TRANSKRIP 🔗
WEBVTT
00:00:00.160 --> 00:00:07.919
Interest rates are rising, negative gearing has been changed, and this means that affordable locations are going to see more pressure.
00:00:08.080 --> 00:00:10.960
Now more than ever, your strategy matters.
00:00:11.199 --> 00:00:16.320
Where you buy and what you buy are going to be crucial for you to continue building wealth.
00:00:16.480 --> 00:00:24.239
There is a massive amount of negative sentiment out there right now, with fuel costs rising, interest rates rising, and budget changes.
00:00:24.559 --> 00:00:29.440
Mainstream media are fantastic at spreading doom and gloom and creating fear.
00:00:29.600 --> 00:00:35.759
The same old narrative that has been happening for decades continues on that the property market is going to crash.
00:00:36.000 --> 00:00:47.679
Some marketplaces are going to be 100% affected by these changes, while other marketplaces are going to see pressure and growth in getting the location and getting the asset type right is crucial.
00:00:47.840 --> 00:01:00.000
In this episode today, we're going to be breaking down a number of different factors as to where we're going to see price growth and what implications are in play right now.
00:01:00.240 --> 00:01:04.079
And the first thing we're going to be talking about is borrowing capacity.
00:01:04.239 --> 00:01:09.760
And borrowing capacity is going to be negatively affected over the next 12 months.
00:01:09.920 --> 00:01:11.280
And there's a couple of reasons why.
00:01:11.439 --> 00:01:16.159
One of them is we have seen this year already some rate rises.
00:01:16.400 --> 00:01:22.640
With rate rises, interest rates increase, and that negatively affects our borrowing capacity.
00:01:22.959 --> 00:01:31.920
So right now, if you're trying to purchase and your borrowing capacity is limited, then it's going to get tighter.
00:01:32.159 --> 00:01:39.599
And that's why getting in within your budget now is crucial because affordable locations will continue to rise.
00:01:39.760 --> 00:01:45.040
And if on the flip side your borrowing capacity is decreasing, you could be priced out of the market.
00:01:45.519 --> 00:01:52.480
And we've seen this already with some people where they could have purchased 12 months ago, they didn't.
00:01:52.560 --> 00:01:55.200
They're going to pay 150K more now.
00:01:55.359 --> 00:02:00.959
But then on the flip side, they don't have some of the benefits through negative gearing now.
00:02:01.200 --> 00:02:10.240
On top of that, with the budget announcements last week, we now know that in the future borrowing capacity is going to be affected also.
00:02:11.039 --> 00:02:13.199
We don't know when that's going to take place.
00:02:13.439 --> 00:02:15.759
We've got the proposals from the government.
00:02:15.919 --> 00:02:19.039
It needs to come into effect and into legislation.
00:02:19.199 --> 00:02:24.400
And then what we will see is the banks roll out and update their borrowing capacity.
00:02:24.800 --> 00:02:35.120
We're going to expect to see probably a 30 to a 40% hit in terms of borrowing capacity once they remove negative gearing from their calculators.
00:02:35.360 --> 00:02:39.039
So it's going to be interesting to see how that unfolds.
00:02:39.360 --> 00:02:48.159
And once the legislation takes effect, will the banks implement it straight away or will they wait for the first of July next year?
00:02:48.479 --> 00:02:59.439
If we're looking at the average life of a loan, 25 to 30 years, they might implement those changes sooner and not wait for the first of July 2027.
00:03:00.240 --> 00:03:05.280
So there's some things that we need to factor into the equation when we're purchasing.
00:03:05.599 --> 00:03:21.120
But the higher quartile markets where we're looking sub, I should say, where we're looking above$1 million, they're going to be more affected because they're closer towards their borrowing capacity ceiling.
00:03:21.360 --> 00:03:28.479
However, those more affordable locations, more people are going to be getting pushed into those affordable locations.
00:03:29.280 --> 00:03:33.439
And in those affordable locations, that's going to create pressure.
00:03:33.599 --> 00:03:38.400
There's going to be more people transacting in that affordable bracket.
00:03:38.639 --> 00:03:41.120
And that's something we focus on as a business.
00:03:41.360 --> 00:03:47.439
We want to go into those affordable areas because that's where the majority of people can afford.
00:03:47.599 --> 00:03:50.080
And that is going to push prices higher.
00:03:50.319 --> 00:04:03.759
The government's out here saying that, well, these changes are going to benefit first home buyers, but it's actually just going to add further pressure in that marketplace where a lot of first home buyers are transacting.
00:04:04.080 --> 00:04:15.039
Now, in those lower quartile marketplaces where there is more affordability, like I mentioned, there's those first home buyers there and essential owner-occupied purchases.
00:04:15.280 --> 00:04:25.759
So that is simply where some people can afford to purchase and they don't have the luxury where they're going into the high end of the market above 1 million, above 2 million.
00:04:26.000 --> 00:04:30.959
So that's something to really think about with some of these changes.
00:04:31.120 --> 00:04:42.720
And typically the the rents in that lower end is where people are transitioning from renting into those same similar marketplaces that are affordable.
00:04:42.959 --> 00:04:51.680
Whereas the higher quartile is higher income earners, they're they're upgraders, they have a lot of discretionary spending.
00:04:52.000 --> 00:04:56.879
Now, with that, that is where those marketplaces are more affected.
00:04:57.040 --> 00:05:10.160
So we typically see in times of uncertainty where there's negative sentiment, the top end is affected, but it doesn't mean that that more affordable lower quartile is affected.
00:05:10.399 --> 00:05:13.439
And
Load full transcript
this is going to be crucial over the next couple of years.
00:05:13.680 --> 00:05:21.439
Everyone thinks that the whole marketplace is going to crash, but affordable marketplaces will continue to receive pressure.
00:05:22.480 --> 00:05:29.360
Another one that we want to think about is yields and yields in those locations.
00:05:30.079 --> 00:05:38.800
Naturally, what's going to happen now because of the negative gearing benefits that we see going, people are going to chase those higher yields.
00:05:39.439 --> 00:05:49.839
So again, it's going to be going back towards the lower quartile, where typically rents are higher or rental yields are higher based on that purchase price.
00:05:52.079 --> 00:05:56.879
This is going to dissentivise some investors from entering the market.
00:05:57.120 --> 00:05:59.920
It's going to be our typical mom and dad investors.
00:06:00.240 --> 00:06:11.040
It's not going to be our sophisticated investors because right now they're going to see opportunity while there's less buyers because some people are acting in fear.
00:06:11.199 --> 00:06:17.120
They're going to get in now, take advantage, and know that rental income growth is going to take place.
00:06:17.600 --> 00:06:22.319
They are already chronically low from a vacancy rate perspective.
00:06:22.560 --> 00:06:28.399
Seven out of the eight capital cities have reduced over the last 12 months in terms of their vacancy rate.
00:06:28.560 --> 00:06:34.160
With vacancy rates dropping, this is a forward indicator for rental income growth.
00:06:34.399 --> 00:06:37.040
So we're going to start to see that take place.
00:06:37.199 --> 00:06:41.920
And again, the government's positioning that it's going to be better for tenants and first home buyers.
00:06:42.240 --> 00:06:44.720
This will negatively impact tenants.
00:06:45.040 --> 00:06:46.879
Rents are going to rise.
00:06:47.199 --> 00:06:56.879
Now, what we will also see in specific locations is some areas, people will start to focus on those high-yielding properties.
00:06:57.040 --> 00:07:01.199
And that could look like a unit, a townhouse, a villa.
00:07:01.519 --> 00:07:03.600
So that's something that may shift.
00:07:03.680 --> 00:07:06.319
And it's going to depend upon budgets as well.
00:07:06.480 --> 00:07:13.519
If someone had a 650K budget and with the negative gearing changes, it reduces to 450,500.
00:07:13.839 --> 00:07:18.480
They're going to be priced into a different marketplace and a different asset type.
00:07:18.639 --> 00:07:24.000
We will see some people still find a solution in their budget and get into those marketplaces.
00:07:24.160 --> 00:07:30.160
So there's going to be added pressure to some of those different asset classes in the right locations.
00:07:30.879 --> 00:07:37.360
Now, the next thing we're going to be talking about is asset selection and the location selection.
00:07:37.600 --> 00:07:50.240
So what has taken place over the last five years is we've seen some locations perform very strongly where other locations have underperformed to their long-term performance.
00:07:50.480 --> 00:07:50.800
Okay.
00:07:51.120 --> 00:07:53.120
And this is where the opportunity is.
00:07:53.360 --> 00:08:14.800
Some people will follow where the growth has been had, whereas others will follow where the growth hasn't taken place, understanding that over time, if we can see that the long-term average is high, but the last five years is under that long-term average, we know it's going to overperform and those marketplaces are undervalued.
00:08:14.959 --> 00:08:27.360
And it is crucial right now to really analyze those locations and get into locations early in their growth cycle that haven't done 100%, 150% over the last five years.
00:08:27.680 --> 00:08:38.240
This is going to be crucial to make sure you get into that area that is still going to grow in value despite the complications and the negative sentiment out there right now.
00:08:38.480 --> 00:08:45.519
One of those locations that is chronically undersupplied right now is the Melbourne marketplace.
00:08:45.840 --> 00:08:54.879
Right now, you can get many properties, sub 650 on a large piece of land that is a house.
00:08:55.120 --> 00:08:57.600
So there is massive value there right now.
00:08:57.840 --> 00:09:00.480
It has not performed well over the last five years.
00:09:00.720 --> 00:09:09.440
But if we look over the last 30 years, as per totality, it has been one of the top performers in the country.
00:09:09.679 --> 00:09:11.600
We know that area is undervalued.
00:09:11.679 --> 00:09:14.399
It's undervalued in comparison to Sydney.
00:09:14.559 --> 00:09:21.120
It hasn't performed well over the last five years and is going to grow strongly over the next five.
00:09:21.279 --> 00:09:25.840
And primarily, what we want to focus on is capital growth.
00:09:26.080 --> 00:09:36.960
Negative gearing is just a benefit, and it's a secondary benefit to the overall overarching strategy that you must get capital growth.
00:09:37.279 --> 00:09:47.120
Does not make sense to buy a shitty asset that doesn't grow in value just so you can get some benefits from a cash flow point of view.
00:09:47.440 --> 00:09:51.679
You still need to go out there and buy in an area prime for growth.
00:09:51.919 --> 00:10:01.440
Now, another metric that you want to be focusing on right now with these affordable marketplaces is the income levels versus property prices.
00:10:01.679 --> 00:10:08.720
There's many locations in that affordable quartile, yet the income on the back of that is quite strong.
00:10:08.960 --> 00:10:15.039
So we know that they're undervalued right now and they're well below their borrowing capacity ceiling.
00:10:15.120 --> 00:10:18.799
So there's a lot of room for growth in those locations.
00:10:19.200 --> 00:10:24.480
Right now, like I said, it's so important to get that location right.
00:10:24.879 --> 00:10:31.919
Those affordable locations are going to be crucial to get into and get that performance moving forward.
00:10:32.159 --> 00:10:34.320
We're going to see that capital growth.
00:10:34.480 --> 00:10:40.559
We're going to see rental income growth as there are less investors within the marketplace.
00:10:40.960 --> 00:10:55.919
Right now, the sophisticated investors, the top 1% of investors, are looking at this window right now as a solid opportunity to get in while some people are still getting their head around the budget changes, thinking it's going to stop price growth.
00:10:57.200 --> 00:11:03.440
It's a similar time frame right now to COVID where everyone was freaking out, no one was taking action.
00:11:03.679 --> 00:11:06.879
And then off the back of that, there was a massive run.
00:11:07.360 --> 00:11:09.919
There was a nationwide boom at that time.
00:11:10.240 --> 00:11:16.240
But again, what's different this time is that location piece is going to matter more than ever.
00:11:16.559 --> 00:11:33.360
The higher quartile, yes, there's going to be some correction in some locations, but that lower quartile is going to continue to have momentum, have people transacting in it, and the pressure within that lower quartile is only going to increase more.
00:11:33.600 --> 00:11:40.320
We've got the first home buyer incentives in that marketplace, and we will see them dominate those marketplaces.
00:11:40.559 --> 00:11:48.480
They will absorb stock, vacancy rates will drop, rents will rise, and it goes on in a cycle like that.
00:11:48.799 --> 00:12:12.720
If you're looking to purchase now or you've been thinking of purchasing, but you don't have the confidence on where to target, what to target, then reach out, let's book in a call, and we can build out a strategy to help you build wealth through property and have the confidence to keep taking action right now and reap the rewards whilst everyone is acting in fear.
00:12:12.960 --> 00:12:15.360
Thanks for listening, and we'll see you on the next one.