07 Feb "Call me greedy – I don't care" – Bushy Martin
“I love times like these that are full of fear and uncertainty because it affects perceptions not the reality of the fundamentals” – the words of one investor who doesn’t mind being called ‘greedy’. Hear what Bushy Martin really thinks.
Kevin: And with a look at what’s going to happen likely this year, Bushy Martin joins us. Bushy of course, founder, author and chief property strartegist at Know How Property. Good day mate, how are you doing?
Bushy: Yeah, good Kevin, great to talk to you Kevin mate. How are you?
Kevin: I thought I had a big title.
Bushy: I’m just trying to compete with you, mate.
Kevin: That’s a ripper. That’s a good one. How are you doing, Bushy?
Bushy: Really good, mate. Really looking forward to 2019 mate, despite the gloom and doom that you read in the papers, I love these times for property market is a great time to be doing stuff.
Kevin: Yeah, tremendous, mate. It’s good to talk to you about that, because I think there are a lot of people who are picking the paper up and wondering, “What the hell is going on?” In your notes here you’ve mentioned a great quote from Warren Buffet which I think is worth repeating again because it sums up where we’re at.
Bushy: Yeah, it really does mate. It’s been around for years, but it’s the old story. When people are being greedy, be fearful, and when they’re being fearful, be greedy. We’re definitely in the greedy phase because the mainstream media are trying to scare the hell out of us.
Kevin: No, we’re in the fear phase you mean, don’t you?
Bushy: Yeah, sorry mate. We are in the fear phase. You’re absolutely right, thanks for fixing me up on that mate.
Kevin: That’s all right.
Bushy: It’s all about fear. That is the time to take advantage, because the average punter is going to sit on their hands and do nothing, or they’ll react to the negative media in the wrong way and make some silly decisions, so it’s an ideal time for someone who is active in the market to be actually taking advantage of that, mate. So, from that perspective, I think 2019 represents some great opportunities because the perception is very different from the reality, which is often the case.
Kevin: Okay, your tip then on what people should be focused on, mate.
Bushy: Yeah. Well, I think they’re going to influence the market, mate. If we look globally, I’m looking very closely at what Trump is doing with China, that will certainly have an influence. The likely impact of that will potentially be on the Reserve Bank’s view of interest rates. There’s a number of people out there saying that there’s probably a good chance we might see the Reserve Bank reduce rates, but that will probably just be absorbed by the funding increases from the bank. What that means at the end of the day is probably no change in rates. We know there’s a federal election coming up in May, and again, traditionally people sit on their hands in the run up to federal election because of the uncertainty. Again, another good reason to be doing something in property while people are doing that.
Bushy: The only, I guess, issue on the horizon there, is if the labour government do get in, then it changes to negative gearing and capital gains tax, which won’t come into effect for a year or two yet if that does happen. So, I think we’re talking about what people need to do. People need to recognise that a vote for labour is going to be a vote to potentially reduce the value of your property by 10%.
Kevin: Just on that point, mate, and I think we should dwell on this just for a moment because I do think that it’s likely that they may win, so we’ve go to be prepared for that.
Kevin: Given that that’s the case, I think while any changes they may make might take a year or two to come into play, it’s what it’s going to do to consumer confidence I think, because you rightly said that people sit on their hands leading up to a federal election. If labour win, I think we’re going to see even more people sitting on their hands wondering what the hell is going to happen.
Bushy: Yeah, I totally agree. You and I have lived through Paul Keating’s effort of doing the same thing back in the late eighties, and that was a recession we had to have. Well, Bill Shorten may very well give us a recession we didn’t have to have if he’s short sighted enough to actually implement some of these changes. I guess I’m still hopeful if there’s time that the right people will start to really look at what the impacts of that will be and we’ll move away from that before that becomes reality, mate. But in that context, the other thing we still need to recognise is that while it may have an impact on existing stock, for those like myself who tend to build investment properties, you’ll still be able to get full advantage of depreciation and those aspects for the affordability piece. So, even in that context, it’s not all gloom and doom either, Kevin.
Kevin: Absolutely not, mate. The Royal Commission banking we will see some impact of that I would imagine.
Bushy: Yes, it will. We’ve seen most of the changes come through now, mate, and the official investigation wrapped up before Christmas. The final report hits the deck in February. I think the biggest change that most people haven’t got their head around yet is that while initially investors were villainized, the most recent policy changes that the banks have instituted around using actual living expenses. So, previously benchmarks were used based on an average of a couple and their kids, or whatever your profile is. They’re now looking at what is your actual spend over the last six months. So, the take home message here, Kevin, is be very careful about how much you spend in the six months up to doing something in property, because the banks will now use that.
Bushy: So, if you’ve had a massive Christmas and bought a heap of gifts and gone on a massive holiday, then that’s going to bite into how much the banks will let you borrow when you front up to actually get a loan, mate. So, looking at very carefully your expenditure, chopping credit card limits and really looking hard to see whether you actually need that personal loan or that car loan is going to have a very meaningful impact on your ability to secure the amount of money that you need to do it. So, you’ll still be able to get money, it’s just the amount of money will start to be affected. UBS did a study recently, Kevin, that indicated that buying capacities, as a result of these living expense changes, are going to drop right between 20 and 40%. So, that will have a meaningful impact on how much you can actually secure to buy a property.
Bushy: The big take home message here is before you even start looking, go and get a pre-approval, whether it’s directly with your bank or a really good broker. Go and get a pre-approval and then you’ll know with confidence how much you can afford to spend on the property you’re about to buy.
Kevin: Bushy, talking about credit cards just for a moment, I think a point you made there was lowering those limits. I think what a lot of people don’t realise is even though their credit card may be at, say, 5,000, if they’ve got a limit of 10,000, that’s actually what the bank is going to take into account is your limit, because that’s your ability to spend.
Bushy: Spot on, mate. The assumption is, and I’ve had people who got a credit card that never, ever used it, sat in their wallet and never done anything, but if you give it to the bank, the banks will say, “Right, you’ve got a $10,000 limit, we assume that you can go and max that out tomorrow, so $10,000 is what we used.” Then they buffer that. So, although we’ve just seen the buffers on credit cards increase by a further 25%, mate. Before Christmas you have a three grand credit card, that’s the same as having a $4,000 credit card now. What it does is it reduces how much the banks will actually let you buy to put towards that next property.
Kevin: There’s so many things to consider, mate. We’re out of time unfortunately. I love talking to you. I’d like to get you back interesting he show again real soon.
Kevin: Because there are a number of other things I want to talk to you about as well. What it all means, what are the opportunities for buyers and sellers as well. Hey Bushy, great talking to you, mate, and look forward to catching up with you again real soon.
Bushy: Thanks again Kevin and loving what you’re doing on Property TV mate, it’s awesome.