Episodes

  • Queensland Tops, Victoria Drops

    Queensland Tops, Victoria Drops
    Nov 5 2024

    It’s long been the case that the two most populous states, New South Wales and Victoria, have attracted the highest levels of property investment – just by sheer weight of numbers.

    But Victoria has lost its spot among the big two of property investment and is now being overtaken by Queensland.

    Meanwhile, Queensland now leads the nation is overall real estate transactions, including purchases by both home-buyers and investors.

    This is despite Victoria having a population of 7 million, versus 5.5 million in Queensland.

    It provides further evidence that investors are deserting Victoria because of the raft of anti-landlord measures from the State Government, with more still to come.

    And that Queensland is where buyers are all kinds are heading.

    Analysis of ABS figures shows that, a year ago, 26 per cent of investor loans were for Victoria properties and around 22 per cent for Queensland.

    More recently, the balance has shifted with Victoria dropping to 23 per cent of investor loans and Queensland continuing to rise.

    Money.com.au says investors are abandoning Victoria for several reasons, including Victoria’s additional taxes on investors, and are flocking to Queensland.

    Home Loans expert Mansour Soltani says: “Queensland is emerging as the new promised land. It has everything property investors look for including a strong local economy, population growth, expanding regional markets and ongoing infrastructure projects.”

    Queensland is leading the nation with a 36 per cent year-on-year increase in investor loans, compared with the national average of 21 per cent.

    Regional markets such as Townsville, Bundaberg, Rockhampton and Gladstone are offering low entry costs and above-average rental yields.

    Soltani also says: “Queensland is not only leading investor activity — owner-occupied loans in the state grew by 12 per cent year-on-year, while no other market grew by more than 6 per cent, and New South Wales saw no growth.”

    Realestate.com.au reports that nearly $40 billion was spent on residential property in Queensland in the past quarter, with the state recording the highest number of home sales in the country in the last three months.

    Brisbane’s median dwelling price has also extended its lead over Melbourne’s — climbing to $885,000 in October, while Melbourne sits at $780,000, according to CoreLogic.

    New figures from digital settlements platform, PEXA, show over 48,000 home sales were finalised across Queensland in the September quarter, with home buyers spending $38 billion — 27 per cent more than the same period a year ago.

    The postcodes with the highest number of home sales in the three months were found in Toowoomba, the Gold Coast and Mackay.

    Homebuyers also moved to regional coastal areas such as Bargara near Bundaberg and Urangan in the Hervey Bay region, as well as new housing development areas in Logan City and Ipswich City on the fringes of Greater Brisbane.
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    4 mins
  • Rents Aren't Plummeting — Don't Be Misled!

    Rents Aren't Plummeting — Don't Be Misled!
    Nov 5 2024
    Whenever I’m asked for my rules for successful investing, I usually begin my response with this: Rule One – stop reading newspapers. Expressed in a more 21st Century context, stop treating media soundbites as research. People who base their investment decisions on the white noise in news media are running the risk of making very bad moves in the market. My observation of the content of news media coverage of residential real estate is that there is far more misinformation than real, accurate, reliable information. In modern media it’s all about clickbait and I find repeatedly that the headline presented to induce you to CLICK is highly misleading – and sometimes an outright lie. I could provide dozens of examples from this week alone, but here’s just one classic example. The headline above an article published on the news.com.au network, the nation’s biggest news organisation, proclaimed: “Worst is over: where rents are plummeting” This was followed by the following opening statement: “The worst of the rental crisis appears over across much of Australia, with rents plummeting in these areas. But it’s not all good news.” Now the headline in this case is more than a lazy piece of sensationalism – because, not only is it untrue to claim that “rents are plummeting” but the content of the article does not support the claim in the headline. You may have observed that, in the surreal world of journalists, nothing falls or decreases or drops – it collapses, it nosedives, it falls off a cliff – and, yes, it plummets. Even when the decline is a few percent, barely a blip, it will be declared to be plummeting. So having made the statement that rents were plummeting and that the worst of the rental shortage crisis was over, the New Limited article utterly failed to deliver on this very big statement. If it was true, it would be one of the stories of the year. But, of course, it wasn’t true. According to the article, Queensland’s asking rents “have surged again, increasing across 252 Queensland suburbs by up to 15 per cent since June”. I’ve checked my dictionary definition of “plummeting” and it certainly doesn’t apply to the Queensland situation. Next, Victoria. According to this article, there are more than 200 suburbs where rents are now at least $100 a week more expensive for units than in 2021. It said: “Well-connected areas like Ashburton, Parkville, Aspendale, Caulfield South, Glen Waverley and Carlton have posted some of the biggest rises in weekly unit rents across the past three years, all of them up more than 40 per cent, according to new PropTrack data.” No sign of anything plummeting in Victoria – where, incidentally, many investors have sold up and got out of the state because of draconian anti-landlord measures by the state government. So we can expect rents to keep rising in Melbourne. In Adelaide, rents have fallen a little in the latest quarter in 17% of suburbs examined by PropTrack, but there’s no sign of plummeting in the other 83% of suburbs. Adelaide, in fact, has had extraordinary growth in rentals in the past year and, with the vacancy rate still hovering around 0.6%, there’s no real basis for declaring that “the worst is over”. In Perth, the vacancy rate remains well under 1% and there is no real prospect of rent relief any time soon. So, looking through the entire article, the only evidence presented to go even close to supporting the noise in the headline is in Sydney. According to this shoddy piece of “journalism”, Sydney has entered a correction phase. PropTrack attributes the market slowdown to more rental homes becoming available and tenant demand dropping as more renters moved to share houses or back in with their parents to save money. Migration has also waned in recent months. PropTrack says: “Demand and supply are working together to see a stabilisation in rental market conditions.” But no evidence was presented in the article to support the notion that Sydney rents are nosediving. So, in summary, only in Sydney is there evidence that “the worst is over” and there is nothing at all in this work of fiction is justify the claim that rents are plummeting – anywhere. So, what is a realistic overview of the situation with the rental shortage crisis. Nationally, the vacancy rate continues around 1% or slightly above 1%, depending on whose figures you believe. None of the eight capital cities has a vacancy rate anywhere near 3%, which is the benchmark for a stable rental market with steady rents. There are no government measures in play which will move the dial on this in the foreseeable future – except decisions which are likely to make it worse, rather than better. In some locations, however, I do expect rental increases to moderate, because a ceiling has been reached in terms of the market’s ability to pay. Amid a cost-of-living crisis, tenants cannot keep paying higher and higher rents, ...
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    6 mins
  • Local Economy Fuels Property Boom

    Local Economy Fuels Property Boom
    Nov 5 2024

    At Hotspotting we believe real estate markets are local in nature and are subject to the strength or weakness of the local economy.

    While economists cling to their kindergarten theory that markets are essentially driven by interest rates, the stark differences in local markets across Australia suggest that there is something more powerful in play.

    If it were true that high interest rates mean prices will fall, then everywhere in Australian would have falling property prices in 2024, which is what major bank economists and others like them predicted at the start of the year.

    The reality that Perth, Brisbane, Adelaide and many key regional centres have had booming property prices indicates that (a) the economists are wrong in their simplistic theory; and (b) there are larger forces of influence, which are local in nature.

    And the record shows that the local economy is the key factor, over-riding any influence from interest rates, which are the same everywhere in Australia.

    For that reason, I always take note the quarterly editions of The State of the States report published by CommSec, which is part of Commonwealth Bank.

    For many years I’ve detected a correlation between the findings of that report and outcomes with property prices in our capital cities and our regional markets.

    The report uses eight different metrics, including construction work, population growth, retail spending, housing finance and employment data, to rank the eight state and territory economies.

    The latest quarterly edition of State of the States ranks the states and territories like this: Western Australia 1, South Australia 2, Queensland 3.

    Not coincidentally, the leading cities with booming property prices are, in order, Perth 1, Adelaide 2 and Brisbane 3.

    In addition to that, the leading regional markets are Western Australia, South Australia and Queensland.

    The report finds that the greatest strength for WA is population growth while the greatest weakness is dwelling starts – and those two factors working together would tend to put upward pressure on property prices (and rents).

    South Australia’s greatest strength is economic growth while in Queensland it’s housing finance.

    The jurisdictions with the weakest economies – the Northern Territory, the ACT and New South Wales – are also the places where property prices have been weak recently.

    So if you want a simple method of detecting where dwelling prices are most likely to be strong, keep track of the quarterly editions of the State of the States report.
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    3 mins
  • Property Powers Australia’s Wealth Surge

    Property Powers Australia’s Wealth Surge
    Nov 5 2024

    Household wealth in Australia keeps rising and it’s residential property that’s responsible.

    The latest figures from the ABS show that overall household wealth has increased for the seventh consecutive quarter.

    It rose a further 1.5 per cent in the June quarter to a record $16.5 trillion, driven primarily by property assets.

    Total household wealth is now 9.3 per cent higher than it was a year ago, driven by residential land and dwellings.

    Of the 1.5 per cent rise in the June quarter, 1.3 percentage points was attributed to residential property – our homes and investment properties.

    Dr Mish Tan, head of finance statistics at the ABS, said: “House prices have continued to rise across most states and territories.

    “This largely reflects ongoing housing supply constraints and an uptick in investor activity over the quarter.”

    Residential real estate assets now account for approximately two-thirds of total household wealth.

    Property assets reached an unprecedented level of $11.22 trillion as of 30 June, making up around 68 per cent of household wealth, driven by rising property prices.

    Households also hold $1.72 trillion in cash and deposits or 10.4 per cent of their total net worth, alongside $3.94 trillion in superannuation assets.
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    2 mins
  • Buying New v Buying Established Webinar Replay

    Buying New v Buying Established Webinar Replay
    Oct 30 2024

    Everyone seeking real estate in desirable locations has the same complaint: the lack of stock. Home buyers, investors, buyers’ agents and selling agents are all being frustrated by the shortage of listings of properties for sale – particularly quality options.

    Leading national buyers’ agency Adviseable says a partial solution for buyers is to consider building from scratch rather than buying an established property. The tactic has many advantages – and one or two problems as well.

    Alex Dutt of Adviseable says deciding whether to buy an established property or to go down the new construction route is not always a simple choice. It can be difficult to cut through the noise and find a truly unbiased insight into the topic to determine which strategy is the right one for you.

    Adviseable has put together an honest, warts-and-all exploration of the pros & cons of buying an established investment property versus going through the process of building a new one.

    And on Wednesday 30th October, Alex Dutt joined Hotspotting founder Terry Ryder to discuss the issues involved in making that choice. He points out that Adviseable, as a buyers’ agency, has no vested interest in which choice an individual buyer makes. So it can present the advantages and disadvantages without fear or favour.

    www.adviseable.com.au
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    1 hr and 3 mins
  • Think Twice: Negative Gearing Myths

    Think Twice: Negative Gearing Myths
    Oct 29 2024
    In my experience, most people who have a loud view about scrapping negative gearing are people who can’t explain what it is, how it works, why it’s bad and how ending it would solve all the problems in the housing industry. Mostly, what’s in play with this issue is THE POLITICS OF ENVY – that nagging feeling some people have, that others are doing better than they are, or are receiving benefits that they are not, and therefore need to be squashed. As a famous Indian guru once observed, some people try to be tall by cutting off the heads of others. Contrast that with the views that are expressed when they come from people with the expertise and experience to understand what negative gearing is, how it works and what the consequences would be if it was removed. A recent poll of such people found that the disadvantages would outweigh the advantages. Before delving into the comments of experts who have been interviewed by news media about this recently, let me remind everyone that Australia DID end negative gearing in the 1980s and within two years the same Federal Labor Government that scrapped it, did a major backflip and reinstated it. Why? Because it caused a serious shortage of rental properties and higher rents. And it didn’t bring down property prices or improve housing affordability. Let me also remind you that more recently New Zealand put an end of negative gearing tax benefits and right now that nation’s government is reinstating it – because, as happened in Australia in the 1980s, the upshot was a rental shortage and higher rents. In the light of those precedents, you have to wonder why we’re having this debate at all. Now, returning to a recent survey of so-called experts polled by the Australian Financial Review – the majority view, arising from that survey, was that the consequences of changing tax arrangements for property investment are likely to include higher rents. Why? Because investors would exit the housing market, causing a further drop in supply of rental homes at a time when Australia has the lowest vacancy rates ever recorded. Analysts polled in the quarterly Australian Financial Review property survey, overall, painted a “BE CAREFUL WHAT YOU WISH FOR” scenario amid a national debate over the merits of changes to negative gearing and capital gains tax – which is usually described by media, inaccurately and unfairly, as a CONCESSION. Those polls said any benefit to first home buyers from any price falls – which are hypothetical and not based on any precedent or research - as investors exit the market would be modest, potentially short-term and effectively traded off against a consequent squeeze in supply. Here’s one prediction from a respondent to the survey: He says: “By lowering the after-tax return to investors, any move to wind back the negative gearing benefit and increase capital gains tax would lead to a fall in investor demand for housing and a short-term fall in prices, say of 3-4 per cent.” However, those comments from Australia’s worst forecaster of residential property outcomes, AMP chief economist Shane Oliver – so the forecast that property prices would fall is somewhat dubious. That certainly didn’t happen in Australia in the 1980s or in New Zealand after they, more recently, ended negative gearing. In any case, Oliver goes on to say: “However, this (slight fall in prices) is likely to be short-lived as less investor participation in the property market would ultimately lead to a lower supply of new homes to the property market, higher rents and then a blowback to higher prices. “It will do nothing to fix the basic problem which is a chronic undersupply of housing relative to population-driven demand.” That much he got right. Proptrack’s executive manager for economic research, Cameron Kusher, said the removal of negative gearing and increasing capital gains tax might marginally reduce house prices, but consequent discouragement to investment would reduce supply. He said” “It’s important to look at the taxation system holistically rather than in a vacuum, especially whilst the rental market remains challenged.” In other words, there would be more disadvantages than advantages. Barrenjoey’s chief economist Jo Masters warned of the “unintended consequences” of modifying the current settings. She said: “Negative gearing and capital gains tax reform alone are not a silver bullet and need to be debated both in the context of broad tax reform, and the other levers available to the housing sector, including supply.” Nicola Powell, Domain’s chief of research and economics, said that it was “a common misconception” that the negative gearing and CGT provisions were “primarily enjoyed” by wealthy, older Australians. Powell said most investors own just one property, and a larger share of them are under 50. She said: “If negative gearing were removed or scaled back, younger, more financially ...
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    7 mins
  • Rising Rents, Real Reason

    Rising Rents, Real Reason
    Oct 29 2024

    Politicians and journalists love to scapegoat and demonise, particularly with issues impacting housing markets – with property investors always a popular target.

    Australia’s love of scapegoating is one of the reasons the nation seldom resolves any of the key issues it faces.

    Politicians hold press conferences, they stage inquiries, they bring on royal commissions, they make announcements – but the recurring theme is looking for someone to blame and to vilify – preferably someone other than themselves.

    In real estate, investors and related issues like negative gearing are blamed for all the problems afflicting the housing industry – including poor affordability and rising rents.

    But, according to analysis by the Reserve Bank, property investors have copped the brunt of rising interest rates and haven’t passed on their impact to tenants in the form of higher rents – or, not much.

    New Reserve Bank research debunks the idea that so-called greedy landlords simply pass on higher mortgage costs to their tenants via rent increases.

    According to the RBA analysis, after analysing years of investor tax returns, for every $1 increase in home loan interest repayments, property investors have raised rents by just 1¢.

    The RBA economists who wrote the report said: “To put this effect in context, the median monthly interest payment for leveraged investors increased by around $850 between April 2022 and January 2024.

    “Our estimate suggests that this $850 increase in interest costs would have raised rents by less than $10 per month, or just over $2 per week.”

    The research, released in the RBA’s quarterly bulletin, is an attempt by the central bank to refute the commonly held perception that landlords pass simply higher interest rates on to renters.

    While there is a public perception that rents and interest rates tend to move in tandem, the RBA says this is more a case of correlation rather than causation.

    The RBA says: “Pinning down the relationship between interest rates and rents is tricky because both will tend to move together with the economic cycle.

    “For example, a strong economy, with a pick-up in income growth, will see increased demand for rental properties. This will put upward pressure on rents. At the same time, interest rates may be raised to reduce inflationary pressures.”

    So they’re saying that rising rents and rising interest rates tend to occur at the same time, rather than one causing the other.

    The sample period for this research includes two other interest rate tightening cycles, including immediately before and after the global financial crisis.

    RBA governor Michele Bullock said in August the fundamental reason rents were increasing so quickly was because there was not enough housing supply to meet demand.

    Bullock told a parliamentary hearing: “Landlords can only pass on interest rate rises into rents if there is demand for those properties. If there isn’t, then it’s very difficult for them to pass those costs on.”

    The researchers said that housing demand had been strong due to high population growth and an increase in the number of households with spare rooms.

    Meanwhile, supply had been hampered by rising construction costs, which the RBA says have increased 40 per cent over the past four years – although other estimates say they have risen more than 50% in the past three years.

    You could argue that the RBA has a vested interest in the argument they are presenting, because many believe that higher interest rates have driven increases in rents over the last few years - and therefore Bullock and the other financial elites on the RBA board are to blame for the rise and rise of residential rentals.

    What do I think? I don’t think much of the RBA and its arrogant out-of-touch behaviour which sees only economic graphs, charts and numbers – and displays no feeling for the impact of their ivory tower decisions on ordinary Australians, without achieving the end goal of actually taming inflation.

    But, I think they’re correct in this instance.

    Higher interest rates have not caused higher rents. It doesn’t matter how high interest rates go, or any of the other rising costs of property ownership – investors can increase rents ONLY if there’s high demand and low supply.

    It’s historically low vacancies that have caused rents to rise and rise – not high interest rates.
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    5 mins
  • Rental Crisis Deepens

    Rental Crisis Deepens
    Oct 25 2024
    How long could we reasonably expect governments to take, to sort out a problem like the rental shortage? I ask the question because we have had the problem of a shortage of options for tenants in Australia – and the consequent steep rises in rents - for a very long time. And it keeps getting worse, not better. The latest data from SQM Research shows that, nationally, the vacancy rate got a little worse last month, dropping from 1.3% in August to 1.2% in September. Three of our capital cities have vacancies well below 1%. And in six of the eight capital cities, vacancies stayed the same or got smaller in September. In only two cities was there a slight improvement. But the key piece of information is the longevity of this rental shortage crisis. Australia has had vacancies below 1.5% for close to three years now. It’s generally considered that a balanced rental market – one in which there is ample supply of homes for tenants to choose from and rents are stable – is one where vacancies are at least 3%. The data from SQM Research shows that Australia has not had a vacancy rate as high as 3% at any time in the past 20 years. The closest we came was 2.9% in April 2020 after the onset of Covid caused major disruption to property markets. Since then, the national vacancy rate has dropped sharply, reaching 1.2% in March 2022 – and it has hovered between 1% and 1.3% for the past two and a half years. According to SQM Research, a further 1,700 rental properties disappeared from Australia’s rental market in September – at a time when the nation’s population has surpassed 27 million. The SQM report said: “The total number of rental vacancies now stands at 37,932 residential properties, a decrease from 39,665 in August.” There are clear reasons why we have had this steady decline in the number of properties available for rental, a shortage which has caused rents to rise and rise. Mostly, those reasons relate to the decisions of politicians, particularly state politicians, in making life increasingly onerous for the investors who provide over 90% of the homes that people rent in Australia. State and territory governments have increased taxes on investors and have changed the rental laws in ways that have eroded the rights of the owners. This has led to a reduction in the number of homes available for rental. In Victoria, the state with the most onerous conditions for investors including big tax increases, the number of rental properties in the state has fallen by 22,000 so far this year, as the investor exodus gathered momentum on the back of anti-landlord legislation. That’s according to new data from the Department of Families, Fairness and Housing. And its data supports a trend identified in the latest Investor Sentiment Survey published by PIPA – the Property Investment Professionals of Australia (PIPA). The survey described a "sell-off of investment properties around the nation" that has "continuing unabated" and "fuelling fears of an even tighter rental market". But the problem is most acute in Victoria. PIPA Victoria board director Cate Bakos says legislative changes and increased taxes are driving investors from the state. A new land tax regime, minimum rental property standards legislation, and policies that are seen as overly tenant-friendly have caused many investors to sell up in Victoria. Nicola McDougall, the Chair of PIPA says: “This is predominantly due to its plethora of anti-investor rental reforms, as well its new land tax regime that is set to cost investors billions of dollars over the years ahead.” PIPA’s annual investor sentiment survey found Victoria was regarded as the “least accommodating” state or territory for property investors in the nation, with 22% of survey respondents indicating they had sold at least one dwelling in Melbourne in the last year. As a consequence, rental availability has fallen and rents have risen. Data from Domain shows that the vast majority of Melbourne suburbs recorded rent rises this year, continuing a trend that has extended over several years. According to the Domain rent report for the September quarter, the median house rent in Melbourne at the start of 2022 was $440 a week. Now it’s $580 a week. The median unit rent was $375 a week in January 2022 and now it’s $550 a week. That’s an increase of almost 50% in less than three years. But the problems keep getting worse, with NSW being the latest state government to pass new laws detrimental to landlords. REINSW CEO Tim McKibbin says the lessons for the NSW Government are crystal clear but have been disregarded. He says: “The removal of landlords’ rights under the guise of populist rental reforms has had a clear negative impact on renters elsewhere. “The rental reforms by the NSW Government will result in more investors selling up or opting for a short-term accommodation strategy, both of which remove more properties from the private rental market. “This...
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    7 mins