Latest / The Money Puzzle / Why property investors are turning to the outer suburbs

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Why property investors are turning to the outer suburbs · The Money Puzzle

0:10
Speaker 1: Hello, and welcome to the Australians. Money was a podcast.
0:12
Speaker 1: I'm James Kirkby. Welcome aboard everybody. I hope you enjoyed
0:16
Speaker 1: the last few shows. A big thank you to Julianne Spragg,
0:21
Speaker 1: especially for standing in with the most recent very well
0:24
Speaker 1: timed show on the SpaceX ipo. And I'll tell you what.
0:28
Speaker 1: I don't want to go too far off on this one,
0:30
Speaker 1: but that was a very well priced float and everybody
0:35
Speaker 1: who went into that float SpaceX met twenty percent of
0:38
Speaker 1: the day and have met more since. And I'd like
0:42
Speaker 1: to see more of those sort of floats on the ASX.
0:45
Speaker 1: We don't see those sort of floats very often. It's
0:47
Speaker 1: one of the reasons that the share market has faded
0:50
Speaker 1: in to some extent, particularly new floats, because so many
0:53
Speaker 1: people lose money so often. But there you are. It
0:56
Speaker 1: doesn't have to be that way, and it's all about
0:58
Speaker 1: how they price it. Now. You may have noticed I
1:01
Speaker 1: have been away for a week or two. I was
1:04
Speaker 1: in Japan. Very interesting, me and a million other Australians
1:07
Speaker 1: heading up to Japan this year and find out it's
1:10
Speaker 1: a marvelous place and it's the best currency deal out there. Folks.
1:13
Speaker 1: It's never been so cheap in currency terms, so it's
1:17
Speaker 1: highly recommended. And when I was there, of course I
1:20
Speaker 1: was eighting to get back here to catch up on
1:25
Speaker 1: the markets, and particularly first of all today, I want
1:27
Speaker 1: to do property market on Thursday. I want to do
1:30
Speaker 1: the wider investment markets with Hugh Robertson. My guest today
1:33
Speaker 1: is one of my favorite guests in the property market.
1:36
Speaker 1: She's always good and I'm delighted to have her to
1:39
Speaker 1: help me along on my first show back. It's a
1:41
Speaker 1: Nisakavalo of the Aid of Property Group.
1:43
Speaker 2: How are you? I'm well, abought a beautiful introduction. Thank you, James.
1:47
Speaker 2: You're my favorite podcast.
1:48
Speaker 1: Are there? You are? Okay, we'll have to stamp this
1:51
Speaker 1: out straight away. There'll be complaints, justifiably, so okay, now
1:55
Speaker 1: tell me here. We go roughly a month since the
1:58
Speaker 1: budget it was in. You know, I think about a
2:02
Speaker 1: previous budget where we talked for you know, seven eight
2:07
Speaker 1: nine months about one tiny thing, which was the super
2:10
Speaker 1: taxes in the overall scheme of things. It was a
2:12
Speaker 1: tiny thing, and then you walk into this budget and
2:15
Speaker 1: it's like all the things that everyone has threatened four
2:18
Speaker 1: years happens in one budget. A lot of that hits property,
2:23
Speaker 1: just straight up in the property market. Your view of
2:27
Speaker 1: the market post budget, what's your sentiment now?
2:32
Speaker 2: I believe wherever there's uncertainty and there is enormous distrust
2:38
Speaker 2: and uncertainty as a result of the budget, because you
2:42
Speaker 2: recall and you're saying, the media and the members are
2:45
Speaker 2: having a field day with the you know, do I
2:48
Speaker 2: have to say this fifty for the fiftieth time. I'm
2:50
Speaker 2: not going to touch negative gearing, right, So we were
2:52
Speaker 2: promised this wouldn't happen. And wherever people are uncertain about
2:57
Speaker 2: the future, they get nervous about investing in.
3:01
Speaker 1: The short term.
3:02
Speaker 2: In the short term, there's the argument that land is
3:05
Speaker 2: never going to disappear and it can't be taken away
3:08
Speaker 2: from you, et cetera, et cetera. But we don't know
3:10
Speaker 2: what they're going to do next. And the reality is
3:14
Speaker 2: a lot of people still don't understand the budget and
3:17
Speaker 2: so as a result, they are scared. So some people
3:20
Speaker 2: still think that the negative gearing benefits for new houses
3:23
Speaker 2: will finish next year. They don't realize that they will
3:26
Speaker 2: continue getting their negative gearing benefits, et cetera, et cetera.
3:29
Speaker 2: So partly this uncertainty is creating a lot of fear
3:31
Speaker 2: in the market. I have seen that listings. It's a
3:35
Speaker 2: really great time to buy, definitely, but at the same time,
3:39
Speaker 2: in the longer term, once this uncertainty leaves, there is
3:44
Speaker 2: big incentives for people not to sell their properties if
3:48
Speaker 2: the policy gets through, right, So I wander long term,
3:51
Speaker 2: very much like many other commentators and thought leaders in
3:55
Speaker 2: the space, whether this is going to have either way
3:58
Speaker 2: going to have a negative impact on the people's supposed
4:00
Speaker 2: to protect.
4:01
Speaker 3: So listings are.
4:02
Speaker 2: Up, clearance rates are down, mainly in those suburbs that
4:06
Speaker 2: you would expect, the ones that you know had the
4:08
Speaker 2: highest gains and have the more expensive properties generally. But
4:13
Speaker 2: on the other hand, we still have a lot of
4:15
Speaker 2: inquiry for property, new property in particular, and a lot
4:19
Speaker 2: of inquiry about well what do I do? So there's
4:22
Speaker 2: more than ever we're hearing what do I do? Is
4:24
Speaker 2: it the time to get into new et cetera. So
4:27
Speaker 2: I think in three months or so the market will
4:31
Speaker 2: probably return to normal once we've got a little bit
4:33
Speaker 2: of clarity about what the effects are and exactly what's
4:35
Speaker 2: going to happen.
4:37
Speaker 1: Okay, So just to cover for listeners who I'm sure
4:40
Speaker 1: are across this. But in terms of I suppose what
4:43
Speaker 1: we know and then what those questions over. We know
4:46
Speaker 1: that the CGT arrangements will change, and it used to
4:49
Speaker 1: be fifty percent discount after month's very simple. Now was
4:52
Speaker 1: going to be linked to infleetion. It won't be half
4:54
Speaker 1: as good, it would seem lesson course completely crazy. So
4:58
Speaker 1: that's a big deteriory if you like, in the product
5:01
Speaker 1: proposal of property, because a lot of it was about
5:03
Speaker 1: capital gain. And then the second art in relation to
5:07
Speaker 1: the budget at least, is that negative gearing is limited
5:13
Speaker 1: in the future to new property. Two things there, as
5:16
Speaker 1: you said and they so you might just clarify what
5:18
Speaker 1: you were saying there that people, even who are perhaps
5:23
Speaker 1: listeners to the show and who negatively gear, they've been
5:25
Speaker 1: a bit confused about how it's all going to work.
5:27
Speaker 1: Would you just explain in terms of negative gearing, who
5:31
Speaker 1: gets to keep it, who loses it?
5:34
Speaker 2: So, if you have purchased an investment property prior to
5:38
Speaker 2: the budget announcement and who knows what will go through.
5:43
Speaker 2: Senate Right Grains would like to change this further, be
5:46
Speaker 2: a bit more aggressive.
5:48
Speaker 3: You will be allowed to keep your.
5:49
Speaker 2: Negative gearing benefits on anything purchased prior to the budget
5:53
Speaker 2: announcement forever forever, well.
5:57
Speaker 3: You know, depending what yes, we hope.
6:00
Speaker 2: Whereas if you purchase post the budget announcement I actually
6:03
Speaker 2: can't remember the date, is that the seventh of May
6:05
Speaker 2: next year, then you will no longer get those benefits.
6:09
Speaker 2: So negative gearing will disappear for existing properties for anyone
6:14
Speaker 2: that's purchased after the budget, but it will only remain
6:17
Speaker 2: for properties that are brand new on.
6:19
Speaker 1: Properties, So you can in the future if you have
6:22
Speaker 1: a negatively geared property and you're listening, then you might
6:28
Speaker 1: review your plans for it because you inadvertently during a
6:34
Speaker 1: privileged group of investors that can negatively gear for as
6:38
Speaker 1: long as you like. It would seem that's worth keeping
6:41
Speaker 1: in mind. The second part is that in terms of
6:43
Speaker 1: what you can negatively gear in the future would be
6:46
Speaker 1: new property now and less to tell us like generally
6:51
Speaker 1: people are slow to buy new property as investors, and
6:56
Speaker 1: the majority of investment property is existing property because the
7:00
Speaker 1: majority of properly happens existing properly happens to be in
7:03
Speaker 1: inner city areas where everyone needs to invest. What do
7:06
Speaker 1: you think will happen. Do you think this will change things?
7:09
Speaker 2: And that's one of my fears actually, because if you
7:13
Speaker 2: think about it, the areas where it is possible to
7:16
Speaker 2: purchase new properties are also those growth areas that are
7:21
Speaker 2: growth areas that have got affordable housing. So the areas
7:26
Speaker 2: that have got new land estates, et cetera. The tannates,
7:28
Speaker 2: you know, somewhere that you can still get a property
7:30
Speaker 2: worth full fifty or five hundred, well, is now going
7:33
Speaker 2: to be a very competitive space because it's the only
7:35
Speaker 2: space unless you buy apartments, that new investors can benefit
7:40
Speaker 2: from negative gearing.
7:42
Speaker 1: And if someone was listening to the show, would never
7:44
Speaker 1: entered property before and said, ook, I want to start,
7:47
Speaker 1: and I suppose I have to buy a new property.
7:50
Speaker 1: I know this is a difficult question, but straight up
7:52
Speaker 1: apartment or new home at the edge of the apartment
7:55
Speaker 1: in the city or a new home at the edge
7:58
Speaker 1: of the city in principle, which do you favor.
8:02
Speaker 2: A new home at the edge of the city, depending
8:04
Speaker 2: which edge, Because traditionally there has been a lot more growth,
8:09
Speaker 2: the growth has merit in an urban growth in some
8:12
Speaker 2: there's less volatility actually than in urban areas, whereas apartments
8:18
Speaker 2: have in the history of me being alive, which is
8:21
Speaker 2: a long time now, have underperformed land as long as
8:25
Speaker 2: they are in growth areas where there's population growth and
8:28
Speaker 2: there's job growth, and.
8:30
Speaker 1: What have I said to you? You know textbooks which
8:32
Speaker 1: suggest that's a second rate sort of growth corridor because
8:36
Speaker 1: the supply is sort of endless. The edges of Brisbane
8:39
Speaker 1: and Melbourne they can build forever.
8:42
Speaker 3: Well, that's the issue, James.
8:45
Speaker 2: They can't build because of the policies, because of how
8:48
Speaker 2: difficult it is to develop and subdivide blocks. It takes
8:51
Speaker 2: ten years to subdivide. If we actually focused on removing
8:57
Speaker 2: some of the difficulties and the compliance and the red
9:00
Speaker 2: tape of actually subdividing blocks and turning a house into
9:03
Speaker 2: two houses, then we wouldn't have a shortage of housing.
9:06
Speaker 2: So you might look at a whole lot of land
9:08
Speaker 2: and think this is all available, but it's actually not true.
9:10
Speaker 2: A lot of it hasn't been rezoned. It'll take a
9:12
Speaker 2: long time to rezone. We're reaching major primary production areas,
9:17
Speaker 2: which is most unlikely to be rezoned. The rezoning takes
9:21
Speaker 2: too long, and we just don't have the resources and
9:23
Speaker 2: the construction workers to build these things.
9:26
Speaker 1: Quickly. So do you think these houses that are investment
9:30
Speaker 1: opportunities at the edges of the cities will actually outperform
9:37
Speaker 1: existing dwellings inside the cities because of the negative gearing separation.
9:42
Speaker 2: I think that there will be a lot more competition
9:45
Speaker 2: in new bills. There has to be, because there are
9:47
Speaker 2: so many investors that rely on that negative gearing in
9:50
Speaker 2: order to be able to afford a property. Right, there's
9:53
Speaker 2: no way they could afford it if they didn't use
9:55
Speaker 2: some of their tax to pay for it, And so
9:57
Speaker 2: it will have It will absolute lutely put more pressure
10:01
Speaker 2: on these growth areas, these affordable housing areas. Now will
10:05
Speaker 2: they perform better over the long term? Remember that investor
10:08
Speaker 2: can't sell it to somebody else.
10:10
Speaker 1: That's right, the next person. So when that person has
10:14
Speaker 1: negatively geared the new property, when they're going to sell
10:17
Speaker 1: that property, there's actually that's a down or isn't it.
10:21
Speaker 1: The person buying it can't pick up the negative gearing
10:24
Speaker 1: because it becomes an existing property. So how do you
10:27
Speaker 1: deal with that? I mean, if I said, if I
10:28
Speaker 1: was thinking of doing it, and I brought that point
10:31
Speaker 1: of what would you say to me?
10:33
Speaker 2: I would say that most of the negative gearing benefits,
10:37
Speaker 2: including the things like depreciation, et cetera. If you really
10:40
Speaker 2: want to maximize the losses and use as much tax
10:42
Speaker 2: as possible. Happens in the first ten years, at which
10:46
Speaker 2: point often some of these properties become cash flow positive
10:49
Speaker 2: because you're paid off more debt in yields of increased
10:52
Speaker 2: et cetera. I would say that my strategy, I'm Italian James,
10:56
Speaker 2: and the Europeans like to buy and hold forever right
11:00
Speaker 2: and never sell. So I think it's going to potentially
11:05
Speaker 2: encourage people to buy and hold and not sell, which
11:08
Speaker 2: is going to restrict supply even further in the long run.
11:12
Speaker 2: So the people that are really hurt are people that
11:15
Speaker 2: are trying to get into the market and there's less
11:18
Speaker 2: supply in the market to purchase.
11:20
Speaker 1: So you're saying that the basically the area will be
11:25
Speaker 1: the buyer holders of the newer properties, the con neegative
11:28
Speaker 1: big gear in the outer suburbs yep. Isn't that that's
11:32
Speaker 1: very much where you occupy anyway, isn't it?
11:36
Speaker 3: Yes, So we do.
11:37
Speaker 2: We buys advocates as well, so we buy existing and
11:40
Speaker 2: we buy a lot of new. I would say that
11:42
Speaker 2: we've carved out a space in the new because of
11:45
Speaker 2: the way we do it, because we tender out the
11:46
Speaker 2: build and we do a lot of work around getting
11:48
Speaker 2: it right.
11:49
Speaker 3: So we're a little bit different. We don't sell house
11:52
Speaker 3: and land packages.
11:52
Speaker 2: I hate that word, so we've got a name for
11:55
Speaker 2: that because of the way we do it. But we
11:56
Speaker 2: do existing properties. But I'll give you an example about
12:00
Speaker 2: three superannuation funds that are looking for properties at the
12:03
Speaker 2: moment and a number of other clients, ten clients in
12:09
Speaker 2: the pipeline looking for properties, and at least half of
12:12
Speaker 2: those were going to look for existing properties, not new.
12:15
Speaker 2: They just couldn't wrap their head around building and it
12:18
Speaker 2: wasn't right for their strategy. Half of that half, right,
12:21
Speaker 2: So about seventy five percent whatever, I don't I'm not
12:24
Speaker 2: a mathematician, thank god, and are now saying, well, let's
12:28
Speaker 2: just buy new because then we can. So they've already
12:32
Speaker 2: switched their plan because they've realized that they can't get
12:35
Speaker 2: any tax benefit at all from buying existing and they're
12:37
Speaker 2: very nervous about that right now.
12:40
Speaker 3: The problem is, James.
12:41
Speaker 2: These are people that need It's the middle class, middle
12:46
Speaker 2: income earning, low income earning Australians. Investors that need the
12:52
Speaker 2: tax break to afford to actually leverage into property.
12:56
Speaker 3: Otherwise they can't afford it, and the numbers.
12:59
Speaker 1: Don't work for them. They don't work for of course
13:01
Speaker 1: they don't. Yeah, because they might have fixed salaries or whatever. Yeah,
13:04
Speaker 1: yes it is. And I suppose that you know, the
13:06
Speaker 1: million dollar question really is if the stepping stone into
13:10
Speaker 1: the property market was entry level properties and that was
13:16
Speaker 1: facilitated by negative viewing and that whole strata. If you
13:21
Speaker 1: like of investor, are they being pushed out in this
13:23
Speaker 1: or will they survive this?
13:24
Speaker 2: They won't survive it. I can assure you that I
13:26
Speaker 2: have got a majority of my clients that if they
13:29
Speaker 2: did not use their tax to purchase property, investment property,
13:33
Speaker 2: they would not be able to leverage into property. So
13:36
Speaker 2: you will have less investors in the market. Those investors
13:39
Speaker 2: that you have in the market will be more high
13:41
Speaker 2: net worth buying, buying and competing in a space that's
13:46
Speaker 2: very crowded because we're already not building enough houses. So
13:49
Speaker 2: to encourage and force investors to try and build more
13:53
Speaker 2: is a lovely idea. But if we don't have the
13:55
Speaker 2: capacity to build them, we can't build them. So many
13:58
Speaker 2: of these people will be squarzed out of the market
14:00
Speaker 2: as there's more competition for the in these affordable areas.
14:04
Speaker 1: Absolutely, okay, very interesting. We might take a break there, folks,
14:08
Speaker 1: I think and this has really hit the nail on
14:10
Speaker 1: the head in terms of the macro picture here. But
14:13
Speaker 1: as an investor, I'm sure you're listening and saying, well,
14:15
Speaker 1: what do I do. We'll be back in a moment
14:17
Speaker 1: and we'll do with that. Hello, Welcome back to the Australians.
14:28
Speaker 1: Money was a podcast. James Kirby here with Anissa Cavallo
14:32
Speaker 1: of the EDA Property Group, regular on the show. It's
14:35
Speaker 1: nice to have around the show when we really have
14:37
Speaker 1: a lot to talk about in relation to news, hard news,
14:41
Speaker 1: if you like, there's really been a time where there's
14:43
Speaker 1: been so much news now, a lot of the sort
14:45
Speaker 1: of news you don't necessarily want to hear. But if
14:47
Speaker 1: you line it up in terms of property and the
14:50
Speaker 1: outlook from a macro point of view, we have higher rates,
14:53
Speaker 1: we also have higher inflation. Then we have capital gains
14:57
Speaker 1: tax coming in which will be much more severe than
15:00
Speaker 1: it used to be, and we have the elimination, if
15:03
Speaker 1: you like, of negative gearing from existing properties. Some changes
15:07
Speaker 1: too on trusts that may affect property at the margin,
15:10
Speaker 1: no wonder. I suppose the property forecasts have started to deteriorate,
15:16
Speaker 1: and I think importantly the banks, like the major banks
15:20
Speaker 1: like Westpac, etc. Are now putting our fairly negative reports
15:23
Speaker 1: suggesting that we will see price drops in the year ahead.
15:28
Speaker 1: Now that as from an investment point of view, well
15:31
Speaker 1: that might make the investment you've been trying to do feasible.
15:35
Speaker 1: Who knows, But I just want to ask you and
15:36
Speaker 1: Nissa what you think of these new sort of wave
15:42
Speaker 1: of pretty negative sentiment reports coming out from the bank
15:45
Speaker 1: suggesting prices will drop. I mean, we have to take
15:47
Speaker 1: them seriously? Do we have to take them seriously?
15:51
Speaker 2: Well, I think it depends because they're talking These forecasts
15:54
Speaker 2: are always very short term, so the headlines are always
15:57
Speaker 2: talking about short term trends and not long term. And
16:00
Speaker 2: anyone investing in property knows it is not a year investment, right,
16:04
Speaker 2: even in a very strong market, if you invest for
16:07
Speaker 2: one year, you're at high risk of losing money because
16:09
Speaker 2: of transaction costs, et cetera. Long term, we have seen
16:14
Speaker 2: very high interest rates and other negative other difficult policy
16:18
Speaker 2: that affect property markets in the long run. Not make
16:22
Speaker 2: a dint in growth as long as you have supply.
16:25
Speaker 2: The supply and demand ratio is right. If you've got supply,
16:28
Speaker 2: it choose and you still have demand. Now we've still
16:31
Speaker 2: got immigration. We're already not building houses fast enough. The
16:35
Speaker 2: government has already has poured a whole lot of heat
16:39
Speaker 2: on this new build market, but we already can't keep
16:41
Speaker 2: up with the current demand. We're not building enough, so
16:44
Speaker 2: I don't know how they think we can suddenly build more.
16:47
Speaker 2: So the real pressure will be supply and demand. As
16:50
Speaker 2: I said, sorry, And we've also now got a whole lot,
16:55
Speaker 2: a whole category of investors that have existing investments that
16:59
Speaker 2: aren't incentivized to hold onto them and not sell them.
17:03
Speaker 2: So for me, long term, there will be a supply issue.
17:08
Speaker 2: We're actually putting more fuel on the fire. I'm pretty
17:11
Speaker 2: sure in the actual budget paper they admitted that that
17:13
Speaker 2: short term it's actually going to affect housing, but long
17:17
Speaker 2: term it'll reduce housing and construction by about thirty five
17:20
Speaker 2: thousand a year, but they're going to increase it by
17:23
Speaker 2: sixty five thousand by putting more into the infrastructure fund.
17:27
Speaker 2: That is, if you think about how they've spent money
17:29
Speaker 2: and how successful they've been at building new houses to
17:32
Speaker 2: date with that sort of funding, James, if it ever happens,
17:36
Speaker 2: it's years away. So I believe that it is always
17:41
Speaker 2: a good time to buy. For me, what's the best
17:43
Speaker 2: time to buy, Buy yesterday, because if you're holding for
17:45
Speaker 2: long enough, it really doesn't matter. Even if you if
17:48
Speaker 2: you pay one hundred grand more than you should have
17:50
Speaker 2: for your house, who cares in ten years it won't matter.
17:52
Speaker 2: It shouldn't matter if you buy in the right area,
17:54
Speaker 2: the right house, et cetera. I don't think long term
17:58
Speaker 2: it's going to have the effect short term, yes, because
18:01
Speaker 2: of sentiment, but I think I think long term, if anything,
18:04
Speaker 2: it'll restrict supply more. It's going to increase yields. The
18:07
Speaker 2: real losers here are renters. The other real losers first
18:12
Speaker 2: time buyers who are all of a sudden competing with
18:14
Speaker 2: all of these investors in this more affordable spaces. And
18:18
Speaker 2: the other people that are going to really suffer short
18:20
Speaker 2: term are those Australians that were relying on their principal
18:24
Speaker 2: place of residence or the one investment property that they
18:27
Speaker 2: had for retirement. They don't have enough in super They've
18:30
Speaker 2: got two hundred and fifty or three hundred and fifty
18:32
Speaker 2: thousand and super which will last five years if they're.
18:35
Speaker 3: Lucky, and they're relying on.
18:37
Speaker 2: This asset that's just been affected by the capital gains rule.
18:41
Speaker 2: So they stand to lose hundreds of thousands of dollars
18:46
Speaker 2: in their retirement and in their retirement strategy or retirement assets.
18:51
Speaker 1: If they sell in the short term. Yeah, yep, you
18:54
Speaker 1: see the cleans read through down to fifty percent. It
18:57
Speaker 1: was for years. Did you think the banks right that
19:00
Speaker 1: the prices will actually drop across the market in the
19:03
Speaker 1: next short term sixth tournaments.
19:06
Speaker 3: Well, they already have started. Absolutely, the prices have dropped.
19:09
Speaker 2: I was listening to a commentator recently say it's all
19:12
Speaker 2: been factored into the market already and we might even
19:14
Speaker 2: start seeing a recovery soon. But what we've done is
19:19
Speaker 2: we have so if you want an investment property at
19:21
Speaker 2: the moment, inner urban and it's an existing house and
19:24
Speaker 2: you are relying on selling that property for your retirement
19:28
Speaker 2: in the next year or so, all of a sudden,
19:31
Speaker 2: half the market isn't interested because the investors want to
19:34
Speaker 2: get tax deductions in order to invest many of them.
19:37
Speaker 2: So you've lost a whole pool of potential investors.
19:41
Speaker 1: Yeah, what's the flip side of that is that is
19:44
Speaker 1: there going to be softer prices ironically in the inner
19:47
Speaker 1: city than the fringe because the negative gearing still exists
19:50
Speaker 1: on the fringe.
19:51
Speaker 3: I don't think so.
19:52
Speaker 2: I think that the government themselves forecast losing about two
19:55
Speaker 2: percent in values right now, that that's Betty, that is
20:00
Speaker 2: pretty conservative. It's more how they're treated from a tax perspective,
20:04
Speaker 2: et cetera that I think will affect them. The CGT
20:07
Speaker 2: issues and whether that is grandfathered or not, because that's
20:09
Speaker 2: still on the cards that it won't be so. I
20:13
Speaker 2: think if two percent off, even ten percent off is
20:17
Speaker 2: not going to suddenly make housing in Australia affordable to
20:20
Speaker 2: most Australians. That ship sailed about three or four years
20:23
Speaker 2: ago in more than that, right, so they would have
20:27
Speaker 2: I think the most important thing that they should be
20:29
Speaker 2: focusing on is making it easier to subdivide, easier to
20:33
Speaker 2: build a house, make construction the construction process easier. The
20:37
Speaker 2: National Construction Code is a really arduous, difficult compliance.
20:42
Speaker 1: Do you know, yes, if someone was to subdivide, we
20:46
Speaker 1: know that if you demolish an existing freestanding house and
20:51
Speaker 1: build a new one. Unfortunately, you don't get to negatively
20:54
Speaker 1: gear because it enough regarded as a new house because
20:56
Speaker 1: it didn't add to the housing stock of the niche.
20:58
Speaker 1: And if you like, but if you subdivide, would the
21:01
Speaker 1: new house being the second house, the new house that
21:04
Speaker 1: appears on the double block basically is that open to
21:07
Speaker 1: negative gearing? Do you know?
21:09
Speaker 2: I don't know for sure, and I don't think anyone
21:11
Speaker 2: knows for sure. I don't think the government knows for sure.
21:14
Speaker 2: But I think yes, yes, I believe My understanding from
21:18
Speaker 2: what I've read, is the intention will be that those
21:21
Speaker 2: houses will be brand new, demolished, brand new, brand new
21:25
Speaker 2: use of those houses.
21:26
Speaker 3: You're changing the asset completely.
21:28
Speaker 2: You're not just You're not just doing up your house,
21:30
Speaker 2: your part to a place of residence. Right, So my
21:32
Speaker 2: understanding is, yes, that they will attract negative caring benefits,
21:36
Speaker 2: but who knows, We don't know.
21:38
Speaker 1: If they did, how do you think that would play out?
21:40
Speaker 1: I mean, do you think that would become.
21:42
Speaker 3: Well, the problem is construction costs.
21:45
Speaker 2: You know, there's a lot of people that would love
21:47
Speaker 2: to subdivide their block, and the cost of actually subdividing
21:51
Speaker 2: to make a profit. Subdividing a block these days is
21:53
Speaker 2: unbelievable when you even when you if you look at
21:56
Speaker 2: some of these growth areas that subdivide, you know, thousands
22:00
Speaker 2: of blocks. It used to be that it costs around
22:03
Speaker 2: fifty thousand dollars per block to subdivide, and that's all
22:06
Speaker 2: your certification and everything. Even a tiny little block that's
22:10
Speaker 2: two hundred square meters to a townhouse or one hundred
22:13
Speaker 2: and fifty square meter block that could only fit a
22:15
Speaker 2: little townhouse costs about one hundred and fifty thousand dollars
22:18
Speaker 2: just to get the subdivision through and to get all
22:21
Speaker 2: of the certification and the water and all the elements
22:25
Speaker 2: that you need in order to actually inhabit it. So
22:28
Speaker 2: the numbers just from a construction perspective don't stack up.
22:32
Speaker 2: For individual Australians to start becoming to start becoming builders,
22:35
Speaker 2: we need construction costs to come down, which means we
22:39
Speaker 2: need more people in the construction industry and we need
22:42
Speaker 2: less red tape.
22:43
Speaker 1: And on that basis, you don't see an immediate optic
22:46
Speaker 1: if you like on the subdivision every day investor subdivision
22:51
Speaker 1: because specially or too hard, it's too expensive. Interesting Okay,
22:55
Speaker 1: well take a bit. We'll be back in a moment, folks.
22:57
Speaker 1: There's a couple of other things I just want to
22:58
Speaker 1: run through with a new It's been very good so far.
23:01
Speaker 1: I hope it's been useful to you. One of the
23:03
Speaker 1: things I think we're doing today is we're getting some
23:05
Speaker 1: clear areavw like post budget. We know the big ticket
23:09
Speaker 1: items and we have to assume that they will ultimately
23:11
Speaker 1: go through Parliament, perhaps with some small variations. But what
23:15
Speaker 1: you need to know, I suppose at this state is
23:17
Speaker 1: what you might be able to do or not do
23:20
Speaker 1: in the months ahead. Okay, back in a moment. Hello,
23:33
Speaker 1: Welcome back to The Australian's Money Puzzle podcast. I'm James Kirby.
23:36
Speaker 1: I'm talking to Minisika Vallo. We've had we have folks.
23:40
Speaker 1: I hope steered you usefully through some of the key
23:43
Speaker 1: issues now facing property investors at this moment post budget.
23:48
Speaker 1: Now it hasn't been put through Parliament, but we have
23:51
Speaker 1: to assume that it would largely go through as planned.
23:55
Speaker 1: There will be exceptions, but I have to tell you
23:57
Speaker 1: that in terms of political rumor and speculation, there's very
24:01
Speaker 1: little around the possible exceptions for property in anti fashion.
24:05
Speaker 1: So let's take it that most of this is going
24:06
Speaker 1: to happen as expected. The key issues are that negative
24:10
Speaker 1: gearing is limited to new property, and that capital gainst tax,
24:15
Speaker 1: as we say, is no longer a fifty percent discount
24:18
Speaker 1: after a year. It's linked with inflation, so it might
24:21
Speaker 1: be just a small discount each year, five percent whatever
24:23
Speaker 1: something like that, so way less generous than it used
24:26
Speaker 1: to be. The other two big issues for property investment
24:31
Speaker 1: and how that hands out then in the market. Now,
24:34
Speaker 1: one thing I think we should try and govern that
24:35
Speaker 1: this final segment of the show is the issue of valuations,
24:39
Speaker 1: because it really matters if you own an existing property
24:42
Speaker 1: and you mentioned retirees who may have it all writing
24:45
Speaker 1: on one property and maybe that property has just been
24:48
Speaker 1: ticking along. Maybe it depends on where they are. Sydney
24:50
Speaker 1: and Melbourne they've been ticking along, Brisbane and Perth they've
24:52
Speaker 1: been going great. But the issue then is if they
24:55
Speaker 1: are to sell that property into a soft market, if
24:59
Speaker 1: they must and money will need to do so, tell
25:02
Speaker 1: us about valuations and what they need to do in
25:04
Speaker 1: what it matters.
25:06
Speaker 2: Well, if the CGT issue is my real fear for them,
25:12
Speaker 2: right that once at the seventh of May next year.
25:15
Speaker 2: And May next year they will have to apply the
25:18
Speaker 2: new indexation CGT, which means that for a retiree selling
25:23
Speaker 2: a home, it's it could be hundreds to hundreds of thousands,
25:27
Speaker 2: you know, hundreds of thousands of dollars of extra tax
25:31
Speaker 2: that they need to pay. So the thing that they
25:33
Speaker 2: can do is, yes, hurry up and get evaluation.
25:35
Speaker 3: It is a.
25:36
Speaker 2: Wonderful time to get evaluation because the market is softer.
25:38
Speaker 2: It is something that I would do. But the other
25:41
Speaker 2: thing they're incentivized to do is to sell now rather
25:45
Speaker 2: than in a year.
25:46
Speaker 1: What do you think of that?
25:48
Speaker 3: Well, the problem.
25:49
Speaker 2: Is the market is softer, but they've got to do
25:51
Speaker 2: the analysis right. So this new indexation actually works for
25:55
Speaker 2: properties that haven't performed very well. So if they've had
25:58
Speaker 2: very average growth and they've been more of a yield play,
26:02
Speaker 2: then you would be better off waiting, which is actually
26:05
Speaker 2: a good thing, right if you can, if you can,
26:08
Speaker 2: But if you are in a position where you have
26:10
Speaker 2: experienced significant capital gain, then the new calculations will affect
26:15
Speaker 2: you significantly.
26:16
Speaker 1: So really, people in Brisbane and Perth we've had a
26:18
Speaker 1: really good run. They can actually if they get their
26:21
Speaker 1: evaluation done immediately. Yes, they can. Then the majority of
26:28
Speaker 1: the CGT there will pay will be under the old
26:30
Speaker 1: regime at sixty percent discounter after a year, and only
26:34
Speaker 1: a smaller piece perhaps will be in, if any, will
26:37
Speaker 1: be in the new regime when it kicks in. So
26:40
Speaker 1: that would seem to me in a smart way to move.
26:41
Speaker 2: If you have to, Yes, And I think that's the
26:43
Speaker 2: whole intention was to try and encourage more stock on market.
26:49
Speaker 2: But the problem is at this stage, because of the uncertainty,
26:52
Speaker 2: you do have a lot of people that just wait,
26:55
Speaker 2: that's what I'm doing. I've got a property that I
26:57
Speaker 2: wanted to sell, et cetera, and I just I took
26:59
Speaker 2: it off the market and said, I'll just wait.
27:01
Speaker 3: Oh wait, you.
27:02
Speaker 1: Mentioned it's a buyer's market, but then you also mentioned
27:05
Speaker 1: that the clearance rates are really low. I mean you
27:07
Speaker 1: would have thought of it was a buyer's markets. Yes, yes,
27:10
Speaker 1: saranescereets mightn't be as low as this.
27:12
Speaker 3: Look there's markets within markets.
27:14
Speaker 2: Clearance rates are low because of the uncertainty, So people
27:18
Speaker 2: are I mean asking for discounts that a lot of
27:23
Speaker 2: vendors aren't prepared to give. So I think you've got
27:26
Speaker 2: this really interesting balanced people are selling if they're forced
27:29
Speaker 2: to sell. If you are not forced to sell right now,
27:32
Speaker 2: you would You'll hung on until you're very clear about
27:35
Speaker 2: the future.
27:35
Speaker 3: Right.
27:35
Speaker 2: So that's one of the issues. But it is a
27:39
Speaker 2: buyer's market because there's those people that are forced to
27:42
Speaker 2: sell are forced to sell, but there's less good quality
27:46
Speaker 2: stock as well. So I would say that if you're
27:49
Speaker 2: in the market for a principal place of residence or
27:53
Speaker 2: if you're in the market for a property on the coast,
27:55
Speaker 2: discretionary investment, it's a wonderful time to buy discretionary investments.
28:02
Speaker 2: If you are in the market for a very expensive
28:05
Speaker 2: principal place of residence, it's a good time. If you
28:08
Speaker 2: are in the market for something that you're competing with investors,
28:11
Speaker 2: it's potentially a bad time because people are very unsure
28:14
Speaker 2: about what they're going to do and listing less right and.
28:17
Speaker 1: That's most likely to be in the new bills in
28:20
Speaker 1: the edges of the city.
28:21
Speaker 2: Yes, and I got also more affordable areas that the
28:26
Speaker 2: edge of the city.
28:26
Speaker 3: Still, Yeah, you're right, absolutely.
28:28
Speaker 1: So, Okay, change picture, isn't it. It's a change picture
28:32
Speaker 1: for property investors. We will get into this more thoroughly
28:35
Speaker 1: in the weeks ahead. Great to have Anissa to kick
28:38
Speaker 1: us off on it. Thank you very much, Anisaka Vallo.
28:40
Speaker 3: Thank you for having me.
28:41
Speaker 1: James anytime, always good to have you on the show.
28:44
Speaker 1: That was a Nisa Cavallo. Folks of the eid Eda
28:47
Speaker 1: property group, terrific. Okay, keep those questions rolling. I will
28:51
Speaker 1: catch up with them. We'll start afresh on Paris. Deal
28:53
Speaker 1: with question time. In the final segment of the show,
28:56
Speaker 1: I just wanted to sort of collect the best for
28:58
Speaker 1: you from here on in. Today's show was produced as
29:02
Speaker 1: usual by Leah Sammon Glue. Let's have the emails to
29:06
Speaker 1: the money parts at the Australian dot com dot au
29:09
Speaker 1: talk to you soon.