Competition key to safeguarding property market from royal commission fall out

By Damian Collins – REIWA President

Earlier this month the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry handed down its long-awaited findings.                                                     REIWA was pleased to see there was no directive included in the findings to introduce any additional criteria that may affect people’s ability to borrow for housing. While the tighter lending standards currently in place have had the desired effect of cooling the red-hot Sydney and Melbourne markets, this blanket-style approach has had plenty of repercussions for our local market, which is still struggling to find its feet. It is our hope this stringent lending criteria imposed by lenders and the regulator can now be relaxed.

One of the other big talking points to come out of the Royal Commission surrounds the recommendation for mortgage broker commissions to be replaced by fees paid by the applicant.    While many real estate agencies have in-house brokers or alliances, our main concern as an industry is to ensure any changes to the fee structure do not limit competition and do not impose additional costs on borrowers.

The broking channel has opened up the opportunity for many securitised lenders to get loans to market and compete with the major banks. This competition has reduced the banks’ net interest margins from around 3.5% to 2.2% in the last 20 years, according to the Reserve Bank of Australia. On a $1.7 trillion loan balance, ABS data shows this is saving Australian borrowers $22 billion in interest per year.

Flipping the script so the borrower pays the brokers’ fee may have merit in theory, but with it comes the potential to deter people from using brokers all together. This will reduce competition and the end result may be that all borrowers end up paying higher interest rates.

The Royal Commission has suggested as an option that the Government also impose a fee if a consumer borrows directly from a lender, and that the fees be capitalised into the loan. This will ultimately increase the cost in buying a house, doing nothing to help the ever-present issue of housing affordability. Not to mention this amount will then be compounded by interest over the life of the loan.

Handing power over to the big banks will undoubtedly see interest rates increase. Giving the consumer the choice and power to easily navigate the multitude of lending options through the use of a broker has been proven to increase competition and lead to lower interest rates for borrowers.

Whilst mistakes have been made by the mortgage broking industry, we must ensure the government does not apply a sledgehammer approach to fixing the problem without adequate foresight into the repercussions for the market.

Any policy that diminishes competition in lending or reduces housing affordability will cost us all dearly, not just mortgage brokers.

Negotiation the key to a profitable investment purchase

By REIWA President – Damian Collins

Property investment remains a very attractive prospect in Western Australia. With the Perth rental market in a recovery phase and housing affordability continuing to improve, there is plenty of opportunity for WA property investors to capitalise on these favourable conditions.

When it comes to property investment, the vast majority of landlords in WA are ‘mum and dad’ investors using property investment as a means to secure their future, not savvy moguls with multi-million dollar portfolios. As such, most investors aren’t in the market enough to know everything there is to know about buying an investment property. There are a number of pitfalls that can befall the typical investor if they aren’t properly prepared.

Negotiating is one area that many investors dread. Strong negotiating can be crucial to maximising your profit, however, it’s also an easy process to get wrong, especially when you’re negotiating against an experienced selling agent who is working on behalf of their client – the seller.

Arguably the most important bargaining chip you can have when entering property negotiations is in knowing the worth of the property you are investing in. This will form the fundamental starting point of your negotiation strategy by helping you determine what you should offer for the property (and the maximum you are willing to pay).

In addition to preventing you from overpaying for a property, knowing an asset’s value can be the key to helping you identify high potential opportunities when they arise. If, for example, you know a property is listed on the market at a fair price, this knowledge will put you in a stronger position to quickly make a competitive offer on the property before others, in turn increasing your potential for success during negotiations.

Emotional purchases’ are also something you should avoid when investing. It’s really important to assess a property objectively and remain level-headed during negotiations. You need to know when to walk away from a deal and look elsewhere.

One of the ways you can reduce this emotional investment is to research the market and have alternative properties in mind as a secondary option.

If you’re not confident in property negotiations or don’t have the experience and knowledge of the market to support your investment decisions, you may want to consider engaging a professional.

A REIWA buyer’s agent can research properties and negotiate the purchase process on your behalf, with the benefit of local agent knowledge and ongoing experience in the property market.

Having access to this objective and informed third party can give you a huge advantage during the negotiation process, helping you to avoid costly mistakes and to make the smartest financial decision.

How location and amenities add value in more ways than one


By Nick Allingame UDIA WA President

When purchasing a new home, whether it’s in an established or newer area, there are a number of things to consider about the location and whether it suits your needs.

For example, it is important to look at the local services and amenities on offer and whether these reflect your lifestyle and requirements, such as schools, shops, employment options, public open spaces and recreation areas, medical facilities and public transport.

What is interesting is proximity to many of these types of infrastructure and services are not only important for convenience, it also has a positive impact on property prices in the long term.

Take schools for example. Recent research by Domain found house prices in top-performing school catchment zones in Brisbane rose between 19% and a staggering 40% in just 12 months from 2016 to 2017.                                                                                                                                                                                That is compared to average house prices across Brisbane rising a more conservative 3.5%.

It is no secret there are several areas around Perth with highly regarded state schools that attract a premium from buyers wanting to get into the local catchment, such as Rossmoyne and Applecross.

In terms of new areas, look at what the plans are for local schools, as a quality new school may mean a good return on your investment down the track.                                                                                                     If you are purchasing early into a new area, you will need to look at future plans and if there is allocated funding for a new school.

Parks are another proven asset that has a positive impact on home values. Research released last year by Robert Breunig from Australian National University and Syed Hasen from Massey University provides solid evidence to show that, on average, a small local park can add approximately $20,000 to the value of a property within 300 metres of it.                                                                                                   That is compared with a property that has ‘unimproved’ public open space within the same proximity.

In terms of public transport, proximity to a train station can also have a positive impact on value, with research based on Sydney property showing homes between 400m and 800m away from a train station achieved an increase of 1.3% on land value. Properties situated under 400m away from a train station achieved, on average, a 4.5% premium in land value.

This is good news for those in close proximity to new Metronet stations, including on the new Cockburn to Thornlie line, as well as north to Yanchep and north-east to Ellenbrook.

The associated amenities in and around these stations are also likely to add value to surrounding property.