Property Hub - Investment Insights & Inspiration - Realty Talk: When will the RBA say “enough” + New builds are not for the faint hearted

Starting point is 00:00:00 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 once again and welcome to the show. Given the massive post-COVID new-build housing stimulus via the Home Builder Scheme and a raft of other programs, including first-home buyer grants, house and land packages can seem very appealing to first-home buyers. But it's not for the faint-hearted. Bushy Martin kicks off this week's show by asking Julia Newbold from Money Magazine to share some of the tips and the traps of home building. Staying on that subject, there's been a substantial shift in demand for more affordable new build housing on the outskirts of our cities.

Starting point is 00:01:10 as a flow-on from the number of new build grants and incentives that we mentioned earlier. But many traditional suburban housing estates lack the intimate neighbourhood experience that makes our inner cities so very attractive. We've dealt with this in previous shows. Mike Day, in fact, has spoken to us. He is a partner at award-winning national urban planning and design consultancy Hatch Roberts Day. He gives us five key factors that can help transform new areas by urbanising the burbs. Well, despite a pickup in new listings and a bottoming in fixed mortgage rates,

Starting point is 00:02:01 Home price gains remain very strong with rising sales activity matching the increase in new listings. Housing finance commitments are at record highs. So the question on everyone's lips is how long will the RBA allow this to continue and will they in fact intervene? Dr Shane Oliver, who is the head of investment strategy and chief economist with AMP Capital answers that for us today. But first up, Bushy catches up with Julia Newbold with some sound advice for first-time buyers with a passion for everything new. Welcome. Now, given the massive post-COVID new build housing stimulus from a raft of different programs that have been released in recent times there's been a very significant increase in new build home commencements which are actually up 26

Starting point is 00:03:06 with nearly 40 000 new dwellings according to the latest australian bureau of statistics figures but building a new house and land package is definitely not for the faint-hearted and to discuss this with some tips and traps that you need to be aware of we're joined by julie newbold the managing editor for the money magazine so welcome to realty talk julia thanks bushy nice to be here now julia after the research that you've done around house and land packages for money magazine what are the key aspects that need to be considered i guess um the key aspects is do Do you know what you've paid for? Are you going to be hit with any extras?

Starting point is 00:03:48 Do you get a turnkey dwelling that you can walk straight into and live in it? Or are there things that are going to have to be paid for afterwards, whether that's maybe landscaping or, you know, putting in your Wi-Fi's and so on? Also, you know, have you got it guaranteed when you'll be able to move in? Is there any compensation for any delays that you might be facing? And also just the idea of moving to an unfamiliar neighbourhood. Does it have the infrastructure that you will need if you're moving in with kids that are a little bit older than toddlers? Are there schools that they're ready to take them in? And is it the

Starting point is 00:04:22 community that you want? Is it going to be your people that are around you that you feel comfortable with and that you want to grow with? I mean, it's great that you're all moving in together, that can be fantastically welcoming. But on the other hand, if it's not really the people that you're normally hanging out with, and that you want to hang out with, it could be a long way from, you know where you want to be yeah it's interesting and you've you've touched on some of the the questions you need to start asking already but to dig into that a little bit deeper what are some of the key questions that our first home buyer or first home first time builder of a home needs to ask when they're looking at building well you need to make sure that you've got a good builder with

Starting point is 00:04:59 a good reputation and they've got insurance you need to make sure um excuse me that the builder has done properties like you're going to be having and if possible you want to see their record and you want to talk to people who they've built houses for to make sure that everything's going smoothly. Yeah that's absolutely spot on and one of the key things in terms of comparing apples for apples in the building space is to make sure that it's actually a true fixed price building contract because quite often there are things called provisional sums or PC sums that included in the contract and they are like lucky lucky dip boxes in terms of potential costs blowing out when first-time buyers think that they've locked it in suddenly they're having to

Starting point is 00:05:49 find thousands of extra dollars that they weren't aware of and you need to just talk to people who have been through the process if you've never done it before you don't know the questions to ask you don't know what other people have faced and you've just got to make sure that you do the research so that you're ahead of that. Yeah, spot on. So if we look at the relative advantages and disadvantages of building versus buying existing, what are they as you see them? Well, some of the advantages to building a new property is that you get more in your grants and so on. There's usually more available for that. You can also, the further out you move from the main city, then it can be cheaper to build. You're also getting something that you want,

Starting point is 00:06:30 that you can you know make to make made to measure kind of thing and you can put in the finishes and so on and you know how lovely to walk into a new house but you have to be in the right position as well so if you're you know getting married down the track and you're living with your parents or you've got some rent assistance in that way then you can afford to wait for the property to be built but if you're in a situation where you're going to have to be paying rent and also that that can be a bit difficult so it's got to suit your circumstances um you know the new areas they are getting some infrastructure and there's you know roads and stuff promised so you've got a sort of way up is it really on its way um and the disadvantages can be if you do have a weight of 12

Starting point is 00:07:16 to 18 months and you are in the situation that you are getting married is the relationship really solid enough you know I've I know someone who they bought their home and land package split up and then they had to wait till the property was completed before that they could sell you know fortunately they didn't lose any money but they also didn't make any money so you know that can be an expensive exercise and quite upsetting if you have to still be in contact with the other person once the relationship's over just to finalize that yeah and you make a very good point that that sort of the time delay that sort of 12 to 18 months from the decision to start building to actually walking in the front door that's a there's a that's a lot of

Starting point is 00:08:00 time for things to change and it's yeah I guess it's a it's a two-edged sword because on one side to those that are still saving it gives them the opportunity to do that but on the on the flip side if the construction blows out and takes long which it often does then there's additional costs in both rent and the the cost of any of the borrowings that people may not have budgeted for that's right and the other thing is once you you had a home and land package and it's exciting and you've got to build what you want and then you want to do it again because maybe your family's expanded it's very difficult to keep one home and pay for another so you're kind of getting yourself out of that area and that market potentially because you're in that situation yeah so yeah very good

Starting point is 00:08:45 point so uh julia i'd really appreciate you coming on the show today to uh give us those timely reminders on some of the key things that aren't obvious when you start thinking about the the the gloss and the glory of getting into a new deal at home so i appreciate your time today my pleasure thanks julia well it's obvious that you need to balance the benefits of building versus some of the quite often hidden risks and i guess we always suggest that you seek out the advice of independent specialists before making that decision. And I'm talking now about a good savvy broker, an independent building inspector who can look at things with fresh eyes and make sure you've got a good conveyancer on your team that's going to review the contracts before you

Starting point is 00:09:29 make those commitments. So thanks again. More shortly, you're watching Realty Talk. 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. welcome now in recent times there's been a substantial shift in demand towards more affordable new build housing in the outskirts of our cities and this is a flow on from a raft of new build grants and incentives along with the move to more remote working from home but many

Starting point is 00:10:29 new housing estates lack the intimate neighborhood community experience that makes up our existing cities and makes them attractive. So to discuss the factors that can help to urbanise the burbs, I'm joined for a special two-part series by leading urban planner Mike Day of Hatch Roberts Day. Welcome to the show, Mike. Good morning, Bushy. Thanks very much for the invite. Excellent, Mike. Now, why do we need to break conventional housing estates to help urbanise the burbs? Well, Bushy, I think there's a real disconnect, I think, in a lot of our capital cities particularly you know obviously I'm based down in Melbourne with the team here but we've got offices around the country Perth, Melbourne, Sydney and Brisbane and the thing that we notice

Starting point is 00:11:13 is a real disconnect between the what we refer to as the cherished inner neighborhoods of the great cities and the growth areas and that disconnect sort of really is the fact that what I think we've done as a planning profession is that we've created we've separated the land uses So you're pretty much compelled to get in a car and drive, you know, from one land use to another. So we've got separate shopping centres, residential areas, places of work. And then the other thing that's happening, too, is that a lot of people are working downtown. So we really need to break that nexus and create these sort of self-contained neighbourhoods. And we do really think that the neighbourhood is the unit.

Starting point is 00:11:51 The neighbourhood unit is really the vehicle that we should be using into the future. and our forebears have laid out this pattern this these cherished inner neighborhoods where they're transit ready or they've got transit they're compact connected mixed use and they're walkable and we need to do is sort of emulate that model out in the in the growth areas the suburbs yeah totally agree now that sort of the integrated communities with uh centralized amenities are real features of our current cities why is it important then do you believe to apply this to the outer suburbs um well the thing that we're finding in the inner neighborhoods is that people that that configuration where the compact connected mixed use and walkable is that it alleviates the need

Starting point is 00:12:32 for you know two cars or even one car and with that that is the greatest impost i think on living in the burbs a lot of people have got two and three cars racv and racq are telling us that it's between 10 and 12 000 to own and run a car now so it's a bit of a myth that it's just affordable housing because it's becoming affordable living now where the cost of transport is actually if you've got two or three cars is actually exceeding the cost of housing so it's not just affordable housing now we've got to factor in this transport cost and if we can create these these sort of almost self-contained neighborhoods that have got some some workplace and they've got a diverse range of housing types so all ages and incomes can live there and we're continually reminding ourselves

Starting point is 00:13:11 that 30 to 40 percent of the population haven't actually got access to a car so that's the young kids the teenagers and the seniors they get marooned and out in these suburban areas and we've got a lot of social issues that are occurring physical and mental health problems that are occurring because of this remoteness yeah it's very good so to create these villages on the verge one of the specific examples that you've talked about is the looking at why we should put driveways and garages positioned on small streets at the rear of the home can you sort of expand on that a bit for us yes definitely so one of the things that there's a document that the victorian government have just published or published in the last few years called 20 minute

Starting point is 00:13:56 neighborhoods and part of that document sort of refers to the fact that we should be trying to embrace this more sustainable approach enabling people to walk and cycle is sort of fundamental there's 10 hallmarks in that in that document that relate to health and well-being which is sort of underpin everything everything else you know it's important that we get mixed uses and we get the jobs there but i think we what we is my uppermost in our minds is this need for us to sort of consider walking and cycling as the privilege modes so getting people out of the cars there's just so many benefits but to do that they need meaning they need meaningful pathways right so one of the things we've found particularly during covid and it's ironic that we're sort of

Starting point is 00:14:31 back in lockdown again down here in melbourne um is that you know people were we were finding in some of the inner neighbourhoods where the paths or even in the growth areas where there's no paths, the people are having to walk on the road or physically separate. The other thing is there's been real conflicts just in the last 12 months with cyclists sharing paths with pedestrians because there are a lot of people commuting on their bikes now and they're moving at a rapid rate or not.

Starting point is 00:14:55 There's a lot of conflicts there if you're pushing a pram or you're walking your dog. So we really need separate paths. The advantage of if we can create these more compact neighbourhoods out in the growth areas, we're working with really progressive builders like um you know burbank burbank have actually got a division called burbank urban where they're looking at the townhouse type model the townhouse or the terrace model where you can pop the garages at the back and the cars come into a we call a small street what it does it frees up the fronted

Starting point is 00:15:21 streets so that you've got you haven't got the curb cuts in the driveways that are going into all these houses so it's almost an uninterrupted pedestrian movement as you walk along the street and the other thing that's important is you get a continuous tree canopy yes it's perfect you know like for encouraging walking and cycling? Yeah, walkable suburbs. I love the change in the focus there. Very interesting, Mike. I really appreciate you coming on the show today

Starting point is 00:15:46 to really open our eyes to the opportunity that lies before us, given the growth that's happening. And we look forward to discussing more of this with you on an episode shortly. So thanks for coming. Stay with us because you're here on Realty Talk. Property depreciation is the natural wear and tear of a building and its assets.

Starting point is 00:16:05 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. welcome now the price is rising in over 97 percent of the sub-regions across australia according to the latest core logic data there's no doubt that we're in the midst of a national property boom so the question on everyone's lips is how long before the reserve bank and apra intervene well to discuss this i'm joined by dr shane oliver who's the chief economist at amp

Starting point is 00:16:56 Capital. Welcome back to the show, Shane. Thanks for having me on the program again, Bushy. Shane, I'd like to get stuck straight in. So can you please start by giving us a quick summary of what you see happening with property around the country and what you're forecasting as a result? Look, there's no doubt the property market is unambiguously strong. Obviously, there's a couple of patches there which are a little bit soft still, and that's inner city Melbourne and Sydney, year and that's due to the lack of foreign students due to the pandemic and various other things and and supply issues but beyond that out in the suburbs houses in those cities very strong and right across Australia we're seeing catch-up in cities which for many years have lagged

Starting point is 00:17:40 particularly Perth and Darwin seeing strong growth and also regional Australia very strong growth this is all a reflection of ultra low interest rates government incentives to get into the property market a fear of missing out people have seen the price gains and they think well I better get in now otherwise I'll miss out but at the same time people are feeling more confident because of the economic recovery we're seeing so all of those things have driven this huge boost in property prices that we've seen since about the September quarter of last year. Yeah well you've covered off my next question already so that's perfect in terms of what the drivers are so we might spend some more time digging into the next piece which is obviously what we're all interested in and that

Starting point is 00:18:25 is how long do you think it'll be before the RBA allow the boom to continue and if so when and how do you think they're likely to intervene? Well of course that's the million dollar question here because historically we have seen the RBA intervene at some point it used to come in the form of higher interest rates and that was when economic boom coincided with property burns in recent times that's become a little bit more problematic because the underlying economy was still needed the lower interest rate so the RBA has had to turn to macro prudential controls working with APRA they first did that back in in 2014 late 2014 and that of course was I guess intensified through 2017 and then gave us that property downturn we had through

Starting point is 00:19:17 2017 going to 2019. I've got to be a little bit cautious there when I said they first did that in 2014. If I go back to prior when I started my career it used to be the norm these sorts of things happened but then we moved into an environment through the 80s and 90s and 2000s where the norm was just to adjust interest rates but I think a big issue for the RBA and APRA is the property market so strong that it's likely to cause financial instability risks. So that's what they're mainly interested in here. They're not targeting house prices per se.

Starting point is 00:19:50 They keep telling us that on a regular basis, that is not the role of the central bank or APRA. It's really to ensure financial stability continues in Australia. When Australians are borrowing, that it's sustainable. The debt levels are sustainable on a long-term basis. Right now, I'd have to say they're looking at it pretty closely.

Starting point is 00:20:08 but they're maybe not necessarily at the point yet where they're going to pull the trigger. The APRA has spelt out quite clearly the things they're looking at. They're looking at the rate of growth in household debt relative to the rate of growth in household income. They're looking at the proportion of loans, which are high risky loans, so loans with high loan devaluation ratios, interest-only loans, and so on. And on their metrics, they would say some of these things have moved in the direction suggesting concern but we may not be there yet and in fact through the March quarter some of the things they look at actually went backwards suggesting that there's nothing to be worried about but by the same token I think the RBA and APRA would be conscious that

Starting point is 00:20:50 in the past we need to get a property boom sooner or later you see some deterioration of lending standards and of course that's what they'd ultimately be targeting here and after their most recent meeting they indicated they are looking at this very closely and they are considering options that they can things that they can do if property prices do get to a point sorry property debt levels household debt levels are rising at a point where they're significantly exceeding income levels so I think they're looking at very closely but I suspect that they're probably not going to move for another few months right okay so well I think the interesting thing will be given And as you mentioned, the very high levels of debt and there's massive activity around home lending at almost record levels.

Starting point is 00:21:38 What's your thoughts on whether they play with rates or more likely to use the macroprudential type approaches to tamper the current growth? To be honest with you, I think the focus will mainly be on the macroprudential controls, but you can't totally rule out doing a little bit on interest rates. And by that, I mean, I don't think the Reserve Bank's at a point where it's about to raise the cash rate and therefore standard variable rates or even discounted variable rates. But we also know that the Reserve Bank over the course of the last 18 months or so, or 15 months at least, has done things that have kept long term borrowing rates down, which in turn has meant fixed rate mortgage, fixed mortgage rates have come down. That's how we got the 2% mortgage rates because of action by the Reserve Bank to push down longer term borrowing costs. Now, some of those actions are starting to be withdrawn or reduced, and it's quite likely that in July, the Reserve Bank will announce a slowing in the pace of its bond buying, which means, all things being equal, potentially higher bond yields, which means higher longer-term borrowing costs for the banks and some rise in fixed mortgage rates. We've already said a little bit of that in anticipation, but I think ultimately the main focus will be on macro prudential controls, measures to basically tighten up bank lending standards. I don't think they're going to be as aggressive as they were last decade, around 2014, 2017, because I think the banks are already second guessing to some degree here.

Starting point is 00:23:07 Some of them have already moved, in fact, by increasing their interest rate buffers or their assessment rates. But I think that's probably going to be the main area of focus on macroprudential controls in the absence of the RBA raising the variable rate, which still looks to be 18 months to two years away. Yes, exactly. Well, we've got some interesting times ahead and always look forward to your great insights in terms of food for thought for what people should be doing in the short to medium term.

Starting point is 00:23:35 So thanks for joining us on the show again today, Shane. Thank you, Bushy. All the best. Thanks, Shane. Now, I've been an avid follower of Shane for many decades now and have been reading with interest your insights through the number of cycles that we've been with over the last four decades, I think, Shane.

Starting point is 00:23:55 And I know that your forecasts are always on the money. So I really appreciate your time today. So stay with us because you're watching Realty Talk. Thanks, Shane. and also thanks to our host extraordinaire, Bushy Martin. Catch more of Bushy at his very popular podcast, Get Invested. Well, that's it for another show. A very special thanks to Bushy's guests,

Starting point is 00:24:25 Dr Shane Oliver, Mike Day and Julia Newbolt. A reminder too 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. I'd like to say a special thanks to Realty.com.au and BMT Tax Depreciation for their ongoing support. I'm Kevin Turner. We'll see you next time. Miss something in this week's show or want to catch up on past shows?

Starting point is 00:25:00 Do it anytime at Realty.com.au where we connect buyers, sellers and agents differently.

Property Hub - Investment Insights & Inspiration - Realty Talk: When will the RBA say “enough” + New builds are not for the faint hearted

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