In this issue:

     * Interest Rates Rise… then Tax Cuts for All

     * Understanding How to Use the Internet to Market Property

     * Site of the Month

Interest Rates Rise…  then Tax Cuts for All

The Reserve Bank set a cat among the pigeons by increasing interest rates by .25%.  Most economic forecasters had expected the rate to remain steady until later in the year.  Some commentators have inferred the RBA elected to move earlier than was needed in anticipation of the promised tax cuts in the 2006 Budget, thinking it better to take away (first) and then to give back (later) in the form of tax cuts.  It’s an interesting proposition, and to top it off, the trapped miners and the 2006 budget has taken all the front page coverage since they announced the increase – so it’s all but faded into history.

The budget seems to have been well received by almost everyone.  One would be forgiven for thinking we had an election around the corner.  From the property investor perspective, the shift in tax rates means we will all pay a little less tax – which in turn slightly erodes the attraction of negative gearing (from the tax minimization perspective).  Of course, tax minimization should never be the principal reason for undertaking an investment – but it’s certainly important.  It’s unlikely the changes will have any real impact in the investment arena other than the advantage gained by delaying any sale to the new financial year (so you enjoy lower capital gains tax).

Since Budget Night, we’ve all been bombarded with news flashes showing how much extra we’ll get in our pockets each week if you earn this.., or if you earn that…  Here are the actual rates so you can work it out precisely.  Remember the new rates come into play in the new financial year – just six weeks away.

If you’re using the tables below to calculate your tax, don’t forget to add the additional Medicare levy of 1.5% if it applies to you.

If you’ve already lodged your PAYG variation for the 2007 tax year you may need to re-crunch your numbers.  You’ll probably need to budget a few extra dollars each week to allow for the changed tax rates.  And it will be doubly important you conduct a mid year review (say in February 2007) to guard against having to give money back (or worse being denied a tax variation in the following year).

When we contacted the ATO about the matter they assured us all new applications submitted (from now) would be assessed and approved under the newly announced tax rates.  For those with variations already approved for the 2007 tax year, the ATO will apparently require an additional lodgement in the new financial year – though just how that would work was fairly vague.  Providing you plan to do a mid year review and keep within the guidelines you should be okay.

If you haven’t lodged your PAYG variation yet – get cracking (or it won’t be processed in time for your first pay in July).  You can complete a variation form on-line electronically on the ATO website using this link – www.ato.gov.au/businesses/content.asp?doc=/content/6650.htm and there is a raft of information on the main website about PAYG Withholding Variations and how to do it yourself at www.ato.gov.au  

At the end of the day, if you have any concerns – talk to your accountant.

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Understanding How to Use the Internet to Market Property

Without any doubt, the internet is impacting almost every area of our society.    Many routine activities have changed significantly, and one of those activities is the way we buy and sell real estate.   

Currently, a lot of sellers are spending a substantial amount of money on advertising and getting less than positive results.  There are many sellers (and even real estate agents) using “old world” techniques in a “new world” market place – probably because “that’s how we’ve always done it”. 

The last three years have seen a substantial change in the way people buy real estate. Studies show

• buyers now spend more time in research and less time with agents
• they look at fewer properties before they buy, and
• (importantly) they still rely on agents to actually purchase.

In the last two quarters our own experience within In-House Realty has shown the internet accounting for around 60% of first contact with buyers, but 100% of buyers we had contact with were using the internet as a means of searching for properties.

The increasing propensity for buyers to use the internet as a research tool is unmistakable, but the fact they are using it is just the tip of the iceberg.  As mentioned earlier, the internet is also impacting the way they buy.  It impacts upon the number of properties they will actually look at before making a purchase and the amount of time they spend with agents before making a buying decision.

Traditional buyers will spend approximately

• 1.6 weeks investigating homes before contacting a real estate agent, then,
• spend an average of 7.1 weeks working with the agent/s to find a home.

In comparison, the internet buyer will spend about

• 4.8 weeks on market research before contacting an agent, and just
• 1.9 weeks before buying.

The net result is that the traditional buyer will inspect an average of 15.4 homes before they make a purchase while the internet buyer will average just 6.1

For a seller, these changes in buyer habits mean that if their property is not effectively marketed on the internet, the modern buyer may miss it completely, or may filter it out if the advertising does not fulfil certain criteria.  Subsequently they disregard it and never make it to an inspection.

It is important to note that a buyer will eventually contact an agent.

Buyers will use the internet to a point, but they are still reliant on a salesperson to purchase a home. Real estate salespeople need to be highly skilled in internet advertising and understand the intricacies of this medium. They must have a detailed knowledge of their market (because the buyer will); they must be able to build value and develop urgency to create the sale; and they must be expert negotiators to optimise a seller’s price.

The choice of agent is probably still the most important decision to be made when selling property. The right agent will be able to demonstrate high levels of competency with

• Technical knowledge of sales activity in your specific  product / market mix,
• An understanding of the changed buying process and buyer psyche,
• Marketing expertise - optimising your advertising dollar (including a sound knowledge of what works and what doesn’t, plus weekly statistical reporting to monitor your marketing campaign), and
• Negotiation skills – to convert enquiry into sales

The single biggest risk for sellers (and agents) is failure to fully appreciate that the real estate buyer has changed its modus operandi.  For the seller the first choice is always choosing a skilled agent, but now that ‘skill set’ must include an understanding and ability to maximize the use of the internet for the seller’s benefit.

Buyers are far more educated than they have ever been.  As a seller, you must make sure they are not more educated than your agent.

[The Full Report prepared by Mal Cayley is available to be downloaded from our Web Site – www.investmenthouse.com.au (On the left hand menu please click the "Newsletter and Reports" link).

Mal Cayley is the Sales Manager of the Real Estate arm within the Investment House group of companies – In-House Realty.  He is highly regarded within the industry for his negotiating expertise, and has won numerous sales awards from his personal sales production. 

Mal can be contacted at mal@in-houserealty.com.au or 0421-383-599.]

1.  Citigroup Smith Barney, 2. Research by Property Finder, October 2005, 3. Neilson Netratings, May 2005, 4. realestate.com.au, February 2006, 5. ABS internet activity survey August 2005

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Site of the Month

The site of the month for April is a house and land deal in the suburb of Graceville, approximately 6km south-west of the Brisbane CBD.

Over the past 6 months, during what has been a relatively slow period (in both turnover and growth) for inner-ring Brisbane property, the river pocket suburbs of Graceville, Sherwood, and Chelmer have been performing very well. This might have something to do with the natural geography and amenity of the area: although the area is very close to the CBD (and well serviced by both rail and bus) these suburbs have a distinctive ‘enclave’ feel.  

What really strikes you is just how strong the area’s ‘neighbourhood’ appeal is: wide flat streets lined with a pleasant mix of both contemporary and restored housing, as well as thriving local retail strips. The area just seems perfect for families, a quality that is becoming progressively more difficult to find in a market where traditional suburbs are being transformed.

Which brings us to the site of the month...

This site is a 405m2 block of land in one of Graceville’s more modern streets. To the right of the block were 4 new homes (pictured). This property caught our attention because it seemed so neat, so we had to move quickly. Within 24 hours of sourcing the listing we had visited the site, rung council and did background checks, completed our initial feasibilities and had gone into negotiations for the block.  We managed to secure the property for $277,000.  There’s nothing spectacular about the price – it’s about right.  So here’s one we didn’t steal.

The beauty of this site is its simplicity and security.  One of the new homes mentioned above (2 doors down from the subject site) had sold the week before for $687,000.  This site had been cleared and was flat, meaning we could easily calculate construction costs as well as save on demolition and retaining. All services had also been connected. The icing on the cake was that the site wasn’t in a Demolition Control Precinct.

This means we can move to build quickly and without having to deal with council red-tape, lessening construction time and thus saving a considerable amount of money in holding costs.

The project nets over $50,000 using an estimated resale of only $670,000.

This is unique in that the site is ready to go, isn’t subject to council-meddling, and offers us recent and very accurate resale evidence. In essence, not much of the risk, but all of the reward!

If you are looking to invest in a project like this one, please contact Marco Mendes (our Research Manager) at marco@investmenthouse.com.au or any of our team on 07-3369-0111.

Disclaimer

All information in this report is general information only. Nothing in this report is meant to be specific investment advice, nor should you treat it as such. Everyone's individual circumstances will vary widely and you must seek advice from your own independent licensed investment adviser before investing into any form of investment. Investment House, its employees and representatives take no responsibility for the result of any actions taken by the readers of this report.

Investment House and its related businesses makes no representation and gives no warranty as to the accuracy of the information in this document and accepts no liability for any errors, misprints or omission herein (whether negligent or otherwise).