Latest / The Money Puzzle / Why house prices will keep going higher... even without further rate cuts

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Why house prices will keep going higher... even without further rate cuts · The Money Puzzle

0:09
Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast.
0:12
Speaker 2: I'm James Kirby. Welcome aboard everybody.
0:15
Speaker 1: While we're sitting at what seems to be the end
0:19
Speaker 1: of a rate cutting cycle, and nine times out of
0:23
Speaker 1: ten that would be bad news really in terms of
0:28
Speaker 1: housing or investor certainly in terms of residential property market,
0:31
Speaker 1: because you might find that the momentum may stole a
0:34
Speaker 1: little where people can't borrow more than they were.
0:36
Speaker 2: Planning to, et cetera.
0:37
Speaker 1: That sort of energy that went into the market through
0:40
Speaker 1: rate cuts will dissipate. But I think this time around
0:44
Speaker 1: it's slightly different. We're not in a conventional housing market.
0:47
Speaker 1: We have chronic lack of supply, we have a rental crisis,
0:52
Speaker 1: and I think we are into a period where this
0:56
Speaker 1: initial rebound we've seen in house prices, particularly apart sort
1:00
Speaker 1: of different matter is going to steam on. I might
1:02
Speaker 1: be wrong, I could be challenged. My guest today is
1:05
Speaker 1: the ideal guest for what's going on right now. It's
1:09
Speaker 1: Max Shiffman of the Interpack Group. He's a developer of folks.
1:14
Speaker 1: We haven't had many developers, and we had Charlie Buxton
1:16
Speaker 1: on a few months ago. It's always interesting to get
1:18
Speaker 1: their opinion. How are you, Max, Thanks for coming on
1:21
Speaker 1: the show.
1:22
Speaker 3: Yeah, great to be here, James, thanks for having me.
1:24
Speaker 2: Great to have you.
1:25
Speaker 1: It's interesting how quickly the momentum in an investment market
1:29
Speaker 1: or the sort of the overriding narrative can change. So
1:34
Speaker 1: here's some top economists now I'm thinking of that. Let's
1:37
Speaker 1: say Paul Bloxham at HSBC talking about how high rates
1:42
Speaker 1: will move from here.
1:44
Speaker 2: I want to talk to you specifically.
1:45
Speaker 1: Our listeners are as investors, they just want to get
1:48
Speaker 1: a picture, a helicopter view of the market, and you,
1:52
Speaker 1: as a developer, quite outspoken in public policy, and one
1:56
Speaker 1: of the things you're saying is that both housing and
2:00
Speaker 1: even apartment promises are not going to be delivered.
2:03
Speaker 2: As we expect.
2:05
Speaker 1: Just for the general listener, what are the issues that
2:09
Speaker 1: you're alluding to there.
2:11
Speaker 3: Yeah, so there's been a lot of talk about housing targets.
2:14
Speaker 4: Housing has clearly become a major issue for a lot
2:17
Speaker 4: of cohorts, particularly younger people, and so you know, the
2:20
Speaker 4: politics means that politicians now need to be talking to
2:24
Speaker 4: it to be seen to be doing something about it,
2:26
Speaker 4: and the best they seem to come up with is
2:29
Speaker 4: setting all these lofty housing targets around the place, but
2:33
Speaker 4: it at a state level or at a federal level
2:35
Speaker 4: with a federal housing accord, and in my view, not
2:39
Speaker 4: doing the things you'd actually have to do to reach
2:42
Speaker 4: those goals. So there's a disconnect between you know, let's
2:45
Speaker 4: be optimistic and call it good intent and the actual result.
2:50
Speaker 1: We have a proof already, haven't we really that there
2:52
Speaker 1: was this initial housing target, the million houses over five years,
2:56
Speaker 1: that was two hundred and forty thousand houses a year.
3:00
Speaker 1: Just a few weeks ago we had the first year,
3:02
Speaker 1: You're one hundred and seventy thousand built, which means, of
3:05
Speaker 1: course it pushes this target out unless they actually accelerate then,
3:09
Speaker 1: but they're going to build, I mean, cut of the chase.
3:11
Speaker 1: Maybe it's I'm about to have targets at least you
3:15
Speaker 1: aspire to something.
3:17
Speaker 3: Yeah, look, that's a good thing.
3:18
Speaker 4: I mean, I'm supportive of having targets, be it federally
3:22
Speaker 4: or at state level or at a local level.
3:23
Speaker 3: I think that's a good thing.
3:25
Speaker 4: But again, a target without doing the stuff you need
3:28
Speaker 4: to do to reach the target is kind of pointless.
3:31
Speaker 4: And that's the thing that I've been banging on about
3:32
Speaker 4: the last couple of years. I mean from an industry perspective,
3:36
Speaker 4: when they first announced, you know, these targets, so you know,
3:39
Speaker 4: the big target is the one point two million homes
3:41
Speaker 4: federally that was announced as a target back in initially
3:45
Speaker 4: October twenty twenty two as a million homes, and they
3:48
Speaker 4: opped it to one point two. And my commentary at
3:51
Speaker 4: the time was, We're not going to hit a million
3:53
Speaker 4: based on what I'm seeing in the data and new
3:55
Speaker 4: supply and approvals, let alone one point two.
3:57
Speaker 3: And that's proving to be the case.
3:59
Speaker 2: Put it to be the case.
4:00
Speaker 1: But additionally you're saying, see, I think people are on
4:03
Speaker 1: tell me if I'm wrong, But I think a lot
4:04
Speaker 1: of investors think, okay, you know, fixed apply of houses
4:08
Speaker 1: houses standalone houses going literally twice as well as apartments
4:12
Speaker 1: in recent years in terms of price action price increases.
4:16
Speaker 1: So the issue then is apartments. And then there's a
4:19
Speaker 1: sense that apartments won't quite flood the market, but that
4:24
Speaker 1: the state governments around the country are bending over backwards
4:27
Speaker 1: to make it happen that there will be more apartments.
4:30
Speaker 1: But you're saying the apartments won't come on stream either.
4:33
Speaker 1: Tell us your view of things in that area.
4:35
Speaker 3: Yeah.
4:36
Speaker 4: So the thing about apartments is people assume that apartments
4:40
Speaker 4: are cheap. I think that's probably the starting point or
4:42
Speaker 4: cheap relative to housing, and in many parts of the
4:46
Speaker 4: world that's true. I mean, for example, you go to
4:49
Speaker 4: New York City, very dense city, everything is expensive, but
4:54
Speaker 4: owning a brownstone in a great part of downtown is
4:58
Speaker 4: much much more expensive than buying quiple an apartment. So
5:01
Speaker 4: apartments can deliver a relative affordability when you've got a
5:05
Speaker 4: very high underlying house price. The disconnect is in an
5:09
Speaker 4: Australian context, building apartments is the most expensive type of construction.
5:14
Speaker 4: It uses a lot of structural materials because it's very large.
5:17
Speaker 4: It's highly regulated because you've got a lot of people
5:20
Speaker 4: in the same space. You want to make sure they're
5:21
Speaker 4: protected from noise and fires and things like that. There's
5:26
Speaker 4: a lot of regulation design that goes into it. There's
5:29
Speaker 4: been concerns around the quality of building, especially when you
5:31
Speaker 4: go to high rise and then you've got a labor force,
5:34
Speaker 4: which is very expensive. And you know, the example I
5:38
Speaker 4: give people, and I'll use this here is you go
5:40
Speaker 4: to many parts of the world and any reason they're
5:42
Speaker 4: building apartments for a lot less than what we are
5:44
Speaker 4: is because they effectively have slave labor. Like it's a
5:47
Speaker 4: really weird way to look at it, but it's actually
5:49
Speaker 4: the truth. You go to Dubai or Singapore or any
5:52
Speaker 4: of these.
5:52
Speaker 1: People are working seven days a week and they're working
5:55
Speaker 1: in all sorts of conditions.
5:56
Speaker 4: You could see that from other countries, Yeah, exactly, in
6:00
Speaker 4: from other countries living in camps, being worked to the bone,
6:03
Speaker 4: and they're making more money than they would at home.
6:06
Speaker 4: But it's not exactly what we would call a good
6:09
Speaker 4: way of living. And so you contrast that with how
6:11
Speaker 4: we're prayed in Australia. We have the CFMU. Has been
6:14
Speaker 4: a lot of discussion in the CFMU and labor costs,
6:17
Speaker 4: but it's the fact that we have this enormous push
6:20
Speaker 4: into infrastructure projects around the country, Victoria being the epicenter,
6:24
Speaker 4: but currently that's sort of migrating a little bit north
6:27
Speaker 4: with the Olympics happening in Queensland. But every state is
6:29
Speaker 4: embarking on huge infrastructure projects. And what that's meant is
6:33
Speaker 4: the labor force. The labor pool, because unemployment has been
6:36
Speaker 4: so low, has been pulled into all sorts of directions
6:38
Speaker 4: and those projects have been paying substantially high on what
6:42
Speaker 4: the private sector was paying previously, and so that's just
6:45
Speaker 4: elevated the cost of any sort of type of construction
6:48
Speaker 4: labor and that's fed straight into housing costs, particularly in apartments.
6:52
Speaker 4: We have the most overlap in the sorts of trades
6:55
Speaker 4: that would be building the structural components as you might
6:58
Speaker 4: do in a tunnel, for example, in the mid of Melbourne.
7:01
Speaker 2: Right, So this is and is it true that there are.
7:05
Speaker 1: Sites all over the major cities Brisbane, Sydney, Melbourne owned
7:11
Speaker 1: by developers ear Marsh for apartment developments that are not happening,
7:17
Speaker 1: that there is an exceptional amount of space kind of
7:19
Speaker 1: tied up old factories and warehouses, et cetera. Is that true?
7:24
Speaker 4: I mean, on its face, yes, So there are tens
7:27
Speaker 4: and tens of thousands, if not hundreds of thousands of
7:31
Speaker 4: theoretically approved dwellings around the country, across the major cities,
7:35
Speaker 4: but there's a big difference between having an approval and
7:39
Speaker 4: having a project that's feasible.
7:41
Speaker 1: Is the gap between the I mean, there's always a
7:43
Speaker 1: bit of a gap between approvals and commencements, But is
7:45
Speaker 1: that gap bigger than we're used to.
7:47
Speaker 4: Yeah, So the number of approvals that aren't being activated
7:50
Speaker 4: is sitting it around record highs, and it's yeah, And
7:53
Speaker 4: it's that feasibility equation because when you factor in the
7:58
Speaker 4: cost of delivery and then you work out as a
8:02
Speaker 4: developer at the end price would need to be the
8:05
Speaker 4: cohort that would pay that sort of money for these
8:07
Speaker 4: projects is very small, and in many cases you're competing
8:11
Speaker 4: with substantial numbers of apartments in and around the same
8:15
Speaker 4: area that are costing as listful as half of what
8:18
Speaker 4: you'd have to deliver a new dwelling for. So obviously
8:20
Speaker 4: the market's not going to pay that sort of premium,
8:22
Speaker 4: So those projects will sit there really for quite a
8:26
Speaker 4: long time. And that assumes underlying values go up and
8:28
Speaker 4: people have more borrowing power, which may not be the
8:30
Speaker 4: case with interest rates.
8:32
Speaker 1: Why do the apartments you're about to build costs more
8:34
Speaker 1: than half the ones that are around the corner.
8:37
Speaker 4: Well, look, it's just it's time. We obviously had a
8:39
Speaker 4: lot of inflation during that sort of post COVID period,
8:42
Speaker 4: So the number that's obviously floated a lot of the
8:45
Speaker 4: time is about fifty percent cost increase, and whilst the
8:48
Speaker 4: rate of inflation has dropped, it costs aren't dropping. Some
8:52
Speaker 4: people sometimes mistake inflation dropping as things going and becoming cheaper.
8:58
Speaker 4: It just means they're getting more expensive less quickly. So
9:02
Speaker 4: the cost of construction isn't reducing. And so we've got
9:05
Speaker 4: this step change in construction costs and it impacts everything.
9:08
Speaker 4: It impacts the suburban rail loop Melbourne and impacts every
9:10
Speaker 4: apartment building in the country. It impacts our house and
9:14
Speaker 4: land package. In the business that I'm in, everything is
9:17
Speaker 4: impacted by the increase in construction, which filters into what
9:20
Speaker 4: a developer would need to charge to an end consumer.
9:23
Speaker 4: And yet you have this glut of apartments in certain
9:25
Speaker 4: parts of the country which are because they're not high demand,
9:29
Speaker 4: as sort of dragging the whole market backwards.
9:32
Speaker 1: I would go to a break because we want to
9:34
Speaker 1: talk some specifics which I think our listeners will find
9:36
Speaker 1: really interesting, and you're in a great position to answer
9:38
Speaker 1: it just quickly. The glot of apartments. Are you thinking
9:42
Speaker 1: of some black spots? Basically where are they?
9:45
Speaker 4: Well, one that's commonly discussed is in and around the
9:48
Speaker 4: South Bank in Victoria and Melbourne, where you've had a
9:50
Speaker 4: lot of investor style apartments built and the records that
9:55
Speaker 4: I keep seeing. You know, there's circa eight thousand unsold
9:58
Speaker 4: apartments across Melbourne. There's a big chunk of them there,
10:01
Speaker 4: and so people are still able to buy an apartment
10:03
Speaker 4: that's you know, within a decade old. It's not particularly old,
10:07
Speaker 4: but that's selling it a possibly a lower price than
10:11
Speaker 4: what they originally sold it for when they first built it,
10:14
Speaker 4: and then the replacement cost of it is probably double
10:16
Speaker 4: what it was ten years ago.
10:18
Speaker 2: Interesting. I'm looking out of them right now.
10:20
Speaker 3: Max.
10:20
Speaker 1: That's where we are, so I think surrounded by perhaps
10:23
Speaker 1: thousands of empty apartments, or at least apartments where the
10:26
Speaker 1: investors will be taking a long time to make a book. Okay,
10:29
Speaker 1: folks back in a moment. Hello, Welcome back to The
10:41
Speaker 1: Australian's Money Puzzled podcast and with Max Schiffman. He's the
10:44
Speaker 1: CEO of Interpac. It's a developer, an interestate developer. I
10:47
Speaker 1: think most of your action is in Victoria and Queensland,
10:50
Speaker 1: is that right, Max?
10:51
Speaker 3: Yeah? Northern New South Wales? Done?
10:53
Speaker 1: Yeah, Okay, I'm going to just kind of throw a
10:56
Speaker 1: few random questions which I think our listeners would like
10:59
Speaker 1: to hear. What you have to say basically about it,
11:02
Speaker 1: and I mean we take it from the first part
11:04
Speaker 1: of the show that certainly on the supply side you
11:06
Speaker 1: see issues breaks basically on both apartment and standalone houses.
11:11
Speaker 1: That's the first thing. From an investor point of view.
11:13
Speaker 1: You mentioned some areas that are oversupplied, but then again,
11:18
Speaker 1: more generally there's a lot of pent up. There's pent
11:21
Speaker 1: up demand and there's also pent up. We should be
11:23
Speaker 1: liked by the developers to build, but the numbers aren't
11:26
Speaker 1: stacking up for them. Can I ask you a few
11:27
Speaker 1: random questions which I've been wondering. One from an investment
11:30
Speaker 1: point of view, one bedroom apartment they were once upon
11:33
Speaker 1: a time a sort of entry level first step for
11:35
Speaker 1: investors into the market. Some have said that with the
11:39
Speaker 1: work from home they are finished as an investment. Where
11:43
Speaker 1: do you come from on that one?
11:46
Speaker 4: Look, they'll always be demand for small dwellings and they
11:48
Speaker 4: are as costly as a one bedroom, so I think
11:52
Speaker 4: they're not going to disappear entirely. Not everyone works from home,
11:55
Speaker 4: even despite some of the conversations being head at a
11:58
Speaker 4: state level at the moment abounding train that, but certainly
12:02
Speaker 4: from an investment point of view, to maximize the addressable
12:06
Speaker 4: market of people you might be attracting. You'd want to
12:09
Speaker 4: have a bit more space, So that could be you know,
12:11
Speaker 4: at least having some sort of you know, study or
12:13
Speaker 4: working in your core, a little zoom room. I'd certainly
12:16
Speaker 4: be saying, you know, a two bedroom apartment's going to
12:18
Speaker 4: have a lot more flexibility and longevity than a one
12:20
Speaker 4: better if I can get.
12:21
Speaker 2: It, Okay.
12:23
Speaker 1: Also, I was just thinking in terms of natural consequences.
12:27
Speaker 1: If it's the case that there are apartments unsold and
12:32
Speaker 1: at the same time there's this demand, and in parallel
12:35
Speaker 1: we have like oceans of empty office space at record numbers,
12:40
Speaker 1: at recession type levels, a natural response people might say, well,
12:43
Speaker 1: you know, a lot of those office box are going
12:45
Speaker 1: to be turned into apartment towers. Is that pie in
12:48
Speaker 1: the sky. Apparently it's very difficult to do so is that?
12:51
Speaker 3: Yeah.
12:52
Speaker 4: Look, there's been a lot of discussion around that, and
12:53
Speaker 4: I know people that have done studies of some of
12:56
Speaker 4: the buildings that lie empty or partially empty around the
12:59
Speaker 4: major CBD. So there's a couple of challenges with converting
13:03
Speaker 4: commercial buildings and retaining the structure and turning it into residential.
13:08
Speaker 4: The regulation is a big part of it. So the
13:10
Speaker 4: floor plates are usually bigger than what you'd have for
13:13
Speaker 4: residential building, which means you don't have a natural light,
13:16
Speaker 4: which is very important from a regulatory point of view.
13:18
Speaker 4: But it's also things like retrofitting services so you might
13:22
Speaker 4: not have enough lifts to service a lot of apartments
13:25
Speaker 4: versus say commercial building, but also things like just water
13:28
Speaker 4: so all the bits and pieces you need, the heating, cooling.
13:31
Speaker 4: So by the time you work out where you have
13:33
Speaker 4: the right floorplate, it's going to be limited to certain
13:35
Speaker 4: size of buildings, and then you work at how you
13:38
Speaker 4: retrofit all these bits and pieces.
13:39
Speaker 3: It is just cost prohibitive.
13:40
Speaker 4: So you know, it was Hassle that did a study
13:43
Speaker 4: of the city of Melbourne and identified several hundred buildings
13:47
Speaker 4: that could potentially be converted, but it hasn't happened because again,
13:50
Speaker 4: the cost of buying the building, doing all the retrofits,
13:53
Speaker 4: beaning all the regulations and working at the end price
13:57
Speaker 4: means it would be substantially higher than what the mark
14:00
Speaker 4: it would pay for those completed apartments for the most part.
14:02
Speaker 1: Okay, interesting, all right, that's a very clear answer on
14:05
Speaker 1: that one. I'm bouncing around here. But I think the
14:08
Speaker 1: listeners will be keen to see where you're coming from us.
14:10
Speaker 2: They say. We had him on the show.
14:13
Speaker 1: From core Logic recently and he's a really interesting report
14:18
Speaker 1: where he looked at the price action around the Sydney
14:21
Speaker 1: Metro line, where you would think logic would suggest that
14:25
Speaker 1: the prices along a new line would be doing very well.
14:30
Speaker 1: This whole idea of capture land capture along railway lines
14:34
Speaker 1: and people similarly in other parts of the country buying
14:37
Speaker 1: apartments or houses on the basis of proximity to new
14:40
Speaker 1: lines such as the Gold Coast light Rail or the
14:44
Speaker 1: Melbourne Metro project. But Tim found they were doing worse
14:49
Speaker 1: than the average suburb for the last two years. He
14:52
Speaker 1: had an explanation, but I was I'm wondering what you
14:54
Speaker 1: your explanation might be.
14:56
Speaker 4: Yeah, well, I think because I did read the article
14:58
Speaker 4: on I think he's right about the fact there would
15:00
Speaker 4: have been some very early speculation, you know, after the
15:03
Speaker 4: project was announced. I mean, often property values follow infrastructure investment,
15:08
Speaker 4: so you know it can be a sound investment strategy.
15:11
Speaker 3: I guess, you know.
15:12
Speaker 4: One of the things that I was thinking about was
15:14
Speaker 4: just the time frame you'd have to be sitting on
15:16
Speaker 4: a piece of land there.
15:17
Speaker 3: I mean Metro was announced what twenty twelve, So.
15:20
Speaker 1: You want to be buying in two thirteen to get
15:22
Speaker 1: the lift, That's what he suggested.
15:24
Speaker 4: Really yeah, I mean you want to, but you want
15:26
Speaker 4: to be almost there before there's any announcement because you
15:28
Speaker 4: get this run up and then you've kind of got
15:30
Speaker 4: a weight for the project to happen. And what kills
15:34
Speaker 4: feasibilities for development is actually time. So invariably these projects
15:39
Speaker 4: run lace, they run over budget. They you know, as
15:42
Speaker 4: part of the planning for the precincts around them, they
15:45
Speaker 4: start to decide, hey, we want to have more contributions
15:47
Speaker 4: towards open space and local infrastructure, all the bits and pieces,
15:50
Speaker 4: which ramps up the cost of delivery. And so what
15:54
Speaker 4: you find is probably this early ramp up where prices
15:56
Speaker 4: get to a point before people have really thought through
15:59
Speaker 4: what's actually going to be a acquired Then you get
16:01
Speaker 4: a bit of a tapering off and I think that's
16:02
Speaker 4: exactly what we've seen and I was thinking about how
16:05
Speaker 4: that might apply, for example, with the suburban rail loop
16:08
Speaker 4: in Melbourne, because there is going to be a lot
16:10
Speaker 4: of discussion around building up those precincts. I've been a
16:13
Speaker 4: pretty noted skeptic of the feasibility of the whole project,
16:17
Speaker 4: but I'd be surprised if there was a similar dynamic
16:20
Speaker 4: in Melbourne because in Victoria they've released or they've got
16:23
Speaker 4: this windfall gains tax which takes some of the uplift
16:27
Speaker 4: from a reazoning. And so if anything, that's a barrier
16:31
Speaker 4: to people wanting to buy into these areas because you
16:33
Speaker 4: have this unknowable tax that might be charged at some
16:36
Speaker 4: point which takes any sort of uplift from holding the
16:39
Speaker 4: land away. So it takes incentive away. And probably one
16:42
Speaker 4: last thing on that, I was thinking through the other
16:44
Speaker 4: dynamics that might happen in some of these precincts. And
16:47
Speaker 4: so obviously developers might want to come in and start
16:50
Speaker 4: planning to build apartment buildings, But if you're a person
16:53
Speaker 4: who wants to have a home near a train station,
16:55
Speaker 4: the last thing you want to do is then buy
16:57
Speaker 4: a house when you know you're going to have all
16:59
Speaker 4: this development around. So I suspect that's pushing traditional home
17:03
Speaker 4: buyers out of these precincts as well, and they're buying
17:05
Speaker 4: just on the periphery, which I think showed was performing better.
17:08
Speaker 1: That's right, the peripheries of the that's right. So it
17:11
Speaker 1: wasn't the immediate catchment area of the lines that were
17:13
Speaker 1: doing well. This is the last two years, folks, the
17:15
Speaker 1: last two years, it.
17:16
Speaker 2: Was beyond that.
17:17
Speaker 1: Okay, before we go to questions, I just want to
17:19
Speaker 1: ask you, so it seems to me listening to you
17:23
Speaker 1: this morning, that if I am interested in investing in property,
17:29
Speaker 1: it seems to me I needn't worry an awful lot
17:33
Speaker 1: about an oversupply of even apartments coming down the line,
17:36
Speaker 1: because the supply seems to be blocked at so many levels.
17:40
Speaker 2: And I could make the assumption.
17:41
Speaker 1: That the current numbers, being the rental vacancy ratio has
17:46
Speaker 1: been you know, one to two percent are going to stay.
17:51
Speaker 1: Do you see anything to challenge that notion?
17:55
Speaker 4: No, short answer is I think you're spot on. One
17:57
Speaker 4: thing we know is population growth is continuing pretty much
18:01
Speaker 4: underbated in Australia and that's going to keep putting pressure
18:04
Speaker 4: on house prices and rentals and we're just not keeping up.
18:08
Speaker 4: And so particularly as we try and shrink wrap the
18:12
Speaker 4: city's forced that densification, the more that's going to limit
18:15
Speaker 4: how much new housing is put on stream. So yeah,
18:18
Speaker 4: I don't think it's going to be a great time
18:20
Speaker 4: for renters anytime sooner. Nor do I see there being
18:23
Speaker 4: any material reduction in underlying pricing.
18:25
Speaker 1: And do you think if rates did start a lift
18:28
Speaker 1: with that in any way cool the increase in housing prices.
18:33
Speaker 4: Short ans Yes, I mean interest rates are definitely a factor.
18:36
Speaker 4: And because we've had that cost dynamic I was speaking
18:39
Speaker 4: about previously, we've needed a step change in buyers capacity
18:44
Speaker 4: and expectation for what they're prepared to pay for a
18:47
Speaker 4: new dwelling of any kind, And so if we start
18:50
Speaker 4: seeing interest rates shoot up again, that's just going to
18:53
Speaker 4: dampen the entire supply story further.
18:57
Speaker 3: Yeah, further.
18:57
Speaker 4: I mean we've come off the very bottom, you know,
19:00
Speaker 4: we've bottomed out in twenty twenty three, twenty twenty four,
19:03
Speaker 4: bally improved. There have been some slide improvements in new
19:07
Speaker 4: approvals and starts this year. But I think if we've
19:11
Speaker 4: seen straights go back the other way, it's going to
19:13
Speaker 4: put a handbrake.
19:14
Speaker 3: On it all.
19:15
Speaker 1: Does it happen straight away or does it happen gradually?
19:20
Speaker 4: I think it's changed. It used to take a bit
19:22
Speaker 4: longer for things to sort of filter through. But the
19:24
Speaker 4: media cycle now everyone knows the moment, the rbas they do.
19:28
Speaker 3: It's true at anything that's.
19:29
Speaker 4: Right, So it's very volatile. And even the we've seen,
19:32
Speaker 4: even from an inquiry perspective, where even the weeks where
19:35
Speaker 4: there might have been an expectation of a rate cut
19:38
Speaker 4: and perhaps it was deferred for some reason, that weekend
19:42
Speaker 4: straight after tends to be a bit more subdued. Then
19:44
Speaker 4: it sort of goes back to bit of normality. But
19:46
Speaker 4: people need the time to kind of absorb the news.
19:50
Speaker 4: I shudder to think what it'll be like when we
19:52
Speaker 4: start seeing straights go up again, particularly when everyone was
19:55
Speaker 4: expecting them to keep dropping for so long.
19:57
Speaker 1: A rapid impact on sentiment. Really interesting. Okay, we have
20:01
Speaker 1: some questions I've saved for Max, so stay with us. Hello,
20:13
Speaker 1: Welcome back to the Australian's Money Puzzle. James Kirby here
20:16
Speaker 1: with Max shiftman of the Intrapac Group, property development group
20:20
Speaker 1: that are active across the country in mostly on the
20:24
Speaker 1: East Coast. Okay, I'll try and paraphrase these one from Ben.
20:28
Speaker 1: I wonder how important two prices is maintenance or non maintenance,
20:33
Speaker 1: as it may be. Of investment property. I have a
20:37
Speaker 1: mate who is starting a side hustle of buying a
20:39
Speaker 1: rundown houses, fixing them up and flipping them. He isn't
20:43
Speaker 1: doing much work just to fix up to jobs that
20:46
Speaker 1: should have been done over the last fifteen years and
20:48
Speaker 1: haven't been. Is this an issue or just a tiny problem?
20:52
Speaker 1: The maintenance and general standard of Australian housing stock a
20:55
Speaker 1: broad question. Max flipping every six months, that sounds adventurous
20:59
Speaker 1: to me. Yeah, I think you should wait a year
21:01
Speaker 1: at least.
21:01
Speaker 2: But what do you.
21:02
Speaker 3: Think, Oh, you want to get that CGT.
21:04
Speaker 2: Don't want to get that discount?
21:06
Speaker 3: That's right.
21:06
Speaker 4: Look the whole house slipping thing and I sort of
21:10
Speaker 4: felt like we'd gotten through that phase. It was a
21:12
Speaker 4: big phase when every TV show was about the flippers
21:14
Speaker 4: who would paint a wall and suddenly make one hundred
21:17
Speaker 4: thousand dollars. Look, my very simple estimation of that is
21:21
Speaker 4: it only works in the rising market if the market's flat.
21:24
Speaker 4: By the time you work out you're holding costs to
21:26
Speaker 4: stamp duty is spending the money, You're unlikely to make
21:30
Speaker 4: a big return unless the house was terrible and you
21:33
Speaker 4: spend all your labor effectively improving the place. Yeah, I
21:37
Speaker 4: think it's a pretty fraught business model.
21:40
Speaker 1: Okay, I hope that's clear, Ben. And of course some
21:43
Speaker 1: of this is advice. This is information only, as you
21:45
Speaker 1: would know.
21:46
Speaker 2: Okay.
21:46
Speaker 1: The last question is not on property, but it's useful
21:48
Speaker 1: and I'd like to just read it. It's from Drew
21:49
Speaker 1: Veesh dh or you v s H. I hope I
21:52
Speaker 1: pronounced that properly. I am considering dollar cost averaging as
21:56
Speaker 1: a strategy, which may be better than investing all my
21:59
Speaker 1: money at Well, what is your recommendation for all the
22:03
Speaker 1: James's in the world, all the druvsions in the world.
22:05
Speaker 1: It would be on how to approach investing. And he
22:07
Speaker 1: puts an amount here, and he talks about ETFs dollar
22:11
Speaker 1: cost averaging any day of the week at Vision. It's
22:14
Speaker 1: extraordinary over a period of time, and I've watched for
22:16
Speaker 1: a long time, and I remember, I remember we had
22:19
Speaker 1: an investment conference at the absolute bottom of the market
22:22
Speaker 1: in two o nine, the most miserable period in my
22:25
Speaker 1: personal history ever of the share market. And it was
22:28
Speaker 1: done about fifty percent at the time and seemed to
22:30
Speaker 1: be going nowhere. And Lawrence Freeman, who once upon a
22:33
Speaker 1: time owned Channel ten and once upon a time was
22:36
Speaker 1: one of the first fund one of the first real
22:38
Speaker 1: contemporary modern fund managers in Australia. He stood on the
22:43
Speaker 1: stage and he said, dollar cast averaging always works, and
22:45
Speaker 1: I remember thinking, yeah, it does, but gosh, I've never
22:47
Speaker 1: worried about it so much. But you know, in the
22:49
Speaker 1: fullness of time, it did work. So I would totally
22:51
Speaker 1: back it, and I would be very careful putting everything
22:55
Speaker 1: in at once to one area except max. For you,
22:57
Speaker 1: I want to ask you this one. You can't devote.
23:00
Speaker 1: You can't avoid that with property, can you. But I
23:02
Speaker 1: can leak up my I can put my one hundred
23:04
Speaker 1: grand and split it into four or five and put
23:07
Speaker 1: in every month or something.
23:09
Speaker 2: But property that's hard, isn't it. For the investor. It's
23:11
Speaker 2: a big hit.
23:12
Speaker 1: Do it or don't do it. It's a jump or
23:14
Speaker 1: don't jump. There's no middle ground.
23:16
Speaker 4: You can't sort of dollar cost average on your property.
23:19
Speaker 4: You're either in or you're out. I mean maybe if
23:20
Speaker 4: you buy the neighboring house and the markets change, perhaps
23:23
Speaker 4: you could do it that way. But you don't have
23:25
Speaker 4: that liquidity in property obviously. So yeah, yeah, it's unlike
23:28
Speaker 4: the share market. You can buy and sell something immediately.
23:31
Speaker 4: There's a lot more friction in property, so it needs
23:33
Speaker 4: to be a little bit more mid to long term
23:35
Speaker 4: in terms of your thinking.
23:37
Speaker 1: What's your view, just broadly, before we go for the
23:39
Speaker 1: first time investor, the early investor in property, what's the
23:42
Speaker 1: minimum period they should be thinking?
23:44
Speaker 3: Really, look a year at the minimum?
23:48
Speaker 1: Oh yeah, right, okay, Yeah, that's about as short as
23:52
Speaker 1: I thought you were going to say short.
23:54
Speaker 4: That's the absolute shortest. But yes, property is a long game,
23:58
Speaker 4: and especially if you look at the cycles, I think
24:02
Speaker 4: we're seeing a lot more volatility than we used to,
24:04
Speaker 4: but it's still nothing compared to the share market.
24:07
Speaker 2: But you guys would be thinking.
24:08
Speaker 1: You guys have be thinking ten years from the day
24:10
Speaker 1: you acquire something or even sign the paper on something.
24:13
Speaker 1: You're thinking ten years, I imagine, are you?
24:15
Speaker 3: Yeah?
24:15
Speaker 4: Yeah, some of our projects fifteen twenty years. You have
24:18
Speaker 4: to think very long term, and you know that you'll
24:20
Speaker 4: go through two three cycles in that and you've got
24:23
Speaker 4: to set yourself up accordingly. And so if you'll call
24:26
Speaker 4: an investment strategy, it's not being highly leveraged and it's
24:29
Speaker 4: not maximizing every dollar. It's taking a reasonable approach to
24:33
Speaker 4: debt and having enough equity there to ride through, and
24:36
Speaker 4: I think that should apply to any investment.
24:39
Speaker 1: Okay, terrific point, and thank you very much, Thanks very
24:41
Speaker 1: much Max for coming on the show.
24:43
Speaker 3: Thanks for having me. It's great that was.
24:45
Speaker 1: Max Shiffman of the Interpack Property Group with some really
24:48
Speaker 1: interesting insights there for investors on the market and from
24:53
Speaker 1: a whole owner's point of view, that's not great to
24:56
Speaker 1: hear some of his observations on supply, especially I thought
25:00
Speaker 1: apartments even but obviously from an investment point of view,
25:03
Speaker 1: well it would seem to be a green light basically. Okay,
25:06
Speaker 1: let's have some more questions the money posit at the
25:08
Speaker 1: Australian dot com dot au.
25:10
Speaker 2: Talk to you soon.