The underquoting definition - What is Underquoting in real estate industry?

Well, although we often hear or read underquoting, there is no clear definition of underquoting. According to Consumer Affairs Victoria, under-quoting happens if the quoted price is lower than the written estimate of the value of the property provided by the selling agent on the sales documentation before the advertising campaign began.

Underquoting is not a new technique that real estate agents use to get a lot of people interested in a property by specifying a significantly lower price-range knowing that the property will sell for much more.

Is Underquoting legal?

No, it is NOT!

A Melbourne real estate agent has had his licence suspended for underquoting, following a two-year battle with the state’s watchdog and courts.

The Victorian Civil and Administrative Tribunal withdrew real estate agent Dean Anthony Johnson’s licence for two months, reprimanded him, and ordered him to provide proof for the next two years that he is not marketing properties to would-be buyers at prices below the minimal price set out by the sellers. Mr Johnson is a director  at Footscray-based Wayne Sweeney and Associates.

Mr Johnson had already paid $5000 in fines to the Victorian Property Fund in March 2012, after Consumer Affairs Victoria brought the case against him. VCAT found he had underquoted on four properties in the Melbourne suburbs of Maidstone and Yarraville. Another agent Darren James Dean was also charged by VCAT in 2010, as well.

Mr Johnson successfully appealed the 2010 the judgment to the Supreme Court, which then sent the matter back to VCAT for its latest decision this month.

“Buying a home is usually the biggest financial outlay in a person’s lifetime and laws are in place to protect consumers from misleading advertising and underquoting,” said Consumer Affairs Victoria director Dr Claire Noone.

“Licensed estate agents should be aware of their obligations under the Act and the Australian Consumer Law in relation to advertising properties,” she said.

Mr Johnson was not immediately available for comment.

Property buyers in Melbourne have long contended that agents underquote prices on properties to lure prospective buyers, although typically there is little hard evidence of the practice.

I think now property buyers can borrow the experience from this case and forward their concerns to government bodies in order to fight underquoting.

Capitalising interest refers to the practice of adding the accrued or accumulated interest to your loan principal instead of them being paid. In capitalising interest, the loan amount continuously increases, and so does the total cost of the loan. Basically, you are paying interest on your interest. As a result, you pay more and more interest over time. Capitalising interest is normally done through a line of credit loan (LOC).

The Australian Taxation Office has flagged it will crack down on property investors claiming deductions for interest expenses if they are using some or all of the rental income from an investment property to pay off their own home loan while adding the interest from the investment loan to the principal of the investment loan and claiming all the interest of the investment loan as a deduction.

In a determination in March 2012, the ATO said it would reject such arrangements.

This mean if your loan arrangement incorporates features that would effectively give rise to the capitalisation of interest on an investment loan while the loan repayments are used to pay down the principal of a private loan you should be warned that this is now NOT a valid arrangement to maximize your tax benefit from investment property.

The ATO’s determination will apply retrospectively and could affect a landlord’s past income and deductions, potentially costing them thousands of dollars.

The advice is that property investors should be conservative and avoid claiming deductions for any compounding interest on their investment loan.

However, according to BAN TACS Accountants Pty Ltd, if the loans you use are simply accounts used by people that would not necessarily be looking for a tax benefit, you may be ok with your current loan arrangement. If you can provide valid reasons for not making the interest payment on the rental property which is considered by the ATO to be more dominant than the tax benefit, it should be relatively safe to capitalise interest of your investment loan.

Some examples given by BAN TACS Accountants Pty Ltd include:

1) Wanting to save for a holiday or safety net for unforeseen circumstances. Choosing to do this through the offset account attached to your home loan is practical as your only other source of funds in an emergency is the LOC used to pay rental property expenses. If this was accessed for private purposes it would create the record keeping nightmare of interest apportionment on a mixed purpose loan.

2) Your home loan is over 10 years so the repayments are high, add to this a detailed budget of your living expenses and you just can’t afford the interest repayments on the rental property but fortunately, you have enough equity to secure a LOC for these borrowings.

3) You have organised the LOC so that you have all the rental property expenses recorded separately and on one statement and so that you can be sure that payments are met when due because you have so much available credit. All your income is directed to the offset account for you home loan. The question you have for the ATO is what happens when due to the order that expenses are drawn from the LOC or because the property is negative cash flow or because you are not that organised and irregularly transfer money into the LOC and then only what you feel you can afford considering possible private expenses. As a result of any of these interest will capitalise on the LOC is this also caught by Part IVA (the general anti-avoidance rule for income tax). Is the dominant purpose of your lack of attention to your accounts on a daily basis, to obtain a tax benefit?

4) It is your intention to start a family as soon as it is financially viable but it is a personal choice that during the first few years of your children’s life that you will live off one wage. To be able to manage on such a reduced income you will need to be far enough ahead on you home loan to not be required to make repayments during that period. The question for the ATO is whether letting interest capitalise on you rental property while saving to have a family is a scheme with the dominant purpose of a tax benefit.

5) You had thought you could meet your financial commitments but due to a change or circumstances such as pregnancy, demotion, unemployment, sickness etc you are finding it difficult to pay your bills and are anxious about future doctor’s bills unemployment etc. You wish to concentrate all your income towards you offset account to ensure you can meet your home loan repayments and emergencies. Fortunately, you have plenty of equity so can use a LOC to support the rental property. Is the ATO going to use Part IVA to force you to borrow for personal expenses rather than rental property expenses?

6) The interest rate on your private debt is higher than that on the LOC. This maybe because your private debt is a credit card or car loan. It may even be the case with your home loan. This scenario may even be the one opportunity where the way the loans are organised can affect the success of your arrangement. In this case you argue that your dominant purpose is simply to reduce your interest expense by paying the highest interest rate loan off as soon as possible.

7) If you have sufficient equity in assets other than your home to finance the growing LOC debt then the concept of paying off your home sooner has much more punch. You dominant purpose could be to make sure that only your rental properties are exposed to risk of mortgage repossession.

You will always be in a better position if you can show that it is not you intention to access the increased equity in your home to extend the line of credit (LOC). It is also ideal that the LOC is secured against your rental property which may have available equity if the original borrowings were partly secured by your own home. The LOC can also be justified as a record keeping tool because you pay all and only rental property expenses from it so you only need to refer to that account when preparing to lodge your tax return.

The final advice is that rather than falling victim of such drastic action, you should make application to the ATO for a “Private Ruling” on whether they would apply Part IVA to your particular circumstances before you claim capitalised interest.

Want to get a minimum of $95,240 CASH over 10 years from Australia government by investing in property? It may sound too good to be true but this is REAL! The NRAS incentive is the only government funded property incentive which you receive cash back even if you have a surplus after tax.

So what exactly NRAS means? NRAS is the National Rental Affordability Scheme. It is a long term commitment by the Australian Government to invest in affordable rental housing. The Scheme offers annual Incentives for ten years on the condition that throughout the ten year period the dwelling is rented at 20 per cent below the market rent to eligible low and moderate income households. More official government information about National Rental Affordability Scheme.

This free basic NRAS Investment Property calculator will show how much you need to invest as well as how much capital gain you might get if you sell your investment property within the 10 years NRAS period.

There are some assumptions about this free NRAS Investment Property Calculator that you should be aware of. Please read them before you start using this free NRAS Investment Property Calculator.

Download the free NRAS property investment calculator now!

An one investor version is also available for download from the same page if you intend to invest by yourself.

More and more people are now investing in property through a Self Managed Superannuation Fund (SMSF) because owning a residential investment property within your SMSF can be significantly more tax effective than investing in a property in your personal name. This is because when a super account is in accumulation phase, the CGT tax rate is in effect only 10% if the property has been held for more than 12 months by the fund. Moreover, no CGT tax is payable if a super account is in pension phase (i.e. an individual is drawing a pension from the SMSF account).

This free basic SMSF Investment Property calculator will show how much you need to invest weekly and annually as well as how much capital gain you might get if you invest in property through a Self Managed Superannuation Fund (SMSF).

Make sure you read the assumptions which this free SMSF property investment calculator is based on before you use it to estimate your property investment through SMSF.

Download the free SMSF property investment calculator now!

People hate negative geraing because they thoughts “it distorts the market, causes property bubble, allows the rich getting richer, and leaves the poor no where to live”. They tend to blame negative gearing for their not being able to afford a property. While, is it ture that negative gearing causes so many negative things? Will abolishing negative gearing solve all the problems?

I don’t think so. Some people think abolishing negative gearing will decrease the property price dramatically and fix all the problems we have. I just don’t think so.

Instead of hating negative gearing, I think we should ask ourselves why we cannot afford a property and what we can do in order to be able to. After all not many of us are willing to live on the street.

So what people CAN do in order to be able to have a place to stay?

According to Brad from Brighton VIC, here is a list of what he and his wife had done.

1. Start small.
2. Work up.
3. Work Overtime.
4. Get a 2nd job.
5. Sell the new car!
6. Use a Woolworths Nokia – there, I said you could still have a mobile and try their $29 plan!
7. Take your lunch to work.
8. Take a thermos to work.
9. Eat home and rent a DVD.

I basically summarise the above as “Work hard and live simply“. I know that some people are not going to agree with me. Yes, you need to live smart as well. However, some people did agree:

I totally agree Brad. We managed to purchase our first property by ourselves reletively young (23 to 24, a sensible unit in the East, wouldn’t touch the West with a 50 foot pole) and we saved, worked overtime when we could, didn’t buy stupid unnecessary gadgets like the Iphone or whatever and so forth.

I just shake my head at those my age who complain about house prices yet brag about how they blew $300 at a nightclub or brag about their $89 Call of Duty game they got. Ridiculous.

If you hate negative gearing and think you cannot afford a property becasue of negative gearing, I think you should seriously consider the suggestions from Brad.

Negative gearing is not the problem.

Strong property price rise is predicted starting from 2015.

Sydney and Melbourne’s housing markets are at least two years away from shifting out of the current trough, but once the momentum starts, the rise will be strong, according to the 28th annual Australian Property Directions Survey.

Using the property clock system, whereby 12 noon to 6pm is a downswing, the data shows that the Sydney residential property market has shown little movement over the seven years that this data has been collected and is not seen as making significant progress over the next two years.

Respondents to the API Property Directions survey are property experts – valuers, funds managers, property analysts and property financiers – and are drawn from a range of about 30 organisations with national representation.

The survey, which was released on 17/04/2012, covers residential, commercial, retail and industrial property in Sydney, Melbourne and Brisbane.

According to the data, commercial property is still sought-after, while industrial property is sitting at about 7 o’clock or in the first stages of an upswing, thanks to the demand for warehouses from the e-commerce sector.

The API’s NSW vice-president, Tyrone Hodge, said the survey showed that the housing markets in Sydney, Brisbane and Melbourne were seen as being stuck at or near the bottom of the property cycle with only small advances along the cycle predicted over the next two years.

‘‘In 2013, residential property is seen as having commenced the upswing in Sydney and Brisbane, but Melbourne is seen as remaining at the bottom of the cycle,’’ Mr Hodge said. ‘‘Affordibility remains the key issue in Sydney and until that improves, the sector is forecast to bump along the bottom.’’

ANZ has faced claims that its long-standing mortgage customers were being used to subsidise new customers as the bank looks for growth in a slowing credit market.

JPMorgan banking analyst Scott Manning said ANZ had been among the most aggressive when it came to offering discounts for new customers.

While headline mortgage rates have been rising, banks have quietly been competing on new mortgages to maintain growth in the face of a sharp slowdown in the housing market.

JPMorgan figures show ANZ was offering new mortgage customers up to a 110-basis-point discount off the headline rate of a new home loan. This compares with a discount of about 90 basis points offered by other major banks.

”It does support our view that repricing of the back book is being used as a mechanism to subsidise elevated levels of discounts offered on the front book to deliver housing credit growth,” Mr Manning said.

ANZ yesterday disputed claims it was subsidising new mortgages. ”There has been some discounting across the industry, which we recognised was not sustainable for ANZ some months ago,” a spokesman said. ANZ has said the out-of-cycle rate move was needed as funding pressures, including the pricing of deposits, were pushing up the bank’s costs.

National Australia Bank boss Cameron Clyne hasn’t ruled out a hike in his bank’s interest rates, but has pledged to undercut rival when it comes to the pricing of mortgages.

Mr Clyne said interest rates “will move around” but NAB will be the best deal of the major banks.

NAB currently sells variable mortgages at 7.31 per cent. “What we try to do is guarantee we’ll be the lowest until the end of the year so they at least customers know they’re going to get a good deal from us,” Mr Clyne told radio 3AW.

While funding costs for banks were moving around from month to month, Mr Clyne said the average – or the longer term – funding costs had been moving higher.

About 400 angry ex-Bankwest customers say the bank has been colluding with property valuers to force commercial borrowers to default on their loans.

The Perth-based bank is facing two potential class actions over the way it re-valued assets and called in the loans of hundreds of its small to medium-sized business clients after a takeover by the Commonwealth Bank in 2008.

About 400 former Bankwest loan customers, who have formed a group called Unhappy Banking, says Bankwest has been aggressively manufacturing loan defaults since the CBA takeover.

Unhappy Banking founder Geoff Shannon said he believed Bankwest had, in many cases, scrapped previous valuations and replaced them with lower ones to trigger loan defaults.

He claims the bank took unnecessary recovery action.

Unhappy Banking’s concerns have sparked a broad Senate inquiry into banking practices during the global financial crisis.

Mr Shannon claims valuers were working with the bank to deliver the low valuations it wanted.

He has shown AAP email correspondence he says is between two senior Bankwest staff about a former borrower’s property.

The email says: “I have spoken to the valuer again Friday to gauge his opinion and I suggested a reduction of say 20 per cent on the existing valuation …”

Senator John Williams, who successfully pushed for the Senate inquiry along with Mr Shannon, said he’d seen the email and found it very concerning.

“Valuers are supposed to be at arm’s length. But to see a bank suggesting a 20 per cent asset reduction does really concern me,” he told AAP.

Unhappy Bankers and law firm Slater & Gordon are investigating separate class actions on behalf of aggrieved former Bankwest commercial borrowers.

Both are looking at the conditions around the CBA’s purchase of Bankwest and how that may have negatively affected some borrowers.

Senator Williams said the Senate inquiry, expected to begin hearings in August, would probe those conditions, and allegations of collusion between the bank and valuers.

He said he’d also seen documentation from several former Bankwest borrowers who’d never missed an interest payment but were forced into foreclosure.

“I can’t work out why a bank would sell someone up when they have never missed an interest payment and this is what I am seeing,” he said.

Mr Shannon said Bankwest used “ruthless” tactics that brought borrowers to their knees.

“Many of our members lost everything. They lost their homes and were reduced to sleeping in their cars,” he said.

Bankwest denies the allegations and blames the lower property valuations on the global financial crisis.

Property information group RP Data said more Australia homes are now with negative equity which means more and more Australia home owners are facing the situation that the value of their property is less than the outstanding balance on their home loan.

New home owners fared the worst in the report with those owning a home between one and two years, holding about 27 per cent of the total of properties in negative equity in the December 2011 quarter. By comparison, only about one per cent of owners holding their property for between nine and ten years reported negative equity on their homes.

RP Data showed that Far North Queensland had the highest proportion of mortgages in negative equity, at 22 per cent, followed by Gold Coast, with 19.4 per cent in the quarter.

Sunshine Coast was in the third spot at 15.3 per cent. The area with the lowest amount of negative equity was Loddon, Victoria with 1.9 per cent meeting the definition, followed by Canberra with 2 per cent.

By city, Brisbane fared the worst with 9.2 per cent of property deemed to be “underwater” in financial terms, followed by fellow mining state capital Perth at 7.4 per cent.

Sydney had 3.6 per cent of properties in negative equity, pipping Melbourne with a 3.5 per cent rate. In Hobart, 6.2 per cent of properties were in negative equity, compared with 5.5 per cent for Adelaide.