19 Jan More signs Sydney is slowing + Negative Gearing cops a bad wrap + Beating the crowd to the ‘gems’
Highlights from this week:
- Small is the new big
- Tool to aid off the plan sales
- The trends that spell a decline in housing prices for Sydney
- Micro apartments – the HI RES strategy
- The capital cities to enjoy stronger price growth
- “Deals are everywhere”. Here is why we miss them.
- Politicians don’t heed the lessons
Transcripts:
Small is the new BIG – Ian Ugarte
Kevin: A new property investing strategy that focuses on a very much overlooked segment of the market is attracting attention for the high rental yields that it provides while also helping to ease the housing affordability crisis.
The High Income Real Estate System, otherwise known as HI-RES, which is what we’ll refer to it as in this interview, involves the conversion of an ordinary house into multiple micro-apartments, which can then be individually rented to tenants at rates much lower than they would pay to rent their own house or apartment. The creator of HI-RES is Ian Ugarte, and he joins me.
Ian, welcome to the show and thanks for your time.
Ian: Thank you for having me.
Kevin: It’s a great concept. A number of things that I want to ask you about. Firstly, tell me a little bit more about HI-RES and how it has been developed.
Ian: Essentially, I was in a position where I had a new boss walk into my paid-and-loved job about ten years ago, and I was negatively geared and I realized that I couldn’t leave work, so I quickly turned that around by getting educated and going and becoming a positive cash flow person. I was out of paid employment within 13 months and became a full-time property developer.
Then I woke up one morning in 2014 with money in the bank and realized that I was unhappy. Interesting enough, I thought money was going to make me happy and it didn’t. It actually made me sadder.
So, we work towards making everything that we do… A catchphrase in our company is “It needs to make sense before it makes dollars.” It has to affect the community in a positive way, and secondly, it has to affect our dollars budget in a positive way as well. If it doesn’t do both, we don’t do the project.
Kevin: That’s a wonderful topic, and I do want to actually talk to you a little bit more about that. Can I just ask you before we do that, though, Ian, tell me a little bit more about micro-apartments. What do they look like and how are they made up?
Ian: A perfect size micro-apartment is somewhere between 22 to 35 square meters. There are policies across the country that allow you to convert an existing property and build new to have these micro-apartments in it.
Essentially, the major requirement of a micro-apartment set-up is that you have a communal residential area where people who have their own separate rooms – with their own en suite, with their own kitchenette – also have a main living area where if they choose to socialize with everyone else, they can. If not, they just go back into their own space and sit in their own space and enjoy their life.
Kevin: Is it a bit like a boarding house?
Ian: Yes, it’s exactly that. What we’ve done is we’ve taken boarding houses, rooming houses, communal residences – they’re named differently across the country – and we’ve taken them out of 1917 and we’ve put them into 2017/2018. They have high-end finishes, we have granite bench tops, we have wall beds that fold up into walls. And we’ve found a really great demand. The perception issue is a big thing around boarding houses, and I can tell you that that’s far from the truth.
Kevin: What about things like insurance? Anyone who owns a property and then converts it into micro-apartments, how are they covered for insurance?
Ian: It’s a definite thing that you have to have specialized insurance. We provide, through HI-RES, a specialist broker who looks after this area. Interestingly enough, I thought when I first started investing that it was going to be a really high insurance cost. It’s actually not much more than a standard residential insurance policy. It protects you and it’s multiple protection.
Plus, you’re generally furnishing those style of properties, so you have multiple covers in different areas as well as the liability cover because obviously you have more people, an increased possibility of being sued or someone tripping over and hurting themselves. But we do have that policy and it’s not that much more expensive.
Kevin: I’m just going to mention a website, which is smallisthenewbig.com.au if you want to get a bit more information about this concept. We’ll continue to talk about it.
I’m interested to know from your research and your experience, Ian, is there any one particular property owner who would be attracted to this type of investment? And if so, why?
Ian: I think that those people who are negatively geared and have worked out that their property is not the greatest investment that they thought it was going to be because of the cash flow every week actually costing them is something that they can look at really closely and really simply.
In most areas of Australia – and I’m working to change that with the advocacy work that I do – they can convert their existing properties into positive cash flow pretty quickly. In most areas, we can usually more than double the rent of a rental property in a low density area as soon as you do the conversion.
Kevin: How bad is the affordability problem in Australia?
Ian: It’s absolutely huge. We build the largest houses in the world in Australia at 246 square meters. We have two and a half people per household. We have 12 million empty bedrooms tonight. And we have an affordability issue because we have women over the age of 55 who are the biggest growing demographic of homelessness in the country – that’s what we call white collared homelessness –through no fault of their own.
We started building these and we got knocks on the door and they said, “We like the property that you’re providing because it’s much cheaper than the nearest rent, that you’re including utilities, and I feel safe in this house.”
The affordability of renting a smaller component of a house is much better for a resident and it’s much better for a tenant because it doesn’t act as a ratio. If I took a four-bedroom house median house rental in Melbourne of a four-bedroom is about $420.
As an investor setting those properties up as four separate micro-apartments, you’re probably going to get somewhere between $800 to $1000 a week. So, you’re providing a better outcome for a resident and you’re actually getting a great return on your investment.
Kevin: How much structural work is required in your average three- or four-bedroom home to convert it?
Ian: Around the country, it’s going to change slightly depending on the exemptions they have. You will require disability access requirements in most parts of the country to upgrade. Essentially, you may be talking as little as $8000 to $10,000 and up to $20,000 to $25,000, depending on what you require to maneuver – you need to do wheelchair ramps and a few things like that.
But somewhere between the $10,000 to $25,000 mark is what it costs, and your return on investment on that is just crazy as far as the percentage return is concerned.
Kevin: It sounds fantastic and I’m sure it is. You can get a lot more information. I’m going to tell you about some tour dates in a moment too, but smallisthenewbig.com.au is the website. It does sound fantastic, Ian.
Tell me about some of the down sides. Are there any difficulties in dealing with local councils?
Ian: Councils are usually pretty good if the policy is in place. Like I said, I’m advocating to making that change. We do have brilliant policies in Victoria, Brisbane City Council, the state government in New South Wales, the Tasmanian government. The South Australians are great. The Western Australians are great. The Northern Territory and ACT, we’re working at the moment. They don’t really actually have a policy around it, which is what we’re creating.
There is one downside, and the downside is at the moment, the lenders see this as a high-risk property. It’s actually a lower risk property because if you have no one in your investment property, you usually have zero rent coming in. If you have your occupancy at 60%, you’re normally cash flow neutral. The banks are, at the moment, lending at 60% to 70%. We have one lender who will do 75%.
We’re essentially talking to the banks as well, and the lenders as well, and we’re saying, “Give us an 80% lend at a slightly higher interest rate, so it’s actually a mixture between a residential loan and a commercial loan, and then everyone’s happy.” We’re getting closer on that. We do presume that we’re going to have that very soon.
Kevin: For someone who wants to move into this area, to have it managed, is it something you can manage yourself – or do you recommend that they go to a specialist property manager?
Ian: Again, part of the HI-RES team is that we have managers across the country in that specialty area who look after this. We actually don’t even manage our own, even though we have an in-house real estate agent.
We suggest that you do get property managers who are specifically trained and look after, firstly, choosing the people, secondly, knowing how the people cooperate within the same household, and thirdly, making sure that they’re always there under control, because it’s a high level of management.
You will pay them a slightly higher percentage. Although, in a slightly higher percentage you’re paying an agent, you’re actually making really great cash flow anyway. They will send someone every couple of weeks to look after and clean, do the gardens, and do everything that’s required in the house.
Kevin: I’ll mention that website again. The website is smallisthenewbig.com.au. There are a couple of other questions I want to ask you about HI-RES, but before I do, can I just take you into another direction? That is, you’re doing some tours around Australia between the 29th of January and the 8th of February.
Tell me where you’ll be and what we can expect to see at those seminars.
Ian: I normally run a two- to two-and-a-half-hour seminar. I touch on the issue we have on affordability in Australia and how the property investors of Australia are the solution. The government is not the solution. The government is about creating policy and then getting out of the way.
Investors are actually waiting on the sidelines. We have a huge number of investors already started who have been with us for about a year to 18 months and are doing great things in the area.
We start on the 29th in Brisbane. It’s a night-time thing. We’ll have the 29th in Brisbane, 30th in Newcastle, 31st in Parramatta, Sydney on the 1st. We have Perth on the 5th, Glen Waverly and Melbourne on the 6th, Melbourne on the 7th, and Gold Coast on the 8th to finish the tour.
Kevin: Wow, that’s a lot of flying around. Those tour dates, you’ll find them all on that website, smallisthenewbig.com.au. Can I just ask you what can we expect to see at that seminar in that two hours? Will you be talking about this type of investment and who it best suits?
Ian: Absolutely. We’ll talk about all the positives that come out of being able to invest in the rooming houses and the communal residences around the country. I’ll be showing some success stories of students who have already gone through and joined us and had some really great cash flow. Some of our own deals that I’ll show up there too.
I’ll be taking you through all the different policies around the country, so after leaving there, you’ll be able to actually understand there are policies there. I’m about full compliance, and I’m going to give you a snapshot of those policies and how you can use them in your existing rental properties.
Kevin: Fantastic. Those dates, again, from the 29th of January to the 8th of February, and all the details at the website, smallisthenewbig.com.au. You’ll be finding out more about HI-RES.
Ian Ugarte has been my guest. Ian, thank you very much. Congratulations on the great work that you’re doing, and I look forward to seeing you at one of those seminars.
Ian: Thank you, Kevin.
Sydney cools as Melbourne heats up – Steve Jovcevski
Kevin: Let’s do a little bit of crystal ball gazing, which is always a good thing to do at the start of the year, particularly in the property market. This time, we’re going to be having a look at some of the trends of 2018.
Mozo property expert Steve Jovcevski expects that prices are going to further cool in Sydney, Melbourne is going to enjoy a bit of a spike in property value, Brisbane houses should slowly increase, while Hobart is going to continue to be a star performer. He joins me.
Steve, thank you very much for your time.
Steve: No problem.
Kevin: A lot of people are predicting that that Hobart market is going to continue to improve. How much more gas do you think it has got in the tank, Steve?
Steve: I still think it has well over 10% to go. Yes, still a way to go in Hobart.
Kevin: We’ll just walk around in Australia, I think. Let’s start in the Sydney market. A lot of people are predicting that Sydney may have peaked. What’s your view on that?
Steve: I agree with that. We’re predicting minus 5% for next year, approximately. I think that the boom has come to an end in Sydney, and now we’re basically going to see some price stabilization and some falls in areas, so overall around minus 5%.
Kevin: Some of those key areas – inner city and even by the water – are likely not going to depreciate in value as some of the other areas, would you think? It’s hard to say a market like Sydney is going to come back across the board at 5%, isn’t it?
Steve: It will be region to region. However, though, I actually think that some of the more affordable areas will actually do better this time around, and some of those waterfront, the eastern suburbs, the inner west will actually not perform as well, just basically due to the affordability constraints. It’s so expensive now that it’s very difficult for anyone to buy property in Sydney.
At the moment, we do have a first-home owners grant that came into effect in July, and that’s having an impact on the first-home owners market, and I think that’s going to prop up some of the prices in the more affordable areas in Sydney in 2018.
Kevin: Do you think some of those outer areas outside of Sydney, heading towards Kembla, around Goulburn and places like that, are going to appreciate more in value on the back of the fact that Sydney is so unaffordable?
Steve: I do. I think anywhere where you can actually still commute to Sydney will do well, places like the Central Coast, for example, going towards Newcastle from Sydney – so probably an hour and a half out – I think will do well this year. And even the southwest of Sydney, which is probably the most affordable part of Sydney, still within a 20- to 25-kilometer radius, that’ll do quite well as well.
So yes, I do think some of those outer areas, and even Wollongong, which is as you mentioned not far from Goulburn and all the rest, so that will perform quite well as well, I think.
Kevin: There’s some concern about Melbourne, particularly with the unit market. Is that what you’re seeing in Melbourne as well?
Steve: Yes, inner city Melbourne, the docklands area, the apartment market is struggling. But I still think that it’s going to do well in terms of the house prices, and the reason is they also have a huge first-home owners market. They’re also much more affordable than Sydney, so I still see them doing quite well in 2018, but obviously not as well as they have been in the last year to year and a half.
Kevin: Adelaide, South Australia, has been a bit of a cot case for some time, a lot of bad news coming out of there. Do you think that’s likely to improve in 2018?
Steve: I think it’s just going to continue on. We saw a price increase of around 3% or 4% in 2017, and I think that will continue into 2018. Adelaide seems to be a much more steady market that goes up gradually. It doesn’t seem to go up suddenly and then drop; it just seems to continue to go up at that 3% or 4%, just above inflation. So, I continue to see that happening in 2018.
Kevin: An improvement anywhere, in any market really, between 3% and 6% is not a bad expectation. I guess we’ve just gotten used to seeing those big increases out of Sydney and in some cases, out of Melbourne as well. We’ve been a bit spoiled there, Steve, haven’t we?
Steve: We certainly have. The fact is that it had to come to an end at some stage. You’re talking about at one stage in a quarter, we had 17% growth in Sydney at the beginning of last year. That was never going to be sustainable; it just had to stop at some stage.
I just think that it’s going to be an orderly reduction in prices. There’s not going to be any collapse or anything like that, but it will come down slightly. But with time, I think it will improve again, after 18 months or so.
And look, it’s an opportunity for some people in Sydney who can actually buy something now without the crazy competition that there was at auctions going back 12 months ago where you literally couldn’t buy anything.
Kevin: Jumping across to the west for a moment, Perth is a market that’s been really quite disappointing and off the boil for some time. There are some green shoots emerging out of Perth, though, aren’t there?
Steve: Exactly. Last quarter, it stabilized. It has pretty much probably dropped slightly. Overall though, it seems like it’s coming to the bottom of the Perth market. It’s significantly dropped over the last few years, and some of that is to do with the commodities crash and the price of iron ore going down, fewer jobs in the area. But I think fundamentally, it’s still a good market with the population growing.
Eventually, it had to come to the bottom, and I think it has come to the bottom, and you’ll see some growth in 2018 in Perth.
Kevin: Canberra has been an unusual market. It’s a market that’s very much reliant, I guess, on what’s happening with public service and federal elections and so on. If you see a lot of job shedding out of federal politics, that’s when we see prices in Canberra start to fall a little bit. But things are not looking too bad in Canberra right now, Steve.
Steve: Yes, absolutely. 2017 was another good year from Canberra. We saw 7% to 9% growth, and we actually think that that’s going to continue in 2018. You have a very tight rental market in Canberra, and that may be, as you mentioned, about the public service or transient workers going there and needing somewhere to live while they’re in our nation’s capital. So, we still see that market going up. We still think that there’s more to come.
Kevin: You mentioned earlier in our chat about markets that improve slowly, around 3% to 6%. I guess you’d put Brisbane into that market. Brisbane and South East Queensland is a market that generally over decades has just been a slow improver, but always an improver.
Steve: That’s the thing. And sometimes, I think that’s actually a better market to be in, because you always know you’re going to get that consistent growth, and it doesn’t create bubbles or things like that in the property market that you might see in places like Sydney or Melbourne at some stage in the property cycle.
Yes, it is a steady performer; however, I do see it starting to pick up a little bit, so I’m predicting about 5% for houses – not the apartments – in Brisbane, and I think it’s going to pick up a little steam towards the end of year.
And the reason is, you find that once Sydney and Melbourne had those big property booms, Brisbane plays catch-up once it’s over, and I think that’s going to happen again. It happened back in 2003–04 in Sydney and then followed on in Brisbane after that, and I think it’s going to happen again. So, I do see things actually going quite well in Brisbane this year.
Kevin: You mentioned there about units in that Brisbane or South East Queensland market. There has been a lot of concern expressed with that, one commentator even suggesting to people that if they own a unit in Brisbane, they should now be considering selling it.
Steve: Property is a long-term game, and if you can hang on to it, I would. Sure, it’s not performing well at the moment – there was asp rice drop last year, and that may continue – but I think if you’re in it for the long term, you’re always going to win in property. So, I wouldn’t be selling if you don’t have to.
Kevin: Steve, it’s been great talking to you, mate. Thank you very much. Steve is from Mozo, Mozo.com.au, he’s a property expert and commentator.
Steve Jovcevski has been my guest. Steve, thank you very much for your time.
Steve: Thank you. Thanks, Kevin. Bye.
Unearthing the gems – Nhan Nguyen
Kevin: One thing I do know is that as we enter each year, we tend to look for new opportunities, but quite often, we need to reflect back on what worked last year, what are the strategies that are working for many people? And I’d like to refer you to Nhan Nguyen from Advanced Property Strategies who always makes a lot of sense and we spoke to on quite a number of occasions last year. I’m going to pick up on that conversation with him now.
Hello, Nhan. Welcome back. Happy New Year to you, too.
Nhan: Thanks, Kevin. Thanks for having me. Great to be back.
Kevin: I know your specialty is finding these properties with a bit of a twist, going directly to the owner, unearthing these little gems. Is it becoming harder for you to do that, Nhan?
Nhan: I don’t believe so. I believe that the information is always there in terms of different zonings, different opportunities that either most people aren’t aware of or real estate agents aren’t aware of. I believe that the market with everything goes in cycles, so I definitely believe that every year, there are opportunities.
People are still going to mortgagees-in-possessions, people are still getting divorced, in terms of motivated sellers. People still move on in terms of opportunities. And as long as you’re clear in what you’re looking for and you educate yourself, I think that’s really where it’s at.
Kevin: You’ve become very much an expert in a particular marketplace. How tight an area do you look in when you’re really starting out, Nhan?
Nhan: Personally, I am focusing on about three postcodes and that’s about it. That covers about six to eight suburbs at any one time, and I become an area expert on that. I do have sub-areas that I do focus on, however three postcodes is enough for me.
I say to people, with two to three postcodes, if you know what you’re doing, you can make seven figures consistently year in and year out. I’m not the only person doing that. And as you get better and better at this game, you start to expand closer to the city or into different areas like commercial, industrial, and expand your repertoire.
Kevin: When you’re looking for a property, do you have a specific property in mind, or are you more looking for the opportunity, the seller?
Nhan: There are a couple of things that I specifically look for: one, a certain type of deal. At this point in time, I’m looking for land subdivisions. Sometimes the land subdivisions I find have a twist on them, where you can put townhouses on them or you can put a childcare center or petrol station on them. The things I’m looking for are generally a little bit larger than the average mom and dad. But when I started, I was just looking for the one-into-two or the renovator.
And I definitely look for a type of seller as well, the motivated seller, someone who is definitely keen to sell, maybe needs the cash now and is happy to offer a bit of a discount there and may not be aware of what other possibilities there are on their block.
Kevin: That expertise, you built up over a number of years, haven’t you? You just don’t wake up one morning and say, “I’m going to become an expert at looking for blocks where I can put on a motel or a service station.” There’s a lot of study that has to be involved in that and a lot of experience as well, Nhan.
Nhan: Absolutely. I suggest people think big and start small. Start with either a one-into-two or just a cosmetic renovation. People often say that there are no splitters out there or no subdivisions out there. I know at least on the north side, there are at least 8000 or maybe even 10,000 splitters there, one-into–two subdivisions, and that’s in the Brisbane City Council region alone. If you go into other regions, there are many, many more.
I think there are two things. One is definitely educating yourself, starting small, getting familiar with the process, the town plan, getting together your team – your engineers, your surveyors, your real estate agents, your solicitors, your accountants, putting together that team.
And as you build momentum, as you build capability, as you build your cash capital, it allows you to do bigger and bigger projects. Also, your confidence will build to do bigger projects as well. There’s no need to rush in and be a hero in this game; you really want to be a long-term player to be able to last the ebbs and the flows of this game as there always is.
Kevin: It’s amazing where the opportunities emerge. I was on my morning walk this morning and I walked past a property that had been on the market for quite a long time. It was a boarding house and it was obviously, I thought, over-priced. But what it was, was that it required someone to see the twist in it.
As it turned out, Nhan, the person upgraded the boarding house and did some cosmetic improvements to the outside but was actually able to get a splitter off the back of it, which now looks as if they’re going to be able to put a house in there. I would never have thought that. They did it by pulling down a garage.
There are opportunities all around. I guess you just have to be experienced enough to know when they emerge.
Nhan: Yes, and be looking for them, be open to them, and I call it being deal-ready. I even had a text message this morning from a real estate agent. I’ll read it briefly; it won’t take too long. It says, “I have an off-market splitter block commanding city views, etc. Offers over a particular figure. Call me or text me for more details,” and the agent’s details are there.
You know what? Whether that deal stacks or not, and I’m not really interested because I’m not looking for splitters, I’m looking for bigger projects, but if you’re in the marketplace and you’re cashed up, you know what you’re looking for, and you’ve done the ground work…
And sometimes the ground work can take three to six months, to choose your suburb, figure out your budget, determine your strategy, figure out a basic template of what is going to work financially. You have to pay $600,000 to be able to cut a block into two, or $800,000 to cut a block into two and make it profitable. It does take that time, and when those deals come up, then you can pounce on them. Otherwise, you will miss out on them because other people are ready.
Kevin: Another lesson in that, too, is that you’ve built up that network. That’s why you’re getting those sorts of texts from agents. They know that’s the sort of buyer who you are.
Nhan: Exactly. That’s what you’re wanting to do: to build up over time and build up a repertoire of the types of deals that you can do, whether it’s a splitter block, a cosmetic renovation, a subdivision. That’s where the money is at, I think, if you’re open to opportunities.
Sometimes it even takes getting properties under contract, getting it subject to finance or subject to due diligence where you can put a deposit down, check it out, and eventually, you may not even buy the property, terminate the contract subject to due diligence, get your deposit back, and at least, you’re pulling the trigger, practicing doing due diligence and commanding extra knowledge because you’ve gone to a town planner or the council to get their advice and clarification on “Does this work? What frontage do I need? What’s the slope that I need, can I get the stormwater legal point of discharge?” All those items need to be addressed before you actually buy something.
And sometimes it actually takes stuffing it up a couple of times, but not necessarily losing a whole stack of cash, to be able to get clarification and learn.
Kevin: Those valuable lessons. Very wise words and very well said, too. Nhan Nguyen is from AdvancedPropertyStrategies.com. Thank you very much for your time. We’ll talk to you again soon.
Nhan: Thanks so much, Kevin. Thanks for having me. I look forward to being back soon.
Negative Gearing cops it again – Patrick Bright
Kevin: Well, here we go again, more talk about negative gearing, the pros and cons of it. A man I’ve spoken to about this off-air and on-air on a number of occasions is Patrick Bright from EPS Property Search.
Patrick, thank you for joining us today on the show, and good to be talking to you again.
Patrick: A pleasure. Thanks, Kevin.
Kevin: Let’s talk about negative gearing. Demystify it a bit for me, because a lot of people think that it’s really only big, fat, greedy investors who benefit from this, Patrick.
Patrick: It’s interesting, this gearing thing. It exists in all forms of investing – business, shares. I look at property as a business, and sometimes you do make a short-term loss for a long-term gain. The policy, I guess, exists to encourage investment. That’s why they created it in the first place.
In businesses, you generally make a loss for a few years before you turn a profit, and then you pay tax on that, and it’s good for the economy. What’s really the difference with property is it was encouraged to investors to help fund construction of housing that the government doesn’t want to supply, and then people who become self-funded retirees can do it by helping to get ahead and maybe get off the pension.
And then you turn around and you have the government starting to want to change and tinker around with it. I’m not sure why – if it’s so successful – they don’t actually expand it?
Kevin: I think it’s a very emotional issue, and it’s politically a bit of low-hanging fruit, I guess, a popular bandwagon to get on, particularly with the Labor opposition who say that they’re going to do it to help with housing affordability. If they were to do away with negative gearing, what’s your opinion on what impact it would have on affordability, Patrick?
Patrick: I’m not an economist, but if you summarize what a lot of the economists are saying, then it will turn people away from investing. They won’t retrospectively do it, as they’ve said, so everything in place is in place. But in the future, that means it’ll probably be a disincentive for people to invest. They might turn to shares more or businesses more, because the negative gearing benefits will still be attached to those areas of investment. And so that’s going to have a knock-on effect, isn’t it?
Let’s think the policy through. If you discourage investment into the housing sector and let’s say we’re not building enough to support the population growth, therefore you’re going to have less construction of housing. That’s going to cause a greater supply and demand problem and put more pressure on prices down the track, not actually relieve pressure.
It’s also then going to have a knock-on effect of construction in your economy. Retail, people have to put washing machines and carpet and all that sort of stuff in these new properties, so if fewer are built because the demand is not there, because the investment is not there, you’re going to have a short-term maybe political gain to get elected, because it’s the populist thing attack, but long-term, really detrimental impacts on the economy.
If the government was serious about helping affordability, the truth is immigration and foreign investment are the real culprits. It’s absolutely out there and factual. Immigration is at record levels and foreign investment is at record levels, and these things are impacting the supply and demand equation. You just have to look at housing growth in all capital cities tracks immigration, and it’s also risen steadily quite strongly off the back of added foreign investment.
Pre-2008, before Rudd changed the foreign investment policy, only a few percent of foreigners were investing in Australia. This is not tracked accurately even today, but there are studies – you can Google NAB Bank and things like that who do studies and research and look at the sales and transactions. And I know Westpac Bank do it as well.
But upwards of the 2016–17 financial year, we had between 30% and 40% of foreign investors buying up new property. 30% to 40% of new property was going to foreign buyers, whereas it was a few percentage points a decade ago. So to think that’s not having an impact, you have rocks in your ear. It does.
That’s where they should be attacking, that area, tightening that up if you want to increase housing supply to locals.
Kevin: I just want to pick up on another point that you made earlier too, Patrick, and that was about providing a disincentive to investors who provide this rental stock that is so greatly needed. Not everyone wants to buy a property; there will still always be a number of people who want to rent.
If you do take those investors out of the market, someone is going to have to supply those rental properties, and it would likely have to be the government. In my opinion, they don’t have a very good track record of doing that sort of supply.
Patrick: No, they have a very ordinary track record. And it’s very capital-intensive, and they don’t want to do it, which is partly why they have policies in place that make it somewhat attractive for investors to enter the property market and supply housing for people who don’t want to buy their own home or can’t afford to buy their own home. But why let foreigners do it and reap the financial benefit? They should shut that door.
Maybe expand negative gearing. If it’s that good and it’s that attractive, and that many people get into it, and yes, okay, you make some short-term gains and carry forward your losses to offset your profits down the track that you pay tax on – same in business, same in shares – why not expand it and help more Australians become more self-funded retirees rather than attacking and making it harder for them?
Kevin: So, the bottom line, Patrick, leave it alone, find other ways to improve affordability.
Patrick: There are simpler ways to do it that would have much quicker impact – in my view – than doing away with negative gearing. I’m not saying you can’t tinker with it and improve it, but just taking it away may not be the answer. Expanding it in some areas in some way, incentivizing it in areas may actually be a better answer.
Kevin: Now, there’s a good thought. We’ll take that further in some other chat. My guest has been Patrick Bright from EPSPropertySearch.com.au.
Patrick, thank you so much for your time.
Patrick: A pleasure, Kevin. Have a good year.
Tool that aids off the plan sales – Justin Liang
Kevin: The real estate industry is expected to be one of the top industries that will be transformed by virtual reality in coming years, if not now. Many within the industry are already employing the innovative technology in various dimensions, from digital staging to virtual showrooms, to turn the blank canvas of an empty apartment into something a lot more. Very spectacular. Stand by because here’s the next level.
Sydney company Inspace XR is using virtual reality to revolutionize the real estate industry allowing customers to step in and inspect a home, a shopping center, an office, or an industrial site before it even exists. Joining me to talk about this, the young, dynamic CEO from Inspace XR, Justin Liang.
Justin, thanks very much for your time. Congratulations on what you’re doing, too.
Justin: Kevin, thank you very much for having me on the show.
Kevin: It must be exciting times for a young company like yours, I believe been going for about 12 months.
Justin: Yes, absolutely. AR and VR, what our company focuses on, is on the road map and agenda for every large real estate company, from architecture to construction to interior design. We’re very fortunate to have ridden that wave and gotten a lot of interest, both locally and internationally.
Kevin: This technology, of course, has been around for a little while, but who is using it? Who is using it right now?
Justin: We see the main industries adopting it first are education, healthcare, and real estate. It seems that businesses are picking it up first because for the high-end experiences in VR, it still has quite a high price entry point. You need a high-fidelity device and a high graphic-powered computer.
A lot of the times when consumers talk about VR, they’re talking about mobile VR. Mobile VR that comes with something like a Samsung Gear might have a few short experiences but it doesn’t really reflect the true quality of what VR can be used for.
Kevin: Just talking about real estate for a moment, where do you see it going? Where do you think we’ll be using virtual reality in five or ten years’ time?
Justin: Kevin, I think VR will absolutely be the future of architecture. For the first time now, architects can step inside their designs. For example, at Inspace, our product Riverfox turns CAD into VR in one click.
We see a lot of our architecture customers designing within VR now, getting into the space, sort of littering furniture and paint and audio and then communicating those designs down to the real estate developers as customers. Also, even for certain things like the council as well, we’ve seen cases where council approval has been provided based off a VR render.
I definitely think that VR is going to be in the sales display suite for every property project because right now, people are still buying based off a handshake and a picture, and I think in the future, consumers will definitely expect to see exactly what they’re going to get.
Kevin: Just on that point, it is virtual reality, which means it’s virtual; it’s not reality. I really question whether people can actually trust this or whether they will trust it, Justin.
Justin: At the moment, they’re buying it based off a picture anyway, so I think VR doesn’t necessarily guarantee that the developer is going to deliver on their promise – that’s a contractual issue – however, it gives a better representation.
It allows the customer to see all corners of a property, what it’s going to look like, to see what finishes are offered and what they might look like. It gives them a broader view of what it looks like, and again, it doesn’t guarantee that they’re going to get exactly that.
Kevin: Just a final point, I have tried virtual reality – it was some years ago – and unfortunately, I got sick. It was a roller coaster ride. Is that quite a normal reaction?
Justin: Yes, and that comes down to the quality of the VR, which is very important. Unfortunately, VR gets a bit of a bad rap because people have experienced these low-frame experiences that have come out on mobile. But it all comes down to the frame rate. For us at Inspace, we don’t release any experience unless it’s above 90 frame rates per second constantly.
The sickness comes from your eyes moving first and the pictures following after with some latency. I think that’s a problem that the industry is very quickly fixing, but it’s through hardware and through the software tools, like the type we’re producing at Inspace.
Kevin: Great talking to you, and congratulations on the work you’re doing. Inspace XR, the CEO there, Justin Liang. Justin, thank you so much for your time.
Justin: Thank you very much, Kevin.
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