Latest / The Money Puzzle / Where investors will hunt in the looming property downturn

Transcript

Where investors will hunt in the looming property downturn · The Money Puzzle

• 0:10
  Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
• 0:14
  Speaker 1: James Kirkby. Welcome aboard everybody. I do hope you had
• 0:17
  Speaker 1: a good break over easter. If you had a spare moment,
• 0:20
  Speaker 1: you might take a look at the series of videos
• 0:24
  Speaker 1: from the podcast which we've put up on YouTube.
• 0:26
  Speaker 2: We've put up.
• 0:27
  Speaker 1: Three shows, something of an experiment. They seem to be
• 0:30
  Speaker 1: quite popular. So if you want to see what we
• 0:32
  Speaker 1: look like, if you really do, then it's therefore all
• 0:35
  Speaker 1: to see. There's a very good shows that we put
• 0:37
  Speaker 1: up there. They're getting some pretty good numbers. I'm delighted
• 0:40
  Speaker 1: to say now just watching the coverage elsewhere in what
• 0:44
  Speaker 1: you might call traditional media of late last week or two,
• 0:48
  Speaker 1: there's definitely a change of tone about the outlook for
• 0:51
  Speaker 1: the property market. This is probably because the interest rate
• 0:55
  Speaker 1: to outlook has worsened, if you like to more rate
• 0:59
  Speaker 1: rises thanks to the Iran crisis and the important inflation
• 1:02
  Speaker 1: we're getting there. Lucy Ellis, who's a big name in
• 1:06
  Speaker 1: economist circles because this used to be a deputy governor
• 1:09
  Speaker 1: at the RBA and his chief economist set Westpac, now
• 1:12
  Speaker 1: says there are three more rate rises to come. I'm
• 1:16
  Speaker 1: speaking to you after Reester, remember that, so I want
• 1:18
  Speaker 1: to have a look at that. I also want to
• 1:20
  Speaker 1: have a look at the issue of how many investoral
• 1:22
  Speaker 1: owned properties are empty out there, and also CGT it's
• 1:27
  Speaker 1: going to change in the budget.
• 1:28
  Speaker 2: We know that, what's going to happen? What does it mean?
• 1:30
  Speaker 1: How do we behave in the light of that. My
• 1:32
  Speaker 1: guest today is Eliza Owned. She's an independent housing analyst.
• 1:37
  Speaker 2: You would know her. I'm sure she's been on the
• 1:39
  Speaker 2: show before.
• 1:39
  Speaker 3: How are you, Eliza, I'm really well, thank you, thanks
• 1:42
  Speaker 3: for having me.
• 1:43
  Speaker 1: I delighted to have you. Why don't we cut straight
• 1:45
  Speaker 1: through it. There's Lucy Ellis at west Pac, one of
• 1:48
  Speaker 1: the big four banks, saying there are three more rate
• 1:50
  Speaker 1: rises to come, we'll have the taker. Seriously, not everyone
• 1:55
  Speaker 1: agrees with that. Could you give the listener's idea as
• 1:58
  Speaker 1: to why she might be saying that and to what
• 2:00
  Speaker 1: extent she's an outlier or in the frame?
• 2:03
  Speaker 3: Yes. So, these rerise forecasts came out of Westpac economics
• 2:08
  Speaker 3: team a few weeks ago, and it's basically on the
• 2:10
  Speaker 3: assumption that the Strait of Hulmos would be closed to
• 2:15
  Speaker 3: the end of April. Seeing inflation and unemployment getting above
• 2:22
  Speaker 3: five percent potentially by midway through the year. It is
• 2:25
  Speaker 3: a little bit of an outlier in respect to other
• 2:28
  Speaker 3: major bank views which are generally predicting one more great
• 2:32
  Speaker 3: hike in May, and markets which were strongly pricing in
• 2:36
  Speaker 3: a May increase have actually calmed down a little bit.
• 2:40
  Speaker 2: I think the.
• 2:40
  Speaker 3: Latest was about fifty five percent chance at the next meeting.
• 2:44
  Speaker 3: So it's all about temporary, this higher inflation picture with
• 2:47
  Speaker 3: a slowdown in economic growth, and you know, we're starting
• 2:52
  Speaker 3: to seet in some numbers, but I don't know about you.
• 2:54
  Speaker 3: Even just on the ground, there really is a sense
• 2:57
  Speaker 3: that households are tightening up their spending. You know, they're
• 3:01
  Speaker 3: seeing some built increases and certainly fuel increases come through
• 3:05
  Speaker 3: that are causing the you know, rethink some big financial.
• 3:09
  Speaker 1: Because a consumer spending is looking pretty bad, isn't it.
• 3:11
  Speaker 1: And the reaction to higher fuel costs has been dramatic,
• 3:17
  Speaker 1: I think, by any measure which would indicate that consumer
• 3:21
  Speaker 1: spending is really under the pump and maybe very weak
• 3:25
  Speaker 1: going forward. So that's one thing. So extrapolating from that,
• 3:28
  Speaker 1: some economists, and I hope you don't mind me asking
• 3:31
  Speaker 1: you to talk about other economists, but it's just to
• 3:33
  Speaker 1: put the listener in the frame as to what people
• 3:36
  Speaker 1: are saying out there and not the consensus, but what
• 3:39
  Speaker 1: commonality our views are around on.
• 3:42
  Speaker 2: The property market.
• 3:43
  Speaker 1: Louis, who has been on the show before from his SQM,
• 3:47
  Speaker 1: has said that if Lucy Ellis is right and we
• 3:51
  Speaker 1: do get these consecutive rate rises, then we could see
• 3:54
  Speaker 1: a national drop. With the story in The Australian this
• 3:56
  Speaker 1: morning on this that we see a national drop in
• 3:58
  Speaker 1: house crisis, something in the in the order of three
• 4:01
  Speaker 1: to five percent. Three percent, he says, this is entirely possible,
• 4:05
  Speaker 1: and then the weakest will be the two larger cities,
• 4:08
  Speaker 1: Melbourne and Sydney. I don't know if this is going
• 4:10
  Speaker 1: to happen, but what's your view on the outlook for
• 4:14
  Speaker 1: the national market and do you think that broad pattern
• 4:17
  Speaker 1: that we've already seen where Sydney and Melbourne are the weakest, Brisbane,
• 4:21
  Speaker 1: Adelete and Path keep chugging along.
• 4:23
  Speaker 2: Is that your view?
• 4:25
  Speaker 3: Yeah, I think that's a reasonable view for the national outlook.
• 4:29
  Speaker 3: I mean, Sydney and Melbourne are already in decline. There's
• 4:32
  Speaker 3: no question that they'll see further declines in the short term,
• 4:36
  Speaker 3: and again that decline would be further deteriorated and more
• 4:39
  Speaker 3: great hearts. You get different fundamentals in each. Sydney it's
• 4:42
  Speaker 3: more in an affordability challenge. Melbourne it's more some its
• 4:45
  Speaker 3: structural issues, continued loss of internal migration trend, increased property
• 4:50
  Speaker 3: taxes which have stripped out a layer of investing demand.
• 4:54
  Speaker 3: Brisbane is already starting to see I think a little
• 4:57
  Speaker 3: bit of fragility when you look at an increase in
• 4:59
  Speaker 3: new listing year on year, maybe a response to higher
• 5:02
  Speaker 3: mortgage costs. Perth seems very tight, but yeah, under higher
• 5:07
  Speaker 3: rates you'd have to expect that the market's at least
• 5:09
  Speaker 3: going to slow down. So the only thing I would
• 5:12
  Speaker 3: say is usually with the property market, you get a short,
• 5:15
  Speaker 3: shallow decline relative to the extent of upswing. How much
• 5:20
  Speaker 3: of a decline you get simply comes back to how
• 5:23
  Speaker 3: well households cope with higher mortgage rates. Do they sell
• 5:28
  Speaker 3: because they can't service their mortgage or do they sit
• 5:31
  Speaker 3: back and wait. Usually it's the latter, and we are
• 5:33
  Speaker 3: coming into a very turbulent time on very strong footing
• 5:36
  Speaker 3: in terms of mortgage service, ability, employment and equity.
• 5:41
  Speaker 1: So you're saying that it's interesting. First of all, you
• 5:45
  Speaker 1: are the view that conditions will soften.
• 5:47
  Speaker 3: Yeah, absolutely, they already are.
• 5:49
  Speaker 1: Right, prices could continue to soften in Sydney and Melbourne. Yes, okay,
• 5:54
  Speaker 1: tell us what's going on the ground of the clearance
• 5:56
  Speaker 1: streets and what they might be signaling to you.
• 5:58
  Speaker 3: So clearance rates of sunk to their lowest level since
• 6:01
  Speaker 3: twenty twenty two. The last week's final apperiance rate from Totality,
• 6:05
  Speaker 3: I think we're sitting around fifty five percent or the
• 6:09
  Speaker 3: preliminary results. Sorry, but the aparance rates are trending lower.
• 6:13
  Speaker 3: Supply levels are sitting higher relative to what they were
• 6:16
  Speaker 3: last year across Sydney, Melbourne and Brisbane. The Coutality home
• 6:21
  Speaker 3: value index is falling across Sydney and Melbourne, and consumer sentiment,
• 6:26
  Speaker 3: which is usually correlated with home sales volumes, has fallen
• 6:31
  Speaker 3: to record lows by the Roy Morgan A and Z indicator.
• 6:35
  Speaker 3: We're talking about a series that goes back to the
• 6:37
  Speaker 3: nineteen seventies, as I'm sure you've seen, and the consumer
• 6:42
  Speaker 3: sentiment aspect of timed by a dwelling within the Westpac
• 6:45
  Speaker 3: survey even before the height of the conflict had slipped
• 6:48
  Speaker 3: four percent from last year. So really, what I'm expecting
• 6:52
  Speaker 3: from the current economic environment is a fall in demand,
• 6:56
  Speaker 3: a fall in purchase housing, a treat from individual rentals
• 7:02
  Speaker 3: to share housing, a retreat from highly leveraged properties to
• 7:07
  Speaker 3: you know, people renting out rooms, maybe moving back into
• 7:10
  Speaker 3: their mum and dad's place if they can. This is
• 7:12
  Speaker 3: all about a shrinking demand and that ultimately leads to
• 7:16
  Speaker 3: property prices declining. Even if the cost of producing new
• 7:19
  Speaker 3: dwellings is rising. That will eventually see new supply constrict
• 7:23
  Speaker 3: and that tends to stymy.
• 7:26
  Speaker 1: The downturn, the downturn traditionally, but our peopers just now
• 7:30
  Speaker 1: then are more people selling and are they consciously selling
• 7:34
  Speaker 1: into a softer market in the larger cities.
• 7:37
  Speaker 3: Yeah, that's going to be the wait and see. I
• 7:40
  Speaker 3: think initially you might get a little bit of a
• 7:43
  Speaker 3: bump in selling activity as people try and get ahead
• 7:46
  Speaker 3: of increases to mortgages. But depending on the financial stability
• 7:50
  Speaker 3: position of households, depending on how well they can keep
• 7:53
  Speaker 3: paying their mortgages, I think you'll eventually see listings activity
• 7:57
  Speaker 3: go down and people just sort of wait on the
• 7:59
  Speaker 3: side lines and navigate this crapis so.
• 8:02
  Speaker 1: With the clearance rate drop at the moment would be
• 8:05
  Speaker 1: driven by what do you think a fall.
• 8:06
  Speaker 3: In demand relative to people who when they campaigns over
• 8:09
  Speaker 3: the past four to six weeks.
• 8:12
  Speaker 1: Right, Okay, In terms of I know that the hot
• 8:15
  Speaker 1: spot in the market has been the first home buyer market,
• 8:17
  Speaker 1: and that's been accelerated right to some degree by the
• 8:20
  Speaker 1: universal deposit scheme five percent. All you need is five
• 8:23
  Speaker 1: percent you can buy your first home. Where does that play?
• 8:26
  Speaker 1: Is that important to put forward demand? And if it
• 8:30
  Speaker 1: wasn't there, what will it do in terms in a
• 8:33
  Speaker 1: scenario for this week of demand already?
• 8:36
  Speaker 3: Yeah, I think it is supplementing demand that was already
• 8:39
  Speaker 3: going to be fading into twenty twenty six as we
• 8:42
  Speaker 3: hit affordability challenges. Now that we're hitting additional headwinds like
• 8:46
  Speaker 3: potential changes to the CGT discount, like we'll talk about
• 8:50
  Speaker 3: crackdown on money and laundering, high interest rates, softer economic conditions,
• 8:55
  Speaker 3: I think you've got this accumulation of headwinds that points
• 8:57
  Speaker 3: to a pretty broad based slow down. But what it
• 9:01
  Speaker 3: does do is it hits the high end of the
• 9:04
  Speaker 3: market first. If you take boring capacity for example, the
• 9:07
  Speaker 3: higher income, the more expensive the property price the more
• 9:11
  Speaker 3: dented your boring capacity becomes under a higher interest rate scenario,
• 9:15
  Speaker 3: and that tends to skew demand from the high end
• 9:17
  Speaker 3: of the market to the low end of the market.
• 9:19
  Speaker 3: And that's why I think it's a a little more
• 9:22
  Speaker 3: sustained during periods of downturn.
• 9:24
  Speaker 1: Right, Okay, very interesting. We almost come back to that
• 9:26
  Speaker 1: with actual break back in a second. Hello, Welcome back
• 9:38
  Speaker 1: to the Australians Money Puzzle podcast. James Kirby here with Eliza,
• 9:42
  Speaker 1: owned housing industry analyst, independent housing industry analysts. Look, I
• 9:46
  Speaker 1: think I suppose the message from the first segment there
• 9:48
  Speaker 1: was a deteriorating landscape really foreign property investors, but maybe
• 9:53
  Speaker 1: not entirely for the simple reason that, if nothing else,
• 9:57
  Speaker 1: folks properties want to be cheaper. It looks like going
• 10:00
  Speaker 1: forward that is the growth in the hotspots. Brisbane personaltally
• 10:04
  Speaker 1: is going to cool, and Melbourne and Sydney could actually
• 10:07
  Speaker 1: have declines. Can you elaborate a little, Eliza, where you
• 10:12
  Speaker 1: mentioned you thought there'd be resilience in the lower end
• 10:15
  Speaker 1: of the market, the end of the market where people
• 10:18
  Speaker 1: are assisted to buy first holmes, Just tell us a
• 10:21
  Speaker 1: little bit more about what you're thinking there.
• 10:23
  Speaker 3: Yeah, It sounds a bit counterintuitive because we're talking about
• 10:26
  Speaker 3: property price declines, but really we're borrowing capacity and demand
• 10:30
  Speaker 3: gets hammered most in periods of interest rate rises is
• 10:34
  Speaker 3: the high end, or the more expensive end of the market.
• 10:38
  Speaker 3: So what that does is it could actually be skewing
• 10:40
  Speaker 3: buiers to areas that are further out from city centers
• 10:43
  Speaker 3: more affordable because it's within their new budget. And what
• 10:47
  Speaker 3: that does is concentrate more competition for a smaller subset
• 10:52
  Speaker 3: of cheaper properties. If you look historically at growth patterns
• 10:56
  Speaker 3: across Australia's housing market, the relatively expensive end is a
• 11:00
  Speaker 3: lot more volatile, higher highs, lower lows, and so the
• 11:05
  Speaker 3: lower end of the market tends to be steadier, more resilient,
• 11:09
  Speaker 3: and just extreme.
• 11:10
  Speaker 2: Yeah, so we're seeing that already.
• 11:12
  Speaker 1: You're seeing the top end's already been knocked around faster
• 11:15
  Speaker 1: than the bottom end. And tell me in terms of
• 11:18
  Speaker 1: that area. One of the things that's come up in
• 11:21
  Speaker 1: the CGT debate that there's there is a strong likelihood folks,
• 11:26
  Speaker 1: that CGT will be changed in the budget. If you
• 11:30
  Speaker 1: are aware we've talked on the show. If you hold
• 11:32
  Speaker 1: it properly for more than a year, you get if
• 11:34
  Speaker 1: there's a fifty percent discount on the CGT that you
• 11:37
  Speaker 1: will owe on that property. Discount is a troubled term
• 11:41
  Speaker 1: in discountext Some will say it's not a discount at all,
• 11:44
  Speaker 1: it's just the methodology they use to allow for inflation.
• 11:48
  Speaker 1: But it looks like the government's going to change it, right,
• 11:50
  Speaker 1: so it's not going to be fifty percent discount.
• 11:51
  Speaker 2: That's we could almost bet on that it will be lower.
• 11:55
  Speaker 2: It could be thirty three.
• 11:56
  Speaker 1: Percent discount, it could be twenty five percent discount. But
• 11:59
  Speaker 1: the point I'm too is if that happens, Eliza, one
• 12:05
  Speaker 1: of the things that people have been saying, properly, expert's
• 12:07
  Speaker 1: like you have been saying, is that high yielding properties
• 12:09
  Speaker 1: would become more attractive to investors, right because your CDT
• 12:12
  Speaker 1: isn't as good as it used to be. That is,
• 12:14
  Speaker 1: your capital aim isn't as good as it used to
• 12:16
  Speaker 1: be post tax, so you might zone in on yields.
• 12:19
  Speaker 1: The years are stronger at the bottom end of the
• 12:21
  Speaker 1: market out there, so that would play into what you're saying.
• 12:23
  Speaker 3: Yeah, that's a good point. High yielding properties tend to
• 12:27
  Speaker 3: be concentrated in high density unit markets, which are a
• 12:30
  Speaker 3: lot cheaper, and you get a lot of short term
• 12:34
  Speaker 3: tenants or you know, temporary migrants, tourists, right.
• 12:37
  Speaker 1: I'm actually thinking of outer suburbs and regional cities for
• 12:40
  Speaker 1: the years were traditionally higher, yeah, and they.
• 12:42
  Speaker 3: Tend to be lower socioeconomic areas as well, where it
• 12:46
  Speaker 3: is less affordable for people to try and get into
• 12:49
  Speaker 3: the market because it still requires a decent deposit hurdle,
• 12:52
  Speaker 3: but at the end of the day, the rents largely
• 12:54
  Speaker 3: outstrict the mortgage payments. That could be an option. I
• 12:57
  Speaker 3: think though, that we're in a really interesting time where
• 13:02
  Speaker 3: a change to the CGT discount where not only are
• 13:05
  Speaker 3: you reducing you're potentially under compensating people for inflation if
• 13:11
  Speaker 3: you reduce it to say at twenty five percent discount
• 13:14
  Speaker 3: or a thirty three percent discount, which is actually disincentivizing
• 13:18
  Speaker 3: residential investment altogether. And I wonder if that's what the
• 13:21
  Speaker 3: government is trying to signal, because residential property is one
• 13:24
  Speaker 3: of these highly emotive, funny assets that people need to consume,
• 13:30
  Speaker 3: that they're just trying to push investments into other avenues altogether,
• 13:34
  Speaker 3: commercial properties ETFs, you know, which are a lot more
• 13:38
  Speaker 3: accessible because of technologies and apps and YouTube videos that
• 13:44
  Speaker 3: knew how to do it, or superannuation right which you
• 13:47
  Speaker 3: can view and contribute into extra using your phone. Like
• 13:53
  Speaker 3: I wonder if it's the start of a shift away
• 13:55
  Speaker 3: from residential property investment altogether.
• 13:58
  Speaker 1: Well, yes, or an attempt to do discourage it as
• 14:00
  Speaker 1: you say so on this specific issue of the budgets,
• 14:05
  Speaker 1: which isn't far away now roughly a month away, folks,
• 14:08
  Speaker 1: and the one thing we know was going to change CGT.
• 14:10
  Speaker 1: We don't know exactly what they're going to do. Did
• 14:13
  Speaker 1: you look at the numbers? There's always this debate around
• 14:16
  Speaker 1: whether they should touch it at all, whether the old
• 14:18
  Speaker 1: way was fairer, which was basically they used to adjust
• 14:21
  Speaker 1: it every year for inflation rather than this fifty percent discount.
• 14:24
  Speaker 2: Do you have a view on what they should do?
• 14:27
  Speaker 1: Well?
• 14:27
  Speaker 3: I think for investors it's usually more advantageous to have
• 14:30
  Speaker 3: the fifty percent discount, especially for short term speculative property investors.
• 14:36
  Speaker 3: They get taxed far less than if you have the
• 14:38
  Speaker 3: old indexation method. The old indexation method seems fair from
• 14:43
  Speaker 3: an investor perspective, but I do think a meaningful adjustment
• 14:47
  Speaker 3: that disincentivisers property investment could be fairer from a intergenerational
• 14:52
  Speaker 3: wealth perspective.
• 14:53
  Speaker 1: From which is exactly what he talks about all the time.
• 14:55
  Speaker 1: That's the back that's his backdrop, right, He's justificasion.
• 15:00
  Speaker 2: And it's also you know.
• 15:01
  Speaker 3: The Select Committee into the capital gains tax discount and
• 15:05
  Speaker 3: they basically got the same feedback from all these credible
• 15:09
  Speaker 3: researchers that the discount SKUs investment decisions by giving investors
• 15:15
  Speaker 3: a more generous treatment than wages, pushing money into existing housing.
• 15:21
  Speaker 1: And do you think, first of all, they will change
• 15:23
  Speaker 1: the discount Yes? And do you think it would be
• 15:26
  Speaker 1: for property only?
• 15:28
  Speaker 3: Yes? And what sorry, very good answers for a podcast.
• 15:35
  Speaker 2: Fine, yes and no, that's all I want to hear.
• 15:36
  Speaker 2: But what do you think they'll do? Exactly?
• 15:38
  Speaker 3: So, I think they will do a flat reduction of
• 15:41
  Speaker 3: the discount from fifty percent to say thirty three percent.
• 15:46
  Speaker 3: I don't know that they go to twenty five percent.
• 15:48
  Speaker 3: I don't know that that's the best outcome, to be honest,
• 15:52
  Speaker 3: but I think it will be grandfather just because of
• 15:57
  Speaker 3: maybe the political limitations about applying it to all property investors.
• 16:02
  Speaker 3: And I'm not seeing this on any good authority, right,
• 16:05
  Speaker 3: I'm seeing this on speculation. But I really think it'll
• 16:08
  Speaker 3: be isolated to residential There's no reason you can't isolate
• 16:12
  Speaker 3: tax changes to residential property. They've done it before with
• 16:14
  Speaker 3: the Managed Investment Trust changes for example, and every piece
• 16:19
  Speaker 3: of conversation around the CGT has just been so in
• 16:21
  Speaker 3: the discourse of housing and housing equality and affordability that, yeah,
• 16:26
  Speaker 3: I think it will be limited to Rezie.
• 16:28
  Speaker 1: It certainly will back up your contention that what they're
• 16:31
  Speaker 1: trying to do to as part of that is to
• 16:33
  Speaker 1: push people into other assets apart from residential property, which
• 16:38
  Speaker 1: would really do that if you isolated to change to property. Okay,
• 16:43
  Speaker 1: back in the moment, I have some really good questions.
• 16:44
  Speaker 2: I've lined up a lizer.
• 16:54
  Speaker 1: Hello, welcome back to The Australian's Money Puzzant podcast. James
• 16:57
  Speaker 1: Kirby here with Eliza Owen. She's an independent housing analyst.
• 17:03
  Speaker 1: And indeed I meant to mention when I mentioned Louis earlier.
• 17:05
  Speaker 1: It is, of course Louis Christopher from SQ and Research
• 17:08
  Speaker 1: I mentioned earlier, who will be on the show folks
• 17:12
  Speaker 1: in a couple of days next week. Okay, now, a
• 17:14
  Speaker 1: few questions. This isn't really a question, it's comments it's
• 17:17
  Speaker 1: from Pete. You don't see this on your screen because
• 17:19
  Speaker 1: it came in this morning, Eliza. He says, why is
• 17:22
  Speaker 1: it called grand for the ring? This is agist and
• 17:25
  Speaker 1: sexist and it should be stepped out.
• 17:28
  Speaker 2: Yeah, yeah, I suppose.
• 17:30
  Speaker 1: So, you know, in this age of political correctness, why
• 17:33
  Speaker 1: are we saying grandfathering?
• 17:35
  Speaker 2: Indeed? I don't know, do you know what? I don't
• 17:38
  Speaker 2: think there's another term. If there was, i'd use it please.
• 17:41
  Speaker 1: But we were talking about this the other day with
• 17:44
  Speaker 1: David Bassinez, and I couldn't I couldn't find anything else.
• 17:48
  Speaker 2: All right. Todd's first question says.
• 17:50
  Speaker 1: Given the potential changes to that CGT discount, where we
• 17:54
  Speaker 1: have no idea if existing asset holdings will be grandfathered
• 17:57
  Speaker 1: from any changes, do you think it would be wise
• 17:59
  Speaker 1: to just shares now in case they do get grandfathered.
• 18:04
  Speaker 1: This has never advised information only Todd. I think your
• 18:07
  Speaker 1: issues come up on the show before. Never make major
• 18:09
  Speaker 1: changes in anticipation of tax changes in the budgets which
• 18:13
  Speaker 1: may never come to pass. I think that would of
• 18:15
  Speaker 1: course be general advice and appropriate to anybody, even more
• 18:18
  Speaker 1: so in relation to property folks. Let's just do the
• 18:22
  Speaker 1: next question with Kate as for grand fa thering on
• 18:26
  Speaker 1: capital gains, let's not do it at all. There shouldn't
• 18:30
  Speaker 1: be a CGT discount at all. What do you think
• 18:33
  Speaker 1: of Kate's line there? That's a common argument. Is it's
• 18:38
  Speaker 1: a it's a favor for investors or something. Is that
• 18:40
  Speaker 1: a fair approach?
• 18:42
  Speaker 3: I think it's important to contextualize how the CGT discount emerged,
• 18:48
  Speaker 3: which is meant to be a compensation on investment for inflation.
• 18:54
  Speaker 3: And I think the indexation method was the most just
• 18:58
  Speaker 3: if you like, in most accurate way of doing that.
• 19:01
  Speaker 2: This is pre nineteen ninety nine.
• 19:03
  Speaker 3: Correct, Yeah, But I do have to agree that it
• 19:09
  Speaker 3: would be a stronger redistribution of resources if you didn't grandfather.
• 19:15
  Speaker 3: And I think a lot of the analysts who have
• 19:19
  Speaker 3: done work on this have suggested that, you know, maximizing
• 19:21
  Speaker 3: wealth distribution means that you don't grandfather changes to the
• 19:25
  Speaker 3: CPP discount.
• 19:26
  Speaker 1: Including Ken Henry right, who you know was CHEEROFNB and
• 19:30
  Speaker 1: the Henry report and.
• 19:31
  Speaker 2: Treasury secutry, et cetera.
• 19:34
  Speaker 1: But do you think it'll they will just simply slice
• 19:36
  Speaker 1: back the existing figure from fifty percent to thirty three
• 19:40
  Speaker 1: If they did that, would that be you were talking about.
• 19:44
  Speaker 1: Would that be Is that more accurate? Does that more
• 19:46
  Speaker 1: accurately reflect the inflation adjustment than the fifty percent figure?
• 19:51
  Speaker 3: Yeah, So headline inflation for the past decade is up
• 19:55
  Speaker 3: about thirty three percent.
• 19:57
  Speaker 2: Oh, I see, okay, so it does.
• 19:59
  Speaker 1: It would so on the basis of what's happened historically,
• 20:02
  Speaker 1: it would be more accurate.
• 20:04
  Speaker 2: Okay.
• 20:04
  Speaker 3: Yes, And a typical whole period for property is considered
• 20:07
  Speaker 3: to be about ten years, So I wonder if that
• 20:09
  Speaker 3: wasn't part of the basis about how that number came up.
• 20:12
  Speaker 3: But yeah, it would be more accurate. Fifty percent would
• 20:15
  Speaker 3: be a little generous, but it also depends on you know,
• 20:18
  Speaker 3: which market you hold in, how long you've held for.
• 20:20
  Speaker 1: Yeah, okay, just one last thing before we go explain
• 20:25
  Speaker 1: to listeners. If you were the logic of that, the
• 20:27
  Speaker 1: thirty three percent, how did that come about?
• 20:28
  Speaker 2: How did that work? In principle?
• 20:30
  Speaker 3: So I don't know exactly how it came about from
• 20:32
  Speaker 3: a policy perspective, but just looking at headline inflation that's
• 20:36
  Speaker 3: been about thirty three percent for the past decade. A
• 20:39
  Speaker 3: typical whole period on an Australian property is ten years.
• 20:43
  Speaker 1: Thirty three percent sorry, Eliza, is the figure is the
• 20:46
  Speaker 1: decade long figure.
• 20:47
  Speaker 2: It's the cumulative figure.
• 20:48
  Speaker 3: Correct, Yeah, the headlining function.
• 20:50
  Speaker 1: Thirty three percent? Okay, So when you buy a property
• 20:53
  Speaker 1: and you go to sell it ten years later, thirty
• 20:56
  Speaker 1: three percent of the increases inflation.
• 20:58
  Speaker 3: That's correct.
• 20:59
  Speaker 2: Yeah, I see, okay.
• 21:01
  Speaker 1: And if they put in a discount of thirty three percent,
• 21:04
  Speaker 1: then it would be sort of knowing that and reflecting
• 21:07
  Speaker 1: on that. Those figures, yep, very interesting. All right, well
• 21:11
  Speaker 1: are you going to take that's the very the most
• 21:14
  Speaker 1: likely one, but we'll see. All right, Well, we'll know
• 21:17
  Speaker 1: very soon, folks, and of course we'll have a budget
• 21:19
  Speaker 1: special lond the night. Eliza, thank you very much for
• 21:21
  Speaker 1: coming on the show.
• 21:22
  Speaker 3: Thank you for having me. It's been great, and I
• 21:24
  Speaker 3: should say thank you too. Is it Financial advisor dot com?
• 21:28
  Speaker 1: Jody is James Gerard, Folks, he's using James James.
• 21:35
  Speaker 3: I have construction work going on at home, which would
• 21:38
  Speaker 3: have been a terrible podcasting environment. So he's kindly lent
• 21:42
  Speaker 3: me his space to record.
• 21:43
  Speaker 1: That he hasn't did a good man in a time
• 21:46
  Speaker 1: of crisis.
• 21:47
  Speaker 2: So there you are, very good, folks. Keep the emails rolling.
• 21:50
  Speaker 1: The money puzzle at the Australian dot com dot au
• 21:54
  Speaker 1: for some correspondence.
• 21:55
  Speaker 2: Love to have some more.
• 21:56
  Speaker 1: Have a look at those YouTube videos you just put
• 21:58
  Speaker 1: in money puzzle pod cast and.
• 22:00
  Speaker 2: You will find us. They're not all in a row,
• 22:03
  Speaker 2: but they are all there, all right. Talk to you
• 22:05
  Speaker 2: soon