1 00:00:03,870 --> 00:00:06,720 Sean Aylmer: Welcome to the Fear & Greed Daily Interview. I'm Sean Aylmer. 2 00:00:06,960 --> 00:00:09,990 Sean Aylmer: The residential property market has been a hard one to predict. 3 00:00:10,289 --> 00:00:13,199 Sean Aylmer: After soaring during the pandemic, we've seen a correction over 4 00:00:13,200 --> 00:00:15,450 Sean Aylmer: the last 12 months or so, or a little less, 5 00:00:15,660 --> 00:00:17,999 Sean Aylmer: as interest rates rise, but the dip seems to have 6 00:00:18,000 --> 00:00:21,750 Sean Aylmer: bottomed out with capital cities climbing again. Instead of focusing 7 00:00:21,750 --> 00:00:24,150 Sean Aylmer: too much on where we've come from, I wanted to 8 00:00:24,150 --> 00:00:27,150 Sean Aylmer: get an idea of where we're going. In particular, the 9 00:00:27,150 --> 00:00:30,570 Sean Aylmer: impact of population growth with migration booming. What's this mean 10 00:00:30,570 --> 00:00:33,420 Sean Aylmer: for property prices, for investors, and for the types of 11 00:00:33,420 --> 00:00:37,019 Sean Aylmer: properties we are living in? CBRE is the global leader 12 00:00:37,020 --> 00:00:40,409 Sean Aylmer: in commercial real estate services and investment, and also a 13 00:00:40,409 --> 00:00:43,199 Sean Aylmer: supporter of this podcast. Sameer Chopra is the Head of 14 00:00:43,200 --> 00:00:46,380 Sean Aylmer: Research at CBRE. Sameer, welcome to Fear & Greed. 15 00:00:46,830 --> 00:00:48,119 Sameer Chopra: Thanks, Sean. Hope you're well. 16 00:00:48,900 --> 00:00:51,598 Sean Aylmer: Let's start with the big one up front. What's going 17 00:00:51,598 --> 00:00:55,380 Sean Aylmer: to happen to property prices, particularly house prices? 18 00:00:55,950 --> 00:00:58,920 Sameer Chopra: Yeah. Look, Sean, what I'd say is we've got this 19 00:00:58,920 --> 00:01:03,839 Sameer Chopra: very big supply- demand mismatch in Australia, and it's also 20 00:01:03,840 --> 00:01:07,049 Sameer Chopra: a global issue, and you've got interest rates rising on 21 00:01:07,049 --> 00:01:11,609 Sameer Chopra: the other side, but the fundamentals right now just absolutely 22 00:01:11,609 --> 00:01:15,270 Sameer Chopra: trump what's going on in interest rates, just the chronic 23 00:01:15,270 --> 00:01:21,360 Sameer Chopra: shortage that's happening. We're also seeing rents accelerate, and in 24 00:01:21,360 --> 00:01:25,170 Sameer Chopra: my opinion, rents will remain elevated and will keep growing 25 00:01:25,950 --> 00:01:31,560 Sameer Chopra: over the next few months, quarters, and years. And in 26 00:01:31,560 --> 00:01:34,620 Sameer Chopra: fact, high interest rates are actually pushing downward pressure on 27 00:01:34,620 --> 00:01:36,630 Sameer Chopra: supply. There's going to be less supply coming to the 28 00:01:36,630 --> 00:01:41,849 Sameer Chopra: market than what many have expected. So, I'm pretty optimistic, 29 00:01:41,849 --> 00:01:46,289 Sameer Chopra: but I think what I'd say is, certain suburbs and 30 00:01:46,289 --> 00:01:51,510 Sameer Chopra: certain precincts will absolutely outperform and others will be more 31 00:01:51,570 --> 00:01:54,660 Sameer Chopra: modest in their growth. And so, it's important for people 32 00:01:54,660 --> 00:01:58,530 Sameer Chopra: to really dive down and get really, really granular on 33 00:01:58,770 --> 00:02:00,120 Sameer Chopra: where's the best opportunities. 34 00:02:00,719 --> 00:02:02,969 Sean Aylmer: Okay. Well, I mean, we'll jump into that, but just 35 00:02:02,969 --> 00:02:07,290 Sean Aylmer: before that, you said something there fairly clearly, supply- demand 36 00:02:07,290 --> 00:02:11,579 Sean Aylmer: will trump interest rates. Well, supply and demand are trumping interest 37 00:02:11,580 --> 00:02:12,330 Sean Aylmer: rates right now. 38 00:02:13,050 --> 00:02:16,590 Sameer Chopra: Yeah. Look, supply and demand are trumping interest rates, and it's 39 00:02:16,590 --> 00:02:18,090 Sameer Chopra: going to be in our view for the last six 40 00:02:18,090 --> 00:02:24,600 Sameer Chopra: months that this is going to eventuate because yes, cost 41 00:02:24,600 --> 00:02:28,290 Sameer Chopra: of borrowing has increased, but at the same time, most 42 00:02:28,290 --> 00:02:32,490 Sameer Chopra: buyers come into property with existing equity on hand kind 43 00:02:32,490 --> 00:02:35,099 Sameer Chopra: of thing. So, they're not facing the full brunt of 44 00:02:35,099 --> 00:02:40,020 Sameer Chopra: interest rate increases. And at some point, when vacancy in 45 00:02:40,020 --> 00:02:45,570 Sameer Chopra: markets drops below one- and- a- half per cent, values and 46 00:02:45,570 --> 00:02:49,650 Sameer Chopra: rents start to increase at an accelerated pace. So, if 47 00:02:49,650 --> 00:02:51,599 Sameer Chopra: there was a lot of vacancy in the market, if there 48 00:02:51,599 --> 00:02:55,139 Sameer Chopra: was like five, 6% vacancy, then yes, interest rates would trump. 49 00:02:55,710 --> 00:02:57,659 Sameer Chopra: But when you drop below one- and- a- half percent, 50 00:02:58,350 --> 00:03:02,160 Sameer Chopra: the fundamentals really start to kick in. And then, if 51 00:03:02,160 --> 00:03:07,710 Sameer Chopra: vacancy drops below half a percent, then absolutely fundamentals become red- hot. 52 00:03:08,250 --> 00:03:11,490 Sameer Chopra: And that's where we're headed, I think that's where we're headed. 53 00:03:11,610 --> 00:03:15,298 Sameer Chopra: Vacancy's going to continue to plummet from current levels. 54 00:03:16,020 --> 00:03:19,048 Sean Aylmer: So, just before we get into the more granular information, 55 00:03:19,050 --> 00:03:21,450 Sean Aylmer: is this a migration story? Is that why that's going 56 00:03:21,450 --> 00:03:21,870 Sean Aylmer: to happen? 57 00:03:22,800 --> 00:03:29,730 Sameer Chopra: Yeah. Look, Australia's slated to have 975,000 people coming to 58 00:03:29,730 --> 00:03:34,380 Sameer Chopra: our shores in the three- year period to 2024. And 59 00:03:34,830 --> 00:03:41,100 Sameer Chopra: Australia's population growth will be about 14% in this decade. 60 00:03:41,100 --> 00:03:44,820 Sameer Chopra: That is the highest population growth of any major economy 61 00:03:44,820 --> 00:03:48,779 Sameer Chopra: in the world. And the way to visualise this for 62 00:03:48,780 --> 00:03:52,499 Sameer Chopra: the audience that's Sydney based, I'd say we need to 63 00:03:52,500 --> 00:03:56,010 Sameer Chopra: create a whole new Eastern Suburbs by the end of 64 00:03:56,010 --> 00:03:58,650 Sameer Chopra: this decade. You need to create a whole new Eastern 65 00:03:58,650 --> 00:04:00,241 Sameer Chopra: Suburbs by the end of this decade. 66 00:04:00,241 --> 00:04:00,242 Sean Aylmer: Wow. 67 00:04:00,242 --> 00:04:04,080 Sameer Chopra: That's the volume of population growth that is going to 68 00:04:04,080 --> 00:04:07,290 Sameer Chopra: happen in Australia. And the more people you add into 69 00:04:07,290 --> 00:04:12,390 Sameer Chopra: the mix, the more stock you need. In Australia alone, 70 00:04:13,020 --> 00:04:21,089 Sameer Chopra: we need 408,000 homes by 2025, and we do not 71 00:04:21,089 --> 00:04:26,428 Sameer Chopra: have 408,000 homes being prepared by 2025. So, population growth is 72 00:04:26,428 --> 00:04:29,669 Sameer Chopra: absolutely super important and immigration's fueling it. 73 00:04:30,420 --> 00:04:33,120 Sean Aylmer: Okay. So, let's break it down a bit. Units versus 74 00:04:33,120 --> 00:04:36,419 Sean Aylmer: houses, what's the outlook for the two sides? And then 75 00:04:36,420 --> 00:04:38,760 Sean Aylmer: after that we might go metro versus regional. 76 00:04:39,750 --> 00:04:43,319 Sameer Chopra: Yeah. Look, I'd start off by saying, when the population 77 00:04:43,320 --> 00:04:48,450 Sameer Chopra: growth is largely driven by migrants, most of the demand 78 00:04:48,510 --> 00:04:51,480 Sameer Chopra: tends to be for units because people come in, they 79 00:04:51,480 --> 00:04:54,570 Sameer Chopra: land in our major metros ... By the way, Sydney gets 80 00:04:54,570 --> 00:04:59,670 Sameer Chopra: about 35% of inbound migration. Melbourne gets about 30%. So, 81 00:04:59,670 --> 00:05:02,279 Sameer Chopra: these two cities will feel it and they'll feel it 82 00:05:02,279 --> 00:05:05,099 Sameer Chopra: in the apartment market because when migrants first come in, 83 00:05:05,760 --> 00:05:09,450 Sameer Chopra: they want to move into an apartment. They normally stay 84 00:05:09,450 --> 00:05:12,420 Sameer Chopra: in the same place for about three years before they 85 00:05:12,420 --> 00:05:14,820 Sameer Chopra: figure out what they want to do in the next 86 00:05:14,820 --> 00:05:17,368 Sameer Chopra: phase of their life. Most of them tend to rent 87 00:05:17,370 --> 00:05:21,719 Sameer Chopra: as well, by the way. So, apartment rentals, particularly in 88 00:05:21,719 --> 00:05:25,680 Sameer Chopra: the inner areas, will do really, really well. Not just 89 00:05:25,680 --> 00:05:29,490 Sameer Chopra: migration, but you've also got more students who are now 90 00:05:29,490 --> 00:05:32,370 Sameer Chopra: going to be living in Australia, not just studying online. 91 00:05:32,910 --> 00:05:36,839 Sameer Chopra: And then, you've got this whole Airbnb market as well. 92 00:05:37,320 --> 00:05:41,159 Sameer Chopra: Collectively, they're all going to put pressure on the apartment 93 00:05:41,160 --> 00:05:43,620 Sameer Chopra: market and it's all going to be in the inner 94 00:05:43,710 --> 00:05:48,089 Sameer Chopra: areas of the major metros with Sydney and Melbourne feeling 95 00:05:48,089 --> 00:05:50,550 Sameer Chopra: the brunt of it, and then Perth and Brisbane as well. 96 00:05:51,120 --> 00:05:53,159 Sean Aylmer: Stay with me, Sameer, we'll be back in a minute. 97 00:05:59,250 --> 00:06:02,219 Sean Aylmer: I'm speaking to Sameer Chopra, Head of Research at CBRE. 98 00:06:03,900 --> 00:06:07,530 Sean Aylmer: Does it flow out to the middle circle of those cities? 99 00:06:08,279 --> 00:06:11,040 Sean Aylmer: Do the regions get much of an impact? I mean, 100 00:06:11,040 --> 00:06:14,549 Sean Aylmer: I suppose some of the major regional centers with universities 101 00:06:14,549 --> 00:06:16,710 Sean Aylmer: and that, may get a boost. 102 00:06:17,430 --> 00:06:22,440 Sameer Chopra: Yeah, Sean, they absolutely will, because there'll be some Australian 103 00:06:22,529 --> 00:06:25,380 Sameer Chopra: citizens that'll migrate out sort of thing. So, we get 104 00:06:25,380 --> 00:06:29,998 Sameer Chopra: this net migration from the southern states up to Queensland, 105 00:06:30,420 --> 00:06:34,020 Sameer Chopra: for example. So, population does spread out over time. But 106 00:06:34,020 --> 00:06:36,060 Sameer Chopra: what we find is when there's a shock to the 107 00:06:36,120 --> 00:06:40,950 Sameer Chopra: system and the shock is being felt in inner city 108 00:06:40,950 --> 00:06:46,410 Sameer Chopra: areas, that those areas the rent growth is at two 109 00:06:46,410 --> 00:06:49,500 Sameer Chopra: times the level of the rent growth in the outer 110 00:06:49,500 --> 00:06:54,149 Sameer Chopra: areas. So, everyone benefits. Rising tide will float all the 111 00:06:54,180 --> 00:06:56,610 Sameer Chopra: boats, but some of them are going to be on 112 00:06:56,610 --> 00:07:00,840 Sameer Chopra: a tidal wave. And we find it's almost two times 113 00:07:00,900 --> 00:07:03,779 Sameer Chopra: faster rent growth in the inner city areas. And you 114 00:07:03,779 --> 00:07:07,230 Sameer Chopra: can see that, right? In the CBDs right now, rent 115 00:07:07,230 --> 00:07:09,660 Sameer Chopra: growth in the last 12 months has been about 20%. 116 00:07:10,230 --> 00:07:12,900 Sameer Chopra: And if you get away from the inner city area, 117 00:07:13,320 --> 00:07:16,230 Sameer Chopra: rent growth has been more modest, like six to 10% 118 00:07:16,230 --> 00:07:19,410 Sameer Chopra: range. And we think that'll persist because we're still in 119 00:07:19,410 --> 00:07:23,250 Sameer Chopra: that shock phase. So, we think this will persist for 120 00:07:23,250 --> 00:07:28,109 Sameer Chopra: the next 24 months as a minimum, where things continue 121 00:07:28,109 --> 00:07:28,770 Sameer Chopra: to get tighter. 122 00:07:29,400 --> 00:07:32,340 Sean Aylmer: Do we need to rethink the way we do housing 123 00:07:32,340 --> 00:07:35,429 Sean Aylmer: in our cities? What you are talking about ... I mean, 124 00:07:35,430 --> 00:07:38,550 Sean Aylmer: two years I suppose is a short timeframe in the 125 00:07:38,550 --> 00:07:42,360 Sean Aylmer: construction sector, but still, if we're going to get this 126 00:07:42,360 --> 00:07:45,749 Sean Aylmer: migration flows and people are looking for apartments and that, do 127 00:07:45,750 --> 00:07:47,340 Sean Aylmer: we need more higher density living? 128 00:07:48,720 --> 00:07:51,600 Sameer Chopra: We do need more high density living. I also think 129 00:07:51,600 --> 00:07:56,220 Sameer Chopra: there's a strong case for bigger apartments, because more people 130 00:07:56,220 --> 00:07:58,860 Sameer Chopra: are going to need to contribute towards the rent. So, 131 00:07:59,130 --> 00:08:02,370 Sameer Chopra: the rent for an apartment, couples will need to contribute 132 00:08:02,370 --> 00:08:04,379 Sameer Chopra: to it, and maybe two couples who are sharing an 133 00:08:04,379 --> 00:08:07,740 Sameer Chopra: apartment need to contribute to make the rent more affordable 134 00:08:08,160 --> 00:08:11,940 Sameer Chopra: and palatable. But just to give you a sense around, 135 00:08:12,600 --> 00:08:16,890 Sameer Chopra: where's this growth? Remember I was saying Australia population growth, 14%? 136 00:08:18,090 --> 00:08:23,190 Sameer Chopra: Sydney CBD and Parramatta and the Hills District, we think 137 00:08:23,190 --> 00:08:26,460 Sameer Chopra: will grow at two times the rate of Sutherland Shire 138 00:08:26,550 --> 00:08:31,290 Sameer Chopra: and Eastern Suburbs. Melbourne City and Southwest Melbourne, Southwest Melbourne's 139 00:08:31,290 --> 00:08:35,458 Sameer Chopra: really interesting. We think Southwest Melbourne will grow at two 140 00:08:35,460 --> 00:08:40,170 Sameer Chopra: times the pace of Eastern Suburbs in Melbourne. And in Brisbane, 141 00:08:40,170 --> 00:08:44,850 Sameer Chopra: it's pretty spread out. But again, in Brisbane CBD and inner Brisbane, 142 00:08:44,850 --> 00:08:48,330 Sameer Chopra: and even Southeast Brisbane, will grow at double the rate 143 00:08:48,330 --> 00:08:50,820 Sameer Chopra: of West Brisbane. So, this is what I mean is, 144 00:08:51,059 --> 00:08:54,870 Sameer Chopra: you need more apartments in the right places. And the 145 00:08:54,870 --> 00:08:58,619 Sameer Chopra: right places is typically near the CBD. And then, there's 146 00:08:58,619 --> 00:09:02,130 Sameer Chopra: some pockets like in Brisbane, you can go Southeast, in Melbourne, 147 00:09:02,400 --> 00:09:05,640 Sameer Chopra: we would say go Southwest as well, because you've got 148 00:09:05,640 --> 00:09:10,260 Sameer Chopra: good opportunities in that market. Canberra is very clustered around 149 00:09:10,260 --> 00:09:17,790 Sameer Chopra: the city. inner North Shore and inner South Canberra. That's where the growth is in the ACT. 150 00:09:19,559 --> 00:09:21,480 Sean Aylmer: Is there much of a role for government in all 151 00:09:21,480 --> 00:09:24,330 Sean Aylmer: this? Obviously, we have a debate going on at the 152 00:09:24,330 --> 00:09:27,179 Sean Aylmer: moment between the government where the greens are heavily involved 153 00:09:27,540 --> 00:09:30,509 Sean Aylmer: in terms of funding public housing, but this is much 154 00:09:30,509 --> 00:09:34,588 Sean Aylmer: more than public housing. What role should the government play? 155 00:09:35,910 --> 00:09:39,540 Sameer Chopra: I think the government's role in this to help fast 156 00:09:39,540 --> 00:09:43,800 Sameer Chopra: track some of these projects where they make sense, particularly 157 00:09:44,190 --> 00:09:47,070 Sameer Chopra: close to transport networks, because the government wants to sweat 158 00:09:47,070 --> 00:09:51,120 Sameer Chopra: the infrastructure as well, and that's sensible. So, we should 159 00:09:51,509 --> 00:09:56,070 Sameer Chopra: fast track projects where necessary that are close to infrastructure 160 00:09:56,070 --> 00:10:00,569 Sameer Chopra: and transport hubs. The other place where government can play 161 00:10:00,570 --> 00:10:05,340 Sameer Chopra: a role is, financing is becoming really challenging right now 162 00:10:05,340 --> 00:10:08,460 Sameer Chopra: with the recent rate hikes that we've had, is how 163 00:10:08,460 --> 00:10:13,500 Sameer Chopra: do we ensure that financing is available for projects? And 164 00:10:13,500 --> 00:10:19,020 Sameer Chopra: then the third part of this is, construction materials are super 165 00:10:19,020 --> 00:10:21,210 Sameer Chopra: expensive right now. The cost of construction has gone up 166 00:10:21,210 --> 00:10:27,450 Sameer Chopra: by 25 to 30%. Labour is inflating at almost 20%, not quite, 167 00:10:27,450 --> 00:10:32,670 Sameer Chopra: but close to 20%, right now in some areas of construction. So, 168 00:10:32,790 --> 00:10:35,309 Sameer Chopra: I think the role that government can play is, "How 169 00:10:35,309 --> 00:10:39,149 Sameer Chopra: can we help lubricate this part of the supply chain 170 00:10:39,150 --> 00:10:42,420 Sameer Chopra: to make sure that there's still affordable housing? Or, you 171 00:10:42,420 --> 00:10:45,299 Sameer Chopra: don't need to get massive, massive rent growth to try 172 00:10:45,299 --> 00:10:47,460 Sameer Chopra: and justify projects." I think that's the role of government. 173 00:10:48,660 --> 00:10:50,338 Sean Aylmer: I dare say, Sameer, we're going to be talking about 174 00:10:50,339 --> 00:10:53,640 Sean Aylmer: housing for the next couple of years really, no matter what. 175 00:10:54,090 --> 00:10:58,019 Sameer Chopra: Yeah. Look, and there'll be different ways of playing this. 176 00:10:58,530 --> 00:11:01,319 Sameer Chopra: Affordability is one of these issues, Sean. And if you 177 00:11:01,319 --> 00:11:05,849 Sameer Chopra: look at '22, so last year, there was only two pockets 178 00:11:05,850 --> 00:11:09,630 Sameer Chopra: of Australia where a two- bedroom apartment was $ 750 a week, 179 00:11:10,020 --> 00:11:13,500 Sameer Chopra: and that was Sydney CBD and the lower North Shore 180 00:11:13,740 --> 00:11:19,348 Sameer Chopra: of Sydney. And if you scroll out to 2026, I 181 00:11:19,349 --> 00:11:22,679 Sameer Chopra: have Sydney CBD, we have Eastern Suburbs, inner West, lower 182 00:11:22,679 --> 00:11:27,060 Sameer Chopra: North Shore, the northern beaches, St. George, upper North Shore, 183 00:11:27,150 --> 00:11:30,900 Sameer Chopra: all with median rents that are above $750. And then 184 00:11:30,900 --> 00:11:35,490 Sameer Chopra: Melbourne CBD, Brisbane CBD, inner Brisbane, there'll be a large 185 00:11:35,490 --> 00:11:40,410 Sameer Chopra: pocket of Australia where the average two bedroom unit is 186 00:11:40,410 --> 00:11:43,410 Sameer Chopra: going to be over $750 a week. This is not 187 00:11:43,410 --> 00:11:46,170 Sameer Chopra: an Aussie issue, by the way. This is a global issue. 188 00:11:46,440 --> 00:11:49,199 Sameer Chopra: We face similar things and we see the same things 189 00:11:49,559 --> 00:11:52,348 Sameer Chopra: in Berlin, we see it in London, we see it 190 00:11:52,349 --> 00:11:56,130 Sameer Chopra: in Singapore, we see it in Toronto. People want to 191 00:11:56,130 --> 00:12:00,270 Sameer Chopra: live in these wonderful cities and we've had this inward 192 00:12:00,300 --> 00:12:03,720 Sameer Chopra: migration into these cities everywhere in the world, and there 193 00:12:03,720 --> 00:12:07,440 Sameer Chopra: hasn't been enough stock built in the last 20 years. So, 194 00:12:07,590 --> 00:12:09,660 Sameer Chopra: it is definitely an issue in Australia, but it's also 195 00:12:09,660 --> 00:12:12,929 Sameer Chopra: an issue in many, many, many markets around the world. 196 00:12:12,929 --> 00:12:17,639 Sameer Chopra: We're seeing 20% type rent growths in many markets outside 197 00:12:17,639 --> 00:12:18,149 Sameer Chopra: of Australia. 198 00:12:18,870 --> 00:12:20,790 Sean Aylmer: Sameer, thank you for talking to Fear & Greed. 199 00:12:21,210 --> 00:12:22,110 Sameer Chopra: Thanks, Sean. Take care. 200 00:12:23,100 --> 00:12:26,458 Sean Aylmer: That was Sameer Chopra, Head of Research at CBRE. This 201 00:12:26,460 --> 00:12:28,738 Sean Aylmer: is the Fear & Greed Daily Interview. Remember, you should get 202 00:12:28,740 --> 00:12:32,400 Sean Aylmer: professional advice before making any investment decisions. Join us every 203 00:12:32,400 --> 00:12:34,649 Sean Aylmer: morning for the full episode of Fear & Greed, Australia's most 204 00:12:34,650 --> 00:12:37,770 Sean Aylmer: popular business podcast. I'm Sean Aylmer. Enjoy your day.