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Always have an ‘exit’ + A guaranteed path to wealth + Beware of ‘invisible issues’

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Highlights from this week:

  • Dr Andrew Wilson’s mid-term 2017 property report card
  • Would you rely on a property report generated by the seller?
  • What we can learn from President Trump.  Yes there are some things!
  • The formula to successful property investing
  • We tell you about ‘fractional financing’

Transcripts:

Some ‘invisible’ property investment issues – Cate Bakos

Kevin:  A property investment – or any investment, for that matter – is only as good as how it returns for you. What are some of the invisible issues that can undermine the returns on a property investment? Joining me to talk about that is Cate Bakos from Cate Bakos Property buyer’s agents based in Melbourne.

Hi, Cate. Nice to have you on the show again. Thanks for your time.

Cate:  It’s great to be here, Kevin.

Kevin:  Give me some of those invisible issues. What have you found, generally, that people tend to overlook that can impact their returns?

Cate:  Sometimes it’s not even overlooking or not being aware of them, but the invisible issues are the things that need to be done once you’ve purchased that property – and they can be quite costly. So you went into this investment thinking you had a 3.5% or 4% gross rental return, by the time you’ve fixed those invisible issues, you could be significantly down to early 3%s, and that can really hurt.

They’re typically things that you can’t see, and without due diligence, you might not know about them until the problem occurs.

Kevin:  List a few of them for me, Cate.

Cate:  For example, electrical: re-wiring, the need to re-wire or spend significant money on a property that has unsafe electricals. There are a few little hints that we can sometimes see, but it certainly doesn’t guarantee anything.

I think that having a qualified building inspection on the property, asking them to point out any concerns, is a start, but it’s important to note that a building inspector isn’t an electrician. So, they might see more warning signs than a normal buyer can see, and that’s a start.

Another one is plumbing. If you have some significant plumbing and drainage issues, they can certainly add to the cost base of the purchase, because works will need to be done to fix that up. They can range from hundreds of dollars to tens of thousands of dollars, depending on where the issue sits, so it’s a really important one to consider.

One of the most expensive invisible issues isn’t so invisible that people often underestimate them; it’s when you have significant movement on a property that needs more than just re-stumping; it might need soil engineers. The whole problem might be something that spirals into hundreds of thousands of dollars and that’s more than just re-blocking; it’s substantial works on a period home, for example.

Kevin:  It can be a lot of underpinning. Therein lies another problem, because those structural defects or the need for underpinning and how a building can drop sometimes can be hidden depending on weather conditions.

As an example, we found, in different parts of Australia, when the climate is moist or when there’s a lot of rain around, those cracks that could emerge actually close up because the moisture in the soil will impact on the foundation. So, you really do need a highly qualified person to give you an insight about the foundations, Cate, is what I’ve found.

Cate:  That’s right. I think if a normal building inspector suggested there might be an issue that needs a little bit of specialization, someone to have a closer look, I don’t think you can ignore that. We’ve walked away from many a property that has proven to be too expensive with all of the rectification work for investors.

Kevin:  What you’re suggesting is as well as a building inspection or report, you have to have one done on electrical, one on plumbing, and one on the structural integrity of the building. Is that right?

Cate:  It’s a hard one, Kevin, because if you get all of that done, you’re looking at $2000 per property, and nobody in their right mind would want to spend that on every property that could be the one.

But I think getting a reliable building inspector who can give you a hint if there are other areas of concern and point you in the direction of a specialist, if one is required, that’s what is really important – having a building inspector you can trust.

Perhaps, asking on forums or chatting to friends, getting someone who is very reliable: they’re not just giving you scare tactics; they’re genuinely telling you that you might have to look a little bit closer at a roof plumber getting up on the roof or an electrician checking out the electricals.

Kevin:  In fact, we just did an interview recently in the show with a building inspector, and I want to get your opinion on this, too. Andrew Mackie-Smith joined us in the show. He’s written a book called Building Success.

He is suggesting that as it is in the ACT, that sellers should be required to get building inspections done, not just on the building but the electricals and the plumbing, so that it’s a full report that can be given to every buyer.

Would you support something like that, and would you take notice of a report that was generated by a seller?

Cate:  I certainly would check out the credentials of the inspector who has done the report, and I would want to be quite comforted that they are independent. But I think the idea has a lot of merit because a seller who has nothing to hide and has a property that checks out well is encouraging people to have a punt on auction day, and there are many occasions where a buyer might think “Look, I’m not sure if I’m in the right vicinity pricewise. I don’t really feel like spending the $500 or $600 on the report. I’m not going to bid.”

From the seller’s point of view, it can be quite a tactic if it’s a great report, because it will encourage people to bid and it will obviously increase competition and potentially get a higher result.

If a seller does have a house with problems, obviously, they won’t be so excited about uncovering all of those, and when you buy at auction, it is buyer beware. You’re buying as it is on the day, so I imagine sellers will have mixed views on that.

Certainly, from a buying point of view, I would find it much easier if we didn’t have to scramble around, getting building inspections on every property that we’re going for, sometimes at the last minute. So yes, I think you’ll have mixed reviews on that idea.

Kevin:  The “buyer beware” saying is quite real, but a solicitor Tim O’Dwyer said recently on the show that he believes that’s changing around Australia where there’s a lot stronger emphasis now being put on the seller, and I think rightly so, too.

Let’s face it. When you buy a car, it has to come with a roadworthy certificate. Therefore, there’s a requirement to say “The product that I’m putting up here is roadworthy as a car.” The same, I think, should apply to a property. If I were a seller, Cate, I would want to know what was wrong with my place because that’s going to impact the eventual sale price.

Cate:  Yes, that’s a really fair point. It’s not just about the condition of the property; sometimes there are illegal works or there are works that have been done without the appropriate sign-off, and so you have permit issues as well.

I think every buyer is entitled to understand when a property is being sold without the appropriate permits, and in most cases, a good, solid legal review will reveal those types of issues as well.

Kevin:  Cate, always great talking to you. Cate Bakos,, buyer’s agent from Melbourne, from Cate Bakos Property. Thank you very much for your time.

Cate:  Thanks for having me on the show, Kevin.

 

Guaranteed wealth creation – Michael Sloan

Kevin:  Michelle is on the line. G’day, Michelle. How can we help you?

Michelle:  Hello, Kevin. I just have a question because I’m renovating my bathroom. I have a small farmhouse, and I have a very, very small area – 1.2 only – to put a vanity in. It originally had a single vanity basin. For resale, should I go to a double vanity?

Kevin:  If it looks out of place and it’s going to clutter, I would think it’s not going to add a lot of value. Just be very, very careful when you’re in those small spaces.

Michelle:  Thank you, Kevin. It’s a bit tricky to know what to do.

Kevin:  It is.

Michelle:  Thanks, Kevin.

Kevin:  Good on you, and all the best with your renovations, too.

Michelle:  Thank you. Bye-bye.

Kevin:  You have to be so careful with what you do about renovations.

I’m talking now to Michael Sloan. Michael is the author of The Formula to Successful Property Investing.

A point that you make in the book, too, Michael is that you need to understand what the market really needs before you start doing your renovation.

Michael:  Yes, you have to have a look at how much you’re spending and how much difference it’s going to make. Sometimes you can spend $40,000 on a renovation and get an increase in value of $60,000 or $80,000, but other people, especially when they’re trying to renovate for profit…

I would say over the years, most people who I’ve met who try to renovate property for profit haven’t made any profit. But when you live in it, that’s a perfect time to do the place up slowly and add value.

Kevin:  Yes, we spend a fair bit of time talking about renovations, and we have a couple of really good renovation experts who will constantly tell us that they’ve seen so many people coming to what looks like a very, very easy method of making money and they’ll just lose money hand over fist.

I have to say that I’m actually one of those people who have actually lost money through renovation because in the early stages, we didn’t really know what we were doing. It just looked so easy – and it is so easy sometimes to buy a property and think “I’ll just turn this over.”

Michael:  I did it myself a long time ago, with my first property I ever bought.

Kevin:  Yes, there are some valuable lessons there.

I want to talk to you about something you wrote in your book, and that is the guaranteed wealth creation strategy. Tell me about that, because anything that has a guarantee on it, my ears prick up straight away.

Michael:  Yes, Kevin. This one is guaranteed because what I was talking about is debt reduction. It’s something that doesn’t get a lot of press, but paying down debt is a guaranteed way to create wealth.

There are a lot of really good calculators – we have some on our website and there are some on other websites as well – where you can just throw around some figures and run some numbers to see how much money you’re going to make just by $50 or $100 a week going into your mortgage.

Mortgages are the biggest debts that people carry. That’s why you have to be very careful buying a negative property. We’ve talked about negative or positive properties before. People buy negative cash flow property that might cost them $100 or $200 a week, but what they don’t do is look at the lost opportunity of what they could have done with that money.

How much will that make you by putting it into your mortgage? Because that money is guaranteed wealth creation.

Kevin:  It requires discipline, doesn’t it? And it requires the plan and the focus for you to be able to do that.

Michael:  Sometimes you just have to get off your backside and do a bit of work as well. When I do presentations, I’ll say to people “Who would change banks for $11 a week, if they saved $11 a week?” and no one will put their hand up.

But $11 a week on an average mortgage could be 0.25% on your loan. Over the life of the loan, that will save you about $17,000. But if you leave your payment as it was before, it actually saves you about $40,000.

Kevin:  Do you think we’re lazy, or we just don’t do the sums and work it out?

Michael:  Often, we don’t do the sums. But take a week off work. It is a lot of trouble moving banks, so take a week off work if you need to.

What I say to people is call a couple of banks that you don’t deal with and ask them to pitch for your business. When they give you the best rate, as long as the loan is equal, go back to your bank and tell them you want them to match it.

What they’ll often do is stay within about 0.25% above what you have, because they don’t think you’ll bother moving for that much money. But if you do the sums, make sure you know how much it’s worth to you, especially if you maintain the same payment because that’s when it really turns into tens of thousands of dollars.

Kevin:  Those small fish can be very, very sweet. As an example, a few years ago, we tried an exercise where we just opened a bank account and we thought “We’ll just put $50 a week in.” It’s just an automatic payment; it just goes in. We just left it, didn’t touch it. It was amazing how quickly that grew, and it became a substantial amount of money. Sometimes the small, sweet fish can really add up to be quite big.

Michael:  Yes, there are lots of small things you can do to save money on your mortgage. One of them is have a look at how much money your kids have in their bank, and what are they earning – a couple of percent interest? Even older children saving for a deposit to buy their own place might have a bit of money in there and they’re getting next to no money and they’re paying tax on it.

Put it in your offset account against your loan and pay your kids the interest rate you’re paying on your home loan. It’ll be two or three times what they’re making.

Kevin:  Great advice from Michael Sloan. Michael is the author of the book The Formula to Successful Property Investing.

 

What Donald Trump really meant – Michael Yardney

Kevin:  Everyone seems to be talking about Donald Trump, don’t they? I’m reminded of a number of quotes that Donald Trump is famous for. We’re going to have a look at those today in the show and get an impression of what they really mean from Michael Yardney, who has also looked at them.

Good day, Michael. How are you?

Michael:  Hello, Kevin. I’m well, thank you.

Kevin:  Michael is a regular guest, of course, from Metropole Property Strategists.

Michael, let’s have a look at a few of these. The first one I want to ask you about is “As long as you’re going to be thinking anyway, why not think big?”

Michael:  Love him or hate him, Donald Trump can teach you some lessons about success, about life, about business, maybe not about politics – and definitely about property.

Interestingly, long before his catch cry of “You’re fired,” Donald Trump was famous for the saying “Think big.” In fact, it was the name of his first book. So, since we become what we think about all day, it takes no more effort to think big than it does to think small. So, I guess he’s right: think big.

Kevin:  Here’s one that he’d be reminding himself of, I guess – something that happened just recently. “Sometimes by losing a battle, you find a new way to win the war.” He’d be finding that a lot in politics, I would imagine.

Michael:  Yes, and even though this isn’t a political podcast, it’s hard to avoid that, isn’t it?

I guess what he’s suggesting there if you read between the lines is successful people see failure very differently to the average person. They sit it as a stepping stone to the next level. Every successful person I know – me personally included – has definitely had more than their fair share of failures. But each time, they’ve gotten up again, they’ve dusted themselves off, they’ve tried again, and they’ve learned some valuable lessons from what’s happened.

So, that’s a big, big difference between successful property investors, business people, entrepreneurs, and the average Australian. They just get up one more time.

Kevin:  Another one of the sayings from Donald Trump is “Experience taught me a few things. One is to listen to your gut, no matter how good something sounds on paper.”

Michael:  I guess what he’s getting at is experience teaches you lessons you can’t learn any other way, so, learn from them. Kevin, I once heard that experience is what you get two minutes after you need it. So, what he’s basically saying is that experienced investors will benefit from all the good and the bad that’s happened to them. It’s gotten you to where you are today. Take advantage of the lessons you learned along the way.

Kevin:  Maybe this next one, Michael, is one that he should have taken into account before he ran for president. He said “You’re generally better off sticking with what you know.”

Michael:  Very much so. To become an expert property investor or at anything else, Kevin, it’s best to do one thing a hundred times rather than try to do a hundred things once. We see a lot of people trying this strategy and that strategy, doing this business or doing that, and they never become good at it. To become an expert, what you have to do is have reproducible results, and the way you get that is by doing it over and over again.

Kevin:  I’ve actually heard you say this next one as well, and I’d love to ask you about this one. He said “Sometimes, your best investments are the ones that you don’t make.”

Michael:  Yes, you’ve heard me say that too, Kevin, that I’ve made more money by saying no to opportunities than to perceived investment opportunities that you get coming in through your inbox and through people ringing you and telling you about things. I guess he’s suggesting to weight up the pros and cons and make a judgment based on careful analysis.

At this stage in the property cycle, for some people, the right thing to do is just nothing: hibernate, wait until the market moves on or the banks lend you some more money.

Kevin:  It is a bit of a luxury. And this next one too is a bit of a luxury, where he said “I don’t make deals for the money. I have enough – in fact, much more than I’ll ever need. I do it to do it.”

Michael:  I guess here what he’s saying, Kevin, is differentiating between loving money and loving the process of making money. If all you’re doing is chasing money, you’re never going to have enough, you’re never going to be grateful, you’re never going to appreciate it. There is a good point there, Kevin.

Kevin:  Yes, good point. We only have a couple to go, but another one he said is “I try to learn from the past, but I plan for the future by focusing exclusively on the present. That’s where the fun is.”

Michael:  Good point, Kevin. We’ve all made mistakes and you can’t change the past. I guess part of being a successful investor involves taking responsibility for your mistakes, learning from them, and not making them again.

Clearly, Trump is flawed like all of us, so he doesn’t worry about the future either. What he’s saying is “I’m going to concentrate on now, I’ll do the best I can, I’ll be the best I can now.” And that’s probably helped all of us get good results.

Kevin:  Another one – and there is a bit of a similarity with a lot of these – it comes down to how he thinks about money. He said “Money was never a big motivation for me, except for the way that I keep score with it. The real excitement is in playing the game.”

Michael:  Interesting, isn’t it? You can actually see some commonalities in what he’s saying, Kevin; you’re right. I think what he’s saying is life is a game, and we’re all here to have a good time, so take advantage of it while you can.

Kevin:  Yes. The next one is very Donald Trump: “Show me someone without an ego and I’ll show you a loser.”

Michael:  Yes, you’re right; it is very Donald Trump. I guess many people see him as arrogant, but maybe what he’s saying is it takes a confident person to lead others effectively. Whether you’re in business or as an investor, having a strong, healthy ego helps you travel the bumpy roads towards success.

Kevin:  I love this next one. Anyone could have said this, but he did say it, Donald Trump. He said “If you’re interested in balancing work and pleasure, stop trying to balance them. Instead, make your work more pleasurable.”

Michael:  Well said, isn’t it, Kevin? I think we both are lucky enough to experience that. I know you very much enjoy what you’re doing in your work, so it’s not seen as work. I do also. One way to achieve this love of work is to find something you’re passionate about – it doesn’t matter what it is – and then try to pursue it.

Kevin:  The final one I’m going to leave you with is, I think, very appropriate and a great way to end this little segment with Michael. Donald Trump said “What separates the winners from the losers is how a person reacts to each new twist of fate.” So true.

Michael:  It is. It reminds me of that famous saying by Winston Churchill, who said the same thing in a different way. He said “Never give up. Success is the ability to go from failure to failure without losing your enthusiasm.” Sure, that’s hard to do, and one way to do it is to surround yourself with good people, other people who are going to hold you up and hold you accountable and look after your back.

Kevin:  I think you said right at the outset, Michael, no matter what you think of Donald Trump, great people we can learn so many lessons from. So, thank you for sharing your thoughts on those eleven pieces of wisdom from Donald Trump.

My guest has been Michael Yardney from Metropole Property Strategists. Thanks, Michael.

Michael:  My pleasure, Kevin.

 

Fractional financing – what is it? – Warren Gibson

Kevin:  With so many people talking about housing affordability, this may be just a unique way for you to get into the market if you are struggling. There is a company called DomaCom, and a man behind it is Warren Gibson, who joins me.

Warren, thank you very much for your time. What is DomaCom? How does it work?

Warren:  DomaCom is a fractional property investment platform, Kevin. It’s simply a modern form of syndication that enables people to come together and put various amounts of money in – from a small minimum of $2500 – towards acquiring a property, and then they share in the rent and the future capital gain from that property in proportion to the amount of money they’ve put in.

Kevin:  Lots of questions I want to ask you, but you mentioned the term “fractional financing.” Is that the term you used?

Warren:  Yes. It’s an interesting term, isn’t it? Another term for that is syndication, and yet another one in the modern lexicon would be crowdfunding, and that’s the one that seems to resonate with most people.

Kevin:  So, the whole idea here is that a whole group of people are going to put in relatively small amounts of money each but then they have some part ownership of property. Is that the way it works?

Warren:  Because property has a single title, somebody has to hang on to the title, and you can’t have 20, 30, 40, 100 different people all having their names on the title. So, what we do is we put together a legal structure, and the purpose of the legal structure is to protect the interests of the investors.

When we acquire the property, it sits in a sub-fund of a managed investment scheme, a trust, and this is an ASIC-registered fund. The title rests with an independent trustee, and we use perpetual trustee for that purpose.

And then we issue units in the fund. So, you own units in the fund, the fund owns the property, and perpetual being one entity just hangs on to the title in the interests of representing the unit-holders.

Kevin:  As someone investing in DomaCom, am I going to have the opportunity to decide which properties I want to invest in? Or is it that I just come into the idea of it?

Warren:  There are a couple of different ways, but absolutely, you have choice – and that’s our ultimate goal. When people go into other trust types like unlisted property trusts or real estate investment trusts or something like that, somebody else chooses the property. In our structure, you get to choose what you want to invest in.

So, if you see a property that’s on the market and you want to invest in that, you can either commence a book build through an advisor, or you can come to us and we can start a book build and we can bring other people together for it.

Or sometimes we go and select a property. Recently, we selected a cattle property in Western Victoria because we had tenants lined up for it. It was an excellent property, had growth prospects and a good rental yield, and we decided that we would start a book build on that, and in the ensuing few weeks, 94 people came together and we bought the cattle property.

Kevin:  Was this the Kidman property?

Warren:  No, not the Kidman property. We did attempt to crowdfund the Kidman property, but as you can imagine, a $400 million cattle property is somewhat difficult to pull together.

Kevin:  How did you go with that one, by the way?

Warren:  We got over 5000 people who pledged $80 million. We had a major bank who agreed to leverage it for $70 million, and that was just towards the value of the land. The actual cattle business, which was the cows, we valued around $160 million. We had a consortium of businesspeople prepared to buy that part of it, so we got reasonably close, within about $70 or 80 million or something like that. But at the end of the day, it was a big task.

Kevin:  If $70-80 million is getting close, well, then you were close.

Warren:  In terms of $400 million, it is pretty close.

Kevin:  That’s close enough. A couple of questions then for you. Okay, so I invest in this. You mentioned there at the start I think that we can share in the profits. Say I have to exit from my investment. How difficult is that for me? Is it possible, and do I share in the profits at that point in time?

Warren:  That’s a really good question, and one of the issues with investing is you always have to have an avenue of exiting the investment. Not everybody is ready to get out at the same time. So, we thought about that hard and long when we were putting the structure together, that getting out of an investment is important.

When we acquire these properties and put them into a fund, we run the fund for a term of five years. When we get to five years, we ask all of the investors “Do you want to stay in it, do you want us to retain the property? Or do you want to sell it and go?” And if most of them say “Look, we would like to retain it,” we will keep it, provided those who want to get out can get out and everyone else buys them out, or we get new investors in. We’ll roll it over and keep it.

But let’s say three years after we acquired a property, somebody wants to get out – for whatever reason. Then we have what we call a liquidity facility. It’s like a secondary market, if you like, where they can go online, just like you do with your shares – you can go onto Etrade or Comsec or one of those online traders – and list your units for sale.

We can then advise other investors in that property if they want to increase their exposure to it and buy you out. We’ll do that at the latest valuation, so we revalue the properties every 12 months.

Kevin:  Okay, that probably answered my question. So, there is an exit strategy there, but it’s not simply as easy as just picking up the phone and getting an agent to come and sell it for you. You have to go through a process.

Warren:  No, it isn’t, but there’s no cost involved in doing that. No entry fees, no exit fees at all.

Kevin:  Is there a minimum amount for me to invest, to become involved?

Warren:  $2500 will open an account.

Kevin:  Warren, thank you very much. The website is DomaCom.com.au. My guest has been Warren Gibson.

Thank you very much for joining us.

Warren:  Thank you, Kevin.

 

2017 report card – Andrew Wilson

Kevin:  Given that we are 50% into the year already, it’s time to have a bit of a look back and check on the report card for what’s happened so far in 2017. Joining me to do that, Dr. Andrew Wilson from The Domain Group.

Andrew, how would you classify the first six months of 2017?

Andrew:  No doubt, a positive start to the year, Kevin. Also, no doubt that we’re moving away from that very strong prices growth – particularly in Sydney and Melbourne – that we had at the end of last year. Prices are still rising in all capital city markets, and interestingly, we’re starting to see a bottoming out in the Perth market as well.

I think those value opportunities and perceptions are starting to move buyers back into the Perth market. Although I don’t expect prices to grow, I think that we won’t see the sort of declines we’ve had recently.

Most other markets are certainly vibrant, although no doubt coming off their peaks of the end of last year, and no surprise because the further we move away from those low interest rate drivers of higher house prices… And of course, remembering we had a rate cut. Our last rate cut was in August. The further we get away from rate cuts, the less opportunity or the less capacity we have to push prices up. But certainly, in most markets, demand is ahead of supply.

Kevin:  Growth in prices, the blame for it still being laid fairly at the feet of foreign buyers. That’s hard to say early in the morning! I notice a report out on the Domain site saying that the majority of Sydney-siders don’t believe that foreign investors should be allowed to buy property in Australia at all.

Andrew:  I’m not sure what sort of valid insights we should gain from that type of data modeling, Kevin. I think that there’s no doubt that there is a very strong interest in our product from international investors, but there are certainly a lot of hoops to jump through for international investors in our marketplace.

I find it amusing that we’re wanting to put up the barriers for international investment in our country. We have such a need, particularly the student market, our university industry, for income generated from foreign students. I don’t think we can have it both ways, and I’m not sure that there is any real validity in terms of imbalances caused by foreign investment.

Kevin:  I sometimes wonder whether governments just go for low-hanging fruit. Everyone is talking about affordability, looking for laying blame and so on. There has been a lot of talk, even in this last couple of weeks, about how much focus we should be putting on affordability.

I had a talk to Michael Yardney about this recently and he made the point, do we really want houses to be more affordable in Australia? If you look at what needs to happen for that to happen, they are going to be a lot of investors, a lot of property owners who would be very unhappy.

Andrew:  Our latest affordability index for the capital city markets for the March quarter shows that affordability is, in fact, improving. And in most capital cities – in fact, in all capital cities – affordability as measured by the proportion from the average income of the average loan retirement is below the last 15 years’ average.

There’s no doubt that it’s tough for first-home buyers, particularly in the Sydney market, and it’s very tough for renters as well. But in terms of owner-occupiers, these low interest rates, they certainly haven’t had it this good for over a decade in terms of the growth in the house prices and low interest rates.

I think we have to realize that foreign investment is positive in terms of generating jobs and providing supply into our marketplace. High prices do mean a lot of people miss out on property – it’s a market environment – and as you said, we do get the blame game happening. Whether it’s foreign investors or real estate agents, it really doesn’t reflect what is still a remarkably robust and resilient housing market.

Kevin:  Can I just pick on a point that you just made about how difficult it is for first-home buyers in Sydney? The point I would make is that first-home buyers don’t really constitute a big slice of the market. It’s actually difficult for anyone to buy a property in Sydney because of affordability, not just first-home buyers. So why do we always focus on first-home buyers?

Andrew:  I guess that it’s the great Australian dream and we do, I guess, do have an underlying connection to being able to purchase property in this country. We’ve come from backgrounds and cultures where it’s been very difficult and there have been significant barriers to owning property, so I guess that’s part of our egalitarian society that we feel that we need to be able to own property and get into property.

But it’s always been tough, Kevin, and it is very tough now at the moment. When prices rise, it always makes it tougher for first-home buyers. That’s the nature of the beast, because first-home buyers don’t have a trade-in to bring into the purchase proposition as homeowners do have.

But with limited supply, if we start trying to increase demand through bonuses or cutting stamp duty for first-home buyers, it’ll only put up prices in the medium term. That doesn’t really do anybody any favors except existing homeowners.

I think that the clear conundrum in our housing markets, particularly the ones that have higher prices, is supply. With initiatives being announced recently to cut off supply or to curtail supply in terms of our foreign developers and foreign investors, it is quite counterintuitive given that we’re basically very, very skinny for new development coming through. Even the Melbourne and Brisbane markets are starting to look like they’re rebalancing now after a strong period of new development.

Kevin:  Pull that crystal ball out, mate. The landscape going ahead between now and the end of the year, what’s it going to be like?

Andrew:  Housing markets are vibrant still, Kevin, and as I said, growth is still positive but growth levels are declining. As I said, even the Perth market is looking like it’s going to find its bottom this year at some stage. So, I remain quite positive.

Interest rates are always the key, Kevin. We know that’s where housing markets are going to go. There has been a lot of talk, which I’ve found quite confounding, that we would get higher interest rates from the RBA this year. I think that we’re now, sooner rather than later, going to get a cut in interest rates from the RBA, maybe as soon as June or even July.

The latest economic data is very concerning. We had retail sales falling over March for the second consecutive month, and that’s the first time that’s happened since 2012. Retail sales were supposed to be one of the key drivers of the economy, and with the actual sales going backwards, it does reflect this low-growth, low-income, underemployed economy that we do have now.

I think given that banks are now looking to pass on the new bank tax with higher interest rates likely, I think the Reserve Bank will have to act now to offset that and to try to stimulate an economy that is clearly still stuck in second gear.

I think we have a chance of having negative economic growth again over the March quarter. Of course, we had negative growth over the September quarter and bounced back over December. But given we had the Queensland cyclone earlier this year and low retail sales, I think that we might see negative growth.

I think that the Reserve Bank must start to identify that and ignore a lot of the narrative about high Sydney house prices and higher Melbourne house prices and start looking at the main game, and that’s to get people in work again.

Kevin:  Consumer sentiment down, of course, after the federal Budget was released, and that probably was predictable because it was one of those Budgets that we had to have, one that doesn’t come with a lot of sweetness. So, I’m not terribly surprised that consumer confidence is down, Andrew. How would you feel about that?

Andrew:  I think a lot of the housing market initiatives in the Budget were predictable, Kevin. I think that they satisfied a lot of the issues that have been out in the public forum this year so far.

It’s been a little hysterical, some of the discussions that we have had and it hasn’t really reflected on-the-ground issues. Some of the options that are being proposed would probably cause more problems than they’d solve, but most of the issues were addressed at some level by the government.

However, I think that they were just really at the margin and they won’t have any significant impact on market dynamics. Interest rates are the main game and the economy is the main game. As I said, I think that we will see a very flattish outlook for interest rates going forward, and I think that means that our housing markets will remain quite stable.

We have to remember that migration is very strong into Melbourne and Sydney at the moment, and we’re starting to see signs that migration is turning around, particularly into South East Queensland as well.

With undersupplied capital city housing markets – we’re seeing the recent strong growth in buildings starting to decline – that’ll only mean higher prices, or certainly, it’ll keep demand ticking over ahead of supply.

But we’re not going to see those big double-figure increases in house prices annually that we’ve seen in Sydney and Melbourne recently. It’ll be flatter, but I do believe we will continue to see prices grow.

Kevin:  Dr. Andrew Wilson from The Domain Group. Thank you very much for your time, Andrew.

Andrew:  Thank you, Kevin.

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