Latest / The Money Puzzle / Why property prices are ready to push higher

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Why property prices are ready to push higher · The Money Puzzle

• 0:10
  Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
• 0:13
  Speaker 1: James Kirby. Welcome aboard everybody. We've been concentrating a lot
• 0:17
  Speaker 1: on the share market and there is just now perhaps
• 0:21
  Speaker 1: something of a brief calm at these last few days
• 0:25
  Speaker 1: on US markets. Maybe this is a chance for everyone
• 0:30
  Speaker 1: listening to take stock think about if they're properly set,
• 0:35
  Speaker 1: are they fully up to date on the threats and
• 0:37
  Speaker 1: the opportunities of what's been going on, which we've been
• 0:40
  Speaker 1: covering fairly intensity, And we will get back to it
• 0:42
  Speaker 1: pretty quickly. But meanwhile there's a lot of news to
• 0:45
  Speaker 1: catch up with for anyone interested in property, in the
• 0:49
  Speaker 1: value of their home, in investment property of any type,
• 0:53
  Speaker 1: or helping other people perhaps to get into the market,
• 0:56
  Speaker 1: because the federal election which we are in the thick of,
• 0:59
  Speaker 1: has suddenly become we'd seen in terms of handouts at
• 1:01
  Speaker 1: least all about home buyers first home buyers, and we
• 1:05
  Speaker 1: will give you a quick catch up on what's happening
• 1:09
  Speaker 1: there at the start of the show. Also, I want
• 1:12
  Speaker 1: to bring up the point and discuss the concept historical
• 1:17
  Speaker 1: concept really well proven that when there is a share
• 1:20
  Speaker 1: market shakeout, there is a shift towards property by investors,
• 1:24
  Speaker 1: and the evidence is there that investors are coming back
• 1:27
  Speaker 1: into the market. But we will talk and we will
• 1:30
  Speaker 1: basically interrogate that as well. My guest today is Stuart
• 1:33
  Speaker 1: Wems of the pro Solution Private Client Group.
• 1:36
  Speaker 2: How are you, Stuart, I'm really well, James plenty going on,
• 1:39
  Speaker 2: so thanks for having me on.
• 1:41
  Speaker 1: Isn't it just for the broader audience that theme that
• 1:45
  Speaker 1: people move back into property when there is a share
• 1:49
  Speaker 1: market shakeout? We saw it after COVID's that was beyond now,
• 1:53
  Speaker 1: that was extraordinary, thirty percent phone the stop market and
• 1:56
  Speaker 1: people went straight into property and there was double digital
• 1:59
  Speaker 1: lifts across the board. Off the back of that. We've
• 2:02
  Speaker 1: seen even before this share market drop. And remember that
• 2:08
  Speaker 1: at one point the US share market and in what
• 2:11
  Speaker 1: might be the frustrating we don't know what has happened
• 2:14
  Speaker 1: off Tarrafs was nearly down to twenty percent from the top.
• 2:17
  Speaker 1: But we have seen investors coming back into property in
• 2:21
  Speaker 1: any event before this. Some people say, oh, they couldn't
• 2:25
  Speaker 1: possibly you know, properties, so dear, the yields are so low,
• 2:29
  Speaker 1: what do you think?
• 2:31
  Speaker 2: It definitely has an impact volatility, because that's One of
• 2:34
  Speaker 2: the things with property is that has much lower volatility,
• 2:37
  Speaker 2: about half the rate of volatility of the share market,
• 2:40
  Speaker 2: and I guess we have a sense of that anyway,
• 2:43
  Speaker 2: a property feels secure. It's not traded every day, so
• 2:46
  Speaker 2: you don't get the same sort of price fluctuations, and
• 2:50
  Speaker 2: that makes investors feel a little bit more comfortable. So
• 2:53
  Speaker 2: it's always a good reminder for property investors that shure
• 2:55
  Speaker 2: the share market is volatile, and that's normal, that should
• 2:58
  Speaker 2: be expected. This nothing's going to change there. The returns
• 3:02
  Speaker 2: still in the long run are good, but it is
• 3:03
  Speaker 2: more volatile. But when we get a reminder of that,
• 3:07
  Speaker 2: of course, it tends to push people in the property direction,
• 3:10
  Speaker 2: and then future expected returns another consideration. The share markets
• 3:14
  Speaker 2: had a great run over last well, the US market
• 3:17
  Speaker 2: over the last thirteen years, and just generally in markets
• 3:21
  Speaker 2: maybe over the last ten. But if we don't expect
• 3:23
  Speaker 2: the next ten to be as good as the last decade,
• 3:26
  Speaker 2: well then maybe investor start looking to other asset classes.
• 3:30
  Speaker 2: And then finally, the backdrop of falling interest rates or
• 3:34
  Speaker 2: potentially falling interest rates, which is exactly what happened during COVID,
• 3:39
  Speaker 2: of course, and which really stimulated property. But that has
• 3:43
  Speaker 2: a big impact on demand for lending and then of
• 3:46
  Speaker 2: course more money flowing into the property market. So it's
• 3:49
  Speaker 2: almost a perfect storm really for the property market in
• 3:52
  Speaker 2: a positive sense.
• 3:54
  Speaker 1: Perfect conditions you mean, yeah, correct, that's what I meant.
• 3:57
  Speaker 2: Yet wrong word.
• 3:58
  Speaker 1: I wouldn't discree with you at all. The banks would
• 4:00
  Speaker 1: seem to be ready to lend, the yields are stable,
• 4:06
  Speaker 1: the prices were expected to go let's say five percent
• 4:11
  Speaker 1: or so. Nation might in any event if they did that,
• 4:15
  Speaker 1: with their yields of two and three percent being realistic
• 4:17
  Speaker 1: for people from many people, that would be persuasive. I'm
• 4:21
  Speaker 1: really talking about metropolitan properties there there are better years,
• 4:24
  Speaker 1: of course, and every property is local, so there's that
• 4:28
  Speaker 1: to consider. And the rates some of the banks starting
• 4:31
  Speaker 1: to move already. I see on the fixed side they
• 4:35
  Speaker 1: are dropping, and of course they're dropping their cash rates
• 4:37
  Speaker 1: as well, ever so quietly, but they're all doing it systematically.
• 4:40
  Speaker 1: So we have that. So you have that, you have
• 4:43
  Speaker 1: good conditions. You might think, on paper, what might be
• 4:48
  Speaker 1: the bare case here? What might stop property lifting?
• 4:53
  Speaker 2: Global recession and therefore an economic slow down in Australia
• 4:57
  Speaker 2: as well. I mean that could have an impact particularly
• 5:00
  Speaker 2: if we then see rising unemployment. Rising unemployment is not
• 5:03
  Speaker 2: good for the property market, of course, so that could
• 5:07
  Speaker 2: be a potential downside. And I know there's been a
• 5:10
  Speaker 2: bunch of economists called the probability of a recession in
• 5:13
  Speaker 2: the US sixty seventy percent or something like that. But
• 5:17
  Speaker 2: it's just retrick, isn't it. No one really knows.
• 5:19
  Speaker 1: I saw her gold that Sachs literally moves the last
• 5:22
  Speaker 1: few days. They move their probability of recession from just
• 5:25
  Speaker 1: over fifty to just under fifty. It's really borderline, but
• 5:29
  Speaker 1: it's obviously a borderline risk.
• 5:32
  Speaker 2: Yeah it is. And I think look, Australia is somewhat
• 5:34
  Speaker 2: not completely insulated, of course to a global slowdown, not
• 5:37
  Speaker 2: by any stretch of the imagination. But Australia's in a
• 5:40
  Speaker 2: pretty good position economically. So I think that's a potential downside,
• 5:45
  Speaker 2: but I don't think it's a real material risk that
• 5:48
  Speaker 2: I'd be thinking about today. It's a possibility, but I
• 5:50
  Speaker 2: don't think it's likely.
• 5:51
  Speaker 1: So you heard it here. For US folks, the conditions
• 5:54
  Speaker 1: aren't ideal for a probably what you might call it
• 5:57
  Speaker 1: better than expected return from residential property this year calendar
• 6:04
  Speaker 1: twenty twenty five. Certainly, I certainly think that is the case.
• 6:08
  Speaker 1: Or property as local as I say so, you'll probably
• 6:10
  Speaker 1: find that the numbers will be better, say in Victoria
• 6:12
  Speaker 1: than Perth, where Perth has been flying for so long
• 6:15
  Speaker 1: and Victoria has been so subdued for so long. One
• 6:19
  Speaker 1: other thing, just on that sort of big picture of
• 6:21
  Speaker 1: view for everybody. We were talking about first home buyers.
• 6:24
  Speaker 1: So there is now so many grants. I actually have
• 6:25
  Speaker 1: a list. I have a list of all the different
• 6:27
  Speaker 1: grants and I try to keep up, and now there
• 6:29
  Speaker 1: are two that sort of lock everything else to the sides. Really,
• 6:32
  Speaker 1: and we might just explain to listeners. The Labor alp
• 6:36
  Speaker 1: the government, their big ticket first home buyer package was
• 6:42
  Speaker 1: announced virtually on the same day as Peter Dutton. Now
• 6:45
  Speaker 1: Labor already had a shared Equity plan which we've had
• 6:48
  Speaker 1: a look at, that's going to be pushed to the sidelines.
• 6:50
  Speaker 1: I think for the simple reason that the First Home Guarantee,
• 6:53
  Speaker 1: which was already the most popular scheme of the country
• 6:55
  Speaker 1: whereby you can buy a property for five percent, that
• 7:00
  Speaker 1: used to be a small, smallish, restricted, totally regulated program.
• 7:05
  Speaker 1: It now goes universal. Basically anyone in Australia buys a
• 7:08
  Speaker 1: house for the first time, can do it a five
• 7:10
  Speaker 1: percent now, Stuart, I think that means everyone in Australia
• 7:14
  Speaker 1: from now on, assuming they get re elected, would be
• 7:17
  Speaker 1: on a five percent posit unless they happen to have
• 7:20
  Speaker 1: a rich mom and dad or something or there around
• 7:22
  Speaker 1: five hundred a year or something. So what does it
• 7:25
  Speaker 1: mean for the wider market if the first home buyer
• 7:28
  Speaker 1: market moves to a standard where most people have only
• 7:33
  Speaker 1: a five percent deposit?
• 7:34
  Speaker 2: Firstly from a housing affordability perspective, making houses more affordable
• 7:40
  Speaker 2: for first home buyers, I would say both sides of politics,
• 7:44
  Speaker 2: their policies are moronic, stupid, dumb, ineffective. I don't know
• 7:50
  Speaker 2: what other words I can strive it. Okay, So it's
• 7:54
  Speaker 2: not going to do anything really, it's not really going
• 7:56
  Speaker 2: to help. It's going to be inflationary for prices. And
• 8:00
  Speaker 2: I think the only thing, the only people it's going
• 8:02
  Speaker 2: to serve people that already own property. And we're seen
• 8:05
  Speaker 2: at time and time again with these sorts of policies.
• 8:07
  Speaker 2: So unfortunately they need to be looking at the supply side,
• 8:11
  Speaker 2: not to demand side. But if we look at first
• 8:13
  Speaker 2: home buyers deposities tends to be their element that restricts
• 8:17
  Speaker 2: them in terms of their capacity to be able to
• 8:20
  Speaker 2: afford to pay more or spend more on a property,
• 8:24
  Speaker 2: because obviously you've got with borrowing capacity. There's two elements.
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  Speaker 2: There's serviceability, which is really about your income and expenses,
• 8:30
  Speaker 2: and then security, which is can you do you have
• 8:33
  Speaker 2: enough money to secure the loan? Do you have enough
• 8:35
  Speaker 2: assets to secure the loan? And I find first time
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  Speaker 2: buyers tend to be weak on security but stronger on serviceability.
• 8:42
  Speaker 2: And if you look at the default rates in Australia,
• 8:46
  Speaker 2: they're very low and even claims on mortgage insurance. So
• 8:49
  Speaker 2: when people do actually borrow more than eighty percent and
• 8:52
  Speaker 2: they have to sell that property because they're in financial strife,
• 8:55
  Speaker 2: the chances of making a loss are pretty low. So
• 8:59
  Speaker 2: I like this game. I think it's good in terms
• 9:02
  Speaker 2: of really helping first time buyers get into the market because,
• 9:06
  Speaker 2: as I said, that saving that deposit, whether it's a
• 9:08
  Speaker 2: twenty percent deposit or even something smaller than that, and
• 9:11
  Speaker 2: then having to pay mortgage insurance, which costs about three
• 9:15
  Speaker 2: or four percent of a loan, really does hamper housing affordability.
• 9:19
  Speaker 1: Importantly, folks, if you haven't read the detail level. What's
• 9:22
  Speaker 1: really interesting, but this ALP offer is that it's five percent,
• 9:27
  Speaker 1: and even buying a house for the first time can
• 9:29
  Speaker 1: buy that house at five percent, and it can be
• 9:33
  Speaker 1: old house or a new house. That's so important from
• 9:36
  Speaker 1: a macro perspective. That means forget it. It's not even
• 9:38
  Speaker 1: attempt at getting more people or more supply into the market,
• 9:42
  Speaker 1: but it's sure as how opens it up because people
• 9:44
  Speaker 1: will say, oh, I can buy any house I like
• 9:46
  Speaker 1: for five percent. So that's the ALP offera. I just
• 9:49
  Speaker 1: want to try to whizz through this. That's to give
• 9:51
  Speaker 1: away from the ALP coalition to be fair, is considerably
• 9:54
  Speaker 1: more targeted and whatever else. It isn't allowed on existing properties.
• 9:59
  Speaker 1: It is strictly on new properties, isn't it. And basically
• 10:02
  Speaker 1: the first time buyer can slam their interest expense as
• 10:08
  Speaker 1: a tax deduction. Isn't that it up to twelve hundred
• 10:11
  Speaker 1: dollars per annum for five years in a rule, and
• 10:15
  Speaker 1: they get it the treatment like many other people get
• 10:17
  Speaker 1: our negative gearing in that they actually can get a
• 10:20
  Speaker 1: tax break on their home, which is quite a new thing.
• 10:24
  Speaker 1: What do you think of that policy that was Stutton's
• 10:26
  Speaker 1: offering the weekend.
• 10:28
  Speaker 2: I mean, it's good that it's limited to new build
• 10:31
  Speaker 2: houses only new build properties dwellings, I should say, only
• 10:34
  Speaker 2: because it will hopefully increase supply, and particularly for developers
• 10:39
  Speaker 2: that trying to build apartments post COVID with the cost
• 10:43
  Speaker 2: of constructing those apartments and then therefore the need to
• 10:46
  Speaker 2: charge more because it just costs them more. Of course,
• 10:49
  Speaker 2: that will help affordability from that perspective, but as I said,
• 10:53
  Speaker 2: first time buyers tend to struggle on the deposit the
• 10:56
  Speaker 2: security side, rather than the serviceability side, so it certainly
• 10:59
  Speaker 2: helps us serve stability, but I'm not really sure that's
• 11:02
  Speaker 2: for them getting into the market.
• 11:04
  Speaker 1: The people is actually getting to the heart of it,
• 11:07
  Speaker 1: which is the deposit.
• 11:09
  Speaker 2: Yeah, it is, but it's broad based, right as you
• 11:11
  Speaker 2: just said it's and we're spoken in these podcast on
• 11:15
  Speaker 2: many occasions, James over the last couple of years about
• 11:17
  Speaker 2: apartments versus houses, and they've started to catch up gues apartments,
• 11:21
  Speaker 2: but we've said the gap between house prices and apartment
• 11:24
  Speaker 2: prices are pretty wide, especially in Melbourne. Well, the ALP
• 11:29
  Speaker 2: policy will help that, won't it. You should see a
• 11:32
  Speaker 2: resurgence I think in the apartment market because that's really
• 11:34
  Speaker 2: where the more affordable dwellings, that's where you can start.
• 11:39
  Speaker 1: Very interesting Okay, yeah, take that on board, folks. It's
• 11:42
  Speaker 1: very interesting times in property. Everything that we've talked about
• 11:47
  Speaker 1: is about the potential of the potential to stimulate the market. Basically,
• 11:53
  Speaker 1: whatever else you think about the market, that is what
• 11:55
  Speaker 1: these issues are throwing money at for us to on buyers,
• 11:58
  Speaker 1: which allows them to borrow more, which allows them to
• 12:00
  Speaker 1: pay more. And similarly, the psycle suggests repeatedly that people
• 12:04
  Speaker 1: move towards property if they get scared in the share market,
• 12:07
  Speaker 1: and there's plenty to be scared about at the moment. Okay, short,
• 12:10
  Speaker 1: break back in a moment. Hello, and welcome back to
• 12:25
  Speaker 1: The Australian's Money Puzzled podcast. I'm James Kirby. I'm talking
• 12:28
  Speaker 1: to Stuart Wems pro Solution Private Clients Group, who regularly
• 12:32
  Speaker 1: writes a course on property and wider issues for The
• 12:36
  Speaker 1: Australian and is qualified on a variety of different qualifications
• 12:42
  Speaker 1: to talk to us in this area. Now, Stewart, you
• 12:45
  Speaker 1: wanted to talk to me and to our listeners about
• 12:50
  Speaker 1: what the tax office is up to at the moment.
• 12:55
  Speaker 1: In relation to property that they should know about that
• 12:57
  Speaker 1: isn't necessarily advertised or written about.
• 13:00
  Speaker 2: Yet that's right, they're on the warpath. James. We've had
• 13:05
  Speaker 2: more audits of clients tax returns for obviously been lodging
• 13:10
  Speaker 2: for the twenty four financial year over the last few months,
• 13:14
  Speaker 2: and we've had over the last two decades, so there's
• 13:17
  Speaker 2: certainly more activity there. And we saw in the budget
• 13:20
  Speaker 2: that there was an allocation of seventy five million towards
• 13:23
  Speaker 2: a personal income tax compliance program, so they're obviously throwing
• 13:27
  Speaker 2: more resources at it. But the challenge for taxpayers is
• 13:31
  Speaker 2: that the ATO doesn't really need a lot more resources
• 13:34
  Speaker 2: because they're getting data feeds from everywhere. They're getting data
• 13:37
  Speaker 2: feeds from the banks, from the titles office, so they
• 13:40
  Speaker 2: know when you buy and sell, from rental bond authorities
• 13:43
  Speaker 2: so they know when you're going to rent out of property,
• 13:45
  Speaker 2: and then lately they've been getting data even going back
• 13:50
  Speaker 2: to twenty eighteen from property management software, so they'll know
• 13:54
  Speaker 2: what sort of income and expenses you've been paying as well,
• 13:57
  Speaker 2: and they can use all that data data match and
• 14:01
  Speaker 2: find what they would regard as higher risk taxpayers, so
• 14:04
  Speaker 2: you know where there's discrepancies from what they might think
• 14:08
  Speaker 2: is the normal, and then send you out a letter
• 14:10
  Speaker 2: and say please explain. And of course it's a that
• 14:14
  Speaker 2: the burden of proof rests on the taxpayers, so that
• 14:16
  Speaker 2: ATO doesn't have to prove that the deduction is wrong
• 14:20
  Speaker 2: or the income is wrong. It's you You've got to
• 14:23
  Speaker 2: prove it.
• 14:23
  Speaker 1: It's a tough arrangement. Yeah, absolutely, And what would be
• 14:28
  Speaker 1: the for listeners? What would be the areas in which
• 14:32
  Speaker 1: they are phishing? Do you think?
• 14:36
  Speaker 2: Yep? They're tacking two main areas, repairs and maintenance and
• 14:39
  Speaker 2: interest deductions there tend to be the sort of two
• 14:42
  Speaker 2: largest if you like. And with repairs and maintenance, they're
• 14:46
  Speaker 2: trying to delineate between what is a genuine repair, so
• 14:49
  Speaker 2: it's just returning it to its original condition when you
• 14:53
  Speaker 2: bought the property, and what is actually an improvement. And
• 14:56
  Speaker 2: we had a case the other day where a client
• 14:59
  Speaker 2: changed switchbox, an electrical switchbox and the property and on
• 15:03
  Speaker 2: the invoice electrician wrote that the previous wiring didn't comply
• 15:09
  Speaker 2: with an outdated code, but it was a relatively new switchbox.
• 15:13
  Speaker 2: But anyway, and so the ATO, because that was under
• 15:16
  Speaker 2: an order, the ATO said well, the whole expense then
• 15:18
  Speaker 2: is capital. It's not a it's not a repair, which
• 15:22
  Speaker 2: clearly it was a repair most of it.
• 15:24
  Speaker 1: We thought it was definitively the mentenance. If it was
• 15:26
  Speaker 1: you had to do it, you weren't going to do
• 15:28
  Speaker 1: it anyway.
• 15:29
  Speaker 2: Yeah, yeah, okay, So they're pretty aggressive there. So it's
• 15:32
  Speaker 2: about a record keeping make sure that you review the
• 15:35
  Speaker 2: invoices that you're getting and there's not going to be
• 15:38
  Speaker 2: any room for the ATO to argue that it is
• 15:40
  Speaker 2: actually an improvement to the property.
• 15:42
  Speaker 1: The description on the invoice is very important.
• 15:45
  Speaker 2: Very important. Yeah, yes, that's the thing that they're going
• 15:47
  Speaker 2: to look for. And I would expect because of data
• 15:50
  Speaker 2: matching AI technology, I would expect taxpayers to experience these
• 15:55
  Speaker 2: type of ordits more often, particularly as property investors with
• 15:59
  Speaker 2: rise interest rates. The cost of negative gearing to the
• 16:02
  Speaker 2: ATO in terms of the tax break is a rising
• 16:05
  Speaker 2: cost of course something they're going to look at. And
• 16:08
  Speaker 2: with respect to interest, it's about making sure that there's
• 16:11
  Speaker 2: a direct connection between the interest that you incurred and
• 16:15
  Speaker 2: the asset that you're holding. So the key thing here
• 16:19
  Speaker 2: is being very careful about making sure there's a clear
• 16:23
  Speaker 2: audit trail between a new loan and a new asset,
• 16:27
  Speaker 2: and I would say that investors absolutely must split out
• 16:31
  Speaker 2: loans so that the debt just relates to that individual asset,
• 16:35
  Speaker 2: and you can even if you have multiple loans for
• 16:37
  Speaker 2: one asset. That's fine, but don't mix purposes. Certainly, don't
• 16:41
  Speaker 2: mix private and investment purposes. But even don't mix purposes.
• 16:45
  Speaker 2: Like you've got an investment loan, you use some for
• 16:48
  Speaker 2: a deposit for an investment property, and then some to
• 16:50
  Speaker 2: invest in the share market, for instance, you want to
• 16:53
  Speaker 2: split those two loans out, which is relatively simple, and
• 16:55
  Speaker 2: your mortgage broke or banker can do that for you,
• 16:58
  Speaker 2: but you definitely want to make sure there's a very
• 17:00
  Speaker 2: clear trail. And then the other two situations where people
• 17:04
  Speaker 2: get into trouble is where they use redraw. So if
• 17:07
  Speaker 2: they've repaid a loan and then they take money out again,
• 17:09
  Speaker 2: be very careful about doing that. And then second, secondly,
• 17:13
  Speaker 2: if you do a refinance during the year, and they
• 17:15
  Speaker 2: will know that you've done a refinance during the year
• 17:18
  Speaker 2: because I'll get that data. If you end up changing
• 17:20
  Speaker 2: loan amounts and loan balances and restructuring, just make sure
• 17:23
  Speaker 2: you've got good records surrounding that to demonstrate that the
• 17:27
  Speaker 2: loan purpose hasn't changed and it relates to certain investments,
• 17:31
  Speaker 2: but interest for investors, and it's our largest tax deduction,
• 17:35
  Speaker 2: and so it's absolutely one that you shouldn't put at
• 17:38
  Speaker 2: risk and only take advice from a registered tax agent too.
• 17:41
  Speaker 2: By the way, James, I've heard some terrible stories from
• 17:44
  Speaker 2: clients getting advice from a well meaning bank or or
• 17:47
  Speaker 2: friend to say, oh, look, just structure a loan this way.
• 17:50
  Speaker 2: Do this, it'll maximize your tax outcomes. But it's unfortunately
• 17:55
  Speaker 2: in some situations completely wrong when actually harms the tax
• 17:59
  Speaker 2: payer rather than helps them. So make sure if you're
• 18:02
  Speaker 2: going to do anything, check it with a tax agent.
• 18:04
  Speaker 1: So keeping those lines clean, folks. Some people, despite their
• 18:08
  Speaker 1: best efforts entirely earnest things can just someone will send
• 18:11
  Speaker 1: something into the wrong account or whatever. So just keep
• 18:13
  Speaker 1: those things clean, as Stuart says. And the key one
• 18:16
  Speaker 1: is interest, which as we've had an investment property, your
• 18:18
  Speaker 1: interest costs are three four times what all the other
• 18:21
  Speaker 1: costs are often on a property. So really good information there.
• 18:27
  Speaker 1: Keep it in mind or your property investors out there,
• 18:30
  Speaker 1: particularly if you're thinking of reassessing the market. Now that
• 18:34
  Speaker 1: we have the conditions which we outlead at the start
• 18:37
  Speaker 1: of the show.
• 18:39
  Speaker 2: And use an offset, James like, that's one way to
• 18:41
  Speaker 2: protect the tax deductible nature of a debt and not
• 18:44
  Speaker 2: change its original nature. So if you do have spare
• 18:47
  Speaker 2: cash and you want to reduce debt instead of paying
• 18:50
  Speaker 2: down the loan, attach an offset account and then put
• 18:54
  Speaker 2: it in the offset account. That way, you can always
• 18:56
  Speaker 2: take money out of the offset, use it for personal purposes,
• 18:59
  Speaker 2: whatever you want to do, but you're not impacting the
• 19:03
  Speaker 2: original tax darchniture of the day exactly.
• 19:05
  Speaker 1: That's keeping it clean. As we're saying, yes, very good, Okay,
• 19:08
  Speaker 1: hopefully that's very clear to everybody. I imagine it is
• 19:11
  Speaker 1: very good. And you can hear the voice of experience there, folks.
• 19:14
  Speaker 1: All right, we'll be back in a moment. We have
• 19:16
  Speaker 1: some very interesting questions for you. Hello, welcome back to
• 19:33
  Speaker 1: the Money Puzzle podcast. You know, Stuart, I wonder that
• 19:36
  Speaker 1: notion of elasticity, how far can you push it? Like,
• 19:39
  Speaker 1: I don't know how many budgets I've done, but I
• 19:41
  Speaker 1: have probably done at least ten or twelve or fifteen
• 19:46
  Speaker 1: in a row. And there's always more money for the
• 19:49
  Speaker 1: tax office. Every year, the pore money on, the more
• 19:52
  Speaker 1: money in the tax office, and I presume how it
• 19:54
  Speaker 1: works is for every extra dollar they put in, they
• 19:56
  Speaker 1: get so many dollars back. But there must be a
• 19:59
  Speaker 1: point in time where diminishing returns sets in. You reckon
• 20:04
  Speaker 1: or are we anywhere near it? You'd have to think
• 20:06
  Speaker 1: that perhaps there are. You were just saying that they
• 20:08
  Speaker 1: seem to have all the data they could possibly need.
• 20:11
  Speaker 2: Yeah, it's a case of productivity though, James. Over the
• 20:13
  Speaker 2: last five years, the amount of data they're getting and
• 20:17
  Speaker 2: the currency of that data, like real time data, has
• 20:21
  Speaker 2: increased one hundredfold.
• 20:23
  Speaker 1: So the data is that what you mean?
• 20:26
  Speaker 2: Thank giveness of the data. And so if you go
• 20:28
  Speaker 2: back ten years ago, they would have to do a
• 20:31
  Speaker 2: lot of manual work, have a lot of reporting, but
• 20:33
  Speaker 2: a lot of it would be manual. But it's so
• 20:36
  Speaker 2: easy now for them to identify you. There's ears ten
• 20:38
  Speaker 2: thousand taxpayers. Let's just send out a letter, cost them
• 20:41
  Speaker 2: no money because it's all electronic, goes through the tax
• 20:44
  Speaker 2: agent portal, all that sort of stuff, and then they
• 20:47
  Speaker 2: just create work for the rest of us. But it
• 20:49
  Speaker 2: doesn't cost them very much money. So the return on
• 20:52
  Speaker 2: investment for allocating because the total allocation to the ATO
• 20:57
  Speaker 2: four compliance activities in the most recent budget was just
• 21:00
  Speaker 2: under a billion dollars, so the return on that is significant.
• 21:05
  Speaker 2: It's a good use of funds because they're definitely going
• 21:09
  Speaker 2: to raise tax revenue as a result.
• 21:11
  Speaker 1: That's the figure. We'd love to see the return on
• 21:13
  Speaker 1: the investment as such in every budget for the ATO,
• 21:16
  Speaker 1: but it would seem, in fact, it would seem to
• 21:18
  Speaker 1: be very clear that there is a hell of a
• 21:20
  Speaker 1: return because they keep expanding and giving them. Now that's
• 21:24
  Speaker 1: true for most regulators if the ACCIC has got more
• 21:27
  Speaker 1: cash up lay too, but the ATEO specifically seems to
• 21:29
  Speaker 1: be there every single time. Some really good questions coming up.
• 21:32
  Speaker 1: I've just probably have time for two. One is from John.
• 21:39
  Speaker 1: He says, as a first home buyer looking to take
• 21:41
  Speaker 1: advantage of the liberal policy which we didn't mention Steorge,
• 21:46
  Speaker 1: which is the fifty thousand that you can use from
• 21:49
  Speaker 1: your own SUPER to buy a house, John says, I
• 21:52
  Speaker 1: am wondering what investments strategy I should have in super,
• 21:56
  Speaker 1: following the general advice to young people. I have had
• 21:59
  Speaker 1: it in high growth, which has done well. Now I
• 22:02
  Speaker 1: am in a dilemma, should I move to a more
• 22:04
  Speaker 1: conservative strategy as I tend to use the funds in
• 22:08
  Speaker 1: the next year, or stay in growth strategy and hope
• 22:11
  Speaker 1: for a rebound. John, I think we get a version
• 22:15
  Speaker 1: of that question almost every week. First of all, what
• 22:19
  Speaker 1: you know because of the markets, the settings. The second
• 22:22
  Speaker 1: thing I would say to you is, yes, it's true
• 22:25
  Speaker 1: that the Liberal policy, which is a new policy which
• 22:29
  Speaker 1: we didn't mention because it's as much about super as
• 22:32
  Speaker 1: it is about housing. But in any event, the policy
• 22:35
  Speaker 1: which will kick off if they win, is that you
• 22:38
  Speaker 1: can use up to fifty thousand of your super to
• 22:42
  Speaker 1: buy your first home. Crucially, the other part of that
• 22:45
  Speaker 1: policy is that eventually you must return that money to
• 22:50
  Speaker 1: your superfund on the basis of how much your home
• 22:54
  Speaker 1: is worth when you sell it. So if you make
• 22:55
  Speaker 1: one hundred percent and you put in fifty thousand, then
• 22:58
  Speaker 1: you'd have to replace one hundred thousand back into your
• 23:01
  Speaker 1: super And that is not so much a catch. That's
• 23:03
  Speaker 1: very logical, but it is rarely mentioned in this So
• 23:06
  Speaker 1: let's cut it into two parts. Stuart, they're super for
• 23:11
  Speaker 1: home buying controversial policy. I think it would be popular
• 23:14
  Speaker 1: if it gets through. I think it would be used.
• 23:17
  Speaker 1: Not everybody wants to be with the government in shared
• 23:20
  Speaker 1: equity or whatever. But I think to John and all
• 23:23
  Speaker 1: the John's in the world out there, it's not advice,
• 23:25
  Speaker 1: it's just information that is only your deliberates when John,
• 23:29
  Speaker 1: it's not going to happen. It is absolutely not going
• 23:32
  Speaker 1: to happen. The LPR in charge, they are absolutely set
• 23:35
  Speaker 1: against that notion.
• 23:37
  Speaker 2: Yeah, I know you're a fan of it, James. I've
• 23:40
  Speaker 2: heard you speak positively about it before. I'm neutral on it.
• 23:43
  Speaker 2: I appreciate the fact that you've got to repay it,
• 23:46
  Speaker 2: so that's the thing I really like about it. But
• 23:49
  Speaker 2: my concern is if we start using super for housing deposits,
• 23:53
  Speaker 2: is it a slippery slope? What else are we going
• 23:55
  Speaker 2: to start using? Yes, before it really is just for
• 23:57
  Speaker 2: retirement savings. But I like the fact that you got
• 24:00
  Speaker 2: to pipe it back, so at least you're just borrowing
• 24:02
  Speaker 2: from your super. If you like, that's not so bad.
• 24:05
  Speaker 1: My enthusiasm is more pragmatic than anything. If you can
• 24:08
  Speaker 1: pay for a Tommy Tuck surgery from your super, why
• 24:11
  Speaker 1: can't you? Why can't you do this? That's really where
• 24:13
  Speaker 1: I'm coming from. And also as I say, the whole
• 24:16
  Speaker 1: tax system is completely biased towards the homeowner, so it
• 24:19
  Speaker 1: is really just that pragmatic. It's a pragmatic support of
• 24:22
  Speaker 1: it more than anything, all Right. The second part then
• 24:25
  Speaker 1: was about moving from growth or it. Last week, two
• 24:30
  Speaker 1: different people came up to me and we're asking about
• 24:33
  Speaker 1: their super and whether they should change it or remove it.
• 24:37
  Speaker 1: This was literally the day, the scary day. So we
• 24:39
  Speaker 1: had the worst day since COVID on one session if
• 24:43
  Speaker 1: you're acall on the share market, and then we had
• 24:45
  Speaker 1: the best day since COVID. But everyone just remembers the
• 24:48
  Speaker 1: worst day. And two people that day I was in
• 24:52
  Speaker 1: the city, two different people who I don't know very well,
• 24:54
  Speaker 1: both came up to me asking about it, and it
• 24:57
  Speaker 1: struck me. So this must be really in people's minds.
• 25:00
  Speaker 1: What do you see to people who'll ring you on
• 25:02
  Speaker 1: it deep where the market force and say, listen, I'm
• 25:04
  Speaker 1: really worried. I don't know about my settings at all.
• 25:07
  Speaker 1: This seemed okay when everything was okay, but now I'm worried.
• 25:09
  Speaker 1: It tests people, doesn't it?
• 25:10
  Speaker 2: It tests people? And my typical response not maybe to
• 25:14
  Speaker 2: John because you might need to use the money or
• 25:16
  Speaker 2: want to use the money in a relatively short period
• 25:18
  Speaker 2: of time. But if you're just a general investor in superannuation,
• 25:22
  Speaker 2: my answer would be, if it's worrying you, stop looking
• 25:24
  Speaker 2: at it because it's not really helping you. You're not
• 25:26
  Speaker 2: going to change the outcomes. And sometimes we think as investors,
• 25:30
  Speaker 2: just because something changes, like a return or the price
• 25:33
  Speaker 2: of an asset, we should have some sort of response
• 25:37
  Speaker 2: to that. Well, typically we shouldn't. We should just leave
• 25:40
  Speaker 2: it well alone and let time do its thing, and
• 25:42
  Speaker 2: we know in the long run will be much better
• 25:44
  Speaker 2: off for it. So volatility is normal. You should expect it.
• 25:48
  Speaker 2: We don't like it, But if you don't like it,
• 25:49
  Speaker 2: just stop looking at it because otherwise you'll end up
• 25:52
  Speaker 2: making a mistake in terms of selling out at the
• 25:56
  Speaker 2: bottom and then missing the recovery.
• 25:58
  Speaker 1: I'm sure what you're saying is stop looking at it obsessively.
• 26:01
  Speaker 1: I suppose you're thinking about it strategically. Yeah. So, yes,
• 26:04
  Speaker 1: the fact that you can look at it every day
• 26:08
  Speaker 1: it's a mixed blessing. People used to just get reports
• 26:10
  Speaker 1: maybe once a quarter and they say, oh, it's gone up.
• 26:12
  Speaker 1: That's good, and they didn't have to pay attention. Now
• 26:16
  Speaker 1: you can look at it every day, and I know
• 26:17
  Speaker 1: that's great for transparency, But there's another side to it,
• 26:20
  Speaker 1: isn't there about how anyone who is an active investor
• 26:26
  Speaker 1: knows that you can overinvest. You can you know that
• 26:28
  Speaker 1: there's a difference between investing and trading, and you don't
• 26:33
  Speaker 1: want to have a trader's mindset with your super and
• 26:35
  Speaker 1: I imagine that's pretty useful thoughts for anyone in that area.
• 26:39
  Speaker 1: While we're at it, though, I think there's one other
• 26:42
  Speaker 1: point I just want to make on that, John, which
• 26:44
  Speaker 1: is that a lot of the big super funds the
• 26:46
  Speaker 1: classification of these three things conservative, balanced, and growth. To
• 26:50
  Speaker 1: the uninitiated, it seems like, well, they are what they
• 26:53
  Speaker 1: say on the label, but actually there's a lot of
• 26:56
  Speaker 1: evidence in our market that balanced is quite growth focused,
• 27:01
  Speaker 1: and growth is terribly growth focused. There's no legal definitions
• 27:04
  Speaker 1: on that, and there's a fair bit of rubber or
• 27:07
  Speaker 1: rubbery definition on that area, which the super funds. It
• 27:10
  Speaker 1: suits them and they don't want to talk about it,
• 27:12
  Speaker 1: and they certainly don't want a debate about it because
• 27:14
  Speaker 1: it suits them to have it that way. But it's
• 27:17
  Speaker 1: a time where you do worry about the fact that
• 27:19
  Speaker 1: people think they're super is more balanced or more conservative
• 27:23
  Speaker 1: than it actually is, or I'll just leave that one
• 27:26
  Speaker 1: sitting out there. The last is a question from ram
• 27:30
  Speaker 1: who says, and this only came in recently, so that
• 27:33
  Speaker 1: the budget was a couple of weeks ago. He says,
• 27:34
  Speaker 1: I have a question regarding the federal budget. What's the
• 27:36
  Speaker 1: point of a budget lock a lock in besides making
• 27:41
  Speaker 1: a select few feel important. I understand it's market sensitive information.
• 27:47
  Speaker 1: Why not release it publicly on market clothes experts have
• 27:50
  Speaker 1: enough time to react. Yeah, well, it came from the
• 27:54
  Speaker 1: whole thing of locking everybody in was on is on
• 27:57
  Speaker 1: the understanding that they could they weren't locked in, and
• 28:01
  Speaker 1: all their WiFi wasn't turned off and everything that they
• 28:03
  Speaker 1: could believe it orough they could move the market right,
• 28:06
  Speaker 1: so they could say, oh, look there's a change in
• 28:08
  Speaker 1: banking legislation or whatever which is going to change the
• 28:10
  Speaker 1: fortunes of A and Z banks, so I'll buy them now,
• 28:13
  Speaker 1: I tell my friend to sell them now or whatever.
• 28:16
  Speaker 1: It's extremely unlikely that would happen in the first place,
• 28:19
  Speaker 1: but that's what it's all about. And if it was
• 28:21
  Speaker 1: any consolation, it doesn't make you feel the slightest bit
• 28:23
  Speaker 1: importance to be locked inside in the room for a
• 28:27
  Speaker 1: long time half one to half seven, six solid hours.
• 28:31
  Speaker 1: So but that's the I'm sure people wonder what on
• 28:34
  Speaker 1: earth is it all about. That's what it's about. And
• 28:36
  Speaker 1: there's there's two, isn't there, Stuart. There's a media one
• 28:39
  Speaker 1: which is the one that gets all the attention, but
• 28:41
  Speaker 1: there's another one for anyone who's interested. Isn't it right?
• 28:44
  Speaker 1: If you work for an NGO, or you work for whatever,
• 28:47
  Speaker 1: senior Citizens of Queensland or something, and you want it's
• 28:51
  Speaker 1: important for you to be in there, you can register
• 28:54
  Speaker 1: and go in and that's almost as big as There's
• 28:56
  Speaker 1: a couple of hundred people in that one as well,
• 28:59
  Speaker 1: and they're under the same thing. They go in from
• 29:01
  Speaker 1: half one to half seven. And the tradition ram is
• 29:05
  Speaker 1: that you can't unleash the information until the treasure begins
• 29:09
  Speaker 1: his speech. The cynics in Canberra say it makes everyone
• 29:14
  Speaker 1: listen to the treasure. That's what it's all about.
• 29:18
  Speaker 2: I can think of better ways to spend my time. James.
• 29:20
  Speaker 1: That's right. Well, as I've mentioned on the show before,
• 29:23
  Speaker 1: the marvelous thing about it, the hard thing about it,
• 29:25
  Speaker 1: it's like it's like going for a very long run,
• 29:26
  Speaker 1: a marathon. But the plus side is that you remember
• 29:30
  Speaker 1: everything because you're in there for six hours studying and
• 29:32
  Speaker 1: you don't really know it for the rest of the year.
• 29:34
  Speaker 1: So that's I would say, I like it, but I
• 29:37
  Speaker 1: am I appreciate what it does for my brain in
• 29:40
  Speaker 1: those six hours. Okay, thank you and thank you Stewart
• 29:43
  Speaker 1: so much there to crunch through. Really interesting about the
• 29:46
  Speaker 1: share market nerves, if you like, and how that might
• 29:49
  Speaker 1: play into better property the even more money pushed at
• 29:53
  Speaker 1: the property market, which would all push up prices. Every
• 29:55
  Speaker 1: single one of those incentives would push up prices. We
• 29:57
  Speaker 1: know that, we know that's just an economic fact. May
• 30:00
  Speaker 1: get some young people into the market hopefully that as well.
• 30:03
  Speaker 1: Very interesting about the ATO I didn't know that. That's
• 30:06
  Speaker 1: worth keeping in mind everybody, and we will be back.
• 30:10
  Speaker 1: I've got Chris Cuff, the legendary Chriscuff coming up on
• 30:15
  Speaker 1: the next edition. We are going to talk about where
• 30:18
  Speaker 1: we are ano that there is something of a pose
• 30:20
  Speaker 1: we hope in the share market. It will give someone
• 30:23
  Speaker 1: a great opportunity to have a look across as to
• 30:25
  Speaker 1: where people have their settings.
• 30:27
  Speaker 2: Thanks Stewart, Thanks James, being found. As always that was.
• 30:30
  Speaker 1: A Stuart Wems the pro Solution Private Client Group. Very good,
• 30:34
  Speaker 1: keep those emails rolling in the money puzzle at the
• 30:37
  Speaker 1: Australian dot Com dot Au. Today's show was produced by
• 30:40
  Speaker 1: Leah sammag Gloom