Peter Koulizos talks about renewed confidence amongst investors as they shrug off any concern about finance issues to do with possible taxation policy changes and the market slowdown in Sydney and Melbourne.
Kevin: The Australia property investors are shrugging off finance issues concerned about taxation policy changes and the market slowdown in Sydney and Melbourne. With a growing majority believing this year is a better time to invest than last. That’s according to the 2018 Property Investment Professionals of Australia Property Investor Sentiment Survey which has just been released. Joining me to talk about that, the PIPA president/chair Peter Koulizos. Good day Peter, how are you?
Peter: Very good, thank you Kevin.
Kevin: Are you the president, the CEO, or the chair? What are you?
Peter: Chairman. Chairman.
Kevin: Chairman. Okay, that’s good. We’ll give you a correct title. Peter, congratulations on the survey, biggest one done. I think it’s the biggest survey conducted in Australia amongst professional investors, about 820 people. That’s a very good representation.
Peter: It is. We’re really happy with that. It’s a record number, and next year we want to crack the magic 1000 because then it will give us an even better indication on what investors really feel.
Kevin: Yeah. It’s a great benefit to investors too, because it lets them know that they’re not alone and maybe their sentiments are very similar to others. Let’s have a look at some of the … And I just hit on one there about pushing away concerns and believing that next year is going to be better than this year. All good signs. Tell me about some of the other insights, Peter.
Peter: Yes. Other than the fact that like you just mentioned, 77% of investors believe now is a good time to invest in residential property. Some of the other surprising and very pleasing aspects were that 86% of investors use mortgage brokers, which I found phenomenal. The vast majority of investors are using mortgage brokers which is great because it gives them a range of choices so far as their mortgages are concerned. From a personal perspective, I love that 2/3 of investors are looking towards houses as an investment option rather than units because generally speaking, houses do perform better than units. Once again, Brisbane is the hot favourite for investors. I think a lot of people go up to Queensland and love having a holiday there and, “Oh, this might be a great place to invest.” Which is fine provided they do their research. And the other very, very pleasing news, that being is 95% of investors want to see greater professional standards amongst their property professionals. So if we could get the federal government to listen into that, it would be great if we could have some regulation and minimum education standards, not only to get into the property investment advice industry, but to stay in. So continuing professional development.
Kevin: Yeah. Much needed indeed. Can we talk about one or two other issues that I think are on the horizon, too. That is to do with lending policy. Investor lending policy and how difficult the banks are making it for investors. Almost making it … Almost penalising them for wanting to increase their portfolios, Peter.
Peter: Yeah. It is surprising. Interestingly this week what really alarmed me is when a colleague of mine showed me an article on the Finn Review website where Westpac were saying they don’t want investors that have interest only loans and have a LVR of greater than 80%. But what was more remarkable is that they were going to help them. Westpac, which includes St. George, BankSa, and Bank of Melbourne. They were going to help them find a different lender. I have never heard that before. Interestingly two days later, Westpac have come out and said, “No, no, no. That’s not correct.” But good sources tell me that people have received those letters. They can show in black and white that they received a letter from Westpac saying virtually that they were no longer wanted.
Peter: Assuming that that is not correct, or Westpac have retracted it, my concern was when I first saw it, if the other big banks catch on, that would be very worrying. The good thing is that second tier lenders would come into play, but if you’ve got your major banks shrugging off investors who only want interest only loans or only have a deposit of greater than 20%, that would not be good, not only for investors but more importantly the whole property industry and the whole economy.
Kevin: Yeah, indeed. I agree totally. I was at a breakfast meeting this morning and one of the major banks, I won’t name them, but they were there and they were talking about how they’re really tightening up and they’ve made the decision that sometimes they just turn their book off. They’re just not interested in taking any more risk. Can I also ask you about negative gearing, because this is something that I think the survey said 45% of responders indicated that they would reconsider their future investment plans as a result of any proposed changes. This is definitely on the agenda, because the labour party have been quite transparent about the fact that if they get into power, they certainly are going to play with it.
Peter: Yeah, they certainly are. That is also very worrying. Almost half of investors surveyed would seriously consider buying investment property if those negative gearing options were taken away or reduced because the other thing that’s going to do is that’s going to reduce demand for property which is going to put pressure on property prices to go down, which doesn’t help anyone. I can understand, especially from the labour party’s point of view that they may want to limit negative gearing benefits. I understand that. But to blanket, put restrictions on most people that own one investment property to those that own 50, I don’t think that’s fair because that’s not really helping the mom and dad investor look after their own retirement. Because that’s what most investors get into property for, as was pointed out in the survey. They’re doing it to help them in retirement.
Kevin: It would seem to me too, another result out of the survey was a good indicator about what investors are doing that 60% of them say that their portfolio will be positively geared within five years. So they’re obviously preparing themselves for a tighter, tougher market Peter.
Peter: That’s right and the reality is negative gearing is a necessary evil. People do it because they have to. But the property’s not negatively geared forever, otherwise it’s a hopeless investment. So the first few years are negatively geared, but then if they keep it safe for that 30 year loan period, the majority of those years are positively geared. I don’t think the federal government has thought this through properly, because if less investors get into the market and they collect less capital gains tax income, surely they must collect much more in capital gains or income tax from investment property than they fork out in the first few years in tax benefits. Surely that must be the case.
Kevin: I was interested also, and you touched on it right at the start there, about Sydney and Melbourne. Those market slow downs not concerning property investors at all. That would indicate to me that they believe there’s still more underlying growth in those markets, Peter.
Peter: Yeah, sure. Investors that do their research know that there’s more than one market even in Sydney. There are pockets, there are suburbs, there are precincts within those suburbs that would do better than the average. So Sydney investors in particular who are looking to invest locally would have very good local knowledge to help them outperform the average.
Kevin: Rentvesting, we’ll just touch on that before we close off, is an increasing popular strategy. Explain how that works, Peter.
Peter: So rentvesting is for people who want to live where they want to live, so they might want to live in an expensive area with lots of facilities and amenities such as a café, and restaurants, and a 24 hour gym, and whatever else there might be there, but they can’t afford to buy there. So they will rent there, they will invest somewhere else where they can afford to. So they’ve got one mortgage where the rent is obviously helping to pay off the mortgage, but they also have the lifestyle. So they have their cake and eat it too. Live where they want to live and also providing for their retirement.
Kevin: It’s a great survey. As I said very representative of what’s happening in the market. 820 respondents. It was produced by the Property Investment Professionals of Australia. My guest has been Peter Koulizos who is the chairman of PIPA. Peter, thank you very much. Congratulations and happy to support it again next year when you run it as well.
Peter: Thank you very much Kevin and can I say once again thank you very much for your support of PIPA. It is greatly appreciated.