Proper Fincance Solutions

January 2009 Proper Fincance Solutions Newsletter

Welcome to our January newsletter.

In this issue:

New Look Website

We recently revamped our website www.properfinance.com.au
It became more appealing visually. The content was restructured and updated. Along with the enhanced navigation that should provide our visitors with a better browsing experience.

Update on the State of the Australian Property Market

During 2008, the Australian property market fared well compared to the American and European markets. Flat prices, at best, can still be considered a good result given what happened to the property values in other developed countries. Currently, the Australian market is patchy with pockets of activity, manly in areas where first home buyers can afford to buy. Affluent suburbs have been quieter in general with some property owners severely affected by falling stock market are forced to sell at distressed prices. As a result, we are seeing a paradoxical situation where the wealthy areas have given up 10-20% of their property values, whilst the affordable suburbs that underperformed in recent years are holding well and even recording modest gains. The incentives introduced by the federal government last October seem to be working. Doubling the first home owner grant to $14,000 for established homes and tripling it to $21,000 for new homes coupled with the incentives offered by the state governments made it much easier for the first time buyers to put together a deposit. The falling interest rates are also improving the affordability.

Over the last 5 years, the property market in Australia was mainly fueled by home buyers. Activity of the property investors have not returned to the levels seen in 2001-2003. This lead to a gradual reduction in the number of properties available for rent, which coupled with the growing population, resulting in soaring rents. Australian media constantly refers to this situation as 'rental crisis' or 'rental squeeze'. We would not call it a crisis, but rather a correction that will bring rental returns to where they should be to make property investment more attractive once again. At the moment, the gross rental returns on an average house can be 5-6% and the units and apartments can achieve 6-7%. With the current lending rates ranging from 5.3-6.3%, the right property can cover its outgoings, mortgage repayments and also generate a small profit. Eventually, the falling lending rates and growing rents should lure the investors back into the market, which will give sustained support to the property values.

As it stands at the moment, the property market offers numerous buying opportunities. The buyers are cautious because the year 2009 has many uncertainties around the state of the Australian economy; unemployment, availability of credit, and property values. Only those who can deal with that uncertainty will be taking advantage of the current state of the real estate market. Once it becomes clear that the crisis is over, the bargains will be snapped up and the market will return to its normal state where the buyers compete hard for any worthwhile property. The only question remains - when this will happen and for how long this window of opportunity will stay open?

Update on the Mortgage Market

Unlike their overseas counterparts, Australian banks have made minor changes to their lending guidelines for residential property. All the noise in the media that the credit is becoming hard to obtain only relates to the commercial, business and corporate finance. During the course of 2008 many small lenders left the market. The major banks are not only enjoying the market dominance in residential mortgages, but they also have plenty of money to lend. After Rudd government introduced government guarantees for the bank deposits, a trickle of savings and terms deposits going the bank's way turned in a river. It's not a flood and the banks are not throwing loans at anyone as they used to do before, but they have funds to lend and it is known that lending is profitable for them. Their margins are getting fatter as their cost of wholesale funding is slowly coming down. This makes us believe that it is unlikely Australian banks will tighten their residential lending to the extent their US and UK colleagues did. Unless, of course, they get into trouble through their corporate & business lending problems that dominate the banking news at the moment all over the globe.

For the current parameters of the banks mortgages available click here.

Recent Testimonials

Dear Anastassia,
Thank you for your email and congratulations. That was surprisingly easy! Anton, I know I was probably not the easiest client you have had - this comes with the profession unfortunately! Added to that, the stress of entrusting such a transaction from half way around the world with someone you have never met is a weighty one. However, we could not have completed this without you and you have been a great source of assistance. I wouldn't do it any other way in the future and would recommend your service to anyone considering going through the same process.

Regards and thank you to all at Proper Finance.

Edward, Budapest, December 2008

Hi Anton,
Thanks for the below, yes was great to get it done so quickly, maybe the poor economy also assisted. This time much smoother with a bank, so thanks for your great help.

Thanks & regards,

Adrian, Shanghai, December 2008

Our Selection of Articles by Fairfax

IMF slashes global growth outlook
The global economy will slow close to a halt this year as more than $US2 trillion ($3 trillion) of bad assets from the US help sink economies from Russia to the UK, the International Monetary Fund said. Full article

RBA tipped to slice its key rate
THE Reserve Bank has been freed from the threat of inflation, allowing it to cut interest rates dramatically next week as it works to keep the economy out of recession. Full article

Australia named 'third freest economy'
Hong Kong has been named the world's freest economy for the 15th year in a row by conservative American think-tank the Heritage Foundation, followed by Singapore and Australia. Full article

G10 predicts 'significant' global economic pick-up in 2010
The global economy will slow sharply this year before posting a "significant pick up" in 2010, the Group of 10's central bankers said today. Full article

Cop a dose of Harden Up
This is a country so spoilt that it's importing a couple of thousand South Sea Islanders on temporary visas to harvest its crops. Despite having nearly half a million officially unemployed people, we can barely be bothered feeding ourselves. Full article


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