Is This Right Time to Buy First Home?

Lusman6062 on 12/10/2014 - 23:42

Hi there,
I am wondering since the home loan interest rate is low at the moment, Is it the right time to buy first home?
Some of my friends say it is best time to buy property and some says Australia has highest prices of homes at the moment.

I have savings(~$25K) Plus I am assuming that home loan will be granted as well. However, my intention is to buy a property, keep it for 5 years and then sell it with a better price?
So do you believe its right time to buy property to get maximum output or I should still wait?

This is my first post and I hope you get easy on me. In addition, I appreciate your response/feedback in advance.

Financial

Comments

    • usman6062 on 13/10/2014 - 16:32

      i know that….but instead paying 15k mortgage insurance, I would save a little more + borrow from my parents and then buy house.
      15K is alot for every one. Paying this only because I have less than 20% deposit, I will consider it use less.
      My parents will be happy to give me some money.
      I think I should wait for another year and then buy a property.

      • StewBalls on 13/10/2014 - 22:00
        -1

        i know that….but instead paying 15k mortgage insurance, I would save a little more + borrow from my parents and then buy house. 15K is alot for every one. Paying this only because I have less than 20% deposit, I will consider it use less.

        Sorry man, but tough…we've all been there, a lot of us have had to pay it…that can be the cost of doing business. Not everyone has family they can borrow off either.

        Sometimes, you've gotta spend money to make money…how are you going to feel if looking back, you realise that skimping on that $15k actually cost you $150k in capital gains or equity by the time you actually get into the market?

        There's ways to mitigate or get around MGI, talk to a few mortgage brokers before you lock in with the banks…

  • sagrules on 13/10/2014 - 16:12
    +1

    I suggest you go to the bank first and see if they will approve you for a loan and how much they will allow you to borrow. Getting pre-approval will at least give you some sort of budget to work with if you decide to go ahead without committing you to anything.

    • usman6062 on 13/10/2014 - 16:24

      its 350k based on pay and bank history. but with 25K i have to pay mortgage insurance which is alott and dont wanna pay it.
      I will get house after saving atleast 20% of the deposit.

  • usman6062 on 13/10/2014 - 16:15
    +8

    I went to see one of the big banks where I have my account from last 5 years.
    There is mortgage insurance I have to pay if I deposit less than 20% of the amount I borrow which is between 10 - 15k.
    I think it is alott..

    Thank you everyone for your suggestion/advises.

    I think I should save atleast 20% before buying a property because I don't want to pay mortgage insurance. I would rather buy later and save a little more and avoid mortgage insurance.

    • malkakas on 13/10/2014 - 16:33

      in the meantime, put your savings on a high interest account. Then you can earn little bit of interest from it.

  • c0balt on 13/10/2014 - 18:01
    +7

    Always a good idea to save up the 20% + first years interest repayments in a high interest savings account before putting the deposit down.

    If you can just afford to buy a property then you really can't afford to buy a property. Bad things can happen to everyone and having a period of unemployment whilst on a mortgage can cripple you financially for the foreseeable future. Consider putting that money into an offset account if your bank manager or mortgage broker offers better rates on the repayments if you can do so. Get as much advice as you can to get the best setup and rates possible for your situation and know the pros and risks of all.

    I honestly do think it's still a good time to buy now. Take inner Melbourne for instance - rent yield in the inner suburbs is ~6% which is usually greater than interest repayments even after outgoings such as body corporate+rates+water rates. Put some negative gearing on that and it's easy to see how our prices skyrocketed so quickly, there's just so much money in being a landlord. In the current market it still makes sense to buy investment properties even when they are considered overvalued (so would that mean they aren't overvalued?).

    Sure something could crash and cause landlords to have to lower their rents to repay their loans, but I think that if a crash was to happen that badly - then having your own home offers a lot of security in hard times. It's possible that if there was to be a crash that your current industry may be affected. If you had a property then if you do fall under hard times then you could rent out a room, the whole place and go rent somewhere dirt cheap, or live in SE Asia for a while off your rent yield as the market readjusts.

    We complain a lot here about affordability in the metro areas - but looking OS at places like New York, Seattle, London and other major hubs - affordability in Australian metro areas isn't as bad as what most people make it out to be. Times have changed and with population growth happening where most the jobs are centered around the city then affordability will continue to get worse.

    Last year in Victoria alone there were ~50,000 graduates from year 12, just graduates. We are not planning properly for all the new people we are adding every year to the market. There's a very real shortage of housing. Yet we complain about a 'glut' of apartments and 'not in my backyarders' refuse to allow councils to approve medium to high density housing in the suburbs that are most equipped to handle an influx of people.

    It's for those reasons I just don't really see a housing crash happening. A slight adjustment sure (especially in areas that are further away from metro areas), but I think the people that are holding their breath for a crash are throwing money down the drain to their landlords.

    Of course if a crash was to happen and your largest asset is worth much less than you are paying for it in interest payments then I will eat my words. No one has a crystal ball (I would hope not) and as usual with any investment/asset it will come down to where your level of acceptable risk mitigation lies.

  • brawndo on 13/10/2014 - 19:54
    +7

    Historically, property investment has been more about time in the market as opposed to timing the market.

    If it's purely an investment and not to live in, search for a positively geared property and take out an interest only loan.

    Past performance is no indication of future performance so be prepared to hold it for as long as you need to.

  • adn on 14/10/2014 - 00:00

    go to somersoft.com (better for noobs) or australiapropertyforum (can get confusing) read and come back with your findings

    • nicksinternet on 19/10/2014 - 10:19

      yeah go there and get trolled and attacked. That was my experience. A bunch of dicks who wanna get off on showing how much they know (think they know) and how little you don't. Newcomers are not made to feel welcome there. Thats not only how I experienced it but I also saw it happen plenty to other noob posters there.

      • adn on 19/10/2014 - 10:41
        +1

        australiapropertyforum is brutal but their information is more backed up and diverse then somersoft.

        you don't have to participate but read what you need from those forum.

  • IMBI3 on 14/10/2014 - 07:43

    Go and see a broker/financial planner/banker

  • t_c on 14/10/2014 - 08:21
    +1

    Interest rates are tipped to begin to rise mid next year 2015 and the unemployment rate is beginning to trend upwards.
    Interesting times ahead especially for the bottom end of the market.

    • lplau on 15/10/2014 - 13:52
      +2

      Intersting, but I keep in hearing that tip ever since last year. They just change the year every year, next year they will say "Interest Rate is tipped to rise mid 2016"

  • young_dazza on 14/10/2014 - 08:54

    Are you looking to buy as an investment or to live in?
    If you want to invest then this is a bad time for you to buy because:
    1. You don't have a big enough deposit. Mortgage insurance will take away a significant chunk of any profit you might make/
    2. 5 years is too short of an investment term for residential property.The property price cycle is historically 7 or more years.
    3. You could make money within 5 years if you time the market well. This means buying just before prices begin to rise and selling while they are peaking. Take a look at graphs of house prices in your area and see what you think. In my area prices have been rising steadily for 18 months so it's a bad time to buy in my area. Also before a rise in house prices rental yields will be high and vacancy rates low. Whereas in a peak rental yields will be low and vacancy rates high. Go to the sqmresearch website for graphs on your postcode
    Good luck with whatever you decide to do.

  • raj1984 on 14/10/2014 - 09:16
    +1

    Hi Guys,
    below is my 2 cents.
    PLEASE NOTE : All amounts are estimated and there are lot of assumptions made.
    Please feel free to correct.

    Property Value 360000
    Less: Initial Deposit 25000
    Loan taken 335000
    Add: LMI 14000
    Total Amount borrowed 350000

    Ongoing cost per year
    EMI @ 5% 22800
    Rates - estimated 2200
    land tax - estimated 1000
    Insurance - estimated 500

    Total Cost per year 26500

    Estimated property price after 5 years @25% increase roughly
    (assuming prices increases 5% yearly – not compounded just
    to make it easier) $36000*1.25 450,000
    Less: EMI I would have paid in 5 years
    (assuming interest rates are same and not going up) -114,000

    Less: Pay off outstanding loan($40,000 would have been paid in principal) -310,000
    Less:Agent selling fees -12,000
    Profit gained (450000-114000-310000-12000) 14,000
    Assuming u get FHOG then profit at end of 5 years can be $14000+10000 = 24000

    Also there is No Capital gains tax (as personal place of residence)

    Now assuming other way round If don’t buy property and only rent.
    Monthly rent again assuming $1400 per month * 60 months (5 years) 84,000
    That $84000 is a total loss

    • [Deactivated] on 14/10/2014 - 09:44

      Also, if the OP can calculate the difference between the cost of constructing a certain house and the market value in the suburb they intend to buy, it could contribute some meaningful figures into their decision making.

    • meumax on 14/10/2014 - 10:05
      +1

      That doesn't make sense to me.

      Firstly, I don't think you have to pay land tax on your PPOR (at least in NSW anyway). But taking those figures, annual cost per year $26,500/12 = $2,208.33/month.

      The difference in rent vs buy/month = $2,208.33 - $1,400 = $808.33.

      So after 60 months, he would be 60 x $808.33 = $48,500 ahead by renting vs buying.

      This is simplistic, it does not factor in any rental increase. However the initial analysis was also simplistic in assuming 5% interest rate for the whole 5 year period and no increases in rates, water, strata etc. But it serves to illustrate that unless you get enough capital gains, then you can sometimes be better off by renting.

    • malkakas on 14/10/2014 - 10:17
      +2

      Your calculation is not accurate as it didn't take into account the initial stamp duty cost (if applicable) and property maintenance. lets say maintenance is extra $1000 per year (taking annual cost to $27500).

      Also you missed the return on investment if he use his 25K as an high interest (lat's say 3.5% bank interest) bank account.

      If he start with 25K and put $900 every month into a savings account his monthly expenses would be(rent $1400+ savings $900) $2300 (total annual cost $27600).
      with this set up he'll end up with $88,693 in his bank account after 5 years .
      http://www.nab.com.au/personal/planning-tools/calculators-an…

      If he bought the place he only got $24,000 in the bank account (a whole $1000 less than his original starting figure of $25,000)

      • c0balt on 14/10/2014 - 10:43
        +1

        There's also the the ~3% rent increase per year for the renter.

        • malkakas on 14/10/2014 - 11:02

          yes for the ease of understanding initial calculation started with static figures. so the assumption is Mortgage interest, Rent, and Bank account interest, maintenance, council rates won't change for the next 5 years.

        • c0balt on 14/10/2014 - 11:27
          +1

          @malkakas:

          True, but wouldn't the rental market then reflect those increases as those increases gets passed on? After being in the rental market for a while I would say there's a lot of competition in metro areas and it's only going to get worse if the current trend of most the economic growth happening in metro areas continues.

          I recently put down 20% on my first PPOR and saved up the first years interest repayments in an offset account (if I can keep it over x amount then I get x% discount from my interest rate), so I don't want to hide that I am in the 'buy now if you can afford to safely' camp.

          For a long time (too long - missed a lot of great opportunities) I rented a place thinking that there was going to be an decrease or adjustment based on other's reasoning rather than my own. Thankfully I came to my senses about a year ago after waiting about 4 years for the adjustment. I also didn't know if I wanted to stay or travel to look for work so that also affected my decision making.

          I realised that I was a real numpty for doing so. That I had stayed at the same place for years and years and that I could have got a place even cheaper a while back, as I was always in a position to scrimp and save up a deposit + first years repayments (on a nice newish 1 bedroom apartment close to CBD) rather than continue to pay rent.

          My advice is: if you can afford to buy a place within an acceptable level of risk mitigation then go for it, that it is in my opinion a more prudent financial decision than to continue renting. If you can only just afford to by a place (and have a significant level of risk) then you are better off renting.

          All my reasoning is based on the apartment/townhouse market within metro Melbourne. If I was interested in a house on a block of land then I would have still continue to rent, as housing/land prices are insane.

        • malkakas on 14/10/2014 - 12:13

          @c0balt: Yes I agree to a certain extent. There are various factors that influence the whole housing market. So your argument is valid upto a certain extent. but in my opinion if your annual home ownership cost is 50-60% more than annual renting cost then there's no point in buying.

          But There are exceptions to above argument;
          when there are sudden spikes of house prices it favors the people who bought before the high prices started.
          For example in March 2013 Median house price in Sydney was 614K in March 2014 Median house price in Sydney was 784K. That's a big gain. People who bet at the right time will win, others will end up losing a lot of money.

        • c0balt on 14/10/2014 - 12:32
          +1

          @malkakas:

          Sure.

          Bit of a runaway point - but say someone was to win the lottery and grab a million. They could purchase a place without having any repayments, get 5-6% return (minus outgoings) and could (if they wanted to) live of the return alone. If that person was to still work then they could save tens of thousands a year in tax by gearing the place.

          Then replace winning the lottery the with middle class Australians who do have those funds after years and years of hard work. Would they be better off keeping it in a high interest savings account at ~4%, hedge fund or IP at ~7%? Or would they be better off buying a place even in today's market? I think it's easy to see how we got into a situation of such an overinflated market, because it's really not overinflated, not because of past performance, but because of the rules to the game. There's just too much incentive to park money in property if you don't have to make interest repayments. I don't think it's fair to young people to continue to allow negative gearing, especially considering the concept of trickle down wealth ("we keep 99% you get 1% until you get your inheritance") from the BB generation, but that's starting to go a bit off topic.

          I think that until negative gearing is removed that property is still one of the best return to risk investments, because at the end of the day even if you are losing money you still have a house to live in or rent out until the market recovers- lose money in most other investments and it's just intangible data.

        • [Deactivated] on 15/10/2014 - 11:44
          +1

          @c0balt: Rents have drop significantly in Brisbane recently as there is less demand for rental properties. Drops of a round 7-8 percent.
          We are desperately waiting for the next re-negotiation of our lease so that we can get a lower rent or move to a better value property.

          Part of the problem with this discussion is that there are two philosophies around the purchase of a house:
          1. I buy a house because I want to live in my own home. If I need a mortgage, I can afford the repayments. I may, or may not, live in that property my whole life.
          2. I want to make money on property. I can buy an existing property or develop a property from scratch. I understand that there are many variables that will impact on the profit or loss. I take a calculated business risk. I may already own my own home or I be a renter.

          If you are uncomfortable with the first one, then you rent.
          If you are uncomfortable with the second one then you look for other forms of investment that you are comfortable with. Eg. shares or term deposits, etc.

          It becomes very poor business sense for the investor to confuse whether it is an investment property or a principle place of residence.

          The obvious question for the OP is where/how will you live after you sell this property?

    • debb on 14/10/2014 - 10:48

      This calculation missed quite a few purchase costs, e.g. stamp duty, transfer fee, solicitor's/conveyancer's fee, loan establishment fee, etc. These all eat into any capital gains.

      If renting, landlord pays rates, insurance, some maintenance, water.

  • Withdr4wn on 14/10/2014 - 10:20
    +4

    @usman6062 - Buying will depend on a few factors.

    A couple of disclaimers of sorts. I used to write and maintain software aimed at the mortgage industry for a number of years but left the industry 12 months ago. Go and see a Mortgage Broker who will offer a free assessment for your exact needs. The industry is heavily regulated now - they will need to disclose to you any commissions and reasons as to why they are recommending you a loan. Of course, like any industry there are great ones and some really pathetic ones. It's not fool proof, but they're interested in getting you a loan - and in your situation, there are very few options. I'm only attempting here to give you a bit of a leg up in going to seek professional advice.

    $25,000 is not a lot of money saved to buy a house. You can do it, but you'll find you will be restricted to only a few options. Strongly recommend seeing a Mortgage Broker (who will know what the few options are, what information to provide, what product(s) are likely to accept your situation etc…). Even if you come out of it thinking you want to continue renting, it really sounds like something you should look at first before you go too far down the property hunting path.

    First - $25,000 is 5% of approximately $320,000 + ~$9,000 in Government Fees. The 5% is important - most lenders will lend up to 90% of the property value with fewer up to 95% and only a couple who will do above 95% with LMI capitalised. It's also important that the $25,000 is genuinely saved (sounds like it is - if it's been sitting in a bank account for 3-6 months depending on lender. You'll also need to be adding to it. No move at $25,000 is bad. $23,000 built up to $25,000 is good over that time).

    Now, when you are looking at 95% LVR loans, being a first home buyer is going to give you a few points when it comes to your net worth (assets minus liabilities) but you're going to need a squeeky clean credit history (0 defaults), a very good salary - from memory, the rules were set to about 1.4x your monthly surplus for high LVR loans - if repayments are $1,700 a month @ ~5% interest @ $320,000, you're going to need a good surplus of $2,300+ income (within reason of course) to get favourable treatment here. Finally a property you buy at 95% LVR needs to be valued at what you're paying (i.e. if you offer $300,000 for a house, the bank also needs to value at $300,000 or higher. If they value lower - which they can do if there are issues with a property - you'll find your LVR quickly exceeds 100%). With that in mind, you'll also need to get LMI - that's been mentioned above, so I won't go into calculations except to say that at least one lender was capitalising the entire amount, and another only up to 97% - your Mortgage Broker will let you know if this is the case still).

    In the areas that you could buy at under $300,000ish (Werribee, Melton, Hoppers Crossing, Cranbourne, Pakenham, Frankston North etc…), you'll likely find they closely match what the bank will value the property at (and therefore use to calculate your LVR - Loan Amount / Bank Value needs to be less than 95%).

    Tl;dr:

    1. Work out what you need to borrow (see a mortgage broker for advice)
    2. Work out if you want to live in those 'cheaper' areas (rent usually closely equals cost to buy)

    Only then can you make a decision on whether you want to continue paying for rent close inbound or buying outbound.

    Personally I'm happy to pay a mortgage and own (property security, don't mind driving everywhere, enjoying having the flexibility to bang nails in walls and hang things up permanently, having a couple of pets, really really hate frequent moving etc…), but everyone is different. If you like to move around and usually travel pretty lightly, renting may very well be cheaper.

  • narbe on 14/10/2014 - 12:38
    +12

    Seems like alot of good considerations from both sides of the fence.
    Here are some important considerations that I didn't see mentioned.

    Because its your first home consideration I will assume your relatively young.

    Pros of owning home to me: Very relaxing , can do anything to house
    Possibility of subdivision If you buy in the right area
    2 Tax advantages that I would use- Capital Gains tax exemption due to PPOR
    - Possibility of earning rent on top of being PPOR

    ATO tax rule- When PPOR is purchased you need to move into the home without renting first to activate CGT exemption (Source internet: minimum 6 months) at which after this period you can move out and rent it out for the next 6 years before your exemption runs out.

    This means you can rent out the home after you've lived in for at least 6 months and sell it before the 6 years is up or move back in for another 6 months to reactive.

    So when buying a house for financial reasons. Your looking at (Capital Gains + Rental Yield )- Expenses

    Cons of owning a home to me : Stuck to the one place, makes travelling difficult and also career advancement inter-state may be harder
    If a new job offer that is much better than my current one I would need to consider selling or renting out at which point I would have have to pay 2x rents during vacancy periods of the year. (it does happen, if pay mortgage = more stress)
    Ownership of property inter-state is annoying to deal with.
    Cost of home ownership. Maintenance and Expenses.

    Now I put most of money in shares;

    Pros of owning shares : Very easy to liquidate
    50% off CGT after shares are held for minimum 1 year
    100% franking on high dividend shares
    Low stress levels in value-investing

    Cons of owning shares: Requires high levels of research
    Requires patience and high degree of control
    High volatility in "some" shares (obviously depends on what you buy)
    The more you own the more you can potentially lose can be zero.

    So to me the question is which kind of investment is right for you ? You can only answer that with research. Most people like to set and forget kind of investment. To me this is the wrong approach, mitigating the risks with research is well worth the effort regardless of the "type" of investment. It can come down to personality, some people are more active and like renting places out while others hate it.

    I think age plays a great role in the early stages. What kind of job are you working? If you were required to move inter-state for a job that pays 50% more would/could you do it? Do you want to go on holidays or be stuck paying your mortgage ?

    25k is kind of a very small sum. Not to say you cannot invest but having more capital is definitely a good start when considering houses since your expected flipping rate is 5 years I think you would need to be on a very high income or buy a below average house.

    Remember that mortgage interest rates can get quite scary: small example.

    Commbank Loan - 500k loan @ variable 5.3%

    10 year loan = 629k
    20 year loan = 766k
    30 year loan = 902k (402k is interest)

    This is not even taking account interest rates going higher. So in 30 years house your hoping that your house is worth 902 k at least. Historically speaking this may not be hard, but did you buy in the right area?

    30 years is a long time to make a bet on. How many 30 years do you have?

    These are but some of the few questions you have to ask yourself when considering your financial situation. I personally do my own research rather than a financial adviser, but that's me. Its your choice and your responsibility.

  • whatthecrappin on 14/10/2014 - 21:13
    +1

    Personally I believe when you can afford to buy is the best to time to buy. Sure you can speculate and try and time it, but 10 years later when you ask me again (assuming you havent bought by then) you'll look at the prices and you'll say, I wish I had of bought when you told me (I guarantee it). You wont be looking at the thousands you "might" have saved if you had of waited a year or two.

    if we have the discussion in a year or two however, it "might" be - I wish I had of waited I could have saved 20K

    EVERYONE I've spoken to has always told me — yeah you timed buying your house right. Did I time buying every house (4 of them) right each and every time along the years? I doubt it! I even sold my last house 2 years ago right in the dip. Do I regret it? Nope, I dont even think about what I "could" have sold it for.

    You'll win in the end - it just depends on your job and if you can service the loan

  • [Deactivated] on 14/10/2014 - 21:42
    +1

    Don't buy property with the intention to hold for 5 yrs.. Not worth the stamp duty?

  • t_c on 15/10/2014 - 07:35

    ..

  • Brianqpr on 15/10/2014 - 13:35
    +2

    The current housing bubble is largely driven by low interest rates which can almost be guaranteed to rise over 5 years.

    People buy property based on the loan repayments they can afford. These in turn are dependent on interest rates which are at HISTORICALLY LOW LEVELS. Just like the sharemarket was historically high before the collapse. Most buyers don't think about what rising rates might do to their repayments.

    Only around 5 or so years ago variable rates were over 9%. This would vastly reduce the borrowing power of would be buyers if it happened again and house prices would fall. I would say it is quite likely variable rates could be around 7% in 5 years but these things are almost impossible to predict with any accuracy. One thing stands out though, when something is historically low the only way, usually, is up. Affordability is at its limits based on 5% rates, where does it go once they rise?

    Timing any market is difficult. Long term thinking is safer. Despite the peddled nonsense that residential property never goes down this is simply not true and I would say it is now in a period where the risks of short to medium term capital loss are greater than they have been for a very long time.

    • lplau on 15/10/2014 - 13:47
      +1

      For the residential property market, it also depends on where you buy.
      Some areas just don't drop as much as others will drop.

      I remember the last housing bubble burst, my friends were saying their loan is worth more than the house. Since it dropped like $100k, where as my house only really dropped around $15k since I choose a better area to buy in.

      If you choose a location, then it will save you.

      However you need to look at it in the long run if you want to minimise your risks.
      The bubble might burst next week for all we know (The news has been reporting it every month…. It will burst it will burst, but it never comes). If it does burst, then you will need to wait longer to let go the asset.

      Housing and Property is a vicious cycle, it goes up and down, however it generally heads towards the direction of going up, due to demand being higher and land being lesser and lesser.

      • leiiv on 15/10/2014 - 17:38
        +1

        This may be very true. Has anyone noticed any occurrence of price drop in apartments located in any major CBD areas? (Sydney, Melbourne, Brisbane)

    • leiiv on 15/10/2014 - 17:34
      +1

      They say the rba cash rate is at record low at 2.5%. But who can tell with absolute certainty that it will not go even lower? They can even go lower than 0%, like in Europe..

      • arescarti42 on 16/10/2014 - 13:48

        No one can tell with absolute certainty that rates will not go even lower (I believe they'll go lower before they go higher, but it's extremely unlike that it will go as low as the US and Europe.

        We need rates that are high enough to fund our enormous current account deficit. If rates go too much lower, all that foreign capital funding our banks will flow back overseas, and we'll have a banking and liquidity crisis on our hands.

      • Brianqpr on 17/10/2014 - 14:24

        They never have before so in all likelihood they won't.

        Also, if the RBA felt the need to drop the cash rate significantly from here it would mean we are in a serious recession, rising unemployment etc. That would be very bad for the property market.

    • [Deactivated] on 16/10/2014 - 02:10

      Historically low levels for Australia, but currently HIGH in comparison to the UK at 0.5%, the USA at 0.25% and Japan at 0%. So actually we also could see interest rates stay the same or drop over the next 5 years. This might be hard for people to believe, but in Japan they were hammered so hard by a property boom in the early 1990s that their interest rates have been at 0.5% to 0% for the last 18 years.

      http://www.tradingeconomics.com/japan/interest-rate

      • fchis on 16/10/2014 - 07:34

        You will see interest rate drops to 0%-1% in Australia AFTER the housing prices collapse to a disaster level not when its booming. And the other thing is we are not Japan. We don't really have a culture of always saving up for rainy days like Japan which is good for the economy and our tax system is also different.

        • [Deactivated] on 16/10/2014 - 11:01

          Yes, interest rates rise to help curb a booming market, we are not in a booming market as compared to the 2002-2008 market run. Whether or not we see interest rate rises does also depend on factors other than house prices. Since 1993, the RBA must make it's decisions based on their three responsibilities: stabilise currency (including keeping inflation in check), help reduce unemployment, help business growth. So house prices are just a tiny piece of this economic equation. On the one hand the RBA is trying to promote the construction of new homes while on the other hand trying not to allow the overall house market to overheat. That's why the Fed Govt introduced tax breaks for newly constructed homes. Interestingly, the First Home Owners grant has remained at $7K since its' introduction in 2000 (except for a brief period from 2008-2009). This is actually weaning us off it through the effect of inflation which I think is a wise thing.
          With our house prices so high and our debt levels so high, the RBA knows we are on a knife edge. I actually believe we will see a prolonged period of stability with our interest rate at 2.5%.
          The Japanese have long since abandoned their savings culture and it has been in decline since the late 1990s. Since 2004, Japanese saving rates have been at 2.5- 3.0% much like Aust, USA, Canada, etc, etc.
          The Japanese taxation system is not that different to any other country in the world. You work, you pay tax. When the government wants to stimulate, or cool, parts of the economy they might introduce or remove certain tax breaks. And in the case of Australia, they tweak negative gearing and capital gains tax, maybe even increase a land tax.

  • [Deactivated] on 15/10/2014 - 18:51

    Do you want to get into the housing market at some point? If yes, you might as well buy now. Prices are insane, but it's unlikely they'll drop and interest rates are low. In smarter countries long-term tenancies are a reasonable option. Not here, unfortunately.

  • northerly on 15/10/2014 - 19:10
    +3

    The best time to buy a home was yesterday.

  • fchis on 15/10/2014 - 22:35
    +2

    My advice to you is to save 20% of the current median house value first and ask yourself how secure is your job in the next 5 years.
    Do you have any back up plan if interest rate suddenly goes up or in case you are unable to pay the mortgage repayment on time. $25k deposit can probably get you something in the north or west in melb but it might be pretty hard to rent it out in case you can't pay the mortgage. IMOH, now it's not a good time to buy unless you prepare to lock in 25-30 years contract with a bank and think the market will be booming forever. The pyramid is reaching to its top. Investors driven market will always burst at a certain point. The question is when but you may get lucky.

    • jellykingdom on 17/10/2014 - 09:04
      -1

      Oh come on, that's being a bit ridiculous. 20% of a median unit is like $80,000. That is obviously not going to happen to a normal person in a reasonable amount of time. By the time he makes that deposit up, the 20% will be more like $150,000 and he'll be back to square one

      As for job security, how secure is ANYONE'S job really over a 5yr period? Unless you're a crystal ball salesman, that is a very hard question to answer

      If you start to overanalyse everything, you will never get anywhere.

      • [Deactivated] on 17/10/2014 - 12:07
        +1

        If you can't afford a 20% deposit you can't afford the dwelling

      • JohnHowardsEyebrows on 17/10/2014 - 12:27
        +1

        And if you blindly follow everybody else into what is effectively a ponzi scheme, how far will you get? The report from UBS that we're the wealthiest people in the world - on acccount of the values of our property - is a huge warning signal to anybody with basic logic.

      • ThadtheChad on 17/10/2014 - 13:33

        20% of a median unit in Sydney is $140K.

  • secondstory on 16/10/2014 - 11:26

    If this is to be used as an investment property, look up Capital Gains Tax.

    One thing to consider is that even if you buy now during times of low interest rates, they will most certainly go back up given the time. If they are back up in 5 years time, then even if the price of your house has increased then the market to sell in might not be so good if both rates and house prices are up (which will just bring the price down if you really want to sell or you will have to cop the higher repayments). Consider the situation you will be in, in 5 years time, if you either cannot sell or house prices have not gone up.

    Apologies if its been said or asked already - I'm still catching up in reading the thread, but it really comes down to your circumstances and how you want to handle the purchase. Don't just look at interest rates and house prices unless you're made of money. Talking from (little) experience, there are many things you need to be asking yourself and checking beforehand regardless of whether its a good market to buy in Aus or not.

    Consider your living costs and whether this will change. Are you living at home with minimal expenses? are you currently renting? will you be moving into the house? renting it out?

    In terms of your deposit:
    Since it's your first home I might mention first that though you do have a deposit ready, there are quite a number of upfront expenses/fees/home (landlord?)insurance/stamp duty/LMI/etc involved in home-buying that can build up so do the research and get a good estimate of how much that is going to cost you. Deduct that from your deposit (or include this in the loan amount) before trying to consider finances or you will meet some unexpected hurdles. Also, it might be a good idea to keep some money aside that is not put towards the deposit (and rather top it off once you have the loan) in case your income suddenly takes and unexpected turn for the worst it'll give you some space.

    Mortgage sustainability:
    Have a play around with some online calculators/tools available on most lenders websites. Pay particular attention to much much interest you can expect to have paid over the 5 years and how much you're repayments will be if interest rates do go back up. Consider any rental income, ongoing costs, tax and tax deductions. Weigh things up alongside the risks involved.

    (I'm not from Melb but I would check the .gov sites on the matter as these are normally quite informative when taking into account costs, benefits, rights and responsibilities.)

  • MissLouise on 16/10/2014 - 23:45

    Came across an interesting strategy…

    This guy (about half way through the article) bought an apartment in a complex as a negatively geared investment, and rented another apartment in the same complex to live in. Interesting concept that I thought I might share:

    http://www.theage.com.au/business/boom-threatens-the-great-a…

  • jellykingdom on 17/10/2014 - 09:00
    +5

    Maybe this is the wrong approach but i think that sometimes things are worth doing not because they are the best financial decision, but because they are decisions that NEED to be made.

    For me, i received a bill from my landlord with our total rental figure for the previous year. It was pretty much equal to your deposit ($25k). At that exact moment I decided that I didn't want to pay this jerk landlord any more money and started looking.

    Not because it made more financial sense to buy versus rent, but because I was chasing the Australian Dream.

    I bought a crap little unit (dirty but had good layout and good potential) for $250k, sank $25k of home renovations into it, and it looks fantastic! Is it worth $500k just because of the renos? Hardly. Have I made more money that if i had just taken my $25k renovation + $15k interest and put it into shares? Probably not! But the fact remains, that the place is mine and its a good feeling!

    Whether you subscribe to the whole "rent money is dead money" philosophy or not, not all decisions need to be made on a purely financial basis. Renting is a lousy feeling, speaking personally, and owning the place feels great!

    …That being said, you obviously want to make sure that you can afford the repayments etc and aren't' going to LOSE money! I'm just saying that you don't need to necessarily think about how much MORE money you could make, or you'll get bogged down in the detail

  • Marcsie on 17/10/2014 - 09:20
    -1

    It's always a right time to buy when you're ready,because you just can't wait until interest rate very low and house price very low then buy it,the purpose of buying investment property is to negative gearing your income and watch the capital gain,so don't ever selling your investment property unless you have to,just keep buying until the bank doesn't lend you money any more.

    • [Deactivated] on 17/10/2014 - 12:10
      +1

      LOL. Only in Australia and with property will you hear people saying the purpose of there investment is to lose money (negative gear) and pray for a capital gain, while borrwing as much money as the bank will give you.

      • Marcsie on 18/10/2014 - 09:39

        Aussiemillion,How many investment properties do you have (I guess none) ?

        I have 6 investment properties,house fully paid off (value over 1 million),2 brand new cars (WRX and Toyota86),how do I do that ? Judge yourself !

        • t_c on 18/10/2014 - 12:45
          +1

          Powerball?

  • malkakas on 17/10/2014 - 13:21
    +2

    It's an unfair playing field in Australia for Owner Occupiers.
    Let's look at following example.
    There is a house which is worth 500,000. Expected Rental return from this property is 5% ($480 per week.)
    Annual ongoing cost is $4000 (Council Rates, Maintenance,ESL, etc..).

    There is a potential owner occupier and an investor interested in this property. both are on 75,000 annual taxable income and both have saved 10% deposit ($50,000) for the home. Both need LMI of $10,000 for this mortgage.
    OO plan to take a principle + interest loan @ 5.5% for 30 yr term.
    Investor plan to take interest only loan for 15 years.

    If this house was sold for 500K then weekly repayment would be;
    $589 for the OO.
    $476 for the investor.

    The Investor outbid the owner occupier and bought the property for $525K and shattered the home ownership hopes for the potential owner occupier.

    Now Investors repayment become $502 per week (for $475K loan).

    After one year Investor has paid (502-480)x52 = $1144 out of pocket to the bank as interest.
    Another $4000 as other outgoings + $666 as LMI portion (1/15th of LMI , 10,000/15 == 666).

    The investor get a tax deduction of 1144 + 4000 + 666 = $5810 making his new taxable income 75,000 - 5810 = $69,190

    Investor think this is great as he only paid 5810 PA for the house.
    This investor still has some spare money to ruin the Great Australian Dream of another Australian Family.

    In my understanding Housing should be an equal playing field. Same CGT for all, Same tax rebates for all (I prefer if there's no tax rebates for anyone regardless of OO or Investor), no government grants for existing properties.

    • AmpeD on 17/10/2014 - 15:04

      but dont you have to declare the $480 a week rent as taxable income?

      • JohnHowardsEyebrows on 17/10/2014 - 15:41
        +1

        That was already factored into the calculation. The effect of negative gearing is to mitigate the losses made by the housing speculator, meaning they're happier to accept an uneconomic asset (i.e. one whose net yield is less than the interest paid), in the expectation of neverending capital gain.

        It's a blight on our country's notions of mateship and a fair go.

        • leiiv on 17/10/2014 - 18:51
          +1

          The culprit is the 50% tax discount on the capital gain of any assets that you hold for at least a year. So negative gearing is "used" to "convert" the non-capital-gain income to effectively halve your tax. I think that promotes speculation and gambling to some extent. Well, it does make sense because any money that you win from lottery or gambling is even tax free here.

          The concept of negative gearing itself is reasonable, logical, and consistent with the taxation for business: profit = income - cost, and only profit is taxed.

        • JohnHowardsEyebrows on 18/10/2014 - 00:19

          @leiiv: I beg to differ on the concept of negative gearing. It's actually not a sound practice in accounting or taxation to match one revenue stream to an entirely different expense stream. Put simply, if one business activity on the side of your day job is uneconomic, you shouldn't be able to lower the income tax on your day job to compensate. The losses should form part of your asset's tax base, i.e. reducing future CGT.

          The only reason it exists is because of the sheer number of people involved. It's the epitome of selfishness.

        • leiiv on 18/10/2014 - 01:42

          @JohnHowardsEyebrows: I am pretty sure companies are taxed based on total profits and loss from all streams. Why should it be any different for individuals?

        • c0balt on 18/10/2014 - 12:31
          +1

          @leiiv:

          The problem isn't negative gearing as a whole, it's negative gearing in the residential (not commercial) property market that is the real problem. It's not intangible shares or speculative futures here, it's bricks and mortar that everyone needs to have in one way or another.

        • JohnHowardsEyebrows on 18/10/2014 - 17:17

          @leiiv: Companies don't have the privileges of individual taxpayers - primarily the tax free threshold, which allows rich people to push their incomes down to lower brackets. Where a company will always pay 30% of taxable income, individual taxpayers can game the system. The fact that they then avail themselves of a 50% CGT discount further distorts the housing market, as well as the revenue issue.

          It contributes nothing to the economy, drains the pool of taxpayers funds, puts the poor under financial duress, and gives the wealthy an advantage in wealth accumulation over those who need more.

          It's absolutely disgusting.

  • Kempe on 17/10/2014 - 15:00
    +1

    As a retired person who is now sitting on a freehold house valued at over 800K my advice is that the best time to buy is always NOW
    The sooner you get on the roundabout the better

    • fchis on 18/10/2014 - 10:36

      May I ask how soon did you pay off your mortgage back then? Thanks

    • cannedhams on 23/10/2014 - 21:34

      If the best time to buy is always "NOW" then the best time to sell is "never".

  • congo on 18/10/2014 - 10:05

    I would wait a while before buying… the market in Europe and US are droping, Oz will soon follows…

    I know Sydney is overpriced atm, and prices in Sydney won't drop, but will level out IMO.

    • c0balt on 18/10/2014 - 12:40

      Well actually the US housing market has been going up for sometime now, since the crash of 2008.

      Graph:
      http://www.worldpropertyjournal.com/news-assets/US-Median-Ho…
      Article:
      http://www.worldpropertyjournal.com/north-america-residentia…

      Also you can't really say that Sydney is overpriced, but then say it won't drop. If it won't drop then it's not overpriced. It's one or the other really.

      • congo on 19/10/2014 - 00:15

        Sorry, when I said market, I actually meant the US, Euro and Asian stock markets…

        I think next year the prices in Sydney will slow down a bit, but not drop.

        ATM IMO Sydney is a bit overpriced. You'll need about $1.35M to get a decent 3 bedroom apartment when it should be more like $1.2M.
        But I wouldn't want to buy in any other city, except for Sydney :-)
        And I think Sydney is the only city or town that will not drop in value.

        Because if you ask foreigner who haven't been to Australia what landmarks they know of in Oz, they will always mention the Sydney Harbor Bridge and Opera house…

  • [Deactivated] on 18/10/2014 - 10:10
    -1

    One tip. Smell the carpets. Oh and you need that reverse gearing.

  • vjknight on 19/10/2014 - 12:50
    +1

    The landscape changed in 1999 with the cgt discount. Far harder to bust. Early to mid 90's the last real bust. Inner Melbourne hasn't stopped since.

  • goosegog on 23/10/2014 - 18:25

    Sorry all you IT or whatever people. Experience talking here. Suggest you all sit down with one of your coffees made to your liking @ a ridiculous cost to buy & then search on your new bendy banana iphones or androids or better still use your ipads or the works computer to do research on buying a property!! Property has it's peaks & troughs - sooner you get on the property ladder the better it will be. This is serious from people who have been through the ups & downs over the years - not in negative gearing - just buying the worst property in the best street -has certainly paid off ( not that we will be selling ) Use your earning powered wages for the future instead of wasting it.

    • cannedhams on 23/10/2014 - 21:40

      Shares have larger peaks and troughs, but they consistently out-perform property over time. Plus no dicking around with tenants, agents, stamp duty, council, termites and neighbours. Transactional costs are far less ($20 brokerage on Commsec).

      The volatility sucks, and I still have heartache from 2008, but thats how the cookie crumbles.

  • cannedhams on 23/10/2014 - 21:36

    I don't know if anyone is still reading this thread, but there was a story in the herald worth a looksee. Essentially it predicts that property will rise modestly before declining in 2016:-

    http://www.propertyobserver.com.au/financing/tax-and-legal/1…

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