Latest / The Money Puzzle / 'Pump and dump' warning for interstate property investors

Transcript

'Pump and dump' warning for interstate property investors · The Money Puzzle

0:10
Speaker 1: Hello, Welcome to The Australian's Money Puzzle podcast. I'm James Kirby.
0:14
Speaker 1: Welcome aboard everybody. If you're an active property investor, you'll
0:18
Speaker 1: know the mood is changing in the markets quite quickly.
0:20
Speaker 1: I think we're looking at higher intustrates, possibly three more
0:24
Speaker 1: rises from here. We're looking at higher construction costs due
0:27
Speaker 1: to supply issues relating to the Iran crisis not promising.
0:31
Speaker 1: And also I want to look at wasting your time
0:33
Speaker 1: on properties where there is under quoting going on. It's infuriating,
0:37
Speaker 1: I'm sure for anyone who's ever got caught in that.
0:39
Speaker 1: I want to look at that. I want to look
0:40
Speaker 1: at a few other changes that are basically eroding standards
0:43
Speaker 1: in the industry, which you may not be particularly keen
0:47
Speaker 1: to see, and certainly if they affect you, you won't
0:50
Speaker 1: be keen to see them. My guest is Veronica Morgan.
0:53
Speaker 1: She is a property advisor and a voice in the
0:56
Speaker 1: property market, a unique voice, I think, and she's been
0:58
Speaker 1: on the show before. She's great to talk. How are you, Veronica, I'm.
1:01
Speaker 2: Well, Thank you very much, James. Thanks for calling me
1:03
Speaker 2: a unique voice. I appreciate that.
1:06
Speaker 1: I mean this, tell me one of the first things
1:08
Speaker 1: I wanted to put to you because the last time
1:10
Speaker 1: we spoke was around the time the CGT and Property
1:13
Speaker 1: Gearing Review was announced, and you were very uncomfortable with
1:16
Speaker 1: some aspects that were going on, specifically people being herded
1:21
Speaker 1: iView like in by buyers agents that are working on masks,
1:24
Speaker 1: getting lots of people to buy in lots of regional towns,
1:27
Speaker 1: and to some extent, there was also the flows in
1:29
Speaker 1: it in both sort of almost cornering a market in
1:33
Speaker 1: a country town then bringing a whole part of people
1:36
Speaker 1: into it. That was bad enough, but you also were
1:39
Speaker 1: we didn't have time to talk about it. But there
1:41
Speaker 1: are changes going on, isn't there in terms of buyers
1:44
Speaker 1: agents and their stature. If you like, tell me quickly
1:47
Speaker 1: your problem with buyers agents. It used to be that
1:51
Speaker 1: people only bought in their own neighborhoods. Now a lot
1:54
Speaker 1: of people listening to this show are encouraged to buy
1:57
Speaker 1: interstate and it's a damn good idea. As an investor interested,
2:00
Speaker 1: but you see a flaw in what's going on, tell
2:02
Speaker 1: us about it.
2:03
Speaker 2: Yeah, Look, it is smart to build a diversified portfolio,
2:07
Speaker 2: like you buy everything around the corner from you.
2:09
Speaker 3: Then that market tanks, then you're in trouble.
2:11
Speaker 2: There's also you want to spread out your land tax
2:13
Speaker 2: obligations and various other good reasons. The problem is where
2:17
Speaker 2: buyers or investors are going to get the advice and
2:20
Speaker 2: who they're getting that advice from in terms of where
2:23
Speaker 2: to buy and how to buy and what has been
2:26
Speaker 2: happening because there's a very low barrier to entry for
2:29
Speaker 2: buyers agents and that means that they just get a
2:31
Speaker 2: real estate agent's license, which is the same as a
2:33
Speaker 2: selling agent or a property manager. Has got nothing in
2:36
Speaker 2: there about property advice, about asset selection, about data even
2:40
Speaker 2: and there's a whole bunch of things that it just
2:42
Speaker 2: does not cover that a buyers agent needs. But there's
2:46
Speaker 2: this also a simplification of the process whereby an agent
2:50
Speaker 2: can go and get their license in Queensland, which is
2:53
Speaker 2: the easiest state to get it, and then by automatic
2:56
Speaker 2: mutual recognition they can go and then just get a
2:58
Speaker 2: license in another state. It's assuming they even bother to
3:01
Speaker 2: get a license in another state in which they're buying,
3:03
Speaker 2: but that every single state and territory is completely different legislation,
3:08
Speaker 2: completely different mental disclosure, completely different risk profiles, and that's
3:13
Speaker 2: not even getting into the local dynamics of understanding what's
3:16
Speaker 2: a good asset in any particular local area. So this
3:19
Speaker 2: is an absolute minefield and consumers are just completely unaware
3:24
Speaker 2: of the risks that they are taking on when they
3:26
Speaker 2: engage these of borderless buyers agents.
3:29
Speaker 1: What's the specific risk to the investor of the borderless
3:32
Speaker 1: buyers agents. So you sitting in Sydney and you want
3:35
Speaker 1: to buy in Queensland, you have no experience there. You
3:38
Speaker 1: go in with an agent who has just basically had
3:41
Speaker 1: a robber stamped license off the back of their real
3:43
Speaker 1: estate agent qualification.
3:45
Speaker 2: What's the concern the concern So maybe not so much
3:49
Speaker 2: buying in Queensland, but certainly buying in regional towns or
3:52
Speaker 2: perhaps in another city, maybe in Perth for example, and
3:55
Speaker 2: you're dealing with an agent who.
3:56
Speaker 3: Isn't doesn't know the good areas or the good types
4:01
Speaker 3: of properties.
4:02
Speaker 2: They don't understand the legislative process, so therefore they don't
4:04
Speaker 2: even understand what information is actually required to be given
4:07
Speaker 2: to them by the agent and what else they need
4:09
Speaker 2: to know in order to avoid their client buying a
4:12
Speaker 2: liability that they're completely unaware of. They then go sale
4:16
Speaker 2: from the sunset, and the client's the one stuck with
4:18
Speaker 2: this property. But not only that, they're actually making markets
4:21
Speaker 2: quite often, so they're pushing prices up in markets that
4:25
Speaker 2: really are overinflated because of this external investor activity not
4:30
Speaker 2: underpinned by local owner occupy or local investor activity.
4:34
Speaker 3: So you've got all this stuff.
4:35
Speaker 2: Happening that as the consumer who's engaged the buyers agent
4:38
Speaker 2: is completely unaware of. I talk to sales agents across
4:43
Speaker 2: the country often and I will ask them questions, particularly
4:45
Speaker 2: in non city areas or original areas, how many buyers
4:49
Speaker 2: agents they're dealing with. And this is becoming uniform because
4:53
Speaker 2: there's large investment houses if you want to call in
4:56
Speaker 2: that they've got to buy volume in order to continue
4:58
Speaker 2: their profitability, right, So they're buying in these areas and
5:02
Speaker 2: not even inspecting the properties. They're doing it on the
5:04
Speaker 2: back of a what app video from the agent. The
5:07
Speaker 2: agents are laughing about how easy it is to sell,
5:09
Speaker 2: and easy is to sell crap properties that they'd struggle
5:12
Speaker 2: to sell normally, and for more money as well.
5:15
Speaker 1: Can you name some towns You don't after name people,
5:17
Speaker 1: but can you name some towns where this is happening.
5:19
Speaker 3: Oh absolutely, I can talk.
5:20
Speaker 2: There's Ballarat, Bendigo, It's happened in Geelong. I have spoken
5:25
Speaker 2: to agents in Townsville and Tumba in New South Wales.
5:28
Speaker 2: I've spoken to agents in Tamworth. I've spoken to agents
5:31
Speaker 2: in Wagger. I've spoken to agents in Aubrey. I've spoken
5:34
Speaker 2: to agents in Dubbo. That's and I've spoken to agents
5:37
Speaker 2: in Perth as well. I mean that's obviously Metro.
5:39
Speaker 1: Is a property version of Pomp and Dump.
5:42
Speaker 3: Really, yep, that's it. You said it exactly what it is.
5:45
Speaker 1: And it doesn't seem to have been reported to any
5:47
Speaker 1: great degree.
5:48
Speaker 2: No, And I'm waiting for this to crash because this
5:50
Speaker 2: is a wave. It's out there. There's been some random posts,
5:54
Speaker 2: I've seen some newspaper articles on it, has a lot
5:57
Speaker 2: of talk within the industry about it.
5:59
Speaker 3: But yeah, I'm for this to actually suddenly. It's almost
6:03
Speaker 3: like it's going to happen. It's having gradually and then
6:05
Speaker 3: all of a sudden it's going to suddenly happen.
6:07
Speaker 1: That's the way these things happen. They are really unfold
6:09
Speaker 1: and it's specifically a risk for investors, and it's specifically
6:11
Speaker 1: a risk for the investor who goes outside their home territory.
6:14
Speaker 1: Is that fair to say? Okay, very interesting. It's certainly
6:19
Speaker 1: something that the point you're making and the concerns you're
6:22
Speaker 1: raising can only be amplified by the fact that interest
6:25
Speaker 1: rates are rising and they are about to get squeezed
6:29
Speaker 1: along with many others. Let's have a break. We'll be
6:32
Speaker 1: back in one moment. Hello, Welcome back to The Australian's
6:45
Speaker 1: Money Puzzle podcast. I'm talking to Veronica Morgan buyer's agent
6:49
Speaker 1: reader estate agent and what will we say voice for
6:53
Speaker 1: investors who may be in danger? I think in some
6:58
Speaker 1: of the practices that are happening, I think she highlighted
7:00
Speaker 1: them pretty clearly at the start of the show. I'm
7:02
Speaker 1: amazed this hasn't come out more often, Veronica, what's going on?
7:06
Speaker 1: And even on our own show we haven't covered it much,
7:08
Speaker 1: but we're covering it today. That is the abuse basically
7:11
Speaker 1: of a system which has evolved so quickly around US
7:14
Speaker 1: buyers agents, which are at core a great idea and
7:17
Speaker 1: I use them myself, but they can be of course abused.
7:21
Speaker 1: The whole process can be abused, and to some extent
7:24
Speaker 1: a machine is created which can capture a lot of
7:27
Speaker 1: buyers who may be a bit innocent basically rolling into this.
7:31
Speaker 1: I mentioned how rates are about to rise. On top
7:33
Speaker 1: of this, Veronica, tell me just about your own sense
7:36
Speaker 1: in the market of the pressures around rate rising. They
7:39
Speaker 1: say that is the economists are saying three more rate
7:41
Speaker 1: rises are bringing us up to it, but almost five
7:43
Speaker 1: percent on the cash that would bring us up to
7:45
Speaker 1: seven sevens and eights on mortgages. One particular cohort I'm
7:50
Speaker 1: looking at very closely and always have is first home buyers,
7:53
Speaker 1: particularly those who went into the government's scheme, the now
7:56
Speaker 1: famous five percent depart of the scheme, which I like
7:59
Speaker 1: to call the ninety five percent mortgage scheme. These people
8:02
Speaker 1: are ninety five percent mortgages. What's going to happen to
8:05
Speaker 1: them with it? If we have three rate rises.
8:07
Speaker 3: This is something that's very close to my heart.
8:09
Speaker 2: One of the other things that I do, I've co
8:11
Speaker 2: founded at home Bio Academy, and we have a course
8:13
Speaker 2: to teach first home buyers how to buy a.
8:15
Speaker 3: Property, and it is absolutely alarming.
8:18
Speaker 2: One of the things that we really try to encourage
8:20
Speaker 2: first home buyers to think about is that your first
8:22
Speaker 2: rung on the ladder needs to be very firm, otherwise
8:24
Speaker 2: you're never going to reach the next rung or it's
8:26
Speaker 2: going to collapse under you and you're going to be
8:27
Speaker 2: stuck there.
8:28
Speaker 3: So buying what's known.
8:31
Speaker 2: As a quality asset if you like, or even with
8:33
Speaker 2: an investor's mindset, is really important to make sure that
8:37
Speaker 2: you're not just buying anything to get onto the ladder
8:39
Speaker 2: and find yourself in a deficit from day one.
8:42
Speaker 3: And yes, we're already.
8:44
Speaker 2: Seeing, you know, it's certainly in Sydney and Melbourne, we're
8:47
Speaker 2: already seeing immediate impact of rate rises because there are
8:51
Speaker 2: the two softest markets really in the country, and so
8:54
Speaker 2: you're going to see that first and obviously we'll roll out.
8:56
Speaker 2: So we have seen this before where prices have really
8:59
Speaker 2: gone backwards and through a period time. Look they'll go
9:01
Speaker 2: up again at some point, but in that period of
9:03
Speaker 2: time where they're going backwards and rates arising, that's very
9:06
Speaker 2: difficult for at first home buy particularly if they are
9:09
Speaker 2: in a situation where they're owing the bank more than the.
9:11
Speaker 3: Property is worth.
9:12
Speaker 2: If they would have to sell it, and even if
9:14
Speaker 2: at five percent they then had to suddenly sell it,
9:17
Speaker 2: the cost of selling would basically eat up whatever it
9:20
Speaker 2: could either gotten that property anyway. And first time buyers
9:22
Speaker 2: are very vulnerable in this time.
9:24
Speaker 1: So those buyers who went in on the ninety five
9:26
Speaker 1: percent mortgage scheme, it seems to me the stature that
9:28
Speaker 1: they are stressed with the fact that their rates are
9:30
Speaker 1: gone up, but they are stock. They can't move.
9:33
Speaker 2: If they do move, if they sell, they're probably going
9:36
Speaker 2: to lose their five percent. They may lose more than that.
9:40
Speaker 2: And I'm hoping and we certainly encourage some money smarts
9:43
Speaker 2: obviously with our first home by students, and it's very
9:46
Speaker 2: important they go and get good advice.
9:48
Speaker 3: But in making sure you start off with buffers in place,
9:50
Speaker 3: for example, that's going to help you.
9:52
Speaker 2: So if you know you bought a good as set
9:53
Speaker 2: that even if it falls in value a little bit,
9:56
Speaker 2: you're not going to plummet. You'll be amongst those with
9:58
Speaker 2: the first to take off again when prices rise again.
10:01
Speaker 2: Then that gives you a lot more comfort in your
10:03
Speaker 2: secure position. If you brought a bad asset that the
10:05
Speaker 2: bottom palls out of it and everyone's trying to sell,
10:08
Speaker 2: you're in a real predicament. But if you haven't got
10:10
Speaker 2: buffers in place, you can't even ride it out.
10:13
Speaker 1: So the flaws, I imagine love that scheme was that
10:16
Speaker 1: they put the money in front of everybody and ask
10:18
Speaker 1: no questions. Really, it was there to be taken. It's universal.
10:21
Speaker 1: We never had a scheme like that before. It had
10:23
Speaker 1: no limits. Anyone who rocked up and said I'm buying
10:25
Speaker 1: my first film could fail of it and take a
10:27
Speaker 1: ninety five percent mortgage. But there was no guidance on
10:30
Speaker 1: how to buy whatsoever.
10:32
Speaker 2: There never is and that's really because our politicians don't understand,
10:35
Speaker 2: and in fact, to that end, if you think about it,
10:37
Speaker 2: so many of our first home buyer incentives are designed
10:40
Speaker 2: to help get them into brand new properties, whether that
10:43
Speaker 2: be a brand new house or apartment.
10:44
Speaker 3: Right, well, we know there's loads.
10:47
Speaker 2: Of evidence that says, particularly apartments, that brand new apartments
10:51
Speaker 2: the first time resale is the number one loss making
10:54
Speaker 2: asset when you're looking at property right probably closely followed
10:57
Speaker 2: by the brand new houses.
10:58
Speaker 3: So there's a b huge amount of evidence and.
11:01
Speaker 2: Ongoing even in a boom, people are losing money on
11:05
Speaker 2: apartments that they've bought right off the plan. So you've
11:09
Speaker 2: got government schemes at state level, and they have been
11:12
Speaker 2: at federal level as well encouraging people to go and
11:15
Speaker 2: get that to be their first rung on the ladder.
11:17
Speaker 2: So you start off with negative equity, you don't have
11:19
Speaker 2: hard to go and so we've got a government that
11:22
Speaker 2: doesn't Governments plural do not understand there's a difference between
11:26
Speaker 2: getting on the market safely and getting into it with risk.
11:29
Speaker 1: So what you're saying suggests that anyone who bought an
11:31
Speaker 1: apartment in this first step ever with the ninety five
11:34
Speaker 1: percent mortgage, they're really at the call face. There are
11:36
Speaker 1: the most vulnerable cohort. Yes in the market.
11:39
Speaker 3: Okay, if they bought a brand new apartment.
11:41
Speaker 1: Yeah, all right, we'll take us for a breakfasing back
11:44
Speaker 1: at the moment. Hello, welcome back to The Australian's Money Puzzle.
11:55
Speaker 1: James Kirby here with Veronica Morgan. Great to have you
11:57
Speaker 1: on the show again. Veronica, you are very clear thinking interviewee,
12:01
Speaker 1: which is always a pleasure to a deal with. Tell
12:03
Speaker 1: me about the budget and what's happening in terms of
12:06
Speaker 1: the government going to change. They are certainly going to
12:08
Speaker 1: change CGT, they are possibly going to look at negative
12:12
Speaker 1: gearing cut into the chase. They're going to change the
12:14
Speaker 1: discount that we're all used to getting fifty percent off
12:17
Speaker 1: the CGT that we are due as investors are for
12:21
Speaker 1: a year. What do you think is going to happen
12:24
Speaker 1: and how are you preparing anyone in your area or
12:27
Speaker 1: clients for this potential change.
12:31
Speaker 3: Look, I don't know what's going to happen. Let's face it.
12:33
Speaker 3: I'm not going to put my voice out there and
12:35
Speaker 3: say I think they're going to do this all that.
12:37
Speaker 2: I think it's right for change, you know, I was
12:38
Speaker 2: actually surprised that it didn't come up in twenty nineteen,
12:41
Speaker 2: the unlosable election was lost over the capital gains tax
12:45
Speaker 2: really amongst other things, and that at that time I
12:47
Speaker 2: thought it's interesting they're not touching CGT because I would
12:50
Speaker 2: have thought that would be an easier thing.
12:51
Speaker 1: I would have thought it was going to be easier too. Yeah,
12:53
Speaker 1: But but this time, I know, would you take it
12:55
Speaker 1: that there is a different mood this time, that the
12:56
Speaker 1: reaction is different?
12:58
Speaker 2: Is that much more point on CGT rather than negative gearing,
13:01
Speaker 2: which I think is appropriate to be quite frank, the
13:04
Speaker 2: tax reform is needed, so I think that they do
13:06
Speaker 2: need to look at it. I think where we've got
13:08
Speaker 2: a problem here is that it's been pitched as this
13:12
Speaker 2: will solve the problem, this will solve the affordability crisis,
13:15
Speaker 2: and I think that is just basically kicking the can
13:17
Speaker 2: further down the road, another bit of investor bashing, and
13:20
Speaker 2: it's not really addressing the myriad causes of housing affordability
13:26
Speaker 2: in this country. Now. Investment activity absolutely has contributed to it.
13:31
Speaker 2: Let's just not pull punches here. Let's be real, right,
13:34
Speaker 2: we have to acknowledge that, but it's not the only contributor.
13:38
Speaker 2: And I think that there needs to be a capital
13:40
Speaker 2: gains tax discn If you remember what it was originally
13:43
Speaker 2: brought in for, it's to simplify the whole calculation of exactly. Look,
13:49
Speaker 2: I've often thought fifty percent was too generous quietly, just
13:52
Speaker 2: quietly loudly, now I'm saying it out loud. I've often
13:54
Speaker 2: thought it was too generous, and it was set in
13:56
Speaker 2: a time when inflation is higher than it abnit is now,
13:59
Speaker 2: And so there's an argument that can be put forward
14:01
Speaker 2: to say that it's that. But I also think that
14:03
Speaker 2: one year is too short. I think that they could
14:06
Speaker 2: be clever in how they structure this to encourage longer.
14:09
Speaker 1: Term try investing Okay. Yes, it's an interesting point. So
14:12
Speaker 1: rather than getting your discount after a year, encourage people
14:15
Speaker 1: to stay in the market and discourage property flippers. Yeap, Okay,
14:19
Speaker 1: maybe they will do something like that. It's wide open.
14:21
Speaker 1: No one is sure and the treasure has been very
14:23
Speaker 1: coy as to what plans he has, but he clearly
14:26
Speaker 1: has plants. That's the point I think to make. Okay.
14:28
Speaker 1: I wanted to put a question to you, Kevin and
14:30
Speaker 1: recent days which I thought would suit you. From Luke,
14:32
Speaker 1: he said, here's something I haven't heard talked about in
14:35
Speaker 1: the short time between now and the May budget. Do
14:37
Speaker 1: you reckon there could be a bump in property prices
14:40
Speaker 1: due to it being potentially the last chance to buy
14:43
Speaker 1: an investment property that may be grandfathered into the old
14:47
Speaker 1: and favorable fifty percent CGT discount. Really good question, Luke.
14:52
Speaker 1: We often have a spike prior to tax changes. The
14:57
Speaker 1: issue here is we don't know precisely what the tax
14:59
Speaker 1: change is. Do you see anything?
15:01
Speaker 2: Yeah?
15:01
Speaker 1: Suggest that?
15:03
Speaker 2: No, I think that'd be a fairly bullish person who
15:06
Speaker 2: would take a punt on that and go on by
15:08
Speaker 2: on the premise of that. So I would think that
15:11
Speaker 2: the opposite might be more likely to occur, whereas people
15:14
Speaker 2: might actually decide to sell now in advance to that,
15:18
Speaker 2: so we're thinking maybe of selling the next couple of years.
15:20
Speaker 2: They might say, you know what, I'm not going to
15:21
Speaker 2: run the risk of it coming through being reduced and
15:25
Speaker 2: not being grandfathered, and I have been caught out. So
15:28
Speaker 2: I would think that's more likely to occur prior to
15:30
Speaker 2: the budget rather than the other way around.
15:32
Speaker 1: I think listeners in case you don't know this grand father,
15:35
Speaker 1: and what it means is that they would bring in
15:38
Speaker 1: the legislation, they would change the CGT, but it would
15:40
Speaker 1: only change from the day of the budget, and anyone
15:43
Speaker 1: who had bought a property prior to the day of
15:45
Speaker 1: the budget, the CGT engines that were in place when
15:48
Speaker 1: they bought their property would continue until that whole kind
15:51
Speaker 1: of corehurt runs off. That's a typical way they do
15:54
Speaker 1: things now. Is its standard almost But there's been really
15:57
Speaker 1: the bit about whether if they do this, whether they
15:59
Speaker 1: should ground for order it because if their grandfather is
16:03
Speaker 1: a softer measure than it might have been. God feeling
16:06
Speaker 1: from you, do you think their grandfather it?
16:08
Speaker 2: If they do it, it depends if they need the
16:11
Speaker 2: Greens votes to get it through because they are very
16:13
Speaker 2: loud and proud about not grandfathering.
16:15
Speaker 1: Yes, that's right. I got to say from my twop
16:18
Speaker 1: and sports is that they would not bring in such
16:20
Speaker 1: a thing and not grandfather I think it would be whype,
16:22
Speaker 1: not outrageous. In the overall scheme of things, where investors
16:26
Speaker 1: try to invest long term, they try to invest on
16:28
Speaker 1: the basis of policies that shouldn't really shouldn't bounce around,
16:31
Speaker 1: and if they did this, it would bounce it around. Okay, terrific,
16:34
Speaker 1: Running out of time. Veronica, thank you very much for
16:36
Speaker 1: coming on the show today. Great to talk to you
16:38
Speaker 1: as always, absolute pleasure.
16:39
Speaker 3: Thank you, James.
16:41
Speaker 1: That was Veronica Morgan folks properly Advisor, real estate agent,
16:44
Speaker 1: buyer's Advocate and also runs that buyer's Academy. Interesting operation.
16:48
Speaker 1: Lovely to talk to her. Thanks for listening today, Keep
16:51
Speaker 1: the emails rolling, Thank you very much. The Money Puzzle
16:55
Speaker 1: at the Australian dot com dot Au. Today's show was
16:58
Speaker 1: produced by Tiffany Dimak. Talk You Soon, se
17:08
Speaker 2: Sermon