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A Major Warning for Property Investors in 2026: The Rules Just Changed · The Follio Property Podcast

0:00
The total Australian stock exchange makes up $3.6 trillion. The entire stock exchange in the residential real estate market is at $12 trillion. Australians have put all their eggs in one basket. Australian real estate values will continue to rise and probably quite aggressively in the first two quarters of 2026. What do builders do? They put it straight into their margin and advertise it. The buyer doesn't win out of this. The consumer, the purchaser doesn't win out of this.
0:26
What we're going to cover today is Australian real estate, update on the first homeowner cap increase, Macquarie CBA pulling out of investor lending, debt to income from APRA reducing some of the limits. And more importantly, what does this mean for real estate heading into 2026? You're listening to the Folio Property Podcast. I'm Rhys Bettle and I'm here each week with my co-host Lachlan Dallahunty. Lachlan, did you know 85% of our audience is a non-subscriber?
0:56
You touch on this each week and I don't think that carries.
1:00
We want 5K by Christmas. We've had a good run in the last couple of weeks. We need another 700 subscribers. So please do us a favor. Give us a like. Hit subscribe. We've also just cracked the top 50 business podcasts on Spotify this week. 44. 44 we're at. So appreciate everyone's support. There's a lot of you that listen each week, but there's not many five-star reviews. So please hammer in those five-star reviews. We want to get bigger and better guests in 2026. Today's episode is something a little bit different. I thought we'd touch on. There's a lot happening.
1:30
A lot of noise. A lot of noise. More than ever. Coming into Christmas, historically, the market shut down. No one cares about real estate in December. It's the opposite this year. It's the loudest it's ever been. What we're going to cover today is Australian real estate. Update on the first home run. Cut.
1:48
increase, which there's been a lot of noise in the market about. Investment lending, the biggest rise since 2013. Trust lending, Macquarie, CBA pulling out of investor lending. Debt income from APRA reducing some of the limits. And rates, are they on the rise? What's the future plans in 2026?
2:06
And more importantly, what does this mean for real estate heading into 2026? 100%. Let's kick it off with that. Australian real estate, latest monthly data from November. Australian residential real estate is at $12 trillion. Outstanding mortgage debt is at $2.5 trillion.
2:22
Yeah, I think the latter is the more concerning statistic. Two and a half trillion dollars of debt in Australia for residential property at this point in time. That's a scary thought. And that's not privatized debt. But to give our listeners context, the total Australian stock exchange makes up $3.6 trillion, the entire stock exchange. And the residential real estate market is at $12 trillion. So that's- Four times. Four times. Thanks for the quick math there, Rees.
2:49
That's a mind-blowing statistic. Yeah. And superannuation, I think, is about $3 trillion. So we're clearly the number one vehicle for wealth in Australia. What does it make up? I think it's 50-odd percent, right? 55% of household wealth is in housing.
3:05
is now made up of housing. So fair to say Australians have put all their eggs in one basket and that's a residential real estate. I think commercially it's about $1.5 trillion. So, you know, almost 10 times when you compare residential versus commercial real estate. Where do you see this going in 2026? You will see this, both the two key statistics you touched on, Australian real estate values will continue to rise and probably quite aggressively in the first two quarters of 2026.
3:34
But you'll also see that debt level, I think, skyrocket into 2026. This is the speculation phase, right? So we're going to see more debt than we've ever seen before. And as the major players are pulling out of various space, because you can see that major banks are starting to get a little bit nervous, particularly in the investment space, you're going to see more privatised debt enter the market. 2025, we're starting to hear a lot about it. We'll see it flood the market into 2026. And that's where I get really concerned, that unregulated debt space.
4:03
Yeah. And there's a lot of factors we're going to touch on today that's driving that. But I think when we looked at the data from last month, $530 billion in gross value of sales at the moment this year. So there's a lot of transactions out there at the moment. In the last 12 months? In the last 12 months. It was how much? Repeat that. $530.4 billion.
4:22
And agents are charging what? One and a half to 2% on. Don't make me count that. I can't think that quick. No wonder agents are driving nice cars and they preach they don't get paid enough. Anyway. Yeah. One of the big factors for this is the first homeowner scheme, which we've talked about on previous podcasts. And it's been very well publicized where the first homeowner cap increasing with the no LMI across the country. Different cap.
4:46
How short-sighted are our government straight off the bat? Well, guess how much it's rose from a national level. I said it will do 10% from when it was released till Christmas. What's it done? Yeah. So it's on 2.1% nationally.
4:59
across October and November, but actually looking at some of the key markets that have probably been on an upwards trend in the cycle, Perth's done 4.3% the last two months. And this is macro, right? This is every price point. If we segment this out between the $700,000 to $900,000 price point where it's most prevalent, we are seeing double digit growth at that level. 100%.
5:20
4.3% for Perth, like I said, Brisbane 3.7% and Adelaide 3.3%. They've been the big three that have had the moves, I guess, over the last three or four years. It seems it's just reignited that run, especially on those lower price points that are maybe on the unit space as well. Yeah.
5:35
Like isolated examples that we're seeing on the ground, particularly in the markets that we're tracking more heavily, be that Victoria and the Melbourne market in Perth in Western Australia, we're seeing well north of double digit growth. There's examples of things trading six months ago that are now going for 30 to 40% more than what we've either paid for or were paying as little as three months ago. It's insane. And this is the problem. The government's so short sighted. They brought it forward. It was meant to be in January.
6:01
They've brought it forward, which has just put this market on steroids at the most vulnerable price points where it's already very, very competitive. And now it's just pushed out all those that were thinking about entering the market in 2026, not going to be able to make use of this and this whole affordability and into the marketplace and trying to, you know, the days of first-time buyers being able to buy their property. The gap has just been blown out of the water and it's only going to get harder and harder.
6:27
So very short-sighted by the government. There's a lot of noise in this space. It's only going to continue to surge, particularly in the early part of 2026. Yeah. We've also seen just above that cap, like that price point, the next echelon above that first home and a cap, a lot of demand hosts this announcement as well. So not only has it fueled the entry-level point of the market, which has driven a lot of the growth, it's also fueled that next echelon as well.
6:50
But when I get asked, where do you see value? And we've had a few client meetings recently where they're getting nervous because is it artificially inflated just below the first home buyer cap? And the answer, you can't deny that it potentially is. Where you're starting to see better value though, is that sort of 10% to 30% above that price point. Hypothetically, if it's capped out at $900, I'm starting to see really good value at $1 to $1.3 because you see what you're paying for $900,000 competing in that first home
7:20
And then the difference that you're getting $200,000 above that, you're getting so much more value for money. And I think that gap's only growing. So those upgraded suburbs have now, those gaps are shrinking and telling clients that if they've got the capacity to do it and they're trying to get into the market, don't go fishing where everyone else is. Try to find some areas or some ponds where it's not as saturated, right? That's a terrible analogy. But there is value in those price points above the first home buyer grant.
7:49
And it's interesting because I've heard builders and we've seen, we've heard within the market, especially on the new build space, they've just increased their price point to cover that, to get to that sort of cap, knowing that's attracting a flood of first-time investors. We saw this in COVID, right? Same thing, the building scheme come out, you're getting $25,000 rebates up to 30, sometimes $40,000 rebates if you build. What do builders do? They put it straight into their margin and,
8:17
and advertise it. And so you end up paying probably more than what you're going to get back in the grant. So exactly, they're capitalizing on that. They're launching things on market from $8 to $8.50, getting a heap of interest, driving prices up right up to the top limit of that cap.
8:31
The buyer doesn't win out of this. The consumer, the purchaser doesn't win out of this. It's developers, builders, real estate agents, property spruikers and moguls. They're the ones that really win out of this. And the government. More transactions means more state revenue, more stamp duty. And the demand's through the roof. Yeah.
8:52
Westpac announced they had 150% increase in new first home buyer applications. So they've seen it straight away. Recently, as we're recording this, a bank, Beyond Bank, actually paused all first homeowner applications due to the demand. They couldn't keep up with the pre-approvals as well. So there's definitely, it's not noise. You know, the banks are coming out announcing increased figures, announcing that they're having to pause new applications. So it's definitely created a hell of a lot of demand at the moment.
9:19
Yeah, but we've spoken a lot about that. It doesn't help the listeners what to do. Advice, if you're in that space at the moment, it's only going to get harder. We're only going to see it. It's certainly not going to slow down. So it's what do you do? Do you work with it or do you work against it? You're a first-owned buyer. What I can tell you, it's going to be more expensive in February than it is now. It's definitely going to be more expensive in April, May than it is now.
9:43
You just have to be diligent and I can't stress that. Just be really selective with what you buy because it's getting scary in that space. So you just want to make sure what you're buying, you protect it in the sense that whatever you buy and whatever you pay, you can on-sell that comfortably to an own occupier, ideally. So it's got an own occupier appeal for a price that can be validated by evidence.
10:07
Now, these are the things we've touched on now is what's kind of driving a lot of the price growth and the demand out there. There have been some updates recently that are trying to restrict some of the new lending into the market, particularly around investor lending. So just to throw out some stats, be good to get your opinion on as well. New investment loans hit a record high of 13.6% increase in the last quarter.
10:30
It's the value of investor loans jumped 18.7% year on year. It's now the highest share of new lending since 2017 from an investor standpoint. And I think we might have spoke about this earlier, but investors now account for 40% of all new loans in the market. So we're keen to get your opinion on that. So there's obviously been a big drive. We talk about this with the new age spruiker and the era of the buyer's agent as well. What do you make of these figures from an increased investor investment loans?
10:58
They don't surprise you. We're seeing this play out on the ground, right? There's so many people that want to get in and it's more FOMO than anything else, right? Everyone's speaking to other people and everyone's having quick wins across the board. We're seeing a national housing surge in prices, right? It's not localised...
11:15
Per se, it's national. We're seeing big wins across the board. So the banks now get nervous, right, when they've got so much allocation or so much exposure in any segment, doesn't matter what it is, they will start to restrict that. We're starting to see that they're getting too much exposure in certain parts of the market, be that investment loans, and potentially into speculative areas. We spoke about regional areas previously on the podcast.
11:36
So what happens? You're just going to look back in history. What happened in 2017, Rhys? You're in the UK, so you've got no idea. In 2017, they essentially terminated interest-only loans for investment properties. That was on the back of what was happening in New South Wales. We've seen prices...
11:51
surged pretty well over a consecutive seven-year period to the point where they were going up by sort of 20%, 30% year on year. And a lot of that, again, like we are seeing today, was an occupier debt, which is a bit more balanced and a little bit more manageable from a lending point of view, but also exposure point of view. It was driven by largely investment and straightaway,
12:12
that pretty much put a handbrake on investment lending because all of a sudden you can't lend out at interest only. Therefore, the repayments are significantly higher, so you can't have things that pay themselves off. So it really cooled the market. And for those that were invested in Western Australia at the time, it was really that...
12:29
the final dagger in the back of the market because it was already slow. It really needed something to rebound. And all of a sudden that just really pulled out any activity out of the market. So it was really the last straw that broke the birth back. And then we saw really probably the toughest 12 months post that. So this is potentially the start of things to come. And don't be surprised if banks start to put in more measures. I'm not saying that interest only lending on investment loans won't be available in 2026, but,
13:00
but things will start to take place, like banks drawing out of different segments like trust lending. Yeah, great segue. And I think the key thing there where you're mentioning back in 2017, as I said earlier, this is the highest share since 2017. So they're definitely, after the regulators come in and trying to make some changes to slow down the level of growth, the key things that have happened recently around that trust and company lending, the big news probably earlier in November was
13:28
Macquarie, the biggest lender in this space, pulling out all together. Massive. Massive. And that was off the back of a picoletta announcing the spruiker activity out there, the unsolicited advice of the increase of these chop shop buyers agency and financial advisors out there as well. So they've kind of reacted from that. It seems like APRA's then got involved as well and starting to have a stern word with a lot of these lenders.
13:55
There's a Royal Commission coming in this space, Rhys, finally. You heard it here first, guys. A Royal Commission coming in this space. I think CBA pulling out as well. So Macquarie and CBA. CBA is still accepting some if there's a bit of a relationship there.
14:09
But what does this change in the investment lending space? Because we know mum and dad investors might not be going down this route, but definitely once you start to build a bit of a portfolio, this is a really effective way of increasing your borrowing capacity. It is, but APRA is stepping in for the right reasons. People have got potentially far too much exposure in speculative markets buying speculative assets. So there's a reason they're stepping in. I know the marketplace hasn't responded well, it's unfair.
14:36
But it's there for a reason because at the moment, the regulations around trust lending are meaning that people are taking on far too much debt than what their income should allow. So I think it's a mature step, a step in the right direction. It's going to bring consumers back to a more regulated space where they've got great coverage and eyes and ears across someone's debt position to give them the appropriate amount of debt that they should be allowed to take on for their age, profile and their income.
15:05
So it's a sensible step and certainly one in the right direction. And when I say it's a royal commission, we're in this space. It would be an inconvenience, but like it happened in the financial planning space. The good operators that are doing the right things, the ethical things, will stay relevant in the market. It's the chop shops you call about or the spruikers and those sorts of things that have been given unsolicited financial advice and potentially...
15:27
Wearing the hat of a financial advisor without the appropriate qualifications that will get caught out in this wave. And why markets are running, positive results and good returns will overshadow any mistakes, unsolicited advice, any corners that are being cut. Because when you're making money and the clients are making money, no questions are getting asked. But if there is a storm coming, which we've spoken about previously on the podcast, and the tide washes out, you will see this industry get exposed.
15:57
And those that have been doing the wrong things now for a period of time, we'll have a lot to answer for. Some good analogies on today's podcast. I've been enjoying that. I think this, this, this speaks a lot of these.
16:13
influencer, unsolicited advice, broker, chop shop. They're really pitching these quick returns, speculative assets, and it feels like with them starting to tighten now with these restrictions, those are the assets that are going to start to take a bit of a turn. They will. So what does that mean for the marketplaces? So these regional surges, and why do I say regional? The reason...
16:37
these players go to regionals or house and land packages, it's because of cash flow, right? So you go to regional because your yields are substantially higher than capital cities, sometimes 3% higher. So you might buy Melbourne, for instance, you buy something at 3.5%, 4%. You go to a regional just down the road,
16:53
Now, you go to a regional, Queensland, for instance, you could buy something 5.5% to 6%. So in that trust lending space, it makes a lot of sense because in trust lending, if it's self-sufficient, so you borrow at 70%, you're getting 6.5% return, you can get an account signature to sign off to say that that trust is self-sufficient and it's paying off its way. Therefore, we can discount it completely from your income and your personal affairs. So it ticks that box. Okay.
17:18
It's the same to some level in the house and land package space. You go in there and you get in one title. It can yield higher. Why does it yield higher? Because it's a low land value component. So you might buy something and it's 60% you're paying for the house and only 40% or 30% for the land. Therefore, the rental returns on that asset in comparison to its value are significantly higher. So you might be able to build a house for 700K, but you can rent for 650. So you're getting significantly higher yields. Again, it suits that trust structure.
17:48
also suits superannuation. So we're seeing a massive push of these operators, we'll put them down as operators, into the self-managed super fund because again, you have to pay a higher premium on your interest rate in super than you do outside of your super. So you need to have a higher yielding asset. So that's where they can push these types of products. So I think we are going to start to see a shift away from these markets because it's going to get difficult because it's
18:13
A lot of these operators are not just buying one asset. We're talking about five, six, seven, eight, nine assets into the same markets. And if they can't continue to do that through their trusts, which now is going to be very, very difficult, they're certainly not going to be able to do it in their personal world because their income won't warrant their debt levels. So they pull out of the market. And these buyers, agents, brokers, whatever you want to call them,
18:37
won't be able to go to their pool of clients that they've just been rotating through these markets for the last three years and say, buy another one, buy another one, buy another one. They're going to have to go out to the marketplace. But they won't be able to do it through the trust. So I think this is the start and the end of the speculative markets. Yeah. I had a conversation. I've said this to you off air. I had a conversation with someone who previously worked with a big investment company.
19:01
Property advisory in Sydney, they're doing upward 250 transactions a month, all off the plan, all house and land package areas. The concerning thing was they mentioned an area that we know- 250 deals a month, all off the plan and likely all in the same estates. Well, that is the scary thing. They mentioned an area that we know too well in Western Australia-
19:25
And two rocks. Two rocks. Two rocks. So South Geraldine, for those who know where that is, it's that far north. But the train definitely doesn't go there and it's a good hour and a half out of the CBD. Yep. Yep. Infrastructure's not there. Abundance of land. 70% of an estate they had purchased for their clients, which as we know in the WA building industry, we're still waiting for title. So these houses probably won't get built for another two years. Yeah.
19:50
Two years. Three. Two, three years. Four, if you're lucky. And you're saying 70%. They purchased. 70% of an estate. Can you see the issues with that, Rhys? What does that mean? You're just going to flood a market with investors. So straight away, rental yields drop dramatically because how many people want to rent a property in two rocks where you can't get a train line? Mm-hmm.
20:14
Not a lot. So your vacancy rate goes through the roof. There's no own occupier appeal because you're surrounded by people that don't look after their property because they don't live there. And you're an hour and a half from the city, half an hour from a train line, a good 25 to 30 minutes from a supermarket. And people are pouring, no doubt, their superannuation into this. And those that have gone through the trust lending space are doing so in an unregulated environment where their debt is far too high to their income.
20:45
massive, massive recipe for disaster. That really concerns me. It's concerning. I think that's why I wanted to bring it out today because the more publicity we can get around this, the more we can start to educate clients. And a lot of these people that are doing it are either first-time investors or they're the people that probably fall for these sprucks. We've spoken our first investments were off the plan and we weren't well-educated. So the more we can get this messaging out, the more we can educate people from not making mistakes in the future.
21:13
This reminds me of a time, Rhys, back in 2018, when a client come to me that was extremely overexposed, very similar to that example before. They had seven house and land packages in their personal name and their personal entities, all in very similar areas to the one you've described. An hour north of Perth, not close to amenity, no proximity to the train line at the time, and they were significantly over-leveraged. But the kicker was this whole portfolio was being propped up
21:41
by a credit card debt of $200,000. So this group, this financial advisor property group,
21:49
had overexpanded their portfolio. None of this, this client worked for the Defence Force, had a disability payout because he was seriously injured, and they've used those funds to then put him into the most speculative segment of the market at the point in time, and they propped it up with credit card debt. Not only that, to additional properties in his superannuation fund. So not only have they spent his entire life savings in his personal name, they've also gone and spent his retirement fund.
22:15
As we do for all clients, we do a portfolio review to analyze the performance of the portfolio. And this was 2017, not too far away from the bottom of the market. The findings at the time were dire. Negative equity, $650,000, which was propped up again by $200,000 of credit card debt. So it was $900,000 in the hole. Pension gone, super gone.
22:41
all because of the advice from individual groups as you've just defined then, and they come to us to try to get them out. And mate, that to me is heartbreaking. And I've got grave concerns that people at this point of time are going into similar territory. And I don't want to see clients get sucked into this again. And we're in this wave now. We are going to see a lot of these cases. And it may not be next year, it may not be the year after, but there's going to come a time
23:11
when everyone has spread their chips far too thin into these type of assets where they're oversaturated in sub-markets of speculative assets. So yeah, sorry to bring a downer to the podcast. I think these are two very good case studies. What's happening now, right, the market, you said 70% of the state, so they've probably purchased two, three, four, 500 properties in the same market
23:36
at a high point in the cycle, I'm not saying at the top, but a high point in the cycle and no doubt paid very good prices for their buying that will be finished in three years. Yeah. And that's what I mean. The impact isn't going to hack. They're not going to see that impact for a few years now, but it's coming. And that's what happened to stepping in. Exactly. For these examples.
23:55
And finally, I guess the last kind of update from APRA was they've come out and capped the debt to income at six times. It's a bit of, speaking with a lot of mortgage brokers in the industry, it is a bit of a fugazi. The serviceability buffer does restrict a lot of the lending above the six times. In terms of just some stats here.
24:17
So it's a statement just to say they're doing something, but it's very little. Correct. 4% of iron-occupied loans and 10% of investment loans currently exceed that threshold. So there'll be short-term or minimal impacts. But the intent's there. So the intent's there from...
24:33
You know, writing to the banks to look into the trust lending, looking at the debt to income limit. The last thing I want to touch on was interest rates. Speaking, we're recording sort of start of December with this one. Speaking with some mortgage brokers that we're friendly with. Banks are already starting to increase rates now this week. So they're sending out their emails to get their applications in.
24:57
Standard signaling there's going to be a bit of a rate increase in 2026, most likely off the back of some of the inflation data over the last couple of months. What's your thoughts on A, banks raising the interest rates already, and what's your kind of prediction moving in when this airs or airs before Christmas? What's your prediction for 2026 in terms of interest rates? It feels like the sentiment's flipped. Just demonstrates.
25:22
that no one has any idea what's going on or what's going to happen. How often do we see predictions from the futures or markets or our industry leaders in this space that are meant to have some idea of what's going to happen over the next three, six, nine, 12 months?
25:40
Literally, what, six weeks ago, eight weeks ago, announcements were coming out. The majors were predicting one to two rate cuts next year. Some of the real estate experts and economists, let's not name a few, BOQ, CBA, Macquarie also made the announcement, all said there was going to be two to three rate cuts, likely one in 2025 and then two in 2026. Six weeks later, Reece, we're talking about rate rises. So...
26:11
One thing to take from this, just don't read into any of the BS that's out there because no one's got any idea what's going on. What's my view? Which you could argue. It's like, well, who are you to give advice? The data creates just a macro headline, right? So it's never as bad as what it is. It's never as good as what it is. So to come out and say there's going to be three rate rises now in 2026 is a massive overstatement. Massive overstatement.
26:35
This is underpinned by the inflation data. We do know December is an inflationary month because it's a beautiful time of year. It's festive and people like spending money over Christmas, holidays, everything else. So yes, it's an argument suggests that the inflation data is gonna get worse in the early parts of 2026, but I don't think we're gonna see, personally, significant rate rises in the early parts of 2026. If anything, we might see one to level the storm
27:03
potentially February, March, just to put that fear, because again, why do rates rise? Why do the Reserve Bank do what they do? It's to change behaviour. So their intention changes behaviour. So they do that. They've got the only lever they can pull is to increase or decrease rates.
27:18
So after a very inflationary period of time, we'll likely see some action. But I'm not going to go out there and make a call of how many rate rises in 2026 because like everyone in the marketplace, I'd be talking bullshit. I'd be talking utter nonsense if I tried to predict it recently.
27:35
Thanks, Lachlan. This was a really good episode, I think, in terms of some really common themes. Please leave comments what you think about some of the subjects we've said. If anyone's got any of these spruiker, speculative stories, similar to what myself and Lachlan mentioned, put them in the comments. Or challenge. If you disagree and blatantly disagree, I'd love to hear it because I'll be the first to say I'm not always right. So I'd love to hear what you think of some of the subjects that we've covered today.
28:04
You've been listening to the Folio Property Podcast.