Latest / The Money Puzzle / Your property questions answered

Transcript

Your property questions answered · The Money Puzzle

0:10
Speaker 1: Hello and welcome to The Australian's Money Puzzle podcast. I'm
0:12
Speaker 1: James Kirby, the Wealth Editor at The Australian.
0:15
Speaker 2: Welcome aboard everybody.
0:17
Speaker 1: I have to tell you that the inbox at our
0:20
Speaker 1: email here, themoneypuzzleattheaustralian.com.au has something of an imbalance just now.
0:28
Speaker 1: We have a lot of questions on property and we
0:31
Speaker 1: have less questions, considerably less questions on the investment markets,
0:36
Speaker 1: which I find intriguing, I have to say, because I
0:39
Speaker 1: would have thought the Investment markets were a little bit
0:41
Speaker 1: more complicated than property.
0:44
Speaker 2: But it's the.
0:45
Speaker 1: Property people who have been rolling in. So I feel compelled, really,
0:49
Speaker 1: it being a Tuesday show when we have a property focus,
0:52
Speaker 1: I feel compelled to do a catch-up on this. And
0:57
Speaker 1: we will devote today's show to questions from listeners, which
1:03
Speaker 1: cover all aspects. And I've basically selected... handful of questions
1:09
Speaker 1: which really represent the sort of questions we're getting. And
1:13
Speaker 1: I think you'll find it very interesting to do such
1:15
Speaker 1: an exercise.
1:16
Speaker 2: I need someone with me.
1:18
Speaker 1: And I have chosen one of our most regular guests
1:23
Speaker 1: on the show, who I'm sure you're familiar with. It's
1:25
Speaker 1: Stuart Weems of the Pro Solution Private Client Group.
1:28
Speaker 2: Hi, Stuart. How are you?
1:30
Speaker 3: I'm really well, James. Thanks for having me on.
1:32
Speaker 1: I have also had a go at editing these questions
1:36
Speaker 1: because as you can see some of them are rather
1:39
Speaker 1: lengthy look folks as i always say keep the questions
1:42
Speaker 1: coming love to have them you don't have to tell
1:44
Speaker 1: us your life story if you want to you can
1:47
Speaker 1: but i will edit that part of it and we'll
1:50
Speaker 1: try and zone in on the actual question itself just
1:53
Speaker 1: to keep the show rolling basically okay well look why
1:56
Speaker 1: don't we get going and what i'll do is we'll
1:59
Speaker 1: read them alternately i might kick off with the first
2:01
Speaker 1: one interestingly Folks, this first question about the 40-year mortgage
2:07
Speaker 1: is off the back of something I did in The
2:09
Speaker 1: Australian recently, which was off the back of a conversation
2:12
Speaker 1: with none other than Stuart Weems, because he actually said
2:16
Speaker 1: to me a few days ago, listen, you know, you've
2:18
Speaker 1: got to have a look at this. There's a 40-year
2:20
Speaker 1: mortgage coming through the system. You've always been asking about this.
2:23
Speaker 1: And here they are. So Andrew's question. Hi, long-time listener,
2:28
Speaker 1: fan of the podcast, read with interest. You're piece about
2:33
Speaker 1: the 40-year mortgage in the Australian. I was wondering whether
2:36
Speaker 1: we are entering an era where people will not be
2:39
Speaker 1: expected to discharge their mortgages while they're working. Rather, they
2:43
Speaker 1: will only increase their equity during their working lives and
2:46
Speaker 1: then draw down on it to retire using whatever equity
2:51
Speaker 1: remains until their home is returned almost entirely to the
2:55
Speaker 1: institution when they die. Somewhat dystopian, he says, but not unrealistic. Oh,
3:02
Speaker 1: not unrealistic, Andrew.
3:04
Speaker 2: The figures show, obviously.
3:07
Speaker 1: That the number of people who are retiring with a
3:09
Speaker 1: mortgage is going through the roof. And similarly, and kind
3:14
Speaker 1: of a logical link here, the number of people who
3:16
Speaker 1: take out a lump sum and use that lump sum
3:20
Speaker 1: to pay off the mortgage is increasing too. And it's
3:22
Speaker 1: one of the arguments for people say, why you should
3:25
Speaker 1: be able to use super to buy a home?
3:29
Speaker 2: What is the point?
3:31
Speaker 1: Of putting it all in super, getting to the end
3:33
Speaker 1: of your working life, getting it back and putting it
3:35
Speaker 1: into the mortgage that you've, for the interest rates, been collecting.
3:39
Speaker 1: That's just an argument that's out there at the moment.
3:42
Speaker 1: But on the more broader topic of this, to be specific,
3:46
Speaker 1: it was Pepper Loans that introduced this 40-year mortgage. And
3:50
Speaker 1: there's always been long-term mortgages, 30 years or so often offered,
3:55
Speaker 1: or 35 years often offered to doctors and lawyers under
3:58
Speaker 1: specialist funds, but not on general release. And I think
4:00
Speaker 1: that's what was very interesting. What do you think, Stuart?
4:02
Speaker 1: Number one, will we see more of them? Number two,
4:05
Speaker 1: what use have they to our listeners if there's a
4:08
Speaker 1: 40-year mortgage out there?
4:10
Speaker 3: I think the main use is really around borrowing capacity, James,
4:14
Speaker 3: rather than necessarily repaying over a 40-year term. And that
4:20
Speaker 3: kind of helps, in a way, affordability. I'm not saying
4:23
Speaker 3: houses become cheaper, but if my borrowing capacity increases and
4:27
Speaker 3: I've got the cash flow to meet it, because quite often,
4:30
Speaker 3: In fact, particularly at these interest rate settings, what someone
4:34
Speaker 3: is able to borrow in terms of what they can
4:37
Speaker 3: afford to borrow is quite often more than what the
4:40
Speaker 3: banks will lend them. And the reverse was true a
4:43
Speaker 3: few years ago when interest rates were really low and
4:46
Speaker 3: borrowing capacity was much higher than what people should or
4:49
Speaker 3: probably prudently should borrow. So a 40-year mortgage, particularly when
4:54
Speaker 3: interest rates are at higher settings, will extend borrowing capacity
4:58
Speaker 3: and allow people to borrow more if it's safe and
5:01
Speaker 3: prudent for them to do so. So I think it's
5:04
Speaker 3: a trend. We're working longer. We're living longer. And it
5:09
Speaker 3: wasn't maybe less than two decades ago, the average mortgage
5:14
Speaker 3: term was 25 years. And so, you know, I think
5:18
Speaker 3: it will just trend upwards naturally. And I think 35
5:21
Speaker 3: for the banks will probably be the next stop. I
5:24
Speaker 3: think we're going to get there. But I like Andrew's
5:26
Speaker 3: observation and I share Andrew's observation to some degree. Whereas
5:31
Speaker 3: you think back a few decades, it was, you know,
5:34
Speaker 3: go and buy a home, work really hard to pay
5:36
Speaker 3: off the mortgage, and you'll probably live there for 50
5:39
Speaker 3: or so years. Where these days, I think people tend
5:43
Speaker 3: to be a bit more aspirational and and understand that
5:46
Speaker 3: we're going to buy this home, then I'm going to upgrade.
5:49
Speaker 3: I might upgrade a couple of times during my lifetime
5:52
Speaker 3: until I get to the location and type of property
5:55
Speaker 3: that I really want to occupy. And I think then
5:59
Speaker 3: the extension to that, James, is a downsizer strategy, which
6:03
Speaker 3: I think has a lot of merit. A downsizer strategy
6:07
Speaker 3: includes going and buying a family home in a location
6:10
Speaker 3: that you make friends with, probably that you're not going
6:13
Speaker 3: to ever repay the mortgage down to zero. You occupy
6:17
Speaker 3: that location when you have children that are going to
6:19
Speaker 3: school and you want close proximity work, all those sorts
6:22
Speaker 3: of things. And then you sell that asset, probably when
6:26
Speaker 3: the kids move out of home, reduce your debt, repay
6:29
Speaker 3: all your debt, go live somewhere else. And I like
6:33
Speaker 3: it because it forces you to buy a high-quality asset.
6:36
Speaker 3: You're not going to pay any capital gains tax on
6:38
Speaker 3: the growth over that asset. And to some degree, it's
6:41
Speaker 3: a forced savings mechanism.
6:43
Speaker 1: Right, at its best. When the people are using it
6:46
Speaker 1: sharply and smartly. Is there a logical end point here?
6:49
Speaker 1: Is there a point at which it gets ludicrous? I mean,
6:52
Speaker 1: if I'm 30 and I sign up for a 40-year mortgage,
6:55
Speaker 1: I mean, I'll be 70 when I, in theory, when
6:59
Speaker 1: I clear it. But you're saying you're thinking about the
7:01
Speaker 1: wrong way. You're saying you're not going to clear this.
7:04
Speaker 1: You're certainly not going to pay it down in this
7:06
Speaker 1: sort of gradual way for 40 years. That is not
7:11
Speaker 1: how to optimize these proposals, is that?
7:14
Speaker 2: What you're saying oh.
7:16
Speaker 3: Yeah i'm seeing more people a greater number of people
7:19
Speaker 3: thinking along those lines that okay i want to go
7:22
Speaker 3: and buy in this blue chip suburb the house is
7:24
Speaker 3: going to cost me a lot you know if all
7:26
Speaker 3: i did is put every cent towards repaying the mortgage
7:29
Speaker 3: maybe i'm going to get there but i know i
7:30
Speaker 3: want to invest in super and invest in other assets
7:34
Speaker 3: and i know i'm not going to need this big
7:35
Speaker 3: family home you know when i retire i don't need
7:37
Speaker 3: to be in that location anymore And there's significant lifestyle
7:42
Speaker 3: benefits to living in a prime location that is close
7:45
Speaker 3: to work and school and amenities, all these sorts of things.
7:49
Speaker 3: I just think that more people are going to be
7:51
Speaker 3: attracted to that. And the idea that I'm going to
7:54
Speaker 3: go and buy a home, repay the mortgage and live
7:56
Speaker 3: there for the next 50 years, I think that sort
7:58
Speaker 3: of situation is gone. It doesn't happen as much anymore.
8:01
Speaker 1: I suppose playing devil's advocate here, the danger is that
8:04
Speaker 1: someone says, oh, you know, we're struggling... We never save,
8:09
Speaker 1: as someone says, we never save. And we're struggling to
8:11
Speaker 1: pay our mortgage because, gosh, you know, there's three cars
8:15
Speaker 1: out there. They're all cost a bomb and whatever. The
8:18
Speaker 1: holiday home needs a new drain pipe or something.
8:22
Speaker 2: And then they find out, oh, you know what? You
8:23
Speaker 2: could just push your mortgage out.
8:25
Speaker 1: You could just, you know, it was supposed to be
8:27
Speaker 1: 30 years, but we can push it out to 40.
8:30
Speaker 1: And it's the classic kicking the can down the road.
8:32
Speaker 1: Is that the danger here that people will play it
8:34
Speaker 1: that way?
8:36
Speaker 3: You need to have a strategy. And you need to
8:38
Speaker 3: make friends with the worst outcome of that strategy. And
8:41
Speaker 3: the worst outcome of a downsizer strategy is that you
8:45
Speaker 3: have to sell the house when you don't really want to.
8:47
Speaker 3: And you have to move to a different area and
8:50
Speaker 3: you might not really want to at that particular time.
8:52
Speaker 3: But if you can make friends with that, if you
8:54
Speaker 3: can say, we might be forced to sell when we're
8:56
Speaker 3: 60 or 65 and we would like to reduce our
8:59
Speaker 3: working hours or retire in full. And we realize we
9:03
Speaker 3: might have to go into a regional area or regional town.
9:06
Speaker 3: but that might be the consequence of our desire to
9:10
Speaker 3: sort of live in this location while the kids are
9:12
Speaker 3: younger or young. I think just make friends with those outcomes.
9:15
Speaker 3: And if you can, if that's acceptable, if that's an
9:18
Speaker 3: acceptable outcome to you and you're willing to make that sacrifice,
9:20
Speaker 3: then great. But I think the people get into trouble
9:24
Speaker 3: when they don't make friends with that. And so then
9:26
Speaker 3: they try and force a result that might not be there.
9:29
Speaker 3: So if there's a change in income, change in situation,
9:32
Speaker 3: you have to sell before you need to, that's a
9:34
Speaker 3: consequence of this strategy. You just need to make friends
9:37
Speaker 3: with it. Be rational about it.
9:39
Speaker 2: Be rational, yeah.
9:40
Speaker 1: And have it as a strategy rather than a channel
9:42
Speaker 1: through which you can sort of kick obligations further and
9:44
Speaker 1: further away. Not that the banks will complain about that,
9:47
Speaker 1: but you might find it a problem.
9:49
Speaker 2: Okay, very interesting.
9:51
Speaker 1: This, of course, my friends, is advice. It's information only.
9:54
Speaker 1: But thank you, Andrew, and all the Andrews out there.
9:55
Speaker 1: I hope that that was useful to you. The next question,
9:58
Speaker 1: which I'll get sure to read is about digico and
10:02
Speaker 1: this is really interesting folks now this is where property
10:04
Speaker 1: and the share markets are a crossover or fuse if
10:07
Speaker 1: you like and we don't cover this as much as
10:10
Speaker 1: i'd like to but property listed property in the shape
10:15
Speaker 1: of property trusts or what they are now called as
10:18
Speaker 1: reits or eits It's a very interesting area. It's a
10:21
Speaker 1: way that you can invest in property, particularly property you
10:23
Speaker 1: might never have invested in. I mean, you're unlikely to
10:25
Speaker 1: buy an office block. Maybe you will, but it's unlikely.
10:28
Speaker 1: I imagine if you're a listener. Similarly, you're probably not
10:30
Speaker 1: going to buy a data center. So maybe we'd have
10:33
Speaker 1: the question from.
10:33
Speaker 2: George, George. Yeah, absolutely.
10:35
Speaker 3: So George writes, a newly established data center, Digico, is
10:40
Speaker 3: set to float on the ASX on the 12th of
10:42
Speaker 3: December 2024. With a capital raising of $ 2 billion, its
10:46
Speaker 3: build is one of the biggest floats in years. Given
10:49
Speaker 3: its anticipated market cap based on a $ 5 share price,
10:55
Speaker 3: the company is expected to be included in the ASX
10:57
Speaker 3: 200 index. The majority of issued shares will be to
11:02
Speaker 3: retail shareholders with an allocation to institutions having already closed
11:06
Speaker 3: over subscribed. On the basis, there should be additional demand
11:11
Speaker 3: from funds and ETFs index funds that replicate the ASX
11:15
Speaker 3: 200 index. Given this, do you think Digico will perform
11:20
Speaker 3: similarly to other large floats, such as Guzman and Gomez?
11:25
Speaker 3: Guzman's share price peaked at $ 42, up 90% from its
11:31
Speaker 3: $ 22 share price offer, only days after it was announced
11:35
Speaker 3: that Guzman would be included in the ASX 200 index.
11:39
Speaker 2: Yes, very interesting, George. All very interesting.
11:41
Speaker 1: Okay, a few things there before we get into some details.
11:45
Speaker 1: It probably doesn't make much sense to compare Guzman y
11:48
Speaker 1: Gomez to a property trust like this property trust, which
11:53
Speaker 1: is going to be the biggest float of the year,
11:54
Speaker 1: happening on Thursday, the 12th of December, not far away.
12:00
Speaker 1: Guzman y Gomez is a peculiar stock. It seems to
12:05
Speaker 1: be a perfectly fine business. I would almost separate the
12:07
Speaker 1: business from the stock, which is having a life of
12:10
Speaker 1: its own. And keep in mind that there is a
12:12
Speaker 1: very small number of what they call free shares out
12:16
Speaker 1: there on Guzman and Gomez. And when you have that,
12:19
Speaker 1: the share price can be very volatile and it can
12:21
Speaker 1: run up easier or run down easier. And it ran
12:24
Speaker 1: up very easily for that stock when it happened. Now,
12:28
Speaker 1: utterly separately to that, the REIT that you mentioned, Digico,
12:33
Speaker 1: is very interesting because it captures what we've been talking
12:36
Speaker 1: about on the show regularly for years, which is data centers,
12:40
Speaker 1: a boom area off the back of the explosion of
12:43
Speaker 1: data needs particularly aligned with the creation, if you like,
12:47
Speaker 1: of artificial intelligence on a mass scale. The man behind
12:52
Speaker 1: Digico is a guy called David de Pilla, who I
12:54
Speaker 1: expect will be a household name in a year or
12:57
Speaker 1: two if he keeps going at the pace he's going.
12:59
Speaker 2: He's a dealmaker.
13:00
Speaker 1: He was once upon a time, I think, with UBS.
13:02
Speaker 1: He's now out there on his own, backed by some
13:04
Speaker 1: very wealthy families and doing deals on a weekly basis
13:08
Speaker 1: across all sorts of areas. But this is one of
13:11
Speaker 1: his This may be his signature dealer, one of them,
13:13
Speaker 1: which is where he captured the excitement over data centers,
13:17
Speaker 1: bought a few of them, put them in a trust,
13:19
Speaker 1: put the trust up on the share market, and it's
13:21
Speaker 1: the biggest float of the year. I do expect it
13:23
Speaker 1: will do quite well. So we might talk, first of all,
13:26
Speaker 1: about that idea of getting into property, Stuart, through a trust.
13:31
Speaker 1: Do you see it as a completely different... If someone
13:34
Speaker 1: comes into you and says, I want to buy a property,
13:37
Speaker 1: do they ever end up buying a property trust?
13:42
Speaker 3: One of the great things with property, as in direct property,
13:45
Speaker 3: is control. You have control over the asset. You have control.
13:49
Speaker 1: You can't paint the data center that you're buying on
13:51
Speaker 1: the share market.
13:52
Speaker 2: Yeah.
13:53
Speaker 3: You can improve it. You know, you can assess its value,
13:57
Speaker 3: its intrinsic value. And, you know, that makes a lot
14:00
Speaker 3: of people comfortable that, you know, I'm going to pay
14:02
Speaker 3: a million dollars for this residential property or commercial property. And,
14:06
Speaker 3: you know, I'm pretty confident that it's worth a million dollars.
14:09
Speaker 3: Whereas with REITs, I mean, they can trade at premiums
14:12
Speaker 3: or discounts to net tangible assets. You've got to make
14:17
Speaker 3: some assumptions that the net tangible asset valuation is reasonable
14:21
Speaker 3: or realistic. And I mean, you can put a big
14:24
Speaker 3: sort of question mark there in some situations, and they
14:27
Speaker 3: behave more like an equity than property. So what happens,
14:31
Speaker 3: and we've seen this with REITs perfectly over the last
14:33
Speaker 3: couple of years, particularly Australian REITs, is that they fell
14:38
Speaker 3: a lot earlier than actual property valuations fell, commercial property
14:43
Speaker 3: valuations fell.
14:44
Speaker 2: So you're saying they behave like shares more than direct property?
14:47
Speaker 3: Because they move on expectations rather than actual fundamentals. Now,
14:52
Speaker 3: there's some pros and cons to that. I'd like to address,
14:54
Speaker 3: if I could, James, I mean, one of the observations
14:57
Speaker 3: that George shared in terms of indexes and the potential
15:02
Speaker 3: demand coming from indexes. So there's been a lot of
15:05
Speaker 3: work around this in terms of what they call index premiums.
15:10
Speaker 1: We might just say to people, just to give them
15:13
Speaker 1: a background on this, folks, it's like if a company
15:17
Speaker 1: gets so big that it enters the top 200, then
15:21
Speaker 1: the theory is, it's not a theory, it's a fact,
15:23
Speaker 1: all those index funds that are ASX 200 funds must
15:27
Speaker 1: buy the company, whether it's, does it matter whether it's good, bad,
15:30
Speaker 1: or hopeless.
15:31
Speaker 2: They must buy it.
15:32
Speaker 1: Now, Stuart, you're going to tell us about some research
15:35
Speaker 1: around this.
15:36
Speaker 3: Yes, exactly right. And so, of course, then the index
15:39
Speaker 3: providers announce, you know, two to four weeks before a
15:42
Speaker 3: company is added to an index that's going to happen.
15:45
Speaker 3: So the whole market knows that AK Vanguard and BetaShares
15:48
Speaker 3: and so forth has to go and buy this stock.
15:52
Speaker 3: So the research is that the stock appreciates by between 3%
15:55
Speaker 3: to 7%. sort of three weeks or so prior to
16:00
Speaker 3: being added to an index and loses 3% to 7%
16:04
Speaker 3: three weeks or so after being added to the index.
16:06
Speaker 3: And so the thesis is that index funds are overpaying
16:11
Speaker 3: for these stocks, which I guess in isolation is true. Actually,
16:15
Speaker 3: the index funds have got really smart around their trading strategies.
16:20
Speaker 3: And when BHP consolidated its listing, it was dual listed
16:25
Speaker 3: in London and the ASX, On the 28th of January,
16:29
Speaker 3: it became solely listed on the ASX. On that day,
16:33
Speaker 3: BHP went from 6.6 of the ASX 200 index to 11%.
16:39
Speaker 3: So essentially, the index funds had to buy a substantial
16:43
Speaker 3: amount of BHP on that day. In fact, on that day,
16:46
Speaker 3: over $ 15 billion of BHP was traded. It's huge. It's
16:50
Speaker 3: the biggest day, particularly in one stock on the ASX.
16:55
Speaker 3: But they didn't miss a beat. Vanguard were all over it.
16:58
Speaker 3: We had a conversation about it a few weeks ago.
17:01
Speaker 3: Sometimes people have shared concerns around these index funds are
17:07
Speaker 3: so big. How much trading are they doing? Do they
17:10
Speaker 3: affect the market? All these sorts of things. So I
17:13
Speaker 3: don't know. I wouldn't index arbitrage. I don't think I
17:16
Speaker 3: would be attracted to going buying this REIT just because
17:18
Speaker 3: it's going to be included in the ASX 200. But
17:22
Speaker 3: you've got to look at the fundamentals.
17:23
Speaker 2: Yes, very good.
17:24
Speaker 1: But really good question, George, and a very interesting area.
17:29
Speaker 1: And of course, David DePilla has put those two things together,
17:34
Speaker 1: the excitement around data centres, the attraction of property trusts
17:37
Speaker 1: at their best, And we'll find out just how good
17:41
Speaker 1: an idea it was on Thursday when he lists what's
17:44
Speaker 1: the biggest float of the year on the ASX.
17:46
Speaker 2: All right, back in a moment.
18:00
Speaker 1: Hello, welcome back to the Australian's Money Puzzle podcast. I'm
18:03
Speaker 1: James Kirby. We're talking to Stuart Weems today of the
18:06
Speaker 1: Pro Solution Private Clients Group. And I have taken the
18:10
Speaker 1: opportunity on this show basically to package up a lot
18:13
Speaker 1: of your questions because I want to not have many
18:18
Speaker 1: questions in the Christmas break. I'm sure you'd all like
18:21
Speaker 1: to have your questions finished. Like everything else, everybody wants
18:24
Speaker 1: to have everything done by Christmas for some reason, judging
18:26
Speaker 1: by the amount of sheer activity on my street this morning.
18:31
Speaker 1: I mean, there must have been someone working at every
18:32
Speaker 1: single house, seems to me, except mine.
18:37
Speaker 2: Okay. So we have a question from Simone. Now, Simone.
18:42
Speaker 1: Is very much in the nature of the type of
18:46
Speaker 1: question correspondent I mentioned earlier, who gave us an awful
18:50
Speaker 1: lot of detail. But I have narrowed it down. Stuart
18:54
Speaker 1: has read the whole thing, which will be useful. And
18:56
Speaker 1: I've narrowed it down to her question. And it's an
18:59
Speaker 1: interesting question. It's very specific in some ways, but also
19:03
Speaker 1: will be something that people come upon. Simone says, hi,
19:06
Speaker 1: I've been listening to the podcast since 2016. And I
19:10
Speaker 1: wonder if I may ask a question. Of course you may.
19:13
Speaker 1: You've been listening for eight years. That is really something.
19:16
Speaker 1: And thank you, Simone. She says, no one has a
19:18
Speaker 1: clear answer for this. I'm putting you on the spot here, Stuart.
19:21
Speaker 2: Here we go.
19:22
Speaker 1: For the purpose of Centrelink Aged Pension Asset Test, would
19:27
Speaker 1: adding an adult child name in joint tenancy to the
19:31
Speaker 1: title of our of the primary place of residence be
19:36
Speaker 1: deemed a gift. Okay, let's run through that again. In
19:41
Speaker 1: terms of accessing the pension, obviously, if she was to
19:44
Speaker 1: put an adult on the title of her primary place
19:47
Speaker 1: of residence, is that a gift? and secondly would it
19:51
Speaker 1: impact eligibility for a full pension i noticed for a
19:54
Speaker 1: full pension tricky question but people would have often thought
19:58
Speaker 1: about this i'm sure and it's a way i suppose
20:01
Speaker 1: of defending themselves long term in terms of asset security
20:04
Speaker 1: etc we are giving advice here it's to all the
20:07
Speaker 1: simones in the world what do you think stewart.
20:11
Speaker 3: Well, Centrelink obviously has an asset test to meet age
20:14
Speaker 3: pension limits, whether you get a full pension or part pension.
20:17
Speaker 3: And those asset limits are different for homeowners versus non-homeowners
20:22
Speaker 3: for single people. If you're a homeowner, you can have
20:25
Speaker 3: $ 314, 000 in addition to your family home. If you're a non-homeowner,
20:30
Speaker 3: you can have.
20:33
Speaker 2: $ 566, 000.
20:33
Speaker 3: Because you don't own a home, of course, you're going
20:35
Speaker 3: to have a little bit more cash in the bank, hopefully.
20:38
Speaker 3: In this situation, Simone talks about adding a joint tenant
20:43
Speaker 3: onto a title. I'm going to assume that she's not
20:46
Speaker 3: intimating that it's going to be sold, that that share
20:49
Speaker 3: is going to be sold for cash. Because if it's
20:50
Speaker 3: sold for cash, then it would add to the asset test.
20:54
Speaker 3: There's rules around gifting that limit or have an impact
20:59
Speaker 3: on the pension. So if you make a gift, that
21:01
Speaker 3: will be included in the asset base for that asset.
21:04
Speaker 2: Is there a threshold on that gift?
21:06
Speaker 3: Yeah, $ 10, 000 per year or $ 30, 000 over five years is
21:10
Speaker 3: the maximum you can give without it being added to
21:12
Speaker 3: the asset test. And so in this situation, if you
21:17
Speaker 3: were to essentially gift part of your home to a
21:21
Speaker 3: family member, that would be what's called a deprived asset
21:24
Speaker 3: and will be added to the asset test and reduce
21:28
Speaker 3: that person's ability potentially to get an age pension or
21:31
Speaker 3: part pension.
21:32
Speaker 2: Unless they keep the thresholds.
21:35
Speaker 3: Unless I keep below the threshold.
21:37
Speaker 2: Which isn't much in the value of a house. You'd
21:38
Speaker 2: be adding it for many years. Yeah, okay.
21:42
Speaker 3: $ 30, 000 over five years. It's not going to get you
21:43
Speaker 3: very far with property prices in Australia.
21:46
Speaker 2: Okay.
21:46
Speaker 3: So the planning opportunity is if you do it five
21:49
Speaker 3: years before you anticipate applying for an age pension. So
21:55
Speaker 3: if you could do it when you're 62 and then
21:58
Speaker 3: apply for the age pension at 67, Centrelink can only
22:02
Speaker 3: go back five years. So that would be the planning
22:05
Speaker 3: opportunity in this situation. And I guess the loophole they're
22:09
Speaker 3: trying to close, of course, is that if I've got
22:12
Speaker 3: a family home, I put my son on title, he
22:15
Speaker 3: owns 50%. And then I eventually sell the family home.
22:18
Speaker 3: Of course, he gets 50% of the proceeds. And I've
22:21
Speaker 3: therefore only get 50% of the proceeds and get a
22:24
Speaker 3: chance to remain below that asset test cap. So they're
22:28
Speaker 3: obviously trying to close that loophole because Simone made an observation, well,
22:32
Speaker 3: If the asset's not included for the asset test because
22:35
Speaker 3: it's an owner-occupied home, what's the issue here? But I
22:38
Speaker 3: think it's just trying to close that loophole to get
22:40
Speaker 3: around it. But I think, like everything, James, in finance,
22:44
Speaker 3: it's really about forward planning as much as you can
22:46
Speaker 3: possibly do to try and achieve the best outcomes.
22:50
Speaker 1: I hope that isn't frustrating for our listeners. But the
22:52
Speaker 1: five-year thing about Centrelink is very interesting. And for what
22:55
Speaker 1: it's worth, folks, the rules are the rules, right? So
22:57
Speaker 1: until they change, you are entitled to use them in
23:00
Speaker 1: any way that you can.
23:02
Speaker 2: Legitimately. All right. I hope that was useful, Simone. Distressed property.
23:07
Speaker 2: Would you read that question, Stuart?
23:09
Speaker 3: So the next question is from Jack James. Jack writes,
23:13
Speaker 3: there are reports of rises in distressed property sales. What's
23:17
Speaker 3: the definition of distressed property sale?
23:20
Speaker 2: Yes, SQM Research has done this.
23:22
Speaker 1: In fact, just like the person, our correspondent there, I
23:27
Speaker 1: had the same thing. I said, what is distressed property?
23:30
Speaker 2: You know, it's not like.
23:32
Speaker 1: There's a dictionary definition of it. So I actually went
23:35
Speaker 1: back to Louis, who said that they use a whole
23:38
Speaker 1: pile of variables to define a distressed listing beyond what
23:42
Speaker 1: you might expect. It's very obvious stuff. If somebody was
23:45
Speaker 1: bankrupt or facing insolvency, if they have a big sign
23:49
Speaker 1: plastered across the house saying must sell, that would fall
23:53
Speaker 1: into it.
23:53
Speaker 2: Deceased estates obviously must sell as well. So they're all
23:57
Speaker 2: distressed listings.
23:58
Speaker 1: He actually encompasses tag words and search words and all
24:02
Speaker 1: sorts of issues to get his particular own in-house definition,
24:06
Speaker 1: which is not a global definition, if you know what
24:08
Speaker 1: I mean. But it's certainly good enough, I thought, in
24:12
Speaker 1: the way he explained it to me. And it was
24:15
Speaker 1: really interesting. As you might expect, listeners, if you've listened
24:20
Speaker 1: to the show at all this year, Melbourne is the
24:23
Speaker 1: trouble spot in many ways, economically and certainly on health.
24:28
Speaker 2: House prices.
24:30
Speaker 1: It has the softest house price pattern in the nation.
24:34
Speaker 1: It has the weakest prices. Prices are falling by about 1%
24:37
Speaker 1: a month. And don't you know that the total of
24:42
Speaker 1: distressed properties in Melbourne lifted by 15.4% in the 12
24:46
Speaker 1: months to the start of November, while Sydney, which has
24:49
Speaker 1: had some bad months, was actually overall flat. And to
24:53
Speaker 1: be precise, most of that figure is apartments, and most
24:58
Speaker 1: of those apartments are in the inner city, which is
25:01
Speaker 1: something I would expect that you are not the slightest
25:04
Speaker 1: bit surprised.
25:04
Speaker 2: About, Stuart.
25:06
Speaker 3: Not really, but James, I mean, I think we have
25:10
Speaker 3: to sometimes separate research and reports that are... trying to
25:16
Speaker 3: find a headline versus what's actually going on and I
25:19
Speaker 3: think if I have a look at CBA which is
25:21
Speaker 3: the most recent lender to report annual results and the
25:24
Speaker 3: largest mortgage lender in Australia so I think it's a
25:27
Speaker 3: really good representation in its financial year 24 results reported
25:32
Speaker 3: a 28% fall in loan impairment expenses so that's actual
25:36
Speaker 3: bad debts or debts that are expected to go bad
25:39
Speaker 3: 90-day arrears arose, which is a good measure of how
25:43
Speaker 3: people are dealing with their mortgages. So it rose from 1.2%
25:48
Speaker 3: to 1.5%. Huge numbers. But of course, that's probably not
25:54
Speaker 3: unexpected given interest rates are at 13-year highs. And you'd
25:58
Speaker 3: have to go back to sort of pre-GFC levels to
26:01
Speaker 3: have higher interest rates than.
26:02
Speaker 1: What we've got today. If it rose from 1.2% to 1.5%,
26:05
Speaker 1: people might have no idea what that means at all.
26:07
Speaker 2: Is that like.
26:08
Speaker 1: Is that from nothing to nothing? Is it from small
26:11
Speaker 1: to significant?
26:12
Speaker 3: Look at 90-day arrears rates in the US, for example.
26:15
Speaker 3: They hover around 2.5%.
26:16
Speaker 1: And what would you think is a point at which
26:20
Speaker 1: the bell rings in our market?
26:22
Speaker 3: Maybe if it gets closer to the 2%, high 1%.
26:27
Speaker 3: I think it starts to look like people are distressed.
26:30
Speaker 3: But again, this is people that haven't defaulted. They're just
26:33
Speaker 3: behind in their repayments. And banks will work with these
26:36
Speaker 3: people to... find solutions and those solutions could include selling
26:40
Speaker 3: a property. A lot of times these situations include divorces
26:45
Speaker 3: and separations. People stop paying their mortgage in that situation.
26:48
Speaker 3: So there's a lot going on there and it's just
26:51
Speaker 3: not unexpected when we've come from interest rates of sub
26:54
Speaker 3: two to now interest rates in the sixes. I mean,
26:57
Speaker 3: you're going to expect a rise in 90 day arrears.
27:00
Speaker 3: So these distress listings and so forth, I mean, they're
27:03
Speaker 3: always going to exist. But is the mortgage market and
27:07
Speaker 3: the property market in a situation where people are fire
27:10
Speaker 3: selling assets? I don't think it's, you know, I think
27:14
Speaker 3: most people that are discretionary vendors probably wouldn't sell in
27:17
Speaker 3: this market. I think the people that are selling probably
27:20
Speaker 3: are doing so for a reason. But are they distressed? Yeah,
27:24
Speaker 3: I just don't know.
27:25
Speaker 1: Just throw the classic journalist question at you. which is,
27:28
Speaker 1: would you rule out, which was always one of my
27:30
Speaker 1: favorites when somebody was saying no, you say, would you
27:33
Speaker 1: rule out that there is distressed selling going on in
27:36
Speaker 1: the inner city of, particularly in Melbourne, where the market
27:40
Speaker 1: is weakest?
27:42
Speaker 3: No, I wouldn't rule it out. Most definitely, I wouldn't
27:44
Speaker 3: rule it out. And I think the longer interest rates
27:47
Speaker 3: remain at this level, I think we'll see more and
27:50
Speaker 3: more distress. But I mean, that's the whole point of
27:53
Speaker 3: raising interest rates is to create you know, a contraction
27:56
Speaker 3: in terms of monetary supply. And that at the fringes
28:00
Speaker 3: creates a lot more distress for some people than others.
28:03
Speaker 3: So I think we'll see more of it. But is
28:05
Speaker 3: it to the point where, you know, it's affecting the
28:08
Speaker 3: market as a whole? I mean, there might be sectors
28:11
Speaker 3: like inner city apartments. But it's a bit strange, these
28:14
Speaker 3: inner city apartments, because I remember reading, maybe you did
28:18
Speaker 3: some work on it, James, a few years ago about
28:20
Speaker 3: apartments really crashing when COVID hit. Then they had a
28:24
Speaker 3: pretty strong recovery because they were selling quite cheaply. And
28:27
Speaker 3: then now it looks like, you know, at least on
28:29
Speaker 3: the data, it looks like they might be selling cheaply again.
28:33
Speaker 3: Maybe these weren't great assets to begin with, and people
28:36
Speaker 3: just took some cheap money to buy what they thought
28:39
Speaker 3: was a bargain, but have now realized actually it's not
28:42
Speaker 3: a bargain. You know, it doesn't have the same amenity
28:46
Speaker 3: as living in a quiet suburb.
28:47
Speaker 2: Okay.
28:48
Speaker 1: And there is that issue always, of course, Jack, of
28:50
Speaker 1: endless supply, or at least, you know, The supply can,
28:54
Speaker 1: you know, you can't build 500 houses fast, but you
28:58
Speaker 1: can build 500 apartments relatively quickly most of the time.
29:03
Speaker 1: All right, we'll take a short break. Some very interesting
29:05
Speaker 1: questions from Sean and Adam on their way. Hello, welcome
29:24
Speaker 1: back to the Australian's Money Puzzle podcast. James Kirby with
29:27
Speaker 1: Stuart Weems and we are galloping through our build-up of questions,
29:32
Speaker 1: particularly for property issues and property-related issues which stretch as
29:37
Speaker 1: far as REITs and data centres, which we mentioned there earlier.
29:42
Speaker 1: The very interesting float, biggest float of the year coming up,
29:46
Speaker 1: which is a property float, don't you know, which is
29:48
Speaker 1: the Digico float. And I mentioned also in passing there
29:52
Speaker 1: the very, very interesting career of David DiPilla, D-I-P-I-L-A, who
29:58
Speaker 1: is emerging as something of a dealmaker extraordinaire on the
30:03
Speaker 1: national stage, you might say. And we haven't had dealmakers
30:08
Speaker 1: of that scale for a long time. And they can
30:10
Speaker 1: be very interesting if he keeps going, as I say,
30:13
Speaker 1: at the rate and speed he's going. Okay, we have
30:16
Speaker 1: a question which I think I read. Yes, Sean, S-H-A-U-N, Sean.
30:21
Speaker 1: Given there's plans for superannuation funds to give members limited
30:25
Speaker 1: financial advice... It prompts the question, why would this be limited?
30:29
Speaker 1: It seems reasonable to extend a person's holistic situation and
30:33
Speaker 1: an advisor of their choosing. Surely we now have enough
30:35
Speaker 1: confidence in the financial advice sector and we can put
30:38
Speaker 1: guardrails in place. No, Sean, we don't have enough confidence
30:42
Speaker 1: in the financial advice sector at all. I'd love to
30:46
Speaker 1: think we do, but we don't, Sean. So the big
30:48
Speaker 1: funds will get to offer limited advice. And I won't
30:53
Speaker 1: get into all the details around that, except that they
30:56
Speaker 1: will offer it and charged in the way they always
30:58
Speaker 1: charge for everything which is everyone pays the same and
31:01
Speaker 1: no one knows what they're getting for their money but
31:04
Speaker 1: maybe in highly limited circumstances where someone knows almost nothing
31:09
Speaker 1: and really needs some help and they only want a
31:12
Speaker 1: very limited piece of advice about their super then the
31:15
Speaker 1: super fund might well be useful and we really could
31:19
Speaker 1: see some improvement in the provision of financial services on
31:23
Speaker 1: a mass scale that's the best part of it After that,
31:28
Speaker 1: there's all sorts of issues. But certainly, I think in
31:32
Speaker 1: a way, it's almost impossible to expect a super fund
31:34
Speaker 1: to give full financial advice. Would a super fund ever say,
31:37
Speaker 1: if I went into, I won't mention any name, but
31:40
Speaker 1: if I went in and I said, I'm very happy
31:43
Speaker 1: with my performance with this fund.
31:44
Speaker 2: It's great.
31:45
Speaker 1: But, you know, I want to do a few things.
31:46
Speaker 1: I want to take a quarter of it out and
31:48
Speaker 1: buy an apartment down the road. And I want to
31:50
Speaker 1: take another quarter of it out and I want to
31:52
Speaker 1: buy some particular investments that you aren't doing. And I
31:56
Speaker 1: wish you were, but you're not. So I've got to
31:57
Speaker 1: take that out as well. Do you think the fund
31:59
Speaker 1: will say, yeah, that sounds like a good idea. Take
32:01
Speaker 1: half your money out of your fund.
32:03
Speaker 2: Off you go.
32:04
Speaker 1: Stuart?
32:05
Speaker 3: No, I don't think so. Not if you're a single
32:07
Speaker 3: product provider and these people are working for a single
32:11
Speaker 3: super fund. So, you know, it's a little bit like
32:14
Speaker 3: walking into a Ford dealership and asking, should I buy
32:17
Speaker 3: a Ford? What do you think their answer is going
32:18
Speaker 3: to be? So, I think the idea has merit. The
32:23
Speaker 3: idea is that if people have questions about super, and
32:26
Speaker 3: super is a very complex area of financial planning, we
32:31
Speaker 3: should have people there to be able to answer those
32:33
Speaker 3: questions and help those people. And at this stage, they
32:37
Speaker 3: can't do that because that's giving financial advice. So the
32:40
Speaker 3: government then thought, well, we're going to create this new
32:43
Speaker 3: type of advisor. Let's call them a qualified advisor. They
32:46
Speaker 3: haven't told us really what their education requirements will be,
32:49
Speaker 3: but it's going to be a lot less than a
32:51
Speaker 3: standard financial advisor that needs a bachelor's degree and does
32:55
Speaker 3: 40 hours of professional education, et cetera, per year. So
33:00
Speaker 3: they're not going to have that skill and experience, but
33:02
Speaker 3: let's help them answer some questions about maybe investment options,
33:06
Speaker 3: the insurance you have in super, maybe even the contributions
33:10
Speaker 3: you're making. And I think, I guess in some circumstances,
33:13
Speaker 3: they might be able to do that when people are
33:15
Speaker 3: kind of confused between concessional and non-concessional and div 293
33:19
Speaker 3: tax and all these sorts of things that said it's
33:21
Speaker 3: a complex area. I think it comes in the implementation though.
33:25
Speaker 3: And that's the key because if these people aren't well-trained
33:29
Speaker 3: and don't know where those guardrails are and don't know that, oh, look,
33:33
Speaker 3: I shouldn't be giving this advice because there's a whole
33:35
Speaker 3: bunch of questions I should be asking, but I can't
33:37
Speaker 3: ask because My advice scope is quite limited. It's going
33:42
Speaker 3: to be problematic, I think. It makes sense and people
33:46
Speaker 3: need to understand that if you're going to ask a
33:48
Speaker 3: question like, should I make additional super contributions? For me
33:52
Speaker 3: to answer that as a financial advisor, I need to
33:55
Speaker 3: know about your personal situation outside of super, what your
33:58
Speaker 3: cash flow looks like, what other assets you have, what
34:01
Speaker 3: your home mortgage is doing, what your longer term plan is.
34:04
Speaker 3: I can't in isolation go, oh, well, You'll get a
34:06
Speaker 3: tax deduction, so yeah, why not put some more money
34:09
Speaker 3: into super? That's not really advice. That's really just explaining
34:13
Speaker 3: how the legislation works and what the tax consequences are.
34:16
Speaker 3: So I think it's problematic. I like the idea, help people,
34:20
Speaker 3: because it's a complex area. How do you implement it
34:23
Speaker 3: is another big question, though.
34:25
Speaker 2: Okay, okay.
34:26
Speaker 1: I hope that was useful to you, Sean. There is
34:29
Speaker 1: this whole thing about what they call them. They shouldn't
34:31
Speaker 1: call them qualified advisors. That's absolute nonsense to call them that.
34:36
Speaker 1: in-house advisors might be a might be a fair description
34:39
Speaker 1: of what they are but of course there's a big
34:41
Speaker 1: game going on there because you know everyone wants to
34:44
Speaker 1: sound as good as they can don't they just like
34:46
Speaker 1: job titles all right final question is from adam and
34:50
Speaker 1: adam is a victorian-based property investor and guess what he's
34:56
Speaker 1: got a couple of issues okay.
34:57
Speaker 2: Do you want to read that one stewart Absolutely.
35:00
Speaker 3: So Adam writes, We bought land at the rear of
35:24
Speaker 3: our gardenless house to make a garden several years ago
35:28
Speaker 3: after buying the house and financed it with a different
35:30
Speaker 3: bank prior to the new tax. The principles of fairness
35:34
Speaker 3: would suggest the Victorian government should make this tax prospective
35:43
Speaker 3: and allow people to plan for their finances or apply
35:46
Speaker 3: for an exemption for personal gardens, garages, etc., which no
35:50
Speaker 3: one derives income from. I realise this may seem like
35:54
Speaker 3: a first world problem to those that are not affected,
35:56
Speaker 3: but the sizeable tax goes against the accepted principle of
36:01
Speaker 3: new taxes being prospective rather than respective. Is there any
36:06
Speaker 3: advice from you or your contacts may have?
36:09
Speaker 1: Okay, well, we don't have advice, Adam, but observations would
36:13
Speaker 1: be yes, of course. There is a tradition, though somewhat
36:17
Speaker 1: imperiled and under threat, if you like, that taxes should
36:21
Speaker 1: always be granted for the day. In other words, you
36:23
Speaker 1: don't get up one morning and find there's a tax
36:25
Speaker 1: and you're hit with it. You're given time to plan.
36:28
Speaker 1: And that has always been the case. And that was, again,
36:30
Speaker 1: another one of the problems that often comes up when
36:32
Speaker 1: they introduce a new tax. But then from the government's
36:35
Speaker 1: point of view, they say, if you introduce it fast
36:37
Speaker 1: on the night, you catch all the people you want
36:39
Speaker 1: to catch. And that's what I expect politically from a
36:44
Speaker 1: real politic point of view is what's going on. We
36:48
Speaker 1: won't talk about the highly individualized setting there, except to say,
36:54
Speaker 1: do you think that tax was the land tax in Victoria,
36:57
Speaker 1: which has caused a lot of problems, which has definitely
37:00
Speaker 1: drained confidence from the state because of its nature that
37:05
Speaker 1: it was a targeted property investor, property owner's tax? Do
37:10
Speaker 1: you think that particular one did actually fall the wrong
37:12
Speaker 1: side of the line in terms of procedural fairness as
37:15
Speaker 1: taxes go?
37:16
Speaker 3: This rule relates to contiguous land, which I've never come
37:21
Speaker 3: across that word, contiguous, but land that is adjoining your
37:26
Speaker 3: principal place of residence. It was called the tennis court tax, James.
37:29
Speaker 2: Yeah, right.
37:30
Speaker 3: And that's really what it was targeting. I guess people
37:32
Speaker 3: in Turak that bought next door and had a tennis court.
37:35
Speaker 1: I often wonder if no one ever played tennis on
37:38
Speaker 1: those courts.
37:39
Speaker 3: That's right. They do now, probably you get their money's worth.
37:43
Speaker 1: Yeah.
37:44
Speaker 3: And so from 1 January 2020, they started charging land
37:48
Speaker 3: tax in situations like that on metropolitan Melbourne only. So regional,
37:52
Speaker 3: that's fine if you've got land that adjoins your home
37:56
Speaker 3: on a separate title that doesn't have another dwelling and
37:58
Speaker 3: it's used for domestic purposes, you're still okay. Of course,
38:02
Speaker 3: the Victorian government wants to raise taxes and the quickest
38:05
Speaker 3: way to do that is implement it yesterday. And don't
38:08
Speaker 3: give people an opportunity to plan around these things. I
38:11
Speaker 3: think with these sorts of changes, yeah, it makes sense
38:14
Speaker 3: if you are going to allow them to combine the titles,
38:18
Speaker 3: because that's one way to obviously circumvent it. Give them
38:21
Speaker 3: time in order to do that, including refinances. So, I mean,
38:26
Speaker 3: Adam mentioned that his land is financed by two banks.
38:30
Speaker 3: It shouldn't be a big deal to combine those titles.
38:33
Speaker 3: You will have to refinance with one of those banks
38:35
Speaker 3: or another one, in fact. But it should be easy
38:38
Speaker 3: to sort of clean that up and therefore avoid the
38:41
Speaker 3: land tax. But people need time in order to do that.
38:45
Speaker 3: But I think that's probably the government's idea. If you
38:47
Speaker 3: don't give them time to sort themselves out, at least
38:50
Speaker 3: you'll be able to charge them land tax for at
38:52
Speaker 3: least one year, maybe two, before they come to terms
38:55
Speaker 3: with it.
38:56
Speaker 1: Yes, which is what I was alluding to, I think,
38:58
Speaker 1: there when I was saying the political part of this is,
39:01
Speaker 1: you know, to.
39:02
Speaker 2: Grab as much as you can. All right. OK, very good.
39:04
Speaker 2: Not advice, of course.
39:06
Speaker 1: Observation and information for Adam and all the Adams out there.
39:09
Speaker 2: Terrific. Great to talk to you, Stuart Weems. Lovely to
39:12
Speaker 2: have you on the show as usual.
39:13
Speaker 3: Thanks, James. It's been fun as always. Great questions.
39:16
Speaker 1: We'll have you back in the new year and look
39:19
Speaker 1: forward to talking to you again and look forward to
39:21
Speaker 1: having lots of questions, folks.
39:23
Speaker 2: Keep them rolling.
39:23
Speaker 1: The Money Puzzle at the australian.com.au today's show was produced
39:27
Speaker 1: by leah samuel glue talk to you soon