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November 2008The Real Cost of an Under-Insured Building To Buy Or Not To Buy? That Is The Questions.. Or Is It? REIA Welcomes Interest Rate Reduction, But Calls For States To Make A Contribution Download Newsletter Newsletter Archive
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Cnr. Macquarie & Cobra Sts
Dubbo NSW 2830
TEL: (02) 6882 1755
Fax: (02) 6884 2229
marketing@rhdubbo.com.au
A considerable number of property owners are under-insured according to a recent study conducted by the Insurance Council of Australia. This is a serious problem and many owners would be faced with substantial financial loss in the event of a disaster.
With fluctuations in insurance premiums and rising construction costs, gambling with your cover by insuring for less that the asset's replacement value is not worth the risk.
When determining an insurance replacement valuations there are many issues that need to be considered. These include, but are not limited to:
* Demolition of the existing building and removal of debris
* The cost of professional, consultant and Council fees
* Escalation in costs for: a) calling of tenders and planning approval b) time elapsed between the preparation of a valuation and the anniversary date of the policy c) rise and fall in cost during construction
Malcolm Irwin from BHI Insurance Brokers Dubbo provides this simplified example to highlight the potential cost of under-insuring.
Example Claim:
XYZ Bus Company have a building insurance for their bus depot with a sum insured of $144,000. As a result of a fire, XYZ lodges a claim of $100,000 on the building. Following a loss adjustor's survey of the damages, a pre-incident sum insured of $200,000 on the building is determined taking into consideration planning fees, council approval, clearing of the site, etc. Note that different insurers will provide different thresholds before imposing underinsurance penalties. The following example demonstrates the principal where the Insurer is only obliged to settle the claim to the insured for an amount of $72,000 less any policy excess that may also apply.
Example of average/under-insurance calculation:
True replacement value = $200,000
Sum Insured = $144,000 or 72% of the replacement value
Loss value = $100,000 x 72%
= $72,000 payable less excess
It is apparent from this example that an accurately prepared insurance replacement valuation will reduce the risk of under-insurance should an “event” occur.
It is imperative that all buildings have an insurance replacement valuation professionally prepared, as the alternative consequences can be costly.
Walton Smith Consultants “Property Matters” Issue 2 Spring 08 Newsletter
There's so much going on in the economy at the moment as a result of the global financial crisis. The headline news talks daily of recessions, comparisons to the great depression, stock market plunges, rising inflation, increasing unemployment, the collapsing Australian dollar, freezes on management funds, record lows in consumer confidence, low retail sales, the biggest car financing companies pulling out of the Australian market and the list goes on and on and on. So what's one supposed to make of all this?!
There are always a lot of things you naturally consider when you decide to invest in property. For many the prospect alone can be quite daunting, especially when you consider that it is usually the single largest purchase you will make in your lifetime. Add to that the fact that the average person will spend most of their life paying it off unless of course you inherited wealth, were fortunate enough to marry into it or you successfully created it yourself.
We asked Domain.com.au users if the recent global financial shake-up has changed their property investment plans. The resounding result? Schreeeeeech! Half of Australians have put their property investment plans on hold. 48% said they are delaying their property investment plans and are not making any big decisions right now. 17% of people said they are going to continue with their existing property portfolio and 19% signalled their intention to grow their property portfolio as planned.
While many blame the US property market and its irresponsible lending institutions for causing the financial crisis in the first place, it has come full circle and has now resulted in significant cuts to interest rates here (my rate has reduced 1.3% in just a few months), with more rate cuts expected in both November and December this year.
Enter Mr Rudd to the rescue, who is now guaranteeing your bank deposits and boosting the first home owners grant from $7 000 to $14 000, or if you purchase a new home or newly constructed home you'll get a nifty $21 000 in your pocket.
Are these new measures enough for you to screen out everything else going on in the world at the moment despite the uncertainty of it all? It would seem for some that the answer is a simple YES. 17% of respondents indicated that they are going to invest in property sooner that they otherwise would have.
This weekend I was at the Home Buyers Show in Sydney and I was very interested to see what the attendance at the show would be. Would it be quiet? Would anyone turn up? By the end of the weekend I would have a clear signal as to how people were feeling about the property market right now. What happened? There were a lot (and I mean a lot) of people at the show, the tide may have turned. It was standing room only at all of the seminars and I nearly lost my voice from answering so many questions.
Is it time to buy? How worried are you about whether now is a good time to invest in property? Planning to stash your hard earned dollars under the mattress or are decreases in interest rates and increases in the first home owners grant enough to entice you to buy property now?
www.domain.com.au
The REIA has welcomed the Reserve Bank's decision to reduce interest rates by a further 0.75 % today.
‘The latest decrease in interest rates together with the cuts in September and October mean we have the lowest interest rates since December 2003, says REIA Acting President, Mr Chris Fitzpatrick.
‘A reduction in official interest rates of 2.0% since September is great news for home owners or those contemplating home ownership', Mr Fitzpatrick continued.
The cumulative affect of the last three interest rate reductions for homeowners is that an average mortgage of $256,000 is now costing $427 less per month to service.
Whilst the Federal Government and the Reserve Bank are responding to the current economic position, State Government's should also play their part.
‘The stamp duty payable for a median priced house across Australia is an average of $14,990 which is not only an impediment to home ownership and to freeing up movement of existing owners, it is supporting a grossly inefficient tax. It is time State Governments reviewed this position', says Mr Fitzpatrick.
‘The recently announced increase in the First Home Owners Grant, the interest rate cut and the improvement to housing affordability makes now an opportune time to enter the housing market', concluded Mr Fitzpatrick.
Real Estate Institute of Australia ‘Real Estate National Update' 7 November 2008 Newsletter
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cnr Macquarie & Cobra Sts, Dubbo, NSW 2830
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Email: marketing@rhdubbo.com.au
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