27 Apr Labor “levels the playing field” + Male and female downsizer differences + Softening NZ market not price related
Highlights from this week:
- Labor policy to benefit 3% of population
- Living in a rental while renovating is not a good idea
- Millennials influence on this election
- Not all downsizers are the same
- What is behind the softening NZ market
Labor policy to benefit 3% of population – Adrian Kelly
Kevin: The Real Estate Institute of Australia has reiterated its strong opposition to the Labor Party’s negative gearing and capital gains tax policy following the announcement that 1 January 2020 would be the start date for their negative gearing and capital gains tax increases, if they were to win the federal election. The Real Estate Institute of Australia, of course, is the national professional association for real estate agents in Australia. Joining me to discuss this and other topics, the organization’s President Adrian Kelly. Adrian, thanks for your time.
Adrian: Thanks for having me, Kevin.
Kevin: Labor’s policy is promising a levelling of the playing field. Surely that would have to be a good thing for first home buyers, wouldn’t it?
Adrian: Well, anything that does level the playing field has to be a good thing for first home buyers, but we need to take into account what this particular policy decision will do across the board for the industry.
Kevin: Adrian, do you have a feel for how many renters there are in Australia?
Adrian: Three million. So that’s quite a large number. It’s close to eight million people which rent across Australia, and if you look at the average investor who wants to buy a home to rent to some of these people, 97% of them prefer to purchase an established home. Whereas, only 3% will buy something brand new off plans. Changing negative gearing so that it only applies to newly built properties is going to have a severe impact on the market.
Kevin: Yeah. I guess if you look in some of the regional areas, the last thing they need is more new homes. It’s more the incentive that needs to be provided for established homes. But surely if we increase supply, that would have to make property more affordable, wouldn’t it?
Adrian: I’m not sure how we would increase supply, Kevin. If you take away the … I mean, a lot of these people actually own those investment properties now. The Labor Party are saying that they’re going to grandfather those so they can still continue to be used. But I just honestly can’t see how the supply will be increased, particularly when, as I said before, 97% of investors prefer to buy established homes rather than build new ones.
Kevin: Yeah. Of course, we hear the argument all the time too, and the REIA says that negative gearing is not necessarily for wealthy investors, and how that’s a bit of a myth. Do you have any understanding or feeling, and I’ll ask you later about the profile of the average investor, but how many investors are there who use negative gearing?
Adrian: I’m not sure what the actual total number is, and perhaps I should know, but what I can tell you is that those investors who choose to negatively gear typically earn less than $80,000 per annum. So you can hardly say that they’re wealthy. And only about two-thirds of those people who do negatively gear only own one investment property. So again, we can hardly call them wealthy people. And in fact, out of all of the people who choose to negatively gear their investment properties, the vast majority of them only own four or five. So they don’t own 10 or 20 investment properties, so I’m not sure that we’re talking about the wealthy or the big end of town.
Kevin: Yeah. It’s the same … For argument’s sake, if we did take away that incentive to negative gear, that is, how fast do you think that would impact investor numbers?
Adrian: It’s the million dollar question, isn’t it? Well, if we look at the experiment back in the Hawke government days, and admittedly that was a few decades ago, but still that’s what we’ve got to go on. And remembering that in today’s market … We’ve got a falling market at the moment, particularly in Melbourne and Sydney. And even our own treasury has said if you’re going to change negative gearing arrangements, it will lead to a further exacerbation of the already falling property market, particularly in Melbourne and Sydney today. So Kevin, I haven’t seen one economist or read one article in a newspaper from people who know what they’re talking about saying, “This is a wonderful idea.” I haven’t seen one.
Kevin: I asked you there about how quickly it would impact investor numbers. Do you have a feeling as to how quickly it would invest property prices negatively or positively? But probably more importantly, rents?
Adrian: When the Hawke government changed negative gearing, the rental market … Or rent for an average three-bedroom home in Sydney rose by 43% within 6 months. And the rents across the country, so the national figure, rose by 22% within 6 months. Now, you could argue that it’s a different market now to what it was back then. I’m not so sure about that. But even if those figures were two-thirds or even half that, then you’re still talking about at a minimum a 20% increase or thereabouts in rent across the country. And that’s a sizable amount, I would have thought. And then not only that, but then the longer term would be that there will be fewer investors wanting to buy established homes because the tax advantages aren’t there to make it worthwhile. They might as well go into shares or something like that.
Kevin: Of course, no one would argue, and I’m sure you and your organisation wouldn’t argue either, that anything we can do to make housing more affordable, particularly to get people into more housing, the better it would be. So let’s try and finish this conversation on a positive note, and that is, there have got to be some solutions. Are there any that you know of that should be discussed and or even tested?
Adrian: I think it’s more of a … We think it’s more of a state thing which needs to be done. One of the things that we don’t have at the moment, Kevin, is a single property minister, which we can go and talk to when we have issues like this. We’re quite fortunate in the Labor Party has said they will consult with industry and stakeholders before they make any changes. I’m not so sure about that, because-
Kevin: I was going to debate that one.
Adrian: They announced changes without telling anybody. But anyway, look-
Kevin: Well, they always say that. Both sides.
Adrian: I know. But we’ll have to get through the election process first, I think, and see who’s in government. Not forgetting that there’s also an upper house to get legislation changes through as well. I suspect the cross bench won’t be too amenable to tenant’s rents going through the roof.
Adrian: But anyway, look, to answer your question, there’s obviously the state-based taxes such as stamp duty, which need to be looked at. And that’s where I feel sorry for first home buyers. If you’re a first home buyer, you need to come up with your deposit at the time of purchase. You need to pay your stamp duty at the time of purchase. And you’ll more than likely also have some mortgage insurance, which you’ll have to pay again at the time of purchase. So you’ve got to come up with a sizable amount of money upfront, and that’s one of the real reasons why it’s difficult for first home buyers to get into the market. So in changing taxation arrangements to make it easier for first home buyers, it doesn’t change the fact they’ve still got to have this large lump sum of capital at the time of purchase. So it’s really looking at things like that for first home buyers, Kevin, which would make life a lot easier for them.
Kevin: Yeah. Because governments are never going to give up any tax too easily, that’s for sure. They’d much rather increase it than take it away. And stamp duty is one of those insidious things that … There is no value for money, frankly. It’s just a rip off.
Adrian: Well this is part of the problem, isn’t it? And we’ve all heard the expression that governments are addicted to things like stamp duty, but I think we’ve all got to be realistic as well. If we start to remove things like stamp duty, then the money’s gotta come from somewhere.
Kevin: That’s right. It does.
Adrian: And I take my hat off to the ACT because they’re moving away from stamp duty and looking at a broad based land tax. So maybe what happens over there in Canberra will be the litmus test as to what the rest of the country might be able to follow, and they’re fading that in over a decade. So it’s not an overnight thing. So we’ll see how that goes.
Kevin: Well, we will in indeed in a lot of ways, in a matter of days or weeks til the election. So we’ll just see what does pan out. I’ve been talking to the Real Estate Institute of Australia’s President Adrian Kelly. Adrian, thank you very much for your time.
Adrian: Thanks for having me, Kevin.
Living in a rental while renovating is not a good idea – Brad Beer
Kevin: Well, it does actually seem like a good idea, doesn’t it? If you’re going to renovate a property, a property that you’re going to rent out after you buy it, why not move in? You’ve got to live somewhere, don’t you? Well, maybe it’s not such a smart idea. Here’s why. Brad Beer from BMT Tax Depreciation joins me. G’day, Brad. How are you doing?
Brad: Hi Kevin. Glad to be here as always.
Kevin: Thank you, my friend. Not a good idea, hey? To move in if it’s a rented … If you’ve got to rent it out, that is, and before you do the renovations.
Brad: Well there’s a lot of things to consider when you do this, and yes you do need somewhere to live and do that. But I guess sometimes the effect of doing that if you’re an investor and you’re going to be an investor in this property, does make a bit of a change to the amount of deductions you can claim. Because with the federal budget changes that we had a couple of years ago nearly now, if you actually live in and use some of these things that you put in there, your stoves or your plant equipment items, they actually become affected by this budget change and you don’t get to claim any deductions against them. And it can make, if you’re doing a big renovation, substantial amount of difference to the future cash flow. So it might save you a little bit then, but could cost you over the period of time afterwards.
Kevin: Have you got a feel for how many people could be affected by this? They don’t realise it until after it happens, Brad?
Brad: Well, whether they’re renovating or even if they just bought it and live in it first and then move out later, it’s the same thing. One thing they didn’t grandfather very well I think when they made those changes, there’s all these people that buy their property, maybe they’re a first time buyer, they live in it for the 6 to 12 months or a little while, and then they move out. Any of these people that lived in their property at any time are actually affected by this budget change. It was about a bit over 20% when we crunched the numbers that actually live in it first around that time. But the thing is that anybody who ever looks at maybe moving into one of their investment properties just for six months, or the other one is holiday rentals. That’s another one. If you actually use your holiday rental for more than occasional use, then you become affected by this budget change, and suddenly from using your holiday home a few times then when you rent it out again, suddenly you can’t claim deductions on your plant equipment anymore.
Kevin: So how many times would you have to rent it out? Sorry. Go and stay in a holiday accommodation before you’d lose that benefit?
Brad: So they haven’t actually … The wording is still just occasional use. The best information we’ve got at the moment is probably more than a month a year is more than occasional use. I guess, maybe that … I don’t know why they’ve said … Why we seem to have come up with that in talking to people from the tax office, but maybe it’s because you get a months holiday every year?
Kevin: I was going to say, does it ever really have to make sense anyway, Brad? If you’re talking about the taxation department.
Brad: The taxation department still at the moment says occasional use. So just being wary that if you’ve got a flash beach house that has lots of nice new plant equipment in there, and then you go and stay there for two months, then suddenly all your plant equipment and your flash stove becomes worth nothing for the purpose of depreciation when you rent that house out again. So just always things to consider. And this live in one, it’s a regular thing for people to live in their property, renovate it at the time, and then rent it out later because for some reason you seem to want to live through renovations yourself rather than somebody else. I don’t know why you do that. But it’s about saving some money, having somewhere to live, and being able to renovate I guess after work and night and weekends, etc. Which I’ve done before as well. And look, then suddenly all the plant equipment you put in there becomes worth nothing for the purpose of future depreciation deductions, and it might not be worth the amount of money that you save.
Kevin: Same would be the case I guess for brand new properties. If you buy it with the intent of leasing it out later then maybe live in it for a little while, you’d lose all those benefits, wouldn’t you?
Brad: Absolutely. If you buy a new property under the current rules as an investment property, you get full deductions on your plant equipment. If you live in it first and then move out of it, or even if you move into it later, then it becomes a second hand property for the purpose of these tax deductions and it could cost you thousands of dollars in deduction.
Kevin: In terms of … Because you’re always a good barometer for what’s happening with the market and the number of depreciation schedules you’re doing. What are you seeing with people who are buying brand new units? Is that increasing?
Brad: Well, our numbers have increased. From the 17 and 18 year, we did … About 31% of the depreciation schedules we did were on a brand new property. 2 years prior, 26.5 or 26.4% of them were actually on a brand new property. So we’ve seen a slight increase in the number of new properties being bought by investors, or that we’ve done a depreciation schedule on. We’re not the whole market. We do large numbers of them, but it is a little bit of a trend with those numbers that have come out in the last couple of years.
Kevin: I guess the bottom line here is that if you’re looking to buy a property that you intend to rent out, make sure that you discuss it first with basically your group of advisors who should include someone like BMT Tax Depreciation, Brad.
Brad: Yeah. Look, absolutely. We come up with and do estimates of what deductions might be available on properties, and then we can go, “Well, what if you live in it first and take the plant equipment away? What would those numbers look like in difference? So we we can come up with a close number and they’ve just got to crunch those numbers and see what’s going to work in the long term for you. Absolutely.
Kevin: Because it is very beneficial. I think I read somewhere recently you were saying that it’s just … The average is just over $8,000 in deductions that an investor can benefit from.
Brad: 17, 18 years. A bit over $8,000. And obviously being in that financial year, some of those people have been affected by this federal budget. I think the year before, the average was just under $10,000. So the average has dropped a little bit since our federal budget change, obviously. But I mean, there’s still plenty of … $8,000 is still great.
Kevin: That’s right.
Brad: We want to get whatever obviously we can out of that. And that’s based on over 60,000 depreciation schedules. So it’s not just based on a few. There’s a fair number that have been done there.
Kevin: Always makes sense not to leave money on the table. Brad Beer from BMT Tax Depreciation. Thanks very much for your time, Brad.
Brad: Thanks, Kevin. Always great to be here.
Millennials influence on this election – Emily Jaksch
Kevin: We’re only a few weeks away from the federal election, and one thing that many people misjudge, I think, is the power of the next generation. And millennials are going to be probably the big decider. One of the things that concerns them greatly is, of course, housing affordability. I’m talking now to Emily Jaksch, who is an expert in this field. She’s built a lifetime around educating people about how to work with millennials. Emily, thanks very much for your time.
Emily: Thanks for having me. I’m happy to be here.
Kevin: I find this a fascinating subject, and I follow you quite closely, because you’re a passionate believer in what millennials can achieve, and how they’re so misunderstood, and in some cases, not taken account of or their opinion. They’re going to be fairly a big decider in this election I would think, Emily?
Emily: They certainly are. They’re the biggest generation on record, and according to a recent survey, 65% of the millennials don’t support the current government, which is not surprising given the fact that ScoMo is an unelected Prime Minister nobody really wanted in the seat, but here we are. But I think that-
Kevin: Well, it’s not about personalities. It’s more about policy, I think, and-
Emily: It is. It is.
Kevin: And I think one of the big debates right now is about housing affordability. So putting aside the personalities, if we could, let’s talk about the Banking Royal Commission, the results of that and the tightening on lending. That’s making it more difficult for people to get finance, Emily.
Emily: It is, it is. I recently read an article about the fact that lenders are now looking at living expenses. So, they’re delving in to bank statements looking at after pay expenditure, Uber Eats, coffee, and that’s bad news for millennials, because it’s going to make it even harder for them to enter the market. And according to my research, one in three working millennials intend to buy within the next five years, and seven in 10 have between two and $30000 in savings. So they’re saving up their deposits, and here we are after the Banking Royal Commission with even more difficult barriers to entry than we’ve had before, which is … and we’ve also got this other thing where it’s become a buyers market, so we’ve had a bit of a decline. But it’s a great time for them to buy, but they’re not able to enter because of all of these other things.
Kevin: So I think, too, there’s a broader question here, and I just wanted to pose this with you, and that is the misunderstanding about millennials. This goes right through to employment. You and I have spoken off air about employers, how they treat people, but let’s think about the banks for a moment. They really haven’t adjusted to how millennials live. I mean, whether or not you get Uber Eats and how they find out about it is because it has to go on your credit card. They class these people as being lazy, lazy savers, when in fact it’s becoming a part of the way we live to use Uber Eats. To use Uber taxis. Things are changing. Are the banks not changing with it?
Emily: I don’t think they are, and according to a recent study, many millennials stated in this, in the survey that they are going to be looking to find an alternative to the big banks. So, I think that the big banks really need to be careful here, because we’ve got a very, very large proportion of the population who have completely different consumer buying habits and they’re not really listening to them, and they’re cutting them out of the market. So, it’s really interesting, and this is going to be a big issue for the upcoming elections, housing affordability, and the rising cost of living. We’ve cited into two hottest issues for millennials.
Emily: And the two political parties, the big ones really need to start talking to these millennials. The other thing that was found in this report was that they’re now getting the majority of their news from Facebook. And we have seen a lot of the political parties campaigning using that platform which is quite interesting. That’s been going on for quite a few years, but it’s definitely becoming a really big influencer of millennials and and how they think and how they perceive things.
Kevin: Yeah, great message there for politicians to be wary, to listen into what Millennials are saying and what they are needing. My guest has been Emily Jaksch. Now, Emily’s website is Emily Jaksch, pronounced Jacks, dotcom. And you’ll find a link on our website following today’s interview if you want to contact to Emily. Emily, always great talking to you. Thank you. I love your passion. And all the best. We look forward to talking to you after the election. We’ll probably pick up on this subject. I think then.
Emily: Fantastic. I can’t wait. Thank you so much.
Not all downsizers are the same – Grant Mifsud
Kevin: Downsizing seems to be the catch word right now, but here’s a bit of a twist for you. Divorced and separated parents now make up a significant number of residents who’ve taken advantage of the apartment boom and downsized from the family home. That’s according to Archers, the Strata professionals. Joining me from Archers is Grant Mifsud, who is the Strata professional partner there. Hey Grant, how are you doing?
Grant: Good day, Kevin. Well, thanks.
Kevin: I hope this is not from personal experience, is it?
Grant: No, thankfully.
Kevin: No, that’s good. I’m pleased to hear it. Okay, so what are we seeing here? Interesting. What sort of apartments are they looking for, and I want to find out whether it’s different for men and for women, Grant.
Grant: Yeah, so well typically it’s difficult to pinpoint because we don’t have a lot of the details. But what we are finding is it’s usually women end up with the children so they got the larger apartments. But then it might be the male will not have the children on a full-time basis, so he might have just a single bedroom with a study say, that converts into a bedroom for when the kids come every second weekend.
Grant: But we’re also, and in saying that what we’re seeing, what data we do see is it might’ve gone from, the property’s gone from an investment property all of a sudden to an owner occupied property because the couple have split and one of them needs a new residence. And in some circumstances, they’ve got that additional property that they can move into.
Kevin: Mm-hmm. Your figures indicate that the 2016 census, the number of adults with children living in apartments between 2011, 2016 increased by 56% nationally. That’s a huge increase isn’t it?
Grant: Yeah, that’s the census data. But what we’re also seeing is some of the trend indicators is at times by law breaches, because you’ve got people moving in that haven’t previously lived in Strata and they might have children where they’re not aware of, you know, there’s increased noise or you know, some, they’re usually minor breaches with pool rules, those sorts of things.
Grant: There might be requests for additional security where the building hadn’t previously had security, but yeah, we’re seeing those trends through the interactions and sometimes through disputes that are arising because of those differing interests between the people that are moving into these apartments, particularly when they’ve got children and they come from a free standing home and not aware of the rules that come with living in apartments.
Kevin: Given the fact that the number of adults with children moving into apartments has increased, you would assume that when they go with kids, they’d probably go with the woman, so therefore she might be looking for a larger, say two or three bedroom apartment, opposed to the male who may only be, only need one or even two bedrooms.
Grant: Absolutely. That’s the trend that we’re seeing as well. Of course it depends on the circumstances, how many children and whether or not the father is in the circumstance where he’s got more care than what’s the trend of the every second weekend.
Grant: As a group, we make sure that we talk about trends that we’re seeing in the office, particularly when it’s disputes that are arising, and we try and work out the why. So why all of a sudden there’s these extra disputes that are going on with the different, I suppose drivers that people have and once we understand the why, we can help guide the committees and the people involved in these disputes and it’s usually just about a bit more education around the rules and living in Strata.
Kevin: Is it likely that smart developers will pick up on these trends and maybe make some changes into the configuration if they’re building apartment blocks, they’ll accommodate for this trend?
Grant: Yes, the new developments, we are seeing a lot more of those open spaces integrated for the trend of families. More so just children, whether or not they’re divorcees or not, just children living in Strata schemes.
Grant: But also with the existing schemes, we’re seeing some of the, some requests through or driving on committees to upgrade facilities. The odd request for playgrounds to go in or some sort of communal area where the kids can, I suppose, play safely.
Kevin: Grant Mifsud has been my guest. Grant is from Archers, the Strata professionals. Thanks for your time, Grant.
Grant: Thank you Kevin.
What is behind the softening NZ market – Kelvin Davidson
Kevin: We’ve heard a little bit about the softening of the Auckland market and Core Logic, like us, are asked quite often whether or not the softening is related to price, or is it about demographics? Is at the top end or is it at the lower end? The senior property economist for Core Logic in New Zealand Kelvin Davidson joins me once again. Kelvin, I know you’ve been asked this question. Is there a simple answer to that?
Kelvin: Yeah, there is a pretty simple answer, and what we’re seeing is that it’s mostly about geography. So it’s not so much about within in the value bands or expensiveness or cheapness of property within a particular part of the city, but just more about the part of the city itself. So what we’re seeing is that the Auckland CBD or the central area and north shore are the softest parts of the city, and they’re showing the largest falls. Whereas, other cheaper parts of the city, say Manakau, Papakura are still showing a bit of growth. So it’s more about the geography than the type of property.
Kevin: Property owners are saying, “Well, the Auckland market’s been improving quite well now. Now’s a good time to sell.” Has this turn around been about stock levels? In other words, is there too much stock on? And if that’s likely to come off, will we see prices come back?
Kelvin: Listings are very high across Auckland as a whole. Buyers have plenty of choice. And so, yeah, I think that has got a key role to play and values are starting to edge down a bit. There’s no real selling pressure from vendors. Most people are in work and interest rates are low, so it’s not as if they’re really having to sell. But those ones who are, because of personal reasons, maybe they’ve swapped jobs, they need to move out, they are probably having to just tick those prices down a bit to meet the market and get a sale.
Kevin: Yeah. Because it’s not a disaster, is it? I mean, I think from your reporting, Auckland’s average property values fallen by about 1.5% year on year over the last year. That’s hardly a massive decline.
Kelvin: No. No, it’s not. But these things start somewhere. We’re not saying it’s going to turn into a big down turn or anything like that, but these things have got to start somewhere and we know that prices in Sydney and Melbourne are falling. And that started somewhere. So you’ve got to keep an eye on these things. As I say, we’re not expecting things to turn into a market downturn in Auckland, but you’ve got to recognise that they are down 1.5 and it’s something to take note of.
Kevin: Downward pressure, I guess, at the higher value end always has a bigger impact, doesn’t it? Particularly on the median price, when we see that start to come down?
Kelvin: Yeah, it can do. It probably doesn’t have so much of an effect on the median because you try to strip out the really extreme low end top values in the median, but it certainly does have an effect on averages. And I think it can play a role in the real market in terms of confidence. Once people start to see some part of the market falling, perhaps it’s those more expensive properties that start … That that gets media headlines and things start to spiral from there in terms of the confidence effect, and that filters out through the market. So yeah, all of this is definitely something that you’ve got to watch closely and keep a good eye on.
Kevin: Yeah. Well, we’ll keep an eye on it for sure. Kelvin Davidson, my guest there from Core Logic. He is their senior property economist in New Zealand. Kelvin, thanks for your time.
Kelvin: No worries.