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Charles Tarbey
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Charles Tarbey is the owner of Century 21 Australia (www.century21.com.au) and Century 21 New Zealand (www.century21.co.nz).

3 New Year’s property resolutions

Tuesday, December 20, 2016

By Charles Tarbey

Many Australians have long perceived property to be, for the most part, a safe and stable investment. The ‘great Australian dream’ embodies this perception, where one of the biggest goals one can work towards in life is owning bricks and mortar. 

Looking back on this year, it is evident the value placed upon property has only been enhanced. A climate of record low interest rates propelled the market beyond what many expected, as Australians took advantage of this opportunity to transact property and capitalise on the continued phase of growth in many markets. 

Local and international political events caused uncertainty in markets around the world, however, despite this, it seemed that Australian property remained unaffected, as every capital city (except for Perth) is now showing a positive annual trend in dwelling value growth according to CoreLogic. The end of November saw Sydney and Melbourne dwelling values up 13.1% and 11.3% respectively over the year.

As property continues to be perceived as such a valuable asset class, the constant chatter and speculation about what will happen next is inevitable. Australians continue to eagerly discuss the outlook for real estate over the coming year.  

Moving into 2017, I am of the view that the Australian market may begin to moderate. In light of this, here are three New Year’s resolutions to consider as we likely enter a new phase in the property cycle. 

Resolution One – Manage your expectations 

The last few months of 2016 have been characterised by lower stock levels and strong demand in some markets, creating great conditions for sellers who have been able to achieve prices well beyond what was expected in some situations. 

Following this, vendors may continue to base their price expectations on those achieved during this strong year in real estate, but this may not be realistic in a stabilising market. 

I remind vendors that it will be important to align your expectations with changing conditions. We may encounter lower clearance rates at auctions if vendor expectations are higher, in some instances, than what the market can support. 

Understanding local market dynamics and recent sales, as well as speaking to a local real estate agent with a strong knowledge of the area may help to manage your expectations and ensure there is minimal disparity between your ideal price and what can reasonably be achieved. 

Resolution Two – Expand your search 

For many, property is a sentimental investment and while emotion is an undeniable influence, I find that some can let it cloud a good investment decision.  

Others don’t want to buy where they can afford, they want to buy where they want to live. For example, those working in the city understandably want to live as close to work as possible, but this may not always come at a cheap price. 

I encourage Australians to put their emotions aside, and expand their search when hunting for an ideal property. It may be beneficial to look for suburbs that aren’t picked as ‘hotspots’, or areas that may have some negative connotations to them.

In these areas, there can be great room for potential. For example, we are seeing some areas that have previously seen bad news or less favourable reputations experiencing value growth due to development, transport and new infrastructure. 

Often the realities of an area can be very different to what people perceive. It will be valuable to remember that things change over a period of time – these areas may prove to be a good investment in time and may ensure that you are not over-leveraged. 

Resolution Three – Remain cautious of interest rate movements 

During mid-December, we saw the US Federal Reserve raise interest rates for the second time in a decade. I believe this should serve as an important warning to Australians about the potential for interest rate movements in the New Year. 

While we do not have a crystal ball to predict future economic conditions with certainty, this may be a precursor for an upward lift in Australian rates in the near future. 

Over the coming months, careful contemplation about mortgage commitments will be incredibly important. While low interest rates and cheap finance has been an appealing prospect for many, I remind Australians that even a slight increase of a percentage on some loans can represent a significant increase in repayments. For those who aren’t prepared, this can be devastating. 

The prospect of shifting interest rates is not a completely unlikely scenario, so for Australians wishing to enter the market or purchase a new investment in the New Year, careful consideration should be afforded to ensuring your financial circumstances can withstand fluctuations.  

After an extended period of growth, the thought of a stabilising real estate market may be met with concern by some. However, with long-term goals for holding property, which is our preferred strategy, you will be placing yourself in a good position to ride the ups and downs of the real estate market. I encourage Australians to keep these resolutions in mind and as always, seek professional advice to ensure the greatest prospect of success for property transactions in 2017.

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Listing property in the silly season

Tuesday, November 22, 2016

By Charles Tarbey

With the year creeping to a close, for many this is seen as a busy time wrapping up work commitments, attending social engagements and planning Christmas celebrations. So when it comes to selling property during the silly season, many prospective vendors may be hesitant to do so as they assume potential buyers will be otherwise preoccupied with these activities.  

The benefits

I believe that the benefits of listing a property for sale during this period are often overlooked. Australians who have been contemplating selling could potentially set themselves up for a great result if they think about listing before the year concludes. 

Firstly, vendors should consider the fact there is often a significant slowdown in listings coming on to the market at the end of the year. Looking at data from the end of 2015, the first week of December saw auction numbers fall to 3,209 from 3,729 auctions the previous week, according to CoreLogic.  

With less stock on the market, there may be less competition against your property. Coupling this with the strong buyer demand that is present in many areas and you could be able to achieve a price that may not have been realistic some time before. 

One word of caution

In order to make an informed decision about whether an end of year listing is right for your property, I encourage careful evaluation of local market dynamics as conditions continue to vary from state to state, even suburb to suburb. 

There is a wealth of choice when it comes to real estate portals and research houses, which can feed you up-to-date information and market figures almost immediately. It will be worthwhile to sign up for a range of these services to familiarise yourself with the current selling conditions and any movements in your area. 

When it comes to choosing an agent to entrust with your listing, look for an agent who is results driven rather than 'active.' Taking the time to choose an agent with a proven track record of success will be crucial, particularly as you seek to prepare your listing efficiently and effectively in a shorter space of time. 

One of my enduring considerations for vendors is to avoid choosing the agent with the most ‘for sale’ signs – an active agent does not necessarily make a successful agent. Rather, look for the agent with the most ‘sold’ signs as this is evidence of their ability to finalise a transaction. It can be worthwhile reaching out to neighbours, or others in your area, who have recently sold, as they may be able to suggest an agent who achieved great results. 

Housing sentiment

CoreLogic recently conducted a survey about housing sentiment in the Australian real estate market, and the results showed that almost 70% of Australians think now is a good time to buy a dwelling. The survey reports that even in markets such as Sydney, where issues of affordability exist, slightly more than half the respondents still felt it was a good time to buy a property.

In light of these considerations, prospective vendors would be prudent not to discount the possibility of an end of year listing. Lower stock levels, access to cheap debt and continued buyer interest in many markets could contribute to better-than-expected results for your property. Seeking advice from the appropriate professionals will be crucial and may help you weigh up the benefits a silly season listing can offer. 

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Is the Aussie property market stabilising?

Tuesday, November 01, 2016

By Charles Tarbey

The beginning of the year saw many parts of the country riding the wave of strong market conditions. However, as is the up and down nature of the property cycle, it appears change is entering the Australian market as 2016 creeps closer to an end. 

Of late, there seems to be much talk about predictions of increased unit supply and falling rental rates as early signs that markets will stabilise.

According to CoreLogic, combined capital city dwelling values rose 2.9% over the September quarter. Their analysis shows that this figure is heavily weighted toward the Sydney and Melbourne markets. Melbourne recorded a 5% gain over the third quarter, along with a 4.5% gain in Canberra and a 3.5% gain in Sydney. In contrast, Darwin experienced a decline of 4.5% over the same period, with the data continuing to show growth conditions differing substantially from region to region.

A stabilising market may not be immediately obvious in Melbourne, Sydney and Canberra. Spring listings in many areas have been met with eager interest and much of the property that is available is being snapped up, with almost frenzied demand in some locations.  

CoreLogic reports that Sydney’s clearance rates remained above 80% throughout September and Melbourne’s remained above 75%. These consistently high clearance rates may be suggestive of a strong market, however it is important to consider what's really influencing these conditions.

‘Averaged’ clearance rates may give the impression that all stock is going to move very quickly, but that may not be the case for some areas. Sellers would be wise to research local market conditions before listing and not simply rely on the headline numbers.

While some areas continue to experience strong market conditions, we are beginning to see some capital cities and regional areas really struggle. Some properties cannot be sold because loan amounts are higher than the value of the property in question.

Markets such as Western Australia have been struggling for a while now. Vacancy rates are high, sitting around 9% and the rental income of investors has subsequently been impacted. The low interest rate climate is helping many property owners hold on to their homes.

I recently spoke to agents on behalf of the Real Estate Institute of Western Australia, reminding them that they are now leading the way in the change that is creeping across Australia. Property in Western Australia has been significantly impacted by a slowdown in mining activity.

In the rental market, the CoreLogic August Rent Review reports rental rates across the country are continuing to drop. This is a positive for tenants, as combined capital city median weekly rents are sitting at $481 per week, which is the lowest rate since November 2014. Landlords may wish to prioritise retaining valuable tenants.

My key observation of the market at the moment is that there are markets within markets and headline results, in a sense, can’t be trusted. While some areas continue to experience strong demand for property, other areas are experiencing sharp declines.

Record low interest rates may soften the landing for the property market with cheap debt likely to continue to incentivise many people into the market.  

While it is expected that interest rates will remain low for some time to come, there is no guarantee rates will not rise in the future and those who over borrow now may face difficulty in the future if they are not careful.  

If you are looking to borrow, it will be essential to pre-determine a budget and stick to it. While some contingency could be allowed for a great property, avoid letting emotion or impulse push you too far outside these financial constraints. For those who are currently paying off their mortgages, consider the value of reducing your current debt to strengthen your financial position.

The thought of stabilising markets can be met with unnecessary alarm by some. I encourage a level head when approaching property over the coming months, ensuring careful contemplation and seeking professional advice to ensure you weigh up all your options. An informed decision will help you to make the most of your property transactions for the remainder of 2016 and into the New Year.

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3 benefits of using a real estate agent

Tuesday, October 04, 2016

By Charles Tarbey

The average Australian now has access to a wealth of real estate information at his or her fingertips. 

Property investments are more accessible than ever as people can use technology to equip themselves with data, expert opinions and investment advice to make a more informed choice about buying or selling property. 

In addition to this, there are many disruptive digital real estate platforms emerging of late that are offering services such as flat-fee commissions or platforms that rate agent performance. 

There is no doubt that technology is influencing the way we transact property, however I encourage Australians to remember the value of human connections in real estate. 

Here are three benefits that you may derive from choosing the right real estate agent.

1. Strong networks 

Properties can be listed and advertised across multiple digital platforms with virtually a click of a button.

Whilst this may allow plenty of exposure, the best outcome can often result from an agent who can successfully market your property offline as well.  

Many agents are dedicated to building a client base and maintaining strong personal relationships. From this comes an understanding of the wants and needs of their clients and their individual property investment goals, which they may be able to match to your property. 

The way an agent not only promotes your property, but also interacts with potential buyers, can make all the difference in achieving the best possible price for a listing.

2. Expert local knowledge 

Information that may be harder to find online is a thorough local knowledge, stemming from on-ground experience in a particular area.

As they have conducted numerous real estate transactions, agents will have an understanding of the drawcards of their area, what properties have been selling for, what is in demand, or the types of buyers that are interested. 

This knowledge can be invaluable to help navigate the selling process, such as when you set the price for your property or attempt to negotiate the best possible outcome in light of local market conditions. 

3. Working to achieve your property goals 

It is understandably tempting to choose an agent who charges a lower fee. It can be worthwhile to consider that the cheapest agent may not always be the best. 

Instead, prospective vendors can benefit from focusing on the value offered by agents and the service they provide. Look for the agent who you believe offers the best opportunity to present your property and negotiate on your behalf. Premium results for your property may be achieved by choosing a motivated agent with a higher commission, rather than a discounted commission. 

When looking to buy or sell property, it is worth taking the time to reach out and chat to different agents and consider what they offer. This may take a little time and effort but the benefits can outweigh this.

Working with a strong agent may be worth its weight in gold, as their skills and expertise can help you to make the most of your property goals. 

Ultimately, the most important thing to remember is that no one has a crystal ball to predict market conditions.

This is where it becomes crucial to conduct extensive research, carefully consider your personal financial circumstances and seek professional advice to weigh up all options when looking to transact property over the coming months. 

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3 factors to influence property in spring

Wednesday, August 31, 2016

By Charles Tarbey

The effects of changing seasons on the real estate market have long shaped perceptions about the best time to sell. Traditionally, winter has been a quieter season, and spring can be full of activity as buyers emerge from hibernation and homes are showcased in their best light.

However, a booming market over the past few years has resulted in strong market conditions throughout the year, and a lack of distinct seasonal influences upon property transactions in many areas of Australia.

So with the spring season upon us, I believe there are three main factors that will influence activity in the property market over the coming months.

Lack of stock

Spring is typically viewed as the time of year where the number of listings on the market peaks. The end of winter would usually be the time when properties are readied for sale, but there appears to be much lower levels of stock on the market, compared to previous years. However, demand is still strong for what is available in many areas of Australia.

The effects of this supply and demand disparity are prominent in Sydney in particular. Over the week ending 21 August, Sydney saw its strongest clearance rates in 14 months at 86.4%, and close to 100% in many areas across the city.

These conditions point to a seller’s market in some areas, where competitive buyer interest may achieve a great price for your property. However, in light of such little available stock, many prospective sellers are hesitant to list their properties on the market. They may be fearful that if they pack up and sell up, there may not be anywhere to go. They may wonder if there is anything available in the area they desire, or may be priced out of the market if there’s not much available within their budget.

If there has been a lingering reason to sell your property, such as to downsize, upsize, or relocate to another area, it may be as good a time as any to consider taking the leap.

Markets within markets

Secondly, the markets within markets that we have seen for a long time in Australia shows that a hot spring market is not a uniform guarantee across the nation. Record low interest rates seem to accelerate activity in some parts, and have a less prominent effect in others.

According to CoreLogic, capital city dwelling values are now 6.3% higher over the first seven months of the year. While values are still rising, four of Australia’s eight capital cities recorded a fall in dwelling values over the month of July, with Darwin and Perth recording negative movement in values.

I was recently in Perth and that market in particular has experienced a real lull in activity.

Median growth figures paint a picture of a strong market, but it’s always important to break these figures down to state, and even suburb level when considering property.

Looking beyond the hotspots this spring and conducting careful research may lead to opportunities to purchase property at a more affordable price.

Rental rates

In the rental market, we have seen rental rates stabilise over the course of this year. CoreLogic reports that rental rates fell 0.3% over July and are now 0.6% lower over the year so far. Combined capital city median weekly rents now sit at $483, which is the lowest since December 2015.

While this may be welcome news for renters, it means landlords should be placing value on retaining good tenants. It may be wise to avoid significant rental increases, unless there are strong justifications for doing so, as continued occupancy may be worth its weight in gold in the context of all the new apartment stock currently coming into the market.

In order to promote the appeal of your property in a competitive rental market, it could be a great time to consider rewarding long-term tenants, or providing small incentives, such as improvements to the property, or services such as lawn mowing.

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The upside to downsizing

Tuesday, August 09, 2016

By Charles Tarbey

An interesting dynamic between supply and demand currently exists in Australia, and the outlook for the spring market may be a little different to what is usually expected of the season.

With only a month left during winter, now would usually be the time properties are being prepared for listing and begin to filter into the market for a spring sale.

However, stock levels are lower than usual and according to CoreLogic data, the number of homes listed for auction across the combined capitals is around 20% lower compared to this time last year. In many suburbs, strong demand still exists for the little stock that is available.

I believe the disparities that exist in terms of supply and demand in markets across Australia may present a valuable opportunity for those who have been considering downsizing.

There are many reasons why downsizing may be on the minds of property owners. Some may find a large home is exceeding their needs, requiring too much effort to maintain. Others may find themselves empty-nesters as their children grow up and move on. Investment may also be a motivation, with downsizing freeing up some cash to purchase a new investment property or holiday home.

For those looking at selling up and buying in the same area, this could present a struggle if there is not much stock available. However, if you are considering selling to downsize and relocate to a new suburb, or even state, you may find yourself in a better position.

An upside to downsizing in light of current market conditions could be the potential to achieve a great price for your property if selling in an area where stock levels are low. This situation will favour vendors as potential purchasers must put forward their best offer to achieve success.

On the other hand, as you search for a new property in an area where more stock is on the market, you may be equipped with greater power to achieve the most desirable price for a property. The ability to negotiate will be much more effective where vendors are keen to make a sale, in a market where they face plenty of competition.

For example, vendors in the hot capital city markets of Sydney and Melbourne may find themselves in this position should they wish to downsize to a regional or coastal property, or make a move to warmer, sunnier locations in the north of Australia.

Apartments may be seen as an appealing option for some. This could be due to their smaller size, which can be easier to take care of, convenience and access to facilities, and gives the owners the ability to simply lock up and leave if they want to travel.

Over the next two years, the number of unit construction across Australia is reaching towards record highs. The Australian Bureau of Statistics (ABS) analysis of building activity for the March 2016 quarters shows that over this period, 29,987 units commenced construction nationally. CoreLogic data released at the end of July predicts that there will be around 92,000 new units constructed over the next 12 months.

In light of this construction influx, buyers should carefully consider unit purchases. It will be crucial to weigh up the prospective location and the level of supply in the area, as well as local amenities and any future changes or planned infrastructure. This will help to evaluate whether an apartment purchase may be both a good option for downsizing and a good investment. However, if you are planning to hold property for the long run – which is always Century 21’s preferred strategy – these considerations may be less important.    

Finally, downsizing may free up some extra cash and in light of record low interest rates, now could be a great time to consider paying off your mortgage, refinancing your mortgage, or making extra payments to get ahead.

Whether you wish to downsize, or have any other property goals in mind, as always, I encourage those Australians wishing to transact property to carefully consider all their options and financial circumstances, and seek advice about the best way to achieve success in the real estate market.

Charles Tarbey, Chairman and Owner of Century 21 Australasia

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Brexit not all doom and gloom for Aussie property

Tuesday, July 05, 2016

By Charles Tarbey

Britain’s recent exit from the European Union has sent shockwaves throughout Europe and the international community. Since the UK referendum, we have seen an immediate hit to global economic markets, creating a volatile climate as they adjust to these political changes. There is much speculation as to how markets around the world will respond over the coming months.

Here in Australia, many are wondering how the event may impact our local property market. While no one can say with any great certainty what the outcome will be, there are a number of characteristics about our property market that may hold it in good stead for the days to come.

As British and surrounding European markets encounter chaos and confusion, I believe the Australian market will maintain its credibility as a safe location for international investment. The US and UK are already amongst our top foreign investors, and it is likely Australia will become even more appealing due to its continued stability and the strong yields that can be attained in the Australian market compared to many international counterparts.

In combination with this, there are other reasons why the Australian market will continue to show resilience to international economic or political shocks and remain an attractive destination for foreign and domestic investment.

Firstly, the Australian market has weathered the storm of many previous international shocks and maintained its strength. Any short-term market falls have often been followed by strong rebounds. Australia’s property market did not experience a ‘significant decline’ during the GFC and amazingly, the wider economy avoided a recession during this period. The strong economic management and security of our country helped support the resilience of the property market, and this is attested to by our AAA credit rating.

Demand for Australian property may also be supported because of the simple fact our country is a wonderful place to live. The Australian lifestyle is renowned for a fresh, relaxed atmosphere that emanates a natural appeal to locals and foreigners alike. Our climate is the subject of international envy as we enjoy warm, sunny summers and moderate winters. Our cities are not overpopulated or excessively polluted. Many Australians have access to both the beach and the bush. I could go on and on, but I’m sure many would agree that Australia’s appeal is undeniable and many international citizens will have the country high on their lists of places to live or to immigrate to.

Whilst I do not have a crystal ball to accurately predict how the effects of Brexit will play out in Australia, I am confident the property market will remain a safe investment over the long term.

Charles Tarbey is Chairman and Owner of Century 21 Australasia.

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Property trends in 2016

Tuesday, June 07, 2016

By Charles Tarbey

The CoreLogic May Home Value Index recorded a monthly 1.6% rise in dwelling values across the capital cities. Over the first half of 2016, Australia has experienced a solid 5% increase in dwelling values to date. 

A rise of 1.6% was recorded in Melbourne, a 2.5% increase Canberra and 2.2% in Hobart. It came as no surprise to see Sydney growth is still strong, with dwelling values up an incredible 3.1% over the month.

While these results may be pleasing for many home owners and investors, I don’t believe they tell the true story of the market. 

Take Sydney for example. We have an interesting phenomenon where some markets are experiencing buoyant conditions while other markets are moving more slowly. 

In certain pockets of Sydney, there is a lack of stock and plenty of demand. We saw 391 apartments in Sydney’s new Darling Square development sell off the plan in only a few hours over the last weekend of May, showing how keen Sydneysiders are to snap up available stock entering the market in great locations. 

Looking at clearance rates from the last weekend of May, the Eastern Suburbs managed to achieve a clearance rate of 91.9% across 116 auctions. However, clearance rates are often averaged across wider regions and sometimes this doesn’t show the real picture of how fragmented the market can be – and how vastly conditions change from suburb to suburb. 

Some believe that foreign investor interest is also contributing to disparate market conditions. It’s a strange situation where many have been blaming this group for the market going up and then blaming them for the market going down. 

For me it’s very simple, more buyers equal more construction which equals more jobs. 

I believe we have a strong domestic market regardless of whether foreign investors are buying or not and this is largely being led by record low interests rates and supply constraints. 

CoreLogic data also shows some regional areas of Australia are experiencing a lift in transaction levels and home prices. Where buyers feel they may be priced out of the market, coastal and regional areas are emerging as a solution to issues of affordability. For example, the Illawarra region of NSW saw an increase of 15.8% in home values and a 13.2% increase in unit values over the March 2016 quarter. 

This trend may be propelled by younger families struggling with housing affordability in bigger cities. Or, many may be cashing in on recent house price growth and using this new equity to purchase properties in lifestyle areas where they may get more 'bang for their buck'.

I believe it will be interesting to see how the rest of the year progresses in regards to the election aftermath and the future interest rate climate.

I encourage those wishing to transact property to carefully consider their financial situation in light of this. One of the most important things to remember is adherence to a pre-determined budget, which will ensure individuals do not dangerously over-extend themselves and fail to account for potential changes in the second half of 2016.

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3 tips to boost your real estate agent relationship

Tuesday, March 22, 2016

By Charles Tarbey 

There is no question that we live in a world consumed by technology. Our days are spent transfixed on shining screens, communicating through texts, emails, tweets and more.

When it comes to real estate, technology has significantly advanced the real estate industry. From online and social media property listings to the development of property apps at the tips of buyers’ fingers, the opportunities the digital world has created are endless.

While many of these new technologies are helping property buyers make their lives easier, I believe there are a wealth of advantages that can result from establishing a strong face to face connection with an agent.

Agents are often time poor so by making yourself ‘front of mind’ to them, you may be able to snag an ‘off the market’ purchase or at least be one of the first buyers called when a good property comes on the market.

Here are three tips that I believe will be useful in encouraging communication and creating valuable connections between you and your agent.

1. Be proactive when building a relationship

Whilst the internet offers a fast and easy way of browsing what stock is available, break down the digital barrier by picking up the phone and arranging a face to face meeting with an agent.

Agents will be able to provide you with local knowledge that a Facebook post could not. Knowing the hot spots and the upcoming developments of the area could make a huge difference to which property you purchase and where. 

2. Embrace open homes

While the internet allows buyers to browse properties for hours and hours, nothing quite beats attending a lot of open homes.

Firstly, properties can be very different in real life to how they appear online. Walking around, getting a feel for the home and inspecting all the nooks and crannies will ensure you are not disappointed.

Recently, I have attended many open homes and I have noticed that some agents were hesitant to engage in conversation with potential buyers and vice versa. I encourage both parties to be confident, put themselves out there and have a chat.

As you attend open homes, you not only get a chance to build a relationship with an agent – you can also get a feel for the market and what is available or the conditions that may be experienced in an upcoming auction.

3. Tell the agent what you are looking for

In the same way you can create a price range for online properties to view, in order to narrow searches and save time, you can also tell local agents the type and range of property you are looking for. This doesn’t mean you have to tell them the highest price you will pay for a property. Providing an indication of your range will often suffice, making your life and the agent’s life easier.

Giving agents minimal feedback about your needs and wants may lead to them proposing the wrong type of properties for your circumstance. Valuable time could be wasted as your ideal property may be sitting on the market. 

As you look to achieve success in the real estate market, it’s wonderful to embrace new technologies and what they provide but sometimes it’s also important to unplug from the online environment and get out into the market.

Whilst searching for the ideal investment or new home, aim for balance. Utilise the power of information and communication that technology can offer but do not forget to look for the human connections and experiences that can only emerge in the real world.

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Is there any value in granny flats?

Tuesday, February 16, 2016

By Charles Tarbey

Gone are the days of the humble granny flat in the backyard only accommodating grandma. Investors searching for more yield from a property often see granny flats as an opportunity to gain an extra income stream from a property.

Easing government regulation has made it easier in many locations to add a second dwelling to a property and many investors have taken advantage of this situation. Subject to state and council regulations, utilising backyard space to gain income has become relatively uncomplicated and a fairly simple process. With speedy approvals and even pre-made granny flat kits, secondary ‘mini homes’ are popping up in backyards all over the country. The number of granny flats approved in the 2014/15 financial year was double the amount approved in 2010/11.  

Granny flats can be attached to the existing home or constructed as standalone dwelling. Both designs are subject to specifications regarding size, location on the premises and structural requirements. Regulation is not uniform and varies from state to state. 

The potential for a secondary income to be made from relatively low construction expenditure is understandably appealing. Combined with a desire from many government bodies to increase affordable housing, granny flats look like attractive investments. However, all that glitters may not be property gold and investors should be aware that a granny flat may not be a perfect investment. 

A granny flat could be a source of increased yield but the capital growth experienced by your property may not be substantial. Value added by a granny flat can be highly dependent upon factors such as privacy, design, ease of access and privacy. If these elements are not desirable, the total value of its addition may not be reflected in a property’s higher overall value. 

Many Australians love a big backyard with plenty of space for the family to enjoy. Adding a granny flat can reduce this room to move for both current and future occupants. When the time comes to sell the property, value may be diminished in the eyes of future buyers because of the space taken up by a secondary residence. Granny flats cannot be sold separately to the main house and remain on the original title of the land.

It’s my belief that any value through adding a granny flat will likely be less than the costs associated with building the granny flat.

It can be debated whether this money might be better spent elsewhere. Perhaps the money spent on building a granny flat could fund a renovation of the existing house, subsequently increasing its value to be leveraged for another property purchase.  Investors may find that this approach is more financially attractive than building a granny flat. 

Due to the desires of tenants in a competitive market, leasing granny flats may not be a solid guarantee of high rental yield. Granny flats tend to be prevalent in more suburban areas where there is space to utilise, however if these areas are not appealing to renters your flat could remain vacant. The only occupants may end up being your boxes, bikes and all the extra household bits and pieces.

Finding a tenant for your granny flat is highly dependent on the types of residences people are searching for. While it may not concern some, living in another family’s backyard may not be a desirable situation for others. 

Privacy is a high priority for many when it comes to enjoyment of their property. There is potential for the privacy of both renter and tenant to be impacted in arrangement involving granny flat rental compared to private dwellings. Children want to freely play outdoors, making as much noise as they please however this may not suit older tenants seeking quiet enjoyment of their rented domain. The risk of a sour relationship in such close quarters is something that should be kept in mind.

Although the higher yield from a property with a granny flat may seem attractive, it is important that an investor consider all the factors and make a decision that will work out best in the long term. 

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What does 2016 hold for the real estate market?

5 key property dynamics

The reality behind rentals

Six tips for buyers in a busy market

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