Bitcoin – can it last? + PAYG for investors + Avoid the ‘one stop shop’

15 Dec Bitcoin – can it last? + PAYG for investors + Avoid the ‘one stop shop’

Highlights from this week:

• Brokers want to be on both sides of the investment fence
• Ways to reduce your tax during the year
• A sparky who got stung by a sprucer
• The bitcoin juggernaut
• How to bluff in a negotiation
• Increase your rental income without charging the tenant
• Where to stand when bidding at auction.

Transcripts:

Kill the ‘one stop shop’ – Andrew Mirams

Kevin:  There’s a lot of talk in the market now about the viability of brokers. A lot of real estate agencies have been into brokerage for some time, but we’re seeing them now open up into other areas – turning on your power, helping you move, even getting into insurance. Is this a good thing, the one-stop shop?
I’m going to ask Andrew Mirams from Intuitive Finance to address this with me now and talk specifically about whether brokers can be financial planners. I’ll open it up with that to start with. Andrew, is that a good idea?
Andrew:  Good day, Kevin. I’m a little bit against that one-stop shop, I guess. Brokers are probably trying to now go into financial planning and even accounting and conveyancing, and things like that – more because a lot of those industries have probably tried to break into brokering.
I think there’s a fair bit of evidence out there that neither of them has really worked that successfully. There are certainly some success stories out there. But the real issue I have with it is this. it depends how many brokers or how big your enterprise is, but if the brokers are trying to do the financial planning and the insurance as well as your loan and everything, is which part are they doing well?
Are they all doing just all of it okay, or are they doing a really good job? If they’re doing a really good job, I would suggest they don’t have too many clients, and how much exposure are they getting to all the different options and opportunities that there might be out there?
Kevin:  I guess you ask the question, too, whether they’re doing it themselves or whether they setting up allegiances, which is in a way what some of the real estate companies have done. They’ve set up allegiances with finance brokers. I know there are some that actually own the finance arm – as Ray White owned Loan Market, for instance –but they trade as separate entities and tell you that never the twain shall meet. But it comes down, once again, to that one-stop shop rationale, doesn’t it?
Andrew:  Yes. As a client, I would always ask myself, “If I’m going there to get my mortgage and then they’re doing my planning and they’re doing my accounting, how impartial is the advice? Are they working together because they know that they’re making X amount off me, or are they really doing the right thing for me?”
There’s no right or wrong answer. I’m a really big believer in allegiances and having a really great network around you, and that’s both as a client and also as a business person, as a broker. We have a great cache of financial planners, accountants, insurance brokers, buyer’s agents, all around us so when any client comes in here, I can say, “This will be great. I think you should go and see them.”
They’re really happy. We sort of fit as the hub and we have all our spokes going out. We know we’re referring them to really good people, that our clients are going to be really well looked after.
I quite like that philosophy a lot more than having everything in-house and the clients come in they think for a half-hour interview and three hours later, they’re signing some insurance forms and they’re not really sure what they’re signing them for.
Kevin:  I guess it comes down to what you said there. It’s making sure that you know the people you are dealing with, that your clients are going to be well looked after. It goes much more than any trail you might pick up or any income that you might get. It’s to know you’re going to end up with a very happy client at the end of it.
Andrew:  Absolutely. I would forgo all of that to make sure I’ve got a happy client, because a happy client is going to recommend us again and again, and we’re going to do more business that way.
I’d much rather forgo all of that but have a happy client, because happy clients tell good stories. An unhappy client we tried to do everything for and mucked up, you end up losing all the business is the reality. You make one mistake on one of those entities if you’re trying to do the planning, the accounting, and the brokering and you make one blue, you’ll probably lose the total business.
I think, also, from risk management, there’s a real issue you can lose clients if one of those entities makes a blue.
Kevin:  It comes down to all the smart investors I know – and we talk about it all the time on the show – have their own team around them. They have their own finance broker, their own insurance broker, their own real estate agents who they work with, so they’ve effectively got their own team. They don’t need that one-stop shop anyway, Andrew.
Andrew:  Absolutely. I’m the same, Kevin. I have my own team around me, and our really strong clients and good investors have a really good team around them. They all work together but they’re not intrinsically linked, so that if one of the team recommends one thing, there’s quite an open dialogue in terms of saying, “Why are you recommending?” and “Give us the protocol.”
From the client’s perspective a good little test is “Why are you doing that?” or “Why are you recommending that?” Is it a good idea? Does that work? Go and talk to your accountant and come back to me and what I’m recommending. I think that’s a really good tasting mechanism for clients to be able to get a second opinion.
Kevin:  We’d love to hear your opinion, too. Let us know through the website. What do you think? Have you got your own team? You might have a view on that. Maybe you’ve had a wonderful experience with a one-stop shop. Let us know.
We’d love to have your feedback through the show any time at Real Estate Talk. And make sure you catch up with Andrew and his team from Intuitive Finance at their featured channel on Real Estate Talk, as well.
Andrew, thanks for your time.
Andrew:  My pleasure, Kevin.

PAYG for investors – Brad Beer

Kevin:  Investors wait until the end of a financial year to take advantage of depreciation and the other deductions that they’re entitled to, but there is a method which allows investors to receive their deductions more regularly. This involves submitting a Pay As You Go (or PAYG) withholding variation with the help of an accountant. Brad Beer from BMT Tax Deprecation joins me.
Brad, can you explain how a PAYG withholding variation works and why including depreciation claim in this process is going to help investors?
Brad: Yes, sure.
Kevin:  And hello, how are you?
Brad:  It’s great to be here Kevin, as always.
In about July 2000, they introduced the PAYG variation, and one of these is the legislation that simply allows you to change the way that the tax is paid or when it’s paid.
At the moment, you go to work, your employer pays you each fortnight or month, whatever it is, and they actually hold on to the tax and pay it to the government. You can actually have one of this adjustments done and say, “Look, I’m going to have some deductions this financial year and rather than the employer taking that tax out for me, how about we take out how much tax only is needed to be taken out through the year? And therefore, I’ll pay less tax throughout the year and increase the cash flow through the year.”
It means you don’t get a good tax return at the end of the financial year because you’ve already worked it out, but it’s a good way to keep hold of your cash rather than allowing it to be with the tax office for that year.
Where a depreciation schedule fits into this is that depreciation is one of those deductions that because it’s a non-cash deduction, at the end of the year, you get this quite substantial deduction that you haven’t paid out.
What happens is you end up by reducing substantially your tax through the year instead of getting a big tax return at the end of the year. It’s just one of the deductions that comes into that and it makes a pretty big difference because it’s a non-cash deduction and the employer keeps the tax and gives it to the tax man and you could have that money and put it into your offset account or help reduce debt through the year instead.
Kevin:  Further to that, just to take that a little step further, what difference can a depreciation claim when it’s combined with submitting a PAYG withholding variation make to an investor’s cash flow, just from your experience, Brad?
Brad:  A simple example of a property worth about $500,000. We’d see the deduction in the first year for depreciation to be about $10,000 on something like that. So, claiming or not claiming depreciation, it will depend on your marginal tax rate, but with a 37% marginal tax rate, a little case study that says “Don’t claim it, do claim it,” the difference between the cost of owning a property of that sort of value is in the vicinity of $160 a week. That’s a fair bit of money, because a $10,000 deduction makes a big difference if you don’t pay it out.
We invest in property to make money at the end of the day, and you do that through capital growth and through cash flow. Capital growth: you need to choose them in the right areas and do those sorts of things. And cash flow is maximizing the rent, minimizing the interest and the expenses, and maximizing the depreciation – and so you might as well get it.
Kevin:  I know how delighted I’d would be if a tenant offered to pay me an extra $160 a week. I’d be pretty happy about that. That’s for sure.
Brad:  You can’t rent it for $160 a week over market because it will be vacant.
Kevin:  That’s right; exactly.
Brad, does a PAYG withholding variation negate the need to submit a tax return?
Brad:  No. What it is it’s a variation to what your tax return will look like at the end of the year. Your accountant does it. I’m not the accountant, but what it means is you’re estimating what the year is going to look like based on what you know, rather than the traditional method, which is you get to the end of the financial year, you submit everything to the tax office, and they give you the tax return.
You still need to do that tax return, but this is up-front telling the tax office before it happens, what’s really going to happen, because you know.
Kevin:  What advice do you recommend investors should seek out before the consider taking up this option, Brad?
Brad:  It’s a discussion with your accountant, because it doesn’t necessarily work for every type of taxpayer. Most people or a large percentage of people are salary- and wage-earners in this country, and then your employer takes some taxes out of your check every time they pay you.
If you’re in a situation based on deductions that you know are going to happen – like property deductions, depreciation – is going to be different by the end of the financial year and you know that, it’s the time where it’s probably worth it. But talk to the accountant about that first and make sure it’s going to be available before you go and try to do one.
Kevin: Great advice. Something interesting, Brad, because it’s something I didn’t know about, so thanks for enlightening us. Brad Beer from BMT Tax Depreciation.
Brad, thanks for your time.
Brad: Thanks Kevin. A pleasure, as always.

Sparky falls for a spruker – Bryan Loughnan

Kevin:   Our success story in the show this week is all about a Melbournian by the name of Callan, who was very dedicated to the idea of property investment from a very tender age – in his teenage years, actually.
In fact, he was so keen to get started on the property ladder, that he saved about 30% of his wage when he was an apprentice electrician, diligently putting away about $100 a week. He watched it grow over the years.
By the time Callan was 23, he was ready to buy his first property, but he does admit that his desire to buy outweighed his knowledge. We’re going to get a little bit more information about that now from the man who helped him through that journey, Bryan Loughnan from Propertyology.
Good day, Bryan. How are you?
Bryan:  Good Kevin. How are you?
Kevin:  It must be inspirational to work with young people like Callan and see how they’re willing to make those sacrifices in the early days to get on to the property ladder.
Bryan:  Absolutely. It’s always good working with anyone who’s interested in getting in the property market, Kevin, but yes, someone as young as Callan it’s great to see.
Kevin:  Did he find it confusing doing the research and understanding what he needed to know? Because I said in the introduction there that his desire outweighed his knowledge.
Bryan:  Yes. I suppose fortunately or unfortunately, Callan actually put his toe in the water for the property market before he came and met us and secured an off-the-plan property, an apartment in Melbourne. He felt he went a little astray with that and was led a little astray with that.
He then started getting a little bit more involved in the research or trying to understand it, and that’s when he came across us and we got involved with his second property.
Kevin:  We’ll deal with his second property in a moment. What did he find? What were the pitfalls of buying new like that off the plan?
Bryan:  I think he just felt that he was sold to. I don’t know the exact details of who he was dealing with, but he certainly told us that he felt very much like he was being sold to by a spruiker of sorts and felt he paid a premium for a property that may or may not turn out to be a great investment down the track.
Kevin:  Does he still own that property?
Bryan:  He does, yes.
Kevin:  What’s his intention with that? Is he going to have to hold it for a little bit longer?
Bryan:  Yes, he’s going to hold that for now. I think as we can all see, that apartment market in Melbourne is one that is certainly has quite a bit of supply in the market at the moment, but he understands that it’s a long-term asset class property, so he’s happy to hold on to that one for now.
Kevin:  Yes, when you buy like that, longer term that sometimes is necessary. I think, too, we have to realize that quite often these intermediaries stand to profit quite a lot, anything up to $50,000, which is really added to the purchase price.
Bryan:  Absolutely. The developers aren’t giving those sort of rebates, $10,000, $20,000, $30,000, as you said, up to $50,000, they’re not doing that out of their back pocket. That often gets added on to the purchase price. And you combine that with just because you’re buying brand new, everything is going to be shiny and everything is new, so you’re not going to pay a premium anyway. You add that on top and it takes a long time to recoup some of those costs.
Kevin:  Let’s take us into looking into what Callan did from there. He understood that he made that mistake; he’s holding on to it. Where did you take him to from there, Bryan?
Bryan:  We spent a lot of time with Callan. I suppose we had to regain his confidence to some degree. He had felt like he was misled initially. So, we did spend a lot of time with Callan getting him to understand why actually drives a property market and what was he trying to achieve and talking him through that. That’s a big part of what we did with Callan.
Kevin:  Of course, Propertyology – and we’ve discussed this with Simon Pressley in the past – great believers… You were the first people to tip that Tasmanian market – more particularly, the Hobart market – as being one to watch.
It’s interesting; I did an interview just this week and they’re still tipping that Hobart is the market is to go to, but you guys were there a couple of years ago.
Bryan:  Absolutely. I was talking about this with Simon previously, but we started buying in Hobart about four years ago. Callan was probably one of our first clients who we assisted in the Hobart market. He’s had the benefit of the full upswing that we’ve seen over the last couple of years, which is really exciting for him, and I have no doubt that his property that we purchased for around the $370,000 mark or maybe a little bit under that has probably already seen about 20% to 25% growth over that period of time.
Kevin:  So, from there, what’s his strategy for the future, Bryan?
Bryan:  Callan spent quite a bit of time overseas in the last 12 months, so has probably put his next investment on hold for a little while, Callan is still young. He’s in his mid to late 20s, so he wants to continue buying. He ideally would love to build an asset portfolio over the next 10 to 15 years, which might see him exit the workforce by the time he’s 40 or in his mid-40s.
Kevin:  I know it’s a very scary prospect for a lot of people who are looking to get into the property market, particularly young people, they look at the Sydney and Melbourne markets, which are really very, very expensive, but there are good regional opportunities, aren’t there, Bryan?
Bryan:  Absolutely. If you actually break down the average property price across Australia and then you look outside of those major capital cities, there are a lot of people who live in major regional centers. And we’re not talking about 5000 population, mining dustbowls in Western Queensland here, Kevin; we’re talking about major regional centers.
People who live in those areas actually think those of us who live in capital cities and sit in traffic for an hour or two each morning and each afternoon, they think we’re the crazy ones. There are plenty of opportunities out there, and markets that over time, history has shown have performed very strongly, if not stronger than some of the capital cities.
Kevin:  Bryan, great talking to you. Congratulations on the work that you’re doing. I’m sure that Callan will be joining me in thanking you as well.
Bryan Loughnan has been my guest. Bryan is the head of Property Acquisitions at Propertyology. You can contact him by using the link on any one of the pages right here on Real Estate Talk and also having a look at their featured channel.
Good on you, Bryan, and we’ll talk to you again soon. Thanks, mate.
Bryan:  Thanks, Kevin.

How to bluff at an auction – Bryce Holdaway

Kevin:  If you’re intending to go bid at a property auction this weekend, here are some great bidding tips for you as a buyer. Joining me to talk about those from EmpowerWealth.com.au – they are buyer’s agents – Bryce Holdaway.
Good day, Bryce. How are you?
Bryce:  Hey, Kevin. Good. How are you?
Kevin:  Good. Are you bidding at any auctions this weekend?
Bryce:  Yes, we’re always bidding at auctions everywhere.
Kevin:  Yes, that’s your business. Tell me some of the strategies you use or some of the advice you’d give for people going to an auction to bid for themselves.
Bryce:  The number one, Kevin – this is easier said than done – is you have to have this supreme confidence that you’re there to buy. It’s largely a game of bluff, and you need to let the other bidders who are bidding against you know that you mean business and you’re there to buy. It’s actually not easy to do, given it’s that public speaking environment and everyone can get a little bit intimidated.
The analogy that I talk about is you’ve set a limit, and let’s call that the cliff face. Your job is to run as hard as you possibly can at that cliff face knowing that no sane human being would actually ever jump; you’re going to stop right at the very end. But right up until the point where you do stop, someone who is observing you would look at you and “Oh my goodness, he’s going to jump off.”
That’s the same analogy when it comes to bidding at an auction. You have to run at that cliff – i.e. your upper limit – as hard and as fast and as confident and as boldly as you can, because what you’re doing is sending a message to the other bidders that you mean business and you want to buy, even though at the end of the day, every single person – including your buyer’s agent – has a limit.
Kevin:  I’ve never heard it expressed that way, but really, you’re just showing absolute confidence. You have no hesitation whatsoever, just very bold.
Bryce:  I’ve seen people turn up in Porsches. I’ve seen people wear the preppy vests. I’ve seen people put the Tom Cruise aviators on. I’ve seen people try to intimidate people at the beginning of an auction. The only thing I’ve ever seen consistently work is confidence, and as I said at the top, it’s easier to say than to do. But it is the number one tactic, in my view, for anyone at auctions.
Kevin:  Okay. Another one?
Bryce:  For me, position where I stand is really critical. I actually want to stand on the shoulder of the auctioneer. If you imagine the auctioneer standing in front of the property looking at the crowd of bidders, I want to either be on his left shoulder or on his right shoulder and enough distance away from the auctioneer that he or she doesn’t feel like I’m encroaching on their space, because these auctioneers have big egos and you don’t want to go into that space where you’re actually putting them off.
But the reason I want to stand there is I want to see what the auctioneer sees. And I actually want to make sure that if anyone is bidding against me, I want to know who they are to be able to look them in the eye.
Kevin:  That’s very intimidating.
Bryce:  It is. That’s my job, to be professionally intimidating so that people keep their hands in their pockets. Because my third tip is once I know who my bidders are, I watch them. I don’t spend much time focusing on the auctioneer; I spend all my energy focusing on the other bidders because I want to know (a) who they are, and (b) I want to look for their non-verbal body language.
I want to know when they’re starting to get sweaty. I want to know when they’re starting to get fidgety. I want to know when they have that look, the one, Kevin, where all of a sudden, the bid comes in and their eyes dart to their partner, because I know they’ve just reached their limit and I’m pretty close to going in for the kill.
So, I want to look at them and I want to maintain eye contact with them. I spend more time focusing on them than I do on the auctioneer.
Kevin:  Wow. What next?
Bryce:  The next one is I call the auctioneer by name. Kevin, you’re the auctioneer. I’m standing on the shoulder. I’m looking at my competition, and it comes in for a bid. I’ll go, “I’ll give you another $1000. Thanks, Kevin,” and I say your name purposefully.
Kevin:  Why is that?
Bryce:  Because I want the perception that there’s a really tight relationship between me and the auctioneer. I want the other people who are bidding against me to go “Hang on a second, what’s going on here?” They put their hands in their pockets and they go “Do these guys actually know each other?”
The reality is I don’t know them… Well, I probably do know them a lot better than the people in the crowd, but there is certainly no commercial relationship other than I’m just calling him by name; no one else is doing that because I want the perception.
Remember this is two parts strategy, one part bluff. I want the perception that we’re in bed together, and I want them to start going in their mind “What’s going on here?” and then hopefully, put their hands in their pockets.
Kevin:  Wow. I never want to bid against you. What else, mate?
Bryce:  My fifth one is slow the bids down to $1000 as quickly as possible. A clever auctioneer won’t let you do that. But my job is to slow the bidding down; their job is to slow the bidding up. I will do whatever it takes. If they ask for ten, I’ll give them a five. If they ask for five, I’ll give them a one. Clever auctioneers won’t let you do that, but I’ll be persistent.
Don’t be afraid, when they’re calling for a $10,000 bid and they won’t reduce it, actually give them $13,000 because what happens is the next one, they want to round up, so the next one they’ll obviously accept it is a seven, and then you can match the seven.
You can actually strategically get your way down to a lower amount as quickly as you can. But ultimately, you want to slow the bids down to $1000 as quickly as you can.
A slight footnote to that is I never really bid less than $1000, because I only see people bid less than $1000 can make close to their top limit, so I don’t want to send any messages to my competitors that I’m close to my upper limit.
Kevin:  Yes, quite intimidating, too, if the bidding does actually get down to $500, then you throw in another $1000, it’s almost going to knock them out as well.
Bryce:  Yes. No one does $500 unless they’re very, very close to their upper limit.
Kevin:  Yes. What else, mate?
Bryce:  My last one is don’t bid against yourself. If you’re in a situation where the auctioneer throws in a vendor bid and you’re the person who had the bid prior to them, keep your hands in your pocket. Don’t bid against yourself, because what they want to do is throw in another vendor bid and then all of a sudden, you realize there’s actually no one else here. I’m the only competition; I’m working against myself.
So if the auctioneer puts in a vendor bid and it’s over to you, sit tight. Wait until the very end, and if you want to throw in a final one just to make sure that you have the right of first refusal to negotiate the reserve price, you do that. But during the auction, never, ever bid against yourself.
Kevin:  There you go. Some great strategy insight there. Go back and have another listen to that, I can tell you. Bryce Holdaway is a buyer’s agent from EmpowerWealth.com.au.
Bryce, thank you for that insight, mate. I can tell you, I certainly don’t want to bid against you this weekend. That’s for sure.
Bryce:  Good on you. Thanks, Kevin.

The Bitcoin juggernaut – Graham Cook

Kevin:  There’s been a lot of talk about Bitcoin, watching its value. I guess you’re probably a bit like me and wish you had jumped on that bandwagon a little while ago with the value that it is now, but is it such a good investment overall?
Graham Cook, who is the Insights Manager for Finder, joins me, and he says that it’s not really a foolish investment.
Good day, Graham.
Graham:  Good day, Kevin. How are you doing?
Kevin:  Good, thank you. Wouldn’t you have loved… Maybe you did get on Bitcoin. Did you?
Graham:  I tell you; I actually ghost-wrote a blog about Bitcoin about a year ago when it was about $2000 and was talking about how great it would have been to be on the gravy train at that point. And now it’s $11,000 U.S. and God, I wish I had invested then.
Kevin:  Isn’t it funny? We talk about this all the time and we say, “Well, it’s never too late.” Is it too late, do you think?
Graham:  The thing is nobody really knows. You can go onto the Fairfax and news media today and you can read completely conflicting articles about whether or not it’s a good idea to get involved in Bitcoin.
The price has been on an absolute wild ride this year. We’ve seen it peak at $10,000 and then possibly predictably drop a little bit as it hit that ceiling – that arbitrary ceiling, really – and then start to bounce back since then.
The thing is whether this is a bubble or whether this isn’t a bubble… It definitely looks like a bubble, but nobody knows when that bubble is going to burst. Is it going to be at $15,000 U.S.? Is it going to be at $250,000? It’s all wait and see at this point.
Kevin:  It’s a bit of a barometer, isn’t it? When you see it come off, maybe people are now saying it’s peaked; it’s not going to go any further, they wait and they see that it doesn’t fall, so they jump back in and it increases again in price. You could almost watch it like a barometer.
Graham:  Yes. There’s an element of psychology involved with these things, as well. The value it’s increased at is faster than, I think, any commodity we’ve seen. It has a Gold Rush fever almost. You’re seeing the grandparent investors getting involved now and everything. Whether this will end up being a party for everybody involved or whether there are going to be tears at the end of this road, we don’t really know.
But we did ask economists in our monthly REA survey… So this is leading economists in Australia; it’s the biggest survey of its kind. We asked them if they think getting involved in Bitcoin is a foolish investment, and 80% came back and said they don’t think so.
I was expecting it to be a bit more disapproval. If the economists are on board, then maybe it is a wise investment.
Kevin:  Okay, we’ll keep any eye on that one. A couple of other things I wanted to talk to you about, too, Graham, if I may. One is the royal commission into the banks. What’s your feeling about all of that?
Graham:  The thing is this has been bubbling for quite a while. It’s three or four years now that people have been asking for royal commission. The banks have been saying we don’t need a royal commission. The government has been saying we don’t need a royal commission. The opposition has been saying we do. But it’s been going on for so long, it was almost inevitable at this stage.
What triggered it in the end was all four banks coming and saying, “Okay, let’s have this commission. Let’s kill this uncertainty in the market and this doubt against the banks.” They want to clear the air.
Potentially, by the fact that they, themselves, have asked for it, it seems that the banks, anyway, don’t think there are too many skeletons in the closet that could be uncovered by the inquiry over the next year, but of course, time will tell.
Kevin:  Of course, it’s also the fact that they get a little bit more control about what the commission will cover, as well.
Graham:  Yes, exactly, and they’ll have the government running it more closely than if it had been driven by opposition parties. It’s also going to be a relatively short investigation; it’s reporting back in a year’s time. But once you start to open those Pandora’s boxes, who knows what’s inside?
Kevin:  Do you think it’s going to have any impact at all on what the RBA may do over the next, say, three or four months?
Graham:  I don’t know if the RBA is going to be doing an awful lot. That actually leads into a question about interest rates. This is another one that we’re asking our economists every month. We’ve seen no movement at all now in the RBA cash rate or well over a year. I think it’s actually 16 months in a row. I tell you; it’s been getting quite difficult to write about the cash rate every month when it hasn’t been doing anything; it’s just been sitting there.
But the economists are now saying they’re not expecting another rate movement until at least the third quarter of next year. Still no movement in January, so we’re talking six months from then of stagnant cash rate, and then potentially a movement after that.
Kevin:  Graham, on the tail end of that, do you think that borrowers should now be locking in their interest rates with the bank?
Graham:  Now is definitely a good time to look at locking them in. The thing is in this low-interest world, the only way, really, the cash rate could potentially go is up. The question is when that happens, but it’s definitely heading in that direction.
You could have three or four months you can wait before you lock in your fixed rate, but we’re definitely look at rates moving up towards the second half of next year, so it would be a good time to look at locking in your rates around now.
Kevin:  What are the trends like for 2018? What’s going to be happening as we’re entering a brand-new property investment year? What’s the inside running? What are they saying about next year? What’s likely to be happening?
Graham:  There are three main trends that are being signaled by economists for 2018 that we could see from the survey of 40 or so that we conducted this month.
The first thing is we’re still going to see growth in the capital cities but we’re going to see slower growth. We’re going to see single-digit growth, definitely in Sydney and potentially, across the other capital cities – with some surprising cities that they’re picking as exhibiting the highest growth next year. Hobart is one that came out across the board that’s going to be a good investment.
So, continuing increasing property prices in houses – slower than previously, though. But where it’s really going to change is in terms of apartments. We’ve seen a lot of economists come out and say that the over-supply of apartments, the potential glut of apartments that’s about to hit the market could lead to a softening of unit prices next year. I actually saw one economist refer to “the collapse of the apartment market,” so price is definitely going to be more volatile there.
Kevin:  Just on that point, before we go any further, Graham, are they highlighting any particular cities, or was that just a general statement?
Graham:  Melbourne was the one that came up most regularly in terms of cities, and Sydney as well. But definitely, there are a lot of cranes across the Melbourne skyline. There are a lot of apartments going to come onto the market there.
We’re also seeing potentially a sign of an issue with apartments in Sydney, for example. Some developers are now offering discounts of $50,000 for first-home buyers trying to buy units in areas that have a high concentration of units. So, there could be a potential sign that they’re starting to sell those units. If you’re going to invest in apartments, definitely it’s good to be cautious in this coming year.
Kevin:  What a lot of people have lost sight of, too, is the fact that that vacancy tax is about to click into play in Victoria as of January 1, and some people are saying that it could bring as many as 20,000 extra units onto the market in the Melbourne market alone.
Graham:  Which again will be pushing prices down and will definitely make it a volatile investment. If you’re going to invest in property, keep it towards the inner parts of the city and keep it in houses.
Kevin:  Okay, and some of the other tips that are coming from these economists?
Graham:  Aside from slow growth and apartment issues, the third one that came through was something we’re calling renovesting. With the property ladder becoming increasingly difficult to climb, we’re expecting to see an increased number of Australians next year trying to increase the value of their property through actually renovating and getting new kitchens and new bathrooms and new bedrooms and stuff.
That’s been cited by a handful of economists and something we’ve seen people mention a little bit in our consumer survey as well, so we expect that renovesting to be a bigger trend in 2018.
Kevin:  What’s involved in renovesting?
Graham:  Literally, you have some cash, you’re trying to spend it somewhere, you can’t move up the property ladder, so you decide to go for the new kitchen, you decide to get the deck laid outside.
These small changes to the appearance of a house can actually make quite a big difference to what the house will make on the end, especially if it goes to auction. It’s one way that we’re increasingly going to see Australians trying to add value to their homes.
Kevin:  It’s a bit “Improve rather than move,” isn’t it?
Graham:  “Improve rather than move.” That’s a good phrase. I’m going to use that.
Kevin:  You’re welcome to use that. I won’t charge you for that. There is a program on television that springs to mind, Love It or List It. I find it’s intriguing to watch what happens with someone when they believe that they want to make a move and then someone comes in and renovates the house or improves it, and they fall back in love with it, and most times, they’ll elect to stay as opposed to moving.
Graham:  Yes. Often, it’s surprising what a lick of paint can do in terms of changing your environment – definitely a trend we expect to see more of in the future.
Kevin:  Indeed. Graham Cook who is the Insights Manager for Finder.com.au, my guest. Thanks for your time, Graham.
Graham:  Thank you, Kevin.