Latest / The Follio Property Podcast / If You’re a Property Investor, Start Doing This Immediately After Budget 2026 | Property Experts

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If You’re a Property Investor, Start Doing This Immediately After Budget 2026 | Property Experts · The Follio Property Podcast

• 0:00
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• 0:56
  I want to be very clear that inflation remains too high. The Reserve Bank leaving rates on hold at 4.35%. The RBA Governor is warning inflation is still too high. And it would require even more tightening in monetary policy to get inflation under control.
• 1:10
  RBA announced no change to the rate. Where do you see the current environment from a sentiment standpoint? As little as two weeks ago, it was doom and gloom. The world of residential real estate is about to implode. I've had assets in my portfolio that have been negative $130,000, $150,000 negative cash burning a year. We've seen two of the major fall banks come out with lowering their fixed rates on their mortgages. They want people to stop spending. They want to get inflation down, so don't be fooled or misled by the comments. Property investment's a debt game.
• 1:37
  Is there any particular asset or strategy that you loved post-budget, which no longer makes sense in the current environment? That particular strategy now, post-budget, is far less palatable. If you look at the best-performing markets across Australia for the last three years, Brisbane, Adelaide and Perth units, they've significantly outperformed the housing market.
• 1:58
  You're listening to the Folio Property Podcast. I'm Rhys Beddle. I'm here each week with my co-host, Lachlan Delahunty. Lachlan, it's been over five weeks now, post-budget. So I thought, let's chat about where the market is now. Positives, there's been a lot of green shoots recently as well, after the back of some uncertainty for a couple of weeks. Talk through strategies you see in the market right now. So things like houses, units, regional, capital city, SMFF, commercial. Yes, I did say SMSF. Wrong.
• 2:28
  SMSF commercial really get a bit of a deep dive in a multiple different strategy see where we land sentiments change too so we've just recently had the the RBA announced no change to the to the rate let's kick start with that where do you see the the current environment from a sentiment standpoint
• 2:44
  It just shows you how quickly sentiment can change. As little as two weeks ago, it was doom and gloom. The world of residential real estate is about to implode, and albeit we're not out of the woods, there's some green shoots, as you said. We've had a pause in the RBA, so we've had a pause in interest rates. The Strait of Mahomozi opened for a short period, then closed, potentially opened, but it does sound like we're closer to a peace deal than we were two weeks ago. So again, positive sentiment.
• 3:08
  and the budget's getting absolutely torn to shreds, and pretty much every opposition leader is now going down the path of how they're going to turn against this proposal, and if they are to get into power, they're going to remove it and even lower taxes.
• 3:23
  in property. And there's even talks about reducing or lowering taxes even more than they were pre-budget. Obviously, in Victoria, we've got a Liberal government now saying they're going to reduce the land tax. So again, there's just a lot of positivity in a market that's still got a lot of uncertainty. So sentiment can change very, very quickly. And it's almost...
• 3:45
  So yeah, the idea of something, Rhys, what may or may not happen, has more of an impact than the event itself. And that's what we're seeing here. So the fact that I believe we're at the top of the rate cycle, whether we are or we're not, if momentum and the media start to report that, then the sentiment will change for the positive. Whereas the event of a interest rate change will have maybe a less effect.
• 4:06
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• 4:30
  Well, it's not just you predicting that it's the top of the rate cycle. We've seen two of the major fall banks come out with lowering their fixed rates on their mortgages. So what that's telling us is they're looking at futures and they're seeing that actually we're going to start seeing some rate decreases this year.
• 4:45
  Yeah, well, the comments from the OBA were going to be exactly as we thought. You know, prepare for more pain in terms of rate hikes. They can't come out and say, hey, I think we've reached the top of the cycle. We're going to start lowering them in 2027 because they need to change consumer behaviour. And they want people to stop spending. They want to get inflation down. So their commentary, regardless, is always going to be on the side of caution.
• 5:06
  and preparing consumers that things are going to get worse so it changes their behaviour. So don't be fooled or misled by the comments, albeit the media reported that there's going to be another rate hike, potentially another two rate hikes on the back of the RBA's comments. Don't read into that because they have to change consumer behaviour and through those comments that's how they're trying to do that. But you're right, the banks, they should...
• 5:32
  invest a lot of time, energy and effort and capital into the futures and understand where rates are going and they're forecasting their future rates to come off. So it would suggest that they have strong beliefs that we'll see rate cutting before we'll see rate hiking. All right, let's get kick started with some strategies pre and post budget. The first question I've got for you, Lachlan, and people that have listened to the podcast might have an idea on where you stand with this. Is there any particular asset or strategy that you loved post budget for certain clients which no longer makes sense in the current environment?
• 6:01
  Yeah, lamb baking blue chip A-grade sites, Rhys. That was the bread and butter of our business for four or five years was getting really A-grade sites sitting on them and potentially some of the reason that the budget was changed was to deter this behaviour. Lamb baking four, six, 800 square metres of prime dirt on a low yield and potentially with some future development upside or potentially with...
• 6:27
  the idea of knocking down and building an established home. That particular strategy now, post-budget, is far less palatable. And for my personal portfolio, the landscape of what I'm looking for now does look a little bit different pre-budget, but the fundamentals of the assets we're selecting hasn't changed dramatically. Location's still king in terms of macro markets, micro markets, suburb level, and quality real estate is still what we're driven to.
• 6:54
  On those particular assets you mentioned there, now that is, you're obviously referring to negative gearing benefits that someone would have in their personal name. Does a particular asset like that still make sense for someone? Look, we're not giving financial advice here, but does assets like that still make sense for those that are doing different structures that wouldn't actually have the benefits of negative gearing? Again, you're gonna have to speak. There's still strategies where you can get negative gearing benefit, and every situation now is independently very, very different.
• 7:22
  and the clients that I've met post-budget been working with their accountants and there'll be 10 different scenarios where they still get the same benefit they did pre-budget there's a lot of restructuring in the background to get that benefit so it's not dead for every client it's very difficult for that particular strategy to be rolled out amongst the masses but yeah if we met with 10 clients I expect six to seven of those clients to still get a benefit like they did pre-budget
• 7:46
  You talk about this on the podcast quite consistently where it is a debt game. Property investment is a debt game. How much are banks willing to lend you is going to help you not only get into the market but scale a portfolio at size. I was speaking to you off air. There's a particular example of some folio clients that had pre-approval with one of our referral partners pre-budget.
• 8:06
  Combined income was 260K, mum and dad, two kids, had a decent amount of equity in their home and they were looking to do a purchase in Melbourne for 800K for a house, so not too dissimilar from some of the examples you said there from a yield position, so I think this one off the top of my head was burning about 55, 60K a year.
• 8:25
  Now, obviously, they get the tax break, the benefit up front, but they don't lose that at the back end. But the biggest challenge with that client was the lenders. And the bank's now removing negative gearing. They actually reduce their borrowing capacity by 200K. So that particular client now is in a 600K unit purchase that's yielding 5.5%. So it's protecting their cash flow. But that's a pretty, I don't know if that's an extreme example, but that's when I was having a chat with one of our finance partners where a lender has actually capped it significantly by 200K.
• 8:54
  Yeah, and that's where the landscape has changed post-budget. Like a lot of things haven't in terms of location fundamentals, getting core A-grade suburbs in the portfolio, but the asset selection. So when I break down how you invest in property, location's king. Does 70% of the heavy lifting from a macro level and a micro level. Macro being whereabouts in Australia, which market's at its current stage in its cycle, and we want to buy in somewhere between 6 and 8 o'clock on a property clock, right?
• 9:22
  Then it's land component. What's the underlying land value of that asset? And you spoke about a unit. A unit still carries and should carry, and we'll speak about this in a moment, difference between a unit and apartment. I think listeners, and not only listeners, I think the general public, are very confused around the difference between a unit and an apartment. They are very different things, and we need to talk about that because there's been some questions on the podcast in YouTube and Spotify disregarding or not fully understanding when we're speaking about units.
• 9:51
  But there's underlying land value there. So we need to first lock away the location, get something with strong underlying land value. In a perfect world, 60% of the total value of the asset, minimum 60% in the land, not in the improvements. And then it's the asset itself. And in a perfect world where it makes sense, a freestanding established house is always king. Second to that, it's a unit. And then third to that, it would be...
• 10:15
  A freestanding established home is always king. And then there's variations of that, whether it's a duplex or a side-by-side or it's a survey strata. And then it would be other variations of units, whether it's a three-pack or a four-pack or a six-pack or ten. And then you go into multi-storey units and then apartments. In that order, location, land and then assets. So in your scenario that you spoke about then, the strategy, what's changed between pre and post budget?
• 10:42
  Isn't the overarching strategy of location fundamentals or what suburb they're investing in? Locations remain the same. Land content may have changed from 70% land value to 60% land value. And the assets changed in terms of buying a freestanding house versus a unit in a three, five, six pack, something like that.
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• 12:00
  You've segued really nicely there, Lachlan. Let's talk about units. And I think you're right. We do get a lot of comments. And look, myself personally, when I first started entering the property industry as well, I associate a unit with a high-rise apartment, especially when we're talking about units in locations where high-rise apartments are at very high risk. So what is the definition of a unit? What properties would exist within what we're calling a unit?
• 12:23
  A unit in our world race is in a complex less than 20, no greater than three stories. Soon as it gets above three stories, you go in a different regulation, different asset class, typically requires different strata ring, so that then goes into an apartment category. And for us as a business, anything over 20, you start to dilute that scarcity pool that we talk about. But when I think about a traditional unit, I'm typically talking sub 10. And then everyone, Lachlan, you speak a lot about land content.
• 12:51
  A lot of the things we buy when we speak about units on the podcast isn't what you're imagining. It's not in a complex of 50, 60 or 100. We're surrounded by another complex of 100, then another complex of 100. You're talking often one of four on a combined square meterage of sometimes up to 1,000 square meters race. So the underlying land value of that unit is a lot of units.
• 13:12
  If you were to subdivide and do the numbers on 1,000 square metres divided by four, you're left with 250 square metres of quality dirt. Typically, some of these are in extremely A-grade locations. One example comes to mind in Perth is in Claremont. One of four 250 square metres of dirt in Claremont, and we were able to pick that up for a million dollars. If you were to knock that house down and sell that dirt alone, you're selling that for one three or one four, let alone the improvements on there, right? So there's still really strong underlying land value. One that we've picked up recently in Brighton,
• 13:41
  one of the most premium suburbs in Melbourne where it was, again, one of five and only 800 square metres, but you're still picking up underlying land value. So that's the difference. When I talk about units, you're still buying underlying land value and it's split across the number of units, obviously, in that complex. But keeping to the fundamentals, less than three levels, often single or double storey.
• 14:04
  And often, Reece, there's very little to no common amenity. So you're not getting hit with massive strata fees for pool maintenance, lift access, those sorts of things. The things that we typically endorse or encourage don't have lifts.
• 14:20
  They are older in nature, built in the 70s or 80s. They are very loaded to no strata fees. There's very little common amenity, but there'll be a lot of common open space, often shared parking, those sorts of things. But you're really looking at what is the replacement cost of those units? And this is where I think people are like, well, you can never make money out of units. Some of the comments are like, I bought a property 10 years ago in South Bank and bought it for $750. It's now worth $650. You're probably right. That is in the category of an apartment.
• 14:50
  and apartments lack scarcity. You don't own, you own a very small percentage of land value, you typically just own air space, right? So it's the fundamentals of land value are very, very low. Some of the critics come through in the unit space, if you look at the data and strip out apartments, because they are, when you look at unit data, it does include often apartments into the data, so then it is skewed a little bit. If you strip out all the apartment data, if you look at the best performing markets across Australia,
• 15:18
  For the last three years, have a look at Brisbane, Adelaide and Perth units. They've significantly outperformed the housing market. Everyone's like, how is that possible? Well, when there's such a disparity between house prices and unit prices and then you look at the replacement costs, some of these replacement costs when we start buying at Res, we're buying units for $450. It'd cost $850 to $900 to build them. If you believe in relativity and everything's going to go back to
• 15:44
  its replacement cost or above, well, you'd argue there was a 450K deficit in that. And that's when it becomes really interesting. I think people miss that. Apartments completely agree. They often build 100 apartments on a total square meterage of 2,000 square meters. You divide 100 by 2,000, you've got very little ink on that to share amongst the participants.
• 16:02
  Is there any house and land spaces that make sense to you in this market? Look, painting the obvious thing here is you do get the negative gearing benefit, right? Which you don't anymore on established properties. Well, you do and establish. It's just deferred. Correct. You don't get a cash flow. Correct. And to answer your question, we've spoken about, yes, there is. And I'm open to this as a strategy. And obviously, it's something I've done personally and we've done with clients. Is that sort of infill?
• 16:26
  suburban development and that's when you're looking to create land additional land in in blue chip localities that's where it makes a lot of sense so i do see a space there because you're going to get increased yields you're going to get potentially some uplift on the development itself and some construction uplift for taking the risk so i think there's a model there where house and land
• 16:45
  in landlocked suburbs, blue chip areas, makes a lot of sense and certainly encourage that. Certainly something that when done well, you can get disproportionate returns, but you are taking on more risk. It's not for a first-time investor. It's for a more seasoned investor, established investor that has an equity position. They can take on more risk and they may get rewarded for that risk. But-
• 17:08
  understand there is risk in development and I don't want to shy away from that. You're in the project for two, two and a half years, sometimes three. Builders go broke. There's