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A golden age for the apartment investor? · The Money Puzzle

0:14
Speaker 1: Hello and welcome to The Australian's Money Puzzle Podcast. I'm
0:17
Speaker 1: James Kirby, the Wealth Editor at The Australian. Welcome aboard, everybody.
0:21
Speaker 1: Interesting week for property investors, homebuyers too. You might have
0:25
Speaker 1: seen the budget. You say, well, I didn't see much
0:27
Speaker 1: in the budget for homebuyers, and we will be talking
0:30
Speaker 1: about that in a moment. You might have seen the
0:32
Speaker 1: budget reply from Peter Dutton. Budget replies don't normally carry
0:37
Speaker 1: much news, I find, but this year, of course, he's
0:41
Speaker 1: reiterated And expanded to some extent on the coalition's plan,
0:46
Speaker 1: which would be to allow people to use their super
0:48
Speaker 1: to buy their first home, up to $ 50, 000. That is
0:51
Speaker 1: a controversial policy. I wonder what you think of that.
0:55
Speaker 1: I have to tell you that I think it would
0:58
Speaker 1: be very successful. For the simple reason that the tax
1:02
Speaker 1: system is utterly loaded in favor of homeowners. And I
1:08
Speaker 1: think people, if they don't know that, they will gradually
1:11
Speaker 1: get to know that. if they are potential home buyers.
1:14
Speaker 1: Another theme which is really starting to get going this
1:17
Speaker 1: year is that units and townhouses are looking better by
1:20
Speaker 1: the day against standalone properties. And that is a reversal
1:24
Speaker 1: of what we've seen for recent years. I'm going to
1:26
Speaker 1: talk about that with my guest, Terry Ryder of Hotspotting.
1:31
Speaker 1: He's been on before. How are you, Terry?
1:33
Speaker 2: Very well, James. And like you, very interested in what's
1:37
Speaker 2: in the budget and also what's not in the budget.
1:40
Speaker 1: Is there something in the budget I failed to notice, Terry?
1:45
Speaker 2: No, I think I've been reading what you've been writing
1:47
Speaker 2: about it, James, and I think you've picked up on
1:49
Speaker 2: most of the major issues that are included in the budget.
1:53
Speaker 2: From our perspective, it's what's not there that's probably most significant,
1:58
Speaker 2: particularly dealing with the rental shortage short term.
2:02
Speaker 1: Was there something outstanding you thought they are in a
2:06
Speaker 1: position to do that they didn't do?
2:09
Speaker 2: Well, yeah, I mean, the reality is that over 90%
2:12
Speaker 2: of the homes that people rent in this country are
2:15
Speaker 2: provided by private investors, often referred to as mum and
2:18
Speaker 2: dad investors, not big corporations, not government, who have been
2:22
Speaker 2: underfunding social housing for many years. And private investors have
2:29
Speaker 2: been increasingly, little by little, dropping out of the market
2:33
Speaker 2: in recent years. They're not present in the numbers that
2:36
Speaker 2: we need to provide a balanced market, vacancies around 3%,
2:40
Speaker 2: for example. And there are reasons for that. They've been demonised, disincentivised,
2:46
Speaker 2: little by little, steadily over the last five or six years.
2:50
Speaker 2: And that needs to be reversed. Otherwise, we're going to
2:52
Speaker 2: continue to have this slow drift of people out of
2:56
Speaker 2: property investment. And that begs the question.
2:58
Speaker 1: To be fair to them, they did put enormous money,
3:00
Speaker 1: $ 6 billion in the latest cut, into social housing. Does that,
3:05
Speaker 1: in its way, reduce.
3:07
Speaker 1: Pressure on vacancy rates ultimately?
3:09
Speaker 2: Well, my reading of it, and I think I was
3:12
Speaker 2: reading what various people have analysed in terms of what's
3:16
Speaker 2: in the budget, $ 6 billion towards dealing with the housing shortage,
3:22
Speaker 2: some of which going into social housing, some of which
3:25
Speaker 2: is going into infrastructure, a lot of which is going
3:27
Speaker 2: into a handout to people to subsidise their rents. Big
3:32
Speaker 2: numbers nationally, but for the individual, quite small numbers. We'll
3:37
Speaker 2: make a small difference, but not a great difference. It
3:39
Speaker 2: doesn't deal with the core issue. The core issue is
3:42
Speaker 2: really the shortage of landlords in this country. That's what
3:46
Speaker 2: we have a chronic undersupply of, and that's not addressed. Politicians,
3:53
Speaker 2: certain politicians anyway, have been rather demonising landlords and private
3:59
Speaker 2: investors as the villains of the peace. They're actually not
4:02
Speaker 2: the problem. They're the solution. and that's not addressed in
4:04
Speaker 2: this budget.
4:05
Speaker 1: Okay, I hear you loud and clear. Tell me about
4:09
Speaker 1: the idea of people being allowed to use super for
4:12
Speaker 1: buying their first home. Do you think it would work?
4:14
Speaker 1: If it worked, what difference would it make to the
4:16
Speaker 1: property market?
4:18
Speaker 2: Look, I mean, it will work to the extent that
4:22
Speaker 2: it will help people get into the market, you know,
4:24
Speaker 2: to provide perhaps a deposit that those struggling as renters
4:28
Speaker 2: paying higher and higher rentals, in the current circumstances to
4:33
Speaker 2: accumulate a sufficient deposit to get into the market. So
4:36
Speaker 2: in the short term, it can have a positive impact.
4:38
Speaker 2: I don't agree with, there's always a chorus of people
4:41
Speaker 2: who spring up in the media when there's suggestion of
4:47
Speaker 2: giving some help to first home buyers, whether it's grants
4:50
Speaker 2: or this measure allowing them to use this, but that
4:52
Speaker 2: will just inflate prices. I don't think there's any evidence
4:55
Speaker 2: that that's true. And I don't think that'll be the case.
4:58
Speaker 2: It will give people a helping hand and get people
5:01
Speaker 2: the assistance they need perhaps to get that deposit together
5:05
Speaker 2: and get into the market.
5:07
Speaker 1: I suppose economists would probably argue with you that they
5:10
Speaker 1: do lift prices, that if you stimulate, in any way,
5:14
Speaker 1: if you give them access even to their super, which
5:16
Speaker 1: is their own money, but even so, in doing so,
5:20
Speaker 1: they have more to bid, right? They have more money
5:22
Speaker 1: when they stand at the auction on a Saturday morning
5:23
Speaker 1: so they can push up prices.
5:26
Speaker 2: But I don't think... I think that factor is overstated.
5:30
Speaker 2: I don't think people can just bid up prices. It's
5:34
Speaker 2: often said that investors go to auctions and bid up prices.
5:38
Speaker 2: In actual fact, I think there's a competition between an
5:41
Speaker 2: investor and a first-home buyer, and they're the same age
5:45
Speaker 2: and they have the same incomes. The first-home buyer actually
5:47
Speaker 2: has a considerable advantage over the investor in terms of
5:50
Speaker 2: it's all about borrowing capacity and just how much you
5:52
Speaker 2: can afford to pay. You can't just keep bidding up prices.
5:55
Speaker 2: You're limited by... your borrowing capacity and how much you
5:58
Speaker 2: can afford to pay. And because investors pay higher interest
6:02
Speaker 2: rates and because they don't have government grants and they
6:05
Speaker 2: pay higher rates of stamp duty, higher everything really, council rates, insurances,
6:10
Speaker 2: the lot, they're actually at a competitive disadvantage to first-home
6:14
Speaker 2: buyers if they're standing side-by-side at an auction.
6:18
Speaker 1: Yes, that's very interesting. I mean, yes, I see where
6:21
Speaker 1: you're coming from. And if they're a self-managed super fund investor,
6:24
Speaker 1: they're at a significant disadvantage. In terms of their costs,
6:29
Speaker 1: not to mention the lending rates that are forced upon
6:31
Speaker 1: them in the market. Okay, that's a very interesting point.
6:34
Speaker 1: I just want to move on to a larger notion,
6:37
Speaker 1: which I know you've really been picking up of late,
6:40
Speaker 1: which is, and you call it a new paradigm. So
6:42
Speaker 1: I'd love you to explain to our audience who are
6:45
Speaker 1: active investors, what you're saying about the changing nature of
6:50
Speaker 1: the post-COVID market in relation to units versus houses or
6:54
Speaker 1: apartments versus houses.
6:56
Speaker 2: Yeah, well, for as long as I've been doing what
6:58
Speaker 2: I'm doing, researching and writing about real estate, over 40
7:02
Speaker 2: years now, it's always been considered the rule of thumb
7:06
Speaker 2: in real estate that houses on land provide better capital
7:09
Speaker 2: growth and apartments. And if you look at the historical data,
7:12
Speaker 2: that's supported by the numbers. What we're saying is that's
7:15
Speaker 2: starting to change. And in some locations, many locations around Australia,
7:18
Speaker 2: it has changed. So we're coming across more and more
7:22
Speaker 2: instances now where we're looking at the numbers for apartments
7:26
Speaker 2: and the numbers for houses in the same suburb or
7:28
Speaker 2: the same town. And we're seeing that in the past
7:30
Speaker 2: 12 months or the 10-year growth averages, apartments increasingly are
7:35
Speaker 2: actually outperforming. And we're really interested in this trend. We've
7:41
Speaker 2: been charting it for the last, say, 12 months or so.
7:44
Speaker 2: It became quite strongly evident in the second half of
7:48
Speaker 2: 2023 and it's continued in 2024, increasingly so. It's not
7:53
Speaker 2: just about affordability, although that's part of it, because obviously
7:58
Speaker 2: apartments in the same suburb are considerably cheaper than houses
8:03
Speaker 2: in most instances. It's also about lifestyle. There are actually
8:07
Speaker 2: quite a number of buying cohorts that are increasingly opting
8:11
Speaker 2: for what you might call attached dwellings versus detached dwellings.
8:16
Speaker 2: And so we've got people downsizing, older people downsizing, young
8:22
Speaker 2: people trying to get into the market affordably. We've got
8:25
Speaker 2: buyers who just simply like that low maintenance, lock up
8:29
Speaker 2: and leave lifestyle. We've got lots of migrants coming from
8:33
Speaker 2: countries where attached dwellings are the norm. They're comfortable with
8:37
Speaker 2: that style of living. And there's another factor I think
8:40
Speaker 2: is increasingly evident, and we're hearing more and more about
8:43
Speaker 2: this from developers of apartments, that is the safety issue.
8:47
Speaker 2: Safety is becoming increasingly an issue, particularly for older people.
8:51
Speaker 2: There's so much media about crime on the streets, knife attacks,
8:58
Speaker 2: all sorts of stories about violence. And people are perhaps
9:04
Speaker 2: feeling increasingly not safe on the ground floor in a
9:09
Speaker 2: suburban home. They feel a lot safer on the 10th
9:13
Speaker 2: or 15th floor of a secure modern apartment building. And
9:16
Speaker 2: that's becoming a big factor. driving demand increasingly towards apartments.
9:21
Speaker 1: Well, that's interesting. I wasn't aware of that. What I'm
9:24
Speaker 1: hearing when you tell me about these suburbs where the
9:27
Speaker 1: apartments are doing better in recent times, per square metre,
9:32
Speaker 1: if you like, over the standalone homes, it's not the
9:37
Speaker 1: majority of suburbs just yet, is it? Is it just
9:39
Speaker 1: select pockets?
9:40
Speaker 2: No, I couldn't say it's the majority of suburbs. What
9:42
Speaker 2: we would say is that increasingly we're coming across instances
9:46
Speaker 2: where In various ways, apartments are outperforming. In some cases,
9:53
Speaker 2: on all the metrics, it might be that in the
9:56
Speaker 2: past 12 months, the median price for apartments has grown
9:59
Speaker 2: more than for houses. On the 10-year growth average, apartments
10:02
Speaker 2: are more. Obviously, rental yields would tend to be higher,
10:06
Speaker 2: although there are additional costs, of course, with apartment owners.
10:11
Speaker 2: But also days on market are very often considerably shorter.
10:17
Speaker 2: We're seeing examples of that popping up. particularly in the
10:21
Speaker 2: more expensive markets. So affordability is a factor, obviously. So
10:24
Speaker 2: we're seeing instances in Sydney, we're seeing instances in Melbourne,
10:27
Speaker 2: a lot of suburb examples in Brisbane, and some of
10:31
Speaker 2: the more expensive and popular and large regional cities, particularly
10:36
Speaker 2: the Gold Coast and the Sunshine Coast. I mean, for example,
10:40
Speaker 2: in Noosa Heads, Apartments are expensive there as well as houses.
10:45
Speaker 2: The 10-year growth average for houses is very good, 9.5%
10:49
Speaker 2: per year, according to the CoreLogic figures, but apartments are
10:54
Speaker 2: close to 15% per year.
10:57
Speaker 1: Is that so? Isn't that interesting? Now, the economist in
11:00
Speaker 1: me says, is this like a reversion to the mean?
11:04
Speaker 1: Is this just that the houses ran too hot and
11:07
Speaker 1: the apartments are now catching up?
11:09
Speaker 2: Look, I think it's more that there are, more and
11:12
Speaker 2: more by cohorts who are choosing apartments. And it's the
11:16
Speaker 2: weight of demand from growing numbers of people opting for
11:20
Speaker 2: attached dwellings that is causing price performance to improve. It's
11:25
Speaker 2: always been felt that the land content is the big
11:28
Speaker 2: factor in driving price growth. I've never been totally sure
11:33
Speaker 2: that that's true. And increasingly, we're seeing examples where that's
11:36
Speaker 2: been contradicted.
11:38
Speaker 1: But that means it's a hell of a lot more
11:40
Speaker 1: than a... then some sort of temporary reversion to the
11:42
Speaker 1: mean then, isn't it? It's like a structural change in
11:44
Speaker 1: the nature of the market.
11:45
Speaker 2: Well, that's why we're calling it a paradigm shift because
11:47
Speaker 2: the dominant paradigm has always been that houses have outperformed.
11:51
Speaker 2: But we're seeing more and more instances where it is
11:54
Speaker 2: being contradicted. And so we're saying a new paradigm is
11:58
Speaker 2: in play because it's not just the last 12 months
12:01
Speaker 2: we're seeing superior performance in more and more suburbs, but
12:04
Speaker 2: it's the 10-year growth averages. Now, Surface Paradise, the iconic,
12:10
Speaker 2: Gold Coast market where median price for houses is close
12:15
Speaker 2: to $ 2 million, whereas the median price for apartments is
12:19
Speaker 2: a tick over $ 600, 000. The 10-year growth averages for both
12:22
Speaker 2: are good, 8% for houses, but 10.8% for apartments. And
12:26
Speaker 2: of course, the yields are infinitely better, only 2.8% median
12:30
Speaker 2: yield for houses in Surfers Paradise, but 5.3% for apartments.
12:34
Speaker 2: And those on markets are much shorter for apartments in
12:38
Speaker 2: that market. Now, historically, Surfers Paradise Apartments have been terrible
12:43
Speaker 2: performers up until, say, three years ago.
12:45
Speaker 1: You beat me to it.
12:48
Speaker 2: Yeah, yeah.
12:49
Speaker 1: Because they can keep building them, right?
12:52
Speaker 2: But you see, that's one of the things that's changed.
12:54
Speaker 2: Many of the big high-rise apartment developments in Surfers Paradise
12:58
Speaker 2: and elsewhere on the Gold Coast that might otherwise have
13:00
Speaker 2: been built have not been built because they just don't
13:03
Speaker 2: stack up financially with the cost structures as they now exist.
13:08
Speaker 2: And I'm having conversations with major developers who are saying
13:12
Speaker 2: things to me like, look, because the cost of building
13:16
Speaker 2: these buildings have grown so much and because we have
13:19
Speaker 2: shortages of tradespeople and materials, it's not feasible for us
13:24
Speaker 2: to build a high-rise apartment unless we can sell all
13:27
Speaker 2: the apartments for at least $ 1 million. So if it's
13:32
Speaker 2: not a market where we can sell apartments for $ 1
13:34
Speaker 2: to $ 1. 5 million, it's not viable to build it. So
13:39
Speaker 2: a lot of the big high-rise projects on the Gold
13:42
Speaker 2: Coast have been deferred or scrapped. So we have the
13:45
Speaker 2: opposite problem to that traditional boom-bust thing that we used
13:48
Speaker 2: to see on the Gold Coast because they built too
13:50
Speaker 2: much high-rise. Now we've got a shortage, and it's not
13:54
Speaker 2: something that can be turned around quickly. So we're starting
13:57
Speaker 2: to see rising demand for and improving projects price performance
14:03
Speaker 2: for apartments. And one of the things, of course, that
14:05
Speaker 2: apartments in these markets can offer that houses on land
14:08
Speaker 2: generally can't, not always, but as a rule of thumb,
14:12
Speaker 2: apartments have view. And that's a big factor, perhaps, in
14:15
Speaker 2: deriving demand and therefore capital growth.
14:16
Speaker 1: Gee, that's really interesting. I mean, you're talking like you're
14:22
Speaker 1: laying out a scenario which is like a looming golden
14:25
Speaker 1: age for the apartment investor. Am I getting carried away there?
14:28
Speaker 2: No, no. I think that's a fair assessment because... You know,
14:32
Speaker 2: it answers so many of the things that people are
14:35
Speaker 2: looking for. It answers affordability, relative affordability, superior rental yields
14:40
Speaker 2: in times of higher interest rates, and we're increasingly seeing
14:47
Speaker 2: really good capital growth performance. So it's sort of ticking
14:50
Speaker 2: all the boxes for more investors. And, of course, low maintenance,
14:56
Speaker 2: provided that you– bought in a building that has a
15:00
Speaker 2: track record of low maintenance because, you know, one of
15:03
Speaker 2: the issues with apartments, of course, is that so many
15:05
Speaker 2: defects are coming to light. And it seems to me
15:08
Speaker 2: that the ideal apartment investment is not a new one,
15:11
Speaker 2: not an off-the-plan apartment purchase, but something that's established in
15:17
Speaker 2: a good location, perhaps a little bit more boutique rather
15:21
Speaker 2: than a 30- or 40-storey high-rise apartment. That kind of
15:25
Speaker 2: apartment in, say, an inner suburb of the inner west
15:29
Speaker 2: of Sydney or some of the inner suburbs of Melbourne
15:33
Speaker 2: and also Brisbane could be the way to go.
15:37
Speaker 1: Gee, that's really interesting. And as you say, the thing
15:40
Speaker 1: is that the factors you outline behind this aren't going
15:44
Speaker 1: to change anytime soon. They're quite established.
15:51
Speaker 2: That's right. Well, we've got this problem of shortage. The
15:55
Speaker 2: recent federal budget has made some commitments and repeated some
15:59
Speaker 2: earlier published ones to generate construction, they hope, of a
16:05
Speaker 2: certain number of dwellings over the next five years. But
16:06
Speaker 2: that's a longer-term solution and one which the building industry
16:12
Speaker 2: continually argues they can't deliver on because of all the
16:15
Speaker 2: structural problems within the dwelling construction industry at the moment,
16:19
Speaker 2: shortages of everything, builders going broke. It seems like it's...
16:24
Speaker 2: a target that cannot realistically be achieved. So in the
16:28
Speaker 2: short term, we're going to continue to have shortages of
16:31
Speaker 2: dwellings generally, but in particular, shortages of dwellings for rental.
16:36
Speaker 2: And that's the big problem.
16:38
Speaker 1: Gee, that's fascinating. So, folks, I may say that is
16:41
Speaker 1: something that is a really fresh piece of insight from
16:43
Speaker 1: Terry there. It's always been that thing, you know, that
16:46
Speaker 1: the apartment market would take a Docklands in Melbourne or
16:50
Speaker 1: South Bank in Melbourne, you think of Alexandria area. in Sydney,
16:56
Speaker 1: many other parts of Sydney, along the river in Brisbane.
16:58
Speaker 1: Every time the apartments start to come right, the developers
17:01
Speaker 1: come in, they build many more apartments. They're able to
17:05
Speaker 1: do that. But as Terry's outlining, economically, that is not
17:08
Speaker 1: stacking up for them now. And that means it's a
17:12
Speaker 1: different investment climate and scenario for apartments. It's a very
17:17
Speaker 1: interesting rationale for apartment investing that we haven't had for
17:21
Speaker 1: quite some time.
17:22
Speaker 2: And I think.
17:23
Speaker 1: this could really be significant if you are an active investor.
17:27
Speaker 1: All right, we will leave it there for the moment
17:29
Speaker 1: with that very interesting observation from Terry. We'll take a
17:32
Speaker 1: break and we will be back with some very interesting
17:33
Speaker 1: property questions. Hello, welcome back to the Australian's Money Puzzle Podcast.
17:40
Speaker 1: James Kirby, Wealth Editor at The Australian, talking to Terry
17:43
Speaker 1: Ryder of Hotspotting. Hotspotting, of course, a very established organization
17:47
Speaker 1: that Terry's been running for some years and he is
17:49
Speaker 1: an expert on locales, if you like, across the property
17:54
Speaker 1: market and what's happening in different spots, which is exactly
17:56
Speaker 1: what we've been talking about. Okay, question from Steven. Noting
18:00
Speaker 1: the existence of property restricted to older people, is it
18:04
Speaker 1: time that we have a certain location or properties that
18:08
Speaker 1: are restricted to those aged 20 to 35 instead? The
18:11
Speaker 1: idea would be that subsidized living is provided for younger
18:14
Speaker 1: folk where they try to build up their own deposit.
18:17
Speaker 1: to purchase when they are 35 plus. I only smile, Stephen,
18:22
Speaker 1: because it's such a novel, radical idea. Whatever the opposite
18:27
Speaker 1: of an old folks village would be, a young folks village.
18:31
Speaker 1: I won't say it's utopian, but it's ambitious. What do
18:38
Speaker 1: you think, Terry?
18:39
Speaker 2: Yeah, yeah, ambitious, definitely. I mean, there are specific reasons
18:44
Speaker 2: why we have... developments specifically for older people. And those
18:51
Speaker 2: arguments don't necessarily apply to younger people. They can plonk
18:54
Speaker 2: themselves anywhere that they like the lifestyle or can afford
18:58
Speaker 2: the rents or the buying prices. I'm not quite sure
19:03
Speaker 2: how that would work. Is he suggesting that perhaps there's
19:06
Speaker 2: some kind of subsidy He is. Yes, indeed. Yes.
19:09
Speaker 1: Subsidized living is provided for the younger folk. I it's
19:15
Speaker 1: such a novel idea, Stephen, that that will will will
19:18
Speaker 1: just leave it out there for the for the listeners
19:20
Speaker 1: to ponder. And thank you very much. I love these
19:24
Speaker 1: creative ideas that often come through from from the listeners. Okay, Russell. Russell, this,
19:30
Speaker 1: by the way, is slightly off beam here. But Russell
19:32
Speaker 1: wants to make a point. The standard Australian passport at
19:35
Speaker 1: $ 346 is one of the most expensive in the world.
19:38
Speaker 1: The second most expensive in the world. Trailing only Liechtenstein.
19:44
Speaker 1: And he complains in various ways about that. And here's
19:47
Speaker 1: an interesting thing. In the budget line... week, among the measures, many,
19:52
Speaker 1: many measures, as I say, there's always interesting things if
19:54
Speaker 1: you borrow through the budget. They introduced a new facility
19:59
Speaker 1: for passports. They did not reduce the passport price. I'm afraid, Russell,
20:03
Speaker 1: but they introduced, don't you know, an extra fee. You
20:05
Speaker 1: could pay an extra $ 100 for And they'd give it
20:08
Speaker 1: to you faster. So it's that old trick of raising
20:11
Speaker 1: your prices and then saying, and basically the service gets
20:17
Speaker 1: slower and not as impressive. But what you do is
20:19
Speaker 1: you say, we can get the service back to where
20:20
Speaker 1: it was if you pay more. And that's what the
20:22
Speaker 1: Australian passport office has just done in the budget the
20:25
Speaker 1: other day. So thanks for that observation, Russell. Andrew, this
20:30
Speaker 1: is an interesting question. He says, this is a very
20:33
Speaker 1: interesting question. Is there any other business in Australia which
20:36
Speaker 1: has something comparable to lender's mortgage insurance? It's easy to
20:40
Speaker 1: see this as nothing more than a cash grab and
20:43
Speaker 1: a kickback, especially when the loan default rate is negligible. Now, Andrew,
20:48
Speaker 1: you really are onto something there. It's true the default
20:51
Speaker 1: rates are absolutely microscopic. And so lender's mortgage insurance, you
20:55
Speaker 1: would think, is a great game for everybody involved. And
20:59
Speaker 1: you do wonder why it's so institutionalized. What do you think, Terry?
21:04
Speaker 2: Look, I think we could eliminate it and not much
21:07
Speaker 2: would change. I think I agree with your question. Yeah. Yeah. Look,
21:14
Speaker 2: I think that's a rip-off. I think that's unnecessary. Look,
21:17
Speaker 2: the hoops you have to jump through to get a
21:20
Speaker 2: home loan or a loan to buy an investment property
21:22
Speaker 2: in this country. I mean, I've just been through the
21:24
Speaker 2: process again. I've got, you know, great income, great track record, great–
21:31
Speaker 2: credit rating, et cetera, et cetera, yet the process to
21:35
Speaker 2: go through to satisfy the bank that you're an acceptable
21:38
Speaker 2: risk to lend to, I don't think any kind of
21:42
Speaker 2: insurance is necessary. I mean, I think the bank, they're
21:45
Speaker 2: in the business of lending. There's an element of risk
21:48
Speaker 2: for any loan that they put out there, but to
21:51
Speaker 2: not only have this insurance policy system but to force
21:55
Speaker 2: the borrower to pay for it is just another massive
21:58
Speaker 2: cost that is imposed on people who don't have a 20% deposit.
22:04
Speaker 2: And for young people, it's increasingly hard to get together
22:08
Speaker 2: a 20% deposit. You don't need 20% to get a loan. But,
22:11
Speaker 2: of course, if you have less than 20%, you've got
22:13
Speaker 2: to pay this damn hideously expensive insurance policy, which is
22:17
Speaker 2: often capitalised into the loan, just adding to the length
22:21
Speaker 2: of time they have to pay the damn thing off.
22:22
Speaker 2: I'd like to see politicians step up and say, what
22:25
Speaker 2: is this for? It doesn't serve any purpose. As Andrew
22:28
Speaker 2: points out, Mortgage delinquency rates in Australia are really small.
22:33
Speaker 2: They hover around 1% to 1.5% usually, and that's minor.
22:38
Speaker 2: There's not a great deal of risk for the big
22:40
Speaker 2: lenders there. I think they're having a lender-vis, no pun intended,
22:45
Speaker 2: and they're making a lot of money by imposing this
22:51
Speaker 2: massive extra cost on particularly young borrowers who just don't
22:55
Speaker 2: need it and it doesn't serve a purpose. Get rid
22:57
Speaker 2: of it.
22:57
Speaker 1: For some, it's demonstrably low risk. Okay, we know that
23:01
Speaker 1: from the figures. Hey, terrific. Thank you very much for that, Andrew.
23:04
Speaker 1: And as always, folks, none of this is advice. It
23:07
Speaker 1: is simply information. All right, we'll take a final break
23:10
Speaker 1: and we will be back with a question from Angus
23:13
Speaker 1: about the downsizing program, which is, of course, so, so popular.
23:16
Speaker 1: All right, back in a moment. Hello and welcome back
23:22
Speaker 1: to The Australian's Money Puzzle, James Kirby with Terry Ryder
23:25
Speaker 1: from Hotspotting. Well, we've had quite a few questions regularly
23:28
Speaker 1: all the time on the Downsizer program. I'm sure you're
23:31
Speaker 1: familiar with it. Folks, if you're not, once you're over 55,
23:36
Speaker 1: you can ignore the super rules or super caps and thresholds,
23:41
Speaker 1: et cetera. And if you sell your family home, unless
23:44
Speaker 1: you've lived in for 10 years or more, as your
23:46
Speaker 1: primary residence, you can contribute to super, 300,000 per capita.
23:52
Speaker 1: And you can basically ignore the caps, which is very
23:55
Speaker 1: useful for people who are on the older side for
23:57
Speaker 1: the simple reason that if you're on the older side,
24:00
Speaker 1: you're not allowed to contribute to super once you reach
24:02
Speaker 1: a certain age, can't get that money in. Angus was
24:05
Speaker 1: asking basically, how does it work? And what are the
24:10
Speaker 1: issues around it? I would just say to anyone interested
24:13
Speaker 1: in the Downsizer program that, remarkably, one of the things
24:17
Speaker 1: that's sort of unfinished about it is it was all
24:20
Speaker 1: designed to get people out of those ambling around semi-empty
24:25
Speaker 1: suburban houses and to free up housing stock. It doesn't
24:28
Speaker 1: actually demand that you buy a smaller house. Bizarrely, you
24:32
Speaker 1: can buy a bigger house.
24:33
Speaker 2: If you wish.
24:34
Speaker 1: But it's a way of getting the market freed up. Terry,
24:38
Speaker 1: I mean, one of the things I see here and
24:40
Speaker 1: there is efforts. You mentioned how the governments could do
24:44
Speaker 1: a lot more some state governments are some state governments
24:47
Speaker 1: are making an effort you might say the victorian government
24:50
Speaker 1: are doing the opposite and just keep coming up with
24:52
Speaker 1: new taxes west australia has tried some interesting things they
24:55
Speaker 1: literally rewarded people who who who turned their property from
24:59
Speaker 1: airbnb back onto the rental market and that sort of
25:01
Speaker 1: thing have you seen anything that that that you think
25:04
Speaker 1: they could do more of in the states.
25:06
Speaker 2: Look i think um Western Australia currently is the model
25:10
Speaker 2: that all states and territories should be following.
25:12
Speaker 1: Oh, that's interesting. Okay.
25:13
Speaker 2: Yeah. Look, basically governments, particularly state governments, because residential real
25:18
Speaker 2: estate is pretty much their territory, they've got two ways
25:22
Speaker 2: to try and engender the sort of behavior they want
25:24
Speaker 2: to happen out there, particularly around supply. One is the
25:28
Speaker 2: stick approach and one is the carrot approach. Yeah. Victoria
25:31
Speaker 2: is very much going with the stick approach. If you
25:33
Speaker 2: don't do what we want, we're going to punish you
25:35
Speaker 2: with new or high taxes. Yes. And it's quite brutal.
25:38
Speaker 2: And the response of most people will be, well, I'll
25:40
Speaker 2: just stick up my rent to cover the extra costs
25:43
Speaker 2: or I'll sell up and get the hell out of Victoria.
25:45
Speaker 2: I don't think it's really going to achieve the ends
25:47
Speaker 2: they want. In Western Australia, they have the carrot approach.
25:49
Speaker 2: They've introduced a number of measures which are real incentives
25:53
Speaker 2: for people who might have an Airbnb approach with their
25:57
Speaker 2: property or They get a cash incentive that they put
26:00
Speaker 2: in the permanent rental market.
26:01
Speaker 1: Yeah.
26:02
Speaker 2: There's measures to allow people to build a granny flat
26:04
Speaker 2: at the back of their property, provide the property meets
26:08
Speaker 2: certain criteria without having to get council approval. There are
26:12
Speaker 2: other measures that have been introduced recently to encourage people
26:17
Speaker 2: to add to supply, particularly in the rental market. And
26:22
Speaker 2: I think that's the intelligent approach. that's the way to
26:26
Speaker 2: go because people are more likely to respond positively to
26:30
Speaker 2: an incentive than to a punishment. Victoria's called some of
26:34
Speaker 2: their measures incentives. They're not. They're punishments. If you don't
26:37
Speaker 2: do what we want, even though what you're doing is
26:39
Speaker 2: perfectly reasonable and legal, we will punish you with punitive taxes.
26:46
Speaker 2: Not an incentive at all, but what they're doing in
26:48
Speaker 2: Western Australia is, and I think other states should follow
26:51
Speaker 2: that measure, Of course, the advantage they have over there
26:53
Speaker 2: is they have a strong budget, and Victoria has a
26:55
Speaker 2: very weak one. They've got a real problem with their budget.
26:58
Speaker 1: It's interesting, though. That's a really good point. For what
27:01
Speaker 1: it's worth, folk, year-to-date Melbourne prices, that is Victorian prices, negative.
27:06
Speaker 1: Year-to-date Perth, up 8%. Now, there are other issues around that,
27:10
Speaker 1: but there you are. There are the numbers. Just as
27:11
Speaker 1: we stand, as Terry was saying, there was a disincentive
27:13
Speaker 1: basically baked into Victoria and incentives baked into WA, which
27:17
Speaker 1: has probably accelerated existing trends. in both those states. Very interesting. Terry,
27:22
Speaker 1: thank you very much for being on the show again.
27:24
Speaker 2: Interesting.
27:24
Speaker 1: I think, folks, it's time to reassess the apartment market.
27:29
Speaker 1: There's one thing you picked up on the show today.
27:31
Speaker 1: I thought the argument was put forward and articulated very
27:33
Speaker 1: well by Terry Ryder of Hotspotting. Thanks, Terry.
27:37
Speaker 2: You're welcome, Jameson. Always great to come on and talk
27:39
Speaker 2: to you, particularly about real estate, my favorite subject. As
27:43
Speaker 2: I often say to people, the hard part is getting
27:44
Speaker 2: me to shut up.
27:46
Speaker 1: Thank you very much. OK, folks, well, we will all
27:49
Speaker 1: now wrap up. And remember, keep those questions rolling. Great
27:53
Speaker 1: to see some questions and all sorts of things coming
27:55
Speaker 1: in this week. Keep them coming. The Money Puzzle at theaustralian.com.au.
28:00
Speaker 1: Talk to you soon.