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You're biased! - The six signs of investment bias that hold you back · The Money Puzzle

0:09
Speaker 1: Hello and welcome to the Australians Money Puzzle podcast. I'm
0:13
Speaker 1: James Kerby. Welcome aboard everybody. You know, the more I
0:15
Speaker 1: understand about investing, the more I realize how important bias becomes.
0:23
Speaker 1: There's a point at which you understand if you listen
0:25
Speaker 1: to this show, there's a point which you start to
0:27
Speaker 1: understand a lot of the basics about investing in property
0:31
Speaker 1: or investing in anything. But look, let's just think about property.
0:35
Speaker 1: You understand the basics that land value is very important,
0:38
Speaker 1: you know, location is very important, compounding is very important,
0:42
Speaker 1: and then after that it becomes a question of bias
0:47
Speaker 1: by bias. When I say investment bias, it's just as
0:49
Speaker 1: applicable to shares. It's that what someone said is the
0:52
Speaker 1: blizzard of feelings and sentiments that push us or pull
0:56
Speaker 1: us towards key investment decisions. Or my guest today is
1:00
Speaker 1: something of an expert on both investment and perhaps our
1:04
Speaker 1: sentiments around how we invest. It's Rasty Vabav who runs
1:10
Speaker 1: the get Rare property agency. He's a property portfolio advisor.
1:17
Speaker 1: Interesting he started as an architectural student. He has studied
1:22
Speaker 1: in the US. He has an MBA across a business
1:27
Speaker 1: He ran big institutional property funds to AMP and Westpac
1:32
Speaker 1: for some years and is now out out in the
1:35
Speaker 1: streets buying property in the very different world of individual investment.
1:40
Speaker 1: How are you, Rasty, Thanks for coming on the show.
1:42
Speaker 2: Thank you for having me over here.
1:44
Speaker 1: Lovely to have you on. I imagine it's a very different business,
1:48
Speaker 1: but I think your experience in institutional property would be
1:52
Speaker 1: very interesting when we talked later in the show. But
1:54
Speaker 1: a few other issues. I want to talk about CGT
1:56
Speaker 1: because there's a lot going on there. But first I
2:00
Speaker 1: I may have mentioned on the show before some one
2:02
Speaker 1: of the best investor presentations I ever saw was Karen
2:05
Speaker 1: Neilson at his peak, the Platinum Management Guru, and it
2:10
Speaker 1: was his presentation was all about bias, which at the
2:13
Speaker 1: time I didn't find interesting. I wanted to know, you know,
2:17
Speaker 1: I wanted him to tell me what stocks to buy
2:19
Speaker 1: right there and then that date, and he was well
2:22
Speaker 1: beyond all that, and he spoke about how bias holds
2:25
Speaker 1: investors back in terms of the share market, how you might,
2:29
Speaker 1: for instance, as an investor, have too much in the
2:31
Speaker 1: Australian share market and not enough overseas, or you might
2:34
Speaker 1: have a bias in relation to you had a great stock, right,
2:38
Speaker 1: you had this stock, it was so good, it tripled
2:41
Speaker 1: in price. You'd loved it, you never wanted to sell it.
2:44
Speaker 1: You never wanted to sell it as it started to
2:46
Speaker 1: drop five percent, ten percent. You can see how it
2:48
Speaker 1: works in property. I'm thinking, and let's see where we
2:50
Speaker 1: go with this, but I'm thinking, in properly, one of
2:52
Speaker 1: the outstanding biases, it's kind a local bias that I
2:57
Speaker 1: remember the first property I ever bought, I wanted it
2:59
Speaker 1: to be literally within walking distance off my home because
3:02
Speaker 1: I thought that I knew that really well. But that
3:06
Speaker 1: would you let us know, tell us about investment bias
3:09
Speaker 1: in the property area.
3:10
Speaker 2: Sure, First of all, I totally agree that when it
3:13
Speaker 2: comes to biases or the patterns we're talking about, they're
3:16
Speaker 2: not really very specific to share market or property market.
3:19
Speaker 2: They are actually very much human. They're very psychological. So
3:23
Speaker 2: this is what we've actually even studied in our CFA curriculum.
3:26
Speaker 2: They actually identified, you know, these hardwired cognitive patterns among
3:32
Speaker 2: the investors, which are typically the wealth destroyed in the
3:36
Speaker 2: long term. Now, it's not about the data, it's really
3:40
Speaker 2: the lens that we look at the data and that's
3:43
Speaker 2: really is holding us back with regards to not being
3:47
Speaker 2: able to make it big in the long run. So
3:49
Speaker 2: we can go through all of that for sure, but
3:51
Speaker 2: it's really like we have seen so much in the forums,
3:54
Speaker 2: like talking about the property forum, you know, like there
3:56
Speaker 2: to buy what data, to look at how the ours agent,
3:59
Speaker 2: but not many people talk about the biases, the thing
4:02
Speaker 2: that actually hold us back and the biggest wealth destroyer
4:06
Speaker 2: in the long run.
4:07
Speaker 1: Yeah, the biggest wealth destroyer as you call it. It's
4:10
Speaker 1: interesting and of course, now there's no excuse. I mean,
4:12
Speaker 1: once upon a time, property was terribly local and you
4:16
Speaker 1: couldn't well, you couldn't get much data. I mean you
4:20
Speaker 1: used to have to go to elaborate lengths to get
4:23
Speaker 1: the price of a house across the road from where
4:26
Speaker 1: you live. Now you can go online and find out
4:28
Speaker 1: what it's sold for. You can have a look, you
4:29
Speaker 1: can see how much it rents for. So there's no
4:32
Speaker 1: so the data is ubiquitous. As you say, can you
4:35
Speaker 1: give us an example, an outstanding example of property bias
4:41
Speaker 1: that the bias issues in the property market for the
4:43
Speaker 1: individual investor.
4:45
Speaker 2: Sure, let's start with one of the biggest ones that
4:47
Speaker 2: we see in the market. And the first one is
4:49
Speaker 2: that of anchoring and what it means anchoring right, So
4:53
Speaker 2: what it really means it comes out is that, hey,
4:55
Speaker 2: how about a property for eight hundred and fifty thousand
4:57
Speaker 2: dollars and I cannot sell for eight hundred thousand dollars
5:02
Speaker 2: And look that data point at that point of time
5:04
Speaker 2: when he bought it, this investor or Pomona, that was
5:07
Speaker 2: relevant at that point of time. But the fact that
5:10
Speaker 2: we get stuck, that we get anchored to that data
5:12
Speaker 2: point which might or might not be relevant at all now,
5:17
Speaker 2: but tends to define the decision making for this individual.
5:21
Speaker 2: So anchoring doesn't hold I mean it actually holds us back.
5:25
Speaker 1: What do you mean when you say anchoring? I mean
5:27
Speaker 1: I'm guessing it means being stuck to some notional idea.
5:32
Speaker 2: Is that it yeah, exactly right, So it's not just
5:35
Speaker 2: the idea. I'm talking the price point. So as an example,
5:39
Speaker 2: if somebody is putting on the market that I'm going
5:41
Speaker 2: to sell this property for a million dollar. Now, for
5:45
Speaker 2: the buyer, potential buyer, they might be looking at it,
5:48
Speaker 2: Hey he's taking about one million dollar, and they get
5:51
Speaker 2: biased towards I guess estimating the prices of property by
5:57
Speaker 2: saying how close it is to a million dollar? So
6:00
Speaker 2: that is one million dollar. That mark that has been
6:02
Speaker 2: given is actually anchoring the decision making of that individual now.
6:08
Speaker 2: But the biggest effect we see it is when I
6:11
Speaker 2: talk about my own properties, what did I buy it for?
6:15
Speaker 2: And should I sell it now at a loss or not?
6:17
Speaker 2: Because I got anchored by what I've bought it for
6:20
Speaker 2: that was it's not relevant.
6:22
Speaker 1: Now, yes, I see. Is this why agents often don't
6:27
Speaker 1: give a price on a property if they can, they
6:29
Speaker 1: like not to give a price.
6:32
Speaker 2: The lass is that they should be giving and they
6:34
Speaker 2: should be realistic. Sure, they should be realistic in their
6:36
Speaker 2: estimation as well. The state loss in New South Wales
6:39
Speaker 2: for example, that they cannot be off by ten persons
6:42
Speaker 2: even in the guidance. But reality is that it's yes,
6:47
Speaker 2: they have to give and they sometimes give. It depends
6:50
Speaker 2: on where we are looking at. So for lots of
6:52
Speaker 2: sales agent they tend to give a lower price just
6:56
Speaker 2: to build a competition, just to get more people interested, right,
7:00
Speaker 2: So that really plays a huge role, especially when I'm
7:04
Speaker 2: looking at my own portfolio. The reality is as an
7:08
Speaker 2: institutional an ex portfolio manager, the idea should be Hey,
7:12
Speaker 2: what is the value of the property today from an
7:14
Speaker 2: independent basis, irrespective of any you know, the feeling or
7:18
Speaker 2: the guts.
7:19
Speaker 1: So you're saying, no, I cannot sell this for less
7:22
Speaker 1: than I bought it for. I cannot. I'm anchored to this.
7:25
Speaker 1: And you're saying, that's a bias that holds you back. Okay,
7:28
Speaker 1: that's a yeah, anchoring. I've mentioned at the start, the
7:32
Speaker 1: one that was obvious to me. That's the only reason
7:34
Speaker 1: I mentioned it. That home bias, which is common of
7:37
Speaker 1: course in the share market, but the home bias towards
7:40
Speaker 1: the ASEX, so people famously have over indexing, if you like,
7:44
Speaker 1: towards the local market. Meanwhile, I think for it, we
7:48
Speaker 1: have a decade now where the Wall Street indices have
7:52
Speaker 1: returned fifteen percent year and ASX has returned about nine
7:56
Speaker 1: year after year, and yet people say, oh, you know what,
7:59
Speaker 1: this is where I live, this is where I have
8:01
Speaker 1: most of my investments. How does that work in translate
8:05
Speaker 1: that to the property market for me?
8:07
Speaker 2: Not totally. So that's called information bias, And what it
8:11
Speaker 2: means is that what I know is really giving me
8:14
Speaker 2: the overconfidenced bias as well, that I understand that market
8:17
Speaker 2: I know how it feels compared to something very remote,
8:21
Speaker 2: like if I'm in New South Wales, how do I
8:23
Speaker 2: go about investing in Queensland? I have no idea. The
8:26
Speaker 2: reality is as amateure property investor, they might not even
8:30
Speaker 2: have idea of their local market. It's just that the
8:33
Speaker 2: feeling is there because I live there. I know the market,
8:35
Speaker 2: I know the street and what I've been hearing. When
8:39
Speaker 2: the hears say that, hey there's a good market, there's
8:41
Speaker 2: good school. This is great local information. But when the
8:44
Speaker 2: resource is very limited, James, when you know, when we
8:47
Speaker 2: have only an opportuit to buy only one property, an
8:50
Speaker 2: investors should be thinking about the best in fifteen thou
8:54
Speaker 2: four hundred plus suburbs that we have, rather than just
8:57
Speaker 2: getting biased that okay, what do I know? That if
9:00
Speaker 2: leads to the consultation risk, because if I already am
9:03
Speaker 2: living in the ness in Sydney market, why should I
9:07
Speaker 2: buy nextdoor property or in the next suburb or in
9:10
Speaker 2: the same screen. Because that's leading to other discipline or
9:15
Speaker 2: lack of discipline, which is the.
9:16
Speaker 1: Consultation concentration risk, as you see. So I suppose in theory,
9:20
Speaker 1: at least there's no reason for that anymore. There was
9:23
Speaker 1: a reason once upon a time, you know, it was
9:25
Speaker 1: extremely difficult. It's not. It is not at all difficult
9:30
Speaker 1: now to buy into a state. Okay, So there we have.
9:33
Speaker 1: We mentioned anchoring bias, information bias. There's two. What else
9:37
Speaker 1: do you come across?
9:39
Speaker 2: The third one is the recency bias?
9:41
Speaker 1: Oh, yes, okay, the recency bias, yes, indeed, okay. Now,
9:47
Speaker 1: in terms of share market folks, that would be something like, well,
9:51
Speaker 1: for instance, you might have a stock I give you
9:53
Speaker 1: a good example of a stock at Lassian. Yes, spectacular stock,
9:58
Speaker 1: wonderful stock. I mean for those who were in for
10:01
Speaker 1: a long time. It's down almost fifty percent, and it
10:04
Speaker 1: must be very difficult for people who have at Lassian
10:08
Speaker 1: stock to sell now. But it also rationally must be
10:12
Speaker 1: difficult for anyone who has that stock to understand or
10:16
Speaker 1: accept that the chances it's going to go up fifty
10:19
Speaker 1: percent are pretty slim. The chances even if it had
10:22
Speaker 1: a takeover offer it might go work by thirty percent,
10:24
Speaker 1: but it would be very hard, and your recency bias
10:27
Speaker 1: would be Look, this is a one hundred dollars stock.
10:29
Speaker 1: I don't know what price it is, but it's one
10:30
Speaker 1: hundred dollars stock, I'm saying to myself. But the fact
10:33
Speaker 1: is it's selling on the market for fifty and there's
10:35
Speaker 1: that gap reality gap. Now recncy bias in the investment
10:39
Speaker 1: property market for our audience, how would that work.
10:43
Speaker 2: So the way it works is just as a way
10:45
Speaker 2: of definition, So recentcy bias means that protamon has happened
10:48
Speaker 2: last eighteen twenty four months becomes a new standard in
10:52
Speaker 2: our mindset that hey, if we probably market is going up,
10:55
Speaker 2: it will continue to go from there, like what we
10:57
Speaker 2: saw in twenty twenty or twenty twenty one, that yes,
11:00
Speaker 2: probably marketing, there's no tomorrow, you know, it's just going
11:03
Speaker 2: cracing up nearly what we saw in twenty twenty three
11:07
Speaker 2: when we realize that, hey, interest rates are going down
11:09
Speaker 2: and people thought it's really a big correction coming up.
11:13
Speaker 2: It's a mistake. But James, we saw within the same
11:16
Speaker 2: year the market turning around very quickly. So it's just
11:21
Speaker 2: that how much focus we gave on something which has
11:24
Speaker 2: gone recent because we have a short term memory, unfortunately,
11:27
Speaker 2: and we tend to focus more on that, whereas probably
11:31
Speaker 2: investing is very much for the long term. The cost
11:34
Speaker 2: of getting the property transaction costs, they're just too much.
11:39
Speaker 1: Okay, recency bias. It's like folks, you know, when they
11:41
Speaker 1: have these surveys and someone says, you know, what are
11:45
Speaker 1: the best books of the last let's say, the last
11:48
Speaker 1: century so far twenty twenty six, and you look and
11:51
Speaker 1: you find that many of the books are from the
11:53
Speaker 1: last two or three years, because people, it's the most
11:56
Speaker 1: recent ones that is most live if you like, or
11:59
Speaker 1: most most memorable to people. And this is a similar
12:02
Speaker 1: thing in property. So let's just turn it around at
12:05
Speaker 1: a RASTI just those three issues on anchoring bias, on
12:09
Speaker 1: information bias, and recency bias, how does an investor get
12:13
Speaker 1: above that and beyond it?
12:15
Speaker 2: Sure? So when it comes to anchoring, it's the simple
12:18
Speaker 2: one is that you look at the fundamentals, what the
12:22
Speaker 2: relation stacks up today forgetting and letting go the element
12:26
Speaker 2: of what you bought it for. As an example, information
12:30
Speaker 2: bias is that like, if this is an opportunity cost, yes,
12:34
Speaker 2: it might make sense to buy where you think you
12:37
Speaker 2: should be buying, you know, but let's compare the opportunities
12:42
Speaker 2: that you're not buying. So that let's compare the opportunity
12:44
Speaker 2: cost of those properties that you're not buying. So what
12:47
Speaker 2: I mean is by saying that is that if I say, hey,
12:49
Speaker 2: I want to buy this property in my neighborhood, maybe
12:53
Speaker 2: that's a great investment, but is it the best investment?
12:57
Speaker 2: So having that fundamental understanding, and of course we'll be
13:02
Speaker 2: talking about the disciplines as well and understanding what's risk
13:05
Speaker 2: we are taking there buying a neighborhood might or might
13:08
Speaker 2: not the right thing. When it comes to recency bias,
13:11
Speaker 2: again we need to understand it's a very much illiquid
13:15
Speaker 2: We are talking about those as an investment time horizon
13:18
Speaker 2: of long term. This is the way the property investing
13:21
Speaker 2: should be done. We should be aware of these biases.
13:25
Speaker 2: First of all, Knowing as an investor that I'm actually
13:28
Speaker 2: exposed to these biases might give me that kind of
13:32
Speaker 2: understanding that hey check should I am I actually exposed
13:36
Speaker 2: or am I exercising those biases? So having that independence overview,
13:42
Speaker 2: having that clarity that what we are buying upfront, Like
13:45
Speaker 2: in anet of portfolio thesis, what we are saying was
13:49
Speaker 2: what are we buying, what is the purpose of it,
13:53
Speaker 2: and then buying it accordingly. So having a fundamentals, having
13:57
Speaker 2: thematics before it, having a rule as a kind of
14:01
Speaker 2: a it might be funny for me to say, there's
14:03
Speaker 2: a dull like an institutional portfolio. Interesting, we should be
14:06
Speaker 2: thinking about, okay, what are the checks, what are the
14:08
Speaker 2: places there? What is the purpose of this asset? So
14:11
Speaker 2: it's not about, hey, is this a good asset or not?
14:14
Speaker 2: The question should be what is this asset? What role
14:17
Speaker 2: does this as at place in overall portfolio in our
14:21
Speaker 2: overall disposition?
14:22
Speaker 1: Very good. Yes, we'll take a short break, folks, we'll
14:25
Speaker 1: come back to this in a moment. This is I
14:27
Speaker 1: find this absolutely fascinating and I think it actually if
14:30
Speaker 1: you take it on board, I really will make a
14:32
Speaker 1: difference to you. Hello, welcome back to the Australian's Money
14:45
Speaker 1: Puzzle podcast. James Kirby here with Rasti vibe Ab who
14:49
Speaker 1: is from the get Rare Buyers Agency. He is very
14:53
Speaker 1: well qualified in many disciplines, I might say, and an
14:57
Speaker 1: author as well. What's the name of your book.
15:00
Speaker 2: It's called The Property Wealth Blueprint, The Property Wealth Blueprint.
15:05
Speaker 1: It's out there. Should you wish to read more about him? Okay, now, folks,
15:10
Speaker 1: if you remember we just kind of spelled out if
15:12
Speaker 1: you like the three investment biases that may be getting
15:17
Speaker 1: in your way. I don't doubt they're getting in your way.
15:19
Speaker 1: I think they get in everyone's way. Let's just have
15:22
Speaker 1: a look at the other bias issues that may be
15:25
Speaker 1: in front of you. You may not have thought you
15:27
Speaker 1: had any biases, but I bet any money that you
15:30
Speaker 1: have several of these. Let's just take them. I think
15:33
Speaker 1: perhaps the most interesting is hurding, hgrdi G, the heard,
15:38
Speaker 1: the bandwagon whatever. Explain that one, rusty.
15:41
Speaker 2: Sure, So, as you said, it's more like a herding
15:45
Speaker 2: like where everyone is going. It's like a social proof.
15:48
Speaker 2: When everyone is buying in a particular location. People get excited,
15:52
Speaker 2: they can keep they keep doing it and they feel
15:54
Speaker 2: that if they're smart, friends are doing it, well, my
15:58
Speaker 2: mare to challenge it. I'll go and follow them. Yeah.
16:00
Speaker 2: So as an example, Yeah, so, James. So, for example,
16:04
Speaker 2: in twenty twenty, like everyone was still considerating on in
16:07
Speaker 2: general about Melbourne and Sydney, but birth was not really
16:12
Speaker 2: doing very well over the last eight ten years. Yes,
16:14
Speaker 2: and people who are focusing on the fundamentals, they started
16:18
Speaker 2: looking at it on the merits of the supply demand
16:21
Speaker 2: and what's really happening the infrastructure, and also built, you know,
16:25
Speaker 2: all of those things, and then some seven investors they
16:29
Speaker 2: actually ventured in the Perth market and that market actually
16:33
Speaker 2: had a very good run. Of course it has to
16:35
Speaker 2: be supported by other investors who can start seeing the value.
16:39
Speaker 1: And we cover this on the show quite regularly. I mean,
16:41
Speaker 1: it was just clearingly obvious that Perth, that the fundamentals
16:45
Speaker 1: were so good there compared to other cities, and it
16:50
Speaker 1: is the case, and maybe it's the case right now
16:52
Speaker 1: that Melbourne's fundamentals are clear they're certainly better than Perth
16:56
Speaker 1: right now because part is at probably at the end
16:58
Speaker 1: of a very long run which has been very good,
17:01
Speaker 1: and Melbourne it seems to go from bad to worse.
17:03
Speaker 1: But that is a pointer which perhaps the fundamentals look better. Okay,
17:07
Speaker 1: so that's the hard mentality. Yeah, to the loss of
17:12
Speaker 1: version is well, that's pretty simple. Everyone hates losing money.
17:16
Speaker 1: Is it as simple as that loss of version?
17:18
Speaker 2: Yes. Indeed, actually, like as we've seen like from the
17:21
Speaker 2: research as well, that the how much it hurts to lose.
17:25
Speaker 1: Yeah, everybody hates it. Yeah, even you can make you know,
17:29
Speaker 1: a thousand dollars on one stock and lose a hundred
17:32
Speaker 1: around the other and the hundred that you lost can
17:34
Speaker 1: hurt more. What's the Warren Buffett thing? Never lose money?
17:37
Speaker 1: What the first rule, never lose money? The second rule,
17:40
Speaker 1: never forget the first rule. Is it that important? Yeah?
17:44
Speaker 2: That is very much important and properly investing, especially with
17:47
Speaker 2: the leverage and the compounding in play, and then on
17:51
Speaker 2: top of it, the multi year investment horizon. Like, for example,
17:55
Speaker 2: a property like even if it's doing all right, I
17:58
Speaker 2: mean long term funamentals that if you have not made
18:00
Speaker 2: up blunder, it is still growing value. But the key
18:03
Speaker 2: thing is like, hey are properly growing at three person
18:06
Speaker 2: capital growth year on year. What's the other property growing
18:09
Speaker 2: at seven person year on year? Now that could be
18:12
Speaker 2: a person like four percent difference, but because the compounding
18:15
Speaker 2: and over ten year horizon, it actually is a forty
18:18
Speaker 2: eight person difference. Now somebody losing that, somebody exiting out
18:24
Speaker 2: from that position today to buy next property is not
18:26
Speaker 2: easy decision either. I totally appreciate it. The transition costa high,
18:30
Speaker 2: the emotional state is very high. But looking at everything
18:34
Speaker 2: that should I really sell my not such about such
18:38
Speaker 2: a winner is really plays a lot. So I come
18:41
Speaker 2: across in my crovisation the clients and they are in
18:45
Speaker 2: need of capital, they tend to look at their winning
18:48
Speaker 2: property first to let go because they think, hey, I
18:51
Speaker 2: can make money. Yes, yes, I have to pay some taxes,
18:54
Speaker 2: but that I can have access to capital. Yeah. But
18:57
Speaker 2: on the contrary, we should be thinking about, hey, we
19:00
Speaker 2: need to think from the fundamentals that today, would I
19:03
Speaker 2: buy that property with this price what it is selling
19:05
Speaker 2: for today? If them says no, then we are actually,
19:09
Speaker 2: you know, playing that bias in our mind. Yeah, yeah,
19:12
Speaker 2: should I hold it or not?
19:14
Speaker 1: It's fascinating and it's such a Again, I see the
19:16
Speaker 1: parallels with share market, where again the same thing, isn't
19:19
Speaker 1: it people say I got to raise some cash, I'll
19:22
Speaker 1: sell X and Y. I've made a profit out of
19:24
Speaker 1: those These ones are losers, but they're going to make
19:26
Speaker 1: a profit some day, so I'll hang on. But it
19:27
Speaker 1: actually might often be much better to go the other
19:30
Speaker 1: way around. Why would you sell a good stock? Why
19:32
Speaker 1: would you sell Why would you not sell a property
19:35
Speaker 1: that is not as good as one you could have? Okay,
19:39
Speaker 1: And finally, over confidence. I suppose my issue on this
19:42
Speaker 1: particular bias is whether the overconfident ever really know that
19:45
Speaker 1: they are over confident, because hey, they're over confident. How
19:50
Speaker 1: do you pick that one?
19:51
Speaker 2: Yeah, so this one is like when somebody is buying
19:53
Speaker 2: a property and look if they have made money in
19:56
Speaker 2: one or two transactions recently, for example, somebodyought twenty twenty
20:00
Speaker 2: in this market, they feel very confident that this is
20:04
Speaker 2: the way to go forward. Is that how they can
20:06
Speaker 2: make money? But that's more of our I guess the
20:09
Speaker 2: result of the timing or rather than the skills or
20:12
Speaker 2: the system that they have built over the pay of
20:13
Speaker 2: time and sees more often than otherwise that they are
20:18
Speaker 2: more confident or maybe over confident. People who are trying
20:21
Speaker 2: to build more will without realizing it was just amount
20:25
Speaker 2: of timing then or the luck then rather than the
20:28
Speaker 2: system or the fundamentals possess that they are following. Yeah.
20:32
Speaker 1: So if you bought your first property investment property in
20:34
Speaker 1: Perth eight years ago, you might think that you are
20:40
Speaker 1: a master property investor. And if you bought your first
20:42
Speaker 1: one in Melbourne eight years ago, you might think, well,
20:45
Speaker 1: you're not very good. But in fact, if there's a
20:49
Speaker 1: bias issue there, right, you have to stand back from it,
20:53
Speaker 1: stand back from it and actually assess it in a
20:55
Speaker 1: rational manner. Yeah, okay, very good. They're the sixth biases
21:00
Speaker 1: that you may not have. I will wager that you
21:04
Speaker 1: have at least one two, perhaps more of them. Okay A.
21:07
Speaker 1: Now that I have Rasty with me, is most unusual
21:09
Speaker 1: opportunity to have someone who is across from an institutional
21:13
Speaker 1: point of view and a private point of view on property.
21:16
Speaker 1: And we are at a position, folks where there's going
21:19
Speaker 1: to be major tax changes coming down the line in
21:21
Speaker 1: the budget, which is only two weeks away. I want
21:24
Speaker 1: to talk to him about that. Stay with us. Hello,
21:35
Speaker 1: welcome back to The Australian's Money Pause a podcast. I'm
21:38
Speaker 1: James Kirby. I'm talking to Rasti vbav first time on
21:41
Speaker 1: the show. Great to have your Rasty. Great week to
21:43
Speaker 1: have you too. Because so much happening on CGT and
21:46
Speaker 1: the budget, particularly folks, I'm going to read OUSK some questions,
21:48
Speaker 1: but just to give you a bit of context as
21:52
Speaker 1: it stands, and this is my attempt to sort of
21:55
Speaker 1: distill rumor and speculation which is around and widely reported.
22:00
Speaker 1: Government is going to change CGT. The most likely issue
22:04
Speaker 1: is that it's going to change the discount currently available
22:06
Speaker 1: on CGT, which is fifty percent when you hold an
22:08
Speaker 1: asset for more than a year. Okay, oh clear. Second
22:13
Speaker 1: part is they may actually change the discount for everything.
22:17
Speaker 1: The rumor so far has been that it will only
22:19
Speaker 1: be property. Secondly, what they'll change it to, most likely
22:24
Speaker 1: is the original system pre nineteen ninety nine, where it's
22:27
Speaker 1: inflation adjusted every year. Okay, that's CGG negative gearing. Would
22:34
Speaker 1: you believe they are still speculating that the government may
22:38
Speaker 1: change it and that they may scrap it for existing properties.
22:43
Speaker 1: I think I'll just put that one to one side,
22:44
Speaker 1: because that's like another show virtually. Well, let's just stick
22:47
Speaker 1: with CGT okay, and I have some reader questions on it,
22:51
Speaker 1: so maybe i'll read them first VASTI and give us
22:53
Speaker 1: a flavor of what's around. We have a question from
22:55
Speaker 1: Simon who says there are media reports that fifty percent
22:58
Speaker 1: cap against taxes would be axed in favor of inflation
23:02
Speaker 1: indexation on new investments across every asset class. Do you
23:06
Speaker 1: think that will potentially kill the startup community? Says Simon. Simon,
23:11
Speaker 1: I got to put there's some sort of arcane particular
23:14
Speaker 1: startup favorable tax regimes that were put in by the
23:18
Speaker 1: turnble government. They may not be used very much, but
23:22
Speaker 1: put simply yeah, sure. I mean the whole thing about
23:25
Speaker 1: going into a startup obviously is that someday in the
23:28
Speaker 1: future you sell it. When you sell your stake, particularly
23:32
Speaker 1: if you hold it in your own name, you get
23:34
Speaker 1: hit for CGT and it's probably going to be something
23:36
Speaker 1: like forty seven percent. So I expect it would be
23:40
Speaker 1: very bad for startups. What do you think, FASTI nosertainly.
23:43
Speaker 2: Look, it comes down to something is given to me
23:47
Speaker 2: and somebody's trying to take it back. It always hurt,
23:50
Speaker 2: right now. What government is trying to do is make
23:52
Speaker 2: it fair from their perspective, right to balance the economy,
23:55
Speaker 2: balance the affordability issue. Be there's lots of property investors,
23:59
Speaker 2: mean loaded, we try to buy multiple property, so they
24:02
Speaker 2: are trying to not penalize the property investors, but trying
24:04
Speaker 2: to make a level field. And one of the elements
24:08
Speaker 2: here is that it's a tax grab by what lots
24:11
Speaker 2: of people are saying for the government, and because they're
24:13
Speaker 2: spending a lot of money, almost about two forty seven
24:16
Speaker 2: billion dollars, it's go to the tax graph for the
24:19
Speaker 2: for the government. If they can come back and you know,
24:23
Speaker 2: take away the CGT element. Now, would it change any
24:27
Speaker 2: thesis for the long term investors? Probably not so much,
24:31
Speaker 2: because we are talking about the long term fundamentals here.
24:33
Speaker 2: We are really talking about the supply and demand. Yes,
24:37
Speaker 2: we are shot by properties, number of properties that we need,
24:41
Speaker 2: so we need to have the supplier. And especially with
24:43
Speaker 2: the demography increase, the immigration and also the number of
24:47
Speaker 2: household and average person really requiring. Now there's a bit
24:51
Speaker 2: of demand. Now, long term fundamentals are still in fact.
24:55
Speaker 2: Would it all the ticks narrative we are hearing and
24:58
Speaker 2: what might happen on twelth of May, which is again
25:01
Speaker 2: everyone is trying to half guess what's really going on.
25:04
Speaker 2: That will only change the mathematics of the actual ROI
25:08
Speaker 2: for the individual. Now, what it might mean in my
25:12
Speaker 2: way of thinking is that if I had to do
25:14
Speaker 2: X number of investments because of the change in the
25:17
Speaker 2: text regime or the way the text reforms are going
25:20
Speaker 2: to happen, it might just mean that, hey, I can't
25:23
Speaker 2: take chances. I need to make sure every capital that
25:26
Speaker 2: I'm investing is actually working my best possible way, and
25:31
Speaker 2: if it's not enough, then probably I need to do
25:32
Speaker 2: more capital injection in a risk of air manner.
25:36
Speaker 1: Can I ask you if they change CGT only on
25:40
Speaker 1: property and this is where your years at an institutional investment,
25:45
Speaker 1: I think would be very relevant if I hear that
25:48
Speaker 1: CGT discount has gone from property, but it's still available
25:52
Speaker 1: everywhere else on shares, on reads, for instance, on property trusts.
25:57
Speaker 1: Surely if would create all sorts of disstions totally.
26:02
Speaker 2: And because then the investor might be thinking, hey, why
26:05
Speaker 2: do I go into direct property and get exposed to
26:07
Speaker 2: that takes whereas I should go to a reads and
26:11
Speaker 2: then get that exposure. But now this is a very
26:15
Speaker 2: I mean, I would like to bring this forward as
26:17
Speaker 2: a point that lots of people buy properties for the
26:20
Speaker 2: element or the of the leverage. Now direct property, like
26:25
Speaker 2: someone can go with the twenty percent deposit and get
26:27
Speaker 2: that Oh yeah, yeah, banks allow you eighty even ninety
26:31
Speaker 2: percent leverage ratio as an LVR. Yeah, a reads, maybe
26:36
Speaker 2: that's the case with the leverage you know. Interesting, but
26:39
Speaker 2: typically for a reads it's about fifty percent or sixty percent.
26:43
Speaker 2: So I put one dollar, the lender can give me
26:45
Speaker 2: one dollar, but then also comes to the margin call
26:48
Speaker 2: and stuff like that. So so it's still the merits
26:52
Speaker 2: are there for direct property investor. But to your point, yes,
26:55
Speaker 2: there might be some distortion and it will be an
26:57
Speaker 2: administrative challenge as well.
27:01
Speaker 1: What was that What sort of challenge would it be.
27:03
Speaker 1: It will be administrative administrative challenge. Absolutely, yes, I expect
27:07
Speaker 1: so yeah.
27:08
Speaker 2: Yeah. And where I'm coming from with that is that
27:11
Speaker 2: maybe it's again open until you get you know, what's
27:14
Speaker 2: happening until the may, because then the question is are
27:17
Speaker 2: we really talking about residential properties or are we talking
27:19
Speaker 2: about everything inclusive, even the properties.
27:23
Speaker 1: Yes, but and if they only do residential property, wouldn't
27:25
Speaker 1: there be distortions even inside some roads where they.
27:28
Speaker 2: Oh yeah, big time. So a reads again they are
27:32
Speaker 2: If you had only talking about residential property, then the
27:35
Speaker 2: majority of the a reads, which are focused on the
27:38
Speaker 2: industrial the likes of you know, Texas or Center, they
27:43
Speaker 2: might not be impacted that much at all. So for
27:46
Speaker 2: them it is really you know, they might be still
27:49
Speaker 2: very popular. But when it comes to the areads which
27:53
Speaker 2: are focused on the razzi as in for example and LEAs,
27:55
Speaker 2: it would be still facing the same issue, like I
27:58
Speaker 2: will be passing those the nave or the way we
28:01
Speaker 2: look at the valuation of the areas. They would also
28:04
Speaker 2: be passing on those credits back to the investor. So
28:08
Speaker 2: it's administrative, then it's definitional. Like if you're talking about
28:13
Speaker 2: that distinction of rizzi property alone, then what happens to,
28:17
Speaker 2: for example, a commercial unit or for a strata or
28:20
Speaker 2: we are talking about short to renal or a boarding
28:23
Speaker 2: school or boarding home. Now should they be classified as
28:27
Speaker 2: commercial or razzi? So it will be a bit of
28:31
Speaker 2: administrative as well as a definitional element. But surely there
28:36
Speaker 2: will be some distortion, like a bunch of planners would
28:39
Speaker 2: be out there, accountants would be out there really hide
28:42
Speaker 2: people like, hey.
28:43
Speaker 1: If you think they kind of if they do it,
28:46
Speaker 1: they have to put it on all ascid tasks. Do
28:48
Speaker 1: you think they have.
28:49
Speaker 2: To look at Look, this is very interesting because I'm
28:53
Speaker 2: not saying they have to Again, it's government, right, so
28:57
Speaker 2: they will be doing all sort of analysis and talking
28:59
Speaker 2: about about like how things will be defined. All I'm
29:02
Speaker 2: saying is if they have to do it, they have
29:04
Speaker 2: to do it in a very distinctive way that is
29:06
Speaker 2: very much black and white for anyone who can follow
29:09
Speaker 2: and advise their clients accordingly.
29:12
Speaker 1: The best to look with that, all right? The final
29:15
Speaker 1: question is Andrew who says I'm currently doing a renovation
29:18
Speaker 1: on an investment property is a great way to add value.
29:21
Speaker 1: But with potential changes to capital gains, could this become
29:25
Speaker 1: less desirable?
29:27
Speaker 2: I would think so only if Andrew is selling his property.
29:33
Speaker 2: If he's not selling his property, he's just renovating to
29:35
Speaker 2: add value, to increase the rental yield or to increase
29:38
Speaker 2: the valuation of the property, is pretty much safe. So
29:41
Speaker 2: I would think the whole narrative around CGT removal or
29:46
Speaker 2: the discount removal is really about penalizing the short term
29:51
Speaker 2: flippers who are buying property in the under and selling
29:54
Speaker 2: it after two three years. Yes, that's what it is.
29:57
Speaker 2: Penalizing and flipping is one part of it, for sure.
30:02
Speaker 2: For sure, that's very much apparent that if somebody is
30:05
Speaker 2: just buying it, adding value or only for a short
30:07
Speaker 2: term and selling it, the ro OI as a net
30:10
Speaker 2: r OI investor's hand will be a lot lower because
30:14
Speaker 2: of the.
30:16
Speaker 1: Yeah, the less time you held the property for, the
30:18
Speaker 1: more it's going to hurt. Yeah, yes, okay, okay, very good.
30:23
Speaker 1: Well we'll be back to this and back to other issues.
30:25
Speaker 1: I'm sure. Rasty Vibeb, thank you very much terrific to
30:28
Speaker 1: have you on the show. We'll have you on again.
30:29
Speaker 1: That's a get rare property agency. Good to talk to you.
30:33
Speaker 2: Thank you so much, thanks for having me and.
30:35
Speaker 1: Thanks for listening folks. I'd love to have some more correspondence.
30:37
Speaker 1: You can see how tuned in our audience is on
30:41
Speaker 1: those CGT issues, which means they are definitely listening to
30:45
Speaker 1: us every show. Later in the week, I have a
30:48
Speaker 1: very interesting I want to talk to you about the
30:50
Speaker 1: share market later in the week. Between now and then,
30:51
Speaker 1: let's have some correspondence. The Money Puzzle at the Australian
30:54
Speaker 1: dot com dot au talk to you soon. The Wood,
31:01
Speaker 1: the collect sh