Speaker 1: Hello and welcome to the Australians Money Becuzzle podcast.
Speaker 2: James Kurty here with the editor at The Australian.
Speaker 1: Welcome aboard everybody, and I have mister week.
Speaker 2: Thank you very much.
Speaker 1: James Girard who handled and ran the show. Two episodes
Speaker 1: last week, very good. I've listened to them both, very
Speaker 1: very interesting. I want to pick up something actually that
Speaker 1: we've been talking about on the show for some time.
Speaker 1: And look, this could be on the show. We talked
Speaker 1: this time last year and for a long time about
Speaker 1: how Perth, for instance, as a property investor, if you
Speaker 1: were prepared to invest.
Speaker 2: Interstate Perth was the market to be in.
Speaker 1: And you know, it really has been an exceptional market
Speaker 1: for anyone who did that, to the point actually that
Speaker 1: this week they're talking about parts of the market in overheating.
Speaker 1: It's a small market in relation to the bigger market
Speaker 1: I'm going to talk about today, which is Melbourne. So
Speaker 1: Melbourne's the second biggest market in the country. It's five
Speaker 1: million people. It's going to be bigger than Sydney relatively soon.
Speaker 1: It's a sort of inexorable march of the housing estates
Speaker 1: at the edges of the city, which can't happen in
Speaker 1: Sydney because of national forests.
Speaker 2: But what it means.
Speaker 1: Is that it should be a hot property market.
Speaker 2: It's not.
Speaker 1: It's the opposite. It's the weakest market in Australia. And
Speaker 1: the question from an investor point of view is now,
Speaker 1: is this the bargain not just of the year, but
Speaker 1: is this one of the real bargains perhaps of the
Speaker 1: decade in property for investors in Australia or actually is
Speaker 1: the state sinking as some would suggest and searching the
Speaker 1: numbers in property are pretty bad. It's the weakest price
Speaker 1: market increases, is the weakest in Australia. It is the
Speaker 1: weakest investment market. And beyond investors are leaving the state.
Speaker 1: And we see that right across all the news media
Speaker 1: reporting there quite faithfully in recent times.
Speaker 2: So I thought, well, let's have a look at that.
Speaker 1: Let's also have a look at immigration cuts, what they
Speaker 1: might do for property or do against property, and a
Speaker 1: few other issues that I want to pick up on
Speaker 1: with our guest today who is a regular on the show,
Speaker 1: Bruce Brammel of Bruce Brammel, Financial Financial Advisor, author and
Speaker 1: operator extraordinaire.
Speaker 3: How are you, Bruce, Well, thanks James yourself.
Speaker 1: Good, thank you. Well, you should know you've written books
Speaker 1: on this area. You're in the thick of it and
Speaker 1: you are in Melbourne based property and financial advisor. So
Speaker 1: Bruce Brammel, I put you on the hot season. I say,
Speaker 1: is this market just slowly thinking or is it actually
Speaker 1: an opportunity for investors all around Australia. It's the second
Speaker 1: biggest city and it's it's hanging behind everybody. Is it
Speaker 1: going to catch up?
Speaker 3: Look?
Speaker 4: I think inevitably it will. I'm probably a straw hats
Speaker 4: in winter sort of guy. It go to investment. I
Speaker 4: think in a relative sense Melbourne is probably undervalued at
Speaker 4: the moment from an investment Since James, I've only ever
Speaker 4: believed that there are three markets worthwhile pursuing because they've
Speaker 4: got economies that are big enough. When they are Sydney, Melbourne, Brisbane.
Speaker 3: At the moment the property prices are Sydney.
Speaker 4: What probably prices should be is Sydney big gap, Melbourne
Speaker 4: reasonable gap, Brisbane, followed by I don't really care too
Speaker 4: much after that but Adelaide. But there are the three
Speaker 4: property markets that I speak to clients about and that
Speaker 4: we are assist clients.
Speaker 3: Buying in.
Speaker 4: At the moment, the gap is Sydney big gap Brisbane
Speaker 4: and Melbourne is sitting third. Now in my opinion, that
Speaker 4: is a pricing error that's against the natural order of the.
Speaker 3: Natural order of things.
Speaker 4: Is Sydney big gap Melbourne gap reason gap to Brisbane. Now,
Speaker 4: back in about twenty fourteen, following the state government up
Speaker 4: there and they closing schools and they're shutting hospitals and
Speaker 4: sacking teachers and nurses, the same as Canada done in Melbourne.
Speaker 4: In the early mid nineties, Brisbane's property price fell to
Speaker 4: about fifth or six That was Sydney Melbourne. I think
Speaker 4: at the time it was sort of Perth, Camera Adelaide wherever.
Speaker 4: But Brisbane was sitting about fifth or sixth, and we said, well,
Speaker 4: there's a pricing are going on here. So through twenty fourteen, fifteen,
Speaker 4: sixteen seventeen, I think into eighteen, we've brought a lot
Speaker 4: of property with clients in Brisbane and that's proved to
Speaker 4: be corrects. Brisbane suddenly subsequently post twenty twenty and twenty
Speaker 4: twenty one started moving back into sort of third spot
Speaker 4: where it should and has now overtaken Melbourne in the
Speaker 4: last six months.
Speaker 3: Or so it is now sitting second.
Speaker 4: The natural order of things is out of Melbourne's Probably
Speaker 4: prices are being impacted by a bunch of things, including
Speaker 4: the land tax increases which have come through in recent time.
Speaker 4: It's only in the last few weeks or a month
Speaker 4: or so I think that the people started being started
Speaker 4: to hit with their bills. But obviously people been known
Speaker 4: have known that this was coming for some time and
Speaker 4: have been reacting to that.
Speaker 1: But you're getting basically you're getting higher interest rates and
Speaker 1: you're getting higher taxes combining the same time.
Speaker 4: I think for a lot of you know, there's a
Speaker 4: lot of people who have been hit with land tax
Speaker 4: for the first time in Melbourne. If you're an investor,
Speaker 4: when they dropped it from land tax from thresholder three
Speaker 4: hundred thousand to fifty thousand, it's just going to pick
Speaker 4: up anybody who has anybody. Yeah, but a lot of
Speaker 4: people who might have were already paying land tax multiple
Speaker 4: properties or something like that. You know, they're probably saying
Speaker 4: a doubling of the land tax that they are paying.
Speaker 4: And land tax is a tax deduction, so the state
Speaker 4: government receives the money, but you get back a portion
Speaker 4: of it from the from the federal government, so you know,
Speaker 4: but it's still it's an extra increase at the time
Speaker 4: of fire, inflation and higher interstrates or normal interest rates or.
Speaker 1: So if you were a marginal, if you were only
Speaker 1: hanging on, it could push you out.
Speaker 3: Yeah.
Speaker 4: Absolutely, I think that's what we're saying in Melbourne at
Speaker 4: the moment, in particular. You know, people who are seeing
Speaker 4: those those higher costs of things. It starts having, it's
Speaker 4: having more. Is it part of having an impact that
Speaker 4: Your question is is it a bargain of our time
Speaker 4: or people who are buying are they are they loss?
Speaker 4: I think sort of medium to long term. I think
Speaker 4: Melbourne is probably underpriced in a relative sense compared to
Speaker 4: the other term markets which we would invest in, which
Speaker 4: is Sydney in Britain.
Speaker 1: Okay, so but you don't TechEd in the way that
Speaker 1: you detected and encouraged investors who were open to investing
Speaker 1: anywhere in the country into Brisbane. Are you at the
Speaker 1: start of that process now or has it even begune
Speaker 1: investing in Brisbane investing in Melbourne? Melbourne on the basis
Speaker 1: that the natural order will restore itself.
Speaker 4: Yeah, yep, that's that's one of the reasons. So there
Speaker 4: was a period back I think it was two.
Speaker 3: Thousand and one, two three, somewhere around there where.
Speaker 4: The city or might have been the late nineties. I
Speaker 4: think it was early noughties where where Melbourne got within
Speaker 4: three thousand dollars of Sydney. Yeah, I think it was
Speaker 4: three hundred and six versus surrounding and three or maybe
Speaker 4: thro round and three versus three hundred for median property price.
Speaker 4: And that was another signal that the natural order things
Speaker 4: should be Sydney big gap, Melbourne reasonable gap to And
Speaker 4: that was probably a screaming buy time for Sydney property
Speaker 4: prices because in a relative all, in a relative sense,
Speaker 4: so relative sense they had to pick up and sure
Speaker 4: enough for data wasn't a financial law.
Speaker 3: It's almost still still a journalist.
Speaker 4: But there there are times where you just say the
Speaker 4: natural order of things fall out of place, and I
Speaker 4: think we're probably in one of those situations now with Melbourne.
Speaker 2: That's really interesting.
Speaker 1: It's like it's like the property version of the of
Speaker 1: the share market. Isn't this where they have the reversion
Speaker 1: to the mean, and that that can be a very
Speaker 1: reliable way through for value investors and the other thing,
Speaker 1: of course, is that interstate investing is so much easier now.
Speaker 1: I mean, you really had to be quite a sophisticated
Speaker 1: operator once upon time to do that, but these days,
Speaker 1: with everything online and digital, et cetera, it is not
Speaker 1: difficult at all. I have done it, and the difference
Speaker 1: in fact it was Brisbane, and the difference between having
Speaker 1: a properly investment properly in Melbourne and Brisbane was very
Speaker 1: very very little. When I sold that properly, there was
Speaker 1: it was. There was some particular state differences, but they
Speaker 1: were not significant at all. And I think more and
Speaker 1: more people are are doing that and that notion I
Speaker 1: think we can be in the active investor in property books.
Speaker 1: I'm sure a lot of our listeners are of this.
Speaker 2: Frame of mind that they are.
Speaker 1: Agnostic if you like, as to where the property is,
Speaker 1: and if you take that strict investment criteria and that approach,
Speaker 1: then I think it is definitely worth having a look
Speaker 1: at the Melbourne market now in the way that we
Speaker 1: were talking about looking at Earth a year a year
Speaker 1: and a half ago. Okay, one other thing I suppose
Speaker 1: on the big picture, Bruce for property, if you take
Speaker 1: it that the prices how home prices in particular, and
Speaker 1: the entire and the entire economy, if you like, have
Speaker 1: been underpinned by immigration and immigration numbers, and it does
Speaker 1: explain to a significant degree the the one percent vacancy
Speaker 1: rates and the relatively strong price increases in homes, even
Speaker 1: though rates were going up all through that process. Then
Speaker 1: if there's immigration cuts and they are starting now with
Speaker 1: two things, an attempt to bring the broad number back
Speaker 1: to traditional sort of levels rather than from the exceptional
Speaker 1: levels they were at post COVID, and a big cutback,
Speaker 1: big cutback in international students, which is already hitting share market.
Speaker 1: For instance, IDP, the big, the big private education down
Speaker 1: by a third or so, about two thousand jobs already
Speaker 1: lost in that sector of private education. But for a
Speaker 1: property investor, do you think it will hit property prices?
Speaker 1: And where might it hit property prices?
Speaker 2: Immigration reduction?
Speaker 4: Yeah, so you started off this question was talking about
Speaker 4: the big picture, So there's no direct correlation between.
Speaker 3: One thing moving on the next.
Speaker 4: But at the moment, the biggest problem is supply can't
Speaker 4: be increased. They're struggling to increase supply. There there are
Speaker 4: restrictions on supply. Getting you properly on board so what
Speaker 4: can they control asing governments, as in federal government, they
Speaker 4: can control demand, and part of that demand comes from
Speaker 4: bringing in how many hundreds of thousands of people that
Speaker 4: we bring into the country each year.
Speaker 3: So.
Speaker 4: Reducing the number by whatever it is, tens of thousands
Speaker 4: but one hundred thousand, whatever the case may be, will
Speaker 4: slow down the increase in demand for the property. That's
Speaker 4: sort of basic.
Speaker 3: Economics one O one, and that should we should have
Speaker 3: an impact.
Speaker 4: Doesn't mean the properly prices are going to fall, No,
Speaker 4: it doesn't mean that that's going to happen normally. You've
Speaker 4: got to have a couple of things line up to
Speaker 4: forth property prices to fall. But it certainly takes upward
Speaker 4: pressure some of the upward pressure. You take out one
Speaker 4: hundred thousand people a year for the next two years,
Speaker 4: five years, or whatever, then there's you've got an extra
Speaker 4: two thousand and five hundred thousand fewer people needing to
Speaker 4: find a place to live. So it should have an impact.
Speaker 4: It might just slow the rate of growth of probably prices,
Speaker 4: It might make them stagnate, it might make them go backwards,
Speaker 4: But does it hit property prices. It will have an
Speaker 4: impact on property prices. It doesn't mean it's going to
Speaker 4: make it go backwards. It might just having an impact
Speaker 4: on property prices and just slow the what might have
Speaker 4: happened from nine percent growth per year down to six
Speaker 4: percent growth per year, or it might have been negative.
Speaker 4: So yes, you know, you take away some demands. It
Speaker 4: has to have an impact on property prices, but it
Speaker 4: doesn't mean it's going to fall.
Speaker 1: Okay, Now, as an advisor, tell me about your clients,
Speaker 1: do they do they if they're looking at the numbers,
Speaker 1: they see that the property prices are running broadly similar
Speaker 1: to sub prices. At the moment, the ASX is going
Speaker 1: to come in at about nine percent for the year.
Speaker 1: Any chucking dividends and there's you're certainly on thirteen percent.
Speaker 1: So better than property again for the second here in
Speaker 1: a row. But property doing better than most people would
Speaker 1: have fought with the rates and not falling though that
Speaker 1: people had expected that they would. So when you get
Speaker 1: when you get the glance in the door and there
Speaker 1: are active investors, they have a broad portfolio.
Speaker 2: Are they what's the mood?
Speaker 1: Are they inmfessed the fact that property is still is
Speaker 1: still going up onto these conditions, and what did they
Speaker 1: is there any sense of bout outcut they have.
Speaker 4: Yeah, sort of a fewer conversations about I guess about
Speaker 4: new money but going into investment markets than there might
Speaker 4: have been in times gone past or but it seems
Speaker 4: to be picking up again, as in it was quite.
Speaker 3: More about managing what you had and making adjustments to
Speaker 3: what you had.
Speaker 4: Certainly, you know during COVID there was a period there
Speaker 4: with the same don't that's obviously three four what are
Speaker 4: we four years ago now? And coming out of that
Speaker 4: there seem to be some opportunities and there were.
Speaker 3: The same thing straw hats in winter.
Speaker 4: You try to buy assets when they're undervalued rather than
Speaker 4: when they might be a reasonable valuation or even a
Speaker 4: full valuation. And you know, that's what you're constantly trying
Speaker 4: to do as an investor. If you're making active investment decisions,
Speaker 4: which property residential property has to be an active decision.
Speaker 3: You can't index. You can't index it.
Speaker 4: So I think in recent times people are sort of okay,
Speaker 4: you know, I will manage to get through the higher
Speaker 4: industrates for those people that have I'm not saying this
Speaker 4: is everybody by any stretch of the imagination. There's more
Speaker 4: pain out there than there is people seeing things very positively.
Speaker 4: But for those people who are seeing it positively and
Speaker 4: they're looking to to do some investing, property is not
Speaker 4: right for everybody. It scares a lot of people off
Speaker 4: to talking about death and tenants and all the things
Speaker 4: that necessarily.
Speaker 3: Come with property.
Speaker 4: But for those people who are comfortable with the debts
Speaker 4: with dealing with tenants, with constant changes to the laws
Speaker 4: and in regards to what landlords are going to provide,
Speaker 4: then there's the potential to get into property. But anybody
Speaker 4: who's getting into property needs to understand that you really
Speaker 4: have to have a mindset of buying a property for forever,
Speaker 4: or at least having your head ten years.
Speaker 3: Why because the costs of getting into and out of
Speaker 3: property are in Australia fairly obsaane.
Speaker 2: You're talking years ten years as your benchmark.
Speaker 4: Ten years, yeah, percent rough lyag you will take to
Speaker 4: get into a property, particularly in Victoria, South Australia. Surprise
Speaker 4: the other day to time at certain places more expensive
Speaker 4: than Victoria, but get somewhere between sort of four and
Speaker 4: four and six percent stamp.
Speaker 3: Duty is to get in to get out of the property.
Speaker 4: You've got about three percent in agencies and marketing, advertised
Speaker 4: and all those other things there. So the cost you're
Speaker 4: getting into an out of a property is seven to
Speaker 4: ten percent, so you're very difficult back money on that
Speaker 4: in the short term. Property needs to be a medium
Speaker 4: term investment. Well long term it needs to be a
Speaker 4: long term investment. It depends on how you say made
Speaker 4: him a long term But anybody that's going on to properly,
Speaker 4: I say, you've got to have a minimum of ten years,
Speaker 4: but the preferable hole in time for properties forever.
Speaker 2: Okay, we'll hold that thought right there.
Speaker 1: We'll take short break and we'll come back pick up
Speaker 1: on that issue. Hello and welcome back to the Australians
Speaker 1: Money Puzzle podcast. I'm James Kirkby, the Wealth editor at
Speaker 1: The Australian. I'm talking to Bruce Bramble, who is a
Speaker 1: financial advisor and author and regular contributor to news Corps
Speaker 1: in the area of investment and wealth, and we were
Speaker 1: just talking just repeat the number of you would Bruce.
Speaker 1: It was really interesting about buying proper five your costs,
Speaker 1: whatever the cost of the property is, five percent of
Speaker 1: that cost is going to be you need five percent
Speaker 1: of that cost going in and you need about three
Speaker 1: percent going out of the far side, is that what
Speaker 1: you were saying?
Speaker 4: Yeah, roughly, Yeah, somewhere we're going four and six probably
Speaker 4: north about north of five, largely five five and a
Speaker 4: half percent to get in the sand duty's and potentially
Speaker 4: if you're using advis advocate another two percent on top
Speaker 4: of that roughly some of them flat feet, but around
Speaker 4: that five to six percent mark.
Speaker 3: And to get out.
Speaker 4: You know, the cost of selling advertising agents charged about
Speaker 4: one point five.
Speaker 3: To two percent plus JC, so it's a good portion
Speaker 3: of it.
Speaker 4: But then you've got advertising and marketing and some other
Speaker 4: costs and conveyancing and whatever.
Speaker 3: Else on top of that.
Speaker 4: Tope, yes, you you're to get out, you're probably around
Speaker 4: that three somewhere between two and a half and three
Speaker 4: and a half percent most of the time to get
Speaker 4: out of to get out of a property.
Speaker 2: So yeah, that's very very interesting.
Speaker 1: As you said, you can't index it. You it's a
Speaker 1: it's a big ticket acquisition and you have to go
Speaker 1: in boots and all the bass day every time. You
Speaker 1: can't buy a bit of a property as to say,
Speaker 1: or unfortunately it's not a bit of one. So one
Speaker 1: thing that's come up on the show before we go
Speaker 1: to questions is several people who who I do admire
Speaker 1: and respect on the show making the point that the
Speaker 1: units the house prices overshot through COVID and post COVID
Speaker 1: because of that whole thing of space being so exceptionally valued,
Speaker 1: personal space being so exceptionally valued when we were all
Speaker 1: locked in our homes, but that the units fell behind,
Speaker 1: way behind. And in that same theme of reversion to
Speaker 1: the mean that we're talking about, how the sort of
Speaker 1: natural order of things, the units haven't been doing as
Speaker 1: well as units normally do for some years, and there's
Speaker 1: a strong sense that they may catch up looking forward.
Speaker 1: If someone was coming to you and said I can
Speaker 1: buy a property anywhere in the country, I don't mind
Speaker 1: where I'm ready to go. The only thing I want
Speaker 1: to make a decision on is a unit over a house.
Speaker 1: I know the basics. I know that a unit is easier,
Speaker 1: it is costs less to buys is simply because they
Speaker 1: costs less, nothing to do with value. I know that
Speaker 1: they're less maintenance. I know homes are a standard on
Speaker 1: home is a lot more maintenance, and I have been
Speaker 1: hearing that units are set to do better per annum
Speaker 1: for a while than houses. In catching up post called
Speaker 1: but what would you say to that person?
Speaker 4: First of all times, we're going to ask you some
Speaker 4: definitional questions here if you don't mind. So your house
Speaker 4: is pretty simple, ass is a is a you know,
Speaker 4: a property or a building on land. There's no touching
Speaker 4: dale or whatever. Are you suggesting that a unit is
Speaker 4: more like medium density high than city where walls are
Speaker 4: touching and all that sort of stuff, because there's.
Speaker 2: I know that definite definition of units is very messy.
Speaker 2: It includes townhouses. It shouldn't. Let's just talk about apartments.
Speaker 2: Make it sense them.
Speaker 4: Yeah, okay, So I'd separate them into three so houses
Speaker 4: at the other end, apartments or flats, and in the
Speaker 4: middle is what I call units, which might be you know,
Speaker 4: the old quarter acre block that got split in.
Speaker 3: There's three sort of townhouse unity sort.
Speaker 4: Of things on it that might have a bit of
Speaker 4: common common area, but there's no real you know, they've
Speaker 4: got their own yard and they're not.
Speaker 3: They're not. So i'd sort of call those three.
Speaker 4: So from an investment perspective, again, I split property into
Speaker 4: two sorts of property, into a residential property to two
Speaker 4: short one is a home. Home is going to meet
Speaker 4: an emotional need that needs to be where you want
Speaker 4: to live, which might be you know, a lifestyle or
Speaker 4: near schools or near family or your work or something
Speaker 4: like that. That's homes need to meet need to meet
Speaker 4: emotional needs. An investment is about one thing and one
Speaker 4: thing only, and that is making money, and you want
Speaker 4: to maximize new chances of doing that.
Speaker 3: Now, I'm a very strong believer that the single one
Speaker 3: of the.
Speaker 4: Main ways that property appreciates in value is.
Speaker 3: Via land content.
Speaker 4: So minute we have one of the rules that we
Speaker 4: use for purchasing helping clients purchase property is minimum land
Speaker 4: content of thirty percent. That's specifically designed to knock out
Speaker 4: what we're just referring to as flats and apartments. Yes,
Speaker 4: because it is land that appreciates. Buildings depreciate. Buildings literally
Speaker 4: fall apart from the moment that you since before they're built,
Speaker 4: So you've got to spend an ever increasing amount of time.
Speaker 3: So from an.
Speaker 4: Investment perspective, if in a relative sense, if units have
Speaker 4: done poorly or not as well as houses in the past, my.
Speaker 3: Belief is that they will always be the case.
Speaker 4: However, you can a get to a stage where our
Speaker 4: units have underperformed more than they should have under before
Speaker 4: versus house and lane. There might be some relative value there.
Speaker 4: But again, as we're just sort of talking about area
Speaker 4: of the cost of getting into an out property and
Speaker 4: trying to get that coal rights is very diffult.
Speaker 1: So you're skeptical. You're skeptical about whether it's really changed.
Speaker 1: It's interesting just for what it's worth.
Speaker 2: There was two there were two theories.
Speaker 1: You'd be like about why units will outpace standard on
Speaker 1: properties in the immediate future. One was the catch up
Speaker 1: basically reversion to the mean. But the other one was
Speaker 1: that the theory always had been, you know, they don't
Speaker 1: buy apartment because if you buy an apartment doesn't investor.
Speaker 1: The problem is that they can always build more. And
Speaker 1: but the argument this year and next year was they
Speaker 1: can't do more. That the building is approval process in
Speaker 1: Australia's basically ground to a hold. There's less been approved
Speaker 1: this year than last year nationally, and that was an
Speaker 1: interesting argument which I'm sure the listeners will make up
Speaker 1: their own minds about just but just to finish off
Speaker 1: on that one, okay, I why don't we take the
Speaker 1: first question of the day from Ramnish or a M
Speaker 1: n I s h Ti Ramnish, My wife and I
Speaker 1: own an investment property inter state. There you are, you
Speaker 1: see in another state. Agnostic as to where Ramnish bought
Speaker 1: his land with development potential five townhouses. He thinks, by
Speaker 1: the way, any answer here is never advised. Okay, this
Speaker 1: is information only. But here's the killer, he says, we
Speaker 1: don't have development experience. Have you come across arrangements or
Speaker 1: joint ventures between landowners and builders where the landowner contributes
Speaker 1: the land and the developer builds the townhouses. I expect
Speaker 1: that goes on all the time, but I don't know
Speaker 1: the mechanics of it.
Speaker 2: Would could you be familiar with that pose?
Speaker 3: Look, I have sparkled to a few organizations. I guess
Speaker 3: I have a time where.
Speaker 4: They whether they've targeted, you know, the older strivings. Who
Speaker 4: might have you an old house on a big court
Speaker 4: acre block possibly bigger, where the house is built at
Speaker 4: the front of the back, and there's the opportunity to
Speaker 4: release some capital by getting a developer come in and
Speaker 4: develop a second unit or something like that. Or the
Speaker 4: property and the sort of personal owns the land, it
Speaker 4: gets gets paid out so I have no doubt that
Speaker 4: there would be developers out there who would consider doing that.
Speaker 3: They're talking about the actual example that you've given here.
Speaker 4: I don't know any groups that do that, but I'm
Speaker 4: sure somebody would assive warning sign or red flag. If
Speaker 4: you're considering doing this, you need really good legal advice
Speaker 4: to make sure that it's watertight. You're dealing with developers
Speaker 4: and a whole bunch of risks that you wouldn't otherwise
Speaker 4: face if you were doing it yourself, or you would
Speaker 4: still face, but even higher risk I guess in this
Speaker 4: sort of situation here, So make sure you get really
Speaker 4: strong legal advice before entering into any agreement. So, off
Speaker 4: the top of my head, I can't think of any
Speaker 4: that I know that they do this, but there's bound
Speaker 4: to be. There's bound to be.
Speaker 1: So Step one is get your setup a top class
Speaker 1: property lawyer, and no doubt the property lawyer will know
Speaker 1: who's to in the game if.
Speaker 4: They are potentially Yeah, but i'd probably put some feelers out.
Speaker 4: We'll probably put some feelers out and go and speak
Speaker 4: to a few developers who might.
Speaker 3: Want to do it, But do not sign anything without
Speaker 3: having your lawyer do it. Properly.
Speaker 4: Yeah, I'd find somebody who prepent you, potentially prepare to
Speaker 4: do it for you, and then and then get legal advice.
Speaker 3: Really seriously lost signing you.
Speaker 1: Very good information there, and ramnish neither option is easy,
Speaker 1: so another option is easy, and obviously both options can
Speaker 1: be a rewarding long term.
Speaker 2: I hope that was helpful. Okay, we'll take a short break.
Speaker 1: We'll be up with the last two questions in one moment. Hello,
Speaker 1: Welcome back to The Australian's Money Puzzle podcast.
Speaker 2: James Kirby Here, it's Tuesday. We're talking property.
Speaker 1: I'm talking to Bruce Brammel, comncial advisor. Andrew asks if
Speaker 1: I had a mortgage. This is one of these We
Speaker 1: get these sort of ques questions all the time. We
Speaker 1: have awfully clever listeners who are always doing computations. Andrew says,
Speaker 1: if I have the mortgage for a thousand a week
Speaker 1: and interest rates went up so that my payments were
Speaker 1: fifteen hundred per week, what is the end journey of
Speaker 1: my extra five hundred. I don't believe it goes to
Speaker 1: bank profits, but maybe it goes to treasury bonds. In
Speaker 1: other words, is the extra interest that mortgage owners are
Speaker 1: paying off simply going to restore the money printing done
Speaker 1: during COVID. Is it a tax without being called a tax? Well, Andrew,
Speaker 1: I don't see how the banks should give you a
Speaker 1: loan that they don't make any money off, or they'd
Speaker 1: have to close down. So your interest farmers are going
Speaker 1: to have to be bigger than cash. And that's only
Speaker 1: fair that the RBA official rate is there and then
Speaker 1: the rates go from there. But I don't think it's
Speaker 1: avoidable really. I think you just have to take that
Speaker 1: on the chain. The question is which bank I suppose
Speaker 1: is screwing you worth?
Speaker 2: It's much more transparent than it used to be.
Speaker 1: You can go on any of these compare sites. We
Speaker 1: often talk to people in that area, where you can
Speaker 1: simply just take a look at the different rates that
Speaker 1: are out there and either cash or mortgages, and once
Speaker 1: you digest what bells may be attached to bills and
Speaker 1: business are attached to particular deals on both sides, whether
Speaker 1: you have the cash on deposit or whether you're borrowing.
Speaker 1: It's much more transparent than it used to be, isn't
Speaker 1: it Blues? I mean, we used to have no idea
Speaker 1: whatever people used to phone one bank after or another.
Speaker 1: Now you can just go on a site and compare.
Speaker 3: Yeah.
Speaker 4: Well, and the other side of it is the amount
Speaker 4: of business that is written or the proportion of business
Speaker 4: that is written by our mortgage brokers, has increased steadily
Speaker 4: and is now sitting a bit under seventy five percent mortgage.
Speaker 1: There are three quarters, three quarters of the wall banks
Speaker 1: are going through mortgage brokers.
Speaker 2: Wow.
Speaker 4: Yeah, my colleague he called that the normally the other
Speaker 4: diet sort of seventy one and a half percent.
Speaker 3: Of something of all of all lines.
Speaker 4: To deal with sort of Andrew's question in a little
Speaker 4: bit or just on top of what you've said, James,
Speaker 4: is that banks sort of tend to make a reasonably
Speaker 4: concert They're competing.
Speaker 3: And always trying to lift it there.
Speaker 4: But the margin that they make is fairly similar through
Speaker 4: through economic cycles. Goes up a bit and down a bit,
Speaker 4: but they're trying to make let's call it one hundred
Speaker 4: and eighty two hundred basis points.
Speaker 3: Yep is what they need to make known as a
Speaker 3: net interest margin them.
Speaker 2: It doesn't really change an awful lot, does it.
Speaker 4: It's interesting interest rates are three and they've got to
Speaker 4: make you know two percent on it or two hundred
Speaker 4: basis points on it. Then the depositors and bond holders,
Speaker 4: they're not they're not treasury bonds. But there are other
Speaker 4: fixed interest investments where where people who have got money
Speaker 4: to to buy fixing interest securities and essentially lend them
Speaker 4: money to corporates and governments and banks and insurers, but
Speaker 4: are chasing sort of a return there.
Speaker 3: But if they're charging three percent for mortgage, then.
Speaker 4: They're probably paying out about one one percent to fixed
Speaker 4: interest investors.
Speaker 3: If indust rates go from three to.
Speaker 4: Seven, then the generally those fixed interest investors are going
Speaker 4: to be demanding an extra four percent for their money.
Speaker 4: So no, it's not it's not a tax on the
Speaker 4: know on people with mortgages. The return doesn't go to
Speaker 4: the banks, it doesn't go to the government. It tends
Speaker 4: to go to either depositors or fixed interests investors who
Speaker 4: are putting up the money which are fixed interests essentially
Speaker 4: loans to governments and corporates and insurance companies and infrastructure
Speaker 4: projects and all that sort of stuff. So they're the
Speaker 4: ones who tend to be picking up the tends to
Speaker 4: be somebody on the other side. People people need to
Speaker 4: borrow and people have got they need to invest, and
Speaker 4: that's the tent.
Speaker 2: There's very good answer.
Speaker 1: Yeah, all kinds back around a strength dividends, doesn't it really?
Speaker 1: On the banks there was periods for their payout ratio.
Speaker 2: Was unbelievably high.
Speaker 1: There was periits for they were paying out certain eighty
Speaker 1: percent on on that. So so that if you wonder
Speaker 1: what keeps the self the self funded investors taking along
Speaker 1: in Australia, it's there are frank dividends which invariably, I
Speaker 1: might say, and most and most reliably does actually come
Speaker 1: from the banks.
Speaker 2: Okay, I hope that was useful to you. Andrew.
Speaker 1: Similarly, another another colorful, another colorful question from Dave. This
Speaker 1: is this question is funny. I'm a loyal listener since inception.
Speaker 1: Thank you, Dave. Often on my tractors, he said, iPods
Speaker 1: on his tractor, and I don't think I've missed one.
Speaker 2: Good. Seems to me.
Speaker 1: Interest rates are a dumb ass way to reign in inflation.
Speaker 1: That's his first point. We'll take that on board, and
Speaker 1: then and then we'll take his second point, which is
Speaker 1: somewhat idiosyncratic, but he yes, yes, it's generally seeing that
Speaker 1: interest rates are a very crude, rough way to reign
Speaker 1: in inflation, but it's how they do it.
Speaker 2: And I would say to you, Dave, once upon a time.
Speaker 1: A year old enough to remember, they used to do
Speaker 1: in a much more brutal way. And famously the US
Speaker 1: Fed reserve under whole Vulker in the Vulkra regime, I
Speaker 1: think was the seventies, inflation was really out of control.
Speaker 1: He managed to get inflation under control by a brutal
Speaker 1: on signaled interest rate rises where basically the America woke
Speaker 1: up one day in interest rates were like much higher
Speaker 1: and it forced the country intro recession. And yes, it worked.
Speaker 1: But these days banks don't do that. They signal. Do
Speaker 1: you notice they call it what they called it jaw boning,
Speaker 1: and they signal continually, and.
Speaker 2: He noticed it increases in rates. So we had many
Speaker 2: of them.
Speaker 1: Each one was only a quarter of a percent. So
Speaker 1: they don't do that anymore. So it's not as bad
Speaker 1: as it used to be, but it's it's one of
Speaker 1: the least worst options I think available to the bankers,
Speaker 1: to the central bankers. Now, the question, he says, is
Speaker 1: why not leverage supersystem to whack another ten on high
Speaker 1: earners and keep it aside and available when the next
Speaker 1: downturn comes. This protect the heavy lifting from wage earners.
Speaker 1: I start people like me spending with Gay abandon when
Speaker 1: I should be putting my head in. I'm an olive producer,
Speaker 1: though olives are not my main game. That's why he's
Speaker 1: that a tractor obviously right. Well, yes, yes, so Dave's
Speaker 1: suggestion not unusual now in the future or in the past.
Speaker 1: Is PA's the rich somehow yet at them again that
Speaker 1: never stops. The three million super plan is very much
Speaker 1: the latest example of that, Dave. I don't know what
Speaker 1: your particular, your particular idea, Dave is like really on
Speaker 1: the on the far end of the spectrum, I think
Speaker 1: for this sort of thing. But while we're on it,
Speaker 1: and why we have Bruce on the show, Bruce, you
Speaker 1: might just could you explain why there's such a rumpus
Speaker 1: over this new super tax that kicks in a three
Speaker 1: million You would have thold there's not a lot of
Speaker 1: people that have three million and super But have you
Speaker 1: a sense of why the tax is so controversial, what
Speaker 1: your clients think it's.
Speaker 4: I think the legislation came out in recent weeks and
Speaker 4: I haven't. I haven't read it, and I haven't read
Speaker 4: enough about it to make to do it. But the
Speaker 4: reason that there was a lot of consternation about it was, well,
Speaker 4: how exactly is this going to work? You know, is
Speaker 4: a tax only on income of capital above three million
Speaker 4: dollars or that you're going to be paying the thirty
Speaker 4: percent on?
Speaker 3: Exactly?
Speaker 4: How was this going to be done? And the usual
Speaker 4: way of writing new laws and bills is to put
Speaker 4: something out there, go back to industry to find out
Speaker 4: what they think about it, poke holes in it, et cetera.
Speaker 4: And you know, I think that's sort of that will
Speaker 4: continue to happen on this occasion. I'm not sure exactly
Speaker 4: where it's gone. But the reason, yeah, there was so
Speaker 4: much consternation is that it was sort of an announcement
Speaker 4: of this new extra fifteen percent tax going from fifteen
Speaker 4: and thirty percent above three million dollars, but the rules
Speaker 4: were sort of, yeah, we'll fige out the rules later.
Speaker 2: You know, the rules. And what they're.
Speaker 1: Enraged people was the notion that unlike other taxes all
Speaker 1: across the system, even inside super this one would be
Speaker 1: on what they called paper profits, on on realized games. Yeah,
Speaker 1: and if you have unrealized losses, you don't get them back.
Speaker 1: It carries forward like like CGT and I think that's
Speaker 1: but it looks like it's coming down the line.
Speaker 2: It looks to me like nothing's going to stop it.
Speaker 3: I don't I don't think so.
Speaker 4: No, they'll find a way of making it work. They
Speaker 4: generally do, so, Yeah, it's not it's not something that
Speaker 4: is likely to be stopped. The history of super innovation
Speaker 4: and rule changes and law changes over the years is
Speaker 4: you know, something that I've covered.
Speaker 3: At nauseam in various ways over over a long period
Speaker 3: of time. But they're constantly juggling around a little bit
Speaker 3: in order to try to make it fairer. And you know,
Speaker 3: when this particular rule came out.
Speaker 4: Was announced that they're going to be moving towards it,
Speaker 4: it's probably only impacting one or two percent of the population,
Speaker 4: was I think roughly the number. And even the people
Speaker 4: who were in that situation were you were understanding, Okay,
Speaker 4: well you know, I probably nobody's going to cry for
Speaker 4: me about this.
Speaker 2: So no one's going to march to the streets for you.
Speaker 4: Yeah, no one's going to march the stratos. You sort
Speaker 4: of got to move it and deal deal with it.
Speaker 4: I do remember this, James, back in in another time
Speaker 4: in place when you and I were doing some things together.
Speaker 4: There was when they announced the transfer balance cap at
Speaker 4: one point six billion dollars the time, who had he
Speaker 4: and his wife about thirty million dollars in a.
Speaker 3: Self manage super fun in a pension.
Speaker 4: So they were earning, you know, they had thirty million dollars,
Speaker 4: probably more than that a little bit later on that
Speaker 4: was earning let's say seven to ten percent a year.
Speaker 4: It was sort of, you know, a a very large
Speaker 4: amount of money that they were earning off this two
Speaker 4: to three million dollars a year on which absolutely zero
Speaker 4: tax was being paid, and reduced the transfer balance cap.
Speaker 4: They had to roll back all but one point six
Speaker 4: million each, so three point two million, so about twenty
Speaker 4: seven million that had to go back, and it was
Speaker 4: then taxed to ten or fifteen percent, and that so
Speaker 4: that that two to three million roughly that they were earning,
Speaker 4: they were going to start paying ten or fifteen cent.
Speaker 4: I had a chat chats with him about it at
Speaker 4: the time, and it was just sort of, you know, look,
Speaker 4: we had a pretty good run there for for a
Speaker 4: long time. We paid no tax on a very Chancela said,
Speaker 4: And I think I think ultimately most of the people
Speaker 4: who were in that band of having more than three
Speaker 4: million dollars, which can be six million for a couple,
Speaker 4: it's three million dollars each for a couple of Super time,
Speaker 4: I sort of understand that, Yeah, okay, well there's there's We.
Speaker 3: Probably had a pretty good run for a pretty good
Speaker 3: period of time.
Speaker 4: And I don't see many people sort of mining heavily
Speaker 4: about us.
Speaker 1: Yes they are, it's interesting, you say, and it's it's
Speaker 1: actually what I've poked a lots of top advisers about this,
Speaker 1: and they generally say what you're saying, Bruce, that that
Speaker 1: people who are lucky enough to have that level of money,
Speaker 1: and remember for a couple of effectively, once you're over
Speaker 1: six million and super, that's when when the new tax
Speaker 1: comes in. But what they say is, we knew there
Speaker 1: was every chance that taxes have drives on Super. We
Speaker 1: just didn't know that we're going to do it on
Speaker 1: on realize games, on paper games, which does you know
Speaker 1: you could really be caught very very badly if you were,
Speaker 1: especially if you're.
Speaker 2: An earnest investor in startups and all that sort of thing, and.
Speaker 1: You certainly you know you don't have them, you don't
Speaker 1: have the mind that you have in your pocket, but
Speaker 1: you're paying tax on it before you get it. That
Speaker 1: you can see how that would actually plain people on that.
Speaker 1: I think is the residual argument and is not over yet.
Speaker 2: Okay, terrific, Bruce Pick you very much, great to have
Speaker 2: your honors.
Speaker 1: Thanks Chimes, And that was Bruce Brammell of course of
Speaker 1: Bruce Brammel Financial h and he is an advisor regularly
Speaker 1: on the show and contribuser as well to the finance pages.
Speaker 1: All right, folks, thank you, and let's have some more questions,
Speaker 1: you know, the email and money puzzle at the Australian
Speaker 1: dot com dot au.
Speaker 2: Talk to you very soon.