The term "sub-prime" has been popularized in the media of late and involves financial institutions providing housing credit to borrowers deemed "sub-prime" (which are sometimes referred to as "under-banked").

Local current affairs programmes have scandalised the "sub-prime" issue, creating an element of fear in mainstream Australia. The somewhat biased view portrayed by the media shows images of American suburbs with properties up for foreclosure. They also feature the victims of the "sub-prime" issue - average American families that are now in financial crisis. While we acknowledge that this is an issue that affects the well being of some American families, look closely. Many of the people affected by "sub-prime" were lured into mortgages on which they could not be expected to make the corresponding repayments. Such predatory lending has not occurred in Australia because the Uniform Consumer Credit Code protects borrowers against such practices.

So what effect does "sub-prime" have on Australians?

The situation in Australia is completely different. Institutions lending for home building here have exercised far greater care in deciding to whom and how much they lend and this lending has been much more tightly regulated. Consequently, the proportion of defaults among borrowers is dramatically lower here and the housing market and the values of existing homes are in much better shape.

Australian banks, which are the dominant source of loans for home building, are amongst the best capitalised and most profitable in the world and should comfortably weather the turbulence in world financial markets.

With falls in block prices and interest rates, the affordability of new homes has improved, and particularly so for First Home Buyers that qualify for the $21,000 first home buyers grant.

But what if interest rates go back up?

History shows that the cautious lending practices adopted by Australian financial institutions have built into home mortgages buffers that allow borrowers to continue servicing their mortgages even if interest rates rise. The turbulence in world financial markets is reinforcing that cautious approach and stands both borrowers and lenders in good stead.

At this point in time, interest rates have been lowered by the Reserve Bank of Australia, and indications are that they will be lowered even further. While you should seek professional guidance for your own personal financial circumstances, now could be the right time for you to build.

Recently there have been reports of Perth property values falling. However, one needs to take into perspective the true story. If property "values" fall, only the property owners selling incur losses. The vastly greater number of home owners incur only "paper" or theoretical losses.

Property values can fluctuate in times of uncertainty. However, over the medium to long term (which is relevant to most home owners), property values tend to increase. If you are thinking of building a new family home, and intend to make it your home for a while, history shows us that the long term value of your new home should not go down.

The fundamentals of WA's residential property market remain sound and the conditions of the market are different from those of, say, the property market in the US.

The Deputy Governor of the Reserve Bank of Australia, in a speech on the 30th of October 2008, said that there are reasons to expect that the Australian housing market will not follow the US market to the same degree. These reasons include:

1. The cycle of the Australian housing market is at a more advanced stage and is probably leading the US by 3 years.
2. In the US, the rise in house prices stimulated a very strong supply response, so much so that by the end of 2007, there was almost one year's supply of new homes, causing prices to fall. In Australia, there is no oversupply problem at present. In fact, the consensus is that there is a shortage of dwellings currently.
3. The lending boom in Australia was concentrated on people with low levels of debt that were mainly existing home owners that traded up to bigger and better houses, or purchased investment properties. In the US, lending was targeted at more marginal borrowers who previously could not afford a home loan. Lending also took the form of restructuring existing borrowers' loans in order to aggressively raise the amounts borrowed.

WA's solid population growth suggests that the number of new homes built in past years has NOT been excessive. Even after the global financial crisis, indications show that between 500 and 1,000 people continue to migrate into WA each week! This means that we will need more homes. This greater demand in housing will facilitate the stabilization of prices whilst reinforcing the strong rental returns currently experienced by investors in the WA market.

Historically, Perth housing prices have faired well. The chart below, sourced from the Real Estate Institute of Western Australia (REIWA), shows a continual upward trend in median house prices since 1978. Even during the last recession in the early 1990s, prices took a slight dip before experiencing a more corrected and gradual progressive increase.

Reproduced with the kind permission of REIWA

So in essence, we may be currently experiencing a slight dip in house prices, but with our net immigration and close economic ties to growing international markets, median house prices in WA should stabilise after the current volatility in the financial markets subsides and continue a more natural progressive growth. Again, the question is one of ongoing affordability, and you may need to seek advice that is relevant to your specific circumstances.

In economic times like these we must all be careful to whom we entrust our money. As WA's largest privately owned company, we share this sentiment with you.

There is a lot of speculation in the new homes market at the moment. Our sales teams frequently get asked about what happens if a builder has financial trouble, and cannot finish construction. This is a potential problem that is obviously better avoided.

History shows that in uncertain economic times, some building companies have and will fall victim to economic pressures. As competition increases, prices and margins are sacrificed, leaving some builders exposed to cash flow issues.

Over the past 50 years BGC has seen building companies come and go, and we have even bailed out building companies in financial trouble and fulfilled the contractual obligations to stranded customers.

Why should you choose a BGC builder?

The home building divisions within the BGC Group have the financial backing of the BGC parent company. This long established and large company has low levels of debt, and operates in diverse and well performing industries such as the manufacture of building materials, mineral resources and commercial building construction as well as property and asset ownership.

Not only are the home building divisions backed by strength and security, they operate independently enabling them to tailor their services to their clients' needs. This means that they can provide you with the product, price and service that are right for you.

So you can see we have building brands with individual personalities. And because we're strong, diversified and both horizontally and vertically integrated, you know we will be around to complete your new home.

Recently, the Australian Government introduced a First Home Owner's Boost, supplementing the WA Government funded First Home Owner Grant Scheme.

The boost now allows first home buyers who build a new home with a grant of $21,000. First-home buyers have until June 30, 2009 to receive their full grant.

The response to the grant has been extremely positive and has provided a positive boost in the new homes market.

So how do you know if you qualify for the grant?

With any type of grant there are terms and conditions that you need to satisfy. While all of our building divisions can answer your questions, BGC has two building divisions that specialise in the needs of first home buyers. These are:

• Homestart
• WA Housing Centre

To find out more about the grant and your eligibility, click on the following link: http://www.dtf.wa.gov.au or download the information files provided by the Department of Finance and Treasury:

• First Home Owners Boost (FHOB) Scheme Fact sheet
• First Home Owners Boost (FHOB) Frequently Asked Questions

The housing industry follows a cycle. After each housing boom (as we experienced in recent years) market activity falls initially, and then settles back to normal levels. These troughs can be beneficial to customers as they give those that have missed out on buying property (when land prices were artificially high) a window of opportunity to buy at a realistic price. As competition increases, some builders may also respond with some valuable offers on the construction of new homes.

So with land and new homes prices being attractive, and interest rates being reduced, now is a good time to build. Remember, the alternative is to rent, and by building you are always at least paying for a property of your own.

And as further reassurance, BGC has always performed better in the harder times as customers tend to gravitate towards experienced builders that they know are going to be around long after their home is finished.

The BGC parent company includes a number of different divisions that manufacture a large share of the materials and services used to build a home. Some of these include:

• BGC Concrete – which produces and supplies the concrete for our slabs and footings.
• BGC Cement – which manufactures the cement used to build our homes.
• Brikmakers – which manufactures Blokpave pavers, ecobrick, and as from January 2009, a range of clay bricks.
• Affinity – which manufactures the doors and windows and frames for our homes.
• Harmony Roof Tiles – which produces the roof tiles that add the final touch to our homes.
• BGC Plasterboard – which manufactures plaster sheeting and related products.
• BGC Builder Supplies – which supplies items like plumbing materials, building related fittings and appliances.

A more comprehensive list of each of our manufacturing and/or supply divisions can be found at the following link, www.bgc.com.au

So you can see, we supply the bulk of materials required to build a home.

So what does this mean to you?

One word – security. Security in supplying quality products within the timeframe required to build your new home.

Are these products and services also supplied to other builders?

Yes. In fact, most builders in WA use some component of BGC materials. Many builders have recognised the quality and reliability of BGC products.

Are these products any good?

All of our products are stringently tested and continually improved and either meet or exceed the relevant Australian standards.

In fact, we export a lot of our products to interstate and overseas markets.

And finally, if they weren't quality and reliable products, other builders would not be buying them.