Is Home Really an Asset?

So many banks and real estate salespersons to name a few, claim that owning a home is the ultimate goal of someone’s life. It is indeed a massive milestone. It is one of the indicators that you are achieving something huge in your life. Our preferences for a home can be a subject to people’s judgements, whether the location, type of living quarter, walking distance from the public amenities or so many other details that can be nit-picked. It is considered a must asked question in “101 Manual of Getting-to-know Someone” in this era of social standards comparison.

Or to put it in the other words, home is not just a place of living for someone, but it has evolved to be the source of identity and pride, especially the ones that are located in the high demand area.

• But, do we need to be very proud of where we live?

• Do we see owning a home as an ultimate lifestyle?

• Do we think of home as the greatest asset among the plethora of other assets in the market?

• Do we still hold our family’s traditional value that views owning a home as one of the greatest achievements, which is considered “a-must-have” thing in our life?

Whether we admit it or not, deep inside, most of us believe that a home is not a mere physical presence. The true concept of home is originated from someone’s mind. Home is a spiritual term of area and/or time to rest and relax, unwind from the daily grind, and it is not necessarily a physical thing. Home is where we can be ourselves and be accepted for who we are, through ups and downs; for our strengths and weaknesses; our positives and negatives.

Seeing that, the reality around us speaks differently. The advertisements about homes by the banks, financial institutions, real estate agents and even the government have all committed the same sin of degrading the true meaning of homes. Houses are the term that fits those advertisements better. House is a physical building and it does not necessarily to be someone’s home and vice versa. We can witness this during the COVID-19 lockdown around the world: so many people loathed about staying in their own house and cannot wait to be outside the place that is supposed to be their home.

Let’s talk about the banks. The houses that the banks mentioned are perceived to be assets. However, the banks do not tell the whole truth. What they do not mention is that the houses are not the purchasers’ assets and in fact, they are the banks’ assets. Why? Because when we talk about assets, we talk about accounting terms.

According to Investopedia, “An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses or improve sales, regardless of whether it’s manufacturing equipment or a patent.”

The keywords are cashflow, expenses and sales. Is our house somehow related to those keywords? We bet it is not. Houses are the property that holds an economic value (tradeable) and there is someone (purchasers) who frequently pay the sum of repayments for a certain period to service the mortgage loan.

Let’s see below some of the main indicators that our houses, that we currently live in, are not our assets, but banks assets:

1. Valuation needed before a loan agreement is successfully executed. The property valuation these days is run by the independent parties with a certain purpose in their mind: if the mortgage borrower defaults, the banks/lenders could sell the house at the quickest possible time, in the matter of few weeks. Therefore, the valuation would never reflect the best possible price that the market willing to pay. Or in other words, valuation is the lowest price market would pay if the banks need to take the house to “mortgagee-in-possession” sale. The lowest price provides the buffer for the banks to sell it in the shortest time possible, in the worst-case scenario of the loan.

2. The purchaser of the property is the person who responsible to pay the repayments frequently. Usually, the term of the mortgage loan in Australia is 30 years. The purchasers are committed and devote themselves to service the loan of the property by repayments throughout the term. The banks, on the other hand, agree to lend a sum of money and have someone/some people to pay the repayments. That is how the loan covenant is originated. The banks gain some revenue streams by charging the interest spread (usually around 2-3% above RBA Cash Rate) to the purchaser. The party that is stated on the loan agreement (purchaser), is the cash cow for the bank.

3. The Property’s Certificate of Ownership is held by the banks. This property’s certificate of ownership is usually referred to as “Certificate of Title”. This document shows who the owners of the property (mortgagee) and the purchaser (mortgagor) are for as long as the loan covenant still exists or until the loan is fully settled. So technically speaking, if the banks hold the certificate of your property, the property is not yet purchasers’ until they fully pay the loan attached to their property.

4. Insurances, bills and maintenance expenses are directed to the purchasers of the property. This is the most substantial reason. Insurances involved in the property purchase are mainly home building and home content insurances. These insurances will protect the property purchasers from unexpected occurrences that can cause the damage of the property such as fire, flood, hailstorms, thefts or any other unexpected events and therefore, can cost the property purchasers a hefty sum of money. These insurances need to be renewed annually. Bills such as strata fees, council fees and water fees, need to be borne by the purchasers. These are the hidden costs of owning a house. In the tenancy agreement, the responsible party to bear these expenses is the landlord, not the tenant. Lastly, maintenance for any damages in the property due to abuse or wear-and-tear would have to be addressed to the landlords. To put in the perspective, the banks are the ones who own the assets, but the purchasers are the ones who bear these costs. Sounds like a good deal for lenders, right? According to abs.gov.au, the mortgage industry is $30 Billion worth of industry and of course, plenty of lenders are eager to be part of the industry with that massive amount of money flowing in this area.

So now we realise that there are at least 4 main indicators above that houses are not the property purchasers’ assets, but they are the banks’ assets.

The next questions are:

• How do we make houses as our assets?

• How do we benefit from the system of home loan covenant that makes the banks richer?

• How do we benefit from the government allowable loopholes from property ownership?

• How do we structure ourselves to tap on those benefits?

• Should we pay Principal & Interest repayments or Interest Only repayments?

• Should we focus on paying off our own houses or should we use the property market to help our financial position?

All the above questions can be directed to one of our team members to grasp and develop our knowledge, skills, and experience in property ownership. Book yourself in one on one consultation so that you could understand better on how to benefit from current property system. To book your appointment, please email us to info@cvig.com.au or call one of our team members at (02) 8386 2977.