Hello and welcome to The Australians Money Puzzle podcast. I'm James Kirby, the editor at The Australian. Welcome aboard every body. You know, one thing we haven't really spoken of in any great detail on the Money Puzzle as been climate change and not so much the issue, but what it means for you as an investor or for that matter,
as a property owner. And we're certainly getting a serious perspective on the impact of natural disasters fires, obviously in the case of the Los Angeles fires that are currently in the news so much. Also some fires in Australia, as you would have some summers, are worse than others.
But we still have issues this year. We've had issues in Victoria and the Grampians, for instance, and I think it's time for us to look as property investors and investors at this issue and whether we can also realistically expect that this remains something of an issue in coastal
areas or regional areas or out the bush. Because I supposed to extraordinary think about the Los Angeles fires as that they were suburban and there is nothing I'm afraid to say that we can't have suburban fires in Australia,
which simply cannot rule that out. Likewise, we can't rule out dreadful summers in the future, which will be something like dreadful summers we've had in the past, and how that might affect properties in various areas, and how we will respond to that, and how would investors respond to that. So the obvious issue with fires is insurance, but I
think a deeper issue is property value. Now, on that issue, I have been talking on and off for some time with Narrati Economsty who is the chief economists at Ray White. She's been on the show before, but we talked most trees above all this, and she had also been using a report which had been done on this issue, an academic report which was done on this issue at the University of New South Wales, specifically specifically on fires and property values. Hi, Narada, how are you?
Hi? Thanks for having me.
Great to have you on. As always, look, I think most people listening to the show would presume that it's basically bad news if there's fire in an area, that that area will be damaged, not just in terms of it's the natural damage or the insurance damage, but it would be damaged as a property zone for some time, and so would neighboring zones. What have you found out of late from this academic work.
Yes, so the research that the University of New South Wales did show that absolutely there is a negative impact on property values. It looks specifically at property values, so obviously there's a lot of other damage that takes place, but the research found between a six to twenty four percent impact on property values. But interestingly that the recovery was generally quite quick, So the recovery was between eighteen months and two years. So even though the impacts were great,
things tended to bounce back. But there was a lot of nuances and I think this is the key with the research, that there was many things which impact influenced that impact and as a result is it does make it quite difficult to calculate exactly what will happen once we do see more natural disasters happening.
But their work so far came to the conclusion that bushfire zilms and there can be anywhere coastal didn't it didn't make a difference. In fact, floods and fires as I recalled, didn't really make a difference natural disaster in an area damages the property value for a short period, and this recovers, and it recovers in line with the market. Is that right, So if it covers back to where it was, so there's no there's no evidence of permanent damage to property prices from fires in an area.
Can we see or that far? No, I don't think we can say that far. I mean there are there are many influences in terms of how quickly and whether whether the era will recover. I guess the first one is the desirability of the area. So if you know, we know that people love to live near rivers, they like to live near beaches, they like to live near bush and as a result, if that area is fire damaged but it's highly desirable it it does tend to
recover quicker. Insurance. There's a big one you mentioned insurance earlier. If it is an area that is well insured and people are able to rebuild, often they will rebuild better, better homes, perhaps more flameproof homes or more beautiful homes, and that also does impact property values. The wealth of
an area makes a difference. If people are wealthy, they tend to be better and should, but they also do tend to build nicer homes when they do rebuild, and then nothing important importantly is it's the government response as well.
So if the.
Government does make the area more fireproof, if they can put in measures to prevent something similar occurring again, then that does tend to lead to people feeling more safe to rebuild and to buy in these areas. I think, though, what the findings did show is that not everywhere recovers,
and you know, I think that's the key. That there's some area, you know, you look at flooding, for example, Brisbane River, the flooding of that made little impact of property values long term because people in Brisbane love living
near rivers. But if you have a look at somewhere like Lismore, then that has had a much greater negative impact and the recovery hasn't been as quick and perhaps a little bit to do with the desirability and perhaps also because it isn't such a wealthy area as places close to the Brisbane River are.
So would it be fair to say that prime property there's no evidence that prime property long term vndues are damaged by fire.
And I think, you know, I think coming back to all the influences on the price on prices bouncing back. It is prime property and it is insurance related. And also I think too there's an element with insurance that at some point insurance premiums will be too high for people to see these areas as being worthwhile living in, and that will definitely have an impact on price on pricing.
But for now, people are accepting the premiums that are put in place, accepting the risk, and as a result, prices are coming back following these natural disasters taking place.
So what would disturb that repeated fires? Is that? Is that the issue that might change things?
Yeah, I think it's I mean, obviously repeated fires. I think, you know, price pricing is one thing, and be extremely distressing to have to live through multiple fires. But also, I mean, premiums will do rise after natural disasters. We know that that takes place. But at some point there would be for every individual that would be a tipping point at which insurance costs are not worth it for them to live in these areas, despite them being incredibly attractive and desirable areas to live in.
Okay, have we any data on the level of uninsured people in these areas? No?
I mean, I'm sure the insurance Council would probably have some data on that. But you know, we do know that there are areas around Australia that, do you know, that are very very expensive to ensure, and then these areas are often flood prone or bushfire prone, so you know, and again coming back to the desirability of the area, there's always that between you know, what you're paying on insurance and how much you really want to live near a beach or a river or a bushfire prine area.
Okay, so you're the chief economist of very White, So tell the listeners, from what you know now and from reading these reports, how they should approach property in an area where they are knowingly taking the risk of fire or flood, which are plenty of areas, and some of unfortunately some of the most attractive areas in Australia, like Brisbane River a very good, very very very good example.
You've got areas in Brisbane, like Saint Lucia that are literally they are they have been underwater many times in their history and it will probably happen again.
Yeah, so I guess I mean the first point would be looking at insurance premiums. I think that would be a critical one can you ensure what is it possible to ensure for particularly flood. You have different insurance have different views as to how they'll ensure for flood and bushfire. So that would be my first step. But secondly i'd be looking to at the house. You know, how well would the property with standard fire, how well would it
with standard flooding? And what we found on the Brisbane River is that following a lot of the flooding that took place, people did rebuild and they did put the homes on higher still, so you know that that's obviously safer than a home that is closer to the ground, So that would also be critical. But also looking at government what the government has done to prevent a similar
occurrence happening again. And you know there is a lot that government can do in terms of preventing bush fires, preventing flooding, and I think that would also be something I'd be looking pretty closely to see what's being done at that level.
If I was a buyer of a property, is it how hard is it for me to figure out it's bush by prawn areas? That's obviously a very clear sort of marking of territory across Australia. But more generally, if I'm buying a property in a metropolitan or a suburban area, can I I find out easy enough it's the propensity for flooding or fire in that district.
Yeah, look, I'd say so. I mean I haven't looked in every area across Australia, but you know, most local councils do have data on flood prone areas, when state government certainly focuses a lot on fire proofing and or you know their level of fire risk in in certain areas. And then then I think too, you know, there are some areas that we know are very flood prone and that you know, just understanding places like Brisbane River. We know it floods. It doesn't flood everywhere. There certain areas
that it floods worse than others. But a lot of this as well is now well documented. So I think really understanding that risk. And also I think too, people's attitude to risk is always very different to you know, some one person may decide that even a very slight risk of bushfires isn't worth it, whereas another person made aside that you know, they really want to live in a bush fire prone area, and they're prepared to take that risk.
That's a very valid point that your attitude to risk and that's obviously relevant to all investors all the time on all sorts of issues, and that whole thing of your risk profile are your risk disposition and it's something I suppose our listeners should keep in mind when they are assessing your property. And separately, you could be practical and literally look at things like flood maps for your district, et cetera, and be aware of the history of the
area as well. Okay, terrific. And We've got lots of questions which I've wanted to have you involved in. Some of them I think are absolutely right off your alley, narrator. So we'll take a short break and we'll be back in a moment. Hello, Welcome back to The Australian's Money Positive podcast. I'm James Kirby, the wels editor at The Australian talking to Narrati Economy Chief economist Seth Raith White, regular on the show, always very good on all issues
for US property buyers and investors. So, Narrada, I have a couple of questions here which I have which I have curated especially for you. The first one is from Jeff. I'd like to hear some expert advice, and of course we don't give advice, Jeff, we are simply giving information here. Nonetheless, he asks some property buyers that serve property investors advice
where to buy based on the same data analytics. Is there risk that some markets will be distorted by all the investors being coached to look at analytics or to move in the same direction. This idea was first raised to me on another podcast that I suggest you listen to in order to properly understand my hastily written question. Unless it is a topic that others have been talking about outside my circuit of knowledge, I don't like the tone of the hosts. Don't worry about that, Jeff. Okay,
really good point. I mean, this is your game, right, data analytics, property analytics. There was a time, I expect that the gulf between what you knew and what the average investor, every day property investor new, was enormous, right. I mean it used to be a big deal. To even find out how much the house that you were looking at sold. In the past, you had to go
down to the titles office. I mean, it's inconceivable to someone who was in that market of what you can do today in two minutes, name a district in Australia and in two minutes I can find out a hell of a lot about it, or a single property on the internet for free. So what's the flips? Is there a flip side of that that that some people are running around heavily, perhaps in an amateur fashion, this sitting that analyx while you're doing it in a professional fashion.
I thought you'd like this question. I kept especially for you as I say.
Ah, okay, you know, I suppose even the best experts get things wrong. And you know we saw it in the most recent optic in house prices that when inter straight started to rise, we had a lot of people coming out and saying process with crash and I didn't. So I think, you know, it does show that even people with the best information and don't can often get it quite incorrect. The other point, right is is quite interesting though around a lot of advisors pushing people into
certain locations around Australia. And I think this is where you do need to look closely at an investment from a personal level and look at it in terms of what is the rental yield why buying? Is it capital growth? Is it rental return? What's your time frame? Also the level of also how you would respond if what is being claimed doesn't take place. And I think that's particularly around capital growth. It is incredibly difficult to predict capital growth.
So if that property is purchased at seven fifty thousand and it stays at seven fifty thousand for five years, is it still okay for you to buy at that price, because realistically, you know that would be I mean, realistically the worst case would be fall in pricing. But if someone is claiming the narra will see strong growth, and you know, I think I'd be taking that fairly carefully.
Well, I just just a bit and ask you one thing. But it is true, though, isn't it. I mean, if a rising tide lifts or boots, and if someone says Perth is going to lift, Perth is going to lift, right in a way, you could buy the worst house on the street in Perth and it lifts. It will the data analytics to that extent in the on average will work for you.
Yeah, I mean, I mean, but path does bust, you know, I think this is one of the one of the things that we have seen. Well, I mean, I think this is one of the Perth does come up a lot in this discussion because Perth we did see a lot of people buy in Perth following you know, finding following various mining booms and did become very unstark. Perth's property prices dropped for you know, ten fifteen years and so it was quite a disasters situation. Also, rents didn't
grow and then vacancy rates were high. So you know, I think a lot of people were very cautious. So when we did see a lot of property advisors saying, go to Perth, it's a really good idea. You know, there was a lot of skepticism as to as to what was going to happen there. Personally interesting because it has risen. It's it's you know, the strongest price growth area over the past five years. So you know, people
that did buy early stage did do very well. Rents have doubled, and you know, it's been a it's been a good outcome. But you know, I think, I think, I mean, you do need to look at these recommendations carefully. You do need to understand understand more broadly what's happening in that area. People in Brisbane have done very well a lot to do with population growth, So you know, I think there's there's certain things that you can look at in terms of, you know, why prices are moving
or why they are expecting to move. But also you do need to look at areas like Perth quite carefully, like mining towns in Wa quite carefully, because as soon as you are in an area that's driven by one economics sector, which mining in this case, it does become much more susceptible to a boom bus cycle compared to someone like seeing in Melbourne, which less likely to say such wild swings in pricing.
Yes, okay, I suppose he's it's always he's alluding to that whole issue of which comes across all investing, not just property, top down or bottom up. So the top down investor would say, buy a house in this town because the data suggests that this town is five years behind the rest of the country and so if the
whole town is going to lift. But the bottom up investor would say, by this particular property in this town where all things aren't neutral, but this is an exceptional property, and that's the sort of bottom up approach, right, So he's I think, in a way, if I can paraphrase or play with Jeff's question, he's kind of saying top down investing in property was probably not a big thing once upon a time because people didn't have the range of the wherewithal to even know what the trends were,
to dig deep in terms of data analytics, or to say or to cherry pick and say, look, I live in Brisbane, but I think I'll buy in Perth or vice versa. And that's a much stronger theme now for property investors. So it does change things. So the data just a final thing on Jef down the data, the amateur data an analyst. Is it a good thing or a bad thing?
Look, I think it's a good thing. I mean talking about the top down, bottom up. I mean people historically have only bought in their local area because they understood property in their local area, and it did it did lead to you know, I mean, I think it has created quite a lot of wealth for people that have done that top down because people have looked more broadly and looked at places like Perth and regional areas and have put investment into these areas.
So that's also helped. So all of those.
Things have really changed, have really changed property investing?
Okay, all right, very good, Daniel asks talking to some Rediset agents, they've noticed that social media, mostly Instagram, is proving a great way to promote and sell property. Do you think going forward property marketing will more heavily involve social media? Now we have to take this question. Do noticing that I happen to be employed by a gigantic media company which is not a social media company, and you're employed by White which is a real estate agent.
So I suppose they they can go in any direction, but in terms of using social media, and they may well use it more than I know. What do you think of Daniel's question? Will it become will is it become important? And will it become more important?
Well, it's it's definitely becoming more important in media. I mean, the media landscape has changed significantly with social media in terms of selling property. That's an agency using it, you know, we know that having that a lot of them do have very strong social media profiles, they do have followings. Luxury it is in particular, there is quite a quite a campaign. We've got some of our really top agents to pretty good videos that they put on on.
Oh I've seen these videos. They're extraordinary, and they're extraordinary. Yeah, I mean I mean you say you're kidding, Oh, this is all for one property. I suppose if the houses were fourteen million, you can spend fifty grand on a video. Yeah. But what about social media in terms of your work and in your trying to understand the market to what extent do you tunnel through social media or is it relevant to your Yeah?
Absolutely, I mean we get leads through social media. That's an important form of lead generation for us. So it's yeah, I mean it is absolutely being used, and it is It is something that can be quite experimental as well. And I think the nature of social media allows it to be quite experimental because you know, if something doesn't work, you can pull it off and pull it off the social media channel and so but you know, it's just a transition. I mean, people used to sell property through ads,
they then move to portals. Social media gives another way of selling property. The other thing too, I mean if you have a look at new properties, in particular, if you look at apartment projects and house and land projects, I mean they sell heavily through social as well. That a lot of them will be trying to build communities and build their own audience, and by doing so, they can more directly target people that like their type of product.
Maybe look at a really good apartment developer that they would have. They would be working heavily in building their own audiences to really have a greater influence on their buying behavior in the future.
That's interesting. These these agents, these star agents that have a big social media following and sell luxury properties. Do you think a large element of that is pure voyeurism where people are just watching and looking at it, just that they look at television shows rather than de facto buyers of those luxury properties every buys.
I mean, I mean, you're not if you're getting thirty thousand views of a video of a beautiful property, that's not thirty thousand buyers, obviously, But I think it also is. I mean people, you know, we all love looking at property, but if you're seeing an agent doing a fun video on a beautiful property in a suburb that you're not familiar with, then you know, perhaps that would give you
a little bit more interest in that suburb. So, you know, I think there's a lot that goes on in social but absolutely the way that they're using it and the impact that it's having on their revenue and their their ability to build a pipeline, and it does seem to be working for them.
Okay. I saw a video last year on my area broad in my area being based at Melbourne, and it was this absolutely top range apartment development. It was actually I can name what it is. It was the department development at the Old Summer. It's called The Summer. It's in Saint Kilda in Melbourne, which of course was full of all these celebrity buyers and the video for the sale of that was so good that I actually said to people in other countries just to show that the
area I lived at its very best. That is. But the same block as has since had disputes between these various celebrity millionaire owners over various issues, which is all great fun for the voyeur, and no doubt it's been on social media too, but it is a dimension of property that's very interesting. It is growing. Thank you for that question, Daniel, really really interesting. I think we could come back to that and perhaps we might try and find out more for our listeners on that one. All right,
we'll take a shortbreak. We'll be back in a moment with two questions from Ryan and Andrew. Hello, Welcome back to the Australians Money Puzzle podcast. James Kirby here with Narratorconospy from the Rape White Group. Narrator is a regular on the show and I know Nerida for a long time in various guises over the years where she's always been in properly, always been an economist in that area, So she really is someone who has a very knowledge
of the world we are analyzing every week here. Okay, Ryan, I want to get some financial advice on a few specific questions relating to selling a property. Is it possible to get financial advice on these things alone without a financial advisor going through all my finances in charge of me for all that, Ryan, I'm sorry, this is not advice, it's information, And the information I'm going to give you about advice is you can't. That's the whole problem, that's
the whole debate. You can't get bite sized advice. You can't walk into a financial advisor and say I've got an issue. I've got an issue I inherited two hundred grand I want to buy an apartment for six hundred grand. That's all. Nothing else. I don't want to talk about anything else. They can't legally do that with you. They cannot do bite sized advice. They must take all your
issues into affair. They must, they must produce statements of advice or documents of that ilk and they are so petrified by by falling for out of the regulations that they will say to you, sorry, take it or leave it. So short answer to you, Ryan is that you can't. Is there anything you know, Narada that would challenge what I said there? Yeah, I mean it's something I'm covering all the time, and you know, there's there's there's this issue in there's an effort in Parliament at the moment
to change that. But I wouldn't be waiting for it. I gotta tell you, folks, because in a way, at a certain point, I don't think that we should have a situation like we have where you must literally, you know, where you have this absurdly regulated, overregulated framework around advice. But at the same time, being realistic about it, you probably will never get to the day that you can cheaply get advice because you can't get good advice cheaply.
I think that's something that's kind of at the bottom of a lot of these issues and frustrating for everyone. But it's true. Making it worse is the fact that you can't I get a single chunk of advice, if you know what I mean, a sliver of advice. You have to get the whole thing. Ryan and I would add as an additional warning on that one. Obviously, advice from people inside the property industry about property is rarely independent. Okay.
Final question from Andrew, longtime listener and fatter the podcast. I read with the interest your recent article in The Australian about the forty year mortgage. As house prices keep increasing relative to anual salaries, it seems inevitable that loan contracts will extend into retirement. Yes, and then he says he really. Then he has a scenario. He says, I was wondering whether we are entering an era where people will not be expected to discharge their loans while they're
working during their working lives. Rather, they will only increase their equity during their lives and draw on at to retire using whatever equity remains such as superannuation, until their home is returned almost entirely to the institution when they die. Somewhat dystopian, but not unrealistic. Perhaps, Yeah, it's not unrealistic at all. Have you any sense of how many people now go into retirement with the mortgage and what it used to be.
I mean, I agree, I think it is increasing that people do obviously take on bigger debt. They take on bigger debt later in life. Banks are quite keen to provide debt at any not I mean obviously really old people that won't, but they do.
Yeah, I think that you're onto something. There was there was a time I would say to people in their sixties, listen, don't bother trying to get the mortgage. I mean, you have the chance. That's totally changed, yes, But also it means that that people are retiring with mortgages. So what's the impact of that on the property market.
Well, I don't think it's necessarily a bad situation. If they are still one still able to pay the mortgage through you know, whatever superannuation or whatever they have. I mean that that would be one outcome. I think another one would be downsizing. And again not a problem that if you've got a you know, you've got your big family home at that point, you're still owning, owing a certain amount of money on it, selling and buying something smaller, you could still come out pretty well.
So I don't think it's.
I mean, the banks obviously are lending based on the fact that people will still have debt in retirement, so I mean they've obviously adjusted their views as to how this works. But I mean, you think of a forty year mortgage, I mean the latest you'd be able to get one and pay it off in forties would be, you know, in your late twenties, so you know, we know that people are getting mortgages at a much later date than that.
So the people are getting longer data mortgages to reduce the annual cost of the mortgages that they're taking on, and the banks are broadening it all the time, so they're getting longer and longer, and these products which are very rare one time, are now common forty year mortgages
in the system. I suppose one of the debates then, is why about super is if you are, you know, if you are working towards the situation where you finally get your super and you're getting it to pay off a mortgage, why did you put so much into super if it was only going into mortgage in the first place, when you could have paid it off years earlier. That's a debate for another day. That's a debate for another show. All Right, we might have to leave it at that,
but it's been always good to have you there. The terrific Thank you very much. On this aspect of the fires is most interesting. I think people would I certainly assumed that a fire in an area did enormous damage to it long term. Instantly. That's what I assumed, and the evidence is not so simple at all, it would seem so Thank you very much. We'll talk to you again soon.
Thanks for having me.
That was never the color species the chief economist at the rape Y Group. Thank you everybody for listening today's show. Keep those emails rolling. See how interesting even that bunch of questions on that specific issue were today. Your questions are the lifeblood of the show, so keep them rolling. The email is the money puzzle at the Australian dot com dot AU. Today show was produced by Leah Summergloo. Talk to you soon.