Episode 101 | What to expect in 2020 | Veronica Morgan & Chris Bates

Experts weigh in on what challenges to expect for the property market in 2020

Starting off the beginning of the year with this jam packed episode. Veronica Morgan & Chris Bates talk all about their outlook for the 2020 property market. We feature insights from trusted experts and their views for Sydney, Melbourne and Brisbane market. 

Here’s what we cover:

• What we anticipate for Sydney in 2020

• How supply and demand drive property prices

• A historical look at clearance rates

• Are sales agents putting more listings off market?

• Why Sydney has had the fastest property price growth in 31 years?

• Reporting lag, how far behind is it from actual market numbers?

• Why property buyers from 2012 are making a return into the 2020 market

• Why First home buyer incentives drive prices up

• Will there be a cultural shift from houses to town houses?

• What are the big predictions for 2020?

EPISODE LINKS:
Episode 41 - Meighan Hetherington
Episode 96 - Andrew Wilson
Episode 77 - Cameron Kusher
Episode 81 - Eliza Owen
Episode 58 - Nerida Conisbee
Episode 93 - David Johnston
Episode 23 - Cate Bakos
Episode 39 - Stuart Wemyss
Episode 42 - Jarrod McCabe 
Episode 24 - Pete Wargent

SOCIAL LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: info@gooddeeds.com.au

Looking for a Mortgage Broker? www.wealthful.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 and.

Chris Bates: 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 forecaster report. Which experts can you trust to get it right, the elephant in the room.com.au.

Chris Bates: Please stick around for this week's elephant rider bootcamp and we have a cracking Dumbo, the weight coming up

Veronica Morgan: before we get started. Everything we talk about on this podcast is general in 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: Happy new year.

Chris Bates: Happy new year.

Veronica Morgan: Well, this is our first episode for 2020 and we're going to talk about what we need to be thinking about as we head into what looks to be a pretty challenging year for property buyers. What can we expect in the months ahead? What can we learn from the past, what's noise and what's important coming up? We're going to give you some local insights into Melbourne and Brisbane and of course I'll cover what we're anticipating in Sydney this year.

Chris Bates: Looking forward to this episode. Um, and 2020 but I mean in the property market per se, there's lots of in the macro story that are positives, there's, you know, some potential big risks coming. So there's lots of, we can talk about on this episode

Veronica Morgan: and the property market wild complex on so many levels really operates on a fundamental concept that of supply and demand. Anything that affects the volume of available property and in turn the willingness and ability of people to buy this property will have an impact on the market as a whole. So let's discuss supply is the lack of stock fact or fiction.

Chris Bates: I mean if I, the numbers I've looked at, um, which I probably just looked at sales, you know, there's always listings and if you go into suburb level you can really see that in number of sales over the last couple of years. He's well, well down on what it was like in the boom. And you know what, I have a suburb you really type into kind of RP data, which I'm using. Um, you can really see probably a 50% reduction. So they might've, you know, had a hundred sounds but that suburb's got 60, 65. Um, which is a big difference in terms of the number of souls. Now whether there's more stock where's as a year ago we'll probably not, but you know, I guess what people really want is the stock levels that were around in the boom.

Veronica Morgan: Well yes, but they weren't around for the entire beam. Cause I definitely noticed myself, when I say in 2016 we definitely noticed a very obvious fall in listings. Then around about 30% down on the previous year. And that was something that was pretty consistent across suburbs that ideally, and of course that's the inner suburbs of Sydney in a West Eastern suburbs and long or short that time. Um, so that was, that was pretty uniform. That wasU units as well as houses across the board. The following year, 2017 was pretty standard. So it stayed the same. And then of course we went into the slow down where we saw another fall in listings as vendors obviously decided they didn't want to put their properties on the market. So across the board. Yes, you're right. I think from that 2015 levels we were seeing roughly around about 50% of stock. Um, but what also is interesting there is that it takes longer for that stock to sell when the market slows down.

Veronica Morgan: So there's not the available. Um, the churn is different or the pattern is different. Um, and when I look now and a lot of the suburbs that we buy in and I, we look at a sort of rolling, um, three monthly averages, but over 12 month periods, if that makes sense. So I look at 12 months, the last 12 months, then three months back, the 12 months prior to that, et cetera, et cetera. If I look back over those five periods, um, these period plus four periods beforehand, very consistent numbers of actual transactions. So there are other, these difference between what's sold and what's listed. But you know, I think yes, the new reality is that there's just generally less doc around at all. But you know, it's not necessarily true that the entire boom was full of lots of stock.

Chris Bates: Yeah. And I think in the downturn, I mean, you weren't selling unless you were forced to sell, let's say I was divorced or death or one of those reasons, or you're a bit of an opportunist and you thought, actually now's a good time to potentially do the upgrade, which now those people have been rightly proven to, to have been right. They're the ones who probably be, um, it really benefited from the downturn. You know, they got,

Veronica Morgan: they, they, they are, they are contrarians. Cause that was absolutely perfect conditions for it, but very, very few really took it up in the whole scheme of things.

Chris Bates: Yeah. And I had it, it was a hard year to advise, you know, in 2018 and 2019 cause we just didn't know where it was going to go, what was gonna happen with the election. But you know, we still had lots of clients buying. Now we were saying, you know, if you are going to go out and buy, obviously just buy quality assets. There wasn't many, but we, if they are on the market and they want something, you know, big price, just throw a low ball offer and in Ark and go back to a few clients where those worlds did meet, you know, a low ball offer and a motivated seller. Um, you know, one was a, you know, a client going into an aged care home for kids, you know, where they got 1.85 and they got two and they divided by four. It's not a big difference. Um, and I mean that property there, you know, as an example, I'm sure that's up a hell of a lot. Um, and they bought, purchased, you know, from a very motivated seller. So I think yes, transaction numbers are really low, but you know, the, I think, you know, which we'll talk about is until ballrooms

Chris Bates: go up, then people aren't going to really want to sell the chicken and egg problem, which we'll discuss.

Veronica Morgan: There's also perception of low stock is exacerbated, I think by a bit of a trend with sales agents to actually put a lot more off market or a lot more property on the market off market, if that makes sense before they actually run a proper campaign. Um, this is certainly something that we're seeing in Sydney at the moment. Uh, and as we progress through this episode, we're going to be reflecting on some commentary from some experts based in both Melbourne and Brisbane. So we can flesh this out. And so it's not just in Sydney that this is happening. It's not only a Sydney phenomenon. So, um, you know, and look, in my mind typically or traditionally it was always that you'd have more off markets when the market was slow and it was a buyer's market because vendors didn't really want to commit to paying advertising and they didn't want to overexpose it property's a bit more speculative.

Veronica Morgan: And when the market was running hot, they'd be like, Oh, I want my day in the sun, I want to go to auction, I want to get maximum competition and maximum price. So we use quite interesting to see that real change in attitude. And I do think that agents are effectively reeducating the marketplace that this is the way to go. Which is sort of interesting. I don't know if it's good or bad to be honest.

Chris Bates: It's funny you say that. I've actually had a few clients recently buy off market. I'm not using buyer's agents. And you know, that's a bit of a, that's because they're in the market. Agents know who they are, they know they're almost, you know, flashing right. They're desperate, ready to go to danger. Um, you know, I've, I'm preapproved, I've been looking, you know, the client agents has it, you know, high on their list of potential buyers and um, you know, that's happening.

Chris Bates: But it's interesting. They're like, I've, I've also seen clients, um, you know, auctions potentially pass in or pass in on quality assets. A client hopefully will buy once a day that, you know, I think so. It really good property and it did pass in, I think the, uh, agent overpriced it and um, did the price guide too much. So, you know, we are still seeing mixed results. Um, which is, you know, that's not giving sellers, you know, a hundred percent confidence cause they're also thinking things are going to sell hotter than they actually are sometimes.

Veronica Morgan: Yeah. And that's interesting. We've seen that on the ground too. I know that a, I've spoken with a number of agents who have said that pricing is still quite critical getting it exactly right. And I certainly see myself some pretty good property that has been over priced and it's been sitting around when it shouldn't have been. Um, and so yes, it's easy. Interesting that, you know, if the, the old adage, credit lo watch it, go quote at high watch it die when they get that pricing right. From an agent's point of view, there's been some incredibly surprising auction results. And um, and certainly we've seen this phenomenon of the off market, you know, with some of the people that we've been uh, with sought commentary from for this episode include Megan Hetherington from Brisbane. We have an episode with her back in episode 41 for anyone interested in and understanding uh, more about the Brisbane market, but also we talked a lot about first home buyers back then. Um, and she did say there was a increase in the number of properties selling off market or pre market in the last 12 months. And I think that's also the premarket because when I talk to agents as well, I say, you know, they tell me up 20 30% of what they're selling is off market. And I was asked for that distinction. Is it a true off-market or is it pre-market, is this thing going to go to market anyway? And, and you're just looking for a really good price from one of those hot buyers. Um, and nearly always they say they're pre-market.

Chris Bates: Yeah. So, I mean, just for our listeners, if you don't understand the difference there, because you know, what's, what, in terms of where do you think the real difference between off-market and pre-market lies? Cause I think some listeners might get a bit confused.

Veronica Morgan: Yeah. Look, a true off market is a property that doesn't even have photos, doesn't have anything. There's the vendor has a real reason for keeping it very, very quiet and look, sometimes that can be that it's tenanted and they have to wait four months before they can basically, you know, get the tenant out of there and refresh the property, et cetera, et cetera. An opportunity there because of that. Um, sometimes it is, uh, a real reason for privacy or desire for privacy. Sometimes it's because the neighbors and they don't get on and they don't want the neighbors knowing. So sometimes it can be a real sinister reason for why it's off market. So, but the other thing from a bias perspective or you alluded to before, when the agent knows that you're hot to trot and particularly if you've just missed sat at an auction, you are hot to trot.

Veronica Morgan: You know, you've gotta be very careful because they know that you're smarting and your feeling more pain than other buyers potentially. And you might come in and pay way, way over the odds. So you've got to be very clearheaded. If you are going to pay a premium for property, it has to really, really, really suit your needs. Um, and be very, very clear on that rather than a knee jerk reaction. And the agents love that. So there's, there's op market that's a good off market, off market, there's potentially not great off market. And then the premarket is really about, well, you know, often it's an agent tactic to actually get the bend or to sign up with them. I've got these people on my database, why don't you sign us up for two weeks? And then they just basically want to get them in the flow and convince them that they're the agent for the job.

Veronica Morgan: And hopefully sell it because then no other agent gets a look in. Or if one of those buyers doesn't pay the right money, they'll run it to an auction campaign. So it's very much about a sales tactic and I mean selling to potential vendors rather than selling to buyers. A bit of a spoiler alert too, cause we actually, um, we just talked also just then Chris and I about the distinction between sales volume and listings volume. Um, it's interesting because next episode is a, we're speaking to Louis Christopher and he's actually predicting a return to normal listing levels in 2020. But the big question is what is normal?

Chris Bates: Yeah. And I think I'm Louie, I won't give the ticket away, but he does make some really interesting points around, uh, you know, seeing a stock that's been on the market a long time selling. So I think, um, it's a really good insight when he talks about that one. So listen to that on markets, what we call it. Yes.

Veronica Morgan: Uh, we also did talk about price discounting with Louis as well because certainly, you know, want to talk briefly now about the metrics that do matter. And these are, these are metrics that do give us an indication of what's happening in the marketplace. And when you see days on market creep over a month for instance, then you know, you're really getting into slot and market slowing down. But when they're shorter than 30 days or the average days on market and that is how long does it take an average property to sell. Um, then you know, you're really in a sellers market and like with uh, with price discounting or clearly in an auction environment, you're not really, um, seeing any data on price discounting. Cause what that is is where they measure initial asking price and the subsequent or discounts to that asking price in the subsequent sale price being a lot less than. So those, those sorts of things are tracked. And when you see that discounting percentage increasing, then once again, it's a clue as to slowing market. I don't think anybody that we spoke to is suggesting the market's going to slow in 2020.

Chris Bates: Yeah, I think there's lots of, you know, tail winds rather than headwinds issue, which is completely different to what we were potentially talking about 12 months ago.

Veronica Morgan: Another of the metrics that was very important, uh, certainly in Sydney and Melbourne and tours lesser degree in Brisbane but is the auction clearance rates now in episode 96, which uh, hopefully you've all listened to and you may or may not have enjoyed as with Andrew Wilson, but the first half of that episode is pretty much dedicated to understanding what goes into that metric auction clearance rates. That's actually really, really informative. So I encourage you to go back and listen to that.

Chris Bates: Yeah, and I mean, I guess clearance rights have kind of been really strong. There's a lot of argument out there that, um, it is off a low number of sales though and compared to in the boom. But I would say that in spring there was still plenty of sales going around and still very high auction clearance rights. And I think that the big learning from that episode, which now hopefully some of the listeners picked up on, is that you have to go a lot deeper than a city level. You have to go to a suburb level almost to really say how hot the auction market is in the area that you want to buy.

Veronica Morgan: Yeah. But also, you know, people are some sort of, I guess I try to downplay it by saying that that's off a low, um, low listings levels. The reality is though, you compare the actual properties that have gone to auction this year versus last year. Now that's very telling. Last year there was a lot less property going to market than there is now and the clearance rates are significantly higher. We hit 80% a couple of times in Sydney. Um, Brisbane, I haven't got the figures off the top of my head, but like in Brisbane, a good auction clearance rate is 50, so it's sort of a different benchmark there. And certainly in Melbourne, the clearance rates have been willing to the 70s, uh, over the 70 Mark in Sydney or alone is boom conditions.

Chris Bates: Yeah. And I think what the interesting point, which is how many actually people that beaters, how many people are registered and how many people are actually, you know, really keen on the property. That's, that's really the buyer depth, which we're not too sure on how many buyers are coming into the market. But you know, on a personal level, I think there's plenty plus investors. Maybe.

Veronica Morgan: Yeah. And we will talk a little bit further in this episode as to, you know, what is likely to happen to demand, which is basically buyers. I've had a few episodes last year, uh, on the subject of reporting or media and data houses. We interviewed Cameron Coocha from CoreLogic episode 77. Eliza Owen from domain episode 81 and narrowed a Connor's B from our EA group in episode 58. And we also interviewed David Johnson, episode 93. He's got a business called property planning Australia. And, uh, so he's one of the people that we did ask for some comments in terms of what does he think is going to happen in 2020, what's important in 2020, he did a report that FOMO back on in Melbourne and Sydney, which of course we all know, but I think interestingly enough, he pointed to some core logic data that suggests that post September we've had the fastest growth since November, 2003. And this is significant because Sydney home price jumped 2.7% in November. It's the greatest single month growth in 31 years. Now that says to me a hell of a lot of pent up demands sitting behind those figures.

Chris Bates: Yeah. And I mean, it doesn't surprise me. There's a lot of people who have, you know, who always wait for the bottom and they're waiting to get in. And then once they found out that was the bottom, and let's just call it, you know, June or may after the election, you know, you can start to see, they start to get ready and there's a couple of months and it doesn't surprise me that there's been very low listings people didn't want to sell. And then a lot of buyers who were desperate getting into the market trying to catch it at the bottom.

Veronica Morgan: So another one, uh, another buyer's agent that we asked for some comment, Kate Bay costs, if you want to go back and learn a bit more about the Melbourne market from, uh, she talked about Julong and Bellarat too, actually that was in episode 23. Kate makes an interesting point and that this data may not tell the full story and we actually see these two and she mentioned that CoreLogic reports indicate some rapid growth has insured, but the reality is that we haven't seen all the sales data filter through yet. So there is usually a reporting lag and we see it on the ground as well. So it'd be interesting to see the January figures when the late spring run actually comes alive.

Chris Bates: Yeah. And I think this is where a lot of, um, you've really got to get on the ground. You know, and that's what Kate's talking about here is through her experience, she hasn't seen, you know, a lot of what she's seeing on the ground every day in the South. She's seen on a filter through to the results. And I think that's what the problem is when you read mass media, um, and you look at these big figures is the lag and you know, the lag could be quite costly if you're talking three to six months and you're thinking, Oh the market's gone up, you know, 6%, well actually it could be got 15% as an example or the vice versa. So you've really got to get on the ground cause that's the most accurate. Darker is actual real time.

Veronica Morgan: And it's true. What you, the distinction you draw between macro and micro is really important. If you focus only on macro, you will miss out all the time or your overpay. When the market slows down and in fact yesterday I was having conversation with a client who's dealing directly with the bank, one of the big fours. I won't mention which one and you know, and this is one of the reasons why I do encourage people to deal with brokers, not directly with banks because you know that person in the bank is a what to advise them based on their bank policy but also just their bank data, et cetera, et cetera. And he was, he's looking at buying an apartment and this bank representative was telling him that the apartment market is falling in Sydney and and I'm like Oh wait, we are never going to buy if you listen to this guy and you don't listen to us because the problem is that what that guy who's a bank guy and doesn't know anything about property is relying on macro data.

Veronica Morgan: Now macro data includes all the off the plan, new sales, sediment risk, all that stuff is folded in to include establish doc. And of course we're not looking at buying in anywhere or any type of property. These impacted by the oversupply. And so you've got two lots of markets, really. There's lots of more than two, but you've got to, you know, macro markets within a bigger macro market if you like. And of course he's just looking at an aggregation of data and then giving his opinion based on this and advising the client to be careful. Now, yes, we want to be careful, but this client, if they listened to the bank, will not buy.

Chris Bates: Yeah. I think the apartment market, um, does kind of get a bad rap sometimes, you know, because everyone throws all the quality stuff in there with all the, the poor stuff, which does actually sometimes happen. Um, when you're buying good quality stuff in areas where there's lots of poor stuff. Um, so even though you've, you know, you've got the best apartment in an area where there's lots of high rise, you do start to get lower returns that way. So even if you bought a quality asset and you're talking about returns yield, no, I'm terms of like even growth. Right? You know, because I think that, you know, there's always a competition. There's always other options and that price discrepancy, you know, we get to live in the same area, but whether we live in a top quality property or not so much, you know, the gap just can't get too big because people start to question it.

Veronica Morgan: It is, yeah, it's true. It does tend to put a bit of a lid on it. It's interesting though. I was looking at a, a a building a complex, actually quite a large complex and I'm not going to give the game away because if I do then everyone start flooding there. Um, but it's, it's a complex in an area where there has been a fair amount of new development nearby and there was the first wave of it sort of is wrapped up now and then the second wave is about to begin. But you know, this particular complex is around 20 years old now. Um, and it has held its own and the reason it's held its own is because it within itself has a number of areas of scarcity. One is this apartment size. They're significantly larger, say for a two better in this complex is significantly larger than any of the being built.

Veronica Morgan: Um, and two is the actual facilities and the way it's laid out. You know, for instance, the pools outside in lovely landscape gardens where you can actually imagine yourself using it as opposed to being in a basement, which is so common with these buildings. Yeah. Um, three because it's been around that long, it has attracted, um, it's got its own sort of flavor and community and people want to live there. People want to stay living there, they want to upgrade in there, they want to go from being renters to owners in there. There's, there's that sort of attraction, um, about it. But you know, so there's all those sorts of elements now. So that complex has really weathered the storm of, of potential over supply. And it's also where it's located. It's in a great location, but it is very interesting. And that's the exception to the rule. So generally speaking though, you're right, it can, even a good apartment can get dragged down by the over supply of new stuff.

Chris Bates: Yeah. Let's say you don't even buy in those areas where there are, you know, high supply coming and going to continue to come and you say for example, Barra and the ACE and beaches in more community sort of areas or you know, the lower North shore or etc. Um, you know, these are hardens, you know, you can look at how they're going and how they're performing, you know, downsizes absolutely loving them. Um, you know, investors love them because a little bit less maintenance and there's a lower purchase price. So, um, I don't think this, you know, representative of the bank is really kind of, you know, differing between quality and not quality. And so just be careful when you, you know, these blanket statements gets thrown out. They're not really cutting the data very much

Veronica Morgan: going on the other side of the equation is demand of course. So let's look at what creates demand. Now firstly, confidence. And that's fed by media, social proof, uncertainty with other other investment options. So if the share market looks to be a bit shaky, then people do tend to look at properties being much more secure. And also in Australia, we could have an underlying belief that property is a good investment.

Chris Bates: Yeah. I think that mental accounting thing, um, where we do take our profits from property and we don't go and put it into other asset classes. So we sell a property and we make, so for example, $1 million, we won't go and then put 500 grand into super two 50 into shares and two 50 back into property. You know, generally what we do is we take that million and buy another property for 2 million, you know, and there's constant reinvesting of properties and constantly only looking at property. Um, it's kind of like a, you know, self-defeat, you know, self fulfilling prophecy, you know, and then the returns or property come better. And, um, and so, you know, that mental time, that mental accounting sort of, um, I've made $1 million in property, that's been a good investment. I'll keep just doing property. And, um, the innovation culture, um, you know, starting businesses, you know, that's one of the negatives that a lot of people say about the property market. That's not a good use of capital. And I kind of agree. You know, you're only creating more and more asset price growth. You're not creating jobs. And, um, and that's because of that mental counting issue.

Veronica Morgan: It's sorta interesting too that you know how quickly it's bounced back. And I think that is because fundamentally we all want to believe in property. I think there's, there's that sort of, confirmation bias in a way. Um, but also what I think is rather interesting is we've got this pent up demand from two years of our inactivity. Um, and it's

Chris Bates: more than that. So I think that the UPenn type demand goes all the way back to like 2012, you know?

Veronica Morgan: Yeah. And are you going to say, because, well, potentially or definitely from the second half of the boom because investors overtook owner occupiers. And so a lot of owner occupies, just sat on their haunches and said, Oh, I can't be bothered trying to compete in here. It's too hard. And they left the market a lot earlier. And so also the fact is that those investors have not returned in force. So it's sort of interesting in that.

Chris Bates: Yeah. So I think, I think that, you know, initially if you kind of go, you're out there looking in them, you missed the market and you could easily miss it if you're a first time buyer because you were thinking about buying a little house inside the inner West as an example. Um, and you had $1 million to spend and then bang, it was, she doesn't 12 and moved almost, I think it moved, you know, maybe 20% in the space of six to 12 months. Right. So things like, for example, in,

Veronica Morgan: I can honestly tell you in T I know exactly when it sort of really picked up. We felt it around November or December and it felt a change. We didn't actually start to really truly see it in action until the beginning of 2013. Um, but definitely so 2012 was still easy buying. Yeah.

Chris Bates: Yeah. This is kind of the back end of that. So I was thinking, you know, um, and I remember it as well cause I was actually, you know, looking for a place and uh, watching the market and um, you know, quite insight in Annandale as an example. And um, yeah, price has moved from say 900 to say one, one, one two in the space of a, you know, a couple of weeks. Um, a couple of, you know, sort of cycles a couple of months. So it was, it was quite, it was kind of like, you know, we start seeing some sales enlightened then bang, it was a few more styles and I think, um, if they, you know, people did get priced out and they kind of went, Oh, Mark is going to [inaudible] go softer than it kept running on them. Um, and then they just didn't buy but just kept saving.

Chris Bates: Um, then what I think happened a lot of 13, 14 is they just said, well, let's just buy an apartment. And so then I bought an apartment and I lived in that and then they just never got that ability to upgrade. And then I think in 2017, 18, 19, they didn't want to buy. So you know, that's really a first time buyer that wants a house that missed out, bought an apartment, and then still wants to move from the apartment to the house. And I think a lot of those are out there where they have an apartment, but now they're a bit older now they've got kids and now they really want to get into a house on top of the people who just never bought.

Veronica Morgan: When we spoke to Louis Christopher who you can tune into next week, he's predicting that investors will return to the market in 2020 and of course, uh, so that will increase demand, but also, uh, access to finance what you see on that horizon for 2020 Cruz.

Chris Bates: So investors are definitely back. We're getting a lot more inquiry from them. And I think am it's interesting, Citibank, and this will probably be out of date by the time this launches, but Citibank have a five year interest only investor, right? At 3.29%. Um, so for five years you can get a 3.3% interest rate locked in on interest only like, um, it's like maybe 20 basis points more than what, you know, owner occupied P and I's. So it's pretty crazy, like I would say 30 basis points. So it's pretty crazy where investor rates have dropped. Um, and also interest only rates. And so they're the two things that investors look at and if they can get themselves a decent, um, rent for a good property, um, it's almost like, you know, neutrally geared for the next five years.

Veronica Morgan: So, and we'll talk about that in a minute.

Chris Bates: Yeah, a lot of, um, you know, investors will definitely be coming back because, um, especially if they've got their home sorta and investors always want to see the market rising before they come back. They just, yeah, it's, um, it's counterintuitive, but all the stats are out there, you know, margin lending for example, in, in, um, shares, is it all time highs when the market's at all time high? So people are gearing up in to buy shares at the most, when the market's at the highest problem, which is, should be the opposite adopters, the ones that lose the money. Yeah, exactly. It's that kind of real fear of missing out on overdrive. Um, and also I've lost time. I've missed out on this room. I need to pick up the pace by borrowing and gearing up even more. And, um, yeah, and I think that's what you'll start to see.

Veronica Morgan: Hmm. Well, David Johnson, he noted, uh, that housing credit over the last four months has grown at an annualized rate of 52%. So that, that's pretty telling. Um, yeah, so it's definitely, um, Oh, you know, all brokers I speak to, you know, housing, uh, you know, in terms of their applications, et cetera, or through the roof. Um, you know, they've got more customers than they can kind of deal with. Um, so that doesn't surprise me at all that, you know, the numbers are flowing through. Now. Um, and this is one thing, the benefits of being a broker is, um, we start to say before the market even sees it because they come to us for a preapproval before they even start thinking about looking. Um, and you know, sometimes, for example, clients will last night, like he's any even starting to think about it. And he might not even buy until next year, late next year. So it's even a year before I was in.

Veronica Morgan: guarantee. We're actually recording this, what is it? Is today the 17th of December? Yes. They're released on the 6th of January. Oh, guarantees not boring till next year.

Chris Bates: Yeah, yeah, yeah, exactly. He's probably not going to be buying until 2021. But you know what I mean? It's just starting that conversation again.

Veronica Morgan: I think that, yeah, and I think what you say there is really important that mortgage brokers are the leading indicators. You know, it's, um, that's, that's, and so that, that sort of, you know, annualized rate of housing credit 52%. That's massive.

Veronica Morgan: That's really, really interesting. Now it's, sure. Williams, I've got a lot to say about all this sort of stuff. And, and you can tune into Stuart when we interviewed him back in episode 39, he's a financial planner and a broker actually based in, uh, based in Melbourne, but he also writes regularly for the Australian. Um, and I always love Stewart's take on things. He's given us a prediction on that one. I know you did say that he expects to see increased competition for interest only investment lending, which is what you just alluded to there, Chris, regarding Citibank. And that's one example he's saying that, uh, there might be a small window of opportunity to obtain a much better outcome for investors. And so what he says is that that may not last, um, these lovely low rates that his prediction is as follows, if the RBA cuts twice cuts rates, that is twice in the first quarter of 2020.

Veronica Morgan: He thinks the banks will pass on the full cut to interest only investment borrowers. But say only 1.5 or point 15% 0.15, um, per cut onto all remaining borrowers. So if they do that, the current gap between interest only and P and I, which is 0.29% will close to between Neal and 0.1%. However, at the moment lenders are pricing aggressively for interest only investment business. So investors should be aggressive in the first quarter of 2020 and lock in higher discounts. But these discounts may not be as generous after investment rates. Um, equalize. So that's an interesting one.

Chris Bates: Oh, I think that's it. Hang on Stuart. And I think, um, you know, hats off to Stewart, I think Stewart called the bottom of the market and out of anyone out there and he caught it at a point when no one else was calling it. So, um, hats off Sydney. Um, and uh, you know, and that was a paid pessimist. Um, you know, moments, maybe you got a hell down for that dinner, you know, and he did well and I had soft to him, but I think he's pointing there around in lendings, um, is bang on. I think that's, uh, you know, the banks are all kind of, all the results kind of came out and they're all losing market share to the second tier, third tier, 40 lenders, digital banks. Um, and so they're all doing everything they can. And it's interesting, the atrial seize just said that they're not gonna um, you know, penalize the bank for this loyalty tax. But because the low tax T tax, which is all old customers paying a lot more than new customers. Yeah. But lots of businesses do it. You go to Optus, you'll do that energy.

Veronica Morgan: I think it's disgusting. Or just think it's really poor business to not look after your client. Your, your existing customers is just, I just think rotten.

Chris Bates: Yeah. And so what's interesting is this, I'm sure it's going to basically points about this, you know, new responsible lending. You know, there might be easier ways to refinance next year without having to go through a full credit process, which would be amazing. So this, this is what I think it's already causing a bit of a, um, a bank war and we're pricing we're getting is bigger than we've ever seen. So I think next, um, early next year, you know, it's really good time to be reviewing this stuff, especially if it's right and there is a couple of rate cuts, probably likely we could see, you know, variable rates under 2.5, which is just amazing.

Veronica Morgan: He, he does actually in his comments to us, which I'll say also, we're going to put together a summary document of all the comments that we've asked for from these other experts. Um, and you can download on the elephant in the room.com. Dot. EU by the way. But, uh, one of the other things that Stuart did say was that, um, the responsible lending guy released by ASIC on the 9th of December who had just gone, um, while it's still early days, he suspects the additional guidance will give lenders some comfort to start making exceptions for higher net worth applicants, uh, as a standard ratios and metrics as mattresses. So he said don't always make sense when applied to their situations, but he's suggesting that a return to standard mum and dad applications. So, um,

Chris Bates: did you see what I cruised through it? I think there's, um, no, a lot of the high net worth, a lot of the banks have been very nervous, you know, for the last few years we haven't really seen any problems getting loans approved this year compared to say 2018 where it was getting declined for no reasons really. Um, but this new guide, um, is kind of always on the back end because there's also a open banking, which is just starting to come through and comprehensive credit reporting, which is kind of also potentially making lending harder if you haven't got, you know, your ducks lined up. If you have got any problems with credit or you've maybe got too many credit cards or you know, got a car lease, all these sort of things are starting to become more of a focus for the bank. So, um, and also your day to day living expenses, we could see a return to, um, you know, forensically looking through them.

Chris Bates: Um, and that's probably a big thing that's kind of an unknown in 2020. It's something I'm going to watch closely is I see, can Westpac had a fight this year and ASIC one, um, uh, no, no, Westpac one, sorry. And uh, ACIC decided to appeal and I'm pretty sure it's around the 25th of February, um, as in Westpac's appeal, um, which is all around responsible lending and what the banks should be doing to verify someone's living expenses. Um, that's all gonna come to light. So we're not sure we have that's going to go yet. And so that is to me one of the biggest risks next year. If ACIC do win and we go back to forensically looking at Lillian sides, yes,

Veronica Morgan: demand will shrink.

Chris Bates: So the elephant in the room is 100% for you.

Veronica Morgan: The reason that Chris and I do this podcast is because we passionately believe that property buyers can do it better. We really want to help all of you understand all the risks, but also the ways in which you can avoid your elephant making the decisions.

Chris Bates: for what we would love for you to do is just to share this episode and share other episodes with people around you that are going through the property process.

Veronica Morgan: Give us a review on iTunes. Firestar please would be very appreciated because this is about making sure that we all benefit from the wonderful information that our guests have been sharing with us.

Veronica Morgan: Well, there's been quite a lot of talk about the home loan deposit schemes. So that is a, that was Scott Morrison's election pitch to first home buyers, um, which will come into effect on January one. And now of course, we won't know for certain how this will impact the money market until it does come into effect. But one thing I've observed in the past week, the first home buyer incentives is that they are very successful at driving up prices. Brisbane buyer's agent, Melinda Jennison, uh, who we haven't interviewed, but I did ask for some of her comments. She sort of came back to us and and said that, um, in Brisbane only properties valued up to 475,000 will be eligible and this will most likely push any of those buyers into a local government area outside of the Brisbane city Shire. And I think in Brisbane that's quite important because it's that Brisbane, Brisbane city Shire that really is the safest place to invest, uh, if they're considering a house on a block of land, alternatively it will enable a purchase in an inner city ring or inner city suburb if you're buying an apartment or townhouse.

Veronica Morgan: But once then there's been an over supply in that area. So it's a bit of a worry to think that, you know, particular in Brisbane that first home buyers could be encouraged to be buying into the more risky areas through this, uh, through this scheme. She's saying that she's an shore if they're likely to see any significant change in the demand for properties, a result of it, given that it's limited to 10,000 borrowers. But I guess we'll wait and see. Melbourne buyer's agent, Jared McCabe, who we interviewed, episode 42, he expects there to be an impact in the sub $600,000 market, um, which will push up demand in the first quarter and he thinks maybe that could follow through in the year. He also thinks it'd be reasonable stock levels come February. So, um, Bendel's the beginning more confident bringing more stock into the market, which probably, you know, Michael is that, who knows, but I guess nobody knows what's what it's going to do because it is at the bottom end of the market.

Chris Bates: Yeah. I think, um, it's interesting. I've been quite negative on this policy and I still don't think it's great. Um, I think what Y uh, you know, same as George Bush back in 2003 in the U S he kind of said, you know, every American should own a first home. And, um, they went on this huge homebuilding sort of, um, construction boom in America and everyone was getting financed and that ended up leading to the GFC. So, um, the governments love to kind of come on in and then, you know, throw the support behind the first home bar and do things to help them. Um, because it's so much money in construction, especially when they buy a new property like house on their packages, which they're hoping a lot of them will buy. Um, but I think what this is really doing is saying to first time buyers, maybe you should consider buying property.

Chris Bates: It's a mindset shift and if they don't get the 10,000, maybe they can still do it. May they just need a 10% deposit and maybe they ask their parents some money. And so even if you'd get declined on the, you know, getting the 5% deposit, maybe you still enter the market. And I think this is what they're trying to do is just kind of bring forward future demand and side of first time buyers, if you're thinking about getting in the market now is here's an opportunity for you. So I actually think it's going to be much bigger than probably the 10,000 just because that mindset shift.

Veronica Morgan: In terms of the amount of people that it motivates into the market. Yeah. Yeah. Okay. So let's talk about the cyclical nature of the market. Um, specifically seasonality because you know, in Sydney a typical year would run like this. Um, you come in January and because we have a lot of property that goes to auction, um, those new listings aren't going to really properly hit the market until after Australia day weekend. And then you've got pent up demand from buyers. Those that missed out the end of 2019, uh, and then new ones entering the market because let's face it, after Christmas when everyone's had time to relax and think about what they want in a year, it's incredible how many people hit property market at that time of year. Yeah. Agents. And certainly as a sales agent, I used to get called in for a lot more appraisals at that time because people start to really seriously think about what they're gonna do as a buyer's agent. My query goes up at that time of year.

Veronica Morgan: You know, we've interviewed, you know, when we called out for comments from the buyer's agents up and down the coast, Jared McCabe is expecting the same thing to happen in Melbourne. Um, Scott McGeever and other buyer's agent from Brisbane, same deal. They both said the same thing that we're experiencing in Sydney in that there's been not the level of spring stock coming in the market as normal. And so therefore you've got a less stock and be more buyers that haven't been able to buy. And so that's what fuels our busy January, February. And so in February, typically clearance rates are the highest that they are in, in the rest of the year, in any other month. That's typically, um, and that's because of that. It's because the ratio buyers to sellers in February is, it is ease at its greatest. Um, that sort of continues. It gets up to Easter and then what it gets a little, it gets a, a fuel injection because of course people don't want to list their property to have it running a campaign running over the Easter period.

Veronica Morgan: And so it might Peter out if there wasn't Easter, but it sort of never does because that that drives a lack of stock again. And so often what happens then it just sort of wraps up until it gets to around may and it keeps busy, busy, busy. What happens in may is that often you start to see more property, so the property sort of numbers does or listings, numbers do tend to start swelling a bit at may. You've also got that typical idea about buyers going, Oh, but a buyer fatigue bit of thinking, Oh it's getting cold. I can't be bothered now. Maybe not in Brisbane, certainly in Sydney and Melbourne. That happens. And then a lot of owners start to say, Oh well I don't want to sell my property in winter because it doesn't look so good. Not enough natural light, the garden looking fantastic and so, and that's probably exacerbate a little bit more so in Melbourne and Sydney, but it's certainly is part of the seasonality of the market. So you will see a low stock levels again and then that gets fueled. That fuels the market. And then when you get into spring, we typically see a lot of property come on. Usually the very end of September is when it starts. Lots of volume comes in. Buyers get buyer fatigue, sit on their hands. Usually clearance rates taper off till the end of the year. Now this year has been an exception because there just hasn't been the stock and there has been lots of demand.

Chris Bates: So I think Mike is going to be big, uh, moment. Obviously the federal government's trying to make a surplus and you know, it looks like they're probably gonna do it, you know, barring kind of any kind of shock to iron or price probably. Um, so if you know, we get to may next year, are they going to, probably any Fabia has caught a few times. Are they going to bring forward tax cuts? Um, are they going to go on a bit of an infrastructure spending spree? Um, you know, there's lots of things that could happen in that budget next year, which you know, is going to try to keep the economy going. Cause you know, while we've got this rising asset prices, you know, there's still kind of rising unemployment, you know, growth isn't really there. You know, we haven't got inflation productivity, so there's lots of concerns as a macro economy economy level. But then back down people are still going out and buying property and pushing prices up.

Veronica Morgan: Yeah. And it's sort of interesting too because spring hasn't produced the stock. We usually get, you know, that has resulted in much stronger auction clearance rates, which once again are a really good marker of what's happening on the ground. You know, in Sydney they've hit 80% a couple of times and that's been an almost unheard of in November. Um, Kate Bay costs reported similar out of cycle activity in Melbourne. So basically even late December run adoptions has pulled some dramatic record results. Um, and in Brisbane, you know, you'd never expect to see such high high clearance rates. But Melinda Jennison actually noted that she's been to a couple of auctions where there's been 19 and 21 registered bidders in two locations, one South side and one North side now in November. Now 19 and 21 registered bidders, that is what we were recording in Sydney at the absolute heart of the boom. And that's nuts. That's when it's take a ticket, people lining up to register

Chris Bates: Brisbane. And it's interesting like it's not Sydney, Melbourne and no, we do have a lot of, probably a bias towards understanding those two markets because they are the biggest. But in terms of, um, Brisbane, you know, there are parts of Brisbane that are performing very well over the last few years, um, in any throwing low rates and um, you know, the economy potentially and people who've got jobs and they're starting to bid and you starting to see these, these big numbers. One thing I think is part of that as well as ex-pats. So, um, you know, I've seen a big increase of, uh, sh ex-pats living in Australia, you know, so people from, say for example, overseas, they're kind of entering the market a lot, um, because of the dollar and they can bring money overseas. For example, the pounds really strong at the moment and the Euro and things like that.

Veronica Morgan: I coming from Hong Kong to do that due to that uncertainty over their political uncertainty,

Chris Bates: I think. Exactly right. So we're lots of inquiries for people in Hong Kong and Singapore and a few other pockets as well because they're like, you know what I'm thinking about moving home doll is not that strong. I can, um, you know, maybe going to come home in three, five years or even now. And a lot of those ex-pat investors are trying to get money. And to be honest, there's not many banks that are willing to give them that, that much, um, compared to what I wear. But I do think the ex-pats are definitely starting to make a big impact on the market.

Veronica Morgan: So I think in terms of what's impacting supply and then what will lead people to sell, obviously all that positivity around clearance rates and prices rising and the reported data from CoreLogic, et cetera, et cetera. Um, you know, that, you know, a lot of the people commenting, um, you know, Stuart Williams basically said he could see the discretionary vendor is someone that would be planning, has been planning to sell but hasn't had to sell. And you know, he's predicting a lot of those coming into the market early 20, 20. And you know, because his advice to his clients that are discretionary vendors has been throughout this slow town. Don't sell if you don't have to. And of course anyone with half a brain, you know, unless they actually had to or had a purpose or was upgrading or actually had a specific reason for selling, you know, particularly it was holding sitting on their hands. So, you know, this will encourage them to list their properties.

Chris Bates: And I wonder if the, um, you know, we do start to see the building issues. I think you're just going to continue on next year. I think a Phoenix things now on the papers, the certification,

Veronica Morgan: we haven't even talked about construction starts.

Chris Bates: Yeah. Yeah. And I think the, a lot of investors and a lot of people who own a units and apartments that have seen potentially reasonable falls in the downturn, um, if there's any type of price rise and they can get out and they concerned about it, um, so we could just see a massive flood of people trying to get out of these apartments if there's any type of more of a stronger demand there. So, um, I do think that's going to be a bit of a train where we're going to start to get out of these buildings.

Veronica Morgan: Yeah. And it's interesting because, um, you know, one of the big questions is when it's known that there's a lack of stock and it's hard for people to buy. Another reason that vendors hold off from selling. As you, Kate bakeoffs pointed this Sabba we certainly see too, is that, where were they going to move to? You know, so, but, but if you're in a loss making, we've had a loss making asset and you see an opportunity to buy or you might not too worried about that.

Chris Bates: Yeah. And that's the thing. It's the investors. And that's um, you know, that can be replaced with a home buyer then, you know, that is um, more demand and they, they, they're any, and that's potentially not great for renters, you know, more home buyers kind of coming into the market. I think that's where the 5% deposit thing, I didn't say that but you know, if they buy off someone that some persons, someone's going to do something with their money so they go buy a house or apartment for 600, they're going to then take their money and then go back into the market most likely. And so that's where you get all these flow on effects. What's so important for more demand to come in, um, to keep prices rising?

Veronica Morgan: Interesting you say that because Megan Harrington actually gave some insight into where the buyers are coming from in Brisbane and she did say that property have reported 2019 has been the year of the break lease with tenants buying homes and ending their leases early. So this is an indication that many longterm renters are actively leaving their rental market in higher numbers than previous years. And this demand coupled with the steady flow of southerners chasing warmer weather and more modest property prices has put some upward pressure on prices. So that's sort of interesting to see that happening up there as well.

Chris Bates: And I think that's why he's seeing a lot of rents not rise because a lot of people are saying, well I'm, I'll, I want to keep my rent low because I do want to buy in the next few years and I've got that hope there. So let's keep, you know, Brent, we are a new apartment cause it's cheap or let's not allow them to put our rent up, will, you know, say we're going to go somewhere else. And then you add in lots of more stock and things like that and um, and then people breaking leases and things like that. So you can see why rents, I've really been struggling across, you know, Sydney, Melbourne,

Veronica Morgan: although the rents is like a lot about supply, new supply. And in fact, David Johnson actually pointed out something interesting. He said that the, obviously a significant, we've had over supply of apartments, which has been one of the big factors in terms of keeping a lid on rents, but he said a significant under supply of new dwelling approvals will, which will put more pressure on values due to the lack of supply and dr guide Debelle deputy governor from the RBA suggests that 2020 will be the year that supply actually bottoms out. But he also mentioned that lending to developers will begin to free up and to increase supply. So the RBA has committed the lack of credit in this space probably has had great impact on the negative supply property. No, I guess no surprises there. And therefore property value increases. Then there's restrictions of lending to consumers for residential mortgages. So I guess that's like unlikely to have any impact on the 2020 market though.

Chris Bates: Yeah, I think there's an, you know, there will be a, you know, a lot more quality properties and more pro, uh, kind of apartments coming on the market. And it also greenfields and housing land packages. Um, you know, the developers, if they go to any kind of sniff of being able to sell them. Um, and I can already say that it's one development, for example in sorry Hills, that it kind of always going to hit the market and then it just got canned and now it's back on the market and it's quite a, you know, big development there at Nick Cleveland street. And so they delayed listing it. They could have been selling this a year ago, but now they're like, let's go for it now. Um, and so you'll start to see these people that have, you know, maybe canned it or put it to the back drawer. Um, now they're starting to, to this day, so we're going to see a lot more construction calm. But that's not without the next couple of years where we're going to see a big decline in the amount of residential construction. But if you look on the commercial side, the Sydney CBD day, there's no end in that. And I think we'll be talking about still new developments happening there in a few years because there's such a big pipeline of new towers going.

Veronica Morgan: So we also have a bit of an interesting observation from Pete WARDJet and uh, Pete, uh, back in episode 24, we interviewed Pete. He's a, uh, an interesting guy, is some Jeff accountant. He's a buyer's agent. I think he's a financial planner too, isn't he? Um, he, he's, he's got a great daily blog which just is an amazing minefield of data and, and slices and dices that data and comes up with some very interesting observations or correlations. But, um, he made a very interesting point about where demand could come from in bruising because he said the Brisbane is now in the highly unusual situation for capital city of having what we used to call in the old money, our reverse yield gap. And these gays, we call it positive cashflow with mortgage rates coming down from interest only loans and yields 4% to 5% being easily achievable. So basically rents has started rising in Brisbane. He's saying it's not too hard to find property investments which pay for themselves immediately. And we think this is set to drive a good deal of investor interest. So once again, we're not recommending necessarily you're chasing yield, but it's interesting to see that that's probably where they'll see some increase in buyer demand in Brisbane.

Chris Bates: Yeah, I think, um, cashflow is really important for people who are buying an investment property. They, you know, even if they're really on top of their mortgage, they've got the equity, they can afford it. Um, you know, really it does come down to that cash flow and really being comfortable with that. And the biggest thing that drives that is interest rates. Uh, going back to my point around five year fixed rates, you know, low 3%, that gives them the confidence that cashflow is going to be X over the next year, five years. So without doubt, if we start to see, um, you know, markets for example, like Brisbane, you know, you are almost positively cashflow but on quality assets, not on, you know, a high yielding risky assets like rural or you know, duplexes in the outer suburbs and these things that potentially have been positively Castro due to things like depreciation in the past

Veronica Morgan: for, um, retro guarantees. Hm. Yeah. Um, he did it. She also know that the rental supplier's now noticeably tightening and the council is further moved. We're talking in Brisbane city council here has further moved to block medium density development going forward. And, and that's an interesting one. I hadn't known that. Um,

Chris Bates: yeah, I mean that happened in somewhere like ride, you know, there was just building way too fast and they, you know, the suburb can't keep up. But you know, if there's any ability for the councils to, you know, loosen the strings and encourage construction, you know, most of the time they're going to do it unless they're in a really strong NIMBY, um, suburb that's really fights it.

Veronica Morgan: Well. Yeah. So another thing that Pete raised, uh, is that it's been a challenging time for landlords from a tendency perspective and prospective rental reforms could shift the balance of power towards tenants. And this is an interesting thing for 2020 because, um, I was talking to Janet Spencer, she's a buyer's agent in Melbourne and she was talking about the rental forms coming in Victoria, uh, or Tennessee reforms I should say coming in the middle of this year. And one in particular was sort of interesting. And that is that the, the no, cause you know, forgive me, forget the terminology wrong, but the no cause termination. So you can terminate somebody if, uh, there, if you could sell the property, I'm assuming they're outside of Elisa, you can terminate somebody or a tenant that is, if I'm, I think if you go to tribunal on there, broken all the rules.

Veronica Morgan: But in terms of, well, if I'm an owner and I rented my house out while I moved overseas and then I moved back, what if I can't evict my, and it went on wanting to move back into my own home or if I have a tenant who is, yeah. You know, if I want to move the tenant out because I actually want to put a new kitchen and actually upgrade the property. Yeah, I won't be able to do that. You know, there's actually quite a few restrictions coming for landlords and, and Queensland buyer's agents. Megan Hetherington mentioned this as well. Certainly Pete just then, um, it, you know, the reforms coming will be interesting in terms of what they do to the sentiment of potential investors or maybe investors wanting to sell out.

Chris Bates: I think this is what's so important to, you know, a lot of clients will say are, um, I want to buy a property, but you know, the, the issues around the cashflow and I think well the most IM issue or any cashflow is getting rent, get it, keeping a tenant and not having any massive gaps between tenants or like in three months to lease it. And a lot of clients, you know, I've seen in the past I've gone and bought, you know, poor quality assets and generally pore assets generally have bigger problems with getting tenants and keeping tenants and keeping and rent increases. So I think what this really means, if you are buying quality assets is not finished now though. Now you've got to pick a quality tenant because if they are in there and they want to stay and they do the things right, um, you know, it might not keep the property how you want to be kept, you know, um, or they potentially are late on rent here and there. That might frustrate you or you know, they won't allow access for things. There's things that those tenants might do that upset you and damage the property. Um, you might find it really hard to kick them out if they know the rules. Um, which I've, uh, I know from personal experience, um, with some lawyers don't attendant on one of their properties,

Veronica Morgan: so there's certainly seems to be consensus generally that the beginning of 2020 will be strong, but that could Peter out as new stock comes onto the market. Um, but as in, of course we know the power of the regulators as David Johnson puts it, you know, he says that, uh, government and the regulators will feel the ever increasing heat due to cost of the properties and the level of consumer mortgage debt and affordability issues. So we should also keep a lookout because in particular, appro would be expected to sit back into the fray at some point to make it harder for consumers to borrow if it all seems to be getting out of hand. Um, so, you know, I think that's what we need to sort of be aware of that, you know, if the increased supply doesn't sort of do the job. Um, of settling the market down, then the regular regulators may well start playing with the leavers again.

Veronica Morgan: David also, he actually sent a couple of things which I loved. One was his elephant in the room. Do you love that? Uh, two elephants in the room, David suggested one will the economy remains sluggish and the RBA be required to drop rates again, which will significantly curtail any measures from opera or will Australian start to spend because of the wealth effect, which is what we get when our property values go up. We all feel like we've got more money and therefore we get out there and play around and spend more on in retail and buy whiteboards and renovate and all the rest of it. And will more developers get money and the government throw cash at infrastructure, meaning that there will be more construction based jobs making it more likely that we see wage growth. So there are just a couple of elephants in the room and questions that Dave's putting out there.

Chris Bates: Yeah. So you've got tax cuts in now, do they bring them forward? Do we get a more of a price war with the banks, create more money in our cashflow because our mortgages are cheaper. Do we then spend that money and increase retail spending and things like that because, um, our property prices are going up. So there are big unknowns. I think the good humor global economy, that's, you know, we've got Brexit potentially sorted now, um, try deal potentially sorted now between China. Um, you know, the potentially is more certainty, but um, I'm always a bit uncertain when that's like that because generally there's more uncertainty around the corner.

Veronica Morgan: So none of these experts that we called in here to give their opinions, they were brave enough to give some predictions. David Easterbrook, he's a buyer's agent from Melbourne who we interviewed in episode 90. He's come out and said the owner occupiers will continue to dictate the house purchases for those with the budgets to do so. However many owner occupiers not willing to sacrifice their location too much, we'll start to see value in townhouses. So he's saying this is a cultural shift. There's been a long time coming and it is interesting because townhouses a like houses, but they're strata so they've got backyards, they've, they've generally street fronting and all the rest of it. I do love the fact that he's, he's Keith, he's given a big, big warning, he says, but be aware of the impostor townhouses, which are built from substandard materials and some substandard levels of quality and materials such as he will foam and blueberry blue board. Um, so he's got a little rant here. I'll put the whole rant in that document that we've said that we'll have, which is a summary of all of these comments from these experts. And you can get that on the elephant in the room.com today. You,

Chris Bates: yeah, I think the a, you're right. Lucky if houses all become too expensive, then people shift to other assets like townhouses and apartments. Um, and I think this is the conversations are probably having, I can already start to see them, um, is once people start to lose hope and living in the areas they want to live, then not going to potentially give up. You know, they're going to want to keep living in those areas. And the rentvesting strategy, which was kind of all the rage a few years ago, stoner start popping up again where people say stuff it, I'm just going to rent where I want to live and invest elsewhere. Um, people moving out of Sydney, for example, central coast, North of Wollongong, that's gonna start kicking off again. I can already say it's, um, and blue roll. Jalong um, etc. Um, but I think also even moving to Brisbane, you know, we, I would say lots of clients say I'm going to move to Brisbane because of house affordability. And so I think that's going to be a big conversation is that whole housing affordability debate, which has gone quiet for the last two years, is really going to start kicking off at the end of next year. Um, and there's also, obviously a lot of people are marginalized. The property like homelessness, that's obviously gonna get worse. Um, you know, there's, there's, you know, massive problems with the property market on a social level that, um, will start becoming more bigger conversations next year.

Veronica Morgan: So let's, let's hit with some more of these predictions. Pete warrants his Brisbane hasn't seen wild swings in prices up or down in recent years but has experienced solid rises in land values close to the city, expect to see more of the same in 2020 supported by relative affordability and I think that feeds into, or you were just saying there about migration really as well driving those prices up. Megan Harrington also from Brisbane says the number of listings on property portals has remained fairly consistent over the last six months. And here her conversations with agents indicates that wood is not going to be the traditional flusher properties in the new year, but rather trickle the fresh listings late January we'll that will continue to put pressure on prices. Scott McGeever from Brisbane as well says he can see that houses in the sub $800,000 price bracket will be very strong.

Veronica Morgan: Hitting over to uh, Melbourne. You've got Jared McCabe saying that he's certainly thinking that things will continue to be fairly strong going into the new year. He's actually putting some figures on this brave man he's expecting. We might put him in the, uh, filler forecast report 2021. Here we go. He's expecting, market prices to rise on average probably between eight and 10% over the calendar year. You certainly wouldn't be surprised. The blue chip assets rise in value by even up to 15. Um, Kate Bay cos he, she's saying very similar. She's basically, it doesn't foresee Melbourne's property market dipping again in 2020 unless something significant is on the global scale or politics policy level is initiated. And David Easterbrook is giving quite a specific prediction saying younger buyers will start to see a value in apartments in the premium locations such as Elle woods and killed our Hawthorne South Yarra. And I know that a Stuart Williams and also Jared McCabe have said this too, at different times, uh, just based on what I've read and listened to it, there's heat. But, uh, David's saying that he thinks prices would jump five to 10% in the for the first time in almost a decade, uh, as downsizes young buyers want location and starting to see the value in these sorts of properties.

Chris Bates: Yeah, it's funny he says that around apartments in Melbourne, you know, like they haven't really risen much in a decade and that's um, you know, but these are the type of apartments that people want to buy if they can't afford to buy a house. So as house prices get too expensive, they have to shift into other things and they're actually competing with downsizes. And this is one of the things that's going to start happening in 2020. If you were a downsize up, what would you have done during the downturn? You would have delayed selling your house and you would only sell your house when you can get a good price. So they're going to start entering the market to sell because the end, they're gonna have more cash because they're going to sell out of a house for a bigger price. Now they're going to get,

Veronica Morgan: have a very short runway in terms of how, whether they can borrow money and you know, but firsthand buyers and in some cases have more flexibility then a downsizer depending on how close to retirement they are.

Chris Bates: Yeah. And I guess depending on what the means are of that downsize, but you know, if they are selling out of a house and they're getting a bit of a, a decent price cause it went pretty hard at auction and a downsizing into something else, they're more likely to go and have that same confidence when they enter the market on something else and overpay if they've also got a good price.

Veronica Morgan: Um, only if they've got the cash. Yeah. I'm just trying to encourage first time buyers that not all downsizes are competitors for them.

Chris Bates: Yeah. I think, but I think I, if you have just entered the market and you're pretty desperate now because you don't want to be out of house,

Veronica Morgan: that does drive it a bit.

Chris Bates: Yeah. I don't want to rent for a couple of years in my sixties or seventies. I want to get straight back into the market. Um, I do think it's going to be a bit of a problem together with the investors entering the market. And so that first time buyers, I had it pretty good. I would say they're going to a few more competitors next year.

Veronica Morgan: Yeah. David Johnson also gives some insights outside of Brisbane, Sydney and Melbourne, which is what we've been focusing on here. He does say that he can see value growth in Adelaide and Perth at solid rates but not at the same rate of knots. Uh, as certainly, you know, definitely Sydney and Melbourne. Um, also he said Canberra will be more subdued given the public service shakeup and Hobart will be more restricted due to recent high growth rates. He's saying the market will recover, it's full correction by media if not sooner. And we will be hitting new highs in the second half of the year, but the rate of growth will be slowing by the end of the year. And of course, going back to his early comments about, well that's assuming that there's no intervention by regulators in the middle of the year.

Chris Bates: Yeah. Like every year though, we some point, there's always the biggest risk have the global crisis. And I think that's, um, you know, we can always, you know, we thought that would be last year we thought it'd be next year we, there's always a risk of a global crisis. And so that's always the caveat that we always don't know.

Veronica Morgan: right. So also we're always very careful to be forecasting or predicting and don't forget you can actually access, uh, our annual fuel forecaster report. So which experts can you trust to get it right? So there's a lot of danger in forecasting is sticking your neck out there and uh, we release this every April fool's day. Our April fools day from 2019 is there on the website, the elephant in the room.com. Dot EU for you to download. Uh, we will be obviously releasing a new one in 2020. So keep an eye out for that one. You can also access the transcript for this episode on their website and you can read more from these experts by downloading all of their comments that they sent to us. Check the website for the link.

Chris Bates: Thanks for joining in. And uh, Veronica and I are actually going to catch up for lunch now to talk about what's in store for 2020 as well. Uh, I'd love to hear your feedback. Any guests that you can trust to get on, we're making a bit of a hit list, so, uh, any feedback or any ideas, send them through. And finally, happy new year and I wish you all an amazing 2020.

Veronica Morgan: Absolutely.

Veronica Morgan: Join us for our next episode when we interview Louis. Christopher Louis is one of Australia's best known and very well respected property analysts. Now he actually gives us a very personal story as to why he got into the business that is in. And I encourage you to listen for that one. Louie shares, he's assumptions for the 2020 property market. So these are the assumptions that he is using. He's based his forecasts on. He talks about the various scenarios that he's played out in terms of his forecasting models. Big question. Is there an end game to all of this so we definitely encourage you to tune in. I have to say it was a very, very enlightening. He absolutely dug deep and and a very deep conversation around property data. What's driving it, what's underlying it, what's happening, how we interpret this stuff. It's well worth listening to this episode.

Chris Bates: Don't forget, we're on all the social channels. We're on Facebook, we're on LinkedIn, we're on Twitter,

Veronica Morgan: or you can connect with us on the elephant in the room.com today you, the links are all there for you.

Chris Bates: Please connect and send us a message we'd love to hear from you.

Veronica Morgan: The elephant in the room property podcast is recorded at the Sydney sound brewery. This week's podcast was recorded by John risk editorial by Gordie Fletcher.

Chris Bates: Until next week, don't be a Dunbar.

Veronica Morgan: Now remember, everything we talked about on this podcast is general in 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 buyer's agent who will tailor and document their advice to your personal circumstances with a statement of advice.