News

Is now a good time to be buying?

Posted: 16th March 2012

Is now the time to buy US property?

from WAtoday.com.au

Many investors have been taking the plunge into US real estate, lured by the combination of a strong local dollar and dirt-cheap properties stateside. Former captain of the NRL team Canberra Raiders, Alan Tongue, is one of them - you can read of his experience, right - and you may even be thinking of joining him. After all, there should still be opportunities for the enterprising investor when your own slice of the American Dream can be bought for as little as $30,000.

The collapse in the US property market has left properties in Sydney or Melbourne priced about 15 times or more what you might pay for a similar house in the US. Of course, a low price isn't the same as a good investment and there are a raft of other issues to keep in mind before rushing off to build a US property empire.

For one, the exchange rate may go against you; that is, it might go even higher. That would dampen your US-dollar returns. Another problem is it is almost impossible to accurately gauge the relative values of properties in different countries. What can look like a cheap house overseas may in fact still be too expensive if it sits in a depressed area and is badly in need of repairs.

A two-bedroom, two-bathroom house with a double garage in Chatswood, Sydney.

At the pointy end, there are numerous tax and funding issues to be reckoned with for those who want to invest directly, which is why you may prefer to go through a local investment fund (as our case study, Alan Tongue, has done).

Finally, there is what the chief executive of McGrath Estate Agents, John McGrath, calls ''the sleep-at-night'' factor. The US housing market remains in the doldrums in many parts of the country. Ask yourself this: what will you do if you buy in the US, only to find that your property's value is still declining and you can't get a tenant?

The smart money

A two-bedroom, two-bathroom house with a double garage in Atlanta, Georgia.

Some savvy American investors reckon US property is one of the better investment opportunities right now. Investment guru Warren Buffett, for one.

The US-based head of global investment solutions at UBS, Curt Custard, recently described parts of the US property market as ''the biggest steal'' out there, particularly beachfront properties in Florida, where he said investors can pick up good properties for half their former price. While the value of homes on the outskirts of Las Vegas may never recover ''there's only so much beachfront land available,'' he says.

There are undoubtedly some bargains in the US that, in time, you can turn into a profit. But the chief investment advisor at US Invest, Lachlan McPherson, says rather than heading straight for the biggest discounted property, and betting on a rebound in prices, a well-chosen place can deliver returns even straight away.

''The opportunity exists to get what we consider high cash-flow properties providing 10 per cent to 15 per cent from day one,'' he says. ''If you combine this with the high Australian dollar, a purchase price considerably less than the cost of construction and, most importantly, strong property management, you have what is likely to be a high-yielding investment.''

Property experts argue that ''multi-family developments'' - which include apartments, detached, semi-detached, duplex or mixed-use properties - are one of the better investment bets in the US.

Demand and supply

A report by Linneman Associates for Quadrant Real Estate Advisors found individual family homes were 66.3 per cent of all households in the third quarter of 2011. That percentage has declined from its peak in 2004, reflecting the problems many of those families have had in retaining their properties. Younger people have been especially hard hit, either not being able to hold a job or, if they are working, unable to save the required 20 per cent deposit to enter the home-ownership market.

There are about 634,000 ''multi-family'' properties on the market. But that is down from the 1.1 million that were empty a few years ago.

But demand for dwellings is enormous. The US population grows about 1 per cent a year, or by approximately 3 million people. Given these households will have about 2.28 people each, that means about 5.3 million new households by 2015, according to Linneman. Close to a third of those will rent. The bottom line is that demand for these multi-family dwellings will ''benefit significantly from the US economy's recovery over the next two to five years,'' the Linneman report's authors explain. ''As consumer confidence rebounds and job formation resumes, those who had put off renting an apartment or buying a first home during the recession will form new households, which will result in a surge in demand for housing.''

Buyer beware

In a country with such distinct regional differences, it's critical to check what you are buying. For example, Florida has no state tax but New Jersey does, McPherson says. ''Detroit and Phoenix have a major oversupply of property and Detroit in particular has lost a large proportion of its population. This means renters are hard to come by. However, Atlanta and some parts of Florida have very high rental demand due to high foreclosure rates, coupled with an increasing population.

''Florida is a good example of how things can differ widely even in the same state. While areas on the west coast of south Florida, such as Lehigh Acres and Fort Myers, have major oversupply, if you head over to the east coast there is the opposite problem with high rental demand and lack of supply.''

Manhattan and parts of Colorado have had little drop in prices, McPherson says, which means rental yields aren't high enough to justify an investment.

One group has decided to concentrate on a specific part of the US. Dixon Advisory's US Masters Residential Property Fund just buys properties in Hudson County, New Jersey, which is near New York.

Dixon's managing director of funds management, Alex MacLachlan, says the region is within an easy commute to Manhattan and offers good public transport, proximity and a big population. Normally diversification is one of the tenets of investing but MacLachlan says Dixon felt it needed to take a different approach when it came to US property. ''We think you need to concentrate on an area to understand it properly; we actually believe it's harder if you are looking after multiple locations,'' he says. ''There's a strong team in the US working for us. We thoroughly check the properties we buy for the fund and we do the property management ourselves.''

Tricks and tax traps

Banks in the US offer very good rates - as low as 3.5 per cent fixed for 30 years - but have strict rules about lending to foreign citizens. The bottom line is: you will be probably better off trying to finance the property in Australia. There are two methods of doing it in the US but neither is straightforward.

For you to access the best financing deals, you will most likely need to go through one of the companies which specialise in buying US property as they have contacts with the US lenders. The second route is expensive. You can go to private lenders but they will charge 8 per cent or more for the loan. So you may find a better deal through lenders in Australia.

Invest in the US and you are going to be subject to taxation over there. For people who invest directly, that can raise an issue you won't have faced in Australia, namely the ''estate and gift'' tax, which bites when you bequeath the property to someone else.

A private client services partner at Ernst & Young, Ian Burgess, says it can apply to US property held by Australians.

''The current estate and gift tax rate is 35 per cent of the value of the assets and is proposed to increase to 55 per cent in 2013,'' he says.

Burgess adds net rental earnings and capital gains in the US will also be taxed at both the US federal and state levels. The combined tax on rent, for example, can exceed 40 per cent - and you'll need to fill out federal and state tax returns. Capital gains tax varies depending on the length of time the property has been held.

Also any net rental or capital gains have to be included in your taxable income. Offsets for the taxes paid in the US are usually allowed but there are complex rules. You also need to consider the implications if you are buying the US property through a self-managed superannuation fund, as the US tends to just ''look through'' these entities to the individual beneficiaries, he says.

Overseas raider

FORMER captain of the NRL's Canberra Raiders, Alan Tongue, took the plunge into US property last year.

''With the Australian dollar at such a level, and what has happened to property prices over there, it just looked like a very good opportunity to invest,'' he says. ''There are parts of the US where the market has fallen by around 50 per cent.''

But Alan, who has been involved in investment property before, does not see it as an easy or short-term process.

''One of the questions is, 'Has the market in the US bottomed or not?' One of the risks involved is that it could have further to fall,'' he says.

''But there are indications it may be picking up a bit, so we'll have to see.''

Alan has been impressed with the returns from his first 12 months with the US Masters Residential Property Trust, which has Dixon Advisory as the responsible entity.

''Some of the properties have been yielding around 15 per cent, so that has been good.

''But I'm in it for the long-term, that's what I'm concentrating on.''

One of the big plusses for Alan was that the properties in the trust are near New York City. It offers more employment and lifestyle opportunities than many US cities.

''Investing in overseas property is not a step I would have taken on by myself but this has gone smoothly so far.''

The perils of buying distant property

THE chief executive of McGrath Estate Agents, John McGrath, says you have to be careful before embarking on a US property venture. Sound property investment is based on good knowledge of an area. And McGrath says that is hard to attain from a great distance.

If you are intent on buying, he suggests at least jumping on a plane and checking out the planned investment with your own eyes.

Yolande Barnes from Savills Residential Research says US property does ''look cheap at present by international standards".

"On the US market in general, I would just say that there is a world of difference between the prospects for recovery in different cities,'' she says.

''Oversupplied markets like Kansas and rust-belt towns like Detroit are suffering deep structural problems and will not see housing market recovery for a very long time, if ever. One of the most exciting opportunities I have seen in the Detroit area involves converting residential lots back to agricultural use - the land is actually worth more that way."

The global cities of the US - New York, Chicago, San Francisco and LA - are a different kettle of fish. Land supply is constrained, demand sound and the recovery story believable. Oil areas such as Houston and Dallas can also be added to the mix if you don't mind additional exposure to the price of black gold.

Housing Crisis to End in 2012 as Banks Loosen Credit Standards

Posted: 28th February 2012

Capital Economics expects the housing crisis to end this year, according to a report released Tuesday. One of the reasons: loosening credit.

The analytics firm notes the average credit score required to attain a mortgage loan is 700. While this is higher than scores required prior to the crisis, it is constant with requirements one year ago.

Additionally, a Fed Senior Loan Officer Survey found credit requirements in the fourth quarter were consistent with the past three quarters.

However, other market indicators point not just to a stabilization of mortgage lending standards, but also a loosening of credit availability.

Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings.

Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.”

In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.

While credit conditions may have loosened slightly, some potential homebuyers are still struggling with credit requirements. In fact, Capital Economics points out that in November 8 percent of contract cancellations were the result of a potential buyer not qualifying for a loan.

Additionally, Capital Economics says “any improvement in credit conditions won’t be significant enough to generation actual house price gains,” and potential ramifications from the euro-zone pose a threat to future credit availability.

Aussie moves back towards $US parity

Posted: 11th October 2011

FROM THE WEST AUSTRALIAN

The Australian dollar is higher after reaching parity with the greenback overnight for the first time since September 22.

It hit an overnight high of 100.15 US cents as Wall Street stocks gained almost three per cent after Germany and France pledged to come up with a plan to shore up Europe's banks against a Greek default.

At 5am, the Australian dollar was trading at 99.87 US cents, 1.5 US cents up from 98.33 cents yesterday

German Chancellor Angela Merkel and French President Nicolas Sarkozy, met on Sunday to resolve the sovereign debt crisis.

After meeting in Berlin, President Sarkozy promised a "lasting, global and quick responses before the end of the month" to the eurozone government debt crisis that is threatening to engulf banks and core euro countries.

GFT Forex director of currency research Kathy Lien said the the commitment by Eurozone's two biggest national economies to stabilising banks had given the market a sense of optimism.

"Little details were provided from Merkel and Sarkozy but as the two main stumbling blocks to any major bailout package for the Eurozone, their co-operation has been warmly received by the markets," she said from New York.

"If Merkel and Sarkozy manage to come up with a decently structured bailout program that would mitigate contagion throughout the region."

Locally, the National Australia Bank will release its monthly business survey for September on Tuesday.

On Thursday, the Australian Bureau of Statistics will issue official jobs figures for September, which are expected to show 10,000 jobs were added to the economy in September, the median of an AAP survey of 15 economists shows.

Cracking under pressure: More Aussies falling behind on their home loans.

Posted: 29th September 2011

From: www.news.com.au

THE cracks in Australia's real estate market are spreading rapidly as the economic slowdown takes an increasingly heavy toll, according to new research.

A string of downbeat reports released yesterday have deepened fears that the market is in a prolonged downturn, intensifying pressure on the Reserve Bank to cut the official interest rate.

Research by Moody's reveals that mortgage customers are increasingly defaulting on their payments - albeit at low rates - as house prices slide

The report shows that the proportion of delinquent mortgages - where customers are behind on their repayments by 90 days or more - has climbed from 1.36 per cent in March last year to 1.67 per cent at the end of June.

While house prices have fallen significantly in Victoria, the worst regions for mortgage delinquencies in the Moody's data were in Queensland, NSW and WA.

"We're seeing evidence of the two-speed economy," said Moody's senior analyst Arthur Karabatsos.

"People really hurting are those with lower incomes in cheaper areas, borrowing a bigger proportion of their incomes to finance a home."

Mining areas were prosperous but Queensland was hit hardest, due to the impact of the Japanese tourism downturn on the Gold Coast and Cairns.

In Western Australia's non-mining areas, price rises for food and utilities took a heavy toll.

In other negative reports, a NAB survey of industry players found that house prices have fallen 2.4 per cent across Australia this quarter.

Victoria, which has suffered the steepest fall in prices in the current quarter, is expected to be the nation's worst-performing property market for the next two years, according to the study.

CommSec economist Craig James described it as a "dead cat bounce" in what was the weakest housing sales market in a decade.

And a report released by RP Data revealed that nationwide, 7.7 per cent of houses bought since 2007 are now worth less than their purchase price.

Mortgage holders are facing an equity crisis with more than 300,000 homes nationally today worth less than their owners paid for them.

That includes almost 100,000 homes bought since the onset of the global financial crisis in early 2008, many of which were first homes purchased with the assistance of federal and state grants.

Queensland has been hardest hit by declining home values, with about one in seven homeowners sitting on paper losses, according to RP Data's analysis of the difference between the price of the property at purchase and today, but not homeowner debt.

The worst regions were far north Queensland, the Gold Coast and the Sunshine Coast.

One in 10 homes in Western Australia are now worth less than their owners paid for them, with the southeastern region dragging down the state's overall figure.

Orlando sees first year-over-year uptick in home prices since 2007

Posted: 1st September 2011

For the first time since Orlando's housing market began to tank four years ago, the area's median home price showed an increase from a year earlier, according to the July sales report released Friday by the Orlando Regional Realtor Association.

The median price for an existing, single-family home in July was $117,000, up from $110,000 the previous month. The local real-estate industry noted that prices have increased 23 percent from the beginning of the year.

Not only did prices increase from the previous month, they were 7 percent higher than a year ago, the first time since 2007 that local prices showed any gain from a year earlier, association data shows. The last time Orlando prices increased from a year earlier was in July of that year, when prices were more than double what they are now.

Prices have increased on a monthly basis occasionally in recent years, but the uptick from a year earlier is more significant in determining long-term trends, experts say. The report tracks member sales mostly for Orange and Seminole counties.

The numbers defy national forecasts that have predicted declining Orlando home prices through early 2013, based on factors such as unemployment and homes in foreclosure or headed in that direction.

What some analysts don't take into consideration is that Orlando housing draws buyers beyond the local work force, said Roger Soderstrom, broker for Stirling Sotheby's International Realty.

"We're not gaining momentum by job creation but by informed buyers and investors," he said. "We're seeing some job relocations but it's not huge. We see more second-home buyers, pre-retirement buyers and investors. We're getting two and three referrals a week from Brazil. The Canadian dollar is strong, and the economic shakeout has put downward pressure on the dollar."

The Orlando area's price swing appears to be driven by an increase in the percentage of normal sales — transactions that are not distress properties. While those sales don't dominate the market, their numbers have grown for six straight months, with 42 percent of member sales fitting that category in July.

"With affordable prices and historically low mortgage interest rates, home buyer demand remains strong. A more rapid sales recovery is possible if banks return to normal and safe but sensible lending standards," said association Chairman of the Board of Directors Mike McGraw, owner of McGraw Realty Services PL of Apopka.

Even though prices are up, the market recovery continues to be slow because of short sales and foreclosures. The midpoint price for bank-owned sales in July was $80,000, and the median price for short sales was $98,000.

Overall, sales and listings are all down from a year earlier. The area had 2,147 sales in July, down 15 percent from a year earlier. Bank-owned sales dropped 49 percent from July 2010, and short sales increased 17 percent, indicating a possible shift on the part of lenders.

Rob Nunziata, president of FBC Mortgage, said the combination of relatively few houses on the market, affordable prices and low interest rates should continue to propel a recovery for the housing market.

"There's no reason the prices shouldn't continue to go up," Nunziata said. "They obviously are not going to spike. I think you'll see some slight appreciation."

At the current pace of sales, the area has a 4.8-month supply of homes in inventory. The number of homes available for purchase in the Orlando area declined in July by 210 homes and now rests at 10,349.

The area had 9,869 pending sales for July, less than half the pending contracts the market had a year earlier.

Homes are taking longer to sell than they did a year ago, with a median of 101 days on the market in July, up from 84 days a year earlier.