Latest / The Money Puzzle / Why property investing will never be the same again

Transcript

Why property investing will never be the same again · The Money Puzzle

• 0:09
  Speaker 1: Hello, Welcome to The Australian's Money Puzzle podcast.
• 0:12
  Speaker 2: I'm James Kirkby. Welcome aboard everybody.
• 0:15
  Speaker 1: Now, on recent shows we have been talking quite a
• 0:17
  Speaker 1: bit about share markets and wider investment markets, and today
• 0:22
  Speaker 1: I want to talk about the property market because there
• 0:24
  Speaker 1: is I think at least an extraordinary situation unfolding in
• 0:31
  Speaker 1: our local residential investment property market. In its way, it's
• 0:35
  Speaker 1: as extraordinary as the share market. And the only issue
• 0:39
  Speaker 1: is that the extraordinary thing about property is how bad
• 0:42
  Speaker 1: things are now. We've got rising interest rates, we've got
• 0:46
  Speaker 1: rising building costs, we have a federal budget which has
• 0:51
  Speaker 1: just hit us, which has a menu of issues for
• 0:57
  Speaker 1: the property investor. And as I look at the stats
• 1:04
  Speaker 1: today in recent weeks, I don't know how often this happens.
• 1:07
  Speaker 1: Our guests will tell us, but there's one of the
• 1:09
  Speaker 1: extraordinary things is that prices are falling. House prices are falling,
• 1:15
  Speaker 1: but rents are rising at the same time. So how
• 1:19
  Speaker 1: do you the investor tackle this market? My guess it
• 1:22
  Speaker 1: is one of the best and one of the most
• 1:24
  Speaker 1: experienced property analysts in the market. He's been on the
• 1:28
  Speaker 1: show before in different and different stages of his career.
• 1:32
  Speaker 1: Today he operates on his own. It's Cameron Kusher of
• 1:37
  Speaker 1: Kusher Consulting.
• 1:38
  Speaker 2: How are you, Cameron?
• 1:39
  Speaker 3: Really well, James, thanks for having me here today.
• 1:42
  Speaker 1: Great to have you on the show again. I thought
• 1:44
  Speaker 1: I might actually just kick off with that. I don't know,
• 1:48
  Speaker 1: I certainly don't remember.
• 1:49
  Speaker 2: Have we had periods?
• 1:51
  Speaker 1: How unusual is this that rents are rising and prices
• 1:56
  Speaker 1: are falling at the same time.
• 1:58
  Speaker 3: It's not actually that unusual. I mean it's unusual that
• 2:01
  Speaker 3: house prices fall. That's not something that we see that
• 2:04
  Speaker 3: often here in Australia. But quite often when they do fall,
• 2:07
  Speaker 3: we do see rents continuing to rise. And that's because
• 2:11
  Speaker 3: usually when you see a fall in property prices, you
• 2:13
  Speaker 3: see transaction volumes really drop quite dramatically. They're also generally
• 2:18
  Speaker 3: we go into a bit of a downturn in the
• 2:19
  Speaker 3: housing market because affordability becomes really stretched. So if people
• 2:23
  Speaker 3: can't afford to buy a property, they end up renting.
• 2:26
  Speaker 3: So whilst prices might start coming back a bit, people
• 2:29
  Speaker 3: don't yet make that jump out of the rental market
• 2:32
  Speaker 3: to buy a property. So it's actually quite common that
• 2:35
  Speaker 3: we do see a fall in property prices at a
• 2:38
  Speaker 3: time that rents are rising. What's probably been a bit
• 2:40
  Speaker 3: unusual over the last few years is how strong both
• 2:44
  Speaker 3: prices and rents have been growing. And I think that
• 2:46
  Speaker 3: really talks to the fact that we've had very low
• 2:49
  Speaker 3: interest rates, which have driven up prices, but we've also
• 2:52
  Speaker 3: had very strong demand for housing, and a lot of
• 2:55
  Speaker 3: that demand for housing has actually come from people that
• 2:57
  Speaker 3: are arriving from overseas. Our population growth, of course, is
• 3:01
  Speaker 3: from net overseas migration, babies or natural increase. They tend
• 3:05
  Speaker 3: to join households that already exist. Net overseas migration really
• 3:10
  Speaker 3: drives demand for new households. And most people don't show
• 3:13
  Speaker 3: up in Australia and just go I'm going to buy
• 3:15
  Speaker 3: a house as soon as I get here. They do
• 3:17
  Speaker 3: red for a period of time.
• 3:18
  Speaker 1: If we take it that we are at the beginning,
• 3:20
  Speaker 1: I mean, we look at the HSBC and Morgan Stanley.
• 3:23
  Speaker 1: They say that we could have a drop in house
• 3:25
  Speaker 1: prices picked the trap of ten percent.
• 3:27
  Speaker 2: And if that's true, let's.
• 3:28
  Speaker 1: Just take that as a let's take that as a
• 3:31
  Speaker 1: professional investor's forecast. And we have seen just a small
• 3:37
  Speaker 1: turn so far down with one or two percent. So
• 3:40
  Speaker 1: if the prices keep falling. Will this keep will we
• 3:44
  Speaker 1: still have will this continue? Then this situation of rents
• 3:47
  Speaker 1: rising and prices falling are which will be reasonably to
• 3:51
  Speaker 1: expect this for some period now.
• 3:54
  Speaker 3: I think so. I mean, I think the property prices
• 3:57
  Speaker 3: do probably end up falling around ten percent. I mean,
• 4:00
  Speaker 3: it could even be a little bit larger than that,
• 4:02
  Speaker 3: depending on when we get to the situation that the
• 4:05
  Speaker 3: economy gets bad enough that the RBA starts cutting interest rates,
• 4:08
  Speaker 3: And of course they won't be able to do that
• 4:10
  Speaker 3: until they get inflation back under control, and that could
• 4:12
  Speaker 3: still take a while. But I do think we'll continue
• 4:15
  Speaker 3: to see rents rising through this period. I think the
• 4:17
  Speaker 3: challenge though, in that rental market is going to be
• 4:20
  Speaker 3: the capacity for people to continue to pay higher rent
• 4:24
  Speaker 3: Because we've already seen very strong rental growth over the
• 4:27
  Speaker 3: last five years, we've still got very high rates of inflation.
• 4:31
  Speaker 3: The cost of living is still very challenging for people,
• 4:34
  Speaker 3: and people rent tend to be lower income households rather
• 4:38
  Speaker 3: than people that own properties. So one of the things
• 4:41
  Speaker 3: I think for any investors sitting out there listening to
• 4:43
  Speaker 3: this to really keep in mind is be aware that
• 4:46
  Speaker 3: you may not be able to push up rents as
• 4:48
  Speaker 3: much as you think you can. The response to this
• 4:51
  Speaker 3: high cost of living and higher rental will possibly be
• 4:55
  Speaker 3: people go back into sharehousing, not through choice but out
• 4:59
  Speaker 3: of necessity. But also people moved to less desirable rental
• 5:04
  Speaker 3: location simply because in those better inner city areas or
• 5:08
  Speaker 3: the places close to amenity, the landlords have pushed up
• 5:11
  Speaker 3: rents too high and people simply can't afford them anymore.
• 5:15
  Speaker 1: And rental yields do you think that they will? Do
• 5:19
  Speaker 1: they stabilize at these levels or I mean mathematically the
• 5:23
  Speaker 1: prices are falling and rents arising, then rental years will improve.
• 5:26
  Speaker 3: Are Yeah, rental yields should definitely improve. I mean we've already.
• 5:30
  Speaker 3: If you look compared to last year, gross rental yields
• 5:32
  Speaker 3: are generally pretty much where they were, but if you
• 5:35
  Speaker 3: look at the end of last year, they have started
• 5:37
  Speaker 3: to rise from the end of last year, which is
• 5:40
  Speaker 3: coincided with the price falls that we've seen in the market.
• 5:42
  Speaker 3: But I would expect will continue to see some yield improvement.
• 5:45
  Speaker 3: But I mean, gross rental yields in most housing markets
• 5:49
  Speaker 3: in the country are pretty pretty slim. You get a
• 5:52
  Speaker 3: decent yield if you go to Darwin, but obviously that's
• 5:55
  Speaker 3: a pretty risky market to go into.
• 5:57
  Speaker 1: In Darwin where there are sixty four properties for rent
• 6:00
  Speaker 1: in the entire city according to Louis Christopher.
• 6:03
  Speaker 3: So Darwin you get pretty good rental yields. Hobart you're
• 6:06
  Speaker 3: getting reasonable rental yields. Inner city apartments in Melbourne. There's
• 6:10
  Speaker 3: a lot of good rental returns available in those markets.
• 6:13
  Speaker 3: But then really after that you're kind of if you're
• 6:16
  Speaker 3: chasing rental returns, you're looking at much riskier areas. You're
• 6:19
  Speaker 3: looking at, you know, smaller towns linked to the mining
• 6:22
  Speaker 3: or agricultural sector. And I think particularly in this environment
• 6:26
  Speaker 3: where the rules around investing have really changed, you've got
• 6:30
  Speaker 3: to really keep in mind who's going to buy that
• 6:32
  Speaker 3: property off you when you come to sell, because future
• 6:35
  Speaker 3: investors existing properties are not going to be as attractive
• 6:39
  Speaker 3: to them because they can't negatively gear and they're not
• 6:42
  Speaker 3: going to be able to get the capital gains tax discoup.
• 6:44
  Speaker 1: I actually want to do want to talk to you
• 6:46
  Speaker 1: about that in one moment, but just tell me what
• 6:48
  Speaker 1: the rules rental yields like, what number have you got
• 6:52
  Speaker 1: in mind, and to what extent might they improve.
• 6:55
  Speaker 3: I'll look at the moment nationally, you're looking at about
• 6:57
  Speaker 3: three point six three point seven percent, obviously a lot
• 7:00
  Speaker 3: lower than that in somewhere like Sydney, and I do
• 7:03
  Speaker 3: think we could see that move over the next twelve
• 7:05
  Speaker 3: months to maybe a four percent gross rental year or
• 7:07
  Speaker 3: slightly more than that. And again the income coming off
• 7:11
  Speaker 3: your investment becomes more important rather in this new environment
• 7:15
  Speaker 3: we're in, with these tax changes that we've seen.
• 7:18
  Speaker 1: Of course, yes, yeah, all right, one thing on those rentals.
• 7:22
  Speaker 1: So just to give the listeners an idea how it works, folks.
• 7:27
  Speaker 1: Because of the prices, that just the absolute prices that
• 7:30
  Speaker 1: you see, the highest prices being Sydney. See that's where
• 7:34
  Speaker 1: the years are worse. Right, That's just basically how it
• 7:36
  Speaker 1: works and always has so did the cascades down the
• 7:39
  Speaker 1: Viurine sort of pot point or something. Then you buy
• 7:42
  Speaker 1: an apartment that mentally be pretty hopeless. It might be
• 7:44
  Speaker 1: two percent or one percent, But if you buy in
• 7:47
  Speaker 1: a country town where it just so happens that there
• 7:50
  Speaker 1: is some rental demand but it's a relatively tight market,
• 7:54
  Speaker 1: you could be talking four or five percent.
• 7:56
  Speaker 3: Yeah, yeah, I mean some markets around the country you
• 7:59
  Speaker 3: can getwards of six percent seven percent, But you're really
• 8:02
  Speaker 3: talking about a mining town or a small agricultural town,
• 8:07
  Speaker 3: and you know those yields are high because there's a
• 8:10
  Speaker 3: reasonable risk in those markets if you go and invest
• 8:12
  Speaker 3: in them.
• 8:13
  Speaker 1: And what do you think is the more safely? How
• 8:14
  Speaker 1: does this end? Do the prices turn and start lifting
• 8:18
  Speaker 1: or do the rent rises turn and soften because of
• 8:24
  Speaker 1: behavioral change that you mentioned.
• 8:27
  Speaker 3: Look, I think how this actually ends is more probably
• 8:31
  Speaker 3: twelve to eighteen months in the future. We start looking
• 8:34
  Speaker 3: at the economy, which is not particularly strong. We've already
• 8:37
  Speaker 3: seen the latest GDP figures have shown that there is
• 8:40
  Speaker 3: a slowdown in the economy. You know, business confidence and
• 8:43
  Speaker 3: conditions are quite weak at the moment. Consumer sentiments very weak.
• 8:46
  Speaker 3: So I think in twelve to eighteen months time, maybe
• 8:49
  Speaker 3: the reserve banks starting to get inflation under control, and
• 8:52
  Speaker 3: then we find that the economy is not very strong,
• 8:55
  Speaker 3: so they have to cut interest rates. But I would
• 8:57
  Speaker 3: think that we're not going to see interest rates coming
• 9:00
  Speaker 3: down anywhere near as aggressively as they have in the past.
• 9:03
  Speaker 3: So I think that the recovery in the housing market
• 9:06
  Speaker 3: will take longer and it's not going to rebound as strongly.
• 9:09
  Speaker 3: I think that will be the trigger point for the
• 9:12
  Speaker 3: market to start start shifting out of this downturn that
• 9:15
  Speaker 3: it's in at the moment.
• 9:16
  Speaker 1: As an investor, I imagine people just look and say, well,
• 9:19
  Speaker 1: you know, there's a set number of houses, and the
• 9:24
  Speaker 1: conditions have changed, The roads have gone up, the taxes
• 9:27
  Speaker 1: have got stiffer and going to get stiffer. The concessions
• 9:31
  Speaker 1: have been peeled back. Do you see anything that from
• 9:37
  Speaker 1: the budget it was past, if you like, as a
• 9:41
  Speaker 1: housing as an attempt to improve housing, do you see
• 9:45
  Speaker 1: anything that convinces you that housing supply will actually improve.
• 9:50
  Speaker 3: No, not at all, And part of that's this budget.
• 9:53
  Speaker 3: I think more people invest in existing homes because there
• 9:57
  Speaker 3: are more existing homes, but particularly at the moment, brand
• 10:00
  Speaker 3: new properties are quite a bit more expensive than existing properties.
• 10:03
  Speaker 3: Maybe not so much for houses, but certainly in that
• 10:06
  Speaker 3: apartment space.
• 10:07
  Speaker 1: How do you mean by that, come on, more expensive?
• 10:09
  Speaker 1: Do you mean replacement costs or something? What do you mean?
• 10:11
  Speaker 3: No? No, the actual purchase price. So if you look
• 10:14
  Speaker 3: like for like, and you look at an apartment that
• 10:16
  Speaker 3: was built five years ago, and then you look at
• 10:18
  Speaker 3: a brand new property, a brand new apartment, the premium
• 10:21
  Speaker 3: for that brand new apartment is going to be quite significant. Now,
• 10:25
  Speaker 3: I personally don't think that for a lot of investors,
• 10:28
  Speaker 3: the lure of being able to get the capital gains
• 10:30
  Speaker 3: tax discount or negative gearing on a new property is
• 10:34
  Speaker 3: going to be enough because, quite often, again probably more
• 10:37
  Speaker 3: so in the apartment space than new houses, you actually
• 10:40
  Speaker 3: find that the price falls over the first few years
• 10:44
  Speaker 3: that you own that property because it has that price
• 10:47
  Speaker 3: premium and you're getting all this depreciation. And that's what
• 10:50
  Speaker 3: drives investors to invest in brand new properties.
• 10:52
  Speaker 1: And that gets installed in that's installed after four or
• 10:55
  Speaker 1: five years, basically is that it exactly right.
• 10:58
  Speaker 3: So I don't think that the ability to negatively gear
• 11:02
  Speaker 3: and capital gain and get the capital gains tax discount
• 11:04
  Speaker 3: at this point is enough to drive a lot of
• 11:07
  Speaker 3: investors to brand new properties. I think a lot of
• 11:09
  Speaker 3: investors will still be looking at buying existing properties. I
• 11:13
  Speaker 3: think the big win is probably going to be commercial property.
• 11:15
  Speaker 3: I think a lot of people will be turning their
• 11:17
  Speaker 3: attention to commercial property investment as well.
• 11:20
  Speaker 1: Okay, I want to take a break, folks, and we're
• 11:22
  Speaker 1: going to come back and I'm going to actually interrogate
• 11:24
  Speaker 1: this notion about the taxes and what I'm really interested
• 11:28
  Speaker 1: in and I'm sure you are too, is a couple
• 11:30
  Speaker 1: of points that Cameron brought up there. One was about
• 11:33
  Speaker 1: negative gearing and what basically the passions will be here,
• 11:37
  Speaker 1: and the other is commercial property, which on this show
• 11:41
  Speaker 1: we have been very skeptical about, not that there's anything
• 11:45
  Speaker 1: wrong with it para se but is it appropriate for
• 11:50
  Speaker 1: the everyday investor. Back in a moment, Hello, Welcome back
• 11:59
  Speaker 1: to the Oustralian's Money Puzzle podcast. James Kerby talking to
• 12:03
  Speaker 1: Cameron Kusher of Kusher Consulting, one of the best known
• 12:06
  Speaker 1: property analysts in the market. Now, if you're listening to
• 12:09
  Speaker 1: the first segment of the show, Cameron was making the
• 12:12
  Speaker 1: point and we can debate this and I'm trying, I'm
• 12:15
  Speaker 1: trying not to politicize it, but he was saying that,
• 12:20
  Speaker 1: you know, basically, most investors in Australia and residential property,
• 12:24
  Speaker 1: both existing property, and just because the government has changed
• 12:29
  Speaker 1: the terms and made it harder to invest in existing
• 12:33
  Speaker 1: property and more attractive to invest in new property, doesn't
• 12:37
  Speaker 1: mean that two million property investors will certainly, you know,
• 12:41
  Speaker 1: start scouting in the outer suburbs of major cities and
• 12:45
  Speaker 1: buying out there, and I would tend.
• 12:46
  Speaker 2: To agree with him.
• 12:47
  Speaker 1: But there's something I wanted to just bring up with you, Cameron,
• 12:50
  Speaker 1: which we've been looking at and touched off on the show.
• 12:53
  Speaker 1: People want to know more about it. It's this idea
• 12:55
  Speaker 1: of the permanent negatively geared investor under the arrangements under
• 13:01
  Speaker 1: the deal, and now parliament is its law. It's been legislated,
• 13:05
  Speaker 1: at least it's past parliament. How it works is you
• 13:08
  Speaker 1: can't negatively gear existing property. You can only negatively gear
• 13:14
  Speaker 1: new property. However, if you already own property, this includes
• 13:19
  Speaker 1: your home, but for investment purposes, let's just concentrate on
• 13:22
  Speaker 1: if you own investment property or properties, there's no limits,
• 13:26
  Speaker 1: right if you could negative if you were negatively gearing already,
• 13:29
  Speaker 1: you can continue to negatively gear in perpetuity forever. It
• 13:33
  Speaker 1: would seem there's no end date on this. Have I
• 13:35
  Speaker 1: got that right?
• 13:37
  Speaker 3: That's right? So that they were completely grandfather these changes,
• 13:40
  Speaker 3: so anyone that was negatively geared can stay negatively geed. Obviously,
• 13:45
  Speaker 3: over time the vey of the property increases and you
• 13:49
  Speaker 3: don't negatively gear as much. But there are a lot
• 13:52
  Speaker 3: of large chalk of investors that already own properties that
• 13:55
  Speaker 3: do negatively gear, and they can continue to negatively gear
• 13:58
  Speaker 3: as long as they want to, as long as they
• 13:59
  Speaker 3: don't sell that property and buy a new one.
• 14:02
  Speaker 1: But they could arrange their affairs in such a manner
• 14:05
  Speaker 1: that they optimize their privileged access to negatively gearing acpresum.
• 14:13
  Speaker 3: Oh one hundred percent. This was the thing about the
• 14:15
  Speaker 3: budget that really got me. They again trying not to
• 14:18
  Speaker 3: get too political, but it was all framed at helping
• 14:20
  Speaker 3: the younger generation, and to me, it's actually a bit
• 14:24
  Speaker 3: of a ladder pull on the younger generation because people
• 14:26
  Speaker 3: have been our to negatively gear investment properties and other
• 14:30
  Speaker 3: asset classes for decades. And obviously the capital gains tax
• 14:34
  Speaker 3: discount's been around since nineteen ninety nine, so anyone that's
• 14:37
  Speaker 3: investing in the future is not going to have access
• 14:40
  Speaker 3: to these benefits that people that already invest have had
• 14:44
  Speaker 3: access to and have had access to for many, many years.
• 14:48
  Speaker 1: But how as could they have done it if they
• 14:51
  Speaker 1: wanted to stop it? And you know, there's plenty of
• 14:54
  Speaker 1: people who will say negative gearing. It went wild, it
• 14:57
  Speaker 1: went after rails, It was never supposed to do this,
• 15:00
  Speaker 1: and it blew up house prices, and to some extent
• 15:02
  Speaker 1: it did push up posset prices. Not the only factor,
• 15:04
  Speaker 1: but it's a factor. Had the only choice really, And
• 15:07
  Speaker 1: how they went around went to the cultures.
• 15:10
  Speaker 3: Oh look, obviously introducing this was never going to be popular.
• 15:13
  Speaker 3: Part of the narrative also was that there was over
• 15:16
  Speaker 3: investment in housing and people weren't investing in productive businesses.
• 15:20
  Speaker 3: I'm a property guy. I've been analyzing the property market
• 15:22
  Speaker 3: for twenty five years. I can actually understand that sort
• 15:25
  Speaker 3: of discussion and that claim. What I would say is
• 15:29
  Speaker 3: why didn't they give people an attractive other option? So
• 15:32
  Speaker 3: if property was the issue, why not make these changes
• 15:35
  Speaker 3: for property and trying it more people investing in businesses,
• 15:39
  Speaker 3: and why not get more people investing in shares.
• 15:42
  Speaker 1: This is the criticism that that it's clear what they
• 15:45
  Speaker 1: took away, but it's not clear what the incentives are. Okay,
• 15:49
  Speaker 1: all right, now, commercial property, Okay, here's the deal, folks.
• 15:54
  Speaker 1: Commercial property is exempt from all this. That is what
• 15:58
  Speaker 1: they call business well, commercial property anything right, commercial non
• 16:03
  Speaker 1: residential property. But I think it's defined as business real
• 16:06
  Speaker 1: property just to be legal.
• 16:07
  Speaker 2: About it, Isn't that is that right?
• 16:09
  Speaker 3: I think so? Yes?
• 16:10
  Speaker 1: And there's a lot of marketing around this at the moment,
• 16:12
  Speaker 1: a lot of advertising to retail investors who would listen
• 16:15
  Speaker 1: to this show, and it says, you know, folks, come
• 16:18
  Speaker 1: over here commercial property. You never told about it before.
• 16:21
  Speaker 1: It's great, you know, long term leases. Look at the
• 16:24
  Speaker 1: numbers are really good over a number of years. And
• 16:27
  Speaker 1: I would say, Cameron, that it's great when it works
• 16:33
  Speaker 1: for the right people. But I think under current frameworks,
• 16:39
  Speaker 1: an investor would need a multi million dollar portfolio to
• 16:42
  Speaker 1: safely go near commercial property because the leases when there's
• 16:47
  Speaker 1: vacancies can be interminable. Compared to residential, the risks are
• 16:52
  Speaker 1: much higher. It's an entirely different game. But at the
• 16:56
  Speaker 1: start of the show, at the start of the show,
• 16:58
  Speaker 1: you sounded of tempo about it.
• 17:01
  Speaker 2: Tell me review.
• 17:03
  Speaker 3: Yeah, look, I think it becomes a lot more attractive.
• 17:05
  Speaker 3: I agree with a lot of what you said. I
• 17:07
  Speaker 3: think it's more people that already own sort of three
• 17:09
  Speaker 3: or four investment residential properties that now start going well,
• 17:14
  Speaker 3: why would I continue to invest in residential now If
• 17:17
  Speaker 3: I can't get negative gearing and I can't get capital
• 17:20
  Speaker 3: gains tax or I have to buy a brand new
• 17:21
  Speaker 3: to get that, and I think those are the sort
• 17:23
  Speaker 3: of people that would go and look at commercial property.
• 17:26
  Speaker 3: So I think, you know, for anyone listening, obviously, what
• 17:29
  Speaker 3: you need a lot more equity when you buy an
• 17:31
  Speaker 3: investment property, and you're typically paying a higher price for
• 17:34
  Speaker 3: those investment properties. And as you said, James, you know,
• 17:38
  Speaker 3: if the vacancy suddenly shoots up, if you've got to
• 17:41
  Speaker 3: if you're reliant on one tenant and they leave and
• 17:43
  Speaker 3: you can't replace them, then you've got a lot of
• 17:45
  Speaker 3: costs there and nothing covering those costs.
• 17:48
  Speaker 1: And that doesn't happen. In residential. We've got a one
• 17:50
  Speaker 1: percent vacancy. It literally doesn't.
• 17:52
  Speaker 3: Happen, exactly right. But I think I think the other
• 17:56
  Speaker 3: reason for this is if I think about how investing
• 17:59
  Speaker 3: in residential looks now. Obviously you can go and invest
• 18:02
  Speaker 3: in a brand new property and still get everything you
• 18:04
  Speaker 3: used to get, But investing in an established property you
• 18:09
  Speaker 3: can no longer negatively gear and you can no longer
• 18:12
  Speaker 3: claiming the capital gains tax discount. So I think for
• 18:15
  Speaker 3: people to make that kind of investment stack up, they're
• 18:18
  Speaker 3: actually going to have to put quite a lot more
• 18:19
  Speaker 3: equity into that purchase now than they did in the
• 18:22
  Speaker 3: past as well. So I think for people that already
• 18:25
  Speaker 3: have quite a bit of money and maybe have the
• 18:27
  Speaker 3: ability to invest in established properties, they may then go, well,
• 18:32
  Speaker 3: maybe commercial, Maybe I diversify out of residential and look
• 18:35
  Speaker 3: at commercial opportunities. It's not going to be for everyone.
• 18:38
  Speaker 3: I don't think, you know, the typical they talk about
• 18:40
  Speaker 3: the teacher or the police person that wants to buy
• 18:43
  Speaker 3: an investment property to get ahead. They're probably not going
• 18:46
  Speaker 3: to go and buy a commercial property. But someone that
• 18:49
  Speaker 3: owns several properties already I think will increasingly be looking
• 18:52
  Speaker 3: at that asset class.
• 18:53
  Speaker 1: I mean, just to turn around and be optimistic about this.
• 18:56
  Speaker 1: So let's say I explore this and I go in
• 18:58
  Speaker 1: in a recipe. Sy's a beautiful little property. It's an
• 19:01
  Speaker 1: industrial unit. It's in one of twenty the other nineteen
• 19:04
  Speaker 1: or least high demand prospect of a long term leasi.
• 19:09
  Speaker 1: You know someone's going to go in there. Tester are
• 19:11
  Speaker 1: going to go in there. And I sign up for
• 19:12
  Speaker 1: fourteen years reviewer every year. Sounds great? And what's the upside?
• 19:16
  Speaker 1: The years are better, right, isn't that right? Down residential?
• 19:20
  Speaker 3: Yeah, the well, at the moment, they're definitely quite a
• 19:22
  Speaker 3: bit better.
• 19:23
  Speaker 1: Why is that Cameron that seems to be sort of
• 19:25
  Speaker 1: always away.
• 19:27
  Speaker 3: I think a lot of that is because we have
• 19:29
  Speaker 3: had negative gearing and capital gains tax discounts in residential
• 19:33
  Speaker 3: that people that have invested in residential properties have been
• 19:35
  Speaker 3: more focused on the capital growth potential rather than the income.
• 19:39
  Speaker 1: Yeah, they're not so demanding on the rental yield.
• 19:41
  Speaker 3: Yeah No, And again now that the tax treatment has changed,
• 19:46
  Speaker 3: income becomes a lot more important. So you know, in
• 19:48
  Speaker 3: your scenario, you've got Telstra signed up for fifteen years,
• 19:51
  Speaker 3: you probably get at least a CPI increase in rents
• 19:54
  Speaker 3: every year for that fourteen years, and commercial property is
• 19:58
  Speaker 3: valued on its yield, so say you by five percent.
• 20:01
  Speaker 3: Now come the end of that fifteen years, with those
• 20:04
  Speaker 3: rental increases, you're probably looking at a year of about
• 20:07
  Speaker 3: seven or eight percent. So I think for the right
• 20:10
  Speaker 3: sort of investor, that looks a lot more attractive, and it.
• 20:13
  Speaker 1: Can be negatively geared in the way we always knew.
• 20:15
  Speaker 1: Ken it against your salary, yes, which of course is
• 20:19
  Speaker 1: what it's all about for most people, because the vest
• 20:20
  Speaker 1: majority of people are on a fixed salary. Okay, terrific,
• 20:24
  Speaker 1: thank you very much. Really interesting. I have a couple
• 20:27
  Speaker 1: of questions I've kept for you, so bear with us.
• 20:29
  Speaker 1: We take a short break.
• 20:30
  Speaker 2: We'll be back in a moment.
• 20:31
  Speaker 3: Folks.
• 20:31
  Speaker 1: Hello, welcome back to the Australians Money Puzzle podcast. James
• 20:41
  Speaker 1: Kirky here with Cameron Kusher Kusher Consulting. Now, Cameron, actually
• 20:45
  Speaker 1: one thing we didn't talk about, well you did outline
• 20:48
  Speaker 1: and it was very well articulated. The essentially like the
• 20:53
  Speaker 1: world we know residential property investment for the everyday investor,
• 20:59
  Speaker 1: it's really changed because it was all about tax. It
• 21:02
  Speaker 1: was in fact in the end it was all about
• 21:04
  Speaker 1: capital gain and the deal was you know, you took
• 21:07
  Speaker 1: the hit, your rent deals were pretty hopeless. You did
• 21:10
  Speaker 1: negative gearing, and you might have this whole thing about
• 21:12
  Speaker 1: positive gearing. We the number of people I met who
• 21:14
  Speaker 1: had positively geared investments where I could count on one hand.
• 21:18
  Speaker 1: But the whole thing was driven by the tax arrangements
• 21:22
  Speaker 1: and they are change now, so everything must change, and
• 21:26
  Speaker 1: I think financing will change.
• 21:28
  Speaker 2: Logically, it was always very.
• 21:30
  Speaker 1: Sensible to have an interest only loan if your investor,
• 21:33
  Speaker 1: why not your game wasn't producing the principle, your game
• 21:35
  Speaker 1: was building capital gain, so why not just have interest
• 21:38
  Speaker 1: only how does that work now.
• 21:41
  Speaker 3: But it doesn't work anywhere near as effectively anymore because
• 21:43
  Speaker 3: you can only claim your expenses against your rental income.
• 21:47
  Speaker 3: You can't claim them against your whole income. So I
• 21:49
  Speaker 3: think for a lot of investors, most investors, the effectiveness
• 21:53
  Speaker 3: of using an interest on the mortgage now has pretty
• 21:57
  Speaker 3: much dissipated, so investing especially. I mean, you can still
• 22:01
  Speaker 3: use it on a brand new property, but if you're
• 22:03
  Speaker 3: going to invest in an established property, it's going to
• 22:06
  Speaker 3: be more about your rental return trying to find some
• 22:09
  Speaker 3: capital growth, although you're going to be paying more tax
• 22:11
  Speaker 3: on that capital game when you come to sell, and
• 22:13
  Speaker 3: using more of your own equity. And I think what's
• 22:16
  Speaker 3: quite interesting is again this probably these tax changes actually
• 22:20
  Speaker 3: probably favor people that have already invested in property, already
• 22:24
  Speaker 3: have a bit of wealth, because they can then invest
• 22:27
  Speaker 3: in an established property, they're probably in a position to
• 22:30
  Speaker 3: carry forward those losses until they sell it. Whereas someone
• 22:33
  Speaker 3: that's entering the market for the first time, maybe on
• 22:35
  Speaker 3: a lower income, they've got no chance of carrying forward
• 22:38
  Speaker 3: those losses and they can't access well, they can access,
• 22:42
  Speaker 3: but there's not really any benefit in accessing an interesting buggage.
• 22:46
  Speaker 1: Yeah, especially if they only have one property and nothing
• 22:49
  Speaker 1: to offset it against. Can I just say, thinking about
• 22:52
  Speaker 1: the interest only, you know, if you look at the
• 22:54
  Speaker 1: share a market, right, well you have no control. I
• 22:56
  Speaker 1: mean you can buy a high dividend paying share or
• 22:58
  Speaker 1: a little dividend pay share, which you can't really you
• 23:00
  Speaker 1: can't really do it. You can't lift the dividend. But
• 23:03
  Speaker 1: if I was a property owner of several properties, and
• 23:08
  Speaker 1: I understood the tax changes, and I digested the fact
• 23:11
  Speaker 1: that the way CGT will work, income is going to
• 23:15
  Speaker 1: be taxed less sharply than capital gain, then I'd be
• 23:20
  Speaker 1: trying to maximize my income. But I was trying to
• 23:22
  Speaker 1: maximize maximize my income, that would drive me to lift
• 23:24
  Speaker 1: my rents, wouldn't it.
• 23:26
  Speaker 3: Surely yes, that's one hundred percent. So I think that
• 23:29
  Speaker 3: there's going to be a lot more focused on trying
• 23:31
  Speaker 3: to push up rents. But I think, as I said
• 23:33
  Speaker 3: from the outset, that the challenge that I say, in
• 23:36
  Speaker 3: some properties is going to be the capacity to push
• 23:38
  Speaker 3: them much higher than they already are, given how much
• 23:40
  Speaker 3: rents have already increased.
• 23:42
  Speaker 1: There's an elasticity there in the wider population.
• 23:45
  Speaker 2: Okay, we have some questions.
• 23:48
  Speaker 1: But that is interesting stuff, isn't it, Folks. We'll come
• 23:50
  Speaker 1: back to that very soon.
• 23:52
  Speaker 3: Okay.
• 23:52
  Speaker 1: A question from Lillian James. I want to know more
• 23:55
  Speaker 1: about this concept that existing property owners can negatively gear
• 23:59
  Speaker 1: under the new rules. Surely there are effective time limits
• 24:02
  Speaker 1: on the exceptions made in the budget. No, I don't
• 24:05
  Speaker 1: think so, Lydian. This is never advised information only. I
• 24:08
  Speaker 1: think Dan is talking about the notion. It's not a notion, right,
• 24:11
  Speaker 1: It's a fact that among the privileged that can negatively
• 24:18
  Speaker 1: gear forever is every homeowner in Australia on the night
• 24:24
  Speaker 1: of May twelfth when we had our budget. Because the
• 24:26
  Speaker 1: law is if you owned property on that night, you
• 24:31
  Speaker 1: can continue to negatively gear. You can negatively gear in
• 24:34
  Speaker 1: the future, even if you weren't doing it already. So
• 24:36
  Speaker 1: is it the case that if I leave my home
• 24:39
  Speaker 1: that I'm in and I move somewhere else, that I
• 24:42
  Speaker 1: can get my home now that was owned on the
• 24:45
  Speaker 1: night the budget was passed and then the budget was
• 24:47
  Speaker 1: announced and I can negatively gear.
• 24:49
  Speaker 2: That is that how it works.
• 24:52
  Speaker 3: I'm not one hundred percent sure, but I believe that
• 24:54
  Speaker 3: is the case. And obviously, if you already have investment properties.
• 24:57
  Speaker 3: You can negatively gear those as well. So, as you've said,
• 25:01
  Speaker 3: there's the privilege that already owned properties and were able
• 25:05
  Speaker 3: and are now able to negatively gear into the future,
• 25:07
  Speaker 3: and there's those that didn't and can't. And I guess
• 25:11
  Speaker 3: they've grandfathered these changes, but they've never they One of
• 25:14
  Speaker 3: the options they could have said is you can negatively
• 25:17
  Speaker 3: gear for the next five years and then no one
• 25:19
  Speaker 3: can negatively gear, but they chose not to go down
• 25:21
  Speaker 3: that path.
• 25:22
  Speaker 2: Yeah, I wonder.
• 25:26
  Speaker 3: Be a future change.
• 25:26
  Speaker 2: Yeah did someone say, Oh, I don't know. I don't
• 25:31
  Speaker 2: want to guess.
• 25:32
  Speaker 1: We'd like to think that people in Treasury think of everything,
• 25:34
  Speaker 1: but they're only human. They mightn't have thought of that
• 25:36
  Speaker 1: at all. Okay, Lilyan, As far as we know, Lilian, yes,
• 25:41
  Speaker 1: your home if you want it on Budget Night this year.
• 25:44
  Speaker 1: In the future, you can turn it into an investment
• 25:46
  Speaker 1: property and you can negatively gear it. Several people on
• 25:50
  Speaker 1: the show have said that. Several people I've asked have
• 25:53
  Speaker 1: said that it's not been denied by Treasury, and typically
• 25:56
  Speaker 1: they will won't confirm it because they're probably saying, oh damn,
• 26:00
  Speaker 1: we let that one through. Okay, last question, Pete, this
• 26:05
  Speaker 1: is a great question, he says, you often mentioned the
• 26:08
  Speaker 1: government guarantee of two hundred and fifty thousand per person
• 26:11
  Speaker 1: per bank are actually to be precise by the way,
• 26:14
  Speaker 1: it's per approved lending what they call it afdc's approved
• 26:18
  Speaker 1: lending deposit institutions, so banks orienting improved by the regulators
• 26:22
  Speaker 1: as a lending institution. Now, Pete asked, has this ever
• 26:26
  Speaker 1: been indexed in the years since the GFC when it
• 26:29
  Speaker 1: was introduced? Great question. I remember the day it was introduced, Pete.
• 26:33
  Speaker 1: I remember writing a story about it on a Saturday afternoon.
• 26:37
  Speaker 1: One of my children it was their birthday party, and
• 26:39
  Speaker 1: she was furious with me, understandably that I was doing something.
• 26:43
  Speaker 1: But it was historic that the government introduced the government
• 26:48
  Speaker 1: guarantee on all bank deposits. Quick answer, No, it's never
• 26:52
  Speaker 1: been indexed. It's more like twenty years ago.
• 26:55
  Speaker 2: I think to eight.
• 26:57
  Speaker 3: Yeah, almost twenty years ago.
• 26:58
  Speaker 2: Yew, late years ago. Okay.
• 27:01
  Speaker 1: Has the government ever paid out on this guarantee? You
• 27:03
  Speaker 1: know they haven't done. If they had, you'd know about it, Pete,
• 27:06
  Speaker 1: because basically they've had a bank collapse in Australia and
• 27:09
  Speaker 1: that hasn't happened since I don't know.
• 27:11
  Speaker 3: I don't know, like the early nineteen nineties, Okay, you
• 27:16
  Speaker 3: got me.
• 27:16
  Speaker 1: I know again, I covered that too, State Bank of Victoria.
• 27:19
  Speaker 1: Actually there was several of them, wasn't there, State Bank
• 27:21
  Speaker 1: of Victoria, which was saved by the Conwell Bank being
• 27:24
  Speaker 1: I supposed the outstanding one, and there was more. There
• 27:27
  Speaker 1: were others, but that was the famous one, of course. Yes,
• 27:31
  Speaker 1: indeed all right went on full marks on that on Cameron.
• 27:34
  Speaker 1: And the last part of Pete's question is has the
• 27:36
  Speaker 1: government set aside any amount in the budget for the
• 27:38
  Speaker 1: likelihood of paying out on this guarantee or is it
• 27:41
  Speaker 1: completely unfunded?
• 27:42
  Speaker 2: Gee, that's a great question. Don't know, do you know?
• 27:47
  Speaker 3: I doubt I would suspect it's not accounted for the
• 27:49
  Speaker 3: budget because they probably don't think it's going to happen.
• 27:52
  Speaker 2: They won't let it happen.
• 27:53
  Speaker 3: Yeah, well that's that argument as well.
• 27:56
  Speaker 1: This is the basis on which we all work on now, Pete.
• 28:00
  Speaker 1: They don't let banks fail anymore since the GFC, that is,
• 28:03
  Speaker 1: and the decision by the US regulators at the time,
• 28:06
  Speaker 1: Henry Poultsen and co. To save one bank after another,
• 28:09
  Speaker 1: and we introduced the notion of moral hazard but hey,
• 28:12
  Speaker 1: it's very hard. Do you want the system where banks
• 28:14
  Speaker 1: are saved and the economy sort of staggers along for
• 28:17
  Speaker 1: years afterwards, or do you want a system where banks
• 28:19
  Speaker 1: crash and you lose all your money?
• 28:21
  Speaker 2: Which is it's pretty tough.
• 28:23
  Speaker 1: Okay, A lot tougher them investing in the residential property market,
• 28:26
  Speaker 1: which is tough, but still entirely possible, according to Cameron Kusher,
• 28:30
  Speaker 1: and he's quite right. Thank you very much, Cameron coming
• 28:33
  Speaker 1: on the show today. Great to have you, Yes, great
• 28:35
  Speaker 1: to be here.
• 28:35
  Speaker 3: Thanks, James.
• 28:37
  Speaker 2: Lovely to talk to Cameron Kusher. There.
• 28:38
  Speaker 1: Cameron Kusher Consulting, He's been on the show before. I
• 28:41
  Speaker 1: love to have him on again. Keep those questions rolling.
• 28:44
  Speaker 1: There's so much to talk about with those government changes.
• 28:47
  Speaker 1: I mean, honestly, CGT negative gearing, family trusts, discretionary trusts,
• 28:53
  Speaker 1: borrowing in self managed superfunds, all these things up in
• 28:57
  Speaker 1: the air. Most of them changed and changed completely. And
• 28:59
  Speaker 1: I think really the message from Cameron is that the
• 29:03
  Speaker 1: residential property investment game as we knew it, as this
• 29:06
  Speaker 1: show has been based on, is gone. It's completely changed,
• 29:11
  Speaker 1: and it's time to really rethink. That doesn't mean you
• 29:14
  Speaker 1: can't win but you certainly have to think afresh.
• 29:17
  Speaker 2: Thanks for listening.
• 29:18
  Speaker 1: Today's show was produced by their Samma Glue and emails welcome.
• 29:22
  Speaker 1: As always, the money Pozzle at the Australian dot com
• 29:25
  Speaker 1: dot au talk to you soon.