Property Hub - Investment Insights & Inspiration - Realty Talk: Investor confidence should remain + The upside to downsizing

Episode Date: April 15, 2022

What do we have for you this week?   Is it too early to call a halt to the property boom? Who really knows? Everyone has an opinion and at the end of the day, only time will tell.  There are so many unknowns and this week we added a new big unknown – a federal election.  There is no doubt in my mind we are seeing a shift in market conditions as we move from a seller-controlled market to one dictated by buyers.  Buyside’s Josh Masters monthly review of market conditions gives some interesting insights and clues on what to look for. If you think the downsizing trend has been staggering up to now then brace yourself.  It is estimated that a staggering 1.6 million Aussies aged between 58 and 76 will downsize in the next 5 years. Bushy Martin catches up with Mark Macduffie, author of a report from downsizing.com, as he reveals a solution to a problem facing many of them.  Find out what that problem is in a moment and hear the solution. RealtyTalk is your trusted voice in property investment and Australia’s most popular online property show.  RealtyTalk is brought to you by Realty, Australia’s leading search and social property distribution platform that helps investors like you beat the crowd, giving you the earliest access to property opportunities, listings, and insights. Check out Realty. The show is normally hosted by top property investment expert, author, and founder of KnowHow Property, Bushy Martin. Bushy is on a break this week but you can find out how Bushy’s KnowHow team helps investors unlock freedom with finance and property here, and check out Bushy’s podcast Get Invested.  RealtyTalk is supported by BMT, a company that helps property investors save thousands of dollars each year by maximizing tax deductions from investment properties. Find out more.See omnystudio.com/listener for privacy information.

Welcome to Realty Talk, the show that brings together the country's most authoritative and respected property experts. Follow us on all the socials and subscribe for updates and exclusive offers. Realty Talk is powered by Realty.com.au, connecting buyers, sellers and agents differently. Hello and welcome to another show. Realty Talk is brought to you by Realty, Australia's leading search and social property distribution platform that helps investors like you beat the crowd, giving you the earliest access to property opportunities, listings, and insights. It's easy to find.

Just Google Realty or go to realty.com.au. Well, the show is normally hosted by top property investment expert, author, and founder of KnowHow Property, Bushy Martin. Bushy's on a break this week, but you can find out how Bushy's KnowHow team helps investors unlock freedom with finance and property. and you can do it by going to their website. Make sure you also check out Bushy's podcast, Get Invested.

Realty Talk is supported by BMT Tax Depreciation, helping property investors save thousands of dollars each year by maximising tax deductions from investment properties. So what have we got for you this week? Well, is it too early to call a halt to the property boom? Who really knows? Everyone has an opinion. At the end of the day, it's really only time is going to tell.

There are so many unknowns, and this week we added a big new one, didn't we? The federal election. There's no doubt in my mind that we're seeing a shift in market conditions as we move from a seller's controlled market to one dictated by buyers. My side's Josh Masters, in his monthly review of market conditions, gives some interesting insights and clues as to what you should be looking out for. And if you think the downsizing trend has been staggering up to now, then brace yourself. It's estimated that a staggering 1.6 million Aussies aged between 58 and 76 will downsize in the next five years.

Bushy Martin catches up with Mark McDuffie, who is the author of a report from downsizing.com, as he reveals a solution to a problem that's going to be facing many of them. Maybe you're amongst them. Find out what that problem is in just a moment, and also hear the solution. Back in a minute. 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. Hi and welcome. Now, baby boomers aged between 58 and 76 currently make up about 25% of the

Australian population, but they actually own more than half of Australia's national wealth, most of it tied up in their homes. And according to recent research, over 1.6 million households are currently looking to downsize within the next five years in order to free up equity, improve retirement lifestyle and live in better low maintenance community facilities. but many of them are asset rich and cash poor and they're just not able to downsize because they're locked into their current homes and it's been too difficult and too stressful to free up the deposit required to secure their new home without selling their current home first until now that is. Downsizer.com has recently introduced an innovative solution to this dilemma and MD and

co-founder mark mcduffie joins us to reveal the details so welcome to realty talk mark thanks bushy really really excited to be here likewise mate so we're going to have a great conversation around a great innovation that you've brought to the marketplace but before we sort of get into that can you sort of talk us through the demographic drivers behind the growing downsizing trend because i believe you've got some unique insights on this from your recent downsize the download report yeah i think you alluded to some of the headline numbers there we've partnered with a consumer research company digital finance analytics to really understand that demographic and the 1.68 million householders um our view is and the data points to

they will release 1.7 trillion dollars of long-held residential stock and that will have a cascade effect in our opinion all the way through the property market but not just that it's it's the lifestyle benefits that that unlocks for those downsizes that you know may feel like they might be a little bit landlocked at the moment because they you know there's not a huge amount of solutions out there for them so those indicators for us are that those older households and demographics are kind of overweight in property bank deposits and equities but they're kind of underweight in retirement income and superannuation um that is you know i think the number is something like 75 if you're 55 and above you you've got about 75 of your assets locked up in your house

yeah and you're and you're underweight in your superannuation so you know i feel like there's a large kind of wind behind us here a macroeconomic trend if you like a great downsizing shift that we think is not just about that first property. It's about the lifestyle that it unlocks and the cascade effect it can have everywhere. Yeah, 100% agree. Yeah, we've been spending a lot of time in the data and that's hard,

but we feel like we've wrangled it to the point now where we can really see that the price gap, the increasing price gap between houses and units, this cohort, mostly the 1.68 million that we talk about 72 percent of them have three and four bedroom houses now most of them only need one or two bedrooms because their kids their grandkids have long system since moved out and the real kind of maintenance the ease of the ease of maintenance of the property is getting harder maybe there's stairs in there and as you get slightly older you might need to start thinking

about access and things like that but there's also a segment of that 1.6 million that has three bedroom units as well so we're seeing huge like they have too many empty bedrooms and the maintenance of that existing dwelling or the long-held dwelling is just becoming too much and increasingly like there's a whole confluence of factors here i mean i'm i'm not a baby boomer but there's this thing called covid right everybody's changed their whole perception of what's important in my opinion and like we our mission is is basically to to help an entire generation stop worrying and start living we are yes we're a prop tech yes we're in the property industry but we very much want to educate the baby boomer cohort or those that are planning retirement to start thinking about this

in a different way your bricks and mortar are actually most people in that cohort believe that that's a it's one source of their retirement income but they don't draw down on it because you can't yeah i don't know if that answers your question but there's a huge drive here and a confluence of factors i think it's covid huge house price growth capital growth a whole generation of australians that perhaps are overweight in assets and underweight in retirement income totally and and for those that have worked hard all their life it's the lifestyle that they're worried about you know i've heard the the term uh less stuff more life and i think this is particularly applicable to this very large and and growing segment that's sort of moving through

the process so so tell us mark what does downsizing actually look like as you see it you know i'll be really honest and say that coming into this we we really focused on that 55 and above segment and i'll maybe the best way to do it is to illustrate a couple of different transactions and then at the end of it i'm actually going to maybe argue against myself a little bit and say that it's not just about the 55 and above baby boomers it's actually there's a group of there's a cohort of people that are 35 to 55 that have actually had residential capital growth that could actually pay off their mortgage and live in a smaller place in a rural community or regional community rather than Sydney or Melbourne so if we first of all if we look at

what we think that atypical downsizer is and let's say you're a couple living living in the eastern suburbs of Sydney you might have bought a place in Coogee or Randwick or Clovelly maybe 20 25 years ago and the kids have moved on that house may be worth anywhere between four five six million dollars but let's say the house is worth let's say the house is worth four million dollars they can most of our research says about 80 percent of people downsizing want to buy and sell in the same suburb because they've been they've spent 25 years there they know their local coffee shop they know their local baker they know all of that kind of stuff the kids went to school there the kids probably stay in the same area as well but they're no longer living

in the main dwelling um you know there might be health drivers or there might just be pure equity release drivers lifestyle as we mentioned already they could buy a two million dollar unit that is designed almost for them think about you know high ceilings and we're not talking cookie cutter apartments high density we're talking really beautiful really convenient designed for you great appliances big kitchen dining dining areas that downsizers want because they want to entertain but they don't want the maintenance of the extra three or four bedrooms right exactly the average downsizer that from that same data research our partners are digital finance analytics they've been doing consumer research for

like decades and really well respected in the industry they are they they point to the average equity release for an eastern suburbs downsizer of being about 1.6 million dollars after they've purchased their new dwelling that's that's basically responses to a survey averaged up and grossed to the national population if you release 1.6 million dollars in net equity and you stick it into your superannuation term deposits and maybe some equities you're looking at about 66 000 per annum in retirement income for the rest of your life exactly that is that to me is as we said at the top of this it's lifestyle for us it's the property unlocks lifestyle for you and your family, and maybe it's, you know, the bank of mum and dad,

the bank of gran and granddad as well, it unlocks a huge amount of adjacent opportunities. Yeah, and that cascading effect that you mentioned, there's a real ripple effect with that, which will be positive for everyone. Tell me, and you've touched on this a little bit already then, but when is a good time to downsize then, Mark? Yeah, everybody has different circumstances, right?

I mean, for us, the tax office has created this downsizing incentive for those that are unaware of that downsizing incentive if you're 60 and above and you're downsizing your primary dwelling you can put up to three hundred thousand dollars each per integration per couple that's that's exactly six hundred grand there exactly that's significant and that threshold has dropped uh in in since uh may but it kicks in on the first of july this year i believe yeah it does if you if you ask me for the the binary when should you think about it i actually think you should be thinking downsizing in your 50s early 50s but be well aware of this that it's coming but if you're in that 58 and above then it's getting towards the sweet spot

of when you should be executed i feel like any good retirement planner should be encouraging people from 50 and above to be thinking about what are they doing with their with the assets that they've got so you know it's a bit of a broad range bushy i'm kind of saying 50 and above but the sweet spot really is 58 and above you know buying off the plan two years till the new one is ready you can really put you can take advantage of the government's tax incentive as a couple that's that's pretty good you know stop worrying and start living as we've said a few times or i'll probably say it again before the day's out yeah no spot on so in the context of all this how does downsizer.com work for the buyer side for the buyer side you'll basically

visit our site we have a suite of off the plan properties that are currently available using this instrument admittedly we've got about 400 units for sale in three states at the moment and we're going to be onboarding more and more stock as we go but as a buyer you can still come to our site even if we don't have stock in the area you're looking for you can tell us some simple information like your email address your name and your current address and we'll be able to tell you what you qualify for in the future and we can then help you try and find that that perfect off the plan dwelling so i guess the short answer is come to the site um downsizer.com there's contact information there um and you can you can book a demo with me as well directly from

that website and if you don't find stock in the area that you're looking for there is a there's an area there where you can say here's where I'd like to live and we'll tell you what you can afford so that first step is just a free no obligation information kind of request and we'll get back in touch with you and say here's what we think you can afford and based on the assets that you have and if we don't have stock we'll look for you yeah I love it and what I love about what you're currently doing, particularly in the apartment realm, is really allowing those that are in that position that they've got plenty of equity in their home to secure an off-the-plan property that's much more appropriate for their lifestyles. There's no, as I understand it,

apart from a very low engagement fee, no cost so they can stay in their homes until the new home is built and and then be able to move quite seamlessly from their existing home into the new apartment without the the normal headaches and hassles of of bridging finance or having to sell and then rent so a massive relief of all of the stress that's that's currently around that exercise to enable people to make that transition easily yeah you're absolutely right there is one small transaction fee payable by the downsizer, that's $1,500 flat fee. The fees otherwise are paid by the property developer. So we've flipped the system here in that instead of the downsizer paying, we're working with developers and educating them on the fact that these downsizers are asset

rich, cash poor, they're a safer bet than someone like a first time homeowner that puts 10% cash deposit down there is no guarantee that they will get the mortgage in two years time so we're flipping the system we're getting the developers to pay a small fee to cover the bonds that underpins this but the downsizer's fee is fifteen hundred dollars and as you say they can stay in their existing dwelling ideally benefit from further capital growth and really kind of plan their their retirement and lifestyle in the next phase of their lives in comfort yeah absolutely love it. I know we've only just scratched the surface, but we'll get you back to discuss this in more detail. So I just want to thank you for opening our eyes to this significant opportunity,

Mark, and thanks for joining us here on the show today. You're welcome. Thanks for having me, Bushy. Thanks, Mark. Well, if you're considering downsizing or you know someone else who is, reach out to Mark and the team at downsizer.com to find out more. Stay with us here on Australia's most popular online property show, Realty Talk. Property deductions can save you thousands of dollars each year. To make sure you maximise deductions, you need to work with the most experienced quantity surveyor in the country.

BMT Tax Depreciation is the leading specialist in the industry. They've completed over 700,000 tax deduction schedules for residential investment and commercial properties Australia-wide. BMT guarantee to find double your fee in the first full financial year deductions. Call BMT on 1300 728 726 today for an obligation free quote. so much to talk about mate the war there's uh supply um there's even covid what's happening with all the auction results so much to cover um and we'll try and pick through each one of those

individually what you feel about the market right now josh look i definitely think what you said earlier around uh the switching of going from a seller's market into a buyer's market is definitely becoming more prominent across most of the country. I think the looming federal election always has its toll on how the market performs. There's a lot of hesitancy moving up to the auction, and it's usually around this six-week period as we move through that people start to slow down and are a little bit cautious, for whatever reason that might be. But we do see interest rates probably taking the most prominent headlines moving forward and how they'll start to impact buyers decisions and I think buyers are starting to now second guess whether they're

going to go for those reach prices whereas sellers are still hoping that they're going to get you know a record price for this property you know next to their the neighbor that they had three weeks ago who sold their for a good price as well. Yeah we're seeing a big increase in the number of listings and even last weekend a pullback from some buyers who are not willing to commit so it's almost as if um supply is increasing this buyer demand's falling off josh it's interesting there was a there was an interesting article in the in the australian in review uh on the weekend about how sellers were hoping that this you know with the the time that they're going to get the best price for their property to be honest i think that was probably

um it's probably two or three months too late i think that's already passed and i think uh you sellers are seeing this delay where they're hoping that they can get in and get this good price. What's probably happening is that they can get a good price, but it won't be any better than what they could get maybe four weeks ago or eight weeks ago.

I think those times where buyers are willing to pay that extra has gone out of the market, and I think we're starting to see prices in general plateauing across most markets. Yeah, it's not an indication they're going to fall necessarily. No, no, no.

Those increases are not going to continue as we've seen in the past. I mean, we have been saying for some time that those sorts of increases can't be supported ongoing. They have to slow down at some stage. This is probably the point. Absolutely. And look, we saw last year probably an average of 30% across the markets, which was probably unsustainable in most people's views. And from a professional standpoint, you don't want to see those sort of rises because no doubt there's a reversion to the mean and prices will come back to average. We did see potentially a 5% to 10% increase this year, but I think that's going to dissipate into probably 0% to 5%, in my opinion, as we start to see these rate holds or interest rate rises take hold.

And that's because of a changing landscape from the RBA. You know, they initially last year, they were saying we won't see rate rises until 2024. Now that's changed. The rhetoric has changed around that. And they're indicating, I mean, CBA economists are saying 0.15% in June. We're seeing maybe two quarter rate rises in the first quarter of next year and possibly one after that in December with a potential cash rate of 1.25% to 1.5% by early next year. housing supply of course is one of the issues that you raised in your report the shortage of supply and how increasing that will certainly help with affordability because that's another one of

the constant struggles isn't it making property affordable do you really think that we're in the position now with everything that's happening globally to increase supply supply sufficiently it supply unfortunately i don't think it's going to happen in the in the short term uh we've always had uh planning issues especially in places like new zealand i know victoria was always a little bit more liberal with their their planning and being able to get houses up and out but look supply constraints are the biggest factor on most people's lips if they're trying to build anything and getting actual tradies on the ground so i think those two issues are crimping supply as we move forward um you know we saw issues with covid uh clamping down on on shipping routes and

things like that because they had people either not operating or sick during that time so frames were one of the biggest issues you know timber coming from canada we just couldn't get it into the country fast enough it was being held up at a porch but now we're seeing uh tradies just unable to meet the demand that's coming from the market and there's this uh climbing inflation you know story that we've got on the back of um these trade supplies you combine that with trades you just can't get there and suddenly we're seeing prices both for new builds and for renovation starting to skyrocket and get to a level that's probably unaffordable and i think most people will just probably sit back and wait for a while interesting and i heard your comment earlier about where you

think prices are going to go in the next 12 months or so I think you're talking about zero up to five percent increase I mean that's a that's a general broad brush term applied to all markets so I guess at a time like this it becomes even more critical for someone who's buying a property particularly for an investment to understand which markets are going to improve because some of them will improve better than five percent some will some some may even go back it becomes even more important Because, you know, six months ago, you can go out and buy a property almost anywhere and be assured that it was going to go up. That's not the case anymore. Very true.

And there is definitely a trend in areas that are seeming to proceed without any hesitation. and I speak directly to places like Logan area in southeast Queensland which is still you know you'll go out there on a Saturday on the first open and you're fighting between five and twenty other offers on that day to get a property now that that area is out of control right now other areas like the northern beaches in Sydney capitalizing on on the living and and lifestyle area post-COVID you know people still want to move there take their family there and have a good space to walk around in as a home so those areas that I think are still capitalizing on the trend of affordability and lifestyle decisions I think will still do well moving forward you know anywhere

along the coastal areas I think we'll probably see now that international borders are opening up a change in some of the markets in Melbourne as well we'll probably see stronger demand coming in as we see overseas migration starting to be lured back and hopefully capitalising on some of the education industries that we have down there. You know with understanding some of the indicators we should be looking at I mean things like days on market were one of the ones that we used to look at as an indicator if the market was slowing but days on market now can be anything up to 30 days old because you know they are historic figures. One of the more urgent figures that you look at that would indicate if a particular area is on the improve or if it's on the nose

i think if it's on the nose i have to say rental yields are probably one of the indicators that i'm looking at as an area that's potentially reaching its peak if i see those those rental yields getting to historical lows it means generally that area is going to cap out in terms of affordability people will start looking elsewhere because a lot of these areas can be driven by investors and if they're looking at at their return and really on a dollar value they're going to say look this doesn't make sense anymore let's go somewhere somewhere else and the market gradually uh siphons money off to other areas if you look at some of the vacancy rates i'm now looking at your report your vacancy rate percentage is uh for for uh for february i

was going to say remember there's no such no such state but it's february 2022 um that happens to old age joss you know you got it yeah i'm not there with you um you know some of these figures this they're still very hard to imagine that we would be staying in this market you know look at darwin 0.7 i mean anything under two percent is a really hot market it is it is and places like you know hobart uh even canberra you know some of these places are doing very very well um and and i think that will continue and as housing house price affordability starts to creep and i know the federal government's put in a new 50 000 sort of lots for for um subsidies there but But as house affordability starts to take hold, we will see more people starting to move to the rental market.

And I think, you know, at a professional level, we've all been waiting for this migration to continue back from overseas. And once these people are attracted back into the country and start pushing these markets again, from a rental perspective at least, it will start to make more sense over time with prices and yields. but many areas have seen this yield compression happen across the country where we used to be able to get quite attractive yields in certain areas and now prices have really taken off and we just can't anymore. Until that starts to take hold with rental yields again, I think we'll start seeing prices plateauing from an ROI perspective. Over the last couple of federal elections,

we've noticed a real swing in the market when either side, you know predicts that they're going to change some kind of policy and just looking back on the last election or it might have been even the one before where there was a you know a mooted attack on negative gearing obviously nothing on the horizon like that this year I guess both sides have probably learned their lessons about that but are there any indicators that you'll be watching out for during this election campaign that could become triggers for maybe an increased amount of activity from investors yeah look i there was uh obviously the negative gearing um scenario that labor threw into the mix in the last election with bill shorten which uh may or may not have killed

the campaign at that time i think labor's definitely learned their lesson from that and i don't think uh we're seeing any sort of attacks in the in the short term on on negative gearing or or the like uh i don't think we'll see anything uh from the federal government that may indicate price changes or or how it may affect the market moving forward i think probably where the changes may come are on state levels and i know new south wales has been talking about a change in stamp duty and how that may affect it rather than taking an upfront payment they take it over almost like a land taxes are calculated on a yearly basis so i think if anything's going to come from a political standpoint it's going to come from the states rather than federal

But there's nothing in there that I can see. I know they've mentioned depreciation changes in the past, but look, that caught a lot of people by surprise at that time as well. So nothing coming out. And we certainly didn't see anything in the budget other than the first homebuyers' allowances with those 50,000 lots giving them access to lower deposits. Yeah.

Hey, Josh, it was good catching up with you, mate. I look forward to talking to you and hopefully we'll catch up again before the election on 21st of next month, six weeks away. My head's on flies. I tell you what, that's going to go real quick. But hopefully we'll catch up with you before then, Josh. Very much so, mate, and I have a great Easter

and look forward to chatting to you before the election comes. Look forward to it, my friend. Thank you very much. Thanks, Ev. Well, that's it for another week. Thanks so much for your company and a special thanks to our guests for the week, Josh Masters and Mark McDuffie.

Bushy returns next week, but remember, you can catch him anytime hosting his own podcast, Get Invested. I'm Kevin Turner. Thanks for being with us. Have a great week and watch out for us in your inbox next weekend. Miss something in this week's show or want to catch up on past shows? Do it anytime at realty.com.au, where we connect buyers, sellers and agents differently.