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Author Antony Cohen

It looks like the bottom of the property market is behind us – indicating that property prices are on the rise. Now is the right time to buy, before the property market recovers even further. However, buying the right property is essential, as purchasing poorly has dire financial consequences. We’ve recently welcomed Mark Brilliant to the team as Director of Buying & Advisory. He’s here to help you make the best buying decisions possible to enhance your investment portfolio.
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During the month with this change in market sentiment in mind, we advised a client who had contracted to sell a property in Brunswick subject to finance to take a risk by declining the buyers request to extend the time available to secure finance
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Often we spend significant time and effort and engage professional assistance to choose, acquire, manage and account for our household investments. In our experience, we almost never spend the same amount of time thinking about what makes our home a great financial investment as we do thinking about what makes it a great lifestyle investment (North facing garden, etc).
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When listing a property for sale, conventional real estate agents usually require landlords to pay in advance for advertising and marketing. This restricts cash flow until the sale settles and proceeds are received. If the property doesn’t sell then the cost of advertising and marketing has to be worn by the landlord – resulting in a substantial loss without any benefit whatsoever. LongView believes this is entirely unacceptable and has a solution. LongView cuts any up-front payment to less than 20% of the cost of the advertising and marketing. No further payment has to be made if the property doesn’t sell. This reduces the cost of a failed sale campaign by over 80%…..
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How banking misconduct relates to conventional real estate…… Bank lending rules have become stricter as a result of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. This is likely to continue affecting the price of residential real estate. As well as its influence on the market, there are some strong parallels between the Commission’s reporting on banking misconduct and equivalent behaviour in the real estate industry. The following table compares four points made in the report’s introduction to conventional practices in real estate industry and the LongView approach.
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A recent article published by Jon Giann1, Director at Knowledge Source, shows that while all the headlines shout that the property market in Australia is in decline, this masks the fact that the majority of the market is still growing, with some parts even going ‘gang busters’.

Before getting into the detailed analysis there are two points to make according to Jon: “Firstly we have had seven property market declines in the past 30 years, so one every four years or so. The property market moves in cycles.” Secondly, this current decline is so far, one of the “tamest cyclical downturns in history”.

The property market is divided into the following segments: ‘Top End’ – the most expensive 25% of houses, the 50% in the ‘Middle Bracket’ of prices and the 25% which are ‘Cheaper’ properties.

The graph below shows that prices in the Top End are falling. This is what has captured all of the headlines. However, the Middle bracket is still experiencing price increase, albeit at a slower pace. At the same time prices in the Cheaper segment are going strongly.

So while prices are only easing in the Top End segment, they are falling far enough, fast enough that they are pulling down the aggregate numbers and are creating all the media headlines.

Why is this happening?
We think that the key driver of the price decline in the Top End is the tightening of bank lending criteria experienced recently.

We anticipate that with the coming wave of interest only loans switching to principal and interest, we will see the price trend begin to impact on other sectors of the market.

What should you do about it?
Times of higher price volatility present increased opportunities for risk and reward for investors. Make sure you are well informed before progressing with any property decisions – whether that be to buy, sell, hold or refinance.

When the market is in decline there are often good opportunities to buy an investment property or upgrade your home. The reduction in prices at the Top End particularly provides interesting opportunities for long term investment.

Please call Warren Tate (0412 328 072) or Grant Lynch (0408 110 001) to request an assessment of your current property or any property you are considering.

1. Jon Giann, Director at Knowledge Source, Ivanhoe, Victoria.

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