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Distressed property sales rising - but are they bargains? · The Money Puzzle

0:12
Speaker 1: Hello and welcome to the Australian's Money Puzzle podcast. I'm
0:15
Speaker 1: James Kirby, the Wealth Editor at The Australian. Welcome aboard, everybody. Now,
0:20
Speaker 1: you may have noticed that there is the beginning of
0:24
Speaker 1: a trend, of a turn, actually, in the property market
0:28
Speaker 1: as we speak. And you'd already know, I'm sure, that
0:31
Speaker 1: property prices are beginning to fall in both Sydney and Melbourne. Now,
0:37
Speaker 1: those falls are small, but the point is.
0:41
Speaker 2: They're falling, right?
0:42
Speaker 1: They're going the wrong way. And very roughly, it looks
0:45
Speaker 1: at the current pace of something like 1% a month.
0:49
Speaker 1: A couple of issues, major issues for anyone in property
0:51
Speaker 1: is how far will this go and how wide will
0:54
Speaker 1: this go? Will it spread to the other cities that
0:56
Speaker 1: have been having such a good run in recent times,
0:59
Speaker 1: Perth and Brisbane in particular, and Adelaide too? So we
1:02
Speaker 1: want to have a look at that, and I want
1:04
Speaker 1: to take a quick look also at the long-awaited, finally
1:09
Speaker 1: signed off shared equity scheme, where you or someone you
1:14
Speaker 1: know can now buy a home in conjunction, if you like,
1:18
Speaker 1: in a joint venture with the government. So you and
1:21
Speaker 1: the government can share the ownership of a home. They
1:23
Speaker 1: will put up to 40% of the price of it
1:26
Speaker 1: if it's a new house, 30% if it's an existing house.
1:32
Speaker 1: What's that like? Is it a good idea? Would it
1:34
Speaker 1: work for you? Would it work at all? My guest
1:37
Speaker 1: today is a regular on the show. It's Louis Christopher
1:40
Speaker 1: of SQM Research. How are you, Louis?
1:42
Speaker 2: Goodbye, Adrian. It's nice to be with you once again.
1:44
Speaker 1: Good to be with you. So just let's tell the
1:47
Speaker 1: listeners basically your call on where things are, first of all.
1:50
Speaker 1: Is that about right? Prices falling about 1% a month now?
1:54
Speaker 2: Or just under 1% a month for Sydney and Melbourne.
1:58
Speaker 2: Prices on our numbers are also falling in Canberra into
2:03
Speaker 2: a lesser extent in Cobart. But they are still rising
2:08
Speaker 2: at a very strong click for Perth, Brisbane, Adelaide. And
2:13
Speaker 2: we believe that the Darwin market is actually starting to
2:16
Speaker 2: pick up now. But most of the falls we speak of,
2:20
Speaker 2: that people hear about in the media, are really Sydney
2:23
Speaker 2: and Melbourne stories here.
2:25
Speaker 1: And the majority of housing stock is in Sydney and Melbourne,
2:28
Speaker 1: isn't it? I think you said 60% or so.
2:30
Speaker 2: About 60% of the nation's stock.
2:33
Speaker 1: So there is, I think it's Shane Oliver at AMP
2:37
Speaker 1: mentioning and a few others putting out the point that
2:39
Speaker 1: pretty soon we're going to see a nationwide average fall
2:42
Speaker 1: in prices. Is that feasible or pushing it too much?
2:48
Speaker 2: Look, we have a different view. We think for 2025...
2:53
Speaker 2: we're not going to see a broad-based national decline. We
2:56
Speaker 2: still believe that the seas of Perth, Brisbane and Adelaide
3:00
Speaker 2: will recall rises, albeit slower rises than what has been
3:06
Speaker 2: recorded in 2024, and that the falls will be for
3:10
Speaker 2: just certain cities, being Melbourne, Sydney, as mentioned before, Hobart
3:15
Speaker 2: and Canberra. So we don't think there's going to be
3:17
Speaker 2: a broad-based national decline mainly because we're seeing certain state
3:23
Speaker 2: economies doing better than others, and interstate copulation migration flows
3:30
Speaker 2: are stronger than in certain states and others, meaning that
3:34
Speaker 2: underlying demand is still increasing at a fairly rapid rate
3:39
Speaker 2: of knots, for example, in the state of Western Australia
3:42
Speaker 2: and the state of Queensland, and that underlying demand for
3:45
Speaker 2: housing has not been met on the supply side. So
3:49
Speaker 2: these are one of the reasons why we're forecasting a
3:52
Speaker 2: more of a mixed housing market in 2025.
3:55
Speaker 1: Okay. And what's interesting here, obviously, is you've put Sydney
4:00
Speaker 1: in alongside Melbourne as a market that you expect to
4:04
Speaker 1: see a fall by the far end of 2025. Can
4:07
Speaker 1: you tell us a little bit more about what you're forecasting?
4:10
Speaker 2: Yeah, sure. So for Sydney and Melbourne, we're forecasting housing
4:14
Speaker 2: price deploying to somewhere between minus one to minus five
4:17
Speaker 2: percent for the year. Now, what we believe will actually
4:20
Speaker 2: happen is that the bulk of the housing price falls
4:24
Speaker 2: will happen in the first half of the year. We
4:27
Speaker 2: believe at some point in time in mid-year 2025, we're
4:30
Speaker 2: finally going to see the Reserve Bank of Australia cut
4:33
Speaker 2: interest rates. And once they do, we do believe that
4:38
Speaker 2: our home buyer confidence and indeed vendor confidence will start
4:42
Speaker 2: to improve in our two largest capital cities for the
4:45
Speaker 2: second half of 2025. but the net result will still
4:50
Speaker 2: be declines in housing prices recorded full of full year.
4:53
Speaker 2: So just think of an impartial V-shaped recovery for our
4:58
Speaker 2: two largest capital cities where falls have in the first
5:01
Speaker 2: half of the year offset by some price increases for
5:03
Speaker 2: the second half of the year.
5:05
Speaker 1: You would know, of course, that most of the major
5:08
Speaker 1: bank economists have now pushed their forecast for a rate
5:12
Speaker 1: cut out from February, March, right out to May, June.
5:16
Speaker 1: The risk I imagine for you is that they will
5:18
Speaker 1: push them further out again. Is that a downside risk, basically,
5:22
Speaker 1: for your forecast?
5:24
Speaker 2: Well, Joe, you may recall, and your audience may recall,
5:28
Speaker 2: what we do when we release these forecasts each year
5:32
Speaker 2: is we put out various scenarios. And so our base
5:36
Speaker 2: pay scenario was that we would see an interest rate
5:38
Speaker 2: cut of between 0.25% to 0.5% somewhere mid-year 2025. However,
5:41
Speaker 2: our second most likely scenario is is one where the
5:48
Speaker 2: reserve bank of Australia doesn't cut interest rates in 2025
5:52
Speaker 2: at all. And on that scenario, we're a little bit
5:56
Speaker 2: more negative on the housing market, but particularly city of Melbourne.
6:00
Speaker 2: So on our modelling, if the RBA does not cut
6:03
Speaker 2: rates in 2025, housing prices in city of Melbourne are
6:06
Speaker 2: likely to fall somewhere between seven to eight per seat
6:10
Speaker 2: for the full calendar year.
6:12
Speaker 1: Okay. And it has happened, I presume, before that you
6:15
Speaker 1: had a year where the major cities were dropping and
6:19
Speaker 1: the other cities were rising. That's not unprecedented.
6:21
Speaker 2: Normally, the situation you do recall, one records over a
6:28
Speaker 2: number of years now, is a mixed housing market where
6:30
Speaker 2: some cities rise, some cities fall. It's more the abnormality
6:34
Speaker 2: that you see every housing market across Australia in sync
6:38
Speaker 2: with housing price falls. Of course, there are periods where
6:43
Speaker 2: when the Reserve Bank of Australia has lifted interest rates
6:45
Speaker 2: and all the economy significantly slowed, that you see slowing
6:49
Speaker 2: housing markets across the capital cities. But in that case,
6:55
Speaker 2: it's not always a situation where housing fires literally happen everywhere.
7:01
Speaker 2: And I really do doubt we'll see that in Australia
7:04
Speaker 2: next year. I think one of the key missing ingredients
7:08
Speaker 2: behind big falls in housing prices nationwide is that we
7:12
Speaker 2: still have a shortage of real estate. It's not like
7:16
Speaker 2: as though the supply side of residential real estate in
7:20
Speaker 2: this country is boomy. It isn't. Everyone's aware we've got
7:24
Speaker 2: a fundamental shortage of real estate compared to the population
7:28
Speaker 2: growth rate. And that essentially puts a bit of a
7:31
Speaker 2: floor underneath the housing market to an extent.
7:34
Speaker 1: Okay, we'll be back in a moment. Hello, welcome back
7:46
Speaker 1: to the Australian's Money Puzzle podcast. I'm James Kirby. I'm
7:48
Speaker 1: talking to Louis Christopher. Okay, Louis, this is what everyone
7:51
Speaker 1: wants to know. Where are the bargains in Melbourne and Sydney?
7:54
Speaker 1: Because as our audience, they're investors, they're optimists, they're looking
7:59
Speaker 1: for value. So can we deal with them separately? Let's
8:03
Speaker 1: have a look at Melbourne, first of all.
8:04
Speaker 2: We can, but we're seeing some similar trends. Let me explain. Okay, firstly,
8:11
Speaker 2: for both seas, I wouldn't say that the markets are
8:14
Speaker 2: undervalued at this point in time. So when we look
8:17
Speaker 2: at prices to rents, prices to income, we're still recording
8:21
Speaker 2: either valuations in Northern and City, but the market is
8:24
Speaker 2: coming off. And we are seeing more distressed listings activity,
8:29
Speaker 2: particularly in the state of Victoria. And then we want
8:32
Speaker 2: to dig deeper into the state of Victoria. The bulk
8:36
Speaker 2: of those distress listings are occurring in the inner city
8:39
Speaker 2: areas of Melbourne. We are recording some distress listings in
8:43
Speaker 2: regional Victoria, but the bulk of them are in Melbourne
8:48
Speaker 2: and they're involving apartments in the CBD.
8:53
Speaker 1: Okay. What's your definition of distress?
8:56
Speaker 2: A distress listing is one where we've noticed through the listing,
9:00
Speaker 2: it's been either advertised as mortgagee in possession or or
9:04
Speaker 2: it says in the ad, bank for sale or deceased estate,
9:08
Speaker 2: or all offers considered must sell now. We look at
9:14
Speaker 2: about 47 different keywords in terms of what we regard
9:17
Speaker 2: as a distressed listing.
9:20
Speaker 1: Are you able to give us some sense of the
9:22
Speaker 1: proportion of property in Melbourne Central that's distressed and what
9:27
Speaker 1: it might be normally?
9:28
Speaker 2: In the CVD, I think we're recording now about 110
9:31
Speaker 2: properties So in the postcode of 3,000, there's about 110
9:35
Speaker 2: properties selling under distress conditions.
9:38
Speaker 1: Okay. What would you expect normally?
9:43
Speaker 2: Well, put it this way, James, it's a relatively new
9:45
Speaker 2: series that we've put out. So we've been running this
9:47
Speaker 2: distress listings index since 2020. And for most states, the
9:55
Speaker 2: number of distress listings are well down in those COVID times.
9:59
Speaker 2: Those are COVID times, except for the state of Victoria.
10:04
Speaker 2: We've now recorded a new heart for the count of
10:08
Speaker 2: distressed listings in the state of Victoria. So the numbers
10:11
Speaker 2: now are coming up to 1200 properties statewide, which are
10:16
Speaker 2: selling under distressed conditions as per our recordings. And that's
10:20
Speaker 2: higher than what we had during the COVID period. Now,
10:23
Speaker 2: there was this period between 2021 and 2022 in Victoria,
10:28
Speaker 2: and as it was the case of other states where
10:30
Speaker 2: the stress-reducing activity essentially collapsed. And that was because during
10:34
Speaker 2: that time, you may recall, the banks had a moratorium
10:38
Speaker 2: on any borrowers who were facing financial hardship due to COVID.
10:44
Speaker 2: Those times have ended. of course, and a bike to
10:47
Speaker 2: now applying hardball.
10:48
Speaker 1: They were given a sort of lifeline at that time. Yeah, okay.
10:53
Speaker 1: I see. And what about in your report that just
10:57
Speaker 1: came out this morning, you say total listings. Now, this
10:59
Speaker 1: is nationwide, I presume, but I presume it's underpinned by Victoria.
11:04
Speaker 2: Yeah.
11:04
Speaker 1: Total listings rose by 7.6%, driven by sharp rises in
11:09
Speaker 1: old listings. I assume that is just the accumulation of
11:13
Speaker 1: stuff coming back on the market again and again. Is
11:16
Speaker 1: that what that means?
11:17
Speaker 2: Yeah, old listings. We classify old listings as being on
11:20
Speaker 2: the market for over six months, well, 180 days. And
11:24
Speaker 2: you would be surprised how many listings out there would
11:27
Speaker 2: be on the market that long. We're counting... nationwide, there's
11:32
Speaker 2: about 74,000 listings that have been on the market for
11:35
Speaker 2: greater than six months. But more interestingly, the properties that
11:41
Speaker 2: have been on the market between 30 days to 90
11:45
Speaker 2: days rose significantly over the last 30 days. They then
11:50
Speaker 2: went up by 22% nationwide. And what that's telling us
11:55
Speaker 2: is that it's been a very disappointing spring selling season
11:59
Speaker 2: across the country for many owners and agents alike, particularly
12:03
Speaker 2: once again in Sydney and Melbourne, where we've recorded the
12:06
Speaker 2: biggest gains in that bracket of listings in terms of
12:10
Speaker 2: days of laughter.
12:11
Speaker 1: Right. So the weakness in Melbourne is inner-city apartments, clearly.
12:16
Speaker 1: Is that reflected in Sydney too?
12:18
Speaker 2: Yes, it is. We're also recording rise in distress listings
12:21
Speaker 2: activity in the CVD of Sydney. We're also been recording
12:26
Speaker 2: rises in distress selling activity in development areas in and
12:31
Speaker 2: around city. So for example, in Northwest Sydney, particularly around
12:36
Speaker 2: the Carlingford and Epping area, we're recording a substantial rise
12:40
Speaker 2: in distress listings activity. And that's been an area where
12:43
Speaker 2: there's been a lot of developments being added onto the
12:47
Speaker 2: market over the past three to five years.
12:51
Speaker 1: Okay, I want to ask you one point about that.
12:54
Speaker 1: The softness in the Sydney inner city apartment market, is
12:59
Speaker 1: it also worse than the COVID period?
13:03
Speaker 2: Yes, it is. It's worse than the COVID period now.
13:05
Speaker 1: Okay, I see. So the explanation is not so much
13:09
Speaker 1: that it's so bad now, it's that there was this
13:12
Speaker 1: artificial cushion in the COVID period where the banks weren't
13:14
Speaker 1: allowed to move basically.
13:17
Speaker 2: Yes, that is true. And we need to all keep
13:19
Speaker 2: in mind that, you know, we've got a relatively young
13:22
Speaker 2: series out there. We're not on where everyone else does
13:24
Speaker 2: this series. Yeah. But, you know, the entire series will mature.
13:29
Speaker 2: So we've only got the data back to 2020. So
13:31
Speaker 2: make of that what you will. But nevertheless, certainly in
13:34
Speaker 2: the state of Victoria, we're in now uncharted waters. And
13:37
Speaker 2: we also know there's been separate reports of increased and
13:42
Speaker 2: arrears in the state of Victoria as well. I think,
13:44
Speaker 2: you know, B & A came out with some surveys
13:47
Speaker 2: on that recently.
13:48
Speaker 1: Yes, and Fitch did also, Louis, on that side of things. Okay,
13:53
Speaker 1: very interesting. I just want to ask you whether you
13:56
Speaker 1: think investors would necessarily see inner-city apartment markets as, at
14:00
Speaker 1: what point would they see it as being in bargain territory?
14:03
Speaker 1: Because they are known to be among the weakest of
14:07
Speaker 1: property types because of basically because there's no land.
14:11
Speaker 2: Great they have and at a personal level it's not
14:14
Speaker 2: a location I would personally invest in myself because of
14:18
Speaker 2: the what I do regard as being more elevator risks
14:22
Speaker 2: of booms and busts as opposed to more smooth out
14:26
Speaker 2: performance from an investment perspective yeah look at these areas
14:32
Speaker 2: of course would be historically areas where you see more
14:35
Speaker 2: supply added into the marketplace we are definitely noticing more
14:40
Speaker 2: resales occurring below the initial purchase price, particularly in Melbourne.
14:46
Speaker 2: We ran one last week in what we call our
14:48
Speaker 2: distressed property of the week in our weekly SQN newsletter.
14:52
Speaker 2: It was a property, if I recall, where the initial
14:55
Speaker 2: purchase price was back in 2015 at about $ 850, 000 for
14:59
Speaker 2: a two-bedroom unit, and they're now trying to pick it up. Well,
15:03
Speaker 2: they're trying to sell it somewhere in the $ 600, 000 range,
15:07
Speaker 2: if I recall the numbers. So it was a deep
15:09
Speaker 2: discount to the original purchase price. You could argue that
15:13
Speaker 2: the original purchase price, which presumably was bought off the plane,
15:17
Speaker 2: was way above market. This is an issue I have
15:20
Speaker 2: with off-the-plane valuations. It is very hard to tell what
15:24
Speaker 2: is spare market valuation. And so there are greater risks
15:28
Speaker 2: for investors buying off the plane if they're paying either
15:30
Speaker 2: the odds for the property concerned.
15:33
Speaker 1: Okay. Very interesting. I'm sure the listeners will take all
15:36
Speaker 1: that on board. Very interesting. OK, now, just before we
15:38
Speaker 1: go to questions, if I could just swing your attention
15:41
Speaker 1: in another direction entirely. The shared home equity scheme, which
15:46
Speaker 1: is the Labour government's signature move to put something in
15:52
Speaker 1: for first home buyers, got signed off in the last
15:55
Speaker 1: week of Parliament. And it will now start and it
15:57
Speaker 1: will allow people to let the government basically be the
16:00
Speaker 1: other partner in the purchase of a home. first home 40%
16:04
Speaker 1: they could the government could have up to 40% of
16:07
Speaker 1: a new property and 30% of an existing property and
16:09
Speaker 1: there are salary caps on this but it's very interesting
16:12
Speaker 1: it's never been tried here it's been tried in the
16:14
Speaker 1: UK I've had a look at some of the I
16:16
Speaker 1: looked at that House of Lords report on the British
16:19
Speaker 1: one and the various observations they made which the big
16:24
Speaker 1: takeaway was that it worked in the regions it didn't
16:26
Speaker 1: work in the cities because I presume because the price
16:29
Speaker 1: is so much lower in the regions in the UK but.
16:31
Speaker 2: What do you think might happen here Well, it may
16:35
Speaker 2: not have been tried at the federal government level, but
16:38
Speaker 2: it has been tried in Australia before by certain private organisations.
16:42
Speaker 2: You may recall some years back, Rismark had a ski,
16:46
Speaker 2: and then I think there was another one called Greenway Capital.
16:49
Speaker 2: And quite frankly, these schemes in the past did not work.
16:54
Speaker 2: I predict that this one will not really work either,
16:56
Speaker 2: and it will not be the solution to housing crisis problems.
17:00
Speaker 2: But look, it may work for some first-time buyers who
17:04
Speaker 2: just simply cannot get into the market at all. But
17:07
Speaker 2: I think for the bulk of would-be buyers, the thought
17:12
Speaker 2: of the government having some ownership in your property, I
17:15
Speaker 2: think that's a bit of a turnoff for many people.
17:17
Speaker 2: It would be a turnoff for me. I wouldn't do
17:19
Speaker 2: it unless I absolutely had to. And just remember that
17:23
Speaker 2: in all these things, when you have this shared equity, Okay,
17:27
Speaker 2: sooner or later you have to pay the piper.
17:29
Speaker 1: Is there some reason the government is a worse joint
17:31
Speaker 1: venture partner than Rismark or whoever it was in the past?
17:37
Speaker 2: They might not be as worse, Jones, and I think
17:40
Speaker 2: one thing that's improved over time is that it's more
17:42
Speaker 2: or less being settled how things such as repairs and
17:45
Speaker 2: maintenance need to be looked after. When these initiatives first
17:49
Speaker 2: came into the market some 15 to 20 years ago,
17:52
Speaker 2: no one had really thought through the issues surrounding repairs
17:55
Speaker 2: and maintenance. So I think A number of those questions
17:59
Speaker 2: are being settled now after some experience. But even so,
18:04
Speaker 2: I just don't think you're going to see a lot
18:05
Speaker 2: of take-up in my view. Oh, right.
18:07
Speaker 1: Okay. I must say, I think they'll be taken up.
18:09
Speaker 1: I reckon every single spot will be taken up. I do.
18:12
Speaker 1: Whatever the issues are, I think there's limited numbers.
18:15
Speaker 2: I mean, let's say it's fully taken up. Let's say
18:17
Speaker 2: you're right on that. Is this actually going to resolve
18:20
Speaker 2: our housing issues?
18:22
Speaker 1: No, I don't think so. But I'm just thinking of
18:24
Speaker 1: it for the people who take it up. that I
18:26
Speaker 1: suppose it's an option that wasn't there previously.
18:28
Speaker 2: I think that's a reasonable call, but I think in
18:30
Speaker 2: the long run, they're going to resist having government ownership
18:33
Speaker 2: in their property.
18:34
Speaker 1: It sounds to me like you're alluding to some sort
18:36
Speaker 1: of Kafkaesque bureaucratic nightmare that the young couple might find
18:41
Speaker 1: themselves in.
18:42
Speaker 2: There is a libertarian part of me, and I think
18:46
Speaker 2: there will be, though, a lot of people saying, no,
18:48
Speaker 2: thank you.
18:49
Speaker 1: Okay. And I think that point of view is worth canvassing, folks,
18:52
Speaker 1: and just having a look at. I think one of the,
18:54
Speaker 1: I think with the defence properties, for instance, they are
18:56
Speaker 1: often seen as looking attractive. But, you know, when you
18:59
Speaker 1: do go into those, they're very strict, all their measures
19:03
Speaker 1: and regulations and maintenance demands. So they're all pre-ordered and pre-agreed.
19:08
Speaker 1: And you are just, you know, you against the army
19:11
Speaker 1: or you against the Australian government is something to consider.
19:14
Speaker 2: They can be restrictions. And then I also bring to
19:17
Speaker 2: your attention, quite simply, Just all the issues surrounding NDIS
19:21
Speaker 2: properties of late as well, which unfortunately you've had some,
19:26
Speaker 2: and I'm not saying this would happen with the shared equity,
19:28
Speaker 2: but we've seen situations where you've had some unscrupulous operators
19:32
Speaker 2: enter into that space for NDIS properties and a lot
19:35
Speaker 2: of innocent investors are being burnt. So it's really important
19:40
Speaker 2: in all these things or these schemes that you look
19:42
Speaker 2: at the detail, whether you're a first-time buyer or an investor,
19:46
Speaker 2: you really consider the detail. The third, second, fourth, and lowest.
19:50
Speaker 1: And I think it's important to also say to the
19:52
Speaker 1: listeners that the NDIS stuff, a lot of the developers,
19:58
Speaker 1: at their worst, were masquerading basically as the government, which
20:01
Speaker 1: they weren't. They were simply building buildings that were suitable
20:04
Speaker 1: for NDIS, but they weren't their government building the buildings.
20:08
Speaker 1: while here you are actually participating directly with the federal government.
20:12
Speaker 1: This is on the Home Shared Equity Scheme. So all
20:15
Speaker 1: to be revealed in the fullness of time. Okay, we'll
20:17
Speaker 1: take a short break and we'll do some questions from listeners. Hello,
20:31
Speaker 1: welcome back to The Australian's Money Puzzle. James Kirby here
20:34
Speaker 1: with Louis Christopher of the SQM Research Group. That's a
20:37
Speaker 1: property research group that I'm sure you're familiar with, independent
20:40
Speaker 1: property research group, who run a continuing sort of flow
20:45
Speaker 1: of reports on the market, which we report on regularly
20:48
Speaker 1: in The Australian and elsewhere. Okay, Josh. Now, Josh puts
20:53
Speaker 1: in brackets, he's from Brisbane, and you'll figure out why
20:55
Speaker 1: in a second when I read this question. Love your show,
20:58
Speaker 1: but I can't help think that as you live in Melbourne,
21:01
Speaker 1: you can't see how bad the perception of investing in
21:05
Speaker 1: any form of property in Victoria is. All I see
21:09
Speaker 1: is an absolute basket case of financially irresponsible city that
21:12
Speaker 1: has been run into the ground with mountains of debt.
21:16
Speaker 1: Yet not only do Victorians keep voting these people into power,
21:19
Speaker 1: these policymakers into power, but they build them statues. I
21:24
Speaker 1: find it mind-boggling that any sane person would invest in
21:26
Speaker 1: such a market at present and can't help but think
21:29
Speaker 1: it has a long, long, that's three longs there, folks,
21:32
Speaker 1: way to go, to rectify itself. Okay, Josh, you know,
21:35
Speaker 1: the rational part of me says when someone starts talking
21:39
Speaker 1: about that, about a city that's going to be the
21:41
Speaker 1: biggest city in Australia that has, whatever way you look
21:45
Speaker 1: at it, terrific fundamentals, I would start looking at it
21:51
Speaker 1: more as a long-term investment. opportunity. When the current regime
21:55
Speaker 1: in Victoria is sparking such comment, I'm not surprised it's
21:59
Speaker 1: sparking that kind of comment, but I wouldn't write off
22:01
Speaker 1: the city of Melbourne as a property investment possibility. What
22:05
Speaker 1: about you, Louis?
22:07
Speaker 2: No, I'm certainly not over the long term, Joanne. So look,
22:09
Speaker 2: governments come and go, as we all know. At this
22:12
Speaker 2: point in time, I would have to say the state
22:14
Speaker 2: of Victoria is not overly conducive to property investment because,
22:17
Speaker 2: among other things, you've got an investor land tax that's
22:20
Speaker 2: there and so forth that's going to be introduced by
22:22
Speaker 2: the government. But let's remember a few things here. Firstly,
22:26
Speaker 2: the state of Victoria is still growing population-wise. It's getting
22:30
Speaker 2: a very strong share of overseas migration. So no matter what,
22:36
Speaker 2: the state continues to grow the population front, and that
22:38
Speaker 2: means the underlying demand for real estate continues to increase.
22:43
Speaker 2: Let's also keep in mind that the state of Victoria
22:46
Speaker 2: is a diversified economy. It's got a very large share
22:50
Speaker 2: of the financial services sector across Australia, It also has
22:54
Speaker 2: a very good manufacturing sector as well. It's what we
22:58
Speaker 2: call a very nicely diversified economy, and it will remain
23:02
Speaker 2: that way, which is good for the long term. Over
23:06
Speaker 2: the short term, look, yeah, there's been decisions made by
23:09
Speaker 2: the government, which I don't necessarily agree with. But like
23:13
Speaker 2: I said, over the long term, governments will come and go,
23:15
Speaker 2: and there will be a time again when the housing
23:19
Speaker 2: market will be running into positive territory. The declines that's
23:23
Speaker 2: been recorded have been modest declines so far for this year,
23:28
Speaker 2: helping prove fundamental valuations. But as said, on our numbers,
23:31
Speaker 2: we still think the Melbourne housing market is somewhat overvalued.
23:35
Speaker 2: Not as overvalued as where Sydney stands, but nevertheless, somewhat
23:39
Speaker 2: overvalued compared to rents and incomes. But yeah, if you
23:44
Speaker 2: take a long-term view on investing, then the start of
23:48
Speaker 2: Victoria is definitely still worth a look.
23:50
Speaker 1: Okay, interesting. And In your predictions, it participates in that
23:55
Speaker 1: V-shaped recovery mid-year next year?
23:58
Speaker 2: It does. So housing price falls in the first half
24:01
Speaker 2: of the year. And then assuming we get that rate
24:03
Speaker 2: cut mid-year, we should start to see a return of
24:06
Speaker 2: buyer confidence in the second half of 2025 across Melbourne.
24:10
Speaker 2: I think the inner city area, given how much stock
24:12
Speaker 2: we're seeing there, I'm not so sure whether that will
24:14
Speaker 2: enjoy so much of the V-shaped recovery. But we're noticing
24:18
Speaker 2: more strength in the outer ring of Victoria, so less softness.
24:22
Speaker 2: In North Melbourne, in the Mornington Peninsula area there, we're
24:26
Speaker 2: still seeing plenty of buyers there to an extent. The
24:30
Speaker 2: bulk of the softness in Melbourne is in the inner
24:32
Speaker 2: city areas right now.
24:33
Speaker 1: Okay. Okay. Interesting. All right. Final question from Lisa.
24:37
Speaker 2: Hi, Lisa.
24:37
Speaker 1: Can I ask you and your guests, my son and
24:40
Speaker 1: his girlfriend are interested in buying a one-bedroom apartment. I
24:44
Speaker 1: don't know what city this is. I know it is
24:47
Speaker 1: seen as a foot on the property ladder, but everything
24:50
Speaker 1: I have ever read suggests they, being one-bedroom apartments, are
24:53
Speaker 1: relatively hopeless investments. Discuss.
24:57
Speaker 2: Okay, so there's certainly a lot more risk buying an
25:01
Speaker 2: off-the-plan one-bedroom apartment. But if you were to buy an
25:06
Speaker 2: established one-bedroom apartment that's aged reasonably moderately, with an older-style one, then...
25:14
Speaker 2: a lot of the depreciation, the affected depreciation has already
25:17
Speaker 2: occurred on that property. So when you're buying a new property,
25:21
Speaker 2: it's like buying a new car. You're buying a century
25:24
Speaker 2: off the showroom floor. You're paying a premium for its newness.
25:28
Speaker 2: But there's a good reason why the ATO gives you
25:30
Speaker 2: a depreciation allowance on new properties, because they depreciate. All
25:34
Speaker 2: those fixtures and fittings depreciate. They will not look as
25:37
Speaker 2: good as they are now in 10 years' time. But
25:40
Speaker 2: once that's taken into account into the pricey, which happens
25:43
Speaker 2: when you buy an established property that's, say, for example,
25:46
Speaker 2: five years or older, you will find such properties will
25:50
Speaker 2: be found at least in line with market. Now, of course,
25:54
Speaker 2: you still need to do your research on, say, that
25:56
Speaker 2: apartment block, because what you don't want to see are
25:58
Speaker 2: major faults in that apartment block. Otherwise, even buying an
26:04
Speaker 2: existing property in, say, the faulty block, you're up for
26:08
Speaker 2: problems going forward. You've got to be careful. And that's
26:10
Speaker 2: why I always say to people, read the strata minutes.
26:13
Speaker 2: Get your hands on the committee minutes to see what's
26:16
Speaker 2: been going on behind the scenes at a public block.
26:20
Speaker 1: And see what may be coming down the line.
26:22
Speaker 2: Absolutely.
26:23
Speaker 1: Might be waiting for you to buy your apartment.
26:26
Speaker 2: But James, in all this, what we've been finding of
26:29
Speaker 2: late and more recent cycles is that units are being reasonably,
26:33
Speaker 2: a good defensive play in market downturns. They opt to
26:36
Speaker 2: form houses in market downturns. They turned up under before
26:40
Speaker 2: houses in upturns. Okay.
26:43
Speaker 1: So which would imply that they will do better than
26:45
Speaker 1: the rest of the market in this immediate period of softness.
26:49
Speaker 2: Correct. Yeah.
26:51
Speaker 1: Very interesting.
26:52
Speaker 2: Okay.
26:52
Speaker 1: Terrific. Hey, terrific to get you, Louis, again. Great to
26:55
Speaker 1: have you on the show as usual.
26:56
Speaker 2: Always very.
26:57
Speaker 1: Very good helicopter view of the market and a very
27:00
Speaker 1: practical one too. Thanks a lot, Louis Christopher of SQM Research.
27:03
Speaker 1: Do send us some correspondence, folks. Love to have some
27:06
Speaker 1: more questions or even observations like Josh's quite distinct observation
27:12
Speaker 1: there on the Melbourne market from the distance of Brisbane.
27:15
Speaker 1: Whatever you like, love to hear from you. themoneypuzzleattheaustralian.com.au Today's
27:21
Speaker 1: show was produced by Leah Samoglu. Talk to you soon.
27:28
Speaker 2: Thank you.