Negative Gearing fact and fiction + Affordability vs serviceability

Negative Gearing fact and fiction + Affordability vs serviceability

Because of the Negative Gearing myths most of us are hearing, we set about sorting the fact from the fiction with the help of Jamie Alcock, Associate Professor of Finance at the university of Sydney.
Michael Yardney tells us about a little known fact that will deal another shock for Australian property markets.
Andrew Mirams answers a question from Jie about affordability and serviceability and the gap that is emerging.
Forget the hot spots.  Today we tell you about Australia’s favourite suburbs, the areas people are flocking to to find a place to live.
Are one of the people who has stopped doing things because we have an election on the way?  Well think again.  This is the time to zig when others zag.  Rich Harvey will explain.

Jamie Alcock – Myths about Negative Gearing

Kevin:  There is so much misinformation about negative gearing – on both sides; it’s become such a political issue – and just trying to find someone who can give us the facts is really difficult, but we’ve done that. Jamie Alcock, who is Associate Professor of Finance at the University of Sydney joins me.
Associate Professor, thank you very much for your time.
Jamie:  It’s a pleasure, Kevin, thank you.
Kevin:  In your article, you’ve looked at five key myths surrounding negative gearing. I thought we might work through those, then at the end of that, I’d just ask you for a bit of a summary and your points on the issue.
Myth number one: negative gearing is responsible for the recent house price surges in Sydney and Melbourne.
Jamie:  Yes. Most people are aware that Sydney and Melbourne house prices have dramatically increased in the last three years or so, and that hasn’t seemed to have abated. It seems to be slowing down a little bit, but it hasn’t completely stopped.
People have to remember that negative gearing has been around for well over a quarter of a century. It’s extremely unlikely that something that happened 25 years ago is now suddenly kicking in and affecting house prices in only Sydney and Melbourne.
If negative gearing would truly be responsible for these sort of things, then you would have expected, firstly, for it to be nationwide – as the tax laws are nationwide – and secondly, for it to have occurred long ago.
The real driver of these house price increases is, of course, it all comes down to supply and demand. There’s an increased demand for housing in those cities and there’s restricted supply, and at the same time, the cost of getting into housing – i.e. the interest rates – have also dramatically reduced.
Kevin:  Yes, and to believe that myth, you would have to let go of that well-founded theory that it is all based on supply and demand – prices.
Jamie:  Yes, absolutely, and I think that we have to also keep in the back of our mind what is driving the demand. Of course, jobs and income are big sources for demand, and also interest rates. If interest rates are high, then there are fewer people that can afford to get into the market and repay the mortgage, whereas if interest rates are dropping, then that drives demand up.
Kevin:  Myth number two is that negative gearing makes property unduly attractive for investors.
Jamie:  This one I find particularly bizarre. Investors pay tax on this investment. The timing of the tax cash flows are that they get a deduction for the costs initially but when they sell the property, they pay a capital gains tax. In most states, they also pay a significant land tax that owner-occupiers don’t have to pay.
To my mind, if you have the same asset with the same returns, but you have two different investors competing for it, one pays a lot of tax and one pays no tax, who’s going to be driving the market?
Kevin:  Yes, but negative gearing is available for all investments, not just property, isn’t it?
Jamie:  Yes, absolutely. If you borrow money to invest in shares, then you can deduct the cost of the borrowing against the profit made in the shares, and it’s exactly the same thing in property.
Kevin:  I do think it’s so highlighted because it is such an emotional issue – young people trying to get into property. Let’s blame negative gearing for increasing prices.
Jamie:  Yes, absolutely. All of us who have bought our first home remember how difficult it was. It’s been difficult forever. It was difficult in 1960 and 1970, and it’s difficult today. The question is, of course, is it any more difficult? I think there are a lot of side issues that have been taken out of the discussion – things like back in 1960, most families were one-income households. These days, it’s two. The costs of other goods, in real terms, have dramatically reduced in that time.
If you go back 60 years, the cost of a return airfare to London was about $2000 or $3000. It’s the same price today, but of course, $2000 or $3000 back then was a significant sum of money. Even if you go back 15 or 20 years ago, the entry level for a new car was $20,000, and that remains the same price today, even though people’s incomes and wages have increased. The costs of living have actually decreased, so we have more money to throw into our mortgage, at the same time as interest rates are dropping.
Kevin:  That pretty well covers off on myth number three – doesn’t it – negative gearing pushing aggregate prices out of the reach of average Australians.
Jamie:  Yes, and there’s just absolutely no evidence for it. Prices are going up, but that’s not the key determinant of affordability. At the end of the day, you can imagine an extreme situation where interest rates were not just lower but in fact, negative. Let’s say there are negative interest rates, which there are in some parts of the world. Well, if it’s $10 million and you’re actually being paid to borrow that money, then it’s very affordable. It’s not the actual sticker price that determines affordability.
Kevin:  How does the current cost of servicing new loans today compare to, say, a decade ago?
Jamie:  That’s a good question. The Reserve Bank in the submission to the Senate inquiry demonstrated that the cost of servicing new loans at the moment is significantly lower than it has been over the past decade. If you go back even further in time… Everybody brings this up, but young people trying to enter into the market do have to remember that their parents were entering a market where interest rates were 18%.
Kevin:  That’s right.
Jamie:  It was very difficult.
Kevin:  It was. I lived through that. Myth number four: negative gearing benefits the wealthy at the expense of the poor. I love this one.
Jamie:  Yes, and this is something that always comes out, but the tax statistics are there and plain for everybody to look up on the Web. They’re very easy, and they show that the vast majority of investors are actually on the lower end of the income scale. They’re not all making millions of dollars a year. And I love the twist that they say somebody on more than $200,000 is three times more likely than somebody less than $80,000 to have an investment property, but there are a hundred times more people on $80,000 than there are on $200,000, so three times one is still much less than one times a hundred.
Kevin:  Yes, and we’ll deal with the most emotional one, I guess. Myth number five is that negative gearing rules make it more difficult for first-home buyers to enter the housing market.
Jamie:  There are a number of dimensions to this one. The first one is, of course, the supply and demand of rental housing. With more investors, of course, there are more houses for rent, more properties for rent, which means the supply is greater and rental prices come down. This allows first-home buyers a greater opportunity to save for a deposit.
But I think the other thing to remember in this whole discussion is that why are people trying to buy a house in the first place? It’s not for the need of housing; they can get that through the rental market. What is it that people are actually seeking through purchasing a property?
Kevin:  Wealth creation.
Jamie:  Wealth creation, and importantly, tax-free wealth creation.
Kevin:  Yes.
Jamie:  It’s the only tax-free asset that we have in this country – owner-occupier housing – and that’s what people are chasing. Negative-gearers pay tax. They’re not tax-free, so they’re not driving the market. They’re trying to anticipate market movements, but they’re not driving the market. It’s owner-occupiers who are driving the market. 85 to 90% of properties are owner-occupier, so they’re definitely driving the market.
Kevin:  Associate Professor, let’s deal with another – not so much a myth, but some commentary surrounding negative gearing. Some commentators have suggested that rents did not increase during the 1985 negative gearing upheaval that we experienced. Could you address that for us?
Jamie:  Yes. It’s a complex issue, but the very first thing that you need to remember with property is that all property markets are slow to respond. If I make a change today, it’s very unlikely that you’re going to see a change in property tomorrow. These things occur over a medium to long term, so even over an 18-month period, you’re very unlikely to see markets change, simply because, for example, most rents are locked in for extended periods of time. In addition, if demand goes up, then it takes many, many years for markets to respond, to get planning permission, to actually construct the properties, to sell them, etc.
It takes years for the markets to respond, so just making one change and looking at what happens over the next 18 months is not a particularly good test, but even if you do believe that, even if you think that that is a good test – which I don’t, but if you do believe that – then don’t just look what happened to rents at that time; look what happened to prices. During that time, prices rose 20%, so if negative gearing was the cause of all this and you remove it, then prices should have gone down, not up.
Kevin:  Yes, we don’t hear about that side of it. There’s another side that we don’t hear about, and that is the impact, if negative gearing were to be scraped, on those who actually relied on investing property to build their wealth. What would be the impact there, say, of a 10% reduction in the average house price?
Jamie:  Let’s assume for a moment that all the doomsayers are correct and there is a reduction in house prices that did occur rather rapidly. Not only is this going to affect a lot of people who are currently owners of property and have established their wealth, but it’s also likely to create a banking crisis, because 90% of retail banking business is mortgages. You’re likely to have a real systemic crisis brought on by a sudden drop in house price. As we saw in the US, there was a sudden drop in house prices, worldwide crisis.
I think another issue that is worth discussing is to look at countries that have similar property titles to ours, and say what happens there and how does their housing affordability rank?
Kevin:  Which countries would they be?
Jamie:  The ones that I usually look at are the US and the UK, because both of those countries have perpetual title, as we do. There is no mandatory leasehold, and they have secure titles, so there are very few challenges to ownership, which there are in a lot of countries.
In the UK, they have tax-free status for owner-occupiers, as Australia does, and they have no negative gearing rules like Australia does. They have something similar to what the Labor Party is suggesting. And housing affordability in the UK is even worse than it is in Australia. It takes 10 to 12 years of income to crack into the entry-level housing as opposed to eight or nine.
Then you compare in the US, where they have taxes on their owner-occupiers – and they’re significant taxes. Depending on the state, they are usually somewhere between 1% and 2% of the market value of the property each year, so if you have a $1 million property, that’s a $20,000 tax check you have to pay out of your after-tax income. And their housing affordability is a lot lower.
When you compare the UK and Australia, and you have one has negative gearing and the other one doesn’t, then they’re both unaffordable. Then you compare Australia and the US, one has tax on owner-occupiers and one doesn’t, and that does affect affordability. It becomes quite clear that the driver of housing unaffordability or high house prices is not negative gearing rules; it’s the sweet tax deal that we give to owner-occupiers.
Kevin:  Yes, interesting. I just wonder if we could deal with one last issue, and that is maybe a solution here. If the government genuinely do want to make housing more affordable, how can they go about it? What options should they explore?
Jamie:  There are so many options available to them to make housing more affordable. Clearly, the planning system is incredibly complex. There’s a lot of red and green tape, and most of that is unnecessary. That could be easily reduced, increasing supply. They could also simplify and relax the stamp duty system in its totality. It’s an incredibly inefficient tax. It’s a tax not on occupying or housing; it’s a tax simply on moving, on improving your life. Also – and this is possibly a little bit controversial – is to reduce social housing.
Kevin:  How would that work?
Jamie:  Social housing has two components to it. One is the construction of new housing, and then the second part is restricting access to that housing. I’m all for building new houses – that will certainly increase supply and increase affordability – but the free market can do that; that’s not the domain of social housing. The key part of social housing is restricting access to housing that exists, and that reduces supply and drives up prices, not the other way around.
They could also start tightening up trade union legislation and increasing urban infrastructure coverage, and they could also think about possibly changing the tax from a stamp duty to an annual land tax for all housing owners, not just investors.
Kevin:  Broaden it out a lot more.
Jamie:  Broaden it, absolutely.
Kevin:  Jamie, thank you so much for your time. My guest has been Associate Professor of Finance at the University of Sydney, Jamie Alcock.
Jamie, thanks once again.
Jamie:  Thank you, Kevin. Cheers.

 Andrew Mirams – A question of borrowing power

Kevin:  I want to answer a question. It’s a rather long e-mail that came to me, and I won’t read it because there’s a lot of personal information inside it, but I want to thank – I hope I pronounce this correctly – Jie Zhao. Jie, thank you for your e-mail. It deals with “Look, I believe I have enough servicing ability. I have a couple of loans, a principal place of residence and one investment property. I want to go and buy another one, but the banks are saying no.”
Let’s have a look into this as to why it is. I’ve shared all of your information with Andrew Mirams.
Andrew, I don’t want to go into the details behind this because there’s a lot of personal information in there, but why is Jie having so much trouble?
Andrew:  Hi, Kevin. It’s a great question, it’s one that’s happening quite a lot at the moment. It really comes down to client’s affordability versus the bank’s serviceability, and the ratio is quite wide at the moment because we have all-time record low interest rates. So people, what their actual expense is and what it’s costing them to hold and maintain their properties, a lot of them are paying for themselves or neutrally geared, versus what the banks are now being forced to do from the middle of 2015, when APRA enforced some changes upon them and they had to tight up a lot of their servicing rates and things like that.
Kevin:  Just before we go any further, I might just qualify that with Jie – I’ll paint the picture – he’s on a good salary, he has a principal place of residence, has a fair bit of equity in that, and from what he’s saying to us in the e-mail, a positively geared investment property, seems to have sufficient savings as well to go and buy another property. So it mystifies me.
When I look at these figures, I think “Gee, this guy certainly should qualify for a loan.”
Andrew:  Yes, that’s what we’re saying. There are a couple of things with this. So there’s a home loan, and there’s a good portion of that offset. Clients say – let’s say they have a $200,000 home loan and $100,000 in offset – “Oh, I’ve only got a $100,000 home loan.”
The first thing you need to know is, that is cash. Cash can be taken out at any given stage, so the banks actually assess on the actual debt they have, irrespective of any offset balance. That’s the first point.
The second point is while an investment property is being maintained in the fours – I think everyone is pretty much paying 4%, whether it’s a high or a low 4%, and depending on where the property is, you’re probably getting a yield somewhere around that – certainly, from a tax perspective, it is probably, like I said, largely paying for itself. However, the banks are still servicing, and even though rates are coming down, their servicing rates are being held at where they are.
The bank servicing rates are – I’ll say – an average of about 7.5%. There are some at the higher range, near enough 8%, there are some slightly lower in the low sevens, but let’s say an average of 7.5%.
So if all of a sudden you added in all your debts and you service it at 7.5%… And then the other thing that people don’t understand is that it needs to be repaid, so if they have it on interest-only, which is their affordability because it’s not costing as much to hold, the banks are now looking at it principal and interest over the remaining term.
When you add all those things together, that’s what’s really hurting a lot of our clients in that same thing: the affordability versus the assessability or the serviceability.
Kevin:  Serviceability. Knowing what you know about Jie’s particular situation – I’ve sent everything to you, all the facts and figures – if you were talking to him, would you be able to help him? In other words, would you be able to reconfigure his loans?
Andrew:  I think there are some things you could do that would certainly make him more attractive to a lender. I’m always reluctant to say, yes, we can do something without knowing everything. I think that’s a little bit naïve, etc.
Is there something that can be done? Potentially. There’s always something that can be done, and if the timing isn’t right, sometimes doing nothing is actually the right thing to do. But yes, I’d be more than happy to look at Jie’s situation and see if there’s a way. I do see some opportunities and some ways to restructuring here, but without all the information, I’d be reluctant to say yes, we can definitely do something, because I don’t want to let him down, either.
Kevin:  No. Well, I’m going to communicate with Jie off-air, but Jie, publically I’ll just put the call out to you. If you want to make contact with Andrew Mirams or anyone of his team from Intuitive Finance, you can do that by using the link on Real Estate Talk. Go and check out Andrew’s and the Intuitive Finance featured channel on our site, as well. Lots of great information there for you.
Jie, I’ll leave that with you.
Andrew, thank you very much for your time, and thank you for helping Jie with that situation.
Andrew:  My pleasure, Kevin. Thank you.

 Michael Yardney – Another shock for the Aussie property market

Kevin:  My next interview surprised me when I found out about it. I’m sure it’s going to surprise you, too. Not many people realize that at a time when Australian property markets have enough to contend with, with falling pre-election consumer confidence, foreign buyers pulling out of markets – and I read a staggering story today that Chinese buyers are now looking at taking money away from Australia and starting to invest in the USA – banks make it harder to get finance.
Now the Australian Taxation Office has delivered another blow for those dealing with properties valued at more than $2 million. You might think it’s for foreign buyers only, but stand by because this is going to impact anyone who is buying and selling a property that’s in excess of $2 million.
Let’s have a look at what this really means and we’ll explore it in a little more detail. Michael Yardney from Metropole Property Strategists joins us.
Michael, thanks for drawing this to my attention. I understand you’ve only just been told about this by your solicitors, as well.
Michael:  That’s right. It was actually first mentioned a number of years ago by former Treasurer Joe Hockey, and it came into our active parliament in February this year. But it’s actually been kept quiet, and I bet there will be a bit more news about it because as of July 1st, everyone in Australia is going to be deemed a foreign resident when they sell their property unless they get a tax certificate saying they’re not.
Kevin:  This is every person who is selling a property over $2 million, or just everyone?
Michael:  The rules say as follows: that everybody who is selling a property – and property is not just real estate but it includes leaseholds and a number of other assets, not shares on the stock exchange – is deemed a foreign resident and withholding tax will have to be held back unless certain elements apply. One of them is, yes, the property has to be worth more than $2 million. So it will change the way large property transactions occur.
Kevin:  What is the purpose behind this? Is it trying to capture overseas buyers?
Michael:  Clearly, the Australian Tax Office is concerned that foreign buyers were purchasing and then selling Australian property, including real estate, and then taking the proceeds overseas without paying the appropriate tax. Now it has transferred some of the responsibility for collecting a portion of that capital gains tax to buyers, to purchasers, of Australian real estate rather than purely leaving it up to the sellers to be open and declare it.
Kevin:  Let’s walk through this. Let’s paint a scenario here where I had – I wish – a property over $2 million to sell and I was going to sell it to you. What does the transaction look like?
Michael:  You’re classified as an overseas investor, which means that you have to then go to the tax office, go to their website, and you can get a special tax clearance. To be honest, most Australian residents won’t have any difficulty getting that for one of two reasons.
First of all, it won’t apply to most people because most transactions aren’t $2 million. But anything over that, whether it’s residential or commercial, you have to apply for a tax clearance. Most people will be able to get it and say, “I am not a foreign resident.” This means then that there won’t be a tax withheld, but it may bring you to the attention of the tax department when may you don’t want them to know about you.
Kevin:  Let’s go back to the scenario where I am a seller of, say, a $2.1 million property. I put it on the market. You come across and you’re a Chinese buyer. You’re a foreign investor and you’re going to buy it. Does that mean that, as the seller, I’ll actually have to either add 10% to my purchase price or have to cop a 10% loss?
Michael:  No. Kevin, whether you’re a foreign purchaser or an Australian resident purchasing the property, you have to request from the seller a clearance certificate saying no tax is payable, no capital gains tax is payable. If it is your primary place of residence, and that’s the most likely scenario – those nice, big homes in the good suburbs – then you don’t have to pay tax because you are exempt of tax.
On the other hand, if tax is payable because you’re a property developer or you’re in the business of property or it’s an investment you bought a few years ago and there is capital gains tax, then you may not get a clearance certificate because it will be clear that an element of tax is payable, and either as the seller, you’re going to have to pay it or the purchaser won’t give you your $2.1 million; they’ll actually give you $210,000 less because they’re going to have to give $210,000, 10%, to the tax department just in case you don’t pay your tax.
Kevin:  This is really an exercise to capture foreign buyers who will then become sellers of that same property.
Michael:  In one regard, it is. It’s also to capture Australians who maybe haven’t filed tax returns for a while. There are lots of people who do buy, sell, develop their homes. Actually, I know people who build a nice, modern home every couple of years, on-sell it, upgrade, and do another one.
Because they use their principal place of residence exclusion so that they don’t have to pay capital gains tax, they often get away with that. That’s fine. It’s within the law. But if you do it too often, you could be deemed a developer. Those people could fall foul of this particular law, also. Also, it could be if you actually sell your $2 million house and maybe you don’t have a tax return that shows you could afford it.
The bottom line really is be aware, speak to your solicitor when you’re about to buy or sell a house, just make sure you do everything that complies, and as long as you’ve done everything correctly and legally tax-wise, there’s nothing to worry about.
Kevin:  This comes into effect on July 1 of this year.
Michael:  Yes, the day before the election, Kevin.
Kevin:  That’s interesting, isn’t it? That couldn’t have been planned that way.
Michael:  No, it wasn’t because it was actually put in as an Act of Parliament in February of this year.
Kevin:  The bottom line is make sure that all of your I’s are dotted and your T’s are crossed. Consult with your solicitor, I guess, is the message.
Michael:  Yes. Just to make things clear, I have no issue with the Australian Tax Office collecting taxes due to it, especially if it’s money owed to the Australian system and it’s being funneled offshore.
Kevin:  Good talking to you, Michael Yardney from Metropole Property Strategists.
Thanks, Michael.
Michael:  My pleasure, Kevin.

 Nerida Conisbee – Australia’s ‘favourite’ suburbs

Kevin:  One of the things that most investors or property buyers want to know is what are the hot suburbs? We’re going to give you a different flavor today because we’re going to talk about the world’s favorite Australian suburbs. How do they rate overseas? can get a great feel for this, and in fact, that’s exactly what they’ve done. Joining me to talk about the results, REA’s Chief Economist, Nerida Conisbee.
Nerida, thank you for your time.
Nerida:  My pleasure.
Kevin:  Tell us about the new report. How did it work, and what did you find out?
Nerida:  What we did is we had a look at the most searched-for suburbs by people living overseas. We have around 5 million people viewing our site every month, and what we found was that a fair proportion of them are looking at Australian suburbs from countries all over the world.
What was really interesting is Melbourne came out on top of the list. Six of the top ten suburbs were in Melbourne. South Yarra, four kilometers southeast of Melbourne’s CBD, came out on top. That was followed by Surfers Paradise and then Mosman. Those three suburbs were the most searched-for by people living offshore.
Kevin:  We’ll talk in a bit more detail about some of the countries they came from. But do you have a feel for what made a suburb popular?
Nerida:  There were a few things. The first one was that for many people searching, an existing residential base of residents from the same country was a key. If you have a look at St. Ives in Sydney, it has a really large South African population. Around 11% of residents are from South Africa. St. Ives came out as the number one suburb searched by people living in South Africa.
Similarly, Tarneit, in Melbourne’s west, has a really large Indian population. It has around 8% of the population born in India. That came up as number one for people living in India. There does seem to be a really strong existing residential base key to what countries people are searching.
Kevin:  It’s interesting. I guess they would want to be able to talk to people from their own country because of the cultural differences. Is that the main reason they were searching these areas, because they would know that there’s a predominance of people from their country?
Nerida:  I think it’s partly that, but also, I would imagine that people living in those suburbs from those countries are talking very highly of where they’re living. If you’re in St. Ives – it’s a beautiful part of Sydney, very leafy, great schools – and you are talking to relatives or friends back in South Africa, it’s probably sparking their interest. I think that’s also a big factor, as well.
Kevin:  When we think about our own lifestyle, we think it would be very attractive because of the sunshine, the beaches, and just our general lifestyle. I’m wondering whether people are attracted to Australia because of the fact that we have kangaroos and beautiful beaches.
Nerida:  Beaches came up very highly, particularly for people living in North America and Europe but not so much from Asia. People living in Asia didn’t look at the beach suburbs quite as much. But if you have a look at Surfers Paradise, Manly, Bondi, St. Kilda, they all came up frequently.
There was also some interesting regional variation. People living in Ireland liked Bondi. People living in the UK liked Manly. That was also quite interesting that certain beachside suburbs had a different following from different countries, as well.
Kevin:  Were they looking mainly at the suburbs in the cap cities, or were there any regional areas they looked at?
Nerida:  Gold Coast came up. I don’t know if you’d really classify that as a regional area. But Gold Coast came up a lot, particularly for the Japanese. The Japanese are still showing a very strong affinity to the Gold Coast. Southport came up number one for them. People living in Thailand were also very keen on Surfers Paradise. So that was a bit of a surprise. I could understand the Japanese link to Gold Coast, but the Thai link wasn’t as clear to me.
Kevin: Yes, because that’s obviously a holiday destination, Gold Coast, isn’t it? You think of your holidays, you think of the Gold Coast right away.
Nerida:  Definitely.
Kevin:  What about some of the suburbs: were there any outside of Sydney and Melbourne that came up? In other words, were there any in Brisbane, as an example?
Nerida:  Not in the top ten nationally, but certainly, when you have a look at different countries, Coorparoo came up as number one for people living in the Philippines. That was quite surprising. I didn’t expect that.
Kevin:  Did they say why they like Coorparoo?
Nerida:  We don’t know because we’re really just tracking where people are logging in from. We don’t really know exactly why they’re looking, but I think it might have something to do with the ex-pat community in the Philippines. I think there seems to be a bit of an ex-pat link to some of the countries.
If you look at Singapore, South Yarra came up as the most searched-for suburb by people living there. I don’t think Singaporeans have a particular affinity with South Yarra, but that country has a big ex-pat community. I think that was with people in the Philippines. I think that ex-pat community, potentially out of Brisbane, may be driving that interest in Coorparoo.
Kevin:  Were there any other results that came out of the survey that surprised you?
Nerida:  The main one was really that Philippines one. I think everything else kind of made sense. The Japanese and the Gold Coast made sense. The strong beachside link also made sense. When you delved into it and you understood the demographics of the area, it did become quite clear.
Kevin:  Outside of Brisbane, Sydney and Melbourne, were there any other areas that came up – like Cairns, the Whitsundays, or any areas like that?
Nerida:  Certainly not in the top ten, no. They didn’t feature. It did tend to be Queensland, New South Wales, and Victoria, capital cities, and Gold Coast were the areas that were most commonly looked at.
Kevin:  Are you able to tell me whether these were people who were genuinely interested in buying properties in these areas, or did they just want to know what the style of houses were like in these areas?
Nerida:  We don’t know. We know that these people are searching for these suburbs. There is probably a mix of people who are looking just to see what they could potentially buy, what the houses look like, more from an interest perspective. But certainly, we have a look at people, say, from South Africa looking at St. Ives given we know there is a really strong link between that suburb and people living in that country, it could potentially be genuine buyers. We don’t know, but I would imagine it would be a fair proportion.
Kevin:  Anyone listening to this who is interested in tapping into an overseas market, they think they might have a property that might interest an overseas buyer, can you reach those buyers easily through a site like, or should you go to that country and see what they have there?
Nerida:  My view is that we have extensive reach. I don’t think there would be many websites that would provide the same sort of reach that we would overseas. I don’t know the exact proportion of people viewing our site from overseas week to week, but we have 5 million viewers looking at our site every month; so even if 5% of those are looking from offshore, you are tapping into a massive audience.
I think if people were looking at property in Australia, we have most of the coverage. We certainly have a huge amount of consumers having a look on the site, so I think our site would be a pretty good start to gauge interest from people offshore.
Kevin:  Absolutely. I know, too, that has been gaining an interest in some overseas sites. Obviously, the Internet has allowed us to become like a worldwide store. Obviously, the overseas buyers are very important to us as Australian sellers.
Nerida:  Yes, definitely.
Kevin:  Nerida, I want to thank you very much for your time and your insight. There are some very interesting results. Are we able to see that report somewhere? Is that available to us?
Nerida:  Yes, it will be available. It’s on our website,
Kevin:  Wonderful. Always good talking to you. Thank you very much for your time, Nerida. Nerida Conisbee is the Chief Economist with, REA, the parent company. Thank you for your time.
Nerida:  Thanks, Kevin.

 Rich Harvey – Zig when others zag

Kevin:  It’s a strange thing, but whenever an election comes around, people decide to do nothing. They stop doing a lot of what they do. They stop buying houses and they stop buying cars. You only have to talk to a car dealer to find out that that is in fact the case. It’s very strange that they actually do also stop buying houses, but it could be a great opportunity, according to the Real Estate Buyer’s Agents Association of Australia. Talking now to that Association’s president, Rich Harvey.
Rich, it is an unusual thing, isn’t it, that people would just stop doing a lot of things when even a change of government is not going to make a huge difference.
Rich:  That’s right, Kevin. Good to be on the show again. Yes, it’s interesting to see the perspective of how people respond to change in political circumstances. It is an interesting phenomenon that a lot of people think that the world stops for a number of weeks – or in this case, a month – before we have an election, but in my view, it’s actually a great opportunity for buyers to take advantage of a slowing market and have a bit less competition on their property purchase.
Kevin:  Let’s talk about that for a moment. In this particular election campaign, this federal election, there’s been a huge issue made out of negative gearing, which has probably spooked a lot of people.
Rich:  Absolutely. I think negative gearing has been one of the sacred cows of the tax system, and a lot of people from moms and dads up to very high-level, wealthy investors have all taken advantage of negative gearing benefits – not just in property but in other mechanisms too for investments. It’s been a great way to increase the supply of housing and incentivize ordinary investors to get into the market who perhaps otherwise wouldn’t have been incentivized to do it.
I think people are quite afraid of what might happen if either party gets in, because one party is saying “We’re not going to touch it,” and the other is saying “We’ll just have negative gearing on new properties.”
Yes, I think a lot of spooking of the market goes on during election campaigns.
Kevin:  Putting that issue aside for a moment, putting aside the negative gearing issue and the debate around the current election, it is true though, isn’t it – and Roy Morgan has proved this – that people will stop doing things like buying houses around things like budgets and elections. Why is that, you think?
Rich:  It’s purely confidence. The property market is driven a lot by interest rates, but very much by confidence. If people are not feeling confident about the economy, then they’re not willing to necessarily go and borrow large amounts of money. Even though interest rates now are at record historical lows – it’s just incredible how the cost of money is very cheap – it’s just that confidence factor. And when there is – like I say – a change in the wind, or something is going to be coming, then people just decide to sit on their hands and go “You know what, I’ll just wait and see. I’ll just sit it out and see what’s going to happen.”
Kevin:  And that leads us to your message, which is this therefore creates a great opportunity for smart investors maybe to get out there when there’s less competition, Rich.
Rich:  It’s incredible. We see the market week to week. We’re out there every week with our clients looking at properties, bidding at auction or negotiating private treaties, and I can tell you, you just have to be some other Johnny-on-the-Spot. You have to be out there every weekend. Buying property is not a part time occupation, it’s not a part time thing that you can just hop in and hop out of. To understand a local market, you have to look at 50 to 100 properties, attend lots of inspections.
If one weekend you might see ten bidders on a property, and then next weekend because there’s an election campaign, there might only be four or five, gosh, there’s a better chance there of securing that property at a better price – perhaps getting some more competitive bidding going and getting out with a good asset.
Kevin:  Yes, I think it’s called the herd mentality, isn’t it, where people tend to go in groups. It does actually take courage to swim against the tide sometimes, but there are great opportunities in doing that.
Rich:  Indeed, but it doesn’t mean you just go out and buy any property just because there’s a lull in competition. It means that you pick an area and pick a property that’s a good quality property, well positioned in a suburb that has constantly high demand for both owner-occupiers and for tenants.
If you go out and buy in a suburb where it has a very high vacancy – 5% or 6% vacancy – and the owner-occupier market is very sporadic, then it’s not necessarily going to be a good investment despite what’s happening from the election perspective. My message to investors is choose carefully, choose wisely, and constantly research the market to understand where it’s at at each stage of the cycle.
Kevin:  Yes, it makes a lot of sense. Some really good advice there from Rich Harvey, who is the president of Real Estate Buyer’s Agents Association of Australia. I think I got that the right way around this time. I said it the wrong way around before, but it’s REBAA.
Thanks for your time, Rich.
Rich:  My pleasure. If anyone wants more information about how to access buyer’s agents, you can just go to the REBAA website,, and there’s lots of information about how to engage a buyer’s agent.

  • MICHAEL S. Correll
    Posted at 03:56h, 19 June Reply

    I think the main reason to buy property, at least one’s PPR, is not to make a tax-free profit but for security and possibly self-esteem.

  • MICHAEL S. Correll
    Posted at 04:27h, 19 June Reply

    I guess with bracket creep it’s only a matter of time when even a modest dwelling will hit the $2 million price point, thus the seller will be liable for more paperwork.

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