Budget advances loom as spent unit

Peter Cameron, 3 July 2008

The property industry is about to turn into blind man's bluff as banks reaffirm the warning interest rates will rise in August or September.

Forget about buying off-the-plan with a small deposit and waiting a few years to score capital gain.

The interest rates pickle soured by council rate increases and salty property valuations is about to negate mortgage and stamp duty delicacies released in last month's Queensland Budget.

The property price spiral not only flattened out under pressure from the reasons above, but has dived 15 per cent and more in some crucial markets in, say, Sydney.

The interest rate business slid under the table when the Reserve Bank sat tightly during its monthly review and spared punters an immediate increase.

But as most home mortgagees will tell you the Reserve Bank does not call all the shots any more when it comes to the price of money.

The RBA may adjust cash rates by only a quarter of 1 per cent but, lo and behold, innovative private bankers have found out they can charge more for home loans.

They have to protect their profit margins, you know.

So the next 0.25 per cent cash-rate increase in August-September may translate to a 0.3 or even a 0.4 per cent slug by the time it reaches the home loans desks.

With the average bank housing rate hovering around 9.57 per cent it is a given the dreaded 10 per cent mortgage mark is just around the corner.

Real handy if you were considering borrowing to buy an inner-city apartment in Brisbane where some of the recent council rate rises are expected to hit as much as 800 per cent!

State Treasurer Andrew Fraser abolished mortgage duty from Tuesday and stamp duty on property sales will be scaled back to zero for first-home buyers paying less than $500,000 after September 1.

There also was some good news for commercial and investment real estate priced up to $590,000. State stamp duty decreased.

Prime Minister Kevin Rudd also threw his two bobs' worth into the property pot. The PM is proposing a national, digital conveyancing system to reduce fees incurred in the buying and selling of real estate.

But conveyancing expert Warren Wood from Carter Capner law group warned many buyers would finish in a worse or only a marginally better financial position from the stamp duty reform.

"On a $300,000 investment property the duty of $8925 yields a saving of only $50," he said.

As Treasurer Fraser conceded on Budget day property high rollers will take a bath. The $2 million apartment with swimming pool will incur an extra $8200 in stamp duty at sale time.

So much for political muscle. Neither the Fraser nor Rudd reforms are going to penetrate the free enterprise machinery in real estate any faster than they will make inroads on rising petrol prices.

Loan demand is down 50 per cent with some Gold Coast banks in the past two months.

The end of the financial year always is tough for business. Not helped either by crunches on the sharemarket. But a halving in loan demand is on the extreme end of tough.

Mr Wood also told The Gold Coast Bulletin bank valuations on properties were becoming more and more conservative.

Buyers hoping to secure a $400,000 bank mortgage on an apartment or house on sale for $500,000 are finding they have to try to talk the price down.

The bank's valuation is suddenly less than $450,000 and only 80 per cent of the amount can be borrowed in most cases.

True, punters will save $860 in mortgage duty on a $500,000 purchase from Tuesday.

But if bank valuations are less sympathetic and the cost of a mortgage rises through an August or September interest rate increase then the blind man's bluff in sale negotiations becomes a reality.

Many solicitors report the bulk of suburban property sales remains in the band between high $200,000s and low $400,000s.

But in some suburbs the average price for a property is closer to $800,000, translating to an $550 increase in stamp duty.

So here is the trick. If you must invest in property then reinvent ourselves as first-home buyers. Then grab the $7000 federal grant. Wait until September 1 and save thousands on state stamp duty as well as mortgage fees. Take your bank manager to dinner and see if he can swing a mortgage lower than the next interest rate rise.

Above all, swerve Brisbane and those apartments facing council rate increases worth hundreds of per cent.

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Budget advances loom as spent unit

Peter Cameron, 3 July 2008