Hello, and welcome to The Australian's Money Puzzle podcast. I'm James Kirby, the Wealth editor at The Australian, and welcome aboard everybody. Now you may have noticed that there is the beginning of a trend of a turn actually in the property market as we speak, and you'd already know. I'm sure the property prices are beginning to fall in
both Sydney and Melbourne. Now those falls are small, but the point is they're falling right, they're going the wrong way and very roughly it looks at the current pace of something like one percent a month. The couple of issues major issues for anyone in property is how far
will this go? And how wide will this go? Will it spread to the other cities that have been having such a good run in recent times, Perth and Brisbane in particular, and Adelaide too, So we want to have a look at that, and I want to take a quick look also at the long awaited, finally signed off shared equity scheme, where you or someone you know can now buy a home in conjunction if you like, in a joint venture with the government, so you and the
government can share the ownership of a home they will put up up to forty percent of the price of it if it's a new house, thirty percent of it's an existing house. What's that like? Is it a good idea? Would it work for you? Would it work at all? My guest today is a regular on the show. It's Louis Christopher of SQM Research. How are you, Louie?
Good Bye? They're giants. It has to be with you once again.
Good to be with you. So just let's tell the listeners basically your call on where things are? First of all, is that about right? Price is following about one percent a month now.
Or just on the one percent a mile for Sydney and Melbourne prizes on Alan numbers are also falling Canberra into a let's say, Steeds in Hobart, but they are still rising out a very strong click for Perth. Brisbane had laid when we believe that the Darwin market's actually sewn to pick up now. So but most of the falls we speak of that the people here about in the media are really Sydney and Goldblin stories.
Here and the majority of housing sock is in Sydney and Melbourne. This did I think you said sixty percent or so.
About sixty percent of the national spot.
So there is I think it's Shane Oliver at AMP mentioning and a few others putting out the point they're pretty soon we're going to see a nationwide average fall in prices. Is that feasible or pushing it too much?
Look, we have a different view. We think for twenty twenty five we're not going to see a broad based
national cly. We still believe that the seeds are per and adelaide will we call rises our bed slower rises and what we're recorded in what has been recorded in twenty twenty four, and that the falls will be for just certain cities being Melbourne, Sydney, as Weuching before, Hobarts and canber So we don't think there's tend to be a broad based and actual decline, mainly because we're seeing certain state economies doing better than others and population into
state population migration flows are stronger than certain states and others, meaning that underlying demand is stilling freezing at a fairly rapid rate of knots, for example in the state of Western Australia's state of Queensland, and that underlying demand for housing has not been met on the supply side. So these are one of the reasons why we're forecasting in more of a mixed house in market in twenty twenty five.
Okay, And what's interesting here, obviously is you've put the end alongside Melbourne as a market that you expect to see a forward by the far end of twenty twenty five. Can you tell us a little bit more about what you're forecasting.
Yeah, sure, So for Sydney and Melville we're forecasts and housing price declined to somewhere between minus one to minus five percent for the year. Now, what we believe will actually happen is that the bulk of the housing price falls will happen in the first half of the year.
We believe at some point in time in mid year twenty twenty five, we're finally going to see the Reserve Bank of Australia cut each astraits and once they do, we do believe that at home by confidence, indeed vendor conferimence will start to prove in our two largest capital cities for the second half of twenty twenty five, but the net result will still be declines in housing prices
recorded full of full year. So just think of an impartial V shaped recovery for our two largest capital cities where falls having the first half the year off set by some price increases for the second half of a year.
You would know, of course, that most of the major bank economists have now pushed their forecast for a record out from February March right out to May June. The risk I imagine for you is that they would push them further out again. Is that a downside risk basically for your forecast?
Well, you may recall and your audience may recall what we do when we release these forecasts each years. We put out various scenarios, and so our base pas scenario was that we would see our interest rate cut of betwey point two five percent two point five percent somewhere media twenty five. However, our second most likely scenario is one where the Reserve Bank WASTRA doesn't cut egestrates in
twenty twenty five at all. And our that scenario we're a little bit more negative on the housing market book, particularly City and Melbourne. So on our modeling, the RBA does not cut rates in twenty twenty five, housing prices in City and Melbourne are likely to fall somewhere between seven to eight per seat for the full calendar year.
Okay, and it has happened. I presume before that you had a year where the major cities were dropping and the other cities were rising. That's not unprecedented normally.
The situation you do recall, are you one records over over a number of years now is a mixed housing market where some cities right, some cities fall. It's more the abnormality that you see every housing market across Australia
in sec with housing price falls. Of course, there are periods where when the Reserve Bank Australias lifted interest rates and all the economy significantly slow that you see slowing housing markets across the capital cities, but England that case, it's not always a situation where housing fives falls literally happen everywhere, and I really do doubt we'll see that. I think in Australia next to you, I think you know.
One of the cue missing ingredies behind big fools in housing prices nationwide is that we still have a shortage of real estate. It's not like a zo. The supply side on residial will stay in this country is boomy. It isn't everyone's aware. We've got a fundamental of shortage of real estate compared to the population growth rate, and that essentially puts a bit of our floor underneath the housing market to an extate.
Okay, we'll be back in a moment. Hello, Welcome back to The Australian's Money Puzzle podcast. I'm James Kirby. I'm talking to Louis Christopher. Okay, Louis, this is what everyone wants to know. Where are the bargains in Melbourne's Sydney Because as our audience, they're investors, they're optimists, they're looking for value. So can we deal with them separately. Let's have a look at Melbourne. First of all, let's be.
Well chah, well we can, but we're seeing some similar trends. Let me explain it. Okay. Firstly, firstly, for both seas, I wouldn't say that that the markets are undervaged at this point in time. So when we look at pricess to rens pricess of income, we're still recording other valuations in Melbourne and c but the market is colling off and we are seeing more distress listings activity, particularly in the state of Victoria. And then we went dig deeper
into the stud of Victoria. The bulk of those distress listings are occurring any inner city areas of Melbourne. We are recording some distress listening to regional Victoria, but the bulk of the are in Melbourne and that they're they're involving apartments in the CBD.
Okay, what's your definition of distress our?
Distress listening is one where we're noticed frutile listing. It's been either advertised as lortgage in possession or season the ad bank for sale or deceased a state or all offers considered must sell. Now we think at about forty seven different keywords in terms of what we're regarded as of distress listing.
What are you able to give us some sense of the proportion of property in Melbourne and Central that's distressed and what it might be normally.
In the CVD. I think we're recording now about one hundred and ten properties. So in the post got A three thousand has about one hundred and ten properties selling under distress conditions.
Okay, what would you expect normally?
Well put it this way, James, it's a relatively new series that we've put out, so we've been running this distress listings index since weeky twenty and for most states that this number of distress listings are well down in those COVID times early COVID times, except for the state
of Victoria. We've now recorded and new've hed for the chount of the stress listings in the state of Victoria, so that the numbers now are coming out to twelve hundred properties statewide which are selling under distress conditions as per our recordings, and that's higher than what we had during the COVID period. Now, there was this period between twenty twenty one and twenty twenty two Victoria and as it was a case of other states, where the stress
listening activity essentially collapsed. And that was because during that time, you may recall, the banks had a lratorial on any borrowers who were facing financial hardship to the COVID. Hope. Those times have ended, of course, and the banks are now playing hardball.
They were given a sort of lifeline at that time. Yeah, three, I see. And what about in your reporter just came out this morning, you say total listings. Now, this is nation, they presume, but presume it's it's underpin by Victoria. So total listings rules by seven point six percent, driven by sharp rises in old listings. I assume that is just the accumulation of stuff coming back on the market again and again. Is that what that means?
Yeah, Bold listenings week class of by old listenings has been on the market for over six months, well one hundred and eighty days, and you would be surprised how me listening shout there and being on the market that role. We're counting nationwide there's about seventy four thousand listings that have been on the lark for greater than six months. But more interestingly, the properties that have been on the market between thirty days to ninety days rose significantly over the
last thirty days. They're kind of went up by twenty two percent nationwide. And what that's telling us is that it's been a very disappointing spring selling seats in the cross country for many owners and agents alike, particularly once again in city of Melbourne, where we've recorded the biggest gains in that bracket of listings in terms of days of laughter.
Right, so the weekness in Melbourne is inter city apartments clearly. Is that reflected in Sydney too.
Yes, it is. We're also recording rise in the stress listing activity in the cvdal City. We're also being recording rises and distress selling activity in development areas in and around city. So for example, in Northwest City, particularly around the carling For and Epping area, we're recording of substantial rise and distress listing to activity, and that's been an area where there's been a lot of developments being added on to the market over the past three to five years.
Okay, I want to ask you one point about that Sydney. The softness in the Sydney inner city apartment market. Is it also worse than the COVID period.
Yes, it is. It's worse than a COVID period.
Now, Okay, I see. So the explanation is not so much that it's so bad now, it's that there was this artificial cushion in the COVID period where the banks weren't allowed move.
Basically, yes, that is true, and we need to okig in mind that you know, we'd go relatively young series out there. We're not only everyone else that does this series. Yeah, but you know, I really entire in this series will mature. So we've only got the data back to twenty twenty,
so make of that what you will. But nevertheless, suddenly in the start of Victoria we're in now unchartered orders and we also now there's been separate reports of increased defaults and the rears in the start of victory as well. I think you know, being in Isaiah cang out with some surveys on that recently.
Yes, and Fitch did also Louis on that side of things. Okay, very interesting. I just want to ask you whether you think investors would necessarily see in the city apartment markets as at what point would they see it as being in bargain territory because they are known to be among the weakest of property types because of basically because there's no land.
Great very hard and at a personal level, it's not our location. I would personally investing myself because of the what I do regardless well, being will elevate the risks of boons and buss as opposed to more smooth our performance from an investment perspective. Yeah. Look, these areas, of course will be historically areas where you see more supply added into the marketplace. We are definitely notice more resales
occurring below the initial purchase price, particularly in Melbourne. We ran one last week in our what we call our stress Property of the Week and our weekly ESQR newsletter. It was a property by recall where the initial purchase price was back in twenty fifteen at about eight hundred and fifty thousand dollars or three bid or in the unit, and then they are trying to pick it up. Well, they try to sell it somewhere in the six hundred thousand range of boy Cuble numbers, so it was a
deep discount to the original purchase price. You could argue that the original purchase price, which I presumably was bought off the plane, was way above mark above laying. This is the issue I have ab off the plane valuations. It is very hard to tell what is speed market valuation, and there are greater risks for investors buying off the plane that they're paying arger the odds for the property concerned.
Okay, very interesting. I'm sure the listeners will take all
that on board. Very interesting. Okay, Now, just before we got questions, if I could just swing your attention in another direction entirely the Shared Home Equity Scheme, which is the Labor Government's signature or move to put something in for first home buyers got signed off in the last week of Parliament and it will now start and it would allow people to let the government basically to be the other partner in the purchase of a home first
home forty percent. The government could have up to forty percent of a new property and thirty percent of an existing property. And there are salary caps on this. But it's very interesting. It's never been tried here, It's been tried in the UK. I've had to look at some of the I looked at that house, the Lord's report on the British one and the various observations they made, which the big takeaway was that it worked in the regions. It didn't work in the cities because the pass there's
so much lower in the regions in the UK. But what do you think might happen here?
Well, Damsby might not have been tried at the federal government level, but if ever been tried in Australia before by certain private organizations. You may recall some years back rizmarkat a ski and then I think there was another one called Grainwaite Capital and quite frankly, these steams in the past did not work. I predict that this one will not really work either, and it will not be the solution to a housing problems. But it look it may work for some first time buyers who just simply
cannot get into the market at all. But I think for the bulk of would be buyers, the thought of the government having some ownership in your property, I think that's a bit of a turnoff for many people. It would be a turnoff for there. I wouldn't do it unless I absolutely hate to. And just remember that in all these things, when you have this shared equity, okay, as sooner or later you have to pay the pie.
Is there some reason the government is a worse joint ventship partner than ris Mark or whoever it was in the past.
They might not be, They might not be as worse Jones. And I think one thing that's improved over time is that it's more or less being settled how things such as repairs and maintenance need to be looked after. When these initialis first came into the market some fifteen to twenty years ago, no one ever really falls through the issues surrounding repairs and maintenance. So I think a number of those questions have been settled there after some experience.
But even so, I just don't think you're going to say a lot of tie up in my year.
Oh right, okay, I must say I think they'll be taken up. I reckon everything's spot will be taken up. I do. Whatever the issues are. I think there's limited numbers.
I mean, let's say it's fully taken. Let's say you're right, and now it's just actually going to resolve a out housing issues.
No, I don't think so. But I'm just thinking of it for the people who take it up that I suppose it's an option that wasn't there previously.
I think that's a reasonable call. But I think in the lull and they're going to resent having gotten a nishick in their property.
It sounds to me like you're alluding to some sort of Kafka esque bureaucratic nightmare that the young couple might find themselves.
There is a libertarian part of me, and you know, I just I think there will be down a lot of people say no, thank you.
Okay, And I think that point of view is worth canvassing. Folks are just having a look at I think one of the I think, well, the defense properties for instance. They are often seen as looking attractive, but you know when you do go into those they are very strict all their measures and regulations and maintenance demands. So they're all pre ordered and pre agreed, and you are just you know, you against the army or you against the Australian government. Is something to consider.
They can their restrictions. And then I also bring to your teaching quite separately, just so the issues surrounding Indis properties of lake as well, which unfortunately you've had some and all of saying this is what happened with the shit equity back, we're saying situation where you've had some odd scrupulous operators enter into that spoutace for ABIs properties
and a lot of innocently versus are being burnt. So it's really important all these things or these skins, that you look at the day job, whether you're a first time by very investing, you really consider the day job.
That's important alls, and I think it's important to also say to the listeners that the ndis stuff. A lot of the developers after works for masquerading basic as the government, which they weren't. They were simply building buildings that were suitable for NDIS, but they weren't their government building the buildings, while here you are actually participating directly with the feathering government. This is on the home shared equity schemes. So all
to be revealed in the fullness of time. Okay, with ex short break and we'll do some questions from listeners. Hello, welcome back to The Australian's Money Puzzle. James Kirby here with Louis Christopher of the s QM Research Group. That's a property research group that I'm sure you're familiar with, the Independent Property Research Group, who run a continuing sort of flow of reports on the market which we report on regularly in The Australian and elsewhere. Okay, Josh, Now
Josh puts in brackets. He's from Brisbane and you'll figure out why in a second. When I read this question, love your show, but I can't have think that as you live in Melbourne, you can't see how bad the perception of investing in any form of property in Victoria is. All I see is an absolute basquet case of financially irresponsible city that has been run into the ground with
mountains of debt. Yet not only do Victorians keep voting these people into power, these policymakers into power, but they build them statues. I find it mind boggling that any sane person would invest in such a market at present and can't help but think it has a long long
that's three long stare folks wait to go to rectify itself. Okay, Josh, you know the rational part of me says, when someone starts talking about that, about a city that's going to be the biggest city in Australia, that has, whatever way you look at it, terrific fundamentals, I would start looking at it more as a long term opportunity. When the current regime in Victoria is sparking such comment, I'm not surprised that's sparking that kind of common but I wouldn't
right off the city of Melbourne. It's a property investment possibility. And what about you, Louis.
Now, I'm instantainly not over the long turn, Jones. Well, the governance come and go, as we all know. At this appointing time, I would have to say to State of Victoria, is not overly conduce you to property investment, because among other things you've got to investor laying tax. It's there in so callth it's going to introduce by Dounma. But let's remember a few things here. Firstly, the state of Victoria is still growing population wise. It's getting a
very strong share of overseas migration. So no matter what, the state continues to grow with the population front, and that means a hunderlying demand for real estate con two years to increase. Let's also keep in mind that the stud of Victory it is a diversified economy. It's got a very large share of the financial services sector across Australia. It also has a very good manufacturing sector as well.
It's what we call a very nicely diversified economy and will remain that way, which is good for the long term. Over the short term, look, yeah, there's been decisions made by the Gunment which you know I don't necessarily agree with, but like I said, over the long term, governments will come and go and there will be a time again when that the housing market will be running into positive territory. The declines that's been recorded have been modesty clients so
far for this year, helping prove fundamental valuations. But as said on our numbers, we still think the northern housing market is somewhat over age, not as overvaid as where city stands, but nevertheless somewhat overvaid coveted to rents and incomes. But yeah, for a long time, a long term. If you take a long term view on investing, then the study of Victoria is definitely still worth a look.
Okay, interesting, and in your predictions it participates in that v ship recovery media next.
Year it does so housing price falls in the first half of the year, and then assuming we get that right, cup Medie, we should start to see a return of by competence in the second half of twenty twenty five. Across Melbourne. I think the inner city area is given how much stock we're saying there, I'm also sure whether that will enjoy so much of the V shaped recovery.
But we're noticing more strengthently out of ring of Victoria, so less softness in North Melbourne in the Mornington Penicula area there we're still seeing plenty of bars there to an extent. The bulk of a softness in Melbourne is in the inner city areas.
Right now, Okay, okay, interesting, all right, fine? Question from Lisa A. Lisa can I ask you and your guest. My son and his girlfriend are interested in buying a one bedroom apartment. I don't know what city this is. I know it is seen as a foot on the property ladder, but everything I have ever read suggests they in one bedroom apartments are relatively hopeless investments discuss.
Okay, so they're solely a lot more risk buying an off the plan one bedroom apartment. But a few words of buy established one bedroom, a part of it that says reasonably modern, even an older style one, then a lot of the depreciation affected depreciations already heard on that property. So when you're buying a new property, it's not buying a new car. You're buying a cent off the showroom floor.
You're paying a premium for its units. But there's a good reason why the ATO gives you a depreciation allowing some new properties, because they depreciate. All those pictures there, fittings depreciate. They will not look as good as they are now in ten years time. But once that's taking into account into the price, which happens when you buy an established property that's say, for example, five years or we're older, you will find such properties will perform at
least in line with market. Now. Of course, you still need to do your research on, say, out the Palmer block, because what you don't want to see a major fold it's another part of block. Otherwise, even buying in existing property inside the faulty block, you're up for problems going forward. You've got to be careful that. And that's why I always say that people read the Strata minutes, get your hands on the committee minutes, to see what's been going on behind the scenes at a public block.
And see what's what may be coming down the line.
Absolutely, I might.
Be waiting for you to buy your apartment to it.
But d and all this what we've been finding of lead in more recent cycles is that units are being reasonably a good defensive playing market downturns. They up toform houses and market downturns, they turned up under perform houses and upturns.
Okay, So which would imply that they will do better than the rest of the market in this immediate period of softness.
Correct, Yeah, very.
Interesting, Okay, terrific, Hey, terrific to get you Louis again, great to have you on the show. As usual, always very very good helicopter view of the market. Very practical one too. Thanks at Louis Christopher of Escue and Research, do send us some correspondence. Folks love to have some more questions or even observations like Joshua's quite distinct observation there on the Melbourne market from the distance of Brisbane. Whatever you like, love to hear from you the Money
Puzzle at the Australian dot com dot Au. Today's show was produced by Leah Samuel Glue. Talk to you soon.