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Why residential rental income is about to move higher (again) · The Money Puzzle

• 0:09
  Speaker 1: Hello and welcome to the Australians Money Puzzle Podcast. I'm
• 0:12
  Speaker 1: James Kirby. Welcome aboard everybody. I'm talking today to my
• 0:17
  Speaker 1: special guest Louis Christopher, who is especially in the Sydney studio.
• 0:21
  Speaker 1: What a pleasure to have him in the studio.
• 0:23
  Speaker 2: How are you, Louis A great to be with you
• 0:24
  Speaker 2: once again, James and your audience.
• 0:26
  Speaker 1: It's nice to be in the same room with you.
• 0:29
  Speaker 1: We don't actually get to do that very often in
• 0:32
  Speaker 1: the show because we're building a studio in Melbourne, folks,
• 0:36
  Speaker 1: which would be terrific in the near future. For the moment,
• 0:39
  Speaker 1: it's in Sydney. We get to sit face to face. Now.
• 0:41
  Speaker 1: Loui has been on the show before. You've often heard
• 0:44
  Speaker 1: him on various aspects of the property market. But I
• 0:48
  Speaker 1: want to really bring something to your attention today. One
• 0:53
  Speaker 1: of the major banks, Macquarie Bank, actually put out a
• 0:56
  Speaker 1: report saying that the outlook for the property market, which
• 1:00
  Speaker 1: they thought this is calendar twenty twenty six, would be
• 1:03
  Speaker 1: about six percent or so. Originally six or seven, last
• 1:07
  Speaker 1: year was nine. Everybody was sort of of the view
• 1:10
  Speaker 1: that that would be where it would go. Now Louis Christopher,
• 1:13
  Speaker 1: who we're going to talk to in a moment a
• 1:16
  Speaker 1: month ago, downgraded his outlook quite sharply for the local
• 1:22
  Speaker 1: market and in particular for Sydney and Melbourne. Buta Quaribank today,
• 1:26
  Speaker 1: for what it's worth, a considerably bigger organization. I suppose
• 1:29
  Speaker 1: an SQM Research because it's a global investment bank, has
• 1:32
  Speaker 1: said two point five percent is over going to get
• 1:34
  Speaker 1: in the market this year. So Louis tell me, I
• 1:39
  Speaker 1: take it that Macquary is a few weeks behind you.
• 1:41
  Speaker 1: So if they are, where are you now? What's your
• 1:44
  Speaker 1: outlook now? Having revised a month ago, does it look
• 1:48
  Speaker 1: any better or worse than then?
• 1:50
  Speaker 3: It looks in line, very much in line with.
• 1:54
  Speaker 2: Our revised forecast, James, for h capital city, and I
• 1:58
  Speaker 2: think it's important to know that we're not concerned for
• 2:01
  Speaker 2: every capital city.
• 2:02
  Speaker 3: That's out there.
• 2:03
  Speaker 2: We're still relatively bullish on some capital cities that have
• 2:06
  Speaker 2: a greater exposure to resources, commodities, et cetera, such as Perth,
• 2:12
  Speaker 2: but you're right for Sydney and Melbourne we have become
• 2:14
  Speaker 2: more bearish on it. So our four our revised forecastle
• 2:18
  Speaker 2: Sydney would be that housing prices this year will fall
• 2:21
  Speaker 2: somewhere between minus two to minus six percent, and at
• 2:24
  Speaker 2: this stage I would suggest it's starting to look like
• 2:27
  Speaker 2: more minus six rather than minus two, and for Melbourne
• 2:31
  Speaker 2: falls off up to about minus four percent. But there's
• 2:34
  Speaker 2: still a chance on Melbourne it could still come in
• 2:36
  Speaker 2: relatively steady at say minus one. But these are the
• 2:41
  Speaker 2: two cities that have greater concerns about compared to art
• 2:45
  Speaker 2: capital cities around the country right now.
• 2:47
  Speaker 1: Why why the reversal interest rates?
• 2:51
  Speaker 2: In short, and those concerns actually started mounting before the
• 2:55
  Speaker 2: uranium war broke out, but they've certainly become more aggrieved
• 2:59
  Speaker 2: since the war broken out for obvious reasons. So our
• 3:03
  Speaker 2: original forecast, which were released last year, I assumed that
• 3:07
  Speaker 2: there would not be an interest rate rise in twenty
• 3:10
  Speaker 2: twenty six. The outlook at the time was it potentially,
• 3:14
  Speaker 2: if anything, we might see a cut.
• 3:16
  Speaker 1: That was the talk at the time. It seems like
• 3:18
  Speaker 1: a long time ago.
• 3:19
  Speaker 2: It seems a long time ago, but things started changing
• 3:22
  Speaker 2: just before Christmas time. If you recall, we started to
• 3:24
  Speaker 2: get higher reads on the monthly reads and the CPI,
• 3:29
  Speaker 2: and so a rate rise did occur of course in February.
• 3:33
  Speaker 2: So regardless of the war, we were on the path
• 3:37
  Speaker 2: of making a note to the market our clients that hey,
• 3:41
  Speaker 2: we need to revise our forecast here, and so we
• 3:44
  Speaker 2: did that at the beginning of March. And so as
• 3:47
  Speaker 2: you may recall and your listeners may recall, we put
• 3:52
  Speaker 2: out various scenarios.
• 3:53
  Speaker 3: When we do you.
• 3:54
  Speaker 1: Put out the kind of good, bad, and ugly scenarios.
• 3:58
  Speaker 2: We like to put out the top for what we
• 4:01
  Speaker 2: think are the most likely scenarios out there. And so yeah,
• 4:05
  Speaker 2: like last year, for twenty six, we didn't think rates
• 4:08
  Speaker 2: were going to go up. It wasn't in our top
• 4:10
  Speaker 2: four models. But with the outbreak of the war, with
• 4:15
  Speaker 2: the RBA already leaning towards lifting rates, we had to
• 4:18
  Speaker 2: change all that, and that naturally has ramifications and going
• 4:21
  Speaker 2: all the way back to your question about Sydney and Melbourne,
• 4:24
  Speaker 2: these are two cities where, given the relative affordability of them,
• 4:29
  Speaker 2: they generally have been cities more sensitive to adverse interest
• 4:35
  Speaker 2: rate movements. But over and above that, in times of
• 4:41
  Speaker 2: economic downturn, these two cities have the greatest exposure to
• 4:47
  Speaker 2: the financial services sector. There's a lot of job creation
• 4:50
  Speaker 2: in Sydney and Melbourne surrounding financial services, and in times
• 4:55
  Speaker 2: of recession, not saying we are in a recession, but
• 4:58
  Speaker 2: in times of economic de on turn, financial services tend
• 5:02
  Speaker 2: to get hit hard.
• 5:03
  Speaker 1: Okay, So like the miners keep their jobs basically in Perth,
• 5:06
  Speaker 1: for instance, but to the white color and the white
• 5:08
  Speaker 1: color with the added threat of AI. I don't know
• 5:11
  Speaker 1: if that was in your modeling, but I'm sure it's relevant.
• 5:15
  Speaker 1: Now Here's the thing. A lot of people and I've
• 5:18
  Speaker 1: had them on the show and it seemed entirely rational
• 5:21
  Speaker 1: at the time. Where off the opinion that Melbourne was
• 5:25
  Speaker 1: undervalued being the second biggest city in the land but
• 5:28
  Speaker 1: being one of the cheapest capitals. But if it's going
• 5:31
  Speaker 1: to do what you say it's going to do that
• 5:33
  Speaker 1: that rebound is nowhere inside.
• 5:35
  Speaker 2: I think we need to look at the fact that
• 5:38
  Speaker 2: you can have something a nassa class, whether it be
• 5:41
  Speaker 2: a share, whether it be property that's undervalued. But it
• 5:44
  Speaker 2: doesn't necessarily mean it's about to turn the corner anytime soon,
• 5:49
  Speaker 2: you know. I always like to say, just like share prices,
• 5:51
  Speaker 2: property prices can never be too high to go even higher,
• 5:55
  Speaker 2: or never too low to go even lower. Right, And
• 5:58
  Speaker 2: when we consider Melbourne, yes, I agree, it's been offering
• 6:03
  Speaker 2: relatively good value compared to history, rental yields at some
• 6:07
  Speaker 2: of the highest levels I've seen for Melbourne on our numbers.
• 6:11
  Speaker 2: But there's been a reason for it. And when you
• 6:14
  Speaker 2: consider what those reasons are, I think the reasons are
• 6:17
  Speaker 2: still there, and that is, for example, are poorly performing economy.
• 6:22
  Speaker 1: Yeah, local issues issues, state issues, tax issues.
• 6:26
  Speaker 2: Yes, that's right, And these factors have not gone away.
• 6:30
  Speaker 3: They're still there.
• 6:31
  Speaker 2: Property taxes of course are higher in the state of
• 6:34
  Speaker 2: Victoria than many other states. That's deterred investor activity as well. Right,
• 6:40
  Speaker 2: And these factors, as we've said, are still there, and
• 6:43
  Speaker 2: so it's one of the reasons why we've been more
• 6:47
  Speaker 2: muted on Melbourne, not just for twenty six We've been
• 6:50
  Speaker 2: muted on Melbourne for a couple of years now.
• 6:52
  Speaker 1: Right, when was the last time they had a minor
• 6:54
  Speaker 1: six percent in Sydney?
• 6:56
  Speaker 2: That would take us back to two thousand and eleven, twenty.
• 7:03
  Speaker 1: Twelve, right, a long time ago.
• 7:06
  Speaker 3: Yeah. Yeah.
• 7:07
  Speaker 2: Melbourne Socidy also did fall in twenty eighteen by nearly
• 7:12
  Speaker 2: a similar amount.
• 7:13
  Speaker 1: Okay, yeah right, yeah, So that well, I'm for the
• 7:18
  Speaker 1: listeners of the show, and most of our listeners are
• 7:21
  Speaker 1: thinking of as investors and they are sizing up this
• 7:25
  Speaker 1: market from an investment perspective. Now, folks, you might think,
• 7:30
  Speaker 1: listening to this show so far that it's a pretty
• 7:33
  Speaker 1: negative scenario. Who we have this outlook where there are
• 7:37
  Speaker 1: clearly going to be softer At the very best case
• 7:41
  Speaker 1: scenario is that prices won't rise much. But there is
• 7:45
  Speaker 1: the stinct possibility of a worse scenario than that of
• 7:50
  Speaker 1: actual price falls which caused all sorts of problems at
• 7:52
  Speaker 1: the margins, and they're pretty obvious. But from an investor perspective,
• 7:57
  Speaker 1: there's a part of this that you may not expect
• 8:01
  Speaker 1: and it's about rents, and it's about the rental yields
• 8:05
  Speaker 1: that you can expect from investment property, which believe it
• 8:11
  Speaker 1: or not, are improving and improving dramatically. We'll talk about
• 8:17
  Speaker 1: that in a moment. Hello, Welcome back to the Australians
• 8:32
  Speaker 1: Money Puzzle podcast. James Kirby here with Louis Christopher of
• 8:35
  Speaker 1: SQM Research. Now that we were just talking about the
• 8:40
  Speaker 1: forecasts and how they are possibly particularly negative in Sydney
• 8:45
  Speaker 1: and Melbourne. But then I also said before the break
• 8:48
  Speaker 1: that there's a sort of complexity in this. We may
• 8:51
  Speaker 1: have software house prices. But for investors with properties or
• 8:56
  Speaker 1: for investors thinking of entering property, in fact, rental vacancy
• 9:02
  Speaker 1: richs are they're dropping. They weren't supposed to drop this
• 9:06
  Speaker 1: year either. What's happening there?
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  Speaker 3: No, that's right.
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  Speaker 2: Yeah, So we've just come out with our numbers, our
• 9:10
  Speaker 2: update for the month of March. National rental vacancy rates
• 9:13
  Speaker 2: fell in the month to one percent. Some cities have
• 9:16
  Speaker 2: been recording rental vacancy rates below one percent, such as
• 9:20
  Speaker 2: Hobart Darwin it just zero point four percent. Sydney came
• 9:24
  Speaker 2: in with a rental vacancy rate of one point one percent.
• 9:28
  Speaker 2: If I recall Melbourne one point four percent, and I
• 9:31
  Speaker 2: think Brismore was zero point nine percent. So James, to
• 9:36
  Speaker 2: my point, while we're forecasting housing prices to fall in
• 9:40
  Speaker 2: city in Melbourne for twenty twenty six, we don't think
• 9:43
  Speaker 2: there's going to be a crash. And the reason is
• 9:45
  Speaker 2: is because for a crash that happened, one of the
• 9:48
  Speaker 2: key ingredients for a housing price crash occurve is an
• 9:52
  Speaker 2: oversupply of real estate, and clearly in the rental data
• 9:57
  Speaker 2: we're recording, there is no way of supply. No, no
• 10:00
  Speaker 2: one in this country is talking about an over supply.
• 10:02
  Speaker 1: Reels you couldn't have rental vacancy or it's going down.
• 10:06
  Speaker 1: In fact, they tell you that it's a worsening under supply,
• 10:10
  Speaker 1: don't there by definition.
• 10:11
  Speaker 2: And it has been so. Last year we built across
• 10:17
  Speaker 2: the country about one hundred and seventy two thousand dwellings
• 10:22
  Speaker 2: that caters for roughly about four hundred and twenty thousand people. Okay,
• 10:30
  Speaker 2: roughly the country grew in terms of population when we
• 10:34
  Speaker 2: include a temporary residence by approximately four hundred and eighty thousand.
• 10:39
  Speaker 1: I thought the immigration numbers were supposed to drop this year.
• 10:42
  Speaker 2: They've been dropping, but not by enough to create a
• 10:46
  Speaker 2: surplus of real estate. So they're off their peaks, and
• 10:50
  Speaker 2: we agree with that. But they're still running at numbers
• 10:55
  Speaker 2: above the COVID time, so above the previous COVID times
• 11:00
  Speaker 2: twenty ten to twenty nineteen. We're still running above those
• 11:04
  Speaker 2: numbers of the country still expanding by a fairly fast clip.
• 11:08
  Speaker 1: And the temporary residence that's significant because it's it's not classified, right,
• 11:13
  Speaker 1: it's not in the number of the headlines, but they're
• 11:16
  Speaker 1: there and they need somewhere to live.
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  Speaker 3: That's exactly right.
• 11:19
  Speaker 2: So at any point in time, we've got about two
• 11:21
  Speaker 2: point nine million temporary residents. And that's increased in terms
• 11:26
  Speaker 2: of the number of temporary residents in the country over
• 11:30
  Speaker 2: last six months by about sixty thousand people.
• 11:32
  Speaker 1: I see, that's fascinating. I didn't realize the number of
• 11:35
  Speaker 1: that big. Now, can I tell you?
• 11:37
  Speaker 3: I can.
• 11:37
  Speaker 1: I ask you just to give listeners an idea. When
• 11:39
  Speaker 1: we see those vacancy rates are coming back towards one percent,
• 11:44
  Speaker 1: what is normal? What what most years, most of the
• 11:49
  Speaker 1: time would the vacancy residential vacancy rate.
• 11:51
  Speaker 2: Be so long term, on our numbers, the national vacancy
• 11:56
  Speaker 2: rate has tended to average around two percent.
• 11:59
  Speaker 1: Okay, where at once? Yes, yeah, so big difference in there.
• 12:02
  Speaker 1: Completely different. I mean it doesn't sound like much, but
• 12:05
  Speaker 1: it's completely different because.
• 12:06
  Speaker 2: It means where we're basically got half the normal number
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  Speaker 2: of rental vacancies the other wise would.
• 12:12
  Speaker 1: And then tell us how that plays into how rental returns,
• 12:16
  Speaker 1: income returns, literally how much the people are charging. How
• 12:19
  Speaker 1: that's how those numbers are playing out.
• 12:21
  Speaker 2: Okay, So SQM Research also publishes advertised RNTs as an index,
• 12:28
  Speaker 2: and I can tell you over the past twelve months.
• 12:30
  Speaker 2: National advertised rents I've risen by five point nine percent,
• 12:35
  Speaker 2: so it's above the CPI. It accelerates above the long
• 12:39
  Speaker 2: term averages that we've been recording. In some cities the
• 12:43
  Speaker 2: number is higher, So Sydney we've recorded a seven point
• 12:47
  Speaker 2: four percent increase advertised rents, So.
• 12:51
  Speaker 1: Rentals in Sydney are running the increase running it.
• 12:55
  Speaker 2: About double inflation correct very broadly, and it's been accelerating
• 12:59
  Speaker 2: of like right again, that was not expected.
• 13:02
  Speaker 3: No, it wasn't.
• 13:03
  Speaker 2: Expected, so the expectation would be that rents would run
• 13:06
  Speaker 2: in line with CPI. But I think the reason why
• 13:09
  Speaker 2: it's occurring is Number one, we're building less and expected.
• 13:12
  Speaker 2: Remember the government's target of one point two million dwellings
• 13:16
  Speaker 2: by twenty twenty nine. It's two hundred and forty thousand
• 13:18
  Speaker 2: dwellings a year, and as mentioned last year, we only
• 13:21
  Speaker 2: built one seventy year, so we're no, we're near it.
• 13:24
  Speaker 2: We're falling behind on the bill rate required, so that's
• 13:29
  Speaker 2: a factor. I think another factor that will play out
• 13:33
  Speaker 2: increasingly this year is because of the rise and interest rates,
• 13:37
  Speaker 2: I think there'll be less renters turning themselves into first
• 13:40
  Speaker 2: home buyers this year, so that means there'll be more
• 13:45
  Speaker 2: renters in the rental pull compared to the number of
• 13:47
  Speaker 2: rental properties.
• 13:48
  Speaker 1: Why is that because we just held We've just said
• 13:50
  Speaker 1: prices could be softer in the softer.
• 13:53
  Speaker 2: So that means, okay, not as many buyers in the market,
• 13:56
  Speaker 2: but a lot of these buyers, of course, are first
• 13:58
  Speaker 2: home buyers, and given the rise in interest rates, that
• 14:02
  Speaker 2: hurts affordability and keeps renters from turning themselves into first
• 14:07
  Speaker 2: time buys.
• 14:07
  Speaker 1: Yeah. So, just turning it around from the investor point
• 14:11
  Speaker 1: of view, do you think there may be a lift
• 14:13
  Speaker 1: in the volume of investors who would be attracted that
• 14:17
  Speaker 1: hard numbers in that market?
• 14:18
  Speaker 3: I don't think immediately.
• 14:20
  Speaker 2: But what will be going on immediately it's happening right now,
• 14:23
  Speaker 2: is that rental yields will be on the rise in
• 14:27
  Speaker 2: Sydney Melbourne.
• 14:28
  Speaker 1: Right.
• 14:28
  Speaker 2: So, naturally, if you're recording a rise in rents but
• 14:31
  Speaker 2: a fall in housing prizes, the rental yield goes up,
• 14:35
  Speaker 2: and eventually you'll get to a point where that will
• 14:39
  Speaker 2: attract investors back into the market. But for the immediate future,
• 14:44
  Speaker 2: where we won't be seen yet.
• 14:46
  Speaker 1: Okay, all right, when take a short break, I want
• 14:48
  Speaker 1: to talk to Louis about what he thinks is likely
• 14:52
  Speaker 1: in the budget. I know what I think is likely
• 14:53
  Speaker 1: in the budget, and I'll tell you that too. Back
• 14:55
  Speaker 1: in a moment. Hello, Welcome back to The Australian's Money
• 15:04
  Speaker 1: Puzzle podcast. James Kirby here talking to Louis Christopher of
• 15:07
  Speaker 1: SQM Research in the studio with me here in Sydney
• 15:11
  Speaker 1: this morning. Louis, here's what I think is going to
• 15:15
  Speaker 1: happen in the budget. An informed guess right, CGT will
• 15:20
  Speaker 1: effectively be increased. It'll be increased by a change in
• 15:23
  Speaker 1: the discount which you currently get when you hold an
• 15:26
  Speaker 1: asset a property, and this is strictly about property for
• 15:29
  Speaker 1: more than a year. You get a fifty per cent discount.
• 15:33
  Speaker 1: That discount it will be changed and it will probably
• 15:35
  Speaker 1: be changed to thirty three percent. Also, I think there's
• 15:39
  Speaker 1: a distinct possibility. I think that's almost certain, less certain,
• 15:42
  Speaker 1: but distinctly possible, is a limit on negative gearing. And
• 15:46
  Speaker 1: that limit will be two houses per investor for a
• 15:50
  Speaker 1: variety of reasons, and it's the simplest way out for
• 15:53
  Speaker 1: the government and the one that's most effective in trying
• 15:56
  Speaker 1: to achieve their housing policy achievements. Review as we have
• 16:01
  Speaker 1: a few weeks to go.
• 16:03
  Speaker 2: Okay, so let's assume they do limit the number of
• 16:07
  Speaker 2: homes and invests can hold it to claim negative give
• 16:10
  Speaker 2: into two pimes. Now, currently about ninety percent of existing
• 16:14
  Speaker 2: property investors own no more than two times, so this
• 16:17
  Speaker 2: is only going to affect ten percent of the investor base,
• 16:21
  Speaker 2: and presumably the most affluent investors are out there. Definitionah,
• 16:27
  Speaker 2: so I'm not so sure it's going to have a
• 16:29
  Speaker 2: great impact in terms of the outcome that the government's
• 16:33
  Speaker 2: seeking out of this, which are presumably is more affordable housing.
• 16:37
  Speaker 2: So I questioned that I think you're right that they
• 16:41
  Speaker 2: will cut the.
• 16:43
  Speaker 3: Discount on capital gains tax.
• 16:46
  Speaker 2: Now, if they do, investors in time will require a
• 16:50
  Speaker 2: higher rate of return that's rental return to compensate for that.
• 16:57
  Speaker 3: So that'll be the reality.
• 16:59
  Speaker 2: You just will is much investor activity, especially if but
• 17:02
  Speaker 2: it's just focused on property.
• 17:04
  Speaker 1: That they'll hold on for longer.
• 17:07
  Speaker 2: Investors may hold on for longer, but there will be
• 17:09
  Speaker 2: less new investors in the market attracted to property, and
• 17:13
  Speaker 2: so the investors that potential investors will require a higher
• 17:18
  Speaker 2: rental yield to offset the lack of tax benefit that's there.
• 17:22
  Speaker 2: Or the reduced tax benefit, so that will happen in time.
• 17:26
  Speaker 2: So you know, are these measures that are going to
• 17:30
  Speaker 2: help increase the supply a real state in the market.
• 17:34
  Speaker 1: I wonder in that limiting properties instead of limiting the value,
• 17:38
  Speaker 1: People say, why do they just limit the value of properties?
• 17:41
  Speaker 1: So why don't they limit the losses of properties on
• 17:44
  Speaker 1: close inspection? It seems that that would be very difficult
• 17:47
  Speaker 1: to police. The two properties is pretty easy to police.
• 17:50
  Speaker 1: But the other thing is that there's no limit on it,
• 17:53
  Speaker 1: so you can, if you wish, you can negatively gear
• 17:55
  Speaker 1: two houses for ten million each. Point I'm leading to
• 17:58
  Speaker 1: is that the government will be able to claim that
• 18:02
  Speaker 1: they will they will stop the part that they don't want,
• 18:05
  Speaker 1: which is investors buying five or ten low value of properties,
• 18:10
  Speaker 1: entry level properties, which is the part of the market
• 18:12
  Speaker 1: they're trying to save. If you like, what do you
• 18:15
  Speaker 1: think of that argument?
• 18:16
  Speaker 2: Yeah? Yeah, So once again, I can only raise the
• 18:19
  Speaker 2: fact that we're only talking about ten percent of the
• 18:21
  Speaker 2: population that does that have multi beyond two properties. So
• 18:28
  Speaker 2: I just don't see being having a grand impact. Okay, way, yeah,
• 18:33
  Speaker 2: because it's not across it's not a wide base of investors.
• 18:36
  Speaker 3: We're talking about here.
• 18:38
  Speaker 1: Okay, it is a very interesting point, but that doesn't
• 18:40
  Speaker 1: mean they won't do it. I'll tell you that because
• 18:42
  Speaker 1: it would look good on the night. All right, Two
• 18:44
  Speaker 1: quick questions I've kept for you. One of us from
• 18:46
  Speaker 1: doctor Moe. He says property for high network. He's talking
• 18:49
  Speaker 1: about a recent show with Jack toussl of the partners
• 18:52
  Speaker 1: with the Group, who made the point that at home
• 18:54
  Speaker 1: is a poor investment, and Jack had fairly this. Jack
• 19:00
  Speaker 1: had a fairly strong case on that. He certainly was
• 19:03
  Speaker 1: able to articulate his point of view. But doctor mo
• 19:06
  Speaker 1: says this may be true for the average worker on
• 19:09
  Speaker 1: a thirty year mortgage, but isn't property residential properly a
• 19:14
  Speaker 1: lock box? For high income individuals are those who received
• 19:18
  Speaker 1: large windfalls. And I would tend to see that that's
• 19:23
  Speaker 1: probably right, Doctor More.
• 19:26
  Speaker 2: All I can answer on this respond with this is
• 19:29
  Speaker 2: my own experience, and if you don't mind, I might
• 19:31
  Speaker 2: share sure my own experience in buying our first principal
• 19:35
  Speaker 2: place of residence with my wife back in two thousand
• 19:38
  Speaker 2: and eight, we bought here in city, bought a home
• 19:41
  Speaker 2: in the Sticks for about six hundred and fifty thousand dollars.
• 19:45
  Speaker 2: We bought it on a loan to value ratio of
• 19:48
  Speaker 2: about eighty five percent.
• 19:49
  Speaker 3: If I recall, so I didn't put a lot of
• 19:52
  Speaker 3: money in it.
• 19:53
  Speaker 2: That home in terms of the rate of return generated
• 19:57
  Speaker 2: over the time we held it in terms of capital
• 19:59
  Speaker 2: growth about eleven percent paradum in terms of return on asset.
• 20:03
  Speaker 2: But the return on equity, the return on equity was phenomenal. Yeah,
• 20:08
  Speaker 2: because of the leverage, because you took.
• 20:10
  Speaker 1: The biggest leaning he probably ever took side of business.
• 20:12
  Speaker 2: Now, with that, I wasn't able to build up equity
• 20:16
  Speaker 2: in that home tax free right on that principal place
• 20:20
  Speaker 2: of residents. That equity that I was able to build
• 20:22
  Speaker 2: in that home I was able to use to get
• 20:25
  Speaker 2: ESQ and research going my business. Because the banks wouldn't
• 20:29
  Speaker 2: lend to me on an unsecure basis against my business.
• 20:34
  Speaker 2: I had to use the home of security for my business.
• 20:37
  Speaker 2: Now I took a risk. That's a risk, absolutely, yeah,
• 20:42
  Speaker 2: But that's how in many respects we were able to
• 20:45
  Speaker 2: get ESQ and research to expand.
• 20:47
  Speaker 3: Yeah.
• 20:47
  Speaker 2: And so I look at it and say, hang on,
• 20:50
  Speaker 2: that home for me was a key wealth creator. It
• 20:54
  Speaker 2: triggered many positive things. So I think I think owning
• 20:59
  Speaker 2: a principal place residents is a well build on in
• 21:02
  Speaker 2: many races.
• 21:02
  Speaker 1: Yeah yeah, And none of this is advice, of course,
• 21:07
  Speaker 1: doctor Mo. This is information only. And final question is
• 21:10
  Speaker 1: from Tina, who calls herself Tina on the Gold Coast.
• 21:13
  Speaker 1: In relation to capital gainst Tax CGT on selling and
• 21:16
  Speaker 1: inherited property, A friend recently inherited at home but was
• 21:19
  Speaker 1: advised if she sold within twelve months there would be
• 21:22
  Speaker 1: no CGT. Is that the case, Tina, We were not
• 21:24
  Speaker 1: going to go into that one. I think I will
• 21:27
  Speaker 1: leave that for a financial advisor, one that's brave enough
• 21:30
  Speaker 1: to wander in there. Generally, would you know? There is
• 21:33
  Speaker 1: no inheritance tax in Australia and generally obviously the home
• 21:38
  Speaker 1: is CGT free, but there are small variations to that
• 21:43
  Speaker 1: that occasionally can arise, and it's something I will come
• 21:47
  Speaker 1: back to, and I mean I will come back to
• 21:49
  Speaker 1: it in a show very close in the near future. Okay,
• 21:53
  Speaker 1: we've run out of time. Louis Christopher SQM Research, thanks
• 21:56
  Speaker 1: very much for coming in today.
• 21:57
  Speaker 3: Good to be with you once again. James, it's good
• 22:00
  Speaker 3: to talk to you.
• 22:01
  Speaker 1: We will have you on again. Folks. Keep the emails rolling,
• 22:03
  Speaker 1: the money puzzle at the Australian dot com dot AU.
• 22:07
  Speaker 1: Today's show was produced by Leah Sammaglue, Talk Too Soon