Speaker 1: Hello, and welcome to the Australians Money Puzzle podcast.
Speaker 2: I'm James Kirby. Welcome aboard everybody.
Speaker 1: I don't think there's any segment actually of the residential
Speaker 1: property market that has less attention and is quite as
Speaker 1: significant as the concept of rent investing. You know, it's
Speaker 1: a major social trend for aspiring home buyers. They don't
Speaker 1: buy the home. They don't buy a home the first
Speaker 1: time they buy. What they do is they purchase an
Speaker 1: investment property. They get the tax deductions related to that,
Speaker 1: and then they build up equity and it allows them
Speaker 1: basically to lead frog into the house that the house
Speaker 1: of their dreams, there forever home, as they call it.
Speaker 1: I want to talk about this and I have someone
Speaker 1: who's ideal for it. It's our June Paliwal of the
Speaker 1: Investigate Group, which is a buyer's advocate group. First time
Speaker 1: on the show, but I know I've been listening to
Speaker 1: you on this issue. You're very good on it, so
Speaker 1: I was I thought would be ideal way to bring
Speaker 1: you in.
Speaker 2: How I are.
Speaker 3: June, Yes, great, my friend, and definitely a hot topic
Speaker 3: at the moment the world of rent festing.
Speaker 1: It is a hard topic and you know more than that.
Speaker 1: I mean, there's always been sort of anecdotal. One of
Speaker 1: the frustrating things I think is that there's a lot
Speaker 1: of anecdotal commentary about it. It's like the bank of
Speaker 1: Mom and Dad. You know, everyone talks about it, but
Speaker 1: it's very hard to get stats on it. But I
Speaker 1: was listening recently to one of the bank results, the
Speaker 1: Bendico Bank results, and the CEO there, in releasing the
Speaker 1: results actually, you know, made clear reference to Richard Fennell.
Speaker 2: He made clear reference to.
Speaker 1: Their observation as a bank of the number of people,
Speaker 1: younger people now doing this rent vesting the rent basically
Speaker 1: and own an investment property. And I think, intriguingly, there's
Speaker 1: also a speculation in the market that the banks, more
Speaker 1: than one are working on a product that will be
Speaker 1: like basically aimed at this area rent vesting mortgages, and
Speaker 1: that will really I think, move it up along the
Speaker 1: line whatever they come up with. But you've really had
Speaker 1: a look at it, and you, I mean broadly, you
Speaker 1: think it's pretty good for the right people in the
Speaker 1: right place. Is that would that be a fair comment?
Speaker 3: Absolutely, it can play a key part of people's journey
Speaker 3: to building wells and even transitioning to their end of
Speaker 3: goal of buying a home. I am a personal success
Speaker 3: story of that. I now live in my dream home.
Speaker 3: So you definitely here to say that you don't have
Speaker 3: to be a rent vestor forever, but it can be
Speaker 3: a transitional journey that's an absolute game changer. And I
Speaker 3: want to take you through very quickly some of my
Speaker 3: own journey in earlier parts of my career, jumping in
Speaker 3: and around different suburbs to essentially be living from a
Speaker 3: performance and lifestyle basis. And I'll give you some examples
Speaker 3: of performance performance being one of my properties that I
Speaker 3: was renting at in the suburb of Bella Vista and
Speaker 3: Sydney was about a thirty second walk from my office
Speaker 3: in Bellavista and Sydney, So it was a growing phase
Speaker 3: of career business things like that, So it allowed me
Speaker 3: to have proximity time there and those extra hours. If
Speaker 3: you do the math over a fifty weeks a year
Speaker 3: or fifty two weeks, takeaways the man you leave. But
Speaker 3: the key is that math of a few extra hours
Speaker 3: per day around your different audience rather than traveling and
Speaker 3: coming home, you're at the office and you're in and
Speaker 3: around places of people you have greater performance.
Speaker 1: It gives you that efficiency, both financial efficiency and living efficiency.
Speaker 3: Yeah. Absolutely.
Speaker 1: Now tell me you were talking particularly about the nature
Speaker 1: of revesting that most of our listeners obviously would be
Speaker 1: familiar with the broad term, and I'm sure it's worked
Speaker 1: well for you, that's why you're on the show. But
Speaker 1: you've made a particular observation that about reinvesting. You might
Speaker 1: explain this to our listeners who wouldn't have heard it before,
Speaker 1: the way it works with the yields being so low
Speaker 1: in big cities, the yels are two or three percent.
Speaker 1: Out in the bush, there are six seven eight percent
Speaker 1: in country towns. But would you explain to our listeners
Speaker 1: how it made your concept about where it makes more
Speaker 1: sense to do this.
Speaker 3: For sure, let's do the math on it. So before
Speaker 3: I talked about performance space for investing, of where proximity
Speaker 3: gives you performance in your home, your lifestyle, your business,
Speaker 3: your career. Now if you move that over to financial
Speaker 3: analysis of renvesting, let's take a three million dollar home
Speaker 3: and you might go, why is are you using a
Speaker 3: three million dollar home? It's intentional for a very specific reason.
Speaker 3: If someone was to have a eighty percent loan against
Speaker 3: that or even a ninety percent if someone wants to
Speaker 3: get there with lower deposits and an eighty percent loan
Speaker 3: is two point four million, and at today's interest rates
Speaker 3: of say five and a half percent, that's one hundred
Speaker 3: and thirty two thousand of interest. We're not talking principle
Speaker 3: where everyone talking about buying your place is pushing the
Speaker 3: loan down. We're just talking about the interest itself. Now,
Speaker 3: with that one hundred and thirty two thousand of interest,
Speaker 3: if you divide that by fifty two, that's two thousand,
Speaker 3: five hundred and thirty eight dollars a week. However, a
Speaker 3: three million dollar property does not cost you two and
Speaker 3: a half thousand dollars per week to rent. Usually, rental yields,
Speaker 3: like in some suburbs of Sydney, can be as low
Speaker 3: as two to three percent or even one point seven
Speaker 3: to two and a half percent. So if we took
Speaker 3: a two point two percent rental yield and divided that
Speaker 3: by fifty two, that's about twelve hundred and seventy dollars
Speaker 3: a week in rent versus you know, more than two
Speaker 3: and a half thousand an interest alone, and you're not
Speaker 3: talking council rates and other things I see.
Speaker 1: So is the concept basically that the Australian property has
Speaker 1: become so expensive in the metropolitan areas that the rental
Speaker 1: yields are so low that there's actually an opportunity for
Speaker 1: the agile investor property investor to exploit this. But because
Speaker 1: the yields are so poor for those very expensive subverbs
Speaker 1: that if you want to the way to play it
Speaker 1: is or to optimize that are exploited, is actually to
Speaker 1: rent in it because you're actually getting a better deal
Speaker 1: because rents have never kept pace with prices.
Speaker 2: Is that the underlying.
Speaker 3: Logic, absolutely the underlying logic. And so the thing here
Speaker 3: is that the more premium the suburb is, the greater
Speaker 3: the disparity between rental yield and actual interest on a
Speaker 3: mortgage if you're owning. So if you're going to live
Speaker 3: in a regional part of Australia in the most affordable
Speaker 3: suburb in a unit, it's likely that the rat was
Speaker 3: yields high, so rate vesting might not be for you
Speaker 3: if you plan to live in that location for some time.
Speaker 1: So that's the flip side of what we're saying. Right,
Speaker 1: there's the logical flip side of what we're saying. Absolutely,
Speaker 1: then in areas where the property prices are not so
Speaker 1: relatively high, the deal on rent isn't as good. And
Speaker 1: we know that because the rents are six seven percent
Speaker 1: or whatever, while in the middle of the city is
Speaker 1: there are two and three percent. It's a really good theory,
Speaker 1: not just theory. It's a really good I am sure
Speaker 1: for many people. It has a lot of pluses. Now
Speaker 1: let's go a little bit deeper. If the person is
Speaker 1: deciding to do this rent vest and they say, Okay,
Speaker 1: we know how we're we're going to buy a good
Speaker 1: investment property in their city, it's going to we know
Speaker 1: this suburb is on the rise. We don't actually want
Speaker 1: to live in that soburb. We want to live this
Speaker 1: other suburb which is more expensive and is also close
Speaker 1: to where we work, and we can cycle over something
Speaker 1: like that. Okay, that all makes sense, but let's just
Speaker 1: have a look at it more closely. Now, should the
Speaker 1: renvestor then should they do interest only? It would seem
Speaker 1: to me that that's probably on the table here.
Speaker 3: Absolutely, So, I think firstly, each financial position would be
Speaker 3: different betweening on the goals that they're after and seeking
Speaker 3: their own advice and guidance. But when you look at
Speaker 3: investment debt and the renvestor is now renting in that
Speaker 3: great premium location for performance, lifestyle and financially, the next
Speaker 3: thing is what they do with their money. Because they
Speaker 3: still have capital that isn't tied.
Speaker 1: Up, they must invest to make it work. I am
Speaker 1: acting our joy. Absolutely, they can't go and spend it
Speaker 1: on a boat. That blows your theory pretty quickly.
Speaker 3: I imagine you're spot on right. Renting has its advantages,
Speaker 3: but the money needs to go to work, right and
Speaker 3: when you're going to work with that money. Yes, the
Speaker 3: interest on those investment related debts can be deductible, and
Speaker 3: so if they're deductible, then making sure you're not just
Speaker 3: pushing down that repayment in those early Welsh building stages
Speaker 3: is actually, you know, not in your favor. You want
Speaker 3: to actually have the debt that's there and focus on
Speaker 3: every bit of dollar towards acquiring more assets, whether there
Speaker 3: be in other vehicles or property or so forth. You
Speaker 3: don't want to go and focus on taking all your
Speaker 3: cash flow just to pay down debts whilst you're in
Speaker 3: what I call an acquisition phase. The Welsh building phase.
Speaker 1: Right, Yes, okay, so there's two things then in its favor.
Speaker 2: It seems to me.
Speaker 1: One is a natural market issue, as you mentioned about
Speaker 1: the basically for investing, the value is explicit in expensive
Speaker 1: what we call relatively expensive parts of the market because
Speaker 1: the user a little. The second part then is the
Speaker 1: tax advantage. How dependent on tax advantages specifically negative gearing
Speaker 1: is the whole rent vesting notion.
Speaker 3: It plays a part. But even if there was no
Speaker 3: tax advantages in favor from that negative gearing, there is
Speaker 3: the wealth building advantage because the location that you're in
Speaker 3: to live in from a lifestyle or maybe live in
Speaker 3: what you can afford, because you can't live in that
Speaker 3: premium location at all times. If you feel that that
Speaker 3: cost is too high, ins why you're investing there. But
Speaker 3: if you now went to another suburb and you decided
Speaker 3: to pull all your money into buying a home to
Speaker 3: live in, you've got to take a moment to question
Speaker 3: tax advantages aside. Is there a location in Australia where
Speaker 3: the data is better for me to actually invest in
Speaker 3: than the place I'm going to sink money in, which
Speaker 3: is the home And if that is better, you're now
Speaker 3: actually onto something and renvesting can build your wealth faster
Speaker 3: than the home you're in because that tax advantage does matter.
Speaker 3: Now you already are going to actually focus on building
Speaker 3: wealth with data, not just the tax advantage behind it.
Speaker 1: Very good, and we're going to have a look at
Speaker 1: that broad issue of the data you need in the
Speaker 1: second segment of the show. But just to play Devil's
Speaker 1: Advocate with you on manfesting, the criticism of it is
Speaker 1: that sooner or later, right when you're renfesting, it sounds
Speaker 1: like it's good at the start, but it seems to
Speaker 1: me if a few years later, as time passes, your
Speaker 1: rents rise and if you had a mortgage then you
Speaker 1: would have been basically even inflation will be helping you
Speaker 1: as you because you own the home, So does it
Speaker 1: weaken as time goes by? That initial sort of sugar
Speaker 1: hit you get from the renfesting idea.
Speaker 3: It's a really good point to raise and the short
Speaker 3: answers know with the right moves made. So I want
Speaker 3: to give you a live example of the right moves,
Speaker 3: but the numbers behind it. If I go through three
Speaker 3: core reasons will help explain. The first core reason is
Speaker 3: you usually when someone has a desire for a home
Speaker 3: that they feel is better than what they can afford.
Speaker 3: That particular part is what creates this satisfaction between, oh, look,
Speaker 3: home is unaffordable. I can't go and achieve what I
Speaker 3: want because it's not exactly what I desire versus the
Speaker 3: position I'm in. And so with rent vesting, the step
Speaker 3: one that you're doing is you're matching the desire to
Speaker 3: the position that you're in. And it starts to have
Speaker 3: a perfect match now because now you can have this
Speaker 3: performance upsides, I can rent somewhere where I wanted to
Speaker 3: live in. That first part is there for you. The
Speaker 3: second part coming to now is your career and time.
Speaker 3: As you map out income and age, it's close correlation
Speaker 3: that is age and time and workforce and experience in
Speaker 3: workforce builds income tends to as well. And so as
Speaker 3: you're growing on the rent vesting journey and maybe you're
Speaker 3: now getting the lifestyle upside that you didn't once have
Speaker 3: and you're now investing in money, there is growth occurring,
Speaker 3: not just financially in your actual investment, but there's growth
Speaker 3: also occurring professionally. So now when you are returning to
Speaker 3: the home buying goal, of the future. It's not the
Speaker 3: same argent that was there at twenty five as he
Speaker 3: is in thirty five and forty five, and so your
Speaker 3: different capability allows you to now get closer match to
Speaker 3: your preference and the home you want to live in.
Speaker 3: The third part is rent vesting involves building wealth through
Speaker 3: property across Australia with data, not by emotion or things
Speaker 3: that feel comfortable.
Speaker 1: I imagine since you're a buyer's agent that your notion of
Speaker 1: the afteromen way to spend the money that becomes available
Speaker 1: as a renvestor is to put it back into property.
Speaker 1: You don't suggest to go outside property where we know
Speaker 1: there's very good turns, for instance in the market of
Speaker 1: double digits every year in recent times.
Speaker 3: No, you can actually do that. Even then, that could
Speaker 3: still work under the rent vesting umbrella because you have
Speaker 3: cash that's there that wasn't there before because it would
Speaker 3: have gone into your own mortgage. Now you have a
Speaker 3: lifestyle upside of the performance upside, and you have the
Speaker 3: free flowing cash flow if you wanted to put it
Speaker 3: to indexes and other things, and you still live the
Speaker 3: same lifestyle of that multimillion dollar home, but not the
Speaker 3: multimillion dollar mortgage. You can do that. At the end
Speaker 3: of the day, rent vesting is your choice of where
Speaker 3: you invest the money. But the main thing here is
Speaker 3: this third part is as home prices have gone up,
Speaker 3: rents have increased because you were a performance driven not
Speaker 3: I'm going to get the best home I can in
Speaker 3: my twenties or thirties for the income I have today.
Speaker 3: You're able to have an outperformance and that outperformance will
Speaker 3: come back and help you. And an example I can
Speaker 3: think of with that is a couple i'd met by
Speaker 3: the name of Danny and Ron. They were in banking
Speaker 3: as she's an executive in the Big Four and if
Speaker 3: you'd wind the clock back to twenty twenty, her budget
Speaker 3: would have allowed her a unit to live in the
Speaker 3: inner West of Sydney. Now that budget itself, whilst it
Speaker 3: would have gotten her unit, that wasn't her ideal home
Speaker 3: that she wanted. That it wasn't the ideal location that
Speaker 3: she wanted, so she could have parked them in that way. Instead,
Speaker 3: we purchased a property in Brisbane for five hundred and
Speaker 3: sixty thousand, which has doubled in value in the five
Speaker 3: years later. And then she'd use the equity to go
Speaker 3: to three other locations. Now built over one point one
Speaker 3: million dollars in equity across three point five million dollars
Speaker 3: worth of assets in four different properties. So all of
Speaker 3: this wealth building allows you to do that.
Speaker 2: Interesting.
Speaker 1: Now what we must do is let our listeners hear
Speaker 1: what Arjen has to say about using data to optimize
Speaker 1: the notion of rent investing back in a moment. Hello,
Speaker 1: Welcome back to The Australian's Money Puzzle podcast. Today's guest
Speaker 1: is Arju and Padival, who is head of Investor Kit,
Speaker 1: which is a buyer's advocate agency. He operates out of Sydney,
Speaker 1: but it's a nationwide operation and I'm going to resist
Speaker 1: asking you which is your favorite. I certainly wouldn't spend
Speaker 1: a whole segment on it, but just quick before we
Speaker 1: go into the issue of data. Everyone i'm on the
Speaker 1: show in recent weeks has been asked one single question,
Speaker 1: what city is the best value in the country at
Speaker 1: the moment and the answer is.
Speaker 3: I would say the answer is Melbourne.
Speaker 2: Very good.
Speaker 1: And you are now adding to the majority week by week. Yeah,
Speaker 1: that's interesting. We're building a consensus here now about data
Speaker 1: and collection of data the point I think in the
Speaker 1: first part of the show, which was really interesting folks
Speaker 1: with Arjun, was this notion of the perfect match in
Speaker 1: the property. And if I've got it right, I mean,
Speaker 1: I think what he's driving at is it's not just
Speaker 1: the notion of re investing, and it's not just the
Speaker 1: notion that you rent and you buy an investment property,
Speaker 1: but because you're buying the property on strictly investment criteria,
Speaker 1: you optimize your possibility of making the very best investment.
Speaker 1: So a lot of it comes down to what and
Speaker 1: where will I buy, which is nothing to do with
Speaker 1: where I want to live? Is not it basically arguent?
Speaker 1: So how do you approach that? And what data? You've
Speaker 1: mentioned data a few times, what do you mean and
Speaker 1: what do people look for for sure?
Speaker 3: So from a data perspective, the key thing to point
Speaker 3: out that I believe in property is true is that
Speaker 3: capital growth does not exist without competition. Capital growth as
Speaker 3: an outcome is simply there because competition in a fewer
Speaker 3: amount of houses for sale has created growth and someone
Speaker 3: willing to pay more. And this multiple events happen again
Speaker 3: and again, and new comparable sales arise at high amounts
Speaker 3: and So when you understand that concept without any data
Speaker 3: points or KEYAI terms, machine learning, or anything fancy behind it,
Speaker 3: you now realize that what you're really looking for is
Speaker 3: signals of data that points to high competition occurring, which
Speaker 3: increases the likelihood of property prices to grow. Right, And
Speaker 3: so when you're looking at that, there are really competition
Speaker 3: in two parts of housing markets. One is the rental
Speaker 3: market and one is the established market for sale. So
Speaker 3: competition and the rental market can be shown by is
Speaker 3: there a low amount of rental vacancy so vacancy rates
Speaker 3: are low? Or secondly, is there are decreasing speed which
Speaker 3: is increasing speed which is decreasing days on markets, which
Speaker 3: means rental properties don't take on average two weeks to
Speaker 3: find a tenant, they take on average one week to
Speaker 3: find a tenant. Then, if we move on to the
Speaker 3: sales data, is how many properties are there for sale
Speaker 3: and the trend of those properties for sale. Is it
Speaker 3: a decreasing trend of properties for sale at any one
Speaker 3: point because there is more buying occurring, sales volumes increasing,
Speaker 3: Is there a decreasing days on market because people don't
Speaker 3: take two weeks to make a deal, they do it
Speaker 3: in the first open or they don't take three or
Speaker 3: four inspections, they're doing the first inspection. And is there
Speaker 3: a listing price that now has far less discounts or
Speaker 3: are having sales occur beyond the listing price. So there
Speaker 3: are over thirty different data points we look at, but
Speaker 3: if you just simplify to these three to five, you
Speaker 3: have found competition and competition equals capital.
Speaker 2: Growth, right, So maybe we just go through them.
Speaker 1: The obvious thing obviously in price days on market, that's
Speaker 1: something you're looking at some of the sounds of it
Speaker 1: very closely. What are the signals for you that this
Speaker 1: suburb is going to fly basically or outperform.
Speaker 3: Of course we'll do it as a dock point signals then,
Speaker 3: So the first one is listing levels below five year averages,
Speaker 3: so substantially lower levels of property listings in comparison to
Speaker 3: what's normal. The second one is surging sales volumes, so
Speaker 3: increasing number of deals happening. The third one is depending
Speaker 3: on which cities, increasing auction clearance rates and above sixty
Speaker 3: five percent auction clearance rates as a clear benchmark, but
Speaker 3: increasing trainings as well. Then the fourth one is decrease
Speaker 3: days on market, and if I had already mentioned that
Speaker 3: when prior, this is just the time to sell and
Speaker 3: it's getting faster or quite low. And then the fifth
Speaker 3: one here is having lower levels of vendor discounting. They're
Speaker 3: listing price in what percentage comes off it or a
Speaker 3: positive vendor discount event the listing price, and how much
Speaker 3: more it sells than it. And so if you just
Speaker 3: use these five as a blanket statement, it's basically one paragraph.
Speaker 3: Someone over the barbecue at the sausage ses are saying, hey, mate,
Speaker 3: I'm at this market and I saw that it doesn't
Speaker 3: have a lot of properties for sale. There's less properties
Speaker 3: for sale today than there was five years ago. A
Speaker 3: lot of people are buying properties in the suburb, and
Speaker 3: they're actually buying it twenty percent more than there were
Speaker 3: last year. And then on top of that, it used
Speaker 3: to take a month to sell, it only takes two
Speaker 3: weeks to sell property here on average. And then looking
Speaker 3: at properties in this area, they used to have list
Speaker 3: prices of eight hundred K and that often sell at
Speaker 3: seven point fifty. But now the eight hundred k listings
Speaker 3: are there and they're often selling at eight fifty to
Speaker 3: nine hundred. So that's someone having a casual chat.
Speaker 1: I wonder I had doubt, but I would be skeptical
Speaker 1: about obviously says above the reserve, since there is underculting
Speaker 1: in the market, and we know there is across the market,
Speaker 1: and it's always a problem, especially when the market's starting
Speaker 1: to lift. Which of your data points do you, at
Speaker 1: the moment think is the most powerful.
Speaker 3: The most powerful data points? I would say it's an
Speaker 3: equal tie between listings and sales volumes. But if I
Speaker 3: was to use listings as an example, here's where that's important.
Speaker 3: If you have listings well below a five year average
Speaker 3: and it's extremely low levels, it means any sort of
Speaker 3: interest or any sort of sales volumes or insights from
Speaker 3: elsewhere will showcase that there's a lot of demand that
Speaker 3: is showing against the supply that's there. Because it's all
Speaker 3: relative to each other, you could have listings come down,
Speaker 3: but if there is still a lot of transactions not happening,
Speaker 3: then all of a sudden, that's still considered a lot
Speaker 3: of list So you want to see those two data
Speaker 3: points together. But the second part of sales volumes is
Speaker 3: that if all of a sudden, you had fifty transactions
Speaker 3: per month on average in a suburb, and then that
Speaker 3: number is now eighty to one hundred. Well, either it
Speaker 3: means a there is a lot more building supply that's
Speaker 3: arrived in the market, a lot more properties for sale,
Speaker 3: and they're just transacting at a higher amount, which is
Speaker 3: a false positive, or it's the lower level of listings.
Speaker 3: It's just transacting far more frequently because properties come on,
Speaker 3: then they get off, then they come on, then they
Speaker 3: get off. So these two data points would be the
Speaker 3: most telling ones, and they flow on to all the
Speaker 3: other indicators I've mentioned, because the other indicators don't get
Speaker 3: faster unless these two move right.
Speaker 1: Very good, very good, And if you are thinking of manterfesting,
Speaker 1: obviously this is I suppose the point being are doing
Speaker 1: is that when you're not thinking of buying a home,
Speaker 1: you're thinking strictly rationally. Then you're thinking strictly on data points.
Speaker 1: And if you find that perfect match of data points,
Speaker 1: it doesn't really matter of where it is. I am
Speaker 1: it sounds to me it doesn't matter where it is.
Speaker 1: You could be in Sydney and you could find it's
Speaker 1: in Brisbane, or you could be in Brisbane and find
Speaker 1: it's in Perth or whatever is that fair to say?
Speaker 3: This is an absolutely like the most critical point to
Speaker 3: consider an investing. Too many myths go on that people
Speaker 3: think your backyard or regional markets or other capital cities
Speaker 3: aren't as good as the place you love and know
Speaker 3: the bakeries, the cafes and the proximity to the city
Speaker 3: of eighty five percent as pro totality data over the
Speaker 3: last twenty five years of LGAs have had five percent
Speaker 3: or greater compounding growth levels. And so if you now
Speaker 3: took away the fifteen percent from those markets that did
Speaker 3: not perform, and you took away towns with a single
Speaker 3: industry economy, and then number two, you took away towns
Speaker 3: that had a population of less than fifteen thousand that
Speaker 3: had those LGAs present in you now are now taking
Speaker 3: that number to above ninety five percent, which actually means
Speaker 3: every city, town or suburb across Australia and when you
Speaker 3: exclude those has its time in the sun one day.
Speaker 3: And so your goal as an investor that's now national
Speaker 3: and borderless, should be thinking about where a that time
Speaker 3: is happening, because long term holds everywhere will do well eventually.
Speaker 3: And then b, how can my portfolio create the greatest diversity,
Speaker 3: because again, when something's happening in Adelaide and Brisbane doesn't
Speaker 3: always mean it's happening in Sydney and Melbourne. They can
Speaker 3: happen at different times, and the data suggests that when
Speaker 3: you look at twenty twelve to twenty seventeen, Sydney Melbourne boomed,
Speaker 3: but then when you look at twenty twenty to twenty
Speaker 3: five Perth, Adelaide Brisbane substantially outperforms Sydney and Melbourne.
Speaker 2: That's right, that's right. Borderless.
Speaker 1: I like that, borderless absolutely. Okay, we'll take a break
Speaker 1: just before we go LGAs just in case our listeners
Speaker 1: weren't familiar with the term.
Speaker 3: It means local government areas.
Speaker 2: Yeah, local government aias.
Speaker 1: Okay, so folks, all right, we'll be back. We have
Speaker 1: some great questions which we have kept for today. Back
Speaker 1: in the moment. Hello, Welcome back to The Australian's Money
Speaker 1: Puzzle podcast. My guest today is Argent Paliwal from Investor Kid.
Speaker 1: As you have probably discovered by now, a property expert,
Speaker 1: a buyer's agent operates out of Sydney, and some very
Speaker 1: interesting observations already on the show about rent investing. I
Speaker 1: think it's a very convincing case Argent puts forward based
Speaker 1: on his key observations about the optimization of that about
Speaker 1: being borderless basically in your approach and having that strictly
Speaker 1: financial rational approach to it which optimizes your chances basically.
Speaker 1: And do keep in mind that. I thought it was
Speaker 1: interesting also that Argian about the point that tax is favorable,
Speaker 1: but it's not actually mandatory the tax. Your arguments are
Speaker 1: not entirely based on tax. They're helped by the tax situation,
Speaker 1: but they're not crucial, all right, Sus says. The biggest
Speaker 1: barrier to downsizing and upsizing for that matter is stamp
Speaker 1: duty in Victoria. It's yet another tax, and on indexed
Speaker 1: I might add a real barrier to people having the
Speaker 1: right size home. As an buyer's advocate said to me,
Speaker 1: you should budget ten percent transaction cost of buying when
Speaker 1: you have properties, and that's a huge disincentive. Yes, there
Speaker 1: are disincentives, that's for sure, Sus. Thank you for that.
Speaker 1: And obviously Victoria, with its menu of taxes ten particularly
Speaker 1: different property taxes, has done itself no favors, certainly in
Speaker 1: terms of investor sentiment or right. A question this time
Speaker 1: from Tim, is it possible that by allowing new home
Speaker 1: buyers into the market with a five percent deposit, that's
Speaker 1: the that's the government's new five percent universal five percent
Speaker 1: deposit first home scheme. Anyone anywhere can get their first
Speaker 1: home with a five percent deposit, ten percent covered by
Speaker 1: the government. Tim asks, does the government run the real
Speaker 1: risk of negative equity in the future years? Falling rates
Speaker 1: coupled with reduced deposits appear already to be pushing first
Speaker 1: home buyer market upwards. I don't doubt this at all.
Speaker 1: If you have people who were not expert and were
Speaker 1: not familiar with the points you've been making, Arjen, and
Speaker 1: they had ninety five percent mortgage, and if we have
Speaker 1: many more people with the ninety five percent mortgage under
Speaker 1: this scheme, does it create some new risks in the market?
Speaker 2: Do you think?
Speaker 3: It depends for how long? And it depends how many
Speaker 3: get going. I feel like there's a couple of things
Speaker 3: to share here. Firstly, Australia's debt position overall presents a
Speaker 3: low risk. We have just over two and a half
Speaker 3: trillion dollars worth of debt in this country on houses
Speaker 3: against over eleven trillion dollars of value, so most of
Speaker 3: it still sits at a low loan to value ratio.
Speaker 3: So if there was some movements in prices, it would
Speaker 3: have to be so large for that ratio to come together,
Speaker 3: and so many properties have to go online and not
Speaker 3: sales for that to happen. But that's the first core
Speaker 3: structure piece. The second part here is that when it
Speaker 3: comes to those owner occupy or like those properties that
Speaker 3: we have across the country or more than a third
Speaker 3: of them actually have no debt individually, like a third
Speaker 3: of houses or the ten point four million dwellings don't
Speaker 3: have that, so it does take many more years of
Speaker 3: high leverage debt with high volume of places, by the way,
Speaker 3: which is only for a first home by segment up
Speaker 3: to certain price points. It's not for everyone. So I
Speaker 3: don't think structurally that problem there is as bad, but
Speaker 3: I guess the key points to also mention that the
Speaker 3: last forty five years of housing data, there have only
Speaker 3: been ten events occur in which we've seen some national
Speaker 3: house price steps, of which the largest one was actually
Speaker 3: in recent times in twenty twenty two, where we had
Speaker 3: like over nine percent did some some markets which which
Speaker 3: really quickly came back, and so the largest amount of
Speaker 3: dips has been that eight nine percent. Secondly, it wasn't
Speaker 3: on all cities, it was on a select few. And
Speaker 3: then thirdly it's only had ten events where we've seen
Speaker 3: national price tips in forty five years. And so when
Speaker 3: you think of the Australian housing market, it would have
Speaker 3: to be some major shocks that causes that negative equity.
Speaker 3: And if we look at long term compounding growth rates,
Speaker 3: it's likely that within twelve months someone's ninety five percent
Speaker 3: if the national averages play out, is suddenly down to
Speaker 3: ninety percent loan by the nature of them paying down
Speaker 3: and growth occurrent.
Speaker 1: We'll so the wider picture being Tim and thank you
Speaker 1: for the question, Susan, Tim, and there are This is information,
Speaker 1: of course, not advice. But the wider issue is that
Speaker 1: there is actually substantial stability in the system, not just
Speaker 1: because we have Opera or other regulators, but because, as
Speaker 1: Argent points out, there's a substantial portion of the population
Speaker 1: that have no household debt at all, which we don't
Speaker 1: pay much attention to. They don't make the headlines, but
Speaker 1: they probably do their bit to stabilize the market. Terrific, Hey,
Speaker 1: Ardyne thank you very much for coming on the show.
Speaker 1: Nice to have you on.
Speaker 3: Thank you so much.
Speaker 1: That was Argent Pollowell of the Investor Kid group. Let's
Speaker 1: have some more questions and comments. Always happy to have comments,
Speaker 1: just like Susan's comments today. They're very good, they're very welcome.
Speaker 1: You can ask multiple questions of course, anytime the Money
Speaker 1: Puzzle at the Australian dot com dot au.
Speaker 2: Talk to you soon.