Highlights from this week:
- ACCC gets a scammer
- WA breathes a sigh of relief
- REIA not happy with Labor policy
- Is it Boom or BUST?
- Baby Boomers upsize as well as downsize
Baby Boomers upsize as well as downsize – Gavin Hulcombe
Kevin: It was interesting to note, in the latest month in review report that’s been produced, it is an excellent document by Herron Todd White. Joining me to talk about it, Gavin Hulcombe, who is the Managing Director.
Kevin: Gavin, it was interesting to see the theme in there being downsizing, given that it’s such a massive market that’s coming through I just wanted to focus a little bit on that if I may. Hello and welcome to the show.
Gavin: Good morning, Kevin. Thank you.
Kevin: Let’s talk about the boomer market. How big is it? How old are they on average now? What does it mean to the market going forward, do you think?
Gavin: I think it’s quite interesting for a number of years what we’ve heard is people talking about the baby boomer market and the downsizer. It’s sort of been talked about in the market, and a lot developers have sort of been looking to cater for it. But I think we’re actually now really starting to reach that tipping point where it is having quite a significant impact on the market. A lot of the retirees, the baby boomers, average age is sort of early 60s now. So they are sort of really looking at where they want to live for the years to come. They are moving out of the old family home, starting to move into more modern units and townhouses, I guess.
Kevin: Well I guess that was the focus for the government too, wasn’t it? To make a lot of the underutilised property more available to first home buyers in the hopes that it may actually make property a bit more affordable. I don’t know that it will actually achieve that, but it certainly has given the impetus for a lot more baby boomers to downsize.
Gavin: Yeah, look it has that cascading effect that if the baby boomers move out of their family homes, other families can move into those homes. That cascades right down through to the first home buyer market in the more affordable areas. What is interesting is where the baby boomers are going. They fit into a couple of different categories; you can certainly have those that are less price-sensitive and are very particular about the sort of projects that they want to live in. Very fussy over design, quality of finish, location, those sort of things. Then we’ve got those sort of still seeking a more affordable option with a few to sort of cashing in the family home and having additional spending money.
Kevin: I notice in the report too, and we’ll just step through some of the cap cities, in Sydney more prestige downsizers looking for plush apartments. They’re available in Darling Harbour and Double Bay as well.
Gavin: They are. It’s difficult to generalise. But certainly a lot of the retirees aren’t particularly price point sensitive. They really do want to be in the good locations and are prepared to spend substantial sums of money for their retirement homes.
Kevin: Tell me about intergenerational housing. What is that? Is it a growing trend?
Gavin: We are seeing that in some areas, where people are building homes that are accommodating potentially parents and/or children and their families might move into the same property. It’s about designing homes which are still functional and practical but still give the option for multiple generations to live in the one property.
Kevin: I notice in Melbourne in the report too you say that there’s some high-end architectural accommodation being build for retirees in some of the suburbs, but interestingly enough in the suburbs in which they currently live.
Gavin: Look I think for a lot of years we heard about the tree-change or the sea-change. I think that certainly fits a demographic, but I think we’ve also seen some of those people that have moved away and realised that they’re just too far away from family and are coming back to the suburbs which they’ve grown … Their families have grown up in. That’s obviously a big driver for retirees, is being around the grandkids and the family. Hence they don’t want to move too far away because they want to be on call for the babysitting duty.
Kevin: By contrast in Queensland where the lifestyle or the climate’s probably a lot better there, they’re happy to go for bayside or even inner city. I think you call them “hip replacement hipsters”?
Gavin: In some of those areas they’re certainly competing with the younger generation for the better quality locations. Even some of the retirement villages that are being built in those areas is testimony to the fact that people want to share those trendy cafes and restaurants with the younger generation. Definitely proving popular.
Kevin: Generally on the property market around Australia we continue to marvel at what’s happening in Tasmania. It’s interesting to note there that the boomers are upsizing because they’ve picked up a bit of equity.
Gavin: Look, certainly the Tasmanian market has been relatively strong, particularly in the likes of Hobart. What we are seeing is that people are moving down there to often get a bigger home, better outlook, better views. Particularly if they’re relocating from I guess Sydney and Melbourne primarily, which are definitely the more expensive homes. As they cash in those, it gives them the option to buy much bigger properties in Tasmania, which is a much more affordable market.
Kevin: Well it’s a great report, and multi-pages I think it’s about 60 or 70-odd pages. It’s available as a download, and we thank Herron Todd White for making that available, and more particularly to Gavin Hilcombe. Gavin, thanks for your time.
Gavin: Not a problem, thanks Kevin.
Is it Boom or BUST? – Louis Christopher
Kevin: Well according to Louis Christopher from SQM Research, Australia’s housing market will likely record further dwelling price falls, driven by a deepening housing downturn in Sydney and Melbourne. Quite dramatic. Good day, Louis, how you doing?
Louis : Good day there, Kevin.
Kevin: Your boom and bust report just been released showing a really continuing to soften market, Sydney and Melbourne, but there are some winners out of all of this, aren’t there?
Louis : That’s right. Sydney and Melbourne, the forecast is that dwelling prices are going to fall between 6 to 9%. That has definitely influenced the overall national result where we think the national result’s going to come in minus 3 to minus 6%. But not every city is going to fall in our view. Hobart’s slightly gained to be the out performer. It’s going to go up by another 5 to 9% in our view. Brisbane is going to be kind of flat, but there’s a chance of some dwelling increases. More importantly, the rental market in Brisbane’s going to tighter further, so our forecast for Brisbane is minus 2 to plus 2% in terms of changes in dwelling prices. And we’re expecting rental increases in Brisbane of plus 3 to 4%. So the worst is over, definitely for the rental market in Brisbane.
Louis : Darwin’s looking very bad. Minus 8 to minus 4% in terms of dwelling prices and rental likely to fall minus 10 to minus 6%. Even the Northern Territory’ government’s basically declared a recession up there in terms of their budget forecast, so it’s pretty bad right now.
Kevin: Hobart and Canberra, the standouts for us, aren’t they?
Louis : That’s right. So Hobart, the forecast is that prices will rise between 5 to 9%. And Canberra 2 to 5%. And then when we look at the rental market for both those cities, rents are likely to increase between 5 to 8% for Hobart and 5 to 9% for Canberra. So, very tight rental markets where vacancy rates currently are under 1% in both those cities. And we see no relief in sight for tenants right now.
Kevin: Tough going for tenants, particularly in that Hobart market, as you just highlighted there. Prices of course going up. So you’d wonder where a lot of them are going to go. It was one of the most affordable areas in Australia.
Louis : Yes, that’s right. And still relatively affordable, just not as what it used to be. The market offering the best value right now is actually Adelaide. So we’re seeing a lot of value to be offered there in the Adelaide market. It’s there for a reason. There has been some economic challenges there in Adelaide. I must say that 2018 for Adelaide’s fared better than what we expected. We were really concerned about the close down of the automobile industry, but so far Adelaide’s actually fared better than feared. And its local rental market is quite tight. The forecast is that rents will rise between 3 to 5%, but for an investor’s perspective, if you’re looking for value, definitely take a look at Adelaide.
Kevin: In terms of your forecast here, what are you saying about interest rates?
Louis : Well, our forecast assumes that rates will stay on hold in 2019. There is one exception there. We think that potentially towards the end of 2019, the Reserve Bank of Australia may well cut. We have run a scenario where the banks lift interest rates out of step with the RBA as what they did in September. I wouldn’t want to see that happen on the housing market just as things are quite sour. It would mean that in Sydney and Melbourne that prices could fall by up to 11% just next year alone if we were to see the banks do that. And then there is another scenario we’ve run where the RBA does respond. It responds to this downturn and it cuts rates in the first half of next year by 50 basis points. And if that were to happen, then the price falls in Sydney and Melbourne would be minimised. Basically the prices would fall between 0 to 3% in Sydney and Melbourne.
Louis : It is a big question. Will the Reserve Bank respond to the downturn in Sydney and Melbourne or will they let it ride?
Kevin: So you’re calling for there to be either a hold on rates or at least a decline at some stage. Can I ask you, Louis, about negative gearing? Have you run any parallels over that, as what might happen?
Louis : We have, Kevin. And we did up some detailed modelling on Labor’s policy back in 2016 and we’ve done some updates on that policy. I’ve got to say, Kevin, if Labour enact this policy during a downturn, this would be a very, very risky move for the economy. The reality will be is that that would drive prices further down, during a time when the local housing market’s very vulnerable. And it could trip the economy into recession. We’re well aware that Sydney and Melbourne represent 40% of the overall market. We’re well aware at this point in time that construction has been falling at a rate of knots. And the truth is is that construction represents 10% of total employment in this country. If we were to see that initiative brought in during a downturn, we have some significant concerns for the economy. And what we already are having some concerns about it. To the largest cities in a major housing downturn, but add that in, basically it’s anything could happen.
Louis : It would be a dangerous period for the economy.
Kevin: Louis, thank you so much for your time.
Louis : Thank you, Kevin.
REIA not happy with Labor policy – Malcolm Gunning
Kevin: And joining me now is my next guest, the president of the Real Estate Institute of Australia, Malcolm Gunning. Malcolm, thank you very much for your time.
Malcolm: It’s a pleasure, Kevin, good to speak to you.
Kevin: I want to talk about the landscape generally around Australia. Also, we’ll take a little bit of a focus too at commercial real estate a little bit later in the interview. Let’s first talk about the residential market. You get an overview of right around Australia. What are you seeing, is the market very patchy at present, Malcolm?
Malcolm: It really is. It’s like a checkerboard of strength and weakness, okay. The East Coast is where the credit squeeze, and I’ll call it that. That’s exactly what it is, I think. Most people say a quarter is a credit crunch, is mostly affecting Brisbane, Sydney, Melbourne. But again, within those areas, it’s patches. Really that middle market is the one that’s being affected where really, the upsizers and the downsizers is the market which is being affected most at this stage.
Malcolm: But places such as Adelaide, Perth, Hobart, they’re really sailing through pretty well because they’re coming off a less volatile base. It’s much more affordable.
Kevin: We’re hearing some good stories out of western Australia, particularly with Perth. I was talking to an agent just yesterday afternoon, who was telling me that there are some green shoots in the Perth market, which is really good news, actually.
Malcolm: Oh, jeez, they need it, Kevin.
Kevin: They do, and Darwin’s suffering a lot too, right now, I think, too, Malcolm, isn’t it?
Malcolm: It is. That’s all about jobs. Think of that big gas installation which is coming to a close. I was up there recently talking to Quintin Calleen at CEO and he said two years ago there was about 50,000 jobs being stimulated from that massive gasworks, where they’re going to export a lot of their gas out of Australia. Now they’re down to 5,000. And shortly, they’ll be down to really, just the operation, which is about a thousand.
Malcolm: So you can imagine the knock on effect, as far as the economy is concerned. So you’ve got falling house prices up there and vacancy in residential property. And there’s lobbying government, saying, listen, we need … and their tourism’s not strong. Because it’s been under promoted and the state government hasn’t invested in that area. So unfortunately, poor old Darwin, Darwin’s having it’s backside kicked.
Kevin: Yeah, but a lot of nervousness at present in the market as well, Malcolm, with the prospect of maybe a labor government winning, not so much, that’s not the problem, but the problem is what they might do when they get there with negative gearing.
Malcolm: Well, we’re right up to our eyes in that at the moment. We’ll see if Australia, we’ve got research that says that, you know, it’ll have a detrimental affect. What will happen, at this stage, we’ve got vacancy, in Sydney particularly, which is good for the renters. But that’s because a lot of that investment property’s settling.
Malcolm: Then in the other states, the vacancy’s tightening up. All the reasons that the Labor government going to bring in the property taxes, that was to free up property and really quieten the market down. It’s all now not relevant.
Kevin: It’s happening anyway.
Malcolm: It is and so we’re calling it just really as a grab for tax. Both Mr Bowen and Shorten have said they’re taking that policy to the next election. They think it’s something that they need to be able to bring in to really flatten out the market in the longer term. We’re of the opinion they’d be brave to bring that in. If they’re elected next year to bring that in in their first term.
Kevin: The last time Labour played with negative gearing it only took them about six months, I think. Six to 12 months to realise that they’re on the wrong track.
Malcolm: That’s a few years ago-
Malcolm: We said to Mr. Bowen, why don’t you go and have a chat to Paul Keating. He was the one who bought in a change the taxes and he reversed it within 12 months because the market, the rental market tightened up. And you’ve never heard a lobby group shout louder than the tenant lobby group.
Malcolm: And again, your next thing you’re gonna be talking about is some sort of rent control or some sort of rent constraints. If all that market starts to spiral out control.
Kevin: Just quickly before I let you go, the commercial market, two different markets, I guess. Residential, commercial, industrial, that’s your specialist area, what are you seeing there, Malcolm?
Malcolm: It’s still pretty strong. But taxes, again, are playing into that market because you’ve had good capital growth with commercial, industrial, not so much retail, retail’s a basket case. In those other areas when the investor looks to sell, he goes and talks to their accountant. The accountant says well, you’re up for a healthy chunk of tax, due to capital gains tax regulation, and they say well, what can I buy? We’re not going to sell now. And we say well, line up. The investment market is still relatively healthy. Yields did contract, rents in Sydney and Melbourne are quite high. Still and all, while the economy’s strong, we’re going to see the commercial and industrial market continue on.
Kevin: Malcolm Gunning, President of the Real Estate Agent Institute of Australia, also principal of Gunning Real Estate in Surrey Hills. Thank you so much for your time, Malcolm. Always great talking to you.
Malcolm: Thank you, Kevin.
ACCC gets a scammer – Peter Koulizos
Kevin: One of the biggest property stories probably to hit my desk, this year anyway, was a record $18 million dollar fine that’s been imposed on a property spruiker for misleading property buyers and investors. And in a release from the Property Investment Professionals of Australia, their president, Peter Koulizos, congratulates ACCC on this action. He joins me. Peter, thanks for your time. It’s a very welcome move, I think. But probably long overdue.
Peter: Oh, I agree 100%, Kevin. It is fantastic. Congratulations to the chairman of the ACCC, Rod Sims, and the ACCC itself, for this action. The penalty is huge. But I shudder to think if they penalise him and his We Buy Houses group $18 million dollars how much did he actually rip off people? Like it would be much more than that you would think. But it’s certainly long overdue and in my opinion it is just a huge example of why we need property investment advice regulations so we can stop or help prevent these people from doing damage right at the beginning rather than waiting for something huge like this to happen.
Kevin: Okay, well I want to talk to you about that but before we do let’s give a bit of background on this. The federal court has imposed a penalty of $18 million dollars against We Buy Houses and its’ director, Rick Otton for making false and misleading representations about how people could create wealth through buying and selling real estate. There are a number of schemes that he did Peter, which I guess, the one that’s most prominent is, you know, he wrote a book called Buy Real Estate For A Dollar Down, which really was all to do with rent to buy and a whole lot of other schemes that involved vendor financing.
Peter: Well, I mean you labelled him very kindly there Kevin. You called it schemes, I would call them scams. But either way that’s, it is certainly misleading to tell people you can buy property for a dollar down or buy property without any of your money or equity, and a lot of those other misrepresentations that he was making.
Kevin: Well, I jumped on the internet, had a quick look around, I put Rick Otton’s name in, I put in We Buy Houses and there’s a whole lot of information in there going back to, I think the schemes have been around, or the scams as you put it, have been around since the early 2000’s. And there are some people who totally believe in it. There’s some good press on it but there’s also some very bad press. The thing that concerns me Peter, is there is no one go to place where people can learn about the people who are running these scams. It’s long overdue for us to have a list, either supplied by the ACCC of people who are currently being investigated.
Peter: I think that’s an excellent idea, Kevin. It would be great to be able to warn consumers. You know, here are some people that have been charged with offences, you want to be very careful about getting advice or getting any sort of service from these people. I am sure your listeners would know, they may even have some personal experience of dealing with dodgy operators so rather than getting it from top down and that is from ASIC or ACCC, you know maybe we can get it from the bottom up and you know, go direct to the consumer and ask them, you know do you have any information that we can further investigate?
Kevin: Okay, I think it’s a great idea and we’ll put the call out now. If you do have some information we’re not gonna make it public, we won’t put you in a situation where you could be sued. We want to thoroughly investigate the information. So if you’ve got a situation that has occurred to you, right or wrong, send it to us and we’ll treat it very confidentially.
Kevin: Peter, maybe we could pass it on to PIPA and you could do some due diligence and then with a view to, if there is some sort of action against a particular person, maybe we can make that public knowledge.
Peter: I think that is an excellent idea. As a volunteer organisation we can’t do much, especially if they’re not a member of PIPA, and if they were a member of PIPPA they certainly wouldn’t be a member much longer. But we are certainly, we are there to help clean up the property industry. Ideally we want regulation and minimum educational qualifications for people in the industry. But I think this is another avenue, you know? Let’s try to get at the crooks before they do too much damage or make ACCC aware of what’s happening or ASIC or somebody so that we can prevent this sort of thing happening again, because $18 million dollars is a very big number but even if it was only $100,000 dollars to a particular client or customer, that’s a lot of money. That could set them back a very long time so far as their wealth creation is concerned. So I ideally want to see the industry cleaned up and PIPPA’s more than happy to play their part in whatever way is deemed useful.
Kevin: Okay, well PIPA, we are members of PIPA of course. It’s the Property Investment Professionals of Australia. It’s a non profit association established by industry practitioners and with the objective of representing and raising the professional standards of all operators involved within the property investments sphere.
Kevin: The website, you can get to it on our website, it’s just PIPA.asn.au. Peter Koulizos is the president of that organisation. He joins us to make regular commentary and what we’ll love you to do is send in any details about a scam that maybe you’ve been impacted by. We’ll treat it in confidence, we won’t make it public until we’ve done our due diligence, and we’ll certainly pass it on to PIPPA, and we’ll do our own investigations as well.
Kevin: Peter, a long-winded way to say thank you for your time and a farewell. But I know we’ve got you in the car with such an important story I want to get onto it immediately so thank you very much for your time, Peter.
Peter: Thank you, Kevin. Much appreciated.
WA breathes a sigh of relief – Milton Rendell
Kevin: As we look at the different markets around Australia it’s always good to get someone on the ground who has a great knowledge and that certainly is the case with my next guest, Milton Rendell.
Kevin: Owns five offices in that tough market of Perth in WA. His offices are called Real Estate Plus. He joins me. Hey, Milton. How are you, my friend?
Milton: Good day, Kevin. How are you?
Kevin: Good. And in the west. The reason I wanted to talk to you is because you were telling me the other day that there are some green shoots emerging and certainly that’s coming out in the latest report that we’ve picked up in this show from Louis Christopher as well. So that’s good news.
Milton: Yes it is. So we’re certainly been waiting a while I can assure you.
Kevin: Yeah, okay. Well, tell me what you’re seeing and just to paint the picture here in Perth, all of your offices are … What area of Perth are you in?
Milton: Yeah, we’re in Eastern Corridor, so-
Kevin: Eastern Corridor, yeah.
Milton: So it’s what they call Swan Hills area so you drive through it, through us to get up to Kalgoorlie but-
Kevin: Where all the gold is, my friend. Is that, so have you been gold panning lately?
Milton: I’d love to mate, but I’m trying to make a quid the normal way.
Kevin: Okay. Well, I want to talk about a couple of things. But firstly the WA market. Do you feel there’s a bit of consumer confidence coming back, in other words are seller is now saying “Well, maybe this is a good time for me to sell?”
Milton: I think it’s two parts. The first part is that the owners are under the realisation that they can’t wait forever. So I think they’ve been conditioned pretty well over the last two and a half years.
Milton: The other part about it is confidence is everything and there’s been a fair bit of negativity over here. And our employment rate once got over about six percent. Everyone was getting pretty nervous. So there’s certainly, there’s talk of more employment over here, of projects being landed in West Australia and there’s talking of mining improving which has already started to happen.
Milton: So there’s been some positive news in preference to the negative stuff we’ve had probably for the previous couple years.
Kevin: Some of the key indicators, how long is it taking for stock to sell and how much stock have you got on the market right now?
Milton: Yeah, it looks … some levels are certainly, have come back. Now part of that’s just in rentals and the rental market dropped right back. But people are leasing properties now, so that’s encouraging.
Milton: Investors are back I think linked to that – rents dropped so they’ve certainly got to what people perceive as affordable as to fair prices.
Milton: So probably in terms of stock some numbers are coming down now, so that’s usually an indication that more’s happening. And that creates great competition and we’re seeing that. Our immediate area, one of my offices in Midland, that’s still fairly quiet but our surrounding offices are seeing more activity. And they’re seeing less stock.
Milton: On the market, things are going slightly quicker. So we have seen sales within 30 days now which we haven’t seen for a while.
Kevin: Are you seeing evidence of much distress with home owners of having to sell and maybe take a loss?
Milton: Yeah, look, basic sales, there was talk here a while back that they thought the levels of pricing had dropped back to 2007. So in other words, in my book between sort of 2008 up until recent times it really was probably taking a loss but that will depend on the location.
Milton: The heavily developed areas where people took large mortgages, there are losses being incurred and we’ve seen that certainly here. Seen probably price drops in around 15%. Some a little bit higher but once again that varies from property to property and circumstance to circumstance.
Milton: So we are seeing some mortgage stress. We’ve probably seen more mortgage resales in the last couple years than we’ve probably previous 10 years. But that seems to be slowing, which is encouraging.
Kevin: That’s good. Let’s talk about negative gearing for a moment now. I’ve tried to canvass as many views on this issue as I can. Have you got a thought on what might happen if Labor win the next federal election and then start to play with negative gearing?
Milton: Yeah, look, regardless of which party if anyone starts playing with negative gearing the whole market gets scared. I’ve been here 31 years, Kevin and every time it gets talked about things seem to slow. Investors don’t like it being played around with. Having said that, in West Australia prices have come back a bit.
Milton: So we probably don’t have a lot of negative gearing, not as much as there was before. But having said that, once you start talking about not so much penalising investors but altering the game, people do get out. And you also got to remember at the end of the day does the government want to be the ones creating the real estate to be able to lease out or do they want it to self fund itself? In other words, the public do it for them.
Milton: And you know, you gotta encourage investments. So I really think negative gearing has gotta stay. I think if it goes away or if they play around with it too much and they scare investors out of the market the government’s gonna be stuck with a new problem. It’s gonna have to find the housing for all these people looking for property.
Kevin: Well certainly you’re finishing on a positive note, Milton. Milton Rendell has been my guest. Some good news coming out of WA and I think you guys have had it so hard for so long now. So let’s hope it continues.
Kevin: So Milton Rendell has been my guest from Real Estate Plus. They have five offices in that Perth area. Milton, it was great talking to you, my friend. Thanks for your time.
Milton: No, it’s good to have a chat Kev.