Federal and state governments aimed to make the process easier by offering first home owner grants. But with stamp duty and legal costs, one often cancels the other out.

Working a second job is a common way to boost the cash reserves – but make sure you don’t buy a house that would need to see you burning the midnight oil for the life of the mortgage. Jobs that work around a traditional full-time schedule are traditionally in hospitality, call centres or weekend retail.
Be wary that any additional income will be taxed without the relief of the tax-free threshold, but according to Kane Taxation director Ben Kane, it may open the door to more income tax deductions.

Other ways to increase personal cash reserves include moving back in with parents or family, renting out any spare bedrooms in your existing home, moving to a share house yourself or temporarily downsizing to a smaller house in a cheaper location.

CUT DEBT:

Paying off a fancy car? It better be worth it, as it’s likely to be costing you a slice of the property market.

Based on 2007 interest rates, if you’re on an income of $50,000, for example, with a $30,000 car loan, then the four major banks will limit your borrowing capacity to about $165,000. Cut the car loan to $10,000 and you’ll increase that capacity to about $220,000 – and be able to invest in something where values aren’t going backward.

If you’re managing one or more of Australia’s 14 million credit cards, an effective way to cut debt is to consolidate to a low or no-interest card that gives you up to 12 months to get your balance down.

But beware of traps.

Mr Kane gives an example whereby a customer transfers $10,000 into a no-interest transfer credit card, with a credit limit of $15,000.

“If that customer spends $2000 on a holiday, then repays that money immediately – that repayment will bed down the $10,000 transferred balance that isn’t accruing interest but leave the recent $2000 spend as fully exposed to interest, often at a high rate of 20%,” Mr Kane says. “It’s basically luring people to transfer and increase debt with a new creditor.”

No-fuss credit cards with low interest rates of about 12% are good alternatives, he says, as are cards that offer “redeemable bonuses”.

Despite charging relatively higher interest rates than its no-frills rivals, plenty of redeemable points can be made paying bills via credit card, then transferring funds from a savings account.

If your credit card debt is more than $15,000, it might be worth consolidating and taking out a personal loan, which you can repay over a long period at a relatively lower interest rate less than most credit cards. Once you have paid off your credit card, reduce the maximum credit limit.

When assessing your application, banks do not look at your credit card balance but your credit card limit and factor this limit as a personal debt.

START A BUDGET AND RE-ASSESS EVERYTHING:

Financial planners say it often becomes glaringly apparent where money is being wasted once people put everything they spend down on paper.

Two coffees a day, lunch and city car parking, for example, will set you back about $150 a week in after-tax dollars. Add up to double that again if you smoke, or have a couple of drinks more than once a week.

Fuel, rent, bills, memberships, presents and entertainment are common expenses that will need to be amended if you’ve had trouble getting into a positive savings pattern, as is your resistance to personal reward items such as homewares, clothes and phones.

Check your internet and mobile-phone plans to ensure you’re on the most efficient plan.

A concerted effort needs to be made to cut down on other individual utilities, including electricity, gas and water.

If you really want to make an impact on the budget, dumping the car should free up about $300 a month, excluding petrol. If you live in the inner-city, calculate whether you’d be financially better off travelling by public transport or taxi in and about town. Hiring an older car for the weekend is a far cheaper alternative than hiring a new car.

Or buy a car with a family member or friend and share it one week off, and one week on.

When budgeting what your monthly home loan repayment will be, add between 3% and 4.5% over and above existing interest rates to allow for any movement over the medium term. Australian interest rates hit 49-year lows in 2009, but most analysts consider this unsustainable and are expecting a continued upward trend.

SHOP AROUND:

The property sector has become big business for several real estate-related industries, including lenders, building inspectors, insurers and conveyancers. Familiarise yourself with as many of the industry terms as you can to avoid being trapped at a later date.

As most mortgages now last between 25 and 30 years, it’s important to factor in the benefits of flexibility, which may not seem essential right now.

Banks charge varying fees to transfer between fixed and variable interest rates. If you need to do this several times during the course of a loan, it can be costly.

Costs associated with redrawing any funds can also vary in price and may be necessary longer term. Loan application fees can also vary.

Long-term loans of up to 40 or 50 years have been recently marketed as a new product but Mr Kane discourages first-home buyers from getting into such a long commitment. It’s wise to get quotes for jobs associated with buying a home, such as legal work, and ask providers to give detailed breakdowns of the services they offer. During settlement, for example, a conveyancer might be able to do for $300 what a lawyer may charge $3000 for.

Fees payable once you buy a house include stamp duty, land transfer and mortgage registration.

RESEARCH THE MARKET:

Time spent saving for a deposit can be well spent researching the property market.

It’s not unusual for first-home buyers to consider a range of suburb options.

Property value, not size, is important to consider if you plan to use equity from this home to finance another.

Factors such as new roads and freeways, or major government cash injections, such as those being invested in Docklands, Dandenong or Epping, also positively affect values, as does access to public transport, schools and retail amenity.

When you find a suburb you like, speak to the agents about what properties have sold for in the area and attend some auctions to get a realistic idea of what your money will buy. Selected information about SOME sold properties are posted online, but many are not – so it’s worth keeping old copies of the Sunday and Monday newspapers.

Agents recommend buying a home that will fit your plans over the next five to 10 years to avoid being forced to sell in what could be a lull in the market.

If you intend to keep the property as the first in a budding portfolio, consider its attraction as a rental.

Buying a home to renovate and rent is a good way to build equity, as values often increase by more than the sum of any works.

Also, you will not receive government grants if you do not live in the home within 12 months of buying it.

CO-BUYING COMMITMENT:

Co-buying a home has become much more common than at any time in the past – but it comes with plenty of risk, including trusting your partner’s financial security. Changes in the co-buyers’ circumstances, including their employment, or them wanting to buy a home with somebody else, should also be factored in. These relationships can turn sour and costly when bad timing forces a early sale.

BORROWING MORE THAN THE HOUSE IS WORTH:

Be wary of institutions prepared to lend up to 105% of a property’s price. Although it’s pleasurable to think of having someone else paying for the house, stamp duty and legal costs while you choose the blinds, there are mounting examples of people who borrowed using this model suffering huge financial losses. It’s considered good practice to save as much of a deposit as you can, to see what kind of commitment is required for the life of the mortgage and to prove a savings history to the banks

“Many young families rule out inspecting a property if it’s a two-bedroom,” he says.

But extending can be costly, especially if major upgrades to plumbing and wiring are needed.

Nonetheless, agents are convinced it’s money well spent.

Going rates for extensions are widely quoted at $2500 to $3500 per square metre, depending on the type of building you are extending, says Colin Pavier, national sales and marketing manager with the Extension Factory.

“The greatest mistake people make is (to) assume it costs the same to extend a house as it does to build that space new,” says Mr Pavier. “It can take a month just preparing a house for extension, given the fact we have to facilitate new pipes and wiring before we even start.

“Extensions of older homes in particular must keep in harmony with the existing footprint and things such as elevated ceilings and high-pitched roofing require more detail to be reproduced. Extensions must do justice to their investment to add value.”

For most home owners, renovation within the existing footprint is a more realistic alternative. “Generally, people are spending on kitchens, bathrooms, master bedrooms and main living areas,” says Michael Titcomb, general manager of Harvey Norman Design and Renovations in Oakleigh. “The bulk of their budget is for the kitchen.”

Kitchens start at about $18,000 and can go as high as $60,000, excluding major structural work, he says. “Our average price is $32,000, with the appliances representing about $4000.”

Entry-level kitchens will buy you a small to medium kitchen with a basic appliance package including an oven, hotplate and rangehood, says Mr Titcomb.

A family bathroom can cost $30,000.

For this you get a semi-frameless shower screen and tiles to shower-screen height.

“The price would also include all trade work such as plumbing, water-proofing, minor electrical work and tiling,” Mr Titcomb says. The price of a new bathroom often surprises buyers, who do not factor in the costs associated with work such as relocating major bathroom components. “I think there is a general misconception in the community at large surrounding bathroom costs – the perceived value is generally a lot lower than the actual costs,” says Mr Titcomb.

“I believe this is because people don’t factor in items such as benching floors for drainage, which involves removing the floor and lowering the floor joists.

“Likewise, with today’s large square-edged tiles, walls often need to be re-straightened through rendering or re-sheeting.”

Polishing floorboards is usually a price-on-application item, depending on the condition of the boards.

If your house is on a concrete slab but you still want floorboards, floating floors can be installed. These start at $19 a square metre and go up to $470 a square metre.

Not everything you spend on your home will improve the value. Some buyers are guilty of over-capitalising.

Swimming pools and spas are examples.

These can cost more than $30,000 but, due to the maintenance required, they do not always add much value to a house. Agents say money would be better spent on a high-quality outdoor entertainment area with an integrated barbecue, for example.

Regardless of how people invest in their homes, perhaps the biggest benefit is that they get to enjoy the investment here and now, says Mr Downward.

“Some people buy homes around the corner from their existing homes and pay upwards of a $200,000 premium,” he says.

Buyers should look at their home’s capacity for renovation, because $70,000 to $80,000 might give them the property they are looking for.

You can still buy something within 10 kilometres of town.

Generally, a budget of $200,000 can pick up an inner-city apartment with good growth potential.

Unrenovated one-bedroom apartments near public transport, and built from the 1960s through to the 1980s, often sell in Alphington, Ascot Vale, Brunswick West or Footscray for about $200,000. However, many flats are on main roads, which could pose a desirability problem if you decide to rent or sell the apartment later, possibly in an oversupplied market.

Angie Zigomanis, from research and forecasting group BIS Shrapnel, says values for land within 10kilometres of the CBD are the highest in Melbourne and expected to appreciate strongly over the medium to long term.

He warns buyers to avoid suburbs where development potential of apartments is great.

“Within the inner-city, this may mean suburbs where there are lots of industrial development sites and builders can add new stock very quickly,” he said. “Ashortage of supply against demand is what keeps values high.”

In the east and south, the typically strong suburbs of Hawthorn, Malvern, St Kilda and Armadale are recommended. Entry-level, one-bedroom apartments close to transport and shops start at about $250,000.

Buying an entry-level apartment with a view to renovating is often a good way to add equity – with its value rising by more than the sum of the renovation. But because of the relatively low initial cost of the property, buyers must be careful not to over-capitalise.

Tipping in the labour yourself (laying floorboards, painting), is the most common way to minimise the personal risk to your hip pocket.

Interest-free arrangements are available for kitchens, bathrooms and floors, should you want to spread the cost over several years, but be sure you can afford it.

Despite their often fantastic addresses, MrZigomanis warns first home buyers against some “studio” apartments.

Studios typically range in size from 20 to 40square metres and often have a combined living room and bedroom. Most one-bedroom apartments are greater than 45square metres and include defined bedroom and living zones.

Studio apartments are harder to finance (some banks can demand deposits of 20%) and they may be hard to sell because there are fewer likely buyers.

Should you plan to keep your property as the first in your investment portfolio, be warned studios are hard to rent. This is particularly true in an oversupplied market when tenants may find they can afford to live in bigger apartments.

Mr Zigomanis says in most cases, first home buyers would be better off saving the extra money needed to buy a one-bedroom apartment , which can be more than $200,000 in inner-city areas.

ABOUT $300,000 TO SPEND?

“Keep saving” is the advice from Domain Property Advocates director David McMillan, who says that it’s very difficult to secure good long-term property stock with capital growth potential for less than $300,000.

He says that regardless of whether a property will be owner-occupied or rented, it is still an investment – and buyers should try to be close to the CBD. If this is not possible, they should consider being near a district centre.

“Transit Cities” as defined in the State Government’s Melbourne2030 policy – and set to undergo substantial private and public investment over the next 20 years – include Box Hill, Epping, Ringwood and Werribee.

“The aspects that make properties harder to buy, make them easier to sell,” says MrMcMillan, who recommends first-time buyers choose properties close to shops, transport, schools and arterial roads.

“It’s important to buy the best-value property that you can in the area you like and always remember, it’s the land that goes up not the building.”

Low-rise buildings where fewer flats share the benefit of rising land values, are expected to increase in price faster than high-density developments.

Mr McMillan says the best-value suburbs in the west include Spotswood and Yarraville where two-bedroom flats are about $300,000. In Spotswood, villa units sell for about $350,000.

Flemington is also on his radar. Previously renovated 1960s and ’70s two-bedroom flats near Racecourse Road shops are about $300,000.

He says buyers with $350,000 to $400,000 should scour Brunswick and Coburg for a small house but he warns buyers to stay within 11/2kilometres of Sydney Road.

In the north, Mr Zigomanis also recommends Thornbury and Preston where two-bedroom flats and villa units can still be found at about $300,000.

In the south, unrenovated three-bedroom houses in the coastal suburbs of Chelsea, Bonbeach and Carrum start at about $350,000. Larger, renovated houses fetch about $400,000.

But Mr McMillan says to avoid Frankston, about 40kilometres from town. “Frankston was great value five years ago but we think it’s had its day,” he says. “The Frankston bypass (a 27-kilometre, $700million freeway running south from Frankston to Mount Martha) will add some value but that is several years away.”

“Generally, we advise people to buy within 30kilometres of the CBD,” he says, adding that petrol prices will spur this trend.

ABOUT $500,000 TO SPEND?

You’re spoiled for choice if you’re a prospective first home buyer, couple, or partnership with a budget of half a million dollars.

Safe, long-term property investments including apartments, townhouses – and homes on land – are available, with the choice dependent on the lifestyle you want.

Mr McMillan recommends such buyers check out Ashwood, Burwood, Camberwell, Hawthorn, South Yarra and Surrey Hills. “These areas have historical long-term growth, good transport, plenty of shops, schools and job opportunities.”

A budget of $500,000 picks up well-located, “high character” apartments in Camberwell, Hawthorn and South Yarra and villa units, typically of two or three bedrooms, in Ashwood, Burwood and Surrey Hills.

In the south, buyers who ruled out Bentleigh and Moorabbin as unaffordable last year should take another look. MrMcMillan says these have “come off” their frenzied peaks.

Also a fan of the bayside suburbs is demographer Bernard Salt, who says an increasing number of Melburnians have elected to live close to the water over the past property cycle. He expects suburbs such as Cheltenham, Mentone, Braeside, Aspendale and Edithvale to continue to appeal to first and second home owners, many of whom aspire to eventually live in Brighton or Hampton.

Across town, terraces in Kensington, about four kilometres north-west of the CBD, are also less than $500,000 – they are among the cheapest houses in the inner city.

Mr McMillan says when demand for property weakens as it has this year, it is important to keep to the inner-western suburbs. “The west is best if you are close to the rest,” he says, referring to how close suburbs are to transport and the CBD.

He says Newport, by the beach and about eight kilometres from the CBD, also has many great-value houses first home buyers should consider.

With considerable economic stimulus in train around the world, the global economy is stabilising after an earlier sharp contraction in demand. Downside risks to the global outlook have diminished, though they have not disappeared and most observers expect only modest growth overall. There is tentative evidence that the US economy is approaching a turning point, but conditions in Europe are still weakening. Growth in China, in contrast, has been very strong in recent months, which is having an impact on other economies in the region and on commodity markets.

Sentiment in global financial markets has continued to improve. Nonetheless, credit conditions remain difficult, and the effects of economic weakness on asset quality present a challenge. For the global economic recovery to be durable, continued progress in restoring balance sheets is essential.

Economic conditions in Australia have been stronger than expected a few months ago, with both consumer spending and exports notable for their resilience.

Measures of confidence have recovered a good deal of ground. This suggests that the risk of a severe contraction in the Australian economy has abated. The most likely outcome in the near term is a period of sluggish output, with consumer spending likely to slow somewhat and investment remaining weak. Stronger dwelling activity and public spending will start to provide more support to overall demand soon, and growth is likely to firm into 2010.

Inflation is gradually moderating, given the earlier decline in energy and commodity prices, and the effects of weaker demand on prices and labour costs.

Given the current prospects for demand and output, this moderation should continue over the year ahead. The higher exchange rate over recent months will assist this moderation, at the margin.

Housing credit has been solid, and dwelling prices have risen over recent months. Business borrowing, on the other hand, has been declining, as companies have postponed investment plans and sought to reduce leverage in an environment of tighter lending standards. Large firms have had good access to equity capital, and access to debt markets appears to be improving.

The Board’s judgment is that the present accommodative setting of monetary policy is appropriate given the economy’s circumstances. The Board will continue to monitor how economic and financial conditions unfold and how they impinge on prospects for sustainable growth in economic activity and achieving the inflation target.

It says a shortage of housing stock against an anticipated rise in demand, coupled with low interest rates and solid growth in rents, will contribute to a property price upswing, which most home owners should notice in 2010 – 2011, and then especially in 2011 – 2012.

However, the report assumes major banks will not increase interest rates until beyond 2011.

BIS says that while the first home buyer has driven the market this year, real estate markets nationally will see more second home buyers and investors return to the market.

The report forecasts median values in metropolitan Canberra to increase 17 per cent between 2009 – 2012, followed by Brisbane (16 per cent, with the regional markets of Gold Coast and Sunshine Coast to follow), Hobart (15 per cent) and Perth (12 per cent).

The report forecasts median values in metropolitan Brisbane to increase 16 per cent between 2009 – 2012

“I don’t think it’s that big an issue when one in 10 don’t (report a price)” REIV’s Robert LaRocca told the Herald Sun, suggesting “you can go along to the auction and see what happens there.”