Property Hub - Investment Insights & Inspiration - Realty Talk: Insights to create investment opportunities

Episode Date: October 6, 2023

In the second half of 2023, commercial real estate debt is emerging as a promising financial opportunity, especially in the Australian property market. The COVID-19 pandemic has brought significant challenges to various sectors within commercial property, with prime office buildings facing decreased valuations and uncertainty. However, these challenges have paved the way for astute investors to identify opportunities within the market.   This week, Matthew Afflito from Jameson TTB, joins Bushy to highlight the evolving landscape of commercial property and the opportunities it presents.  Also this week Bushy crutches up with Dr Mardiasmo - Chief Economist at PRD Real Estate as she dissects the complex interplay of variables that drive property trends and provides valuable insights for investors, homeowners, renters, and anyone interested in the country's real estate landscape.    NEW – Join the Property Hub community on Substack! Sign up to get Australian property news, opinion, and episodes in your inbox: https://propertyhubau.substack.com/ Subscribe to RealtyTalk on the Property Hub channel: Apple Podcasts | Spotify | Google Podcasts | Email Property Hub is a collaboration between Bushy Martin from KnowHow Property, Kevin Turner from Realty, Andrew Montesi from Apiro Marketing and Apiro Media, and Australia’s largest independent podcast network DM Media. Business and partnership enquiries: [e-mail] omnystudio.com/listener for privacy information.

Hello, I'm Kevin Turner, and welcome to this week's Realty Talk show. In the second half of 2023, commercial real estate debt is emerging as a very promising financial opportunity, especially in the Australian property market. The COVID-19 pandemic has brought significant challenges to various sectors within commercial property, with prime office buildings facing decreased valuations and uncertainty. However, these challenges have paved the way for astute investors to identify opportunities within the market. This week, Matthew Offito from Jamison TTB joins Bushy to highlight the evolving landscape of commercial property and the opportunities that it presents. That's coming up shortly.

The cash rate, if you can think of it as like a layer of cake, your favourite cake might have three or four different layers. And it's exactly the same thing with the property market, is that there are quite a few layers in the property market. That's Dr. Ma Diazmo, Chief Economist at PRD Real Estate. And in her catch up with Bushy this week, she draws from the recently released Australian Economic and Property Report 2023 and dissects the complex interplay of variables that drive property trends, locational disparities, and the wider implications and opportunities within this dynamic sector. The Good Doctor provides valuable insights for investors, homeowners, renters, and anyone interested in the country's real estate landscape. Hey, if you're a first-time viewer with us,

welcome to the show. You'll find us on all podcast players and through the Southern Cross Austereo Network. If you like the show, make sure that you hit the subscribe button and help us continue to bring you the best guests. We'll be back in just a moment as Bushy kicks off this week's show with Matthew Offito. Successful property investment is a game of finance. Do you have the right team and the right game plan? Realty Talk is brought to you by Know How Property. More than mortgage brokers, Bushy Martin and his team of investment architects set you up with a sustainable strategy structured to lower your costs, tax, risk, and stress while increasing your capacity for growth. KnowHow has helped over

1,900 homeowners and investors secure more than $800 million in property wealth. So get set to live more, work less, and live your legacy. Want to know how to invest in your freedom? visit knowhowproperty.com.au. This is Realty Talk, powered by realty.com.au. Now, commercial property has had an interesting ride, to say the least, in recent times, with varying sectors experiencing very different and often opposing trajectories since the pandemic turned the commercial world on its head. Prime office buildings in particular are experiencing some challenges, with valuations now much lower and causing some concerns. But with every challenge comes opportunity. And for those that are smart enough to identify it and to do something about

it. So what is the outlook for commercial property and where are the opportunities? Matthew Afflito is the Distribution Director at Jamison TTB, Australian independent funds management firm specialising in alternative assets with a focus on Australian property and private equity. And he joins us now to share his views on the commercial property landscape and the emerging opportunities arising from current market conditions. So welcome to Realty Talk, Matthew. Hi, Bushy, and thanks for having me on the show this afternoon. Yeah, really looking forward to this because it's an area that's often misaligned in the common perceptions around the commercial space. But before we sort of get into the opportunities

that you're seeing arising, what's your outlook for commercial property in Australia? Yeah, I think we might actually go back a step if that's right, Bushy, and sort of explain the difference between commercial property and what we do, which is commercial real estate debt or lending um there are you know while they do have the words commercial in them the opportunities are very very different so commercial property is typically talking about office assets which everyone would be well and truly familiar with commercial real estate lending is actually the lending of money to to developers property developers typically to purchase a block of land

or to develop a particular property asset or also we also do what are called residual stock loans where if there are unsold properties at the end of a development, we can lend money against those assets as security. So from the outset, it's very important to sort of note the difference between commercial property and commercial real estate lending and I might actually use different

terminology just to avoid any confusion so we'll talk about office assets and we'll talk about private real estate credit but on your question just in relation to the office sector it is a sector that I think is going through a fair bit of change as as everyone accepts following the pandemic. And, you know, just looking at some of the recent vacancy numbers in the office sector from the Property Council of Australia, we can see that nationwide vacancies are at about 14.3%. If we go through the cities individually, Perth is the highest at about 20% vacancy, Adelaide 16%, Melbourne 16% roughly, Sydney 14% and Brisbane 14%. So you can see there that there is a mass amount of supply in the office sector in the office sector at the moment and what is

really missing is the demand piece and you know we're going through this this sort of rather large change in the office sector where i think where you know a lot of employees are sort of 50 50 between working from home being in the office and that makes it extremely difficult for employers to work out exactly how much floor space they need. So that's how I would sort of characterise the office sector at the moment. But from our perspective, and to your point earlier, where there is challenges,

you need to sort of look through that a little bit if you're not already invested and see the potential opportunities that arise from that. Well, that's a perfect segue. Yeah, you've sort of outlined the challenges pretty well in the sector. Where are the investment opportunities in all of this? Yeah, so I mean, we look across the entire real estate spectrum. So we are looking at residential property, lending against residential property, lending against office property, lending against industrial property. And there's a whole bunch of sort of subsectors as well that aren't often spoken about, like NDIS, disability accommodation, medical assets.

we look at the whole gamut and and what we're really trying to identify from the outset is whereabouts in what sectors and in what localities are the really good quality real estate assets that we want to lend against given the challenges in the office sector at the moment we're sort of seeing less opportunity in that space at the moment especially in prime cbd real estate where the vacancies are typically higher but that's not to say that we wouldn't invest in in office at the end of the day you need to sort of take each opportunity on its merits and work out what the risk and return equation looks like and and work out whether you're being fairly compensated for the risk that you're taking on so and in fact we're actually actively

looking at a office lending proposition here in Melbourne at the moment which is you know potentially offering returns to investors of 20 percent north of that with equity upside on top of that for what is really not a massively risky proposition so that's what we like to do with jameson ttb is we're looking for opportunities where the risk and return metrics don't really match so where you're getting a lot more return for relative to the risk that you're assuming as an investor yeah very well said so just to put some shape around that then matthew what sort of returns can be anticipated in this space? Yeah, so not only do we invest across all of the real estate sectors, we also invest up and down the capital stack. And what does that mean for the

average investor? It means that we can shape and customise a particular investment to an investor's you know preferences I suppose so we can invest anywhere from senior debt which is first ranking debt all the way down to equity positions which are typically more volatile more risky and as a result you get or you should get a larger return but to put some numbers around that in the current market if you're looking at first ranking senior debt opportunities you're probably looking at sort of 10 to 12 percent per annum returns on your money if you move a little bit you know further up the risk spectrum and you're looking at mezzanine debt now mezzanine debt is a i find investors sort of their eyes sort of glaze over when they hear mezzanine debt and and mezzanine

debt is is really just second ranking security so you know it effectively means that you're sitting behind another borrower in order of getting your loan repaid um and for taking on that additional risk you know you can sort of get high teen returns so you're looking at sort of 18 to 20 returns in the current market yep um if we move up the the risk spectrum again and then um you know throw in a bit of equity profit share into the mix we've recently done a deal on an NDIS asset in Dandenong, which is offering investors a 26.2% return for a 14-month lend and a 1.32 times multiple on their money. So in essence, if you were to put $100,000 into the project, you could expect or you could project to have $132,000 returned to you

after a 14-month period. And then at the very risky end of the spectrum is equity, where we're looking at returns of, you know, we'd expect returns of north of 30% to 40% in order to take an equity position in the project. They're very healthy returns, but as you sort of touched on, there's a risk-reward exercise that investors need to get their head around. So tell us, how can investors get involved

in the private credit space then, Matthew? Yeah, so private credit is a bit of an opaque market, and it's typically been the domain of institutional and family office investors in the past. But it is going on this structural change where it will become a larger portion of lending in Australia and as a result, probably a larger portion of investor portfolios moving forward.

And that's not a bad thing because there are a lot of positives that real estate private credit can bring to portfolios. It can bring reduced volatility in an equity or share-heavy portfolio. and obviously potential return benefits as well if you're lending your money out and getting 10%, 12% returns plus on your money. But the key thing is to have a relationship

with a fund manager who plays in this space. Jemison TTB is one of them. We have a wholesale license, which means that we can only take or offer out investment opportunities to wholesale investors under the Corporations Act. So the investor on the other end of the phone line on the other side of the table has to be a qualified wholesale investor and what that means

is that you need to have in essence more than two and a half million dollars of net assets or 250 000 of gross income for the last two financial years yeah so we're talking sophisticated investors in the in the typical classification but that's still some pretty serious opportunity there and i really want to thank you for taking the time to share these insights matthew and it's It's clear from our conversation that real estate private credit or commercial real estate debt, however you want to call it, is definitely one of the sleeper investments in Australian property. So I want to thank you for sharing with us on the show today. No worries at all, Bushy. And thanks again for having me on the show.

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free on Rasty's website, getrare.com.au. Get Rare. It's a gateway to a richer life. The website there for you again, getrare.com.au. So get this book, get it for yourself. Realty Talk exclusive to The Property Hub. Now, Australia's economy is entering a new phase following 12 consecutive interest rate hikes since May 2022, and with a cash rate currently in a hold pattern at around 4.1%, there's an obvious multiplier effect on every aspect of our lives. So how does this impact property conditions for the rest of the year and early 2024? And is the much-heralded cash rate the only issue? Well, to discuss this and reveal the property factors, trends, impacts, implications and

opportunities moving forward, we're joined by the Chief Economist at PRD, Dr. Diaswati Matiasmo, following the release of their latest Australian Economic and Property Report, which actually aptly portrays the complexities that impact our property trends and how these variables interact with each other to shape our local markets. So to reveal all of this, welcome back to the Property Hub's Realty Talk, Dr. Asti. Hello, thank you so much for having me and again as well. Yeah, it's great to have you back. We had a great chat about build to rent some time ago and really enjoyed reading your most recent report on where we're at and where we're heading. So I guess the obvious question to kick off with that, Dr. Asti, is apart from cash rate impacts,

what layers of factors are shaping property conditions, trends and locational variances? Well, this is the one thing that we really wanted to put across in this report. There's a lot of talk in the media that it's all about the cash rate that the cash rate controls the property market and it impacts every aspect of the property market in in a lot of ways that is true because especially from a household budget perspective because the cash rate or the interest rate that it then translate to does impact people's household budgets what they can afford how much they can borrow what sort of properties that they can access what sort of properties they can buy so there is some truth in that but what we really wanted to put across and really um emphasize is

that it's not just all about the cash rate the cash rate if you can think of it as like a layer of cakes so you know your favorite cake might have three or four different layers and it's exactly the same thing with the property market is that there are quite a few layers in the property market. So the cash rate is your base layer, because it does, like I said before, you know, influence the household budget, how much money you have, how much money you can borrow, you can spend. So the cash rate is your base layer. But then you also have other layers that then creates or impacts a particular market. So that's things like the demographic changes. So if you have a younger population or an older population or maybe even a population that are mostly made up of

families as opposed to you know a population that is made up of younger professionals that can actually change the market dynamics what sort of properties they're looking for what they can afford and where they want to live and then you also have population growth some places are growing exponentially like Brisbane and Queensland for example we've had a high level of migration in the past 24 months and there are other places that doesn't. Another layer is government policy because that will always impact what kind of supply is approved and coming into the market so not only from a federal government level because obviously the federal government does provide grants and schemes and things like that to help people into the market you then have the

state government level because they too have their own grants and schemes and then you have the local council which some do have some schemes not all councils do but then your local council is the one that approves any development application coming forward so they kind of have a last say on what sort of new townhouses or units apartments dwellings lots that are coming in the area now that already sounds pretty complex to me um but to add even more to the complexity you have each person's own financial readiness so some people are ready to go they're ready to buy some are not some are still waiting to see whether you know the cash rate might go down or if they're going to be in a better financial position, if they might be moving somewhere or getting a new

job. And that financial readiness then impacts the demand for property in that particular area. So, you know, there's a lot of different layers when it comes to what the property market is doing, the local property market, and what impacts the local property market. Cash rate is the basis of it but it's not the only thing that does impact the local market yeah extremely well said i've often said dr asti that uh trying to read property conditions is a bit like trying to predict the weather and there's so many variables and so many dynamics at play that vary by location and circumstance that trying to throw a blanket over over property and just boil it down to a couple of rational reductionist variables is dangerous at best

and misleading otherwise. So thanks for sort of opening our eyes to all of the complexity of variables that's associated with it, which varies from place to place. So that's awesome. Now, I guess where I want to sort of go to now is to sort of look at Australia in context, if you like. So at a macro level, from your research, How does Australia's property performance compare with other countries?

So this is the part that I love about this report. And it's actually a new addition to the report. We've never done this before in previous Australia economic property reports because this is an annual report. So we've done it every single year. But this is an actually added new component. And that's how do we compare to other countries? and I know that we all feel you know Australia is getting more expensive by the day

affordability is an issue there are many people that are saying I'm priced out of the market I can't get into the market there's nothing for me but if we look at it from an international perspective the Australian property market actually sits right smack bang in the middle So if we compare our house prices, for example, we are more affordable when compared to New Zealand, which is our friends across the ditch. And many people are actually quite surprised about that. We are definitely more affordable than the USA, Canada and Hong Kong. So those countries have a much more expensive property market than us. But at the same time, we are less affordable than different countries such as Singapore, Japan, France, and Denmark.

So, you know, we kind of sit in that middle range where there are certain countries that are less affordable than us, but also more affordable than us. And because of that component, the fact that we're in the middle, where we are seeing there's still quite a lot of international investors coming into the market. They're very much so interested in purchasing within Australia. And we have seen a 20-30% increase in international investors coming back post-COVID. Very interesting because, again, if we just rely on the mainstream media headlines, we're led to believe that Australia is the most expensive and unaffordable place to live in in the world. So I really appreciate you sharing that context to see where we're sitting. And it does explain why we've seen this uptick in foreign interest in Australia, given the lifestyle conditions that we all enjoy and take for granted to a certain degree.

So let's now drill down in and have a look at Australia. I'd love to get your thoughts on what your research is telling us in terms of how the Bering Australian regions performed over recent times. yeah this is the part that's really interesting because once upon a time and when I say once upon a time I kind of referred to about three to five years ago we have a more what we call a homogenous market where we can sort of say this is the Australian market or this is the you know Sydney market or Perth or Brisbane or you know whichever market that you want to refer to whereas now we have a much more fragmented market very fragmented and it kind of goes back to what I've said about the different layers that impacts the local property markets right and so you know for a

place like Brisbane and Hobart they've come out as the most resilient markets all throughout COVID and also all throughout the cash rate hikes and that's because they started at a more affordable price point than sydney and melbourne so they still had what they still have what we will call a room to grow in economics terms um whereas places like sydney and melbourne were the two hardest hit um when it comes to the cash rate hike so um you know i always liken it to like a roller coaster it's like you know like sydney and melbourne like move at such a rocket roller coaster a speed that their markets go up really quickly but then when there's a change in conditions they're also the two most hardest hit markets at the same time whereas places like Brisbane and

Hobart used to and again if I can liken it to a you know to something else I call them kind of like a choo-choo train sort of market in the past because the growth in Brisbane is steady it's like every year there is some growth you know like two percent three percent four percent like you know it kind of like that choo-choo train sort of growth um we have seen a significant growth in the past 24 months because of covid because we have had that high migration um but because the basics or the basis of growth in brisbane and hobart has originally been a slower sort of like steady type of growth they weren't as hard hit with the cash rate hikes so yes you would see you know we did actually see a slight softening in the market for both Brisbane and Hobart

but we didn't see the double digit decline as that we saw in Sydney and Melbourne and regional markets is even more protected because regional markets don't have that international fluctuations with international students and international trade commerce business and they have their own sort of like demand and supply within the regional markets so regional south australia which i know that many people love for the wine is actually the most resilient regional market that we saw throughout the 12 cash rate hikes and many people will be surprised with that but that's because regional south australia had the most affordable market to start with and so they were able to then grow a lot of people chose to go to regional south australia to invest and that's why it has

maintained its pricing yeah i love it and i think just to reinforce your important point there that because of those dynamics and variable variable locational factors that we spoke about earlier in relation to the layer that affects property it's really important I think you know I've often said Dr Asti that referring to the national property market is a bit of a misnomer because to have a market you've got to have light for light commodities right across the board and as you and I both know every property in every street in every suburb is different to every other so those locational variable dynamics is important to understand but also creates the opportunity for investors

to take advantage of moving forward. So I really appreciate your download on that. Now, I want to sort of turn back to something we've already touched on, and that's housing affordability. And I'd love to get your thoughts on what your research is telling us about home affordability around the country and what does this actually mean for investors, home buyers, first-home buyers, and renters?

So it's quite interesting when it comes to affordability because this is a time where the affordability continuum as we call it has become quite stretched and quite you know varying because everyone's financial situation is probably I would say the most fragmented that I've seen in the past 10 or so years right there are people who have owned properties and so you know they were able to take advantage of the very low cash rate and then they're able to build up their mortgage offset But then you then have first-home buyers who've just entered the market, they took advantage of the government schemes, and they've never seen a cash rate hike in their life. And so they haven't had the time to build their mortgage offset.

And so we have very, very different cohorts of people who are in the market. We have investors who, during COVID time, paid quite a big chunk of their mortgage offset or their mortgage payments. And so even with the higher cash rates, they can kind of still make financial sense of their investment portfolios. But then we also have investors who've chosen to tap out of the market. because even with the cash rate hikes and increasing corporate council rates all of those costs the rental income doesn't quite cut it so you know that financial readiness is one that has really stretched the affordability continuum um this time around unfortunately for renters the affordability part for renters have definitely worsened um you know most renters are paying

anywhere between 35 to 38, sometimes 40% of their income. And we haven't seen that rate yet in Australia. Although I will say that in comparison to other capital cities around the country, there is slight differences. Like for example, renters in Brisbane are a little bit better off than renters in Sydney and Melbourne. And if you take that again onto a worldwide scale, our renters are actually better off than say renters in London and New York so you know that's where the affordability continuum does become quite stretched first home buyers have committed to higher levels of debt because of the property prices and also the cash rate increases but interestingly enough though it has kind of worked in in favor of first home buyers a little bit so

back in 2022 first home buyers were committing anywhere between 40 to 45 percent of their income to debt whereas now because the property market has softened slightly it has gone back down to about 43 percent as opposed to 45 it's still high don't get me wrong 43 percent of your income is still very high but it is better from an affordability perspective as opposed to it going above 45 and we're seeing a slight reduction. So, you know, it's a little bit of good news and bad news, I would say, in the sense that there is a slight reduction here and there, but then also an increase for the renters, unfortunately. Yeah, well, let's drill into the rental crisis for a minute because there's been a lot of media talk around the rental crisis and rental trends.

So what's your research telling you about that across the country? And in particular, what does that mean for investors so vacancy rates is the most important identification when it comes to the rental prices because the vacancy rate tells us what is the balance between rental supply and rental demand and it is good news and bad news um again unfortunately i'd love it just to be good news um but it's always going to be a little bit of both at the moment um and it's Bad news in the sense that our rental market is still very, very tight. So, you know, in terms of what people are paying for a three bedroom or a two bedroom, we've seen a double digit increase in rental prices all across the country, regardless

of whether you're in Brisbane or Sydney or, you know, Adelaide or Perth or Darwin. So that's the bad news. The vacancy rates remain tight. although you know we have seen and this is the good news part is that we've seen slight increases in certain capital cities not too much of an increase about 0.1 0.2 increases which is probably not the best for renters because it still means that it's still a very tight market but it does give them a little bit of hope that there is more investors playing in the market now a lot of investors have come to us and said look it's now the best time to invest again because of that

financial readiness capacity you know between we we are like you said hearing a lot in the media about the rental prices there's a lot of concerns from investors whether the rent freeze is going to come in what the rent cap is going to do you know all of those different policies that it seems to gear more towards renters, right? The one thing that I will say is that all of our vacancy rates across the country is still under 3%. And 3% is your healthy benchmark that the Real Estate Institute of Australia have set. That's your medium sort of like equilibrium between rental supply and rental demand. So the fact that we're still below that in anywhere across Australia, sometimes even as low as 0.4, 0.6, means that there's still a lot of room

for investors to be playing in, you know, whether it's regional markets, whether it's capital city markets, the rental demand is still very much there. Yeah, very well said. And, you know, touching on your comments there around the potential rent freezes and rent caps, heaven forbid if the naivety of some of the politicians and levels of government make the mistake

of going down that track. But I guess if we join the dots between everything we're talking around these issues, you probably don't need to be Einstein to work out what the underlying cause is, but I'd love for you to spell it out for us in terms of the underlying issue of the core of all these property condition issues. So the core of the issue is simply two words, Bushy, housing shortage.

Housing shortage, you know. um it's very interesting though because like a lot of people come to me and say cash rate cash rate and as i said before like you know that is a big issue because it does impact your financial readiness but at the same time you can be as financially ready as you want but if there isn't a property that is available then you're not going to be able to move you're not going to be able to purchase you're not going to be able to rent right and at the moment oh i would say about 90 percent of the government um you know schemes grants etc stimulates the demand side of it as opposed to the supply side of it and even when there is an attempt to stimulate the supply side of it

the one thing that the federal government has done that is in real terms is for the build to rent sector which we discussed previously and although that does assist or you know kind of has a go at housing shortage that targets renters it doesn't target people who are looking to purchase and owner occupiers and families wanting to upsize or even those who wants to downsize so the housing shortage is definitely um the big sort of like underlying issue here but even within the housing shortage there's probably another whole layer of cakes that we can uncover um because you know there's different parts of housing shortage it's not just about volume yeah it's also about location and it's also about type in terms of housing diversity but also type in terms of affordability

so you have your premium housing you have your private housing and then you have your social housing and then affordable housing so you know there's all sorts of different layers as well when we look at housing shortage and what is causing that housing shortage we all know that there's a construction challenge at the moment there are some slight improvements in the material costs and that's because we have builders and developers who have been very innovative in their approach they've sought out you know different suppliers all over the world we've opened up our trade and our construction materials not just from one or two or three different countries but to the rest of the world now.

So that has become more competitive, so more competitive pricing. But unfortunately, the one thing that we can't solve at the moment is the availability of labour, specifically for the construction industry. And many people think that the construction industry is just builders. It's not.

You've got tilers, you've got bricklayers, estimators, drafters, town planners, architects, storm engineers, the list goes on and each of those different sectors within the construction industry is very much so understaffed so even if the government does have a supply specific i don't know policy or scheme or target the question has always been well how is it actually going to be executed And I've asked this so many times in the past, you know, three, four, maybe six months, whenever I review a housing strategy plan or, you know, any regional plan or anything like that is who is actually going to be doing the work? Where are we going to get the labor to actually do the work? Because the capacity of our local builders are very much stretched.

Many governments have decided to go into what we call an open tender. So that means your local builders, your local bricklayers, any of those sort of people can actually tender for any government projects. And a lot of times they prefer the government projects because it's tied to the government, right? So the government has made a promise of a new hospital. They can't really go back on that.

otherwise you're going to have a bit of an uproar from the community and from the people who they've promised it to they can't really go back on a school or a road work and so there's a more security from the infrastructure projects whereas the developers and the private residential projects a lot of the times you have to rely on pre-sales so funding perspective many developers have to have a 75 or 80 maybe 85 depending on their profile of pre-sale to be able to go ahead to financing and then going ahead to building so if you're a builder do you gamble with that or do you go for a more secure infrastructure project for the government so there's a lot of different layers you know i think it's its own cake it's probably its own ice cream cake here

when it comes to the housing shortage that we have? Well, the obvious flow-on question there, Dr. Asti, is how do we solve the housing shortage issue? So there isn't like a silver bullet. Everyone keeps on asking, what is the silver bullet? What is the golden goose? Although I do love the concept of a golden goose. I keep on imagining it in my own head.

um but there isn't really that whole sort of like here's one definite answer to it right um the one thing that i can think of is two words coordination and innovation so coordination of anyone who is involved and a lot of the times we see that the federal government acts by itself or the state government acts by itself or in some cases the state government acts expecting that the local council will simply follow that doesn't always happen because different local councils have different priorities some of them are also understaffed some of them have zero town planners no one is approving projects right so it's that coordination between in quotation marks those who are making the silver bullets so you've got that coordination

that is needed and not only you know that's from a private market perspective if we're talking the social affordability perspective which is you know the diversity that we need then you're also talking about coordination with community housing providers and a lot of the times community housing providers are not fully trained or they don't have the capacity and the capability to actually play in the property and construction market and so there needs to be you know that not only coordination but that increase in capability so you've got the coordination and you have the innovation in terms of how do we source materials what sort of things that we need to do to open up more land do we make the zoning laws or you know the zoning requirements much more simpler

so that an industrial land for example can have modular homes on top that's almost two innovations was she because you are innovating the zoning and you're innovating the type of housing um so you know there's all of those things that we can do at the moment um and i do know that there are some governments that are looking into tiny homes manufactured homes modular homes even family btrs or like unit like terrace homes so that's happening in the background as well and i think this is the time for us to really actually look into the possibility of all of those different types of housing and i guess for me i know that i've said coordination and innovation innovation it's not just for those who are making the homes and making the policy

i think innovation is also from the community and from us who are property buyers property owners etc because a lot of the times when i talk to constituents or the community they say well i'm never going to be living in an apartment thank you very much um i don't want new buildings i don't want density um i don't want to be living in a space that it's not 500 square meters with the backyard yeah however unfortunately the real equation is is that there isn't land to be able to fulfill those requirements or those wishes and so there also needs to be that innovation from that for that mindset community aspect alongside with you know builders introducing and i think i'm starting to see it now you know builders uh their tagline is like home-sized apartments

so if larger apartments like three-bedroom or four-bedroom apartments that are designed for families or like a complex that is designed for families with a playground and a child care center you know all of those sorts of things right but it does require innovation from both the supply side and the demand side so totally totally agree yeah and i guess the the challenge is that all of these initiatives are going to take a considerable amount of time to actually eventuate and when we're pouring in you know hundreds of thousands of skilled migrants into the country that's putting more demand pressure on i'd love your thoughts on uh potentially reframing mum and dad investors who have done most of the heavy lifting in terms of housing supply over the last few decades when

government sort of washed their hands and pushed them into the private sector what's your thoughts on uh starting to re-incentivize them uh to be part of a solution rather than what i'd say the politicians doing a lot at the moment is villainizing and seeing them as the as a convenient donkey to pin the tail on as far as our woes are concerned what's your thoughts there look the one thing that i will say is that mom and dad investors are what i see as the main fiber of our rental market right because you know it's the way that we have been brought up it's the way that a lot of us have known how to create equity how to retire you know things like that so one of the things that i do want to see is for mom and dad investors to be able to more freely kind of

reinvest their funds their superannuation make it easier for them to manage their super funds if they do want to contribute to say a bill to rent project or if they do want to contribute to a social housing project or if they do want to contribute to an ndis project for example is to make that process and that red tape much simpler so that's number one but then number two is also from the taxation perspective because the one thing that everyone talks about is well is it going to be worth it because if i invest xyz i'm going to be double taxed or i'm going to be hit with this tax and this tax and this tax right and so there needs to be that simplification of taxation and also in whether it's a simplification of taxation or any you know an incentive of like

a discount or a reduction of fees or something along those lines but whichever one that we go with it's something that actually makes mom and dad say oh okay i'm not actually going to be punished for this i'm not actually going to be double taxed it is actually going to be financially worth it for me so it's always two things when it comes to incentivizing a cohort of people it's always making it easier and making it less expensive very well said i sort of want to close now on jumping into your property outlook and yes yes because everyone wants to know what's what's coming in the future. So I'd love for you to unpack your time to buy a dwelling index

and tell us what is that indicating and what does this mean for the various classes of property players across the locations that you see? Well, the best thing is that everyone is moving towards the same goal. So with the time to buy dwelling index, we read it for every different states, right? And once upon a time, it looks like, and to be honest with you, If you actually look at the graph, it looks like a bowl of spaghetti.

I'll be completely honest with you. There's like seven states and so there's seven lines and it all looks kind of like a bowl of spaghetti. And at one point, there'll be some lines that are going up and there'll be some lines that are going down. So some people in different states are thinking, no, don't want to buy property at the moment, not the best time for it. And there are some who's going, yep, going into the market.

whereas this time around all of the indicators are going up all of the lines are going up so that means there is more confidence in the market and everyone across Australia is thinking that yes now is the time to go back into the market now is the time for all of us to buy a dwelling now I will be very straight about this is that that is based on the cash rate in the sense that we have a holding cash rate right now, 4.1%. And in terms of outlook, and I get asked this all the time, are we always going to have a holding cash rate? Is it going to be, you know, going down anytime soon? The latest statement of monetary policy, which was released in August, does indicate that 4.1, 4.2 is near to the peak for us, for Australia, and that we should be seeing a declining

cash rate towards the back end of 2024 however i have to say this as a disclaimer that that is with everything the way that it currently is going so that is with the inflation rate still declining we don't enter another pandemic we don't have another world war we don't have you know a sudden economic crisis um because one of the dangers that people don't realize is that with a stable cash rate is some of australians will feel that yep this is it we're done um it's a holding cash rate from now it can't go up and we start spending big and when we start spending big then that actually pushes the inflation rate up and if there is an inflation rate that goes up then there is a chance for the cash rate to also go up so you know i always have that portionary

tale um just so that everyone knows how it all works um i do get asked are we going to see another property boom um the answer to that is yes we will see growth but i don't believe that we will see the boom that we have seen post-covid and two very key reasons for that is that when we entered post-COVID, we had a household savings percentage of above 25%. Whereas now we're entering this new phase of the economy with less than 5% of household savings account. And also our property prices is higher and the interest rate is higher. So we will see growth because people are more confident it's a stable holding cash rate but we won't see that big massive sort of rocket boom in prices that we saw post-COVID I don't think. I think that's a

very good read and and it's probably a blessing in disguise because more steady incremental growth that's in line with people's capacities and as we as we both know as rates rise capacity drops So that's going to put a ceiling to some degree on the ability for prices to continue to rise. But with all of those demand pressures and that limited supply issue, we're more likely to see sort of incremental growth over time, which from a certain perspective from investors and homebuyers is actually a very good thing. So look, I really appreciate you breaking that down for us. I'm actually getting hungry having listened to this conversation because we've talked about layer cakes, ice cream cakes, dulce de dulces, and the recipe that you've sort of broken down for us has really given us much more colour and understanding of how the whole exercise has come together. So I really want to thank you for bringing this up to our information and the insights that you've shared with us. And it very clearly reinforces that housing supply is the underlying issue below the layers of location and variable factors that are actually pointing towards a quite positive future for property value growth and good opportunities for investors and property buyers who actually still have the purchase power.

So thanks again for sharing all this with us on the show and look forward to talking to you in the future on similar subjects, Dr. Aisley. Thank you so much for having me. Thank you. successful property investment is a game of finance do you have the right team and the right game plan realty talk is brought to you by know how property more than mortgage brokers bushy martin and his team of investment architects set you up with a sustainable strategy structured to lower your costs tax risk and stress while increasing your capacity for growth know how has helped over 1,900 homeowners and investors secure more than $800 million in property wealth.

So get set to live more, work less, and live your legacy. Want to know how to invest in your freedom? Visit knowhowproperty.com.au. This is Realty Talk, powered by realty.com.au. And that brings us to the end of this week's show. Thanks very much for joining us. Make sure that you don't miss a single episode of Realty Talk or, in fact, Bushy's Get Invested podcast delivered to you each week by subscribing to the Property Hub. You can do that now on your favorite podcast player or wherever you're listening to or watching this show. thanks to our supporters and to our content partners realty.com.au bmt tax depreciation know how property finance get rare property and apiro marketing i'm kevin turner and on

behalf of bushy and the property hub team we look forward to seeing you again next week