Lending

The Daily Telegraph reports that "the traditional spring surge of new home buyers has failed to materialise, raising fresh doubts over the predicted revival of Sydney's wilting property market. The number of new mortgages actually fell 0.3%, compared to 10% spring increases seen in other years.
Compared to September 2009, new mortgage sales declined by 20%.
These figures released on Monday just might have influenced the Reserve Bank in their decision to leave interest rates on hold for another month.

Trends in Sydney House Sales

There is a good article in SMH Business Day today, comparing auction success rates around Australia. Sydney and Melbourne account for 80% of the overall capital city market, 26,000 for Melbourne and 20,500 in Sydney during 2009. In Melbourne auctions account for 30% of sales, in Sydney 20%. It must be remembered that Melbourne has a higher proportion of units than Sydney, and has more houses than any other state capital.

"The most obvious recent trend has been the weakening of weekend auction success rates since late April in both cities. Detecting price movement trends has been harder."
In February and April 75% of properties sold under the hammer, July's auction clearance rate was 61%.

Stamp Duty cuts for Pensioners

Under the latest NSW state budget people over 65 will not pay stamp duty when selling an existing property and buying a newly constructed home costing up to $600,000.
The objective was to allow retirees to downsize while staying in the area they now live in. However for elderly residents in Beecroft and Cheltenham, this will have little effect as there is little prospect of any new constuction homes coming available for less than $600,000. Adding the development contribution cap of $20,000 imposed by NSW state government, there seems little prospect of any developers going out of their way to build to suit this market.

Buying off the Plan

Under new legislation about unfair contract terms, coming into effect today, people buying properties "off the plan" will have greater protection from developers trying to make last minute changes to the final delivered property, such as reduced room space or inferior light fittings.

First Home Saver Accounts shunned

According to David Crowe in the AFR, aspiring home-buyers have shunned the Federal government's first-home saver accounts out of concern at its complex rules. When introduced in 2007, Mr Rudd expected to attract $4 billion in savings in 400,000 accounts, but actual takeup has been only $60 million by 16,000 savers. One credit union spokesman says "the cost outlays have exceeded the take-up. The restrictions on it are very cumbersome".
Young people must surely have been put off to find that, if they invested savings in the scheme but then failed to buy a qualifying house, the money they had put in was transferred to super, and lost until they are 60!
For the treasurer, this means a windfall saving of some $800 million of anticipated expenditure not taken up by young people. So Mr Crowe suggests the government probably won't change the rules very soon.

Rudd Backflip on Foreign House Buyers

The federal government’s decision to reinstate the foreign investment guidelines has been welcomed by Australia’s real estate industry body. The Real Estate Institute of Australia (REIA) president David Airey yesterday said the government’s backflip on foreign investment guidelines was exactly what Australia needed.
Late last week, the government announced that foreign investors may only purchase new housing stock and temporary residents may only purchase existing housing for use while they reside in Australia. “We support measures that facilitate access for overseas investors to participate in the property market, however it has come to our attention that since 2008, the changes were not being effectively policed by the Foreign Investment Review Board (FIRB),” Mr Airey said.
REIA undertook a survey which showed that agents, particularly in Melbourne, were suspicious of the number of foreign entrants into the market place and whether those entrants were strictly adhering to the guidelines. “We are looking forward to working with the government to achieve an outcome that meets the expectations of the Australian community and does not place undue stress on housing affordability in Australia,” Mr Airey said

Converting Offices to Apartments

SMH BusinessDay reports that a number of big redevelopments are planned on the fringes of the Sydney CBD, converting older style office blocks into upmarket residential towers. Developers can make more money on strata apartment sales then they can by leasing the offices.
In the Beecroft area, there is a good example of this with the Waldorf Apartment block on City View Road, which used to be the Waldorf Hotel and was converted to up market apartments a few years ago. Ray White Beecroft have an apartment on the top floor of that block for sale, and it certainly offers a great lifestyle for a single man or someone commuting to Sydney from elsewhere. Close to the railway station, and with gym, swimming pool, bar and restaurant all part of the complex, as well as being surely a great investment!

Foreign Property Buyers

The Australian says that "overseas buyers may be crowding locals out of the market"! "Anecdotes abound about cashed-up Chinese investors "land banking" by collecting houses, only to leave them vacant while desperate first home buyers lose out at auctions to these foreign buyers.
This situation largely results from a change implemented rather quietly, a few days before Christmas 2008, by the Rudd government relaxing Australia's previously stringent restrictions on foreign purchases of residential real estate. The Australian says that barely a year later, property prices have surged so strongly that the RBA is having to raise interest rates to dampen the buyers' desires.
Under the changes, called "administrative" by the FIRB, visitors on 12 month visas are allowed to buy one property to live in while they are here, and are no longer required to sell that property when they leave Australia. There are typically 300,000 visitors eligible under these new rules each year.
The author of this blog lives in a street where a Chinese visitor last year bought a property before auction for well over the expected price, and the property is still empty. We understand that Ray White Beecroft, the selling agent, has written to the new owner offering to put tenants in, so far without result. Meanwhile the neighbours are getting very distressed by the growing weeds in the front garden!