Financial Plan For Buying A House In Sydney: Forecasting Housing Prices And Income For The Next 20 Years

Assumptions for future prices and historical housing price of Sydney

1). Assumptions for future prices and historical housing price of Sydney

The housing prices of Sydney is analysed using the growth made on a quarterly basis. The prices are taken from Australian Bureau of Statistics (ABS) on a quarterly basis from 2002-2017 (for complete 15 years) which has further analysing the housing prices in Sydney, region of New South Wales (NSW). The ABS publishes the median price from all regions but the selected one for the study is “Median Price of Established House Transfers (Unstratified)” with 62 observations in total. The growth is analysed on a 20 year period for the client as per the buying a house in New South Wales. Based on the scenario, below is the prices action taken for the housing property in Sydney.

Assumptions:

The opening balance of the housing price sheet is taken and the correct values are taken in consideration (Turvey, 2017).
The demand for housing services is increasing with price.
Housing prices are forward looking and future prices are expected based on the interest rates.

Next 20 Years Prices
Year Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Quarter	Price
Year 0		$ 1,020,000
Year 1	Quarter 1	$ 1,039,140
	Quarter 2	$ 1,058,639
	Quarter 3	$ 1,078,504
	Quarter 4	$ 1,098,742
Year 2	Quarter 1	$ 1,119,360
	Quarter 2	$ 1,140,364
	Quarter 3	$ 1,161,763
	Quarter 4	$ 1,183,563
Year 3	Quarter 1	$ 1,205,772
	Quarter 2	$ 1,228,398
	Quarter 3	$ 1,251,449
	Quarter 4	$ 1,274,932
Year 4	Quarter 1	$ 1,298,856
	Quarter 2	$ 1,323,229
	Quarter 3	$ 1,348,059
	Quarter 4	$ 1,373,355
Year 5	Quarter 1	$ 1,399,125
	Quarter 2	$ 1,425,380
	Quarter 3	$ 1,452,126
	Quarter 4	$ 1,479,375
Year 6	Quarter 1	$ 1,507,135
	Quarter 2	$ 1,535,416
	Quarter 3	$ 1,564,228
	Quarter 4	$ 1,593,580
Year 7	Quarter 1	$ 1,623,483
	Quarter 2	$ 1,653,948
	Quarter 3	$ 1,684,984
	Quarter 4	$ 1,716,602
Year 8	Quarter 1	$ 1,748,814
	Quarter 2	$ 1,781,630
	Quarter 3	$ 1,815,061
	Quarter 4	$ 1,849,121
Year 9	Quarter 1	$ 1,883,819
	Quarter 2	$ 1,919,168
	Quarter 3	$ 1,955,181
	Quarter 4	$ 1,991,869
Year 10	Quarter 1	$ 2,029,246
	Quarter 2	$ 2,067,325
	Quarter 3	$ 2,106,117
	Quarter 4	$ 2,145,638
Year 11	Quarter 1	$ 2,185,901
	Quarter 2	$ 2,226,918
	Quarter 3	$ 2,268,706
	Quarter 4	$ 2,311,278
Year 12	Quarter 1	$ 2,354,648
	Quarter 2	$ 2,398,833
	Quarter 3	$ 2,443,846
	Quarter 4	$ 2,489,704
Year 13	Quarter 1	$ 2,536,423
	Quarter 2	$ 2,584,018
	Quarter 3	$ 2,632,507
	Quarter 4	$ 2,681,905
Year 14	Quarter 1	$ 2,732,230
	Quarter 2	$ 2,783,500
	Quarter 3	$ 2,835,731
	Quarter 4	$ 2,888,943
Year 15	Quarter 1	$ 2,943,154
	Quarter 2	$ 2,998,381
	Quarter 3	$ 3,054,645
	Quarter 4	$ 3,111,965
Year 16	Quarter 1	$ 3,170,360
	Quarter 2	$ 3,229,851
	Quarter 3	$ 3,290,458
	Quarter 4	$ 3,352,203
Year 17	Quarter 1	$ 3,415,106
	Quarter 2	$ 3,479,190
	Quarter 3	$ 3,544,476
	Quarter 4	$ 3,610,987
Year 18	Quarter 1	$ 3,678,746
	Quarter 2	$ 3,747,777
	Quarter 3	$ 3,818,103
	Quarter 4	$ 3,889,749
Year 19	Quarter 1	$ 3,962,739
	Quarter 2	$ 4,037,099
	Quarter 3	$ 4,112,854
	Quarter 4	$ 4,190,030
Year 20	Quarter 1	$ 4,268,655
	Quarter 2	$ 4,348,755
	Quarter 3	$ 4,430,359
	Quarter 4	$ 4,513,4930

2).Evaluation of historical income data for Sydney and forecast for next 10 years and certain assumptions:

Year	Income	Income on yearly basis	% of Income Growth
1994– 1995	$ 642	$ 33,384
1995– 1996	$ 626	$ 32,552	-2.4922%
1996– 1997	$ 648	$ 33,696	3.5144%
1997– 1998	$ 664	$ 34,528	2.4691%
1999–2000	$ 692	$ 35,984	4.2169%
2000– 2001	$ 709	$ 36,868	2.4566%
2002– 2003	$ 726	$ 37,752	2.3977%
2003– 2004 (A)	$ 806	$ 41,912	11.0193%
2005– 2006 (A)	$ 870	$ 45,240	7.9404%
2007– 2008 (A)	$ 994	$ 51,688	14.2529%
2009– 2010 (A)	$ 981	$ 51,012	-1.3078%
2011– 2012 (A)	$ 1,015	$ 52,780	3.4659%
2013– 2014 (A)	$ 1,046	$ 54,392	3.0542%
2015– 2016 (A)	$ 1,070	$ 55,640	2.2945%

The historical income on yearly basis is calculated the values from the New South Wales, gross domestic income data in which the data is extracted from year 1994-2016.

Average income Growth rate	4.0986%
Inflation rate (2018)	2.2400%
Growth rate in income	4.1904%

Moreover, the client’s Australian dream has been met only through historical data of Household Gross Income and the increment. The past year plays a crucial rule in calculation of growth rate with the inflation rate (Ferrero, 2015). So, the first assumption is that inflation rate for all the years is changes experienced in the housing prices (2.24%) which will help in further understanding of the growth in income (4.19%) that will be seen in next 10 years. This is followed by the second assumption, that the mortgage premium will be calculated with and without premium to purchase the “Australian dream” in Sydney. The average growth rate is given by 4.0986% and the same has been depicted by the table below.

Time	Growth for 10 years ahead
Year 0	$ 80,000
Year 1	$ 83,352
Year 2	$ 86,769
Year 3	$ 90,325
Year 4	$ 94,027
Year 5	$ 97,881
Year 6	$ 101,892
Year 7	$ 106,069
Year 8	$ 110,416
Year 9	$ 114,942
Year 10	$ 119,652
Year 11	$ 124,557
Year 12	$ 129,662
Year 13	$ 134,976
Year 14	$ 140,508
Year 15	$ 146,267
Year 16	$ 152,262
Year 17	$ 158,502
Year 18	$ 164,999
Year 19	$ 171,761
Year 20	$ 178,801

3). Usage of ATO calculator to calculate net income with home loan rate and maximum borrowing amount

Home Loan rate	4.00%
Time	30
Max LVR	80%
Property Price	$ 1,078,504
Maximum Amount borrowed	$ 862,803
Initial deposit to the bank	$ 215,701

The tables are illustrated to present the savings and the borrowing amount of the client. The home loan calculation is based on the property price which is around $1,078,504 with savings being $2,234 on a monthly basis and $27,893 on a yearly basis. The realistic assumption is given in the table below where other miscellaneous expenses are also given before deciding on the savings on a yearly/ monthly basis (Abs.gov.au., 2018).

Particulars	Monthly	Yearly
Annual Salary	$ 6,667	$ 80,000
Yearly expense
Amenities (Food and Transport)	$ 1,570	$ 18,840
Rent	$ 1,310	$ 15,720
Living Expense	$ 2,880	$ 34,560
Tax		$ 17,547
Savings	$ 2,324	$ 27,893

4). Stamp duty calculation with purchase of property and affordability of the client.

Forecasting Income of the Client for the Next 10 Years

No Mortgage Premium
Property	$ 375,000.00
Total Stamp Duty value	$ 278.00
Total cost	$ 375,278.00
Bank loan	$ 75,000.00
Savings	$ 77,893.00
Extra amount	$ 2,893.00

Mortgage Premium Included
Property	$ 600,000.00
Total Stamp Duty value	$ 1,614.00
Current savings	$ 77,893.00
Initial payment	$ 50,000.00
Insurance premium	$ 20,790.00
Total Bank deposit	$ 70,790.00
Savings	$ 7,103.00

The property value is validated with and without mortgage premium is used (Nakamura, Peiser & Torto, 2018). The valuation of property value came out to be as $375,000 which can be obtained by the client because the saving is only $7,103. The LVR being at 80% has not only allowed the client to accrue the value of property at $375,000 but also with adequate insurance, in case of mortgage premium at levels of $ 600,000. This is where the loan is received after paying the premium amount. As a result, total LVR of 89% is received with the premium when it is provided with the bank

5). Financial plan with loan upfront payment of 20% and 5%

Year	Property price	Income	Expense	Tax	Saved	Savings Target	Income	20% upfront	Stamp duty	Difference
0	$ 1,020,000	$ 80,000	$ 34,560	$ 17,547	$ 50,000	$ 77,893	$ 27,893	$ 204,000	$ 39,729	$ (165,836)
1	$ 1,039,140	$ 83,352	$ 35,241	$ 18,636	$ 77,893	$ 107,369	$ 29,475	$ 207,828	$ 40,475	$ (140,934)
2	$ 1,058,639	$ 86,769	$ 35,935	$ 19,746	$ 107,369	$ 138,456	$ 31,087	$ 211,728	$ 41,234	$ (114,506)
3	$ 1,078,504	$ 90,325	$ 36,643	$ 21,052	$ 138,456	$ 171,086	$ 32,630	$ 215,701	$ 42,008	$ (86,623)
4	$ 1,098,742	$ 94,027	$ 37,365	$ 22,422	$ 171,086	$ 205,326	$ 34,240	$ 219,748	$ 42,796	$ (57,218)
5	$ 1,119,360	$ 97,881	$ 38,101	$ 23,848	$ 205,326	$ 241,259	$ 35,932	$ 223,872	$ 43,599	$ (26,212)
6	$ 1,140,364	$ 101,892	$ 38,852	$ 25,332	$ 241,259	$ 278,968	$ 37,709	$ 228,073	$ 44,417	$ 6,478
7	$ 1,161,763	$ 106,069	$ 39,617	$ 26,877	$ 278,968	$ 318,542	$ 39,575	$ 232,353	$ 45,251	$ 40,939
8	$ 1,183,563	$ 110,416	$ 40,397	$ 28,486	$ 318,542	$ 360,075	$ 41,533	$ 236,713	$ 46,100	$ 77,263
9	$ 1,205,772	$ 114,942	$ 41,193	$ 30,160	$ 360,075	$ 403,664	$ 43,588	$ 241,154	$ 46,965	$ 115,544
10	$ 1,228,398	$ 119,652	$ 42,005	$ 31,903	$ 403,664	$ 449,408	$ 45,745	$ 245,680	$ 47,846	$ 155,883
11	$ 1,251,449	$ 124,557	$ 42,832	$ 33,718	$ 449,408	$ 497,415	$ 48,007	$ 250,290	$ 48,744	$ 198,382
12	$ 1,274,932	$ 129,662	$ 43,676	$ 35,606	$ 497,415	$ 547,795	$ 50,379	$ 254,986	$ 49,659	$ 243,149
13	$ 1,298,856	$ 134,976	$ 44,536	$ 37,573	$ 547,795	$ 600,661	$ 52,867	$ 259,771	$ 50,590	$ 290,300
14	$ 1,323,229	$ 140,508	$ 45,414	$ 39,620	$ 600,661	$ 656,136	$ 55,475	$ 264,646	$ 51,540	$ 339,951
15	$ 1,348,059	$ 146,267	$ 46,308	$ 41,750	$ 656,136	$ 714,344	$ 58,208	$ 269,612	$ 52,507	$ 392,226
16	$ 1,373,355	$ 152,262	$ 47,221	$ 43,969	$ 714,344	$ 775,417	$ 61,073	$ 274,671	$ 53,492	$ 447,254

Year	Property price	Income	Expense	Tax	Saved	Savings Target	5% upfront	Insurance premium	Stamp duty	Total payment	Amount
0	$ 1,020,000	$ 80,000	$ 34,560	$ 17,547	$ 50,000	$ 77,893	$ 51,000	$ 43,758	$ 39,729	$ 134,487	$ (56,594)
1	$ 1,039,140	$ 83,352	$ 35,241	$ 18,636	$ 77,893	$ 107,369	$ 51,957	$ 44,579	$ 40,475	$ 137,011	$ (29,642)
2	$ 1,058,639	$ 86,769	$ 35,935	$ 19,746	$ 107,369	$ 138,456	$ 52,932	$ 45,416	$ 41,234	$ 139,582	$ (1,126)
3	$ 1,078,504	$ 90,325	$ 36,643	$ 21,052	$ 138,456	$ 171,086	$ 53,925	$ 46,268	$ 42,008	$ 142,201	$ 28,885
4	$ 1,098,742	$ 94,027	$ 37,365	$ 22,422	$ 171,086	$ 205,326	$ 54,937	$ 47,136	$ 42,796	$ 144,869	$ 60,457
5	$ 1,119,360	$ 97,881	$ 38,101	$ 23,848	$ 205,326	$ 241,259	$ 55,968	$ 48,021	$ 43,599	$ 147,588	$ 93,671
6	$ 1,140,364	$ 101,892	$ 38,852	$ 25,332	$ 241,259	$ 278,968	$ 57,018	$ 48,922	$ 44,417	$ 150,357	$ 128,611
7	$ 1,161,763	$ 106,069	$ 39,617	$ 26,877	$ 278,968	$ 318,542	$ 58,088	$ 49,840	$ 45,251	$ 153,178	$ 165,364
8	$ 1,183,563	$ 110,416	$ 40,397	$ 28,486	$ 318,542	$ 360,075	$ 59,178	$ 50,775	$ 46,100	$ 156,053	$ 204,023
9	$ 1,205,772	$ 114,942	$ 41,193	$ 30,160	$ 360,075	$ 403,664	$ 60,289	$ 51,728	$ 46,965	$ 158,981	$ 244,683

The calculations above show the property investment at 20% and 5% upfront payment of the client payment. Moreover, based on this from 6^th year loan can be accumulated at 20% upfront and 3^rd year in case 5% upfront. This can be further explained that level of improvement can be seen from the income level at the time of total payment needs to be made which turns out to be positive for the amount.

6). To check the interest payment capability of the Lender

Time	360
Property value	$ 1,119,359.81
Loan amount	$ 1,063,391.82

Year	Interest rate	Mortgage Payment	Saved	Savings
6	4.00%	$60,921.54	$ 93,670.95	$ 32,749.40
7	4.00%	$60,921.54	$ 90,344.31	$ 29,422.76
8	4.00%	$60,921.54	$ 89,331.03	$ 28,409.49
9	7.00%	$84,897.27	$ 90,734.99	$ 5,837.72

As per the generalization, the mortgage payments are made after and the property purchase is done. Moreover, the interest rates has changed from 4% to 7% in 6^th year which will eventually have low affect on the client’s mortgage payment. However, the savings are generated from the time where initial investments had been made (Gitman, Juchau & Flanagan, 2015). Also, the rise in interest rates can be seen after 8^th year with change in mortgage payment from $60,921.54 to $84,897.27 and this may affect the client’s savings as there is a dip that can be seen. Nevertheless, with rising income, the changes can be compensated in long run.

7). Assumptions underlying this financial plan with potential Risks

The underlined assumptions are made on the client’s dream to own a home in Sydney and his “Australian Dream” to purchase a property. As per the calculations done, the client is in a position to buy new home and the financial planner not only represents the income change over a period of time. The assumptions deals that the property was in Sydney, the household income of NSW was taken to calculate the change in income over time. Moreover, the only risk that the client faces is the risk of emergency and losing its employment, if any of this happens then the client might no more be fit to buy his property (Charles, 2017).

Lastly, there is one constraint in the model that the overall income is dependent on buying a property in Sydney which would only be feasible if the mortgage payment is based on it.

Reference:

Abs.gov.au. (2018). Ato.gov.au. Retrieved 25 May 2018, from https://www.ato.gov.au/calculators-and-tools/simple-tax-calculator/

Charles, A. R. (2017). The new property. In Theoretical and Empirical Studies of Rights (pp. 81-135). Routledge.

Ferrero, A. (2015). House price booms, current account deficits, and low interest rates. Journal of Money, Credit and Banking, 47(S1), 261-293.

Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. Pearson Higher Education AU.

Nakamura, S., Peiser, R., & Torto, R. (2018). Are There Investment Premiums for Mixed-Use Properties?. Journal of Real Estate Research, 40(1), 1-39.

Turvey, R. (2017). The economics of real property: an analysis of property values and patterns of use. Routledge.

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