1 00:00:03,240 --> 00:00:06,120 Sean Aylmer: Welcome to the Fear and Greed Business Interview. I'm Sean Aylmer. 2 00:00:06,450 --> 00:00:09,809 Sean Aylmer: The property market is pretty remarkable right now. Prices have 3 00:00:09,809 --> 00:00:13,440 Sean Aylmer: been recovering in cities right around the country. Well, maybe 4 00:00:13,440 --> 00:00:16,320 Sean Aylmer: not Canberra, but most cities, despite 12 interest rate hikes 5 00:00:16,320 --> 00:00:19,050 Sean Aylmer: in just 15 months. It is, of course, a question 6 00:00:19,050 --> 00:00:21,570 Sean Aylmer: of supply and demand. I wanted to look today at 7 00:00:21,570 --> 00:00:24,300 Sean Aylmer: what this means for investors in the residential market with 8 00:00:24,300 --> 00:00:27,300 Sean Aylmer: a focus today on apartments where we might see the 9 00:00:27,300 --> 00:00:30,840 Sean Aylmer: greatest demand and what's happening in the supply pipeline. We've 10 00:00:30,840 --> 00:00:33,509 Sean Aylmer: spoken in the past to real estate services company, CBRE, 11 00:00:33,929 --> 00:00:37,229 Sean Aylmer: a supporter of this podcast. Justin Brown is the Chairman 12 00:00:37,290 --> 00:00:40,979 Sean Aylmer: of CBRE Residential Projects. Justin, welcome to Fear and Greed. 13 00:00:41,220 --> 00:00:42,418 Justin Brown: Thank you. Thanks for having me today. 14 00:00:43,229 --> 00:00:45,719 Sean Aylmer: Now, many of us would know CBRE more on the 15 00:00:45,719 --> 00:00:50,430 Sean Aylmer: commercial side, so just as a 101, how is CBRE 16 00:00:50,700 --> 00:00:52,680 Sean Aylmer: involved in residential projects? 17 00:00:53,010 --> 00:00:56,820 Justin Brown: Okay, yep, CBRE is predominantly a commercial business of a 18 00:00:56,820 --> 00:01:01,440 Justin Brown: global scale, but has strong businesses, particularly through the Asia 19 00:01:01,440 --> 00:01:05,789 Justin Brown: Pacific and moving up to the UK with residential development 20 00:01:05,910 --> 00:01:09,030 Justin Brown: and in particular developments that are on the premium end, 21 00:01:09,569 --> 00:01:15,660 Justin Brown: which we provide research and information and expertise for off-the-plan sales, 22 00:01:16,050 --> 00:01:20,250 Justin Brown: and in Australia, CBRE Residential is the largest in that field. 23 00:01:21,510 --> 00:01:24,568 Sean Aylmer: Okay, great. So, let's start with demand. We hear lots about 24 00:01:25,110 --> 00:01:27,990 Sean Aylmer: property markets all the time. We don't really delve into 25 00:01:27,990 --> 00:01:29,609 Sean Aylmer: it too much and that's what I want to do today, 26 00:01:29,609 --> 00:01:33,660 Sean Aylmer: Justin. Let's start with demand. Is it mostly about immigration 27 00:01:33,660 --> 00:01:35,820 Sean Aylmer: or is there more to it? 28 00:01:35,820 --> 00:01:39,389 Justin Brown: Look, immigration's a big factor. It's been widely discussed that there 29 00:01:39,389 --> 00:01:44,100 Justin Brown: is an extra million people and that doesn't include students 30 00:01:44,250 --> 00:01:47,130 Justin Brown: that are migrating to Australia over the next three years. Now, 31 00:01:48,330 --> 00:01:53,790 Justin Brown: if you look at that, primarily our research shows that 32 00:01:53,940 --> 00:01:58,259 Justin Brown: for every three migrants, you need a property and if 33 00:01:58,260 --> 00:02:00,570 Justin Brown: we look at where we are at the moment, we 34 00:02:00,570 --> 00:02:03,929 Justin Brown: believe that we need somewhere in the order of 570,000 35 00:02:04,379 --> 00:02:10,290 Justin Brown: new properties between now and 2026, and we are currently 36 00:02:10,290 --> 00:02:12,390 Justin Brown: producing 55,000. 37 00:02:17,190 --> 00:02:19,470 Sean Aylmer: Right. So we're at about, well, so 150 out of 500, so we're kind of at 30% or thereabouts of what we need. 38 00:02:19,470 --> 00:02:23,609 Justin Brown: That also doesn't take into account the local market, that 39 00:02:23,609 --> 00:02:29,790 Justin Brown: doesn't take into account the 590,000 students international students that we have. 40 00:02:30,210 --> 00:02:32,970 Justin Brown: What a lot of people don't understand is we have 41 00:02:32,970 --> 00:02:38,010 Justin Brown: the largest percentage of students that go to our universities 42 00:02:38,160 --> 00:02:42,419 Justin Brown: in the world. So 25% of our students, which is 590,000 at 43 00:02:43,829 --> 00:02:47,220 Justin Brown: the moment, are international and have to be housed somewhere. 44 00:02:47,220 --> 00:02:53,639 Sean Aylmer: So, what's the answer? This is only an 11-minute discussion, Justin, 45 00:02:53,639 --> 00:02:55,619 Sean Aylmer: so I'm not sure we're going to get all the answers, 46 00:02:55,620 --> 00:03:01,048 Sean Aylmer: but what is it about... it's all about creating supply, 47 00:03:01,049 --> 00:03:02,429 Sean Aylmer: but we're just not doing it. 48 00:03:03,119 --> 00:03:06,600 Justin Brown: No, we're not. We've never been great at creating supply. So 49 00:03:06,600 --> 00:03:10,500 Justin Brown: the last 30 years we've probably had two or three periods 50 00:03:10,500 --> 00:03:12,990 Justin Brown: where you'd say that we had an oversupply. For the 51 00:03:12,990 --> 00:03:16,649 Justin Brown: last five years, it's been very difficult and it was led... 52 00:03:16,829 --> 00:03:22,109 Justin Brown: the investors stopped really purchasing new apartments or new properties 53 00:03:22,290 --> 00:03:26,040 Justin Brown: in and around 2017. We then moved into that COVID period 54 00:03:26,040 --> 00:03:30,149 Justin Brown: where really there wasn't any supply developed through that period. 55 00:03:30,419 --> 00:03:34,200 Justin Brown: We then moved into supply chain. We then had the 56 00:03:34,379 --> 00:03:38,700 Justin Brown: massive increase in construction costs and that's sort of coupled 57 00:03:38,760 --> 00:03:41,820 Justin Brown: by a planning system that, in most parts of the country, 58 00:03:42,900 --> 00:03:48,180 Justin Brown: is fairly diabolical. So, we currently have this situation where, 59 00:03:48,990 --> 00:03:51,929 Justin Brown: if you'd like, an equilibrium in the rental market should 60 00:03:51,929 --> 00:03:54,449 Justin Brown: be about 3%. So that's sort of a fair market 61 00:03:54,449 --> 00:03:58,860 Justin Brown: for tenants and owners of property, if you'd like and 62 00:03:58,860 --> 00:04:03,300 Justin Brown: we currently sit at about 1.5% and we've got places 63 00:04:03,300 --> 00:04:06,959 Justin Brown: in the country like Perth and Adelaide at 0.6 of a per cent. 64 00:04:07,289 --> 00:04:10,169 Sean Aylmer: So 3% referring to 3% of what? 65 00:04:10,169 --> 00:04:10,231 Justin Brown: The vacancy factor. 66 00:04:10,231 --> 00:04:10,770 Sean Aylmer: Yeah, okay. 67 00:04:10,770 --> 00:04:14,160 Justin Brown: So it sort of means that if you've got 3%, 68 00:04:14,550 --> 00:04:17,430 Justin Brown: it's generally a fair market, what we would call, but 69 00:04:17,490 --> 00:04:20,880 Justin Brown: if you look down in terms of supply, Sydney will 70 00:04:21,059 --> 00:04:25,469 Justin Brown: develop or New South Wales will develop, needs I should say, 71 00:04:25,740 --> 00:04:32,490 Justin Brown: 34,000 dwellings. We'll have a shortfall this year of 18,000 dwellings. Melbourne 72 00:04:32,580 --> 00:04:38,849 Justin Brown: will have a shortfall of just under 24,000 dwellings, Brisbane 12,000, Perth 73 00:04:38,910 --> 00:04:44,460 Justin Brown: 10,500 and Adelaide 4,000. That's in a year. And so, if you look 74 00:04:44,460 --> 00:04:47,100 Justin Brown: at where our vacancy factor is, if we're saying it's 75 00:04:47,100 --> 00:04:50,818 Justin Brown: sort of just shy of 1.5%, it's going to drop 0.2 to 76 00:04:51,330 --> 00:04:54,299 Justin Brown: 0.5 of a per cent each year as we go forward, 77 00:04:54,299 --> 00:04:55,320 Justin Brown: which really tightens that market up. 78 00:04:55,320 --> 00:05:00,150 Sean Aylmer: So, what's the answer? Is it more support from government, is 79 00:05:00,150 --> 00:05:03,600 Sean Aylmer: it less bureaucracy, less red tape, better planning? Is it 80 00:05:03,839 --> 00:05:06,870 Sean Aylmer: kind of some incentives for builders who are on fixed-price 81 00:05:07,140 --> 00:05:09,839 Sean Aylmer: contracts or who are struggling because they were on fixed-price 82 00:05:10,110 --> 00:05:12,510 Sean Aylmer: contracts to get ahead? What is the answer? 83 00:05:12,960 --> 00:05:16,080 Justin Brown: Well, therein lies part of the problem, what the builders 84 00:05:16,080 --> 00:05:18,870 Justin Brown: have been through over the last three years where they're 85 00:05:18,870 --> 00:05:23,730 Justin Brown: on fixed-price contracts and the market realistically moved 30%. So 86 00:05:23,730 --> 00:05:26,760 Justin Brown: they were just losing money. And we've seen how many 87 00:05:27,390 --> 00:05:32,190 Justin Brown: administrations and liquidations have happened to builders. So that is 88 00:05:32,190 --> 00:05:36,269 Justin Brown: slowly starting to change. And the costs, they are still 89 00:05:36,270 --> 00:05:38,399 Justin Brown: going up, but they're a bit more regulated and the 90 00:05:38,400 --> 00:05:41,399 Justin Brown: supply chain is a lot better. But one of our 91 00:05:41,400 --> 00:05:46,320 Justin Brown: biggest issues is really how do we produce product readily? 92 00:05:46,710 --> 00:05:50,428 Justin Brown: And yes, we have bureaucracy in this country. Most of 93 00:05:50,428 --> 00:05:54,779 Justin Brown: it's planning systems and the layers and really it's sort of, yes, 94 00:05:54,779 --> 00:05:58,050 Justin Brown: we need property but not in my backyard, needs to change. 95 00:05:58,199 --> 00:06:00,900 Justin Brown: And really, part of that, I think, to change it 96 00:06:01,020 --> 00:06:05,940 Justin Brown: dramatically and quickly is really we need a proper system 97 00:06:05,940 --> 00:06:09,750 Justin Brown: with affordable housing and social housing, which the governments are 98 00:06:09,750 --> 00:06:11,940 Justin Brown: trying to address. There's a new SEPP (State Environmental Planning Policy) coming through in 99 00:06:11,940 --> 00:06:14,999 Justin Brown: New South Wales. The Minns' government is bringing in where 100 00:06:15,000 --> 00:06:19,440 Justin Brown: that in a new development if you provide 15% social 101 00:06:19,470 --> 00:06:22,080 Justin Brown: housing in that, they'll give you an uplift of 30% 102 00:06:22,650 --> 00:06:26,910 Justin Brown: in terms of the saleable area. But again, that looks 103 00:06:26,910 --> 00:06:29,248 Justin Brown: like it's getting slightly watered down as well as it's 104 00:06:29,250 --> 00:06:33,089 Justin Brown: coming into the system and the draft will come out shortly. Queensland, 105 00:06:33,089 --> 00:06:36,690 Justin Brown: Victoria are trying and look at trying to push that 106 00:06:36,690 --> 00:06:39,089 Justin Brown: through and there's some funding through there. The other thing 107 00:06:39,089 --> 00:06:43,230 Justin Brown: that we really need to do is look at, it's 108 00:06:43,230 --> 00:06:48,178 Justin Brown: called the build-to-rent model, and that's building dwellings if you'd like, 109 00:06:48,178 --> 00:06:52,500 Justin Brown: apartment blocks, that are for long-term rentals. And if we look at Australia 0.2% 110 00:06:55,080 --> 00:07:01,560 Justin Brown: of our market, so 0.2 of a per cent, is in that long-term build-to-rent space. 111 00:07:01,740 --> 00:07:06,420 Justin Brown: In the UK, it's 5.4% and in the US it's 12%. Now, 112 00:07:06,570 --> 00:07:08,880 Justin Brown: part of the issue that we've had and why it hasn't 113 00:07:08,880 --> 00:07:12,810 Justin Brown: taken off here is that our taxation system and the 114 00:07:12,810 --> 00:07:16,950 Justin Brown: foreign investment taxation system has been too high and also 115 00:07:17,100 --> 00:07:20,490 Justin Brown: there hasn't been enough clarity on it. Now the Albanese government has 116 00:07:20,490 --> 00:07:22,470 Justin Brown: come through and said they are going to halve that, 117 00:07:23,070 --> 00:07:27,630 Justin Brown: but then with recent times we've had the issue where the Victorian and 118 00:07:27,630 --> 00:07:32,160 Justin Brown: Queensland government are now talking and putting rental caps. And 119 00:07:32,160 --> 00:07:35,760 Justin Brown: so your international investors, which globally have been a big 120 00:07:35,760 --> 00:07:40,080 Justin Brown: supporter of the build-to-rent scenarios, they're concerned about where the 121 00:07:40,080 --> 00:07:43,170 Justin Brown: clarity is. So as a start, we need to get 122 00:07:43,170 --> 00:07:45,779 Justin Brown: clarity in our system and then we also need to 123 00:07:45,929 --> 00:07:50,580 Justin Brown: streamline the planning system for development because at the moment, 124 00:07:50,760 --> 00:07:53,700 Justin Brown: like five years ago, Sean, you used to be able 125 00:07:53,700 --> 00:07:58,500 Justin Brown: to purchase a property, obtain a development approval if it 126 00:07:58,500 --> 00:08:03,719 Justin Brown: was reasonable, obtain a builder, finance and pre-sales, and between 127 00:08:03,719 --> 00:08:07,080 Justin Brown: 12 and 14 months to start construction. Now, with the 128 00:08:07,080 --> 00:08:10,650 Justin Brown: system that you're going through, particularly over the last 18 months, 129 00:08:10,740 --> 00:08:12,151 Justin Brown: it's taking two and a half to three years- 130 00:08:12,151 --> 00:08:12,152 Sean Aylmer: Oh wow. 131 00:08:12,152 --> 00:08:15,570 Justin Brown: ... From when you purchase a site to when you 132 00:08:15,570 --> 00:08:18,480 Justin Brown: start construction. So then you add on the two years 133 00:08:18,480 --> 00:08:21,870 Justin Brown: and if we talk about in terms of how long it takes 134 00:08:21,870 --> 00:08:24,780 Justin Brown: to construct an apartment building, it's five years from the 135 00:08:25,020 --> 00:08:26,040 Justin Brown: first inception. 136 00:08:26,040 --> 00:08:28,200 Sean Aylmer: Stay with me Justin, we'll be back in a minute. 137 00:08:34,170 --> 00:08:37,830 Sean Aylmer: I'm speaking to Justin Brown, Chair of CBRE Residential Projects. 138 00:08:37,889 --> 00:08:41,789 Sean Aylmer: I'm just changing tack slightly. Where do people want to 139 00:08:41,789 --> 00:08:44,280 Sean Aylmer: live? So we do talk a lot about apartments and 140 00:08:44,280 --> 00:08:48,000 Sean Aylmer: the need to boost supply. Has there been any change 141 00:08:48,000 --> 00:08:51,059 Sean Aylmer: in where people want to live? So the backyard with 142 00:08:51,059 --> 00:08:53,700 Sean Aylmer: a clothesline and picket fence and things like that, which 143 00:08:53,700 --> 00:08:56,819 Sean Aylmer: I suppose I grew up with, is that, do people 144 00:08:56,820 --> 00:09:00,179 Sean Aylmer: talk about that anymore? Is it all about higher density 145 00:09:00,179 --> 00:09:02,700 Sean Aylmer: living as we go forward? Where do we stand in all that? 146 00:09:04,200 --> 00:09:07,319 Justin Brown: Look, it is, in the last 10 years, we've really 147 00:09:07,679 --> 00:09:11,849 Justin Brown: have moved into a higher density scenario. Also, a lot of the immigrants 148 00:09:11,849 --> 00:09:14,040 Justin Brown: that come into the country aren't used to having that 149 00:09:14,250 --> 00:09:17,369 Justin Brown: big quarter acre block as well. We're also starting to 150 00:09:17,520 --> 00:09:21,960 Justin Brown: really see the aging population and the empty-nesters that are 151 00:09:21,960 --> 00:09:26,040 Justin Brown: now selling out of their larger homes, but they want 152 00:09:26,040 --> 00:09:29,279 Justin Brown: to basically be in suburbs and like where they grew up, 153 00:09:29,280 --> 00:09:32,519 Justin Brown: that have a village field, that have infrastructure and the like. 154 00:09:32,520 --> 00:09:37,200 Justin Brown: So people generally are looking to be around social infrastructure 155 00:09:37,380 --> 00:09:38,220 Justin Brown: and transport. 156 00:09:38,550 --> 00:09:41,100 Sean Aylmer: And some of the state premiers, particularly in recent weeks, 157 00:09:41,100 --> 00:09:44,220 Sean Aylmer: they've actually been talking about that, the idea that infrastructure 158 00:09:44,520 --> 00:09:47,730 Sean Aylmer: projects are actually about housing policy. So it's all connected. 159 00:09:47,969 --> 00:09:51,749 Justin Brown: Yes, and it is. If you look globally, that's how 160 00:09:51,749 --> 00:09:54,510 Justin Brown: it occurs, but it makes a lot of sense. If you've 161 00:09:54,660 --> 00:09:58,500 Justin Brown: got infrastructure and you've got transport nodes around you, there's 162 00:09:58,500 --> 00:10:01,440 Justin Brown: less need for cars and vehicles. You could get there, 163 00:10:01,440 --> 00:10:04,409 Justin Brown: particularly with the metro system that the government is putting 164 00:10:04,410 --> 00:10:08,219 Justin Brown: throughout all New South Wales. And then around that, you 165 00:10:08,219 --> 00:10:10,559 Justin Brown: get the density, which then you can get the social 166 00:10:10,559 --> 00:10:13,348 Justin Brown: infrastructure and the restaurants and cafes and the like that 167 00:10:13,620 --> 00:10:14,250 Justin Brown: comes with it. 168 00:10:15,360 --> 00:10:19,140 Sean Aylmer: So Justin Brown, Chair of CBRE Residential Projects, where do 169 00:10:19,140 --> 00:10:20,910 Sean Aylmer: we end up in this? Where are we in five 170 00:10:20,910 --> 00:10:21,629 Sean Aylmer: years' time? 171 00:10:22,380 --> 00:10:26,458 Justin Brown: I think five years' time, we will probably be starting 172 00:10:26,460 --> 00:10:29,578 Justin Brown: to see a way forward, but my concern is that 173 00:10:29,580 --> 00:10:32,400 Justin Brown: we have a real pinch point that's coming and I 174 00:10:32,400 --> 00:10:36,540 Justin Brown: don't see the way that the government is working and how 175 00:10:36,540 --> 00:10:40,380 Justin Brown: quickly our population is growing and how long it takes 176 00:10:40,380 --> 00:10:42,179 Justin Brown: for things to do, that we're going to see a 177 00:10:42,179 --> 00:10:44,609 Justin Brown: proper way forward in the next three to four years. 178 00:10:44,849 --> 00:10:49,020 Sean Aylmer: That's scary, particularly given the cost of living pressures, interest 179 00:10:49,020 --> 00:10:50,910 Sean Aylmer: rate pressures, that's really scary. 180 00:10:51,330 --> 00:10:54,358 Justin Brown: It is. It's quite concerning. And look, it's been on 181 00:10:54,360 --> 00:10:56,520 Justin Brown: the agenda for a long time and it's sort of one 182 00:10:56,520 --> 00:11:00,059 Justin Brown: of those topics that people like to turn the other 183 00:11:00,059 --> 00:11:03,120 Justin Brown: way because it's not popular, but it is something that 184 00:11:03,120 --> 00:11:04,139 Justin Brown: needs to be addressed. 185 00:11:04,350 --> 00:11:06,208 Sean Aylmer: Justin, thank you for talking to Fear and Greed. 186 00:11:06,569 --> 00:11:07,170 Justin Brown: My pleasure. 187 00:11:07,500 --> 00:11:11,130 Sean Aylmer: That was Justin Brown, Chairman of CBRE Residential Projects, a 188 00:11:11,130 --> 00:11:14,099 Sean Aylmer: supporter of this podcast. This is the Fear and Greed 189 00:11:14,099 --> 00:11:16,889 Sean Aylmer: business interview. Remember, you should get professional advice before making 190 00:11:16,889 --> 00:11:19,588 Sean Aylmer: any investment decisions. Join us every morning for the full 191 00:11:19,590 --> 00:11:22,949 Sean Aylmer: episode of Fear and Greed, Australia's most popular business podcast. 192 00:11:22,949 --> 00:11:24,750 Sean Aylmer: I'm Sean Aylmer. Enjoy your day.