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Greville Pabst
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+ About Greville Pabst
Greville Pabst is CEO and Director of WBP Property Group.

6 property investing pitfalls

Tuesday, May 02, 2017

By Greville Pabst

The question overshadowing many Australians right now is: can I afford to buy a property, and will that property be a good investment? Many Australians have accepted they will never own the quarter-acre block, like previous generations had. The thinking is shifting to buying a property as an investment choice over a lifestyle one. 

Property has proven to be a great investment vehicle to grow wealth. When decisions are based on unbiased, data driven, and professional independent advice, property can ultimately improve one's financial position, allowing them to eventually buy that dream home that seems hard to reach. But, as many will attest, it is very easy to make a poor buying decision to set one back financially by many years. 

Here’s a list of six pitfalls to avoid: it could mean the difference between investment success and disaster. 

1. Failing to be choosey

There are many variables that affect a property’s liveability including location, size, layout, and local amenities.

Unfortunately, most buyers consider too few of these factors when buying property for investment, which impacts their marketability to tenants and future buyers, and subsequently, capital growth potential.

2. Neglecting to review historical performance

When buying shares we analyse past performance. When buying a car, we consider mileage and performance. But, when investing in property, many people fail to investigate historical capital growth performance. A property’s track record of capital growth is a good indicator of its future performance and will indicate whether it is a suitable investment. Using unbiased data to make smart choices will ensure a buyer does not risk a guess. 

3. Chasing hot spots

Many buyers make the mistake of chasing the next big hot spot, which is a suburb or area predicted to benefit from rapid short-term gains in value. However, despite an initial spike, a hot spot is usually characterised by slow or limited growth in the long-term that often undermines any short-term gain.

4. Forgetting all aspects of location

Location is integral to the performance of a property. Many investors assume that buying in a blue-chip suburb is sufficient to selecting a blue-chip asset. But location is far more than just the right suburb or even the right street – it is as specific as the lot number or position in a block of units.

5. Confusing investment and taxation strategies

Many investors confuse investment with income tax minimisation, or are distracted by tax depreciation benefits. However, an investment property needs to be viewed independently of other financial benefits and assessed on its own performance and ability to grow in value and produce income. 

 6. Leave your emotions at the door

While it’s perfectly normal to feel excited about a property, avoid mixing emotion with logic when you're negotiating. By negotiating too hard the seller might walk away, while going easy may lead to overpaying. This uncertainty, fuelled by emotion, can impact decision-making in strange ways resulting in negotiation breakdowns. If you cannot leave your emotions at the door, engage an independent property adviser to make data-based decisions on your behalf. 

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Negotiating for success when buying and selling property

Tuesday, March 14, 2017

By Greville Pabst

Despite strong demand, it’s not uncommon for a portion of properties to pass in at auction. Reasons might include poor interest in a property, unrealistic price expectations, and the timing of the auction relative to other key events. Irrespective of the reason, it doesn't necessarily spell disaster.

In Melbourne, which is arguably the country’s most popular place for auctions, the share of properties passed in at auction is typically around 15 to 20% of total auction volumes each weekend. While a proportion of these properties sell soon after, some do not and are instead listed for private sale.

Whether you’re a buyer or a seller, it can be daunting to negotiate after a property has passed in.

Fortunately, if you’re the buyer to whom it’s passed in, you’re in the ideal seat to negotiate. Likewise, if you’re a seller, it means you have an interested buyer and may be close to signing a contract of sale. But, at this point, neither the seller nor the buyer has the benefit of transparency – so how much should the buyer pay and how much should the seller accept?

The simple answer is pay what the property is worth. In other words, the fair market value for the property, which is defined as the agreed price between two willing and informed parties engaging in an arm’s length transaction.

But, here’s where it gets tricky. Many psychological mechanisms come into play when buying and selling property, which can impact the ability to remain rational and negotiate strategically.

The endowment effect is one such mechanism commonly seen among sellers. It holds that sellers ascribe greater value to things they own, simply because they own them. Obviously this is problematic when attempting to negotiate a fair price with a seller.

Similarly, buyers too are subject to the psychological pressures of negotiating. By negotiating too hard the seller may walk away, while going easy may mean overpaying. This uncertainty, fuelled by emotion, can impact decision-making in strange ways resulting in negotiation breakdowns.

The simplest way to avoid these traps is research. Whether a buyer or a seller, understanding the market value of a particular property is the first step to negotiating a sale.

Consider a range of recent sales (those transacted in the last three months) of comparable properties located in immediate proximities to gauge price expectations. Armed with this information ahead of the auction or private negotiation, buyers and sellers can hold reasoned and evidenced-based justifications behind their decisions. And, don’t cherry pick sales based on the cheapest or most expensive ones – this undermines the process by creating a context of distrust. Instead, a range of sales provides room to negotiate an outcome that suits both you and the other party.

Written by Greville Pabst, Executive Chairman, WBP Property Group.

Follow Greville Pabst on Twitter @grevillep

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6 tips for submitting a prior offer

Tuesday, November 29, 2016

By Greville Pabst

Springtime is arguably the most active and competitive period in the real estate calendar in Australian capital cities as buyers and sellers vie for share of voice in the market.

The level of competition inevitably leads to disappointment for some buyers, as the number of would-be buyers far outweighs the number of properties on offer. So, how do you get an edge in a competitive market?

Some argue the merits of submitting a prior offer. While not always the best course of action it can sometimes pay off. So what’s the trick to making a prior offer? Here’s six top tips to follow:

Tip 1: While the auction process can be daunting for some, it’s also transparent, which means you can accurately determine interest in the property and whether you’re paying the right amount. For this reason, in most circumstances it’s favourable to proceed with the auction process, rather than making a prior offer, to avoid overpaying and showing your hand to the agent should the auction proceed anyway.

Tip 2: Be aware a prior offer may put you at a disadvantage – placing you at the whim of the selling agent, which could see you pay more than the property is actually worth.

If an agent is amenable to a prior offer, it may indicate you’re the only buyer at that price level. A prior offer can reveal your budget to the selling agent, which will be used unfavourably against you and other buyers to maximise the sale price, whether via private negotiation or at public auction. 

Tip 3: When submitting a prior offer, ensure you have a solid understanding of market values, remembering price doesn’t necessarily equal value. And, don’t take the listing price as gospel. It’s a real shot to the heart, and the ego, to find out you’ve overpaid for a property because you failed to do your research, or got caught up in the emotion of the purchase.

But, don’t offer a low ball offer either, as it will likely be rejected. Research is the key to negotiating a price that is fair for both you and the seller. Compare the property with recent sales of similar properties, or, if it’s particularly unique or unusual, obtain a valuation for greater certainty.

Tip 4: If submitting a prior offer, ensure it’s not open-ended. The offer should be subject to a window period, usually 48 hours, to allow the vendor time to think it over. But, not too much time that the agent can use it as leverage with other potential purchasers.

Tip 5: The timing of a prior offer is crucial. If it’s a week or even days before an auction, it’s less likely to be considered by the vendor unless they’ve had virtually no expression of interest from other buyers. If you’re considering making a prior offer, do so as early as possible – that is, several weeks before the auction, saving you and the vendor the stress of an auction campaign.

Tip 6: While the sale price is important, it’s not always the most important factor for a vendor. Consider what conditions of sale will make your offer more appealing to the seller i.e. an unconditional offer, a higher deposit or a shorter or longer settlement period, depending on the seller’s requirements. If your purchase is for investment purposes, you could also rent the property back to the current owner in need to sweeten the deal.

While you may only buy a property once or twice in your life, you’re dealing with seasoned professional negotiators who buy and sell property on behalf of others every weekend. Therefore, if you choose not to engage a professional such as a buyers advocate or valuer, knowing the tips and tricks used by agents will help you hold your ground, and submit a winning offer.

Follow Greville Pabst on Twitter @grevillep

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6 property investments banks don't like

Tuesday, October 18, 2016

By Greville Pabst

When buying a property, it’s often important to obtain finance pre-approval - firstly to know your budgetary constraints, but also to enable you to move quickly when you find the perfect property.

But, pre-approval isn’t a guarantee. Instead, it’s an indication of the amount a lender is prepared to fund in ideal circumstances.

The distinction is important, because lenders not only take into consideration your personal circumstances, but also the attributes of the property you wish to buy when deciding how much to lend.

While lenders may not outright refuse to provide lending for the purchase of a property, they often adjust the loan to value ratio (LVR) for high-risk purchases, requiring you to provide a higher deposit to fund the purchase.

The properties subject to these limitations are commonly referred to as “specialised securities”, and it pays to be aware of those to which the limitations apply prior to signing a contract.

Here’s a short-list of the property types commonly considered to be specialised securities.

Rural zoning

Properties located off the beaten track, such as rural farmhouses or vineyards, typically attract fewer potential buyers than those in residential areas. This has implications for resale, making properties such as this higher-risk prospects for lending, resulting in less appealing LVRs, typically in the realm of 60%.

Heritage listed

Heritage listed properties, or those with overlays, can provide limitations to the highest and best use of a property, which can limit capital growth and potential resale. Some lenders view heritage listed properties as a poor security and can be disinclined to provide high LVRs.

Hotel/motel conversions

Hotel/motel conversions can be another high-risk category. While the benefits of this type of venture can be bountiful, it can also be fraught with danger. Unsuccessful, or poorly undertaken conversions, can be difficult to resell and tenant, with implications for capital growth performance, which banks take into consideration when lending funds.

Company share structures

Properties with a company share structure are subject to restrictive lending criteria, as a company owns the block and each apartment is considered a share. This means unit holders are shareholders in the company, rather than direct owners of a property. Banks are reluctant to lend in these instances, as the ability to foreclose on a share is more complex than other ownership titles like Strata. This can drastically impact the amount a lender will allow you to borrow.

Pensioner’s units and retirement villages

While Australia’s aging population makes this a growing market segment, developers often reap the benefits of capital gain, not the property owner, with implications for a property’s performance and the lender’s loan security.

Size restrictions

Apartments under 50m² are another potentially high-risk category, as lenders often have strict minimum size requirements that, if not met, require a higher deposit. While you may be able to fund a higher deposit, the next buyer may not, which can impact potential resale value down the track.

Before signing a contract of sale, check with your lender to ensure you meet the required borrowing criteria to protect your investment today and in the future.

Written by Greville Pabst, Executive Chairman, WBP Property Group.

Follow Greville Pabst on Twitter @grevillep

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10 simple steps to find the right property

Tuesday, August 30, 2016

By Greville Pabst

According to a national survey undertaken by St. George Bank, when buying a property, most Australians inspect an average of 12 properties before finally purchasing one. Yet surprisingly, the average buyer spends just 1 hour (62.5 minutes to be exact) inspecting that final property, with alarming implications.

Unlike a faulty appliance, in most cases, a property cannot be returned or refunded once a contract is signed, with little recourse for addressing issues buyers discover after the fact.

To avoid dismay, there are ten simple steps you can take to ensure the property you select is the right one from the outset, enabling you to identify signs of trouble and when and in what order to call in the experts to save you time, money and heartache in the future.

Here’s our checklist of what to look for before engaging the professionals:

  1. Stains on the ceilings - These can be a sign of drainage issues and roof leakages, which can be a major (and expensive) issue to fix.
  2. Faulty plumbing – Test water pressure and potential hammering in the pipes by turning on a few taps simultaneously. This may highlight need for maintenance, or building works.
  3. Cracks in the driveway – These can point to drainage problems in the yard - another expensive problem.
  4. Blisters or bubbles on paintwork – This could simply indicate a poor paint job, but may also reveal something more sinister, like termite activity or water leakage.
  5. Open windows and doors – This may sound strange, but it’s crucial to ensure windows haven’t been painted shut or can’t be opened due to movement in the building.
  6. Sloping or bouncy floors – This may highlight the need to replace the stumps - a costly fix.
  7. Appliances - Check the condition of the oven, dishwasher and air-conditioning units, ensuring they are in good working order. Replacement can be costly should you find appliances don’t work.
  8. Cracks in the foundation, ceilings and walls – These indicate movement of the structure caused by settling and soil expansion.
  9. Smoke detectors – Press the test buttons on all the smoke alarms in the house to ensure they’ve been maintained properly.
  10. Floors and carpet – Check these for wear and tear as well as moisture damage.

Buying a property can be time consuming, but arming yourself with the above information can save you both time and money on future building and maintenance. It can also save you the cost of a building and pest inspection, valuer or solicitor for some of the 11 of the 12 (or more) potential properties you don’t end up buying.

While engaging professionals is an important part of the process, engaging them on the right property only you can save thousands of dollars, not to mention using the information you’ve gleaned to negotiate a better price.

Written by Greville Pabst, Executive Chairman, WBP Property Group.

Follow Greville Pabst on Twitter @grevillep

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Property advice could save you thousands

Tuesday, August 02, 2016

By Greville Pabst

Attitudes towards property have changed significantly over recent years. But, two truths remain universal; people require shelter, and buying property is the biggest investment most people make in their lives.

The average residential property in Australia currently costs buyers $918,000 (including interest) over 25 years. That’s for a $580,000 property in today’s terms – almost a million-dollar investment over several decades.

What’s perhaps most surprising is the fact that the majority of buyers spend this sum of money with a limited understanding of market fundamentals. In particular, the concept of capital growth and the factors that drive it for each individual property.

This DIY approach Australians have to buying property for occupation and investment is both dangerous and lacking in rigour – the biggest concern being ignorance to the risks associated with property selection.

While most buyers acknowledge they require a conveyancer for the legal aspects of the purchase, and may even get a building inspection to ensure structural integrity, few buyers consult a professional about the property itself, the risks associated with it, and how it stacks up as an investment. These are all important factors for wealth creation and protection.

While property experts like valuers report on the value of a property, a property adviser or buyer’s advocate focuses on performance over time, and how the property assists buyers to meet their lifestyle needs with their financial position in mind.

Like the conveyancer and building inspector, a property adviser protects the buyer’s interests – in this case protecting buyers from making a poor million-dollar investment decision and steering them, based on demonstrable evidence, towards an investment that not only avoids pitfalls but with the potential to perform better than most.

However, the problem is neither an awareness of the profession, nor a failure in understanding the potential of what a buyer’s advocate actually does. Rather, in most cases, it’s one of two things that prevents would-be buyers from engaging a professional from the outset. 

First, an unwillingness to pay for advice. Despite the fact a property adviser can save buyers both time and money, some view the additional outlay of a few thousand dollars a deal breaker – even to avoid a million-dollar mistake which can take a lifetime to recover from.

Second, it’s the DIY approach of many Australians to buying property, where they assume the role of the property expert. But, like IT technicians, sales consultants, mechanics, doctors, hairdressers, chefs, lawyers, nurses and any other profession requiring study or on-the-job learning, property advisers have developed and refined their trade over the years, making them the expert in their chosen field.

The fact that most people balk at the idea of cutting their own hair and pay hundreds and even thousands of dollars a year for a professional to provide the service – yet spend a million dollars on property without the same hesitancy – is particularly baffling.

As human beings, we’ve thrived due to our sociability and ability to rely on each other to achieve shared goals. This doesn’t mean being an expert in everything, but more importantly, it means acknowledging the limitation of our knowledge and expertise and when to ask for help.

So, when buying your next property, ask yourself: “Do I know property like I know my profession?”

If the answer isn’t a resounding ‘yes’, it may be time to seek professional advice.

Written by Greville Pabst, Executive Chairman, WBP Property Group.

Follow Greville Pabst on Twitter @grevillep

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The perils of buying off the plan

Tuesday, May 31, 2016

By Greville Pabst

Property is in the headlines again. Well, to be fair, it never really left. But, the topic that is most prominent at the moment is off-the-plan apartment sales and the impact of the tsunami of stock due to hit our capital city markets in the next 24 months.

By now, if you haven’t heard that buying off-the-plan can be fraught with issues, you’ve probably been living under a rock. If that’s the case, welcome back to reality and let me outline the issue in simple terms for you now.

Projections estimate Australia’s capital cities, namely Melbourne, Sydney and Brisbane, are set for an influx of geographically concentrated new high-density apartment blocks, adding in the vicinity of 230,000 units to the already significant supply of this type of property.

The issue

This may have you asking “what’s the big deal? Don’t we have a housing shortage?” Well, you’re partly right. It seems in many major capitals like Sydney and Melbourne, demand outstrips supply, but only for some types of property in certain locations.

The shortage mainly relates to freestanding houses within 20km of our east coast CBDs. In markets like Melbourne and Sydney, the supply of houses isn’t increasing, in fact, it’s actually declining with an increasing frequency of redevelopments turning traditional house blocks into medium-to-high density blocks of apartments or townhouses, further exacerbating the already tight supply of freestanding homes. This, together with a growing population, is applying increased pressure to the supply of houses, leading to strong growth for this sector of the market. In this case, the combination of low supply and high demand is positive for growth. Remember this because we’ll come back to it again shortly.

Getting back on track, aside from not addressing the housing supply issue, the impact of the large number of off-the-plan properties is having a three-fold effect on buyers, not just today, but well into the future.

Buyers are overpaying

Firstly, buyers are falling victim to slick marketing that spruiks the glory of taxation benefits, reduced stamp duty costs, lifestyle and developer-originated incentives such as giveaways and guaranteed rental returns – factors designed to distract buyers from the fact they are about to pay more for a property than it’s actually worth.

To put it another way, buying off the plan is a lot like buying a brand new car - the moment it’s driven off the lot it's worth less than what was paid for it, sometimes in the realm of 5-10% unless perhaps it’s a rare or limited release. But, a loss of $2,000 to $5,000 on a new car is nothing compared with even just 5% on a half a million dollar property. Let me do the maths for you. That's $25,000 dollars. Now consider, of all off the plan apartments, 50% demonstrate a drop in value of almost 10% upon settlement - that's a whopping $50,000 whipped of the value of your average property before it even reaches settlement.

But, the similarities with new cars doesn’t stop there. The rebate or special offer received on stamp duty and on road costs are exclusive to the first buyer, and aren’t transferable to a second-hand buyer, immediately impacting resale value. I mean, why would you pay the same amount for a second-hand car that you’d pay for a brand new car that had never been driven? You wouldn’t.

And, let’s not forget, the premium paid for a brand new car or off the plan property also includes a sales and dealer commission on top of market value. In summary, the property is worth less than was paid for it – on average around $50,000.

How oversupply impacts long-term performance

Now, you’d be forgiven for thinking the property would’ve increased in value in the time between signing the contract and settlement, but in most cases, this is incorrect.

Like most investments, value is determined by scarcity of supply. Remember earlier we discussed high demand and low supply was good for property values. Well, with off-the-plan property, it’s the opposite at the moment, with a large supply applying downward pressure on the value of high-density units and apartments.

So now, not only is the property worth less than what was paid for it, but it hasn’t gone up in value with the rest of the market. It’s not looking good, is it? Unfortunately, it gets worse.

Settlement risk

As the new apartment nears settlement, the lender typically engages a valuer to assess the value of the property to determine lending risk in the event the purchaser can no longer meet loan commitments and the bank must foreclose.

The valuer will assess the value of the property not on what was paid for it, but on what it’s worth in a resale market. The valuation, or market value figure minus costs and the initial deposit, is roughly what the bank will lend to complete the purchase.

To illustrate, a buyer agrees to pay $500,000 for an off the plan property, contributing a 10% deposit now, plus any associated transactional costs along the way. From the outset, the lender agreed to lend 90% of the total value of the property. After assessing the property, the valuer returns an estimated market value of $450,000. This means, instead of agreeing to lend the buyer the initial $450,000 required to settle the property, they’ll now only lend $405,000, which is 90% of current market value but a $45,000 shortfall. That means, the buyer now has to bridge the funding differential of $45,000 in order to settle the sale.

This is where things get tricky. For most buyers, raising an additional $45,000 can be difficult. If a buyer has already lent the maximum amount then the bank can’t help. There’s always savings, but most people don’t have $45,000 sitting around for a rainy day. The issue now facing the buyer is they’ve signed a contract and cannot fulfil their obligation. The ramifications can be as little as a loss of deposit, which could be tens of thousands of dollars, through to legal action on behalf of the developer.

Forget about the buyer trying to bridge the funding differential just to dispose of the new, but now second-hand, off-the-plan property in a few months’ time. They are now not only selling a second-hand asset without all of the one-time bells and whistles offered by the developer, but also selling into a market of potentially thousands of other similar properties.

But, all property increases in value eventually, right? Well, yes, but that’s after first recovering any initial loss from overpaying and then maybe growing just a few percent in a decade, if you’re lucky. In many cases, buyers would be better off keeping their money in the bank.

What seemed like such a good idea at the time has come full circle to hit the buyer in the face. Despite the hypotheticals, this situation is all too common for thousands of Australians at present.

Fortunately, not all property performs the same, and this horror story isn’t one faced by the majority of Australians. The key to avoiding disaster really is research. The independent variety, not what the sales agent tells you.

If in doubt at any point along the journey, engage the relevant professionals to assist. The cost of strategic professional advice now is a small price to pay to secure your wealth later in life.

Written by Greville Pabst, Executive Chairman, WBP Property Group.

Follow Greville Pabst on Twitter @grevillep

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Is everyone but me investing in property?

Tuesday, April 26, 2016

By Greville Pabst 

Property is a popular asset class in Australia, attractive for its relative stability when compared with other asset types. In fact, according to ABS statistics, historically, about a third of all new housing loan commitments are to investors. 

While current figures about the number of investment properties in Australia is difficult to ascertain, what we do know is that in 2011 almost a third of all Australian private dwellings were rented - 29.6%, or 2,297,460 to be precise. Of those individuals that owned an investment property, 72.8% owned just one, while a much lower 18.0% owned two and just 8.7% owned three or more investment properties.

Could I be a property investor?

Who are Australia’s so-called “investors”, and how is it they can afford an investment property, let alone two or more?

In most cases they’re no different to you or I. For the most part, their only distinguishing factor is their age, with the largest proportion of property investors those aged 45 to 54 – in many cases simply due to more disposable income that facilitates investment loan serviceability, together with greater equity.

Interestingly, and yet unsurprisingly, this group’s primary reason for investing is for capital growth to support wealth accumulation in the lead up to retirement, while those aged above 55 invest in property to produce rental income to fund their retirement.

All of this is not to say that a mid-20s to late 30s something person, or those on an average income, can’t invest in property. Actually, it’s quite the contrary.

Where do I start?

What does the average punter need to do today to join the ranks of their 45 plus counterpart, before they hit their mid-forties?

Effectively managing and understanding your unique financial situation is an important aspect of property investment and personal wealth creation. Many people falsely believe you require a high income to successfully invest in property, whereas the reality is the majority of investors are everyday people with average wages.

For those considering joining the ranks of property investors in Australia, it’s important to obtain strategic advice from the outset, both financial advice and property advice, and from independent experienced professionals. Unfortunately, it’s not uncommon for investors to develop a distaste for property as an investment class after a negative experience resulting from purchasing the wrong type of property. 

The keys to success

The real key to successful property investing is selecting the right asset.

While bricks and mortar is considered a safe investment option, not all property performs at the same level. In fact, while some properties may grow at an average of eight to ten percent, or even higher, per annum, others may decrease in value, falling below the initial purchase price. This is a common trend in many capital cities with an oversupply of new high density apartments.

The key to long-term success is selecting an asset with a high capital growth profile, which is largely determined by location, land and building size, configuration, orientation and a range of other factors.

How do I fund the purchase?

If your biggest hurdle is financing, there’s hope. At present, low interest rates mean it’s even easier to buy property for investment, with many lenders offering products tailored to your unique circumstances – speak with your broker and financial adviser for more details.

Saving a larger deposit, investing with a partner, family member or friend, using superannuation or government applying tax breaks or grants, or even obtaining assistance from parents are ways that may assist in kick-starting your investment property portfolio.

If you’re an existing homeowner, the simplest solution may be to assess the value of your current property to determine what equity, if any, the property provides. In this case, if you’ve selected well, chances are your property has grown in value over recent years, providing equity, which may provide leverage to purchase your first or subsequent investment properties. If in doubt, a property valuer can assist you in assessing your property’s current worth, providing you with the confidence required to speak with your mortgage broker about your loan options.

There’s no one size fits all rule when it comes to property investing. Some people simply buy a property to reside in when they retire, while others invest to increase future wealth or for rental income. The speed at which you grow your portfolio, if at all, really depends on your appetite for risk, your lifestyle desires, and your long-term wealth strategy.

Greville Pabst is the executive chairman of the WBP Property Group.

Follow Greville Pabst on Twitter @grevillep

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Your six-point property checklist

Tuesday, January 12, 2016

By Greville Pabst 

Thousands of properties are bought and sold around Australia each year. 

However, despite the frequency of transactions, the process is by no means simple. Assessing the performance potential of a property is time consuming. 

In fact, it’s estimated the average Joe typically invests around 19 hours before throwing their hat in the ring for just one property.

This may seem excessive, but each part of the process is essential in assessing the suitability of a specific property before parting with hard earned dollars.

Below is a checklist of things to consider before and during the property-buying process.

1. Where to start?

It’s likely you’ve already decided roughly where you’d like to buy, but our decisions are often informed by our perceptions and experience, which can be dangerous in the absence of all of the facts. Most people base their purchase around three factors: affordability, familiarity and proximity – that is, proximity to schools, employment, infrastructure, and family and friends.

While buying in an area you know and can afford may feel more comfortable, these factors shouldn’t underpin your decision about where to buy.

Instead, base your decision on the factors that help achieve your financial and lifestyle goals. If the property is for investment purposes it’s important to select an area well-supported by the rental market – that is, an area consistently in demand with tenants, to support loan serviceability.

If you’re searching for a home, your selection criteria may not be too different. In both cases, it’s about catering to the needs of the types of people living in the local area.

If you’re buying in a capital city, be mindful of the importance of space, including storage, parking and living area. Parking in particular can add or detract significantly from the price and future performance of a property located in inner city areas, whereas it’s not so important in outer lying areas that don’t suffer from parking congestion or restrictions.

Assessing the geographic location of a property isn’t as simple as picking a suburb you know or like, but one that supports financial and lifestyle goals.

2. Research – estimated 10 hours

Like most big purchases, the process of buying property starts with research. This includes several hours searching for and shortlisting properties in your desired location. If you’re under pressure to buy in the short-term this could be concentrated over a few weeks, or if you’re more flexible it may be spread over several months. In any case, scrolling listings takes time, even when using fairly specific search terms.

Once, you’ve created your short-list, there’s inspections. A diligent buyer undertakes multiple inspections of a property and the area at varying times throughout the day, on different days of the week to assess the property and location under all conditions. In many instances, it’s wise to undertake pest and building inspections once you’ve selected a property you like to protect the future security of your investment, ensuring it’s structurally sound and there’s no hidden surprises.

3. Cursory review

Once you’ve found a property you like, there’s a list of things you need to know before deciding to buy. A thorough assessment should include investigation of the street and the site number itself to determine the availability and suitability of infrastructure including schools, recreational and shopping facilities and of course, public transport including road infrastructure and accessibility – factors which underpin the habitability and enjoyment of the property from you or other occupants.

4. Performance analysis

Buying a property is the single biggest investment most people make in their lives – but even if buying as a homebuyer there’s no reason you shouldn’t treat your purchase with the same level of seriousness as an investor.

In fact, Australia’s largest well-to-do social class, baby boomers, owe the share of their wealth to strong property growth. But remember, not all property performs the same and there are both winners and losers in the property game.

With this in mind, it’s imperative to review the current and past performance of not only the asset class and location in which the property is situated, but also the property itself.

If it’s an established property this will include the retrieval of historical sales records to measure past performance over time, as well as assessment against recent comparable sales within close proximity.

Past growth is often a strong indicator of future potential and can be used to select a property that consistently performs above average.

5. Due diligence

Once you’re satisfied with the location and past or current performance, you’re ready to review the sale documentation. A diligent review will include close scrutiny of the contract of sale and section 32, as well as owner’s corporation minutes, if applicable, and council notices to ensure you’re fully informed about the purchase. At this stage you will usually enlist the services of a conveyancer to assist with the legalities of the proposed transaction.

It’s also wise to contact utility providers to ensure the property is eligible for electricity, gas, water and telephony services such as internet.

If you haven’t done so already, now is also the time to organise a pest and building inspection to ensure the property satisfies building codes and to determine if maintenance or renovation works are required prior to occupying the property.

6. Buying strategy

Now comes the exhilarating part – buying the property. This process can be somewhat different depending on whether you’re buying at auction or via private treaty.

If you’re buying at auction the key is to participate. Many would-be buyers fail to realise that as the top bidder you receive first right of refusal to negotiate if the property passes in at auction, which provides significant advantage over the competition. For more auction tips visit this youtube link

Before bidding or tendering an offer, it’s important to set your budget for each property, which is likely determined by a combination of how much you can borrow and the value of the property. Knowing your borrowing capacity and loan serviceability is important from the outset to ensure you’re searching for and bidding on properties you can afford.

Knowing the market value of a property before making an offer gives you confidence in knowing how much to offer the vendor, and when further negotiation is appropriate. If in doubt, enlist the services of a property valuer for additional peace of mind.

Aside from price, flexible settlement terms can also add weight to your offer. Sellers may be attracted to a longer settlement that allows them to find a new home, while others may be in a rush to settle, with a short settlement offer and early release of deposit considered more important factors than price in some instances. An unconditional offer may also prove attractive to a vendor. In any case, ensure your offer has an expiry attached – usually 48 hours – to create urgency and apply reasonable pressure.

At this point you’re either successful or it is back to the drawing board. 

Considering the number of steps required to search for, assess and bid on a property it’s easy to see why the whole process take around 19 hours. It’s no surprise why some people enlist the support of professionals, such as a buyer’s advocate, to undertake the job on their behalf.

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Houses versus units

Tuesday, November 24, 2015

By Greville Pabst

Property investors are often at the mercy of their bank balance when selecting between houses or units (including apartments). Budgets aside, it’s worthwhile considering the factors that determine which asset type is best suited to your circumstances in the long-term.

To set the context, let’s take a look at current median values for both houses and apartments. On a national level, houses are sitting at a median value of $621,000, compared to units at $522,000. 

While both property types grow in value over time, there can be substantial differences between the performances of each asset type. According to CoreLogic data, the year to October showed stronger results for detached housing compared to units, with capital city house values up 10.5% over the past 12 months, compared to a 7.7% increase in unit values. Annual growth statistics for the past five and ten years show a similar trend, albeit with a decreasing differential. Over the past five years houses have increased 4.2% compared to units at 3.6% on an annual basis; and the past decade shows growth of 5.8% and 5%, respectively, for houses and units on an annual basis. 

Of all capital cities, Melbourne showed the greatest differential in positive price growth between houses and units over the past 12 months with values up 13.9% and 3.4% respectively. The oversupply of new apartments in Melbourne is putting downward pressure on prices and is one of the contributing factors to the difference in performance. Melbourne’s apartment market is also highly driven by investors who, as a buying group, have been increasingly less active in the market as the year has progressed - primarily due to restrictions placed on banks’ lending to investors by the Australian Prudential Regulation Authority (APRA). 

It’s also worth noting the more favourable trend of capital appreciation for houses is not uncommon, with the growth relative to the larger land component. Interestingly, however, Hobart is the only capital city to buck this trend both in the short and long-term, with growth rates of 3.4% and 7.5% respectively for houses and units for the past 12 months and a 10 year annual increase of 1.4% and 2.9% respectively for houses and units.

There are many pros and cons to consider when weighing up between houses and units. Units traditionally offer greater yields when compared with houses. CoreLogic’s September figures report rental yields for units are at 4.3%, with houses showing lower yields of 3.4% nationally. However, when looking at yields it’s imperative investors also consider Owners Corporation fees, which are usually associated with owning a unit and can eat away at returns. 

When rental affordability in capital cities tightens many tenants choose more affordable and convenient apartment living, over houses. Not only do apartments remain the more affordable rental property type in most capital cities, they are often better situated in relation to infrastructure, as well as offering lower-maintenance living.

Tightening lending constraints is a further consideration to be mindful of when choosing between these two property types. For example, many banks and lenders are now reluctant to lend on properties smaller than 50sqm in floorplan area, which may limit the marketability and value of smaller apartments when it comes time to sell due to difficulty experienced by some buyers in obtaining finance.

When deciding between purchasing a house or an apartment there are many factors to consider. The decision should be based on the purchaser’s personal circumstances and whether they are driven by capital growth or rental returns.

It’s also important to consider individual properties on their own merit. Not all houses perform the same; nor do all apartments. 

With only a matter of weeks to go until the property market slides to a halt for the festive season, be sure to do your research and due diligence to ensure you make informed, evidence-based buying decisions.

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