Speaker 1: Hello and welcome to the Australians Money Puzzle podcast. Aunt
Speaker 1: James Kirkby the World, the editor at The Australian. Welcome
Speaker 1: aboard everybody. Happy New Year, everybody. I hope twenty twenty
Speaker 1: five will work out very well for you in your investing,
Speaker 1: in your endeavors. Will be here to hold your hand,
Speaker 1: will be here to help you in every way possible.
Speaker 1: And you can help yourself by writing into us and
Speaker 1: letting us know the issues that you want to hear
Speaker 1: and you want covered in the year ahead. It's always
Speaker 1: good to hear from you for the moment. What we're
Speaker 1: going to do, of course, is our summer series and
Speaker 1: if you've been listening to the series, it's been terrific
Speaker 1: and terrific response, I have to say, considering the last
Speaker 1: majority of people are on holidays. But we had the
Speaker 1: fire episode FIORI financial independence Retire Early, Aer thed so
Speaker 1: on Christmas week and considering it was Christmas week, there
Speaker 1: was quite a response. I know there would be because
Speaker 1: this is an issue which captures people's imaginations so much,
Speaker 1: this idea that you can achieve financial independence and retire early.
Speaker 1: We had a very good session with Lionel Lee. I
Speaker 1: find every time we mentioned it, there is always a
Speaker 1: chorus which suggests that we've forgotten to say this or
Speaker 1: we didn't mention that. And I'm very happy to return
Speaker 1: to the fire movement and the idea of financial independence
Speaker 1: retiring early in the weeks ahead. What I tried to
Speaker 1: do with this series was give you a runway, if
Speaker 1: you like, for the year ahead. So we had the
Speaker 1: first part of the series, which was on share markets,
Speaker 1: individual share markets and nasdakaraix, whatever you've got, and what
Speaker 1: the consensus outlook was for those markets. Very good session
Speaker 1: with Mark Jokun again of Beta Shares. You can hear
Speaker 1: all these if you've missed them. The second part of
Speaker 1: that series then it was zoning, you know, on individual
Speaker 1: stuff on the ASX and what was the outlook for
Speaker 1: the different sectors and the different stocks, big stocks that
Speaker 1: we all know and small caps that we all know.
Speaker 1: That was with June Belieu of the ten Capital Group.
Speaker 1: If you put all these episodes together, then you really
Speaker 1: have a package. I think that will give you a
Speaker 1: great start of the year. What we needed to do next,
Speaker 1: of course, was property and who should be in the
Speaker 1: hot seat. Do you think for the property session. Well,
Speaker 1: I thought it was hard to beat. Stuart Wems of
Speaker 1: the pro Solution Group and the Investorly podcast. Happy New Year, Stuart,
Speaker 1: How are you happy?
Speaker 2: Ne James, and happy to you to all our listeners,
Speaker 2: and thanks very much for having me back.
Speaker 1: You're welcome. It's that time of the year where there
Speaker 1: is a lot of in the nature of media, certainly
Speaker 1: there's a lot of you know, what you might call
Speaker 1: wraps and lists what happened in twenty twenty four, what
Speaker 1: will happen in twenty twenty five, And it's natural enough
Speaker 1: that people want to know the market moving pretty much instantly,
Speaker 1: the share market obviously quite lively already, the outlook for
Speaker 1: rates and moving around quite a basic, the looming arrival
Speaker 1: of Trump, that is, the inaugurated Trump coming down the line,
Speaker 1: and all sorts of effects for markets. But in property,
Speaker 1: one of the things that really struck me. I think
Speaker 1: over the holiday where I I'm the sort of person
Speaker 1: that I imagine some of our listeners are like this too.
Speaker 1: I do like to look at property, you know, I'm
Speaker 1: a spare time and we were actually looking, not that
Speaker 1: there was much for sale, unfortunately, in that time of
Speaker 1: the year that I like to look, or I have
Speaker 1: some time to look. But it did strike me that
Speaker 1: we must never forget as property commentators, you and I
Speaker 1: and everybody else on this show, that property is still
Speaker 1: such a local issue. And we talk all the time
Speaker 1: about the averages and what's happenings us here in terms
Speaker 1: of macro or even averages for a city. And then
Speaker 1: you know, for all the social media and for all
Speaker 1: the technology, at the end of the day, you must
Speaker 1: get out of the car I reckon, and you must
Speaker 1: go and look at that property. And you get out
Speaker 1: of the car and you immediately have a curbside assessment
Speaker 1: which tells you, oh gee, you know that looks so
Speaker 1: good on the internet. And this isn't going to work.
Speaker 1: I know before I even leave the car, this isn't
Speaker 1: going to work. The issues that our listeners face when
Speaker 1: they buy a property. You know, there's the block. It's
Speaker 1: a bad block, but it's a great apartment, except the
Speaker 1: fact that it backs out to a car yard. Whatever.
Speaker 1: The point I'm making is that it's very local, isn't it.
Speaker 1: At the end of the day, it's almost become a cliche,
Speaker 1: but it's so true.
Speaker 3: Well, there's no better evidence.
Speaker 2: If you can pay the Perth market to the Melbourne market.
Speaker 2: We have the same interest rate settings. We have broadly
Speaker 2: the same you know, federal economy or national economy. I
Speaker 2: should say a lot of the settings are the same
Speaker 2: that economists would point to that we should be looking at,
Speaker 2: or be telling us we should be looking at to
Speaker 2: work out how property is going to behave. But supply
Speaker 2: and demand, employment, interest rates, you know, these sorts of
Speaker 2: things are generally the things that economists tell us that
Speaker 2: will dictate property prices. But here we are Melbourne's off
Speaker 2: three percent and per s got double digit growth. So
Speaker 2: same settings, but it shows where sentiment and where market
Speaker 2: cycles have a really big influence on these things. In
Speaker 2: the longer run, of course, interest rate settings will play out,
Speaker 2: but in the shorter term, I think it's really about
Speaker 2: sentiment and market cycles and.
Speaker 1: Their property the particular property. I can go over to
Speaker 1: Perth hot market and I can buy a crap piece
Speaker 1: of real estate wouldn't be hard yep. And I can
Speaker 1: go to Melbourne in a poor market, a soft market,
Speaker 1: nothing going right, and I can probably buy an excellent property.
Speaker 1: Because it's all in the end, it comes down to
Speaker 1: this high It's not like buying an etf It's highly individual,
Speaker 1: isn't it each time?
Speaker 2: It's one of the attractions to property, right, is that
Speaker 2: I've got control over asset selection. You know, I can
Speaker 2: decide where to invest. I can then control that asset
Speaker 2: in terms of improving it or how I'm going to
Speaker 2: use that asset. It's one of the things I think
Speaker 2: control is one of the main things that attract investors.
Speaker 2: But you're right, James. I mean, you look at the
Speaker 2: meaning house price in Melbourne. Core Logic says it's off
Speaker 2: three percent. But I know some sales last year of
Speaker 2: really good a grade property that have actually exceeded the vendors'
Speaker 2: expectations when they went to sell it. Now, the thing is,
Speaker 2: a lot of a grade property doesn't trade when the
Speaker 2: market is soft. So that kind of skews the data
Speaker 2: as well, because a lot of vendors are discretionary, right,
Speaker 2: So why would you if you had a fantastic property,
Speaker 2: why would you sell it in a soft market if
Speaker 2: you didn't have to? And so a lot of a
Speaker 2: grade property doesn't trade. But when it does trade, and
Speaker 2: you see in these slower markets, it really shows that
Speaker 2: quality performs completely differently. And that's the key thing that
Speaker 2: listeners need to think about. Obsess about quality when you
Speaker 2: buy a property. After you've bought that property, then obsess
Speaker 2: about the cash flow of that property. Yes, because you
Speaker 2: can't change the quality. Really, you can't change the quality
Speaker 2: in terms of location, land size, these sorts of things
Speaker 2: after you've bought it.
Speaker 1: That's right, This is what I was alluding to there.
Speaker 1: You know, might have been so individual. So you drive
Speaker 1: your minds across the city and you look at an
Speaker 1: apartment which looks so good. Then you realize the block
Speaker 1: is not well kept and the block is never going
Speaker 1: to improve. You can do what you like inside that apartment,
Speaker 1: but that block isn't going to come right. So this
Speaker 1: is the great power of a house, obviously a standalone
Speaker 1: property to those who can afford it that you can
Speaker 1: do that. You can make it better, and you can
Speaker 1: make any property better, but some have more scope than others.
Speaker 1: One of the things just before we get to the
Speaker 1: issue at hand, which is what's going to happen in
Speaker 1: the year ahead, mentioned Victoria there. Well, I did something
Speaker 1: in the Australia yesterday and it was about Victorian state
Speaker 1: taxes because do you know there are ten ten separate
Speaker 1: state taxes for properly, two of which are new. And
Speaker 1: this is in a city where the market was the
Speaker 1: weakest in the entire country last year, and it's heading
Speaker 1: the same way this year and this morning so far.
Speaker 1: That is, there are six hundred and thirty six comments
Speaker 1: on that piece, which would suggest to me that it
Speaker 1: hit a nerve. And I'm often reluctant to write on
Speaker 1: a region inside a national newspaper because I always have
Speaker 1: that feitling, Oh, you know, the person in Queensland isn't
Speaker 1: going to be interested. But actually everyone was interested because
Speaker 1: I think they're worried. They see what's happening in that
Speaker 1: state as what could be a prototype for every state,
Speaker 1: and that's not what people want to see. This will
Speaker 1: come up in the show, folks. We will now deliver
Speaker 1: on promise to tell you about the year ahead. Because
Speaker 1: Stewart has been studying this all through his holidays. He's
Speaker 1: been getting ready for this show. He's got a lot
Speaker 1: to tell you. So let's start with the obvious question,
Speaker 1: what are the key factors specifically and exclusively about twenty
Speaker 1: twenty five that property investors should know.
Speaker 2: Sentiment will outweigh I think most fundamental factors, James, and
Speaker 2: it sort of goes to your point about the taxation
Speaker 2: in Victoria, particularly around taxation around property in Victoria. And
Speaker 2: we might on the face of it look at that
Speaker 2: and go, well, that's a big negative. That's a detractor,
Speaker 2: and it really is. But at the end of the day,
Speaker 2: investor sentiment will outweigh that. So if investor sentiment decides, okay,
Speaker 2: we think there's a lot of value in Melbourne despite
Speaker 2: the taxes, investors will look through it. I mean, if
Speaker 2: you're an investor, a property investor, the tax system is
Speaker 2: going to change. You might hold a property for thirty years.
Speaker 2: There's going to be a lot of changes you need
Speaker 2: to navigate over that period of time. And if you
Speaker 2: look back over the last forty years in Australia, there's
Speaker 2: been heaps of changes, Kaprigain's tax introduced to GST negative
Speaker 2: gearing with quarantine for a short period of time, but
Speaker 2: the property market has navigated that. I find the best
Speaker 2: sort of proxy for sentiment around a particular location is
Speaker 2: interstate migration. It gives us a sense of, you know,
Speaker 2: how Australians are really thinking about a particular location, and
Speaker 2: it's interesting to note that interstate migration is fifty percent
Speaker 2: higher than the long term trend in New South Wales.
Speaker 1: When you say it's higher, what's higher, people living, people leaving,
Speaker 1: people leaving the Southwest because it's so expensive, possibly.
Speaker 2: Probably and probably because of interest rates. So New South
Speaker 2: Wales normally loses about five thousand people per quarter. It's
Speaker 2: averaging about seven thousand, seven hundred over the last twelve months.
Speaker 2: When you look at Queensland, Queensland normally gets about six
Speaker 2: thousand people per quarter. It's invited seven half thousand people
Speaker 2: on average per quarter over the last twelve months. So
Speaker 2: Queensland's benefit. South Australia normally has a negative interstate migration.
Speaker 2: It's still negative, but to a lower extent. That's no
Speaker 2: surprise given how that market's been doing, and Western Australia's
Speaker 2: turned around but off a very low base. I think
Speaker 2: the interesting one though, is Victoria. Victoria was well documented
Speaker 2: was losing about five thousand people per quarter through that
Speaker 2: COVID period twenty twenty to twenty twenty three. It's now
Speaker 2: turned positive. The number doesn't really matter so much. You know,
Speaker 2: you can say, oh, Stuart, six hundred and sixty people
Speaker 2: per quarter, came to Victoria, net Okay, we've got two
Speaker 2: and a half people per house, so these are that
Speaker 2: new dwellings. We need to accommodate those people. That's not
Speaker 2: really the point. The point is that quite often a
Speaker 2: change in interstate migration predates a change in property price movement,
Speaker 2: which I've studied previously. So if you look at Queensland,
Speaker 2: it was negative interstate migration for a long period of time.
Speaker 2: That switched around in twenty eighteen and that's when prices
Speaker 2: started to sort of take off. So I think probably
Speaker 2: the interesting thing here is Sydney's above average losing more
Speaker 2: people than normal.
Speaker 3: That's kind of interesting.
Speaker 2: Maybe that tells us maybe the Sydney market is losing
Speaker 2: a bit of steam, and that might tell us what
Speaker 2: happens in twenty twenty five. But the most interesting observation
Speaker 2: obviously is those states that have outperformed Queensland, South Australi
Speaker 2: and Western Australia are still enjoying strong popularity. And the
Speaker 2: key one though, I think, is the change in Victoria.
Speaker 1: Are they buying homes? This isn't investor action really is
Speaker 1: that these are people buying their homes.
Speaker 2: These are own occupiers, but It's sort of reflects in
Speaker 2: loan volumes as well, So you can look at investor
Speaker 2: loan volumes and it's the theme is sort of the same.
Speaker 2: But what I'm really looking at is sentiment. How are
Speaker 2: people thinking about a particular location for a long time.
Speaker 2: You think ten years back, are in fifteen years back?
Speaker 2: Queensland was had political problems, had a lot of floods.
Speaker 2: You know, they had a lot of challenges. No one
Speaker 2: wanted to go to Queensland anymore. Now that's changed. They
Speaker 2: haven't had those disasters for a while. They've got the
Speaker 2: Olympics coming up. You know, it's all really positive. Sentiment
Speaker 2: in the shorter term will drive markets, and we'll drive
Speaker 2: markets beyond some of the fundamentals things like increase taxes
Speaker 2: and so forth. And if we're thinking about what will
Speaker 2: happen in twenty twenty five, sentiment is one of the
Speaker 2: big things we need to really think about.
Speaker 1: Okay, that's interesting, so folks, in terms of factors this
Speaker 1: year on property investment and even home buying, there is
Speaker 1: that issue of internal migration trends, and then exists interesting
Speaker 1: out of Sydney into Queensland. The course which is so
Speaker 1: well established, but Curiously, did you say that there is
Speaker 1: actually an optic in internal migration to Victoria?
Speaker 3: Correct?
Speaker 2: Normally, long term trend is Victoria loses one thousand people
Speaker 2: per quarter. Over the last twelve months it's been positive
Speaker 2: six hundred and sixty, so percentage wise, it's a pretty
Speaker 2: big turnaround. I'm not too worried about the actual number,
Speaker 2: but it's more the theme of the number. Yes, gives
Speaker 2: us some sense of how people are thinking. Victoria has
Speaker 2: the highest population growth, so obviously interstate migration is only
Speaker 2: one element. Victoria's population growth over the twelve months is
Speaker 2: two point four percent. The only state that has a
Speaker 2: higher population growth is Western Australia at two point eight percent,
Speaker 2: and that's pretty important. Obviously, population growth drives housing demand,
Speaker 2: so you know, whilst there's a lot of negativity around Victoria,
Speaker 2: the numbers show us that maybe sentiments changing and certainly
Speaker 2: the population growth.
Speaker 1: Is strong and it certainly isn't keeping people away, that's right,
Speaker 1: though it might appear to do so. Just to pick
Speaker 1: up on your line of thinking, like why would you
Speaker 1: go to a state where they have ten different property
Speaker 1: taxes And the simple answer is because it's cheaper and
Speaker 1: it's so much cheaper, as you're saying that the investor
Speaker 1: will see through the taxes which are a flexible cost
Speaker 1: if you like, and that can change, and government's changed
Speaker 1: in their train of things just to cover off on
Speaker 1: the other big factor always the swing factory, if you like.
Speaker 1: In property. Everyone says to me, well, when they cut rates,
Speaker 1: property will come alive. I wonder about that. I wonder,
Speaker 1: a will they cut rates if they deal with they
Speaker 1: cut them like anything we're expecting, and I wonder will
Speaker 1: it really charge and stimulated market where there is something
Speaker 1: of a drift going on. We saw pretty ordinary market
Speaker 1: last year, like five percent national average lift, one city
Speaker 1: falling behind Melbourne down three. Canberra also actually off just
Speaker 1: a little bit over the year, and Sydney kind of
Speaker 1: drifting as well, going nowhere towards the end of the year.
Speaker 1: Terrific performance of course over in Perth. Amazing factor about
Speaker 1: that you mentioned at the very beginning of the show.
Speaker 1: And it's so true that you have one city where
Speaker 1: prices are falling, in one city where prices are rising
Speaker 1: Melbourne and Perth, and in another jurisdiction or whatever, you
Speaker 1: might have two different central banks and one would say
Speaker 1: things are heating up too much. They need a rate
Speaker 1: lift over in Perth and they need rec decrease and
Speaker 1: can't do that. If you're the RBA, You've got to
Speaker 1: set it for the whole country. It's one of those
Speaker 1: curiosities we find ourselves with. But tell me about reates.
Speaker 1: What are you, as a property professional of what are
Speaker 1: you assuming? Are you assuming a cut? And when would
Speaker 1: it be and for how much?
Speaker 3: Sure? I have no idea.
Speaker 1: James, no idea? Oh, fair enough, honest answer.
Speaker 2: I think the monthly inflation data was rees yesterday. I
Speaker 2: think the market's getting a bit excited about talking about it.
Speaker 3: February.
Speaker 1: I thought they were getting excited in the absence of
Speaker 1: anything else. I mean, really, am I supposed to change
Speaker 1: my view on rates because of one inflation print? You know?
Speaker 2: Yeah, let's reframe the question, if I may. Let's think
Speaker 2: about if we do get an interest rate cunt, how
Speaker 2: will it affect the property market? And the answer to
Speaker 2: my mind is in loan volumes, right, That's what we
Speaker 2: need to be studying. Because more money flowing into the market,
Speaker 2: of course, PUSH's price is higher. There's a very close
Speaker 2: correlation with loan volumes and property price movements.
Speaker 3: And so that's what I really look at.
Speaker 2: So if interest rates come down by three quarters of
Speaker 2: a percent, which is what the kind of market's pricing
Speaker 2: in this calendar year, by my calculation, to increase someone's
Speaker 2: borrowing capacity by about five to ten percent, so it's okay.
Speaker 2: And it might be like, might push someone from not
Speaker 2: being able to buy property to being able to buy property.
Speaker 2: So it could be a really big decider, but it's
Speaker 2: not massive. Right of course, people that have already have
Speaker 2: a lot of mortgages, a small interest rate can't helps
Speaker 2: their cash flow significantly. So certainly someone that is on
Speaker 2: the journey of building a property portfolio might be in
Speaker 2: a better position or might feel more comfortable after a
Speaker 2: little bit of a rate cut to buy again or
Speaker 2: invest again. But loan volumes are already relatively high, James,
Speaker 2: when you look at the actual numbers, it's almost back
Speaker 2: to the peak that hit in late twenty twenty two.
Speaker 2: So can loan volumes go higher? The interesting thing, James,
Speaker 2: and I haven't mentioned this to you that a lot
Speaker 2: of the banks have been covertly changing credit policy. They've
Speaker 2: been telling us we require less documentation here, We're going
Speaker 2: to be a little bit more flexible for an interest
Speaker 2: only rollover term. Here, they're just small changes at the fringe,
Speaker 2: but we haven't seen them. We only started to see
Speaker 2: them in the last quarter of last year. So I
Speaker 2: think the banks will want to keep that credit growth going.
Speaker 2: And obviously APRA said no, we're not changing the three
Speaker 2: percent loan buffer, so that's in place. So I think
Speaker 2: the bank's response then will better change their own credit
Speaker 2: policy to sort of loosen off credit a little bit.
Speaker 2: So if that happens at the same time as interest
Speaker 2: rates reducing, I think that will stimulate loan volume and
Speaker 2: it will probably have a positive impact on the market.
Speaker 2: But maybe to a lesser extent, maybe people will say, well,
Speaker 2: persorly taken off, Melbourne looks really cheap. Now I've got
Speaker 2: a little bit more money I can borrow. I can
Speaker 2: now buy a house in Melbourne. Let's go and do that.
Speaker 2: And so I think the relaxation of interest rates and
Speaker 2: perhaps credit policy might serve Melbourne better than some of
Speaker 2: those hotter markets.
Speaker 1: Interesting hope that thought. Folks can take a short break.
Speaker 1: We'll be back in a moment. Hello, and welcome back
Speaker 1: to the Australian's Money Puzzle. I'm James Kirby and talking
Speaker 1: to Stuart Weams. Now we had a look at some
Speaker 1: of the issues as an investor you should be aware of.
Speaker 1: I'm assuming to some extent you're across the basics, and
Speaker 1: I'm sure you are. About the property market. Okay, it
Speaker 1: was an okay year last year. We did four point
Speaker 1: nine percent on average across the country and in a
Speaker 1: way that tells you very little. Because Melbourne fell over
Speaker 1: the year, Perth went through the roof over the year,
Speaker 1: so it was one of those years where there really
Speaker 1: was major dislocation across the performances of the different cities.
Speaker 1: One of the things that happened all year was this
Speaker 1: sort of expectation that rates would fall. The fact is
Speaker 1: they didn't fall. They didn't move for the entire year.
Speaker 1: We are now told by the powers that be economists
Speaker 1: and various professional forecasters that rates will come down in
Speaker 1: this year twenty twenty five mid year perhaps, Okay, there's
Speaker 1: some variation around that, but there's a broad consensus they'll fall.
Speaker 1: I think Stuart, you were thinking something in the orders
Speaker 1: of just three quarters of eight percent over the whole
Speaker 1: yeara which, as you say, we'll move the dial. But
Speaker 1: it won't exactly flip things on their head. So all
Speaker 1: we might do in this segment is just take a
Speaker 1: look at what is expected now specifically in the market
Speaker 1: this year, and what you think of that and why
Speaker 1: people might have come to these conclusions. So, first of
Speaker 1: all is Sydney, and I think the base case there
Speaker 1: is that Sydney will continue to drift and fall. Maybe
Speaker 1: one to five percent is what I can see. What
Speaker 1: do you think of that?
Speaker 2: The interstate migration indicators sort of concerns me a little bit.
Speaker 2: Speaking to bias agents in Sydney last year, they said
Speaker 2: that it's a very interesting market's almost perfectly balanced in
Speaker 2: terms of the supply from both demand from buyers and
Speaker 2: supply from sellers. The buyers Agehn speaking to had been
Speaker 2: operating that market for twenty years, hadn't seen that sort
Speaker 2: of perfectly balanced market, which means that only a little
Speaker 2: bit needs to go wrong to sort of put it
Speaker 2: off kilter a little bit. I don't think we'll see
Speaker 2: much of anything really from Sydney, So somewhere negative three
Speaker 2: to positive three in terms of a range a three
Speaker 2: percent changing property process. Let's not get excited that the
Speaker 2: share market can drop three percent in a day. Yeah,
Speaker 2: pretty much nothing, I think, is the answer. I wouldn't
Speaker 2: be surprised if it was in that range.
Speaker 1: Okay, So sort of a balanced market between buyers and
Speaker 1: sellers in Sydney. I would never underestimate the capacity of
Speaker 1: Sydney to bounce, never under resumeate that market. It's a
Speaker 1: great market for investors, certainly tough to be at home buyer,
Speaker 1: and of course always has been and always will be.
Speaker 1: All right, and then Melbourne, I see that again, something similar, right,
Speaker 1: minus one to minus five percent, they're saying from Melbourne,
Speaker 1: it's already done minus three. You did your own numbers
Speaker 1: on Melbourne. What was your contention about the Melbourne over
Speaker 1: the decade.
Speaker 3: Well, over the last eight years, James nice eight years.
Speaker 2: Yeah, Yeah, Melbourne's median house price has dropped net of inflation,
Speaker 2: so on real terms two point four percent over that
Speaker 2: period of time, over eight years compounding. Yeah, their only
Speaker 2: worst market was in Sydney between nineteen eighty nine and
Speaker 2: nineteen ninety six. Again another eight year period where it
Speaker 2: dropped two point eight percent. So we're almost making history
Speaker 2: not for good in Melbourne in terms of where the
Speaker 2: price drops are. I also studied the flat cycles. So
Speaker 2: property tends to move in either a growth cycle followed
Speaker 2: by a flat cycle, and so on and so forth. Yes,
Speaker 2: and that's quite distinct, you can pick that up. And
Speaker 2: so I studied all flat cycles, all flat cycles since
Speaker 2: nineteen eighty in those core markets. They tend to if
Speaker 2: you look at the average or the median, about eight
Speaker 2: eight and a half years, a flat cycle will last
Speaker 2: for and over that time, in real terms, net of inflation,
Speaker 2: a one percent per annum drop in prices over that
Speaker 2: period of time, So in real terms, your house is
Speaker 2: falling in value. And the longest flat cycle was in Perth,
Speaker 2: the most recent flat cycle that lasted twelve years. So
Speaker 2: it's possible Melbourne continues on that trajectory, but it's already
Speaker 2: had quite a significant fall in prices net of inflation.
Speaker 2: It wouldn't surprise me if we started to see small
Speaker 2: positive increases in Melbourne to kind of level that.
Speaker 1: Out, crucially because the last AHOs were so bad.
Speaker 3: Yes, correct, yep, exactly right.
Speaker 2: You know, sentiment will change first and then prices will follow,
Speaker 2: and typically the market will want to see some price
Speaker 2: action and then most of the people then decide to
Speaker 2: jump aboard, right, most people are too late to the
Speaker 2: party in terms of investing. So I wouldn't be surprised
Speaker 2: if we see some positive price growth.
Speaker 3: In Melbourne this year.
Speaker 2: I don't think it's going to be huge, but I
Speaker 2: think we're getting closer and closer to the beginning of
Speaker 2: a new growth cycle. And if I put a circle
Speaker 2: around it, I would say within the next two years,
Speaker 2: I think Melbourne will enter into a growth cycle.
Speaker 1: There are long periods, aren't they, These cycles, your flat
Speaker 1: periods of growth period you're saying eight years, eight years.
Speaker 1: This is why say they always say pulled on for
Speaker 1: at least ten so that whatever happens you get two
Speaker 1: growth hears. Yeah.
Speaker 2: Well, if you're unlucky to mess the timing up and
Speaker 2: by just before a flat cycle, you actually got to
Speaker 2: hold onto that property for maybe twenty years.
Speaker 3: You really need as many.
Speaker 2: Growth cycle as you do flat cycles. And that's why
Speaker 2: it's important to really think about where markets are in
Speaker 2: those cycles. If you'll oblige a little bit, James, I'll
Speaker 2: talk about the growth cycles because I study them as well.
Speaker 2: Of course, the average or median time is banging on
Speaker 2: ten years for growth cycles since nineteen eighty. Over that time,
Speaker 2: prices increased by two hundred percent, So that means the
Speaker 2: meeting house price triples over that ten year period. And
Speaker 2: so if you have a look at Adelaide and Perth,
Speaker 2: they're five and a half years into their cycle and
Speaker 2: we've seen seventy percent increase in prices in Adelaide and Brisbane,
Speaker 2: you'd say that maybe they're past a halfway point, but
Speaker 2: they still go a little bit to go. Yeah, Perth
Speaker 2: is only two years into it and we've seen a
Speaker 2: forty percent increase, So.
Speaker 1: You would say there's plenty left. History would suggest because
Speaker 1: they had such adult I mean, nothing happened there for
Speaker 1: a decade, right.
Speaker 3: Twelve years.
Speaker 2: They had in real terms a one percent perannum compounding
Speaker 2: drop over that twelve year period. Yeah, there's a lot
Speaker 2: of ground to make up there.
Speaker 1: Yes, it swings roundabouts, folks, and it's really worth keeping
Speaker 1: this in mind. I'll ask your question, what is the
Speaker 1: minimum period of time on average you believe an investors
Speaker 1: should get engaged with any property for.
Speaker 2: As in the holding period. Yeah, for as long as
Speaker 2: you possibly can. But I think if your time horizon
Speaker 2: is less than ten years, it's going to be a
Speaker 2: risky proposition unless you're buying something that you can manufacture
Speaker 2: some equity, So you're buying something you think you can
Speaker 2: complete a substantial renovation that's going to substantially change the
Speaker 2: value of the asset. But for a passive investing, you know,
Speaker 2: if you hold a property for thirty years, you'll get
Speaker 2: maybe about ten percent of the gains in the first
Speaker 2: ten You've got about thirty percent of the gains in
Speaker 2: the second ten year period, but most of your gains
Speaker 2: will come in that last ten year period over that
Speaker 2: thirty years. So the longer you hold it, the better
Speaker 2: off you are. But it's substantially better off, right, And
Speaker 2: that's why asset selection, which we spoke about at the beginning, James,
Speaker 2: buying the right property is so important because if we're
Speaker 2: going to hang on to it, hopefully for twenty or
Speaker 2: thirty years, that decision that we made twenty or thirty
Speaker 2: years ago is going to have a big impact on
Speaker 2: how our property is performing in that at that time.
Speaker 1: That's the up film. Is there a minimum where you say,
Speaker 1: I really don't think people can make money on a
Speaker 1: property how passively in a period of less than.
Speaker 2: X eight to ten years, probably more ten because you
Speaker 2: just don't know how markets behave You could have a
Speaker 2: GFC event or something like this.
Speaker 3: You can't really control returns.
Speaker 2: Yeah, I guess if I was investing in Melbourne, for example,
Speaker 2: where I think I've got a strong view that it's
Speaker 2: about to enter into a growth cycle, you might go
Speaker 2: to the lower end of that band, so eight years.
Speaker 2: But if I was going to go into something like
Speaker 2: Brisbane that's already sort of through a gross I'd want
Speaker 2: ten plus years just to make sure I can hold
Speaker 2: it long enough to enjoy that growth.
Speaker 1: It's interesting, isn't it. I hope this is useful to
Speaker 1: the listeners, and it's so counter to you know, we
Speaker 1: love to write about this the property that someone bought,
Speaker 1: you know, and two years later flipped, But you know
Speaker 1: the number suggest actually most of the time, for most people,
Speaker 1: that is not how it works, and it can go very,
Speaker 1: very wrong if your flip doesn't work. Basically, you could
Speaker 1: spend the rest of your life trying to sort it out.
Speaker 1: And I have met people who are basically a certain
Speaker 1: property proposal or prospect or development which did not work
Speaker 1: out for them really sort of skewed, you know, half
Speaker 1: their investing life. And we don't pay attention to that
Speaker 1: so often, but on this show we do because we
Speaker 1: want to look after you. Okay, we'll take short break
Speaker 1: back in a moment. Hello, Welcome back to the Australians
Speaker 1: Money Puzzle podcast. I'm James kirkby Well, the editor at
Speaker 1: The Australian, talking to Stuart Weens of pro Solution and
Speaker 1: the Investoperly podcast. We're talking about property in the year ahead.
Speaker 1: This is part of our summer series. I hope you're
Speaker 1: enjoying it. I'm going to now throw the curly one.
Speaker 1: Everyone likes to think we can have something to hang
Speaker 1: on to at the start of the year, that there
Speaker 1: are these forecasts that we can sort of live by,
Speaker 1: that the share markets will go up by seven to
Speaker 1: ten percent or something like that, and the property will
Speaker 1: grow up or won't go up or on average this
Speaker 1: capital city average forecast properly, by the way, for the
Speaker 1: entire nation of Australia urban settings dwellings twenty twenty five,
Speaker 1: if you want to hear it is somewhere between plus
Speaker 1: one and plus four percent, which is all very good
Speaker 1: and very comforting, but actually the truth is, no one
Speaker 1: has a clue what's going to happen. A clue on
Speaker 1: Earth in certainly in the space of the year they don't.
Speaker 1: So what could throw these assumptions out the windows? Tore
Speaker 1: in twenty twenty five.
Speaker 2: So quite often people's site global instability, you know, a war,
Speaker 2: Trump upsetting someone, and I think that's going to happen,
Speaker 2: which will upset stock markets of course typically, and actually
Speaker 2: that pushes more people away from the stock market into
Speaker 2: the property market. So I've found over last twenty plus
Speaker 2: years that a global event like that actually makes people think, say,
Speaker 2: that's why I should have bought property, because it's a
Speaker 2: real asset. I can see it. It's not going to
Speaker 2: change in value, So I don't think I'm not too
Speaker 2: concerned about something like that. Our biggest risk is James.
Speaker 2: There are markets around Australia where there's a lot of
Speaker 2: people that hold property that would love to sell but
Speaker 2: don't want to give it away. They realize it's a
Speaker 2: soft market, particularly in Victoria. They're paying these extra taxes
Speaker 2: and they would like to change their mind, particularly around
Speaker 2: coastal locations, but I think it's everywhere. The only reason
Speaker 2: we haven't seen prices crash in Melbourne and Victoria is
Speaker 2: because people have been in a financial situation where they
Speaker 2: haven't had to sell, they can make the decision. Now
Speaker 2: if that was to change. So if we saw a
Speaker 2: substantial rise in the unemployment and financial distress, then those
Speaker 2: people will be put in a position where they have
Speaker 2: to sell. Prices will fall significantly in that scenario.
Speaker 3: I think.
Speaker 2: Now I'm not anticipating it, but if you have a
Speaker 2: look at Victoria feet for instance, over the last ten years,
Speaker 2: Victorian's tax revenue is increased by ten billion dollars a year.
Speaker 2: Victoria's wage bill, a public service wage bill, has also
Speaker 2: by ten billion dollars a year. Right, so all those
Speaker 2: taxes are going into this bloated workforce. My concern, then,
Speaker 2: all the risk is that there's a change of government
Speaker 2: in Victoria. They say let's reduce the workforce, this public
Speaker 2: service workforce, because that's the easiest way then to give
Speaker 2: some tax relief, and then all of a sudden, unemployment
Speaker 2: rises in Victoria. There's a lot of discretionary vendors out
Speaker 2: there that would like to sell their property. Now they
Speaker 2: have to sell their property and prices drop.
Speaker 1: So ironically, in trying to reform the taxes they could
Speaker 1: spark that's interesting. It suggests a kind of catch twenty
Speaker 1: two then, doesn't it? Really?
Speaker 3: It is.
Speaker 2: I think the underlying economy is pretty strong. I think
Speaker 2: the labor market is strong. I don't think that a
Speaker 2: government's going to make substantial changes like that. You've got
Speaker 2: to sort of grow the economic pie and then re
Speaker 2: home those employees back in the private sector. So I
Speaker 2: don't anticipate. I don't think it will. But that's the
Speaker 2: one thing that's kind of saved the property market is
Speaker 2: the health of the employment market and the strength of
Speaker 2: household budgets in terms of being able to afford these houses.
Speaker 2: But if that was to change, then the higher taxes
Speaker 2: on property will have an impact because people will be
Speaker 2: forced to sell in that scenario.
Speaker 1: What about if the redcut never came to pass, And
Speaker 1: that's not inconceivable at all. The thing is that the
Speaker 1: beforecasters make their forecasts, as I always say that the
Speaker 1: secret to making this for lutcras forecast is not a smile.
Speaker 1: So they stand there and they say, we think, and
Speaker 1: they're frown what they're doing that. You know, whatever rates
Speaker 1: will be X and Y, no one knows. So let's
Speaker 1: say in a very natural way that in twenty twenty
Speaker 1: five they just kept pushing the data of the forecasters
Speaker 1: red cut further out, and it never came to pass,
Speaker 1: so rates remained where they are. What would that do well?
Speaker 2: I expect rad cuts will have a slightly positive impact
Speaker 2: on the property market, James, because lending volumes are already high.
Speaker 3: So the reverse is true too.
Speaker 2: If we don't see a rate cut, I think it
Speaker 2: will have a slightly negative impact, but but I don't
Speaker 2: think it will be substantial. You know, people are making
Speaker 2: decisions already. We've got to understand where we came from
Speaker 2: was not sustainable. You know, interstrates of two percent was ridiculous.
Speaker 2: Where we are today is only slightly above kind of
Speaker 2: long term average. This is kind of normal in terms
Speaker 2: of interest rates. Is so if interestrates were to hold out,
Speaker 2: that's fine, and I think households can afford it. It's
Speaker 2: showing that the areas rates have ticked up a little bit,
Speaker 2: but they're not material as long as the health of
Speaker 2: borrowers maintain, I don't think it's going to have an
Speaker 2: impact on property prices.
Speaker 1: So in conclusion, it seems you are carefully, conservatively mildly
Speaker 1: optimistic if it's see.
Speaker 3: No, you're not wrong, it's not a very popular opinion.
Speaker 2: But I think twenty twenty five will probably be a
Speaker 2: repeat of twenty twenty four in terms of those standout
Speaker 2: markets will continue. Maybe Melbourne will turn around. It wouldn't
Speaker 2: surprise me if we see some small growth in Melbourne,
Speaker 2: and it wouldn't surprise me. Actually what Sydney prices are
Speaker 2: up to and a half percent last year, It wouldn't
Speaker 2: surprise me actually if Sydney records a slight negative next
Speaker 2: year as well. But I don't think, you know, we
Speaker 2: look at Melbourne, Sydney, I don't think any major changes
Speaker 2: in prices. But Perth I think will again be the
Speaker 2: standout market.
Speaker 1: Very good. Whatever else. Investors do like some certainty to
Speaker 1: the extent that they can get certainty, and to the
Speaker 1: extent that it is normal. As you say, you know,
Speaker 1: rates aren't crazy. They're not fifteen percent. Neither are they
Speaker 1: zero or one percent. We're in a zone which is
Speaker 1: something close to historical norms, and on that basis a
Speaker 1: lot of what we regard as normal investment theory or
Speaker 1: approach or practice should work. And maybe, on that mildly
Speaker 1: positive note, we will let it rest for our listeners
Speaker 1: to digest. Okay, hey, Thank you Stuart. Great to talk
Speaker 1: to you. We'll have you on again across during the
Speaker 1: You're lovely to have you on the Property Show today.
Speaker 3: Thanks James better pleasure.
Speaker 1: That was Stuart Beams. There, folks of with pro Solution
Speaker 1: Group and the Investoperly podcast regular on the show. Thanks
Speaker 1: for listening. Now, if you've listened to the share Markets feature,
Speaker 1: the Individual Shares and Property Show, we will now put
Speaker 1: those issues together and in the next show I'm going
Speaker 1: to look at the overall outlook for you and your
Speaker 1: investment allocation. In twenty twenty five. We're going to look
Speaker 1: at some of the issues that we didn't pick up
Speaker 1: in the series so far, such as cash for instance,
Speaker 1: our view on that alternatives crypto, which we have to
Speaker 1: take seriously as an investment class. Whether you like it
Speaker 1: or not, it's there. The issue is what you do
Speaker 1: about it, and we will look right across all aspects
Speaker 1: of investments into your head. That's the next show with
Speaker 1: James Gerard. Until then, talk to you soon.