The Flawed System of Interest Rate Manipulation to Control Inflation

So the Reserve Bank put interest rates up again last week. With 6 rate rises in the last year, the cash rate has climbed to 4.75%. Why?

Glen Stevens, the Reserve Bank Governor, said they decided to raise rates because of “concerns about the possibility of a larger than expected slowing in Chinese growth have lessened recently and most commodity prices have firmed, after a fall earlier in the year”.

Right, so the mining industry is making more money, becoming richer and more powerful, so it only makes sense that Joe Bloggs from Melton should pay more interest on his home loan? Until he can no more and loses his home that is. After raising rates higher than the Reserve last week, CBA Chief Executive, Ralph Norris said it was better to see "a few" foreclosures than have an economy hamstrung by a low-profit banking system. At least Joe Bloggs from Melton will know, when he’s living in a box at Flinders Street Station, it’s for the good of the economy…

I understand that the Reserve Banks job is to take control of inflation; of course they would want to, the higher the inflation, the lower the value of each of those pieces of paper they print... I know there are other reasons as well, real reasons, worthwhile reasons, but there must be some other way.

This would be a great part of this blog to explain my solution… but I don’t have one. All I know is that the current system is flawed and needs to be fixed. Punishing the average Aussie for a profit that a company makes on the other side of the country is not the way. We have a two speed economy; we need a two speed solution. This is where governments should earn their keep (and opposition parties). Interest rate manipulation hasn’t/won’t work, let’s think of something else that will.

Bill Nikolouzakis - Nyko Property

The Next BIG THING in Melbourne Property

If I were talking to you about property investment just 3 or 4 years ago I would have told you that the best properties to buy are located within 15km’s of a major CBD in a major Capital City. The right property (that is key!) in those areas will definitely still perform and this tried and tested method still rings true.

Along with those areas though, Melbourne is changing its face, mostly through the Government initiatives and infrastructure projects that are pouring money into key areas around Melbourne. (See the Melbourne 2030 Plan for more info here http://www.melbourne2030.vic.gov.au/). The Victorian Government has identified that if our population keeps growing as it has been, new infrastructure will need to be constructed to cope with the increased populace.

Continuing to build further and further out from the CBD (we are already 55km’s in the East and approx. 35km’s in the West) does not suit the lifestyle of the ‘new’ Melbournian and increases traffic congestion. The initiative has been to identify key areas that can cope with population growth and already have good infrastructure in place, including roads, public transport links and established shopping and lifestyle centers.

There are a few different ratings for these areas, the ones of most interest are either Principle Activity Centres, or Major Activity Centres and although most of them are based within 15km’s of the CBD there are a few that stand out, which are based slightly further out. One Major Activity Centre of interest to Nyko Property, is Epping, 22km’s from the CBD.

Epping is going through a major redevelopment, infrastructure works around Cooper Street are ongoing and the relocation of the Victorian Fruit, Vegetable and Flower Markets is not to be underestimated. With a median price still in the $300’s, this suburb definitely has room to move.

There are other examples of such suburbs in Melbourne, where it is still possible to buy large 2 bedroom apartments with yields of over 5% per annum in the low to mid $300’s! You will notice that Nyko Property will be concentrating on some of these suburbs over the coming 12 months, along with a good mix of the blue chip suburbs, so keep an eye out.

Any questions or comments, add them below and I will endeavor to answer asap.

Bill Nikolouzakis - Nyko Property

Whats in store for Spring!

The REIV has released the June quarter median prices which reveal that the median price of a house in Melbourne has increased by 8.5 per cent to $559,000 from a revised $515,000 in the March quarter.

Enzo Raimando, the CEO of the REIV expects apartments to continue to drive growth “Prices have also continued to rise in the unit and apartment market, with an increase of 4.7 per cent to $463,215 in the quarter. Carlton, Ascot Vale, Malvern East, Northcote and Footscray had the largest increases in their medians over the quarter,” Mr Raimondo concluded

The June quarter looked great but with Spring now upon us we expect to see an increase in property available in the marketplace and with the additional positive news reinforcing confidence in the Australian economy demand will be sure to follow. Confidence is rising and with the lending requirements starting to ease slightly (some banks now offer 95% loans again) and the property market showing strong growth through winter, the market seems poised to tick along at good levels.

New and Off the Plan: This segment of the market looks very healthy at the moment. The Nyko Property clients who bought throughout 2008 and 2009 and are settling now have realised significant increases in the value of their properties, some in excess of 20%. If you factor in growth figures like these, with the ability to purchase a property now without having to settle for 12-18 months, it gives you the option to draw equity quickly and re-invest to build your portfolio.

Finding these opportunities in the market place is not easy whether its price point property, or high-end projects and the market is not as simple as it used to be. Ample due diligence to support the location, and the performance of the property needs to be sought and only then can these opportunities be qualified as strong investments. The Melbourne 2030 concept is a brilliant guide, a government backed initiative disclosing the up-and-coming hot spots in Metro Melbourne, enabling Nyko Property to locate boutique projects in these locations, and package them with all the information necessary to make an educated decision.

The time to act is now, contact Nyko Property to learn more about our exclusive 'off market' investment opportunities and receive your complimentary 'Project Information Pack'.

Bill Nikolouzakis - Nyko Property

Key Factors to Selecting an Investment Property

The first thing I ask a potential purchaser when discussing investment property is “why do you want to invest in property?” The overwhelming amount of time, the reason given is “to pay less tax”. While tax is an important factor when investing in property, it should only be a benefit of investing, not the reason. Knowing what makes a solid investment is paramount to selecting the right property.

There are three key areas to assess when selecting an investment, see below for a breakdown:

1. Capital Growth
Building Wealth. You should be assessing your purchase for its potential for high capital growth first and foremost. Does the property have a better chance of growing more than other properties in its price bracket? Assessing this can be tricky and should not be based on the opinion of the selling agent or your ‘guess’. Full due diligence on the area and how that property type fits the demographic in the suburb, should be undertaken.
Building Wealth is the main benefit of investing, the reasons vary for each individual for why they want to build wealth and that is the key to why you should be doing it. Do you want to secure your children’s future, build enough equity to buy your dream home or maybe be comfortable in retirement?

2. Cash Flow
Cash flow is a key component to any investment and should be calculated to ensure you are comfortable with the out of pocket expenses. Rental Return is the obvious factor that controls the income but the expense side of the equation is slightly trickier. Interest payable, agent’s management fees, loan fees, council rates and maintenance costs are easy to estimate, the trickier components are factors such as non-cash tax deductions (depreciation) and body corporate fees.
There is little value in a great rental yield if the body corporate is $6,000 per annum! Also, the non-cash tax deductions are impossible to ‘guess’, the use of a profession quantity surveyor is needed here. After gathering all the info and speaking to a professional to assess the findings will you be able to confidently ascertain the cash flow of the investment.

3. Minimizing Risk
Good capital growth and cash flow are great but only if the risks associated with them are reasonable. The fact is there is risk with every investment, the need to assess and protect the investment against that risk is the key to determining the overall value of an investment. You should always consider insuring the investment and the income it produces; speak to your financial planner for more information on the best ways to do this.

The reasons above are the key factors you should consider when selecting an investment property. Our next blog covers what facts and evidence should be attained to prove these key factors so keep an eye out for it over the coming week!

Bill Nikolouzakis – Director of Nyko Property.

Nyko Property is a Real Estate Agency that specializes in researching and qualifying new residential projects to investors across Melbourne. With a passion for Melbourne property, the projects they offer are only available through their exclusive partner relationships. To find out more about their due diligence process for selecting investment property contact Nyko Property on 1300 720 315. www.nykoproperty.com.au

Is now the best time to invest in Property?

When “experts” talk about knowing the best time to invest in property,they are usually talking in the past tense. The truth is, even the experts don’t know the perfect time, otherwise they would all be living in multimillion dollar mansions and driving Ferraris!

The only thing we can do is assess the economic factors and key drivers which increase property prices in each cycle. Below is an outline of the factors affecting the economy and the property market.

1. The Australian Economy
The Australian economy came back to life earlier this year after modest gains in 2009 and a largely contracting 2008. It now seems to have stabilized slightly, possibly because of the 7 interest rate rises in the last year! There are other factors as well, the mining sector has lost some confidence because of the so called ‘resources super tax’ but Julia Gillard has quashed talk of that recently anyway.

There has also been concern about the European Debt Crisis with Hungry joining the party recently, and the world markets, including Australia, have taken a hit over the last few weeks. With it, the Australian dollar has also plummeted, so we are by no means ‘home free'. Although, there is the feeling that even if things do get worse, if any country can withstand it, it is Australia.

With all that said, the Australian economy's vital signs are healthy and it is performing much better than anyone would have expected this time last year. Ultimately, indicators like strong employment levels, wage and productivity growth and manageable inflation, drive confidence levels and the demand for goods, including property.


2. Increased Demand and Lack of Housing Supply
Record levels of net migration into Melbourne over the last few years along with the only baby boom since, well, the baby boomers, has seen the population of Melbourne rise significantly. Unfortunately this has not resulted in the construction of more dwellings, leaving an ever growing shortfall of property in the urban areas.

There are many reasons for this, land banking (where developers and governments don’t release land so as to increase the price of existing land, therefore the land they hold ), red tape from the local councils slowing down the development approval process, tighter lending conditions and a lack of infrastructure in the key areas, just to name a few

The conclusion to all this is a shortage of supply and strong continuing demand. Add that to the increasing cost of development, including higher land, infrastructure and building costs, means that the value of new dwellings will have to continue to rise.

There has been a lot of comment on property lately in the newspapers, with constant dribble about how Australian property is unaffordable, when comparing average wages to median property prices. Sure they are less affordable than they used to be in Australia but what about world standards? Are Melbourne properties more expensive, using this comparison, to properties in Western Europe… Paris, London, Munich?


3. Residential Rents
It goes without saying that with the population increasing and no new dwellings being built, this puts pressure on the already tight rental market. The Melbourne rental market has now gone more than 65 months since the vacancy rate tipped over 2% and this looks set to continue until the supply issues are well and truly past us.

With demand for rental properties outstripping supply, rents have increased strongly over the last few years. Record low vacancy rates, fewer investors bringing new properties onto the market and low housing starts, all mean residential rents will rise even further over the next few years.

What now?
The Melbourne property market, by all reports, is 1 year into a 7-10 year cycle, and with the demand and supply issues facing both the rental and sales markets it looks as though we have a few years yet of positive growth ahead of us.

When considering an investment property, there is an old adage that we have modified slightly that we think is the most accurate truism:

“the highest gains in the property market are not made by perfecting
your timing of the market, but rather, your time IN the market”

Although it is true that buying earlier is important, it is also imperative to take your time and select the best performing property that fits into your needs/requirements. Make sure you confirm you are buying at market value (get an independent valuation), the rental returns are at least 4% per annum (ask a local agent to do a rental appraisal) and the property purchase is structured in the best possible way to maximize the tax efficiency (indicative tax depreciation reports are a great start, but most importantly, speak to your Accountant).

Bill Nikolouzakis – Director of Nyko Property.

Nyko Property is a Real Estate Agency that specializes in researching and qualifying new residential projects to investors across Melbourne. With a passion for property investment, the projects they offer are only available through their exclusive partner networks. To find out more about their due diligence process for selecting investment property, or for any questions on this blog, contact Nyko Property on 1300 720 315.