Property Hub - Investment Insights & Inspiration - Realty Talk: Time to check the property pulse + Dump it or dig in?

Episode Date: September 4, 2021

Seasoned property investors know to keep their finger on the pulse of the market, the first place to turn is Herron Todd White’s monthly property clock.   Bushy checks the time with HTW’s Kevin Brogan and it is good news for the residential market.   Who thought when the pandemic hit Australia 18 months ago, we’d all still be dealing with Covid’s uncertainty and fallout. Many Australians are suffering ‘behavioral fatigue’, so what impact is this having on property?   Bushy Martin discusses that with Lachlan Vidler from The Atlas Group Buyers Agents.  The bank of mum and dad is now the 5th most popular lender, with many first home buyers getting increasingly frustrated with the rapid rise in home values leaving them falling short. Marcus Roberts from Brighter Finance has some insights and words of warning. If you’ve bought an underperforming property, then now may actually be a good time to sell it.   Bushy explains why as he wraps up this week's show. 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 property investing. I'm Bushy Martin from Know How Property Finance and host of the Get Invested podcast. And we've got another cracking show lined up for you this week. We kick off by answering the questions is your property market still on the up and how are the current spate of lockdowns affecting

property markets? Kevin Brogan from Heron Todd White joins us this week to discuss the outcomes and implications of their latest National Property Clock Report. Now as Melbourne has spent over 200 days in lockdown since COVID started and Sydney is now suffering very strict lockdowns, many Australians are suffering from lockdown fatigue. But what does this mean for property moving forward? Lachlan Vidler from the Atlas Property Group Buyers Agents joins us to discuss the impacts. And with many first home buyers getting frustrated with the rapid rise in home values leaving them falling short, the good old bank of mum and dad is increasingly coming to the fore. So to discuss the trends in this area and what it means for property, I'm joined by Marcus Roberts

from Brighter Finance. And to wrap up the show, my bush bite this week discusses whether now is a good time for you to sell your underperforming property. We've got a lot of great insights to share, so let's get on with the show. Greetings. Now, anyone who's been involved in property for any length of time knows that if you want to know where things are at around the country, the first place to turn is Heron Todd White's monthly national property clock and for those that aren't familiar with it the property clock pinpoints where all of the major regions cities and towns are in the property cycle of boom through to bust with 12 o'clock being the peak of the market six o'clock being the bottom

of the market and in between three o'clock indicating areas in a declining market and nine o'clock revealing areas that are in a rising market condition and in the latest edition of the National Property Clock Report. We're confirming that nearly all residential property markets are between nine o'clock and about half past 10, which is in the rising market to approaching the peak mark, with a few exceptions. So to discuss what this all means, I'm joined by Kevin Brogan, Heron Todd White's Director of Group Risk and Compliance. Welcome back to the show, Kevin. Hi Bushy, thanks very much. Kevin, what's your current residential property clock telling us as you see it? Yeah, we've obviously plotted each of the geographical markets on the property clock

and as you said, I mean it's reasonably intuitive I suppose about where the placement of these geographical markets sits. We actually divide it into houses and units because obviously within any given location you can see you know those different market segments behaving a bit differently but I think as you said in your introduction the big story this time is around the breadth of the strong market conditions so we quite often see markets typically capital city markets like Sydney performing really strongly but what we're seeing this time is that that is across the entire a range of capital city and regional markets. And that's really quite unusual.

Very unusual. Totally agree. So what areas are at the peak of the market or approaching the peak? And why do you think that's the case, Kevin? I think, I mean, the first thing to sort of clarify is the peak of the market is measured by where prices are at compared to where they've been historically. So peak, you can infer from peak that it's at the highest price point that it's ever been. But I don't think you can then infer that the next step is in a downward direction. It's perfectly possible for that growth to continue through the current growth phase. What's really interesting following on that theme of it being across all markets is, you know,

we're seeing places like Bathurst and Dubbo and Tamworth in New South Wales sitting right at the top there, and Launceston and Devonport in Tasmania. Now, the obvious driver, I think, that's affecting all markets is the fact that we've got the historically low cost of borrowing. It's never been cheaper to, you know, to get a mortgage to buy a property. But what we're seeing in some of these markets is the gap between demand and available supply is really quite wide. We've got significant demand and there's not actually a lot of property on the market at the moment. And that's continuing to drive the prices up. And of course, none of these are actually capital city markets. And so what we've seen here is the sort of nexus between

commuting distance um to the city center has been broken by um the current coronavirus situation so regional areas and also fringe metro areas um they've all been performing really strongly because um you know people are demanding lower density living um you know some somewhere nice to hold up if they have to isolate rather than being um you know sort of densely packed with their neighbours so that lower density living and I think it's important not to underestimate the fact that employers are embracing working from home I mean there's only a couple of years ago where if I worked from home you'd get that sort of snide oh yeah pull the other one you know what were you doing with the kids but reality is now you know people are actually working longer hours

being more productive from home and that's that's really driving demand in some of these fringe and regional areas yeah a very good call and in relation to the paradigm paradigm shift there in relation to our lifestyle choices uh i'm really interested to understand what locations have changed their positioning on the property clock at recent times and your thoughts on why that might be the case kevin yeah well those um you know those markets we just discussed obviously have shifted up to to a position where they continue to uh to grow um but we've we've also seen um markets if we take broom for example um obviously broom is the kind of location where um there's a significant demand from people who may not have their first home uh in in that

location um and that's something that we've seen across other um markets as well sunshine coast for example has performed really strongly um and sort of anecdotally we've heard stories from people who've um uh you know who've got a budget for uh let's say european holidays or globe trotting well they're not spending this on on that sort of thing so they're actually looking to invest in uh in somewhere uh as a second home and and broom sunshine coast um around byron bay they're they're all markets which have seen significant increase in demand um there's and and actually i I mean, the important thing is that increase in demand has not been matched by an increase in supply,

and that's the reason that the prices are driving up. There's a finite supply in a lot of these markets. Yeah. Go on. I was just going to say another market where we've seen that is in Canberra, probably for different reasons. The sort of second-home holiday market's probably not at the top of the reasoning there,

but Canberra's a really interesting example because we've seen for detached dwellings the market's been really, really strong. But Canberra is in one of those markets where, as I alluded to before, there's a bit of a difference of sub-markets within the geographical market. In fact, the Canberra unit market is actually not thriving at the moment, whereas the market for detached dwellings

is actually performing incredibly strongly. Yeah, and I think it's sort of there's winners and losers and no question that the CBD apartment markets or as you just cited the case here with Canberra are suffering as a result of the shift, I think, to more space, safety and security that the detached housing market tends to offer. So, no, that's awesome.

What impact of any of the current spate of lockdowns having on property markets as you see it at the moment, Kevin? Well, it's really interesting to see how this has evolved over time, because, of course, we've been living with restrictions and lockdowns now for 18 months or so. And restrictions have the immediate impact of impacting on agents and potential buyers being able to show and see properties with physical inspections. Now, going back 15 months or so ago, that sort of paralyzed the market. But as things are at the moment, we've actually got a bit of a paradox going on here because the length of the likely lockdown is actually providing encouragement to people to have a bit more faith in some of these online solutions. and far more people are now prepared to buy a property from sight unseen using the technology, you know,

to be able to view the property and also the technology. Although we're seeing auctions being, you know, properties being withdrawn from auction, there's a much greater acceptance of online bidding technology. And if you compare that to the beginning of the crisis where we had the first lockdown, people felt that they would bide their time and wait. And we saw that briefly in Adelaide. We had a seven day lockdown and people knew it was going to be seven days.

So they just stood by and then recommenced at the end of it. But it's rather different in Sydney and Melbourne now. So, you know, the market is continuing. People are just getting on with it. But it clearly has an impact on the volume of transactions. So it's not true to say that everybody is doing it, but just there's greater acceptance of that sort of approach. Yeah, well summed up and you've picked it well. There has been a big shift in all the players in the industry in relation to embracing technology and doing things more remotely. And that includes the banks and all of the major players. So in real terms, it's actually going to make it easier for buyers, sellers and the industry professionals to operate, regardless of what the conditions are.

So, look, I really thank you for breaking this down for us, Kevin. And thanks for your time on the show today. No problem at all. Thanks very much, Rishi. Okay. So if you're looking for a quick and easy way to track where locations are on the property cycle around the country, You can't go past HTW's National Property Clock, which you can access for free at htw.com.au. Stay with us 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. Hello and welcome. Now, who would have thought that when that pandemic hit Australia about 18

months ago, we'd still be dealing with COVID's uncertainty and fallout. Residents in Melbourne have passed the sombre milestone of having spent over 200 days in lockdown so far. And in Sydney, case numbers continue to go through the roof as the state now suffers increasingly stricter lockdowns, or what I like to call mockdowns, as many are tending to flaunt the restrictions. Now, the result, well, experts suggest that many Australians are suffering behavioural fatigue, or what's become known as lockdown fatigue, as their emotional and financial resilience is worn down with a continued COVID uncertainty and, let's face it, no clear end in sight. So, what impact, if any, is this having on property? Are lockdowns a property tap, a sedative, or something else? Well, to discuss this, we're joined by Realty Talk regular Lachlan Vidler, co-founder of

leading buyers agency, The Atlas Group. Welcome back to the show, Lachlan. Thanks for having me, Bushy. Mate, interesting subject, the old COVID fatigue, sort of diving into the property side of it. How do you think property markets are being affected now that there have been sustained lockdowns, particularly in Victoria and New South Wales? i think the clearest and most obvious impact is supply and i mean everybody knows we've been dealing with supply issues for 12 maybe going on 18 months now but uh i think it's very very

recognized now that in the markets that have been locked down for quite a while that uh it's a big issue i mean the latest core logic data says that we're about 27 percent under five year averages nationally for total stock so i think it's it's very clear the data's there to back it up. Everybody knows it. And I think, unfortunately, it's adding complexity to the market. And for a lot of people out there who are trying to go out there and do it by themselves, they're struggling because they're not used to operating property generally, let alone in a market that's got almost a third less supply than you typically expect. Yeah, very good call. I mean, the positive side, I guess, of that is that it's helping to provide a safety net for property

values, but it's making it very difficult for people to find good quality properties or secure them ahead of the competition. So how are prospective buyers managing this uncertainty at the moment, mate? Well, I think that there's really only two camps and I don't want to be as simple as that, but the two camps are either they're not dealing with it and a lot of people are sitting on the sidelines. And to me, I think it's almost a bit crazy because I'm seeing people sit there on the sidelines almost like they were last year at this time or a couple of months ago this time last year when COVID first hit and there was that uncertainty of what's COVID what's going to happen you know how's this going to run and play out whereas now I think those people are

the crazy ones because we know how it's going to play out sure we don't know where we're going to be in one month or three weeks or eight weeks but we know it's going to come to an end we know that we've got vaccination rates on the rise we can see the end in sight whenever it comes and we know what happened last year as soon as things started opening up again property boomed I mean you just to look at where we're at in january i think we're at about 7.4 billion in in total residential value and six months later we're already at 8.8 billion so up almost 20 in six months right it's crazy so uh for those people who are sitting on the side scary but for the ones who are in there they're the good ones they're the ones taking advantage whether they're doing themselves they're having

help they're the ones who are in there and they're gonna reap the benefits on the way out yeah totally it's always the exercise mate the few contrarians who can see the opportunity and the uncertainty are going to prosper and those that tread water will will look back in time ago if only i had a jump in but uh so moving forward then what can we look forward to as the lockdowns begin to ease i think sort of just like i was saying at the tail end of your last question i think what we're going to see is a lot of what we saw in sort of the back half 2020 into the first half of 2021 where property prices were booming people were people who were in the market were loving it because they were checking back on their property four weeks later and they might

have made tens of thousands of dollars more if you live in some markets so i think what can we look forward to i think we can look forward to another big big big push for property price growth uh i think we can look forward to a little bit more supply but that supply that's going to get eaten up by those people who have been sitting on the side so it's to me it's not going to be a situation where it's going to ease in and then everything's going to sort of return a bit of normality it's going to be hungry people sitting on the outside jumping in and they're going to regret it because they could have jumped in now and they didn't and they could be having a lot of price growth right now as we speak let alone tail end of when everything starts to open up yeah very good call

mate and very timely insights Lachlan so thanks for doing that and thanks for your time on the show today thanks Bushy always great to chat well there you have it it appears that lockdown fatigue is acting a bit like a vice that's temporarily compressing the spring of demand in affected areas. So watch this space in the months ahead. You're watching the Trusted Voice for Property 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 1-300-728-726 today for an obligation-free quote. Welcome. Now, with many first-home buyers getting increasingly frustrated with the rapid rise in home values that are leaving many of them short, the good old bank of mum and dad is increasingly coming to the fore. So to discuss trends in this area and what it means for buyers and property, I'm joined by Marcus Roberts from Brighter Finance. Welcome back to the show, Marcus. Thanks so much for having me again. It's great to be here. Great to see you again, Marcus. Now, we'll sort of jump in because it's very interesting what's happening in that area. What trend are you seeing with the bank of mum and dad currently?

We're certainly seeing the bank of mum and dad being used more and more. Anecdotally, in the number of people that I see that are first-time buyers, first property purchasers, we're absolutely seeing more mums and dads being used as a source of gifted funds for savings towards funds to complete, or even as guarantors where they're using like a family pledge or some type of security arrangement to help with the equity position to allow the kids onto the property ladder. So where we used to see, and this going back a few years, I think nationally, when I've looked at the statistics,

we're looking at sort of 10 to 15%. That number seems to continue to rise. And the last research that I saw was that something like one in every two of first home buyers and majors in Sydney, for example, are using some type of gift, some type of assistance from mum and dad or from a family member to get them onto that property land.

That's a fairly significant jump. What are your thoughts on why parents are gifting funds rather than going guarantor on their children's homes? Yeah, so I certainly feel that guarantor is less appealing than it probably once was. I think in the applications that we're seeing, the conversations that we're having, we're seeing a lot of parents that say,

we're happy to gift some money. We're happy to gift $100,000, $50,000 if we're in a position to do that to the kids. The concern around going guarantor is around the legal liability that's associated with it and what that actually means for the parents if the kids can't repay their loan, if the kids get into some type of financial distress. So when interest rates for mom and dad's savings are at 1% and their superannuation or their savings they've accumulated over the years is earning 1% out of term deposit or 1.2 on online savings account, then they're looking at, well, maybe we provide an early inheritance to the kids. We help them get into the property market, which we read about day in, day out being

incredibly tough to get your teeth into, and certainly in the Sydney market especially. Yeah, no, very good point. and makes a lot of sense and from a risk perspective a much much better way to go for both parties actually the children and their parents just so much less risk if it's purely a gift mum and dad aren't um aren't assigned to it in any way shape or form you know if they want to sell that property that was would have previously been used as a family pledge they can do that they don't have to go back to the bank cap and hand asking for some type of relief for some type of release.

Yeah, very well said. So how do you see this flying on and impacting on property demand and property values in the short to medium term, Marcus? So it probably won't stop property prices from rising anytime soon. I don't see that it's going to decrease the prices that we're expecting in the next six to 12 months. What I do feel is that with more and more money being used towards these gifts being used towards helping the kids onto the ladder it's going to just

continue to to assist with those that are looking to sell seeing good market good results on those properties because ultimately you've got a number of first home buyers first property buyers looking at getting into certain price points at the same time you've also now got investors looking at that low low interest rate environment saying that's a really attractive market to get into so you've got more and more competing factions going for the same properties when stock levels aren't incredibly high from from all the rumors and from all the conversations we're having yeah some really interesting observations there marcus and uh thanks again for joining us on the show today absolutely thanks so much thanks marcus well there you have it the bank mom and dad is

having a meaningful impact on property purchases in our current low rate environment and if you're a parent wanting to help your kids to get into a home, just be careful how you do it. Keep watching. You're here on Realty Talk. Welcome. Is now a good time to sell your underperforming property? Well, there's an old saying in real estate circles that you should buy and never sell. And while this has merit in many situations, is it always true? The answer? It depends. It depends on what property you bought, where, and for how much. If you bought an underperforming property, and by underperforming I mean that it hasn't experienced much growth and it's not likely to, it's costing you money to hold

every week, and it doesn't have any opportunity to add value, then now might actually be a good time to sell it. Why? Because we're currently in a once-in-a-generation period when the property tide is floating all boats, with 94% of areas across the country experiencing substantial value growth on the back of COVID-instigated stimulus packages, the lowest ever interest rates on record, and very few properties for sale. But the current rate of growth is already starting to taper and B-grade properties will again start to languish. The reality is that savvy investors aren't afraid to offload underperforming assets. That's because they consider the opportunity costs. They don't want to miss out on opportunities elsewhere

when quality research reveals that the future growth in their location might take a long time, if ever, to arrive. Unfortunately, however, many novice or accidental investors get stuck playing the waiting game. Now, you may have bought a property in the hope that it will increase in value, so you sit and wait for years without anything happening. And because you don't want to feel like you've failed, you stubbornly hold on to the property that's flatlining in some sort of blind hope. And often, the property's in your own backyard or it's close to your home because you know the area and you want to be able to drive past it. But educated investors understand that there are literally thousands of locations across Australia that offer better chances of

capital growth over the short to long term. That's why they're not afraid to sell a property that's not kicking major capital growth goals. And yes, there are significant changeover costs involved in selling and buying elsewhere, but selecting a location on a property with strong price growth potential means you're likely to make that back and more in equity growth within a few years. But by naively holding onto a dog property and hoping for a market upswing that has no bearing to reality, you're likely to be out of pocket by much more over the long term. In fact, holding an underperforming property might end up costing you hundreds of thousands of dollars in lost capital growth. So let me illustrate this in showing you the difference

and performance between a good property and an underperforming property. Let's take a $400,000 property in an average growth location experiencing 5% capital growth compared to a high-performing location at 8% growth. And remember, 80% of growth comes from the location, not the property itself. Now, over 20 years, this 3% growth differential means the high-growth property will have grown in value over $800,000 more than the lower growth property, which equates to a 75% increase with just that 3% difference in the growth rate. So as you can see, it's all about growth. So what drives a high-performing property? Well, primarily it's capital growth. And sustainable capital growth comes from scarcity, which means there's more demand than supply. And this occurs

and tightly held areas on the back of newly committed infrastructure along with employment diversity that creates strong and growing income demographics so homeowners can continue to afford to pay higher prices and support that ongoing price growth. And to make the property sustainable it needs to be cleverly structured so that's positive cash flow so that the property looks after itself financially without needing any of your salary or savings to support it. So how does your property stack up now against these high performance criteria? And don't get caught up in the current FOMO or the fear of missing out frenzy and be fooled by the value growth that your property may be experiencing right now

because these, as I've said already, are once in a generation circumstances that won't last long and won't come around again for many years. Savvy investors know the signs of market peaks and choose moments like we're currently experiencing to sell their underperforming properties so they can then invest elsewhere. Unsophisticated investors, on the other hand, leave it at too late and end up with a property

that starts to go backwards in value. Mining towns are good examples of this over the last decade. Many investors in remote one industry resource towns had FOMO and are now stuck with a property that's worth far less than they actually pay for it. So if you can only afford to own two or three investment properties to grow your nest egg, then you need to make sure that you own the best high growth properties that you can actually afford. In this light, selling an investment property that's not doing its job, which is to

grow your wealth long term, is actually a smart move. And now is one of those rare windows of opportunity when it's actually worth considering. So if this sounds like you, reach out to an independent property strategist at PIPA, the Property Investment Professionals of Australia, and get them to do a cost benefit analysis on your property to decide if now is a good time to sell and invest in a higher performing property. That's more food for thought. I'm Bushy Martin from Know How Property Finance Strategy. Stay tuned for more. Well, that brings us to the end of another week. A special thanks to our guests, Kevin Brogan, Lachlan Fidler, and Marcus Roberts. and a reminder that you can see all of our shows at realty.com.au along with 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 host of the Get Invested podcast and I look forward to seeing you next time 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