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First homebuyers caught in a bottleneck?

AngryHenry 13 July 2009 69

I’m currently trying to break into the housing market, this weekend we put down another offer on a house that ended up going for much higher than the advertised price and effectively found ourselves in another ‘Claytons’s Auction’ (the auction you have when you’re not having an auction). Whilst unable to confirm a final price I have a fair idea it was possibly $40 – $50k in excess of the price the property was advertised at. So why advertise it at that price in the first place? We are talking close to half a million dollars for a place that was in Kambah, and not a decent part of Kambah either.

Now I could be wrong but if the price being offered to pay for the house is in substantially in excess of what the bank values the property at doesn’t that mean that the loan won’t be approved? Is this because if the person all of a sudden can’t afford to make the repayment then the bank wont be able to sell the place and make back the money they need to in order to cover the loan amount?

It’s this damn first homebuyers grant. Because of it supply does not match demand and suddenly people are competing to enter a maket that they may not necessarily be able to remain a part of once interests rates rise and their repayments all of a sudden increase. Perhaps at that stage their loss will be my gain. Although I don’t forsee prices actually dropping in the near future.

Agents should start to realise that all of us going to these open homes are starting to become familiar with one another (I have seen several people numerous times at different exhibitions). The other day I was told my offer on a property was the third highest and later ran into some people at another exhibition that also put in an offer on the same place and were told exactly the same thing. Clearly we were being lied to, I am not naive in that I know real estate agents cannot be trusted no matter how nice they seem. 

I just find the whole experience at the moment quite demoralising.

Still if you’re in a posititon to sell your property and make a decent profit on your investment good on you!

Circle of life, hakunah matada and all that.


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69 Responses to First homebuyers caught in a bottleneck?
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MrPC MrPC 7:36 pm 15 Jul 09

@#63 screaming banshee

Are you serious. 1 bed units in a ‘relatively’ good part of queanbeyan could be purchased in 2001 for between $20-30k, and now sell for $140-160K. In the last 6-9 months they’ve still seen an increase. Now it probably wont continue in these leaps and bounds but depreciate….never.

Every building has a lifespan. A unit (and a house) will have to be demolished at the end of its life. Usually you can’t sell them when they are that run down, so the prices will look like they are increasing but it all comes crashing down in reality (eventually).

When you have a house, and it reaches end of life and gets demolished, you still have the land, and can build again without paying very much.

When you have a unit, and it reaches end of life and the building is demolished, you don’t have much of anything except paper.

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 4:53 pm 15 Jul 09

Stamp duty is only a small percentage of the cost of a property. It needs to be factored in, but shouldn’t be a deal maker or breaker.

Demosthenes Demosthenes 4:21 pm 15 Jul 09

what’s current stamp duty like in Canberra? we’re looking at getting in on a small investment to get started with a 1BR or studio apartment – but stamp duty seems to be a killer, so we’re thinking of just keep renting in Canberra and invest elsewhere like Melbourne where the government doesn’t have such a big ‘Arts Quota’ to fund at our expense.

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 9:04 am 15 Jul 09

I’ve posted this before, but I’ll say it again because it relates to the discussion.

If you have a look at many parts of Europe, especially big cities, property is waaay too expensive for the average joe to own. Instead, most people rent, and tenants have long leases and lots of rights. I wouldn’t be surprised if we see this in major Australian cities within a couple of generations.

trevar trevar 8:25 am 15 Jul 09

Joshua said :

Trevar, I think all it would take for a crash is for banks to be forced to tighten lending standards. At the moment buyers especially first home buyers are borrowing in excess of 90% of the value of the house. Most of that borrowed money comes from overseas. If that pipeline of money is shutoff and banks are forced to require deposits closer to 50% of the house value then you wouldn’t see nearly as many $500K homes being sold.

Well, that’s right too, but equally unlikely, because it’s not consistent with the principle of a free market.

Another way to rectify the situation would be for the government to employ a very socialist idea and take possession of all real estate in the country, then redistribute it arbitrarily according to family size (ie. the biggest families get the biggest houses in the country, with all citizens ranked by weight or height or something). Then the free market could be restored with the wealth redistributed… (and although I’m being sarcastic I think this would be an interesting experiment (as long as it was not carried out in a market where I own property))

Alternatively, we could just suck it up and accept that the real estate market isn’t fair, but does reflect our values. We pay the amount we pay for housing because we value it, and we would probably continue to pay that even if prices doubled again in the next few years. Most of us are still buying petrol aren’t we?

Short of a major paradigm revolution, the only solution to the problem is to lower our expectations in order to avoid disappointment.

toriness toriness 6:40 am 15 Jul 09

2001 (and the years surrounding) were special times though. i decided to not put an offer in on a house in o’connor going for $200k in 2001. christ what that place would be worth now. i have not stopped kicking myself!!!

screaming banshee screaming banshee 9:57 pm 14 Jul 09

MrPC said :

@41 I-filed

Mr PC why don’t you consider buying a unit in Queanbo and renting it out and doing the tax thing, then sell when you are in a position to live in a property you are buying?

Units in Queens have the noisy neighbour factor, plus the depreciation factor.

Are you serious. 1 bed units in a ‘relatively’ good part of queanbeyan could be purchased in 2001 for between $20-30k, and now sell for $140-160K. In the last 6-9 months they’ve still seen an increase. Now it probably wont continue in these leaps and bounds but depreciate….never.

I just wish I had the knowledge I have now to have invested back then.

MrPC MrPC 7:24 pm 14 Jul 09

@41 I-filed

Mr PC why don’t you consider buying a unit in Queanbo and renting it out and doing the tax thing, then sell when you are in a position to live in a property you are buying?

Units in Queens have the noisy neighbour factor, plus the depreciation factor.

It doesn’t sound as though you’ve taken transport costs from Goulburn into account! If you’re happy to drive though, go west rather than Marulan? Harden is pretty cheap!

Sure I have. My dinky little festiva sips the petrol and it’d cost $20 for a return trip (fuel only). 5 days a week of commuting works out at $100 a week, vs $30 a week commuting from Tuggeranong. Subletting in Canberra is $150 a week. That means I’ll still be $80/wk better off (#4k/yr) which would cover council rates and misc house maintenance, which I don’t pay for when subletting or renting.

The $15k/yr that I am able to put aside for savings would go into the mini-mortgage instead.

Incidentally it’s not significantly more expensive paying for petrol from Goulburn than paying for the bus from Queanbeyan. Also, both take about an hour to get into Canberra.

JC JC 4:22 pm 14 Jul 09

VYBerlinaV8_the_one_they_all_copy said :

Very true, but provided my tenants are covering the cost of holding the property (maybe even with some $$ left over), does it really matter if the value fluctuates in the short to medium term.

As I said previously, I think the sub $500k market will soften later this year, and over the next few years won’t necessarily rise much.

Miz – I can understand how you seem to be stuck at the moment. However if you have 3 teens, then presumably within 5-10 years you won’t have any kids living at home to support, and as such will have more disposable income. Perhaps then you will be able to purchase a home (especially since you won’t need as much space). Best of luck.

The problem comes about where someone pays a high price for a place at a time of low interest rates. As the rates go up prices will come down as will demand fall. If the person stretched themselves when they first brought they might not be able to afford the higher repayments, then have to default on the bank only to find they are now in a negative equity situation, howing a shite tin of money with nothing to show for it.

AG Canberra AG Canberra 3:55 pm 14 Jul 09

Good agents are like good mechanics – don’t ever lose contact with them! And don’t be afraid to negotiate – relo’s put up a place for sale and asked for proposals from three agents – letting each know that they were comepting with two others. The proposals all varied but the choice was made on “bang for bucks” – and the house sold the week before the auction at a premium to what they were expecting. Since then other family members have used the same agent….

peterh peterh 1:17 pm 14 Jul 09

when we bought our house, we had access to the 1st home buyers grant. We weren’t aware that you were paid the grant after settlement, not before. There was a bit of juggling to ensure that the amount we paid was met by our own finances. We were a dual income at the time, and were able to save one wage for purchases.

Now, on a single income, we save exactly half my income, live frugally, and were able to save enough to buy our new house. The deposit came from savings, the mortgage will be exactly double our existing one, and we are v happy with the price we are paying. This isn’t to say that we don’t spend $2.50 at maccas for an icecream cone each, once a month. The kids look forward to this event. So do I.

My mother worked for many years as an agent. I got the chance to see the other side, and know that in canberra, if you find a decent agent, keep in touch with them. They will appreciate your business, and will be better motivated to help you out.

Joshua Joshua 12:36 pm 14 Jul 09

trevar said :

I don’t think you’re far wrong, although I doubt a crash is possible. Firstly, no one seems to even consider the effect of increasing demand on prices (thus it would take a coordinated boycott of the market to trigger a crash), and secondly, rentals are so overpriced, it’s barely possible. I can only think of two ways a crash could be triggered, which are for a large proportion of the populace to suddenly leave the country (which would require real estate to suddenly become much cheaper in New Zealand) or for a large proportion to give up, buy caravans and go squat in National Parks. I don’t think either possibility is likely in the next few decades.

Trevar, I think all it would take for a crash is for banks to be forced to tighten lending standards. At the moment buyers especially first home buyers are borrowing in excess of 90% of the value of the house. Most of that borrowed money comes from overseas. If that pipeline of money is shutoff and banks are forced to require deposits closer to 50% of the house value then you wouldn’t see nearly as many $500K homes being sold.

Timberwolf65 Timberwolf65 11:37 am 14 Jul 09

Good on you Peewee Slasher you did it the smart way by the sounds of things.

We were lucky, We actually had a family friend who was in real estate and he would look out for good deals for us. We ended up buying a house in Kambah in 1996 for very little (it was a shitbox too) and over the course of 5 years we slowly re-did everything inside and the yards.

When we sold it we made a really good profit and was able to buy a better house else where in 2002 just before prices went coo coo. We are now slowly doing things to this house to make it our own. I wouldn’t like having to buy a house these days, it’s too hard.

Good luck Angry, you have to be one step ahead of those agents.

Peewee Slasher Peewee Slasher 11:22 am 14 Jul 09

miz. #30. for the sake of clarity, here is my experience.

Spent 12 years renting Housing Trust/commission homes. Got rejected by teh Housing Trust in Canberra becasue I earned $10 more than the cutoff, even though I had waited 3 years and earned less during that time. Fair enough. I then committed to buying a house. Spent 1 and 1/2 years being rejected by major banks. Entry level was $90k (perspective please). I approached a number of builders and asked what was the cheapest home they were building. Most laughed at me, when I said I could only afford $85k. Some were rude.

Finally one builder who saw an opportunity and asked me what I didn’t want in my house (work I could arrange privately, like painting or concreting of driveway, even a different clothes line or garden shed).

During the 1 & 1/2 years preceding I got a night job to save the deposit. Absolutely no extra spending than I needed. My kids were still fed and well dressed. They just didn’t get the usual takeaway food that many families buy.

I convinced the bank that the deposit was enough and the house value was right and got my first loan.

I didn’t feel like I was comfortable in the money until 10 years later.

Now 20 years later, I own the house and still live in it. It is top grade with love and care devoted to it. I didn’t run off and buy a McMansion when the money came good.

For me, it’s about values, a decent house which becomes a home and raising the kids with understanding. They didn’t go on the school trip to Japan, but they sure know about teh Canberra region and it’s bushwalking places. They’re grown up and left now. They say it was a good upbringing and understand the real value of money and what’s reasonable.

I do sympathise with your situation and can only say, make your plans and stick to them.

Good luck.

AngryHenry AngryHenry 9:52 am 14 Jul 09

Australianliberalist said :

Growling Ferret…”Real estate agents are sh*tbags. Everyone knows that” is a ridiculous comment, especially in these circumstances becasue it is the agents job to work for the owner. The agent in this instance is doing exactly what he is paid to do.

Then he/she is being paid to be a sh*tbag Australian Liberalist. Some bags are just bigger than others.

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 9:50 am 14 Jul 09

Interesting, that quote was actually from JC…

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 9:48 am 14 Jul 09

Quite true, though someone needs to be careful if they buy something when the market is high and likley to drop. If prices drop then the person who brought the place could end up in a negative equity situation. The bank won’t care so long as you still make repayments, but if you stop and they sell the place than you will still owe the shortfall on price.

Very true, but provided my tenants are covering the cost of holding the property (maybe even with some $$ left over), does it really matter if the value fluctuates in the short to medium term.

As I said previously, I think the sub $500k market will soften later this year, and over the next few years won’t necessarily rise much.

Miz – I can understand how you seem to be stuck at the moment. However if you have 3 teens, then presumably within 5-10 years you won’t have any kids living at home to support, and as such will have more disposable income. Perhaps then you will be able to purchase a home (especially since you won’t need as much space). Best of luck.

hellspice hellspice 9:33 am 14 Jul 09

SpellingAndGrammar said :

Australianliberalist, you must be a real estate agent! I’ve certainly yet to meet one who wasn’t a sh*tbag, including my father’s wife!

+1

trevar trevar 8:54 am 14 Jul 09

gomer said :

I believe we have an Australian real estate ponzi scheme and if new generations decide they aren’t willing to pay as much it will trigger a crash.

I don’t think you’re far wrong, although I doubt a crash is possible. Firstly, no one seems to even consider the effect of increasing demand on prices (thus it would take a coordinated boycott of the market to trigger a crash), and secondly, rentals are so overpriced, it’s barely possible. I can only think of two ways a crash could be triggered, which are for a large proportion of the populace to suddenly leave the country (which would require real estate to suddenly become much cheaper in New Zealand) or for a large proportion to give up, buy caravans and go squat in National Parks. I don’t think either possibility is likely in the next few decades.

gomer gomer 5:05 am 14 Jul 09

Real estate agents are no different to other salespeople in the techniques used to get better prices. Here are some good lines that may or may not be true.
– we have a better offer can you do better
– the vendor/my manager isn’t happy with this offer
– this is a unique property/car
– you might miss out if you leave it too long
It’s frightening to see your intelligent friends/relatives get suckered in by these techniques. They sure do work.

I believe we have an Australian real estate ponzi scheme and if new generations decide they aren’t willing to pay as much it will trigger a crash.

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