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The return of the 'you can rent anything market' · The Money Puzzle

• 0:12
  Speaker 1: Hello, and welcome to the Australians Money Puzzled podcast. I'm
• 0:16
  Speaker 1: James Kirkby. Welcome aboard everybody.
• 0:18
  Speaker 2: You know.
• 0:18
  Speaker 1: We were told to expect immigration levels would cool this
• 0:22
  Speaker 1: year and basically the numbers would not be quite so
• 0:24
  Speaker 1: attractive for property investors. But this actually has not happened.
• 0:29
  Speaker 1: The reverse has happened. Investors are going back into the market.
• 0:32
  Speaker 1: Rental prices are going up. It's a major factor. And
• 0:36
  Speaker 1: to discuss this with me is Pete Warden of the
• 0:39
  Speaker 1: Alan Warden Group.
• 0:40
  Speaker 2: Hi, Pete, it's good to be back on. Lots of
• 0:43
  Speaker 2: talk about in the housing market as always.
• 0:45
  Speaker 1: Well there is and you just caught me by surprise
• 0:48
  Speaker 1: really because I had thought the unemployment rate obviously nationally
• 0:52
  Speaker 1: is moving up, but also the vacancy rates in property
• 0:57
  Speaker 1: we had thought we're moving a back up. That is,
• 1:00
  Speaker 1: they were one percent and they were starting to go
• 1:02
  Speaker 1: up higher, and that would mean that the sort of
• 1:04
  Speaker 1: intense focus on shortage of rental accommodation was there, and
• 1:10
  Speaker 1: that meant for investors this notion that they could rent
• 1:13
  Speaker 1: anything to anyone anytime might be fading and it wasn't
• 1:16
  Speaker 1: quite as good as it used to be. But tell
• 1:19
  Speaker 1: me what you've been noticing in the recent stats on
• 1:22
  Speaker 1: rentals and what it means for everyone.
• 1:25
  Speaker 2: I think everybody sort of knows that the government's target
• 1:29
  Speaker 2: of one point two million homes over five years isn't
• 1:32
  Speaker 2: going to be achieved. But when you look at the
• 1:34
  Speaker 2: ABS figures for immigration, so every month they put out
• 1:38
  Speaker 2: these arrivals and departures figures, and the expectation had been
• 1:42
  Speaker 2: that immigration would gradually slow back down towards sort of
• 1:45
  Speaker 2: the norms. But if you strip out the short term arrivals,
• 1:48
  Speaker 2: because we've always got people coming and going for holidays
• 1:51
  Speaker 2: and so on. But if you look at the permanent
• 1:53
  Speaker 2: and long term immigration on a net basis is back up.
• 1:57
  Speaker 2: Over the past five months, it's been accelerating to a
• 2:00
  Speaker 2: back up to about or just shy of four hundred
• 2:02
  Speaker 2: and fifty k, which is huge. So yeah, Now a
• 2:06
  Speaker 2: part of this is it's not just arrivals, it's also
• 2:09
  Speaker 2: fewer people leaving. And I think if you look around
• 2:12
  Speaker 2: the world, New Zealand's unemployment rate is above five percent
• 2:16
  Speaker 2: and rising back in sort of our old neck of
• 2:19
  Speaker 2: the woods. The UK's got rising unemployment rate over there.
• 2:23
  Speaker 2: Canada's actually six point nine percent and they're having to
• 2:26
  Speaker 2: cut back on immigration. So I think for Ozzi's who
• 2:30
  Speaker 2: prospectively might have looked to travel overseas well, fewer people
• 2:33
  Speaker 2: are going, and against all the expectation, immigration has now
• 2:37
  Speaker 2: been accelerating again. The national planning levels for international students
• 2:41
  Speaker 2: have been increased for twenty twenty six from two hundred
• 2:45
  Speaker 2: and seventy five thousand this year to two hundred and
• 2:47
  Speaker 2: ninety five thousand for next year, so that's going to
• 2:50
  Speaker 2: add to demand as well. So it seems like things
• 2:53
  Speaker 2: will get worse before they get better. In the rental market,
• 2:56
  Speaker 2: we've got rental vacancy rates of back near record lows
• 2:59
  Speaker 2: now around one percent.
• 3:01
  Speaker 1: Just to explain to listeners, they have come back down Basically,
• 3:05
  Speaker 1: the lower it is, the tighter it is, the lester
• 3:07
  Speaker 1: is to rent. And you're saying it's back down at
• 3:09
  Speaker 1: the one percent levels now, is it?
• 3:11
  Speaker 2: Yeah? I mean they used to say back in the
• 3:13
  Speaker 2: olden days that a balanced rental market had a rental
• 3:16
  Speaker 2: vacancy rate of about three percent. I think the way
• 3:19
  Speaker 2: things are measured in Australia anyway, I'd say probably around
• 3:23
  Speaker 2: two percent is probably more of a balanced market. But
• 3:26
  Speaker 2: in five of the capital cities. Now we've got rental
• 3:28
  Speaker 2: vacancies below one percent and they're falling again in Sydney.
• 3:32
  Speaker 2: So I suppose you've only really got Melbourne where things
• 3:35
  Speaker 2: are sort of getting a bit easier for tenants at
• 3:37
  Speaker 2: the moment. I think this has some real knock on implications.
• 3:41
  Speaker 2: I mean, not least for inflation. I guess you know
• 3:43
  Speaker 2: we have We'll talk about this, no doubt in a
• 3:46
  Speaker 2: moment when we talk about rate cards. But asking rents
• 3:49
  Speaker 2: are now rising again. There tends to be a bit
• 3:52
  Speaker 2: of a lug for that to flow through to the
• 3:54
  Speaker 2: whole housing market. But that's one of the factors which
• 3:57
  Speaker 2: sort of suggests that inflation might not be quite done yet.
• 3:59
  Speaker 1: So that's really interesting. Are they asking rents rising nationwide?
• 4:05
  Speaker 2: Yes, pretty much everywhere. I think if you look in
• 4:07
  Speaker 2: some parts of the country, things have been a bit slower,
• 4:10
  Speaker 2: sort of Tasmania, I sat. But like a lot of
• 4:13
  Speaker 2: these things, there's a big Sydney Melbourne whiting and if
• 4:17
  Speaker 2: asking rents a rising in Sydney and Melbourne, then that
• 4:20
  Speaker 2: tends to suggest if is going up.
• 4:23
  Speaker 1: So in terms of the factors that really have changed,
• 4:25
  Speaker 1: the changing factor, the surprise factor is the bump in immigration.
• 4:28
  Speaker 2: Basically, yes, demand is picked.
• 4:30
  Speaker 1: Up, which, as you say, people had thought was too soften.
• 4:35
  Speaker 1: But in fact, as you say, and it's very interesting
• 4:37
  Speaker 1: that you put it in context, rising on employment levels
• 4:40
  Speaker 1: in some of the sort of source countries would support
• 4:44
  Speaker 1: the notion that they would keep coming if they can.
• 4:48
  Speaker 1: I can also add to this that the rentals that
• 4:52
  Speaker 1: would be paid in Australia. People might find this hard
• 4:56
  Speaker 1: to believe, but it's true the rentals that would be
• 4:59
  Speaker 1: paid by those immigrants in the cities coming from New Zealand,
• 5:03
  Speaker 1: coming from London, coming from Dublin, they are lower than
• 5:08
  Speaker 1: they are used to and so they actually quite happily
• 5:11
  Speaker 1: will pay these levels. I'm quite aware of this because
• 5:14
  Speaker 1: second generation nieces and nephews the levels they pay. Also,
• 5:18
  Speaker 1: my daughter shares a house with a whole bunch of
• 5:19
  Speaker 1: New Zealanders. They think this that the rents are terribly
• 5:22
  Speaker 1: reasonable compared to Auckland. So the point I'm making is
• 5:26
  Speaker 1: that you've got this bump, a surprise bump in immigration
• 5:29
  Speaker 1: though that particular immigration cohort is quite willing to pay
• 5:32
  Speaker 1: the prices that we have. And then on top of that,
• 5:35
  Speaker 1: as you say that many people may not have noticed this,
• 5:39
  Speaker 1: that the asking rents are going up, the rental vacancy
• 5:42
  Speaker 1: rates are going down.
• 5:43
  Speaker 2: That all put.
• 5:44
  Speaker 1: Together basically tells you that there's a sort of like
• 5:46
  Speaker 1: a second wind here in terms of property of the
• 5:50
  Speaker 1: property the man that basically people will be able to
• 5:52
  Speaker 1: rent anything basically once again, and that confidence can be
• 5:56
  Speaker 1: there for investors.
• 5:58
  Speaker 2: Yes, I think so. I mean, I think it's quite
• 6:00
  Speaker 2: seasonal in Australia these days because we've got so many
• 6:03
  Speaker 2: international students now, what's seven hundred thousand or so, So
• 6:07
  Speaker 2: it comes and goes with the university term times, and
• 6:10
  Speaker 2: of course the warmer summer months are very popular for
• 6:13
  Speaker 2: visitor arrivals. A lot of people come for Christmas as well.
• 6:16
  Speaker 2: But I think though in economics, every shortage is ultimately
• 6:20
  Speaker 2: will be followed by a glut. It might be two
• 6:22
  Speaker 2: or three years down the track, and I think, you know,
• 6:24
  Speaker 2: the darkest hours before the dawn. I think in real
• 6:27
  Speaker 2: time you're seeing a lot more marginal development projects are
• 6:30
  Speaker 2: now increasingly passing feasibility and getting green ticks. I think
• 6:35
  Speaker 2: new home sales are what nearly are the three year high.
• 6:38
  Speaker 2: We were talking a week or so ago. Cba is
• 6:41
  Speaker 2: Keen to lend on things like prefab housing, and I
• 6:44
  Speaker 2: think other banks will come into the sector. Build to
• 6:47
  Speaker 2: rent in Australia's still quite a nascent sector, but there's
• 6:50
  Speaker 2: a thirty billion odd pipeline there and I think there's
• 6:53
  Speaker 2: about nearly forty thousand now units either built or planned
• 6:56
  Speaker 2: or under construction.
• 6:57
  Speaker 1: So you see this as a medium term bomp if
• 7:00
  Speaker 1: you like, in in immigration and consequently a medium term
• 7:04
  Speaker 1: tightening in rental vacancy riads. But perhaps structurally things are
• 7:10
  Speaker 1: getting are changing longer term in terms of the initiatives
• 7:14
  Speaker 1: in the economy to build more.
• 7:17
  Speaker 2: I think so really it tends to be driven. It's
• 7:20
  Speaker 2: a cycle really. As interest rates come down, developers get
• 7:23
  Speaker 2: more confidence to build more. People are buying new again now,
• 7:27
  Speaker 2: so I think a lot of the supply, particularly built
• 7:30
  Speaker 2: to rent, is going to be focused around Melbourne. I
• 7:32
  Speaker 2: think medium density supply just seems to be Melbourne seems
• 7:36
  Speaker 2: more amenable to that and land prices are a bit
• 7:39
  Speaker 2: lower than in Sydney. But yeah, I think in particular,
• 7:41
  Speaker 2: investors tend to amplify the cycles now and they're coming
• 7:45
  Speaker 2: back into the market, so I think we've got a
• 7:47
  Speaker 2: building boom ahead. In fact, the pipeline is already quite reasonable,
• 7:51
  Speaker 2: but building times have been very slow in recent years,
• 7:54
  Speaker 2: and I think we'll get a marked increase in supply,
• 7:57
  Speaker 2: but it might not be until maybe twenty two, only seven,
• 8:00
  Speaker 2: and we really start to see that because it's just
• 8:02
  Speaker 2: taking so long to get these projects delivered.
• 8:06
  Speaker 1: Is there evidence of the investors coming back into the
• 8:08
  Speaker 1: market to and where are they coming in?
• 8:10
  Speaker 2: Yeah, the ABS puts out they actually shifted from a
• 8:13
  Speaker 2: monthly to quarterly figures and lending volumes are up two
• 8:17
  Speaker 2: percent in the Dune quarter, so that but that actually
• 8:19
  Speaker 2: came off the back of a couple of softer quarters,
• 8:22
  Speaker 2: but that was really driven by a three and a
• 8:24
  Speaker 2: half percent increase in investor lending. So when you look
• 8:28
  Speaker 2: at the cohorts that are coming in, it's actually a
• 8:31
  Speaker 2: lot of higher income household so APRA's got the lending
• 8:35
  Speaker 2: assessment buffer in place at the moment, so there's a
• 8:38
  Speaker 2: three percentage points lending assessment buffer, which is pretty odd
• 8:42
  Speaker 2: when you think about it. Interest rates are expected to
• 8:44
  Speaker 2: fall and yet people are being stress tested on a
• 8:47
  Speaker 2: six percent mortgage right they're being stress tested at nine
• 8:50
  Speaker 2: an interest rate. They're effectively never going to.
• 8:52
  Speaker 1: Pay drop still doesn't it. I mean it does cascade
• 8:55
  Speaker 1: down so that it doesn't change, but it does. It
• 9:00
  Speaker 1: used to be assessed are nine for six, You'll be
• 9:03
  Speaker 1: assessed on eight for a five, isn't that right?
• 9:07
  Speaker 2: Yeah, that's it. So we used to have a smaller buffer.
• 9:10
  Speaker 2: Of course, there used to be two percentage points. Now
• 9:12
  Speaker 2: it's three. So what it's doing is locking a lot
• 9:15
  Speaker 2: of lower income households out of the market completely and
• 9:19
  Speaker 2: creating a bit of inequality. So the government is trying
• 9:22
  Speaker 2: to counteract this with this low deposit, the deposit guarantee,
• 9:26
  Speaker 2: which kicks in on one January twenty twenty six. So
• 9:29
  Speaker 2: you've got, on the one hand, you've got the market
• 9:31
  Speaker 2: regulator trying to really keep a tight noose on lending standards,
• 9:35
  Speaker 2: and then on the other hand, the government saying, well,
• 9:37
  Speaker 2: you know, stick in a five percent deposit, will guarantee
• 9:39
  Speaker 2: the rest and off you go. So things pulling in
• 9:42
  Speaker 2: two different directions.
• 9:44
  Speaker 1: We will take a short break and we'll be back
• 9:46
  Speaker 1: in a minute because there's some very interesting things that
• 9:48
  Speaker 1: wants to develop with pe Books. Back in a moment.
• 10:02
  Speaker 1: Hello and welcome back to The Australian's Money Puzzle podcast.
• 10:05
  Speaker 1: I'm James Kirby, I'm talking to Pete Warden of Alan Warden.
• 10:08
  Speaker 1: Always good to talk to Pete about the market, and
• 10:10
  Speaker 1: I think a very distinct inside with an economic grasp
• 10:14
  Speaker 1: of property on top of a knowledge of working knowledge
• 10:17
  Speaker 1: on day to day on property. One of the things
• 10:19
  Speaker 1: that you were alluding to just to cover off for
• 10:21
  Speaker 1: anyone who wasn't quite across it. So you know, folks,
• 10:24
  Speaker 1: there's a buffer right which isn't advertised. So if you
• 10:27
  Speaker 1: see a mortgage, if a mortgage rate on the window
• 10:29
  Speaker 1: of the bank is six percent, when you go in
• 10:32
  Speaker 1: to apply for that mortgage, day will assess you on
• 10:35
  Speaker 1: your ability to pay that rate plus three, which is nine.
• 10:39
  Speaker 1: If rates are dropping, as we know they are, let's
• 10:41
  Speaker 1: say they settle around five. When you go into the bank,
• 10:44
  Speaker 1: you'll be looking for the five percent mortgage, they will
• 10:46
  Speaker 1: assess you on plus three. They will assess you on
• 10:49
  Speaker 1: your capacity to pay eight. And the point that Pete
• 10:52
  Speaker 1: was making said it was very good, which was basically
• 10:54
  Speaker 1: that the government regulators are imposing this quite quite severe
• 11:01
  Speaker 1: buffer to keep things stable. But the government, that is
• 11:06
  Speaker 1: the alban Easy government in Canberra is constantly coming up
• 11:09
  Speaker 1: with ways to try and improve affordability for people. The
• 11:13
  Speaker 1: big one is the first home guarantee, which is now universal,
• 11:16
  Speaker 1: And there's all sorts of other schemes around the place.
• 11:18
  Speaker 1: But we end up with this curious situation, Pete, that
• 11:22
  Speaker 1: there's all sorts of schemes helping people buy into a
• 11:25
  Speaker 1: market where the vacancy rate we've just said is one
• 11:29
  Speaker 1: to two percent, And just to put that into perspective,
• 11:32
  Speaker 1: you might explain to people what it means one to
• 11:34
  Speaker 1: two percent, like what industrial property, what's office property? For instance.
• 11:40
  Speaker 2: Yes, the residential rental vacancy, right, it doesn't necessarily mean
• 11:44
  Speaker 2: that once two percent of properties are anty. In fact,
• 11:47
  Speaker 2: on the census night, you might find that maybe ten
• 11:50
  Speaker 2: percent of dwellings don't have somebody in them. But for
• 11:53
  Speaker 2: something to be registered as a rental vacancy, it needs
• 11:56
  Speaker 2: to be an investment property that's on the market and
• 11:59
  Speaker 2: how it's been vacant for a number of weeks. So
• 12:02
  Speaker 2: you know, if you were to look at rental vacancy
• 12:04
  Speaker 2: rates in other countries, if you're looking at Manhattan, it'd
• 12:06
  Speaker 2: be way higher because of the way in which things
• 12:09
  Speaker 2: are measured there. Also, I don't think rental vacancy rates
• 12:12
  Speaker 2: I think they tend to be understated when you get
• 12:15
  Speaker 2: a building boom, because if a big tower block goes up,
• 12:18
  Speaker 2: and maybe you might just see an adverse saying properties
• 12:21
  Speaker 2: for rent, but it doesn't pick up that there's three
• 12:23
  Speaker 2: hundred in the block, you know, So I would say
• 12:26
  Speaker 2: it's an indicator and you look at the direction of
• 12:29
  Speaker 2: travel more so than the numbers sometimes, but very tight
• 12:32
  Speaker 2: and residential. I think with the working from home trend,
• 12:35
  Speaker 2: office vacancy rates are well, they're basically at a thirty
• 12:39
  Speaker 2: year high. We've seen so many articles over the recent
• 12:42
  Speaker 2: years saying the office market's about to pick up, but yeah,
• 12:45
  Speaker 2: basically fifteen percent Melbourne CBD eighteen percent vacancy rate for
• 12:50
  Speaker 2: office space, so it's almost one empty.
• 12:52
  Speaker 1: When I was a baby property reporter, fifteen percent was
• 12:56
  Speaker 1: a deep crisis. I mean, fifteen percent was what you
• 12:58
  Speaker 1: would see in a full bloe recession. And this is
• 13:02
  Speaker 1: a sort of natural level at the moment, isn't it,
• 13:05
  Speaker 1: which tells us everything you need to know about working
• 13:08
  Speaker 1: from home? There it is in the office vacancy rates
• 13:11
  Speaker 1: fifteen percent worse than that in certain corridors where there
• 13:14
  Speaker 1: were office only like say saying Killer Road in Melbourne,
• 13:17
  Speaker 1: and then I see shopping retails actually improving that it's
• 13:20
  Speaker 1: been in the order of ten and it's dropping lower
• 13:23
  Speaker 1: than that in some of the cities. So that's sort
• 13:25
  Speaker 1: of coming back with the office isn't coming back, which
• 13:27
  Speaker 1: tells us the office as we know it isn't coming back,
• 13:30
  Speaker 1: and that is full office, everyone coming in nine to
• 13:33
  Speaker 1: five on the train or in the car every day
• 13:35
  Speaker 1: that is finished. Does it have a bearing in property
• 13:39
  Speaker 1: for property investors in terms of the world we know
• 13:42
  Speaker 1: the residential side, I.
• 13:44
  Speaker 2: Think it does. I mean there's still a gradual pull
• 13:46
  Speaker 2: back to the office, but in a lot of cases
• 13:48
  Speaker 2: it's only maybe two or three days a week or
• 13:50
  Speaker 2: four days a week. So I think a fair amount
• 13:53
  Speaker 2: of the housing market demand is gradually centralizing again. But yeah,
• 13:57
  Speaker 2: for the office space, it seems like the A grade
• 14:01
  Speaker 2: office stock is renting quite easily, and if you go
• 14:04
  Speaker 2: to a place like Barangarou fantastic, But it's that BC
• 14:07
  Speaker 2: and D grade stock. As he said, people don't really
• 14:10
  Speaker 2: want it so much and they don't need it so much,
• 14:12
  Speaker 2: and there's some quite significant implications for office rents asset values.
• 14:17
  Speaker 2: We talked a lot previously about the potential for offices
• 14:21
  Speaker 2: to be converted into apartments, but it's just not really happening.
• 14:25
  Speaker 2: I think in practice it's much harder for that to
• 14:28
  Speaker 2: be undertaken than in theory, and in a lot of
• 14:30
  Speaker 2: cases you end up completely gutting the building and more
• 14:33
  Speaker 2: or less starting from scratch, So it's not the same everywhere.
• 14:37
  Speaker 1: For the property investor, I wonder is that it is
• 14:40
  Speaker 1: part of the outcome of this that the one bedroom
• 14:43
  Speaker 1: apartment is weaker even than it used to be as
• 14:45
  Speaker 1: a property asset, because people need space because they're going
• 14:47
  Speaker 1: to work from home.
• 14:49
  Speaker 2: Possibly, I think certainly one of the outcomes of COVID
• 14:51
  Speaker 2: is that people wanted more space, and I think even
• 14:54
  Speaker 2: if you've got sort of a one plus one type
• 14:56
  Speaker 2: of unit set up, that does give you more options
• 14:59
  Speaker 2: than just a one bedroom units. And a lot of
• 15:01
  Speaker 2: people are also converting space into like a home office,
• 15:04
  Speaker 2: and it's certainly been one of the outcomes of the pandemic.
• 15:08
  Speaker 2: So yeah, I think it's still still a work in progress.
• 15:11
  Speaker 2: A lot of the big banks and big employers are
• 15:13
  Speaker 2: trying to get people back into the office with mixed
• 15:16
  Speaker 2: race of success. I think at the moment, though, the
• 15:18
  Speaker 2: unemployment rate is what four point two percent. The balance
• 15:21
  Speaker 2: of power is quite with the employee at the moment,
• 15:24
  Speaker 2: but that won't always be the case. If we get back,
• 15:27
  Speaker 2: like a lot of those other countries, towards five or
• 15:29
  Speaker 2: six percent unemployment, then the balance of power shifts back
• 15:33
  Speaker 2: to the employer. So we'll see how that plays out.
• 15:35
  Speaker 1: So you clearly are of the opinion that it's the
• 15:38
  Speaker 1: stick rather than the currot that will work here. So
• 15:42
  Speaker 1: and I don't disagree with you. I think if we
• 15:44
  Speaker 1: walk up tomorrow morning and the unemployment rate was fifteen
• 15:46
  Speaker 1: percent and everybody was terrified about the future of their jobs,
• 15:53
  Speaker 1: and the company they were working for said, we will
• 15:56
  Speaker 1: We're going to have to make some serious cuts. Part
• 15:58
  Speaker 1: of it will be, you know, tendance in the office.
• 16:02
  Speaker 1: I think they will be falling over each other. I
• 16:04
  Speaker 1: think they would be. I think they'll be crushed in
• 16:06
  Speaker 1: the corridors going in. I might be wrong, that might
• 16:08
  Speaker 1: show a bias that I you know that it's that
• 16:11
  Speaker 1: has always been the case in my life that when
• 16:13
  Speaker 1: a severe recession hits, behavior changes. People start to dress
• 16:17
  Speaker 1: more smartly, they turn up more punctually, they go in,
• 16:20
  Speaker 1: they get involved because they're worried and does that mean
• 16:23
  Speaker 1: will that translated into or move back to the office.
• 16:26
  Speaker 1: I think so, I really do, but it would take
• 16:28
  Speaker 1: a severe joke in unemployment and we have nothing like that.
• 16:31
  Speaker 1: I mean, you're saying, you know, four percent is worse
• 16:33
  Speaker 1: than three Yeah, sure, but four percent, three percent, you know,
• 16:36
  Speaker 1: they are not anything to worry about. With countries like
• 16:39
  Speaker 1: say Spain, where on employment traid it is ten to
• 16:41
  Speaker 1: twenty percent, always completely different type of thing. I wonder
• 16:44
  Speaker 1: what they'll work from home and there are if only
• 16:47
  Speaker 1: we had someone to tell us, we'll take a short
• 16:49
  Speaker 1: break and we'll do some really good questions that I
• 16:51
  Speaker 1: have been keeping for Pete. Hello and welcome back to
• 17:00
  Speaker 1: The Australian's Money Puzzle podcast James Kirby with Pete Warden
• 17:04
  Speaker 1: of the Alan Warden Group. I have a question from
• 17:07
  Speaker 1: Adam which I think is really interesting and the context here, Pete,
• 17:10
  Speaker 1: is that on the show we have moved gradually from
• 17:13
  Speaker 1: posing the question whether Victoria is at a discount as
• 17:17
  Speaker 1: such for property investors and is the best value to
• 17:21
  Speaker 1: a point in recent shows where the guests have clearly
• 17:25
  Speaker 1: moved to the point that they are saying confirmed Victoria
• 17:28
  Speaker 1: is the best value state for interstate investors orrning investors.
• 17:32
  Speaker 1: Just now that the price is the starting prices are
• 17:36
  Speaker 1: so much lower state than Sydney, for instance, Brisbane, where
• 17:39
  Speaker 1: the gap has completely narrowed and its recent performance has
• 17:44
  Speaker 1: been so weak that history would suggest reversion to the
• 17:47
  Speaker 1: mean that Melbourne will outperform the other cities in the
• 17:50
  Speaker 1: next three to five years. This is something that we're
• 17:52
  Speaker 1: putting forward basically as a strong contention and a consensus
• 17:56
  Speaker 1: at least among guests in the show. So this leads
• 17:59
  Speaker 1: to questions here one from Adam. You have talked with
• 18:01
  Speaker 1: a few people about the potential for house prices in
• 18:04
  Speaker 1: Melbourne asid has recently underperformed. Is there a good way
• 18:07
  Speaker 1: to get exposure to this market without having to purchase
• 18:10
  Speaker 1: and enter our house. I'm from New South Wales and
• 18:15
  Speaker 1: while this is possible, it would be a big undertaking
• 18:20
  Speaker 1: all problem that one. That's why they say property is
• 18:23
  Speaker 1: a lumpy acid and a liquid acid. You can buy
• 18:25
  Speaker 1: a bit of a house, unfortunately, Adam, not even a
• 18:28
  Speaker 1: bit of an apartment. What do you think, Pete?
• 18:31
  Speaker 2: Oh, look, there are ways to get exposure to the
• 18:33
  Speaker 2: housing market. There's things like fractional investing, there's real estate
• 18:37
  Speaker 2: investment trusts. You could even use options if you wanted
• 18:40
  Speaker 2: to get really funky. But I think a lot of
• 18:42
  Speaker 2: these ideas they forego the use of leverage, which is
• 18:45
  Speaker 2: really the point of investing in residential property in the
• 18:48
  Speaker 2: first place. Though, if you can't afford a house, take
• 18:50
  Speaker 2: a look at units in Melbourne. I think actually our
• 18:54
  Speaker 2: mutual friend Sir Williamster in pro Solution talked about this
• 18:56
  Speaker 2: maybe a few weeks back on the Money Puzzle, especially
• 18:59
  Speaker 2: villa unit it's in Melbourne, So I would say just
• 19:02
  Speaker 2: check out unit prices in some of the well located
• 19:05
  Speaker 2: suburbs like Elwood or Saint Kilda or Puran. Now there's
• 19:09
  Speaker 2: been basically no performance even in nominal terms for a
• 19:13
  Speaker 2: decade or a decade and a half in many cases,
• 19:16
  Speaker 2: but just very much like Brisbane previously there was maybe
• 19:19
  Speaker 2: a dozen years of flat prices, then we saw sixty
• 19:22
  Speaker 2: percent increase in three years in Brisbane, and maybe Melbourne
• 19:25
  Speaker 2: does something similar. I think if you look at boutique,
• 19:28
  Speaker 2: well established unit blocks, you're effectively buying below replacement cost.
• 19:32
  Speaker 2: I think one betters maybe start around three hundred k
• 19:35
  Speaker 2: for something half decent. Two betters maybe five hundred. So
• 19:39
  Speaker 2: it depends on your budget. I've just had one caveat,
• 19:41
  Speaker 2: and that's do your due diligence and read the body
• 19:44
  Speaker 2: corporate at the strata minutes because they're not always cleaned.
• 19:47
  Speaker 2: You don't want to pick up any problems in that regard.
• 19:49
  Speaker 2: So if the budget doesn't stretch to a house, maybe
• 19:51
  Speaker 2: think about a villa unit or even just a unit.
• 19:54
  Speaker 1: Yeah, prety good villa junits. If only they were cool.
• 19:57
  Speaker 1: You see, they don't have to They have everything except
• 19:59
  Speaker 1: the cool. And I am of the opinion that we
• 20:02
  Speaker 1: greatly underestimate the cool factor in property markets among a
• 20:06
  Speaker 1: certain age group. Okay, now, as always done of this
• 20:09
  Speaker 1: as advice, As you know, folks, it's information only. And
• 20:12
  Speaker 1: one of the questions from John. A group of friends
• 20:15
  Speaker 1: catch up at the weekend. Most of us have one
• 20:19
  Speaker 1: or more investment properties, and they're mostly positively geared, and
• 20:23
  Speaker 1: we have small mortgages on them. Okay, we've all been
• 20:27
  Speaker 1: told to take money out of super to pay out
• 20:31
  Speaker 1: the mortgages on these investment properties when we get to retirement.
• 20:37
  Speaker 1: But when we challenge this, the only explanation we can
• 20:39
  Speaker 1: find is that it's the done thing to do. Could
• 20:44
  Speaker 1: you ask one of your guests what are the pros
• 20:46
  Speaker 1: and cons of paying out your investment loan mortgage? That's interesting,
• 20:50
  Speaker 1: So let's talk in conceptual terms. If a person owned
• 20:54
  Speaker 1: an investment property obviously held outside of super, and they
• 20:58
  Speaker 1: were positively geared, which is unusual, would they have much
• 21:01
  Speaker 1: of a mortgage to pay out anyway?
• 21:02
  Speaker 2: What do you think, Peter, Yeah, it sounds like they're
• 21:04
  Speaker 2: modestly leveraged. Well, let's just carvey out the living daylights
• 21:08
  Speaker 2: out of it. So first, are you confident you've made
• 21:11
  Speaker 2: use of your superannuation allowances? And I think in particularly
• 21:14
  Speaker 2: are you confident you'll actually have enough income in retirement
• 21:17
  Speaker 2: because properly does have holding costs, so you should probably
• 21:20
  Speaker 2: just cover off on those points with an advisor first.
• 21:23
  Speaker 2: But assuming you have, then yeah, if you've got quality
• 21:26
  Speaker 2: property investments with moderate debt which aren't causing you headaches,
• 21:29
  Speaker 2: then sure, why not? Lots of people and increasingly so
• 21:33
  Speaker 2: carry mortgage debt into retirement. In fact, I'm planning to
• 21:36
  Speaker 2: do exactly that myself. That's really good.
• 21:39
  Speaker 1: If you don't mind John the question, maybe I slightly
• 21:42
  Speaker 1: reframe and see because this is what I was going
• 21:44
  Speaker 1: to see in terms of his quandary, it's about your mindset,
• 21:48
  Speaker 1: even your mind you want to be an active investor
• 21:51
  Speaker 1: and stay an active investor, then why would you change
• 21:55
  Speaker 1: your ways so abruptly on a certain deed because you've retired?
• 22:01
  Speaker 1: And I think you were alluding to that too, Pete,
• 22:03
  Speaker 1: that everyone thinks differently about this, but certainly the traditional
• 22:07
  Speaker 1: notions of that you stop everything for some reason at
• 22:10
  Speaker 1: retirement are over. And similarly the idea that you stop
• 22:14
  Speaker 1: investing in the method or a manner that you used
• 22:16
  Speaker 1: to why should you or you know, sixty forty for instance,
• 22:19
  Speaker 1: that was always you know, that whole thing in investment balance,
• 22:22
  Speaker 1: and why would you change that once you moved into
• 22:24
  Speaker 1: retirement because you don't know how long you're going to live.
• 22:26
  Speaker 1: Another great guest on the show had made the point
• 22:29
  Speaker 1: that I tried to get him to say, well, if
• 22:31
  Speaker 1: I'm estimating for a retirement, how long do I do
• 22:33
  Speaker 1: it for? And he refused to do it. He just said,
• 22:35
  Speaker 1: it's such a long time, you just don't know, and
• 22:37
  Speaker 1: if it's thirty years, then it might as well do
• 22:39
  Speaker 1: it into perpetuity. Brings up that whole issue, you know,
• 22:42
  Speaker 1: And so a long way around back to your question, John,
• 22:45
  Speaker 1: would be you and any of your group depending on
• 22:48
  Speaker 1: your view. But if you intend to remain an active
• 22:51
  Speaker 1: investor in the foreseeable future, why would you change your ways?
• 22:55
  Speaker 1: What do you think, Pete on that principle.
• 22:58
  Speaker 2: Yeah, exactly that side. The argument goes, why rush to
• 23:00
  Speaker 2: pay down debt on appreciating assets When the debt gets
• 23:04
  Speaker 2: inflated away over time, rents generally increase, you're going to
• 23:07
  Speaker 2: get the capital growth on top. I mean dusting off
• 23:10
  Speaker 2: the old actuararial tables. If a sixty five year old
• 23:13
  Speaker 2: man in Australia could expect to live for another twenty years,
• 23:17
  Speaker 2: this is abs stats. I mean in the average age
• 23:19
  Speaker 2: of death for that group would be approximately eighty five.
• 23:22
  Speaker 2: So that's a long time for debt to be inflated
• 23:24
  Speaker 2: away and to experience maybe moderately leveraged investment in return.
• 23:29
  Speaker 2: So why rush to pay it back just because you're retired?
• 23:31
  Speaker 2: I think one other thing, before you actually retire, it
• 23:34
  Speaker 2: might be worth sitting down with a mortgage broker and
• 23:37
  Speaker 2: just seeing whether you can take out a line of
• 23:39
  Speaker 2: credit or similar as it sounds like you've got a
• 23:42
  Speaker 2: relatively low level of gearing because once you retire, that
• 23:44
  Speaker 2: could be a lot harder to.
• 23:45
  Speaker 1: Do, that's right, because a different attitude, of course, because
• 23:50
  Speaker 1: you don't have the salary, which is what they look for,
• 23:52
  Speaker 1: isn't it. And apparently you can have a lot of assets.
• 23:56
  Speaker 1: But if you don't have a salary, can't tick the box.
• 23:59
  Speaker 1: The box can't give you the loan an issue for
• 24:01
  Speaker 1: another day. Hey, thanks very much, Pete. Great to talk
• 24:04
  Speaker 1: to you again.
• 24:05
  Speaker 2: Always a pleasure. Thanks James, and.
• 24:07
  Speaker 1: That was Pete Warden from Alan Wardens. Let's have some
• 24:10
  Speaker 1: more correspondence of good questions there. The show gets better
• 24:13
  Speaker 1: if we have better questions, so keep them rolling. The
• 24:16
  Speaker 1: money puzzle at the Australian dot com dot au. Talk
• 24:20
  Speaker 1: to you soon.