One of the country’s largest lenders has revealed that it has already commenced planning for government changes to SMSF lending. What is the future? Should you be concerned? Andrew Mirams has the good oil.
Michael Yardney answers a question from Michelle: “With a budget of $1 million, should I buy a spacious character apartment in one of the more affluent suburbs of Melbourne or Sydney?”
Listen to what’s ahead when the RBA meets next week. Dr Andrew Wilson from the Domain Group also discusses the suggestion that the housing bubble is getting worse.
We hear that when it comes to buying and selling – especially selling – its is all about mindset and we meet one of the new judges on The Block.
And finally Patrick Bright gives us his view on the market this year and what is likely to happen with prices in the major markets.
Kevin: Keeping you up to date on what’s happening in the market, chief economist for The Domain Group, Dr. Andrew Wilson, joins me. Andrew, thanks again for your time.
Andrew: Thank you, Kevin.
Kevin: We have the possibility of some rate movement coming up this Tuesday. What do you think is going to happen?
Andrew: We’ve certainly had a change in momentum over the last two or three months, probably over the last one month, in terms of the direction of official interest rates this year. Earlier last year, of course, the market chat was about a rise in interest rates, but that’s gone 180 recently.
There is growing momentum and growing talk now of the likelihood of a rate cut – and not just a rate cut sometime in 2015 but a rate cut this coming week. We’ve seen a number of leading commentators and economists now calling for a rate cut in February to stimulate the economy, so it really does put the focus back on the Reserve Bank decision.
Kevin: Even Steve Keen is predicting the possibility of a right cut, as well, and he’s talking about what that’s going to do to the “Australian property bubble.”
Andrew: I’m not sure we’ve got a bubble. In fact, I’m sure we haven’t got a bubble.
Kevin: He persists with that talk though, doesn’t he?
Andrew: He does. Look, it’s always interesting to hear his point of view in the marketplace, but the data does show us clearly that as the market activity has moderated over the last year. Prices growth has certainly tracked backwards.
Sydney, of course, is an exception, but it has its own supply and demand issues, which keep that market bubbling along. But other markets are recording moderate or modest growth, and this is not surprising given that that interest rate surge has washed its way through the system and struggling local economies are not being able to keep up with the prices growth as two years ago.
A cut in interest rates, I don’t think – if it occurs – will stimulate housing market activity to any great degree. It will only be one or two 0.25 movements, if it comes. That’s not enough, really, to improve affordability to the extent of re-igniting house price growth. Typically, it’s rises in interest rates that create the pent-up demand that when falls come following those rises, releases that pent-up demand and we get price growth.
We just don’t have that dynamic anymore. We have a struggling economy generally. We need a stimulus. We can’t get it from fiscal policy because of the budget deficit. Really, the only lever left is monetary policy – that is falling interest rates – and I think that’s why the Reserve Bank will likely move sooner rather than later to try to get the economy kicking.
But I don’t think there’s any implication for prices growth with lower interest rates. They are just low enough now – really, too low now – to get the market up and running, and they are going against the underlying handbrake of rising unemployment.
Kevin: Just to close off this week, your report came out during the week for the cap city markets in Australia. Give me an overview on that.
Andrew: We saw generally a quieter September quarter, but the December quarter for capital city markets has shown all capital city markets – with the exception of Darwin – recording price rises.
After a slight track backwards over September, the Brisbane market has actually picked up again out of the December quarter. No surprise there.
There’s plenty of upside in that Brisbane market. We saw the market end on a positive note over the December quarter, so much to look forward to this year.
Kevin: We might talk to you in the coming weeks, too. There’s a bit of murmur about the possibility of a unit oversupply in Brisbane.
Andrew: We’re starting to track price declines in that inner city unit market in Brisbane, and also rentals are dropping, as well. Look, no surprise. There’s been a lot of development in that area. Typically, the nature of those developments means that supply gets ahead of demand in the short term, but we can have a look at that more closely in coming weeks.
Kevin: Is that report that came out during the week available on your blog site?
Andrew: Yes, it is.
Kevin: Could you give us that address again?
Andrew: Domain.com.au, and you’ll be able to locate that particular report.
Kevin: Dr. Andrew Wilson, who is the chief economist for The Domain Group. Thank you so much for your time, Andrew. Talk to you again soon.
Andrew: My pleasure, Kevin. Thank you.
Kevin: It would appear that some of the banks are already starting to have planning in place for government changes, or proposed government changes to self-managed superannuation fund lending. The first bank to move in that direction has been St. George Bank, with a statement from their general manager talking to some of the brokers.
We’re going to talk to the man we turn to in these occasions, Andrew Mirams from Intuitive Finance, who – no doubt – has had a lot of experience with this. Andrew, thank you for your time.
Andrew: My pleasure, Kevin.
Kevin: Tell me your take on this. What is on the horizon for self-managed superannuation fund lending?
Andrew: The government and regulatory authorities have all probably got a little bit of concern on the back of all the investor lending that is happening at the moment. I guess the suggestion is that there has been a real ramp up in lending to self-managed super funds.
I think it would be fair to say that there is certainly more lending in the super funds today than there has been almost ever, but to say that the super funds are driving the market and things like that, I think, is a little bit naïve.
Kevin: What is behind the increase in lending to super funds?
Andrew: I think that basically they have probably relaxed and made it more accessible. You’ve been able to borrow for shares, warrants, and things like that in your super. I think they put some regulation in place that allowed you to gear into your super with property. I think it was a few years ago now. People have been borrowing in their super at certain levels for a long time, but it’s probably become more prevalent with markets growing, lower interest rates, and things like that.
You can borrow 70% or 80% against a residential property, so the terms are quite attractive to get in. Once you’re in, they are quite restrictive. You can’t re-leverage and do all sorts of things or re-borrow against the property when it grows. There are some restrictions that you can’t live in the property and things like that.
But I think it’s just the ability for people to use their super more wisely and having choices is the real thing around the self-managed super funds.
Kevin: What I read is that the likelihood is that if they are going to put some restrictions in place, one of them could be that they won’t allow lending on residential property; it would only be commercial property. Is that your understanding?
Michael: Absolutely. There is a lot of speculation at the moment, because we still don’t know what the government may or may not do. They are talking about scrapping residential property. The key with residential property and why there is probably a lot of concern for that is the amount of off-the-plan lending that has gone to super funds.
They are probably worried about – for want of a better term – the spruikers and also some financial planners who are receiving kickbacks from the developers. If you’re going to get 10% commission on that property sale, that’s 10% that the property has to grow in the first instance before you’ve even gotten your money back. I think there are some worries and concerns about that.
With the residential lending, if you’re buying existing properties, I’m led to believe from the people I’ve spoken to, they’re not as concerned about that. Probably the ability to regulate it is the hardest thing, and that’s why they’re talking more about going to just the commercial properties.
Kevin: With borrowing in your self-managed superannuation fund to buy a commercial property, is it possible that you can then lease that back to your own business, or is it the same as in residential property where you’re restricted as to who can live there?
Michael: Because with a commercial property, generally their entities are separate. They might be the same people, but their entities are separate. We have lots of clients who buy their own warehouse or factory and then lease it back to their trading entity. So yes, effectively, in the commercial space, as long as you have arm’s length transactions in terms of a proper commercial lease in place and everything like that, you can actually rent your commercial property.
You can’t do that in residential land. It would make your fund non-compliant if you were actually living in and renting your own property off yourself.
Kevin: In closing, any word on when we might get some more information about these proposed changes?
Michael: Trying to second guess the government is probably a fool’s paradise, Kevin. They’re talking that we’re going to get a little bit more information in the first half of this year, so I think they’re hoping to put out a bit more advice in the second quarter – between April and June.
The fact that a bank is flagging it is interesting, so I guess at the end of the day, we don’t really know, but if there is anyone considering doing some borrowing in your self-managed super and you’ve been umming and ahhing if you’re going to make the decision, you’re probably best to make it sooner rather than later. That would be my recommendation.
Kevin: Indeed. If you want to get a bit more information, contact Andrew Mirams and his team at Intuitive Finance. You can contact him through our featured channels at Real Estate Talk, as well. Andrew, once again, thanks for your time, mate.
Andrew: My pleasure, Kevin. Have a good day.
Kevin: I have a question from Michelle who comes out of Melbourne and writes, “Kevin, I live in Melbourne but I’m prepared to buy property anywhere in Australia. I’d like to ask Michael Yardney the question, if he had $1 million, where would he buy property?”
Let’s find out. Good day, Michael.
Michael: Hi Kevin.
Kevin: Just a question there from Michelle. What would be your answer?
Michael: Kevin, I guess the first question is do I spend it on one property or do I spend it on two? If Michelle is a beginning investor, maybe she could buy two good properties for $500,000 each, or maybe one for $600,000 and one for $400,000. But there are still some great properties in the $1 million bracket.
Can I just assume she is going to buy one property?
Kevin: Yes, let’s do that. I think that’s the best way.
Michael: Of course, I could buy a house but I think you’re going to get better bang for buck in the short term and probably capital growth in the long term by buying an established apartment in a prime location, in a premier location.
In Sydney, I would select a property with water views, something that you couldn’t build out. It could be in the beach-side suburbs like Bondi, Coogee, Bronte, or Clovelly, or it could be on the Lower North Shore suburbs like Kirribilli, Neutral Bay, Mosman, or Cremorne –but again, something with harbor views.
In Melbourne, I would select a property in one of the more established Money Belt suburbs, like Brighton, Toorak, or Camberwell. These are the areas where residents have high disposable income and they are able to and prepared to pay a premium to live, ensuring property values will rise.
Also, the older, established Money Belt areas, I don’t think are going to suffer too much over this year when there is going to be the turbulence in the markets.
But I would be looking for a special property, Kevin.
Kevin: Interesting that in answering Michelle’s question though, you focused just on Sydney and Melbourne. Would you go further afield, Michael?
Michael: I think in 2015, the Brisbane market is also going to do very well, but in the Brisbane market, I don’t think I would be spending $1 million on one property. I think you could actually get two good properties, and that’s why I left out Brisbane. Perth, our other big capital city, is probably going to have a rough year this year, so I would actually be steering clear of Perth in 2015.
Kevin: What is your view on Adelaide?
Michael: I think the capital cities of Adelaide, Darwin, Perth, and Canberra don’t have enough depth to their economies, which means that in this year of slightly more turbulence, lower economic growth, I’d be avoiding those because it’s the strengthening economy and rising wages that is going to drive their markets. Those areas are going to miss out this year.
Kevin: If Michelle were, in fact, to focus on the Brisbane market, I know you suggested – wisely, too – buying two properties. Would you suggest one as a unit and one as a house, or would you still stick to the unit scenario?
Michael: In Brisbane, in Perth, and in the other capital cities outside Melbourne and Sydney, I still believe houses make good investments, because that is the way the locals want to live. It’s not how Michelle wants to live or how I or you want to live, but you buy a property appropriate for the area.
When you do, you buy, as I said, something pretty special. In those good areas, I would be looking for maybe an art deco apartment or a character apartment, or in Queensland, a special Queenslander character property.
Again, knowing that in 2015 we may have less capital growth, I would be buying one to which I could add value through renovations – a property that has scarcity because of its location, because of its character, or because of its style – and I think that’s going to ensure Michelle has strong capital and rental growth over the future.
Kevin: Just rounding out, in the Brisbane market, we’ve been hearing a lot of word about oversupply of units. Is that something you should be wary of?
Michael: In the inner CBD location, there is an oversupply of units, so I would be very careful there. Interestingly, it’s happening in Melbourne and Perth, as well. But then there are lots of locations far enough away from that that there is a shortage of good properties that owner occupants, young families, and established families want to buy. They will remain in strong demand keeping prices up, and there will always be tenants for them, too.
Kevin: I know you’re not a fan of buying off the plan or buying new properties, so if you’re buying either in Melbourne, Sydney, or even Brisbane, should you look at one of the older style units?
Michael: Off the plan usually comes at a premium, and in most cases – not all – they’re in the largish complexes, which doesn’t give you the scarcity. Many of them are on main roads, so that’s another no-no, as well. Sure, a small boutique apartment building, I’d look at, but in general, I’m paying a premium.
I’d rather look at the older buildings. Remember, we talked about art deco and we talked about character. They have wider, stronger, bigger floor plans, and they’re not built out of papier-mâché like the new buildings are.
Kevin: No, indeed. Always good advice.
Michael Yardney from Metropole Properties. Thanks for your time, mate.
Michael: My pleasure, Kevin.
Kevin: “The Block: Triple Threat” has already started, and coming up in a few weeks, we have a bit of a scoop for you, because there is a new addition to it, which you may have heard about, and that’s the buyers’ jury. One of those people is a regular on our show, Greville Pabst from WBP Property Group, and a couple of other buyers’ agents, too, who we’ll talk about in just a moment.
But first Greville joins me. Greville, congratulations.
Greville: Thank you.
Kevin: It must be a great thrill for you to be on The Block.
Greville: Yes, it is, and it does give me a unique opportunity to provide a new dimension to the show. As you know, they’ve had three interior design judges, and they’re going to continue, but the new dimension is, in fact, having property professionals. There are three of us who will give unique insights on a week-to-week basis on the progress from the contestants in the construction, and we’re giving them a lot of feedback each week.
Kevin: Joining Greville will be Nicole Jacobs and Frank Valentic. They’re calling you the buyers’ jury. Does that mean that there has been a bit of a gap in the show? Is that what’s been highlighted?
Greville: I think that was highlighted in the last series. I think there are so many things that the producers can control, but one of the things they can’t control is on auction day – and as we both know, you need buyers. I think that is why they’ve made the decision to appoint myself, Frank, and Nicole to fill that gap.
Kevin: I think it’s very clever of them, because if you look back on previous series, come auction day, a lot of the buyers have been represented by buyers’ agents. I think this could be a very clever way of them getting more buyers to the auction, which is clearly what they’re trying to do by having you there to work out how you can attract more buyers.
Greville: There are two pieces to this for us. The first piece is an education piece to the general public and consumer about unique property insights that we look at as buyers’ agents every weekend. I think that’s going to be really interesting to the general public. But the second thing is there is an expectation from the producers for the buyers’ jury to bring buyers to the auction.
Kevin: Yes, it’s very clever. I think it’s a great idea, because without buyers, the auction just falls flat, doesn’t it?
Greville: It does, and that was the feedback from the last series. I think this decision is hopefully going to address that.
Kevin: You look at it from a buyer’s eyes, whereas the decorators look at it from a purely decoration type. That’s been the stark difference, and that highlights to me that staging is one thing, but then you still have to have the wherewithal to get the buyers interested. You have to have a property that pitches straight to the buyer.
Greville: Exactly right. With this new series being in South Yarra, it is quite a unique demographic, and the contestants are, in fact, from different states, and so they’re not necessarily aware of the specifics of the South Yarra demographic.
That’s something that we as buyers’ agents have helped them with as to what does the South Yarra buyer demand? What does it want? We’ve really helped them on a weekly basis to inform them of that.
Kevin: This has highlighted for me that need to have that really good experience on the ground and know what’s happening in a local market.
We have a minute to go. Can I just ask you to quickly give me your overview of the 2015 property market? How do you see it headed?
Greville: I think it’s going to start up very strong, and that’s essentially because Easter is quite early this year, so there’s going to be that initial rush in that first opening in mid-February. The market did finish very strong late last year, and normally when that happens, the first quarter of the following year, that trend usually follows through. There is nothing that I can see on the horizon right now that’s going to change that opinion.
Kevin: Right now, is it a buyers’ market or a sellers’ market, or is it somewhere in between?
Greville: Probably somewhere in between. There is some good value in some areas, but it’s certainly good for sellers. When you have clearance rates that have averaged at 71%, and you have a year in Melbourne where property prices have grown around 8% per annum – and some properties within the inner city areas have obviously performed better than that – that’s a good market. That’s a very strong market, and I think that will continue until we see some economic change, either in interest rates or unemployment.
Kevin: Great to have your input, Greville. Thank you very much. Always very valued. Congratulations, we look forward to seeing you on “The Block.”
Greville Pabst there from WBP Property Group. Thanks for your time, mate.
Greville: Thanks, Kevin.
Kevin: As we continue to look at what may happen next week with the RBA, Patrick Bright is from EPS Property Search, and I was talking to him about the possibility either way – if rates drop or they stay the same – what will happen. He joins us.
Good day, Patrick.
Patrick: Hi, Kevin.
Kevin: I guess we’re all going to be hanging out and waiting. I wonder how important it is, though, what the RBA does, because quite often, it’s a matter of what the banks do after the RBA make their announcement, isn’t it?
Patrick: It is. We’ve seen the banks in the past do their own thing aside from what the RBA does, but generally, they’re going to follow suit with what they’re doing. I don’t really see that it’s going to make a huge difference whether we get a rate cut next week or not.
Reading all the forecasters’ and the economists’ views, and trying to assess all that myself, I think that if we get no rate cut, I think the market is going to be strong anyway, particularly in the east coast, and if we get a rate cut, I think it will just actually lift it a little, a touch more.
Kevin: What would happen in the event that rates start to rise? How long does that take to flow through?
Patrick: Typically, from looking back over history, it usually takes two or three 0.25% rises to start to slow the market. That is, by the look of the forecasters’ reporting and the economists, a long way off.
Kevin: Let’s take a look around Australia. You think the Sydney market is going to continue on its merry way. Do you think the increases in 2015 are going to be as strong as they’ve been over the last couple of years?
Patrick: I’d be surprised if we saw the growth in Sydney this year the same as last year and the previous. I didn’t actually forecast or think that it was going to be as strong as it was last year. I thought it was going to be good, but I didn’t think it was going to be as great as it was.
The forecasters, the respected guys who get it right more often than not – because we have to understand there are a lot of forecasters out there, and there are a lot that get it wrong consistently, and there are a few only that get it right consistently – they’re tipping a good, healthy, around 10% rise this year for Sydney.
If we get a rate cut, I can’t see why that won’t happen. If we don’t get any rate cuts, then it might be around or fall short of that. But it’s strong. There’s plenty of buyer demand out there, and it’s a very healthy market. Money is cheap to get, historically – we’re at 60-year lows – and things are moving ahead.
Kevin: When we talk about the property market, we quite often just focus on the cap city markets around Australia. What about some of the regional markets that are close by? In Queensland, you have the Darling Downs market. There are lots of them in all the states, in fact. What about some of those regional markets?
Patrick: I’m not typically totally up to speed with all the regional markets, but what I have been reading about regional markets is the people who felt they were really clever three, four, or five years ago, buying in regional areas and particularly areas that were impacted by mining, have significantly come off the boil, and some of them are 30%, 40%, or even more down in value and also in rent return.
A lot of people have been burnt there, but you can obviously make money in regional markets. It’s just you have to really know what you’re doing, and be very careful about that, because a lot of people thought they were clever. There were a lot of so-called experts out there, tipping that they were the places to be. They have a lot of egg on their faces now.
Kevin: I guess when you look at some of those regional areas, if all of their growth is on the back of one industry and one industry only – like mining – then it is actually quite vulnerable. Are you better off looking at one that’s got some diverse economy or diverse growth?
Patrick: Absolutely. I’ve always said that. The other thing is that some people say to me, “But this town has got diversity; it’s got five industries.”
I say, “Yes, it does have five industries, but guess what? Three or four of them rely on one.”
You have to be careful. Just because there are four or five industries on face value, look and dig deeper.
Kevin: Good advice as always. Patrick Bright, I want to thank you. Patrick, of course, is from EPSPropertySearch.com.au. Thanks for your time, Patrick.
Patrick: My pleasure, Kevin. Have a great year.
Kevin: Whether you’re an investor or a homeowner, there may come the time for you to have to sell your property. And when you do, having the right mindset is very important, according to Chris Brazel, who is Australia’s leading colors, numbers, and feng shui expert, and focusing very much on helping you with your property investments.
Chris: Hi, Kevin.
Kevin: It is very important, having a positive mindset, but not only selling the property, but also finding the right agent, Chris?
Chris: Absolutely. Whatever your mindset is about selling the property will depend on every aspect –selecting the agent, selecting the marketing, setting up the house, setting up the colors, even achieving the price that you want to sell. All of those will be a clue that will kick back to say, “Do you really want to sell, or don’t you want to sell?”
Kevin: I know you help a lot of people with properties that haven’t been selling. You go in and help them turn that around. Let’s talk, if we could, about focusing on the employment of the agent. Because if they’re not having the right agent, it doesn’t matter what else you do; the block will be there right at the start. How do you go about finding the best agent?
Chris: I’m listening to the words that they use. One agent I was speaking with, this lady had her property on the market for absolutely ages, and all I heard from him was, “The GFC has been a problem, the economy is wrong, houses aren’t selling.” His mind is in a negative, so for her to go with him was totally wasting her time, because his mind wasn’t in that selling, selling, selling.
I believe a house will sell, no matter where it is. We sold a house in Holland that had been on market for three years. We changed the mindset of the guy here in Australia, and three days later, we got the sale.
You’re looking at their pictures, you’re looking at the words, you’re listening to the conversation that they’re having with you during the whole process. As soon as someone says, “We might be struggling to get that,” I’m listening to every word that agent is saying. Because if that’s in his voice and the way he’s speaking, then we’ve already got a problem, because he’s not in the flow.
They should be excited about it. If they’re in the industry, and they’re passionate about it, they should be “can’t waiting” to get to the next house.
When you’re speaking with them, are they turning up prepared? There was one lady – she was an older lady moving into a retirement village – and she had three or four agents come around. I think they thought, “She’s an older lady; she won’t be up with all the bits and pieces.” But one young girl who really, really wanted the property, she was dressed absolutely beautifully, and when she came in to meet us, she had her folder there. She knew everything about that property.
She walked in owning that property before she had even gotten to sit down at the table and negotiate or talk about what she could actually do. Why wouldn’t we go with that? We went with that lady, because she had such a positive attitude about the whole sale of this house.
Kevin: I’ve just found that what you put out is quite often what you get back, Chris?
Chris: Absolutely. We were in Hawaii, doing some training for some of the consultants. We walked into one apartment. The agent was on the balcony, and he didn’t even turn around to greet us. Then we were walking around, and I was teaching the consultants. Finally, he turned around, and we had a conversation. I virtually said to him, “You don’t want to sell this property.”
He was blown away. He said, “Yes, I do.”
I said, “You had our back to us. Look at the way the furniture is set up.”
We did a little project while he was there, because he was quite happy and interested in what I was doing. I showed him where he had the furniture positioned, and he said, “This is how I thought it would be the best way to show it.”
I said, “No, you’re actually blocking the whole career path.”
We made the changes in the living room, made the changes in the bathroom. It probably took us about 20 minutes all up. The next minute, this couple walked in, really enthusiastic about the property. Their son lived two blocks away, and they wanted to buy a unit close by.
That simple change of his energy, him willing to want to sell the property and agreeing to make the changes with me so quickly, we had a prospective buyer, where he had been standing there before, looking over the balcony and feeling sorry for himself.
Kevin: Great stuff. Always good talking to you, Chris Brazel. Thank you so much. Chris’s website is ChrisBrazel.com.au. Chris, great talking to you. We’ll catch up again real soon.
Chris: Thank you, Kevin.