Hello, and welcome to The Australian's Money Puzzled podcast. I'm James Kirby, the web editor at The Australian, and welcome aboard everybody. I imagine that every now and again as an investor, it makes a lot of sense for everybody to stand back a little bit and jump above the noise and take a look at some of the bigger questions and the bigger issues that are emerging and shaping the property market we're investing in. I have my guest today. I was looking for someone that could give us a
helicopter view, if you like, of the property market. He's been on before. He is the ideal person. He fits the bill. It's Louis Christopher of SQM Research.
How are you, Louis, goody, Jane's nice to be with you and your audience once more.
It's great to have you on board. Some of the bigger themes I think through the mar market this year, I want to just put on the table today because we often talk about them and I want to actually sort of put them in properly and do them properly today. And one of the sort of running issues all year is about whether this market that we all think we know the Australian property market, whether it's really changing, and whether the regional markets are to some extent sort of
breaking off and going their own way. There was always a we thought it was a natural order of things and property Sydney was the dearest, Melbourne was the second dearest, then Brisbane, then pert and Adelaide naturally enough linked with the size of those cities. That's not happening this year, very different story. Melbourne is about fourth on the ladder, Adelaide and part are very hot markets at the moment. Do you think that the market is changing into regional distinct regional markets.
I think for twenty twenty four we've seen nationally a very mixed housing market. You're right to point out, and Perth of being the outperformers. I would like to add into that Brisbane as well. They are three cities which on our numbers, and I'm aware of our peers as well, are recording still strong capital growth. So, for instance, Perth over the past twelve months we've got dwelling prices up
near twenty four percent, extraordinarily strong. I contrast that with say Melbourne and at this point in time, over the last thirty days, we're actually recording some falls and dwelling prices in Melbourne and the twelve month change coming in at just under five percent. So there is quite the contrast across the capital cities.
Yeah, so you've got like Perth growing four times as fast as Melbourne is a smaller city. And I know there are always, to some extent regional variations, but I wonder when you look at the market, are you detecting
something deeper. I mean, for instance, the Queensland market is very strong for years in the year years now, it's probably had, it's probably had certainly since COVID, particularly strong run, and there is internal migration there and they are getting very good numbers consistently across the state, not just Brisbone but through particularly to southeast Queensland. And the Melbourne market is soft and remains soft, and they are facing broadly
the same fundamentals. Do you think there's any sort of disturbance to that natural order that I laid out at the start, that Sydney's always the deuce, that Melbourne's always the second eiest, et cetera.
Well, I think in terms of absolute dollars we still had that Sydney is still the most expensive housing market. So for example, for freestanding houses, we have a medium price in Siting now running at about one point nine million dollars. I compare that to say, Perth, which has just crossed over a million dollars, which, of course for local residents and Perth that will sound very expensive indeed, but it's nearly half the price of city. So we still have this contrast and he is still by far
the most expensive. But when we speak about performance, of course we're looking at relative capital growth and certainly over the past twelve months Perth has been the number one out performer, followed by closely by Adelaide and then Brisbane and then our two largest capital cities. Well, no, they've not been performing well. Now getting to your question, well, what's driving I think one of the key factors here
is net interstate migration. Okay, so Queensland and Western Australia have been having in very recent times very positive net interstate migration flows which have been coming from Victoria and New South Wales. That's definitely one of the key factors. People have been moving, I think in part for affordability, in part for job opportunities as well into Queensland into way to pick up those better paying jobs and to get a better priced house.
Yes, right now, Traditionally people did move. There was always patterns and there was always some you know, New South Wales and Victoria particularly, people would move up to Queensland to retire. But I noticed you said their job opportunities, So is it a different sort of pattern there are the different people moving.
I think there are different people moving. We unfortunately, when it comes to the strict demographic data from the Australian Bureau of Statistics, it's not entirely clear who are these people that are moving, so we can only guess. But I would agree with you based on what we can see for purchases of dwellings that it's looking like they
are first home buyers. There is some property investment activity there as well, but it's first home buyers, second home buyers buying freestanding dwellings predominantly in these city isn't selling up in Sydney and Melbourne?
Right? So they can buy a house, this is it. They can buy a house outside the two metropolitan centers.
I think that's in large part what's been driving this.
So Louis it's interesting you say that because one of the things I'm thinking about is there was a very big structural shift in the market after COVID where we realize people could work at home, and there is a drift back to work, but it's never going to be the same again. I think most people will agree with that. The fact that you can work outside of Sydney and Melbourne has changed everything, and there was this huge shift to coastal regions, treat change regions, and some of that
was almost like panic if you like, in COVID. But there's a deeper pattern now of people working for whoever they like, wherever they like. So I'm just wondering whether in your data that's coming through, has that settled or is that process it happening.
I wonder, James, I think we're still seeing it. I think there's actually been a recent shift back towards living in regional Australia. I say that because we've been recording falls and rental vacancy rates across regional Australia once again in twenty twenty four. So by way of background, our data strongly agrees with your point that in during the lockdown period twenty twenty one twenty twenty two, rental vacancy
rates and regional Australia tightened dramatically. Then we noticed at the end of twenty two and into twenty twenty three they East rental vacancy rates rose and we started to record a slide down in rents. But for this year we're seeing the reverse yet again, where rental vacancy rates have been tightening in regional Australia. Now, obviously we cannot point to a lockdown that hasn't been happening. I found
the data quite surprising. My expectation while that rental vacancy rates would continue to age in twenty four across regional Australia as more and more people return back to the office, but that's not the case, and I can only conclude that there must be more negotiations going on between employer employee to allow that employee to continue to work and live remotely.
Yes, yes, because I imagine if people prove their case and then they finally take the chip in by train to the center of Melbourne or the center of Sydney, and who knows their boss might have taken a trip in on the train as well. The maybe they weren't in there at all And they both meet in the center of the city and the employee says, well, you know what's wrong with my work? Is there any problem? And the employer says no, I would just like to
have you in the office. It's not a very powerful point. I don't think it's going to swing people. I'm just thinking about on the that's the demand side. What about the supply side, Louie, Is there nobody building out and in Australia that those rental vacancy rates have tightened again.
That's the number one issue I think, James, is that on the builder side of supply side, regional Australias regard as high risk to build. And the issue is that, as I'm sure you're well a where many builders and developers require financing and pre sales before they can go off and build. The issue is that the financial sector or the banks have many black spots in regional Australia where they regard the risk profile of these areas. It's just too risky for their books. They will not leave.
I didn't know that, yeah.
And so that, combined with what has been a shortage of builders, has been holding back many development companies from building in Regional Australia. They just regard it as too high risk. They cannot get the financing properly, they cannot get the local labor into build and so yeah, it's been a big problem on the supply side for Regional Australia.
And that risk that the banks determine about house building outside the city center and which keeps the vacancy rates tight in the regions. I just want to ask you what's the risk. Is the risk in the building that it's so difficult to build anyway it's harder to build outside or are the deeper risks like that for instance? Basically the economies of the regions are rarely as dynamic as the big cities. Which is it.
I think it's a combination of factors, James. Historically we've seen a lot of volatility in dwelling prices in many
regional townships. The volatility has just been huge. I'll never forget what happened, for example, in Karatha in Western Australia, where back in nineteen ninety three the median house prices running two hundred thousand dollars, it ran up to over a million dollars for a house in Karatha at the pink of the mining boom, and then it came all the way back in twenty fourteen, back to three hundred thousand dollars.
Oh my, and someone somewhere paid a million bucks for our house in Karta at that time.
And they got smashed. And the problem is that historical data features in the in the bank's books. They see this, they say, right, this is an area of very high volatility. We could see a situation where our loan to value ratios in this area really blow out if meetium dwelling prices fall like that again. And so we're only willing to provide very limited lending to this area or no lending at all, and we'll just let another financier take care of it.
It's interesting, isn't it. So there's this notion that you can always sell in the city and the banks probably have that ingrained. But interestingly, if you are an owner in regional Australia, then you've got really good vacancy rates from a property owner's point that is there are really tight and remain tight. That's really interesting. That is a big picture of developments that I hadn't quite been aware of.
Yeah, it's something I think we need to fundamentally resolve because I think Australia's long term future does lie of the regions. Of course, once upon a time we used to look at the United States as a very successful and very strong economy. Obviously it's had its weaknesses of late, but one of the key drivers to its long term success was the development of inland towns and cities, townships,
small townships turning into large cities. And I've got a great belief that we need to see that here in Australia. We cannot just simply rely on our coastal townships forever when we have this mass, we have this massive land mass in Australia and these regional townships where they are local economies. Yes, they can be fickle, but there is a there is an economy there, and one way or the other they will grow. But we should be doing every we can to. But still it take that.
Grousth Okay, it's probably a long time since we saw consistent price growth and rental demand in regional centers like consistent of which we've had for one reason or another says for four years now basically, And as you say, what's really interesting is anybody familiar with the market would have said, Okay, with those vacancy rates in the regions, you know, they've got to watch them fly up when everything settles down post COVID, and as you say, that
hasn't happened, which is a very interesting point. Okay, we'll take a short break. We'll be back in a moment. Hello, and welcome back to The Australian's Money Puzzle podcast. I'm James kirkby Well, the editor at The Australian, talking today to Louis Christopher of SQM Research. Louis is one of the leading interpreters and researchers on property in Australia. Widely quoted. I'm sure you're familiar with him already. We know each
other for a long time. I've always talked to him when I want to get a view, a studied view, if you like, of the market based on data, which is his own data that he works on in his own group, SQM Research. Louis looking, we're coming towards the end of twenty twenty four and certain things are certain sort of fundamentals in the market remain sort of broadly in place. We have rates that are perhaps higher than we're used to in recent times, certainly the last decade,
we've got vacancy rates consistently low. And then there's some interesting things happening in the market that every investor should know. One of them, which is, if nothing else entertaining, is that units and apartments are doing better than houses. Just now, could you explain to people why that's happening and then your view as to how long it could keep going?
Yes, James, I might talk about it in terms of certain city and why this is happening is it's not happening everywhere, but it has been happening in our two largest capital cities in more recent times. Now, what we've been finding and what I've concluded now is that during softening markets in Australia, what we tend to see is units outperforming houses. In a softening period. During a growth period, we tend to see the opposite, free standing houses doing
better than units. And we've got to ask ourselves, well why, I think in part units essentially offer a little bit more of a defensive characteristic compared to houses. Houses. Now, of course, when we think about our house has mentioned the median free standing house price and cities running at one point nine million dollars, that means not every investor can afford to jump into our house in Sydney which to make investment. It's very high on entry level, whereas
units are a far lower entry level. Also, over and above that, I believe units have been offering more stable income in terms of rents because they generally are target the more affordable end of the tenancy market where there's a lot more demand. This combined with the fact that we've been underbuilding units for a long time now, as we're well aware, we've got a significant shortage of residential
dwellings in this country. And by the fact that we've been underbuilding homes, that means really we've been underbuilding units because we build more units than freestanding houses nowadays, and with that undersupply, I think that's meant that when we see downturns, we no longer see units under performing or falling further. Now a few caveats here, I wouldn't wish to be buying in off the plan development at the
start of a downturn. I think you would see significant underperformance in that scenario, and I generally stay well clear of new dwellings on that front. So I think this is one of the key reasons why we've been seeing so Yes, our data shows during downturns, more recent downturns, units have been performing better during upturns. Free standing house.
There's some contradiction. Maybe the unit prices are performing better right, which you say compared to houses, which you say happens in a softening period. But it's not softening or is it softening just now? We had a good start of the year, the first six months were strong. How would you see it as a signal that the market's going to get softer.
I believe the Sydney and Melbourne market, so that the markets are now two largest capital cities are softening as we speak. Okay, right, we're seeing it in weak option clearance rates of singeing in Melbourne. We've been naturally seeing it since about the month of Duke. We're seeing it and falling asking prices so vendors in senior Melbourne have become more negotiable. Now. I don't want to overtop this, James.
We're not saying any type of housing crash on anything like that, and we wait have to very very unlikely we'll get such a major downturn. But I think we are falling and singing in Melbourne on an annualized rate now running about four to five percent.
Right, So you see going into the twenty twenty five Melbourne and Sydney you see them as soft.
I see them as soft now, James. But I think there's a lot of water under the bridge still until we get to twenty twenty five, and the year twenty twenty five itself will be most interesting. One of the big variables out there is what happens with interest rates.
Yes, yes, yeah.
So some months back I was talk of course of I'm potentially an interest rate rise. That sort of changed given the recent market volatility and the money markets are looking increasingly like they're crossing in multiple interest rate cuts in this country starting from towards the end of this year.
That will change things in the big way I expect. Yeah, okay, well we'll put that. We'll put that on one.
Sorry.
From the something I want to catch something I wanted to ask you, which I often ask guests who have actually helicopter view and on the basis of what you've been seeing, if Louis Christopher I said to you, I have a million dollars to invest in residential property anywhere in Australia, in any sort of property, what would you.
Where would you be pointing me, well, I'm a great believer in diversification.
Are you going to tell me to split it up?
Bets? Yeah, very hard. It's split a million dollars for example in Sydney where I live. Look, I'm also believe that in in an area you know well and generally be an investment in a NASA class you also know well. So for me personally, I probably would use the money to take out another property in city in Sydney.
Yes, but that is your personal because you know.
That's my personal point of view. Now, if I had all my properties in Sydney already, then I would look to invest in another city, and that another city probably would be Brisbane.
Okay, So even though you know Melbourne is has been weaker.
I know Melbourn's been weaker, but that doesn't necessarily mean one should disautomatically jump into that market. From a longer term perspective, I'm interested in understanding the longer term economic opportunities for a city in state, and I believe Queens Aint's got the better economic opportunities over the next ten years.
Yeah, right, Okay, what makes you say that apart from the Olympics. Sort of buzz the Olympics.
It's one definently in fact, the taxation regimes a little bit better and Queens aren't compared to Victoria right now, is not a fact that we've spoken earlier about the state migration flows Now that's been a longer term trenders. I'm sure you're well aware, but there's no evidence at this point in time to suggest that's about to slow in Queensland. If anything has been speeding up. I think too that supply side of property has been changing in Queensland.
So once upon a time, for example, on the Gold Coast, you would have a lot of builders and developers build their high rise developments there on the coast on speculation. Okay, Now I've been noticing in more recent cycles that developers no longer do that they cannot build on speck anymore. They need the pre sales and so the typical boom bus crunch, which you know that the bus is generally
delivered by oversupplies, no longer apparent in southeast Queensland. And I would also argue that's a case of cross Queens and probably out of countries out of states as well. But that combined with this long to increase an underlying demand which I expect to continue on that with the lower with a better taxation profile property investors, I believe that makes Queensland are pretty solid case or investment. I have a long time.
Okay, very interesting and very interesting and always great to have a guest who will actually make a call, So thank you for that. All right, we will be back in a moment. Folks. Hello, welcome back to The Australian's
Money Positive podcast. I'm James Kirby with Louis Christopher and we are talking big picture on property today, standing back and looking at all the data that we know, what are the big takeaways in the market And I think in the first two segments of the show some really interesting observations there about how the market has changed, how ex Melbourne and Sydney for instance, those markets are stronger and have deeper dynamics we perhaps were used to traditionally,
and the extended low vacancy rate sort of proves that. I like Louis's observations on Queensland as a potential property performer. All the talk of courses in the market is about Melbourne, that Melbourne is at a discount basically, then it must
be a bargain. Who's to say that may not be the case if you look at those internal migration figures, if you look at the property disposition if you like, of the regime in Queensland compared to Melbourne, and they are certainly well to reverse that in the Victorian government or the least property friendly state, that's for sure. These things are very important for long term investors. Okay, Louis well, a couple of other things I wanted to talk to
you about. They are different than the first parts of the show, but interesting for all our listeners. First of all, with one thing that home buyers are doing at the moment our homeowners are doing at the moment in property and some investors too, is they are finding it difficult just to keep the show on the road because of inflation,
cost of living, everything else. Their expenses have probably gone through the roof and they used to have some space to pay their mortgage on an investment property or on their home. So without making more money, how do you get around that. There's one or two ways that people have put forward on the show. Extend your mortgage let's say you have a twenty five year mortgage extended for thirty years, switch from the traditional principal and interest model
to just interest only. Are there any of those that you find to be if you had to make that choice, would you go near either of them? Oh?
Personally, Janes, I've always paid principle and interest. I've never personally gone interest only on a strong beliebor in paying dick down as quickly as I possibly can. Now, when there's been times in my life where cash flow hasn't been as strong, for lack of better words, then I've reduced the principle combineded a on paying down, whether that's by extending the more aage or just paying the minimum
monthly repayments. That's what I've done, And then when times are being better cash flow wise, I've upped those payments.
Yes, I thought you might say that I wouldn't have picked you as a speculator, that's for sure. All right now, final question, And I have to preface this by saying I've changed on this one in that I had always been a believer that super is for super and the home market home buyer market can sort out its own problems. I have changed on this. I didn't want to. It's almost against my core textbook approach, but I think there is increasingly an argument to allow of people use their
SUPER to buy a home. Not because it's the best idea in the world, but because, in pragmatic terms, the entire sick tax system is loaded against the person who doesn't own their home, loaded against them. And on that basis, and on that basis alone, I think if you are better off if you are close, if you are fifty grand away or one hundred grand away from getting that house for all your life, against having some more and Super, I think you would be better off getting that house.
I'm just wondering, as someone who's spent decades in this market, always with some interesting ideas on the market, what do you think about using super to access home funds or property funds.
I understand your perspective, James, and yeah, if I was fifty thousand dollars away personally from buying my first time, I would be demanding to use my SUPER myself, right, So we're on the same page on that front. However, I'd like to point out a few things. Firstly, from an investment give I find faults with it Okay. Number one, you're not getting the negative gearing benefits if you buy a residential home in your super trust. Remember, you cannot
negatively gear your super fund. Therefore, strictly based on the numbers a super fund and property, well, it's best for high yielding properties such as commercial property, if you want to go into property via super Number two, I have an issue with diversification. I've always looked at super as something where I can diversify my own risk profile. So as mentioned before our segment, I have a in my super account, a lot of equities. I hold property in my super account.
Sorry, this is a this is an SMSF, is it, LOUI? Yeah, absolutely it is, and you don't have property in it.
I don't have property in it. I have all Australian equities.
Okay, right, okay, that's just me.
And obviously that has its own risk profile. But I hold property personally under our name or under the family trust structure. Okay, but I do hold it against my name because I can then take advantage of negative geary.
Benefits, right, yes, yeah, yeah as an investor though, Louis, I'm talking about buying a home.
Yeah, that's right. Now, from the perspective of the greater good, what's good for the community. All right. I have another issue with it, and that is you, by by accessing superannuation, you're fundamentally stimulating underlying demand. Okay. It's like if you remember the first home Owners Grant scheme some years back. Okay, the government brings in my first home Owners grand scheme
for first time buyers. Well, guess what happens. The benefits of that scheme quickly dissipate because prices rise very quickly. And I'm concerned that if everyone had access to the super the buyer home prices will go up very quickly.
Yes, okay, I hear you, Yes, I hear you, and I take that on board. It's an interesting issue. I don't think it will go away. Always interesting to hear what guests have to say about it on the show, and I'd like to actually hear more from our own audience about what they have to say on the show. So let's have some correspondence on that, folks. I don't think we've actually seen much on that. All right, terrific,
Louis Christopher SQM Research. Thank you very much. Terrific to have you on as always.
Thank you James, it's been a good discussion.
Thank you, Louis always good. That was Louis Christopher Will. We've talked to him before. We'll talk to him again, all right, and talk to you soon. Remember the email The money Puzzle at the Australian dot com dot au at