Episode 100 | Host favourites from the last 100 episodes | Veronica Morgan & Chris Bates

Choosing successful investments | Cooling off period | Off-the-plan horror story | Micro market numbers | Developing in the city
In this 100th episode, Veronica Morgan and Chris Bates offer up their top 10 moments to celebrate the overwhelming success of the Elephant in the Room Property Podcast. This is a cracker of an episode that packages up the most interesting stories, powerful tips and unique insights… You’re welcome!

Veronica Morgan Top 5 picks

• Episode 28 - Lynette Malcolm -  Buyers’ remorse and looking at the big picture.

• Episode 35 - Jane Slack Smith - How to use filters in choosing successful investment properties.

• Episode 54 - Jennie Tonner - Risks of buying within the cooling off period.

• Episode 68 - Karen Stiles - A horror story of purchasing from an off-the-plan project

• Episode 81 - Eliza Owen - What led to the recent market correction?

Chris Bates Top 5 Picks

• Episode 40 - Simon Kuestenmacher - Challenges for developers in the city.

• Episode 58 - Nerida Conisbee - Why micro market numbers matter more

• Episode 87 - Kerry Hunt - How has building inspections and certifications changed over time?

• Episode 89 - Brendan Coates - Why tax policy on property negatively impacts the economy?

• Episode 72 - Tim Sharp ‘Dr Happy’ - How our societal motivations and emotions impact our buying decisions.

Links
Work with Veronica? info@gooddeeds.com.au
Work with Chris? hello@wealthful.com.au

EPISODE TRANSCRIPT: 
Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…

Veronica Morgan: You're listening to the elephant in the room property podcast where the big things that never get talked about actually get talked about. I'm Veronica Morgan, real estate agent buyer's agent, cohost of Foxtel's location, location, location Australia and author of a new book auction ready how to buy property even though you're scared shitless.

Chris Bates: and I'm Chris Bates, financial planner, mortgage broker, and together we're going to uncover who's really making the decisions when you buy a property.

Veronica Morgan: Don't forget that you can access the transcript for this episode on the website as well as download our free food or forecast report. Which experts can you trust to get it right, Theelephantintheroom.com.au

Chris Bates: Before we get started, everything we talk about on this podcast is generally nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyers agent. They will tailor and document their advice to your personal circumstances. Now let's get cracking.

Veronica Morgan: Today we're celebrating our 100th episode. Oh my God. Hasn't it been an amazing ride? We've learned so much and we really hope that you have to. Now before we kick off this episode, I want to say a big thank you for listening. Thank you for all those five star reviews and keep them coming and your questions, comments and suggestions throughout the past 18 months or so, we've taken on board all of your feedback and even some of the more challenging, uh, constructive comments have been very carefully considered. So we do thank you all now for this milestone episode, Chris and I decided to pick our top five episodes and share why we liked them so much. But um, I cheated. We already have an episode with the greatest learnings from the first 25 apps and you can actually go back and listen to that. That's a episode 50 so I just focused on the next 75 or really 74 cause this is number a hundred and then I found a way to whittle it down to 25 and I'll explain how in a moment. Now. Sorry, Chris. I know you're probably so conscientious that you listened to all a hundred episodes in preparation on double time to pick your favorites.

Chris Bates: I mean, it was pretty, uh, a mind blowing experience to look back at them actually, and uh, you know, stop and think about every episode. Um, the top five just to, it's not really, um, yeah, I just kinda went, well, let's just pick one about five different things and they just, you know, grabs, I actually could've pulled a graph out of pretty much every episode.

Veronica Morgan: In fact, after I chose my father, I felt really guilty for all the rest because it's so good.

Chris Bates: Well, that's right, isn't it? And then even when I went to those episodes, I actually like got multiple. I just went, Oh, that's good. Oh, that's good. I really like that. And so it wasn't even hard finding a grab either. So, um, that was my experience. But I also think, you know, going back and going, so we've got a hundred hours, let's call it, of content. That usually takes, probably taken us maybe 200 hours to produce it. Then plus all the editing and the time, you know, we've probably spent maybe 600 hours on this over the last 18 months. So it's been a lot of work that we've kind of done, but it's been extremely rewarding. So, um, it's amazing looking back on it all.

Veronica Morgan: Yeah. So those first 25 episodes I mentioned, they were actually foundational. Um, and we really dug into the behavioral biases that trip us up in the way agents and auctioneers can influence us in ways we aren't even aware of. And sometimes they're not even aware of what they're doing either. So if you want to check out those insights, do please go back to episode 50. So to kick this episode off, my thoughts first turn to the most spirited conversations. And for me, many of these were actually with women we've had in the show and you know that the property industry is still dominated by men and our guest ratio of two to one reflects this. Um, although I would say it was probably better, you know, it's probably better than the industry to be quite Frank. So I duly cut down my homework a third of those remaining 75 according to, I only looked at the ones that we interviewed women. Um, so I cheated. No, I'm going to give some of my female colleagues a shout out here and a call out for you listeners to please let us know of any other women you think we should be talking to.

Chris Bates: Feminist in mirror. I'm a feminist worry. I'm a feminist too. So I mean, how did I do my five? You're probably thinking, yeah, I took mine a bit more of a statistically proven, um, than just focusing on one part of the sexist. But anyway, uh, my five, I just, um, obviously we've done quite a few episodes on demographics, Mark McCrindle, you know, Simon, et cetera. So, uh, and I do love that part of the property discussion. I think that is key. So I did one episode on, uh, demographics. Um, we've done quite a lot of episodes on data, you know, Kent core logic, we've had lots of different, um, people about data. So I picked one episode on data that I thought was really interesting. Um, certification of buildings. Obviously that was, we timed it pretty well. The elephant in the room, we didn't think we knew that was an elephant, but we didn't think society would um, do the job for us there and that would all come out. So that was interesting. I took a bit of a controversial episode on tax. Um, I mean I do like talking about tax and legislation and where it's going. So that was a great chat. And finally I think, you know, what we're all here for is obviously the bringing it all together around what home means to people. So that was my final fourth or yes, the opposite of wishful thinking. Yes.

Veronica Morgan: Okay. Well back in episode 28, I had a very refreshing conversation with Lynette Malcolm, a sales agent from Sydney's up in North shore. She really enlightened me on how important school catchment areas are and then anxiety around schooling that drives some purchasing decisions. And it's not often you hear a sales agent talk about buyer and what happens

Veronica Morgan: when people buy the wrong property. She was pretty Frank. There was a couple of times, even when she said, well, God, I hope nobody's listening to this one.

Veronica Morgan: It can go both ways. Canada, I mean, some people take so long to make a decision that they'd never make a decision and then others make them so quickly and you think, Oh my God, did you take a moment? Did you actually take a breath in that hole? Just think of the magnitude of what you're about to commit yourself to and if it's not right, you are going to be living with regrets.

Lynette Malcolm: Absolutely. I sold a property to somebody in January and four months later they called me and went, actually our son's moving back in. This doesn't work for us. Okay. Thought it may be that might happen, and then they were like, Oh, can we get the purchase price plus stamp duty plus agents phase and marketing phase back? Oh no, probably not. No.

Veronica Morgan: Maybe she thought of that, you know? Or it can be a bit callous, impatient, I guess with people because I think why people rushed these decisions because it, because like you say this January, we are recording this. In July, you know, six months later, um, they've realized, Oh, we don't have enough rooms cause our songs come back to home to haunt us. I know it was like, you should just tell him it's sorry. There's no room. Right. And I mean there's, you know, there's, there's other things that people need to do as well and they need to go out and get therapy before they let their kids leave, come back a D. but yes, that, that is interesting. How many people would you think actually do buy the wrong home?

Lynette Malcolm: Um, I think I, I think there's buyer remorse and I think that that needs to be isolated from buying the wrong property because often I have buyers call me, even if they, I had one a couple weeks ago where this lady, I've been helping for six months.

Lynette Malcolm: Like, you know, she bought a property at auction and called me the next morning freaking out asking me if I could help her ring the agent and try and get out of the contract. Um, I calmed it down and said, Byron moth that that's, that's kind of a normal emotional process. I said, leave it a few days. She rang me and she was like, God, I, it's actually fine. We're really excited about it. Now it's just kind of King. But I think probably five to 10% of people that that buy, I mean circumstances change. But if you purely look at people that have bought a house for a timing, um, example rather than, you know, just to try and avoid renting or trying to move twice or I think a lot of people settle whether or not they admit that, cause a lot of people then stay there for the next 10 years just to, to just be cause yeah. Um, they don't want to do it again, but I'd say yeah, that's the thing. I mean the thing about real estate, no one wants to move. You identify that you don't want to be where you are or you need to be somewhere else. And the whole process in between, um, Josh Phegan, uh, my, my trainer says if you could just put a bar, push a button and someone does everything else in the middle for you, everyone be so happy. No one wants to go to homes. No one wants to talk to real estate agents.

Veronica Morgan: Well, that's what we do. Buyers, if you want to push a button, that's what we do for you but yeah, I mean, what I find all jokes aside is that, you know, I've got a bit of a saying as in limbo is no place to live. And yet people do spend years and years in limbo vacillating between, you know, should I renovate the house? Should I move into a different area? Oh, well what if my son comes home? What if these work? And they bounce around usually inside their own heads often. Or they might even go out there and get plans drawn up for their property and spend 50 grand and then realizing that no one never get what they want.

Lynette Malcolm: The amount of properties that I sell. And people go, Oh, we have these plans drawn up by an architect five years ago. And I'm like, well, did you, Oh no, we decided not to do it. Okay. Yeah,

Veronica Morgan: why?

Lynette Malcolm: Alright, well we'll, we'll get them to the next person to go and live your dream. Shall we and.

Veronica Morgan: how many people buying a property with plans approved actually go ahead and build the plans approved.

Lynette Malcolm: Everyone changes their mind.

Veronica Morgan: Oh dear. So yes. So I think that, you know, as I said, I observed that people do spend quite a lot of years in Hanks, but there's also a couples, you're dealing with a lot of families, so therefore we've got husbands and wives or how many wives and wives and husbands and husbands do you have out there?

Lynette Malcolm: Not as many,

Veronica Morgan: not as many as we do, where live.

Lynette Malcolm: very conservative market.

Veronica Morgan: So let's predominantly husbands and wives, um,

Lynette Malcolm: and ex wives and exiles,

Veronica Morgan: medics wise and ex-husbands.

Chris Bates: Yeah. So it's actually a really common thing and it's a, I'll actually deal with it quite a lot actually because we talk about the buy versus the sell first. Um, and it just recently actually it was a quite a beat transaction. It was moving within Mosman. Um, and you know, so the, the difference between getting these two decisions right and wrongs obviously amplified because on a dollar terms, because you're, you know, you stamp Judy your selling costs and things like that. And also that part of the market, you know, this is, yeah, three, five and $8 million properties. But this, this part of the market obviously is much more volatile and harder to find buyers and sellers. You will just assume because it's obviously less stock. So, but they are I guess fixated that they did not want to move twice and they were doing everything they can to get there.

Chris Bates: And you know, for me, I was saying just go rent a super nice Airbnb go, you know, even if it's very expensive for a couple of months just to get you through this because you can afford to, because if the decision, you know, if a 5% more on the buy or 5% more on the sale or vice versa, you're talking hundreds of thousands of dollars and um,

Veronica Morgan: and they lose sight of what they really want because they, they're too fearful about being homeless.

Chris Bates: Yeah. And I do. And in the decision of actually the sell versus the buy, cause they were trying to transact on the same day. They were both like, you know, in the same pond. Right. So you're there buying was getting confused for the sale and that was motivating them on the buy and then to throw another element in there, yes they had a buyer's agent, but another element in there, it was the same agent they were trying to buy and sell off.

Chris Bates: So it was, it was a very interesting thing and that's, but that's very common. Most people do want to avoid that second move. And I think as soon as you do that, you start to change the way you approach things and you start to compromise on what you buy, which is what Lynette basically just said. She sees that that buyer come along and basically buy the wrong property.

Veronica Morgan: You got to suck it up and stay there till the kids finish school.

Chris Bates: Yeah. It's not a good look.

Veronica Morgan: or I shouldn't laugh. That's really not nice of me to laugh at that is it? It's actually a bit sad.

Chris Bates: No, but we are not saying in a bathroom. We're just conscious of this is what people do. But I mean, that's the reality because you can't be then saying to your friends and your family and, Oh, we bought the wrong house, we're gonna buy another one. Yeah. So that's, that's when a bit of pride comes into it, which, uh, pride doesn't really make you happy, does it? So, uh, you know, you've got to potentially buy the bulletins, bite the bullet.

Veronica Morgan: So what was your first episode to talk about?

Chris Bates: Um, I mean a Simon Kuestenmacher. I think I can say his name now, but, uh, obviously if, you know, he's part of demographics group, we burn out salt and I just think that, uh, his European sort of global view, um, you know, it's when you, when you were in Australia in our own little Australian bubble, I think his views very different coming from Germany and then looking at the way our cities, uh, basically built. And it has very interesting insights.

Simon K: But then we built the, into this, we built ourselves into the corner of fast population growth. Melbourne alone, edit 1 million people over the last 10 years. That is rapid population growth. So if you go from 4 million people to 5 million people in 10 years, you need to provide an awful lot of housing. It's about, let's call it two and a half. Um, people put dwelling, that means you have to add 400,000. You need to build them fast. And if you need to build housing faster, only it picked developers who can provide that type of housing at scale and pick developers can only build two types of housing. They can build big fat towers in the CVD, which is what they're building. If you, if you occasionally come to Melbourne, you'll always be surprised, plop, plop, plop, there's a new tower every time you come to Melbourne and they can build on Greenfield sites on the city fringe.

Simon K: And so you have exactly these two developments popping up. There is in, in plan Melbourne, which is the big strategic planning document that is supposed to manage the, the growth future growth of Melbourne. We talk a lot about, um, densification of the middle suburbs and this densification just means if there's an old house, knock it down, build to in our bill. It may be a three story apartment block somewhere. These are, that's how you densify a suburb and that's good. But this is painfully slow. And these projects are tiny for a big developer. Yeah. And they're probably big though for the individual investor. So that means just with this speed of growth, we locked ourselves into a certain geographical setup of growth. And that means that, um, the CBD, because we're also a nation that is centered around work, what comes first when you make a housing decision?

Simon K: So we first know where we work and then we come up with some sort of radius. We say, Oh, maybe I'm willing to commute for 40 minutes an hour. I have something in mind. So I draw a radius, then I draw a radius around. I Mark in my mental map. I Mark, um, transport corridors, maybe a good route, maybe a train station. Then I might consider schools where our schools, and so this way I'm narrowing down my areas where I want to buy. And then I also have financial limitations so it shrinks and shrinks and everybody is doing the same. Who works in the CBDs in the city center. So therefore you have this really highly expensive ring around the cities. And this is kind of where, where we are now. This is how we got stuck there. And this is how we price certain people out of the, out of the inner suburbs, which is problematic because there are basic professions that we just need to maintain our cities. And so you have nurses and just city city workers. They are just a forced forced out of this area. And so there are potential policy solutions to be put in place to actually ensure that there is certain housing, um, accounted for for essentially workers

Chris Bates: three points already liking, um, in this grab. And I think all our grabs, I think you me is that we just picked visually one part of it and there's a full conversation. But um, and I think it was really easy to find a grab. I just went all that. That's good. Let's use that. Um, but he made two good points. So the first one is we were kind of screwed in terms of the way that we built our cities because you know, we need to be a fast growing population. We need to keep building and the only way to keep doing that is to do things on scale. And we can only way we can do that on scale is build high rises or build Greenfield sorta house and land packages. And we can't really change that middle very fast up and.

Veronica Morgan: out. And there's a bit of a hole in the middle is that we saying.

Chris Bates: yeah. And rather than here, he's from in Germany and all lots of places in the world, there's a really strong middle that's maybe six levels high built of absolute quality, you know, things that will last hundreds of years, not five years. Um, and so we just haven't got that. And I think it's really interesting to have that observation and that, you know what, there's no real solution there. The second point, heartening isn't it?

Veronica Morgan: It's never a solution. What does have to do with it? We will. It's pragmatic grail isn't it?

Chris Bates: Yeah, exactly. I mean, cause the only way to deal is to kind of build townhouses and you know, they're slow and steady and we're just not going to be able to,

Veronica Morgan: nobody wants to knock over or middle suburbia or either, do you know what I mean? No one wants to go and plow. I mean, well actually some people do want to go and plow through streets, um, houses and, and redevelop it. And there's areas where you can, but there's other areas where you can't, you know, they're nice conservation areas.

Chris Bates: Yeah. It's interesting. I have actually started to see like blocks coming up, you know, I think that's a way the developers are going to go with the council and actually change a full block, you know, 20 houses and then build a six levels or four levels. And I think that's what we will start to see over the next decade because we have to change this way that we do it. And whether that's right or wrong, but after you think it's going to happen. The second thing is I think it's, um, you know, the way that people think about buying property. I think Simon has a very realistic view that they don't look at it, um, you know, very deeply. They just say, well, where do I work? You know, here and I don't will, how far can I commute? Well, this March and you know, then they do a radius and they say, well, I want to buy somewhere around here.

Veronica Morgan: All reasonable though, isn't it?

Chris Bates: Yeah, it is. But I just think that it's, it's like it's not very scientific and they're looking at everything and weighing Riyadh. They kind of like just drawing a map and go, well, these suburbs or do, um, and that when you've got everyone with jobs just in the CBD, you can see why everyone just wants to live around the city. Um, and so that's, that's I thought was really interesting as well.

Veronica Morgan: Well, another thing that I've loved about doing this podcast is that we interview everybody in person. So we've done a breezy trip and when a couple in Melbourne and our first ever Melbourne interview was with Jane Slack Smith in episode 35, another energetic, fun and informative conversation. Now, Jane's really big on choosing locations to invest based on underlying market foundations. And she shared with us the filters that she uses to shortlist suburbs for a more detailed analysis.

Jane S.S.: I've run through all of these suburbs every single month. And so I grabbed SQM as research data, look at over 8,000 suburbs. I put in just my top five filters that are things around, you know, and I'd start.

Veronica Morgan: What are your filters.

Jane S.S.: Well first of all, I'm putting price and the medium price are in Australia around 600 so 600 up to 1.2 because we know that yields are really low over that million dollar Mark. So we're thinking in investors 601.2 I then look at percentage of renters because it's.

Veronica Morgan: cut it in for sec. Why don't you look under 600,000 um,

Jane S.S.: well I'm kind of looking at the median, so I do expand that out to 250,000 up to 1.2 million. But I know that's predominantly getting us into regional areas. Now the regional areas are being more resilient at the moment. Then the capital cities that have had some negative growth, but that's more due to an affordability play of people moving to the balance of the Geelong's that the central coast Newcastle wall and gongs kind of areas rather than the fact that you know, there's a bit of markets underlying market. So if I look at say 600 to 1.2, well even if I look at two 50 to 1.2 million and I look at the percentage of renters. So for me, I want to have a property that I can rent out and I want to have a property that he's um, well there's renters want to be there. It's about supply and demand. So I'm looking at a minimum of 30% renters within an area.

Chris Bates: Okay. Do you have a maximum.

Jane S.S.: 70%. Wow. So I, I definitely and then that does change in case the area is like units versus houses. So the predominant property. So I definitely look at what the predominant property in the area as well. So I want to make sure the house is the predominant property.

Veronica Morgan: That's sorta interesting because one of the foundations of long, you know, long term capital growth, ease owner, occupier demand and willingness and ability to buy property in that area. And you look at a lot of these areas that have will suburbs and locations such as mining towns, classic example of you know more than probably they probably had more than 70% in business stock I guess. Um, but where you've got that sort of critical mass that if, if all the investors evacuated market, you've got to be left with owner occupies it can, can and will pay the money to, to live there. So that 70% is interesting that you'll say you go up to that. But on the flip side of that, cause you, you made a lot of other people that will say they won't go over 30% investor stock, which I can understand that too. Potts point in Sydney for instance, is one of the suburbs. I think it has the highest dollar per square meter for apartments. It's a great place to live, like ultimately a smile long term plan on leaving Potts point.

Veronica Morgan: But it's 60, 68% investment property, you know, I, sorry. So people who use just figures without thinking.

Jane S.S.: Exactly. And that's all units though.

Veronica Morgan: Yes. And use all units. So you need in your guidelines or you wouldn't buy there. But, but once again it comes down to that local knowledge. I'm sure you're getting to that, but I just had to cut in and say absolutely. Guidelines are fabulous.

Jane S.S.: And, and it's, and this is my first pass. Like I have a whole structured excellent. So this is a, this is my first pass of going through over 8,000 suburbs, uh, major regionals and capital cities. So I've, I've applied between 250001.2 million. I look at a over 30% renters. I look at making sure that that suburb has actually met or achieved higher than what the, um, city's average last 10 year growth is. I don't want to be in, you know, the outliers suburb that I'm predicting. It's going to be the horse that comes from the back.

Veronica Morgan: It has to go better because everything else has,

Jane S.S.: I want to see some underlying demand. I then want to have a look at vacancy rates, things like, you know, I want to Vegas, right? Less than 3% now, which is pretty much cuts out most of Perth at the moment, let's be honest. Yes. But we are looking at, so I'm just looking at fundamental investment grade things and if I do that and apply that to over eight and a half thousand suburbs every single month, I get less than 330 then I would start looking at in all of Australia,

Veronica Morgan: it's fabulous. And then that's cutting down to less than 5%.

Jane S.S.: Exactly. And so then I, and then I moved from there. I start getting into more detail. So, you know, as an investor, I'm not going to go into an area that has 20 sales a year. You know, I have time that I want to invest in finding a property. It's not the next two years whilst I'm waiting for the perfect property. So then I have some investment things, but I also then get back to yields and you know, um, income in the area. So I have a, a huge criteria that I filter down to, but just to think, out of all of the 250,000 to one point $2 million purchase price over eight and a half thousand suburbs, we start with less than three 50. And then we get into the data. There's, you know, there's people out there who, who will start buying around the corner because they know the market or their taxi driver Thomas the idea or their financial planner tells them they should buy a property and they put it they accountant or their account and this is what upsets me. These people are at the pointy end of having the conversation of saying to people, this is your future and don't just go and buy a property because it's time for you to get some negative gearing or something. Your location is key.

Jane S.S.: Our conversation with Jane, I thought it was, um, I mean she's super honored to write like she, I think she's got a supermind for this stuff. Do you agree? Like she's, you know, the way that she was approaching her thought process with this is pretty smart.

Veronica Morgan: It's very scientific. I mean, she's a minor. She was originally a mining engineer, so she's just basically taken that same method. Methodological is that even a word, methodical thinking and, and it's a prison that she looked at the property market. So, you know, it's been developed over years and years and years. And it's just a very interesting way to, to whittle through what could be overwhelming data for people.

Chris Bates: Yeah. I love to actually see his, I was, I'm pretty sure it could be that similar suburbs. So what you and I would want to look at, you know, where you've got good owner occupied a man close to the city, you know, where carbs and good streets and all that sort of sort of jazz. But I do think that sort of approach is good because the reality is that's how few suburbs you probably should be investing in out of 6,000. So I thought that was, um, that's really smart. I think the other point you made there, which I, you know, it is a big bugbear of probably may and you I guess where, uh, property, um, people who want to buy property go to people that they trust or they think they trust. And then I get recommended to buy some property that that person may know someone.

Chris Bates: Um, and you know, I even say it all the time and I've just recently, I've a client that came on board and he says, Oh yeah, my friend who's a mortgage broker, um, recommended we buy this property. I said, no, he's our friend. He's, he as a, yeah. So it was not very good advice, is it really? And he's like, well, no, not real. I said, well, you know, you need to really kind of be accountable to it because he's, he's kind of forced you to buy. In that case, it was an off the plan. Um, and so, you know, it needs a big bugbear. And I mean, when people say it's for tax reasons, I do think this is a bit of a consumer problem though as well. Um, where we go asking to solve our tax problem. And then I give you something that potentially does solve a tax problem, but it doesn't buy you a good investments and other problems.

Veronica Morgan: Yeah, much bigger. I'd rather pay a little bit of tax than lose a lot of money on a really bad investment.

Chris Bates: Yeah. And I think most people understand that. So I, once I get that, I will unpack that a bit and we will talk through what are you really trying to achieve here? What I'm trying to build wealth for my future. I got, well hang on, this isn't really going to do that for these brews. And they go, actually, yeah, okay. I haven't really got a tax problem. I've got a wealth building problem that I want to solve. But these type of assets, not the, right,

Veronica Morgan: well, it's asking the right questions, isn't it? Because you know, yeah. We just meet so many people that have believed that property is the only answer. And, and I think one of the things that we came up, and I can't remember who we were talking to, but this was just a great insight, was that that really and truly, if you don't have the income to support investing in property, you can't really afford to invest in property. But the problem is a lot of people, this, they're sold this dream of replacing their income is property. But it's the other way around. And I know it's elitist and I know it that really does foster the rich getting richer and the poor not getting richer, but it's a fact.

Chris Bates: Yeah, I think this is getting, uh, well it is, you know, you've got books like zero to a hundred properties in three and a half years. Um, you know, and that's just one title. There's plenty of titles like this out there where, um, you know, property doubles every seven years and all, you know, so, and a lot of people do think they've potentially seen some type of growth on their property. And I would argue that once you take into consideration all the costs, I really like that a lot of properties aren't really growing that much and so, but they, they go, I bought it in 1995 and it's now worth doubled in price. So it's a good investment. Well maybe, maybe not, but you're right. Like a lot of people do go, well I should become a property investor. That's, that's the only way that works. I like bricks and mortar and I just don't believe that, you know, the quality of assets they're buying is going to be a return worth investing in a lot of the time. So, um, you're right. I do think that you need actual, you know, good amount of money to invest and unfortunately, anyway, you're going to get that he's generally have higher income

Veronica Morgan: to go back to school, study, study, study, get yourself a good career.

Chris Bates: It's interesting. I've got this client came up to me last week, 24 off LinkedIn and he's like, look, I want to get some advice. I was like, mate, you know, 24 coming for advice. I actually think he's younger than 24 ish. I'll say hats off to you because you know, you're even thinking about these things. Most 24 year olds aren't even thinking about this. Um, but he's like, you know what, some advice, I'll start while to be honest, like you starting out in your career, you're obviously pretty switched on. Um, just work on your income, like work on following passions you enjoy, but that will allow you to do things in the future. So I'd be putting more of my time, energy on working on your personal skills and um, you know, that'll then create opportunities in the future, not trying to solve your dreams by buying property. Um,

Veronica Morgan: and when you get afforded by a really good one for your foundational stone, that's going to help set you up forever. But the problem is when they rush it and they buy really crap one for their first one, and I'm unpacking, unraveling that, you know, the waste a decade or more.

Chris Bates: So th so in this situation, yeah, I mean, it's, he has actually bought one that wasn't probably on reflection. He knows that because he's listened to this podcast. Um, and uh, and you know, and I think he's, it wasn't horrible property at all. And like it's just, you know, if he has always Han salt Rodney, he knows. So he goes, well yeah, no, that's potentially, so now he's gonna educate him on what his next move should be. And I was just thought, well yeah, before we look at that, let's, let's look at the other things stopping you. And that's not even savings actually. He's done really well. It's really just income. So let's focus on that and then we'll come back to the property stuff in a couple of years.

Veronica Morgan: Love it. So what's your next episode?

Chris Bates: So the next episode I picked was all around data. You know, this Nerida Conisbee from REI was just one of them. But I do love when people kind of talk about the market and most media outlets do and then get someone like Neirda to come on and kind of just admit that the market numbers are kind of not, what matters is micro markets. And so it's a very interesting conversation,

Veronica Morgan: which is really different.

Chris Bates: You know, I find that a lot of media outlets want to get economists' opinion on property, but you know, they haven't got 20 years working in property. So, you know, why do they go to economists who haven't really, no. Do they don't study property? How does that all work? You know?

Nerida Conisbee: Yeah. I mean, some, some, some are really good. Like, you know, you can tell that they understand the fundamentals, but you know, you do find some of them try to treat property like equities or you know, like a bond or, you know, they, they don't look at it the same way as, as people who have been in the industry for a long time. So they don't understand, um, particularly the, the differences, you know, how, how diverse properties, you know, when you're talking, you know, when we're talking Sydney right now, um, you know, it's quite different to what we're seeing in Hobart.

Nerida Conisbee: For example, if you, you're talking Perth, you know, Perth, if you read the headlines, looks bad news for a long time, but you go to Cottesloe and we're, we're seeing really decent growth in both rates and also values. So you know, these highly diverse and um, and also I guess the emotional appeal of property that, you know, if you're buying Facebook shares, you know, you're kind of buying them because you know, perhaps investment fundamental, you know, likely because investment fundamentals, but you know, the drivers of buying a home and particularly an owner occupier is often nothing to do with the investment fundamentals. It's about, you know, family or it's about kids' school or I really loved the area or.

Chris Bates: you've touched on the two big points, right? Markets within markets, within markets. And so when you talk about the property market, it's pretty pointless. But if you talk about Cottesloe housing market, that's a different conversation. So I think you're right. I think a lot of economists do like to play the Oh, proper Australian property market is going to fall 11% well what does that mean? People don't buy the Australian property market, they buy a house in Cottesloe and your other big point there was around home ownership and that drives a bigger portion of the market than the investor market, you know, maybe 70. So if you don't understand how owner occupies think and what they really want, how are you going to understand the property market before you joined REI, did you understand, you know, the markets within markets as much as you do now because you know, seeing access to all the data that you have now that's probably helps you to see what people are actually doing?

Nerida Conisbee: Yeah, I mean it blows me away how much data we have. We, um, one of the things that is really exciting for us is the search start off for me really. I didn't give her an Alphonse it to internally, but, but for me, the um, the search data is what I find so fascinating because, you know, we, we kind of have, you know, mean people in property know that, you know, being near a good school, you know, probably make sense and it's good for value or you know, a train station. But you know, we can, we can see that, you know, we can see that some areas, um, people are far more drawn to. Um, you know, we can see switching behavior. You know, when prices get too expensive in a suburb, we can see people move away. Like manly was a good example. It hit three mill median. Um, we started to see search activity move inland in the Northern beaches.

Veronica Morgan: I love that.

Nerida Conisbee: Yeah. It's fascinating. Like, you know what, you kind of know it, you know, and probably, you know, for sure if you spoke to a real estate agent in the area, they'd be like, Oh, and you know, Manley's getting big. Yeah. By saying people go to Narrabeen or not Narrabeen probably not, but land behind.

Chris Bates: No. But that's really, it's a rip ripple effects, right? So, you know, one suburb becomes, and this is what happens in a boom is one suburb becomes too expensive. People get priced out, they miss out at auctions, where do they go shopping the next suburb and then they go there and then that gets too expensive, et cetera. So you're, you're, you're saying that you can actually say lots of data that proves that

Veronica Morgan: back again the other direction right now?

Nerida Conisbee: Yeah, exactly. I was about to say, we can say Manley's gone back up the list. So you know, now that prices are dropping or premium premium Sydney suburbs are being pushed back up the list, which they really dropped out the last couple of years is people were a little bit fearful about what was happening there and you know, looking for cheaper options.

Veronica Morgan: And that is actually really funny. Fascinating because, um, look, many of you may have listened to the episode with, uh, Dr. Andrew Wilson. Um, we got some mixed feedback on that one, actually didn't we? But one of the things that he really, he was really pushing the, the, the macro was all that matters. And we were, we were sort of coming out and go, well actually the micro matters. And, and he was saying basically as an economist, so I can't be worried about the micro. I have to think of the macro and I, and I do understand that as well. Um, but I think what was really interesting about our conversation with narrative, it was like there's a lot of micro stuff going on and, and, and fundamentally what it comes down to is individual buyer behavior that can create little waves in, in certain suburbs that are very micro. Even if you remember going back to God, was it episode nine?

Veronica Morgan: I think we looked Metcalf and he's got a whole website called micro burbs. Um, it's, it's really important to understand that in order to make good property decisions because that's the difference between buying a lemon and, uh, you know, a rocket, you know, it's, it's understanding the micro movement stuff. And so if you're in Perth and you buy in the one subgroup, I don't know if there's more than one suburb that actually have done all right in that time, but it's important to understand that whereas if you're looking at only the macro, you would just, you will miss things or you might actually go and buy something based on this macro data and actually buy the completely wrong thing and lose money when everyone else is making money.

Chris Bates: Yeah, I mean, I, I, you know, Veronica has accused me of being a conspiracy theory, uh, quite a few times on this podcast. And I kind of asked her the question, actually, you know, how good is her daughter? And in the reality is, it's amazing because she, what she gets access to is what people are actually sitting on their computers in LA Andrew room on there on the bus to work, you know, wherever they are. Um, and that search data is kind of like a leading indicator. And so if you, the important thing isn't it? Yeah. And if you can see that like you went when, how much people are checking. Like if someone's looking at 15 times a day in, you know, that suburb, it's a pretty good idea that they are very hot to buy. So if you can then

Veronica Morgan: predict the market's about to take off because all of a sudden people start looking, what's the thing they do before they buy, they start to look. So that's quite incredible isn't it? They, they are in a position to be able to say the market's about to take off.

Chris Bates: Yeah. And that's, and that's I think the, you know, always like listen, she has got, you know, when I heard her name pops up, always kind of read it. Cause I do think she's got some super data. There's some secret sauce that we don't have. The other thing she spoke about was the ripple effect and the ripple effect. Um, we've seen it in full swing cause we've gone through a full cycle now. We've gone from 2012 where the market started to take off. And you could see every suburb got too expensive, price people out went all the way out to Penrith like crazy. And then it's unwind all the way back into the premium suburb.

Chris Bates: And I'm why it's interesting with booms, they take a lot, they go and it's the same in other assets like you know, shares, they, they, you know, it's kind of going up the stairs and down the, the elevator I think it is. Um, so you know, they take a long time to get up and then they go down really fast. And so you can see that with the Sydney market, I mean they went up 60% and drop 15%, but it was 15% on the highest number. So really it was probably more like 25, 30% of the 60% got lost.

Veronica Morgan: So once again, individual properties fill at different rates, individual suburbs fill at different rates. Some of them are bounced back way beyond what they would have been worth beforehand. I mean, there's this, you know, it once again, it comes back to that micro understanding what's going on.

Chris Bates: So true. I mean a lot. I love the daily Telegraph, but I was reading the daily Telegraph on the weekend. Um, and you know, there was a half page spread on halfway a 10 page 10 and it was literally over the last 10 years there was a, what suburbs have gone up, some suburbs gone up 120%, some suburbs gone up 40%. And I was like, wow, this is daily Telegraph reporting about micro markets. Um, you know, and not in a futuristic sort of where the market's going, but on a look back. Yeah. And it was interesting. So I that was really interesting. I never though

Veronica Morgan: in episode 54 we interviewed our first conveyancer Jenny Tauna and we found out a myriad of ways in which buyers can become unstuck with contracts. In particular, Jenny shared with us a little understood the risk of buying with the cooling off period. And we also discussed what happens with unfair contract clauses when market conditions shift the power from buyer to seller and back again. Now as you all know, Chris and I are not fans of buying off the plan. It turns out that Jenny isn't either and she explained very well some of the pitfalls the buyers can unwittingly fall into when it comes to the contract of sale.

Jennie Tonner: Well it classic example is they go to an open a display home and they're kind of like, Oh, you're going to miss out and we don't like to miss out. So they'll go in and they'll commit and they'll sign a contract on that Saturday, they'll put down their cooling off deposit and I've got five days to one get a contract to go through that contract. Three try and negotiate changes. And you guys will know that developer contracts are very fender friendly a lot of the time. And once you're in a cooling off contract, once you've exchanged, I have the right to ask for changes, but they have no obligation to agree to them. So if we're not in a call off, then I've got much more of a leg to stand on to try and get changes to a contract. So I always try to say to clients, please don't sign a cooling off contract tiller. Let me look at it and try. And then before you do it.

Veronica Morgan: And that's an excellent point, listeners, because what, okay, in new South Wales, right? And we're talking about new South Wales conveyancing here, right? Um, and, and roughly the same principle applies throughout the country, but in new South Wales is a thing called a 66 w. so that is a, a can a certificate. And I'm sure you can explain what that is, but I mean, look, I'll quickly explain it. You can go into more detail that's, that's a certificate where the conveyance or the solicitor actually waves the purchases cooling off rights away, right? And if you get a buy under those conditions, well then you have to have done all your checks and had your contract reviewed and all that sort of stuff before you actually sign the dotted line. But if you sign with the cooling off period, the idea of that is actually been created. You protect consumers. Okay? So the idea is you can sign a contract, ms or mr buyer, and then in the cooling off period, you can iron out all the problems. But what you're saying is that it's not that easy to iron them out in the cooling off period.

Jennie Tonner: No, and depending on the developer, they will just simply flat out refuse to even discuss their contract. I won't even commit to deleting a land tax adjustment for a first home buyer. You know? So something as simple as that. It's um,

Chris Bates: that's right though, isn't it? The developers contract and you know, from what I've seen is it's not just a quickly put together. These things are being carefully crafted to stop basically buyers changing anything or pulling out. There's so many clauses in them. So after you sign that contract, not just for off the plan, it's also when you're buying established, right? You should never sign a contract and just think, Oh well I've got the five day cooling off because why would you, if you want to change something in that contract, you're saying it's pretty much impossible.

Jennie Tonner: Yeah. So it's really interesting now because cooling off both off the plan and established you where it was brought in specifically to allow people to get their property off the market and get their due diligence done rather than Baker's Amish because there was a period of just constant cause I'm paying by purchases while they were waiting for loan approval, pest and building, blah blah. And so it allows the purchaser to take it out of the market while they do that and instead of losing 10% they lose the 0.25% that's the benefit for the purchaser. But the risk is if they can't proceed or they can't continue for any reason, whether it's the contract has, you know, horrendous conditions or the Peston building, they lose the 0.25% and that and that and that's what the vendor gets for having their property taken out of the market.

Veronica Morgan: And let's just put that in context to say you're buying a property and you've offered $1 million. That means that you're going to pay two and a half thousand dollars for the privilege of actually taking that property off the market. While you've got yourself organized and if you back out of it, then you leave that with the vendor.

Chris Bates: But you should never, it sounds like this, you should never do that without sort of getting the contract still checked.

Jennie Tonner: Yeah. I just, I can't emphasize that enough. And it comes down to what, you know, people are in this market, they don't want to pay for something if they're not sure they want to proceed with it. And this is just a constant thing that I've got to try and get people to understand that. Is it really worth the $200 of my advice on a contract or the $400 on a piston building or a strata report or um, at the risk of, of losing or not being able to complete your $2 million property.

Veronica Morgan: It's, it's just not seeing, cause like you say, people don't want to spend money if they're not sure they want to go ahead with it. And it's like I've got a wine that back even. And so if you're not sure you want to go ahead with it, why even going down that path? Because once you start going in that path, you probably will end up buying it, you know, and then you might make the mistake, you know, you might make a massive mistake. It's easier to make mistakes and it is not make mistakes when it comes to property.

Chris Bates: But a lot of buyers think that all contracts are equal. Right? Is that correct or is there.

Jennie Tonner: a standard residential contract in the market is relatively standard, but I mean, I'm still astounded by some of the contracts. I say, uh, you know, you'll have a standard contract where it'll be a completion period, a default interest if you don't complete, um, the right to serve a notice, uh, state of condition repair, blah, blah. But then I'll say some contracts where they'll say, if you don't do this, you don't deliver the transfer within so many days, we're going to charge you $300 plus GST. If you wake up, you know that there was one contract I've seen where the vendor's solicitors drafted a contract where if you didn't complete on the completion date, if the purchaser didn't complete the vendor solicitor had the right to charge you nearly $2,000 more to cover what they considered was additional legal fees and, and there's nothing around that to stop it. And in the market that we've had the last six years or so, you can't negotiate them out because you've just got to exchange as quickly as you can if you want that property.

Chris Bates: Jenny's super on the ball, I mean we use it with lots of clients and I think there's you, you need someone in your corner that'll little fight for the contract cause they've seen over many years where things go wrong and you know, buying off the plan, you know, she's seen it, you know, things are conveyances as well. Like they're not involved with the purchasing decision like that. Generally it's like can you read this contract and can we buy it? And it's not really their responsibility to kind of get in there and say, should you be buying this or not? Like she's a different job, but you know, and so while we don't, I don't really say too much off the plan. Like, I'll, we'll help someone if they come and they go, I need to settle this, can you help? But we don't encourage people that way.

Chris Bates: So we don't say too much really. We see the results and how things go up and down. But Jenny sees it and she sees it all the time and she sees the problems around people not settling and how long it takes and things like that. So it, someone with that experience sees it. It's a big warning sign that, you know, you should avoid this type of contract and property.

Veronica Morgan: Well, there's a lot of warning signs as we have discussed.

Chris Bates: I mean, when we were preparing this today, I actually thought this is a, I've tried to make them connect, but Carrie hunt was on next. And, uh, you know, generally when guests come in, we, you know, have a little bit of chat to them. And, uh, I thought she was, that she was hilarious and I'm super upfront and super open and, and just super knowledgeable. So, you know, we're losing all our gold as we say before we come into the meeting. So put the marks on.

Veronica Morgan: Yeah, this is episode 87. So go back and listen to this one and we've got to get her back. I actually had coffee with her yesterday and she came up with a couple of ideas for podcast. So keep listening. Next year there's one, we will do an episode, I'm just letting this on Chris right now. He's never heard this before. She said read the transcripts of the ICAC investigations into local councils and she was giving me some examples. She said even just reading the transcripts, good. Make for a hilarious episode. Scary but hilarious. Um, and the other one I think we've got to get back to talk about the whole da process when you're renovating a house.

Chris Bates: Yeah, I think that's a really good idea. I mean, we have done a little bit with renovations, with an architect and a few other things. Um, you know, we, Tom, but I think that would be a great episode. But Carrie, thanks. So this,

Kerry Hunt: so the inspections are actually set up by legislation. There's two types of inspections for class one a buildings, which is your normal dwellings, of which there's up to five mandatory inspections all for class two to nine buildings, which are your multi-residential, your shops, your commercial buildings, and all the rest of it. And in those that are there are, there is a regime of mandatory inspections.

Kerry Hunt: But for those, for instance, in a class two building, you only have to inspect 10% of the waterproofing. So if you've got a hundred units in development, you only have to inspect 10 of those 10 of those waterproofing. So that random, no, and again, it would be the developer or the builder ringing and saying, I'm ready for this inspection so they can get it ready.

Veronica Morgan: So yeah. Okay. So they would say 10% is these two apartments here. Just look at them.

Kerry Hunt: Yep. Let's walk around here. You can look at that one. That one, that one, right.

Chris Bates: I can't see any issues with that.

Kerry Hunt: Oh, absolutely not. Because what I'm seeing is a completed product. You don't see the waterproofing going down. You don't necessarily even see that the product that they've used, the number of coats, various other bits since it, you see a completed waterproofed area in a bathroom or what have you.

Chris Bates: So what was it like that though? Was it the olden days?

Kerry Hunt: The olden days been around 40 years.

Veronica Morgan: Um, there was, God, I just realize you anyway, do you go on to go on?

Kerry Hunt: So when councils had the whole of the building approval and inspection regime, it was custom and practice. So you would talk to the builder at the beginning of the job and then say, I'll come and have a look at your footings. I'll look at your frame. I'll look at your waterproofing. And though a lot of those, those were were, uh, con, sorry, copper trays and similar things to that. So products have changed over the years and I'll come and look at it before the people move in. But what happened was was that when it went to certification, if it wasn't in the legislation, there was no obligation for the private certifier for instance, to actually carry out those inspections. So the legislators changed the legislation to make mandatory or critical stage inspections, part of an inspection regime.

Kerry Hunt: They also had to change that before you issued a an approval, you had to do a pre commencement inspections because what they were finding was as people were issuing approvals from the, from the offices or the back of their garages or wherever they are working so that it meant that no one was actually looking at the site before they actually issued something.

Veronica Morgan: Giving us that history of, you know, how we got to where we are, that that was just so clear and so illuminating. I thought that was just a really fantastic explanation and we have had quite a few episodes about the build quality of apartments. And one I thought was particularly enlightening was the interview with Karen Stiles executive officer of the owners corporation network back in episode 68 now, Karen originally came across the OCM where she was experiencing her own personal horror story after buying off the plan apartment and trying to navigate the complicated defect rectification process. We were discussing the problems with doing due diligence on builders before deciding whether to buy into a project.

Veronica Morgan: There's so much else that can go wrong, right? Oh, you can have one builder that builds one building really well and not another or one developer. You know, it's doesn't necessarily run in line.

Karen Stiles: No. And of course the builder, um, that was assigned to our building. Uh, it was a family company, but established 70 years ago, I checked out their previous projects. Very good. They sold in the time between me signing the contract and work starting.

Veronica Morgan: perfect. Otherwise you guys, 70 years, you couldn't get a better builder.

Karen Stiles: So, even with that research, uh, you know, it was, it was just not enough. Yeah, that's right. And it was a design and construct, which means that the developer gives more or less an artist's impression to the building goes, deliver me that and I'm going to give you 10 bucks. You know, it should cost you 20, but I'm only gonna give you 10. So you figure it out and people wonder why these cutting. Uh, and of course the builder on that particular project, uh, went into administration between Christmas and new year, which is, you know, a favorite, um, habit or

Veronica Morgan: bought a business that had been in existence for 70 years and then we need to have been Administration.

Karen Stiles: Yeah.

Veronica Morgan: So they're doing a Phoenix.

Karen Stiles: Oh yes.

Veronica Morgan: On a business they paid for.

Karen Stiles: Yes.

Veronica Morgan: That's bizarre isn't it.

Karen Stiles: Yeah. But it, it meant that they avoided defects. Rectification. Which, you know, the final negotiated settlement was $7 million. And I can say that because I wasn't required to sign a nondisclosure agreement, which most people are. And that's the other reason why people don't know what they don't know. Because, um, people are often bound by, um, confidentiality by the developer, um, who won't settle without it, then they can't speak.

Veronica Morgan: Oh, I haven't even thought about that. Yeah.

Karen Stiles: Which is why OCN has been calling for a special commissioner of inquiry because they can compel evidence and people can speak.

Veronica Morgan: Wow. So, and of course, because if you find yourself inK court or taking a developer to court, which I think people don't realize how often this happens. Um, and then you've got to fund the legal bills whilst you're waiting for a settlement as well. So the special levies Glor and all that sort of thing. And then a lot of people just don't, as I said, if they haven't been through it, they just don't know what can go wrong. And then of course it terms of the settlement is that they can't disclose. Wow. Okay. So you can disclose $7 million settlement.

Karen Stiles: Yeah. But it wasn't enough to fix no problems.

Veronica Morgan: So you still short. So then there, um, okay, so you pay your legal bills and you pay for part of it, but then obviously you've got to stump up the rest of the cash. So that's special Libby territory, right?

Karen Stiles: Oh yeah. Well, we actually took out strata finance because it's a brand new building. There is nothing in the kitty of course, nothing. And you've got all these moms and dads and new merits. So they're, they're stretched. Um, they potentially on fixed incomes in the older people. And there was no money for special levies. That was a particular demographic.

Veronica Morgan: And so this is bought by a lot of first home buyers in, was it? So people who've saved every cent to get the property in the first place, I've got nothing extra.

Karen Stiles: Absolutely. Um, so we were like DS in the headlights anyway. Somehow or other, I found out about start of finance and we organized to take out $1 million facility of a line of credit. So we only drew down what we needed for bills. Um, but it was a comfort to know, and it was also a signal to the builder until he Phoenix.

Karen Stiles: Um, to say we're cashed up and we're S we're committed to getting justice. I now know that there is no justice. There is a legal system. Uh, it works very slowly. It doesn't necessarily work in favor of owners. Um, but anyway, at the time that seemed like a very clever thing to do and it meant that the levies only went up a tiny bit for people. It was very achievable. Yeah. At the time.

Veronica Morgan: That's actually really interesting that you say that there is no justice, there is a legal system but there is no justice.

Karen Stiles: And what other product do you have to litigate to get it replaced? If it's wrong, a car, it gets recalled, a vacuum cleaner gets replaced. A $10 toaster, you get a new one. Why is it that with $1 million or a $10 million or you know, some of them in Barangaroo are going for $65 million. Why is it that you have to litigate to get what you paid for? It is the only product that that happens.

Chris Bates: So this is a one of the epiCsodes where a bit of man flu got me and I'm Monica's done a few episodes, line ranger where I've pulled out.

Veronica Morgan: almost how is how I picked two of them, my top five.

Chris Bates: Um, and uh, you know, I guess that was um, yeah, this episode obviously I did listen to it. I thought it was worth the time. Uh, but uh, but uh, no, she um, I mean you're right. Like I mean really, I mean a toaster versus a property and this just kind of opens the tin, excuse the pun on just have bad, the industry is unregulated and you know, for a reason, you know, and it's not a reason it's great for consumers. It's great for the industry to keep growing and less red tape. But unfortunately there's always

Veronica Morgan: the economy. Yeah. We go back to macro and micro here is great for the macro, not so great for the micro.

Chris Bates: Yeah. And you know, the Marco is the bar at the end of the end of the day. And the reality is you've just, you buy a car and it, you know, you something wrong with it and got warranty, you just gotta get it fixed or it's a used car, you just sell it and it's not the end of the world. It's not going to change your life. Um, you know, you buy a toaster, who cares, you know, it's just, there's all these small decisions where if they go wrong, the actual in the worst case scenario isn't that bad. But you know, with a property where you just don't know how bad it is and it could be years and years of litigation and completely destroy your financial future.

Veronica Morgan: Well, I have to say that in 2019, I think we started to get a real taste for how bad it can be.

Chris Bates: So the next episode I picked was Brendan coats from Grattan Institute. And, uh, I actually was so close to missing my flight his day, um, because, you know, I had an all plans the, my alarm to go off and, um, you know, for 60 minutes into the interview, the alarm didn't go off. And I was.

Veronica Morgan: so engrossed in the conversation.

Chris Bates: that's exactly what happened. Um, you know, the conversation was going for like an over an hour and I just hadn't even switched on and I thought it was going for 45 minutes

Veronica Morgan: that we have had a comment saying that our episodes are too long, so we might have to try to cut them back. But you better tell us if you like the length because you think we don't cut them off for an arbitrary reason. We want to get absolute juice out of our guests, so let us know if you like the length.

Chris Bates: Yeah, exactly. If we cannot, we can't go shorter if we want. Unfortunately though we start dilemmas right away. What was that dilemma? When we first started the podcast, we were like, what? How long do we do it? 30 minutes. People can meet for 30 minutes or do we just have a conversation? And you know, I don't know about you, but at 30 minutes into the conversation I feel like I don't, yeah, just scratching the surface. Unfortunately. That's probably what you why. But I do agree that we've probably been going a bit too long recently. But back onto Brandon. I mean I do think that while I was so engrossed, his attacks, um, situation, it's not set in stone like tax policy is changing every year and every government and it's just always going to change. And so we are going to potentially see some massive changes over the next, you know, 30 40 years that you could be investing such as stamp duty, land tax, inheritance tax, income tax, capital gains and just chatting to someone like Brendan who's thinking about tax policy, it just opened up a lot of cans of worms,

Veronica Morgan: a lot of cans or cans of worms.

Chris Bates: You're an example, I've got a $4 million house. You paid your stamp duty 20 years ago. If you want someone to trade that access to create stock to et cetera, you make it expensive then to hold that land. And so instead of having a system where you have one off tax with stamp duty, do you think we should consider a texting land rather than STEM Judy?

Brendan Coates: Absolutely. So stamp duty I think is of quite an unfair tax cause it tends to hit people that are younger and the people that move a lot to take new opportunities in their life rather than those that buy a house in a, in a, in a established suburb, wherever it might be. Um, and stay there for 30 years. And um, so why should those two households be treated differently? Cause one's had more get up and go to move and find things and sort of chase down opportunities, which is what you to have happen in a, you know, an open, productive economy. So you know, if I, if I got a job in Sydney and was gonna move to Sydney, then you want to have make it so I could do that. And then if I go to Brisbane and we're fine in Melbourne and I need to come and come and move in the Southeast, then I need to be able to, do you want to encourage that because otherwise yeah, less mobility. People move less often. This list it,

Veronica Morgan: what would learn texts look like for you? Cause I hate the way it currently is set up. Um, you know, I absolutely hate it, but what, you know, because it's a broad based land tax will be completely different to what's currently existing I'm presuming or do you have similar, do you think it should stay along the same council rates?

Brendan Coates: He's a broad based land tax. So council rights applies to unoccupied housing. It applies to investment property and plastic commercial that it applies to agricultural and request to farms. Although there are sometimes carve outs for that, um, that is the right tax by. So the answer is not to take the existing land tax system that only implies to investors and leverage that up. That's not going to work. One, because to raise the money you'd need to fund the abolition of stamp duty, the tax rights would be enormously humbling. Uh, and that's not going to happen. So a broad based land tax, we think in number, um, about half percent of the, all of the unimproved value, uh, about half a percent. So basically, what is that 605, $600 for every 50 or 60 bucks? For $1,000 of land. Right? Or if you do it on the capital improve value. So the total value, including the buildings, maybe half that is land is only half the value of the drilling on average across that across Australia. It's different obviously in the apartments versus houses. Yeah.

Veronica Morgan: Well, you know, at the end of the day, none of us like paying tax, but we all actually need to pay tax. And interestingly enough, I think there's a lot of people talking about the need for structural reform in our tax system. And you know, I guess will we ever see a government with the appetite to do it as it needs to be done or are we going to continue to see these little tiny attic jobs, little scalpels, little sledgehammers, little whatever, little little sledgehammers and scalp hang on, Chuck, that stupid ramble out. So ultimately, you know, are we ever going to see ultimately, do you think we'll ever have a government with the appetite to really tackle, uh, structural reform or are we going to continue to have all these little bandaid measures or politically negotiated and none of them really big, big picture and long term?

Chris Bates: Well, I think, I think there is potentially, I just think it's, uh, the government loan, you do it if they think they're going to get a better outcome really. Um, and.

Veronica Morgan: so I need, if they're going to get elected and no one likes tax reform and.

Chris Bates: so whether they're going to change from, it'd be one was Sam, it's like, it kind of makes sense. Just tax land rather than stand Judy, you know, um, then you can create more transactions and things like that. But reality is that going to happen on an I, I think we tax, um, it's a good thing if paying a lot of tax, but you don't, there's also like a catch 22 to that is you're paying tax unnecessarily because you're just chinchy transacting a lot. It's just, you're just throwing money up, up the wall. Really. So, um, you know, that's a good thing I do like about property. I know this podcast is about property versus shares. Look, if you buy a good property in 2020 and you sell it in 2060, you only pay Stan. Judy wants, um, yes you pay land tax but that's different. And then sex is going up cause you want to buy less land.

Veronica Morgan: tax in its current form. My capital gains, we only pay capital gains when you sell it in sick.

Chris Bates: in 40 years time. And so, you know, you don't pay much on the income tax cause it's usually offset and then even then you, you know, negative. So it's not, that's not going to kill you.

Veronica Morgan: And how's this though when it's growing. So you've got a tax liability that grows as well, but you can borrow against that tax liability.

Chris Bates: That is the, that is the uh, the end. This is way I think it is probably, yeah, a little bit too generous. Right? Because you know, a lot of listeners probably haven't, you know, hopefully some have catched onto this, but you know, you buy a property for it, let's just call it a mill now with 2 million, well you've made $1 million of gains and if you go back to a bank, you can pull out 80% of that, so 800 grand and invest it in by other assets and you still haven't paid capital gains. So you can.

Veronica Morgan: If you sell it. You're going to be paying the government 25% of it.

Chris Bates: Yeah, exactly. And then so you, you know, you've lost two 50 gone and then, so you could potentially just get that to 5,200 kids prepared to lend you more. Yeah. Then you actually,

Speaker 4: or that the equity that you actually have, cause it's, it's a, it's a, it's not taking your liability, the government.

Chris Bates: Well that's true. Yeah. Yeah. I mean that's very true as well. So, um, you know, there, there is a I the only person that's ever thought of that. Well it is, but I mean I guess it's, it's, I mean they, they would say that you've got that equity cause it's only up to 80% so they're only going to go up. So there's usually probably enough attacks in that. But you know, cause you only got 80% on the total value.

Veronica Morgan: Yeah. But the 80%, the 20% that the banks keeping in reserve is really as a buffer in case market moves.

Chris Bates: Yeah. But also your capital gains tax drops I guess. Yeah. But I know what you're saying. That's a good point. Like it is actually they were taking off that gain. Um, yeah they wouldn't be, but I mean they, they don't really care cause they get their money first even before the ACO. Yeah. Oh wow. Yeah. Cause I think you pay you, you pay capital gains tax at the end of the financial year. Ah. You've already saw it and you got your cash.

Veronica Morgan: That's a point. That is point now. I was so impressed by a domain economist, Eliza Owen, who we interviewed in episode 81 in a, she really is one to watch and he's so good at explaining the complexities of market movements. She gave a great summary of why we had the recent market correction, if you want to call it that. And she also explained why she hopes to be a first home buyer herself at some stage and why she believes in property as an asset class,

Eliza Owen: which doesn't really give you the motivation to save for a deposit. It gives you the motivation to kind of throw up your hands and yeah. Um, so, and, and you know, there's a lot in behavioral economics about that as well. And how in, uh, motivation is tied to, you know, the size of the, the goal that you're looking at. And, um, so in terms of what was happening in the lending space, that was the, um, one of the first times in new South Wales. So we actually saw, um, money being lent to investors was exceeding the money being lunch to owner occupiers, which is quite a bizarre landscape because when you think of a property, you think of people buying some way to live.

Eliza Owen: Uh, in 2014, the investor lending eclipsed owner occupier lending, uh, across new South Wales, and it's adjusted that more people were getting money to buy an investment than they were something to live in. Yeah. Then, um, I think being concerned with rising levels of household debt and, um, potentially risky lending. Yeah. The, um, statutory authority at PRA, um, Australian Prudential regulation authority stepped in, um, in, uh, toward the end of 2014 and limited growth in investment lending to, um, banks, uh, by, uh, 10% a year. So there was a 10% cap on the growth that they could have an investment lending. Um, very quickly the banks complied and, uh, their investment lending is currently sitting around a 2% growth, even though that has since been repealed, uh, got repealed in 2018.

Eliza Owen: The big one was um, in, uh, I think it was March, 2017 they announced that by September that year there would be a 30% cap on the portion of lending that could be on interest only terms. Um, at the time a majority of investors were seeking loans on interest only terms. And so again, the, the policy really did target the investor segment of the market. And when appro um, kind of really put pressure and reduce the investment lending, that's when we started to see a rise in the portion of first home buyers participating in the market. It's also where we saw, you know, 15% decline in housing prices. So what I think is so interesting is that we, we refer to the housing market as if it operates in this kind of free market or this fundamental supply and demand. And to an extent there are those fundamentals that play, but the amount of influence that institutional intervention has had, particularly in those high investment markets like Sydney and Melbourne is just incredible to have observed. And it's a lifelong lesson I think to take that the housing market doesn't operate a vacuum.

Eliza Owen: Institutions are reactionary and if they see debt getting too high or if they see prices getting too high or if they see prices getting too low, there are things that they can do. And there are things that they have done. The 10% growth cap got repealed in late 2018 the 30% cap on interest only lending was repealed in January, 2019. Institutions aren't just sitting there watching it happen. They really align with the leavers. Yeah, they are. They're trying to guide things. The extent to which they can control prices. You know, I drink, I don't think they can control everything, but they certainly did catalyze the, the, the downswing in cycle. Um, so,

Chris Bates: well I definitely have a huge impact on, uh, how much people can borrow and who they're going to lend money to and who they're not going to lend money to. And at what percentages and what areas. And you know, technically, you know, credit. If you can't borrow in an area or you're not crate and people in that area haven't got the income and things like that, then you know, they can control process to a certain extent, you know, and you know, they can basically, you know, a lot of banks will blacklist post codes because they'll say, well that's not too risky for us. So they're actually affecting prices in that postcode.

Eliza Owen: Well, I, I guess that is the bank being informed by their Prudential, um, Judy's where they're saying, okay, well, you know, we said too much risk in these areas and that does come back to fundamentals of supply and demand. Right? Yeah. But, but for sure that the institution guides a lot of, you know, even this morning I think there was a announcement that NAB a and Zed and Westpac have had to have their capital requirements increased. Um, so that might inform some of their lending policy, um, later this year as well.

Veronica Morgan: So back to why you haven't bought, yeah, sorry, we went off on a tangent. It's really interesting because you've got all this stuff going on in, you as an economist could observe that from an academic or an informed position, um, to say, well, this is not, um, something I necessarily want to invest in because I can see that it's been controlled by, uh, you know, forces that are greater than we all assuming, maybe.

Veronica Morgan: Um, but at the same time, it was some crazy stuff happening. Certainly when you, when you first started researching it and, and I agree, the market obviously overshot the Mark and, you know, you can see it's corrected and et cetera, et cetera. But is that something that you personally look at now and think, ah, I don't want to play in this or is it, do you think now that I'm, well, I don't know. Yeah.

Eliza Owen: So on the, on the country, I, I sort of look at all this and I think, well, is housing too big to fail? Hmm. Um, uh,

Veronica Morgan: biggest single investment class in this country.

Eliza Owen: is trillions of dollars several times the size of Australian GDP.

Chris Bates: I mean as soon as the narrative, how are, yeah, I mean domain, you know, just as good, maybe even bigger. Yeah.

Veronica Morgan: It's a similar type of, Oh don't get in an argument with them about who's bigger or better, but similar access to similar type of data in terms of they're in, you know, the use of that data is very interesting.

Chris Bates: Yeah. And I do love how both of them have, you know, do bring in, you know, smart economists in there and are actually digesting and producing good content. And so I think that um, you know, Lars is very switched on. I think what she um, alluded to here in a lot of our episodes was, you know, there's a, the whole history around what happened. She was very on the ball and Alan Cola was interesting as well in that you see space where he's very honored as well. So you need these people out there that are kind of dishing the information out without probably holding back. Cause she was just kind of all, this is exactly what happened and why it happened.

Veronica Morgan: And I have to say that is one of the things I just think is so wonderful about doing this podcast. Certainly we get an opportunity to interview all of our guests without an agenda. And I was actually talking to a journalist, a property journalist, um, works at Fairfax yesterday. And, and we were just generally talking about what's happening in the market and, and, and the media. And interestingly, this year, how, you know, what was all being well, what was in the media around the housing market prior to the election. And then almost immediately afterwards there was headlines about, Oh, we're heading into a recession and you know, as a team, do you guys all collude? What's the story? And he said, well, the thing is that, um, the media is just as guilty of FOMO as property buyers. And that the fear of missing out thing, it's like, Oh, someone's already a good story. I don't want to miss out on that headline. And they go down these bandwagons. And, and I just thought it was a really sort of interesting throwaway line from him about the fact of what we get in the media and the fact that we, and just say as we can't rely on it.

Chris Bates: Yeah. I mean, uh, we've got Louis Christopher coming on in about 20 minutes. Um, and you know, this is a prime example is, you know, he did produce a report a couple of weeks

Veronica Morgan: doing human 20 minutes. We'll be releasing the episode a little bit longer than 20 minutes time.

Chris Bates: Yeah. I think getting the TA, this isn't live but uh, you know, and, and what's interesting though is it was exactly that. You know, uh, bang, he's done his boom and bust report and then it's every way black and every and every media outlets with, I don't report on it, you're going to report on it. And so I do think it is, I mean that's very true. If there's a good headline, um, you know, media will publish it and say it. I don't want to dig too deep cause

Veronica Morgan: jump on the bandwagon. Well I've got to run that too. If it gets some traction. Yeah, we all want to be part of the story,

Chris Bates: but property is a massive clickbait. Um, and all the media outlets know it. So, you know, they all are that, that's not ever gonna leave the pages of the paper because it's some of the most read articles every day,

Veronica Morgan: which is scary in itself.

Chris Bates: I quite enjoy reading them.

Veronica Morgan: Well I know, but you've got to be thinking the whole, you know, is this being written to keep my eyeballs?

Chris Bates: Yeah. It's interesting. Show aims. Do you want on the Australian on the weekend. Um, and it was quite funny cause he was in the Australian, he's got half a page. Um, well it's a third of a page. It was a quite big pages paid. Um, he, uh, he basically said, look, if you're buying property, you don't need to worry about anything besides these four things. Uh, population growth, uh, infrastructure, uh, tax. I think it was another one, but I was like, yeah, cut out all the noise. Don't even bother reading what I'm writing if I'm not talking about these things. Don't listen, don't read about it. Um, and I thought that was quite amusing cause uh, it's pretty much in a paper that produces all the other stuff. Yes. And we did interviews to it and I can't remember the number off the top of my head and he was, there was a great interview.

Veronica Morgan: Another one of our Melbourne guests. Yes, you'll find a one.

Chris Bates: So what we did also love with this podcast over the last hundred episodes is we did open up conversations on things that aren't just about property technically, you know, things like happiness and wellbeing and wishful thinking and negotiation and all different things. And our decision making member, the funnel decision making and Jackie, you know, there's lots of different things and I think people would be thinking woven, making these content. And I think the reason why is it, cause it's all interlinked and I'm a whole psychology and I think I'm talk to Tim sharp was probably the epitome of that because he's called dr happy. And um, I think he was very good at under like unpacking why property means so much to people.

Veronica Morgan: So this is back in episode, 72?

Chris Bates: You think that status is a big part of happiness generally, or you know, feeling like you've achieved or you know, feeling that other people will feel like you think you have achieved, you know, what's your, what's your thoughts on, on a status and home ownership I guess, and how it's interlinked?

Tim Sharp: Uh, the simple answer is yes. Um, I suppose if I were to put my idealist hat on, I'd say it shouldn't or I wish it didn't. Um, ideally we probably shouldn't put as much emphasis on that. And ideally, um, people like myself often talk about how, you know, material possessions or stuff that we own, including a house shouldn't necessarily determine our happiness. Um, but the reality is it does to some extent. And I suppose it's up to us to try to determine how much, um, but there's no doubt, I think particularly in a city like Sydney, I mean, and it's, I think it sort of plays out a bit more or less in certain cities or certain countries, but, um, you know, there's no doubt that certain postcodes or certain areas carry a certain prestige.

Tim Sharp: Um, you know, people, you know, what school did he go to, what, what car do you drive? All those sort of things play into it. Um, but I, I think that is risky and we, we, we know that that is risky because we know that, um, there's a phenomenon that economists like I'll just talk about called the hedonic treadmill, which you may or may not have touched on in other episodes. But you know, no matter what sort of, how nice your house is and how nice the suburb is, what we find is that it's never quite enough for people. Um, you just always look, cause there was, most people unfortunately compare themselves up so they, they say a nicer house or a bigger house or, uh, and that, that's a, um, that's a recipe for disaster really. So the reality is it is important, but it's also a dangerous strategy to build our happiness on.

Veronica Morgan: We, we find that often with clients that, you know, they'll come in and they'll say like, you know, I've got budget of X and if only I had a budget of wire. So we, if you had the budget of why you'd be one in the budget as ed. And that's just human nature. We're always wanting more than we've got. Um, it's very rare you meet somebody who's actually truly centered and happy and settled. But then again, I could think aspiration is not a bad thing either. Right.

Tim Sharp: Exactly. Yeah. Look, this is a really interesting phenomenon. Um, uh, and actually I was at a conference a few years ago with the Dalai Lama. We're speaking in. Someone actually asked him a question very much along those lines and I thought his response was fascinating. So someone asked him essentially as a Buddhist, how do you, um, how do you wrap your mind around aspiration in and setting goals? And, uh, and he, cause you know, we often think of Buddhism as, uh, as just being happy with what you have been contended. But he actually said, and this again, this really fascinated me that every, every good Buddhist is aspirational because we want to become Buddha, like, or they wanted to, um, and no one ever gets their radio apart, maybe from the Dalai Lama. But, um, and so I thought that was very interesting and essentially what it is, I think what he was saying is it's okay to be aspirational, but it is a fine line and it is a fine balancing act because what we've got to protect against is just constantly wanting more and more and better and better.

Veronica Morgan: One thing I've really seen time and time again in my businesses when people are in the wrong home that can be really unhappy, you know, so home and happiness are absolutely intrinsically linked and there's, you know, it's, it's very complex but also very simple in a way. It, there's so much emotionally but also physically that that homes do for us. Um, and you know, and also from an investment class point of view, that's what makes it such a complicated and interesting investment. Um, S it plus from my point of view for my thinking is it, what other things can you buy that you live in that, that or somebody else has got to live in? Yeah, somebody else is going to raise their kids or, you know, dying their own bedding or something like that. It's important.

Chris Bates: Nah, man, I do what you signed that it's, it's, uh, definitely, um, yeah, there's, it's understanding that, and I think there's the whole feeling and when you coming home, you know, it does it give you energy, does it inspire you? Do you enjoy waking up in it? Do you want to spend time there?

Veronica Morgan: Is it worth going to work for?

Chris Bates: Yeah, exactly. And you know, and that's the thing. That's what it is interesting though. Cause I, I'm one of the biggest challenges in Sydney if you want to live in Sydney is home ownership and the price that costs and then not just initially like that's, that's, you know, it's a point in time you've got to save and you get there and you, but it's also then ongoing every month you've got to pay the mortgage, the maintenance, you know, all your costs and things like that.

Chris Bates: And it's never, yeah. Reality is, it's not going to be cheaper and renting most of the time it's cheaper to rent a lot less stress. Um, but it's like if you're doing all that, like it's, yes. Getting the financial reward in the future by potentially maybe buying good property, but you've got to really be loving the space. Like that's what you're getting, that tangible lifestyle benefit. And if you, if that's not what you really love or you're motivated by, you've got to really question whether you well worth it really. And that's not a great feeling cause you're slowing yourself out during the week to get the money to pay for a mortgage that you don't love and a house you don't love. She has, something's not right there. So I do think that joining those dots is, is worth it.

Veronica Morgan: And let's not forget how privileged we are that we can own our own home. I mean remember our episode with Michella dare, which was all around basically the provision of housing for those who can't afford to buy their own home and some of them struggled with for, to rent their own home. So you know, home and housing, you know, it's a bigger social issue as well. But that's not really the purpose of this podcast. But it's nice to just remind ourselves sometimes how privileged and lucky, fortunate we are.

Chris Bates: I mean it's, another great thing about these podcasts is we have open some of these conversations. I think it's, it's enlightening and it's good for us to do this. And I think in the next, we're catching up next week for planning the next 50 and 100%. Like this is definitely a part of what we want to continue the conversation on Cape. I guess exposing I guess, cause you know, if you keep growing a population you are definitely going to start to um, marginalize certain pockets and there's going to be people falling through the cracks and um, you know, there needs to be solutions to this and social housing and better uh, affordability and I bought to rent, we talked about and lots of different things. Um, they all kind of flow on from this problem where we haven't got enough housing and we want to keep growing the population, which is what we probably need to do to keep the economy going.

Veronica Morgan: Do they have it? Some of our favorite moments over the last 99 episodes. This of course being our hundredth. We want to thank you so much for joining us. We're looking forward to the next a hundred and we can assure you that we have some more amazing guests lined up for 2020 but we really love to hear from you. So please, please reach out. Tell us what you want to hear about. As you know, we've done a few Q and a episodes and we've got more planned. So to get in touch with us, please reach out via the elephant in the room.com. Did I you, there's an opportunity there for you to send us your burning question. We're also on Facebook. We're on Twitter. Where else are we on LinkedIn? So I'm, you know, you can find us through all of those different ways. And don't forget to give us a review on iTunes please. Five stars. We got a few low ones with Andrew Wilson episode. Um, boost it back up again.

Chris Bates: Yeah, I mean that episode just for Allison's was very, um, it was very challenging and I, I didn't, I actually wasn't surprised to see some pretty bad reviews, but also some good ones. And so, you know, and thanks to those people who put those negative ones on there because I think it was, you know, we, we also found it quite challenging. Um, but I mean going forward, I mean we are at a bit of a planning stage. We've got a massive heat list of people. We would love to come on the podcast and I'm lined up as well. But if there's anyone you think that really amazing for us to listen to, let us know because we'd love to get them on.

Veronica Morgan: And don't forget that you can access the transcript for this episode on the website as well as download our free fool AUC forecaster report. Which experts can you trust to get it right because that's an initiative we started this year. We're going to be releasing a fool or forecast or report every April fool's day. So a, we released 2000 nineteens keep an eye out for 2020. We'll certainly let you know when that's ready. On April fool's day, of course. Um, and yeah, get a load of that, have a read. We'd love to hear from you and happy new year.