The debt crisis in Greece, Italy, Ireland and UK could increase borrowing costs for Australia’s banks.

While the global financial crisis forced Australia’s banks to reduce their dependence on international market for financing, some 40 per cent of their funding requirements are still sourced from global markets.KPMG financial services partner Andrew Dickinson said while the banks remain fairly comfortable where they are in their funding programs, the debt exposure in countries such as Greece, Portugal and Spain means any escalation of the crisis could negatively impact Australia’s financial sector.“While Australian banks have improved their funding mix and liquidity since late 2007, they still rely on off shore wholesale funding,” Morgan Stanley analyst Richard Wiles told The Australian Financial Review.

“As such, we will still see higher funding costs as a source of downside risk.”According to Mr Wiles, of all the majors Westpac is the most vulnerable to higher borrowing costs because it has larger financing needs.There is a strong chance these extra costs will be passed on to mortgage borrowers in the short term. CBA announced that the pressure was on their interest rate margins, and “something has to give”. NAB have committed to only moving their rates in line with the RBA.

Why is it that some homes sit on the market for a year while others sell like hot cakes? Frustrated sellers will blame a bad market, while a good real estate professional will tell you that many times, a slow sale is often attributed to the listing price.

If a home is overpriced, buyers will stay away. But, if the price is competitive with similar homes in the area and ‘shows’ better than the competition, it will have a better chance of being sold quickly.

The secret to pricing a property correctly is perfecting the technique of comparative shopping.

Although comparing houses with different styles, square-meteridge and locations is challenging, it’s still one of the best methods to use when determining a home’s market value.

A home’s worth is most effectively evaluated through a process known as Comparative Marketing Analysis. Taking a look at assets, such as a swimming pool, bigger than normal living spaces, a fantastic view, adjacent city parks and other attractions, your home can then be compared with similar properties that have sold in the area within the last six months.

Typically, the agent is able to recommend a realistic price range that will ensure you top dollar and a reasonably good response.

It is suggested that factors such as the amount of time needed to sell your home can alter the agent’s price recommendation dramatically. If you’re under time constraints because of unexpected job changes or moving agreements you’ve made on another property, this will narrow your chances of selling the home for top dollar in the market.

Assuming you have sufficient time to market the home, here are a few small steps you and your agent can take to finding the right price for your property.

* The best comparisons can be made with similar homes that have been sold within the last 45 days. Any longer and other factors, such as the economy, could cloud your view of how much your home is really worth.

* Another good benchmark is to review the selling prices of homes that have just been sold and are pending closes. This is information that most real estate agents should be able to share with you.

* Being open and honest about what you see as the home’s greatest strengths and biggest weaknesses will also help an agent get a better feel for how to best evaluate (or assess) and market your home.

* Think of your home as if you were the buyer. If your home is listed at the right price, you’re well on your way to a speedy and fruitful sale.

* When evaluating development sites you need to remember one key thing – always leave enough in for the other guy. Development is a business, based purely on the numbers, cash on cash return, ROI, annualized return are all important as are risk profiles etc. If you have a property with development potential, you need to start with the end in mind. What is the end product? How much will it sell for?

This figure can be derived by applying the previous process. Once you have established what your end product is and that you have a market simply subtract all expenses. This is where most people go wrong, they are simply not aware of all the costs, more oten than not they under estimate by hundreds of thousands of dollars. This is obviously extremely dangerous and no development should be entered into lightly.

Thorough research and analysis is required, as well as the project needing to be driven hard and on time. As time is money in development and time blow outs will eat into your profits.

The best thing to do is seek professional advice. The team at Plan Assist will help you with any aspect of your real estate needs, visit  www.planassist.com.au

Source: The Australian, Frank Gelber – Economist

WE need to build more housing. A lot more. And we will, but we probably won’t build enough.

There is a severe shortage of stock and that will mean rising prices. The question is by how much they will rise. And how the Reserve Bank contains price rises.

This cycle has a lot longer to run. But already we can see it will be prematurely curtailed by rising interest rates.

The long-awaited property upswing is only now starting. Prices around Australia have risen strongly over the past year.

Forecasts of a collapse have been dismissed. Owner occupiers and investors now regard housing investment as safe.

Concern has swung to the problem of affordability, doubly affected by the combination of rising prices and rising interest rates. But this is just the beginning. Both housing prices and interest rates have a long way to go. And affordability will get a lot worse before this is over.

As prices and interest rates continue to rise, people will need to match their aspirations to what they can afford. Existing homeowners will ride the cycle. Upgraders or downsizers will have the capital gains to help finance the next purchase.

But, as the upswing continues, first-home buyers will buy smaller, perhaps older houses and units in less salubrious suburbs. Some may well be locked out of the market. And as rents continue to rise, investors will return.

Increased prices will stimulate new building. Price rises and volume rises have been a boon for state governments which are heavily reliant on stamp-duty revenues from conveyancing.

Hopefully, they’ll have learned the lesson that they make their money from the volume of transactions rather than by extracting maximum return from each.

If you get too greedy, you affect the volume of sales and revenues fall, not rise. NSW learned this lesson when it killed the goose in the post-2001 housing boom by raising infrastructure charges on new development, thereby putting a floor under housing prices. When the RBA burst the housing price bubble by raising interest rates at the end of 2003, housing prices fell by 10 to 15 per cent. Construction collapsed and NSW has been under-building ever since. That’s why the shortage of stock is so extreme in NSW.

The fall in residential construction over the past decade was a primary reason for the weakness of the NSW economy.

The other player is the RBA, which appears petrified of a housing price bubble and, with prices already rising and about to rise a lot further, the danger is that it will be too aggressive with interest rates. The RBA can stop price rises, but the collateral damage will be on housing construction. It needs to be careful.

This is not about levers and levels. Interest rates are a trigger. For a long time, rising interest rates appear as though they are not working and then, suddenly, the housing market collapses.

We’ve seen this scene played out time and again in Australia.

It’s the shortage of housing, partly caused by the RBA’s 2003 action, that has built up the current latent pressure on housing demand and prices. We don’t want to curtail housing construction: we need the housing.

If we are to stimulate building, further house price rises are inevitable. The real objective is to contain the extent of price rises, keeping housing affordable.

The key is on the supply side. It’s no accident the housing recovery has been strongest in Victoria, where land is relatively cheap and readily available.

Facilitation of medium-density development in inner areas makes sense. We have a ready source of reasonably priced land throughout our inner suburbs and it is already serviced, making it cheaper to develop.

We have a number of excellent examples of residential and mixed-use redevelopment of industrial sites scattered around Australia. So far, too few.

Certainly, we need to build a lot more stock to satisfy demand. And that will entail price rises.

Meanwhile, the RBA will continue raising interest rates as the economy strengthens and, later, to contain emerging demand-inflationary pressures. It would be foolhardy to target the housing sector too aggressively.

We’re building about 140,000 dwellings compared with an underlying demand of 190,000. The shortage is worst in NSW where building is about half that of the underlying demand.

All considered, we think the upswing has another three to four years to run. By then variable housing interest rates will be about 9 per cent. And the downturn will come before there is a surplus of residential stock, particularly in NSW where the shortage is so extreme there won’t be time to build enough. This is the beginning of an upswing that will build momentum into a boom before being cut short by rising rates. We’ve seen it all before.

Having held off raising interest rates in February, the RBA has, as expected, pushed up the official cash rate by 0.25%.

So far 3 out of 4 major banks have mirrored the Reserve Bank with a 0.25% increase to their standard variable rate. CBA now has a standard variable rate of 6.86%, ANZ 6.91%, and Westpac 7.01%. NAB has yet to confirm an increase.

Try this quick exercise:

Work out your future repayments.

Enter your loan amount and an interest rate of at least 7.5%.   Go To Loan Calculator

Make the loan term equal the years remaining on your home loan (so if you have had your loan for five years, change the 30-year term to 25 years).

Is this Comfortable or Scary?

If it looks a bit scary though, it’s time to make some changes.

Know your money habits

You have to first identify your ‘bad’ money habits – the ones that can get you into trouble by overspending. Next, you have to start being strict with yourself on what you can and can’t do.Take action NOW!
Do not wait for rates to become so high you are really starting to stress out – pretend we are in the position now and make adjustments to your life. Your action now will start to safeguard you against the rate rises to come.

You need to be savvy with your money. Do you spend all of your income each month? Is it because it is just there or is it out of necessity? Most of us spend what we earn, no matter how much that is. We often see people with extremely high salaries and no savings – human nature does not seem to change much no matter your financial position. Contact us here for a link if you require one.

It might be time to for a lower interest or a better product to suit your lifestyle. Contact us here. We can help you find out if your current loan is the best for you going forward.

Commonwealth Bank and Westpac have combined to take 80% of credit growth over the six months from March to October 2009. During this period, credit growth had slowed to its lowest level since 1992.

Our domestic banks wrote $53bn of credit, while foreign and regional banks & non-bank lenders reduced their lending by $43bn, netting $10bn increase over the 6 months. Despite the slowing, we may have hit the low point in the credit cycle as there are signs of increased credit growth for Australia in 2010.

What does this signal?
There is a clear lack of competition at the moment. CBA (who own Bankwest, and 33% of Aussie Home Loans) and Westpac (who own St George, Bank of SA, RAMS, Bank of Melbourne) are very dominant in Australia, using their advantage with domestic deposits to provide a cheaper source of money. There was a big flight to deposit safety in banks during the GFC, and overseas money is still expensive for our other lenders who are struggling to compete.  So much for the 4 pillars policy…

Remember, if you are confused which lender to use, Plan Assist have over 21 residential and 12 commercial lenders on their panel providing you with choice to suit any need. Call Anton or Garry with your loan scenarios on 02 9449 2333 for the latest and greatest on lender choice.