29 Mar Banks black list of suburbs + Downsizers boost + Open banking changes lending policy
Highlights from this week:
- Bidding strategy can win the day
- The places the banks don’t like
- Now you can’t hide from the bank
- High crime areas outperform value growth
- Be bold with your bidding
The suburbs the banks don’t like – Andrew Mirams
Kevin: I’ve heard a little bit of word recently about the banks turning on and turning off some suburbs around Australia. So, where are they? Should you get advance notice and be aware of these? Let’s try and find out. Andrew Mirams from Intuitive Finance joins me. He’s in constant contact with the banks, and he has his finger on the pulse of this all the time.
Good day, Andrew. How are you doing?
Andrew: I’m very well, Kevin. And you?
Kevin: Good, mate. Give me the lowdown. Are there suburbs that the banks don’t like, and do they tell you?
Andrew: They do. From a lending perspective, they give us lists and ideas of suburbs. When we say they don’t like, it’s not that they won’t lend into those areas; what they might do is have some restrictions, or they might have some different things where they want to do a lower loan-to-value ratio. So, if you bought a property for $500,000 and normally you get a loan at 80% at $400,000; it might be $350,000 at 70% or $300,000 at 60%.
Very rarely – and again, there are probably a couple of conversations here – it’s the style of property as well as the suburb that it’s in.
Kevin: You make a very good point there. It’s not that they won’t lend; it’s a matter that they have to restrict their lending in some ways and put some more conditions on it.
Do you see a change? Do suburbs come on and off that list at all?
Andrew: They do. Probably similarly with areas as well. You had the mining boom, and then there are some towns in WA, up in the Northern Territory, and Queensland that are far less desirable just because of the amount of property that was bought and prices that were paid at the peak of it and things like that.
Suburbs-wise in and around Melbourne, Sydney, or Brisbane, some of the suburbs we could mention or name are highly desirable places to live, but with that desirability, they’re probably undergoing a lot of development and there are probably lots of towers happening. So, there’s a real concentration, and that’s probably why they get picked out and get scrutinized.
Kevin: Yes. It doesn’t mean it’s always going to remain like that. If you look back over the decades, there are certain suburbs in different parts of the cap cities that would have been very unfavorable, like New Farm in Brisbane or I think Paddington in Sydney, some of those inner suburbs that would have been very undesirable.
Andrew: Yes, New Farm, Fortitude Valley, and places like that.
Kevin: Yes, but to look at them now…
Andrew: Now they’re highly desirable places to live, but at the same time, both of those that you just mentioned are actually on the list because of the amount of development happening there.
Similarly, in Sydney, Bondi is not but Bondi Junction is on it. That’s a highly desirable place to live in and around, but it’s purely the amount of development stock that’s come out.
And in and around Melbourne, you have got some amazing areas – North Melbourne, Carlton, Richmond, and places like that, which have really gentrified. Hawthorn which is a really high net worth or affluent suburb in Melbourne. That’s actually on the list purely because of the amount of development that’s happening in and around there.
They’re not saying no; they’re just saying “Look, there might be another covenant or two that we put to a purchase in that suburb.”
Kevin: Okay. You’ve obviously got a list because you were reading off a list, or maybe you’ve just got it in the back of your brain there; I don’t know.
Andrew: I’m not that good, Kevin.
Kevin: Is this list generally available, or do they closely guard who they give it to?
Andrew: All the internal lending branches will have it, but again as a broker, we’re fortunate that we need the policies of every lender that we deal with so we can get access to each of them. We can make contact with lenders.
And this is why we’ve spoken a lot about getting preapprovals or just checking with a property you buy. The old thing, caveat emptor, let the buyer beware. You don’t want to commit to a property without knowing this type of thing, and that’s where having a really good broker or financial strategist on your side who can work through and make sure you have your client’s needs protected is pretty vital in these circumstances.
Kevin: Yes, that’s another great point. If you go to a broker and deal with someone like Andrew as an example, then Andrew is going to be able to look around at the banks who may be looking more favorably at the suburb you’re looking at as an investor as well. Because they wouldn’t all be the same, I would imagine.
Andrew: No. That’s a great point. When we say the suburbs the banks don’t like, different banks will have different concentration levels to different suburbs. So, while one might say, “Look, we’d rather not lend in there, or it’s a 60% loan-to-value ratio,” another one might not have as much concentration there and you’re able to get 80%. So again, like you said, that’s the leg work and the type of thing that we can do to help our clients.
Kevin: Good talking to you. Andrew Mirams from Intuitive Finance. Thanks, mate. It’s why it always pays to talk to the right people, and that’s what we try and do in the show as well. Andrew Mirams, thanks for your time.
Andrew: Pleasure, mate. Bye.
Open Banking is the new norm – Greg Dickason
Kevin: Joining me on the show and fresh off a plane from America is Greg Dickason, the CTO International for CoreLogic.
Greg, thank you for giving us your time today.
Greg: Thanks for having me.
Kevin: I’m really fascinated. We spoke off-air about how we apply for a loan is dramatically changing because of the shift in where the data is kept or who actually has access to it, Greg.
Greg: Yes, it’s very exciting. It’s something that’s already happening in the UK and something that Scott Farrell has just released a report on here that the Treasurer Scott Morrison is going to be looking at. It’s all about the fact that the data you have and all the data that you’ve produced when you interact with your bank over all of time, you’re going to be able to make that available for other people to see.
Kevin: This is called open data, is that right
Greg: Correct, yes. Open data, also known as open banking. The whole idea is that it’s your data; it’s not the bank’s data. For example, I’ve banked with one of the Big Four for 17 years. Every transaction I’ve ever done should be able to be used by me to go and get a different loan.
So, every spend I’ve done, every credit card transaction, every salary that I’ve received, every mortgage payment I’ve made. Even the fact that I might have drawn money late at night at a gambling place is available, and so I could make that data available to others.
That could be a Google, that could be a small fintech startup, it could be one of the other major banks, and they could make a much better decision about me as a borrower.
Kevin: Of course, this is a double-edged sword, isn’t it? It’s going to make it easier, I would imagine, for us to apply for a loan, but it is also full disclosure.
Greg: Exactly. Although it’s opt-in – so you don’t have to opt in – I think very quickly, you will have to opt in to get the good deals, because the banks will say “Well, if you’re not opting in, we’re going to treat you as a high-risk customer.”
Kevin: It’s almost as if you don’t opt in, you have something to hide.
Kevin: This will, I would imagine, make it easier for us to apply for a loan.
Greg: Definitely. I think the whole affordability conversation – which is a big one at the moment, whether people are over-stating what they can afford – that’s going to go away with this because you’ll literally get to see what they earn and what they spend.
Kevin: I imagine there’ll be lots we can read into this, like affordability index and how the banks assess us.
Greg: Yes, it’s going to help a lot with the conversation of “Do we have too much debt? Are houses over-priced?” We’ll have a lot more data to be able to have those conversations.
Kevin: And we can self-assess a lot better too, I guess, if these records are available to us. Have they always been available like this, Greg?
Greg: No, this is a first. And also the way in which they’re available, it’s going to be very easy for anybody to query the bank. It’s forcing it over what are known as APIs – or application programming interfaces. So, the way in which data is shared is going to be standardized, and that’s a huge thing as well. That means we can run models over it and all sorts of things.
Kevin: I imagine, too, that this would affect things like mortgage insurance as well.
Greg: Definitely. I think it’s going to affect everything that looks at risk, because at the moment, banks have to treat us all as if we’re high risk and then decrease it as they get more data. This will change the way in which they think about risk. Risk will be much more granular.
Kevin: I think the important point here, too, is that it’s an opt-in situation if you don’t want to give someone that access. Once you give it to them, is it theirs forever, or can you withdraw that?
Greg: That’s a very good question. Scott Farrell has thought this one through. He’s looked at what’s happening in the UK, and I think he’s come up with better suggestions. In this case, you control how the opt-in happens. You can say it’s going to expire after a year, or you can only look at it once. So yes, the control is very much still with you.
Kevin: What’s the likely passage of this? Are we looking at a period of time, or does there have to be some legislation around this?
Greg: There will have to be legislation, but the white paper was talking about 6 to 12 months to get the legislation done and then potentially get it rolled out in the next 12 to 18 months after that. So, I would expect that in the next two years or so, we should start seeing this coming through in a concrete form.
Kevin: You mentioned this is already in play in the UK. Are there any other parts of the world where it is applying?
Greg: Yes. It is only the UK that is going live with it already, but it’s also throughout Europe. In the UK, it’s being run by an organization called the CMA, and across Europe, it’s called PSD2. So, it’s very much in play in Europe, and it’s starting to be talked about in the US as well.
Kevin: And will these be the same operators operating it in Australia, do you think?
Greg: No, definitely not. I think some of the big consulting firms will be involved. You’ll get companies like us at CoreLogic or Data Republic, which runs a data platform. They will become a bit of a middleman for you. But yes, it’s going to create a whole new ecosystem of providers that use data.
Kevin: When you look at extending this out a bit too – looking at it from, say, CoreLogic’s point of view – it’s going to give you access to a lot more data, albeit you won’t know the specifics behind it, but I guess how many transactions are happening, what people’s debt levels are, and so on. I suppose you’ll be able to read a lot into this, Greg.
Greg: Yes. The important thing, though, is because it is opt-in, we won’t ever see it in bulk; we’ll only see it when a person lets us opt in. So, we won’t be able to do too many models, but this is only the first step, though.
And I think the exciting thing, or possibly the scary thing, is that it’s not just going to be your banking data; they’re also looking to open up your utility data, so when do you run your electricity, look up your insurance data, your telco data, the kind of phone calls you make. You’ll also start to have control over all of that. So, increasingly, your entire life is going to be datafied, if you like.
Kevin: When we look back maybe even a decade ago, we were so concerned about Big Brother. But boy, this is a whole new level to it, isn’t it?
Greg: Very much. And you have to work out how far down this we want to go. You and I have spoken a couple of months ago, I believe, on China’s social score where they’ve actually taken it to a point where you get a score and that helps whether you get employed and whether you get credit. I don’t think we want to go as far as that.
Kevin: No. Always good talking to you, mate. Greg Dickason is the CTO International for CoreLogic, and an interesting story there about what’s happening with data and particularly how we’ll be working closer with the banks, I guess.
Greg, thanks for your time.
Greg: Thanks, Kevin.
Downsizers get a boost – Miriam Sandkuhler
Kevin: There was a federal government initiative announced recently to help downsizers, a special contribution for retirees wanting to downsize. The 2017 superannuation changes now allow individuals over 65 who sell their principal place of residence to contribute up to $300,000 each from the sale proceeds into superannuation.
So, what’s this going to do to the market? Obviously, the intention there is twofold. Miriam Sandkuhler from Property Mavens joins me.
Miriam, thank you for your time once again.
Miriam: You’re welcome, Kevin.
Kevin: What’s the likely outcome of this? And is it such a good idea?
Miriam: What it will do is enable older people who are asset-rich and cashflow-poor to sell their home, put some of that money into super to provide them with an income, and then give them leftover funds to then buy something smaller that they’re comfortable living in.
Kevin: Okay, so releasing larger homes onto the market. It’s not going to do a lot for affordability, or is it?
Miriam: No, I don’t think it will, because while the government might argue that it’s freeing up bigger properties for families to move into, you still have retirees who have sold their whole who need somewhere to live.
So, the net effect will be you’re going to have a whole lot of older people who are cashed up and don’t have to worry about borrowed money who will be buying smaller properties – and maybe smaller houses or little villa units or townhouses, things like that – and they’re going to be directly competing with people who are trying to upgrade or buy into those properties in the first place. And the net effect of that will be prices will probably go up.
Kevin: And this is restricted to principal place of residence. This can’t be someone with a portfolio of properties, can it?
Miriam: That’s correct. No, my understanding is it’s their principal place of residence only to ensure that downsizing takes place to free up those bigger properties for families to move into or upgrade into.
Kevin: Of course, there’s nothing to say that when they do sell their principal place of residence, they don’t pour that straight back into another residence anyway. You can’t tell people what they’ve got to buy, can you?
Miriam: No, but logic prevails and they need somewhere to live. The whole idea of downsizing was to find something smaller and more manageable. They’re often the same properties that first-home buyers are buying, and they’re often the second-tier property that someone might be upgrading into from where they are because they need more space or a bigger accommodation.
But the people upgrading into it are using borrowed money, and they can’t compete with buyers who are cashed up. We’ve had that problem in recent years with foreign investors, let alone now having foreign investors and a mass of retirees all coming in with plenty of cash to splash.
Kevin: Interesting. We’ll have to watch what happens. When does that become effective?
Miriam: 1st of July 2018.
Kevin: I guess anyone who wants to know a little bit more about it should really talk to their financial advisor, get some advice on their individual situation, even talk to their accountant as well, I would think, Miriam.
Miriam: Absolutely. For the over 65s who are in a position to take advantage of it – and my understanding is they have to own their principal residence for at least 10 years – they definitely want to get advice around that.
Kevin: Yes, absolutely. Good on you. Miriam Sandkuhler from Property Mavens. Thanks again for your time.
Miriam: You’re welcome, Kevin.
Set a bidding strategy to suit the market – Steve Jovcevski
Kevin: Auctions more and more are becoming the way for people to buy and sell property all around Australia. It’s always been very strong in Sydney and Melbourne, of course, but we’re seeing in other parts of Australia that the auction process is really gathering pace. So, how do you prepare for it? What should you be doing when you get there?
We all know about making sure you’ve got the price structure right, but it’s the actual bidding strategy, understanding how the auctioneer works. Let’s dig a little bit into that, find out maybe a couple of strategies you might want to employ. Joining me to talk about this is property expert from Mozo, Steve Jovcevski.
Steve, tell me what you would advise someone maybe going to an auction this weekend, how they should be preparing for the bidding and what sort of homework they should put in before they get there?
Steve: The reality is no auction is similar, so be ready to change up the style based on the mood in the room. Basically, depending on the type of auction, if it’s somewhere where there are three or four really active bidders, a different style may be better than where there’s only one bidder. We could probably talk about the different styles, but we found that everyone has one or a couple of different categories of style, one of them being strong and silent.
What’s good about that, with a smaller number of bidders in a neck-and-neck auction, a strong-and-silent bidder who pipes up occasionally with sizeable bids can really throw off the competition and pose as an intimidating figure. It shows that you’re not bothering with back and forth with other bidders; you’re here to buy and you have the big numbers to back it up. That’s one of the more interesting ones that we found can be quite effective.
For example, if there are two people going really at it with $1000 bids or pushing along and there’s this one person who puts in a $10,000 or $15,000 bid every so often, quite often, that can often be effective to knock the other two out of the competition.
There’s another one. It’s funny; I spoke to a prominent Inner West auctioneer once and asked him his advice on what the best bidding strategy is. He said “Well, why doesn’t everyone just come in with their best bid at the beginning, what they’re willing to pay and that’s it, and then walk away?”
I thought maybe he just didn’t want to do the work of doing the bidding, but he has a good point in that opening with a big splash – so if the bid’s opening at $900,000 and you suddenly say $1.1 million because that’s what you want to pay for it all or close to it, and basically knocking the other guys out of the competition by doing that. And quite often, that can be effective as well.
Kevin: I’ve seen that work brilliantly, but you have to be right on the mark, haven’t you? You almost have to go to the point where “Well, this is the figure I’d pay for it” – the example you gave there was $1.1 million – because you then can’t come back. You could probably come back with $50,000, but the moment you do that, you’re indicating that maybe you’re going over your mark, and that strategy wouldn’t work.
Steve: That’s exactly right, so hopefully you’re knocking out the competition and thinking “This guy’s going to keep going.” But you’re right, it could be that they think “Well, hang on a minute. If I only put in a couple thousand more, he’s not going to go any more.”
But the other thing is you could pay too much for it. It may not have ever got to that point, especially in the quieter market the way it is in Sydney at the moment.
Kevin: What about the loud and brash person? How do you feel about them?
Steve: I think they can be quite effective. Basically, as soon as someone’s made a bid, they come back very quickly and don’t give the other person time to react. So, if someone says $1,050,000 they come back $1,055,000. And then they go again, and it’s just a constant barrage. They’ve come out with all guns blazing, and it seems like they’re determined to get the property no matter what.
Kevin: Agents and auctioneers love those kinds of bidders, because they’re the bidders who will actually take a property up to a premium.
Steve: Exactly right. The problem with this – and this is where you have to be careful – is if there’s more than one person doing it. If there are a few people doing it, it kind of gets lost. Like a horse race, often those who charge ahead at the start can find themselves outshone by the later players.
Again, you just have to gauge the mood in the room. It could be quite effective if you’re the only one. If you’re one of three who are doing it, then it may not be so effective.
Kevin: How powerful is it to get a buyer’s agent to do it for you? In other words, you don’t really identify who you are.
Steve: We call that the invisible bidder. And it doesn’t necessarily have to be a buyer’s agent; it could just be someone bidding on your behalf. But it gives you that air of mystery and intimidation. You can spook other bidders.
When they see someone smartly dressed talking on the phone, it gives license to the imagination of other bidders. You could be a cashed-up property investor or a property mogul who’s too busy to attend the auction.
There is that intimidation, that air of mystery, and it could work in your favor. But the problem is if you’re not at the auction… It’s fine if it’s a buyer’s agent, but if you’re just getting someone else to bid on your behalf it’s hard to gauge the feeling in the room and whether your strategy is actually working.
Kevin: Yes. It must also be very hard if you’re bidding over the phone, because you can’t really sense what the mood is; you can only take it from someone who’s on the phone.
Steve: Exactly, and that’s the problem.
Kevin: What about bidding in odd numbers, Steve?
Steve: I’ve seen this happen. It is a bit off-putting for the auctioneer especially who might sometimes get confused. This works well, I think, when you have someone who’s maybe a loud and brash bidder who’s coming in every second as soon as someone else makes a bid, just to slow things down.
Because with the odd numbers, the auctioneer sometimes may have to write it down. So, $1,558,352. There’s that period where they’re so confused they actually have to get someone to write it down for them and repeat it, so that slows down the bid and quite often takes the loud and brash guy out of his strategy and puts them off.
That can be effective. Sometimes, though, it can be a bit frustrating for the auctioneer. And as I said, it just depends on the mood. But what you don’t want to do is upset the auctioneer too much and he starts to move forward with other bidders who are making normal bids and not paying as much attention to you. And I’ve seen it happen.
Kevin: I have too. Yes, you can actually upset the auctioneer.
Steve: That’s right.
Kevin: Well, there you go, a very good rundown on what you could do this weekend at your auction. Steve Jovcevski has been my guest, and Steve is from the home loan comparison site Mozo.
Thanks for your time, Steve. If you’re going to be bidding this weekend, all the best. I’d hate to be bidding against you.
Steve: Yes. Thank you very much.
High Crime Suburbs Outperforming Housing Market – Vanessa Jones
Kevin: The information I have to tell you now flies in the face of many things we’ve told you. Housing in high-crime areas across Australia is actually outperforming the property market. That’s according to RiskWise Property Research. The research house discovered high-crime areas, despite expectations, were trumping their safe neighboring suburbs when comparing their five-year growth to the city’s median. Vanessa Jones from RiskWise joins me.
Vanessa, this has turned everything on its head.
Vanessa: Hi, Kevin. Thanks for having me. It is very strange to most people, I have to admit. I think most people would assume that a high-crime area would certainly mean that the prices would be bad. But our research at RiskWise has found that, in fact, it’s completely the opposite and high crime rate is not necessarily detrimental to property price growth.
Kevin: Is it geared to something else? Like if it’s an area that maybe has just become gentrified or something along those lines?
Vanessa: It certainly does. RiskWise has found that areas that are undergoing gentrification are particularly popular with buyers. What we’re finding is that in the inner rings of the city, property is just becoming too unaffordable for people, so they’re moving further and further out into the middle rings and even to the outlying areas. And while these areas are traditionally considered crime areas, because people are moving out there, the areas are getting gentrified and the prices are rising. So, it’s a win-win.
Kevin: Could you give me an example of maybe a suburb that is demonstrating this behavior?
Vanessa: Absolutely. I have a couple. In Melbourne, what we found is Frankston North actually delivered a 102% price increase over the past five years, which is compared to the benchmark, and that is very significant.
But that’s not all, because what we’re finding also is that it’s not peculiar to Melbourne; it’s across the board. Brisbane, Sydney… Sydney in fact an area that has the highest gun rate violence in the city, known as Busby, which is in the western suburbs of Sydney, had a huge increase as well.
Same with the Gold Coast and Brisbane. All these high-crime areas are actually outperforming the benchmark over a five-year period.
Kevin: So, out goes that rule of not buying in a high-crime area, it would appear. Is this a long-term phenomenon? Does it turn around over time?
Vanessa: I think what we’ll see is that as these areas are gentrified, prices will just keep rising compared to the benchmark. And of course, places like Adelaide and Perth, which have probably under-performed a little bit, aren’t really seeing this so much. However, the crime suburbs are still pretty much up there.
Kevin: Okay. So, it would seem to me that areas with high crimes, if they’re maybe combined with gentrification, may be the ones to look for as opposed to an area that has high crime with low gentrification.
Vanessa: I would say so, indeed. And I guess just to be a little bit cliché, we could possibly say that crime does pay.
Kevin: I think on that note, we’ll leave it. Thank you very much, Vanessa. Vanessa is from RiskWise.
Vanessa: Thanks, Kevin.