Property Hub - Investment Insights & Inspiration - Realty Talk: Property party ending + Funding alternative + Forget price

Episode Date: October 29, 2021

Is Australia’s long-term property bull market coming to an end? AMP’s Chief Economist Shane Oliver joins Bushy Martin to discuss the warning signs.  If you’re looking for a quick and easy funding alternative that doesn’t involve the banks, then Futurerent may just be your answer! Founder Godfrey Dinh discusses the details with Bushy in the first of a 2 part special to reveal the details of this new money access innovation. And to round out the show, we continue our special series on the art of negotiation, where we delve into the fact that negotiation is not just about price. RealtyTalk is your trusted voice in property investment and Australia’s most popular online property show.  Founded by Kevin Turner and hosted by property expert Bushy Martin, RealtyTalk brings you exclusive interviews with Australia’s property industry leaders who deliver the latest, red hot property investing news and insights.  Subscribe now to get the latest episodes delivered to your inbox three times a week. 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. RealtyTalk is hosted by top property investment expert, author, and founder of KnowHow Property, Bushy Martin. 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 helping 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. Greetings and welcome to Realty Talk, your trusted voice for all things property. I'm Bushy Martin from Know How Property Finance, and we've got some great information to share with you in this week's show. We get things underway with a sobering look at the reasons why Australia's long-term property bull market may be getting close to the end, as the Chief Economist of AMP Capital, Shane

Oliver, joins us. Godfrey Dinh from Future Rent then comes on board in the first part of a two-part special on a very innovative alternative to property funding that doesn't involve the banks. And to round out the show, I continue our special series on the art of negotiation, where I delve into the fact that negotiation isn't just about price. We've got a lot to unpack and some great insights to share. So let's get on with the show. Greetings and welcome.

Now, like most asset classes, the Australian housing market is booming. Prices have risen sharply over the last 12 months and housing finance is around record highs. This has been driven by COVID-created record low mortgage rates, economic and jobs recovery, pent-up demand and an exodus to lifestyle, plus a big healthy dob of FOMO, or fear of missing out. CoreLogic's latest figures confirm that residential property values have risen nationally by 20.3% over the last 12 months, with tapering growth rates projected to continue. This is actually the fastest annual pace of growth since 1989. So the cyclic property boom continues against a backdrop of reducing affordability and high debt levels.

But how does the latest upswing fit in the context of the long-term swings in the Australian property market? And is the property boom getting close to the end? Well, to help us understand this, we're joined by the Head of Investment Strategy and Chief Economist of AMP Capital, Dr. Shane Oliver. Welcome back to the show, Shane. Thanks a lot, Bushy. Excellent, mate. Now, just to kick things off, how does the current boom sit against the long-term trend in historic mega booms and busts?

Well, that's a good question. And I think it's useful to put things into a long-term context because it helps you put the pieces together. You can sort of understand where you are in a bigger picture sense, get up there in a helicopter and have a look around. It gives you a bit of context. So in any case, I've got data going back to the 1920s, and over that period, we've had three really big booms, what I would call secular or long-term booms. There was obviously one in the 1920s, and that came to an end, I guess, with the 1930s Depression and also World War II.

In fact, the bottom in the property prices was about the time the midget submarines broke into Sydney Harbour. I think the people in the eastern suburbs of Sydney decided they need to hot tail out of there and go to Barrow or the Southern Islands. But anyway, that's my explanation for it. But, of course, that was the big boom up until going into World War Two or bottoming it in World War Two. Then, of course, we had the post-war boom. And that was a big one. It ran from, I guess, the 1940s way into the 1970s. It was on the back of very strong population growth in Australia, the suburbanisation of Australia, if you like it.

if you want to put it that way. That, of course, came to an end as interest rates shot up as we went through the 70s and 80s and we had the high inflation period, so real prices. We did have a bit of a spike in the late 80s, as you just said, very strong price growth in 1989, but it was surrounded by a period which was relatively weak. And that weakness continued, roughly speaking, for about 1974 up until the mid 1990s and set off that's kept the base for me to buy this property I'm in right now but also it set off the base point for this boom which has got underway so coming into the mid 1990s Australians thought that interest rates were going to remain very very high forever they had come down with the early 90s recession but people thought that was

temporary but then suddenly the mindset started to change as interest rates came down through the 90s. People started to believe it was going to be permanent. That gave them more money to buy housing. Prices took off. And of course, we're still in that boom today. Of course, we do see occasional pullbacks, cyclical pullbacks. We saw a bit of one last year with the pandemic lockdowns. We saw a bit of one around 2017, 2018, which was due to macroprudential controls to slow down lending. But then they've always bounced back pretty strongly. And the broad trend has remained up to the point where we are today we've got property prices running about now about 23 percent above their long-term trend and that that long-term trend obviously goes back to the 19 the 1920s

yeah that's uh that's a fairly uh strong overrun uh you've mentioned the the uh outlook on interest rates and the confidence around low rates as as one of the key drivers are any other other major drivers of the current long-term boom like there's a bunch of other things in there i i say low interest rates because that helped australians borrow more but i think a big one of course has been the lack of supply and if you go back to say the mid 2000s we had the mining boom around that time the level of net immigration into australia jumped from about uh it rose by about 150 000 people um we were typically the norm used to be about population growth of say 220 000 suddenly population growth jumped um up to about 375 000 people a year give or take a bit per annum from

about 2005 up until just prior to the uh the pandemic and of course underpinning that was much higher levels of immigration we were running around 100 000 net immigrants per annum and that suddenly jumped up to around 250,000 immigrants per annum so that's been a big factor now of course I've got nothing against immigrants the problem was that we didn't build enough housing to supply to house those immigrants by housing I mean houses and units and so the level of completions of dwellings didn't really change until we got into the latter part of last decade when we saw the unit building boom particularly in Sydney Melbourne and to a lesser degree Brisbane in other cities so we've had this chronic undersupply and that inflated property prices

of course other people would say it was all due to investors well maybe it played a little bit of a role but I don't think that was the major role maybe it was all due to foreign buyers you know offshore people who don't even have a house here and people usually blame people in Asia for that one well they've gone away and the property market still remains strong so there's all sorts of pet theories that people have but i think in the end of the day it was low interest rates and that was normally would have been brought back to earth by better supply but we didn't have the supply response there's another factor which helps keep property prices up in australia and that of course is the fact that we all live in coastal big cities and big cities tend

to have higher prices than inland cities and when they're on the coast it's inflated by more so that's another factor but at the end of the day if you want to blame the rba you can but just bear in mind lots of countries around the world have ultra low interest rates just like we do and yet their housing is far more affordable yeah it's a very good point they covered that up very well with all of those key drivers so so how does the uh australian house price to income ratio in australia compared to other countries you just mentioned that can you put some color around that for us well basically there's a mob called demogra demographia demographia and uh they're a bunch of academics and developers and they've done a comparison of housing affordability around

the world usually in countries that are comparable like the us uk australia canada new zealand parts of europe they do do china but only hong kong in relation to china and regularly australian cities at the high end in terms of what they call price median home price levels to median income levels we're at the high end on average if you look at all australian property we're averaging a price to income ratio of around six times in the us and uk it's around three to four times in other words if you can devote all of your after-tax income to buy a house and pay off a house it'll take you three or four years in the us and uk whereas in australia it'll take you about six times now the only problem is that that includes all of australia if you just focus on

big cities it's around 7.7 times if you focus on melbourne and sydney it's around 10 times give or take a little bit so we do have very expensive property i know people think well london and new york and san francisco are in that same category yes they are but by the same token those countries don't have the big chunk of their population living in those cities american And America has lots of cities across their country with maybe 600,000, 1 million people in them, those sorts of numbers, whereas we concentrated a lot more in bigger cities. So decentralisation, I think, is a big factor here. But bottom line is our price to income ratios are roughly double, got more so than they are in comparable countries. Very interesting. Very interesting.

So looking to the future then, Shane, what's your forecast for house prices over the medium term and why do you say that? Well, to be honest with you, I think the rate of growth is going to start slowing down in the years ahead, but I still see reasonable growth. I'm not in the camp that says we need a property crash to suddenly make housing affordable.

I don't think that will help anybody. All that will do is plunge the economy into recession because to get a property crash, you probably need, it will go hand in hand with an economic crash, which means sky high in employment. That's not going to help anybody. I think that the preferred outcome in all of this is that, yes, we get property price growth, but it's more in line

with people's income over time. So it gives you a good return for investors, gives you good capital growth. You feel happier over the years as it goes up, but it doesn't end up out of reach for millennials and Gen Z people coming into the market. So that's what we need to see a return to, and I think we're probably going to get that over the medium term.

So that means property price growth of around 6% or so rather than the numbers that we've become used to, like 20% over the last 12 months. Yeah, yeah. Now the spring will finally get back to equilibrium, which is where it needs to be. So just a final note then, what are the reasons why you believe the long-term housing boom

may be close to the end and how do you see that actually happening? Well, we've seen this happen a few times. It happened in the 1930s and into World War II, and that was for obvious reasons, depression and World War. It happened in the 1970s with sky-high interest rates. I don't think we'll see either of those things. Well, fingers crossed we're not going to see those things. But I reckon that there's three reasons to expect some slowing

in the rate of property growth, in other words, an ending to this massive boom we've had since the mid-'90s. The first one is that we're probably at the low point of interest rates. So we've seen that steady decline since, yeah, my generation was paying 17% in 1989, and now we're down around 2%. I don't think it's going to go much lower than that. It may go a little bit lower, but I reckon that big tailwind of lower interest rates is probably behind us, whether it goes sideways or we go up a little bit. yeah second point is the supply demand imbalance I think is sort of correcting a little bit because we've continued building nicely which is great over the last 12 months despite the fact we

haven't had any immigrants so we're eating into the undersupply and as we go into next year we'll start to go into a bit of oversupply in some areas so that will also help keep prices down then of course it depends on how quickly immigration comes back again but I think the key there is that we we're going from undersupply into some sort of oversupply the final point is is you know the pandemic horrible in many ways in most ways but one thing that was good was working from home the pandemic showed the technology is there to work remotely and that means you don't have to be in the middle of sydney or half an hour away from the cbd or even an hour away from cbd you can be in a regional area and that i think will result in a will take pressure

of capital city prices might inflate the regional areas but that can be managed I think by making sure there's enough supply of property in regional areas but I think when you put all those things together the bottoming to the long-term decline in interest rates better supply demand balance and more people living a decentralized way around Australia I think that probably points to some ending for this boom that we've had over the last 25 years or so doesn't mean property prices are going to crash. That's not my forecast. But I think that that period we've gone through where property price growth remains exorbitant, way above people's incomes, is probably getting close to the end. Yeah, that's good. And the way you paint that picture, it's actually good news.

And you're not forecasting catastrophe. It's just going to be a slow, long tail transition, which for all of us is going to be manageable. So Shane, really thank you for those sobering thoughts and thanks again for your time on the show today. My pleasure. I hope you all have a great day. Thanks, Shane. Now you can catch more of Shane's wisdom

by registering on the ampcapital.com insights hub or follow Shane directly on Twitter at ShaneOliverAMP. Well, there you have it. some calming commentary to counter the current property feeding frenzy and the resilience of the Australian property market has a long history of defying the odds and logic and with governments and politicians aware of the critical importance of home values to our overall wealth and our confidence it'll be interesting to see just how they respond. Only time will tell. In the meantime keep watching for more here on 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. Hi and welcome. Now for anyone who invests in property, you know that it's expensive and often your equity is tied up, which makes it hard, time consuming and often stressful for you to make your next investment unless you refinance or are forced to sell existing properties.

But most property investors are quite ambitious with goals of buying more property or renovating existing properties. So how do they overcome this significant equity access hurdle? What if there's a better funding option than refinancing to achieve this, that avoids the endless and expensive paperwork, the extensive delay times, the expensive costs and fees, and of course, the credit report listing impacts? Well, that's exactly where today's special guest, Godfrey Dinh, the CEO of Future Rent comes in, and he joins us in a special two-part interview feature to reveal this exciting new funding innovation. So welcome to Realty Talk, Godfrey. Thanks for having me, Bushy. Godfrey, let's kick off part one of the Future Rent feature by getting you to outline what is Future Rent. Yeah, so in simple terms, Future Rent is a loan-free alternative to the banks that gives property investors just up to $100,000 of their rent paid up front.

So really, we give property investors easy access to the money they need to grow their wealth. Yeah, that's already going to pick up some eyes and ears in that regard. So getting really clear here, what is the problem that future rent is solving? It's all about access to capital. So until now, accessing $50,000 has been as difficult as accessing $500,000. As you mentioned, most property investors generally, when they need that sum of money, they need to refinance their entire loan. and that's complex it's slow it's expensive when you actually factor into you know all the

interest that you'll pay over the life of that and you know as probably a lot of your listeners would know a lot of property a lot of refinances don't actually end up proceeding more than 50 and that's because it's painful it's unreliable it's inaccessible right and and this is something which has been happening probably over the last five or six years as the banks have started to really tighten lending standards to the point now where people they just don't fit into the perfect little boxes that the banks want everyone to fit within so we're helping people with those bigger ticket items so renovations their small businesses deposits for their next property investing in the share market and a range of other big ticket purchases that are you know

even sometimes personal in nature because quite often you know with so much money tied up in property it can make it hard to manage those other things but we let people property investors do that without the hassle and the expenses of dealing with the banks yeah beautiful that's quite exciting so break down for us how future rent actually works then yeah so we give property investors up to a hundred thousand dollars of their rent up front so our most popular option is people get a year's worth of rent up front and they have it paid back over three years from roughly about a third of the rental income each month.

So that means the landlord's still getting two thirds of the rent every month, less our cost, which is basically 6% of the rental income. So the landlord's still getting over 60% of the rent on an ongoing basis, plus that money they get up front. So process wise, it's really simple. you know landlord would apply online in you know three or four minutes we're really just getting basic information about the person and the contact details of the property manager and we can do it

that simply because when you're dealing with future rent you're not actually borrowing money right you're just getting your rental income paid up front and therefore we're not assessing you as an individual we're just looking at the property so a lot of people they think that you know relates maybe to the term that's left on lease interestingly like that doesn't matter i mean obviously you know big portion of properties are just periodically let or month to month and that's fine um so the whole process is really simple and seamless um and you don't need to go through any of the nasties of dealing with the bank um and the last thing to sort of add there is we actually offer like a sort of supercharged version of that where you're looking to buy an additional property

and in those instances you can actually get two years worth of rent up front so horses for courses obviously but we just really want to give property investors that flexibility with their rental income so they can you know get ahead and work their investment properties a little bit harder yeah i love it i love it so the idea of upfront rental payment you know on the face of it seems great but uh are there any catches well it's interesting you say that and i think it's um it's it's it's probably because people have become accustomed to expecting that with financial services right they expect hidden charges fees all of these sorts of things but i think there's a trend in financial services where people are demanding better experiences and more customized

financial solutions right depending on who you are and what you need yeah um and we've really designed our entire product to be simple transparent and for property investors specifically so like really you know we we charge just a six percent of the upfront amount yep um so say for example if you need 25 000 over one and a half years that'll end up costing you you know 2200 right or if you did a three-year term because you want to still get the majority of the rent then it'll cost you double that so you know four and a half grand um so um but you know i think i think for instance the when you say the catch like one thing that people don't often realize is say what the catch is of doing the alternative and say for example you were to refinance with the

bank and just top up your loan by 25 000 you topped up your loan by 25 000 you stuck to the same payment schedule um even at say 3.4 percent you'd end up paying over 15 000 worth of interest over the life of your loan and that's before the valuation fees the break costs on the loan the application fees establishment fees all of these other things that come with traditional sort of loans and financial services um but you know we don't have any of that um so yeah so really i I think we've tried to design something without any catches. That's just simple and it is what, you know, it says on the tin. People are just getting their future rental income paid up front.

Yeah, I love it. Love it. I mean, in our broking business, Godfrey, top-ups like that, when we call them top-ups, are nightmarish for clients because it's a full application process. And often you're having to dip into lenders' mortgage insurance territory as well to access that equity, which adds another significant cost to the exercise so what you're offering in terms of a simple quick and easy approach without all

that palaver uh is very appealing so so tell me you know you say you're built for property investors what what does that actually mean godfrey well i guess it means that we're giving clients exactly what they need um so when a property investor comes to us and says they need a hundred thousand that's what we'll give them you know we're not refinancing the entire amount and go through all the palaver that you know your clients would otherwise have to go go through and and then they don't get lumped in with everyone else and they don't go straight to the back of the queue like they would with the banks you know who are trying to deal with new purchases owner-occupied loans all these other things that ultimately get prioritized over

you know someone needing an extra 30 or 40 grand yeah um so um and and then it also means that we've got all these features which are you know specifically designed for property investors so for example if the property becomes vacant or the tenant doesn't pay the rent then the payments actually pause right um so um because it's again it's not a loan you're just getting your rent up front we're paid back in you know installments from the rent that comes in from the tenant um so um there's some of those sort of features which are quite nice and then you know we acknowledge because we're only providing a small amount we don't make our clients jump through all those hoops that jump through if they're dealing with the banks yeah i love it and i'm assuming

here one of the key underwriters with what you're saying is that the property must be professionally managed by an independent professional property manager there's no self-managed properties exercises here because there's not that independent check and balance and money management in the process somewhat would i be right that's right that's probably the only real catch for what we do there's got to be a property manager we don't do the property management um you know we rely on you know professional property managers in in the areas and um and we work with you know whatever managers you um you the client sort of wants to work with um and that's up to up to them yeah perfect and i'm a big advocate of using independent professional property managers anyway because in

the tidgic world that we currently live in. If you haven't got a property manager on board who knows the ins and outs, you can be putting yourself at serious risk anyway. So look, no, that's really exciting, Godfrey. Thanks for sharing this great equity access alternative. And thanks for coming on the show today. Thanks for having me. Well, if you're a property investor who's sick of seeing your ongoing property plans delayed or even thwarted due to difficulties accessing monies from traditional bank lending sources, reach out to Godfrey and the team at Future Rent to see how you can access equity easily and quickly without the headaches. And watch out for part two in our coming episodes, where we're going to dive

into how property investors can actually use Future Rent. In the meantime, keep watching for more here on Realty Talk. Property depreciation is the natural wear and tear of a building and its assets. Property investors can claim depreciation as a tax deduction each financial year. Depreciation is a non-cash deduction. This means you don't need to spend any money in order to claim it. On average, BMT tax depreciation find residential investors almost $9,000 in first full financial year deductions. Call BMT on 1300 728 726 today for an obligation free quote. Hi and welcome. In this week's Bush Byte, we continue our special series on the art and science of negotiation, given the critical

importance of your ability to negotiate in all aspects of your life, and especially in the current hotly contested property seller's market. Now, over the last few weeks, we've discussed how you may need to change your outlook, how to build good rapport by using mirroring and labelling techniques, and the perceived power position, which you may feel is tipped against you. We looked at why cash is king, how to know the prevailing conditions, that negotiation starts with hello, and how and when to make a knockout offer. This week, we delve into your awareness that negotiating on the purchase of a property is not just about price.

You need to find out what the selling vendor really wants and what's really important to them. From there, everything is up for negotiation, from the timing to the conditions to you name it. everything is always up for grabs. And it starts by making sure that you're asking the right questions. It takes some digging

and professional buyers agents are real experts at this. It's about asking the right questions in the right order at the right time in the right way to find out exactly what the seller wants and needs because it's not always just about selling for the best price. For example, if there's a divorce involved or the vendor has left the state to move to a new job, there could be more motivation to have

a quick settlement timeframe. Alternatively, someone may have a real preference to have the perceived security and certainty of an unconditional contract rather than anything that has conditions like subject to finance or subject to a building inspection. This means that in some cases, the perceived certainty of an unconditional contract at a lower price might be more attractive to a seller than a high price with conditions attached. In other cases, the seller may be interested in the early release of your deposit to enable them to help secure their property or whatever they have in mind to use the funds for. Timing is also very important. In this regard, it's also worth considering the real estate agent's motivations. As commission

only selling agents, they're often under pressure at the end of the month, the end of the quarter, or at the end of the year to reach their sales targets. So they may be more motivated to make a sale happen in your favor at these times as it affects their ranking in the office and their cashflow. As the famous author of The Seven Habits of Highly Effective People,

Stephen Covey famously said, first seek to understand and then be understood. This is very important in negotiating the purchase of a property. Find out what it is that they want so you can create a win-win-win scenario as well as creating other valuable negotiating points that are away from the straight price. This also means that you're actually separating your offer from others and effectively reducing the competition with other potential buyers as you aim to satisfy

the seller's total needs, not just how much they're going to get in dollar terms. So to summarise, price is not the only factor in a property negotiation. if you find out what the seller really wants then anything is potentially up for grabs and towards the end of the month the end of the quarter or the end of the year the agent may just be more motivated to sell and accept your offer in next week's final negotiation special bush bite we'll dig into the need to have alternatives and go more into the importance of timing we'll reveal the other fish in the sea strategy and the importance of engaging professional help before summarizing all of the key negotiating points that we've covered in recent weeks so that you're fully

armed to successfully negotiate your next property purchase or in fact, negotiate any future transaction. That's more food for thought. I'm Bushy Martin from the Get Invested podcast. Stay tuned for more. Well, that brings us to the close of this week's show. A special thanks to our guests, Shane Oliver and Godfrey Dinh. And a reminder that you can see all of our shows at realty.com.au and while you're there check out one of Australia's most extensive range of properties for sale from over 7,000 agencies nationally. Thanks again to realty.com.au and BMT Tax Depreciation for their ongoing support. I'm Bushy Martin from Know How Property Finance and I look forward to seeing you again next week. 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.