29 Dec Tech in property + The good, bad and ugly of 2018 + The one we didn’t see coming
Highlights from this week:
- Technology shapes the future property experience
- We didn’t see it coming
- More judgement on spruikers needed
- The big headlines of 2018
- ‘My best prediction’ – Simon Pressley
Technology shapes the future property experience – Joel Leslie
Kevin: In another show that we do, which is called Real Estate Uncut, we talk to real estate professionals around Australia. We’ve been doing it for well over a decade now. It’s been an interesting journey because technology has evolved enormously, particularly in the last couple of years. A little bit later next month, early in the new year, at the end of January, we’re going to be broadcasting live from a conference in New York, which is called the Inman Conference. One of the people who’ll be joining us there is Joel Leslie. Joel is from a company called Coicio, which we, through our new portal, Property TV, have a very close relationship with.
Kevin: Joel, I want to talk to you today in the show about technology, but not so much how agents are working with it, but how it’s going to impact consumers in the transaction, that is both selling and buying. Hello, and welcome to the show, Joel.
Joel: Thank you, Kevin, and thank you for having me.
Kevin: That’s a pleasure. Let’s talk about technology because we’ve seen it evolve in our home life. Like, as an example, we now have a Google Home Mini, I think it’s called, but we’re talking to her all the time. There’s things like Alexa, there’s Siri, as well, on the phones. So these AI, or this technology, is taking on a personality of its own, isn’t it? It’s becoming a part of the family.
Joel: It is, and that’s the whole goal of this type of technology, is to integrate it into the house, so it actually does more for you and make your life simpler. If you can imagine, at the moment, a lot of people do have these products, the Google, the Amazon Alexas, and Siris and the like, and what they do is they take control of whatever function that you need them to, so it could be controlling the lights, or it could be turning on the vacuum, or anything like that.
Joel: But what it does really help us with from a property perspective is that it’s starting to come around and help us buy and choose a home. So imagine if you could say to Alexa or Google, “Find me the best real estate agent,” or, “I’d like to sell my house next month. How do you think I should go about that?” These are all open-ended questions that aren’t necessarily going to result in a yes and no. They’re going to result in some type of smarts to come back to you and give you, as the consumer, the buyer, the seller, the best information that you need right then.
Kevin: Yeah, we’ve got to look at these devices as helping us, aiding us, giving us more information and access to it. One of the developments we’ve seen in the real estate industry, and I’m now talking about agents, I’d like you to just describe Alexa, even Google. How they can be rearranging our diary without us even being involved in it. Could you just talk me through that process?
Joel: Well, we’ll touch on it, just so we don’t talk about one product, so we can do an overarching product. We’ll just touch on the real estate agent, just for a little bit, and I’ll flip back to the consumer. So, if you could imagine a real estate agent, quite busy in the day, running from one house to the other, and they usually have a team of people behind them to help them facilitate that. Now, if you could imagine that, all in one person. So what would happen is, this technology resides in the cloud or in the internet, and then it comes through any device that you have and you need, to talk to them.
Joel: If you think about the Alexa product, well then it’s actually a little box that sits on your kitchen bench, or if you think about it in your phone. So you’re driving from one to another, and then what happens is you’ll say “Hey, I need to reschedule my tomorrow at 4:00 to 2:00. Would you mind arranging that for me?” Then that actual product, the AI product, will actually then call the owner or the seller, whoever it might be that they’re arranging that inspection with, and then rearrange, without the actual agent talking to them. That actual piece of technology will actually talk to a person and that person will talk to that piece of technology, without any hiccups or any concern.
Kevin: When you’re doing that, too, it’s quite amazing. I’ve experienced it. It’s like talking to a normal person. Some of them, you can tell that it’s a machine, but they’re so intuitive, they’re so clever, and they pick up on accents and so on, and then, if they’re not sure, they’ll actually ask for a confirmation.
Joel: That’s right. Now, if you think about it, we actually use this a little bit in our day-to-day. If you call Telstra, or if you call some of those big companies out there, they actually have this type of product, but that’s an IVR, and that’s very different to an AI. In an IVR, what they’re doing is they’re listening for specific words and phrases that have been pre-programed. If you say something that they don’t know, like, “Push one,” or something like that, they won’t do anything.
Joel: But these products, what they are, they’re actually mimicking a person’s understanding of what it is you’re trying to say. They’re actually pasting together a sentence and working out what it is you’re trying to ask for. So you could say, “Look, I don’t know how to sell my house. I’ve never done it before. I’ve owned this for four years. Can you please give me some advice?” and this AI can actually then say to you, “You need to do these things and these steps.”
Kevin: As I said earlier, we’ve got to start thinking of these things as part of the family, or part of what we do, and the more we use them, the more educated they become, Joel. Joel, we’re out of time. I want to thank you so much. Looking forward to catching up with you in New York a little bit later, at the end of next month. If you’d like to watch our live stream, too, by the way, you can do that through a product called Property TV. The website to go to is propertytv.io, and in fact, all of our programmes are now being streamed through there, and our association, of course, with Coicio, and Joel Leslie is from that organisation. Joel, thanks very much for your time.
Joel: Thank you. Thanks for having me, Kevin.
More judgements on spruikers needed – Peter Koulizos
Kevin: PIPA is the association that’s the Property Investment Professionals of Australia. It’s the industry association that represents people in the property investment industry, like solicitors, accountants, conveyancers, strategists and the head of that organisation is Peter Koulizos, who joins us. Peter, thank you very much for your time.
Peter: Thank you, Kevin.
Kevin: You would have been an interesting observer through the association of the activities over 2018. What were the highs and lows for you, Peter? What did you notice?
Peter: Some highs, the most recent one, would have been Rick Otton’s penalty of $18 million. It was fantastic. And hopefully that sets the scene for further prosecutions.
Kevin: You think that’s enough, Peter? Because he would have made a huge amount of money out of that scam.
Peter: Yeah, and I’m sure he would have scammed people of much, much more than that. And, those people that were scammed, they’re not the ones getting the $18 million. It is a very sad story. But thankfully, he has been prosecuted. That, hopefully, will set an example for other people who are thinking of doing the wrong thing. But we still need more stringent regulation, in specifically the property investment industry, so it doesn’t get that bad.
Kevin: I agree with you. I think it’s great to see it happen. But I just don’t think it’s enough. This guy is still walking free, he’s still scamming people in different parts of the world. He should be locked up.
Peter: There are certainly some more severe penalties that could be handed out. $18 million is the largest penalty ever given for such a crime. So that’s certainly a big step in the right direction.
Kevin: It’ll be interesting to follow to see if that’s actually paid as well, Peter.
Peter: Very good point, Kevin. We should keep our eye on it in 2019.
Kevin: I think we will, mate. I think we will indeed. Okay. So what were some of the other highs for you?
Peter: Some of the smaller capital cities are shining now, so we’ve got Adelaide and Brisbane for example. They’ve been in the shadows of Sydney and Melbourne. So they’re the bright sparks, as well as Hobart. But Hobart’s no news to anyone I suppose that follows property, cause Hobart been shining in the sun for about two years. But now it’s time for some of the other smaller capital cities, and some regional areas to have their time in the sun, and have some decent property price growth.
Kevin: What are you hearing in your association about what’s likely to happen in 2019, with Sydney and Melbourne prices, Peter?
Peter: You know me Kevin, I’m a bit of an optimist, but I can’t be too optimistic about what’s going to happen in Sydney and Melbourne, because there are, it’s almost like a perfect storm. We’ve got, they were on the downside of the property cycle anyway so prices were coming down. Then the federal government made it much harder for foreign investors to buy property, and most foreign investors were buying in Sydney and Melbourne. But the most recent and most telling factor is the very tight lending criteria.
Peter: So, you have three very big impacts, on that Sydney and Melbourne market. And I’m sorry to say Kevin, but I think prices in Sydney and Melbourne will be lower in 12 months time than they are today.
Peter: Not much lower. Like there’s no, no need to panic, but I think there is a bit more pain before we have some upside.
Kevin: I think we’ve got to be careful too, that we don’t look at this as a crash in the market. I’ve actually been hauled over the coals, for calling it a correction, but I still think that’s exactly what we’re going through in those markets.
Peter: Well, in Sydney. Like at the moment, it’s almost a 10% drop. It’s certainly not a crash, but I’m a bit like you, if it’s not a correction than what is it?
Peter: And 10% is a pretty big drop in property. In the share market, maybe it’s not such a big drop, but in property, in Australian residential property, that is quite a sizable drop in price.
Kevin: I think you’ve got to balance that out.
Kevin: [crosstalk 00:03:52]
Kevin: Yeah you’ve got to balance it out there, with what’s happened in previous years. We’ve had something like 60% growth, so you know, that’s why I call it a correction.
Peter: I just finished doing some analysis on the first book that I wrote ten years ago and looking at the suburbs that I’d written about, and Sydney, Sydney suburbs on average have done 98% from 2008 to 2018
Kevin: Wow. Hmm.
Peter: So even if it drops 10%, for those people that bought a few years ago, you’re still in front. Same as Melbourne, that has almost doubled in price as well.
Peter: Properties generally are a long term strategy.
Kevin: Yeah that is the message, because I think if you’re looking at people that have purchased there in the last year or two, they’d probably be saying oh this is terrible. But you’ve got to look at a property as a long term hold.
Kevin: Can I take you in another direction Peter, and that is the federal election in 2019. It’s due to happen around May. Your view on that, if there’s a change in Government?
Peter: Okay. If there’s a change in government, there most certainly will be a change in negative gearing and capital gains tax. And again, I’ve done some research, as well on this, and the last time a federal government tampered with negative gearing and capital gains tax was back in 1985. Bob Hawk and Paul Keating, in July 1985, they fiddled around with negative gearing, in September 85, they brought in capital gains tax. And for the next two years, before they went towards rectifying the situation, nationally property prices dropped 10%.
Peter: I generally like to see the glass half full, but if the labor party bring in their changes. Let’s say they bring in their changes next year, one of the first things they want to bring in, that on top of the Sydney and the Melbourne market already falling.
Peter: That is not good news.
Kevin: No, well…
Peter: They need to be sensible, and I’ve written a number of articles already. What I’m calling for, is for the Labor party to get together with the stakeholders, so they can work out a more precise and surgical strategy, to come to solutions, or whatever issues they think there are out there. Rather than this huge sledgehammer of changing negative gearing rules markedly and halving the capital gains tax discount.
Kevin: Well Peter, my theory on that, is that the only reason they’re doing it is not to bring about affordability, not to actually lower house prices, but to actually win an election. So I guess time will tell. If they win the election.
Kevin: [crosstalk 00:06:30]
Peter: It’s very political.
Kevin: Yeah, absolutely. It’s almost like low hanging fruit. Okay mate. Thank you so much for your time, all the best for 2019, Peter. And happy, very happy we are to support PIPA. I endorse totally what that organisation does, and thank you for your time.
Peter: Pleasure, thank you once again Kevin!
‘My best prediction’ – Simon Pressley
Kevin: This show is all about looking back at 2018, the highlights and low lights. Joining me to do just that, Simon Pressley from Propertyology. G’day, Simon, how are you doing?
Simon: I’m very well, Kevin.
Kevin: Yeah, good, mate. Okay, well, what for you … Do you want to look at the highlights first? What were the highlights of 2018?
Simon: Oh, I think the biggest highlight, and my clients were liking this. Hobart, the third consecutive year of double digit price growth. We’ve seen collectively about 60% increase in the median house price over the last three and a bit years, and rental growth of 25% over that period of time as well. So comments, we’re liking that, but outside of that, the wonderful growth in large parts of Regional Australia. It’s fantastic for residents who live in those communities, and also fantastic for investor’s who are prepared to remove the blinkers and follow the fundamentals and not the consensus.
Kevin: Well you and I did an interesting video just recently where we looked at the impact of population growth on prices. That highlighted for me just how complicated choosing where the market’s heading can be, ’cause there are so many components to it. One of the highlights for me was hearing you talk about Regional Australia in this last year.
Simon: It’s undersold, I think. Whether it’s an alternative place to live, great lifestyle, affordable housing. It’s also an economics story and that’s been the driver of most of the growth throughout regional Australia. But I will admit it’s increasingly frustrating that so many capital city folk are naïve to how wonderful some of these places are to live and to invest in. It’s something that, I think Australia, from a top end down needs to have a good look at in how we address that perception that a lot capital city folk have of regional Australia.
Kevin: What were some of the low lights? What were some of the disappointments for you, or surprises probably is a better way to put it?
Simon: Low lights for me, the biggest … well, non property thing is just a constant revolving door of politicians and complete lack of leadership and selfishness. No one genuinely interested in running Australia or running the states. That’s a constant frustration I think I and many Australians have. But probably specific, another attack on property investors with the continuation of labors’ pledge to change negative gearing if they get elected in next year. We’ve already had enough. Investors have had enough wacks over the last couple of years. But that disappoints me, especially when the single biggest line item in the federal budget is welfare and specifically aged pensions. We need to encourage investors, and you and I’ve discussed that many times. I’m sure we will discuss again, but we need to encourage investors, not discourage.
Kevin: Yeah, it’s such a shortsighted view, isn’t it? To think that property investors are all greedy, out to make a buck when the majority of them are just people who are struggling to put aside a bit of a nest egg for their own retirement. I find it difficult to understand how they can justify constantly punishing people who are out to look after themselves and really secure their own investment.
Simon: Yeah, we deal with these everyday Aussies every day. It’s up to 100% of our clients and they are everyday Aussies. You know, good people, hardworking people, middle income earners. The average owns one or two properties. The ATO stats were released not that long ago and 90% of property investors own one or two properties. So we’re not talking rich people. Just everyday Aussies having a crack and trying to do something productive so that in years to come, they’re not reliant on tax payer funded pensions. We need to encourage that, I’ve got a 12 year old son. He’s not a property investor, though I encourage him about using his money wisely and then as he gets older, the things that he’s taught earlier, he’ll hopefully make some good decisions later in life. We should all be doing that, not discouraging it.
Kevin: Well next week will be the first show for 2019. I want to invite you back, if I may, and I’d like to get your impressions of it. Where do you think we’re headed for 2019? I hasten to mention here that I think your comments are going to be very well followed, given the fact that you were the first and probably one of the only, until it became fairly common knowledge about what was gonna happen in Tasmania with the Hobart prices. So, we’ll look with eager interest. You might not want to give too many trade secrets away, but you always give us a bit of a hint anyway Simon.
Simon: Oh, yeah, I’ll give you some hints.
Kevin: Good on you. Alright. Well Simon will be back here next week on the show and we’ll have a look at the year ahead and by that stage, we will have already started. Mate, all the best to you and your family for the new year.
Simon: Thanks for a great 2018, Kevin and I hope 2019’s better again for everybody.
We didn’t see it coming – Louis Christopher
Kevin: Always a good time for reflection, Louis Christopher from SQM Research joins us. Hi Louis, welcome to the show again.
Louis: Good day there, Kevin.
Kevin: Louis, let’s have a look back at 2018, as we’re doing in the show. What were, for you, the highlights or maybe some surprises? Were there any, Louis?
Louis: Looking back, I think if someone were to tell me at the end of the last year that Sydney or Melbourne were effectively going to fall between six to 8% in 2018, I would have been, let’s say, cynical. I would have been critical of that. We didn’t think the market would fall by that much and that’s what we got wrong last year. We underestimated the downturn, we thought there was ultimately going to be one more year in it, and then 2019 would be the big year where prices would fall.
Kevin: Yeah, interesting isn’t it, I mean all the indicators were that the only thing that really went wrong, I think, was a lack of consumer confidence Louis, would you agree with that?
Louis: Yes, I would say there’s been a number of factors that’s been behind this greater than expected downturn in Sydney and Melbourne. The banks have got a lot to do with it, in terms of the ongoing restrictions in credit, which definitely occurred this year. There’s been a complete loss in investor confidence in the market for Sydney and Melbourne, and as the year progressed, and we got towards the second half of this year, and indeed, up until recent weeks, I think more and more investors have been looking forward to the next federal election with a view that if Labor gets up, and chances are they will, then we could see even more price falls.
Louis: And so, when investors look at the market outlook, they’re very momentum orientated, they generally don’t buy for yield, they buy for the view of hopefully picking up some capital growth. And when the outlook’s pretty dim, they tend to hold back, and when you see the majority of the would-be investor market holding back, it becomes a self-fulfilling story in many respects.
Kevin: Just getting back to one of your earlier comments, Louis, about the falling prices in Sydney and Melbourne in particular, have they been all that great based on those huge increases in recent times?
Louis: Relatively speaking, when we consider that the market boom effectively started in 2013 and went through to, of course, 2017, the reach rates are still relatively small. Effectively the market in Sydney and Melbourne in particular over that time rose by some 60%, and with comeback as mentioned, now Sydney, about 9.5%, Melbourne about 7.5%. So, you’re right in that sense, but the issue of course is first time buyers who bought in 2017, 2016, and so forth, a number of them will be sitting on negative equity right now and, that’s not a pretty place to be.
Kevin: No, well I guess it highlights the other point too. This is not a time for speculation. This is a time really to be looking at the long term Louis, isn’t it?
Louis: That is correct. It is a good buyer’s markets and it’s probably going to remain that way for a while. One thing we can say in this correction is that values are starting to return to fair values. We’re not there yet, but they are becoming more affordable for first time buyers, and that will good over the long term. I wouldn’t of liked to see the market rally really strongly for yet another year, say for example, in 2018 or 2019. It would’ve meant that the correction would have been even bigger.
Louis: So, it’s still quite a sizeable correction all the same, and there’s no question that buyers have been hurt, especially buyers who bought earlier this year or second half last year, they would be feeling like as though they probably made a mistake for now. But of course there are many buyers out there who definitely have that long-term view. And I’m sure for first time buyers, a number of them are quite happy they picked up a home when they found that the market previously was almost impossible to get into.
Kevin: You talked there about first home buyers, let’s talk about investors for a moment. The intent was clear to dampen the enthusiasm amongst investors, do you think that’s been successful and was it really necessary in 2018?
Louis: Yeah, look, I think it was necessary. I think now there are questions in terms of has it actually gone too far, and it feels like the pendulum’s completely swung from one extreme to the other. I think there’s been no question that, if you look at those years prior 2015 and after 2009, bank lending was fairly loose. It wasn’t dramatically loose, but it was pretty easy to get credit and potentially something had to be done to tighten things up, but it does feel like as though the powers of the namely, APRA, and to a lesser extent, the Reserve Bank, have probably gone a little bit too far, arguably.
Kevin: Louis Christopher from SQM research. Louis, great talking to you. Thanks for your time.
Louis: Good to be here, Kevin.
The big headlines of 2018 – Stephen Sharry
Kevin: And with his thoughts and reflections on 2018, looking ahead to 2019, I’m joined by Stephen Sharry, who is the Editor in Chief at Switch Media, or Property TV. Stephen, thank you very much for your time.
Stephen: Lovely to be here, Kevin.
Kevin: I noticed … Well I know … I know you personally. I know that you’re a student of the industry, and you watch it very carefully. That’s why I’m keen to get your take on the events of 2018. What were the highs and lows that you noticed?
Stephen: Look, I think the big issue, Kevin was the growth in regional markets. We’ve seen some drop off, and some people are saying it’s the end of the boom, which is probably true in Melbourne and Sydney. But, on the other side of the coin, we’ve seen growth in regional markets, say Hobart, which is the third year running now, and double digit growth at 60 and 30 percent returns. We’re seeing specific niche markets that are continuing to grow. Brisbane has stayed relatively stable, and the smaller regional markets are just sitting there waiting to fly.
Kevin: Yeah. We’ve seen a tightening in lending as well, which has really impacted both consumer confidence, and from what I’m hearing, investor’s confidence as well, Stephen.
Stephen: Yeah, it has. But, what’s interesting is that the Royal Commission in the banking has created a very toxic environment around the major banks, more than the smaller banks, so we’re actually seeing a growth in mutuals. You know, the credit unions, etc. are all starting to pick up their gain, they’re becoming more customer focused, and brokers are really on the ball as far as those lending sources are concerned. Even though we’ve seen a tightening, it’s still possible, Kevin. There’s still money out there.
Kevin: The banking inquiry, Stephen, do you think there’ll be a flow on, or a backlash towards brokers?
Stephen: Look. I hope not. When you say a backlash towards brokers, I think the whole broking industry is changing, in particularly the commission side of it, which in some respects is a little bit of a shame, but I think that brokers are going to become more important in the environment as we move into 2019. Yes, there’ll be some changes within the industry, but I don’t think they’ll impact on the importance that they’re going to play within the industry in coming years.
Kevin: Can I just ask you about affordability? What’s your take on that? I mean, there’s been a lot of talk about how unaffordable property is in Australia … That’s largely on the back of the costs that we’ve seen out of Sydney and Melbourne. Are we doing much about affordability, or is there much we can do?
Stephen: Yeah, look. It’s interesting. We just saw the Victorian election results, with labor winning again. What they’ve … as part of their election pitch, they pushed infrastructure funding, and a lot of their infrastructure funding is around what they term connectivity. What they’re talking about is improved rail, buses and roads connecting regional centres. Now, part of that plan, say in Victoria, is going to have the potential to release up to 270,000 house blocks. I think different areas in Australia are attacking affordability in different ways. Some states aren’t doing anything, like I can’t see much happening in Queensland, and little in New South Wales. But Victoria really seems to be being proactive at moving towards improving affordability over time.
Kevin: Yeah, there seems to be some fairly creative ways that people are now building with increased infill into some of the city areas. Maybe that could be an attack on future housing, not an attack … But, an attempt to lower affordability, because short of a crash, I can’t really see property becoming more affordable, Stephen. Especially established homes.
Stephen: It’s difficult to accept that within established areas, Kevin, you’re right. The issue with infill developments are … But, developers have an expectation of return. That expectation on return is really fundamentally tied to the value of the properties around the infill. You’ll see an infill development in an area where you’ve got $800,000 homes. Well, they don’t want to produce product that sells at 400 or 500, you know they’re looking at product that sells for 7, 8, 9 hundred thousand. So, it doesn’t really impact on affordability. It just gives people a greater choice in living in that particular area, which is where you get upgraders, etc. But it doesn’t impact on affordability.
Kevin: We’ve seen some attempts by governments to make housing more affordable through housing affordability schemes, trying to incentivize developers, and even investors to invest in properties that will be rented out at below market value. Those schemes don’t seem to work, Stephen.
Stephen: Oh, I don’t know, Kevin. You’re talking about the government’s scheme NRAS.
Kevin: Yes, I am.
Stephen: I can’t remember the exact figures, but I thought something like 30,000 properties were actually created in Australia that would not have been created if it weren’t for that scheme. By forcing an investor into renting at below market, but then providing a subsidy every year, I thought it was incredibly appealing. It was to a lot of investors. I don’t think we should just ignore those types of strategies, because I think if they’re done well, they can work.
Kevin: Interesting insights. Stephen Sharry, who is the Editor in Chief at PTV, Property TV. Check it out, there is a link on our website that’ll take you straight to it. Stephen, thank you. I’ll get you back next week, and I want to talk about going forward. Your views on 2019, because that in fact will be the first week of the first show into 2019. I’ll talk to you then, Stephen. Thanks for your time.
Stephen: Thanks, Kevin. Look forward to it.