Check out the latest quarterly report (March 2011) from REIV  !
Plot a graph of your suburb in Melbourne !

http://data1.reiv.com.au/trendchart/Default.aspx


REIV releases median prices for March quarter 2011 The Melbourne median house price for the March quarter is $565,000, according to the latest results from the REIV. This represents a six per cent reduction from the revised December quarter median of $601,000.  

REIV CEO Enzo Raimondo said, “it is evident that the current residential market in Melbourne and Victoria has entered into a different phase of lower transaction numbers and reduced price growth. This is due mainly to affordability constraints, affected by the seven rate rises since December 2009 and particularly following the November interest rate increase. It must also be noted that most years the median price does reduce in the March quarter due to the lower activity in January.

“These results show that prices in most suburbs in Melbourne have plateaued and this will be welcome news for buyers looking to buy this year.

“Melbourne remains the second-least-affordable city in which to buy a home and buyers are being more cautious, as highlighted by the overall number of transactions falling by 18 per cent compared to this quarter last year. There are also about 37 per cent fewer first home buyers active in the market than this time last year.

Extracted from REIV. Read more at their link below:

http://www.reiv.com.au/home/inside.asp?ID=1048&nav1=652&nav2=165

The "first home owners scheme" has been dubbed "the first home vendors scheme". Nevertheless if you did not have the deposit and have entered the game early enough and secured your first home owners grant you will still be happy about your capital gains.

How does NRAS shape up ? Is this another government scheme that benefits the landlord  investor more than the tenant ?  Let's have a look.

• House price $360k
• Rent 5% $18kpa
• NRAS savings for tenant $3.6kpa
• NRAS benefits for landlord $9.1 kpa - $3.6kpa - $0.5kpa = $5kpa

Who is the biggest winner ?
You guessed right, its once again the property owner.

There are however some downsides for the investor. Government schemes always add complexity to a project and they curtail the freedom of ownership to a degree. This results in some restrictions due to compliance requirements and consequently attracts additional costs for the builder and the buyer. Plus I have a suspicion that the builder and marketing agent may also dip in a little and hike the price. Add higher fees for rental managers , auditors and tax accountants to the cost of ownership and the picture should be complete . Overall NRAS properties in most instances appear to be a good proposition. But you should always do your owns sums and then run them by your financial adviser. Don't rely on advertized figures alone, they are groomed to maximize sales.

Another alternative is the defense ministry housing scheme. I believe NRAS pays better and is saver. What if the armed forces close a base. I would not want to run such a risk.

So, how much does an NRAS property return ? Have a look at the attached email and then do your own homework. Check out what none NRAS properties sell for in your target market and make sure you understand all purchasing and holding costs.
The table below was emailed to me by Graham Shiels in February 2011. Here are his details:


Graeme Shiels

Managing Director
Property Queensland Pty Ltd &
NRAS Queensland Pty Ltd
68 Carlock Promenade
Karalee QLD 4306
Phone: 0417 725 168
Fax:     07 3294 8636
Email:  shiels@bigpond.net.au
www.propertyqueensland.net
www.NRASqueensland.net

Consider as Self Managed Super Fund (SMSF) early in life !

After having build up sufficient equity (about 60k) with a first investment property the next move could be to set up a SMSF and acquire more property through a SMSF trust.

Young people usually shy away from advanced Super Strategies, cause old age is far away and the money is not accessible for donkeys years.

Furthermore SMSF is usually discouraged until somewhere midlife when the fund has reached at least $200k. Why ? Because of the high setup and maintenance costs that financial advisers charge and because of the complexity of self managing such a versatile fund.

However costs should no longer be a show stopper. As soon as you have enough equity (either by natural asset price growth or due to increased sweat equity) you should look into such a great instrument, where you can enjoy the best of both worlds. Click on esuperfund to learn more.

As a matter of fact if you join before 15 April 2011 its all free for 2 years. Otherwise it's just free to set up and then 699.- pa * (all subject to change). Here is a quote from esuperfund.

ESUPERFUND currently has a free setup fee and a fixed annual fee of $699. This equates to an annual running cost of 0.35% on a $200,000 super benefit. Not many Retail Funds can claim that. Using the marketplace norm of 1% per annum as an acceptable fee ratio would imply you could setup a SMSF with ESUPERFUND with as little as $60,000.

Why is a SMSF property so good  ?
A: You pay no capital gains tax.

I was just reading "Feeding the housing bubble monster" in the business spectator.
To read it click here. And for another interesting article to keep a balanced opinion click here.

Here are my conclusions:

Correction at the high end -quite likely and possibly severe.
Correction at the low end - rather unlikely and if so then only marginal.
For me the question is at what point will most people loose their desire to own property and exit the market ? Where is the pain threshold ? In my opinion property remains attractive even with a worst case long term  growth of zero in real terms. Why ? Because the asset returns 4..8% cash flow and its value keeps up with inflation. On a 500k property a CPI of 3% would translate to 15kpa asset price rise pa. Hence I would still invest into low end property, even now in 2011.