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Question:
Discuss about the Historical Housing Price Of Melbourne.

Investigating the historical housing price of Melbourne and justifying the assumptions for the housing price:

The growth rate is calculated with the help of historical price change of housing in Melbourne from 2002 to 2017, which has helped in understanding the level of price change that might incur in future. In addition, the growth rate is mainly calculated with the help of yearly difference between the old price and the new price. This detection of the changing price percentage might help in understanding the level of growth, which was seen between the prices of property over the period. The average change in the price of the property value over the period of 2002 to 2017 is mainly used in calculating the next 20 years price change in housing property. The data is mainly valuated from ATO, where all the relevant data is calculated, which helps in understand the future price of property in Melbourne. The price change of housing property is mainly helpful in understanding the expense, which will incur by technical migrant. The price change in property over the period of 20 years is relatively depicted in the below table, which could help in understating the level of expense, which could incur to achieve the Australian Dream (Tradingeconomics.com, 2018).

 Prices in Next 20 Years Year Quarter Price (“000) 0 \$    713.00 1 Q1 \$    724.40 Q2 \$    735.98 Q3 \$    747.74 Q4 \$    759.69 2 Q1 \$    771.84 Q2 \$    784.17 Q3 \$    796.71 Q4 \$    809.44 3 Q1 \$    822.38 Q2 \$    835.53 Q3 \$    848.88 Q4 \$    862.45 4 Q1 \$    876.24 Q2 \$    890.24 Q3 \$    904.47 Q4 \$    918.93 5 Q1 \$    933.62 Q2 \$    948.54 Q3 \$    963.71 Q4 \$    979.11 6 Q1 \$    994.76 Q2 \$ 1,010.66 Q3 \$ 1,026.82 Q4 \$ 1,043.23 7 Q1 \$ 1,059.91 Q2 \$ 1,076.85 Q3 \$ 1,094.06 Q4 \$ 1,111.55 8 Q1 \$ 1,129.32 Q2 \$ 1,147.37 Q3 \$ 1,165.71 Q4 \$ 1,184.34 0 Q1 \$ 1,203.27 Q2 \$ 1,222.51 Q3 \$ 1,242.05 Q4 \$ 1,261.90 10 Q1 \$ 1,282.07 Q2 \$ 1,302.57 Q3 \$ 1,323.39 Q4 \$ 1,344.54 11 Q1 \$ 1,366.03 Q2 \$ 1,387.87 Q3 \$ 1,410.05 Q4 \$ 1,432.59 12 Q1 \$ 1,455.49 Q2 \$ 1,478.76 Q3 \$ 1,502.39 Q4 \$ 1,526.41 13 Q1 \$ 1,550.81 Q2 \$ 1,575.60 Q3 \$ 1,600.78 Q4 \$ 1,626.37 14 Q1 \$ 1,652.36 Q2 \$ 1,678.78 Q3 \$ 1,705.61 Q4 \$ 1,732.88 15 Q1 \$ 1,760.57 Q2 \$ 1,788.72 Q3 \$ 1,817.31 Q4 \$ 1,846.36 16 Q1 \$ 1,875.87 Q2 \$ 1,905.86 Q3 \$ 1,936.32 Q4 \$ 1,967.27 17 Q1 \$ 1,998.72 Q2 \$ 2,030.67 Q3 \$ 2,063.12 Q4 \$ 2,096.10 18 Q1 \$ 2,129.61 Q2 \$ 2,163.65 Q3 \$ 2,198.23 Q4 \$ 2,233.37 19 Q1 \$ 2,269.07 Q2 \$ 2,305.34 Q3 \$ 2,342.19 Q4 \$ 2,379.63 20 Q1 \$ 2,417.67 Q2 \$ 2,456.31 Q3 \$ 2,495.58 Q4 \$ 2,535.47
Investigating the historical income data of Melbourne and justifying the assumptions for the income data:

 Time Income Yearly Income Income Growth 1994–95 \$ 1,340.00 \$         69,680.00 1995–96 \$ 1,297.00 \$         67,444.00 -3.21% 1996–97 \$ 1,342.00 \$         69,784.00 3.47% 1997–98 \$ 1,400.00 \$         72,800.00 4.32% 1999–2000 \$ 1,534.00 \$         79,768.00 9.57% 2000–01 \$ 1,475.00 \$         76,700.00 -3.85% 2002–03 \$ 1,525.00 \$         79,300.00 3.39% 2003–04(a) \$ 1,582.00 \$         82,264.00 3.74% 2005–06(a) \$ 1,681.00 \$         87,412.00 6.26% 2007–08(a) \$ 1,967.00 \$       102,284.00 17.01% 2009–10(a) \$ 1,870.00 \$         97,240.00 -4.93% 2011–12(a) \$ 1,914.00 \$         99,528.00 2.35% 2013–14(a) \$ 2,016.00 \$       104,832.00 5.33% 2015–16(a) \$ 2,055.00 \$       106,860.00 1.93% Average Growth rate 3.49%

The historical income data of Melbourne is mainly calculated to understand the growth in income of citizen over the period from 1994 to 2016, which helps in understanding the average growth income of citizens. In addition, the above table mainly helps in understanding the level of average growth rate, which is used in delivering future income growth rate of the technical migrant. The historical change in the price salaries and income of citizens residing in Melbourne could mainly help in understating the level of income growth, which will occur for technical migrant. The following table mainly helps in understanding the level of annual income received by technical migrant over the period of 10 years. In addition, this has mainly helped in detecting minimising growth rate income on annual basis, which will be witnessed by technical migrant. The average growth rate mainly helps in understanding the level of growth rate, which might incur over time, while portraying the minimum growth income that will be obtained by technical migrant. In addition, the growth rate of 3.49% in income will raise the level of current income from \$ 80,000 to \$ 112,757,47 in 10-year time, which could help in supporting the level of loan for achieving the Australian dream (Stat.abs.gov.au, 2018).

 Time Growth rate in 10 years 0 \$ 80,000.00 1 \$ 82,793.36 2 \$ 85,684.26 3 \$ 88,676.10 4 \$ 91,772.41 5 \$ 94,976.83 6 \$ 98,293.14 7 \$ 101,725.24 8 \$ 105,277.18 9 \$ 108,953.15 10 \$ 112,757.47
Calculating the net income by using the ATO calculator, while detecting the home loan rate and maximum amount it could borrow in current sphere:

 Particulars Monthly Yearly Annual Salary \$ 6,666.67 \$ 80,000.00 Yearly expense Food, Transportation, and other amenities \$ 2,000.00 \$ 24,000.00 Rent \$ 1,400.00 \$ 16,800.00 Expense of living \$ 3,400.00 \$ 40,800.00 Tax \$17,547.00 Savings \$ 1,804.42 \$ 21,653.00

 Particulars Values Home Loan rate 5.20% Time 30 Max LVR 90% Property Price \$ 747,740 Maximum Amount borrowed \$ 676,087 Initial deposit to the bank \$ 71,653

After evaluating the net income of technical migrant, the property of 747,740 can be bought from the initial deposit to the bank. In addition, the minimum expenses of living that will be incurred is \$ 40,800. This will provide an initial savings for the current year of \$ 21,653.00, which will increase the savings to the level of \$ 71,653. Hence, with the availability of max LVR of 90% is mainly used for accumulating the loan on house (Bankrate.com, 2018).

Calculating the stamp duty situated with property purchase, while detecting the house price client can afford:

 Without Mortgage Premium Particulars Values Property \$350,000.00 Total Stamp Duty value \$1,029.00 Total cost \$351,029.00 Bank loan \$70,000.00 Savings \$71,653.00

 With Mortgage Premium Particulars Values Property \$ 500,000.00 Total Stamp Duty value \$ 1,362.00 Current savings \$ 50,000.00 Initial payment \$ 25,000.00 Insurance premium \$ 16,457.00 Total Bank deposit \$ 41,457.00

The above table mainly helps in understanding the level of property value, which could be held, as per savings conducted during the period. The current savings is mainly at the level of \$ 71,653, which has allowed the company to obtain a bank loan of \$350,000.00. The 20% value of LVR for the loan amount has accumulated to \$70,000, which is adequately supported by the savings of \$ 71,653. However, using the mortgage premium method would eventually help in gathering the property with a value of \$ 500,000. This was only possible ,as we would take mortgage premium for supporting the loan, as the total LVR is more than 80% (Canales, 2016).

Drafting the financial Plan where upfront payment of 20% is calculated and 5% upfront payment in calculated for loan:

 Year Property price Savings Target 20% upfront Stamp duty Difference 0 \$ 713,000.00 \$ 71,653.33 \$ 142,600.00 \$ 39,729.00 \$ (110,675.68) 1 \$ 741,951.55 \$ 94,388.41 \$ 148,390.31 \$ 41,342.21 \$ (95,344.11) 2 \$ 790,540.19 \$    118,255.26 \$ 158,108.04 \$ 44,049.61 \$ (83,902.39) 3 \$ 842,310.79 \$    143,230.48 \$ 168,462.16 \$ 46,934.31 \$ (72,166.00) 4 \$ 897,471.73 \$    169,304.17 \$ 179,494.35 \$ 50,007.93 \$ (60,198.11) 5 \$ 956,245.02 \$    196,527.65 \$ 191,249.00 \$ 53,282.83 \$ (48,004.19) 6 \$ 1,018,867.24 \$    224,954.29 \$ 203,773.45 \$ 56,772.20 \$ (35,591.35) 7 \$ 1,085,590.43 \$    254,639.59 \$ 217,118.09 \$ 60,490.07 \$ (22,968.57) 8 \$ 1,156,683.17 \$    285,641.25 \$ 231,336.63 \$ 64,451.42 \$ (10,146.81) 9 \$ 1,232,431.61 \$    318,019.25 \$ 246,486.32 \$ 68,672.20 \$ 2,860.73 10 \$ 1,313,140.63 \$    351,835.94 \$ 262,628.13 \$ 73,169.37 \$ 16,038.44 11 \$ 1,399,135.09 \$    387,156.14 \$ 279,827.02 \$ 77,961.06 \$ 29,368.05 12 \$ 1,490,761.13 \$    424,047.20 \$ 298,152.23 \$ 83,066.55 \$ 42,828.43 13 \$ 1,588,387.53 \$    462,579.15 \$ 317,677.51 \$ 88,506.38 \$ 56,395.27 14 \$ 1,692,407.26 \$    502,824.73 \$ 338,481.45 \$ 94,302.45 \$ 70,040.83 15 \$ 1,803,239.00 \$    544,859.54 \$ 360,647.80 \$ 100,478.10 \$ 83,733.65 16 \$ 1,921,328.84 \$    588,762.12 \$ 384,265.77 \$ 107,058.17 \$ 97,438.19

 Year Property price Savings Target 5% upfront Stamp duty Insurance premium Amount Saved 0 \$ 713,000.00 \$ 71,653.33 \$ 142,600.00 \$ 39,729.00 \$24,702.82 \$(28,428.50) 1 \$ 741,951.55 \$ 94,388.41 \$ 148,390.31 \$ 41,342.21 \$25,705.89 \$(9,757.26) 2 \$ 790,540.19 \$ 118,255.26 \$ 158,108.04 \$ 44,049.61 \$27,389.31 \$7,289.33 3 \$ 842,310.79 \$    143,230.48 \$ 168,462.16 \$ 46,934.31 \$29,182.97 \$24,997.66 4 \$ 897,471.73 \$    169,304.17 \$ 179,494.35 \$ 50,007.93 \$31,094.09 \$43,328.56 5 \$ 956,245.02 \$    196,527.65 \$ 191,249.00 \$ 53,282.83 \$33,130.37 \$62,302.20 6 \$ 1,018,867.24 \$    224,954.29 \$ 203,773.45 \$ 56,772.20 \$35,300.00 \$81,938.73 7 \$ 1,085,590.43 \$    254,639.59 \$ 217,118.09 \$ 60,490.07 \$37,611.71 \$102,258.29

From the overall evaluation of the above table and calculations, the purchase of property conducted for 20% upfront payment is calculated at year 9, where the difference in expenses and saving becomes positive. On the other hand, the property can be purchased during the year of 2 for upfront payment of 5%, as the amount saved become positive. In both the situations, the positive value indicates the chance of acquiring the loan for the dream house.

Calculating whether increment in interest payment can hamper interest payment capability of the lender:

 Time 360 36 324 Property value \$              713,000.00 Loan amount \$              677,350.00 Year Interest rate Mortgage Payment Saved Savings 6 5.20% \$ 44,632.83 \$ 62,302.20 \$   17,669.37 7 5.20% \$ 44,632.83 \$ 66,612.89 \$   21,980.06 8 5.20% \$ 44,632.83 \$ 72,619.33 \$   27,986.50 9 7.00% \$ 54,077.12 \$ 80,388.97 \$ 26,311.85

From the overall evaluation of the above table the relevant change in interest rate would not have a negative impact on the capability of the client on maintain the level of loan payment. In addition, the mortgage payment on yearly basis will only change to the level of \$44,855.28 from \$44,632.83, which will help in detecting the savings position of the client. After purchasing the house expense from rent will decline, which might help in improving the level of income for the client. This would help in supporting the mortgage payment and the incremental change in interest rate after year 3 of the purchase. Hence, it could be identified that the client’s overall income is high, which will support the level of rising interest rate from the home loan.

Providing a relevant plan with detailed risk entailed by the assumption made for the financial plan:

The Austrian Dream is achievable, as per the calculation conducted int eh above table. The relevant assumption of the income and housing price should hold over the period of the analysis. In addition, the estimated expenses incurred by induvial in Melbourne should also hold, as it is mainly basis on which the overall calculation is conducted. Moreover, the interest rate is also assumed from bank of Melbourne home loan rate, which is at the level of 5.20%. The potential risk mainly arises from declining income that will incur by client if economic down turn incurs, which will directly affect capability of the client to maintain loan payments. On the other hand, the assumptions made on the financial plan if changed over time will directly have impact on income capability of the client. The overall expenses such as stamp duty, insurance premium will mainly raise the timing of the loan initiation. Therefore, it could be assumed that if the assumed measures hold then the overall Austrian dream is feasible for the client (Titman, Keown & Martin, 2017).

Reference and Bibliography:

Abs.gov.au. (2018). Abs.gov.au. Retrieved 23 May 2018, from https://abs.gov.au/AUSSTATS/[email protected]/DetailsPage/6523.02015-16?OpenDocument

Abs.gov.au. (2018). Ato.gov.au. Retrieved 23 May 2018, from https://www.ato.gov.au/calculators-and-tools/simple-tax-calculator/

Bankrate.com. (2018). Bankrate. Retrieved 23 May 2018, from https://www.bankrate.com/calculators/mortgages/mortgage-payment-calculator.aspx

Calculators, F., & Calculator, S. (2018). Stamp Duty Calculator - Calculate Stamp Duty For NSW, VIC & Others. Realestate.com.au. Retrieved 23 May 2018, from https://www.realestate.com.au/calculators/stamp-duty-calculator/

Canales, R. (2016). From ideals to institutions: Institutional entrepreneurship and the growth of Mexican small business finance. Organization Science, 27(6), 1548-1573.

Finder.com.au. (2013). finder.com.au. Retrieved 23 May 2018, from https://www.finder.com.au/home-loans/bank-of-melbourne

Kraemer-Eis, H., Botsari, A., Gvetadze, S., Lang, F., & Torfs, W. (2017). European Small Business Finance Outlook: December 2017 (No. 2017/46). EIF Working Paper.

Living, C. (2018). Cost of Living in Melbourne, Australia. May 2018 prices in Melbourne.. Expatistan, cost of living comparisons. Retrieved 23 May 2018, from https://www.expatistan.com/cost-of-living/melbourne

Living, C. (2018). Cost of Living in Melbourne. Numbeo.com. Retrieved 23 May 2018, from https://www.numbeo.com/cost-of-living/in/Melbourne

LMI premium estimator - Genworth. (2018). Genworth.com.au. Retrieved 23 May 2018, from https://www.genworth.com.au/lenders/lmi-tools/lmi-premium-estimator/

Peirson, G., Brown, R., Easton, S., & Howard, P. (2014). Business finance. McGraw-Hill Education Australia.

Stampduty.calculatorsaustralia.com.au. (2014). Stamp Duty Calculator. Retrieved 23 May 2018, from https://stampduty.calculatorsaustralia.com.au/

Stat.abs.gov.au. (2018). Stat.abs.gov.au. Retrieved 23 May 2018, from https://stat.abs.gov.au/itt/r.jsp?RegionSummary&region=2GMEL&dataset=ABS_REGIONAL_ASGS&geoconcept=REGION&measure=MEASURE&datasetASGS=ABS_REGIONAL_ASGS&datasetLGA=ABS_NRP9_LGA&regionLGA=REGION&regionASGS=REGION

Titman, S., Keown, A. J., & Martin, J. D. (2017). Financial management: Principles and applications. Pearson.

Westpac.com.au. (2018). Westpac.com.au. Retrieved 23 May 2018, from https://www.westpac.com.au/personal-banking/home-loans/calculator/stamp-duty-calculator/

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