Power Realty, News

PROPERTY INVESTMENT SHOULD BE SEEN AS LONG TERM

As the end of the financial year approaches you might see an increasing number of tax effective get-rich-quick schemes trying to grab your attention before 30 June. Some schemes might involve property.

There's good reason to be confident about property investment. While the boom of the last few years is clearly over, reasonable demand continues to challenge supply ensuring the need for homes, rental accommodation and commercial premises remains strong. However, to be successful with property, investors need to accept that it's generally a long term proposition.

REIWA records show that the local property market goes through a growth spurt every five to seven years, and you might expect to enjoy the rewards of at least one boom if you plan with this in mind.

However, any promotion that projects very high property gains over a short period should be studied carefully. It is advisable to obtain independent advice regarding property valuations and income projections.

Some promotions involve the sale of property interstate. If you are serious about interstate investments then you really should inspect the properties personally and get local, independent advice on valuations and state of the market. Managed investment schemes involving rental property with guaranteed lease-back arrangements are popular because they provide security of income. They are also strictly controlled by government regulations. There is usually plenty of legal paperwork associated with managed investment schemes and it's best to get professional legal help to explain the various fees and income flows.

An important consideration is the re-sale process of a share in a managed investment scheme. Check if there is a time limit on the resale and if it requires a prospectus to be issued.

Some properties are sold off-the-plan, meaning a contract to buy a property is entered into before the dwelling is completed. Often these sales are direct from the developer. If you are unfamiliar with the developer it's wise to check on their previous projects, including the quality of construction.

If buying off-the-plan, you should scrutinise the contract for any sunset clauses. These are clauses that allow the seller to withdraw from the sale if your settlement cannot be reached by a certain time.

One of the reasons that property remains a popular investment is because it provides investors with the capacity to claim significant tax deductions. However, tax considerations should not be the overriding objective of any investment. The property investor should be guided primarily by growth in values over the long run with regular rental income.

The successful property investor would have researched the market and made informed decisions. This should involve thorough property inspections and familiarity with the market values and historical trends that REIWA and its agents can provide.

Derived from REIWA News and Feature Articles 16 June 08 Article added by: Communications

UNDERSTANDING MARKET JARGON

News reporting on the property market has developed a bit like reporting on financial markets, with an increasing use of jargon. However, most of it is fairly simply to follow once you take a moment to think about it, so this column is designed to help demystify some of the more common terms.

MEDIAN PRICE:

The mid point for a range of property values that are ranked from the lowest to highest in price. For example, if there are five sales in a sample ranked from cheapest to most expensive, the median is sale number three. REIWA uses the median price as a better way to gauge a market, rather than using the average price which can be easily skewed by a larger number of high or low sale prices.

VACANCY RATE:

The proportion of rental properties that are unoccupied. A high vacancy rate is better for tenants, giving them more choice. A low vacancy rate means things are tight and generally puts upward pressure on rents. The vacancy rate can be used to indicate if the overall supply of housing is meeting demand.

CAPITAL GROWTH:

The increase in the value of a property. The capital gain is the difference between the purchase price and the selling price. It is used primarily for income tax calculations.

INVESTMENT RETURN:

The combination of capital growth and the net income derived from property ownership.

GROSS RENTAL YIELD:

An equation used to compare rental returns. Its calculated by dividing the annual rental return by the price of the property and then multiplying that result by 100. This can help you compare the rental yields from different properties with different values and rental returns.

The rental yield tends to go down as the price of the properties rise. Investors are generally looking for higher gross rental yields.

TITLE:

The ownership of a property, or document showing evidence of ownership. In WA the most common form in the residential market is known as Green Title.

This is usually a traditional bock of land not affected by owners of adjoining properties.

STRATA TITLE:

This is different to Green Title because it covers land that is shared by owners of adjoining strata titles. Shared land is known as common property.

Strata title dwellings in Perth are more commonly places such as villas, units and townhouses which have a common driveway.

R-CODES:

The name for the residential housing density codes, describing the average land area required for construction of a dwelling on a block of land. R-Codes are referred to by developers when considering redevelopments.

To calculate the land areas which apply to each R-Code simply divide 10,000 by the R-Code. For example, the common R-20 zoning in Perth would require 500sqm of land for each dwelling.


Derived from REIWA News and Feature Articles 19 April 08