Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirby, the editor at The Australian. Welcome aboard everybody.
Speaker 1: I don't know about you, but I'm just looking at
Speaker 1: these property figures that have been coming through in the
Speaker 1: last few days, a few weeks, i suppose, and something
Speaker 1: perhaps of a soft patch emerging in the national property market.
Speaker 1: Those auction levels are certainly not as strong as they
Speaker 1: were I think this time last year. Prices going the
Speaker 1: right way, but not going at quite the speed they
Speaker 1: were at the start of the year. Say on a
Speaker 1: monthly basis. Rental vacancy rates are of course rock bottom,
Speaker 1: but in fact they are from a teeny level starting
Speaker 1: to widen. That is, there's slightly more to rent and
Speaker 1: that will affect I imagine prices and rates in the
Speaker 1: fullness of time. But I might be wrong, and I'd
Speaker 1: like to know more about it all. And I've got
Speaker 1: the idea of guests to tell us. It's narrative Canopy.
Speaker 1: She's the chief economist at Revy. Lovely to have you
Speaker 1: here in our lovely Sydney studio. Thanks for coming in.
Speaker 1: Tell me about this. I had this sense all the
Speaker 1: year that it would slow down through the year. Is
Speaker 1: that what we're seeing.
Speaker 2: It does depend on where you are. If we go
Speaker 2: to the absolute top market at the moment, it's strongest
Speaker 2: market at the moment, it is Perth, and Perth is
Speaker 2: continuing to show very rapid rates of growth. Prices are
Speaker 2: up around twenty five percent compared to last year. Compare
Speaker 2: that to the poorest performing market, that's Melbourne. Properties are
Speaker 2: piling up. There's a lot coming to market. Prices are
Speaker 2: barely moving falling in some places, and we are seeing
Speaker 2: a distinct difference to the rest of Australia.
Speaker 1: Yeah, that's and we'll have to do this. I mean
Speaker 1: we all because it's a national show. We'd abt to
Speaker 1: just talk on the national basis all the time, but
Speaker 1: is local and in this market, it's really sort of
Speaker 1: in two speed in many ways. Is it true? This
Speaker 1: is our question you didn't see coming. Is it true
Speaker 1: what they say that the people in Perth are resisting
Speaker 1: selling to Eastern staters.
Speaker 2: I'm sure if the price is right, I would.
Speaker 1: Have thought of the price was right, they wouldn't care
Speaker 1: what state they were from.
Speaker 2: I don't know. There was a.
Speaker 1: Slightly and entertaining, if slightly unbelievable story making the rounds
Speaker 1: a few days ago that the Perth sellers were resisting
Speaker 1: selling to Eastern status, which is very funny, but I
Speaker 1: doubt it's true. Yeah, and I imagine it's a free
Speaker 1: market in every state, so that's how it goes. There is, though,
Speaker 1: just a little bit closer on Perth and that twenty
Speaker 1: five percent lift. It is a fact, though, isn't it
Speaker 1: that it's pretty tightly held, and that those numbers reflect
Speaker 1: relatively small number of properties being sold in terms of
Speaker 1: the volumes that were used to say Sydney Melbourne.
Speaker 2: Yeah. The thing with Perth is Timer market has dropped
Speaker 2: to a very low level. So I think times on
Speaker 2: average is within about five days, so very different to
Speaker 2: where we were just prior to the pandemic when Timer
Speaker 2: market was sort of thirty days. So Perth either is
Speaker 2: red hot or stone cold. It really is infortumable.
Speaker 1: What's a healthy average route?
Speaker 2: Look, I think normally sort of ten to fifteen days
Speaker 2: would be at a more normal rate. So selling within
Speaker 2: five days is I mean, look, even ten to fifteen
Speaker 2: is pretty strong. I mean, if you look at the
Speaker 2: average auction campaign, it's around four weeks, so it is
Speaker 2: a very strong market, even to the extent what we're
Speaker 2: seeing is that homes aren't even getting listed, they're selling
Speaker 2: prior to listing.
Speaker 1: With it's a red hot market. That is a red
Speaker 1: hot yeah, okay, but either volumes ultimately pretty slim that
Speaker 1: those figures are coming from the twenty five percent lift.
Speaker 2: There's definitely a shortage of Stockholm market and there's also
Speaker 2: a shortage of homes being built. And what we are
Speaker 2: seeing is very strong conditions in premium markets places like
Speaker 2: Coddter's Low Pimant Grove, things are moving very quickly, but
Speaker 2: also in very cheap market if you go to places
Speaker 2: like Belldivers, which have always been very affordable, we're seeing
Speaker 2: homes so quickly. So they seem to be driven by
Speaker 2: different things. I mean, one hand, expensive markets, a little
Speaker 2: bit of interstate money, a lot of mining money. Lithium
Speaker 2: is doing very well there, whereas on the fringe it
Speaker 2: does seem to be rising construction costs that have led
Speaker 2: to existing homes being pushed higher as a result.
Speaker 1: Okay, and then at the other end of the spectrum,
Speaker 1: still is the Melbourne market the softest market. It shouldn't be.
Speaker 1: There's no good reason for us. It's five million people,
Speaker 1: it's growing to be the biggest city in the land.
Speaker 1: It's fundamentals are more or less same as the other states.
Speaker 1: So are there actually pockets are suburbs where the prices
Speaker 1: are dropping.
Speaker 2: Look at that there is I mean, what we're seeing
Speaker 2: in Melbourne is probably less related to long term fundamentals, which,
Speaker 2: as you said, are positive. We are seeing strong population growth.
Speaker 2: We're also it's a relatively affordable market. There's jobs, there
Speaker 2: is some jobs growth. But I think what the problem
Speaker 2: in Melbourne at the moment is the tax station regime,
Speaker 2: which has put increased taxes on investors, which doesn't help.
Speaker 2: I'm not sure we will know for sure how the
Speaker 2: Victorian economy is going later or early next year and
Speaker 2: we get those state GSP figures, but we can see
Speaker 2: that unemployment's the highest in the country. I mean, it's
Speaker 2: fairly marginal, but it's still highest in Victoria. And also
Speaker 2: it's not population growth. But I think there's some underlying
Speaker 2: weakness in the economy at the moment.
Speaker 1: But it would at the same time be the big
Speaker 1: immigrant city.
Speaker 2: Yes, yeah, and so this is I mean, this is
Speaker 2: what will probably keep probably will keep Melbourne pricing more
Speaker 2: elevated long term is that it does continue to attract
Speaker 2: a lot of international migrants. We've also got very high
Speaker 2: construction costs at the moment. So to give you an idea,
Speaker 2: I mean, Melbourne has been relatively affordable for a long time,
Speaker 2: particularly the apartment market, but talking to developers in the
Speaker 2: Melbourne market, I just can't build at the same lefels
Speaker 2: that they were able to build four or five years ago.
Speaker 2: Is that unique to the city, No, it's not unique.
Speaker 2: I mean I suppose there was one example that was
Speaker 2: given to me around Collingwood. So Collingwood, you can still
Speaker 2: buy a two bedroom apartment relatively new for around six
Speaker 2: six hundred and six fifty thousand. But apparently when developers
Speaker 2: are trying to build new stock in Collingwood, they're having
Speaker 2: it's costing them around nine hundred thousand to build a
Speaker 2: similar apartment. So there's a real mismatch at the moment nationally,
Speaker 2: but showing up particularly in out of suburban areas where
Speaker 2: we see a lot of new home builds, and also
Speaker 2: in apartment markets.
Speaker 1: And we talked about post we mentioned what was really
Speaker 1: strong of what was weakest, what would be the situation
Speaker 1: Victoria in terms of geography, in.
Speaker 2: Terms of the performance, I mean, regional Victoria is not
Speaker 2: doing too well, so we are seeing a lot of
Speaker 2: weakness in places like Ballarat and Bendigo.
Speaker 1: At the moment.
Speaker 2: Mornington Peninsula is fairly weak, but prices did move very
Speaker 2: quickly during the panic. So I think Victoria's I mean
Speaker 2: one to watch. I mean, certainly a market that's probably
Speaker 2: more more affordable relative to its long term fundamentals and
Speaker 2: some of the other markets, but he's going through a
Speaker 2: bit of a rough patch just to go.
Speaker 1: Back up again if you like. To the national picture,
Speaker 1: like our price is generally slowing on a nation mode basis,
Speaker 1: on a month to month basis price growth.
Speaker 2: Yeah, look at it just I mean, I suppose if
Speaker 2: you look on average, things are being dragged up by Queensland, Adelaide, Perth,
Speaker 2: Sydney's sort of hovering the middle, and then you've got
Speaker 2: Hobart and Melbourne, which are both pretty weak at the moment.
Speaker 2: It's hard to tell. I mean, we're not really seeing
Speaker 2: a slowing but there does seem to be I guess
Speaker 2: a sense of cautiousness, and I don't think it's necessarily
Speaker 2: to do with the threat of interest rate rises. I
Speaker 2: think it's probably just fatigue around how high interest rates
Speaker 2: are at the moment.
Speaker 1: But isn't it interesting that the concern is interest rate rises,
Speaker 1: how far we've moved from potential of interest rate cuts.
Speaker 2: I know one inflation point and we've since shut it
Speaker 2: through US.
Speaker 1: I suppose on the broader picture, there's also anyone who
Speaker 1: would be looking at global economy or global economics knows
Speaker 1: that rates are lifting. They are lifting in Europe, everything
Speaker 1: in the US points I know they were due to
Speaker 1: have a cut, But I mean, obviously, if Trump was
Speaker 1: to win and today, on today's numbers, it looks like
Speaker 1: he will, then that he's an inflationary figure. He's going
Speaker 1: to lift. The interest rates are going to go higher
Speaker 1: under him. It wasn't so much a drama than Ice time.
Speaker 1: But then the last time was two sixteen, and rates
Speaker 1: were flat on the floor when he came into office,
Speaker 1: so they started to lift from there. I suppose a
Speaker 1: better way of covering that for listeners is to ask you,
Speaker 1: do you think these concerns about rates going up? Are valid? Look?
Speaker 2: I don't. I think it's likely the next move will
Speaker 2: be a cut, but at this point, it's unlikely to
Speaker 2: happen into early next So if we have a look
Speaker 2: globally what's happening. Rates are being cut. So we saw
Speaker 2: cuts in Europe, We're probably going to see cuts in
Speaker 2: the UK in the next month or so. The US
Speaker 2: will probably cut sometime this year.
Speaker 1: Do you think that's the version?
Speaker 2: Yeah, I think so. I mean their inflation number came
Speaker 2: in at a level which they could start to cut.
Speaker 2: But I think, as you said that the challenge in
Speaker 2: the US, if we do see Trump being elected, he
Speaker 2: will a lot of the policies he has in place
Speaker 2: will overheat that economy and that inflationary pressure will affect
Speaker 2: us as well. I think it's still a while away
Speaker 2: before that happens, and hopefully we squeeze a cut in
Speaker 2: before then, but it is obviously probably the major risk
Speaker 2: to Australia, the Australian economy.
Speaker 1: What would you what would you say to people who
Speaker 1: listening to the show who aren't in too deep economics,
Speaker 1: but we're just like to know what's the outlook for it?
Speaker 1: It's what would you see?
Speaker 2: The big challenge at the moment is inflation isn't coming
Speaker 2: down as quickly as we hoped, and that's really what
Speaker 2: changed the outlook back in April with that inflation came
Speaker 2: in a lot higher than expected, and the outlook shifted
Speaker 2: from an October cut to an October twenty four cut
Speaker 2: to an October twenty five cut. Inflation is coming down.
Speaker 2: I think if you are someone concerned about rates, you
Speaker 2: obviously should be watching the inflation number very carefully. The
Speaker 2: Reserve Bank games to keep it between two and three percent,
Speaker 2: so as it does get closer to that three percent mark,
Speaker 2: that's the point at which we will hopefully see a
Speaker 2: right cut.
Speaker 1: Okay, hopefully we don't know, folks. That is narrator who
Speaker 1: is chief economist at Reefways. That's as good a voice
Speaker 1: and an authoritative comment on that issue as we were
Speaker 1: likely to get. All right, take sure break and we'll
Speaker 1: be back in a moment. Hello, Welcome back to the
Speaker 1: Australians Money Puzzle. I'm James Kirby, Well, editor at The Australian,
Speaker 1: and I'm talking to Narratorconmosty, who is the chief economist
Speaker 1: at Reethwhite, someone I've known long time when she was
Speaker 1: an economist in different positions, but always in this area
Speaker 1: and always interested in national economics, particularly in property, and
Speaker 1: we've talked on and off for a long time about this.
Speaker 1: I don't know the last time you were on the show.
Speaker 1: One of the issues certainly would have been about the
Speaker 1: idea of a mortgage cliff. And this was the course,
Speaker 1: if everyone recalls, there was this extraordinary period which is
Speaker 1: now roughly four or five years ago, which is almost
Speaker 1: hard to believe that it happened now, of course, but
Speaker 1: it did where rates were I mean, rates didn't just
Speaker 1: go to zero, they went negative around the world and
Speaker 1: people were paying people to have their money banks. I mean,
Speaker 1: it was just in a strange way. It was actually
Speaker 1: a scary time because it was so unnatural that rates
Speaker 1: were solo in any event. Slowly but surely, the news
Speaker 1: percolated through to the wide republic, not just property investors,
Speaker 1: but everybody I think in Australia was damn aware that
Speaker 1: rates were super super low, that our long term average
Speaker 1: might be about six to nine would that be about right?
Speaker 1: And here they were at two percent or whatever. The
Speaker 1: banks were offering not just two percent, but fixed term.
Speaker 1: Hundreds of thousands of people took loans fixed terms as
Speaker 1: long as they could three years, five years. At these
Speaker 1: rates two percent, and now the last of them, the
Speaker 1: last of the Mohicans, the last of these very lucky people,
Speaker 1: are getting their little notes from the bank saying hello,
Speaker 1: piece of news for you. Your mortgage, which is currently
Speaker 1: two will go to what six seven? Like that overnight.
Speaker 1: It's tough. It's tough. But what I want to ask
Speaker 1: you is what's that a bit of a wind up?
Speaker 1: The whole mortgage cliff thing? Because we were told I
Speaker 1: thought to myself, this is gonna be this is going
Speaker 1: to be trouble when these people come after mortgages. What happened?
Speaker 2: I think there's a few things. I think the first
Speaker 2: one is that people saved a lot of money during
Speaker 2: the pandemic, and so we have seen people spending down
Speaker 2: those savings, which is obviously unfortunate.
Speaker 1: So they had a savings buffer and the banks talked
Speaker 1: about that, but they don't talk about it now because
Speaker 1: they're gone.
Speaker 2: They're gone.
Speaker 1: Yeah, time passes the same.
Speaker 2: That's good. I think that the second factor was that
Speaker 2: banks became super profitable as interest rates started to rise.
Speaker 2: And if you have a look at Australian banks, they
Speaker 2: made thirty billion worth profit over the past twelve months,
Speaker 2: so they have been able to be fairly not lenient,
Speaker 2: but they have been able to work with customers more
Speaker 2: easily than say, following the global financial crisis, when that
Speaker 2: money wasn't available when we talked to banks. They have
Speaker 2: been doing things like extending loans. They've been putting people
Speaker 2: on interest only, basically anything to try and keep their customers.
Speaker 2: I guess fundamentally, so what is going on? Is this
Speaker 2: what people are doing? So I'm thinking about someone who
Speaker 2: has a mortgage that is half a million or a million.
Speaker 2: The rate was two percent, suddenly it's six. Their salary,
Speaker 2: whatever that salary is, hasn't changed, Their partner's salary hasn't changed, apparently,
Speaker 2: And I haven't seen the numbers. Maybe you've seen the numbers.
Speaker 2: People are doing all sorts of things. They're extending the
Speaker 2: length of their mortgage, that's one, or they're moving to
Speaker 2: interest only. Could you explain first of all that why
Speaker 2: people are doing that and what it might mean for
Speaker 2: the mark I suppose they're doing it, and we're obviously
Speaker 2: doing it so they pay less, they can continue with
Speaker 2: the type of life they have and keep their homes.
Speaker 2: I think fundamentally, when we looked at what was happening
Speaker 2: when rates started to rise, we did expect two sorts
Speaker 2: of properties to sell more rapidly, and they were holiday
Speaker 2: homes and investment properties. And holiday homes started to come
Speaker 2: to market really quickly as interest rates started to write
Speaker 2: at that point, I mean that was probably a couple
Speaker 2: of years ago. Now we started to see New South Wales,
Speaker 2: South Coast, Mornington Peninsula, a lot of those markets starting
Speaker 2: to see a rise in listings and prices softening. Investment
Speaker 2: properties took a bit longer, I think because probably because
Speaker 2: rents rose increased a bit to sort of offset those
Speaker 2: increased mortgage free payments, and they were fully occupied and
Speaker 2: they were fully occupied. Yeah, absolutely, so that took a
Speaker 2: bit longer. But I mean, if you look in Melbourne
Speaker 2: at the moment, that's probably a big factors that there
Speaker 2: are a lot of investment properties coming to market because
Speaker 2: you don't I mean, you need your family home, you
Speaker 2: need somewhere to live, and you need shelter. Rental market's
Speaker 2: very tough, so the alternative isn't much better. But if
Speaker 2: you've got an investment property, it's probably something that you
Speaker 2: can sell and free up a bit.
Speaker 1: Of So people are throwing in the towel.
Speaker 2: Yeah. I mean, look, it's not super it's not like
Speaker 2: catastrophic conditions, but it would certainly be the case so
Speaker 2: that they're the properties to go. So I think that's
Speaker 2: the other fact.
Speaker 1: When you extend your mortgage. So let's say I'm on
Speaker 1: a twenty five year or let's say I have twenty
Speaker 1: five years after my mortgage and I go back into
Speaker 1: the bank and I say, okay, open it back up
Speaker 1: to thirty. So my mortgage.
Speaker 2: Drops, your repayments drop. Yeah, but I end up paying
Speaker 2: more to the bank. You do people, Yeah, I mean,
Speaker 2: I mean to the extent that I think some of
Speaker 2: the bank's now offering up to forty year mortgages, which
Speaker 2: is quite extraordinary given that you'd have to be quite
Speaker 2: young to be able to pay that off in a
Speaker 2: working lifespame.
Speaker 1: Have you ever seen them before in the market? Not
Speaker 1: forty years? No, that that is new, but interesting. Who's
Speaker 1: doing it?
Speaker 2: I think CBA. Look at that's a few months ago.
Speaker 2: I heard that, but it'd be capable of it. I
Speaker 2: haven't tried to access one, but I have heard that
Speaker 2: they are offering them.
Speaker 1: I don't know, I mean, i'd see difference between forty
Speaker 1: and thirty really, I mean, they're both inconceivably long when
Speaker 1: you're starting playing a mortgage. But the point I want
Speaker 1: to make to listeners is be careful on this. Nothing
Speaker 1: to do with or not do it, but to be
Speaker 1: aware that, for instance, very roughly, if you do go
Speaker 1: from a twenty five year mortgage to a thirty year mortgage,
Speaker 1: and your monthly mortgage does go down by whatever it
Speaker 1: might be, put a number on it, one hundred or
Speaker 1: two hundred a month. The thing is that, of course
Speaker 1: the mortgage itself swells on the fire side, it goes
Speaker 1: up by whatever. On a very rough figures, an average
Speaker 1: mortgage on an average house might go up by one
Speaker 1: hundred grand. Are you willing to borrow another one hundred
Speaker 1: grand at the rates they have today? Because that's what
Speaker 1: you're saying you're going to do. It's tough if you
Speaker 1: have to make that decision. It's nice to know there
Speaker 1: are options there for people on fixed salaries especially. It's
Speaker 1: great to know there's another way to mortgage, and that's
Speaker 1: schools for investors too. Interest only then investors traditionally like them. Anyway,
Speaker 1: I would have thought banks wouldn't hand them out too
Speaker 1: easy to owner occupiers.
Speaker 2: Again, I think it's a bit of the last resort option.
Speaker 2: I mean, banks have spent a lot of money getting
Speaker 2: customers over the last decade or so, so I don't
Speaker 2: want to lose them now that I also don't want
Speaker 2: to lose them given that rates have probably peaked and
Speaker 2: rates probably will come down next year. So I think
Speaker 2: there's a view that now is probably the worst. It
Speaker 2: will get better. So better to yeah, better to get
Speaker 2: people through.
Speaker 1: Again with the interest only. It's kind of similar, isn't it.
Speaker 1: You say, Okay, it's interest only. Now it's not princiville interest.
Speaker 1: That's great. We don't have to pay as much each
Speaker 1: month as we used to. But just beware you are
Speaker 1: like as Stewart Ween said on the show, you are
Speaker 1: kicking the can down the road. Because similarly, if you're
Speaker 1: not paying out the principal, guess what it sits there.
Speaker 1: It's still there at the end of the year. So
Speaker 1: when you get to the end of the year, say
Speaker 1: what's changed on the mortgage? Nothing, because all you did
Speaker 1: was pay the interests. And you really should try and
Speaker 1: think these things through if you're going to do it now.
Speaker 1: One the other thing I want to ask you about
Speaker 1: NDA was about our banks and how they're linked with
Speaker 1: the home markets. Here we go, come Well Bank is
Speaker 1: about one hundred and thirty dollars now it's two hundred
Speaker 1: and twenty five billion dollar bank thereabouts is past PHP
Speaker 1: is the biggest stock in the Australian stock market. It's
Speaker 1: also the nation's biggest lender. Is the biggest mortgage bank.
Speaker 1: So there's a real nexus between mortgages, the health of
Speaker 1: the property market and the health of the banks. The
Speaker 1: banks in turn dominate the top ten. It's five of
Speaker 1: them in the ten if you include McQuary, and the
Speaker 1: number one is come Whit Banks. So what I'm saying
Speaker 1: to you is are the banks kind of becoming a
Speaker 1: real proxy for the housing market itself?
Speaker 2: I mean bank the Australian banks are very sensitive to
Speaker 2: the property market. I think the common Wealth bank pricing
Speaker 2: though probably driven in part by offshore buyers of Commonwealth
Speaker 2: Bank shares, and I think a lot of the uncertainty
Speaker 2: and instability overseas is making some Australian stocks seem quite safe.
Speaker 1: Can they go to ask you something? All the major brokers,
Speaker 1: including the global ones, Morgan Stanley UBS have sell notes. Yes,
Speaker 1: that's right, and I don't want to see who it
Speaker 1: is because I might get it wrong. But if all
Speaker 1: the brokers, include the overseas brokers have said notes to
Speaker 1: come with bank, does that mean that the offshore institutions
Speaker 1: ignore them when they bought the stuff.
Speaker 2: I don't think they would ignore them. I think it
Speaker 2: would be compared to what else they would be looking
Speaker 2: to buy. So I think it's always a matter. I mean,
Speaker 2: it's looking at commercial properly, looking at the office market
Speaker 2: that if you're looking into buy an office building in
Speaker 2: the US at the moment, they seem a lot less
Speaker 2: secure than one in Australia. We have offshore buyers looking
Speaker 2: at Australian office markets, we think very high vacancies and
Speaker 2: rents aren't going anywhere. But at the same time, compared
Speaker 2: to other parts of the world, it's pretty good. So
Speaker 2: I think it's probably that, I think, and I think
Speaker 2: the other thing too is that the US banks came
Speaker 2: in at very high profit number, came in with very
Speaker 2: high profit numbers in their results season last week, so
Speaker 2: I think that that possibly played into it. But it'll
Speaker 2: be into August, I think is when we're going to
Speaker 2: see the results. So I think that's that point will
Speaker 2: get a better idea. But you're right, I mean, the
Speaker 2: sensitivity to the mortgage market is the issue.
Speaker 1: And has the sensitivity to the mortgage market increased.
Speaker 2: Over a long time period. Absolutely, yeah, it must have.
Speaker 2: I think over recent past twelve months. Probably not but definitely.
Speaker 2: I mean if you look at as you said, CBA,
Speaker 2: the biggest home loan lender, they would be very sensitive
Speaker 2: to what's happening to housing. I mean also, I suppose
Speaker 2: the other thing, the bounce back in house prices would
Speaker 2: have benefited them as well. That we didn't see that
Speaker 2: crash that was that many predicted, so I suppose that
Speaker 2: was also a fact the plight into it.
Speaker 1: Okay, just before we go to questions, do you is
Speaker 1: there a number you use in terms of what last
Speaker 1: year Australian house prices nashally And it's an average obviously
Speaker 1: it's nationwide so might tell us so much. But last
Speaker 1: year calendar two three prices about nine percent?
Speaker 2: Is that right across the board? And what sort of
Speaker 2: number are you think in this year it's it's probably
Speaker 2: a little bit. I'm I don't know, I'm pulling a
Speaker 2: number seven percent, but then you've got zero from Melbourne
Speaker 2: twenty five percent for Berth. So it's a it's a
Speaker 2: hot it's a.
Speaker 1: Leverage that may not be very useful, but we have
Speaker 1: to use it. It's a it's like my joke about
Speaker 1: the average January temperature in Melbourne twenty six degrees, except
Speaker 1: it's never twenty six degrees, sixteen or thirty six. Yeah,
Speaker 1: so same sort of thing. So I suppose it's a
Speaker 1: time for those nationwide figures really don't tell us a lot.
Speaker 1: If you're sitting in Perth, then you should know that
Speaker 1: there's double figures there. They're doing twenty percent plus. And
Speaker 1: if you're sitting in Melbourne, you should know that there
Speaker 1: are of the city actually going backwards. And that's not
Speaker 1: a surprise because I think the entire city went backwards
Speaker 1: in the first quarter this year, just the first quarter. Yeah,
Speaker 1: so everyone that comes on the show reckons that's not
Speaker 1: going to last forever, that long terms, that it's actually
Speaker 1: an investment opportunity. We should remind people of that. All Right,
Speaker 1: we'll take a break and we'll be back with some
Speaker 1: great questions. Hello and welcome to The Australian's Money Puzzle.
Speaker 1: I'm James Kirby with narrativeconospy, and we're talking all things property,
Speaker 1: and we're also talking about not just property, house prices,
Speaker 1: investment properties. But you know the degree to which our
Speaker 1: big banks are dependent on the health, if you like,
Speaker 1: of the property market, and not just our big banks,
Speaker 1: but our entire market. Because the big banks were always
Speaker 1: important in the Australian stock exchange, and they might have
Speaker 1: been ranging between fifteen and twenty percent of the whole thing,
Speaker 1: but in recent times they've just become so powerful and
Speaker 1: Comebank has now ascended, if you like, over BHP to
Speaker 1: be the biggest stock in the market. So keep that
Speaker 1: in mind, just how powerful our banks are, but also
Speaker 1: how they're very closely linked with house prices, so you
Speaker 1: can't really separate them anymore. Macquarie perhaps, but the other
Speaker 1: four are very much I think it was Ashley Owen
Speaker 1: said the other day who was on the show a
Speaker 1: few weeks ago. He called them glorified building societies, which
Speaker 1: is a bit severe, But I nobody's trying to say
Speaker 1: that they are very dependent on house prices. Compared to
Speaker 1: the American banks. Whatever that you might read about their
Speaker 1: results the city or whatever, they're more like Macquarie than
Speaker 1: they are like a combanks. Shall we say, okay, now questions, Beryl.
Speaker 1: I purchased an apartment, I lived in there for five years,
Speaker 1: I moved out, and I've been renting it for twenty years.
Speaker 1: I'm now looking at downsizing from my home and moving
Speaker 1: back into that apartment. I've heard if I move back
Speaker 1: into this property and lived there for the rest of
Speaker 1: my life, those who inherit this property are not liable
Speaker 1: to pay CG if they then sell it. Is it
Speaker 1: true that all those years that I rented out and
Speaker 1: had consequence CGT liability are wiped out and we're off
Speaker 1: the hook. Never advice, Beryl, and we'll get someone actually
Speaker 1: to take a closer look at this in the weeks ahead.
Speaker 1: But look very broadly, I'm sorry to say that CGT
Speaker 1: is applicable if you rent out a property, it's an
Speaker 1: investment property. So if you have a property, you have
Speaker 1: it for five years, you live in it, you leave it,
Speaker 1: you rent it out for ten years, you come back,
Speaker 1: and you live in it for ten years. The ten
Speaker 1: years that you rented it, it was an investment property
Speaker 1: for those ten years in the life of the transaction.
Speaker 1: When it comes to pass, when that house is ultimately
Speaker 1: sold somewhere down the line, it's liable for CGT. I
Speaker 1: would think on face value. This is not personal advice
Speaker 1: in any ways. This is a general observation on properties
Speaker 1: in that situation, and leave it with us and we
Speaker 1: will take a second look at this one, because there's
Speaker 1: all sorts of variations on this, like how is it held,
Speaker 1: what's the ownership structure or for instance, these things can
Speaker 1: vary if they're held in trusts, in your soul names,
Speaker 1: self managed super fund. But CGT to an extent is
Speaker 1: very hard to actually avoid, especially if a property was
Speaker 1: run as an investment property for a period of time.
Speaker 1: I'm speaking from my own experience there. Okay, we'll be
Speaker 1: back to that one. That was general information for the
Speaker 1: moment now, Lucy, I love the show on villa units.
Speaker 1: Villa units. If you don't know what villa units are, folks,
Speaker 1: they are those simple, often a red brick, single story
Speaker 1: little unit developments that you get in every city in Australia.
Speaker 1: They are not fashionable and they are highly valued. And
Speaker 1: let me tell you, we've had several different people on
Speaker 1: the show this year who said, villa units, that's where
Speaker 1: the value is in Australia by them. Now people think
Speaker 1: of them as little old ladies bringing out the bins
Speaker 1: and all that sort of thing, which is true. But
Speaker 1: I certainly understand the theory that it's land value and
Speaker 1: you're buying land in the middle of the city with
Speaker 1: three bedrooms and a garden and a garbage and hey,
Speaker 1: so they're not the coolest thing around. But Lucy, I
Speaker 1: think that the people on the show who said this
Speaker 1: were on the right track. So Lucy says, I've always
Speaker 1: ruled them out, and now I see them everywhere because
Speaker 1: they've always been there. Lucy, my concern would be that
Speaker 1: other residents are beyond your control and the development might
Speaker 1: go downhill in the years after I purchase any thoughts. Yeah,
Speaker 1: entirely possible. That's the thing. It's shared. It's shared, right,
Speaker 1: the six invariably six. You look up the driveway, there's
Speaker 1: three on the left, three on the right, and that's right.
Speaker 1: You can't really control You can't control the behavior or
Speaker 1: otherwise of other people in the complex. But that goes
Speaker 1: for any anything that goes for anywhere you live an
Speaker 1: ordinary street. You can't control the people next door. We'll
Speaker 1: leave that one swinging out there any observations on that narrative.
Speaker 1: Cana Speak, chief economist of Rae White Look, I think
Speaker 1: often I would also have some sort of management. I
Speaker 1: would have thought body corporate of some sort, So I
Speaker 1: think that would probably be the area. Probably look at
Speaker 1: the body corporate when you look.
Speaker 2: To buy, and I agree. I think they're often in
Speaker 2: very well located areas. So if you are looking to
Speaker 2: get into a great suburb at a more affordable price point,
Speaker 2: they're definitely worth looking at.
Speaker 1: And I think you'll find that rather than neglect Lucy.
Speaker 1: Often the issue is that there's people who are just
Speaker 1: extremely interested in their body corporates. And I mentioned on
Speaker 1: the show that, to our surprise, we ended up in
Speaker 1: a set of villa units not that long ago when
Speaker 1: we were renting because we were moving house and we
Speaker 1: were building a house, and we wanted to rent near
Speaker 1: the house that we were building, and on the street
Speaker 1: there was a villa unit and we went in and
Speaker 1: we lived there for a year, and we had a guy.
Speaker 1: He had taken it upon himself to be the master
Speaker 1: of the place, and if there was a weed out
Speaker 1: of place, this guy would be out there in the
Speaker 1: morning fixing it all up and He was absolutely all
Speaker 1: over it, and it looked great, and it was a
Speaker 1: very nice It was really good, and I always hold
Speaker 1: that they were under value, and I'm absolutely persuaded of
Speaker 1: it now having lived in one not that long ago. Okay,
Speaker 1: our final question is from Stephen, My question, why do
Speaker 1: we say thirty percent of houses have a mortgage? Isn't
Speaker 1: it the thirty percent of houses that are the primary
Speaker 1: place of residents have a mortgage? We say rates don't
Speaker 1: do much by that. Stephen would probably mean rates are
Speaker 1: set by the RBA in terms of moving them up
Speaker 1: and down, don't have much effect on the economy because
Speaker 1: only thirty percent of people have a mortgage. But isn't
Speaker 1: this forgetting investment of properties? What's the stats on that
Speaker 1: one narrator?
Speaker 2: Yeah, so that thirty percent one is more. It's from
Speaker 2: the census the population in housing, so it looks at households. No,
Speaker 2: so it's thirty percent of people own their property out right,
Speaker 2: thirty percent of people have a mortgage and thirty percent
Speaker 2: of people rent, So the ownership of those rental properties.
Speaker 2: He's absolutely right, a lot of them would have mortgages,
Speaker 2: but we don't it just the methodology for collecting that
Speaker 2: statistic is based on people's reporting.
Speaker 1: In the sensus. Okay, but when they talk about how
Speaker 1: the RBA can't really affect because it's a blunt instrument,
Speaker 1: et cetera. With efficient reads, they are talking about home
Speaker 1: owners mortgages, aren't.
Speaker 2: There, they'd be looking at everything. I mean, I guess
Speaker 2: one of the challenges we've had this cycle is that
Speaker 2: one of the big drivers of inflation has been rents.
Speaker 2: So rising rents has increased inflation. So increasing inflation means
Speaker 2: increased rates. Increased rates means fewer investment properties, which again
Speaker 2: leads to rising rents. So there's a bit of there
Speaker 2: is a circular problem that we're seeing at the moment
Speaker 2: because of this factors. I don't know that answers the question,
Speaker 2: but it is they absolutely would. There's a whole building
Speaker 2: full of economists that look at everything very closely, so
Speaker 2: there's no doubt.
Speaker 1: As an economist. If I asked you, is it the
Speaker 1: case the private ownership of rental property is a positive
Speaker 1: for the markers? What's your answer?
Speaker 2: They provide ninety percent of rental properties. I mean, if
Speaker 2: you have a look overseas, we do see much larger
Speaker 2: proportion of corporate owned rental properties. So in the US,
Speaker 2: particularly UK as well, big institutions own. Yeah, a lot
Speaker 2: of the companies that have done very well overseas owning
Speaker 2: rental properties are very interested in Australia because we have
Speaker 2: such a small proportion. And for a long time they
Speaker 2: weren't interested in Australia because Australia had such low yields,
Speaker 2: but because rents have increased so much, it is attracting
Speaker 2: a lot more interesting I see.
Speaker 1: Okay, they have that issue with vulture funds of course,
Speaker 1: which which has been a problem with the corporate ownership,
Speaker 1: but that really is just one wing of it, and
Speaker 1: there are people making an effort to do something similar,
Speaker 1: like the long View group here in Australia, which has
Speaker 1: been built and being sort of put together by Evan Thornley.
Speaker 1: And as you probably know, he's out there reporting that
Speaker 1: well that point view across, which of course needs to
Speaker 1: say makes sense to him, but obviously he's able to
Speaker 1: put together pretty articulate arguments on that too. Okay, very good, look,
Speaker 1: thank you very much for coming in, narrator, Thanks for
Speaker 1: having me. Great to have you on the show again.
Speaker 1: It's good. Always interesting to get the National Picture and
Speaker 1: we'll talk to you again soon. And thank you everyone
Speaker 1: for listening to today's episode. ID love to have some
Speaker 1: more questions or comments, send them in the email. Is
Speaker 1: the money Puzzle at the Australian dot com dot au
Speaker 1: Talk to you soon.