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The Truth About Perth Property That They’re Hiding | 2026 Market Updates · The Follio Property Podcast

• 0:00
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• 0:56
  the fact that we're seeing rate hikes is clearly putting downward pressure on home prices. But we're not going to see the number of rate hikes today that we saw back in 2022 and 2023, when, you know, we did see modest falls in Sydney and Melbourne. Last Friday, there was almost $40 million of property sold in Cottesloe. So to say that the top end of town is nervous, worry, concern about international...
• 1:16
  affairs or Australian policy. I think the Australian public, they never want to see house prices go back. So they never want to see these policies. If they were, they'd still be unhappy about it if it made their house prices go backwards. But they also don't want to see 15% of you. Currently looking at sentiment and looking at the data and looking at the trends, they're heading in opposite directions. And may converge. Yeah. And I wouldn't bet my money on it.
• 1:39
  You're listening to the Folio Property Podcast collab edition with the Perth Property Show. I've got two of the biggest Perth property experts in the room together, Lachlan Delahunty and Trent Fleskins. Welcome to the podcast. Hello, mate. I think we just did this because we thought we'd probably have the same information twice, so let's just put it in one episode. Makes a lot of sense. Let's just be honest about that.
• 2:02
  And we have similar opinions, so let's just do it in one big bang. Yeah, let's just make 45 or 50 really good minutes about where we think things are in the market right now. Hey, guys, quick thing to share. If you're serious about investing in Australian property right now, you need to see what we put together.
• 2:18
  It's called the National Investment Report, and it's our brand new monthly deep dive into exactly where the market is moving, what the data is saying, and what the smart investors are looking at right now. You can get the first access completely free. Just scan the QR code on the screen right now or click in the link below to fill out the form. Well, let's kick it off, Trent. Where are things in the market?
• 2:38
  I think the buzzword I could use, pardon the pun, is noise. Fundamentals don't move super fast. Property is a slow moving train. And that's why I love it so much. I've explained it on this podcast, I think, before of why I love property because it is one where you can see it coming from a mile away which direction it's going and it's really hard to turn it around really quickly.
• 3:01
  And so whilst we have a lot of conversation on the airwaves, all up to top of politics about property right now, which is a good thing. We want people thinking about our industry. It gives us something to think about as well. I'd say most of the movement right now, if there is, is noise modulation around much more rigid fundamental direction in market. And we can unpack that today, I think.
• 3:26
  Yeah, exactly that. There's, I've said many times over the last few weeks, sentiment can drive markets. And what is sentiment? You know, it's often led by media behavior. So it's not always, and it can be often short-lived. So the problem with the share market, you know, you saw some of the major banks, you can see share prices fall and fall aggressively. What's Trent saying? It's the beautiful thing about property is it's a tangible asset.
• 3:54
  but it's but he's not a liquid asset so you won't see the blips in in activity overnight like you typically see it play out over best case scenario months but often years and and the data that we're seeing on the ground race when we look at weekly price movement
• 4:10
  Our beautiful little local market here in Perth is actually moving quite positively, still doing north of 1% a month growth, which puts us into the double digits annual growth. So I do think what we've experienced is a bit of a blimp in time. And the more that we get certainty around what the budget looks like, once we get sort of the devils in the detail, the more confident the market will get and the more we'll turn to what was a pre-budget overall general market.
• 4:37
  It's interesting. I had a caller on ABC, which I did a segment on this week, about their future and talking about moving into a retirement home in a year and a half, and concerned about how if they waited to sell their property for a year and a half, their property price would be lower. And the comment I made was that it was quite interesting. I reckon three weeks ago, if I got the same call,
• 5:04
  the question would have been, am I leaving money on the table if I sell now and don't wait for a year and a half? And so the point I'm making is sentiment in the media especially coming from expectations or fear about what the future looks like often can override in the short term the feeling on the ground about a market
• 5:26
  in a very sharp way, but it will not override fundamentals broadly. And those fundamentals, I think we all need to have some perspective on. We just tipped over 5,000 properties on the market. And for those who aren't across the numbers every week, a balanced market is about 13,000.
• 5:44
  We've been in this space a couple of times now where we've dropped from 17,000 down all the way to a low of 1,800 over Christmas, but it wasn't a straight line direction. There are times where it got to 3,300 and bounced back to 5,500 and back to 4,000, up to 5,000, and then amongst the 5% craze over a three-month period last year down to 1,800.
• 6:12
  And I guess people are feeling the momentum of getting from 1,800 to 5,000 in the space of five months and making comment on that. But the reality is when you still only have 5,000 properties on the market across a population of 3 million people,
• 6:27
  The fundamentals still sit in a space where sellers are in control of most conversations. They're not having to discount because they're not desperate to sell. Those that are selling are probably selling for their own personal reasons. Some now may be a little bit of fear because of the noise. Fundamentally, conversations with agents I've been having for the last couple of months on the ground is that
• 6:52
  Yeah, we've moved from a space where we're not getting 70 people through a home open, we're getting 20 to 30 and we're not getting 15 offers, we're getting five. But to be frank, if we really sit back and have some perspective about that, five is still a fantastic outcome. Three is still a great outcome in most markets. So
• 7:14
  Yeah, I'd say my message, if you're only going to listen for the first five minutes, is calm down. Take a breather for a second. Let the noise in the media subside. It was the Iran war for a few months, and before that it was...
• 7:29
  what's going on in the Middle East and before that was Ukraine. At the moment, it's elbow and property. In a month or two's time, it'll settle down and we'll talk about something that hasn't happened yet and it'll be back to the fundamentals. The fundamentals are still, for the most part, up until the first time it hit 5,000 properties, record low supply in Western Australia and a very tough road from a
• 7:55
  house and land space, from an infill space, from an apartment space, over the next five years to try and fix that problem. Yeah, to echo that, we're data-first firm, Rees, and that's all we do is look at the data. And when I step back and have no recency bias to any market in Australia and you purely look at the data...
• 8:15
  Perth is the place you're parking your money because it's the strongest population growth in the country. It's the tightest held market in the country. It costs more to build a home in Western Australia than it does anywhere else in the country. So then your replacement cost obviously is much higher. And there's so much demand, which comes a lot from that population population.
• 8:34
  And just on the ground when you're speaking to agents, now we're a couple of weeks post-budget, you're seeing activity return. And it's like anything. The moment an interest rate goes up, you see low activity for a week or two, and then all of a sudden there's a new story that something else has happened in the globe and everything's back to business. There's not a lot of stock. There's not a lot of quality stock. There's a little bit of junk on the market that might sit there a little bit longer. But the quality stuff...
• 8:56
  And I think post-budget, that's what people are looking for. There's going to be a bit of a flight to quality. Your primary place of residence become, your selection on that's become more important than ever. And just last Friday, there was almost $40 million of property sold in Cottesloe. So to say that the top end of town is nervous, worried, concerned about international affairs or Australian policy, well, $40 million would suggest that there isn't a problem and people are seeing this moment in time as an opportunity.
• 9:26
  You mentioned interest rates, and I think that's a really important point to segue to, Rhys, is amongst all the noise, the thing I think that's most impactful in this market, and we've seen that in our mortgage broking team, is interest rates, and it's that serviceability.
• 9:43
  Now, the outcome coming out of things like negative gearing not being included in the assessment for banks on established investor properties, that is having an impact. That has seen a number of investors' contracts fall over because they can't get financed because their servicing has gone from $1 million to $900 grand.
• 10:01
  That's a real thing. That's going to have an impact in that segment, the established market for investors. And that's going to be a shock to the system that will, I guess, have to regulate the way that buyers decide they're going to invest. And that might be that they invest into new product, whether that's in apartments, infill products.
• 10:21
  units or new house and land if they choose to do that as well, because that's anything that they can afford, or it means that they scale down to the next suburb and they invest in that same product to suburb away 100 grand less. That's going to have an impact on the makeup of the way and the behaviors of investors. But what we also know is that it has no impact really on
• 10:43
  owner occupiers who weren't getting negative gearing, owner occupiers who weren't getting capital gains tax discounts because they weren't paying capital gains. Those fundamentals still exist. It's interest rates that affect that across the board. And so the real story for this year, I think, if you just push all that rest of the tax stuff aside is,
• 11:02
  where did we start in the year with interest rates? How was that impacting serviceability? Where will we finish the year if we're going to measure what the growth for the year was? And if interest rates were higher than we thought they were going to be, that means serviceability is lower than we thought it was going to be. And the growth potential
• 11:21
  as an outcome of demand and supply fundamentals for Perth, will probably be lower than we expected at the start of the year because none of us really expected to see interest rates be higher, if we're honest, than we thought they were going to be. And the reason for that is because we're currently dealing with a federal government that don't know how to control their spending. And so mortgage holders pay for that.
• 11:41
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• 12:11
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• 12:26
  It's interesting the interest rate chat because serviceability is key for a first-time investor or like a mum and dad investor. A lot of your clients, you're limited by that, right? Well, this is it. This is what I was going to tell you. Pleasantly surprising from a business perspective, but actually when you look at the core fundamentals, we've had less than 3% of our clients that have signed up disengaged because of finance approval. So it was showing...
• 12:50
  That is probably a benefit that a lot of those first-time mum and dad investors were using. Thankfully, I think a lot of the clients we deal with aren't necessarily in that boat. They're probably using it more as a benefit than the actual strategy. But do you see this now off the back of the government changes and the rising interest rates? Is it the death of the mum and dad investor that is trying to have a punt themselves? Yeah.
• 13:11
  No, that's a cultural phenomenon, I guess, in Australia. Let's remember that Australia is one of the only places in the world where it is part of our culture to get ahead through property, and that is partly because of the tax system. It's also because of price points. We don't live in a world where most of us couldn't afford our family home. New York, Switzerland, Singapore, London, these are places that are 200 years more mature than ours and just have
• 13:36
  capitalist based prices that are that much further along the line for most mum and dads that can't access it and therefore pay rent instead of a mortgage. So we benefit culturally from just being in a fairly immature property market where most of us have been able to access the market from an ownership perspective and therefore accustomed to that as an investment outcome as well.
• 14:00
  What it will do though is it will probably push those mum and dads again to have to reassess what they can afford as an average. It'll maybe push them to units that have higher yielding outcomes because it's less of a, essentially it's services better for higher yielding and cheaper units. It'll probably push the more savvy mum and dads to look into higher risk strategies which would help.
• 14:27
  the market like subdivision because then as I think Lachlan you've pointed out or mentioned on a recent podcast creating new product in established markets is sort of where you probably want to be in this market too so that's actually where I'd be putting my money if I was mum and dad right now is buying
• 14:45
  ironically, as we always have at strategic, buying infill assets that you can develop one day. This makes it even more of an opportunity now compared to what it used to be or compared to the rest of the market as well.
• 14:59
  And it will make them professionalize more. So for example, it probably pushes them into company structures where they will benefit from company withholding tax rates, retained earnings tax rates of 25% that they can park in the company, which if you're gonna make a profit that puts you in a 47% bracket, sort of for the short term, gives you that discount feeling anyway in terms of your liquidity.
• 15:23
  And people who invest in companies don't get capital gains tax discounts. They don't get negative gearing benefits, but they do get to claim expenses as a company, right? My understanding is superannuation stuff is exempt from all this stuff as well. So it probably opens the doors for a lot of spruikers trying to get people to invest via their super and say, well, hey, you can still do the negative gearing and all this sort of stuff through here because super is too complicated to stuff around with as a government. So...
• 15:51
  And conspiracy would say they'd like people to be putting all their money into super because they can control super. So there's a lot of that happening. It doesn't kill the mom and dad. Eventually, what it will do is just restructure the established investor market where it probably puts a bit of a dampener compared to what it would have been in terms of price growth in Perth on some of the established market investor stock, not owner-occupied stock as Lockie was referring to. And then eventually...
• 16:18
  Because rents will go up, because there's less investor stock, rental stock in those established markets, yields will go up, and then people will just invest on higher yields rather than maybe 4.5%, 5% rather than 3.5%, 4% whilst considering the negative gearing. So 4.5%, 5% with no negative gearing,
• 16:41
  might work out to be the same as 3.5%, 4% with negative gearing, if that makes sense, right? So the market will just calibrate. Yeah, the rental uplift you'll get will cover the cost you may have got from negative gearing. And I echo Trent's, there's a lot of echoing going on because we caught up for coffee last week and I'm like, we need to talk about this on the podcast.
• 16:59
  Typically, 70% of the market's own occupiers. So there's a large portion of the market that's going to be unaffected anyway. The 30% that is investment-based is typically driven to sort of 70% of the market. So what I'm saying there, the areas that we're investing, this infill that we're talking about, is often 80%, 90%,
• 17:18
  95% owner-occupier driven, and all of a sudden, some of that investment's going to pull out because you can't land bank our Duncrag, you can't land bank our Yokine. Well, you can, but you're not going to get a negative gearing benefit. So it's going to increase rent significantly because all of a sudden, there's going to be a limited amount of rental properties in that suburb.
• 17:34
  So that infill development becomes really attractive because if you build a new build townhouse, your rents are going to be disproportionately larger than they would be in the current environment because of the lack of stock. And your buying pool includes investors as well because they can claim negative during capital gains. Exactly. So your buying pool is just...
• 17:51
  double because you don't occupy any investors. There's a lack of stock in that market because the land banking's withdrawn out of the market. So I do absolutely spoke about it last week on the podcast that infield development's going to become really popular. What we want to steer people away from is that sort of, you know, in some markets like Melton we referred to, that spruiker type assets that are going to be flooding the internet. Trent, I know you sort of echo that. You could be careful of what you're buying and the self-managed super funds, definitely a place where, you know, spruikers are going to target.
• 18:20
  I mean, that's the area I think all three of us speak about quite regularly is that off the plan out of suburbs. I don't know how they get my email address, but my inbox is flooded with people pushing regional Brisbane, Queensland, stock, people pushing basically regional Victoria out of Melbourne suburb and Perth, even though there's no land in Perth. And it's...
• 18:42
  all the messaging is around investors' activity. It was free marketing for the government. It was free marketing from the government just to say, spruikers, here you go. We're going to fill you up with content that you can share with the public. But our job, while we've got a podcast channel, is to protect people from making a huge mistake because what they fail to understand is there may not be another buyer. It's all about increasing your buying pool on your exit. If you're going into regional...
• 19:10
  Queensland to buy a house and land package, you'll get the benefit, but who are you going to sell it to? And if there's no investors buying your product and it's a ghetto, so there's no one occupiers, well then, you know, you'll be giving it away. But I think the proof will be in the pudding. There seems to be a lot of heat right now on Albo. There's people putting bets on that he will backflip on some of this stuff materially.
• 19:32
  especially on the capital gains tax side of things. Around businesses? Yeah, around businesses and how it affects people's incomes because that's probably one of the bigger parts. A lot of the people who invest in property, people who invest from their small business company who use trusts to distribute their income where maybe the husband is a plumber, they make 380 grand a year,
• 19:55
  you know, works his ass off for that. And he splits that half and half with his missus who stays at home, looks after the kids, just as important to the family business as part of that family unit. So they're both on 190 to keep themselves under the top tax bracket. Now, instead of her working as the admin person and paying her that anyway. So that is such a reality for hundreds of thousands probably of people in Australia.
• 20:20
  who then go and use that company as a vehicle for buying property as well. So I think one of the flow-on effects upstream of property is how that is taking thousands of dollars away from the distributed recipient, from the beneficiary, and let's just use the example of the wife in that situation, which then is less money on the table to go and invest in property, for example, or something like that.
• 20:46
  These things are all linked together of what is just a big tax grab from a socialist government who don't know how to manage their spending, want bigger government, want to control more of your life and aren't giving anything back in return in terms of the tax side, the intergenerational equity thing.
• 21:07
  just hasn't passed the pub test because there's a lot of takes and there's really not a lot of gives to people that they're trying to help here. In fact, there's a lot of unintended consequences like crowding out the house and land space where most first home buyers will try and get in the first place by sending investors there. That is just going to make first home buyers' lives even harder anyway.
• 21:28
  It really shows the incompetence and the misunderstanding, the lack of understanding from Albanese and Chalmers and the people around them about how the economy works, how small business works, and how people's finances in their family home work as well.
• 21:43
  The first-time buyer one is fascinating, and I've said this on our podcast before, but I think it's the direction that the government's taking, whether you're on one side or the other, to come out with the no lender's mortgage insurance on the 95% loan-to-value ratio back in October. And just to give you an example, the purchase price or the cap in Sydney was $1.5 million. So they were lending out 95% to first-time buyers in Sydney at $1.5 million.
• 22:13
  We've had three rate increases since then. So on average, I worked it out. It was about $700 a month. Their repayments have increased. And now they're pulling a lever that's meant to slow property prices down. So actually, the cohort you're trying to attract, that same cohort that maybe was a bit more proactive and got in the market six, seven months ago. Could be a negative equity. Negative equity. And with the way the rates are going as well, you know.
• 22:35
  Mortgage prison. And this is something that we saw in Perth in 2015 with Keystart. Now, you look at the Albanese's plan of 5%. Well, they were copying WA's Keystart plan of 2%, which is even more fraught with danger. You go and buy a place in Byford for $430,000 back then, now $800,000. But back then, it was $430,000 for a package. And you're a 98% lend. So you've only put the best part of $10,000 into a deposit with settlement fees and all that to get there. Yeah.
• 23:05
  So you're at about a $420,000 loan. Jump forward to 2018, your property's now worth about $330,000. You're $100,000 in negative equity. You can't afford the Keystart interest rate because it's 1.5% higher than everyone else on your street, but you can't refinance out because you're in negative equity and you have no savings because you can't save because you're paying more interest than anyone else on your street.
• 23:31
  That's the extreme of what happens and that is very much a possibility given where the fundamentals for Sydney, which you pointed out a number of times on your podcast, is going anyway, which is negative. So they've set people up on these 95% loans of which half the population is in Sydney, of which most of their bottom half of their market is on a downward trajectory, given interest rates, exacerbating that too.
• 24:01
  and Melbourne's not too dissimilar. So you've got 10 million people in Australia that- We're lucky in Perth, we're just so far away. The fat in our market is just so far away from negative equity, let alone negative growth right now.
• 24:16
  I guess the benefit of that is that we often always sit in irrelevancy with national policy, right? So- 2017 was a perfect example. Yeah, exactly right. And so when, and same with monetary policy too. So the second Sydney and Melbourne really start hurting, which I reckon they are going to start really start hurting, or maybe they already have,
• 24:41
  action starts to happen very quickly. And then whether we need help or not, we start getting it. So it'll be interesting to see over the next few months how the tables start to turn and whether there's some even more incendiary inflationary assistance or backflips given this.
• 24:58
  Well, they can't. A lot of the people making decisions or involved around decisions live on the East Coast, whether it's in Canberra or they're going to have a home in Sydney. So they're going to see and feel the environment or the effects of this budget, which, you know, if you look at the Sydney data, it's falling by...
• 25:14
  0.3%. So Perth's growing by 0.3% a week, net that out, 1.2% a month, thereabouts. Sydney's falling by 0.3% a month. So you net that out. You're talking double digit losses. That's right. And then for everyone listening along or watching along, then you start seeing the headlines, Australian housing market will see a 10% reduction.
• 25:36
  No one's gonna talk about Perth in that. No one's gonna consider Perth. It's the same. It's the headlines at the moment. It's getting sucked in. So Lenville Anderson, he featured in the Western Australia, that prices in Australia are going to fall. And it was a photo of Perth. Straight away as a Perth reader or listener, I'm like, what's this? And it's Leith on his tangent, which we love, talking about the Australian property market,
• 25:56
  with pretty much no reference to Perth, but you just naturally get bundled up in the national conversation. Yeah, he's also a guy who is inherently a bear and has been calling for the Australian market to collapse for about three years now and continually speaks to Canada and New Zealand where there are at best small analogues
• 26:17
  with regards to culture and markets, but certainly not one with regards to immigration at this point in time, to be able to say that Australia's housing market, or specifically Perth's, is on a downward trajectory. And that speaks to the segue of where's the demand going? I think we've spoken about sort of supply and serviceability, but what about demand? Now, that's an interesting one because demand is sat at about 800 properties to 900 properties a week for,
• 26:45
  five years, and it's blipped up to 1,100 at times when there's been certain policies that have been inflationary and it's come down to 600s in a couple of quieter weeks. Now, we've been sitting probably on the lower end of that for a little while, 800s. We just had a 680 week, which is one to look at because you don't want to see that
• 27:08
  progressing and that probably speaks to why our stock market's gone to 5,000. It hasn't been because more people are selling. If you do the numbers, it's actually because for the last month or so, we've been on the downside of our demand numbers and I wonder if that's interest rates and less people being able to buy what sellers are demanding. I wonder if that's no East Coast investors anymore, so a little bit less people buying that stock.
• 27:37
  Or is it just noise and sentiment? Yeah, it can be. It was the most tumultuous week we've experienced in real estate since COVID.
• 27:46
  I'll put it down to that. People sitting back to see the aftermath and anecdotally, speaking to agents on the ground, the activity has lifted and lifted significantly now that we're a couple of weeks post-budget. So are we intrigued this time next week to look at those numbers? I think that's the point. I think it should be absolute watching brief on demand. So transactions every week. If transactions get back to starting with an eight,
• 28:14
  That's the only number as a listener you need to look to. That means demand's continuing as it has for the last four or five years. We know supply has no capacity to do better than what they're trying to do. And so as long as demand keeps sitting around that $800 a week, then we shouldn't expect much of a different outcome from price growth with the only caveat being massive increases in interest rates. And then again, if interest rates drop because...
• 28:39
  massive consumer sentiment drops on the East Coast and inflation comes under control for whatever reasons that may occur, then that would actually be an artificial sweetener on our demand side as well. So that's always something to just take with a grain of salt at the moment is what's going on in the short term. Get business done with the new American Express Graphite Business Cash Unlimited card with unlimited 2% cash back on all eligible purchases.
• 29:07
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• 29:29
  And when you look at demand, you just revert back, and this is where I argue about markets significantly falling when there's high population growth. So in Western Australia, Perth specifically, it's got the highest population growth rate in the country. Why there's people coming in thousands to Perth, there will always be that demand, that demand,
• 29:51
  for shelter. They need to live somewhere, be that to rent or to buy. And that's why we have record low vacancy rates and record low stock on market is because the need for shelter. But when we go back and be in the last, my last comment around policy and
• 30:08
  political stance but all this conversation all this pain that retirees first home buyers business owners are going through and you think the damage that's already caused in a couple of weeks just for the time really it's a time sack we're even talking about it letting on the financial repercussions it has on business or borrowing capacity
• 30:28
  Over the weekend, I went through the budget with a fine tooth comb just to really make sure I hadn't missed anything. And you know what I found is the federal budget, in their budget, they said best case scenario, best case, that budget will produce 30,000 new homes over a decade nationally. 30,000. That's 3,000 in Perth. Yeah.
• 30:51
  Yeah, so that's 3,000 in Perth over a decade. So you reduce that and divide that by 10. So all this pain, all this suffering, it's come down to the government. Best case scenario, there's going to be 30,000 new homes over a decade in Australia. Net that out for Perth. We're 10% of the population. We're talking an extra 300 homes a year. So all this pain, chaos, and anxiety around the budget is to create, what, 25, 24 new homes a month?
• 31:19
  25 new homes a month, yeah. How ridiculous is that? Yeah, it's a lot of noise for an immaterial amount of new supply when we're trying to get to 26,000 just to meet a housing accord and really more like 30,000, 35,000 just to catch up on the 50,000 home deficit we currently have. 25 a month ain't doing a lot. And that's probably not the point of it, though. I think...
• 31:42
  that was them saying, well, at least it isn't a negative. What they're trying to do, which they've failed at doing, is crowd out the investors or get the investors out of the way so that they're not crowding out first-home buyers. But really all they've done is just funnel them all into one spot. And the spot they haven't funneled them to, most first-home buyers can't afford anyway.
• 32:04
  So, yeah, it's incompetence at its best. And I think a lot of this will be wound back, not either in the next couple of months or certainly at the next election, when in the next government, the likelihood is we still have a minority Labor government in the next cycle that will be held to account with no supply from a one nation led coalition of right wing people. So,
• 32:28
  nothing is going to happen with the Labor government after the next election in this space unless they start bending to things like immigration policy and winding back maybe some of this tax stuff. And just note the irony that whilst there's such an incompetence at some of these levels right now of government, especially coming out of the Labor space, when they create immigration or bring
• 32:58
  it creates high house prices. So there's this really weird house prices boom, if you look back in history, accelerate through a labor government. So be definitely what you wish for. If you really want house prices to go up, then you probably want to keep labor government in, even though most of us will sit back and go, well, that's not good for the future. If you want to have a more balanced, and this is the thing I think, you ever seen the show Landman? I have. Right, so there's this great quote that I remember
• 33:25
  Billy Bob Thornton saying, and he said, the world wants oil to be at 60 to 80 bucks a barrel. No lower than 60 because then oil and gas companies can't really make any money and they stop exploring and then prices go up anyway and there's no availability. But no higher than 80 because then it causes inflation, right? Well, I think the Australian public really just wants to see
• 33:47
  They never want to see house prices go backwards. So they never want to see these policies, even if they were good medicine, which they're not. But even if they were, they'd still be unhappy about it if it made their house prices go backwards. But they also don't want to see 15% a year. I think most people just want to see 5% to 7% every year. And what they want is a government who can architect that and be proactive and reactive to world policy and demographic changes.
• 34:11
  to architect every year that every state makes five to seven percent well unfortunately no government is smart enough to do that in the first place which is why we have all this variation but that's probably what i think everyone would like to say would you agree
• 34:24
  Honestly, that's one of the best analogies you've ever given, I reckon. Oh, thank you. That is bang. And I know the quote as well because I'm a big fan of Landman. But 100%, I think that's – you've hit the nail on the head there in terms of from Australia in general. That's what people think. What it does is it allows the family dream to make money through property to continue at a very reasonable rate that 7% over 10 years is doubling your money, which is what your mom and dad would have told you back in the day.
• 34:49
  but it also doesn't allow those insidious outcomes of, well, my kids won't afford a house one day. So it's just above, it's probably double inflation, but it's not four or five times inflation. So yeah, it's very much something where I think we just need to get back to those. Three weeks ago, focusing on those fundamentals like you guys were doing three weeks ago.
• 35:13
  From an investor standpoint, Trent, opportunities in Perth, is there still good opportunities in your opinion? Because we hear all the time that the market's overheated, it's late cycle. But when we look at the data, there's the most affordable capital city with the exception of Darwin. Yeah, I think late cycle is...
• 35:34
  not untrue, but that also has to be understood where the cycle, the property clock doesn't tick monotonously. It's not like you're at 11.30 and so we're nearly at the end of that cycle on a pure time basis. Does that make sense?
• 35:51
  It could stay at 11.30 for five years. If we can't solve the problem of supply and demand stays constant, it will just stay at 8,000 revs per second until something changes, right? So let's not just sort of assume that the cycle in Perth just does this the whole time. If you actually look at property clocks, the way that Heron Todd White put them out,
• 36:15
  property activity centers that the ones they look at they jump around the clock all the time based on fundamentals it's just a way of explaining it right when you look at the cycle and so it's very very possible we've been at 11 30 for three years it might go down to
• 36:31
  9.30, 10 o'clock. Again, it might go down to 8.30, but that doesn't mean negative equity at any point in time. And it's okay if you have a market that grows by 1% this year and 25% last year and 8% and 4%. These are okay numbers. We should all just get back to some reality of as long as it's not going materially backwards. Yeah.
• 36:52
  and it's having an impact on my family home's equity position in the long term, then let's just pull all this back a little bit and appreciate that we're in it for the medium to long term. So yeah, is this person still have legs? Well, tell me another center in the country that is as undersupplied, that doesn't have the solutions like we don't, and has a forecast with economic growth that will continue to attract
• 37:21
  more people than any other state bar Brisbane with the Olympics over the next five to ten years. Now, that's our reality, and that means that...
• 37:31
  it's probably going to be positive growth for quite a while. And whether it's 1% or it's 20%, to me, I'm not really bothered at all, to be honest, because I'm not investing for seeing how the column graph looks at. I'm investing for something that's 15, 20 years away, which is my retirement. And there's a lot of water to go on the bridge between now and when the three of us retire.
• 37:53
  Yeah, you're right. And you just nailed it. It's supply and demand. And looking at the numbers in Perth, short term, medium term and long term fundamentals support the Perth market. And that's where I think people fail to see that they're going to take their advice from their local barber or a news article or a Facebook ad that pops on there or a comment from an economist which has absolutely no relativity to the local market. So just be careful where you're seeing and reading. And I think...
• 38:22
  What we'll see is those that have purchased during this couple of weeks of inactivity will look back in a month's time and go, gee, I'm glad I bought then. Yeah, they might have got it for 50 grand less than they would have got it for four weeks ago and maybe four weeks from now because the noise pushes that seller to go, all right, I'll take that one.
• 38:40
  Yeah, instead of paying $200,000 over the asking price, you might have only had to pay $100,000 over the asking price and you've secured an asset. But in two weeks' time, it's now $300,000 over the asking price. And we're back into that rut where it's very much a sales market. And I can't see that going away in the short term. But in terms of strategies, I'd be interested, Trent, where you said value-add in terms of developments become really popular. You might see a bit of a trend towards units, villas, those type of assets, anything else
• 39:05
  Yeah, so strategic was built on infill development, as you guys know. And in a market in Perth where there was no growth, there was negative growth for four years. We made all of our money and all of our clients' money in infill development. It was buying a property
• 39:22
  that was 700 to 1100 square meters in size, that had 18 to 20 meters of frontage, that was relatively flat to reduce retaining costs, that had the zoning of between generally R20 and R40, and based on the size of that block, allowed us to turn that one property into two, three or four properties. Mostly two or three, because the banking policy restricted it to that.
• 39:49
  And we did that 104 times in that four year period. And every single one of those projects made between 60 grand and a million dollars. And a lot of that million dollars was market growth. Most of them forecast to make 200 to $250,000.
• 40:08
  And we wouldn't start a project unless we could FISO that at the start where it wasn't making at least 15% or 16% at the start of that project. And if prices went up at the end, well, then that was a win for... Yeah, a cream. So in markets where you're not expecting to be able to just ride a wave...
• 40:28
  of 20% a year or where you're not super confident about those fundamentals, you've got two strategies really. Just be defensive and buy into blue chip areas and be passive or you can buy into areas that have a zoning within some of their properties that allow for subdivision that way you can manufacture wealth. And the reason I looked at it as being the most defensive strategy I knew is because when you buy a passive property, you're buying that negative what you paid for stamp duty.
• 40:57
  So you're already starting 4% behind. You go and buy a property that has on the feasibility a 15% upside, including the stamp duty costs and everything. You've got 15% already built in upside. Even if the market dropped 15%, you could do that development and come out even.
• 41:13
  So that was always my way of mitigating my downside. And what we were able to do in that time is pretty much buy it for exactly what we thought it would because there wasn't a lot of competition. Now, that's not going to be the case in Perth. There's still going to be a factor of hurt money in trying to buy these properties because they are becoming rarer and rarer and it takes more and more skilled buyers agents to buy those things. And then we could develop it for what we thought was going to be the case. Now,
• 41:39
  Construction costs are becoming much more predictable now, but they are 90% more than what they were seven years ago. And we could sell it for what we thought we could. And I think you'd have a fairly good understanding in the market of what that would be with a 10% range as well going forward. So that was our most defensive strategy with no impact of what's just happened in the negative gearing and capital gain space at all.
• 42:05
  And that would be my advice to people is to find a consultant that can help you find and develop and finance that stuff. It's not strategic anymore, so don't call strategic. But I would advise you guys at Folio to be doing that sort of work with your clients. And that should be the number one focus from my perspective on the most risk mitigated purchase along with that passive loodship property in Wembley Downs that will just never go down anyway.
• 42:35
  and then use your client's capital to be able to turn that into two, three, four, $500,000 profits that, hey, even if the market went down, might turn into zero, 50, two, $300,000. Instead, that's still a win for people over that time.
• 42:55
  you de-risk it and that's super important. So it's always about mitigating your downside risk because with property investment, regardless of how big or small the project is, there's risk. So if you can mitigate your downside risk but, you know, uncap, arguably you're upside. They're the scenarios and that's where development works. And it's something, Trent, we've done with our clients over the last five years, something I do personally and have done for the last five years. But I guess pre-budget development,
• 43:21
  for some people's a bit of a dirty word and post COVID with the builders going bust, there's a lot of trust lost. And so for clients that we were meeting with, the idea of development was, when you can buy something, sit on it, where you're gonna get a 50% negative gearing benefit and still get all the market uplift, then get your subbie approval and the market's gonna pay your premium for it. It was a harder conversation to suggest that there's so much more upside by taking on the development risk, where I think now post budget,
• 43:51
  Things get more complicated. They get more complicated, but the upside is now significantly greater because of the tax benefit. You don't invest for tax benefit, but now it's a hard argument not to want to develop and then get the benefit for negative gearing capital gains. And obviously, you're getting development uplift as well.
• 44:06
  Well, I'd say that most people, if they're doing it more than once, you'd probably be investing in a company anyway, to be honest. But again, then you've got the whole deductibility of companies in the first place. You still have a trust sitting behind it possibly if there's benefits, but otherwise most clients of ours would just go straight company.
• 44:27
  This isn't tax advice, by the way, it's just my experience. And it gives you an ability to retain profits in the company and then reuse, recycle that profits for the next project. At some point in time, if you draw them down at
• 44:44
  more than $190,000 a year, you'll start paying the 47% income rate. But in the meantime, you're retaining more profits in your company so that you can recycle that and expand your scope of your developments. And so I guess the real winner would be to do an infill development in a blue chip area. I mean, that's the sort of thing that you'd be after. But you're paying big money for it and you want to be therefore developing with big money because those people that are buying off you
• 45:14
  which again, new product, they all have those tax benefits as well. So the buyer pool is bigger. That's a win for you. In an area with minimal investment options in the first place, rare as hen's teeth, they're going to want lovely product. So we're talking millions of dollars if you want to try and put those two things together that you'll have to be looking to put on the line.
• 45:33
  I think there's a mid-tier there where you're targeting own-occupied dominated areas that still expect quality housing. It's getting that commercial mix right between how much you need to spend in terms of the dollars, but also getting the quality right to make sure that you're not under-capitalising on your area. So I think targeting own-occupied areas, you could still do it in a syndication setting where you don't need millions and millions of dollars. And that's what we've done with our clients and have done for...
• 45:59
  couple of years is getting that mix right of. Syndication's a good one. And if you've got the right people managing it and you're one of three or two people in there just to help get into that access point because let's give an example. Let's just say you're going to Belmont, a million bucks as an average to buy in
• 46:16
  your development site might even be more than that now. And then you're probably on one and a half mil just to build three one-story houses there. So all in, you're probably closer to three mil to do something. Not a whole bunch of people can afford $3 million across that space. So you might be able to do that with you and your mate and your brother and the three of you can go in and do that. And really...
• 46:39
  Once you start to get those skills, I promise you it's something that's worth your time. From a financial perspective, it's exciting to be a part of those things. And then once you've done one, you can sort of rinse and repeat that for the rest of your life. And that can be the way that your nest egg builds if it's not gonna be something like crypto or shares. That's probably the
• 46:57
  the strategy that whether you've got this tax noise or you don't, the environment changes or it doesn't, you can always be recycling through that. But again, it's very possibly not your first investment. No, and that's it. And for us, when we meet with our clients, it's for the right clients, not for everyone. So disclaimer there, if you're your first home investor, don't go out there and go in and get two buddies from uni and go and buy a development site. There's planning risk, there's development, there's construction risk. So please speak to your property advisor before you do it.
• 47:25
  But the one thing I love about your story, Trent, and your strategy is the fact that you did this development, you know, strategic was set up during the hardest period of the Perth market. When 2016 to 2020? That was when we were doing those 104 developments, yeah.
• 47:41
  and that's when you were getting, aiming for two to $300,000 uplift in the flattest, and if anything, the market was going backwards. So to de-risk it, you've been able to do it in the toughest market Perth's ever experienced. So there's no reason why, you know, in- Well, this is nowhere near that. Let's be very clear. This is the best market Perth ever saw in terms of stock on market up until two years ago in its history.
• 48:08
  That's what I mean. So you've been able to achieve it in the soft market. It means people really have no excuse. Not no excuse because it is difficult. It's complicated. But there is material upside in the environment we're currently in in comparison to when you were able to make a lot of profit for a lot of clients. Yeah. So speak to the right people. Get the right team around you. And I'd say, yeah, if those are the strategies, that's it. It'd be those two for me.
• 48:29
  What about the one that I've had constantly, especially from Perth people post budget, and Lachlan loves me saying this on the podcast, but the accidental landlord. So someone who wants that, they maybe don't have an investment property, but they're looking to capitalize on negative gearing benefit because they've owned that property. So they grandfather that, yeah. Correct, and then using that to then get into their upgrade. Do you see that as a viable strategy for people, maybe as a first time investor?
• 48:57
  Yeah, I guess you just need to have the plan for where you're going to live. Right? So I think the biggest problem we've had in Perth, which is becoming a bit less of a problem, which has always been the goal. We've been knocking the doors down and saying, we need more mobility. We need more stock on this market because it's hurting people's lives.
• 49:12
  that's becoming less of a problem, but still a problem. Not out of the woods, but it's less critical than 1800 properties in Christmas. If you're gonna go and rent your house out as a strategy to move on to the next phase in your life, which should hopefully be a nicer place in your mind than you are at the moment, then you just wanna make sure you got that plan sorted out first, because you don't wanna be stressing yourself out. But it certainly is an option. I've got family members right now who've come to me and said, Trent,
• 49:41
  We'd like to look at investing in property. What do you advise? Now, they've got a lovely property in Kalaroo that would rent out for...
• 49:51
  $1,400, $1,500 a week. They want to move closer to the ocean, a little bit further south. And the first idea was, hey, can we just buy an investment property? And I said, well, what are you trying to achieve out of it? And it's like, well, one day we'd love to be in Sorrento, right? It's like, well, why don't you just go buy that house in Sorrento, rent out the beautiful home you have now, and now you have an investment property in Calaroo, which is pretty bloody awesome.
• 50:14
  And you live in the dream home in Sorrento. I mean, what else are we doing it for? Just to collect properties? That's not the point. The point is to generally that we take a risk in life is so that we get a reward. So let's just go straight line towards that reward rather than moving around. So 100%, if you have a beautiful home that is worth keeping,
• 50:31
  Find a way if you can to keep it, rent it out, and use the equity that you've got in your home to move to that final home. And if that's all you ever need to do to be in your dream home, then don't employ anyone at Folio. You're done. You don't need to do any more of that anymore. Like, that's it. That's game over. That is, you've won the game. And that is the goal. We talk about it. If you can own your dream home, ideally debt-free, then you've clocked it. You've passed go, you've collected more than $200 and you can retire and sit and forget.
• 51:01
  So yes, great strategy. If you have the equity in your home, which to be frank, if anyone's bought in the last, at least five years ago, they are in a space where they should be able to draw the equity out of their home and probably can use that as their deposit for the dream home and rent your place out. And you should be in a way where that's sort of subsidizing the mortgage on the dream home. And then you can start in again, going, all right, now,
• 51:25
  Things are a bit tight again. And we're starting again with paying this down. But no one can ever take this off us as long as we pay our mortgage. I mean, that's the goal, I think.
• 51:34
  We've been in a two-speed economy probably, what, for the last six to 12 months where Brisbane, Adelaide, Perth, I'm going to exclude Darwin from this example, just major capital cities, have been experiencing some serious growth and consistent growth. Areas like Sydney have been coming off, Melbourne have been flattening this year as well. The latest data we've been tracking, Adelaide is starting to finally hit its peak in terms of price growth, still some growth but very minimal on a week-by-week basis.
• 52:03
  Brisbane appears to be slowing down. It's hit its affordability ceiling, it seems, from historical data. We've got the Perth experts in here today. Perth, I think, from the latest data we tracked, Lachlan on the affordability index, for those that haven't heard us talk about this before, medium household salary consumed by the medium household mortgage.
• 52:23
  Perth has still got a little bit to go on its peak. And I think when we modelled it out, the medium house price, we believe it might tick out as about $1.2 million. But from both of your perspectives, you know, to kind of close it out, where do you see us hitting our affordability ceiling? We've mentioned there's obviously a supply issue there. But how far do you think we've got to go?
• 52:44
  So I'm pretty sure you already flagged that Adelaide's hitting its affordability index. Yeah, it is, it's pushed past it. Yeah, so that doesn't surprise me. Adelaide isn't Sydney, so it doesn't have this sort of magical ability to sustain its pricing for the most part, despite unrealistic affordability index percentages.
• 53:03
  Brisbane obviously is very close to that as well. It's gonna be sustained by its capital spending up to the Olympics, I think. I don't see a lot of downside risk in Brisbane. Again, you just might see very moderated growth. Nothing wrong with that. Perth, theoretically, its cap is Sydney's prices because Perth's median income in its household is just higher than Sydney's. We pay the same interest rates, we pay by the same rules,
• 53:30
  with the banks. Anyone who says anything other than that has a self-deprecating anti-Perth bias, which most of it comes from Perth. So yeah, it'll have these ebbs and flows. It's very possible it never reaches Sydney's prices in the next 20 years. But in 2008, it was higher than Sydney's for a very short time.
• 53:51
  And then for Sydney-based reasons, Sydney went on a run for the next 18 years. That pushed it higher than Perth's at times when Perth's was going up and down in that 18-year period. So we just know that the bank, it's governed by pretty much affordability, interest rates, and what banks will give lenders, mum and dads. So yeah, it's one and a half mil. That's the theoretical high. Will it reach that?
• 54:16
  Depends how long Perth's demand is stronger than its supply in terms of fundamentals, because it's not going to happen overnight. Likelihood is it ends up somewhere in between. But you can't argue with me on this. It's Sydney's. Its theoretical cap is Sydney. And proof will be in the pudding as to how long we can't fix the supply-demand ratio
• 54:41
  If we fix it tomorrow, we won't reach that median house price. If we don't fix it in 10 years and Sydney's median house price is where it's at or lower. It could be lower. It could be a 20% fall in the next one.
• 54:53
  There's no reason why 2030 can be any different to 2008. It's not going to happen next year. It won't happen the year after. But if we don't fix this problem in Perth and Sydney goes on a run down because of affordability index issues that finally rear its ugly head, then you could find a time in 2030 where for a short time even, we're back to being the same as Sydney's.
• 55:11
  I don't even think you have to look that far ahead. It's not that far out of the realm. If Perth is to do another 20% growth, gets it to 1.2, and Sydney's to contract by 20%, which looking at the current data, could be an event that takes place. They're at 1.3-ish at that point, so they're very close, yeah. That's what, like it's, I don't think it's not even a time. It's, you know, is it foreseeable for Perth to do 20% growth over the next 18 months? Well, history would tell us, and what the data's doing right now on a per week basis,
• 55:38
  Very probable. They're still in the teens this year. Could Sydney fall by 20%? Well, based on the data we're tracking, it's in the teens of negative growth. So those two worlds can collide. I'm not going to say that either, Trent, but there could be a time in the next couple of years where...
• 55:53
  our median is within 10% of Sydney. It's a crazy dynamic to think. Certainly in 2019, we would have been shouted out of rooms for even suggesting that thought, but it's ironic that currently looking at sentiment and looking at the data and looking at the trends that they're heading in opposite directions and there may be a point. And may converge, yeah. And I wouldn't bet my money on it because that means that I'm- We'd be buying in Sydney at that point.
• 56:21
  Yeah, maybe, but then you have to track where's Sydney going because who's to say to Sydney just, again, bumps up. I've made that argument about Melbourne to you guys. Just because Melbourne's down doesn't mean it's going up, right? Just because Perth's up doesn't mean it's going down. It's what does it look like for economic activity? What's the fundamentals? Yes. Are there going to be more people...
• 56:40
  Are there going to be twice as many people coming into this state this year, next year, the year after, than the homes we can build for them because it's two people per house, essentially? If the answer is yes, then price will grow.
• 56:53
  That's it. What an episode. Thanks, Trent. You've been listening to the Folio and Perth Property Show podcast. I love it. What a simulcast. How good. So does an hour. Hi, Ryan Reynolds here for Mint Mobile. Are you looking for a beach read this summer? May I suggest your big wireless bill? It's got suspense, mystery, a slightly flat emotional arc and a shocking twist where you realize you've been overpaying the entire time. Fortunately, though, Mint's story is better. Every plan, $15 a month, even unlimited. That's it. Happy ending. Zero tears.
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