{"id":7964,"date":"2016-05-12T10:00:52","date_gmt":"2016-05-12T00:00:52","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=7964"},"modified":"2016-05-12T10:00:52","modified_gmt":"2016-05-12T00:00:52","slug":"is-this-buyer-brave-or-crazy-what-happened-to-the-predicted-price-crash","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/is-this-buyer-brave-or-crazy-what-happened-to-the-predicted-price-crash\/","title":{"rendered":"Is this buyer brave or crazy? + What happened to the predicted \u2018price crash\u2019?"},"content":{"rendered":"

Property investors are often unaware that there are two different methods available to calculate the depreciation deductions for the plant and equipment items contained within their investment properties. Brad Beer<\/strong> tells us what they are.
\nMargaret Lomas<\/strong> says that a man who some are saying is crazy because he bought a home for he and his fianc\u00e9 without her having seen it may not be mad after all provided he exercised some caution.\u00a0 Margaret explains.
\nMichael Yardney<\/strong><\/a> shares the 11 things successful property investors don\u2019t do and Dr Dallas Rogers<\/strong> from the University of Western Sydney\u00a0explains why he is so concerned about proposed high-speed train lines and what it will do for affordability.
\nDespite what we heard last week about the Western Australian market, Hayden Groves<\/strong>, President of the Real Estate Institute in WA says there are signs of improvement in the west.
\nAMP Capital Chief Economist Dr Shane Oliver<\/strong> says Australian house prices have been overvalued for more than a decade and we continue to hear predictions of a price crash \u2013 so why hasn\u2019t it happened.\u00a0 We ask Dr Oliver that question today.
\n 
\nTranscripts:<\/strong>
\n 
\nMargaret Lomas<\/strong>
\nKevin:\u00a0 <\/b>There was a recent news story about a man who bought a home for he and his fianc\u00e9 without her having ever seen it \u2013 a very brave man, I would reckon. And while some may think that he was absolutely crazy, or as I said very brave, maybe a bit of both, there are others who see no problems whatsoever purchasing a home that they have never seen themselves, let alone inspected it.
\nBut surely, there have to be some things to consider before you jump in at the deep end with purchasing a property. There are two examples here. One is for yourself, you and your partner or your wife, or as an investment. I\u2019m going to ask the opinion of Margaret Lomas from Destiny Financial Solutions and star of Property Success<\/i> on Sky TV.
\nG\u2019day, Margaret.
\nMargaret:\u00a0 <\/b>Hello, how are you?
\nKevin:\u00a0 <\/b>Wonderful to be talking to you again. I guess there are two things here, aren\u2019t there? Whether you\u2019d buy one as your principal place of residence sight unseen, or whether you\u2019d buy one as an investment. Can you differentiate between the two of them?
\nMargaret:\u00a0 <\/b>Let\u2019s start with your principal place of residence, and I\u2019m probably agreeing that you\u2019d be a little crazy to buy a principal place of residence without seeing it first, or without at least one of you seeing it first. I think both need to see it, because we all have different ideas of what\u2019s good and bad.
\nI recall when we were renovating the home that I live in at the moment, my husband had a whole lot of suggestions that I just thought were crazy, that we absolutely were never going to use. I also had some suggestions that he didn\u2019t like, so we had to collaborate on those.
\nIf you\u2019re buying a house of your own, you\u2019re talking about lifestyle over investment, and people have to remember that. There are things we will compromise on in terms of the property\u2019s capacity to grow and return a good capital gain to get the lifestyle choices that we want or to get the everyday things that we want in the property. We\u2019ll often pay more for a property for particular features that we like that don\u2019t necessarily add value to that property.
\nFor that reason, if you\u2019re buying an owner-occupied property, I think that you should either be looking at it yourself, or these are the circumstances under which I like a buyer\u2019s advocate. Many people know I don\u2019t like buyer\u2019s advocates very much, but for an owner-occupied property, a buyer\u2019s advocate can often hear your brief very well and satisfy that brief.
\nKevin:\u00a0 <\/b>One of the things that I found, too, is that when two people are looking at a property \u2013 a husband and wife \u2013 they\u2019re probably going to be looking at it differently. A wife will look at it somewhat emotionally, whereas a male may look at it almost a bit removed, so it doesn\u2019t hurt to have that balance.
\nMargaret:\u00a0 <\/b>Absolutely, and we all do have different needs. Whether you\u2019re a sexist or not, men and women are different. Men and women think differently, they\u2019re programmed differently, and they move about in their personal space differently. There are things that a guy probably wouldn\u2019t even think about, such as the size of the cupboard, that\u2019s very important to a woman, and I think that\u2019s why both of them need to collaborate.
\nA good buyer\u2019s advocate can have a meeting \u2013 whether it be face to face or via the Internet \u2013 with a couple or a person and take the brief about what they\u2019re after. A good buyer\u2019s advocate should understand the features that make a home right for a woman and the features that make a home right for a man and should be able to satisfy that brief pretty well.
\nNow, when it comes to investing, everything changes.
\nKevin:\u00a0 <\/b>Let\u2019s talk about those changes. Is it because you need to treat it like a business as opposed to a personal decision?
\nMargaret:\u00a0 <\/b>Let\u2019s have a look at all the reasons why buying sight unseen can work, and why it is important that you\u2019re able to do it. First of all, the property that is most right for you from an investment point of view, which is also situated in an up-and-coming hotspot, which will also rent well and satisfies both your short- and long-term investing needs, probably isn\u2019t going to be anywhere near where you live.
\nYou might live in Sydney, and the right buying opportunity for you at the moment could exist somewhere in Brisbane, and the ability to jump up and down on a plane to go and have a look at what will be more than one property in your search for property can become a really expensive exercise, and the costs of that aren\u2019t going to be tax-deductible for you, because you can only claim an expense as a tax deduction on a property that you own that is creating an income for you.
\nSo you could be spending an awful lot of money that will eat into the overall returns of that property, because you\u2019ll essentially have to add them to the cost of buying, and you might not see enough gain \u2013 at least in the early years \u2013 to cover off those costs. That\u2019s the first issue: if you need to go and see that property, it could become a costly exercise.
\nLet\u2019s have a look at more important issues. Firstly, your ability to remain unemotional \u2013 and as you say, treat it like a business \u2013 is really impacted by what you see when you get there. This can either work for you or against you. For example, you might see a property, fall completely in love with it because it looks exactly like something you would live in, but that particular property may not have the growth drivers, the right rent returns, the right demographics, or satisfy any of your personal financial needs for the short and long term.
\nSo you\u2019ll buy that property because you liked it. You probably then don\u2019t go and do enough of the research because you\u2019ve fallen in love with it, and it becomes hard to negotiate well when you\u2019re in love with something. You want it so much that you might actually go over the value that you\u2019re really prepared to pay or that would really make that property a viable proposition.
\nThe flipside to that coin is that if you go and look at a property and decide you really hate it because the look of it doesn\u2019t suit you or you make a judgment call on it, you actually might reject the property that would otherwise make a fabulous investment.
\nKevin:\u00a0 <\/b>One of the mistakes that I think people make is that they do actually shy away from buying interstate because they tend to be wanting to buy in an area where they\u2019re more comfortable \u2013 they know the area \u2013 but you miss opportunities if you don\u2019t look outside your existing area, don\u2019t you?
\nMargaret:\u00a0 <\/b>Let me talk about this \u201cKnow your area\u201d rubbish. People say they know their area because they live there, but do they? I\u2019ve asked many people about the areas they live in, \u201cWhat do you know about the area?\u201d and all they can tell me is where the best restaurants are, or perhaps where the bus goes. Very few people know what the growth drivers are in that area, how quickly the population is growing, what the demographics are, what kind of rent return you can achieve and cash flows on properties in that area.
\nWhat they know about their area is inappropriate and, in fact, quite dangerous, because it creates that comfort that you speak of, which makes people think it\u2019s the right area to buy in, when, in fact, the right area to buy in could be somewhere else entirely.
\nI\u2019ll tell you now that I always buy in areas that I don\u2019t know but by the time I buy it, I know it far better than anybody who lives there. If you know how to do the right kind of research, you\u2019re never going to buy in an area that you don\u2019t know; you\u2019re going to buy in an area that you previously didn\u2019t know but now you know well because you\u2019ve done the research.
\nKevin:\u00a0 <\/b>That makes so much sense, Margaret. We\u2019re going to have to take a very short break. I wonder if you\u2019d stay with us. I want to pick up on your thoughts about whether or not you believe property in Australia is overvalued.
\nMargaret:\u00a0 <\/b>Absolutely.
\nKevin:\u00a0 <\/b>Great. My guest is Margaret Lomas from Destiny Financial Solutions. We\u2019ll take a break and we\u2019ll come back and talk to Margaret again.
\n 
\nBrad Beer<\/strong>
\n 
\nKevin:<\/b>\u00a0 Property investors are often unaware that there are two different methods available to calculate the depreciation deductions for the plant and equipment items contained with their investment properties, yet investors can only select one of these methods. Today I\u2019m speaking to Brad Beer from BMT Tax Depreciation.
\nBrad, I wonder if you\u2019d just give us a rundown of what the two depreciation methods are.
\nBrad:<\/b>\u00a0 Absolutely. There are two methods you get to claim these plant and equipment items under. One is called the diminishing value and the other one is called the prime cost method. Now, diminishing value is a higher percentage of claim, and it\u2019s claimed each year based on the residual value, as in the amount diminishes, so you get more deductions up front and it diminishes down over time. The prime cost, the other method, is also known as the straight line method. It is a percentage of the value in the first year and the same amount every year until it runs out.
\nThe diminishing value gets a bit more deductions in the early years; prime cost gets more even deductions over a longer period of time.
\nKevin:<\/b>\u00a0 If an investor is only planning on holding a property for a short period of time, why would they choose the diminishing value?
\nBrad:<\/b>\u00a0 The decision between the two: when we prepare our reports, we actually give you both methods. Now someone who owns the property for a short period of time is probably trying to get the most out of it in that short period of time. Diminishing value gets a bit more deductions in those early years, which means more cash flow for the investor while they own that property.
\nKevin:<\/b>\u00a0 Okay. What kinds of investors might choose prime cost?
\nBrad:<\/b>\u00a0 Someone who chooses prime cost might be someone who if in later years of owning this property \u2013 the third year, the fourth year \u2013 they expect to have salary increases and might be in a different tax bracket, then these deductions are more useful to them in a later period of time might choose that method. Or if you\u2019re not in a very high tax bracket and these high deductions drag you below in tax brackets, then you might choose the prime cost method, as well. Because these deductions are only useful if you can actually claim them, and if you\u2019re going to change tax brackets based on some of those, sometimes that prime cost might work better in your situation.
\nKevin:<\/b>\u00a0 So explain how low value pooling works.
\nBrad:<\/b>\u00a0 Low value pooling is something that relates to items that have a lower value, and what you get to do is claim these things at 18.75% in the first year and 37.5% in the following years. Now they\u2019re done under the diminishing value method: 37.5% is quite a high rate, so any of these low value things you get to claim a bit quicker and they are done under that diminishing value method. An investor might select this method because they actually want these deductions earlier in these years, and if that happens, then obviously more cash flow for the investor.
\nKevin:<\/b>\u00a0 Brad, just in closing, can you give us an example of the differences in depreciation claimed using each of these methods over, say, a five-year break.
\nBrad:<\/b>\u00a0 Yes. I had a look at a couple of examples, and on a house that\u2019s purchased for around about $500,000, I have the first five years of claims on a diminishing value at just over $50,000. Using the prime cost method, the same property came in at about $44,200. So there\u2019s $6500 difference in deductions over the first five years of owning something like that.
\nA unit of similar value came out a little bit higher, about $8500 difference in deductions over those first five years, largely because a unit often has a bit more plant and equipment in it, so more of those things would have fallen into those diminishing value or prime cost methods.
\nIt makes a few thousand dollars difference to deductions over the first five years of owning a property, which at your tax rate, potentially 30% or 50% of that comes back in cash. As investors, I think we\u2019re always looking for cash now instead of later, so often the diminishing value will work better for most investors.
\nKevin:<\/b>\u00a0 Yes, but as always, we suggest you take the advice of an accountant who specializes in this area. You can certainly talk to the team at BMT Tax Depreciation. Is that correct, Brad?
\nBrad:<\/b>\u00a0 Absolutely. We can give you the numbers, but we don\u2019t know the rest of your financial situation and do the rest of your tax return. Your accountant will look at both methods that we give you, and they\u2019ll be able to make your best recommendation.
\nKevin:<\/b>\u00a0 Okay. First port of call will be Brad and the team, of course, at BMT Tax Depreciation. You can use the link on the home page at Real Estate Talk to contact them as well.
\nBrad, thanks for your time.
\nBrad:<\/b>\u00a0 Great. Thanks, Kevin.
\n 
\nMichael Yardney<\/strong><\/a>
\n 
\nKevin:\u00a0 <\/b>As a follow-on with my discussion last week with Michael Yardney,<\/a> where we asked Michael to put together the seven top pieces of advice he thinks that every investor should ignore, at the end of that, Michael, we talked about whether or not you could write a book, and that launched into this week\u2019s 11 things that successful property investors don\u2019t do \u2013 I guess in a similar vein, isn\u2019t it?
\nMichael:\u00a0 <\/b>It is. Successful property investors, businesspeople, entrepreneurs do things in a certain way, they have certain habits, they have certain traits, and similarly, they have things they don\u2019t do, because the results we have today are the result of everything we\u2019ve chosen to do and chosen not to do. Let\u2019s maybe have a look at things successful people avoid doing.
\nKevin:\u00a0 <\/b>Okay, what is the first one?
\nMichael:\u00a0 <\/b>The first one is they don\u2019t really concern themselves that the markets are unpredictable. We keep hearing this noise all the time about property booms, property busts, negative gearing coming, negative gearing going. Successful investors set themselves a plan, but recognize that despite their plans and despite their strategies, there are always X factors coming out of the blue that may affect them negatively or maybe sometimes positively, so they protect themselves by planning for the worst yet expecting the best outcome.
\nKevin:\u00a0 <\/b>What about not questioning advice? I guess this follows on from last week, doesn\u2019t it?
\nMichael:\u00a0 <\/b>Yes, successful investors don\u2019t accept things as true without questioning it. In this uncertain world, we love to be right, because it helps us make sense of things. One of the ways our mind does this is with something called confirmation bias. We actually go out looking for information to confirm the hunch we already have about our property strategy, or a region, a location, or a trend.
\nI found those who display strong confirmation bias tend to be more overconfident yet they tend to make the least money, Kevin. They seem to want to be right at any cost. Instead, successful investors understand that most of us are ruled by prejudices, so they maintain a healthy skepticism. They question new information, they look for reasons why it may not be right, rather than why what I\u2019m thinking is the right way of doing it.
\nKevin:\u00a0 <\/b>Interesting, isn\u2019t it? A lot of detectives, too, are criticized for that confirmation bias. They have one guilty person in their mind and they bring all the evidence in around to support that theory. Same thing.
\nMichael:\u00a0 <\/b>It\u2019s just like if you like Apple computers or IBM PCs, Windows. People who like Apple see all the good reasons for it, and actually, people who like Windows. It\u2019s much the same with your football team, as well, so our emotions play a big part in all decisions.
\nKevin:\u00a0 <\/b>Yes, but I have to say Apple is better. Let\u2019s move on, what about investors wanting things to happen quickly or easily?
\nMichael:\u00a0 <\/b>Successful investors recognize that rarely does success in anything happen quickly or easily, so they don\u2019t look for the next get-rich scheme. Those who have got a long term perspective, those who know how to delay gratification are more likely to be financially successful. I remember Warren Buffet\u2019s beautiful saying \u2013 you have heard me say it before \u2013 \u201cWealth is the transfer of money from the inpatient to the patient.\u201d
\nKevin:\u00a0 <\/b>Yes. Another thing I\u2019ve noticed is that successful investors don\u2019t procrastinate, do they?
\nMichael:\u00a0 <\/b>They don\u2019t necessarily wait for the right time to take action. They don\u2019t try to time the markets. They know there isn\u2019t a \u201cright\u201d time to do anything. I\u2019ve found successful investors gather all the necessary information quickly, make an informed decision, and then, Kevin, <\/b>they take appropriate action. They\u2019re able to see the big picture; they don\u2019t get caught up in the details, and that allows them to be successful.
\nKevin:\u00a0 <\/b>The next couple: <\/b>they don\u2019t do it on their own and they don\u2019t spend time worrying, which is a continuation of what you just said, really.
\nMichael:\u00a0 <\/b>They don\u2019t do it on their own because they recognize that if they\u2019re the smartest person in their team, they\u2019re in trouble, so they\u2019re prepared to pay for good advisors. They\u2019re prepared to pay for mentors who inspire them, who motivate them, who keep them accountable.
\nThe other thing \u2013 you\u2019re right, Kevin \u2013 is they don\u2019t worry. Interestingly, most things you fear about rarely happen, and if they do, they\u2019re actually not as bad as you imagined they would be. The lesson, I guess, from speaking to lots of successful investors, is that you shouldn\u2019t take things too seriously, because what seems to be a really big problem today, you probably won\u2019t even remember it in five years\u2019 time.
\nKevin:\u00a0 <\/b>A continuation of something you said earlier about building your team, they may build a team, but by the same token, they take responsibility for their own decisions, don\u2019t they? They don\u2019t let others define their success.
\nMichael:\u00a0 <\/b>They do take responsibility for their own decisions; that\u2019s one of the big things. They don\u2019t blame, they don\u2019t become a victim. They realize that what has happened is because of them. If you believe you\u2019re the cause of all the actions that happen in your life, you act differently, you behave differently, you think differently, much more positively, and similarly as you said, you don\u2019t allow other people to define what success is.
\nDon\u2019t compare yourself with how anyone else has done things. The unfortunate problem is as you become more successful, people will look at you, people will speak about you, people will wonder how you did it, and those are their negative problems, Kevin, not your problem.
\nKevin:\u00a0 <\/b>And they accept that responsibility, you said that, but they also don\u2019t ignore problems. They don\u2019t stick their head in the sand; they face them.
\nMichael:\u00a0 <\/b>How often have we seen people just stick their head in the sand \u2013 as you say \u2013 and hope that the problems will sort themselves out? That happened as the mining boom started to unravel and people thought \u201cNo, it\u2019s okay, I\u2019ll wait for it to sort itself out again,\u201d or people just sticking to bad properties, dud properties, bad deals, rather than accepting the problem, crystalizing the loss, moving on, tackling the problem, and moving forward rather than hoping it\u2019s going to go away.
\nKevin:\u00a0 <\/b>Yes, but having said all that, they don\u2019t speculate, do they?
\nMichael:\u00a0 <\/b>Rather than chase the latest fad, successful investors follow a proven system, recognizing that the only way you can become an expert is by doing the same thing over and over again, rather than trying this one and then trying that strategy. What they\u2019ve learned is that their investment lives are probably going to be boring.
\nSee, a lot of people want to do investment because they think it\u2019s exciting. I\u2019d rather have an exciting life because of my investments, which are probably a little bit more boring, the strategy gives me all of the cash flow that I require.
\nKevin:\u00a0 <\/b>I\u2019m fascinated with your final point, the eleventh one: that they don\u2019t forget the people who matter.
\nMichael:\u00a0 <\/b>There\u2019s lots of time to talk about money, property, wealth, but what you have to remember is what really matters. No matter how busy I found successful people to be, they take their time to tend to their personal relationships and they know how empty life can be without those who love you, without those friendships.
\nKevin:\u00a0 <\/b>I\u2019m never too busy to talk to you, Michael.
\nMichael:\u00a0 <\/b>I never forget who my friends are, Kevin.
\nKevin:\u00a0 <\/b>Michael Yardney<\/a> from Metropole Property Strategists.<\/a>
\nGood on you, Michael. We\u2019ll talk to you again next week.
\nMichael:\u00a0 <\/b>Thank you, Kevin.
\n 
\nHayden Groves<\/strong>
\n 
\nKevin:<\/b>\u00a0 There are some very good signs on the horizon for the West Australian market after reporting for so long that it was in the doldrums, but there are signs that it may just have turned. To get a little bit more on this, Hayden Groves joins us, President of the Real Estate Institute of Western Australia.
\nHayden thank you for your time.
\nHayden:<\/b>\u00a0 Good morning.
\nKevin:<\/b>\u00a0 Thank you very much for your time. The WA market seems to be bouncing back a little bit. What are the signs that you\u2019re seeing that that\u2019s the case?
\nHayden:<\/b>\u00a0 We are seeing very early signs of a small recovery in the West Australian market. We\u2019re starting to see sales volume marginally increase. It is bouncing around a little bit. But this is off the back of a very slow 2015 certainly in terms of sales volume. We had extraordinarily low numbers in 2015 in the Perth market just in terms of transactional activity. The lowest figure that we\u2019ve seen \u2013 about 36,000 property transactions \u2013 and when you compare that to 10 years ago, we had 75,000 transactions in the Perth market 10 years earlier. So it\u2019s really been low volumes, but we\u2019re just starting to see them creep up in the early parts of 2016, which is a great sign.
\nKevin:<\/b>\u00a0 Are there any particular price ranges that are moving more than others?
\nHayden:<\/b>\u00a0 We\u2019re starting to see where most of the activity was in 2014 was in that sub-$500,000 bracket and a little bit above it, so definitely first-home buyer activity was quite strong in the Perth market in 2013\/14. I think in the early stages of this year we\u2019re starting to see that $700,000 to $800,000 bracket come to the fore. So there is some trade-up activity which is very pleasing, and that\u2019s probably why we\u2019re starting to see a bit more transactional activity occur. This will inevitably translate in time into higher prices, because it will drag the median house price up in time.
\nKevin:<\/b>\u00a0 It will, indeed. Are you seeing that in the regions, as well, or is this pretty well just focused on the Perth market?
\nHayden:<\/b>\u00a0 Right now, I\u2019m in beautiful Esperance down on the WA coast visiting some of our institute members down here today. Look, they\u2019re reporting very similar conditions to what\u2019s happening in the broader Perth market whereby very low transactional levels are just starting to creep up, a bit more confidence creeping into the property sector down here \u2013 but coming off the back of a lot of supply, so a lot of people are still on the market for sale.
\nWe are as an institute telling people, if you\u2019re on the market, you\u2019re not absolutely compelled to sell at the moment and perhaps it would be best to consider coming off the market, so as to keep stock levels low enough, which of course, keeps a floor under the prices from falling back.
\nKevin:<\/b>\u00a0 I believe that your agency is in the Fremantle market, is that correct?
\nHayden:<\/b>\u00a0 That\u2019s right. Yes, my business is in Fremantle, which is quite a unique little area in its own with a very strong local buyer base. About 70% of our buyers already live within the immediate precinct, so we don\u2019t get a lot of investment from outside that, just people trading up through that existing market. So our market does get cushioned somewhat from other fluctuations in the broader property market.
\nKevin:<\/b>\u00a0 Has the release of the State Budget had any impact on the real estate market at all?
\nHayden:<\/b>\u00a0 We\u2019re not getting the budget until next month. We are lobbying the state government pretty hard to leave property related taxes well enough alone. Already our state government, much like other state governments around the rest of the nation, is overly reliant on property-related taxes for their coffers.
\nIn Western Australia, over 30% of income that flows into the state coffers comes from property-related taxes, stamp duty and land tax. Our state government has raised land tax by 35% in the last three years, so we\u2019d be pretty annoyed if they did it to us again, because of course, as you and your listeners would appreciate, that it really does stymie investment in a time where really we do need more investment in the Perth property market. Let\u2019s hope they don\u2019t mess with it again.
\nKevin:<\/b>\u00a0 Speaking of investment, I was keen to get your thoughts on any areas you think that investors should be looking at that if there is a resurgence in the market there, that\u2019ll probably grow quicker than other areas.
\nHayden:<\/b>\u00a0 I like the Rockingham area and its surrounds. It\u2019s still very affordable, and you can live right on the beautiful coast down there for not much money. You can get a family size block close to the beach and probably less than 100 meters to the waterfront and you\u2019re paying around $500,000 for it, so that\u2019s very appealing. I think that will grow quite nicely, that southern corridor.
\nBut closer to the Perth central area, Forrestfield is an area that I think will probably go very nicely, which is near the airport but there\u2019s going to be a new train line running into that area, which will, of course, boost that area quite well because it\u2019s a much needed additional transport link.
\nAlso, too, I think areas around Lathlain and Carlisle, close to the city, I think are probably a bit undercooked over the years and are probably going to enjoy a little bit of a resurgence, particularly in the trade-up market sector. I think that will go quite well.
\nKevin:<\/b>\u00a0 In those inner-city markets you mentioned there, are they predominately unit-based that you\u2019d be looking at?
\nHayden:<\/b>\u00a0 Not really. They are diversifying their densities throughout those areas, as well, which will probably increase values more rapidly than other areas perhaps, but we\u2019re a bit slow to catch on sometimes in the west and we\u2019re only really starting to embrace apartment living in any meaningful way.
\nThere\u2019s been a significant increase in apartments being built in and around particularly the CBD, and we\u2019re talking high-end apartments here, so they\u2019re attracting a very high rate per square meter. They are still selling off the plan very, very well despite quite a lot of choice for particular buyers in that sector. So that\u2019s an interesting change in the Perth market. While I think we\u2019re probably a bit oversupplied in that sector, for every one sale, there are still about 24 apartments to choose from, so we are a bit oversupplied.
\nAnything that\u2019s very strongly located \u2013 the new apartments being released in Elizabeth Quay, for example, right in the CBD, a beautiful new environment \u2013 they have all sold off the plan very, very quickly for very high prices. So there is still buying activity out there for those prime and strongly located apartment developments.
\nKevin:<\/b>\u00a0 Great signs coming out of WA.
\nHayden Groves, President of the Real Estate Institute of WA, thank you so much for your time.
\nHayden:<\/b>\u00a0 Good to be with you. Nice to chat to you.
\n 
\nDr. Shane Oliver<\/strong>
\n 
\nKevin:<\/b>\u00a0 The long-predicted crash has never eventuated. Now, according to The Economist, Australia\u2019s housing market is 40% overvalued based on price-to-income measures, with one expert warning an entire generation is now praying for a property crash. So why hasn\u2019t it happened? Joining us, AMP Capital Chief Economist Dr. Shane Oliver.
\nDr. Oliver, thank you for your time.
\nDr. Oliver:<\/b>\u00a0 My pleasure. Great to be talking to you.
\nKevin:<\/b>\u00a0 Why haven\u2019t we had the crash?
\nDr. Oliver:<\/b>\u00a0 That\u2019s a good question. We occasionally hear these predictions. Most recently, I think it was aired on 60 Minutes<\/i> back in February, someone talking about a 40% or 50% crash in property prices. But those sort of predictions have been around for a decade or so now, and it hasn\u2019t happened.
\nSeveral factors are behind that. One is we haven\u2019t had the deterioration in lending standards that they had in America. Back in America, prior to the GFC, money was going to people who didn\u2019t have jobs, didn\u2019t have assets, didn\u2019t have a means of supporting their so-called NINJA loan \u2013 no income, no job, no assets. And of course, that caused massive problems.
\nWe haven\u2019t had that in Australia. Most Australians are servicing their mortgages and paying their debts down at a reasonable rate. We also have, of course, low interest rates, so even though house prices have gone up, interest rates have gone down. So the amount of money that a typical household devotes to servicing their debt isn\u2019t much higher than it was a decade ago despite house prices being higher.
\nFinally, unlike America and other countries that have had 30% or 40% property crashes over the last decade, we haven\u2019t had an oversupply of properties. There might be in certain areas \u2013 the Gold Coast occasionally has that, parts of Sydney, parts of Brisbane, parts of Melbourne \u2013 but on a generalized basis, we haven\u2019t had an oversupply. We still have immigrants coming into the country, the population is growing, and therefore that oversupply hasn\u2019t hit the market.
\nSo yes, it\u2019s overvalued measured against income and measured against rent, but it\u2019s still very hard to see what the figure for a crash is.
\nKevin:<\/b>\u00a0 Yes, the points you make are all very good, too, and we do tend to generalize a lot. The Economist<\/i> singled out Sydney along with San Francisco, Vancouver, and Shanghai. I thought that might have been just drawing a very long bow to say that the price growth is the norm by comparing all of Australia to those markets.
\nDr. Oliver:<\/b>\u00a0 It\u2019s certainly not. And the other thing that foreign commentators often miss is that the Australian markets are all very different. Over the last four years, Sydney property prices have risen 40%, but they virtually did nothing from about 2004 up until 2010. It was a very constrained market in Sydney for a whole bunch of reasons. So there is a degree of catch-up after a very weak period.
\nBut then you go around the rest of the country: Melbourne also very strong over the last four years with prices up 30%, but then when you look at Brisbane, prices there are only up 8% or so over the last four years, so it\u2019s been a lot quieter. Price gains have been a lot more constrained.
\nLikewise, say if you\u2019re a property investor and you want to get some rental income, the rental yield reflecting those gains in Sydney is now very low. It\u2019s down around 4% for a unit, whereas in Brisbane the rental yield is more than one percentage point higher at above 5%. So it\u2019s very wrong to generalize, just to look at Sydney and say that\u2019s indicative of the whole country; it certainly isn\u2019t.
\nKevin:<\/b>\u00a0 You mentioned there when you were talking about America, about reckless lending. Do you think it\u2019s too easy to accumulate debt in Australia?
\nDr. Oliver:<\/b>\u00a0 Yes and no. For a typical borrower it\u2019s not. Most people I think are quite responsible with their loans, and banks are quite responsible, as well. But it is possible<\/i> to accumulate a lot of debt, particularly for property investors. If you know what you\u2019re doing, you can do it quite well. You hear those stories occasionally\u00a0 in the media about people having 10 properties, they\u2019re all investment properties, the income from them is paying the interest on them. There is a risk there that if something happens and the prices do crash, then those people could be in trouble servicing their 10 mortgages.
\nBut by and large, most Australians don\u2019t have the sort of debt that caused trouble in the US, and I think banks are generally fairly responsible in terms of assessing the income that Australians have and whether that income is sustainable enough to service their debts over time.
\nThe proof is in the pudding. The level of nonperforming loans \u2013 that is loans that are in arears by Australian banks (this was from a report from the Reserve Bank just yesterday) \u2013 is running around 1% of total bank loans, whereas in Europe for example you\u2019re up around 6% or 8%. Many other countries are, again, quite high. So Australia actually has a very low level of loans that are not being serviced by the borrowers properly.
\nKevin:<\/b>\u00a0 Just before I let you go, the negative gearing debate: do you think negative gearing has actually encouraged too many investors to get into property who maybe shouldn\u2019t be there?
\nDr. Oliver:<\/b>\u00a0 There may be an element of that, but I don\u2019t think it\u2019s the main problem. I think negative gearing is often seen as the reason why Australian property prices are high, but negative gearing in Australia dates back for a long, long period, long before this period of expansive property prices we\u2019ve had more recently.
\nI think yes, there may be some people who are taking excessive advantage of negative gearing and maybe borrowing too much on the back of negative gearing benefits, but by and large, most ordinary Australians use it quite sensibly.
\nMy concern would be that if we do away with negative gearing, then the supply of properties in the Australian property market that comes from investors will dry up and we could end up with a worse situation where the supply situation coming to the market is again not enough to meet up with underlying demand for housing.
\nI certainly don\u2019t think the negative gearing is the problem and the reason why we have relatively expensive property in Australia; the real issue has been a lack of supply over many, many years.
\nKevin:<\/b>\u00a0 Dr. Shane Oliver, thank you so much for your time. Appreciate it.
\nDr. Oliver:<\/b>\u00a0 My pleasure. Have a great weekend.
\nKevin:<\/b>\u00a0 Thank you very much.
\n 
\nDr. Dallas Rogers<\/strong>
\n 
\nKevin:<\/b>\u00a0 A high-speed rail network joining all the capital cities and linking up all the regions might not necessarily help priced-out first-home buyers but instead cause prices to rise in areas currently deemed affordable. That\u2019s according to some experts. Western Sydney University Institute for Culture and Society\u2019s Dallas Rogers warns speculators and investors would be the first people on the ground in the regional areas benefiting from the infrastructure on the look-out for price growth. He joins us.
\nDr. Rogers, I understand that you are a supporter of the high-speed rail but you\u2019re casting some doubt on whether or not it\u2019s actually going to help with housing affordability.
\nDr. Rogers:<\/b>\u00a0 Yes, I\u2019m a big supporter of high-speed rail. I think that we need intercity high-speed rail, so we need high-speed rail that connects up our major cities in Australia. That would be nodes connecting up Melbourne, Sydney, Brisbane, and places like that. But we also need intra<\/i>city high-speed rail; that\u2019s high speed rail that connects up the cities within our major cities, as well.
\nAnd I think that really to answer this question about housing affordability and possibly pushing the housing affordability problem in somewhere like Sydney out to the regions is really how governments \u2013 federal and state \u2013 will manage four key assets, and those assets are people, jobs, housing, and transport.
\nJobs is an interesting one. In Sydney, we have a changing job landscape. We have a move to a knowledge- and service-based economy and we have young people looking to get into these knowledge economy jobs, so things like the creative industries, working in the financial sector, government jobs, things like that. And of course, these jobs at the moment are CBD-based, typically.
\nSo within our cities we need a transport network that gets people to those jobs. Now the question is will young people and others take up the opportunity to use a high-speed intercity rail network to travel between cities to take up those jobs? And the important part of that question for New South Wales is housing affordability in Sydney. Sydney is one of the most unaffordable places in Australia, and median prices are about a million dollars at the moment. They go up and down.
\nThe question is will the housing market and the job landscape and the high-speed rail actually drive people out west to invest in those areas and then come back into the city? I think that that\u2019s an open question. My comment about the proposal was we need to address the housing affordability problem in<\/i> Sydney first before we think about transporting that problem out to the regions.
\nKevin:<\/b>\u00a0 Yes. Well, I agree in one sense. One way to tackle affordability, of course, is to make more supply available, and that\u2019s a difficulty in itself in Sydney. If, in fact, you do look at connecting those regions up to the city, you\u2019re going to have a similar sort of problem unless of course those councils do release more land. Because it\u2019s all about land.
\nLet\u2019s take an area like Goulburn as an example. Once again, if commuting time from Goulburn to Sydney could be cut down to, say, 30 minutes on fast rail, you\u2019re going to find that a lot of people would in fact want to live out there. But is there going to be enough land available to develop?
\nDr. Rogers:<\/b>\u00a0 I think the interesting question here is will people want to travel that far from Goulburn to Sydney? That\u2019s 200 kilometers, and of course, high-speed rail will cut down the travel time, but people are increasingly wanting to be closer to where they work.
\nSo I think the question about the high-speed rail is one about is it about moving people from Goulburn to Sydney and back again every day for work or is it about building Goulburn as a regional center with its own jobs and its own economy but being within easy access to Sydney? And I think that they\u2019re two very different questions.
\nIf you compare somewhere like Goulburn to a city on the edge of Sydney \u2013 somewhere like Campbelltown, which is about 60 kilometers southwest of Sydney, right on the fringe of Sydney \u2013 a place like that stands to benefit far more from a high-speed rail network, and you\u2019re probably likely to see a lot more growth in house prices because Campbelltown is well placed to move a lot of people in and out of Sydney, and people are already actually doing that commute.
\nA professor, Bill O\u2019Neil, from our university, the University of Western Sydney, has just released some research that shows that 75% of western Sydney-siders use their car to get to work now but they wouldn\u2019t do that if they had public transport options. They\u2019re projecting that in about 20 years, about 820,000 Sydney-siders will be using cars to get to work if alternative public transport options aren\u2019t available.
\nIn this cohort of people we have a lot of young people, a lot of people getting degrees, and a lot of people wanting to take up those knowledge economy jobs. So I think that if somewhere like Campbelltown is connected into this high-speed rail network, it\u2019s likely to see a lot of growth, not somewhere like Campbelltown.
\nCurrently in Campbelltown, about 92% of all the workers travel on public transport to the city. So Campbelltown and Penrith are the two major nodes where people are using public transport to and from the city every day to get to work, and if we connected those nodes up to this high-speed rail, I think that those places would get the biggest benefit.
\nKevin:<\/b>\u00a0 I\u2019ve often wondered whether people will use fast rail to travel to work or whether the Internet has given them the ability to live in some of these regional areas and work and only have to commute to the city maybe once a week or even once a month. That\u2019s when fast rail could help them cover those vast distances.
\nDr. Rogers:<\/b>\u00a0 Yes. Somewhere like Goulburn is completely reinventing itself at the moment. They have an open source Internet project there where they\u2019re trying to get free Internet around the city, and they\u2019re really trying to attract treechange economy workers to that space. And I think that that\u2019s the key here.
\nWe need to stop thinking about bringing the regions into the cities and start to think about how high-speed rail can do the opposite, and that is reinvigorate the regions themselves. How do we get jobs to the regions? How do we use these high-speed networks to act as a benefit for the regions instead of outsourcing our own urban problems to places like Sydney out west, out to these places? I think we need to invert that logic a little bit.
\nKevin:<\/b>\u00a0 Makes a lot of sense.
\nDr. Dallas Rogers, thank you so much for your time.
\nDr. Rogers:<\/b>\u00a0 Thanks a lot, Kevin.<\/p>\n","protected":false},"excerpt":{"rendered":"

Property investors are often unaware that there are two different methods available to calculate the depreciation deductions for the plant and equipment items contained within their investment properties. Brad Beer tells us what they are. 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