tax benefits and depreciation<\/a>, you\u2019re likely to make a mistake. You\u2019re right, Kevin. Generally, it\u2019s done because property investors hope that the income loss will be more than offset by the capital gains when they eventually refinance or eventually sell the property. In Australia, of course, that\u2019s not taxed, so there is clearly a tax benefit if you own the right sort of investment property.<\/p>\nKevin:\u00a0 <\/b>One of the major criticisms of negative gearing is it\u2019s the richer getting richer, but you and I know that that\u2019s not necessarily the case, don\u2019t we?<\/p>\n
Michael:\u00a0 <\/b>When you look at the tax office statistics of who negatively gears, the vast majority \u2013 more than 80% of them \u2013 are ordinary Australian taxpayers, what some people would call battlers, people who have actually taken the trouble to save a deposit, to invest, to take a risk to secure their financial future. It\u2019s not ugly, rich investors who do that.<\/p>\n
Kevin:\u00a0 <\/b>What surprises me, Michael, is that there are some very educated people who are very critical about negative gearing without necessarily taking into account the fact that investors are actually providing a very valuable service.<\/p>\n
Michael:\u00a0 <\/b>Kevin, when we grew up, a lot of the public housing in Australia was provided by the government, as it is in other countries overseas. In particular, in Melbourne and Sydney, you\u2019ll see Soviet-style concrete high-rise towers where people used to have to live because that\u2019s all the government could afford.<\/p>\n
But today, just like private hospitals, schools, and public transport is shared between the private sector and the public sector, so is public housing, and that\u2019s what ordinary investors like you and I are doing. We\u2019re providing a service. We are running a business in the process of providing that service, and we\u2019re just looking for the same tax incentives that anyone else who runs a business gets from the government.<\/p>\n
Kevin:\u00a0 <\/b>Ken Raiss is a good friend of ours, of course, from Chan & Naylor. He was very adamant about his criticism of any fiddling with negative gearing and what impact it would have on rental prices.<\/p>\n
Michael:\u00a0 <\/b>Ken Raiss is only one of the many who remember way back in the 1980s when negative gearing was removed and rents went up. There are other factors involved in that, as well. I know there\u2019s a lobby out there \u2013 usually those who\u2019ve missed out on the recent property boom or who can\u2019t get into property at the moment \u2013 saying, \u201cJust get rid of negative gearing, and that\u2019s going to solve all the problems.\u201d That\u2019s a simplistic argument in my view. I agree that it\u2019s likely in the short term to raise rents, because as an investor, I have to get my return somehow or other.<\/p>\n
Kevin:\u00a0 <\/b>Yes, indeed. In that case, Michael, does negative gearing actually push property prices up?<\/p>\n
Michael:\u00a0 <\/b>Negative gearing allows investors to buy property and get into the property market. I\u2019m not sure that it actually pushes up values of it, because it\u2019s really meant to be the cream, just the little bit that makes it doable.<\/p>\n
What pushes up property values is the fact that still, in general, 70% of properties bought in Australia are owner-occupiers. They\u2019re the ones who investors have to compete against. They\u2019re the ones who are pushing up property values. The argument that properties are unaffordable is probably a moot one, in my opinion, because other than New South Wales, where currently about 50% of people buying are investors, most properties are still bought by homeowners.<\/p>\n
Kevin:\u00a0 <\/b>You\u2019ll have a view on this, no doubt, so let us know through the website if you\u2019d like. We\u2019d love you to join the conversation. Just send a comment into us. It\u2019s very easy to do that; it\u2019s on the homepage. If you have any questions or comments for Michael Yardney or any of our experts on the show, we\u2019d love to hear from you.<\/p>\n
Michael Yardney is from Metropole Property Strategists. Michael, once again, thank you so much for your time.<\/p>\n
Michael:\u00a0 <\/b>My pleasure, Kevin.<\/p>\n
<\/p>\n
Jennifer Duke<\/h3>\n
Kevin:\u00a0 <\/b>The number of Gen-Ys who own multiple properties is now on par with the Baby Boomers. According to the Domain Consumer Insight Study, 16% of Gen-Ys own two or more properties, compared to 17% of Baby Boomers or Gen-Xs.<\/p>\n
Jennifer Duke is the Domain review editor. She joins me. Hi, Jennifer.<\/p>\n
Jennifer:\u00a0 <\/b>Hi. Good to chat.<\/p>\n
Kevin:\u00a0 <\/b>Was this a bit of a surprise for you, this result?<\/p>\n
Jennifer:\u00a0 <\/b>I was really surprised by the results of the survey. I thought it was pretty astounding, actually, especially when we\u2019ve seen our parents\u2019 generations very, very into property. I didn\u2019t realize that it had come through Gen-Y so much.<\/p>\n
Kevin:\u00a0 <\/b>Yes. It shows a real sign of confidence in the market, too. The study also shows that younger generations are infiltrating the market at an earlier age, as well. How young are they starting out, and how does it compare with Gen-X and Baby Boomers?<\/p>\n
Jennifer:\u00a0 <\/b>What\u2019s quite interesting is that the Baby Boomers are getting into the market around 45 years old, and then Gen-Xs are getting in 35, and now Gen-Ys are buying at 25. They\u2019re getting in almost 20 years earlier than their Baby Boomer counterparts.<\/p>\n
Kevin:\u00a0 <\/b>Do you think it has a lot to do with their parents encouraging them to do it? I know with our kids, they got in very, very early, too, because we were encouraging them from our experience.<\/p>\n
Jennifer:\u00a0 <\/b>Definitely. I think, as well, seeing the benefit of compounding growth. Your parents have seen that go through the boom, and they say, \u201cBoy, I wish I\u2019d done it ten years earlier.\u201d I heard my parents say that. I\u2019m 24, and I have a property. You hear that while you\u2019re growing up, and I think that your parents\u2019 influence is definitely very strong.<\/p>\n
Kevin:\u00a0 <\/b>Yes, I guess a lot of the Gen-Ys have seen their parents\u2019 wealth in their property, and they want to do the same thing. What are the other reasons for this confidence on behalf of Gen-Ys?<\/p>\n
Jennifer:\u00a0 <\/b>I think at the moment, obviously, low interest rates does play a big part in that, but I also think that it\u2019s a general culture, as well. People are seeing prices increase so quickly that they want to be involved. Property culture is strong. The media, obviously, has never been stronger around property, and it\u2019s just taken off. I don\u2019t think it\u2019s slowed down at all.<\/p>\n
Kevin:\u00a0 <\/b>What percentage of Australians have actually got an investment property?<\/p>\n
Jennifer:\u00a0 <\/b>It\u2019s one in five at the moment. The majority of them just have one investment. I was chatting with someone earlier today who was telling me that the number of people having two is increasing, so that\u2019s quite interesting.<\/p>\n
Kevin:\u00a0 <\/b>What also is interesting, I find, is in my generation, we bought a house for a reason, and that was to buy a home for the family, whereas this current generation seem to want it for investment purposes. In other words, they\u2019re quite willing to continue to rent at home and buy an investment property.<\/p>\n
Jennifer:\u00a0 <\/b>Definitely. I know many of my friends rent and have investments further away, maybe in areas that they wouldn\u2019t want to live in. We rent in Victoria; we have a property in Sydney \u2013 me and my partner \u2013 but we also just bought a block of land for our retirement way in the future.<\/p>\n
It depends where you\u2019re coming from, but I think most people want to retain their lifestyle. They want that caf\u00e9 culture, the ability to close up shop and go traveling, and you can\u2019t always do that when you own your own home, but you can do that when you have an investment and a tenant in there.<\/p>\n
Kevin:\u00a0 <\/b>You and your partner are right onto it, Jennifer, that\u2019s for sure. Just in closing, I wonder if you can tell us \u2013 I don\u2019t know if the survey went into this \u2013 how confident are investors about the future?<\/p>\n
Jennifer:\u00a0 <\/b>Two-thirds of Australians in the survey said that they considered it a good investment. I think what\u2019s quite interesting is that a lot of people expect that there may be some sort of a downturn coming \u2013 it\u2019s been a really hot market \u2013 but at the same time, over the long term, it pans out, and people think even if the next few years are a little bit rough, in ten years\u2019 time, it will iron itself out and go up again.<\/p>\n
I\u2019m not really sure where I stand on it, but I think that property is a good asset to have.<\/p>\n
Kevin:\u00a0 <\/b>It\u2019s great talking to you, Jennifer. Congratulations on what you\u2019re doing, too. I think it\u2019s a great report from Domain. It\u2019s called the Consumer Insight Study. It is out now.<\/p>\n
I\u2019ve been talking to Jennifer Duke, who is the Domain review editor. I thank you so much for your time, Jennifer.<\/p>\n
Jennifer:\u00a0 <\/b>Thank you for having me.<\/p>\n
<\/p>\n
Cate Bakos<\/h3>\n
Kevin:<\/b>\u00a0 When you do a renovation project, it\u2019s always good to get some feedback about what are the good points and what are the things that are really going to turn the buyers on. I\u2019m going to give you some advice on that now. It\u2019ll come from Cate Bakos, who is a buyer\u2019s agent from Melbourne. You can contact her through the website CateBakos.com.au.<\/p>\n
Good day, Cate.<\/p>\n
Cate:<\/b>\u00a0 Hi, Kevin. How are you going?<\/p>\n
Kevin:<\/b>\u00a0 Wonderful. As you take people through some of these renovated properties, what do you see as the big turnoff for buyers, and where do renovators go wrong?<\/p>\n
Cate:<\/b>\u00a0 Sometimes renovators might take it upon themselves to put in some fixtures and fittings that aren\u2019t suited to the target tenant, and I\u2019ve mentioned the target tenant before on the show. They might be pitching the finish above and beyond where the target tenant sees value and not conserving some of their budget for good additions that might be of value to the tenant.<\/p>\n
For example, putting in a beautifully finished kitchen with granite benchtops and then overlooking some decent heating. That can certainly be one mistake that they can make. But there are some others, as well, and I\u2019m happy to chat about those.<\/p>\n
Kevin:<\/b>\u00a0 One of the ones that strikes me quite often is that they just don\u2019t put their professional finish on them. It might be a nice paintjob, beautiful colors, and the house might be nicely decorated, but it\u2019s just the finishing touches, particularly with paint, that seem to stick out.<\/p>\n
Cate:<\/b>\u00a0 That\u2019s so true. There\u2019s nothing worse than a really shabby job, and most buyers can see through that. That can range from just tardy finishing touches such as bad paintjobs, maybe not patching properly so that surfaces are uneven, or having fixtures and fittings like lights or handles that aren\u2019t put on nicely when it would have just taken a little bit of care to get it right and not make the buyer wonder what else is wrong with the property.<\/p>\n
Kevin:<\/b>\u00a0 What I think is a real shame about this, too, is that sometimes those little finishing touches, they look as if the job was done in a shoddy fashion, but unfortunately they\u2019re probably only finishing touches, but it is taken as a reflection on the entire job.<\/p>\n
Cate:<\/b>\u00a0 That\u2019s so true. In some cases, you can get some nice finishing touches but the buyer can tell that the really essential parts of the job weren\u2019t done properly. One of the key ones that I find is uneven flooring. Then they\u2019ve laid tiles and painted beautifully, but everyone knows that if the property needs restumping, all of that work will disappear into the ether.<\/p>\n
Kevin:<\/b>\u00a0 What about for someone who is taking on a project and they may not be necessarily familiar with the area? What advice would you give them about who should they talk to, to find out what tenants are really going to want?<\/p>\n
Cate:<\/b>\u00a0 They should always talk to their local property manager or find one who they feel particularly comfortable with and find to be trustworthy and know their stuff. If a property manager can indicate what sort of rental you can achieve with a particular finish or what sort of tenant will respond well and maybe stay for a long time, then it is worth considering putting in a finish like that. But without chatting to someone, you might make some additions that aren\u2019t valued or you might \u2013 worse still \u2013 overcapitalize or not get any effect out of the effort and the money that you\u2019ve spent.<\/p>\n
Kevin:<\/b>\u00a0 The other thing I really love about what you just said, too, Cate, is getting a property manager involved in those early stages may just help you get a tenant that\u2019s almost champing at the bit to get in there the moment you finish the renovation.<\/p>\n
Cate:<\/b>\u00a0 That\u2019s so true. I recently had a client who did a fantastic renovation and had the property managing guiding her through the process. She was able to take tenants through when they got towards the very end of the project, and she actually had a tenant in waiting, which is as good as it gets when you\u2019re looking at a small-scale renovation project.<\/p>\n
Kevin:<\/b>\u00a0 Cate, always great talking to you. Thank you so much for your time.<\/p>\n
Cate:<\/b>\u00a0 Thanks, Kevin.<\/p>\n
<\/p>\n
Jane Slack-Smith<\/h3>\n
Kevin:<\/b>\u00a0 We say happy birthday today to Jane Slack-Smith, ten years with Investors Choice Mortgages. Congratulations, Jane. That\u2019s a great track record.<\/p>\n
Jane:<\/b>\u00a0 Thank you. Yes, it\u2019s been an incredible journey, and one that I\u2019ve thoroughly enjoyed.<\/p>\n
Kevin:<\/b>\u00a0 Jane is, of course, no stranger to our audience, because we talked to Jane only a matter of a couple of weeks ago about the ultimate guide to renovations. You\u2019re a very skilled lady \u2013 into renovation, into home mortgages.<\/p>\n
I\u2019m just keen to know from you, Jane, about the current low interest rate environment. Is that such a good thing for the property market?<\/p>\n
Jane:<\/b>\u00a0 Kevin, there are some good aspects and there are some bad aspects. If we concentrate on the good first of all, then obviously, our repayments could be going down and often you actually have to ring your bank and ask them to reduce your repayments or they\u2019ll keep them at the same amount, which a lot of people don\u2019t know.<\/p>\n
We\u2019re seeing a lot of competition. We have fixed rates below 4%, we have variable rates below 5%. Banks are offering incredible discounts we\u2019re getting for our clients from what is the market rate, so it\u2019s a really great time to relook at your current mortgages.<\/p>\n
The really good thing is if you look at the RD Data report recently, over 40% of people\u2019s properties are worth double what they bought them for. A lot of people are sitting on a lot of equity, their best borrowing capacity now more than ever because the rates are so low and how banks assess them.<\/p>\n
From a good point of view as a property person, I guess pulling out some equity and getting ready for the next trend or the next opportunities is a really good thing.<\/p>\n
Kevin:<\/b>\u00a0 I guess a lot of people would be thinking that just because the interest rates are reduced and the banks bring them down, that they\u2019re naturally going to flow that through to your loan, but that\u2019s not the case. You actually have to go to them and say \u201cHey,\u201d and renegotiate.<\/p>\n
Jane:<\/b>\u00a0 Your repayments are often set. A lot of people have a set repayment per month, and unless you actually ask them to reduce them, then they\u2019re not going to be reduced. But some people have that automatic option built in.<\/p>\n
But I guess one of the things when you think about your home is, as well, is that it\u2019s nice to actually get a few repayments or a bit of in redraw <\/b>ahead. We\u2019re actually seeing Australians who are building more equity in their home and more redrawing in their loan accounts that is putting them in a better savings position, as well.<\/p>\n
Kevin:<\/b>\u00a0 It\u2019s a great low-interest environment, of course, for anyone who has borrowed money, but it\u2019s always an indicator that the economy is not ticking along all that well when the interest rates have to be that low, though, Jane?<\/p>\n
Jane:<\/b>\u00a0 Absolutely. The Reserve Bank is looking at the entire market. We\u2019re looking at iron ore prices, we\u2019re looking at coming off the mining boom, and it\u2019s not just the Sydney property market that\u2019s driving what the RBA\u2019s decisions are. As a great, big look at Australia, things aren\u2019t all that good, and that\u2019s why the RBA is trying to stimulate the economy. So we have to be mindful of that, as well.<\/p>\n
I guess from the negative point of view, a lot of the banks are being very cautious and we have ASIC and APRA telling them to be very mindful of how they\u2019re lending out money. I\u2019m finding that banking assessments are getting a lot tougher. We\u2019re finding that banks are \u2013 and we\u2019re seeing policy changes now every week \u2013 lending over 90% loan-to-value ratio.<\/p>\n
Some lenders now require you to have a principal-and-interest loan, or if you\u2019re lending to access equity from your property with an over 80% loan-to-value ratio, they want explanations. With the new way that credit checks are being done, the positive reporting, banks have a lot more information about you. They\u2019re getting a bit tougher on their assessments, as well.<\/p>\n
Kevin:<\/b>\u00a0 Jane, congratulations. Thanks for joining us today, and ten years with Investors Choice Mortgages: that\u2019s a great track record. Great to have you on the show, too. Thank you so much for your time, Jane.<\/p>\n
Jane:<\/b>\u00a0 Thanks a lot, Kevin.<\/p>\n
<\/p>\n
Patrick Bright<\/h3>\n
Kevin:\u00a0 <\/b>We talk about it from time to time, but buying at auction is both exciting and also can be a very good way to buy a property; it\u2019s certainly a good way to sell one. What are some of the tips if you are going to an auction this weekend, and you\u2019re a bit concerned that you may pay a little bit too much?<\/p>\n
Let\u2019s talk to Patrick Bright from EPS Property Search; they\u2019re buyer\u2019s agents in Sydney. I guess this is something you do quite often, Patrick, is it?<\/p>\n
Patrick:\u00a0 <\/b>Yes, it is.<\/p>\n
Kevin:\u00a0 <\/b>I\u2019ve asked you to put together some tips for our listeners on what they should be doing if they\u2019re in fact going to go and buy. What would you suggest?<\/p>\n
Patrick:\u00a0 <\/b>If you\u2019re going to go buy at auction, the first thing to do is essentially work out your finances so you know what your preapproval limit is and obviously don\u2019t go above that, so you\u2019re not looking at properties that you can\u2019t afford. Then you have to look at the value of the property and assess the value, so you can make an informed decision.<\/p>\n
You shouldn\u2019t go to an auction thinking that other people that have done research and if you just pay $1000 or $5000 more than they do, then you have a good deal. A lot of people do go to an auction thinking that, and if you have a couple of unaware, uninformed buyers outbidding each other, that\u2019s where silly prices can be paid.<\/p>\n
Kevin:\u00a0 <\/b>Just talking about the price for a minute, Patrick, you mentioned about doing your homework and so on. How much notice can you take of what an agent tells you? We\u2019ve heard a lot about price ranging and low-balling and so on. What would be your advice there?<\/p>\n
Patrick:\u00a0 <\/b>Yes, it happens. The problem with under-quoting particularly in the Sydney and Melbourne markets\u2026 I think now, with the changes of law in Queensland, that you\u2019ll probably eradicate the under-quoting problem; you\u2019re forced now to do research, whereas in Sydney and Melbourne, people are a bit lazy, and they take the agent\u2019s guidance. Sometimes you just don\u2019t know whether you have to add 5%, 10%, 20%, or 30% \u2013 and I\u2019ve seen many agents under-quote by more \u2013 so you need to do your research.<\/p>\n
You really have to treat every property like it hasn\u2019t got a price and do your own research, so you\u2019re not influenced by that \u2013 as in led up the garden path by paying too much \u2013 or coming to the auction without enough money in your back pocket to be a serious contender.<\/p>\n
Kevin:\u00a0 <\/b>Do you think it\u2019s a good idea to have a professional valuation done?<\/p>\n
Patrick:\u00a0 <\/b>They can certainly help. If you want to get a valuation done, that will certainly help take a bit of emotion out of it. But you also have to understand that in a rising market you\u2019re going to have to add some money to that valuation, because the valuer is going to be pricing that up based on historical sales over the past few months, maybe even three to six months back. In a rising market, where we\u2019ve seen markets sometimes lifting by 3% to 5% in a quarter, you\u2019re going to have to factor that in.<\/p>\n
Kevin:\u00a0 <\/b>As a buyer at an auction, you\u2019re going into a scenario where the odds are pretty well stacked against you, aren\u2019t they? The agent is working for the seller; you\u2019d assume, too, the auctioneer is also working for the seller. So you really do have to do your homework and know that you\u2019re on a firm footing when you start to bid.<\/p>\n
Patrick:\u00a0 <\/b>Very good point, Kevin. You are essentially on your own when you\u2019re going into buying any property, because unless you have a buyer\u2019s agent or an advocate representing you, you are essentially on your own. Everyone else in the transaction is working for the seller\u2019s best interest, so you certainly have to have your wits about you.<\/p>\n
Kevin:\u00a0 <\/b>It\u2019s certainly made the buyer\u2019s agent a lot more important in this scenario. As we\u2019ve come to realize, agents can\u2019t work on both sides; they technically have to work for the seller. No wonder that buyer\u2019s agents have become so popular.<\/p>\n
Patrick:\u00a0 <\/b>Yes, they are becoming more popular. I think it\u2019s becoming more normalized. It\u2019s been around in the US for 30-plus years. In Europe, it\u2019s quite common. It\u2019s been in Australia probably about 15 years now, and it\u2019s starting to really catch on, in particular over the last five years.<\/p>\n
It makes sense. You don\u2019t have a lawyer representing the buyer and the seller in the same transaction, so why would you have an agent representing the buyer and the seller in the same transaction? It does make sense.<\/p>\n
Just as a good, quality sales agent can have a great influence on the sale of a property over and above what other sales agents or even the vendor would get themselves, the same thing can happen with a buyer\u2019s agent. If you get a good buyer\u2019s agent, they can certainly have an influence on the outcome for you.<\/p>\n
Kevin:\u00a0 <\/b>If you talk to an American agent, to them it\u2019s totally foreign that they would actually work on behalf of both parties, and I wonder therefore why traditional agents tend to want to hang on to both sides of the transactions. Do you think it\u2019s because it gives them a little bit more control of the negotiation?<\/p>\n
Patrick:\u00a0 <\/b>Yes, some sales agents don\u2019t like buyer\u2019s agents because they can\u2019t control them as much and they don\u2019t have as much influence over them. I know that does frustrate some. But at the end of the day, a lot of the sales agents do use it. I\u2019ve helped three sales agents in the last six months buy their homes. I get a lot of them as clients, because they can see the value that we add when we\u2019re buying from them, and they think, \u201cGee, I would like to have that on my side. I\u2019m working most weekends selling stuff, so I barely have time to look myself anyway.\u201d<\/p>\n
Kevin:\u00a0 <\/b>It\u2019s crazy when you think of it, because agents do actually earn their commission out of the seller, not out of the buyer, so you\u2019d think they\u2019d be more than willing to give up that side of the business that actually earns them no money.<\/p>\n
Patrick:\u00a0 <\/b>Yes. At the end of the day, they either deal with two parties \u2013 as in managing the buyer and managing the seller \u2013 to try and get the transaction together, or they actually just focus on working with their sellers. I think the experienced agents \u2013 the majority of them \u2013 are certainly in favor of working with a professional on the other side. They\u2019re very happy to do it. But as I said, there are some out there who are a bit fearful about it because they don\u2019t like not being able to pull the wool over buyers\u2019 eyes.<\/p>\n
Kevin:\u00a0 <\/b>It\u2019s certainly a changing environment, that\u2019s for sure. Mate, we\u2019re out of time, but I want to thank you for giving us your time.<\/p>\n
Patrick Bright, who is a buyer\u2019s agent. He\u2019s from EPS Property Search; they\u2019re based in Sydney. Thanks for your time; we\u2019ll catch you again soon.<\/p>\n
Patrick:\u00a0 <\/b>Pleasure. Thanks, Kevin.<\/p>\n","protected":false},"excerpt":{"rendered":"
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Why low interest rates are NOT so good | Why so negative on negative gearing? | Auction tips | Where most renovators go wrong plus more - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/why-low-interest-rates-are-not-so-good-why-so-negative-on-negative-gearing-auction-tips-where-most-renovators-go-wrong-plus-more-2\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why low interest rates are NOT so good | Why so negative on negative gearing? | Auction tips | Where most renovators go wrong plus more - Realty Talk\" \/>\n<meta property=\"og:description\" content=\" We all wait patiently every month to see what the Reserve Board will do with rates and the media goes into a frenzy with news about what any movement up or down will mean. 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