Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirby, the Wealth editor at the Australian. Welcome aboard everybody.
Speaker 1: I have to tell you that the inbox at our
Speaker 1: email here, the Money Puzzle at the Australian dot com
Speaker 1: dot au has something of an imbalance just now. We
Speaker 1: have a lot of questions on property and we have
Speaker 1: less questions, considerably less questions on the investment markets, which
Speaker 1: I find intriguing, I have to say, because I would
Speaker 1: have thought the investment markets were a little bit more
Speaker 1: complicated than property. But it's the property people who have
Speaker 1: been rolling in. So I feel compelled. Really, it being
Speaker 1: a Tuesday show when we have a property focus, I
Speaker 1: feel compelled to do a catch up on this and
Speaker 1: we will devote today's show toquestions from listeners which cover
Speaker 1: all aspects and are quite I've basically selected a handful
Speaker 1: of questions which really represent the sort of questions we're getting,
Speaker 1: and I think you'll find it very interesting to do
Speaker 1: such an exercise. I need someone with me, and I
Speaker 1: have chosen one of our most regular guests on the show,
Speaker 1: who I'm sure you're familiar with. Its Stuart Weams of
Speaker 1: the pro Solution Private Client Group.
Speaker 2: Hi Stuart, how are you?
Speaker 3: I'm really well, James, thanks for having me on.
Speaker 1: I have also had to go as editing these questions because,
Speaker 1: as you can see, some of them are rather lengthy. Look, folks,
Speaker 1: as I always say, keep the questions coming. Love to
Speaker 1: have them. You don't have to tell us your life story.
Speaker 1: If you want to, you can, but I will ed
Speaker 1: us that part of us and I'm going to try
Speaker 1: and zone in on the actual question itself just to
Speaker 1: keep the show rolling. Basically, Okay, well, look, why don't
Speaker 1: we get going? And what I'll do is we'll read
Speaker 1: them more turly. I might kick off with the first one. Interestingly, folks,
Speaker 1: this first question about the forty year mortgage is off
Speaker 1: the back of something I did in The Australian recently,
Speaker 1: which was off the back of a conversation none other
Speaker 1: than Stuart Williams, because he actually said to me a
Speaker 1: few days ago, Listen, you're gonna have a look at this.
Speaker 1: There's a forty year mortgage coming through the system. You've
Speaker 1: always been asking about this and here they are. So
Speaker 1: Andrew's question. Hi, longtime listener fan. The podcast read with
Speaker 1: interest your piece about the forty year mortgage in the Australian.
Speaker 1: I was wondering whether we are entering an era where
Speaker 1: people will not be expected to discharge their mortgages while
Speaker 1: they're working. Rather, they will only increase their equity during
Speaker 1: their working lives and then draw down on it to retire,
Speaker 1: using whatever equity remains until their home is returned almost
Speaker 1: entirely to the institution when they die. Somewhat dystopian, he says,
Speaker 1: but not unrealistic. Oh not onrealistic, Andrew. The figures show
Speaker 1: obviously that the number of people who are retiring with
Speaker 1: a mortgage is going through the roof. And similarly, and
Speaker 1: a kind of a logical link here, the number of
Speaker 1: people who take out a lump sum and use that
Speaker 1: lump sum to pay off the mortgage is increasing too.
Speaker 1: And it's one of the arguments for people say why
Speaker 1: you should be able to use SUPER to.
Speaker 2: Buy a home.
Speaker 1: What is the point of putting it all in SUPER,
Speaker 1: getting to the end of your working life, getting it
Speaker 1: back and putting it into the mortgage that you've for
Speaker 1: the interest rate has been collecting. That's just an argument
Speaker 1: that's out there at the moment. But on the more
Speaker 1: broader topic of this. To be specific, it was Pepper
Speaker 1: Loans that introduced this forty year mortgage. And there's always
Speaker 1: been long term mortgages thirty years or so often offered,
Speaker 1: or thirty five years often offered to doctors and lawyers
Speaker 1: under specialist funds, but not on general release. And I
Speaker 1: think that's what was very interesting. What do you think
Speaker 1: is to your number one? Will we see more of them?
Speaker 1: Number two? What use have there to our listeners? There's
Speaker 1: a forty year mortgage out there.
Speaker 3: I think the main use is really around boring capacity, James,
Speaker 3: rather than necessarily repaying over a forty year term. And
Speaker 3: that's you know, that kind of helps in a way affordability.
Speaker 3: I'm not saying houses become cheaper, but if my boring
Speaker 3: capacity increases and I've got the cash flow to meet it,
Speaker 3: because quite often, in fact, particularly at these interstrate settings,
Speaker 3: what someone is able to borrow in terms of what
Speaker 3: they can afford to borrow is quite often more than
Speaker 3: what the banks will lend them. And the reverses was true,
Speaker 3: you know a few years ago, when interest rates were
Speaker 3: really low and boring capacity was much higher than what
Speaker 3: people should or probably prudently should borrow. So a forty
Speaker 3: year mortgage, particularly when interest rates are at higher settings,
Speaker 3: will extend boring capacity and allow people to borrow more
Speaker 3: if it's safe and prudent for them to do so.
Speaker 3: So I think it's a I think it's a trend.
Speaker 3: We're working longer, we're living longer. And you know, it
Speaker 3: wasn't maybe less than two decades ago, the average mortgage
Speaker 3: term was twenty five years, and so you know, I
Speaker 3: think it will just trend upwards naturally, and I think
Speaker 3: thirty five for the banks will probably be the next stop.
Speaker 3: I think we're going to get there. But I like
Speaker 3: Andrew's observation, and I share Andrew's observation to some degree.
Speaker 3: Whereas you think back a few decades, it was, you know,
Speaker 3: going buy a home, work really hard to pay off
Speaker 3: the mortgage, and you'll probably live there for fifty or
Speaker 3: so years, where these days, I think people tend to
Speaker 3: be a bit more aspirational and understand that we're going
Speaker 3: to buy this home, then I'm going to upgrade, and
Speaker 3: m I upgrade a couple of times during my lifetime
Speaker 3: to league until I get to the location and type
Speaker 3: of property that I really want to occupy. And I
Speaker 3: think then the extension that James is a downsize strategy,
Speaker 3: which I think has a lot of merit. A down
Speaker 3: sized strategy includes going and buying a family home in
Speaker 3: a location that you make friends with, probably that you're
Speaker 3: not going to ever repay the mortgage down to zero.
Speaker 3: You occupy that location when you have children that are
Speaker 3: going to school and you want close proximity, work all
Speaker 3: those sorts of things, and then you sell that asset
Speaker 3: probably when the kids move out a home, reduce your debt,
Speaker 3: repay all your debt, go live somewhere else. And I
Speaker 3: like it because it forces you to buy a high
Speaker 3: quality asset. You're not going to pay any capital gains
Speaker 3: tax on the growth over that asset. And to some degree,
Speaker 3: it's a force savings mechanism.
Speaker 1: Right at its best when the people are using it
Speaker 1: sharply and smartly. Is there a logical end point here?
Speaker 1: Is there a point of which it gets ludicrous? I mean,
Speaker 1: if I'm thirty and I sign up for a forty
Speaker 1: year mortgage, I mean, I'll be seventy when I in theory.
Speaker 1: When I clear it, you're saying you're thinking about the
Speaker 1: wrong way. You're saying you're not going to clear this,
Speaker 1: You're certainly not going to pay it down in this
Speaker 1: sort of gradual way for forty years. That is not
Speaker 1: That is not how to optimize these purposes. Is that
Speaker 1: what you're saying?
Speaker 3: Oh yeah, I'm seeing more people, a greater number of
Speaker 3: people thinking along those lines that, aka, I want to
Speaker 3: go and buy in this blue chip suburb. The house
Speaker 3: is going to cost me a lot. You know, if
Speaker 3: all I did is put every cent towards repaying the mortgage,
Speaker 3: maybe I'm going to get there. But I know I
Speaker 3: want to invest in super and invest in other assets,
Speaker 3: and I know I'm not going to need this big
Speaker 3: family home. You know, when I retire, I don't need
Speaker 3: to be in that location anymore. And there's significant lifestyle
Speaker 3: benefits to you know, living in a prime location that
Speaker 3: is close to work, in school, and then it is
Speaker 3: all these sorts of things. I just think that more
Speaker 3: people are going to be attracted to that, and the
Speaker 3: idea that I'm going to go and buy a home,
Speaker 3: repay the mortgage, and live there for the next fifty years.
Speaker 3: I think that sort of situation's gone doesn't happen as
Speaker 3: much anymore.
Speaker 1: I suppose plain Devil's that's because here the danger is
Speaker 1: that someone says, oh, you know, we're struggling. We never received,
Speaker 1: as someone says, we never save, we're struggling to pay
Speaker 1: our mortgage because gosh, you know there's three cars out
Speaker 1: there that'll cost to bomb and whatever. The holiday homes
Speaker 1: needs a new dream pipe for something. And then they
Speaker 1: find out, oh, you know what, you could just push
Speaker 1: your mortgage out. You could just you know, it was
Speaker 1: supposed to be thirty years, but we can push it
Speaker 1: out of forty. And it's the classic kicking the can
Speaker 1: down the road. Is that the danger here that people
Speaker 1: will play it that way.
Speaker 3: You need to have a strategy, and you need to
Speaker 3: make friends with the worst outcome of that strategy and
Speaker 3: the worst outcome of a downsize the strategy is that
Speaker 3: you have to sell the house when you don't really
Speaker 3: want to, and you have to move to a different
Speaker 3: area if you and you might not really want to
Speaker 3: at that particular time. But if you can make friends
Speaker 3: with that, if you can say, we might be forced
Speaker 3: to sell when we're sixty or sixty five, and we
Speaker 3: would like to reduce our working hours or retire in full,
Speaker 3: and we realize we might have to go into a
Speaker 3: regional area or regional town, but that might be the
Speaker 3: consequence of our desire to sort of live in this
Speaker 3: location while the kids are younger or young I think,
Speaker 3: just make friends with those outcomes and if you can,
Speaker 3: if that's acceptable, if that's an acceptable outcome to you
Speaker 3: and you're willing to make that sacrifice, then great. But
Speaker 3: I think the people get into trouble when they don't
Speaker 3: make friends with that oka and then so then they
Speaker 3: try and force a result that might not be there.
Speaker 2: So if there's a.
Speaker 3: Change in income, change in situation, you have to sell
Speaker 3: before you need to. That's a consequence of this strategy.
Speaker 3: You just need to make friends with it, be rational
Speaker 3: about it.
Speaker 1: Irrationally yeah yeah, and have it as a strategy rather
Speaker 1: than a channel through which you can sort of kick
Speaker 1: obligations and further away. Not that the banks will complain
Speaker 1: about that, but you might find it a problem. Okay,
Speaker 1: very interesting, none of us. This, of course, my friends,
Speaker 1: is advice. It's information only. But thank you Andrew and
Speaker 1: all the Andrews out there. I hope that that was
Speaker 1: useful to you. The next question, which I'll get sure read,
Speaker 1: is about digital and this is really interesting folks. Now,
Speaker 1: this is where property and the share markets are crossover
Speaker 1: or fuse.
Speaker 2: If you like.
Speaker 1: And we don't cover this as much as i'd like to,
Speaker 1: but property listed property in the shape of property trusts
Speaker 1: or what they are now called as RITZ or the
Speaker 1: its is a very interesting area. It's a way that
Speaker 1: you can invest in property, particularly property you might never
Speaker 1: have invested in. I mean, you aren't likely to buy
Speaker 1: an office block. Maybe you will, but it's unlikely. I
Speaker 1: imagine if you're a listener. Similarly, you're probably not going
Speaker 1: to buy a data center. So maybe we'll have the
Speaker 1: question from George Steuart.
Speaker 3: Yeah, absolutely so, George writes. A newly established data center
Speaker 3: Digco is set to float on the AX on the
Speaker 3: twelfth of December twenty twenty four with a capital raising
Speaker 3: of two billion dollars. Its builders one of the biggest
Speaker 3: floats in years given its anticipated market cap based on
Speaker 3: a five to five dollars share price, The company is
Speaker 3: expected to be included in the AX two hundred d nexts.
Speaker 3: The majority of issued shares will be to retail shareholders,
Speaker 3: with an allocation to institutions. Having already closed over subscribed
Speaker 3: on the basis there should be additional demand from funds
Speaker 3: and ETFs index funds that replicate the ASX two hundred index.
Speaker 3: Given this, do you think Digiico will perform similarly to
Speaker 3: other large floats such as Guzman and Gomez. Guzman share
Speaker 3: price peaked at forty two dollars, up ninety percent from
Speaker 3: its twenty twenty two dollars share price offer, only days
Speaker 3: after it was announced that Guzman would be included in
Speaker 3: the AX two hundred index.
Speaker 1: Yes, very interesting to George, All very interesting. Okay, a
Speaker 1: few things there before we get into some details. It
Speaker 1: probably doesn't make much sense to compare Gosvindi Goelmez to
Speaker 1: a property trust like this property trust which is going
Speaker 1: to be the biggest flirt of the year, happening on Thursday,
Speaker 1: the tirth of December, and not far away. Guzmini Gomez
Speaker 1: is a peculiar stock. It seems to be a perfectly
Speaker 1: fine business. I would almost separate the business from the
Speaker 1: stock which is having a life of its own. And
Speaker 1: keep in mind that there is a very small number
Speaker 1: of what they call free shares out there on Guzmini Gomez,
Speaker 1: and when you have that, this share price can be
Speaker 1: very volatile, and it can run up easier or run
Speaker 1: down easier, and it ran up very easily for that
Speaker 1: stock when it happened. Now utterly separately to that, the
Speaker 1: ate that you mentioned, Digico is very interesting because it
Speaker 1: captures what we've been talking about on the show regularly
Speaker 1: for years, which is data centers, a boom area off
Speaker 1: the back of the explosion of data needs, particularly aligned
Speaker 1: with the creation, if you like, of artificial intelligence on
Speaker 1: a mass scale. The man behind Digitico is a guy
Speaker 1: called David de Pilla, who I expect will be a
Speaker 1: household name in a year or two if he keeps
Speaker 1: going at the pace he's going. He's a deal maker.
Speaker 1: He was once upon a time, I think with ubs.
Speaker 1: Is now out there on his own, backed by some
Speaker 1: very wealthy families and doing deals on a weekly basis across.
Speaker 2: All sorts of areas.
Speaker 1: But this is one of his This may be his
Speaker 1: signature dealer, one of them, which is what he captured
Speaker 1: the excitement over data centers, got bought a few of them,
Speaker 1: put them in a trust, put the trust up on
Speaker 1: the share market, and it's the biggest float of the year.
Speaker 1: I do expect it will do quite well. So we
Speaker 1: might talk first of all about that idea of getting
Speaker 1: into property Stewart through a trust. Do you see it
Speaker 1: as a completely different Someone comes into you and says,
Speaker 1: I want to buy property. Do they ever end up
Speaker 1: buying a property trust.
Speaker 3: One of the big one of the great things with
Speaker 3: property is in direct property is control. You have control
Speaker 3: over the asset. You have control.
Speaker 1: You can't paint the data center that you buy on
Speaker 1: the share market.
Speaker 2: Yeah, you can improve it.
Speaker 3: You know, you can assess its value. It's intrinsic value.
Speaker 3: And that makes a lot of people comfortable that you know,
Speaker 3: I'm going to pay million dollars for this residential property
Speaker 3: or commercial property, and you know, I'm pretty confident that
Speaker 3: it's worth a million dollars. Whereas with Reads, I mean
Speaker 3: they can trade at premiums or discounts to net tangible assets.
Speaker 3: You you've got to make some assumptions that the net
Speaker 3: tangible asset valuation is reasonable or realistic. And I mean
Speaker 3: you can put a big sort of question mark there
Speaker 3: and in some situations and they behave more like an
Speaker 3: equity than property. So what happens, and we've seen this
Speaker 3: with Reads perfectly over the last couple of years, particularly
Speaker 3: Australian reads, is that they fell a lot earlier than
Speaker 3: actual property valuations. Fel commercial property valuations fail.
Speaker 2: So you're saying they behave like shares more than direct.
Speaker 3: Property because I move on expectations rather than actual fundamentals.
Speaker 3: Now that there's some pros and cons to that, I'd
Speaker 3: like to address if I could, James, I mean one
Speaker 3: of the observations that George shared in terms of India
Speaker 3: and the potential demand coming from indexes. So there's been
Speaker 3: a lot of work around this in terms of what
Speaker 3: they call index premiums.
Speaker 1: We might just say to people just to give them
Speaker 1: a background on this, folks, It's like, if a company
Speaker 1: gets so big that it enters the top two hundred,
Speaker 1: then the theory is start a theory, it's a fact
Speaker 1: all those index funds that are ASX two hundred funds
Speaker 1: must buy the company, whether it doesn't matter whether it's good, bad,
Speaker 1: or hopeless. They must buy it now. So Stuart, you're
Speaker 1: going to tell us about some research around.
Speaker 3: This, Yes, exactly right. And so of course then the
Speaker 3: index providers announce, you know, two to four weeks before
Speaker 3: a company is added to an index that's going to happen.
Speaker 3: So the whole market knows that AKA Vanguard and Beta
Speaker 3: shares and so forth has to go on by this
Speaker 3: by this stock. So the research is that the stock
Speaker 3: appreciates by between three to seven percent sort of three
Speaker 3: weeks or so prior to being added to an index,
Speaker 3: and loss three to seven percent three weeks or so
Speaker 3: after being added to the index. And so the thesis
Speaker 3: is that index index funds are overpaying for these stocks,
Speaker 3: which I guess in isolation is true. Actually, the index
Speaker 3: funds have got really smart around their trading strategies. And
Speaker 3: when BHP consolidated its listing, it was dual listed in
Speaker 3: London and the AX. On the twenty eighth of January,
Speaker 3: it became solely listed on the AX. On that day
Speaker 3: BHP went from six point six of the ASEX two
Speaker 3: hundred index to eleven percent. So essentially the index funds
Speaker 3: had to buy a substantial amount of BHP on that day.
Speaker 3: In fact, on that day over fifteen billion dollars of
Speaker 3: BHP was traded.
Speaker 2: It's huge.
Speaker 3: It's the biggest day, particularly in one stock on the AX.
Speaker 3: But they didn't miss a beat and Vanguard we're all
Speaker 3: over it. We had a conversation about it a few
Speaker 3: weeks ago. So I you know, sometimes people make or
Speaker 3: have share concerns around these index funds are so big,
Speaker 3: you know how much trading are they doing? Do they
Speaker 3: affect the market, all these sorts of things. So I
Speaker 3: don't know. I wouldn't index arbitrage. I don't think I
Speaker 3: would be attracted to going buying this rate just because
Speaker 3: it's going to be included in the ASEX two hundred.
Speaker 3: But you've got to look at the fundamentals.
Speaker 1: Yes, very good but really good question, George, and a
Speaker 1: very interesting area. And of course David de Pillar has
Speaker 1: put those two things together. The excitement around outa centers
Speaker 1: the attraction of property to us at their best, and
Speaker 1: we'd find out just how good an idea it was
Speaker 1: on Thursday when he lists what's the biggest flout of
Speaker 1: the year on the Essex All Right back in the morning. Hello,
Speaker 1: Welcome back to the Australians Money Puzzle Podcast. I'm James Kirby.
Speaker 1: We're talking to Stuart Weems today of the pro Solution
Speaker 1: Private Clients Group, and I have taken the opportunity on
Speaker 1: this show basically to package up a lot of your
Speaker 1: questions because I want to not have many questions in
Speaker 1: the Christmas break. I'm sure you don't like to have
Speaker 1: your questions finished. Like everything else, everybody wants to have
Speaker 1: everything done by Christmas for some reason. Judging by the
Speaker 1: amount of sheer activity on my street this morning, I mean,
Speaker 1: there must have been someone working at every single and
Speaker 1: every single house seems to me except mine.
Speaker 2: Okay, so we have a question from Simone. Now.
Speaker 1: Simone is very much in the nature of the type
Speaker 1: of question a correspondent I mentioned earlier who gave us
Speaker 1: an awful lot of details, but.
Speaker 2: I have narrowed it down.
Speaker 1: Stewart has read the whole thing, which will be useful,
Speaker 1: and I've narrowed it down to her question. And it's
Speaker 1: interesting questions, very specific in some ways, but also it
Speaker 1: would be something that people come upon. Simone says, Hi,
Speaker 1: I've been listening to the podcast since two sixteen, and
Speaker 1: I wonder if I may ask a question. Of course
Speaker 1: you may. You've been listening for eight years. That is
Speaker 1: really something, and thank you, Simone. She says, no one
Speaker 1: has a clear answer for this, and putting me on
Speaker 1: the spot. Here, Stuart, here we go for the purpose
Speaker 1: of centerlink aged pension asset test. Would adding an adult
Speaker 1: child name in joint tendancy to the title of their
Speaker 1: primary place of residence be deemed a gift? Okay, let's
Speaker 1: run through that again for in terms of accessing the pension. Obviously,
Speaker 1: if she was to put an adult on the title
Speaker 1: of her primary place of residence, is that a gift?
Speaker 1: And secondly, would it impact eligibility for a full pension?
Speaker 1: I noticed for a full pension tricky question, but people
Speaker 1: would have often thought about this, I'm sure, and it's
Speaker 1: a way I suppose of defending themselves long term in
Speaker 1: terms of asset security, etc. We are giving advice here
Speaker 1: as to all the Simons in the world. What do
Speaker 1: you think Stuart.
Speaker 3: Well certainly obviously has an asset test to meet age
Speaker 3: pension limits, whether you get a full pension or part pension,
Speaker 3: and those asset limits are different for homeowners versus non homeowners.
Speaker 3: For single people, if you're a homeowner, you can have
Speaker 3: three hundred and fourteen thousand addition to your family home.
Speaker 3: If you're a non homeowner, you can have five hundred
Speaker 3: and sixty six thousand. Because you don't own a home,
Speaker 3: of course, you're going to have a little bit more
Speaker 3: cash in the bank, hopefully. In this situation, simone talks
Speaker 3: about adding a joint tenant onto a title, I'm going
Speaker 3: to assume that there's no she's not intimating that it's
Speaker 3: going to be sold, that that share is going to
Speaker 3: be sold for cash. Because it's sold for cash, then
Speaker 3: it would add to the asset test. There's rules around
Speaker 3: gifting that limits or have an impact on the pinch.
Speaker 3: So if you make a gift, that will be included
Speaker 3: in the asset base for that asset test.
Speaker 2: Is there a threshold on that gift.
Speaker 3: Yeah, ten thousand per year or thirty thousand over five
Speaker 3: years is the maximum you can give without it being
Speaker 3: added to the asset test. And so in this situation,
Speaker 3: if you were to essentially gift part of your home
Speaker 3: to a family member, that would be what's called a
Speaker 3: deprived asset and will be added to the asset test
Speaker 3: and reduce that person's ability potentially to get an age
Speaker 3: pension or.
Speaker 2: Part pension unless the threshold unless.
Speaker 1: They keep a lot of the threat isn't watching the
Speaker 1: value of a house if you'redding.
Speaker 2: It through many years, Yeah, okay.
Speaker 3: Thirty grand over five years, it's not going to keep
Speaker 3: you very far with property prices in Australia. Okay, So
Speaker 3: the planning opportunities if you do it five years before
Speaker 3: you anticipate applying for an age pension. So if you
Speaker 3: could do it at six when you're sixty two and
Speaker 3: then apply for the age pension it at sixty seven. Seen,
Speaker 3: a link can only go back five years, So that
Speaker 3: would be the planning opportunity in this situation. And I
Speaker 3: guess the loophole they're trying to close, of course, is
Speaker 3: that if I've got a family home, I put my
Speaker 3: son on title, he owns fifty percent, and then I
Speaker 3: eventually sell the family home. Of course, he gets fifty
Speaker 3: percent of the proceeds and I therefore only get fifty
Speaker 3: percent of the proceeds and get a chance to remain
Speaker 3: below that asset test cap. So they're obviously trying to
Speaker 3: close that loophole because some I made an observation, well,
Speaker 3: if the assets not included for the asset test because
Speaker 3: it's occupy home, what's the issue here. But I think
Speaker 3: it's just trying to close that loopholes to get around it.
Speaker 3: But I think, like everything James in finance, it's really
Speaker 3: about forward planning as much as you can possibly do
Speaker 3: to try and achieve the best outcomes.
Speaker 1: I hope that isn't frustrating for our listeners. But the
Speaker 1: five year I think about central's really interesting and for
Speaker 1: what it's worth, folks, the rules are the rules, right,
Speaker 1: so onto the change you are entitled to you in
Speaker 1: any way that you can legitimately, all right. I hope
Speaker 1: that was useful. Simone distressed property? Would you read that question?
Speaker 2: Stuart?
Speaker 3: So the next question is from Jack James. Jack writes,
Speaker 3: there are reports of rises in distress property sales. What's
Speaker 3: the definition of distressed property sales?
Speaker 2: Yes, s Q and Research has done this.
Speaker 1: In fact, just like the person our correspondent there, I
Speaker 1: had the same thing. I said, what is distressed property?
Speaker 1: You know, it's not like there's a dictionary definition of it.
Speaker 1: So I actually went back to Lewis who said, there
Speaker 1: is that they use a whole pile of variables to
Speaker 1: define a distressed listing beyond what you might expect. It's
Speaker 1: very obvious if somebody who was bankrupt or facing insolvency,
Speaker 1: if they have a big sign plastered across the house
Speaker 1: saying must sell, that would fall into it disease the
Speaker 1: states obviously must sell as well, so they're all distressed listings.
Speaker 1: He actually encompasses tag words and search words and all
Speaker 1: sorts of issues to get his particular own in house definition,
Speaker 1: which is not a global definition, if you know what
Speaker 1: I mean. But it's certainly good enough, I thought in
Speaker 1: the way he explained it to me, and it was
Speaker 1: really interesting, as you might expect listeners if you've listened
Speaker 1: to the show at all this year. Melbourne is the
Speaker 1: trouble spot in many ways economically and certainly on house prices.
Speaker 1: It has the softest house price passion in the nation,
Speaker 1: it has the weakest prices. Prices are following by about
Speaker 1: one percent a month. And don't you know that the
Speaker 1: total of distress properties in Melbourne lifted by fifteen point
Speaker 1: four percent in the twelve months to the start of November,
Speaker 1: while Sydney, which has had some bad months, was actually
Speaker 1: overall flat. And to be precise, most of that figure
Speaker 1: his apartments, and most of those apartments are in the
Speaker 1: inner city, which is something I would expect that you
Speaker 1: are not the slightest bit surprised about, Stuart.
Speaker 3: Not really, but James, I mean, I think we have
Speaker 3: to sometimes separate research and reports that are trying to
Speaker 3: find a headline versus what's actually going on. And I
Speaker 3: think if I have a look at CBA, which is
Speaker 3: the most recent lender to report and your results and
Speaker 3: the largest mortgage lender in Australia, so I think it's
Speaker 3: a really good representation. In its financial year twenty four
Speaker 3: results reported a twenty eight percent fall in loan impairment expenses,
Speaker 3: so that's actual bad debts or debts they're expected to
Speaker 3: go bad. Ninety day areas arose, which is a good
Speaker 3: measure of how people are dealing with their mortgages, so
Speaker 3: it rose from one point two percent to one point
Speaker 3: five percent. Huge numbers, but of course that's probably not
Speaker 3: unexpected given interstrates are at thirteen year highs and you
Speaker 3: know you'd have to go back to sort of free
Speaker 3: GFC levels to have higher interest rates than all is there.
Speaker 1: If it's rules from one point two to one point five,
Speaker 1: people might have no idea what that means at all?
Speaker 2: Is that like?
Speaker 1: Is that from nothing to nothing? Is it from small
Speaker 1: to significant?
Speaker 3: Look at ninety day areas rates in the US, for example,
Speaker 3: they have around two and a half percent.
Speaker 1: What would I think, what would you think is a
Speaker 1: point of which the bell rings in our market.
Speaker 3: Maybe if it gets closer to the two, you know,
Speaker 3: high one percent, So I think it starts to look
Speaker 3: like people are distressed. But again, this is people that
Speaker 3: haven't defaulted, they're just behind in their repayments, and banks
Speaker 3: will work with these people to you know, find solutions,
Speaker 3: and those solutions could include selling a property. A lot
Speaker 3: of times these situations include divorces and separations. You know,
Speaker 3: people stop paying their mortgage in that situation. So there's
Speaker 3: a lot going on there. And it's just not unexpected
Speaker 3: when we've come from interesstrates of sub two to now
Speaker 3: interest rates in the sixes. I mean you're going to
Speaker 3: expect a rise in ninety day areas. So these distressed
Speaker 3: listings and so forth, I mean they're always going to exist.
Speaker 3: But is the mortgage market and the property market in
Speaker 3: a situation where people are fire selling assets. I don't
Speaker 3: think it's you know, I think most people that are
Speaker 3: discretionary vendors probably wouldn't sell in this market. I think
Speaker 3: the people that are selling probably are doing so for
Speaker 3: a reason. But are they distressed? Yeah, I just don't know.
Speaker 1: Just throw the classic journalist question at you, which is
Speaker 1: would you rule out which was always one of my
Speaker 1: favorites when somebody was saying, you know, you said, would
Speaker 1: you rule out that there is distress setting going on
Speaker 1: in the inner city of particularly in Melbourne where the
Speaker 1: market is weakest.
Speaker 3: No, I wouldn't rule it out most definitely. I wouldn't
Speaker 3: rule it out. And I think the longer interst rates
Speaker 3: remain at this level, I think we'll see more and
Speaker 3: more distress. But I mean that's the whole point of
Speaker 3: raising interstrates is to create, you know, a contraction in
Speaker 3: terms of monetary supply, and that at the fringes creates
Speaker 3: a lot more distress for some people than others. So
Speaker 3: I think we'll see more of it. But is it
Speaker 3: to the point where you know it's affecting the market
Speaker 3: as a whole. I mean, there might be sectors like
Speaker 3: inner city apartments, but it's a bit strange, these inner
Speaker 3: city apartments because I remember reading maybe you did some
Speaker 3: work on it, James, a few years ago about apartments
Speaker 3: really crashing when COVID hit. Then they had a pretty
Speaker 3: strong recovery because I was selling quite cheaply. And then
Speaker 3: now it looks like, you know, at least on the data.
Speaker 3: It looks like there might be selling cheaply. Again, maybe
Speaker 3: these weren't great assets to begin with and people just
Speaker 3: took some cheap money to buy what they thought was
Speaker 3: a bargain but have now realized actually it's not a bargain.
Speaker 3: You know that it doesn't have the same amenity as
Speaker 3: living in a quiet suburb.
Speaker 1: Okay, And there is that issue always a course jack
Speaker 1: of endless supply or at least you know the supply
Speaker 1: can be You know, you can't build five hundred hours
Speaker 1: as fast, but you can build five hundred apart relatively
Speaker 1: quickly most of the time. All Right, we take a
Speaker 1: short break, some very interesting questions from Sean and Adam
Speaker 1: on their way. Hello, Welcome back to the Australians Money
Speaker 1: Puzzle podcast James Kirby with Stuart Weams, and we are
Speaker 1: galloping through our build up of questions, particularly for property
Speaker 1: issues and property related issues which stretch as far as
Speaker 1: reads and data centers, which we mentioned there earlier. The
Speaker 1: very interesting float, biggest float of the year coming up,
Speaker 1: which is a property flow, don't you know, which is
Speaker 1: the Digico float, and I mentioned also in passing there
Speaker 1: the very very interesting career of David DiPilla dip I La,
Speaker 1: who is emerging as something of a deal maker. Extraordinary
Speaker 1: on the national stage, you might say.
Speaker 2: And we haven't had deal.
Speaker 1: Makers of that scale for a long time, and they
Speaker 1: can be very interesting if he keeps going, as I say,
Speaker 1: at the rate and speed he's going. Okay, we have
Speaker 1: a question which I think I read yes shown Shaun shown.
Speaker 1: Given there's plans for superannuation funds to give members limited
Speaker 1: financial advice, it prompts the question why would this be limited?
Speaker 1: It seems reasonable to extend a person's holistic situation and
Speaker 1: an advisor of their choosing. Surely we now have enough
Speaker 1: confidence in the financial advice sector and we can put
Speaker 1: guardrails in place. No. Shown, we don't have enough confidence
Speaker 1: in the financial.
Speaker 2: Sector at all. I'd love to think we do what
Speaker 2: we don't show.
Speaker 1: So the big funds will get to offer limited advice,
Speaker 1: and I won't get into all the details around that,
Speaker 1: except that they will offer it and charge in the
Speaker 1: way they always charge for everything, which is everyone pays
Speaker 1: the same and no one knows what they're getting for
Speaker 1: their money. But maybe in highly limited circumstances where someone
Speaker 1: knows almost nothing and really need some help, and they
Speaker 1: only want a very limited piece of advice about their
Speaker 1: super then the super fund might well be useful, and
Speaker 1: we really could see some improvement in the provision of
Speaker 1: financial services on a mass scale. That's the best part
Speaker 1: of it. After that, there's all sorts of issues. But
Speaker 1: certainly I think it a way is almost impossible to
Speaker 1: expect the super fund to give full financial advice. Would
Speaker 1: the super fund ever say if I went into I
Speaker 1: won't mention any name, But if I went in and
Speaker 1: I said, I'm very happy with my performance with this fund,
Speaker 1: it's great, but you know, I want to do a
Speaker 1: few things that I want to take a quarter of
Speaker 1: it out and buy it by an apartment down the road,
Speaker 1: and I want to take another quarter of it out,
Speaker 1: and I want to buy some particular investments that you
Speaker 1: aren't doing and I wish you were, but you're not,
Speaker 1: so I got to take that out as well. Do
Speaker 1: you think the fund was see, Yeah, that sounds like
Speaker 1: a good take half your money out of your fond
Speaker 1: off you Gil Stuart.
Speaker 3: Oh, I don't think so. Not if you're a single
Speaker 3: product provider and these people are working for a single
Speaker 3: super fun So you know, it's a little bit like
Speaker 3: walking into a Ford dealership and asking should I buy
Speaker 3: a forward? What do you think their answer.
Speaker 2: Is going to be?
Speaker 3: So I think the idea has merit.
Speaker 2: You know.
Speaker 3: The idea is that if people have questions about SUPER,
Speaker 3: and SUPER is a very complex area of financial planning,
Speaker 3: we should have people there to be able to answer
Speaker 3: those questions and help those people. And at this stage
Speaker 3: they can't do that because that's giving financial advice. So
Speaker 3: the governments then thought, well, we're going to create this
Speaker 3: new type of advisor. Let's call them a qualified advisor.
Speaker 3: They haven't told us really what their education requirements will be,
Speaker 3: but it's going to be a lot less than a
Speaker 3: standard financial advisor that needs a bachelor's degree and does
Speaker 3: forty hours of professional education, etc. Per year. So they're
Speaker 3: not going to have that skill and experience, but let's
Speaker 3: help them answer, you know, some questions about maybe investment options,
Speaker 3: the insurance you have in SUPER, maybe even the contributions
Speaker 3: you're making. And I think I guess in some circumstances
Speaker 3: they might be able to do that when people are
Speaker 3: kind of confused between concession and non concessional and give
Speaker 3: two nine and three tax and all these sorts of things.
Speaker 3: That said, it's a complex area. I think it comes
Speaker 3: in the implementation though, and that's the key, because if
Speaker 3: these people aren't well trained and don't know where those
Speaker 3: guardrails are and don't know that, look, I shouldn't be
Speaker 3: giving this advice because there's a whole bunch of questions
Speaker 3: I should be asking, but I can't ask because my
Speaker 3: advice scope is quite limited. It's going to be problematic.
Speaker 3: I think it makes sense and people need to understand that.
Speaker 3: You know, if you're going to ask a question like
Speaker 3: should I make additional SUPER contributions? For me to answer that,
Speaker 3: As a financial advisor, I need to know about your
Speaker 3: personal situation outside of SUPER, what your cash frow looks like,
Speaker 3: what are the ASTs sets you have, what your home
Speaker 3: mortgage is doing, what your longer term plan is. I
Speaker 3: can't in isolation go, oh, well you'll get a tax deduction,
Speaker 3: so yeah, why not put some more money into SUPER.
Speaker 3: That's not really advice. That's really just explaining how the
Speaker 3: legislation works and what the tax consequences are. So I
Speaker 3: think it's problematic. I like the idea help people because
Speaker 3: it's a complex area. How do you implement it is
Speaker 3: another big question though.
Speaker 2: Okay, okay, very I hope that was used to you. Sean.
Speaker 1: There is this whole thing about what they call them.
Speaker 1: They shouldn't call them qualified advisors. That's absolute nonsense. To
Speaker 1: call them that. In house advisors it might be a
Speaker 1: fair description of what they are, but of course there's
Speaker 1: a big game going on there because you know, everyone
Speaker 1: wants to sound as good as they can.
Speaker 2: Don't They just like job titles, all right?
Speaker 1: Final question is from Adam, and Adam is a Victorian
Speaker 1: based property investor and guess what he's got a couple
Speaker 1: of issues.
Speaker 2: Okay, do you want to read that one?
Speaker 3: Stuart, absolutely so. Adam writes, the Victorian government is introduced
Speaker 3: a retrospective land tax on private land, even if it's
Speaker 3: part of your principal place of residence. When it's on
Speaker 3: a separate title, the solution may be simple merge the titles,
Speaker 3: but this is not always possible when the land was
Speaker 3: bought on at different times or is financed by different banks.
Speaker 3: For example, we bought land at the rear of our
Speaker 3: gardenless house to make a garden several years ago. After
Speaker 3: buying the house and financed it with a different bank
Speaker 3: prior to the new tax. The principles of fairness would
Speaker 3: suggest fairness and the Victorian government. The principles of fairness
Speaker 3: would suggest the Victorian government should make this tax perspective
Speaker 3: and allow people to plan for their finances or apply
Speaker 3: for an exemption for personal gardens, garages, etc. Which no
Speaker 3: one derives income from. I realize this may seem like
Speaker 3: a First world problem to those that are not affected,
Speaker 3: but the sizeable tax goes against the except the principle
Speaker 3: of new taxes being prospective rather than respective. Is there
Speaker 3: any advice from you or your contacts may have.
Speaker 1: Okay, well, we don't have advice, Adam, what observations would be? Yes,
Speaker 1: of course there is a tradition, though somewhat imperiled and
Speaker 1: under threat, if you like that. Taxes should always be grandful.
Speaker 1: In otherwise, you don't give up one morning and find
Speaker 1: there's a tax and you're hit with it. You're giving
Speaker 1: time to plan. And that has always been the case.
Speaker 1: And that was again another one of the problems that
Speaker 1: often comes up when they introduce a new tax. But
Speaker 1: then from the government's point of view, they say, if
Speaker 1: you introduce it fast on the night, you catch all
Speaker 1: the people you want to catch, and that's what I
Speaker 1: expected politically from a real politic point of view, is
Speaker 1: what's going on. We won't talk about the highly individualized
Speaker 1: setting there, except to say, do you think that tax
Speaker 1: was the land tax of Victoria which has caused a
Speaker 1: lot of problems, which has definitely drained confidence from the
Speaker 1: state because of its stature that it was a targeted
Speaker 1: property investor property onerous tax? Do you think that particular
Speaker 1: one did actually follow the wrong side of the line
Speaker 1: in terms of procedure fairness as taxes go.
Speaker 3: This rule relates to contiguous land, which I've never come
Speaker 3: across that word contiguous, but land that is adjoining your
Speaker 3: principal place of residence. It was called the tennis court tax, James,
Speaker 3: and that's really what it was targeting. I guess people
Speaker 3: interact the bought next door and had a tennis court.
Speaker 2: I often wonder if.
Speaker 1: If I had no one ever played tennis on those courts.
Speaker 2: That's right, they do.
Speaker 3: Now I'll properly get their money's with. And so from
Speaker 3: one January twenty twenty they started charging land tax in
Speaker 3: situations like that on metropolitan Melbourne only so regional that's fine.
Speaker 3: If you've got land that adjoins your home on a
Speaker 3: separate title that doesn't have another dwelling and it's used
Speaker 3: for domestic purp, you're still okay. Of course, the Victorian
Speaker 3: government wants to raise taxes, and the quickest way to
Speaker 3: do that is implement it yesterday and don't give people
Speaker 3: an opportunity to plan around these things. I think with
Speaker 3: these sorts of changes, Yeah, it makes sense if you
Speaker 3: are going to allow them to combine the titles, because
Speaker 3: that's one way to obviously circumvent it. Give them time
Speaker 3: in order to do that, including refinances. So I mean
Speaker 3: Adam mentioned that his land is financed by two banks.
Speaker 3: It shouldn't be a big deal to combine those titles.
Speaker 3: You will have to refinance with one of those banks
Speaker 3: or another one in fact, but it should be easy
Speaker 3: to sort of clean that up and therefore avoid the
Speaker 3: land tax. But people need time in order to do that.
Speaker 3: But I think that's probably the government's idea. If you
Speaker 3: don't give them time to sort themselves out, at least
Speaker 3: you'll be able to charge the land tax for at
Speaker 3: least one year maybe two before they come to terms
Speaker 3: with it.
Speaker 1: Yes, which is what I was alluding to I think
Speaker 1: there when I was seeing the political part of this is,
Speaker 1: you know, to grab as much as you can, all right, Okay,
Speaker 1: very good, not advice, of course, observation and information for
Speaker 1: Adam and all the Adams out there. Terrific. Great to
Speaker 1: talk to you, Stuart Williams. Love you to have you
Speaker 1: on the show as usual.
Speaker 3: Thanks, Jans, being fun as always, great questions.
Speaker 1: We'll have you back in the new year and look
Speaker 1: forward to talking to you again and look forward to
Speaker 1: having lots of questions folks. Keep them rolling the money
Speaker 1: puzzle at the Australian dot com dot Au. Today's show
Speaker 1: was produced by Leah Samuel Glue. Talked to you soon.