30 Jun Aussies overextend + What would your kids do with $20? + How the rich made their money
Apparently we are really taking advantage of the low interest rates and while that seems like a good idea, there are some reservations and the possibility exists that we may just be overextending. Some good advice today on that subject from Bessie Hassan.
We take you over the ditch to look at real estate New Zealand style when we catch up with the host of Grand Designs New Zealand.
What would your kids do if their Grandma or Grandad gave them $20 as a birthday present? Today we tell you about a book written to help kids understand the importance and true value of money. Paul Clitheroe has said “Every child, teacher, parent and grandparents should read this book. Find out why as we talk to the author – Effie Zahos.
Is it possible to live off the equity in your property portfolio? Yes it is and we share some living proof that anyone can do it as we talk to Eddie Fuller about how he is ‘living the dream’.
Find out the reasons why John McGrath say that South East Queensland is the hottest place to invest right now.
You can learn lessons from the fortunes and misfortunes of Australasia’s richest people. This year, there were more billionaires than ever, and a quarter of the BRW Rich 200 list made their money in property. Michael Yardney shares his thoughts on how they did it.
Eddie Fuller – How to live the dream
Kevin: I had the privilege recently of attending Michael Yardney’s Wealth Retreat on the Gold Coast. Earmark it for next year. If you haven’t been to a Wealth Retreat, you should get along. Some great people. A very, very inspirational five days.
While I was there, I caught up with Eddie Fuller who has built a great portfolio for himself of property, so much so that he now lives off of that portfolio entirely. I was keen to know how he has done it and to find out some of the lessons he has learned along the way.
Eddie, have you always had an investor mindset?
Eddie: No. I think it is something that was developed. I probably got the investor mindset when I got into real estate. To start off in real estate, I read all of the investment books and learned the knowledge.
I think also my first boss was my mentor. He just basically said to me, “Eddie, what you have to do is make your income from real estate, but by real estate build your wealth through the assets of buying real estate.”
I think constantly going to seminars and things like that would have helped.
Kevin: How did you get started? Tell me about your first property.
Eddie: In investing, the first property I purchased was a little three-bedroom property. I was in real estate for about three years. It was just a residential three-bedroom, and it was a private sale.
Kevin: In those early days when you were working with a principal, is that when you learned the skills to be able to become financially independent through your own portfolio?
Eddie: Yes, it started from there. I think it started with watching. Like I said, my boss was quite successful even though he didn’t have a large property portfolio. That’s where I started with. Continuing from that, it was the books and the seminars, and was pretty much self-taught. I was probably from a very early start more interested in building a property portfolio.
Kevin: Did that come from your family background, Eddie? Were your family into property?
Eddie: Definitely not, no. My family were from a poor background, so I definitely did not get any investor intelligence from the family.
Kevin: In those early days when you started investing, what sort of feedback did you get from your family and your friends about what you were doing?
Eddie: The family was pretty much just my wife, and they were all supportive. I didn’t get any negative feedback, funnily enough, so I didn’t have anybody saying, “Don’t do this. You might lose your money.” I heard a bit of that later on as I started to build a portfolio, but I’d already educated myself not to listen to the negative people.
Kevin: Tell me about your best investment. Where was that, and do you still have it?
Eddie: My best investment was my first property that I kept – not my first property because the first property I purchased, unfortunately, I made the mistake as everybody else does: I sold. So the best investment was the first property that I purchased. I purchased that in around 2000 for $170,000, and that would be worth around $800,000 today.
Kevin: Why did you sell that? Was it just a lack of knowledge?
Eddie: Yes, I think I made the fundamental mistake that everyone does. I had it for a while, and I knew that you shouldn’t sell the properties. I knew that. It wasn’t to release equity; I think it was to release equity to buy further properties. In hindsight, I could have refinanced and kept the properties.
Kevin: Have you done much by way of renovations – adding to properties, adding value?
Eddie: Yes. My first investment strategy – when I actually adopted an investment strategy – was buy, renovate, and hold. I’ve done plenty of renovations on those properties, yes.
Kevin: Tell me about your worst investment. Where was that, and what made it so bad?
Eddie: I haven’t really had a worst investment. There was probably nothing that I’ve done that was fundamentally tragic.
Kevin: That’s interesting. Do you put that down to the fact that you had a strategy and just stuck to it, or were you very diligent about your due diligence?
Eddie: Yes. I’d put it down to that. I think being in real estate enabled me not to be buying properties that were like going to Queensland and buying a property for $200,000 when it was worth $100,000, and reading and educating myself as I was actually growing a portfolio.
Kevin: Is your portfolio diversified in terms of location?
Eddie: Yes, it’s mainly concentrated in and around the Melbourne area, but I do have a few properties in Brisbane that I’ve recently purchased, just to diversify and to spread some land tax around.
Kevin: Would you ever buy sight unseen, or is that part of your due diligence – you want to get your feet on the ground?
Eddie: The last two that I bought through Metropole were sight unseen. The one I’ve just purchased recently in around Brisbane, I haven’t seen it yet. I’ll go and have a look at that in the next few weeks.
Kevin: Just in closing out, Eddie, what would be your advice to someone who wants to get in to build a portfolio like you’ve done and make it enough to support you and your lifestyle?
Eddie: I would think that if you’re serious about building a portfolio to live off, you have to treat it as a business. You have to take it seriously. Treat real estate as a business. You have to learn, you have to have a strategy so you have to at least be following a strategy, and just ensure that there is plenty of equity so that when you do retire, you have the ability to draw down that equity, and have provisions for borrowing.
Kevin: As I said at the start of this interview, if you haven’t been to one of the Wealth Retreats held every year about this time each year, I can highly recommend it to you as a great way to meet some like-minded people, get some tremendous inspiration if you are really serious about developing your property portfolio.
Thanks to Eddie, too, for giving me some time during the retreat.
Effie Zahos – What would your kids do with $20?
Kevin: What happens when you give a child $20 as a Christmas gift? How do they go about spending it? Do you really concern yourself with that, or is this an opportunity for you to start to teach them some things about money and how best to use it?
I’m going to talk to Effie Zahos now. Effie is the editor of Money magazine and has written a great book that we told you about a little while ago called The Great $20 Adventure”
Good day, Effie. Thanks for joining us.
Effie: Thank you for having me.
Kevin: Paul Clitheroe has said that every child, teacher, parent, and grandparent should read this book. That is a great endorsement, isn’t it?
Effie: It is a great endorsement, and I’m very grateful for it. I’m hoping it’s coming from a place in the sense that we focus a lot on financial literacy for children when they are teenagers or maybe when they are young adults but very little is said or done when they are young. I’m talking in the age group of, say, two to ten years of age. That’s where our money habits are formed.
I guess it came about from a place whereby my own son would spend every cent he had on Skylanders. If you’re a mum and dad out there, I know you’ll know what they are, because they have been the most annoying toy to buy, I think. My son kept buying Skylanders with all of his birthday money, and it got to the stage where I walked past the toy room and I added up all of the little Skylanders he had. They’re about $10 a pop, and it was almost the size of a small deposit on a home. No exaggeration. It adds up.
Kevin: Incredible. In writing this book you made it a bit of an adventure for kids. Tell us how that came about, and where did the characters come from?
Effie: The characters actually came from people I’ve met through my life, and then I associated animals to them so that children can relate to them. But these are characters that your children will meet, and I’m sure you have met, as well, and they are the decisions we have with money.
A lot of kids think that all you can do with money is spend it, but I wanted to introduce some fun and excitement whereby a little boy, Max, does receive $20 from his grandma and he doesn’t know what to do with it other than spend it, and his mother says, “No. Hold it! Why don’t you take George” – that’s his little dog – “for a walk and have a think about what you should do with the gift that Grandmother has given you.”
He comes across these characters and, like I said, I’ve met a few of these. Donny Dangerous, I would say, is probably my favorite in the sense that I’ve met a few Donny Dangerouses in my life. Donny urges him to leave the $20 with him and he’ll double it, so if he comes back tomorrow he’ll have $40. Obviously, Donny Dangerous is a con man. Little George, Max’s dog, doesn’t like him, and Max says, “Well, no. I’ll think about this and I’ll keep walking and consider it.” So he goes along for the walk.
Eventually the party gets bigger and bigger because he comes across all of these other animals. You have Jack Flash, the most extravagant turkey you’ll ever see, and he is all about spending, spending, spending, spending, and he’s trying to convince him, “Well, you can spend the money.” Then you have Miss Penny Saver, the squirrel, who suggests, “You know, you should actually be saving.” And you have these beautiful illustrations. I met this woman who illustrates children’s books, and she really put the story to life with these characters.
There’s also a philanthropist, Mr. Givings, who says there are a lot of other people who need this money as opposed to just wanting it. We try to talk about the difference between needs and wants.
After each character he comes across, the parents do have a chance to chat. “Should he give his money to him or her? What would you do?” So it encourages conversation as well as making it quite exciting because, like I said, his walk gets bigger and bigger. There are more people joining him and he has to make this big decision with the pressure of everyone around him.
Kevin: Effie, is there any time when it’s too early to teach kids about money?
Effie: I don’t think so. I think that as soon as children can recognize numbers – so they can count to, say, 10 – it’s time to talk about money. I think it’s the exercise of just talking about it when it pops up naturally organically. When you’re out shopping and out and about, and you are handling cash, talk about it, that this is a price and this is what it’s worth, and do you want this, do you need this?
The sooner you start, the easier it is to them to form their money habits. Because if you don’t, children do really look upon what you’re doing. If you have a 10 year old who is bad with money, I always say, “Have a good look at yourself, because chances are that they have those habits from you.”
The difficult thing in this day and age, if I can say, is that we don’t handle enough cash. Everything is done virtually electronically, and there is your challenge.
Kevin: It’s interesting, Isn’t it, to think about the conversations around the kitchen table and how we influence our children at a very young age to give them their mindset about money. We have to think about our conversations about money and how we treat it because that’s going to be instilled in our kids.
Effie: It absolutely is. If there is tension at home because money is too tight or you’re in some financial woes, your children will pick that up. If you’re not tackling it, they will also grow up in a situation where they just bury their head in the sand, so to speak, when it comes to finances.
But if you’re open and honest with it and put a plan in place and discuss it, and what I mean by that… You must be thinking, “Would you do that with an eight-year-old?” I do. I do bring the electricity bill when it comes in and I show them, “Look, this is what we paid last quarter and this is what we paid this quarter,” and it’s because it’s winter and you’re probably using more of the heaters. “Remember to switch off lights or do things like that and we can bring the costs down.”
I do talk to my kids about the family bills because they need to be involved, too. They need to understand that you do earn an income, you have these expenses, and you can manage it and cut your costs down depending on your actions.
Kevin: That leads me to my next question, Effie. Is it realistic to get children to start saving for things that will really matter to them later in life, like buying a car or even buying a home? Or should their money goals be a little bit more short term do you think?
Effie: That’s a very private matter between the parents and the child. I’ve been on the money brand for almost 20 years and I have met children who will just shock you with the amount of savings they’ve had – 14 year olds who have got, say, $30,000 in their bank account and could buy a car, which is great. They’ve been working and they’ve been saving their pocket money. Credit to their parents who have done that.
Then I have other children who have no idea and have just been given everything because their parents have gotten busy, life passes by, and they’ve forgotten to pass on the money skills that you have. It’s really important that you do that.
I think it’s really important that kids do save. I am from the old school of opening an account and getting them to see their statements. I don’t care if it’s online or on paper, but get them to see what some savings does. Match their savings if you can afford that. So if they manage to save, say, $50 a month, you put an extra $50 in there. Give them an incentive to build those savings.
Any way that they can learn to save at a young age makes it so much easier later in life. Can you imagine turning 18 and all of a sudden, you have to put money away. It would be a foreign thing to you. Whereas if it’s a child who does put even $2 away… Get them excited about looking online. Go online and show them, “This is your bank account. You put $2 in last week and this is what’s happened.” You probably earn little interest unfortunately in this environment, but there are some good online saver accounts that are paying around 3% or 3.5%. The idea is really to get them into a regular habit.
Kevin: I’m talking to Effie Zahos who is the editor of Money magazine and also the author of a great book called The Great $20 Adventure, a great way to teach your kids about money. It’s available at all good bookstores.
Effie, could I just ask you this question and this is all about making gifts conditional, I guess, and for those of us who can give our kids or our grandkids $20 as a Christmas or a birthday present, should we have restrictions on how they spend that? Is that the best way to teach them?
Effie: That’s a good question. If you are giving someone a gift, do you think you should be able to control their spending? I think as a parent, you should actually give them some guidance, and this is what this book is all about. It’s about giving the child the knowledge and the power and the options that you don’t have to spend the whole $20. There are other options in what you can do with it.
I think as a parent it is your responsibility to at least highlight that you should put some money away for a rainy day because this can happen, or that’s nice that you can buy this right now but did you know you could get something bigger and better if you wait a couple more months to build on it?
Later on as their savings do grow, it’s also important to maybe get some help as a parent about what is the best name to put it in, because I do see some situations where kids’ savings do grow quite well and quite high and kids can pay a ridiculous amount of tax if it’s just in their name.
The government has done that because in the past parents have been hiding a lot of their own money in kids’ accounts. Do be careful as to how you set up your kids’ savings accounts especially when their balance gets quite big.
Kevin: Great advice. Remember it’s never too early to teach your kids about saving money.
Effie Zahos has been my guest. Effie is the editor of Money magazine. That book again, The Great $20 Adventure. It’s available at all good bookstores right now.
Effie, thank you so much and thank you for spending some time with us this morning to tell us about your new book.
Effie: A pleasure. Thank you. And if you want to get onto Magshop.com.au, you can get it online, as well.
Kevin: Excellent. Thanks, Effie. Talk to you again soon.
Effie: Thank you
Michael Yardney – How the rich got that way
Kevin: While the studies show that the rich keep getting richer around the world – we’ve talked about that on the show before – the recently released BRW Rich 200 list gives us a bit of an insight into what’s happening to the fortunes of Australia’s wealthiest individuals. I know Michael Yardney from Metropole Property Strategists follows this very closely.
Michael: Hello Kevin. I saw you didn’t make the list again this year.
Kevin: No. No, I didn’t.
Michael: Neither did I.
Kevin: As hard as I try. Oh well, we can always live in hope. I know you’re fresh off your Wealth Retreat, as well. This is a fascination, just watching what the rich do. I know that you follow it, because there are a lot of lessons to be learned from this.
Michael: You can learn lessons from their fortunes and their misfortunes. This year, there were more billionaires than ever, and a quarter of the Rich List made their money in property, with Harry Triguboff – Meriton’s founder – claiming the top spot.
Interestingly, a good lesson for those interested in property is that the 50 property Rich Listers are now worth a collective $58 billion, while the resources Rich Listers – who were pretty high on the list in the past – have fallen back and aren’t worth even a third of that.
Kevin: Interesting you talk about Harry Triguboff, and I have followed him with great interest, Michael, as I know you have. It’s interesting in that he’s not only a developer, he’s also an accumulator, because when he develops a block, he will actually keep and retain a certain number of those in his own portfolio.
Michael: Kevin, that’s one of the characteristics of the rich people. They build their asset base. If they have a public company, they build their balance sheet, they understand the power of cash flow, but they also understand the importance of building their asset base. A great observation, Kevin.
Kevin: Yes, thank you. Michael, the observations you’ve made watching them, what are they?
Michael: I think one of the good observations to support the things that you and I are interested in is property is still the number one source of wealth. Over time, the industrialist and the mining billionaires’ fortunes wax and wane, but over all the years I’ve been following it – and it’s well over 20 years now – the property moguls on the Rich List have always been there and they’ve been steady. I think there’s nothing wrong with watching what other successful people do and applying those principles to your own life.
Kevin: We mentioned Harry Triguboff there; he’s certainly an inspiration that proves that anyone can really do it.
Michael: You’re right, Kevin. Some people inherit their wealth, and most people in the Rich List actually came from working class backgrounds and had no tertiary qualifications. You’re right; Harry Triguboff was actually a Chinese-born son of Russian migrants, and he studies textiles and worked overseas. He didn’t even get into his first property deal until his late 20s. Other Rich Listers have also proven you don’t need to have a private school background or an elite education. That’s not a requisite in Australia.
Kevin: You and I have talked about this on many occasions, and I know you’re a great believer in the fact that the markets move in cycles. Obviously, the wealthy understand that, as well.
Michael: They do, and they have the long-term view. Sure, at the moment the stock market is flat and Gina Rinehart who had the top spot for five years in a row now is on the fourth spot, but I’ve always found successful businesspeople and successful investors, they think in the long term. They take advantage of opportunities to buy assets when they’re on special, so it’ll be really interesting over the next couple of years to see how these counter-cyclical investors fare in future Rich Lists.
Kevin: The other observation to make, too – and probably incorrectly – is that they make it look so easy. Is it easy to become rich?
Michael: The rich work hard for their money. You’ll find plenty of people on the Rich List still working and making money at an age when most Australians are actually looking forward to or are already in retirement. You see, it does take time to become uber-wealthy, unless somebody has left you a handsome inheritance, and that hasn’t happened to you or me, has it?
Michael: Harry Triguboff has been on every Rich List since its inception 33 years ago, and it’s taken him all that time to get to the top. They work hard, they continue working, but he’s doing it because it’s his passion, not because he sees it as work.
Kevin: Yes, exactly. Michael, I guess it’d be fair to say, too, that these people don’t necessarily follow the hurdle, just listen to the publicity; they are prepared to take some risks.
Michael: Many Rich Listers took risks early in their career to get their enterprises going, but interestingly, one of the trait of successful businesspeople and these entrepreneurs is to preserve their wealth. Once they have an asset base, they actually stop taking risks. They actually make their millions and then reinvest their money back into their businesses and build their asset base. They realize that you don’t have to take risks to become wealthy once you have an asset base, Kevin.
Kevin: What are some of the other attributes you’ve noticed in these people, Michael?
Michael: I think one of the core traits of successful people is the ability to take a good idea and keep repeating it over and over again. They don’t try to become an expert in a hundred things; they find one thing that they do over and over again. That’s why they become an expert. But often, they take it to different areas, different locations. One of the concepts I’ve noticed is that many of them are now moving into Asia, where there’s obviously a growth market. I’m not necessarily talking about property moguls on the Rich List, but just other successful businesspeople.
Kevin: What about growth over cash flow?
Michael: We mentioned before that they’re trying to build their asset base, so while they recognize cash flow is important, most of the Rich Listers concentrate on building their balance sheets even more than they do on their profit and loss.
I think another trait that Harry Triguboff and all of the Rich Listers have exhibited is that they have a good team of people around them. I remember reading a quote from Harry Triguboff saying that he pays really good money for his team, so he should listen to them, otherwise he’s stupid.
Kevin, you’ve often heard me say if you are the smartest person on your team, you’re in trouble. A good trait to remember is get some good people around you, get good mentors and listen to them.
Kevin: And above all, I guess they take action, don’t they?
Michael: Yes, they do. They started with a dream, they started with a vision, they created a plan, and then they actually stopped dreaming; they took action.
Kevin: What about the age of them? Have you noticed anything about how old they are, Michael?
Michael: Every year, there is some new young blood coming in and some of the old, established money stays there, so a lesson for everybody is you’re never too young or you’re never too old.
Looking at the property debutants in the Rich List this year, Tim Gurner is only 34, and he’s already made a $460 million fortune in property. At the other end of the spectrum, the oldest property expert in the Rich List, Stan Perron, is aged 93, and he’s been in that list for many years as well.
I think there are some really good lessons to learn and to aspire to, Kevin.
Kevin: Indeed there are, Michael. Thank you for your insight, always great talking to you. Michael Yardney from Metropole Property Strategists. Thanks, mate.
Michael: My pleasure, Kevin.
John McGrath – Why John McGrath loves SE Queensland
Kevin: I read with interest the other day that John McGrath, possibly one of the best-known real estate agents in Australia – and the CEO of McGrath Estate Agents, of course – has said that right now he favors South East Queensland as the only place to buy right now. And he joins me.
Good day John, thanks for your time.
John: Good day, Kevin. No, I think it’s the best place in Australia to buy without a doubt. In fact, I was just presenting to a group of our clients this morning on the Gold Coast, and I just said to them that I think in the next five years, there is not one part of Australia that is going to come close to the sort of growth that I’m expecting in South East Queensland.
Kevin: What’s behind that, John? Is it building of infrastructure, or is it on the back of what’s happened in, say, Sydney and Melbourne?
John: Two or three things, Kevin. Definitely, there’s no doubt that there’s been a strong building of infrastructure, especially when you look at what’s happening in Brisbane and now the Gold Coast and Sunshine Coast. There are a lot of good things happening – the Toowoomba airport that’s going in. There has been some really strategic and good quality investment in South East Queensland. That’s number one.
The second thing is the value gap. When you look at the cost of buying an equivalent home in the southern states of, say, Sydney and Melbourne, which have traditionally been very strong feeder for investment and for sea changes coming out of the southern state, now the value gap is now far too large.
In Sydney today, you’re probably going to pay $700,000 to $800,000 for one-bedroom inner-city unit – one bedroom – and as you would know well, in South East Queensland, in any number of beautiful cities and towns and regionals, for $700,000 or $800,000, you’re getting some of the best property available, not a one-bedroom unit.
So I think investors are going to see a very attractive proposition value for money. I think first-home buyers who can’t afford any longer necessarily to live in the big cities are going to look for value for money and quality lifestyles. And I think a lot of the baby boomers are going to look for a sea change and say “Well, I’m only an hour away from the kids if they live in Sydney or a couple of hours from Melbourne, and I really want to have a better lifestyle, I want better climate, and I want better value for money.” They’re going to take the money they’d made from their southern properties and I think they’re going to cash it in, buy a beautiful home up here and perhaps a couple of investments, as well.
Kevin: John, we talked about South East Queensland and that takes in Gold Coast, Sunshine Coast and Brisbane. Is it predominantly Brisbane you’re looking at, or are you including the two coasts, as well?
John: No, I think all of the areas… Brisbane is the big city and Brisbane obviously has a number of great investment opportunities, but I’ve had a very soft spot for the Gold Coast for years. I know that it’s really been hit very hard or was hit very hard during the GFC, and we’ve seen some improvement, but nowhere near [2:28 inaudible] like we’ve seen south.
I guess Brisbane is the easiest and strongest investment proposition, because it’s the biggest city, but I think if someone was prepared to be a little bit more speculative and look a little bit left field, I think Sunshine Coast, Gold Coast and Toowoomba are great cities and they offer great value for money, but in any of those areas, I think you’re going to see strong growth.
Kevin: Let’s talk about the Commonwealth Games for a moment. There has been some comment that the Commonwealth Games is really just a one or two-week festival and that it’s not going to make that much of a difference. Do you subscribe to that theory?
John: In reality, they’re right, and it will be a huge boost for tourism and it’s going to increase profile, but what you’re going to see… And I know it’s different for the Commonwealth, but when Sydney had the Olympic Games, it was a catalyst or a reason for people to feel optimistic and do something again.
If you look right now on the Gold Coast, there are more cranes than I’ve seen for many, many years, and some of those are public infrastructure and some of them are private development. I think it’s a good line in the sand, it’s coming up in a couple of years, it’s a big event, it’s going to bring a lot of tourism focus and hospitality opportunities to Gold Coast in particular, so I think that it’s more than just a two-week event, but most importantly, it is a reason to start getting on with life.
That’s really what this area has probably needed, because it was hit hard, and a lot of people really felt bruised by the GFC, and I think this has given people a reason for optimism.
Kevin: You mentioned the number of cranes not only in Brisbane but on the Gold and Sunshine Coasts, as well, but let’s look at Brisbane for a moment. The number of cranes in inner-city Brisbane is leading to a lot of talk about a glut of inner-city apartments. How do you feel about that? Do you share that concern?
John: I don’t in the medium term. I think in the short term, they’re probably right. If you look at it in the Valley, there’s a lot of activity and a lot of it is concentrated in small areas, but over time, we are still undersupplied in property, not oversupplied, so what might happen is you might find when some of these come on the market, there could be a short-term correction or stagnation, but what we’re going to find is in the longer term, they’re providing more supply, they’re providing more choice, and great rental accommodation as well as great buying opportunities.
What I think is that we will see perhaps a little period of just plateauing of those particular markets – not necessarily housing, but perhaps inner city… And Melbourne is the same, Kevin. As you know, Melbourne has had a lot of development in that inner-city market, but Melbourne and Brisbane are great cities with strong demand going forward.
The other thing that I was saying to the audience this morning, I met recently with HSBC Bank in Sydney and I was just talking to them about their influx of high-wealth overseas – particularly Chinese – buyers.
They said that they have seen a material shift from people saying when they come to HSBC, rather than buying in Sydney and Melbourne, they are now looking for value, and number one on their list is South East Queensland, which is the first time I’d ever heard that in terms of statistically. They said it is quite a big sample they took, and now their clients are saying, “Well, unless we’re going to live in Sydney or Melbourne, in terms of value and capital growth, I’m more interested in South East Queensland.”
Kevin: That’s quite amazing. Let’s move outside South East Queensland for a moment, John. Any regional areas in Queensland you’re favoring at present?
John: I think all of the coasts. I was in Townsville a couple of weeks ago [5:46 inaudible]. There are areas like Townsville and Cairns that are great cities. Some of them obviously were negatively impacted by the resources contraction and the unemployment that results from that, and some of them are feeling a little bit of pain at the moment, but that will move through.
I think all of Queensland is undervalued compared with perhaps New South Wales and Victoria, so I think any of the regionals, especially the coastal regionals are going to have good medium-term growth, because people are going to be looking for lifestyle. A lot of baby boomers between 50 and 75 years of age are saying “We’ve made money down south, we want a better climate, what can we get and where can we move to?” Whether it’s Byron Bay or Cairns or Townsville or Sunshine Coast, I think a lot of those areas are going to be attractive.
The other thing or the other trend is telecommuting. You and I aren’t sitting in the same studio today; we’re doing it by telecommunications. People are using the Internet, they’re using Skype and they’re using all sorts of other technological advancements, and they no longer have to necessarily be in Brisbane to do work in a Brisbane company. A lot of journalists we speak to are living two hours out – a lifestyle choice location – but they’re still able to conduct business.
I think a combination of sea change, an improving economy, and telecommunications, I think those things are all going better for this particular era.
Kevin: Earlier in our chat, you mentioned the market of Toowoomba. I guess that’s a classic example of an area where you could go and live and have a great lifestyle but still work in mainstream by using the Internet. Areas like Toowoomba, we’ve been waiting for that market to grow for almost decades now. Is that the answer for it, do you think?
John: I think the airport is going to be the biggest beneficiary to the Toowoomba market, but you can go there and for $375,000 buy a really nice home or investment property. You can’t do that in many parts of Australia in terms of decent sized cities anymore.
I think Toowoomba, which used to be a plane trip from the south and then a two- or three-hour drive from a major center, you can now fly directly in, and I think as that gets better now and people discover it… Of course, the Internet nowadays, so many people who could never discover areas like Toowoomba, they’d heard of them but they didn’t know about, they can go on to Domain or RealEstate.com, and they can look at properties, they can play videos, they look at floor plans
So I think you’ll find a lot of these good quality regional lifestyle areas are going to be more popular with investors and tree change and sea change.
Kevin: John McGrath, CEO for McGrath Estate Agents. Thanks for your time, John.
John: Always a pleasure. Thanks, Kevin.
Bessie Hassan – Are we borrowing too much?
Kevin: As was widely tipped, the Reserve Bank held the cash rate at 1.75% earlier this month, which marked 12 months since the last cash rate movement. However, the verdict is that there’s a further rate cut on the way, with 68% of economists expecting one this year. Most are expecting the cut to happen in August, with November and then September nominated as the next most likely months for a rate cut.
Bessie Hassan, money expert at Finder.com.au, says borrowers shouldn’t get caught up in the hype of this historically low rate environment. She joins us.
Bessie: Hi. Good morning.
Kevin: It’s a bit of a danger that we’ll go out and borrow a bit too much, isn’t it? What are the indicators that we are borrowing more or even too much, Bessie?
Bessie: Kevin, based on historical data from the ABS, home loan sizes are expected to increase with the latest cash rate cut last month. What our research has found is that in five of the last seven rate cuts, home loan sizes actually increased the following month.
Kevin: That’s the indicator. Is there a correlation between low or lowering interest rates and how much we borrow?
Bessie: There does seem to be a correlation between low interest rates and how much people are borrowing. What we worry about is a false sense of security. We don’t want people getting caught up in the hype of a low-rate environment and then borrowing more than they can afford down the track.
The average loan size increased in five out of the last seven rate cuts, as I mentioned, and with this latest cash rate cut in early May, we are expecting that trend to continue. In fact, new loan figures that came out just this week already suggest that the market is recovering. In March, which was the previous month’s figures, the loan size was $357,200. In April, in the just-released figures, that has gone up to $361,500. Now, while that doesn’t take into account that latest cash rate cut, we are expecting this trend to continue, so watch this space.
Kevin: I know we’re talking here about the correlation between what happens with the interest rates, but there’s a big difference between the RBA does and sometimes what the banks do, as well. Are we more in tune with what the RBA is doing than what the banks are doing?
Bessie: They do tend to work in tandem these days. Following the cash rate cuts last month, 11 lenders announced within 24 hours that they would be passing on the discount to their customers. ANZ was the only one of the big four that wasn’t passing that on in full, only passing on 0.19%. A week on from the announcement, 51% – so just over half of all the home loan market – had announced they were passing on a discount of some sort to borrowers.
The good news is the standard variable rate has dropped from 5.12% to about 4.95%, and there are amazing offers out there at the moment. We’ve even seen a new bank come out with a really low fixed rate of 3.63%. Three is looking as though it’s becoming the new benchmark. If your rate has three in front of it, you are on to a good deal.
Kevin: Yes, pretty low, isn’t it? There was a time when the banks were almost operating totally independently of the RBA. Was that pressure from the government to bring them more in line, or do you think they’re listening more to what the consumers are saying about how we need to get lower interest rates?
Bessie: I think it could be a combination. Certainly, APRA sets the regulations. At the end of the day, they set the rules. Definitely getting that feedback from consumers, and the competitiveness of the market. They can’t afford not to drop rates. We’re seeing rates out there with threes in front of them, and if theirs are coming out much higher than that, that’s not competitive. It’s much cheaper to hold onto a borrower than to acquire new ones, so by reducing rates, hopefully that keeps customers happy and around for a longer time.
Kevin: It’s dumb question time, Bessie, if I can ask this dumb question.
Bessie: Go for it.
Kevin: If we were ever to move into – as has happened in some of the overseas countries – having the cash rate actually being negative, how does that work? Is someone actually paying the RBA to take the money, and if so, who is that someone?
Bessie: It’s actually the depositor. They must pay to keep their money with the bank. It is a crazy concept because we were talking about 7% interest rates just pre-GFC time, and now we’re at 1.075%, and it is likely that we will see another rate cut this year. I don’t think we’re there quite yet, but that is how it would work if we were to see that happen.
Kevin: Just to round out our chat, Bessie, what should we allow as a buffer in case things go pear-shaped?
Bessie: Always allow a buffer of about 2% to 3% to your current finances. This should have you covered if or when the cash rate increases. Keep in mind that as the cash rate rises by 0.25%, you’re typically paying about $50 per month more for a $300,000 loan size, and potentially thousands of dollars more over the life of your loan. Keep in mind that now is the time to be making extra repayments to minimize higher costs down the track.
Kevin: That’s good advice. You said earlier, too, that the interest rate we’re paying should have a three in front of it. Factoring that in, we should be allowing around 5% or 6% in our loan repayments, just to make sure.
Bessie: That’s exactly right. There are plenty of great deals out there, both of variable and fixed loans. Jump onto Finder and see if you can find a better deal.
Kevin: Nice plug there, Bessie. Well done. Good on you. Bessie Hassan there, money expert from Finder.com.au. Thanks for your time.
Bessie: Thank you.
Chris Moller – How the Kiwis do it
Kevin: I’m delighted to say our next guest is the host of a great television franchise called Grand Designs, only this one comes out of New Zealand. We’ve seen Grand Designs UK, we’ve seen it in Australia, and now it’s in New Zealand. If you’re a regular viewer, you’ll be aware that we’re just about through season one in Australia right now. Joining me now is the host of that, Chris Moller.
G’day, Chris. Thanks for your time.
Chris: Hi, Kevin. Thanks for having me.
Kevin: Congratulations on a great series, too. We can see the uniqueness of properties… As I said in the introduction, we’ve seen it in the UK, then in Australia and New Zealand. The thing that struck me about New Zealand, Chris, was that you have some pretty difficult terrain to build houses on there.
Chris: Yes, that’s true, being on the edge of so many big challenges at the moment. As you’re well aware – and I’m sure your listeners are – dealing with the earthquakes in Christchurch, it’s a massive transformation not just of Christchurch itself but of code compliance across the whole country now. Likewise, leaky buildings. Huge challenges dealing with moisture control and all of that. Of course, I guess the east coast of Australia is quite similar in many ways. The deluge that hit New South Wales recently was pretty shocking, even by Wellington’s standards.
Kevin: I do want to talk to you about leaky roof, earthquakes, and the general terrain, but we’ll do that later in our chat if we could. First off, I wanted to talk to you about how you went from being Chris Moller, architect, to Chris Moller, the host of Grand Designs New Zealand.
Chris: Good question. It took me a while to really get my head around it. Initially, they were pursuing all sorts of different, interesting, strange designs generally. I was one of the people they approached because I’d developed this rather unusual construction technique, which I call Click-Raft, and they thought I might have a house that they could put on the show. At the time, I didn’t, but they were really fascinated by it, and so they kept ringing me back and asking me if there would be any possibilities.
Apparently, they also asked me whether or not I would be interested at all in being the host, because they had been exploring different options for the host, which I didn’t know anything about. Obviously, I missed it altogether because they rang back a week or two later and just said, “So have you thought about it?” I said, “Thought about what?”
Once I got my head around the opportunity – initially, I just thought, “This is crazy. I’m not up for anything like that” – it was wonderful.
Kevin: Has it changed much of your lifestyle at all? It has to be very demanding to do all that filming.
Chris: It is, and in a way, it isn’t. I don’t know whether in Australia you have an equivalent show to the one that we have here.
Kevin: Yes, we do.
Chris: We have a wonderful tradition in New Zealand of Country Calendar. It’s almost like a documentary of people’s lives in the countryside, especially farming and meets and so on, when you get around all of the local places where people do things in the local community. I think that the way we’re handling Grand Designs in New Zealand is very much in that spirit. Of course, it’s spread across a huge period of time – one and a half to two years to put a series together.
Kevin: I wonder if you see any similarities in the stories that you’re putting together. I certainly do as a viewer. I notice that timeframe is one thing that people totally miscalculate, so too is their budget, and also their grandiose expectations. Are they the three main areas that you see some uniformity in where people may just go wrong?
Chris: Sure. They’re the classic things that both the UK series and the Australian series handle brilliantly. Of course, one of the big reasons that everybody loves watching it is to see how those things unravel, but at the same time, how people manage to transcend those challenges. Each place and each community has its own difficulties.
I think it’s really intriguing at the moment dealing with two things. One is all of the new requirements to meet much stringent building codes.
Kevin: Yes, of course.
Chris: Secondly, the tendency that things are becoming much more standardized because of that. If you look at other areas, for example, what’s happened with car design, so many of them have become more and more similar and, if you like, the huge research and development that goes into safety and compliance. Now those kinds of are happening in the construction industry, as well. So to deal with all of that, is there still space for people to have their own individual grand design or to be exploring things that are very personal to them in terms of realizing a dream?
Kevin: Another area that I notice some people go wrong in is that they tend to think that they can become the project manager themselves – in other words, roll their sleeves up and become very, very involved in the building. Are you a great fan of people doing that?
Chris: Both of our two countries have very strong DIY traditions – do it yourself, roll your sleeves up, and give it a go. I think that’s a wonderful thing to do, albeit with a good support team around you. I would always encourage people to have a go, but it’s like going bush or going to sea. Preparation is everything, and that is really, really crucial. Whether they listen to me or not is another story.
Kevin: They normally don’t. In fact, if they listened to you, we probably wouldn’t have a show, so it’s good to see people making those kinds of mistakes.
Can I take you back to what we talked about right at the start? That was leaky roof, earthquakes, and terrain. Tell me about leaky roofs. That seems to me to be a big difference between Australian architecture and New Zealand. You virtually don’t have any eaves. Is that what creates leaky roof?
Chris: It’s not leaky roofs; it’s leaky buildings, generally. It’s become an issue to deal with a number of things. One is almost an unfortunate combination of events that happened particularly in the late 1980s and early 1990s when the style of buildings changed quite a lot.
A lot of people decided that they didn’t want big roof overhangs anymore. They wanted things that were more crisp, more of a celebration of the wall. People were plastering surfaces at the same time that there was a building boom on, so they were missing good skills and competent workmanship, together with a change in code around timber structure. The timber was being explored in a way to be much greener and to try and remove all these very heavy, toxic chemicals that we usually impregnate timber with.
The combination of those things meant that there has been a huge amount timber rot, particularly inside walls. It’s less about roofs and more about walls. If things are too tightly sealed up, then all of that moisture stays inside the wall and it isn’t able to breathe or release it. It’s the perfect storm, really.
Kevin: I know it’s been a big issue, one that you’ve come to terms with, no doubt, as you would have too with earthquakes. I know that you’ve been very aware of the earthquake threat right throughout New Zealand for quite a long time, but it must have been heightened with what happened in Christchurch recently.
Chris: It’s funny because that history of earthquakes has been around in New Zealand for a long, long time. We had the Napier earthquake back in 1931, which was a huge event. Basically, the whole town was destroyed. Now it’s quite famous as a place to go to see very early 1930s architecture, which is even more consistent than Miami.
Kevin: Yes, art deco. It’s just beautiful, isn’t it?
Chris: Yes, exactly. It’s well worth going to visit for that very reason. Who knows? Maybe Christchurch will end up with similar kinds of qualities because of what’s coming out of it. The phoenix, in a way, is an opportunity that comes out of deep tragedy.
Kevin: We lived in Christchurch for about three years. It’s an absolutely beautiful city, and let’s just hope that it does regain some of that beauty back.
Chris, we’re out of time, unfortunately. I’d love to be able to talk to you for a lot longer, but all the best with your series. Are you into series two?
Chris: We’re into series two and even three. You have to look forward. It’s really, really exciting. I think it’s awesome that we have this kind of tradition, and it’s connecting Australia, New Zealand, the UK, and who knows where else.
Kevin: Yes, and it’s giving us great history, too. We’re watching these great ventures unfold. Chris Moller, thank you so much. Chris is an architect and host of Grand Designs New Zealand. Thank you for being our guest this morning in the show, Chris.
Chris: You’re very welcome, Kevin. Thank you.