Latest / The Money Puzzle / Property tax risks rise for the year ahead

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Property tax risks rise for the year ahead · The Money Puzzle

0:09
Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
0:13
Speaker 1: James Kirkby. Welcome aboard everybody. We're starting the year with
0:16
Speaker 1: some pretty strong signals I think for residential property, I
0:20
Speaker 1: think we're looking at another good year. So there's the
0:22
Speaker 1: market consensus is that we'll see strong house lifts across
0:26
Speaker 1: the board, with some variety obviously performance between the different cities.
0:31
Speaker 1: But there are some other issues looming. Not rates. You
0:35
Speaker 1: know about rates, that's pretty clear. Rates are going to
0:38
Speaker 1: go up, but taxes may also go up. And we
0:42
Speaker 1: have a capital gainst tax inquiry starting pretty soon in Canberra.
0:46
Speaker 1: And I noticed just today, this is the day after
0:49
Speaker 1: Australia Day Housing Industry Associations put out a key report
0:53
Speaker 1: the smalling around this. They're getting pretty worried and I
0:55
Speaker 1: think a lot of stakeholders in property are getting worried
0:59
Speaker 1: about the chances of a lift in property released taxes.
1:05
Speaker 1: My guest today is someone who's right across property and
1:08
Speaker 1: usefully started professionally in the share market, so he has
1:12
Speaker 1: that sort of holistic view. It's first time guests on
1:14
Speaker 1: the show. It's Peter Eshow how are you, Peter?
1:18
Speaker 2: I'm very well, thank you, great to join you. How
1:20
Speaker 2: are you lovely to have you on the show.
1:22
Speaker 1: And Peter Across is basically these days, would you call
1:25
Speaker 1: we describe yourself that I describe you as a property financier.
1:28
Speaker 1: That'd be a fair enough way to put it.
1:29
Speaker 2: Yeah. Yes, So we've perhaps several businesses, but our main
1:33
Speaker 2: focus at the moment is on investment properties and the
1:36
Speaker 2: lending around investment properties and lending to property investors. Yeah,
1:41
Speaker 2: so we call the self made Australians. That encompasses everybody
1:45
Speaker 2: that runs a business. There's more and more self employed
1:48
Speaker 2: people today and they don't really necessarily fit into the
1:51
Speaker 2: criteria that the big banks like to lend to. But
1:54
Speaker 2: then there's also a professional class who have been traditionally
1:58
Speaker 2: revising their investments, may have gone into ETFs, maybe doubled
2:02
Speaker 2: in some crypto, but property is always on the back
2:05
Speaker 2: of their minds and they're kind of unsure of how
2:07
Speaker 2: to move or how to play the market.
2:09
Speaker 1: So this increasing concern about changes to property related taxes,
2:14
Speaker 1: specifically CGT, perhaps negative gearing. They're both mentioned in this
2:18
Speaker 1: HI report Housing Industry Association. What do you think yourself?
2:22
Speaker 1: Do you think appitally gains tax as a threat.
2:24
Speaker 2: Now, I think whenever we talk taxes, it's important to
2:28
Speaker 2: set the context and also to have a relative view,
2:31
Speaker 2: because at the end of the day, real estate is
2:33
Speaker 2: a necessity for a lot of owner occupiers that need
2:37
Speaker 2: to live under a roof, and then different governments and
2:40
Speaker 2: different regimes will put into place different tax policy depending
2:43
Speaker 2: on their fiscal situation to pay the bills, but also
2:47
Speaker 2: incentives and what's on the agenda. It looks like politically
2:53
Speaker 2: there's a big groundswell against property investors. There's an assumption
2:58
Speaker 2: that property investors crowded out the owner occupier and because
3:02
Speaker 2: of that, there needs to be an adjustment to incentives
3:06
Speaker 2: that are in the market. So capital gains tax when
3:08
Speaker 2: we're talking about it, it's not that from my understanding,
3:12
Speaker 2: it's not that the entire capital tax regime is on
3:15
Speaker 2: the table, but the incentives around discounts to property investors.
3:21
Speaker 2: So we have to look at why those discounts are
3:23
Speaker 2: there right in the first place.
3:26
Speaker 1: The simple argument for Forward is that they are unfair
3:28
Speaker 1: and that they were too generous.
3:30
Speaker 2: Well, there aren't. From my understanding, there aren't any capital
3:34
Speaker 2: gainst tax benefits just to property investors. They're to all investors.
3:38
Speaker 2: So if I go and buy PHP shares and I
3:40
Speaker 2: hold them for more than a year and I sell them,
3:43
Speaker 2: I'm entitled to a capital gainst tax discount. That's my understanding.
3:47
Speaker 2: I'm not a tax expert, but that's the way I
3:49
Speaker 2: understand it. It's the same thing if I go and
3:52
Speaker 2: buy property, are going by a business, are going by
3:54
Speaker 2: any other asset where I make a capital gain. So
3:57
Speaker 2: if they are going to change the laws, they may
4:00
Speaker 2: have to change the laws to all investors because that
4:02
Speaker 2: capital gains tax treatment is for all assets, not necessarily
4:07
Speaker 2: for property only.
4:08
Speaker 1: That's with CGT too difficult to deal with just for property,
4:11
Speaker 1: because I think that's what Tom was one of the
4:13
Speaker 1: suggestions from the Greens.
4:14
Speaker 2: I think, no, it's not too difficult, but it always
4:18
Speaker 2: there's always unintended consequences, And I think one of the
4:21
Speaker 2: unintended consequences, just off the top of my head, will
4:25
Speaker 2: be people say, well, why should I go and buy property?
4:27
Speaker 2: If I go and buy shares, I get the discount,
4:30
Speaker 2: and then you'll have less people investing in residential real estate.
4:33
Speaker 2: Now that might seem like it's good, but it actually
4:36
Speaker 2: isn't because if you go and have a look at
4:38
Speaker 2: who buys rentals. It is the investors who buy the
4:42
Speaker 2: rentals that put them into the rental market. So if
4:45
Speaker 2: we have an issue around housing supply and we take
4:48
Speaker 2: away the incentive for investors to go and invest in
4:52
Speaker 2: that supply, where will that supply come from?
4:55
Speaker 1: I think perhaps I suppose the test case in recent
4:58
Speaker 1: times in Australia is DA Victoria, where a lot of
5:01
Speaker 1: new taxes were introduced roughly a year ago. And obviously
5:05
Speaker 1: we most listeners would know that actually Victoria is the
5:08
Speaker 1: weakest state, still the weakest state by any measure to
5:12
Speaker 1: house price, rental income. But I was fascinated to see
5:16
Speaker 1: that one of those new taxes was the airbnb tax,
5:18
Speaker 1: which was a seven and a half percent levey they
5:20
Speaker 1: brought in roughly a year ago. And I saw at
5:25
Speaker 1: the start of the year that after one year the
5:29
Speaker 1: number of short stay properties, which had been growing yearly
5:33
Speaker 1: in Victoria was forty three thousands when they brought in
5:37
Speaker 1: the new tax, and one year later it is still
5:39
Speaker 1: forty three thousand. It is literally unchanged. That area just
5:44
Speaker 1: basically stopped in its tracks. Do you think that was
5:47
Speaker 1: a response to tax Do you think taxes do actually
5:52
Speaker 1: hit like that.
5:54
Speaker 2: Yeah, I do. And look, I don't want to sound
5:57
Speaker 2: dismissive to the need for health reform. I think it's
6:01
Speaker 2: very genuine because as a business owner and as an entrepreneur,
6:05
Speaker 2: I want to be operating in a market where my
6:07
Speaker 2: employees feel comfortable renting and having housing security. So I
6:11
Speaker 2: don't want to be dismissive that those things aren't important.
6:14
Speaker 2: And I think it's on the agenda because you have
6:17
Speaker 2: a cohort of young people that today feel disenfranchised and
6:21
Speaker 2: they feel left out. Where my views differne in solving
6:25
Speaker 2: that problem is on the solution, and a lot of
6:28
Speaker 2: these solutions have been around punishing the investor or disincentivizing investment,
6:33
Speaker 2: where I think what they should do is encourage investment
6:37
Speaker 2: because it is the investment that will create supply. If
6:40
Speaker 2: I want my weekly rent to go from six hundred
6:44
Speaker 2: a week to five hundred a week, I want to
6:46
Speaker 2: have as many other alternatives on the market where I
6:48
Speaker 2: can move into That way, my landlord is going to
6:52
Speaker 2: be desperate to keep me, and the only way that
6:54
Speaker 2: happens is when you increase supply. So if you have
6:57
Speaker 2: a look since since twenty seventeen, twenty eighteen twenty nineteen
7:02
Speaker 2: pre pandemic, when a lot of government policy started to
7:06
Speaker 2: target foreign investors were seen as bad, crowding out the market,
7:10
Speaker 2: you know, people of a certain race or persuasion. We're
7:13
Speaker 2: seen as the reason why our housing market was expensive.
7:17
Speaker 2: If you go and have a look at supply, since then,
7:19
Speaker 2: it has fallen off a cliff and it hasn't recovered.
7:22
Speaker 2: So as a young country, as a country with a
7:25
Speaker 2: limited population but big housing needs, we have to ask
7:28
Speaker 2: ourselves how will we build more supply to address the
7:32
Speaker 2: issue that is out there. That's a very serious issue
7:35
Speaker 2: around housing certainty, and the government isn't the solution because
7:40
Speaker 2: if it was, we would be seeing housing supply come
7:42
Speaker 2: into the market. The current government campaigned on increasing housing supply.
7:47
Speaker 2: The current state governments have campaigns around that, but they
7:50
Speaker 2: haven't delivered. And so when you put taxes into place,
7:54
Speaker 2: it creates sentiment issues. And what happens is investors have
7:58
Speaker 2: a choice. I don't need to invest in Victory story.
8:00
Speaker 2: I can go into Brisbane, Perth Adelaide and they're the
8:03
Speaker 2: markets that have done really well. So capital is quite
8:06
Speaker 2: efficient and investors today have access to all types of
8:10
Speaker 2: information including AI and when you put into place a
8:14
Speaker 2: tax regime that's complicated. We know that investors move.
8:18
Speaker 1: Okay, terrific. It's clear to me that you did start
8:20
Speaker 1: as an analyst and that is for the obvious distillation
8:24
Speaker 1: of that very interesting. I think one of the things
8:26
Speaker 1: I want to talk to you about in the next
8:27
Speaker 1: segment is actually their market and how property now looks
8:31
Speaker 1: against shares, how it looks against for the year ahead
8:33
Speaker 1: with at the moment. Hello, welcome back to The Australian's
8:48
Speaker 1: Money Puzzle podcast. I'm James Kirby talking to Peter Esher,
8:51
Speaker 1: who was properly financier, a very familiar and across the
8:55
Speaker 1: residential market, but usefully also across all markets, and how
8:58
Speaker 1: the background was upon a time so actually as an
9:01
Speaker 1: equities analyst and then later in morning Star etc. Peter,
9:06
Speaker 1: as I speak to you the markets, that is the
9:09
Speaker 1: share markets at ten percent last year on the A six,
9:13
Speaker 1: even better on US markets, it's easy years of easy
9:18
Speaker 1: money for share investors, even better for Gold, I mean Gold,
9:23
Speaker 1: as I talked to you, hit five thousand US last
9:25
Speaker 1: night and that is a major milestone. How do you
9:29
Speaker 1: see our residential property with all its toil and taxes,
9:34
Speaker 1: and it's a lot more work than just owning a
9:37
Speaker 1: listed investment. How do you see it stacking up against
9:39
Speaker 1: listed investments now? In terms of value?
9:42
Speaker 2: I think we are used to pricing everything in dollars. Right.
9:47
Speaker 2: If I go out there and I buy account of
9:49
Speaker 2: kirka cost me for Australian dollars, so I'm swapping for
9:52
Speaker 2: Australian dollars for that count of coke used to be
9:55
Speaker 2: a dollar fifty, but it's gone up. When we talk
9:58
Speaker 2: about residential real estate, we're also pricing it in dollars,
10:01
Speaker 2: and I think if we really want to know where
10:04
Speaker 2: the price of something is trending, we need to price
10:07
Speaker 2: it in different types of assets. So I think if
10:10
Speaker 2: you have a look at Australian residential real estate in
10:12
Speaker 2: US dollar terms, it is quite low because the Aussie
10:16
Speaker 2: dollar's gone from parody or slightly above parody fifteen years
10:20
Speaker 2: ago to you know, sixty seventy cents now, So Australian
10:25
Speaker 2: dollars have been buying less assets, and so these Aussie
10:28
Speaker 2: assets are actually not as expensive as we think they
10:31
Speaker 2: are in US dollar terms. But even if you don't
10:33
Speaker 2: buy that, even if you say, yeah, well, I earn
10:36
Speaker 2: Australian dollars. I don't care about US dollars, right, Why
10:38
Speaker 2: should I care about you? I'm an Australian earning Austrainan dolls.
10:42
Speaker 2: If you have a look at let's take Sydney median
10:44
Speaker 2: house prices and we have a look at a price
10:47
Speaker 2: today that's one six one point seven whatever it is, right,
10:50
Speaker 2: if we price that in gold, how many ounces of
10:54
Speaker 2: gold I need to buy an average Sydney house. It's
10:56
Speaker 2: gone from about five hundred and seventy five ounces ten
10:59
Speaker 2: years ago to about two hundred and fifty ounces. So
11:03
Speaker 2: the house that in Sydney's gets all the headlines and
11:07
Speaker 2: gets all the rage bait on social media because it's
11:10
Speaker 2: gone out. There's actually halved in gold. So why is
11:14
Speaker 2: that important. It's important because assets don't just move it
11:18
Speaker 2: by themselves in isolation. Assets move in trends. And the
11:23
Speaker 2: trend around the world over the past twenty years, ever
11:26
Speaker 2: since two thousand and nine has been currency debasement. Governments
11:30
Speaker 2: are printing more and more money, and that ounce of
11:34
Speaker 2: gold that's today five thousand dollars is the same ounce
11:37
Speaker 2: of gold that twenty years ago was eight hundred dollars.
11:41
Speaker 2: That ounce of gold hasn't changed, it's the money that's changed.
11:45
Speaker 2: And it's the same thing with residential real estate. Prices
11:47
Speaker 2: have been rising, but that Media and Sydney house is
11:50
Speaker 2: probably thirty or forty years old. Ten years ago, it
11:53
Speaker 2: was the same block of land, the same house. The
11:55
Speaker 2: furnishings are probably deteriorated or improved a little bit. But
11:59
Speaker 2: the concept is that money is debasing, and because money
12:03
Speaker 2: is debasing, we are seeing an acceleration in assets, and
12:06
Speaker 2: the rarest assets will move the most. Gold is rare.
12:11
Speaker 2: Silver is somewhat less rare. Cryptocurrencies, to an extent, are rare.
12:16
Speaker 2: Residential real estate is also rare because you can't build
12:20
Speaker 2: a house wherever you want, and you can't just replicate
12:23
Speaker 2: the bricks and mortar very quickly. So that's the way
12:27
Speaker 2: I view residential real estate. You can look at the price,
12:30
Speaker 2: but you also need to look at you know, relative
12:33
Speaker 2: and I don't think housing is expensive today if you
12:36
Speaker 2: have a look at it in gold. Now we can
12:39
Speaker 2: talk about what that means, but that's just a concept
12:42
Speaker 2: that I think is important.
12:43
Speaker 1: It's a fascinating concept. Do you think what's driving gold?
12:47
Speaker 1: If we take it that the debasement theory is the
12:49
Speaker 1: most compelling theory. Do you think that what is driving gold,
12:54
Speaker 1: they will drive investment presidentially read state as well.
12:58
Speaker 2: I think, Look, the honest answer is I don't know
13:01
Speaker 2: what is driving gold, but I can probably hypothesize. There's
13:05
Speaker 2: a couple of things. I think Ever since the Ukraine War,
13:09
Speaker 2: the Biden administration came out and froze Russian assets very quickly,
13:13
Speaker 2: and so what happened is that there was a big
13:16
Speaker 2: shock to global wealth in that my assets can be
13:20
Speaker 2: seized and if it's sitting in the banking system or
13:22
Speaker 2: if it's sitting in real estate, how safe really are
13:25
Speaker 2: my assets? Right? So it starts at the top a
13:28
Speaker 2: lot of large wealthy investors. Whether they're doing the right
13:32
Speaker 2: thing or not, that's not up to me. But it's
13:34
Speaker 2: just a signal that they thought, Okay, we need to
13:37
Speaker 2: move out of the financial system and into an asset
13:41
Speaker 2: that has the ability. And you know, it's no accident
13:44
Speaker 2: that we saw bitcoin and crypto takeoff around that time too.
13:47
Speaker 2: But gold, you know, a gold bar can be transported
13:50
Speaker 2: across borders without a banking system or a crypto rail
13:54
Speaker 2: in and out in the middle, and I think that's
13:57
Speaker 2: what's happening to gold. I think there's also central for
14:00
Speaker 2: banks diversifying. There's you know, obviously a trade wall between
14:03
Speaker 2: the East and the West. But overlaying all of these reasons,
14:08
Speaker 2: we don't know which reason is more important. You've got leverage,
14:12
Speaker 2: and you have a lot of traders that are now
14:14
Speaker 2: leveraging positions. They're going in, they move out of crypto,
14:17
Speaker 2: they're moving into this, and I think that explains the
14:21
Speaker 2: rapid increases, the exponential increases, and it's very dangerous because
14:25
Speaker 2: the more leverage in a market that isn't liquid, particularly silver,
14:30
Speaker 2: you're going to get a big spike up, but a
14:32
Speaker 2: big spike down too. So I think that explains why
14:35
Speaker 2: we've seen such parabolic moves in a in a medal
14:39
Speaker 2: or in an asset class that has fundamental reasons, but
14:43
Speaker 2: it's popping.
14:44
Speaker 1: So for the diversified investor who's looking at gold and
14:47
Speaker 1: looking at residential property and looking at chairs, looking at everything,
14:51
Speaker 1: private equity, private credit, whatever you've got, and trying to
14:54
Speaker 1: have that balance. Do you classify residential property as a
14:59
Speaker 1: hard acid basically as a non listed asset that fits
15:02
Speaker 1: in the same category as good.
15:05
Speaker 2: Yeah, it's in the same category as me. But the
15:07
Speaker 2: reason why I like it more is because it gives
15:10
Speaker 2: me an income. If I go and put money in
15:12
Speaker 2: gold doesn't generate me any income, right, so it doesn't
15:16
Speaker 2: have a utility. In fact, that probably costs me because
15:19
Speaker 2: I have to go and store it somewhere, or if
15:22
Speaker 2: I store it at home, I'm paranoid over being robbed,
15:24
Speaker 2: So it has an actual cost to it. If I
15:27
Speaker 2: go and buy residential real estate, then I buy the
15:30
Speaker 2: right real estate in the right market. And I do
15:32
Speaker 2: think sensibly that real estate becomes a home for someone,
15:36
Speaker 2: and so first of all, there's a social benefit that
15:38
Speaker 2: is really important because that person gets to live somewhere
15:41
Speaker 2: and has housing security. That person will pay for that.
15:45
Speaker 2: That gives me an income stream, and then I can
15:47
Speaker 2: use that income stream to go and gear that house.
15:50
Speaker 2: And so my one hundred thousand dollars investment can turn
15:53
Speaker 2: into a five hundred thousand dollars investment because of gearing.
15:57
Speaker 2: Now I can go and gear gold. But because I
15:59
Speaker 2: don't have income, I'm successed succeptible to more risk because
16:03
Speaker 2: I'm funding that gearing out of my pocket. I don't
16:06
Speaker 2: have the income, so I'm purely speculating on capital gain,
16:10
Speaker 2: whereas if I've gone by an residential piece of real estate,
16:13
Speaker 2: that income stream allows me to give with more certainty
16:17
Speaker 2: because the income our received can go towards paying off
16:20
Speaker 2: the debt.
16:20
Speaker 1: It's interesting, I'm going to do. I'm going to do
16:22
Speaker 1: a hell of a segue here, folks, but it's logical.
16:26
Speaker 1: One of the things that's coming through talking to you,
16:29
Speaker 1: Peter is confidence in the investors in residential with the
16:34
Speaker 1: state in Australia who have been blowing hot and cold,
16:37
Speaker 1: and we're actually out of the market for a while
16:39
Speaker 1: and really came back in last year, but in terms
16:42
Speaker 1: of signals that there may be more action on the
16:46
Speaker 1: investment layer and residential property. Backing into your border concept
16:49
Speaker 1: of the chase you know for hard assets and the
16:52
Speaker 1: concern over the basements generally of feed currencies. I noticed
16:58
Speaker 1: just this morning that it's super funds, which are key
17:02
Speaker 1: investors in the property market. They had been left high
17:05
Speaker 1: and dry for some years. For seven years actually, the
17:08
Speaker 1: banks had pulled out of self managed super fund investing,
17:12
Speaker 1: which is largely property investing, and when they gear it
17:16
Speaker 1: is very much for property. Up until now that's been
17:19
Speaker 1: almost for the Since two seventeen, there's been no where
17:22
Speaker 1: to lend except now on banks. Interesting to see AMP
17:25
Speaker 1: Bank come back in this week with an announcement from
17:28
Speaker 1: their chief O'Malley that they're coming back into SMSF lending.
17:32
Speaker 1: I'm just one. I don't want to make too much
17:34
Speaker 1: of this, but I'm wondering would you see that as
17:39
Speaker 1: a vote of confidence in that theory that the investors
17:42
Speaker 1: are rolling back into property.
17:44
Speaker 2: I think there's a couple of signals with Amp's move.
17:47
Speaker 2: First of all, signals that the retail banking market is
17:50
Speaker 2: an extremely competitive space and so you need to develop
17:54
Speaker 2: niche offerings in order to have a competitive advantage. Because
17:58
Speaker 2: the big banks have the distribution, they've got pricing, and
18:02
Speaker 2: there's a broking market that generates about seventy to eighty
18:05
Speaker 2: percent of volume, right, so you have about twenty three
18:08
Speaker 2: thousand brokers that are writing the majority of the volume.
18:11
Speaker 2: So for a challenge of brand like AMP, they need
18:14
Speaker 2: to have certain niches that they can focus on. And
18:18
Speaker 2: because of the way that credit law is written in
18:20
Speaker 2: Australia around NUBCP, there's only certain things you can do,
18:25
Speaker 2: so it makes sense for them to come into this
18:27
Speaker 2: space that's growing, which is basically an investment space. It's
18:31
Speaker 2: a space that, as you said, is dominated by the
18:33
Speaker 2: second team names and they bring with them a brand,
18:36
Speaker 2: they bring with the momentum that they've been building in banking,
18:40
Speaker 2: and they have the ability to genuinely innovate here because
18:44
Speaker 2: a lot of a lot of the SMSF product is
18:48
Speaker 2: quite vanilla in nature, and so what they can do
18:51
Speaker 2: is come and say, hey, mister investor, bring your SMSF
18:54
Speaker 2: property to us. But we're also a brand that is
18:57
Speaker 2: known for investments, and maybe in the future we diversify that.
19:01
Speaker 2: So from a strategy perspective, I think it has very
19:04
Speaker 2: good merit. They just need to execute on it. In
19:07
Speaker 2: terms of SMSF lending and SMSF property investors, as a
19:12
Speaker 2: property investor, as an SMSF trustee, I mean, you don't
19:16
Speaker 2: necessarily want to have overexposure to shares. You know. The
19:19
Speaker 2: reason why you go self managed is because you don't
19:22
Speaker 2: want the legacy system that has been over financialised into shares.
19:26
Speaker 2: And so it makes natural sense to allow people to
19:29
Speaker 2: go and buy property because if they retire, when they
19:32
Speaker 2: hit retirement phase and they now are in a different
19:35
Speaker 2: tax rasion, they may actually want to do different things
19:38
Speaker 2: with that property. So yeah, it's a growing space and
19:42
Speaker 2: I think it's a smart move by AMP.
19:45
Speaker 1: It certainly says to me that this whole what would
19:47
Speaker 1: you say that sms investors, we have money listening to
19:52
Speaker 1: the show, They have been very limited in their property
19:55
Speaker 1: options because the bank's pulled out. And to see AMP
19:59
Speaker 1: come back into the markets, re enter the market that
20:01
Speaker 1: they actually formally withdrew from seven you go seven years ago,
20:06
Speaker 1: tells to me that the risk around SMSF lending is finished.
20:10
Speaker 1: I mean, if a bank basically signs up to go
20:12
Speaker 1: back in, then they know that it's not that area
20:14
Speaker 1: is not going to be closed down by the government.
20:16
Speaker 2: There's definitely balance shoot risk. I think the way that
20:19
Speaker 2: the lenders have mitigated over the past few years is
20:22
Speaker 2: limiting exposure increasing servicing, so you know, they have more
20:26
Speaker 2: five or six hundred thousand dollar loans as opposed to
20:29
Speaker 2: one point five or two million dollar loans in our
20:31
Speaker 2: owner occupied market. Yeah, so that's that's kind of really important.
20:36
Speaker 2: One of the things that I think SMSF lending to
20:40
Speaker 2: property investors is seen as risky, but I think the
20:42
Speaker 2: even bigger risk that goes unreported is the smsfs that
20:46
Speaker 2: have gone into private credit. I think that's where there's
20:49
Speaker 2: systemic risk because when I buy a property, we know
20:52
Speaker 2: that property exists, there's title, there's rental income, and there's
20:57
Speaker 2: a debt. When you go into private credit, a lot
21:00
Speaker 2: of these SMSF investors have been lured into private credit
21:03
Speaker 2: and they have absolutely no idea where their money goes.
21:07
Speaker 2: And private credit has grown because the big banks have
21:10
Speaker 2: gotten out of it. There's a reason why the big
21:12
Speaker 2: banks have gotten out of private credit because at risky,
21:15
Speaker 2: at debt, and so for an SMSF investor who is
21:19
Speaker 2: self directed, not not experienced and balance shape risk or
21:25
Speaker 2: prudential risk to go into private credit, I think that's
21:28
Speaker 2: what the biggest risk is, not SMSF lending.
21:31
Speaker 1: Interesting. We will take short break whill we come back.
21:33
Speaker 1: I'm going to tell you something very interesting about private credit, folks.
21:36
Speaker 1: That's just happened. And we have the first back to
21:39
Speaker 1: corresponding and some questions for the first show of the
21:42
Speaker 1: year with the questions back from listeners. Okay, back in
21:44
Speaker 1: the moment. Hello, welcome back to The Australian's Money Puzzle.
21:57
Speaker 1: I'm James Kirby talking to Peter Esher, who is very
22:01
Speaker 1: usefully across both listed markets and property markets as a guest.
22:07
Speaker 1: And Peter, you were just talking about private credit and
22:10
Speaker 1: that you thought perhaps the concern is not so much
22:13
Speaker 1: smsfs with the properties that they know. Also well every
22:17
Speaker 1: block of every inch of they have a strong umbilical
22:21
Speaker 1: link with any properties they have. But an SMSF may
22:24
Speaker 1: have no clue whatsoever about the private equity funder private
22:27
Speaker 1: credit fund sorry it might be doing with their money.
22:30
Speaker 1: And just as I'm talking to you, the black Rock,
22:33
Speaker 1: one of the biggest private debt funds in the world,
22:35
Speaker 1: announced and nineteen percent markdown in one of its biggest
22:38
Speaker 1: funds this week, with basically black Rock itself then getting
22:43
Speaker 1: sold off by up to fourteen percent. This is the
22:45
Speaker 1: biggest financial group in the world. Just to echo what
22:48
Speaker 1: Peter is saying, we may come back to that in
22:51
Speaker 1: later shows. Okay, Peter, I have a couple of questions
22:54
Speaker 1: which I thought you'd enjoy answering. One is from Andrew. Hi, Andrew,
22:59
Speaker 1: a happy New Year. I have a four themes, says Andrew,
23:01
Speaker 1: I would like to see explore on the show this year.
23:04
Speaker 1: Are any of these changes possible or likely we'll try
23:07
Speaker 1: and get through this briefly because he's got four things.
23:09
Speaker 1: One raising GST extremely difficult. I would have thought, what
23:13
Speaker 1: do you think, Peter.
23:15
Speaker 2: Above my pay grad and understand tax policy. I did
23:19
Speaker 2: study accounting, but there's a reason why I didn't go
23:21
Speaker 2: into it. So I'm not sure enough.
23:23
Speaker 1: Yeah, perfectly happy with someone who says I don't know. Okay.
23:26
Speaker 1: Second question, death tax, Now that is an interesting one, Andrew,
23:31
Speaker 1: because though we don't officially have an inheritence tax or
23:35
Speaker 1: death tax, most people would know that. Of course, there
23:38
Speaker 1: are many people who will find themselves getting a de
23:41
Speaker 1: facto inheritence tax with SMSFS or super when their estate
23:46
Speaker 1: will be taxed on the basis of the way that
23:49
Speaker 1: they contributed to their funds over the years. And we've
23:51
Speaker 1: had a lot of coverage of that and a lot
23:53
Speaker 1: of interest in it when we covered it in the Australian.
23:56
Speaker 1: Just as an extra snippet on this. In the new
23:58
Speaker 1: super tax, which is just going through the system at
24:01
Speaker 1: the moment, in the revised rules for it, the government
24:04
Speaker 1: have actually they've changed a tiny aspect of that whereby
24:10
Speaker 1: estates will pay more than they were paying under the
24:13
Speaker 1: pre Christmas if you like original white paper on it.
24:17
Speaker 1: So I do see death taxes as basically low hanging fruit,
24:21
Speaker 1: and I do see some signals that this government is
24:24
Speaker 1: prepared to wait in there when they can. What do
24:27
Speaker 1: you think of that one, Peter?
24:29
Speaker 2: Yeah, I think all taxes are on the table. I
24:32
Speaker 2: think fiscal debt has risen and governments are going to
24:37
Speaker 2: be looking at any way they can to plug based
24:40
Speaker 2: fiscal gaps. So I think your death taxes, your reduction
24:45
Speaker 2: of investor incentives. But there's going to be a snapback
24:49
Speaker 2: because every time you impose a tax, it isn't necessarily
24:53
Speaker 2: the people who you think are going to pay for
24:55
Speaker 2: it that pay for it. So yeah, I think all
24:58
Speaker 2: taxes are on the table.
25:00
Speaker 1: Andrew also put forward the notion of a removal of
25:02
Speaker 1: the CGT discount for property. Well, Peter, earlier in the show,
25:06
Speaker 1: Andrew said he thought they wouldn't drop CGT or reframe
25:12
Speaker 1: it entirely, but they might tinker with the discount. Is
25:15
Speaker 1: that what you were suggesting, Peter?
25:18
Speaker 2: Yeah? Look, I think if they do, there's going to
25:21
Speaker 2: be a big impact on housing supply, and they have
25:25
Speaker 2: to cut loopholes. For example, if you and I James
25:27
Speaker 2: set up a company. In that company buys a house
25:31
Speaker 2: and we sell our shares in the company as opposed
25:33
Speaker 2: to selling the house. Do we get the CGT discount?
25:37
Speaker 2: You know, we're not selling a house, we're selling shares
25:39
Speaker 2: and shares are exempts, so then it's a publicly traded
25:42
Speaker 2: Then what happens to businesses and there's it's a minefield.
25:45
Speaker 2: So it sounds easy in principle that they can just
25:49
Speaker 2: make a property related but in practice it's messy.
25:52
Speaker 1: That's a very interesting point. Okay, And the last part
25:55
Speaker 1: of Andrew suggested a removal of negative gearing is that
25:58
Speaker 1: on the card. I think they'll go for CGT over
26:01
Speaker 1: negative gearing. That's my hunch. Politically, what do you think, Peter, Yeah.
26:05
Speaker 2: I think if there are any moves on negative gearing
26:08
Speaker 2: that what we did see from the Labor government pre
26:11
Speaker 2: last election around negative gearing policy was they did consider
26:15
Speaker 2: making it just on brand new property. So they come
26:18
Speaker 2: in and they say, look, we understand negative gearing is
26:20
Speaker 2: there to encourage new supply, and what we want to
26:23
Speaker 2: do is ensure that incentive remains there if you are
26:26
Speaker 2: buying brand new and because people will have an incentive
26:30
Speaker 2: to buy brand new, it'll encourage more supply and more building.
26:33
Speaker 2: They could sell it in that way, they'll grandfather it in.
26:37
Speaker 2: So I think everyone that has a property doesn't need
26:40
Speaker 2: to sell, and from a certain date any additional property
26:43
Speaker 2: will only be for brand new. I think at some
26:46
Speaker 2: point we will see that.
26:47
Speaker 1: Right, which was what they had. There was an election attempt,
26:50
Speaker 1: wasn't it. Once upon a time.
26:52
Speaker 2: It was an attempt, but nobody wanted to go near
26:54
Speaker 2: it because they thought any changes to tax policy is
26:58
Speaker 2: too dangerous. And labor learned its lesson last time, when
27:02
Speaker 2: you know Bill Shorten election, they did push through a
27:05
Speaker 2: lot of policy, and this time they thought, well, why bother,
27:08
Speaker 2: let's go policy live. Yes.
27:10
Speaker 1: Yeah, and obviously he didn't he will. He lost an
27:13
Speaker 1: election with those policies, which were an integral part of why.
27:16
Speaker 2: He did it.
27:17
Speaker 1: Is okay, very good. We're running out of time, folks,
27:19
Speaker 1: so we'll come back to lots of questions. Please keep
27:21
Speaker 1: sending them in. Thank you very much, Peter Esher. That
27:24
Speaker 1: was great, lovely to have you on. We'll have you
27:26
Speaker 1: on again.
27:26
Speaker 2: Thank you very much, thanks for having me.
27:29
Speaker 1: That was Peter Esher of the flex Doc Group, which
27:32
Speaker 1: is a property financing operation run by Peter and keep
27:36
Speaker 1: the emails coming their money puzzle at the Australian dot
27:40
Speaker 1: com dot au Talk to you soon.
28:01
Speaker 2: A