Building a house in Queensland

bigbadcon

Hi folks,

I'm wondering if any economics gurus can wave their hands over their crystal ball and tell me if now would be a good or bad time to build a house in Australia.

We are living on the sunshine coast since February and have been paying rent of $505 a week. Here are the reasons we are thinking of building...

Reasons to build:

• Rent is dead money and we could get our own dream home for probably another 100-150 a week.
• We could avail of the 15k first start grant and not have to pay stamp duty also.
• The area we are thinking of building (Kawana/Caloundra) has a massive new hospital being built and looks like it would have great rental potential for the long term if we had to move for work reasons.
• Even if we decided to move back to Ireland (No plans to) we could always rent the house and keep it as our retirement home as we would definitely love to retire here.
• Mortgage interest rates are at an all time low here.
• We are quite sensible with our money so even if interest rates were to go up I think we could still pay them.
• We have PR visas and can see ourselves here for the long term assuming all goes to plan.

Reasons not to build:

• I'm currently working from home for the same company I was in dublin before we left and if I was to ever lose my job we would more than likely have to move to Brisbane as I work in software development and would find it very difficult to find a job on the sunshine coast. This would mean renting our home out. Saying that I have been with them for the last 6 years and business is good at the moment and I wasn't out of work at all throughout the recession.
  
• I have this fear that I'm going to end up like lots of friends of mine owning a home that is massively in negative equity and cant sell it.
• We also own a home in Ireland (which has quite a low mortgage and great tenants at the moment)
• Struggling to think of any other to be honest...

It scares me how comfortable people are in australia about "investment properties" and the recession in Ireland has scared the bejesus out of me.

So I'm hoping to get some advice from anyone who is in the know about the housing market and whether it would be sensible or not to take the plunge over the next year or so.

Any comments would be appreciated.

bigbadcon

Mellor

bigbadcon wrote: »

... a good or bad time to buy a house in Australia.

...

The area we are thinking of building

Buying or building

bigbadcon

Sorry we are thinking of building not buying, thanks for pointing that out.

I cant change the thread title though,maybe a mod could do it for me please?

Mellor

The processes required to build your own home are a lot more convoluted in australia when compared to ireland. Because of that, there are far more ancillary costs associated with it. This might not be something you've allowed for in your rough costs.
Development controls are generally much tighter in populated areas, the house you want, in the place you want, might not be possible- I've no idea what Kawana/Caloundra is like so that may or may not apply. Unless you or your partner is somewhat knowledgeable in the development/construction you'll have to spend a bit before you can even get to the stage where you can start.

bigbadcon

At this stage we have seen tons of display homes and been to a mortgage broker and got cleared for the required amount.

My wifes aunty and uncle have been living in queensland for the last 20 years also and have built a few houses at this stage and they will be a big help when it comes to what questions we need to ask the builders.

The mortgage broker has already given us some realistic figures of the extras that are usually not mentioned by builders such as rendering,landscaping,solicitors and insurances etc so money wise I think we can afford to get what we want but my main worry is that what we want and pay for today might be worth half the money in 5 years time.

I know no one can tell me as you cant predict the future but i'm looking for opinions on what way you think it might go.

Mellor

What about development application, plans, statement of environmental effects, construction certificate, long service levy, basix, any engineering, conditions of consent, and certification.

That's just off the top of my head. Those would all be expenses on top of construction costs. Did the broker include for all of those in the required amount, or was it just construction cost. How did they calculate the amount needed basically.
Don't means to sound negative, just trying to highlight the "hidden" costs

bigbadcon

Hmmm, i'm not sure now what exactly they had included. I might send them an email and double check.

I know they mentioned soil and drainage checks alright and depending on the area you build you might have covenants to follow (fencing must be a particular way etc).

We would be building in an estate and would most likely be buying a block off stockland off a predefined plan from a builder so I dont think architects fees come into it.

Not sure about the other stuff you mentioned and also whether they are all applicable in QLD (long service levy, basix etc)

catbear

Secure citizenship first.

Enter the postcode for your target area here and see what the current vacancy rate is like. http://www.sqmresearch.com.au/graph_vacancy.php?t=1

Now with regards to the long term........

According to the ATO, of the 11,647,00 in the australian workforce, 1.7 million use negative gearing and I don't know how many own multiple properties. Incase you don't know how it works then best have a look at this wiki http://en.wikipedia.org/wiki/Negative_gearing

Negative gearing diverts income tax to cover rental shortfalls and obviously can only be availed of while people are working for a taxable income.
It would seem that people do it as a cheap way invest in property for the capital appreciation, similar to section 23 in Ireland although section 23 was for new builds only whereas NG applies to all property. Both schemes have attracted people into property speculation who otherwise may have just continued saving for their retirement.

Now demographically Australia's babyboomer's are starting to head for retirement which means that they'll have to sell up, as more head for the exit they'll gradually flood for the market and the boomers will become the busters! A good proportion of those negatively geared are boomers.


As for rent being dead money, interest is the rent you pay on the capital you borrow; if the rent you pay is less than the interest it would cost to buy then you're better off renting.

Here are a few web forums that may help your strategy:
australianpropertyforum.com and http://www.macrobusiness.com.au/

If my wife and I are here in the long term we'll probably buy something but primarily as our abode, the investment game here seems way too hot, it's almost a cult. The first few months here we were constantly asked "are you buying" rather than "what you think of Australia so far".

And as for friendly helpful people in the property industry, would you ask a barber if you needed a haircut?

bigbadcon

Thanks for the detailed response catbear, I have some questions each more stupid than the next probably :P...

catbear wrote: »

Secure citizenship first.

Just wondering what advantage citizenship would give us over PR?

catbear wrote: »

Enter the postcode for your target area here and see what the current vacancy rate is like.

Vacancy rate is 0.9 for this area (QLD 4551). Thats good isnt it?

catbear wrote: »

Now demographically Australia's babyboomer's are starting to head for retirement which means that they'll have to sell up, as more head for the exit they'll gradually flood for the market and the boomers will become the busters! A good proportion of those negatively geared are boomers.

When you say they have to sell up do you mean they will be downsizing their homes for retirement??

catbear wrote: »

As for rent being dead money, interest is the rent you pay on the capital you borrow; if the rent you pay is less than the interest it would cost to buy then you're better off renting.

Ok the mortage rate is 4.99% and would cost us $2979 a month meaning to pay a mortgage would cost us $645 a week and we are currently renting at $505 a week so roughly $140 in the difference.

catbear wrote: »

If my wife and I are here in the long term we'll probably buy something but primarily as our abode, the investment game here seems way too hot, it's almost a cult. The first few months here we were constantly asked "are you buying" rather than "what you think of Australia so far".

We have no intention of building just to rent, we would definitely be looking to live here for as long as we can and would only rent if we had to move for work reasons.

Thanks for the help...

Mellor

bigbadcon wrote: »

Hmmm, i'm not sure now what exactly they had included. I might send them an email and double check.

I know they mentioned soil and drainage checks alright and depending on the area you build you might have covenants to follow (fencing must be a particular way etc).

We would be building in an estate and would most likely be buying a block off stockland off a predefined plan from a builder so I dont think architects fees come into it.

Not sure about the other stuff you mentioned and also whether they are all applicable in QLD (long service levy, basix etc)

Pretty sure Long service levy is nationwide. It's definitely in queenland though. See QLeave. It's currently 0.525%, so you are only talking about a fee thousand more but these costs add up.

Basix is used in NSW, is Qld it'll be a BER/HER rating. Straight forward, but again could be an extra cost.

Depending on what you mean by predefined plan, the builder/developer might have already taken the property through the council, and has paid for a lot of the items I mentioned.

catbear

Just wondering what advantage citizenship would give us over PR?
With citizenship you don't have to worry about "right to return visa's etc", on PR you have to spend at least two years of PR in Australia to qualify for a right to return. http://www.immi.gov.au/migrants/residents/155/

Vacancy rate is 0.9 for this area (QLD 4551). Thats good isnt it? :confused
I couldn't tell you and that's not an accurate measurement as it doesn't include private rentals. It's just useful for gauging what the market is doing, increasing/decreasing supply etc.

When you say they have to sell up do you mean they will be downsizing their homes for retirement??
Downsizing is popular here, reduced property taxes/rates etc but also they'll be forced to sell investment properties too as without negative gearing they'll have to cover shortfalls in their investment repayments from their retirement funds.

Ok the mortage rate is 4.99% and would cost us $2979 a month meaning to pay a mortgage would cost us $645 a week and we are currently renting at $505 a week so roughly $140 in the difference.
What proportion of that $645 is capital. If you're paying down capital your interest repayment will reduce in time too. Try this calculator:
http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0

We have no intention of building just to rent, we would definitely be looking to live here for as long as we can and would only rent if we had to move for work reasons.
Sounds sensible although I've an aunt in the US who back in 05 bought near where a new hospital was being built; hospital is built now but it's sitting empty and her house is down about 40% and she's worried about covering the cost of a nursing home if she had to sell!

Demographics is destiny!

bigbadcon

That calculator was confusing me so I tried an aussie based one...

According to this we would be 348k better off in 7 years if we were to build.

But this calculator is from a mortgage website so obviously they are encouraging you to get a mortgage...

Not sure if this link will work or not..

http://www.yourmortgage.com.au/calculators/rent_vs_buy/result/?sid=1139837-mfrwj-rent_vs_buy

Does this make sense or are they sugar coating a lot of it?

Regarding the hospital being built it is suppose to be the biggest hospital precinct in the southern hemisphere when it is complete in 2016.

http://www.health.qld.gov.au/scuhospital/

catbear

I just looked at that loan calculator you linked, it doesn't say how it arrived at it appreciated asset value and how it derived the saving cost.

What did you find confusing about that calculator I linked?
1: Input your monthly rent
2: then an estimate of how much your property would cost to build
3: For the downpayment just enter the percentage of your cash you'll use to get a loan for building costs.
4: input a fixed mortgage rate, check any of the banks
5: Check your local shire for property tax/rates.
You can adjust the slides on the top if you know how your target market has performed in past.

Here's another calculator. http://www.drcalculator.com/mortgage/au/

bigbadcon

The nytimes calculator seems to reckon that we would need to stay in the house for 12 years to make it worthwhile building when you compare the amount of rent paid against the amount of mortgage payments paid.

It doesnt seem to take into consideration the amount of equity you have built up though.

Where as the calculator on the mortgage site is all about showing you the equity you have built up (because they want to encourage you to get a mortgage I suppose)

It does make the following assumptions as well...

Annual rental increases:2.5%
Return on invested funds:5%
Yearly appreciation on the home : 8%
Annual home maintenance:2000

Id say if we were to get a mortgage we would be doing our best to pay more than was required to bring down the overall interest.

catbear

bigbadcon wrote: »

Where as the calculator on the mortgage site is all about showing you the equity you have built up (because they want to encourage you to get a mortgage I suppose)

It does make the following assumptions as well...

Annual rental increases:2.5%
Return on invested funds:5%
Yearly appreciation on the home : 8%
Annual home maintenance:2000

Id say if we were to get a mortgage we would be doing our best to pay more than was required to bring down the overall interest.

That's a lot of assumptions! In the end how much your property is worth is how much you can sell it for if you have to.
You've a lot to consider, best of luck.

The Sweeper

Yearly appreciation on the home of 8% is a major seat of your pants figure right there...

ballooba

bigbadcon wrote: »

Ok the mortage rate is 4.99% and would cost us $2979 a month meaning to pay a mortgage would cost us $645 a week and we are currently renting at $505 a week so roughly $140 in the difference.

That's quite surprising. Have you a deposit to put down on the house? How much interest / what return are you currently getting on your deposit / investment? Is the house you are renting for $505 per week directly comparable to the house you would like to build? In terms of location, amenities, size, etc.

My_Sharona

catbear wrote: »

Just wondering what advantage citizenship would give us over PR?
With citizenship you don't have to worry about "right to return visa's etc", on PR you have to spend at least two years of PR in Australia to qualify for a right to return. http://www.immi.gov.au/migrants/residents/155/

That's not strictly true. You only need to worry about a RRV if you're not in Australia on the day your PR expires. If you're in Australia it will automatically renew.

skippy2

We could avail of the 15k first start grant and not have to pay stamp duty also........................

Hi Con. We might be in the same situation soon as we are heading to Sunshine Coast in March 2014 so best of luck in your plans although we will not be making that decision for a little bit longer after we arrive.

Re your comment above as far as i am aware if you have owned another house anywhere in the world you are not eligible for the first home owners grant if that is what you are referring to. Someone posted a link to the macrobusiness site some very good articles on there if you read them.

Have been watching news on the hospital build also and should make anything in the area a good rental option as you have already indicated
Best of luck hope you are enjoying the sunshine coast

mandrake04

skippy2 wrote: »

Re your comment above as far as i am aware if you have owned another house anywhere in the world you are not eligible for the first home owners grant if that is what you are referring to.

I hardly think so, I own property in Ireland and got the first owners grant no problem. They are not concerned about owning property anywhere else in the world just Australia.

Re:QLD

https://greatstartgrant.osr.qld.gov.au/documents/great-start-grant-fact-sheet.pdf

catbear

My_Sharona wrote: »

That's not strictly true. You only need to worry about a RRV if you're not in Australia on the day your PR expires. If you're in Australia it will automatically renew.

Absolutely correct. I was promoting citizenship in this instance because once attained the OP will not have to deal with IMMI again.

bigbadcon

With regards the Citizenship I'm not too worried about it over PR.

Once we are in the country for 2 years our 175 PR visa automatically renews for another 5 years and then when we are in the country 4 (or 3 maybe) years in total we can apply for citizenship which we will be doing straight away.

Ballooba we will have a 25k-35k deposit for the house and here are the figures off the loan offer with Commonwealth Bank..

The product is called: MAV Package Fixed Rate 3Year 350-499k LVR >90%

This is on $490000 - $500000 mortgage over 30 years that is fixed for the first 3 years.

Initial Rate : 4.99%
Ongoing Rate : 5.55% (so this is the real rate)
Comparison Rate:5.52%

Ongoing monthly payment :$2797.56
Weekly payment of :$645


The house we are in at the moment is a really modern 3 bed with a pool and i'd say we will be interested in building a 4 bed without a pool so I'd say they would be comparable.

The rents on the sunshine coast are nothing compared to Brisbane and you get waaaay more for your money.

bigbadcon

skippy2 wrote: »

We could avail of the 15k first start grant and not have to pay stamp duty also........................

Hi Con. We might be in the same situation soon as we are heading to Sunshine Coast in March 2014 so best of luck in your plans although we will not be making that decision for a little bit longer after we arrive.

Have been watching news on the hospital build also and should make anything in the area a good rental option as you have already indicated
Best of luck hope you are enjoying the sunshine coast

Yes we are absolutely loving life here and i'm sure you will love it aswell. I think we are the only Irish in Kawana though.

We've been here 9 months and have only met 1 Irish person who knocked at our door selling solar panels

skippy2

https://www.osr.qld.gov.au/duties/transfer-duty/exemptions-and-concessions/first-home-concession.shtml

This refers to Concessions for First home buyers. Actually a bit confusing. I think i was getting this confused with the FHOG but worth checking out to make sure everything is covered. this may have something to do with Stamp Duty.

mandrake04

skippy2 wrote: »

https://www.osr.qld.gov.au/duties/transfer-duty/exemptions-and-concessions/first-home-concession.shtml

This refers to Concessions for First home buyers. Actually a bit confusing. I think i was getting this confused with the FHOG but worth checking out to make sure everything is covered. this may have something to do with Stamp Duty.

Looks like that's for Stamp duty, I was stamp duty exempt even though I still own property in Ireland but I'm in NSW.

ballooba

bigbadcon wrote: »

Ballooba we will have a 25k-35k deposit for the house and here are the figures off the loan offer with Commonwealth Bank..

The interest on that wouldn't be major if you had it on deposit. Maybe $10 a week after tax.

bigbadcon wrote: »

The rents on the sunshine coast are nothing compared to Brisbane and you get waaaay more for your money.

The property you are renting is in the area you are planning to build though?

The only scary thing about your plan for me would be the LTV. Your deposit is quite small for the amount you want to borrow and that doesn't leave much room for contingency in a new build. A small decline in property values wuld wipe out your equity and leave you vulnerable in the case of any misfortune.

skippy2

Just found this article and thought it might be of interest to you also.............. some good points and onward links for anyone thinking of building

http://forums.whirlpool.net.au/archive/1413226

maryishere

catbear wrote: »

The first few months here we were constantly asked "are you buying" rather than "what you think of Australia so far".

And as for friendly helpful people in the property industry, would you ask a barber if you needed a haircut?

+1. I was often asked during the first few months I was here if I was going to buy rather than rent too. People need to remember what goes up comes down again, like all bubbles.