17 Nov Markets buck the trend + Politics and property + Calming the troubled finance waters
Highlights from this week:
- The markets not following the national decline
- The thing about ‘house and land packages’
- Property settlement in divorce
- The power and influence of APRA
- Politics and property prices
The markets not following the national decline – Louis Christopher
Kevin: Well, no doubt, there’s a lot of consumer sentiment happening in the market now, that’s driving it, and it’s not driving it in a good direction. A reflection of that would have to be a study that was conducted recently by Louis Christopher, from SQM Research, that revealed that property listings are slipping nationally. He joins us. Good day, Louis, how are you doing?
Louis: Good day there, Kevin.
Kevin: You’re seeing a drop in listings, well, right around the country. Are there any areas that really stand out for you more than others, Louis?
Louis: Ah, Kevin, yes. So the national result was a decline of 0.3 of a percent in the month of October, which is a little bit of a surprise, because normally, you get a seasonal rise in listings in October. But the citywide city result was quite varied. So on one hand, we had, for example, a 4.9% drop in listings in Darwin.
Louis: On the other hand, we had a 10.3%, whopping increase, in Canberra. And then, the major cities, so Brisbane was unchanged, and in Sydney, we had a rise of 2.4%, and then, Melbourne also had a massive increase of 5.9%. So, it’s actually varied quite a lot, depending on which city we’re talking about, Kevin.
Kevin: If we look at some of the major cities, even a, like a 2% or 3% downturn in numbers in say, Sydney, is massive, isn’t it? I mean, it doesn’t take much to turn the market around.
Louis: No. So, in Sydney, yeah, it was a rise of 2.4%. The yearly change for Sydney is that listings are up by 18.2%. Now, I think, Kevin, just to be clear for your listeners, how we view all this information is that we generally find it, when we see a rise in listings over the long term, say, over the year, it’s generally not good for the market.
Louis: It means that stock’s not selling, and it’s going to pile up against each other, whereas, when we see year-on-year declines in listings, it generally suggests that the stock’s getting absorbed by buyers. And listings are falling and falling and falling, because there’s less sellers in the market, which is, generally pushes prices up.
Louis: When we look at the year-on-year result, for example, Melbourne, it’s up by 24%, and that’s definitely implying to us, that that market is rapidly slowing down as we speak.
Kevin: The dynamics, which we should look at, and we’ve discussed already in this show, if you look at days on market are starting to blow out. Success rates at auctions are falling.
Kevin: Yet we’re seeing, as you’re saying here, in some areas, particularly around Sydney, we’re seeing a growth in stock numbers, which is going to have a downward pressure on prices.
Louis: That’s right.
Kevin: Which is obviously what we’re seeing now, Louis.
Louis: Yeah, that’s right. I mean, the reality is, in Sydney right now, prices on an annual basis have fallen by about 7% over the past 12 months. And we think it’s going to keep falling, unfortunately, for existing owners over the next 12 months. I’m not seeing any indicators or triggers or events right now that’s going to change that outlook, unfortunately.
Kevin: Well, it probably will get worse. We’re coming up to an election next year, as well, and if Labour win, then, obviously, their threats of fiddling with negative gearing is … we’re probably already seeing the effect of that, with a breakdown in consumer confidence, or buyer confidence.
Louis: Absolutely. I’m pretty convinced that investors, or potential investors and existing property investors, are now seriously factoring in a Labour government win, where negative gearing comes in very shortly afterwards.
Louis: Our view, it’s likely, assuming that we go to the election in May next year, we think what will happen thereafter, assuming Labour wins, is that they’ll call a mini-budget, somewhere around August, and they’ll adopt the actual negative gearing changes from, probably, 1 July, 2020.
Louis: That’s our view of the type of timeline they’re going to take, but I would say, from this point onwards, Investors are now starting to factor this into their equation.
Kevin: Yeah, just playing a devil’s advocate for a moment, I would have thought that, given the fact that Labour have said that they’ll grandfather any past arrangements, there should be a rush to market, if people really believe that Labour are going to win, and make those changes. Or are we likely to see that happen, leading up to the election?
Louis: There could be a rush, Kevin, and that may well still happen in the lead-up to the election, or the lead-up to the D-Day itself, or when these changes actually come in. I think, for now, there’s a little bit of uncertainty, in terms of exactly when it will actually come in. I’m not entirely convinced there will be a surge in investor demand, because-
Louis: The market right now, as you know, is depressed. So it would take a lot for investors to overcome, they’d be buying into a falling market, in Sydney and Melbourne. Of course, we know that banks have still got a choke hold on the investors, in terms of actually getting access to the credit.
Louis: So, yeah, I’m just not so sure this time round, Kevin, we’re going to get that surge.
Kevin: Another graph that I want to talk about in your latest report, too, and that is, not a graph, but a table. The capital city average asking price, there’s a little bit of red ink in there, I notice, around Sydney and Darwin. Is this sellers sort of coming to terms with the fact that it’s a falling market?
Louis: Yes, it is. It’s sellers adjusting to the market, and I note, it’s also happening in Melbourne, as well. So, yeah, we like to follow what vendors are doing. It gives us a good indicator, in terms of vendor confidence, whether they’re confident enough to list their asking prices. Or are they losing their confidence, and then, having to drop their price?
Louis: At the moment, in Sydney and Melbourne, and, as in the case with Darwin, as well, they’re dropping their asking prices. And indeed, I got to say, Kevin, looking at Darwin, the picture there isn’t good at all. Basically, the state, the Northern Territory government has stated that, effectively, they think the city’s going to go into recession next year.
Louis: So it’s already had a pretty big downturn on the housing market, and it’s not looking too good there right now, at all.
Kevin: Yeah, and nationally, of course, still looking at your graph, or your table, once again, all houses … pretty stable, really. There hasn’t been much movement annually, or the rolling month change is almost level.
Louis: That’s right, yes. And look, it’s important, Kevin, to note that … Look, it’s not all negative everywhere.
Louis: So, Hobart, at the moment, is just firing along. Far more buyers than sellers. We’ve looked at the, what’s coming into the market, in terms of new stock. There’s not that much stock coming into the market at all. Vacancy rates are below half a percent in Hobart, and rents have lifted in Hobart, in the last 12 months alone, by 13%. Which is an incredible number.
Louis: Then, we’re also seeing some positive signs on the rental market for Brisbane. So we think that surplus stock in the Brisbane CBD now is getting absorbed, by occupiers, tenants.
Louis: And vacancy rates seem to be falling in most regions in Brisbane right now.
Kevin: I’ve got to say, Canberra seems to be soldiering on quite well, too, doesn’t it? I mean, the growth in that market over the last 12 months, it’s been quite phenomenal, yep.
Louis: Yeah, we’ve seen very strong growth, capital-wise, as well as rents. Rents are now seeing the real pickup, by over 5% per annum, which is very strong rental growth. I’d just note that, gee, we recorded a big surge in listings last month for Canberra. It was up by 10%, so all of a sudden, a large number of property owners wanted to sell. Not sure whether that’s just a blip, or whether that’s a sign of things to come.
Kevin: Well, we’ll watch very carefully. SQM Research, that’s the place to go, if you want these sort of stats and these details on the market. Always a great indicator for us, what’s ahead.
Kevin: Louis Christopher, from SQM Research. Louis, thanks for your time.
Louis: Good to be here, Kevin.
The thing about ‘house and land packages’ – Harris and Bateman
Kevin: One thing we see a lot of commentary about property is sweeping statements, generalisations, particularly when it comes to things like units, units over houses because of land value, even whether or not you should be looking at a house land package, whether you should be buying off the plan. Sweeping statements sometimes can lead you in the wrong direction. I’m talking now to The Property Mentors, Matt Bateman and Luke Harris. Gentlemen, thank you very much for your time. I’m hoping you can give us a bit of an insight here as to what advice you give about house land packages specifically. Are they a good idea?
Luke: Thanks for having us, Kevin. Yeah, look, they can be a good idea, and they can be a bad idea, really, as with all things property, as you know. I think, for us, really, it comes down to finding what’s good in a house and land package, and finding out really where the property’s actually located. The quality of the land is more important than the quantity of land, and really, things like good infrastructure is probably the key thing to be looking for. So the actual design of the house and land package itself is overall slightly less relevant than the actual location and the quality of the land. If you’ve got good infrastructure with really good schools nearby, good freeway and public transport infrastructure, good shopping centres, hospitals, things like that, that’s going to improve the value of that land faster than if you had a larger piece of land with no infrastructure nearby.
Kevin: I guess it also depends on the purpose of the investment, doesn’t it, whether it’s a home. If it’s a home, then you’re going to have some specific requirements around what the family needs, but if it’s an investment, you’re going to have some specific requirements around what’s going to make a good investment, in terms of what will attract tenants.
Matt: Yeah, and look, you’re spot on there, and this is what I guess we’re saying, is you’ve got to have a plan and a purpose for every property that you add into your portfolio. Let’s take owner occupiers for example, house and land does appeal to them because they might have a growing family and they want that little bit of a yard to be able to kick a soccer ball in the backyard with the kids, so these are all things that are important to some buyers. For other buyers, what they want to do is they want to be able to have the kids walk to school, or they want to be able to be close to their parents, and therefore, for them, a townhouse or a unit or apartment might be a better option for them as owner occupiers.
Matt: I guess the point there is, are house land packages good, yeah, as Luke said, they can be, but they can also not be, because they may not fulfil the criteria for why you’re putting that property into your portfolio in the first place. Some house and land packages could be in a very large estate with very poor amenity, even if the land blocks are big and the houses are well designed and relatively affordable. But again, one of the reasons that a lot of people are attracted to house and land packages is because of their affordability.
Kevin: Yeah, they are more affordable, and I guess you’ve got to be wary too of the fact that where a lot of these are being built, there isn’t the infrastructure at this point in time, so you’re really buying ahead of that development in the area, aren’t you?
Luke: Absolutely, and that does factor in the lower price and the affordability side of things, but when you’re looking at, let’s say for example, we’re in Melbourne, we’re here on St Kilda Road, right now, right in the middle of Melbourne, and really, if you look at the infrastructure that we’ve got around us, if you look at areas like St Kilda and Prahran and South Yarra that are on our doorstep here, really, you’ve got billions and billions and billions of dollars’ worth of infrastructure in trains and road networks and hospitals and schools, all of the amenity that’s been built up over this, as Melbourne has grown over the last hundred years.
Luke: So really, the size of the land is less relevant because you’ve got the access to infrastructure and, really, when you’re looking at house prices, what underpins it is, the infrastructure around it underpins the land value, and so when you’re looking at the infrastructure around an area like where we are right now and other CDB centres, the quantity of the land is less important than the actual quantity of the land that you will get. Out in the suburbs, you might get a larger piece of land, but it might be in a new estate and you’ve got to drive for 10 minutes just to get to the freeway.
Matt: One more thing on that, Kevin, if I can, and that is that obviously we’re also looking at, is the property … we’re talking about it as an investment … is the property designed to be largely for capital growth or is it largely designed for rental yields? Obviously, in some of these house and land packages, we might get a higher rental yield, but we may suffer a lower capital growth over time.
Kevin: Is it possible to get both?
Matt: Absolutely, it is, and again, that’s the holy grail, I guess, of investing, is finding those areas that have both high levels of capital growth potential, but also have strong yields to help support not only this property purchase but the acquisition of further properties down the track.
Kevin: So what about some of the regional areas? Are they good prospects for this? I mean, you’re going to get the double whammy, I guess. You’ll get good land and you also get great affordability.
Luke: Look, absolutely, and especially in places like Bendigo and Ballarat, here in Victoria, where you’ve got the state government pushing for people to actually move to these regional centres. You’ve got good freeway and transport infrastructure through the train networks, to be able to get to Melbourne. Even Geelong has some opportunities if you’re buying in the right area, but really, that comes down to doing the research on really why you are buying that property in the first place and what the purpose of it is. See, it does come down to affordability. Some people may not even be able to get into a one-bedroom apartment in a CBD location, but they may be able to get into a small house and land package in a regional centre.
Kevin: Matt, Luke, thank you once again so much for your time.
Luke: Thanks, Kevin.
Property settlement in divorce – Miriam Sandkuhler
Kevin: As it was pointed out to me the other day, there are 46,000 divorces in Australia, many more than I thought, and it raises an interesting question about the challenges in going through a separation. What do you do with property? How do you split it up? What do you do after it? Miriam Sandkuhler is the CEO and buyer’s agent of Property Mavens, who’s already written a number of books as well. She’s been in our show and has had to deal with this on a professional level. She joins me to talk about it. Hi Miriam. How you doing?
Miriam: I’m good, thank you. Kevin.
Kevin: Yeah. Miriam as a CEO and a buyer’s agent of Property Mavens as I said, you’ve had to deal with this on a number of, where do you see people go wrong with this? How can it come unstuck?
Miriam: Kevin, it’s very complex. As you’ve said, on average 46,000 divorces granted per annum, which roughly results in 92,000 people needing to sort out where they’re going to live. Certainly some of the challenges that separating couples face divesting of property can be really complex. They can be highly emotional, which can affect their ability to make the decisions. If there’s mistrust or conflict or even violence in a relationship, it can mean that it’s really hard to make decisions to get an outcome.
Miriam: I often see imbalance in financial resources, in financial knowledge, so it might mean that one party needs more explaining around how a deal’s going to look or why it might be a potentially good offer to accept. And then, they can often have an inability on how to proceed, which agent to I go with, how do they set a reserve. If each of them has got well meaning third party friends or family throwing their two cents worth in, well that can derail it. So really, often they just need to be able to get some independent advice. Otherwise, that inability to agree means people just can’t move forward with their lives and have a fresh start.
Kevin: Yeah. I think you’ve made some really good points there too. And the other thing is also with agents, I mean sometimes it’s difficult enough to negotiate a sale when you’re certainly representing the seller, but you’re also acting on behalf of the buyer. Then you throw another scenario in which is where you’ve got two sellers who are probably in conflict, then you’ve got a buyer as well. It stands to reason that seller’s advocacy and buyer’s agent really would come home in this sort of situation, Miriam.
Miriam: Absolutely. So I do work as a vendor advocate in that situation that you’ve described and when I’m dealing with separating couples, we act as the independent party that works on both their behalf. We navigate that fine line between them and educate both of them and get their agreement on how things will move forward. We bring to them two or three really good agents that we would recommend that they consider working with and explain our recommendations and why.
Miriam: And then in the background, we help manage that process till it gets to sale, auction, whatever the case may be. And we give them each advice in terms of consideration for offers that are presented, and why they may want to consider an offer or why they may not, what the market’s doing at the time, what the agent’s feedback is. So we very much work with the selling agent, but we’re the ones liaising with the individual clients and we have their agreement and their understanding that we work for them, but we need them to ultimately be able to make informed decisions. Again to be able to move forward and get some good outcome.
Kevin: Almost got to be like a marriage counsellor, but I suppose you can’t be that, can you?
Miriam: Well you can’t counsel, but when you are dealing with people who are emotional and I’ve had this experience before where one party has been willing to take our advice and the other party’s been incredibly emotional. You can only do the best you can to continually try to bring them back to that point of take the emotion out of it. You can only educate them why it is a good offer.
Miriam: And look at the end of the day, it’s their prerogative to not take your advice. In one instance that happened and a client, well the other party said yes, this particular client didn’t agree to an offer before auction because she was expecting more and she wasn’t accepting that the market was softening, and that property went to auction, it passed in and then a week later she got $100,000 less than if she had have taken the offer we presented before the auction.
Miriam: So you can only do the best you can in those circumstances. Yes, you do need skill sets and you need really good communication and negotiation skill sets and to be fair, not every selling agent is capable of dealing with it. Particularly if they’re young, they’ve never experienced divorce before or a relationship breakup. So sometimes being older, wiser or having already gone through the wringer is really good experience to be able to bring to the table, and go yes, I can empathise with you. I know what you’re going through. Been there, done that, but let’s come back to what we need to achieve and move forward on that basis.
Kevin: Because the sale is one thing, then you get settlement. What do you do after the settlement?
Miriam: Well, this is exactly right. So it depends on everyone’s individual situation. Do they have kids, do they not have kids? How old are the kids? Where do the kids need to go to school? How long before the kids move out of home? Because in reality each party will often end up with half of what they had before.
Miriam: Men are pretty pragmatic, they do tend to like to move on fairly quickly and buy another property. But sometimes that can be ill-considered if they’re not really thinking carefully about who they need to accommodate. I’ve known men to buy two bedroom apartments, but they’ve got two kids that are with them half the time and that doesn’t work for the kids.
Miriam: And conversely, women get a bit frightened because if they haven’t looked after the finances in a relationship and they’ve never bought a property before, they can get a bit stuck, do nothing out of fear or think they can’t do anything, which means they’ve got money wasting away in the bank, when absolutely at a minimum, they could get a really good investment grade property and at least have their money working for them in the market.
Miriam: So, there is a lot to consider. There’s a lot to consider from a future perspective and sometimes it’s best to just maybe rent for 12 months, then put in a plan for the next five to 15 years. Renting will take some pressure off. Renting will take some of the emotion out of it, but absolutely seek independent advice from a licenced buyer’s agent to help you work out a plan on how to move forward and still make sure you’re making a good decision when it comes to re-entering the market. Because it may be the only time you’ve got the ability to buy back in and you’ll want to make a smart decision and buy property that’s not going to be compromised in any way.
Kevin: Really good advice. Miriam Sandkuhler is the CEO and buyer’s agent of Property Mavens. You’ve written a book too called Property Prosperity. How is that going?
Miriam: Yeah, it’s going really well. It’s a book that really, regardless of your age or your experience in the market, it’s got some really good tips in there, particularly things about understanding risk profiles and strategies and buying the right property for you, but look, I do take a financial planning approach to direct property investing. It’s got a whole lot of steps in there designed to maximise return and minimise risk and make sure that you’re buying investment grade property that you can hold for the long term that’s going to create wealth for you.
Kevin: Yeah. Congratulations. It’s a great book, a really good read. I’ve got it here and recommend you get it as well. Miriam Sandkuhler from Property Mavens, thank you so much again for your time and your wise words.
Miriam: Thanks, Kevin. Appreciate it.
The power and influence of APRA – Simon Pressley
Kevin: Well, as we know, the two major influencing forces in finance in Australia are APRA and also the RBA. But we’re going to focus very much in this interview on APRA. Almost it could be called the policeman of the finance industry. They’ve certainly come into a lot of focus in recent times with the inquest into, or the banking inquiry. Joining me to talk about this and the true importance and how much impact I do have on you and I, Simon Pressley from Propertyology. G’day Simon.
Simon: Hi Kevin.
Kevin: Good to be connected again. Simon, I went through the RBA and APRA. Let’s talk about APRA. Your view on how powerful they are, what their influence is, and what message, if you had, to the Chairman of APRA, you could deliver.
Simon: Yeah. Look, they’ve had a very difficult role, it’s fair to say over the last few years. And I’m sure they mean well. I’ve become increasingly concerned about the decisions and policies they’ve been changing, Kevin. I think a lot of this does stem from the Royal Commission into the banking inquiry, and obviously APRA’s charter is to oversee the conduct of our banks. But what we have seen, and it started back in May 2015, was APRA round one. At that point, they made it a little bit … I guess the way they scrutinised borrowers’ ability to afford a loan. They made that a little bit tighter, but over more recent times they’ve made that much tighter, and it’s not just investors. It’s first home buyers, it’s upgraders, it’s renovators. It’s anyone who wants to buy any property.
Simon: Banks are certainly lending money, but they’re running scared at the moment. I guess because of some the things that came out of the Royal Commission. And instead of punishing the banks, they’re punishing the Kevin Turners, Simon Pressleys, and anyone else who wants to make important life decisions. My concern with that is not just the individual borrowers I think have been unfairly punished, is that could have very soon some widespread impacts on Australia’s economy more broadly.
Kevin: If I could just pick up on that point that you’ve made there about who’s going to feel the most pain or who’s actually delivering those tough messages, is it APRA delivering those messages to the banks or is it the banks overreacting from the inquiry?
Simon: Look, it’s probably a bit of both. There were certainly some rules handed down from APRA to the banks saying, “When you assess a loan application, you must now do this,” that they didn’t have to do. And that largely relates to the information they need to get from an individual borrower and what they take into account, A, for the income they can rely on from that borrower, and then B, how they work out what that borrower’s living expense is. So their household budget excluding loan payments. We’re talking groceries and things like that.
Simon: And look, all our clients, whilst they’re buying investment properties, they need to get a loan in order to do that. So the feedback we’re getting from all of those is that the income that … They might’ve been earning the same income for last five years. Any variable component in that income, banks are less likely to rely on that. And I think if someone’s been earning, say consistent commissions or consistent bonuses or working regular overtime for many years, that should be taken into account. But in a lot of cases it’s not. And then the household budget, they’re really getting down to, “How many haircuts have you had?” And what does it cost for a haircut? And what are you spending on pet food? I’m sure they mean well, but there are a lot of good quality borrowers who have a sound track record, reliable incomes that aren’t getting loans approved. I mean, not just talking about investors.
Kevin: Yeah, it makes you wonder, doesn’t it, just how much information they can get. And of course, there’s a lot of information available now, but how much should be made available to them? We carried a story in the show just recently where we talked about be careful if you actually get takeaway food from Uber Eats that you don’t pay on your credit card, which I think you have to do anyway, because all of those expenditures are being picked up by the bank, and they can tell how often you’re having takeaway food.
Simon: What a great example. I mean, that’s just living. You’re just going about your business existing, and I argue strongly that shouldn’t affect how a bank assesses someone’s ability to repay a loan at all. And I wonder where all this has come from, Kevin. We’ve actually got round figures here. Two percent of all Australian mortgages are in arrears. I mean, that’s an all-time low. Bankruptcies in this country are at an all-time low. No one’s talking about interest rates skyrocketing through the roof. There’s not an economist in the world that’s anticipating that will happen. But even when rates do rise, banks have always, before all this tightening, have always factored in about one-and-a-half percent interest rate increases. So one-and-a-half percent is six interest rate rises, and they haven’t increased interest rates now for 26 months. How long will it take before we see six interest rate rises? So I really question the need for any of this tightening at all, and I feel it’s APRA’s way of punishing the banks for some things that have come out of the Royal Commission. Now it sounds like banks do need a lot of punishment. Well, punish them. Don’t punish the Australian borrowers. There’s about $30 billon that Australia’s four big banks get in profits each year. Hit them with a year’s profit, hit them where it hurts. Don’t punish Kevin Turner and Simon Pressley for doing what we’ve always done, getting on with our lives and making important life decisions.
Kevin: The reality there, though, I think, Simon, is that anything you bring down on the banks, they’re probably going to pass on to the public anyway.
Simon: Well, maybe. They might pass it on if their costs go up. That’s true with interest rates. But how they’re doing it at the moment is a first home buyer today is finding it harder to get a loan approved compared to two years ago. Why? I really don’t understand why that is. Now, the widespread implications of this … Money that circulates through the economy is what every nation needs. Now the money that circulates comes in two forms. It’s what we earn, and it’s what we borrow. Now what we’ve earned hasn’t grown much for several years, has it? We keep hearing about wage growth and how we all are looking forward to when that occurs again. So that’s not happening. And the only other sources of revenue that circulates through the economy, we’re now really tightening the tap on. I feel the more we do that, and if someone doesn’t intervene soon, the prospect of wage growth will diminish because you need more money to circulate through the economy more frequently.
Simon: And we’re turning one of those sources off. And property transactions is the biggest source of revenue for federal and state governments. So if you make it harder for someone to transact in property, they’re going to be significantly reducing all government revenues. Now, the entire nation relies on those government revenues for infrastructure projects and for funding welfare and basic public services. So to me, all this APRA stuff, I’m sure they mean well. I know they’ve got a job to do, but the only thing that occurs to me is this is happening in response to bad banking behaviour, and okay, they feel the need to punish banks. But I feel that they’re punishing 25 million Australians, and before too long they’ll be having an adverse effect on the Australian economy. Someone needs to step in.
Kevin: Just before you go, a message for the APRA chairman?
Simon: A message for the chairman. Well, he’s got a job to do, but I think there just needs to be more coordination between APRA’s primary role and all of the other departments that collectively have a role in the important things for the Australian economy. Because if they’re not coordinated, and we’ve seen this before, when APRA first stepped in in 2015 they tightened credit policy, and then two months later the reserve bank dropped interest rates. So they contradicted each other. All government departments need to get together and coordinate this because the Australian economy has got some good ingredients there, but if not well managed the grunt work we’ve done over the last couple of years could all become undone.
Kevin: Always good talking to you. Simon Pressley from Propertyology. Thanks for your time, mate.
Simon: Thanks, Kevin.
Politics and property prices – Vanessa Jones
Kevin: Well, they say that one day in politics is a pretty long day, and the same could apply to real estate. We’re seeing the possibility of a change in leadership at a federal level, and the impact that it may or may not be having on the property market, with threatened changes to negative gearing if ALP do, in fact, win power.
Kevin: Interesting to read a blog article by RiskWise Property Research recently, saying that price reductions accelerated over the last quarter, following the day of the liberal leadership spill of Malcolm Turnbull by Scott Morrison. That was back on August 24, and they’re predicting more turmoil in the property market if, in fact, the ALP wins government.
Kevin: Talking to me now about this, from RiskWise, we welcome in to the show, Vanessa Jones.
Kevin: Vanessa, thanks very much for your time.
Vanessa: Oh, hi Kevin. Thanks very much for having me.
Kevin: So what is your research saying about the likelihood? And just give me a bit of an update on what you’re seeing with price changes, and how you’re measuring those since that spill.
Vanessa: Right, so basically, since August 24, the day of the leadership spill, that actually gave the ALP a probability of 80% chance of winning the next federal election, which will be held on or before May 18 next year, I believe.
Vanessa: Basically, Labour have proposed to make changes to negative gearing to limit it to new houses only, and also to discount the capital gains tax from 50% to 25%. So they’re significant changes. What we’ve seen since the day of the leadership spill is a dramatic drop in prices. Price reductions that have actually been accelerating, and also since the Wentworth by-election auction results which were already low have been even lower.
Vanessa: I don’t know if you’re aware, but last week the preliminary auction result for Sydney was 47.7%, and that was the worst in 10 years, and Melbourne’s very low as well at 50.5%.
Kevin: Yeah, I would think it’s drawing a long bow though, to put it all down to the threat that maybe ALP might get in. Prices are really determined a lot by consumer confidence, I guess, but also the availability of stock. So we’re seeing fewer listings come on the market as well, so it’s not only hesitancy from a buyer point of view, but also the seller.
Vanessa: Yeah, that’s true. Also, there have been price reductions already, due to title-lending restrictions, but this isn’t just coming from us. It’s coming from, for example, AMP Capital’s figures. They initially expected price falls of 15% in Sydney and Melbourne, spread out to 2020, which is about 5% per annum. They’ve revised that, partly due to the title-lending restrictions, but also due to fears of low capital growth due to possible changes in negative gearing. They’ve revised that to 20%, so they’ve added another 5% on to that. And Australia-wide, they previously expected a 5% drop, and now they’re saying about 10% up to 2020.
Vanessa: So Westpac have also come out in their consumer sentiment index, showing that consumer confidence in the residential property market has continued to decelerate, so it’s fallen 5.7% in the last 2 months.
Kevin: That’s the median price, which, of course, is only a reflection of where people are buying. Dr. Andrew Wilson from My Housing Market has actually predicted that the auction method is definitely under threat, with fewer auctions being declared, and even a fall, as you’ve indicated, in clearance rates.
Kevin: What’s your feeling about the auction method? Is it under threat, do you think?
Vanessa: I don’t really know. I don’t really have the facts and figures on that. The clearance rates have dropped dramatically in the last few months.
Kevin: How much of that do you think you can put down to a decline in sentiment from investors? Do you think they’re a bit concerned about what might happen?
Vanessa: Oh definitely. Yeah. It’s definitely impacting the market. If you look at … if you take an investor now, who’s got all the tax benefits, even the … because it’s going to create two markets. So you’re going to have the primary market and the secondary market. While the negative gearing for new houses will remain, if that person sells that house to the next person to the secondary market, the investor isn’t going to receive any of those tax benefits, so the average hold period of about 10 years, who’s going to want to buy that property in 10 years if they’re not going to get any of the tax benefits?
Kevin: The other point to that of course is that if you are investing for negative gearing then you probably have the wrong investment sentiment. Investors don’t necessarily invest for negative gearing, it’s a benefit of it. It’s an end result, it’s not a strategy, so I would challenge the thought that it’s going to stop investors from buying property, simply because they can’t negatively gear.
Vanessa: Yeah, sure, sure. I’m not arguing, but our consumer sentiment’s definitely down.
Kevin: Certainly, I agree with you that consumer sentiment is a big driver of the market, and that certainly seems to be under threat, so it will be interesting to see what happens if the ALP do win.
Kevin: Vanessa, thanks very much for your time.
Vanessa: Thanks very much, Kevin.