Buying an established home during a “buyers market” period of the property cycle can result in a significantly lower outlay than buying land and building from scratch. Although the inherent land value is similar when compared to similar newly released land, the value of the building is discounted by the market according to its age, accommodation provided and the supply of competing housing stock for sale.

This situation can reverse during a “sellers market” (boom) where demand for land exceeds supply and building costs are also driven higher by the demand/supply imbalance. In addition the delay of purchasing land and building is not an attractive option for purchasers and a “premium” is often paid for established housing during this stage of the property cycle.

As a further consideration, if your property is income producing, you can claim depreciation on buildings as a tax deduction. This deduction can provide a significant boost to after tax returns. Optimum depreciation benefits are obtained from “new” income producing buildings. For residential buildings constructed after 18 July 1985, both capital works allowances and plant & equipment are able to be claimed for depreciation purposes. Even if the original building is older, extensions and renovations/alterations completed subsequent to this date are still able to be depreciated.

Therefore the new v established purchase decision should be made after consideration of the market cycle and the purpose for which the property is acquired.

The latest release of ABS data shows an average increase of 10.9% in values since March 2013 across the 8 Capital Cities with Sydney leading the way. So in a rising market how do you establish market value?

The latest release of ABS data shows an average increase of 10.9% in values since March 2013 across the 8 Capital Cities with Sydney leading the way.

 

So in a rising market how do you establish market value?

Some property investors have recently tested the digital research tools at their disposal such as property value “Guestimates” provided by bank sponsored websites & apps.

These reports are known as AVM’s or Automated Valuation Modelling.

A question which is cropping up more regularly from our clients confused by the outputs from these tools is “How reliable are these numbers?”.

Our clients have reported that after using an AVM as a basis for their bidding guide at auction, the sale price was not even within the range produced by the AVM!

Why? Well, property specific attributes such as condition of the building, building configuration, environmental considerations, redevelopment potential and views etc are typically not available to the AVM hence will produce a result which does not take into account these factors. Further, in rising markets, the delay in reported data has also been providing a misleading outputs for buyers.

Based upon our client feedback, an AVM is no replacement for a Property Valuation completed by a Certified Practising Valuer, which reflects the latest market movements and specific property attributes and remains the strongest tool in a buyers toolkit!

 

During the March quarter there has been a number of media articles reporting a fall in property prices in many residential market segments. The Australian Bureau of Statistics data released on May 2, indicates a weighted average fall in the established house price index for capital cities in the March quarter 2011 being recorded at 1.7%. All capital city prices which are recorded in this index fell apart from Perth & Hobart.

General  market uncertainty in relation to future price direction continues to prevail. Key factors in driving current residential property prices going forward are the prospect of interest rate rises due to higher inflaton, tighter lending policies being adopted by major lenders and general uncertainty in relation to employment.

Coupled with media reports now widely reporting these property price falls, we consider that these factors will be dominant in influencing price momentum in the near term. ie should higher interest rates combine with continued job uncertainty and tougher lending conditions downward momentum in prices could become a reality during 2011.

The extent to which these factors vary in the coming months will determine the decisions of purchasers in a “buyers market” and how quickly this price momentum continues south!