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In this show I ask Ian Rodrigues whose company specializes in taxation, business and financial Services as well as wealth management, how he believes Australia is travelling economically on the world stage, what the indicators are on Australia’s economical well-being and what impact be believes the Government pressure on foreign buyers will have on the property market

Transcript:

Kevin:  I want to introduce you to a new guest. He’s going to be a regular to the show, too. Ian Rodrigues is a director of Bishop Collins Group. He’s a chartered accountant specialized in taxation and superannuation.

By way of introduction, Bishop Collins Group are experts in taxation, business and financial services, as well as wealth management, and in fact, on behalf of investors manage somewhere between $70 and $80 million worth of property.

Ian, welcome to the show. I look forward to your contribution.

Ian:  Thanks, Kevin. It’s good to be here with the listeners, too.

Kevin:  I want to ask you the first question. It’s bit of an overreaching question, I guess, about your view on how Australia is traveling economically on the world stage right now.

Ian:  Yes, Kevin, I think for a lot of the listeners – and ourselves – there’s so much information out there that we’re bombarded with on an hourly, if not daily, basis about the economy, and so much information, much of it conflicting. Many, many views from economists.

There was always a good old joke, back in the university days, about economists, about assuming things and all that. A lot of those predictions are sometimes based on very academic or difficult models. Predicting simple things, like what will happen with rates or exchange rates, there’s a range of views about all of that.

So, whenever I’m looking at the Australian economy, I strip it right back to the really, really basic stuff when we’re looking at an economy. There are some very basic leading indicators and the metrics that you look at that pretty quickly tell you what sort of shape the economy is in.

Kevin:  What are the indicators that you look for to measure the Australian economy and how well we’re going?

Ian:  The key one that I’m always watching is business confidence. There are a couple of surveys of business confidence. And that’s a leading indicator, because it’s telling you where the economy is likely to be in the future.

Our politicians know deep down that to get an economy moving, you can’t just tax it more and you can’t just talk it up. You can’t do those things. Businesspeople have to be making investment decisions, and they will only make that when they’re feeling confident.

Now, when you keep changing the rules or threatening to change the rules… The point I’ve made even about simple things like negative gearing, we’ve had so much oxygen wasted on what the changes should or could be and all of that. But there hasn’t actually been a change to negative gearing for a very, very long time, but it makes people very nervous about making investment decisions because of the uncertainty.

The same thing applies to business. If you keep changing the rules and creating uncertainty, businesspeople will sit back and wait until they’re confident to make big investment decisions – buying capital things, employing more staff. And when they do those things, when businesspeople make decisions, it’s what drives the economy.

Kevin:  Just your view now on the likely impact of what’s happening overseas, with America and the machinations there with China and so on. How much of an impact do you think that will have on Australia and our economy?

Ian:  I think it all does have an impact. It’s probably very hard to measure very directly how much that is. But I think, again, it’s one of those confidence things. Whether you have particular world leaders in place and whether they’re pushing us down dangerous paths and all that comes into the equation, but it’s probably been the case for many,

Property guru John McGrath says he has great confidence in the South East Queensland property market.  We find out why, what he sees as the drivers of growth and interestingly he adds that he thinks the Sydney market is in for a soft landing.  But what...

Highlights from this week: How Chinese buyers feel about how we discuss them buying Aussie property. The 10 questions to ask real estate agents when purchasing property Advice for managing the negotiation process What is driving increased confidence in the Queensland market? Are Government regulations slowing overseas buyers? Just how much the gap between Sydney and the rest of Australia is widening How to start your property investment journey – tips for young investors and first-time buyers Getting into a duplex development Advice for investing interstate – how to select profitable property and manage the buying process from another location...

Simon Pressley says that an exodus is under way with thousands of people leaving New South Wales for more affordable property locations.  So where are they headed and does this spell the end of the Sydney boom?

Transcript: 

Kevin:  There’s a blog currently on the Real Estate Talk website written by Simon Pressley from Propertyology that prompts me to want to talk to him about it. He makes the comment that an exodus is under way with thousands of people leaving New South Wales for more affordable property locations – and why wouldn’t they?

Propertyology Managing Director Simon Pressley said more than 23,000 people migrated away from New South Wales over the 12-month period and that number is expected to escalate in the months and years ahead. Simon joins me.

Simon, thanks for your time.

Simon:  Always a pleasure chatting, Kevin.

Kevin:  Simon, what impact will this exodus, if it continues, have on the Sydney property market, do you think?

Simon:  It’s a direct reflection of its housing affordability, we feel. There’s a bit of a precedent that was set at the turn of the century – roughly from 2002 to, say, 2007 – where there were very large volumes of people exiting New South Wales for other states. In that era, Queensland was the biggest beneficiary. And it would appear that that sort of trend is continuing.

Certainly, that exodus out of New South Wales is continuing. That doesn’t necessarily mean that it’s going to be repeatable with all of them coming to Queensland.

Kevin:  But, Simon, we are hearing about an undersupply driving the market there. Is that real?

Simon:  No, I don’t think it’s real. It’s a perception that a lot of people have who live in Sydney because it’s so congested and expensive, and they process that to mean undersupply. It’s always going to be congested, it’s always going to be expensive, but the actual data shows that there’s been more new supply in Sydney over the last couple of years – and for the next couple of years, for that matter – than at any time before.

Of course, people then respond and go, “Oh, but our population growth is much higher now than any time before.” That’s actually not true. The population growth in Sydney over the last couple of years is comparable to, say, 2006 and 2007, but in those two years, Sydney built only half the volume of properties that they’re building now, and there was no boom in 2006 and 2007.

So, we don’t think there’s an undersupply or an oversupply. What we’re saying is there’s a lot more supply than what people probably realize is what’s happening, and in the next couple of years, there are going to be record volumes.

Kevin:  We always talk about the property cycle, don’t we? How does this fit into that cycle, or is it throwing it out?

Simon:  I think Sydney has definitely well and truly peaked. It’s in its fifth year of a strong price growth cycle. It’s rare for any property market to be that strong for that long. Typically, three years of good growth is quite a normal cycle. Of course, Sydney has had such a strong economy combined with low interest rates that we’ve all benefited from, and that’s probably why it’s gone into its fifth year. But I think it’s definitely at the end of its cycle now.

Kevin:  When we see that Sydney market adjust, it does actually go into a bit of a crash or a bit of a freefall for a little while. Is that likely to happen, do you think?

Simon:  Anything’s possible. I’m not forecasting that Sydney property values are going to significantly decline. We could see some modest decline, but things decline for a reason, and the common causes for property values to fall are either fast rising interest rates and/or really poor economic conditions.

Now, we’ve already had some out-of-cycle interest rate rises and Australia’s most expensive city also has the largest value mortgages, so that’s going to have some impact, more so on those who have investment properties than owner occupiers.

Cameron Kusher reveals some insights from the Core Logic Pain and Gain Report and says in the capital cities, we are seeing a little bit of a climb generally in the percentage of people reselling their properties at a loss. He tells us about where it is occurring and with what type of properties.

Transcript: 

Kevin:  There’s a good report inside the latest Your Investment Property magazine that deals with the Pain & Gain Report, which is a report that I always love to get from CoreLogic RP Data. Joining me to talk about that report and what we’re feeling in the industry at present – a bit of pain – Cameron Kusher joins me.

Good day, Cameron. Nice to be talking to you again. Thanks for your time.

Cameron:  No worries, Kevin. Thanks.

Kevin:  Always an interesting report, the Pain & Gain Report. Where do you go to first? Are you finding that there’s more and more people in pain, Cameron?

Cameron:  When we look at the resells, we are seeing it’s a bit mixed. In the capital cities, we are seeing a little bit of a climb generally in the percentage of people reselling their properties at a loss. It’s largely being driven by the unit market.

But when we look at the combined regional markets, we’re generally seeing improvement in those markets. That’s, again, largely being driven by the fact that a lot of the coastal markets are stronger. We’re still seeing a lot of weakness, though, in those markets linked to the mining and resources sector.

Kevin:  You mentioned there about units. Are we seeing a bit of evidence there that there might be an oversupply in some areas, Cameron?

Cameron:  We definitely are. I guess what we’re finding, though, is that it’s more so outside of Sydney. In fact, Sydney is actually seeing fewer units reselling for less than what they were purchased for than houses. But in every other capital city and every other regional market across the country, we’re seeing more units reselling at a loss than houses.

To give you some perspective, in Melbourne, you’re talking about less than 2% of houses reselling at a loss compared to about 11% of units. In Brisbane, you’re talking about less than 5% of houses reselling at a loss compared to almost a quarter of all units reselling at a loss. So, you can see that there’s a pretty big disparity between the two property types.

Kevin:  Yes, absolutely. What are the trends that you’re noticing in terms of people who are buying? We’re looking at single-person households. Are they becoming more prevalent?

Cameron:  They’re certainly becoming more prevalent. That’s reflective of what we’re seeing across the country also. We’ve seen a lot of unit construction over recent years, so we have been seeing more sales flowing towards that unit market. But obviously, the data is suggesting that a lot of those people now looking to resell are selling for less than what they purchased those properties for.

Kevin:  We’re seeing some incredible incentives being offered in some of the markets to try and clear some of this stock. Are you hearing anything about that at all? Is that a trend that would concern us?

Cameron:  I think that’s definitely concerning, and I think it’s reflective of the fact that people – particularly developers – are really struggling to clear the end stock. Of course, in the federal Budget, we also got the announcement that developers can only sell 50% of these new off-the-plan projects offshore.

It’s not a case whereby they used to be able to just go and do a roadshow through Asia and find lots of buyers for these properties. They’ve already initially sold a lot property to offshore buyers. They don’t really have the capacity to do that anymore, and I think that’s going to make it a little bit harder for developers to clear that stock at the end of a project.

Kevin:  Cameron, what did the Pain & Gain Report tell us about the Perth and Darwin markets?

Cameron:  It shows us that those markets are continuing to weaken.

You’ve probably heard the term, LMI – lenders mortgage insurance. What is it? What’s behind it? Is it necessary? Is there a way not to have to pay it?  Andrew Mirams gives us the lowdown.

Transcript:

Kevin:  You’ve probably heard the term, LMI – lenders mortgage insurance. What is it? What’s behind it? Is it necessary? Is there a way not to have to pay it? Let’s find out. Andrew Mirams from Intuitive Finance is here to explain what it’s all about.

Lenders mortgage insurance: is it a curse or a benefit?

Andrew:  Kevin, it’s not a curse at all; it’s a requirement for many borrowers to just get into the market in the modern day. When we’re talking about housing affordability, it’s probably not a housing affordability crisis that we’ve been in; it’s actually the ability for people to save that deposit to get in.

So, what is LMI or lenders mortgage insurance? It’s basically the difference… In Australia, all our lenders want you to have 20% deposit plus cover your stamp duties and costs and things like that. So, on a standard $500,000 purchase, you should have $100,000 plus your stamp duties and costs. You might have $125,000 to 130,000 to get in.

As it’s becoming dearer to live and everything like that, and we’ve had a pretty low amount of wages growth, it’s getting harder and harder to save that deposit. So, you can then lend up to 90% and 95% to buy your home, and it just requires an insurance there, which actually protects the lender should you ever default down the track.

It’s not an insurance that protects you; I think it’s about the only insurance in the world that you pay and it protects someone else. So, it’s there to cover the buffer, the margin.

Kevin:  On that point, that’s probably one of the biggest gripes. How do they get away with that? Why aren’t the banks having to meet that themselves?

Andrew:  Well, I guess the banks could just say no in reality. The reason they want that 20% margin there is they know that the markets go up and down at different times, and if there’s ever a reason that they might have to force sale a property, they want a margin in there that they know they’re going to be able to recoup their funds.

The one thing we know about our Australian banks is that they don’t lose money. So, that’s why they don’t do it, and the mortgage insurers are a separate arm to the lenders.

Kevin:  Okay. What is the cost of it?

Andrew:  That depends. There’s a whole range of factors there. It will depend on the loan amount and how high. There are certain tiers up: to $300,000, over $750,000. There’s a whole range of different tiers. The more exposed you are just from a dollar perspective, the more expensive it will be.

If you’re only putting in a 5% deposit – so the bank is giving you a 95% loan – and the risk is higher, they’re more at risk because there’s less margin, so you will pay more for LMI on that situation. If you’re putting in 15% deposit and your loan is 85%, then you’ll find that your mortgage insurance will be a lot lower.

So, there’s not an actual cost that I can quote you, Kevin, because there are a whole lot of specifics in terms of your actual loan-to-value ratio, the loan amount, and then there’s some analysis around the client as well that happens.

Kevin:  Of course, if you want to avoid it altogether, you just have to cough up a 20% deposit. Has that 20% barrier ever moved? Was it ever less or more?

Andrew:  No, not in my time, and I’ve been lending for around about 30 years. It’s always been around that 20%. Like I said, it covers the lenders for those margins when property may go up and go down. It would be naïve to think that properties don’t fluctuate like shares and other things in the market; there are cycles. So, it’s just there to give them a comfort or a buffer.

Kevin:  I do know that with some other types of borrowing – for instance, in a super fund – sometimes you’re required to come up with an even bigger deposit.

Oh to have a crystal ball!  The ability to look as far into the future as you possibly can when you’re looking at investing into a market.   Brett Warren  has done that for us and tells us what he thinks Brisbane will look like in ten years from now.

Transcript:

Kevin:  It’s always good to look as far into the future as you possibly can, especially if you’re looking at investing into a market. The question I’ve asked Brett Warren from Metropole Properties in Brisbane is what does he think Brisbane will look like in ten years from now.  He’s written a very interesting article, which is up on our website right now at Real Estate Talk. Just go in and search; it’s under my featured channel. He joins me to talk about this.

Good day, Brett. Thanks for your time.

Brett:  Hey, Kevin. Good to be with you.

Kevin:  And thank you in particular for doing this. I know you spend a lot of time having a look at what you think the Brisbane market is going to be like. Give me a bit of a snapshot.

Brett:  Absolutely. Kevin, when we last spoke, if you remember, we’ve had a pretty ordinary decade in terms of growth and in particular, capital growth. I’ve just read an article by Bernard Salt, and he’s of the same opinion that Brisbane is probably going to play a bit of catchup over the next ten years and try and catch up to those major metropolises like Sydney and Melbourne.

Kevin:  What’s involved in that? Is it a lot more infrastructure, or is there enough infrastructure in the pipeline now for us to be able to achieve that kind of growth?

Brett:  There are some infrastructure things happening and projects happening. The more exciting thing from my point of view – and obviously from a property investment perspective – probably our three major employment hubs are really starting to expand.

You probably will have heard and seen that the Queen’s Wharf project is really going to be a centerpiece for the CBD expansion in Brisbane and create jobs and pump about $1.7 billion worth of tourism into the coffers, which is much needed, as you know.

You may have seen Brisbane Airport looks like a bit of a sandpit at the moment, but we’re actually getting a second runway out there, as well. So, that’s going to increase flights by about 130,000 each year and will rival Singapore eventually, which is a major international city.

And finally, some of our hospitals are starting to transition, as well. We’ve already had Lady Cilento up and running and things like that, but there’s another $1.1 billion expansion of Royal Brisbane Hospital as well to create more jobs and age care facilities and things like that.

Kevin:  Entertainment is going to play a big part, too. The lifestyle or the climate in Queensland – and in Brisbane in particular – leads to that with the river, as well, doesn’t it, Brett?

Brett:  Yes, absolutely. We have some entertainment precincts. That’s going to increase the walkability and the lifestyle. People want those lifestyle projects. So, the old, rundown Howard Smith Wharves is going to get a facelift, and they’re spending about $100 million transforming that to link the city to the New Farm Riverwalk.

As you know, the Brisbane Showgrounds are expanding at the moment. They’re midway through that, with about $3 billion being spent to redevelop that with new retail space, laneway shops, and really going to maintain that green space, which is important.

Probably the last thing from my perspective: Brisbane’s response to Madison Square Garden in New York City is Brisbane Live, which is a 17,000-seat amphitheater and rock concerts and multiplex cinemas and restaurants and bars. That’s all planned to be above the Roma Street train line, so that’s going to be very accessible to everyone in Brisbane by the public transport network.

Kevin:  All of this development that’s happening, Brett, what do you think is going to happen with capital growth over the next decade?

Probably one of the first ‘rentvestors’ – Patrick Bright – tells the story of how he waited 20 years to buy his family home but that was after accumulating 12 investment properties.

Transcript: 

Kevin:  I don’t know if you saw it, but there was a comment recently, Channel 7’s Sunrise with Kochie, where he and Natalie (I think Natalie might be his co-host) were having a debate about rent rentvesting. I think she asked him whether or not he knew of anyone who’d done it. That’s my memory of that.

It reminds me of several conversations I’ve had with Patrick Bright, in terms of rentvesting. Patrick joins me. Patrick, of course, from EPS Property Search.

Good day, Patrick. How are you doing?

Patrick:  Hi, Kevin.

Kevin:  We’ve talked about this before, but I believe you were one of the first rentvestors. Is that a fair comment?

Patrick:  I don’t know, mate. I didn’t really know anybody else doing it at the time. I figured this out back in 1998, so almost 20 years ago. I was a sales agent at the time, a young one, and I was pretty green in the industry. I was just looking at financials and looking at numbers and things like that.

We were told that the average person would sell their home and move every seven and a half years back then. Those were the stats at the time. And that’s why you should prospect and speak to everyone, find out when they last purchased their home, so you knew what average timeframe they might be likely to move.

Then that’s how you get listings, obviously: talking to people, keeping a database, and knowing when they’re likely to move.

Kevin:  When did you work out that it was going to be better to rent and buy an investment property? Was it at that time? That’s what drove that?

Patrick:  Yes, around that time. What I did was I looked at the massive amount of money, the buying and selling costs of buying a new home. I worked out that most people’s home really did only suit them for that seven-to-ten-year mark. I looked at the cost of rent, and. I looked at the cost of paying off a mortgage. I looked at the borrowing ability. I’m a young bloke, 20-odd, trying to learn “How am I going to grow my portfolio? How am I going to get into real estate?”

I just worked it out that it was much cheaper to rent – in fact, probably about 50% the cost renting – versus buying and selling and just paying off your own place. You don’t have to come up with a big pile of money for a deposit and all those costs. Now, it doesn’t work if you fall behind eight-ball. The concerning thing is the people who just rent and never invest. Then they fall behind the eight-ball.

But I made the conscious decision then that I would skip doing all these buy-and-sells until I had a family, I knew how big my family was going to be, I knew where I was going to school my kids, I knew where I wanted to live for the next 25+ years, and I was going to rent until then.

Kevin:  That was back in… what did you say: 1997, or was it ’98?

Patrick:  1998.

Kevin:  Okay. Quick arithmetic there, we’re looking at about roughly 20 years. That’s when you started investing. Tell me about the journey from there. At what point did you buy your principle place of residence?

Patrick:  Well, I’ve actually only just bought my principle place of residence at the beginning of this year, in February, because it now suited me. My wife and I have decided where we want to school the kids. We’re just about to have our fourth child, who’s due in a few weeks.

Kevin:  Well done. Congratulations.

Patrick:  Thank you. We thought “Well, that’s enough for us, four.” We know where we’re going to school the kids. They can go all the way to year 12 at the school. We found a place that would be big enough to house the family and one that was very close to the school, that met all our other needs of size of block, view, and all the rest of it that we wanted. We started looking for that by last year,

Highlights from this week: Avoiding a big cost of getting into the market. The one thing we know for sure about our Australian banks. What will the Brisbane market look like and perform like in 10 years time? Why, even in a rising market, you still need to look for the good demographics. Where people are losing money with property. How the regional markets are travelling generally. A ‘rentvestor’ tells his story. Why Queensland is set to benefit from a New South Wales exodus. Transcripts: Why I waited 20 years to buy a family home – Patrick Bright Kevin:  I don’t...

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Transcript:

Kevin:  When we talk about in...