22 November 2013

Property Jargon – what does it mean?

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financeIt’s a boom! It’s a housing bubble! It’s a buyer’s market. It’s all a bit overwhelming! If you’re confused by the terminology used in the real estate industry, take it easy on yourself.

 

 

With so many property reporters out there sprinkling their property articles with buzz words and industry jargon, it can be enough to make your head spin! Read on to find out some of the most commonly confused property terms and what it all means.

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Real estate terminology sometimes becomes confusing when a word we use in general speech has a completely different meaning in the context of property. Take the word ‘appreciate’ for example. In common use the word ‘appreciate’ means to have a high opinion of something. In real estate jargon it refers to a shift in value.

Appreciation: This term refers to an increase in value of the property. It does not refer to how much you like the property or the real estate agent. Appreciation occurs due to a rise in the value of property in general, or when you do something to add value to a property – like adding a swimming pool.

Depreciation: The correct definition describes depreciation as an ‘accumulated effect on the value of an asset due to physical, functional, technological and economic obsolescence’. In other words, it’s what happens to the value of an item when the item gets old.

When is a per cent not a per cent?

If you’ve ever tried to keep track of interest rate rises and falls, you’ll have come face to face with the confusing term ‘basis points’. If you’re like me, you’re not exactly sure why they can’t just talk in percentages, but apparently those in the know consider talking in basis points to be easier and more accurate.

Basis points: One per cent (1%) is the equivalent of 100 basis points. Basis points are used as a convenient unit of measurement where percentage differences of less than one percent are being discussed. The term is frequently used when referring to property interest rate increases and decreases.

Is it a boom or a bubble? How can you tell?

There’s a lot of speculation at the moment about whether we’re experiencing a housing boom or a housing price bubble. But what’s a boom and what’s a bubble and what’s the difference?

Boom: A property boom is a period of time where the property market experiences rapid growth. During a boom property prices increase rapidly and auction clearance rates remain high despite the increase in prices. A property boom is a sustainable upturn in the property market.

Bubble: A property bubble is also a period of time where the property market experiences rapid growth, with the rider that it is a type of economic bubble that occurs periodically in local or global real estate markets. A bubble can be identified through rapid increases in valuations of real property until they reach unsustainable levels and then rapidly decline. A bubble is therefore a temporary increase in housing prices. At present, some of the big 4 banks are saying the current low-interest rates are creating a housing price bubble. Whether a housing price bubble actually exists or not, or whether we are at the start of a boom period remains to be seen.

Whose market is it anyway?

How can you tell the difference between a buyer’s market and a seller’s market? Isn’t it all the same market at the end of the day?

Buyer’s market: This condition exists when the pressures of supply and demand are such that market prices are at a relatively low level, giving the buyer an advantage. A buyer’s market exists when there is an over-supply of properties for sale causing prices to decline. During a buyer’s market it is easier to negotiate a lower price for a property because there are fewer bidders for the property available.

Seller’s Market: This condition exists when the market has a lot more buyers than sellers. Pressures of supply and demand are such that market prices are at a relatively high level, giving the seller an advantage. During a seller’s market, there is a lot more competition for any properties for sale, causing housing prices to increase.

We hope this helps clarify the property buzz for you. For more information about property markets, investing or real estate terminology, please call our Finance Consultant, Anusha Haran for personalised advice on your options.

Tel:      02 8853 6833

Mobile:  0406 922 579

 

Credit Representative of Trigon Financial Pty Ltd under
Australian Credit Licence Number 392981

	

The author is an employee of Verante Financial Planning in Castle Hill, Corporate Authorised Representative of Magnitude Group Limited, Licence No 221557, Magnitude Group Limited ABN 54 086 266 202.

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