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Investors derailed! Hard lessons from Sydney Metro · The Money Puzzle

0:10
Speaker 1: Hello and welcome to the Australians Money Puzzle podcast. I'm
0:13
Speaker 1: James Kirkby. Welcome aboard everybody. Now today we're going to
0:16
Speaker 1: cover some very interesting issues. Rates obviously look like they're
0:21
Speaker 1: going to come down. That's very important to all of
0:22
Speaker 1: us property investors and property investing is the theme of
0:26
Speaker 1: course today being Tuesday. Later in the week, on Thursday,
0:30
Speaker 1: I will do a full because there's been lots of
0:32
Speaker 1: questions coming in from you guys, full review of what
0:36
Speaker 1: a final picture is on super tax and especially obviously
0:40
Speaker 1: as how that affects you as a property investor, but
0:44
Speaker 1: as a general investor as well, So we'll get across
0:46
Speaker 1: all that on Thursday today. However, do you fancy yourself
0:49
Speaker 1: as a shrewd operator that can pick a patch of
0:53
Speaker 1: property that's going to bounce in the future, And it
0:56
Speaker 1: would be entirely rational if you were to perhaps look
1:00
Speaker 1: at the great infrastructure projects that are a foot around
1:04
Speaker 1: the nation, even just to think of rail or metro ones.
1:07
Speaker 1: You've got that extension of the Gold Coast light rail
1:10
Speaker 1: you might be looking at. You might be looking at
1:12
Speaker 1: the very ambitious Melbourne metro project due to open New
1:15
Speaker 1: Year's Eve. They say, let's put a few more months
1:17
Speaker 1: on that, but next year I would think, really, Melbourne
1:20
Speaker 1: Metro whole pilot, new suburbs linked in ways they were
1:23
Speaker 1: never linked in before. You would think that is a
1:26
Speaker 1: license to make money for property investors. But here's an
1:28
Speaker 1: interesting thing I guess today is Tim Lawless, head of
1:32
Speaker 1: research at Cautality Cutality, you probably know better as core Logic.
1:35
Speaker 1: It's changed its name of late. He's just done a
1:38
Speaker 1: really interesting deep dive into the Sydney Metro line thirty
1:44
Speaker 1: kilometer line if you remember, from Chatswood to banks Down
1:48
Speaker 1: thirty kilometers if you like, laid out for the robber
1:52
Speaker 1: barons to make their profits. And you would think that
1:55
Speaker 1: those suburbs on those lines are doing great, right because
1:58
Speaker 1: it opened last year. And here's the thing, Tim discovered
2:03
Speaker 1: that every one of those suburbs on that line is
2:06
Speaker 1: is not doing as well as the average Sydney suburb.
2:09
Speaker 1: Go figure, how are you?
2:10
Speaker 2: Tim good a James, thanks to the invitation to join
2:13
Speaker 2: you today.
2:13
Speaker 1: What prompted you to look at how the suburbs around
2:17
Speaker 1: the Sydney Metro were performing. Were you of the opinion
2:21
Speaker 1: that you're setting out to prove how weather were going,
2:24
Speaker 1: or were you suspiciously that they might not be going
2:27
Speaker 1: as well as the general public might reasonably assume.
2:30
Speaker 2: Well, the whole idea of doing this analysis was it
2:34
Speaker 2: was the one year anniversary of the second things of
2:36
Speaker 2: the metro opening up, so Phase two that opened up
2:40
Speaker 2: in August twenty twenty four and that ran from Chatswood
2:43
Speaker 2: to Sydenham. I thought it was just interesting looking at
2:47
Speaker 2: twelve months on what's happened, and of course if for
2:50
Speaker 2: anyone's that's not familiar with the Sydney Metro, it was
2:52
Speaker 2: over two phases, the first phase which ran from Talawang,
2:56
Speaker 2: the Chatswood that's gottening sort of the Hills district mostly
3:00
Speaker 2: that opened up quite a while back. It was way
3:02
Speaker 2: back in May twenty nineteen, and then we saw the
3:05
Speaker 2: face Who open up. So I did speculate that market
3:08
Speaker 2: has probably underperformed, just because I'm tracking the trends all
3:12
Speaker 2: the time and I can see really clearly the markets
3:15
Speaker 2: that are really the strongest around Sydney tend to be
3:17
Speaker 2: around the out of West, which have generally much lower
3:20
Speaker 2: price tag and that's where we're seeing mainstream demand being deflected,
3:25
Speaker 2: mostly because serviceability is quite challenging across a really expensive
3:29
Speaker 2: market like Sydney. So to your point, James, it's really
3:33
Speaker 2: clear that the catchment along the Sydney Metro line we've
3:35
Speaker 2: looked at say one kilometer from the new metro stations
3:39
Speaker 2: and five kilometers and then just comparing it back to
3:41
Speaker 2: the broader Sydney average. The broader Sydney average, just to
3:45
Speaker 2: give you a bit of a benchmark, over the past
3:47
Speaker 2: two years, is up eight percent in terms of value growth.
3:51
Speaker 2: We saw the Phase one catchments have increased about three
3:54
Speaker 2: point six percent in that twenty four month period and
3:58
Speaker 2: the Phase two catchments are up about five point two percent,
4:02
Speaker 2: So a pretty clear underperformance, but from a relatively high base.
4:06
Speaker 2: I mean, the right generally much more expensive.
4:08
Speaker 1: So there's two things obviously of interest here. One is
4:12
Speaker 1: this story inside Sydney. I always say it's counter intuitive,
4:15
Speaker 1: but maybe it is for some people. They'd say, oh, right, okay,
4:18
Speaker 1: you know, all those sobows are going to thrive, they've
4:21
Speaker 1: got new stations, people get into the city faster than
4:24
Speaker 1: they had previously. But your research shows beyond doubt that
4:31
Speaker 1: you would have been better off in recent times in
4:34
Speaker 1: Sydney owning a property anywhere but on those lines.
4:38
Speaker 2: Right, well, yeah, okay, there are other areas that have
4:41
Speaker 2: shared a performance, like if you look around Sydney, some
4:44
Speaker 2: of the more affluent areas like the eastern suburbs, the
4:47
Speaker 2: lower north Shore, the Northern Beaches, that an even softer
4:50
Speaker 2: performance or a softer growth dot come and I think
4:53
Speaker 2: the real reflection of just the affordability challenges and maybe
4:56
Speaker 2: more and more rightly the service ability challenges that have
5:00
Speaker 2: I'm very evident, particularly lender is still assess a borrower
5:03
Speaker 2: at a three percentage point with a three percentage point buffer.
5:07
Speaker 2: It does seem that demand is very much being deflected
5:10
Speaker 2: towards the lower quartal.
5:12
Speaker 3: Of the market.
5:12
Speaker 1: So the rate was highly important here. The higher rates
5:16
Speaker 1: that we've experienced in recent years are highly important. But
5:19
Speaker 1: what if I said to you, so, what does it
5:21
Speaker 1: tell us? This is the thing? I mean, if it's
5:23
Speaker 1: the case that the people who bought on those metro regions,
5:29
Speaker 1: particularly investors, if it's the case that over the last
5:33
Speaker 1: two years they would have been better off in other
5:35
Speaker 1: regions Beyond the lines like is it a once off
5:38
Speaker 1: Sydney story or I don't know the history. Is it
5:41
Speaker 1: the case that people were in much much earlier speculating,
5:44
Speaker 1: if you like, and buying an advance along those lines.
5:47
Speaker 2: Yeah, this is a really important distinction, and it's really
5:50
Speaker 2: clear when you go back historically and you look at
5:52
Speaker 2: say when these projects were first announced, which was way
5:56
Speaker 2: back in twenty twelve, that the first phase was announced
6:00
Speaker 2: and it commenced back in twenty thirteen, it's really clear
6:04
Speaker 2: that the suburbs along that catchment well and truly outperformed
6:07
Speaker 2: the broader Sydney average. And I think to your point, James,
6:11
Speaker 2: that was probably the speculative outcome where we did see
6:15
Speaker 2: a lot of people getting into that marketplace well before
6:19
Speaker 2: Phase one it opened and before Phase two was even
6:22
Speaker 2: really announced, So I think there was an early phase
6:24
Speaker 2: of growth and that kind of pushed prices up to
6:27
Speaker 2: provide quite a premium for those suburbs along the Metro catchment.
6:31
Speaker 2: And then we've seen a bunch of other things happen
6:33
Speaker 2: around interest rates going up from the middle of twenty
6:35
Speaker 2: twenty two, and affordability challenges becoming a lot worse, and this,
6:39
Speaker 2: as I've said before, this real deflection of demand towards
6:42
Speaker 2: the more affordable end of the marketplace.
6:45
Speaker 1: Yeah, I didn't know that. I did assume that might
6:49
Speaker 1: be the case. So it's way back that basically investors
6:53
Speaker 1: made money on these areas. It was in the announcement
6:59
Speaker 1: and pull announcements phase, even though the risk was there,
7:02
Speaker 1: I suppose that these projects might never get done, or
7:05
Speaker 1: at the very least they would be very late in
7:07
Speaker 1: coming through. Now, one thing is when if you do
7:12
Speaker 1: know those parts of Sydney that jumped after the announcement
7:16
Speaker 1: and in the early phases of this big metro project
7:19
Speaker 1: at that time, were they doing better than the city average?
7:22
Speaker 3: Yeah? Absolutely, And it doesn't really work for the podcast.
7:25
Speaker 2: But if you look at the graphs and the report,
7:27
Speaker 2: which you're going to look at it on our website,
7:29
Speaker 2: it's really clear. We just tracked prices historically over the
7:32
Speaker 2: past twenty years or so, and there is this really
7:34
Speaker 2: clear anomaly where values did rise a lot more substantially
7:38
Speaker 2: than the broader Sydney average in that phase one catchment.
7:41
Speaker 2: And I think that's probably quite intuitive when you think
7:44
Speaker 2: about investors, they probably are looking to get in early
7:47
Speaker 2: to ride that wave of capital growth. But of course
7:50
Speaker 2: I just say that there is a risk to that
7:52
Speaker 2: that some of these major infrastructure projects they don't go
7:55
Speaker 2: ahead they take a lot longer, they have massive cost
7:57
Speaker 2: blowout as we know, so there is a bit of risk,
8:00
Speaker 2: which I think is all. I mean, that's that's the
8:02
Speaker 2: thought of investing, isn't it.
8:04
Speaker 1: It is. I'm just thinking if you had been gambling
8:06
Speaker 1: as such that you were going to make some money
8:08
Speaker 1: by the airport link, for instance, in Malbourne, well I
8:11
Speaker 1: could take a lifetime really before before that comes to pass.
8:14
Speaker 1: And because it remains unclear, it probably remains a speculation
8:19
Speaker 1: at this point whether that's ever Actually, that's so much
8:23
Speaker 1: that's ever going to be done. Everything gets done eventually,
8:25
Speaker 1: but like you know, will it be done, will be
8:26
Speaker 1: done when you and I are still around? That's the
8:29
Speaker 1: question too.
8:30
Speaker 3: Yeah, I think.
8:31
Speaker 2: I mean the Melbourne Metro, which is, as you said
8:33
Speaker 2: in the introduction, James, that's due to be opened either
8:36
Speaker 2: late this year, early next year, sometime around there. It's
8:39
Speaker 2: a much smaller project compared to the Sydney Metro, spent
8:42
Speaker 2: buying kilometers of track, a couple of tunnels, five stations,
8:45
Speaker 2: but it'll be really interesting to see how that pans out.
8:48
Speaker 3: We haven't seen the same.
8:49
Speaker 2: Level of a speculative response in Melbourne like what we
8:52
Speaker 2: saw early in the case of Sydney, and we know
8:55
Speaker 2: that Melbourne's been quite a softer market overall through the
8:58
Speaker 2: past five years, so it'll be interesting to see if
9:01
Speaker 2: there is a bit of a jump once the new
9:03
Speaker 2: Metro Melbourne does open up. Given the fact that price
9:06
Speaker 2: points are actually pretty low, I don't think we're going
9:08
Speaker 2: to see the same affordability barriers that we've seen in
9:12
Speaker 2: Sydney that have probably been a big part of the
9:14
Speaker 2: underperformance around the Sydney Metro. And then, as you say,
9:18
Speaker 2: this project has a long way to go, expanding into
9:20
Speaker 2: the suburban.
9:21
Speaker 3: Rail loop and the Airport Link.
9:23
Speaker 2: There's a lot of discussion around whether or not this
9:25
Speaker 2: is money well spent in Melbourne.
9:27
Speaker 1: Right, really interesting. I'm going to come back. We're going
9:29
Speaker 1: to come back after the break and we're going to
9:31
Speaker 1: look at whether the Sydney story is a one off
9:34
Speaker 1: or not. Back in a moment. Hello, Welcome back to
9:45
Speaker 1: The Australian's Money Puzzle podcast. James Kirby here with Tim
9:48
Speaker 1: Lawless of Cautality, head of Research. That's the property research
9:52
Speaker 1: group previously known as core Logic. Okay, Tim, the hot seat,
9:57
Speaker 1: So you mentioned how the Melbourne Metro U certainly alluding
10:02
Speaker 1: to the fact that it could be different than Sydney,
10:05
Speaker 1: because the's a couple of things right. First of all,
10:06
Speaker 1: the prices are in absolutely trans cheaper. First of all,
10:09
Speaker 1: by that they're more accessible. But also isn't it the
10:12
Speaker 1: case that we're in a part of the interstrate cycle
10:16
Speaker 1: that we should see more cuts. So that would suggest
10:21
Speaker 1: that maybe the Melbourne story, and I'd like to deal
10:25
Speaker 1: with the Gold Coast as well, but the Melbourne story
10:27
Speaker 1: might be different. What do you think?
10:29
Speaker 3: Yeah, I think Melbourne could be different.
10:30
Speaker 2: And when you look at the historical trends, big infrastructure
10:34
Speaker 2: projects and large amounts of capital investment generally have led
10:39
Speaker 2: capital growth or at least been the catalyst for capital
10:41
Speaker 2: growth and housing markets. I mean, you can look at
10:44
Speaker 2: any number of projects around the country historically, be it
10:47
Speaker 2: big transport projects like the M one connecting Brisbane of
10:50
Speaker 2: the Gold Coast, or the major gas projects in Wa
10:53
Speaker 2: and the NT really drove employment and investor activity as well.
10:59
Speaker 2: So I think the Sydney Metro case is quite the anomaly,
11:02
Speaker 2: the fact that we did see a major investment in
11:04
Speaker 2: capital flow coming to a big project that hasn't really
11:07
Speaker 2: driven prices higher. So Yeah, I think Melbourne is probably
11:11
Speaker 2: going to be a market that will stick with the
11:13
Speaker 2: trends and we'll probably will see some further growth along
11:16
Speaker 2: that those transport investment projects.
11:18
Speaker 1: Can I just ask before before we go in something
11:21
Speaker 1: things I do want to break down. Did you expect
11:23
Speaker 1: as an experienced researcher that the Sydney metro suburbs that
11:29
Speaker 1: have lags the market, did you expect it they would
11:31
Speaker 1: at least keep up with the market in their first
11:33
Speaker 1: years post opening.
11:36
Speaker 3: Well, that's a good question.
11:37
Speaker 2: I'm not sure how to answer, because I look at
11:40
Speaker 2: the trends and it was really clear even before I
11:42
Speaker 2: run the numbers that the metro catchments were going to
11:45
Speaker 2: underperform the Sydney market because I could see that where
11:48
Speaker 2: the growth was very much headed. But if I came
11:51
Speaker 2: into this completely naive, absolutely, I'd be very surprised that
11:55
Speaker 2: the metro markets underperformed the broader Sydney average. Given productivity improvement,
12:00
Speaker 2: the improvements to commutability and liveability, there's a lot of
12:02
Speaker 2: amenity along the metro line. All those sort of things
12:06
Speaker 2: that a typical investor would be looking for should have
12:08
Speaker 2: driven fro the rate of gain.
12:10
Speaker 1: And then you said about Melbourne. You said, we haven't
12:12
Speaker 1: seen the speculative action there that we saw equivalent in
12:16
Speaker 1: those Sydney suburbs. That's very interesting. Can you tell us
12:19
Speaker 1: any more about that?
12:21
Speaker 2: Well, yeah, I think most of your listeners would be aware.
12:23
Speaker 2: Melbourne's been sort of flying under the investment radar for
12:26
Speaker 2: some time now, or it's been disincentivizing investment activity through
12:31
Speaker 2: a whole bunch of things like higher taxes, that there's
12:34
Speaker 2: been demographic trends up until recently as well. So Melbourne
12:39
Speaker 2: is simply hasn't seen the level of investment demand that
12:41
Speaker 2: we've seen in other really strong markets. But we're starting
12:44
Speaker 2: to see some early signs that is changing, you know,
12:47
Speaker 2: interstate migrations coming back into positive territory. We're seeing more
12:51
Speaker 2: and more positive media headlines that investors are targeting Melbourne
12:55
Speaker 2: now because of the low purchase price that strongly yields,
12:58
Speaker 2: and probably an outlook for meeting the long term stronger
13:00
Speaker 2: capital gains as well.
13:02
Speaker 3: So all those things I suppose added.
13:04
Speaker 2: Up tell me that those suburbs along that the Melbourne
13:07
Speaker 2: Metro and maybe broadly the rail loop are going to
13:11
Speaker 2: be fairly reasonable investment options, right. I think the Sydney
13:16
Speaker 2: example is probably a bit of an anomaly.
13:18
Speaker 1: It's interesting that you say that, and just looking across
13:22
Speaker 1: you mentioned that the Sydney one to say you're starting
13:24
Speaker 1: to say that it's anomalous, which is so shouldn't you
13:27
Speaker 1: would think it shouldn't be repeated. What did you think
13:29
Speaker 1: of the theory that the net migration numbers has turned
13:33
Speaker 1: positive in Melbourne at last. But there's a working theory
13:37
Speaker 1: slash joke that it's because not as many are leaving
13:41
Speaker 1: because they can't afford the suburbs they used to go to,
13:46
Speaker 1: particularly in Queensland. The numbers actually suggest that there's less departures.
13:51
Speaker 3: Yeah.
13:51
Speaker 2: Absolutely, they do show that there's definitely more people coming
13:54
Speaker 2: back as well, and a bit of a boomerang after
13:56
Speaker 2: the pandemic.
13:57
Speaker 3: And I mean, here's some context, James.
14:00
Speaker 2: If you look at the difference between Sydney and Melbourne prices,
14:03
Speaker 2: it's about a fifty four percent different in the median value.
14:06
Speaker 2: We haven't seen a gap that wide since about nineteen
14:09
Speaker 2: ninety nine. So I think that's reflective of both Sydney
14:12
Speaker 2: being extraordinarily expensive, maybe overvalued, but Melbourne being undervalued and
14:17
Speaker 2: a real opportunity. I think Ultimately we will see those
14:20
Speaker 2: two markets rebalancing a little bit, and that'll be driven
14:24
Speaker 2: by Sydney showing maybe a flatter market over the medium
14:27
Speaker 2: the long term and Melbourne picking up just to narrow
14:30
Speaker 2: that gap.
14:30
Speaker 1: Nineteen ninety nine, of course, for those of you who
14:33
Speaker 1: can remember, and perhaps some of you were not even born,
14:37
Speaker 1: but nineteen ninety nine of course was the super peak
14:40
Speaker 1: of the Olympic run up. That's not an event, that's
14:44
Speaker 1: a property issue. Basically, Sydney prices went bananas in the
14:48
Speaker 1: run up two two thousand and the Olympics were on
14:50
Speaker 1: in two thousand and then, if I recalled him, they
14:52
Speaker 1: drifted for quite a few years and to a mid
14:55
Speaker 1: two two or five, two or six.
14:58
Speaker 2: Yeah, well, well Sydney went for an extra ordinary growth run.
15:01
Speaker 2: It actually pecks in two and two thousand and three,
15:03
Speaker 2: and then it went through a period of just where
15:06
Speaker 2: Sydney prices were flat right, and that was a real
15:09
Speaker 2: catch up.
15:09
Speaker 3: For the market. Sydney again, I think it probably.
15:12
Speaker 2: Just overshot the mark of what you might describe as
15:14
Speaker 2: fair value and it languished for a long time. I
15:17
Speaker 2: wasn't really until about twenty and twelve, well, two thousand
15:21
Speaker 2: and nine after the GFC we saw a pretty decent
15:23
Speaker 2: bounce from first home buyers twenty twelve to twenty seventeen.
15:27
Speaker 2: It was a real change for Sydney and that's where
15:29
Speaker 2: price is really rocketed.
15:31
Speaker 1: So it kept going right past the Olympics for a
15:34
Speaker 1: year or two. It kept going after the Olympics. Do
15:36
Speaker 1: you think I'm just thinking up loud, but about Brisbane
15:39
Speaker 1: do you think they might have a similar performance.
15:42
Speaker 2: Well, Brisbane's a really strong market and a big part
15:45
Speaker 2: of that absolutely is just strength of the economy, really
15:48
Speaker 2: strong migration rates from inter state and of course all
15:51
Speaker 2: the big infrastructure projects that they've got a pretty hard
15:54
Speaker 2: due date that I don't think we'll see Brisbane canceling
15:57
Speaker 2: the Olympics game. It's going to go ahead. We need
16:01
Speaker 2: to build the stadiums, we need to build the roads
16:03
Speaker 2: and the infrastructure, and it's going to happen by a
16:06
Speaker 2: certain date. We can already see some of the retric
16:08
Speaker 2: coming out of the Queensland government about you know, the
16:11
Speaker 2: language is what we're going to be stealing workers from
16:13
Speaker 2: other states and that type of thing.
16:14
Speaker 3: Right, So, yeah, without a doubt that.
16:17
Speaker 2: This is going to be a market that I think
16:18
Speaker 2: overperforms over the coming years as we see the strong
16:22
Speaker 2: economic conditions and strong migration fueling that market, albeit against
16:26
Speaker 2: a backdrop of affordability. That's it's nowhere near as as
16:29
Speaker 2: expensive as Sydney. But it's a lot more expensive than
16:33
Speaker 2: Melbourne now.
16:34
Speaker 1: Yes it is, and whether Melbourne will ever catch it,
16:37
Speaker 1: we don't know. Interesting you say about the about not
16:40
Speaker 1: that Melbourne was expected to catch up with Sydney, but
16:42
Speaker 1: as you say, the price differential is that its widest.
16:45
Speaker 1: I got this right since nineteen ninety nine. It's a
16:47
Speaker 1: long time ago. Yeah, that's right again.
16:50
Speaker 2: Yeah, I think logically, given this is Australia's second largest
16:53
Speaker 2: capital city, it's got a very diverse and large economy,
16:56
Speaker 2: it's got migration coming back.
16:58
Speaker 3: Yeah, I think there will be a rebalance. It's hard
17:00
Speaker 3: to say to see.
17:01
Speaker 2: Melbourne overtaking Sydney from a pricing perspective, and maybe even
17:05
Speaker 2: Brisbane's seen a structural change. But I think Melbourne at
17:09
Speaker 2: the moment is quite undervalued.
17:11
Speaker 1: Okay, just before we go to the break, I did
17:13
Speaker 1: want to ask you about rates. The theory at least
17:17
Speaker 1: the market's not just theory, but the pricing and the
17:19
Speaker 1: money markets now is likelihood seventy percent likelihood, up from
17:22
Speaker 1: about thirty five percent likelihood that we will have a
17:25
Speaker 1: red cut on Melbourne Top Day. Where do you think
17:28
Speaker 1: we are on the rate cycle.
17:30
Speaker 2: Mate, I think we're getting pretty close to the bottom
17:33
Speaker 2: of the cycle. If we see another rate cut in November,
17:36
Speaker 2: I mean, that's the great news, but I mean that
17:39
Speaker 2: the financial markets are jumping around. There's a lot of
17:42
Speaker 2: volatility here as the data flows come through. It was
17:45
Speaker 2: only a couple of weeks ago there was hardly any
17:48
Speaker 2: chance we'd see a November rate cut, given the high
17:50
Speaker 2: inflation indicator we saw for August, with the relatively soft
17:55
Speaker 2: labor market out come for September. I think his driven
17:57
Speaker 2: Reneeds speculation we'll see a November eighth cut, But if
18:01
Speaker 2: we do see a cut in November, that kind of
18:03
Speaker 2: probably means we may not see one early next year either.
18:06
Speaker 2: So it sounds like the RBA is probably getting pretty
18:09
Speaker 2: close to what they might describe as a neutral rate.
18:11
Speaker 2: If we get down around that sort of three point
18:13
Speaker 2: three percent mark for the cash rate, I don't think
18:15
Speaker 2: that the cycle's got much further to go than that.
18:18
Speaker 1: And so our listeners should be aware that if you're
18:20
Speaker 1: getting a mortgage or an investment mortgage. Perhaps we're getting
18:25
Speaker 1: close to as low as they're going to go as well.
18:27
Speaker 2: Obviously, Yeah, we're definitely hearing a lot more talk about
18:31
Speaker 2: whether or not to fix at the moment as well.
18:34
Speaker 1: Haven't her to talk about fixing for a long time.
18:37
Speaker 2: You can definitely rate sort of lower than variable rates
18:41
Speaker 2: by more than twenty five basis points. So yeah, I
18:44
Speaker 2: think more people are starting to do the numbers and
18:46
Speaker 2: weighing up the pros and cons.
18:48
Speaker 1: Yes, very interesting. Okay, have you any way of is
18:52
Speaker 1: that anecdotal or have you any way of quantifying.
18:55
Speaker 2: That anecdotal at the moment? James, So definitely observing, observing
19:00
Speaker 2: the market and listening to the people that they.
19:02
Speaker 3: Travel around the country. So it'll be interesting to set.
19:05
Speaker 2: I mean that the housing finance data from the ABS,
19:07
Speaker 2: it's pretty lumpy, I think comes out quarterly. Now we're
19:10
Speaker 2: looking at June quarter now, so hopefully the September quarter
19:13
Speaker 2: data gives us a little bit more really tangible evidence.
19:16
Speaker 1: So keep that in mind, folks. We may welcome back
19:18
Speaker 1: to that in some form about fixing. It's been a
19:20
Speaker 1: long time since people were fixing because it's been a
19:23
Speaker 1: fair wire since the start of this cutting cycle. But
19:25
Speaker 1: of course logically, if as Tim says, we're coming to
19:28
Speaker 1: the end of the cutting cycle, well then it's going
19:31
Speaker 1: to stall, and then it's going to history. Was suggest
19:33
Speaker 1: goes back up again, and if you fixed at the
19:35
Speaker 1: right time, of course you could have a real competitive advantage.
19:39
Speaker 1: We'll be back to that, Okay, back in the moment
19:41
Speaker 1: with some questions. Hello, welcome back to The Australian's Money
19:49
Speaker 1: Puzzle podcast. I'm James Kirby and we're talking property today.
19:54
Speaker 1: It's a Tuesday, of course. Now Tim Lawless is with
19:58
Speaker 1: us from Cautality. He's been on before or I'm sure
20:00
Speaker 1: you know, Tim, very experienced doyen of the property research world.
20:06
Speaker 1: There's a male and a female doyen. Did you know
20:07
Speaker 1: that you're a doyen with an E N and then
20:10
Speaker 1: the female one is E nn E. You'd be a
20:12
Speaker 1: doyen after very careful how I pronounced that I got
20:14
Speaker 1: it wrong one time and I was corrected by one
20:16
Speaker 1: of our listeners. You see they're very quick. This is Billy.
20:20
Speaker 1: I love the podcast is Billy, but I must lament
20:23
Speaker 1: lament your recent characterization that land tax is a tax
20:26
Speaker 1: on realize gains. This is not correct and it muddies
20:31
Speaker 1: the water, and by the lengthpece correspondence from him on that,
20:35
Speaker 1: but he wraps up by saying property investors should be
20:38
Speaker 1: marching in the streets to protest that they are being
20:41
Speaker 1: charged both transaction taxes such as stamp duty and an
20:44
Speaker 1: acid tax such as land tax, as well as income
20:49
Speaker 1: tax on earnings and capital gains. And obviously overhanging all
20:53
Speaker 1: this is the new supertax. So just to clarify, and
20:56
Speaker 1: I say, we will come to this properly on Thursday,
20:59
Speaker 1: but there has almost concluded. He's last and hopefully final
21:04
Speaker 1: shape of the super tax, which basically means that over
21:08
Speaker 1: three million, it's a new fifteen percent tax. It goes
21:12
Speaker 1: higher again as you go through the ranks, but the
21:15
Speaker 1: main one for most people most of the time, over
21:18
Speaker 1: ten million, obviously it goes higher again. But the main
21:20
Speaker 1: one for most of our listeners to be aware of
21:23
Speaker 1: is that once you have earnings on assets over three million,
21:26
Speaker 1: that tax is going to double from fifteen percent to thirty.
21:29
Speaker 1: If you recall, there is a it kicks in or
21:32
Speaker 1: tax on super kicks in at the moment at two
21:36
Speaker 1: and from July one. Next year, you'll find that it
21:40
Speaker 1: doubles over three. That's the bad news. The good news
21:43
Speaker 1: is that it's not on realized gains. It's on actual
21:47
Speaker 1: changes to prices as opposed to theoretical or paper prices.
21:51
Speaker 1: That's the big one. And he also clarified a since
21:53
Speaker 1: on capital gains in a very messy way because there
21:57
Speaker 1: was no official statement coming out from Jims and drabs,
21:59
Speaker 1: but it seems on capital gains. Capital gains will be
22:01
Speaker 1: as we might have hopefully assumed. It will be applied
22:04
Speaker 1: pro rata in the way that it always has in
22:07
Speaker 1: super on large amounts or high wealth amounts, and they
22:11
Speaker 1: will be proportionate to the new taxes. What did you
22:13
Speaker 1: think of it all, Tim? Where do we stand now?
22:16
Speaker 3: Yeah?
22:16
Speaker 2: I mean, at least this crazy talk of unrealized capital
22:19
Speaker 2: gains is taking off the table. I think the reality James,
22:22
Speaker 2: I mean, who has a superannuation find of more than
22:24
Speaker 2: three million dollars. It's a pretty small component of the
22:27
Speaker 2: Australian population and so I think it's very relevant for
22:31
Speaker 2: those very high high end wealth savers. But overall it's
22:36
Speaker 2: going to get some certainty at the very least, and
22:38
Speaker 2: I think fair enough. Tax reform is going to be
22:41
Speaker 2: on the agenda, but some of the suggestions personally, I
22:44
Speaker 2: was finding quite difficult to reconcile.
22:47
Speaker 1: Yes, I think that was the issue. I mean, people
22:49
Speaker 1: who would never have three million are never going to have.
22:53
Speaker 1: Didn't like the idea of unrealized gains because that's a
22:55
Speaker 1: whole new bowl game and really on paper evaluations. You know,
23:00
Speaker 1: if anyone who's a regular investor knows what you make
23:03
Speaker 1: on paper unless you sell it, you know, Tim, I
23:07
Speaker 1: can evaporate before your eyes. Which leads us to a
23:10
Speaker 1: question from Jim, which is where are and how do
23:13
Speaker 1: all the people achieving three million superbalance in this new
23:17
Speaker 1: tax It's certainly not the low average or middle income
23:21
Speaker 1: of Australian says Jim. Yeah, no, absolutely, I mean we're
23:26
Speaker 1: talking the average superbalances in the two the three hundred
23:29
Speaker 1: thousand area, so a median, I should say, so, so
23:33
Speaker 1: miles away from three million. For what it's worth, there's
23:36
Speaker 1: eighty thousand people who will be affected with the earnings
23:39
Speaker 1: over three million. It's not as much as it sounds
23:44
Speaker 1: by that. I mean, if you're living off the income,
23:47
Speaker 1: let's say you had that in a very low yielding
23:49
Speaker 1: property or cash. Well, you know, the amount you would
23:52
Speaker 1: make per year is not is really not an awful
23:54
Speaker 1: lot on low yielding, very conservative investments. And I think
23:59
Speaker 1: this was the outrage if you like, about that could
24:01
Speaker 1: be applied to unrealized gains. At least now it is
24:04
Speaker 1: actual realize gains. And hopefully they will stick with that,
24:07
Speaker 1: and they will stick with what they've said, and they
24:09
Speaker 1: will get through parliament, which is always a risk. You
24:12
Speaker 1: would think it would flow through parliament. We don't know
24:14
Speaker 1: till it does. It didn't get through before. There's still
24:18
Speaker 1: some residual concerns that the Greens will not cooperate because
24:21
Speaker 1: they wanted that new tax where the tax doubles in
24:25
Speaker 1: super from fifteen to thirty percent on earnings on amounts
24:28
Speaker 1: above three million. They wanted that to be two million.
24:31
Speaker 1: We'll see where it goes from here or to be
24:33
Speaker 1: played out. Okay, Hey, Tim Lawlers, thank you very much.
24:36
Speaker 1: Very interesting, I must say, really caught my eye. Great
24:39
Speaker 1: that you go off and do pieces of work like that.
24:42
Speaker 1: You get a notion, you figure it out and sometimes
24:44
Speaker 1: you get a surprise. Certainly that was very interesting on Sydney,
24:47
Speaker 1: So thanks Tim. Hope to have you on again.
24:49
Speaker 3: Many thanks James.
24:50
Speaker 1: That was Tim Lowless, folks head of research at Cautality.
24:53
Speaker 1: Always interesting and someone with a piglhicopter view on the market,
24:57
Speaker 1: which we love. Okay, let's have some more correspondence the
25:00
Speaker 1: Money Puzzle at the Australian dot com dot au. Talk
25:04
Speaker 1: to you soon.