Is Buying a Home the Best Way to Build Wealth?

Posted to Sodahead (9/2/2015) on 10/2/2015
Commenting on "Is Buying a Home the Best Way to Build Wealth?"
http://www.sodahead.com/living/is-buying-a-home-the-best-way-to-build-wealth/question-4698794/

Many people will go to great extent to shop for cheap gadget and yet do not spend enough time to check out details before spending hundreds of thousands of hard earned dollars in real properties.

Several friends have asked me for opinion and advice after they have signed the purchase contracts. My standard response is "I cannot comment on what you have told me, and hope that you've made the right decision". A contract is a legal document, and trying to void one is beyond my scope. It is advisable to seek professional advice before committing, and no point to do so after.

Land appreciates but building depreciates. Every day, land gets more and more scarce, but building becomes older and older. Buying real property with no or little land is spending money on buying "thin air". Unless money is a dirty word and you have plenty to give away to the property developer or real estate agent, DO NOT get yourself that volume of thin air! Make sure that land near waterfront is not newly reclaimed or experiencing movement. Furthermore, properties near busy train stations, shopping centres, and popular schools command a good premium in prices.

Management graduates and staff at larger organisations are likely to have learnt the concept of continuous improvement. Similarly, properties must be maintained and improved continuously so as to minimise deterioration and in many cases, it can result in positive growth in real term.

Sale auction is moving to middle

Posted to The Age (25/11/12) on 30/11/2012 at 4:05 AM
Commenting on "Sale auction is moving to middle"
http://theage.domain.com.au/real-estate-news/sale-action-is-moving-to-middle-20121124-2a0cn.html

The increase in sales by Barry Plant Glen Waverley may not be due to improved market conditions. The Glen Waverley office changed ownership during this year. The previous owner put in more effort in his winning race horse than running the business. Currently, Glen Waverly office belongs to a group who owns several offices; synergy and pooled resources seem to pay off.

Without given a more comprehensive set of statistics, it is difficult to say whether the increase is due to cannibalisation of other real estate companies’ business in the area.

When the boom dies, many smaller agencies had their last grasp of sales by offering extremely competitive commission to vendors, which could also explained lower sales in the previous year by larger companies. These competitors are now history, resulting in "less man more share".

Readers must also take note that there are a lot more houses not sold by auction. Many vendors cannot afford to pay money for an auction campaign which requires more advertising money to get additional exposure in various media. Many vendors are already having trouble to pay their mortgage, let alone advertisement.

Feeling weak (Post 1 of 3 Posts)

Posted to The Age (15/4/2012) on 17/4/2012 at 3:16 AM
Commenting on "Feeling weak"

http://theage.domain.com.au/real-estate-news/feeling-weak-20120414-1x0g2.html

I have written on many occasions, and still believe firmly that the real estate market will not see an upswing until March/April 2013.

The Labor Federal Government, especially Julia Gillard and Wayne Swan are still far too indulged in budget surplus. This is an absolute nonsensical strategy, which basically means collect more money from the people of Australia and cut spending on the people. They cannot have the cake and eat it at the same time. If the surplus money does go back to the people, the budget should be a neutral one - no surplus or deficit.

It is no point to squeeze blood out of rock, the already heavily debt-laden Australians who are facing employment uncertainty. What Australia needs is trade surplus, getting more money to fill the coffers from external sources.

All these create enormous uncertainty for business and property investors, which can lead to further economic downturn especially those states that are not involved in the mining industry.

Australians must also take the blame too by spending more and more on online purchasing from overseas, and swamp the every corner of the Earth creating an outflow of money to other countries. This adds to the burden of trade deficit.

Do not ignore Harvey Norman, David Jones, Myers and the car industry complaining about poor performance in sales. These are the siren warning about disastrous staff sacking, which in turn sets out a chain reaction affecting all other service industries.

Downturn in real estate industry affects a lot of related industries, and the negative effect feedbacks to the real estate loop. Many young people are living like there is no tomorrow; true if they keep sipping coffee the travelling overseas, their hope of owning a house is just pie in the sky.

Rents rise by 13% in sought-after suburb

Posted to The Age (15/2/2012) on 15/2/2012 at 1:48 PM
Commenting on "Rents rise by 13% in sought-after suburbs"
http://theage.domain.com.au/real-estate-news/rents-rise-by-13-in-soughtafter-suburbs-20120213-1t0e7.html

Most people, whether they are renters, owners and investors have not much or no idea at all about the costs of owning and keeping a property. With rising utility charges, rates, land tax, on top of bank interest charges, property owners are in no way laughing to the bank. In fact, the contrary is true.

When one wants to start a business, he/she has to prepare a business plan and many potential wise operators will even attend courses on how to manage business and basic accounting.

A few hundred thousand dollars investment in property is worth more than some small businesses, and yet I have not come across anyone to take the effort to learn about income, expenses, breakeven, small business operation/management, negotiation skill, demography, real estate market trend, etc. Some of the course items mentioned are not rocket science, but only very few real dummies will find these difficult to understand.

If the initial rent charged was low, there is a lot to catch up in rent increase. Investors are not saints, and they need to make a profit to justify their investment. Many properties purchased during the last few years were at highly inflated prices, and the rental return for property investors has been in the red. Unless they are other form of income to cover their shortfall, many will have to sell their investment properties to cut their losses. The cumulative loss is far more than the capital gain in the past few years.

Unfortunately, many investors cannot curb their losses even in the next seven years, unless annual rental increase over this period is at least double that of the inflation rate. By my calculation, some may even have to increase rent by 40% to achieve breakeven.

Risky ride on the vendor-go-round

Posted to The Age (22/1/2012) on 24/1/2012 at 3:46 PM
Commenting on "Risky ride on the vendor-go-round"
http://theage.domain.com.au/real-estate-news/risky-ride-on-the-vendorgoround-20120121-1qbal.html

It is most unfortunate that many vendors and buyers do not take the trouble to learn more about sale / purchase of property and real estate agents' behaviour. Vendor selling a property is in fact conducting a small business, even though the business concern lasts hopefully within days or weeks. Some potential business operators attend related TAFE courses or seminars prior to sinking their hard earned money in for the venture, and yet many property vendors just blindly follow the instructions of the agents or agent representatives. The present property median price of $551,000 is worth more than a small grocery store or milk bar. In order to run a successful business, the operators do need to understand a bit of business plan, marketing, budgeting and decision making.

Analogous to a property buyer, we know that many people shop around for a thousand-dollar fridge and 20-30 thousand-dollar car for days and weeks. However, purchasing a property is very different from these items; there is no warranty period or refund policy. Once purchased, the buyer cannot return the property to the previous owner and ask for a refund if the buyer changes his/her mind. Property buyers must not think that they are expert in this field even if they have sold or purchased several properties before. A good agent or representative is required to sell a property a week or around 40 in a year. This is beyond the capacity of many property investors!

I have written a lot of blogs on this subject matter, and I must reiterate here that real estate agents piggy-back on vendors' advertisements to promote their profile, thus relying on the vendors' advertising expenses.

Sounding out a postcode (Post 2 of 2)

Posted to The Age (27/11/2011) on 6/12/2011 at 9:33 PM
Commenting on "Sounding out a postcode"
http://theage.domain.com.au/real-estate-news/sounding-out-a-postcode-20111126-1o0g5.html

People miss opportunities investing in great properties because they become pessimistic and negative experts due to one-time bad experience, or had been advised by ill-informed gurus, such as close relatives.

Many main roads or suburban train lines are flanked by shops or / and dwellings. The residents may find the traffic noise rather disturbing initially, but they soon get used to it, and accepted subliminally as ambience noise - no difference from having a television or radio being turned on. It is important to remember that most busy roads are not busy during off-peak and that is the time property owners along the main roads wind down or sleep.

A lot of people who have lived in busy cities, and enjoyed the hustle-and-bustle day and night, cannot cope with living in the quiet suburbs which lack night time activities. One of the reasons for the increase in number of city apartments is to cater for people who are used to that kind of life-style in their previous places of residence.

There are always more freeways, ring roads, railway lines and major road extensions on the drawing boards. History will repeat itself; properties in the surrounding areas of the new infrastructure will increase in price, and in some cases, by leaps and bounce.

End 1 of 3


Posted to The Age (27/11/2011) on 6/12/2011 at 9:33 PM

Superstition is another deterrent for some people buying certain properties. The cost of employing a medium to pacify an angry spirit is probably far less than the overall return in investing a way-below market value property. For Feng Shui believers, many features inside and outside the property can be modified so that buckets load of gold nuggets will be rolled in. For major structural issues, a good architect and structural engineer can help remove obstacles which block the God of Wealth coming into the property to deliver the good fortune.

I firmly believe that it is a myth people live under the power line have half-baked brains. If so, why are there no campaign and lobby to have more funding to train extra brain specialists, or build hospitals to deal with rising brain cancers? If so, should we, as mindful bleeding hearts, set aside funds for future claims by all those working in electricity generation power plants, whether powered by coal or nuclear? The power output are thousands of times more than the transmission lines that carry the electricity to our households.

End 2 of 3


Posted to The Age (27/11/2011) on 6/12/2011 at 9:44 PM

Is Sunbury, a suburb near Tullamarine Airport in Melbourne, miles and miles from nowhere? It was, until now. Sunbury was affordable; many people unknown to themselves being wise, with minimum in their pockets, invested in big blocks of land with abundant fresh air. They should be congratulated for making those bold decisions.

More and more people are travelling by plane to far destinations for pleasure now. The time will come when travel by plane to work is a norm. It is not nonsensical if one look at what is happening in Western Australia. In fact, many Southern European workers commute by plane to work in London. I can envision that Tullamarine will be a hub surrounded by more property development.

People living in the flight path are no different from those living on main roads and close to railway lines. For most people, it is a matter of time that noise will become a non-issue.

A point to remember; even the dirtiest and the most stinking house full of cats’ and dogs’ urination smell can attract buyers who previously lived in similar conditions. However, it is true that a clean and well presented property will attract more house hunting visitors, thus increases the chances of having the property sold sooner.

End 3 of 3

The Block unearths home truths about renovation spending

Posted to The Age (5/11/2011) on 6/11/2011 at 11:35 AM
Commenting on "The Block unearths home truths about renovation spending"
http://theage.domain.com.au/real-estate-news/the-block-unearths-home-truths-about-renovation-spending-20111105-1n0qw.html

Posted to The Age (5/11/2011) on 7/11/2011 at 9:50 AM
Commenting on "The Block unearths home truths about renovation spending"
http://theage.domain.com.au/real-estate-news/the-block-unearths-home-truths-about-renovation-spending-20111105-1n0qw.html

I have been writing about the over presumptuous model used by RBA in determining inflation and interest rate. This is why must read the ABS data with great caution, and interpret the underlying trends more carefully.

Read http://sinfongchaneconomy.blogspot.com/2011/10/australian-consumers-starting-to-spend.html and other by the same author.

It is presumptuous that TV program The Block has great influence on renovation resulting in such positive impact on the economy. Insurance claims on damaged properties caused by unseasonal strong winds, storms and floods of previous few months do not get processed overnight. The delay effect comes through likely and coincidentally with the ABS reporting period.

There is another flaw in the data: there is no guarantee that the windfall is derived from retail business data NOT from tradespeople. There are fair amount of unethical practices whereby some tradespeople charge their client 10% less, that is GST not charged, on condition that the clients pay cash instead of by means that the taxman can trace.

I have seen many people over capitalised their properties by being overzealous. It is important to note that many property buyers are buying similar type of properties they were raised in or familiar with. One must not romanticised about living in a weather board home if they have been raised in a brick veneer one during their childhood days. This is the same reason why some buyers over commit themselves in buying big homes because they cannot imagine living in a small one since the day they were born!

Impulse gadget buying - a recipe for disaster

Posted to Sydney Morning Herald (2/11/2011) on 3/11/2011 at 1:15 AM
Commenting on "Impulse gadget buying - a recipe for disaster"
http://www.theage.com.au/digital-life/computers/blogs/gadgets-on-the-go/impulse-gadget-buying--a-recipe-for-disaster-20111102-1murw.html

There's no difference when come to buying or selling property. I am often asked by "friends" what I think of certain properties after they have signed the sale contracts. Unfortunately, many people just want an endorsement rather than an opinion or advice. For the humble ones, I can help them to save or sell for an extra $20,000 to $50,000.

First arcades put the rest in the shade

Posted to The Age (10/10/2011) on 10/10/2011 at 10:00 AM
Commenting on “First arcades put the rest in the shade”
http://theage.domain.com.au/real-estate-news/first-arcades-put-the-rest-in-the-shade-20111007-1lc3d.html

I hope of these magnificent buildings and their verandahs can be enlisted under the National Trust, if they are not at present. I used to live in Carlton during my University days and was glad that it was saved from being declared as a slump. Getting to North Melbourne was a treat, because as a struggling student, we walked to Victorian Market to do our weekly marketing.

Melbourne home buyers paying $90,000 too much – report

Posted to Herald Sun (8/10/2011) on 8/10/2011 at 1:57 AM, 9:38 PM
Commenting on “Melbourne home buyers paying $90,000 too much – report”
http://www.heraldsun.com.au/news/more-news/melbourne-home-buyers-paying-90000-too-much-report/story-fn7x8me2-1226161600542

Many buyers do pay at least 10 to 15% more than they should. They have little or no negotiation skill and are far too eager to offer higher than worth when they see the property that suits their need. Unfortunately, they really think that they become experts in the real estate field after a few months of house hunting, or after a few buying or selling experiences. They forget that an average real estate agent (representative) has to sell/list a property a week to break-even, or about 40 over the year. In good times the number can triple or quadruple.

Just remember, a real estate agent is playing the devil's advocate - he has to sell the property on the behalf of the owner in order to get his commission. In theory he is trying to get as much as possible for the owner (principal). If he is looking after the owner's interest, how can he look after the interest of the buyer at the same time? At best, he achieves a compromise for both parties.

I am neither a buyer advocate nor seller advocate. I guide my "client" at every step of the buying or selling process, including price negotiation. It is more than just naming a price; it is a chess game and requires a lot of crystal ball gazing.

Australian new home sales flat in April

Posted to Adelaide Now (30/5/2011) on 1/6/2011 at 9:31 PM
Commenting on "Australian new home sales flat in April"
http://www.adelaidenow.com.au/money/australian-new-home-sales-flat-in-april/story-e6fredkc-1226065649078

Without government interference, real estate cycle is about 10 years. The fall began in October 2010, will continue to decline reaching the trough in April 2013, roughly 2 and half years. In the meantime save up for a bigger deposit so that you will not become a victim in property ownership!

Read more:
http://SinFongChanRealEstate.blogspot.com

Don't get stung by tax myths

Posted to news.com.au (30/5/2011) on 31/5/2011 at 2:32 AM
Commenting on "Don't get stung by tax myths"
http://www.news.com.au/money/tax-time/the-great-tax-myths/story-fn8qmzek-1226065548422

This is one of the best articles I have ever read.

I would like to add that property investors have to realise if they buy the property when the market is low and you can get a good capital gain in future, then they are smart. If they buy it at the peak and the interest rate is on the rise, then the maintenance or owner’s corporation, land tax, rates and charges will swallow up the rental income resulting in negative return.

One must not expect 100% rental occupancy for the property; otherwise the bank manager will not be happy when they do not receive repayment on time.

In regards to negative gearing, put in simple language, every successful company or business wants to have a healthy income statement or balance sheet; making a loss to offset tax payment just defies good business practice!

Due to privacy legal reasons, no one really knows how many property auctions in recent times are mortgagee auctions, and how many real estate agents are honest enough to tell you have just bought an over-priced property! What is happening now is just history repeating itself.

Just be careful property investors, there are many traps out there!

Read more:
SinFongChanRealEstate.blogspot.com