22 Dec APRA happy to be the ‘heavy’ + All that glitters is not gold + Site matches sellers with agents
Highlights from this week:
- What will APRA do in 2018?
- Investors will need discipline next year
- You will need to outperform the market
- A valuer’s role
- The catch behind an offer too good to be true
- The rising and the slowing markets
- Property ‘matchmaker’ site eases seller pain
APRA happy to be the ‘heavy’ – Andrew Mirams
Kevin: As we continue our look at the property market for next year in our final show for the year, I’m welcoming into the studio Andrew Mirams from Intuitive Finance, who is one of our regular contributors.
Andrew, pull out the crystal ball for me. What are you seeing for next year? How are you feeling about the property market in Australia?
Andrew: Hi, Kevin. Yes, the crystal ball, you should have rang me in advance to charge it. It’s always that difficult question, isn’t it?
Kevin: Yes, it is.
Andrew: I think the finance, we’re seeing that the market has just come off late 2017 a little bit. APRA’s intention to slow down the market, Sydney and Melbourne in particular, is having an effect around the countryside. I think that they will be quite pleased with that, people not overexposing themselves and things like that.
You now have Sydney into the low 60s or high 50s percent clearance rate. We have Melbourne coming off, moderating. Probably still a strong market and Australia’s strongest market, but it’s certainly starting to moderate and now they’re really particular about the style of property.
And a bit of growth coming in Brisbane, which is probably people who can’t get into Melbourne and Sydney. And with some infrastructure projects up there and things like that, you’re starting to see some good signs in Brissie.
Kevin: APRA has come out in recent times and said that they believe that what they’ve been doing to tighten the market a little bit has actually worked, slowing it down just a fraction.
Do you think they’re going to be inclined to be buoyed by that and say “Maybe we’ll tighten the screws a little bit more in 2018”?
Andrew: They’re pleased with the outcomes they’ve been able to deliver. We’ve talked quite a few times through the course of 2017 about we don’t want boom and bust cycles. That’s no good for anyone. That’s only feast or famine. And that’s just not a good market to want to be investing in.
So, they’re trying to level it. They’re trying to bring it some normal growth. Really, what we’re going to see in 2018 from an APRA perspective, I think there’s going to be a little bit more work around interest-only lending and making sure they’re documented and that the clients are getting what they actually want, not just what someone thinks they should have.
The other thing we’re going to continue to see is a lot more focus on everyone’s living expenses. We’ve talked about this a few times, Kevin, and making sure people have some sort of an idea of what it costs them to live month to month. That’s going to be a real focus in 2018.
I think a show or two ago, we talked about 2018 being the year of the living expenses. I’m happy to go by that prediction and think that the credit squeeze, it’s not going to back off just for the minute. We’re going to just have some more scrutiny around responsible lending and making sure the lenders are all doing the right thing by clients.
That said, all the banks are still open for business. It’s just that people are probably hitting their limits sooner than what they’ve been accustomed to.
Kevin: Just a dumb question, if I could ask it, Andrew. The prudential controls that we saw, particularly in 2017 from APRA, do they have the ability to loosen those in certain areas? In other words, could they say to the bank, “We think you need to continue to tighten the screws in Sydney and Melbourne, but maybe release a little bit more in Brisbane”? Do they have that much control?
Andrew: That’s a great question, Kevin. I think there are lots of commentators around the country who would say that’s what should have been happening in any case through 2016 and 2017 where you’ve had the Perth and Darwin markets floundering a bit. Also, back in the mining boom, you had Brisbane just ticking along, not kicking goals, and then you’ve had this boom in Sydney, and now Melbourne a year or two later to the party having this boom. So, there’s been really disjointed markets.
Sadly, they can’t or they won’t make rules for domiciles. They’ll just say “These are the rules and we want to slow the whole market down and we want to make sure.” Because responsible lending isn’t a domicile-based decision wherever you live. They’re bound by rules to lend responsibly, so I think that probably has more potential damage to start to pick off independent markets and say “This is now the rule.”
The banks have done it a lot with their postcode restrictions where they know that there’s high unemployment, less housing growth, and things like that. The banks have a lot of data and they’re also probably doing those restrictions behind the scenes versus… We have a bit of a “one size fits all.” Once upon a time, it used to be the Reserve Bank raising and lowering the markets; now it’s the prudential controls, as you said, that’s limiting or restricting the markets.
Kevin: Andrew, great talking to you, mate. Thank you for your excellent work during 2017. I look forward to working with you in 2018.
Andrew Mirams from Intuitive Finance. You can contact Andrew and his team on any one of the buttons on Real Estate Talk.
Thanks, Andrew. All the best for Christmas and the New Year, and look forward to talking to you next year.
Andrew: Thank you, Kevin. All the best to you and all the listeners for Christmas, and let’s hope 2018 is a prosperous one for us all.
Website helps sellers find an agent – Matt McCann
Kevin: In an extended podcast you’ll find on the site right now, called A Million People Can’t Be Wrong, I catch up with the CEO for LocalAgentFinder, Matt McCann, and we talk about how his site, LocalAgentFinder, is making it easier for consumers to find the best agent to sell their property.
There’s a lot involved, as I found out when I was talking to Matt in his portion of the interview. You can hear the full 11-minute podcast, which will take you into a lot more detail about how Local Agent Finder can help you.
You’re going to find that podcast in the Your Investment Property channel. Just go to their channel. You’ll see it there, A Million People Can’t Be Wrong, and you’ll get the full version of this interview.
Here’s a portion of what Matt told me.
Matt: What we’re trying to do is really help a consumer cross the threshold of getting an agent who is going to decrease the stress of selling a property or renting a property out, for that matter.
When we do that needs analysis, we ask a lot about the consumer themselves, or the homeowner in this case. We want to know about the property. We want to know where they’re at in terms of the stage in selling they’re at. We also want to know what they’re looking for in an ideal agent.
There’s a deep degree of information that we pull together to create a profile of what that homeowner is looking for for their transaction. In that, we then take that data and then compare it to our network of agents. In doing that, we’re trying to find the right set of agents for that person to consider and then ultimately short-list and obviously transact with.
To do that, we use our proprietary algorithm. Our algorithm takes into account objective market factors. It takes into account performance of listings, sales, and homeowner feedback that we’ve had from previous transactions with that agent, and marries that with what we call localization factors: how are those things relevant to the local area?
The group that we’re recommending, ultimately, to a homeowner are local experts who perform really well in that area. That then gives the homeowner, in that sense, a good set of confidence that what they’re going to receive from us, and ultimately, who they can choose to transact with are strong-performing agents who will really take some of that stress away from the buying process.
Kevin: Do you charge the consumer for that service?
Matt: We don’t. What we say upfront to consumers is the service doesn’t cost you anything; the way in which we get paid is that when an agent who uses our platform is successfully introduced to you, at that point, when you transact your property through them, then we get paid a fee at that point.
If you’re out there looking for the information and looking to be able to be assisted in employing an agent, then a service like ours will take a lot of the stress and, certainly, a lot of the legwork out of trying to find out those core pieces of information that you are looking for about an agent to be able to work out if they’re right for you.
Kevin: It’s not necessarily the best agent; it’s the agents who would have agreed to pay you a fee because they wouldn’t all agree, would they?
Matt: The way in which the platform works in relation to who is on the platform is different in that sense, as it is for all of the comparison services that exist today in Australia’s market, whether it’s health insurance or car insurance or life insurance.
Our job is to go out and convince as much of the industry that they should participate in the platform, and we’ve done a pretty good job of that over, really, the eight-year existence of the business, but particularly, in the last four years.
But ultimately, you’re right; the only people who are on our platform are those who have signed up to be part of our service. Today, that’s a little over 5200 agents. Obviously, we have representatives of all the major brands on our panel and some very high-performing agents. To that end, we look at things like the REB Top Agents List. There are number of representatives across those kinds of awards that sit within our panel and do very well out of our service.
Kevin: Agents are now coming to terms with the fact that this is part of the new way that they’re going to be finding sellers as well, Matt.
Matt: I absolutely agree with that. The changes we’ve made to the service are driving that as well, I think. The other key thing we’ve changed this year is we have a 300% increase in the number of conversations we’re having on the phone with potential homeowners. That just means you get a lot more data, a lot more insight into where they are in the process and how they want to be treated by an agent.
Those insights going to agents have seen a big shift in the quality of the opportunity we put in front of the agent, and so therefore, I think they’re much more ready to, obviously, take the opportunity and run with it.
Kevin: Thanks for your time, Matt. Matt McCann is the CEO for LocalAgentFinder, LocalAgentFinder.com.au. Thanks for your time, Matt.
Matt: No problem at all. Cheers.
Kevin: And as I said, you’ll find the full 12-minute podcast, which goes into a lot more detail about how it works and how it can help you find the best agent in the area, you’re going to find that by going to the Your Investment Property Magazine channel on Real Estate Talk and just search for the words “A Million People Can’t Be Wrong.”
All that glitters is not gold – Peter Carter
Kevin: I don’t know if you’ve seen it in your area, but I’ve certainly seen it in mine. Driving around, you’ll see signs on lampposts and street signs that say, “We will buy your house for cash. We’ll pay the full price, and we’ll buy it now.” What’s behind those? It’s a rent-to-buy scheme, and I want to talk about it because it has been of concern to me for some time.
Peter Carter is from Carter Capner Law, and he joins me. Peter, I know you know what I’m talking about. Could you just explain how these schemes work?
Peter: It depends on the imagination of the entrepreneur behind it, but typically it’s a situation where the perhaps desperate, or hopeful, or optimistic seller thinks they’re going to get a bargain out of this type of deal. On the face of it, they do.
The entrepreneur offers to pay full price, but it’s a projected long-term settlement. Usually they’ll pay an option fee of cash or sometimes it’s even monthly fee. But they get the right of immediate occupation. The entrepreneur – or agent; let’s call them that – gets the right of immediate occupation, and they install their customer as buyer under those terms.
The option fee is paid out of the rent received by the agent’s customer to the seller and comes off the ultimate purchase price. But if you have a three- or five-year term involved there, it can become a nightmare for the owner-seller. They might never get paid, and that’s often what happens.
Kevin: Is the figure that’s paid today’s figure, or is it the figure projected toward the settlement time – which could be two or three years away)?
Peter: It’s today’s figure, but it’s the asking price. There’s usually no argument about what the asking price is, because the object of the entrepreneur is to get hold of the house so they can put a tenant in.
Kevin: The real risk here, of course, for the seller is that you’re giving up occupation. There have been a number of occasions, I believe, where the property either wasn’t settled or when it was due to be settled, it was trashed.
Peter: Yes, that’s right. The attraction to the buyer is that they get a long time to settle. They’re actually only paying rent, and part of that is going to the buy price, which to many punters looks attractive. But of course, the entrepreneur is taking a cut as it goes through.
Kevin: Then of course, the risk is that the property won’t settle. What sort of recourse do you have in this situation? What are the contracts like, Peter?
Peter: They’re innovative, customized contracts, and they have all sorts of weird and wonderful conditions. The ultimate outcome is that neither the buyer nor the seller is satisfied – legal action is required, or sometimes Fair Trading intervenes.
Kevin: What would be your advice to someone who brought you one of these contracts?
Peter: Certainly have a good look at it. Look at all the fine print. Sellers beware, and buyers especially beware. I’ve never seen one come out well.
Kevin: What happens to the poor tenant in the middle of all this? They’re going into the property, and they assume that they’re paying rent, which is being split between two parties.
Peter: Well, remember, the tenant is the buyer. That’s how the entrepreneur makes it all work. They get a buyer in – a very optimistic buyer – who that thinks instead of paying rent they’ll own this house one day. But it really is one day. I’ve seen contracts where it would just be impossible to actually finally pay the ultimate purchase price. It just doesn’t add up.
Kevin: Yes. You’re preying on the dreams there of someone who wants to get into a house, and maybe they can’t do it in the traditional way by getting a loan, so this is the only way for them to do it. Pretty risky all round.
Peter: Pretty risky. The typical advertisement you see is not just signs on lampposts; you’ll see advertisements in newspapers, etc. A good example i, “We want ugly, smelly houses, debt-ridden houses. Any price, any condition. If you don’t want it, we do. We can buy your house fast. Agents can’t.” That’s the sort of message they’re putting out to desperate sellers.
To buyers, the advertisement typically runs “Own my home! Must sell! Stuff the banks! Move in today!” – that sort of thing.
Kevin: The alarm bells should be ringing when you read that sort of stuff.
Peter Carter has been my guest from Carter Capner Law. Peter, thank you so much for bringing this to our attention, and thanks for your time.
Peter: Thanks, Kevin.
Property types to keep an eye on 2018 – Simon Cohen
Kevin: Let’s have a look at some of the key areas around Sydney, Melbourne, and Brisbane. A lot of talk about what’s happened with property prices, particularly in our capital cities. We’ll look at the growth areas. I want to also look at some of the areas that are slowing down around Australia and the property types you can keep an eye on for next year, 2018. Joining me to do that, Simon Cohen from Cohen Handler.
Simon, thank you very much for your time.
Simon: My pleasure, Kevin. It’s great to be here.
Kevin: Let’s have a look at some of these areas around Sydney, Melbourne, and Brisbane. Is it still possible to find areas in those cap cities that are still growing quite well, Simon?
Simon: Absolutely. I think the main thing to look for when you buy any property in any of these cities is areas that have infrastructural reasons for growth as opposed to just the market growing. So, if you look for areas where there are new transport facilities going in or new office complexes or new hospitals being built, whatever it may be, if you look for key factors why people will ultimately need to move there, you’re definitely going to see some growth. And if those areas are close to the city or easily accessible to the city, they’re certainly what I’d be looking for.
Kevin: Yes, the thing, I think, in Sydney and Melbourne is that to get close to the city, it’s going to cost you a fair packet. You need to go out a little bit more into some of those outer areas for it to be a little bit more affordable. Then I guess the question is what sort of infrastructure is going in there, Simon?
Simon: Absolutely. If you look at Parramatta two years ago, the time when it was one of the fastest going CBDs in Sydney, you had a lot of head offices moving their offices there, so great factors for growth. And if you can look for those sort of areas in whatever city you’re in, and then you have the accessibility, the transport, and the ease to get into the CBD, you’re going to have a win-win.
Kevin: Are you sensing any areas in those cap cities? Let’s talk about Sydney and Melbourne for a start. Well, maybe Brisbane; we’ll throw that into the mix. Are you seeing any areas that are starting to slow down a little bit, Simon?
Simon: I think the further away from the city you get, we’re definitely seeing areas that are slowing down. But the market that has slowed down in all the major cities seems to be – and it hasn’t died, that’s for sure; it’s dipped a little bit – is the investor market.
As banks tighten up LVRs and things like that, we’ve seen investors slow down a little bit. But then we’ve seen an increase in first-home buyers, and those first-home buyers are buying a little further out just to get a foot into the marketplace. As you say, close to the city is definitely pricey.
Kevin: What areas in Brisbane are you finding that are really worthwhile having a look at right now?
Simon: I love blue chip areas in any major city. In Brisbane, it’s of Ascots and New Farms that for me are always the safest. I love the lifestyle style, they’re close to the city, they have the cafés, the transport, and there always new shops and hotels and things opening up there, which means that it’s always growing areas.
Kevin: One of the things that we’ve had a lot of conversation and concern about in this last year has been an over-supply of units, and we’ve heard some horror stories about what’s happening in Melbourne with additional units coming onto the market.
Are you buying units for your clients, or are you mainly looking at house and land?
Simon: I’ll say to you this: we very rarely buy off-the-plan properties. It would be a very minuscule percentage of the properties we buy. We are definitely buying units, but we like to buy established units in boutique blocks that you can add value to, that when you come to resell or rent out, there’s far less competition than an off-the-plan property. You also know what you’re getting, and you’re not market-reliant on if things are going to dip in two years because you’re buying off the plan.
Kevin: If you’re looking at buying an established unit, would you look at the percentage of owner-occupiers compared to investors? And if so, just walk me through why you would do that.
Simon: It’s a good question. It really depends on the size of the block. I would in certain buildings absolutely, and I do it because if my client was an owner-occupier and they wanted to live in the property, we wouldn’t want to buy a property that’s heavily tenanted. Tenants care less about how the building looks, how it’s maintained, how it’s established, they’re typically messier and aren’t fussed on upkeep.
So, I’d be trying to put my owner-occupier client into a property where it’s everyone in the same boat, if that makes sense, and they want to keep the property looking good and ultimately keeping it to its highest value.
Whereas if they’re investor properties, investors typically don’t want to spend the money to clean buildings up, doing the things that need to be done, because they’re out-of-pocket expenses. But if you live there, you see it every day and you want it to be nice.
Kevin: Just getting that balance, if I was an investor looking for a unit, I’d probably want to buy in a block that’s predominantly owner-occupied for the very reasons you’ve just mentioned there. So, as my investment, it’s being well looked after.
Simon: Absolutely. Well looked after, well maintained, and you know there are like-minded people in the building.
Kevin: So, what are the property types that you’re going to keep an eye on in 2018, and why, Simon?
Simon: Always boutique block apartments, established older style that you can cosmetically renovate and update and add value to that are close to the CBD or in areas outside the CBD that have those great infrastructural reasons for growth. In those three major cities, absolutely.
I would definitely be staying away from off-the-plan, bigger style properties. I think they’re too risky, and they’re the ones where you hear the horror stories. As population grows and the dwellings don’t get that much bigger, I’d be looking for subdivision-type properties where you can put two or more dwellings on one property, for obvious reasons. They’re the main things I’d be looking for.
Kevin: What about state by state? Are you a cap city buyer only, or do you look at the regions?
Simon: Me personally, cap city.
Kevin: What about for your clients?
Simon: Typically cap city.
Kevin: And which areas will you be looking at in the cap cities?
Simon: In Sydney, again, it’s the blue chip areas around the CBD. And there are some areas in the western suburbs, Blacktown, for example, the hospital there is becoming the major cancer hospital in New South Wales. It’s going to create a heap of new jobs, there are going to be a lot of people needing to rent there. They’re going to be great tenants, they’re going to be doctors and nurses and things like that.
So, outside of the CBD, I look for areas like that, like Parramatta two years ago. But definitely in Sydney, it’s anywhere around the city. Ultimately, it’s anywhere from Bondi to Surry Hills, but it could be Kirribilli, it could be Balmain, in that CBD radius.
In Brisbane, again, I love the Ascots and the New Farms. They still have great entry level prices, sophisticated tenants, and really strong yields. And in Melbourne, anywhere close to the CBD. But again, I like boutique areas like Toorak, for example. It’s close to the city, it’s [7:50 inaudible], it has good transport. And also if you can find boutique style properties in the CBD, I think you’ll also do well.
Kevin: Good stuff. Simon Cohen from Cohen Handler has been my guest.
Simon, all the best for the Christmas and New Year break, and I look forward to talking to you in 2018.
Simon: And to you and all the listeners. Thanks so much.
Research gone wrong – Gavin Hulcombe
Kevin: One thing I know about valuers is that they make the valuation process look so easy. That’s because they know a lot about the market. I think sometimes investors think that they can just do five minutes’ worth of work and probably know everything about the market. I’m talking now to Gavin Hulcombe who is the chairman of Herron Todd White nationally and also Queensland managing director.
Gavin, thanks for your time.
Gavin: No problem. Good morning, Kevin.
Kevin: Morning. I know that valuers spend a lot of time studying the market and always looking at it. Where do you see investors go wrong with the research that they do, Gavin?
Gavin: I think one of the hardest things for anyone to do is to come into a market that they don’t know or a location that they don’t know and try to understand the local drivers. I think that can be someone who is coming from interstate; obviously, it’s very hard to know the specifics of a location.
But I think even at a micro level, if you live on one side of a city and you want to go to buy something on the other side, there are often a lot of local drivers or specifics that the locals know that people coming into an area might not necessarily know. I think they do tend to have a fairly big influence on value.
Kevin: I think probably a decade or so ago, there was probably a time when the market was a lot less forgiving than what it is now and you could probably make some mistakes and just wait for the market to sort itself out, but you really have to be on top of it nowadays, Gavin, I find.
Gavin: I think that’s right. I think you really have to be looking to outperform the market. If you’re happy to take the average of the market or if you make some mistakes, you’re right, I don’t think we have the same level of uplift. There’s the old saying “Every player wins a prize.” Well, that applies in some markets, but I’m not sure that we’re in that phase now. I think if you don’t make the right decisions, you are actually at risk of losing.
Kevin: The topic for this conversation was where investors go wrong with their research. Quite often, you can do it at arm’s length, and I think you’ve mentioned the point that you have to get on the ground and feel what those local drivers are all about. Would your advice be to make sure you travel to the area you’re going to invest in?
Gavin: I think you need to travel to the area. I think you need to talk to people. That might even be talking to as many property people as you can, whether that’s real estate agents, talk to council, talk to town planners. Even having chats at the coffee shop, I think you start to get a bit of an understanding of what drives the local market by doing that. It’s getting out there, talking to people, and you certainly have to walk the streets. The idea of sitting on the Internet and doing it all remotely, I think can be quite misleading.
Kevin: What is a valuer’s role nowadays in advising investors – if that’s, in fact, what you do or you’re prepared to do – about the market that they may be looking at? Or do you simply look at it as a valuation and it doesn’t vary?
Gavin: If I’m really honest with you, some valuers do fall into the trap of “I do valuations,” and that’s what they do all day every day. I think there are other people who can step back and take a bit more of a macro view and say, “These are the areas that I would be considering and this is why.” Then once you started to narrow down your pocket, then you can say, “Well, what’s your price point?”
Basically, you start to narrow the field within which you’re looking. I think some valuers can do that quite well and certainly it gives you the ability to tap into the knowledge that they have. More often than not, they’ll know the suburb intimately and more often than not, the street. That can certainly provide some really good insights for people who are wanting to invest.
Kevin: In our show, we always talk with our investors and advise them to make sure they put together a team of people. Is it possible for a valuer to be on a team and look at areas outside their area of influence? As an example, would you be able to do valuations and help an investor in all parts of Australia?
Gavin: I don’t think anyone can know all parts of Australia that well. I think what you need to do is go to locals. For Herron Todd White, we have 65 offices around the country, we have people in most parts of Australia, and it would be a matter of going to the local office and the local valuer so that they can provide the local insights.
I don’t know that anyone can give an overall view of Australia, but I think it’s about starting with the big picture, starting to narrow it down and saying, “Well, why would I go to that area over another?” Once you narrow it down to a city, then I think you can start to narrow it down to a part of a city, then a suburb, and then you’re starting to get into the specifics from there.
Kevin: Gavin, thank you so much for your time. It’s been great talking to you as always. Gavin Hulcombe, chairman of Herron Todd White Australia and also Queensland managing director.
Thanks for your time, Gavin.
Gavin: Thanks very much.