<html><body>
GUEST OBSERVATION
{qtube vid:=wIDKAhrqVUo}
Video transcript:
We’re now in the third year of the residential property market recovery in Melbourne. It’s one that began in 2013 after the market started a decline in mid-2010 and remained in the doldrums through to the end of 2012.
Not unreasonably, many are asking whether this recovery will run out of steam. Are we due a period of plateauing and then falling prices?
Naturally there will come a time when the market will turn south. Up and down periods are the nature of markets and property is no exception.
Let’s take a look at previous property cycles in Melbourne.
The current upswing started in the September 2012 quarter so has been underway for nine quarters or two and a quarter years. In that time we’ve seen around 16% capital growth in Melbourne. 
In the last 20 years there has been three other periods of upswings: December '08 to June '10; September '05 to March '08; and September '96 to December '03.
The length of upswing has varied from six quarters to 29 quarters.
And the total capital growth ranged from 29% to 142%.
So our 16% growth and nine quarters of growth to date is by no means destined to end any time soon.
<table style="width: 460px;" border="0" cellspacing="0" cellpadding="0"><tbody>
<tr>
<td valign="bottom" nowrap width="119">
Upswing period
</td>
<td valign="bottom" nowrap width="89">
Number of quarters
</td>
<td valign="bottom" nowrap width="95">
Total capital growth
</td>
</tr>
<tr>
<td valign="bottom" nowrap width="119">
Sep 96 - Dec 03
</td>
<td valign="bottom" nowrap width="89">
29
</td>
<td valign="bottom" nowrap width="95">
142%
</td>
</tr>
<tr>
<td valign="bottom" nowrap width="119">
Sep 05 - Mar 08
</td>
<td valign="bottom" nowrap width="89">
10
</td>
<td valign="bottom" nowrap width="95">
36%
</td>
</tr>
<tr>
<td valign="bottom" nowrap width="119">
Dec 08 - Jun 10
</td>
<td valign="bottom" nowrap width="89">
6
</td>
<td valign="bottom" nowrap width="95">
29%
</td>
</tr>
<tr>
<td valign="bottom" nowrap width="119">
Sep 12 - ?
</td>
<td valign="bottom" nowrap width="89">
9 and counting
</td>
<td valign="bottom" nowrap width="95">
16%
</td>
</tr>
</tbody></table>
So will the current cycle be more like the '08-'10 cycle or the '96 to '03 cycle?
I doubt that this market will run for 29 quarters of growth, but I wouldn’t be surprised if we saw another four quarters or more.
Underpinning that view is the level and direction of interest rates.  Following the February 2015 cut of the cash rate by the Reserve Bank to 2.25%, the typical new mortgage rate stands at around 4.75%, a generational low.
Of course, with houses prices growing over time, the average mortgage is much larger today than it was 10 or even five years ago. So although interest rates are lower, interest payments are greater than in yesteryear.
But on the flip side, rents have also increased, which is clearly an important factor for investors and the market more generally.
They have not risen as quickly as property prices which is leading to what’s known as falling rental yields.
But interest rates have fallen even more than rental yields, such that the funding gap – the cash flow cost of holding a property – is actually falling as a proportion of values.
It is these fundamentals that will support and drive the property market forward in 2015.
Moreover, it is clear from the Reserve Bank’s rhetoric that these very low levels are likely to continue for the foreseeable future, which will give comfort to many prospective investors to enter the market.
But what about the inevitable downturn? OK, Let’s take a look at previous property cycles in Melbourne again, and this time focus on the downswing part of the cycle.
Melbourne has experienced three downswing periods in the last 20 years. The most recent episode was between June 2010 and September 2012.  The other times ran between March '08 to December '09 and from December '03 to September '05.
<table style="width: 460px;" border="0" cellspacing="0" cellpadding="0"><tbody>
<tr>
<td valign="bottom" nowrap width="119">
Downswing period
</td>
<td valign="bottom" nowrap width="89">
Number of quarters
</td>
<td valign="bottom" nowrap width="95">
Total capital loss
</td>
</tr>
<tr>
<td valign="bottom" nowrap width="119">
Dec 03-Sep05
</td>
<td valign="bottom" nowrap width="89">
7
</td>
<td valign="bottom" nowrap width="95">
10%
</td>
</tr>
<tr>
<td valign="bottom" nowrap width="119">
Mar 08 – Dec09
</td>
<td valign="bottom" nowrap width="89">
3
</td>
<td valign="bottom" nowrap width="95">
4%
</td>
</tr>
<tr>
<td valign="bottom" nowrap width="119">
Jun 10 – Sep 12
</td>
<td valign="bottom" nowrap width="89">
9
</td>
<td valign="bottom" nowrap width="95">
7%
</td>
</tr>
</tbody></table>
As we can see, down turns in the Melbourne property cycle tend to be relatively short – between 3 and 9 quarters - and deliver comparatively modest price falls.
The result is that over the long-term, property prices in Melbourne trend up – notwithstanding the occasional retreat.
And that’s because Melbourne is a city with strong population where demand for property outstrips supply over the long term.
Richard Wakelin is the director and founder of <a href="https://wakelin.com.au/" target="_blank">Wakelin Property Advisory</a>.
</body></html>

RichardWakelin-5qKEwDuXVG

Will the Melbourne property market run out of steam? Richard Wakelin

<html><body>
Auction clearance rates are consistently tracking in the high 70s and low 80s and in other words, very few properties are failing to sell under the hammer.
Typically, most of the rest are sold within a few days of the auction date.
Property prices are rising in Melbourne and are probably 3% to 5% higher than they were at the beginning of the year. This is off the back of strong growth of between 8% to 10% in 2014, according to one property expert.
Richard Wakelin, founder and director of Wakelin Property Advisory, said there is a palpable sense among many buyers that if they don’t buy soon, the property market will be more expensive in a few months.
In <a href="https://www.youtube.com/watch?v=NgF9Fu5vqJU&amp;feature=youtu.be">a new video released online</a>, Mr Wakelin said times are good for vendors although there is a sense of further capital gains to be made so the impetus to sell right now may be less.
"There was a fair degree of nervousness among buyers in the second half of 2014. Many had bought in to the narrative that the property market had peaked. That there was no more price growth to come. That the Reserve Bank was about to lift interest rates," Mr Wakelin said.
"That doubt has been washed away. 
"There is a definite sense of urgency among buyers. They know that the next move for interest rates is more likely to be down than up."
</body></html>

Mid-autumn Melbourne market going strong: Richard Wakelin

<html><body>
As much as society romanticises the first home purchase, ‘getting on the ladder’ is always the dominant motivation for buying that first property.
Behind the Australian dream there is usually a pragmatic calculation by the first time buyer that it’s time to start the process of building equity. The growing equity represents greater security and opportunity, far more so than the physical bricks and mortar. Conversely, those waiting to buy fear not just paying more when they finally succeed, but a longer-range predicament that delaying equity accumulation may close doors to them in the future – say the means to buy a bigger home near a good school or having the funds to invest in a business proposition.
You may shudder at my deconstruction of nest-making into cold-hearted rationalist decision-making. Fortunately, although the dominant factor, there are usually other objectives and constraints that are a little more tender. Many home buyers want or need to be close to family and friends. They may well have a strong bond to a particular area. Work or schooling requirements often constrain our decision-making.
It is these ‘lifestyle’ elements that distinguish the typical home buyer from the out-and-out investor. The investor seeks to maximise their financial return whilst the home buyer concedes some financial gains to accommodate other goals.
But is it possible to have it all: the home that delivers investment grade returns? On paper yes, but it rarely happens without something being compromised.
Typically, the highest quality investment properties are found in the inner suburbs of our capital cities; they tend to be older-style houses or apartments located on quiet streets with a consistent residential architecture. And – here is the rub for those hoping to combine investment and lifestyle goals – they aren’t usually that large. One- and two-bedroom apartments and two-bedroom houses are the most in-demand types of properties by inner suburban renters. Hence those are the ones investors gravitate to and so deliver the best returns.
You may be fortunate that your lifestyle needs mirror the qualities of an investment property. But if not, it’s a case of weighing up which objective is most important to you and accepting the least bad compromise. If you conclude that maximising returns remain paramount, perhaps you can cope with the kids sharing a bedroom for a few years or having to commute a little further to your non-CBD job or to visit the family in suburbia. But of course it is just as reasonable to conclude that you’ll swap some extra capital growth for a bit more space, a shorter commute and proximity to family and friends.
If you do make the lifestyle sacrifice and opt to live in the investment-grade property, consider maximising the rewards by committing to keep the property for the long-term.  Factor into your planning how to retain the property when you eventually decide to change the family home. Execute that plan well and you now have the best of both worlds: the family home that meets your lifestyle needs and an investment property that is earning a rental income and delivering strong capital growth. Moreover, you save on the transaction costs relating to selling the first property (and perhaps buying an investment property at a later date).
Note that there are tax implications relating to an asset that shifts from being a principal place of residence (PPOR) to an income earner. The ATO has a very useful guide on this issue on its website <a href="https://bit.ly/ATOhomerent" target="_blank">here</a>. In short, on the upside, you can now claim back your net expenses including interest at your marginal tax rate.  On the downside, any capital gains made on the property during the period it is leased out are now subject to capital gains tax when you eventually sell the property.  In essence, these changes just put you into the same boat as every other property investor.
Bear in mind that many investors maintain a high level of debt on their investment property throughout the life of ownership in order to maximise their negative gearing tax benefits (whilst aggressively paying down their PPOR loan, which isn’t tax deductible).  But in this change-of-PPOR scenario, if you had been diligently paying down the original mortgage as a home owner, you may find that the loan (which becomes investment borrowings with the change of PPOR) may be so low that your rental income exceeds your expenses.  You can’t just increase the loan to increase the deductions. According to ATO rules, the cost of any further borrowings on the now rental property are not tax deductible. The ATO considers the new loan to be for private purposes and therefore non-deductible.
But if you know when you buy a home that you intend to convert it to a rental property in the future, this scenario can be avoided by taking out a mortgage with an offset account. Rather than paying down principal, you pay money into the offset account. These offset account funds can eventually be withdrawn, preserving the original loan, and maximising your future tax break. Naturally, make sure you obtain advice from your accountant before you proceed.
Attempting to subsume your lifestyle needs to your investment objectives isn’t without risks. You may misjudge how important those lifestyle needs are and find yourself unhappy. This is especially the case when there are others involved i.e. a partner and/or children. At a minimum, you’ll want to have your partner fully on board from the start of the journey and check-in with them from time to time to affirm the joint sacrifice.
RICHARD WAKELIN is the director and founder of <a href="https://wakelin.com.au/" target="_blank">Wakelin Property Advisory</a>.
Richard is hosting a webinar on how to prepare to sell your home or investment property this spring at 8pm Wednesday, August 12. You can sign up <a href="https://wakelin.com.au/webinar" target="_blank">here</a>.
</body></html>

Careful mixing home making and investing: Richard Wakelin

<html><body>
After a long Victorian winter, we’re on the cusp of spring. It’s an exciting season in Melbourne- especially for sports fans that look forward to the AFL Grand Final and Melbourne Cup. It’s also the busiest time of year for the property market and a time for aspiring investors to make a start.
Yet starting is often the hardest part of investing. It’s crucial to remember this spring that whilst you can’t control or even predict the market, much like the result of the Melbourne Cup or footy finals, you can control what property you purchase and where it is.
With property prices in Melbourne rising around 10% since last year, asset selection will be key to property purchase this coming spring if you’re not to back a loser. 
There are two main factors that influence an asset’s performance; the property itself and where the property is located. 
In a moment, I will identify the areas in Melbourne where we at Wakelin Property Advisory like to buy property and the prices they will typically cost this spring. 
I’ll be look at investment grade one bedroom apartments, two bedroom apartments and two bedroom houses.
But first.
Let me briefly recap some asset selection criteria for Wakelin Property Advisory, and how it ensures we only recommend investment grade property to our clients.
Firstly, a property really needs to be held for ten years and the ideal situation is one where you never sell.
Scarcity is the vital ingredient to property selection. If there is an ample supply of a property type relative to demand – and there is scope for more to be built – that property isn’t scarce and it won’t grow in value. An investment grade must exist in finite numbers.
So typically, period style properties perform best, as to put it simply, they aren’t being made anymore.
So houses we tend to recommend are pre 1950s such as Victorian, Federation, Edwardian or Art Deco architecture styles. 
Apartments we consider are older styled – up to the 1970s – one and two bedroom apartments.
Proximity to amenities, parks, shopping precincts, public transport and schools are also important in your selection.
A dedicated off-street car parking space is essential for inner city apartment purchases, and balconies or courtyards are also highly sought after.
Ultimately, you are seeking a property that has a proven record of capital growth over many years. One that has performed in the past will generally continue to perform.
Ok, so take a look at this map of Melbourne. 
We are particularly interested in the inner suburbs, as they have the best track record of growth and in our view have the best long term prospects. 
So let’s break it down further:
•Inner Eastern suburbs,
•The Bayside region,
•And, the inner north.
This includes areas like South Yarra, Armadale, Malvern, Toorak and Hawthorn.
Traditionally these areas represent the most expensive and sought after real estate in Melbourne, they have been the bluest of blue chips. So how much is one likely to pay to enter this market?
A good one bedroom apartment in South Yarra will start around $450 to 500,000. 
$650 to 750,000 in the inner eastern suburbs gets a reasonable two bedroom apartment in somewhere like Hawthorn.
$850-$950,000 is the entry level for a two bedroom house in the eastern suburbs, with around $1million ideally needed to get something that will really perform in suburbs like Prahran.
Turning to the inner Bayside. It used to be that Melbournians paid little attention to its waterfront. But no longer....
It’s full of highly regarded locations such as Albert Park, Middle Park, Elwood and St Kilda.
So, for a two edroom house in this area you’d need at least $1.2 million, with room to move up to around $1.4 million.
For apartments, suburbs like Elwood can prove a great investment as well as parts of St Kilda.
Typically, you’d be looking to spend at least $450,000 in somewhere like this for a one bedroom apartment, and up to around $550,000.
And for a two bedroom apartment in somewhere like St Kilda or St Kilda West, you’re looking to start around $600 to 650,000. Typically, at least $100,000 more than for a one bedroom in a similar area.
The north is a real mixture of property; full of warehouse conversions, cottages, shiny new apartments and old pre-war houses. However, it is still important to remember this concept of scarcity when examining your options in the North.  
Consider suburbs such as Carlton North, Brunswick, Kensington, Flemington and Ascot Vale.
For a one bedroom apartment in the inner north, you’re looking to start around $400,000 in somewhere like Brunswick and going up the closer to the city you get.
If you’re looking for a two bedroom apartment, be prepared to invest $650,000 or more in the inner north in somewhere like Carlton North.
Those looking for a two bedroom house will need around $800,000 in the inner north for a quality property in somewhere like Ascot Vale or Kensington, to in excess of $1 million for A1 property in Carlton North.
 We’ll quickly examine some factors that may affect the market this coming spring and what the effects of these factors may have on prices.
Momentum of the Melbourne market has gathered a lot of media interest as of late with plenty of commentary discussing whether there is or isn’t a bubble and it’s hard not to get caught up. 
But, if you keep in mind our concept of scarcity when purchasing property you shouldn’t have to worry.
Remember, they are the finite properties that will always build value if held for the long term. 
Interest rates obviously affect the initial buying power and how much can be borrowed.
Currently, we have historically low rates and this is driving strong demand.
However, in recent weeks, we’ve observed the banks tightening the rules on lending for investors. The results has been higher interest rates for these borrowers and restrictions on how much they can borrow relative to an asset’s value.
It is evidence that rates won’t always be low and that one needs to factor in rates increases of 2 to 3%, so it is important to ensure that you are borrowing within your means.
Backing a winner this spring might be a bit of a fluke in the Melbourne Cup, but choosing the right investment property doesn’t have to be such a gamble if you follow our investment criteria.
 
RICHARD WAKELIN is the director and founder of <a href="https://wakelin.com.au/" target="_blank">Wakelin Property Advisory</a>.
</body></html>

Richard Wakelin

Editor's Picks

Have something to contribute?

Developments

New apartments

New townhouses

News