15 Oct Investors not fazed about ‘bubble talk’ – Ben Kingsley
Australian investors are shrugging off concerns about stricter lending conditions, property price bubbles and oversupply according to the third annual Property Investment Professionals of Australia (PIPA) Property Investor Sentiment Survey. Ben Kingsley – PIPA Chair – discusses the outcomes with Kevin
Kevin: Every year or thereabouts, PIPA – the Property Investment Professionals of Australia – conduct one of the largest independent surveys amongst property investors in Australia. There are other surveys that are done but they always have a bit of a vested interest. This doesn’t have that; it carries a great voice for property investors.
It’s interesting to note that in their most recent survey, which has just been released, Australian property investors remained very bullish about the long-term benefits of residential real estate, shrugging off concerns about stricter lending conditions, property price bubbles – thank goodness – and oversupply.
The third annual Property Investment Professionals of Australia – PIPA – Property Investment Sentiment survey has found a number of things. We’re going to talk about those now with Ben Kingsley, who heads up PIPA.
Ben, thanks for your time.
Ben: Thanks for having me, Kevin.
Kevin: Quite representative: this gets across almost a thousand property investors around Australia. What about concerns over changes to investors’ lending policies? Has this been one of the key findings?
Ben: Yes. This was new to the survey this year. We wanted to have a look at that, because there’s definitely been a shift from 2016 to 2017. Now, we know that APRA with their macro-prudential regulatory changes in August of 2015, but what we’ve seen is further tightening around servicing calculators, further pressure in regards to interest-only versus principal-and- interest lending, so we were keen to see where that sat.
The numbers speak for themselves in regards to what we found in regards to the lending side of things, and that is there’s no doubt that these sophisticated lenders are finding it a little bit more challenging to be able to get lending.
One of the questions we did ask them is “Is there a challenging lending environment for the past two years? Currently, do you find yourself unable to refinance an amount?”
22% said yes, they’ve basically hit a lending brick wall. 38% said no. There were 28% who were unsure, which leads me to think that they must be reasonably okay because they haven’t gone looking for more funding. And 13% basically said it wasn’t applicable to them, which effectively means that we have some pretty sophisticated people probably who have no debts and are enjoying the passive income from their property portfolio.
Kevin: I noticed that interestingly, some people are still talking about a price bubble. Is it much of a concern for investors?
Ben: Not for these investors. What we have here is because this is going out to our member databases and they are obviously talking to what we would consider established investors as opposed to the broader consumer market, we’ve definitely seen that there’s a maturity starting to form in the views of these more sophisticated investors.
They’re trying to wash that noise out, and they’re getting on with the job of making sure that they move through their accumulation phase of buying one, two, possibly three properties and then retiring the debt out, looking for capital growth and also them looking for passive income to supplement their retirement.
Kevin: Maybe I’m reading this wrong – correct me if I am – but it would seem to me that a number of property investors are actually really focused on paying down a lot of debt, talking about the number of investors who are currently negatively geared and those who expect not to be negatively geared in the next 12 months. Is that a fair reading of those results?
Ben: What I like about this result is just a reminder to all of the politicians out there as well that ultimately, negative gearing is just a moment in time. When we buy a property early on, we do need that little bit of support, just like when we’re buying a business and we might take on a loan. Once we pay that loan out and we stop paying the interest, that money starts flowing through to the bottom line, and it’s no different for a property investor.
What we’re definitely seeing here is we probably have a few experienced investors who have been doing this for the long term and their portfolio is now positively geared. That’s a real positive for me.
52% of investors are negatively geared, which means that 48% are neutral or positively geared, so their portfolio is generating passive income for them. And that’s what we want. That’s why we invest. We don’t invest for speculative tax incentives; we invest for capital growth or a passive income in retirement.
Kevin: Yes, because as you pointed out, negative gearing is not a strategy, it’s a moment in time.
Ben: It is. We hope that the politicians out there are listening to that message, because the reality is that any proposed changes to that will change the sentiment and the psychology and the confidence of investors out there, and they play an important role where state governments – if you look at the data – it’s so clear that they’ve gotten out of providing affordable social housing because it’s very expensive for them not only to build but also to operate, so the moms and dads have stepped in and provided those services.
If those moms and dads then turn to other investment classes, who’s going to step in? Because that’s a state government responsibility, and they’re going to be asking the federal government for a higher GST to be able to support that.
It has a flow-on effect, so it’s really important to understand that.
Kevin: I’m talking to PIPA Chair Ben Kingsley about their most recent survey.
Ben, did you ask investors where they’re looking at investing? What are the favored areas?
Ben: We did, Kevin. We basically looked at that, and again, for the second year in a row, we actually got Brisbane coming up with 43% of people looking to invest in Brisbane. We had 32% in Melbourne, and then we had Adelaide at 7%, Perth at 6%, Sydney at 8%, Canberra at 2%, and Hobart at 3%.
The clear winner at the moment is Brisbane, and I suspect that has a lot to do with the yield story and the affordability story that is provided not only in Brisbane, but if we also venture into those Sunshine Coast and Gold Coast markets, very low vacancy rates in those markets, some good yields, and some capital growth movement. I think people are finding that.
Kevin: Yes. Brisbane is getting a lot of good press too, coming up as the most livable city in Australia, as well. Just before I let you go, Ben, in terms of regulation, I know there’s been some concern about property advice being given by certain groups of people. What are the moves there? Are you concerned about that?
Ben: We would love regulation to be a part of the landscape. It would stop speculators from coming in, it would stop the spruikers from entering into the market, and it’ll clean up effectively what makes for a good investment for the long term. At the moment, without regulation, there are a lot of property spruikers who are operating in the marketplace telling us that this is a great place to invest and potentially selling stock.
It’s just important to understand that, yes, the survey clearly showed that they want basically regulation. 90% of people do want the marketplace to be regulated, so that’s also telling the policy makers to get behind that and try to clean up the property investment space.
Kevin: Ben, great talking to you. Thank you very much for your time. Congratulations on the great work you’re doing, and I look forward to talking to you again soon.
Ben: Cheers, Kevin. Take care.