Highlights from this week:
- Investors still complacent about mortgages
- Aussie prices to escalate due to NZ changes
- Commercial property investors are laughing
- Have your say about the market
- Investor Award winners announced
Complacent investors – Chris Straw
Kevin: Well, despite all the recent changes to the finance sector and Australia’s enjoyment of some of the lowest interest rates in history, refinancing still requires very careful consideration according to one finance expert, who is the guest on our show, Chris Straw. Chris is mortgage finance expert and co-founder of You’re Welcome Finance. Chris, thanks for joining us.
Chris Straw: Thank you, Kevin. Thanks for the opportunity to have a chat.
Kevin: I love your name, You’re Welcome Finance. It’s very clever. Hey let me ask you about refinancing. Why is it, do you think, if there are such substantial savings that people are reluctant to do it?
Chris Straw: I think people were just complacent around their mortgage. I think we always hear the term in the media, “I can help save you,” and I think people become complacent to that. It’s a matter of when you point out the fact that people are perhaps paying too much, then they all of a sudden prick their ears up to see what they could actually save. It’s all about the conversation you can have. I think people have an attitude that changing banks is just too hard or clients are nervous of talking to lenders because they just don’t want to go through process of discussing their financial situation.
Kevin: Yeah, I agree with you that many people think it is hard. And I’ve got to say, even I feel that way sometimes. I feel like I’ve got a relationship with my bank. It’s easier sometimes to go along. But I guess if you think, “Ah, well, I’m only going to save, maybe a hundred bucks a month,” by the time you take that out to the full length of the loan, it can be quite substantial.
Chris Straw: Absolutely. And I think a lot of people were put into a mortgage that is just now outdated. The standard variable rate is over 5% from the major lenders but there’s rates out there at 3.6, 3.7 from small banks that a lot of people just don’t have access to them because they don’t have a branch network. So there’s considerable savings to have if someone can do the shopping for them.
Kevin: I guess the banks rely on this too, don’t they? The fact that many people are complacent and therefore they think, “Oh, well if they’re willing to pay those kinds of rates we’ll just leave them there,” rather than go to them and have some sort of customer service that says, “Well, we’re going to give you the best possible service we can give you.”
Chris Straw: Absolutely. There’s a lack of productivity. I think we see that in all consumer-facing businesses that until you’re about to lose that client we take them for granted. I know my own situation, I approached my bank recently to have a look at my loan and they, before I even asked, they said, “Oh, we can trim some rate off of the rate you’re paying.” So I think they’re just waiting for clients to pick up and say, “Hey, I don’t think I’m getting a good deal,” or, “I’m leaving you.” And then that’s when they start becoming a lot more proactive.
Kevin: When you do go to your bank like that, Chris, does it affect your credit rating?
Chris Straw: Only if they actually do a credit inquiry. So, if you make a formal application and then they have to lodge a credit inquiry with Veda or those type of organisations. That’s when it may impact your credit score. But asking the question certain has no impact.
Kevin: Okay. So I simply ask the question. Is it best to be done … and this is a loaded question. I probably know what your answer’s going to be. Is it best to do it through a broker?
Chris Straw: Yeah, obviously, from a purely selfish viewpoint, I think. The reality is, we have access to over 40 lenders, so we can look at a client’s situation, what are they looking for as far as product needs. But if it’s purely about interest rate, we can look to the marketplace and see what the best rate is. Now, obviously, rates move from day to day, from one lender to the next. But it’s a case of having a look at what you’re paying and if it’s competitive already. And we can go to the existing lender and say, “Hey, this client will leave. Can we negotiate a better rate?” Absolutely, we’re prepared to do that. So it’s a case of if you’re paying way too much, we’ve got alternatives or options that they can look at.
Kevin: Have you got any idea that you can give us as to how many people are now using brokers?
Chris Straw: Over 50% of new mortgages are written by brokers. The latest statistics from the MSAA, our industry body, suggests that about 55% of all home loans are now written through mortgage brokers.
Kevin: Before I let you go, can you give me a practical example of how much someone can save if they look at refinancing their loan?
Chris Straw: Yeah, look, I recently looked at a client and they’re paying high 4s, 4.9 on a $1.2 million mortgage. We were able to refinance them into a loan that was 3.8%. So you look at that on a million dollars, that’s over 10 grand a year. So, that’s considerable savings over a 20-year term. Now, that’s an extreme example, but in most cases we’d be able to find savings of around 5,000 or more for your standard $500,000 loan.
Kevin: See, that’s a holiday, isn’t it?
Chris Straw: Absolutely. Holiday, new flat screen TV. It’s something that can just be a nice treat for the client each year.
Kevin: Yeah. I think I’d much rather have a holiday than a flat screen TV, so personal preference. Yeah.
Chris Straw: Absolutely. But it’s something that we can spoil ourselves with rather than thinking, “Gee whiz, I’m just paying too much but I don’t know what to do to get out of that rut.”
Kevin: Good talking to you. Chris Straw from You’re Welcome Finance. Thanks for your time, Chris.
Chris Straw: Thanks, Kevin. Talk to you soon.
Aussie prices to escalate? – Patrick Bright
Kevin Turner: Prospective home buyers are warned that Australian real estate prices are likely to escalate further now that the New Zealand government has moved to tighten up on its foreign ownerships, similar to what’s happened in Australia. That’s according to an industry expert, EPS Property Search Director and author of The Insider’s Guide to Buying Real Estate. No stranger to our audience, Patrick Bright. G’day, Patrick.
Patrick Bright: Morning, Kevin.
Kevin Turner: Good to be talking to you again. Why are you so concerned about this and what do you see happening, Patrick?
Patrick Bright: Well, just looking at the New Zealand government’s decision, they’ve essentially … New Zealand’s got a similar problem to Australia and other countries like Canada, around the world, and Canada shut down the foreign ownership situation a couple of years ago. New Zealand’s now done it. And attention, I think, will come towards Australia. Because it’s already here quite strong and if you rule out foreign buying, you start narrowing down where they can go, then where do you think they’re gonna end up?
Kevin Turner: The regulations, though, in Australia are much tighter than what they’ve implemented into New Zealand. So why do you think that Chinese investors … I mean, there’s evidence that they’ve already left Australia, so why would they come back?
Patrick Bright: It’s not just the Chinese investors. This is not a particular nationality issue. 66 foreign nationalities purchased property in Australia a couple years ago when the stats were last looked at in different countries. But the Chinese do make up a large percentage of that, there’s no question.
Patrick Bright: You’ve also gotta look at the fact that they haven’t actually completely left Australia alone. They’re still here, it’s just not in the volume that it was, because of certain restrictions that were put in place. But, really, when you look at it, it’s fiddling around at the edges. It’s not really stopping it, it’s just loading up the cost of doing it.
Patrick Bright: Now, if other countries are stopping it happening and they’re gonna get their money somewhere, then they’re gonna look at those costs and go, “You know what? I’ll wear it.”
Kevin Turner: I hear what you say. Chinese investment into Australian property has dropped by 50 percent, though. It has dropped substantially and I think if you look around Australia, foreign investment in the last 12 months … New South Wales has fallen by 70 percent, Victoria 60 percent, and Queensland by 80 percent. That’s a fairly dramatic drop.
Patrick Bright: It is, yeah. It’s coming off of very large numbers. So in terms of the drop, that’s great.
Kevin Turner: Well, is it great? I think it’s not good at all because we rely on foreign investors predominantly to buy our new stock, and if we slow down the production of new stock, that’s gonna put increase pressure on prices.
Patrick Bright: Well, yes and no. What it is is that they’re buying the stock, okay? And they’re paying at a price they’re paying is also pushing out the locals. So this is the problem that New Zealand’s government recognised, is that your local property market, the current generation, is being pushed out of those local markets.
Patrick Bright: So it’s not just investment, people are calling it foreign investment. I think it’s foreign ownership. ‘Cause they’re buying it, they’re owning the properties. They’re not just investing and they’re not putting money into the economy. I think foreign investment can be a good thing done well, but this is basically foreign ownership of assets.
Patrick Bright: And so it’s putting the local population into a situation where their only option is, if they wanna be living in these locations, is to rent, because it’s already foreign-owned. And so we wanna get people more into home ownership and not into ongoing, indefinite rental cycle.
Kevin Turner: ‘Cause the figures sometimes are exaggerated, too, ’cause they include commercial property. If you take that out, it still only represents about three percent of all purchases in Australia. And that is actually declining, those figures are something like 12 to 18 months old, Patrick.
Patrick Bright: Yeah, look, the stats I’ve read and seen from new property off the plan is where a lot of this is targeted …
Kevin Turner: That’s right.
Patrick Bright: It was as high as 40 percent in Melbourne, 30 percent in … 24 percent in Sydney and about 30 percent in Brisbane. So, that’s quite a lot, actually. When you look at maybe only 3 or 4 or 5 percent over the entire market, then it’s different when you look at it into the new stock, which is what is being talked about and what they’re trying to slow it down on.
Kevin Turner: Yeah, I guess the only saving grace here is that the restrictions, they’re only on, only allowed to buy new property. Therefore, existing homes are exempt. So it doesn’t really impact
Patrick Bright: In Australia, the foreign investor is restricted to new properties, generally.
Kevin Turner: It’s the same in New Zealand, now. That’s what they’ve done in New Zealand, effectively.
Patrick Bright: Yep, so they’ve pulled that back as well. And it’s all this stopping and pulling it right back because it was getting well out of control, like it was here. But they’re still able to buy blocks of land and build new houses and things like that. So it’s not totally just brand-new, off-the-plan property.
Kevin Turner: They’ve limited, I think, blocks, haven’t they, to about 60 percent ownership. So they’ve made the restriction there as well.
Patrick Bright: In New Zealand, yes.
Kevin Turner: In New Zealand.
Patrick Bright: But in Australia we can still, developers can still sell 100 percent of any development.
Kevin Turner: Mm-hmm (affirmative). Yeah, New Zealand seem to me to have only gone halfway, you know? They’ve even offered an exemption to Australia, which is probably understandable, but also extended it to Singapore because of their free-trade agreement.
Patrick Bright: Yeah, well. You’ve got some … Obviously there’s some history there with Australia and New Zealand where Australians can buy New Zealand property, New Zealanders can buy Australian properties. So that’s kind of an understandable …
Kevin Turner: Understandable.
Patrick Bright: A long-running thing.
Kevin Turner: Yep. That’s right.
Patrick Bright: Situation. But yes, they have, I believe, we’ve extended it to the Singapore government as well.
Kevin Turner: Indeed, so it’s gonna be interesting to watch. Take your point, Patrick, and thanks for sharing that thought with us. Patrick Bright has been my guest, from EPS Property Search Director and author of The Insider’s Guide to Buying Real Estate, a great read. Patrick, thanks for your time.
Patrick Bright: A pleasure, Kevin.
Investor Award winners – Sarah Megginson
Kevin: Well you would be aware that issue number 135 of Your Investment Property is now out on the streets and we’re proud to say that we’re a supporter of that organisation as they are of us and we appreciate it as well. Sarah Megginson, who is the editor of Your Investment Property joins me. Good day Sarah.
Sarah Megginson: Hi Kev. Always a pleasure to chat.
Kevin: This is such a big issue because this is the Property Investors Awards for 2018.
Sarah Megginson: It is. It’s the very first time we’ve ever done an awards programme like this so it’s a bit exciting. It’s been I would say probably a good six months in the making. It’s been a lot of work.
Kevin: Having watched how you and Kim and the rest of the team have had to put all this together, it’s not been an easy job for you. Why did you do it? I mean there are other awards out there but why did Your Investment Property do this?
Sarah Megginson: Well I think now was the perfect time to do it. Kind of the feedback we’ve been getting over the last six to twelves months from our readers is everyone’s a little bit confused about what to do next. For the last couple of years it was quite clear that Sydney was doing well and then it became clear that Sydney was not doing well. And people are now a bit confused about where the market’s heading, where they should put their money, who they should trust.
Sarah Megginson: Even things that worked a couple of years ago or five years ago are not working quite the same way now. So we just found that there was so much confusion out there and we thought we wanted to put together this kind of best in class overview of the experts you can trust and the people you can turn to, to help you. Because the biggest mistake I think people make is trying to do it on their own. There are so many different ways to invest and if you try to just push through on your own it’s a good way to make mistakes and to lose money.
Kevin: Yeah. Well we’ve spoken about putting your team together and the thing I love about your awards is that you’ve actually taken all of that. If you looked at the winners of these awards and you put that team together you’d have an A class team.
Sarah Megginson: Yeah. Exactly. It’s a bit of a wish list of who you should have on your team and that’s another reason why we did this because we had a reader recently who contacted us about an issue to do with a tenant and she was really frustrated and she was giving up hope and I don’t want to do this anymore. And it turned out she didn’t have landlord’s insurance. And when I looked at her situation and I thought this could have been quite much less stressful for you if you’d had landlord’s insurance.
Sarah Megginson: You would have paid a $300 excess and they would have handled all of this. And she didn’t even know what landlord’s insurance was. And it makes me remember that you don’t know what you don’t know. So we kind of put together this list of all these categories of the people in the industry that can really safeguard your investments. They can help you maximise your returns, maximise your profits and have a successful experience rather than make costly mistakes that can really take the wind out of your sails.
Kevin: Yeah. And I was looking through the list of judges as well and I was privileged to be one of those judges. But the breadth of those people, it’s really quite enormous. You’ve got journalists, certainly a lot of statisticians, support from core logic, from the peak body, investors body, from PIPA, also the institutes. They’re all very well represented as well as the Urban Development Institute.
Sarah Megginson: Yeah. Absolutely. We kind of went to all of the peak industry experts I guess you would say, people in the industry that have been in there … People that have been in the industry a while. They’ve seen a few cycles. They know how things can change and how important it is to have a long-term view. It was really important to us to keep this very independent so I had nothing to do with any of the judging.
Sarah Megginson: Our marketing team kind of ran the whole thing so that I could just get the list of winners and then interview people and put together the big coverage. Because we wanted it to be a really stand-alone, independent awards to say these are the people that have won.
Kevin: Well there are 11 categories and all of the winners are announced in the latest issue of Your Investment Property magazine. A great read as always. We’re going to produce a podcast that will talk more about what’s inside that issue apart from the awards and there’s a lot in there I can tell you. That will be coming out in the next day or two so watch out for that. Joining me, Sarah Megginson, the editor for Your Investment Property magazine. Congratulations. Congratulations to all of those winners as well and we’ll try and catch up with a few of them in the show in the coming weeks. Thanks for your time Sarah.
Sarah Megginson: Thanks Kev.
Commercial investors are laughing – Per Amundsen
Kevin: Well, there’s been a significant exodus of investors from the residential property market over the past year. We’ve reported on that in the show. Clear evidence, therefore, that the Australian Prudential Regulatory Authorities, otherwise known as APRA, their macro-prudential tightening has actually achieved the goal that they set out to do. That’s on the residential side, but what’s happen in the commercial sector? Well, there’s a report that’s just been released. Think Tank’s quarterly market update has been released and joining me from that organisation Per Amundsen. Per, tell me about Think Tank. What is it?
Per: Well, Think Tank has been in business for about 12 years now. We specialise in making loans to the small and medium size business in commercial property and that specifically is up to three million dollars. Interestingly, a lot of similarities with some of the residential property markets just because we are doing smaller deals, but also some big differences as well, which we can talk about.
Kevin: Yeah. We should talk about them, but let me ask you then, what’s the sentiment within the commercial investment sector?
Per: It’s very strong. We’re a little bit bias to the New South Wales and Victorian markets, because that’s where a large percentage of our business comes from. Both the Sydney and Melbourne markets are extremely strong. Other states WA, South Australia, Queensland sentiments picking up, but in Victoria and New South Wales, very strong, and we see that in our business flows.
Kevin: Yeah, and we know in the housing sector, it really has levelled out quite a lot. I mean that’s taken a lot of heat off prices which many people are saying is a good indicator. Is there much flow between the residential sector and the commercial sector in terms of confidence?
Per: It’s an interesting point because I think it does affect confidence. The prices are going up in commercial. Rents are going up. You see that in our report and that reflects what the other analysts are reporting. People are investing in small ticket commercial property.
Kevin: Well, you mentioned that the commercial markets remain strong in Sydney and Melbourne. What about other areas around Australia?
Per: Yeah, they’re picking up. I’ll use an example perhaps what’s been the weakest market which would be WA and Perth. The industrial markets there, prices have been going down. Rents have been going down. Just the number of businesses that are operating, there’s not as many of them. There’s not that demand, but things are starting to turn around. That affects the industrial markets, affects retail and, hopefully, we’ll start to see that in the commercial markets in Perth, as well.
Kevin: Yeah, retail sector, you mentioned there, very much governed by what happens with sales. If the sales are down, then that market seems to be depressed and takes some time to come away. What are you seeing in the retail sector?
Per: Well, it’s really interesting because we know that sales are depressed, and all you have to do is look at the earnings reports from the major retailers, department stores, et cetera. The prices for retail property, particularly for the smaller ticket neighbourhood shopping centres, are quite incredible. The small grocery store with a couple of specialty shops that you might see out in your suburb, a strip shopping centre, they’re doing very, very well, and people are keen on buying them and the cap rates, the yields, continue to tighten. I have to say, personally, I’m a bit of a sceptic, and I wonder what happens when interest rates do start to go up as the governor recently warned us.
Kevin: …which they will do. The type of investor that you’re seeing, Per, are they new to the commercial sector? Are they coming away and thinking they’ll broaden their portfolio a little bit?
Per: I would say that there are two types. There are some new investors, but not all that many. They are often within say the self managed superannuation fund, a sector where people are looking long term investment for their retirement savings. Sometimes they are new to property investment. More of our business, though, comes from people who are running a business. They either currently own a property or are renting a commercial industrial property, and they think now is a really good time to buy and invest for the long term. They’re owner occupied.
Kevin: Think Tank is the company. That’s the report that we’ve been talking about. They’ve been established since 2006 and I’ve been speaking to representative from Think Tank, Per Amundsen. Per, thank you very much for your time.
Per: Great pleasure. Thank you.
Tell us what you think – Peter Koulizos
Kevin: Well as you probably know, Real Estate Talk is a supporter and a member of PIPA, Property Investment Professionals of Australia. They are currently conducting the biggest survey amongst Australian investors that’s been held in many, many years. Of course, they do the annual study, and it’s out right now. There’s a link to it on all the pages on Real Estate Talk, but I’m talking now to the head of PIPA, Peter Koulitzos. Peter, thanks very much for your time.
Peter Koulizos: Pleasure. Thank you, Kevin.
Kevin: Yeah, this is an annual survey, and I know it’s one that’s keenly followed by many property investors ’cause it gives us a bit of an idea about the temperature of the market, or what’s happening. Is that the purpose behind the survey, Peter?
Peter Koulizos: Yeah, I love your analogy Kevin. The temperature, that’s right. It’s like a forecast, almost like a weather forecast.
Peter Koulizos: It’s a property forecast.
Kevin: Yeah, yeah.
Peter Koulizos: So some of the questions that we ask include, do you believe now’s a good time to invest in residential property, which gives us an idea, maybe there might be more people investing in the future. If so, what sort of property would you buy? So it’s not just, are you looking to buy, but what sort of property would you buy, would it be existing or established stocks of plan units. Where are you looking to buy? Are you looking to buy in a capital city? Are you looking to buy in a regional market? So we have almost 50 questions, which should give us a very good idea of what the forecast is for property investors in the property market.
Kevin: Yeah, I’m a great believer that the best lessons we can learn are from those who are doing it in the field right now. That’s why the Real Estate Talk was actually born, to talk to people like yourself who are actually out there doing it all the time. For that reason, I think we’ll learn so much from this survey, as we’ve done in previous years, Peter.
Peter Koulizos: Yeah, that’s right. We’ve had it annually, and it provides us and many other people in the property industry, in particular our members, with some valuable intel to help them with their businesses.
Kevin: Will you also be looking at some of the issues that concern investors like fiddling around with negative gearing and so on?
Peter Koulizos: Certainly. Yes, there’s one question for example, it says, “Do you believe changes to negative gearing, and capital gains tax will improve housing affordability? Because prices could fall. Given the negative sentiment, portrayed by some political parties and media outlets about greedy property investors, does this result in you being less open about your property investment activity to others? So it looks at many things. As I’ve just mentioned, it looks at some of the political landscape, but it also looks at peoples’ perception of themselves as property investors when they get together with other people who may not be property investors.
Kevin: Peter, many people are concerned with surveys like this, or the reason they won’t do them is because they’re afraid they’re gonna be hit with sales office spamming and so on. Can you give us some sort of an assurance that won’t happen?
Peter Koulizos: That will certainly not happen. We’ve already got hundreds of people that have replied. We’re looking for a record this year of over 1000, but I can guarantee people that when they do reply, it is completely anonymous. There will be no spamming. That is certainly something that I hate, and I often do not send in surveys for that particular reason. But I can guarantee people, your listeners that when you send in the survey, you will not be spammed. All we are looking for is the answers to the survey.
Kevin: Yeah, okay. Well it closes on September 7. There are links all over Real Estate Talk. Just have a look for that. It’ll take you straight through. And once again, that assurance that your information won’t be gathered, won’t be disseminated, won’t be used. You won’t get spammed. But, it’s the property professional, property investment professionals of Australia, better known as PIPA, and I’ve been talking to Peter Koulizos. Thanks for your time Peter.
Peter Koulizos: Pleasure. Thank you Kevin.