Hi. I'm Julianne Sprague, Wealth editor at The Australian. I'm filling in for James Kirby today, who is on a very well deserved break and today we want to get stuck into how you can pick the right spot for an investment property. You might want to buy an investment property or add to your existing portfolio, but how do you get the spot that will deliver you the maximum return.
You might think that there's a city that you want to invest in, maybe it's a city that you live in, but how do you get the right suburb the best suburb. My guest today is Ben Kingsley. So Ben is the chair of the Property Investors Council of Australia and he has more than twenty five years of investing experience advising people in property markets. He's also the co author of two books with his fellow empower Wealth business partner Bryce Holdaway,
and together they host the Property Couch podcast. But today Ben Kingsley is joining us right here on the Money Puzzle to share his top property investing tips. Ben, thank you so much for joining us on the Money Puzzle.
Delighted to be here, Julianne.
We wanted to have a chat to you because you've got a lot of experience in this area. All of the stories we are putting together at the moment appointing to property growth over the next twelve months. It just seems that things have aligned, the property prices will go up, but not all property markets are created equal, and within those there are little subsections. So I want to ask you, Ben, how do you determine where is the best place to
buy an investment property? What are the fundamentals you look to?
Yeah, so how long have we got? But we'll start with the big ones. So absolutely there are markets within markets.
That is proven to be true that different property cycles can occur in different markets, and there are different reasons behind why those particular activities happen. So we break it down into if you think about short term usually what you're talking about there is the sentiment, and you're also looking at demand and supply, so you're looking at certain variables that will determine, you know, whether a market is in balance, in equilibrium, or whether it's out of balance.
And of course you know in terms of a shortage of supply does put pressure on capital growth over time. So supply is the enemy of capital growth is often what you would say, and so when you're thinking about it in the short term, you're looking for those variables, so things like auction clearance rates, days.
On market, stock on market, and if your.
Days on market is coming down, that means that there's obviously a.
Body of demand that's there.
And so and then on the supply side, you're looking at things like what is the you know, the future building approvals and what commencement have started, and so then you start to think about, you know, those markets in terms of well, if I've got a lot of vacant land around me, then potentially there is risk that there will be future over supply and that might taper my
future capital growth. So short term, it's very much a story of supply and demand and looking for those markets where you know there might be an inbalance between.
Supply and demand.
And then over the medium to longer term, it's absolutely got everything to do with economic activity. And so what I mean by that is the economic activity is going to drive that population story.
So if you think about a thriving city that needs.
Workers, those workers will arrive that would put pressure on housing both from a rental point of view, but also
potentially from a future purchasing point of view. And so that's why we see the capital growth in our major capital centers usually performing quite strongly during times of economic growth and strong population growth into those centers, and of course we see the reverse when you know, if you're as old as I am, you will know that during the sort of John Kurrent era, and we had some failures in Melbourne in terms of the economic situation, we had a lot of debt and the economy wasn't performing
very well and we see a lot of migration up into Queensland, and the property markets suffered quite considerably during that time because you know, we also had pyramid building society and some banks failing, so it wasn't a good time. So we do know that if there's no jobs here, we're not going to necessarily move that population here, and that's not necessarily going to then bode well for that population story and that demand story.
If we look at the information at the moment, though, it does seem we have a supply issue. There's just not enough supply of housing across the country that's fed into things. You know, we had thirteen interest rate rises and property prices didn't fall as a result, it didn't do what typically property markets have done. And now we're in an easy cycle again, given how much property markets have risen and how much they are anticipated to keep going.
What are the risks though for investors? How do you make sure you're not sort of getting caught out here and you're buying right at the top.
That is a great question, and let's unpack. You know, traditionally you are right, higher interest rate thirteen rate rises, you would normally see a correction in the market. But what we also saw during that time was the immigration program, which delivered over sort of six hundred and seven hundred thousand people, and over the sort of last two or three years, we've got a minion extra people in this country.
So that along with record low unemployment or record high employment, also meant that people could continue on with making their plans for their lives, so buying their homes and so forth. So that's why we can sort of say, okay, we can make a case as to why property didn't normally do what it normally does.
If those arrivals.
Didn't come, and if unemployment had risen higher, then we wouldn't have seen any sort of price growth during that higher cost of doing business when it comes to the.
Mortgages we have on our properties.
So let's talk about today and what's going to be the catalyst for that growth. So there's a couple of things that are going to go on, and I want to talk on the investor side.
We are seeing a lot of.
Animal spirits in the investment space at the moment, and those animal spirits are potentially getting ahead of themselves in terms.
Of buying in the affordable quartile.
So the bottom twenty five percent of properties are very attractive to obviously first home buyers, but they're also very attractive at the moment to investors, and investors are certainly looking for that sort of classic recantile home that might be an existing property.
Because back to your.
Point earlier, Julianne, in terms of this shortage of accommodation, since twenty nineteen, the cost of build a home has basically gone up almost fifty percent being able to provide new stock. So there's been a lot of pressure on the existing stock market, and that's why we're seeing the best performing market at the moment is that bottom twenty
five percent. The percentage price growth that we're seeing in those areas are outstripping what we would call the middle tier suburbs and certainly what we might judge as the prime or the blue chip suburbs in our inner city areas in most capital cities with the exemption of the Act, which is performing in a more natural way because unfortunately that they policy settings are very anti investment at the moment,
so they're not getting that investment activity. All the other states and territories are enjoying that, but they're certainly not.
We'll get to that lower end of the market soon. I do want to get your thoughts on what might happen in that area given the expanded first home buyers scheme from the federal government. But can we talk about how you identify different areas of a market you've chosen So say, we published a story recently in The Australian where there are a couple of experts that tipped Perth or Southeast Queensland as a sure bet for investors over
the next twelve months. They are still bullish on Melbourne, but there are all the taxes and all the other things going there. So to say, if you want a sure thing pers or Southeast Queensland. Now say if you take that proposition, go, Okay, I'm feeling good about either of those markets. How do you then zone in and go which area of that particular market should I be buying in? Because not all suburbs are created equal.
Yeah, great question. So what we would then start to do is as we go through the macro down into the micro, we're starting to then analyze the data that we're collecting, and we usually collect that at the suburb level, so we're able to get quite a lot of rich data at the suburb level around those some of those variables that we were talking before about. So we think
along the lines of auction clearance rates. If it's a heavily concentrated auction market, they're not so good if it's not a high concentration of auctions happening in that area.
So just to drop in on that bit, but say, if you're going for auction clearance rates, what am I looking for? What exactly should I zone in on?
Yes, So if it is a high area where you do get lots of auctions and the clearance rate is above seventy percent and moving into five eighty percent, that's giving you an immediate market signal in that area. That there's more buyers than there are sellers, and so that is becoming a selling market and so that's going to put.
Pressure on prices. So if there is you know, four.
Or five people or even six, seven, eight people competing at auction, you're really clear in terms of you've got a really strong signal that that's a market that's under pressure in terms of demand, and so that's going to potentially force prices higher as more of those people decide that they want to get into that location.
And then a market like Perth that doesn't really have auctions, is it a matter of do you sort of sort of rock up to some home opens and to see how many people are trying to get in?
That's right, I mean, certainly that's another indicator in terms of as you so you know, we don't know that if we're if we're doing our research, you know, the in our offices as opposed to being in the field. The first things we start to look at is things like stock on market and then days on market, So how long is it taking for those properties to sell over time? And if we're seeing the trend coming down, and then we then go out and do our field research,
and yes, to your point. We attend some of those opens, we will start to see the number of people going through those particular properties. Then we're also tracking things like number of offers, number of contracts that are being issued on that particular property. So we're starting to get that those signals, and those signals are stronger than the general noise that we might see in other areas. And then what you then do is you munge all of that data together and you give certain wetings.
To some of those variables. So this is the demand supply score or demand supply ratio. So you know, you might.
Measure eight, ten, twelve, fifteen variables and you're putting all those together and you've got you've got a belief around. You know, if it is a high auction market and you know where most properties are sold by auction, and you're seeing those high things, you'll give a.
Higher weighting to that score.
We score every property in Australia out of one hundred and so if we basically then see high scores.
Then we know that there is an imbalance in that market.
And then we go and validate that out in the field to the research that we were just talking about, which is how many people turned up to the open for inspections, what number of contracts were issued, And we know we're going to be in a competitive market, but we're also then confident in that competitive market that the level of demand, you know, in terms of the depth of that demand is strong enough. And so that's that
supply demand story. Then we've got to lift our eyes back to the question you asked earlier around say Southeast Queensland and Western Australia, namely Perth, but even some of the commutable areas of inter Perth they're also under good review. Because that's when I come back to the whole story about economic activity. You know, if you've got a strong economy and that strong economy is driving the migration of people into that market, then that's when you're going to have longevity in regards.
To your investment returns.
And you mentioned really earlier when we started recording around this idea is how do you know that's going to be sustainable? Well, that's the whole you know, that's one of the great messages I want the community to take
away today. If that's all been driven by investors and investors only and there's no fundamentals underneath that then you're going to be exposed and there's going to be risk that you will be potentially buying at the top of market and you may experience a downturn in property prices.
So you need to understand the short term drivers, which is the supply demand and that economic stuff, and then make sure that the economy is still strong, because if it is going to be artificially inflated by investors who are ill experienced, or they're being coached by enthusiastic buyers agents who really don't know what they're doing, and they're taking you into these regional markets or some of these types of markets, you do run the risk of basically
buying into a dud market that will show its face as the tide goes out over the next five years.
I'll ask you about buyers agents in the Sex But just further on that, are you talking about the economy for the state or the city in question. Say you've decided it's Southeast Queensland or state it's Perth, and you're happy about the profile for the next whatever it might
be five to ten years. I can imagine I wouldn't be the only person to think this, that you go into a suburb and it's running hot, and I would look left and right that there's some suburbs sort of around the fringe and they look better value to me. But what do I need to be careful about.
Well, let's also introduce another concept which I think is a really important concept, and that is investors in residential property shouldn't be the price maker, they should be the price taker. So ultimately, what you're looking for there is that the fundamentals are grounded in owner occupiers wanting to live there. If you don't have that, again.
You're giving yourself the risk of well, this has all just been in speculative returns because someone picked a hot spot and half a dozen buyers agents all agreed and they all went in there and artificially inflated the price. So it does come back to what you were saying before. I'm looking at the economic activity that's happening in that center. So if I'm buying in Perth, well, the economy, it's
the best economy in the country. The government's got very low debt in comparison to other states and territories.
The incomes enjoyed there are the second highest across the country.
Per capita, and the livability of living in a city like Perth is very high. So you've got and you're starting to see a stronger diversified economy, and the icing on the cake, their cost of electricity through their gas and their cost of gas and all of those inputs is also at record low levels.
But it has been boom bust Perth. People were listening to this sound. That's all very well and good that it sounds good now, but you know.
Perth's already had a double digit run and it's probably moved about thirty or forty percent as is already, and then everyone's sort of saying Perth done well. It's still performing in the top two. Darwin is the number one capital city at the moment, but Perth's a strong second. And that's because again they didn't look and lift their eyes. These runs can go seventy eighty percent in some cases, and that's because the fundamentals are good.
Whereas if I.
Take an example of maybe Townsill, Okay, which is a regional town, there's no easy to commute down into Brisbane for a job. You can't commute there for the day, so you've got to then start to say, well, what's happening in towns will from an economic perspective, because if I've only gone in there because I've been told that rents are really high, and so I'll go in there and compete against all the other investors who are.
Going in there, what's the fundamentals.
Like if you don't have that economic activity, well, where are your renters going to come from? And what if they don't have the jobs, why are they going to stay there? They'll just relocate to another town. So that's why it really is critical that you need to understand what are those medium to long term drivers to get into those markets.
Now back to Perth, you.
Were saying, Yep, it's a you know, it's basically a one trick pony town being a mining town. All the reality is is, you know, that's not necessarily the case.
We've got the Orchest deal coming in there.
We've got shipbuilding, we've got industry that's running at a competitive advantage compared to the East Coast, and so if I'm the multinational and I want to potentially set up there, the conditions are better in Perth than they certainly are in Melbourne. An ex example in terms of attracting me to want to set and make that investment up and then to basically bring the jobs into that particular market.
So now the fundamentals economically for Perth are really sound, at least for the next five or ten years.
For anyone listening, I promise I haven't paid ben to Perth. It is my favorite city. It is the city I'm based.
And I love it and world champion and I live in Melbourne.
We've got to head to a break soon. But I do want to get that sense of whether you should be looking at the suburbs across that are cheaper or if you run the risk. It's our idea of if you're buying an investment property you want to maximize your dollar. Is there any risk to that or is it actually a smart strategy to say this suburb is on fire but you just sort of look, you know, I don't know as five case circumference or something. What's the metrics that you would use.
At the end of the day.
The land is what we're trying to hold long term. That's where the appreciation happened. It's not in the buildings, it's in the land. And so let me introduce you to other concepts, which is human interest in human behavior.
So in some respects, a lot of the land carry status. You know.
One of the interesting things about property in the way always say it's why it's owner occupier appeal because they buy where their heart's not their heads.
So the reality is.
When you find those blue chip locations, that is all about my success and showcasing my success. So how do we show off, you know, aspiration, We show it off in the houses that we own, the cars that we drive, the jewelry, et cetera. And so you do have this aspirational element of living in the best suburbs around that and so ultimately those suburbs come at a premium because there's exclusivity, and that's where that land value appreciates over time.
So if you're in a fortunate position where you can potentially buy and hold and investment property in those higher markets, you are going to pretendctually see strong the land appreciation because ultimately that is all about how humans activate in the ecology of their lives and the biology of who
we are as living in villages. So that is true if your budget doesn't allow for that, and the income off the rental needs to be an important part of sustaining the holding of that property, then you're going to move out to the mid tier suburbs or into the sort of outer fringes of the market. And that's how
the land is priced. It's ultimately priced from a ripple effect where the most expensive land is located closer in, and so it's looking at that land and looking at its future productive use in terms of what it can do. A single home can potentially be a duplex in the future, or it could even be a block of flat or some townhousers. So that future productive use of that land in that more exclusive area is potentially going to generate you a longer term return over the decades. But of course,
if you want to invest, it's around your budget. So if your budget allows you to take you into the outer suburbs, then we still want to make sure that there's low scarcity in terms of not a lot of vacant land around you.
Okay, good tips, all right, Ben. When we come back from the break, we'll have a chat about what you think will happen to the market now that the government is expanding the first Home Buyer scheme. I'll get your top tips where you think the best property investments will be over the next year. And also I wouldn't mind your thoughts on some of the common mistakes people make with property investing. We'll have that chat when we come back.
Thanks for joining me on the money Puzzle. I'm your host Julianne Sprague, a wealth editor at The Australian, filling in for James Kirby, who's on a well deserved break. I'm chatting with Benett Kingsley, a property expert. You can find him at Empower Wealth and at the Property Couch podcast. Ben is joining me. We're having a chat about how you can pick a great place to buy investment property. And then we spoke earlier about that lower end of the market and how it is quite hot at the moment.
The federal government's expanding the First Home Buyers Scheme. Today, all sorts of measures have been sort of dropped, if you like, or widened. More people will have access to this scheme. What is it going to do for property markets?
Look, I'm pleased with the initiative because it will allow people to get into the market, but of course it falls on the demand side, so that's doing to potentially create an additional set of demand for first time buyers to get into the market. So the question for us, and this is one is really hard to analyze, is
where is that concentration is. If it's going to be concentrated, then that's going to sharpen the data really quickly and we're going to see price spikes, you know, as that then sort of then becomes the norm in the market. My interesting observation here is that because it's lifted the entry level price is allowing for people to get into the sort of middle tier markets. Hopefully that spread will not necessarily see it being such a high concentrated into
the absolute entry level of the market. So I'm hoping it's not going to continue to inflate that price area because there's already enough you know, sort of government policy that's pushing a lot of people into that potential entry level market.
And I'll give you a couple of examples. We're seeing a.
Lot of spooking property spooking around setting up trusts and buying residential property and trusts, and I'm concerned about that heavily because that's also pushing a lot of people into those entry level markets. And there's more and more social media marketing around that and also setting up self managed super funds.
And why do you think that's flourishing. What's the pitch there that's hooking people?
Well, I'm in You know if you go on to social media and you look at the property spookers talking about making sixty percent gains in twelve months, and you know, there's that human nature that basically drives people in that they want to They want to know your investor, you want to get that quick win, you know, like I want to be bragging about that, almost like a stock pick.
That's sort of what's happening.
So I am worried about that, and I've spoken publicly about that recently, and so that's already driving people into that entry level area. The other thing that's also of the interest is appras three percent buffer rate. So that puts a throttle on what both investors and owner occupiers can borrow. And so that means putting that throttling on means that you've got to gain concentration of demand in that sort.
Of bottom quarto of the market.
And so that in itself is seeing We said it earlier in the podcast that that's why that end of the market is performing better because unfortunately all the demands being pushed into that particular area.
But do you then think it's overheated that market because you're funneling, You're pushing everyone into there. So there's the appra measure shore. Now we've got the expanded first home bias scheme. If so much demand is funbling, there is at risk of a bit of a bubble.
The short answer that is potentially, and I would say in some of the regional towns, I can't support the fundamental valuations in terms of what those property prices are selling for right now, because you know, the data is suggesting that the vast majority of those buyers are investors, so they are artificially pushing the market up.
And I've seen.
Those markets are a lot more volatile after the end of these sort of get rich quick type promotions that happen into these particular areas.
This could be devastating for first home buyers though, couldn't it. I mean investors that sort of buyer beware. But we're also pulling in first home buyers into this market, and they could be in negative equity territory pretty quickly.
They could, And that's why I'm worried about it.
That's why I've written to all of the trade associations to say, hey, it's all being led by this social media marketing push and they're talking about, you know, if you can't buy it in your personal name, go on, buy two or three in trusts and then buy them in yourself many superfund So I've got real problems with that, and I've got real problems and the fact that it's being generated by mortgage brokers and buy as agents and
property investment advisors who aren't licensed to give financial product advice, which is self managed super funds or trust lending.
That's a real problem for me.
And yes, it does have consequences, and the same sort of consequences too.
You know, they're getting on there.
I've bought my fifth I bought my eighth, I bought my tenth property in three years using all of these trust structures. That's that's unsustainable to your point around getting first home buyers into the market if they're if you know, for every ten offers on a property, if nine of them are from investors and only one owner occupier, that's that's not where we want to be. That's not not you know, there's no social contract for investors to have that right to be able to do.
That, and it's going to end badly.
So I'm trying to get in front of, you know, the potential risk here because I'm seeing it as an emergent risk. Also for the financial stability of the market as well, because at the end of the day, if you think about property, property underpins the wealth in this country, you know, and so you do then have obviously financial risk.
And I don't want to be scaring people, but the reality here is that we've got some settings that are wrong and we need to We need to tighten them up in terms of getting easy access to credit for trust lending or for self managed super fund lending.
So we need to tighten that up.
And we need to get the balance back to the seventy thirty seventy percent owner occupy thirty percent investor. If we're seeing that move outer kilter, we're going to have some problems. And to your point, those first home buyers who got in might think great, property price has gone up twenty percent, but if they then correct by thirty percent, then ultimately they could be in some negative equity area.
Now.
First for home buyers, look, they're playing in the decades game. They're not necessarily playing in, you know, buyer property and turn it into a commodity and trade it, because we don't want trading in property either. You know, it's unsustainable
if we have speculation in residential property. So what I'm hoping is that you know, those first home buyers can get in the market, can hold onto their property for a long period of time, and enjoy some capital growth, which will obviously help them in the future as well.
You think, you think governments need to have a bit of a crackdown on those other areas of the market. So it's all very well and good to offer these incentives and these schemes and do what they can to help first home buyers. But if there are these other schemes flourishing that it is just sucking in more investors that's pushing out first home buyers. That they've got to act on that and do that soon.
One hundred percent, Julian, it is. I mean, it's just logical, right, Like it might feel great that you're an investor and you've just made a quick thirty percent return, but at the end of the day, investing in property, you're running a private.
Rental accommodation business.
And that should be something that you think about that you're going to be doing for ten, fifteen, twenty years, right, and enjoy the spoils of that long term. If we turn property into a speculative asset and it becomes a tradable commodity, no politician, no government is going to on either side of politics, is going to want to be responsible.
For robbing the Great Australian dream from people.
So it's clear to me that the animal spirits that we're currently seeing which is driving a lot of this price growth at the moment, because if you just look at the last quarter of data around investment lending versus owner occupied lending, it's clear investment lending is growing at three to four times greater than owner occupied lending at the moment. What does that tell you about the market mechanisms?
And APRA is sort of aware of this, they're flagged something to say, you know, they may potentially put some other macro credential throttles in place, and I'm sort of saying, well, here's something that the regulators can do. Just ban trust lending and have a look at self managed super funds
in terms of who's giving the advice. Because the advice is being started by the property sprewkers and then ultimately then you go off and see your financial planner and then they set you up, you know, in your account and sets you up. But it's not the traditional way in which that should work. It should be if I've done my own personal research and I've gone to speak to a financial planner or I've gone to speak to my accountant to learn about No, it doesn't feel like that.
What it feels like is, yes, that these.
Buyers agents, mortgage brokers and property investment advisors who are self interest. There's all self interest here, and make no mistake about that. And I'm also putting my hand up. I run a business in this space, and I've been running that business for almost twenty years, so you know, I'm talking down you know, a marketplace that obviously I get to benefit from. So that's how concerned I am
about the sustainability of the market. It's just not where it needs to be in terms of that particular story. So there is an emerging story here and I'm trying to get that message out there.
Then you mentioned a few times about buyers agents, and it's coming across our desks quite often to a lot of people are using buyers agents. It used to be sort of, I don't know, an for very wealthy people, and now it seems to be trickling down to all facets of the market. Do people need a buyers agent?
All disclosure. I run a buyers agency business, so.
As part of our empower wealth business, we have a full suite of services including mortgage broken, buyers aid, and property advice, et cetera. So I want to make sure the public understands that. So what does a buyer's agent do. The buyer's agent works on behalf of the buyer to effectively find, assess, negotiate and secure the property on behalf of their client.
So they work for the buyer obviously, and they are a licensed real estate agent.
As opposed to the current way in which we potentially see the mainstream of real estate agents. They work on behalf of the vendor and their job is to obviously get the best result for their client.
So each of the parties are working on behalf of their clients to try and get an outcome for those times.
So that's what they do. There absolutely has been an explosion of buyers agents wanting it into the market. I mean property, property is our favorite barbecue topic. What and if I can go and earn a commission on helping someone else buy a property, how.
I almost might do that in my spare time quite frankly. Then it's like it's so I really love watching the property watch this stite go to home opens. I'm not even in the market to buy home.
There you go, so and it's being promoted is that that it's like a side hustle that you can be a buyers agent part time, and so we're worried about the quality of buyers agents. You know, they want to do the right thing, and so I might refer to them as enthusiastic amateurs. They don't really understand that if they're doing it for investment, they really probably don't understand
how financial services work. They certainly aren't a clued up in terms of the Regulatory Corporations Act around what you can talk about what you can't talk about from.
An advice point of view.
So there is definitely a knowledge gap that a lot of them have, and that's also leading to potentially bad outcomes for their clients if they're buying the wrong investment property in the wrong location, if they're not doing their due diligence properly, and give you here's a good example. We've got interstate buyers agents who will buy a property based on what they see on the on the search portals and then the video walk.
Through from the selling agent. So do you think the selling.
Agent is agent is going to show the structural problems or the cracks in the brick work, or the missing thing here or the broken thing there. No, they're doing a quick walkthrough, and then that buyers agent in a state is not sending their own independent well they're not turning up That has problems everywhere in terms of conflicts
of interest and basically outcomes for those customers. So I'm worried about again these animal spirits and these enthusiastic amateurs who are currently operating in our space.
It's just on that. So we talked about Person earlier, and it is a fantastic place to live. But if you're not living in Person, you think that's the market I want to go and buy in. It is a bit of a distance. It is an airfare. I mean, do you recommend people actually going physically look at the property themselves or is it about finding a really good buyers agent in that area, and then maybe you can document what are the red flags want to look out for and how to.
So let's talk about the three types of buyers agents. There is the local buyers agent who might be you know what they might refer to as their local expert in terms of their pocket of the market, similar to the way in which is selling agent might operate that way.
Then you've got what we call the boardless property and buyers agent, and so they're helping clients potentially in other states, and then they often fly into those locations or they have what we refer to as inspectors or spotters on the ground.
Maybe I can do that. Can I be someone's spotter who.
You can go and walk through properties and inspect them? So, yes, that can.
And usually they might be say retired or part time real estate agents or whatever, you know, former property managers, or they could be the property manager that's working on behalf of that group. All of those things can be true in terms of how they do that. But and then of course no property should ever be bought without a building and pest inspection, so and now they are obviously independent. They will come in and do that building
and pest inspection. So yes, you will see more and more investors who are buying in their mind sight unseen in terms of their eyes. But they are absolutely relying on quality of the buyers agents to do that due diligence work. And so we're concerned about the corners that are being cut by certain buyers agents in the market at the moment.
Okay, we are fast running out of time then, and I do want to make sure we cover off what you think are the top markets for property investing. So if you're going to buy an investment property in the next let's just say six months, shall we say you're in the market, you're on the hunt, you want to buy one, where are you buying?
So at the start of the year I said Darwin would be the number one performing market.
And have you got the stats to hand? Ben, Now you got what's darting up about? Is it seventeen percent or something? It's definitely I think seventeen percent was the stat I heard, which includes rental yield, But anyway, maybe it's true.
No, there's every chance that it's over twenty by the time, because what the data you're looking at is lag data.
So if you actually look at what the rolling three month trend is. It's definitely in the twenties plus. Now.
It's moving very quickly and it's a pretty logical thing. There's only about one hundred and twenty to one hundred and thirty listed properties in Darwin, the entire market. So you talk about that supply demand imbalance.
Is that why you tipped it at the beginning of the year you saw the imbalance or was there some other economic activity?
Yeah, well it's definitely not economic activity.
Look, you've got a new government in power there, the Liberal National Party, and they are very pro business and so they're very pro economy. So that was the first That was the first cod that needed to go into that wheel. Then you start to have a look at the yield story. And also there's no land tacks in Darwin, so you've got really strong yields. And then the third one was it's been dormant for almost fifteen years, right,
it is again in a boombust. And so off the back of that, I've said to people, look, if you're going to go into Darwin, you're only going to be in that market for maybe five to seven years and then you'll probably get out. And then with all of this trust lending and self manitude fund lending where they really do rely on really high rents. That was the final straw, so that one was always going to take off, and it's done that.
So the next one was Perth and Melbourne. I had them side by side.
I really love Perth in the sense that fundamental are so good economic activity, so good liveability scores off the charts, so you know, job opportunities and all that, so I think the economy will run strong, so that one will continue to perform well. I had Melbourne in that sort of mix through probably more so around sentiment everyone you know, Unfortunately a lot.
Of investors aren't. They aren't doing a lot of research on this.
So if there's a view that it's affordable and that's where I need to buy, I'll go down and buy in Melbourne. So we're seeing a lot of that borderless investing coming into Melbourne.
So I think it's probably.
People like myself. Obviously I'm no expert, but when you have a look at the charts, Melbourne has deviated from Sydney prices in a way that just doesn't seem normal, that just can't sustain itself forever. We know that the Victorian government has left all the taxes on, so we know sort of the background story. But it does seem remarkable that Sydney's me in house price can be so much moigher than Melbourne.
Correct especially given obviously now Victoria has just moved over seven million people in the state and Melbourne is continued to attract its high share of immigration. It's losing a small portion of interstate migrants who are probably moving up to Southeast Queensland, but that's its superpower. Melbourne's multicultural attraction tool is its superpower. But it's underperformed purely off the back of the economic performance of the state. It's got
the highest level of unemployment across the capital cities. It's got a debt story that's going to be a massive problem for future state government, so that's holding it back. But if you think that will be rectified over the period of time, the regression to the means should kick back in and you'll start to see probably prices move
high there. The one that surprised me the most has probably been Southeast Queensland, namely Brisbane, is that it's had a terrific run and that run has been going for a good period of time, but the fundamentals and the affordability story is now starting to taper that out, but it's performing still quite strongly.
Then I had Adelaide.
It's had a sort of strong run for five to seven years, so I suspect that will settle down and there's a good amount of supply that's about to write into Adelaide over the next sort of twelve to eighteen months. Looking at the forwards, then I had Canberra, more so because the labor governor in power and so all of the public servants an't going to lose their job, so that will keep that sort of population and growth going. Then I had Sydney In terms of in that mix,
Sydney is an interesting one. It's dynamic city, it's our financial capital market, it's our international city. There's prestige associated with living in but it's still very much unaffordable, so from an investment point of view, it's a challenging market to get into it. And then finally I had Hobart at the bottom of the market. Purely on the back of Hobart. In the last results of population growth, it had about one hundred and sixty two people increased population growth,
so it's really stagnating. It needs to get its economy working otherwise it'll lose its knowledge base and its youth.
And if that youth moves out into Victoria or other markets, that market's going to be challenged.
If it's only going to be reliant on retirees moving down into that market who don't have the incomes or the borrowing powers, price is higher.
So if you're buying today or sometime over the next six months based on that list, is it So Darwin is where you're buying.
Darwin want to be I need to sort of precursor Darwin. It's a speculative buy. It's not something that I would sit back. So fundamentally, I'm a long term investor, so I want to invest for the decades.
I don't want to trade property.
So if I'm buying in my individual name to run my private rental accommodation business, I wouldn't necessarily be jumping into Darwin, you know. But if I was buying in a self managed super fund where I have better tax arrangements, I don't want to give advice to anyone in it. Please don't take this as advice. It's not advice. But ultimately, you know, Darwin does provide that sort of ability to get into the market and then potentially trade out of that market at its peak.
So does that mean if you're doing a long term traditional investing its perse second on the list, Perth.
Melbourne would probably be the markets that I would be playing in at the moment, and I'd be looking at freestanding houses that have a really good proportion of land to asset ratio. So the land needs to be the minimum of sixty percent of the value of the overall asset that you're buying.
Okay, good tip to know, Ben. When we come back, we've got some readers, readers, We've got some listeners. You can tell I'm a newspaper, Janelis, can't you. We've got some listeners who have sent through some questions. I'll put them to you. And also we just might get that one one mistake, one common mistake people make when investing in property. We'll have a chat when we come back. Thanks for joining me on the money Puzzle. I'm your host.
Julianne Sprague, Wealth editor at The Australian, filling in for James Kirby. Ben Kingsley from Empower Wealth is joining me to talk all things at property. We've got some top tips so far, We've got some listener questions to get to. But first Ben, I just want to get to your insights on Is there one thing that you see ze happens quite frequently when it comes to property investing. The one thing that people get wrong or overlook.
The tip I'm going to give here is over extending themselves. Property investments should be a long term investment, and you're taking on debt. What I often see is potentially people aren't thinking about their cash flows in the short.
To medium term. So let me give you an example.
I buy an investment property and then we decide to have a second child or whatever that may look like, and all of a sudden, now we're really tight in regards to our cash flows, and so I haven't let that property breathe enough in terms of mature enough. So with my high cost of getting into that particular market through stem duty and also the selling costs associated with that in the interest that I had over that time, a lot of people don't necessarily break even if they're
held that property for a short period of time. So I'm always about make sure you have a plan. Make sure you understand what your future cash flow impacts are going to be around that plane. Because it's a high cost investment property. We're not buying five thousand dollars worth of shees heer. We're potentially buying half a million dollar
towards a million dollar asset. So if we get it wrong, it will put us back for years and so it really is important to know that we can buy and hold and sustain that property for the medium to longer term.
Okay, we've got some people who are looking at investment properties as we speak, Ben and I kid you not. We have two questions from two listeners. They're both called Ben. I'm chatting to Ben Kingsley, so this should make it easy for me not to stuff up people's names. So Ben has emailed the show and if you'd like to email, you can email the Money Puzzle at the Australian dot com dot au. But Ben says, my wife and I are thinking of selling our first home, which is now
an investment property. They purchased it in twenty sixteen and has been rented out since twenty twenty one. We want to cash out to help knock down their existing mortgage and reallo our investments, and we're hoping to use my wife's lower income during maternity leave to our advantage for capital gains tax. And so Ben says, if we apply the six year rule to avoid capital gains tax on the sale of our investment property, are we just pushing the tax liability down the road to our current home.
Both have had similar capital gains, saying about two hundred and forty thousand in game for the investment property versus about two hundred and eighty thousand for the current home.
Ben Kingsley, these are tax questions, and there's some tax impacts. I need to put my hand up and say I'm not a tax agent. I'm not a qualified tax agent. So I'll talk in statements of fact to sort of help being on this particular story. So, yes, it's true that if you have owned a property that was your principal place of residence from twenty twenty one, I think was said you have up to six years in which
you can declare that your principal place of residence. Now, if you're owning two properties and you're in another property, that obviously means that capital gain in that second property will actually be taxable because you can only ever have one principal place of residence at one time, so you
can only have one exemption at one time. So what Ben would need to do is go and speak to his trusted accountant and they would need to do the math in terms of what has been the gain over that period of time versus if they've moved into a new owner occupied property, what has been the gain on that property over that same period of time, and then do the calculation in terms of which is better for
them in regards to the sale of that asset. Benning is also right technically again statement of fact that the income that you will learn as a capital income is assessed as income for that tax year. So income for that tax year then is a calculation. So if your wife is on maternity leave, then you have lower income.
That means that potentially, now it's all based on ownership, So if it's a fifty to fifty ownership, that still means that Ben can't allocate a higher portion of that income again to his wife.
That's not possible.
Half of it can go across, that's right.
And if that means that you know Ben's wife is on a lower marginal tax rate at that time, then ultimately that could there could be some tax savings there. But again, if the intention is all about minimizing your tax, be very careful. That's why it's always important to go and seek proper tax advice before you take any decisions.
Ben, it sounds like Ben has he says he has got some advice, but he's always keen for more opinions than just is there any real benefit to the strategy besides getting more cash?
Now, Yeah, I would always try And you know, if I'm in conversations with clients, I'm always looking at what's what is our end goal and what's.
Our lifestyle by design look like?
And am I putting the big rocks in the jar making sure that you know, like, at the end of the day, money is important, it is, you know, but it doesn't by happiness. And so what are the goals that you're trying to achieve and how does the decisions that you may compliment those goals? And if you can align it that way, you're going to live a more
meaningful and purposeful life number one. But two, you're then going to not necessarily get hung up just on how much tax I'm paying or what you know, how much money I've got in my bank account.
The bragging rights.
No one sees those bragging rights in the cemetery like, so ultimately live now.
And make sure you're doing those decisions.
So it sounds like they're going to build their dream home, and if this decision is around selling that property so they'll have a better dream home and lower non deductible debt on their family home, that's not a bad that's not a bad idea.
Thanks for getting in touch.
Ben.
Now to another Ben who has emailed the program and says, I have a mate who is starting a side hustle of buying a rundown house, fixing it up and flipping it in six uch. You would have heard about this a lot of Thankingsley with lots of people will go get that door upper. I will not lie to you. I once tried to convince my husband we should buy a house across the road. It a dump, and I had all sorts of visions we would become amazing block contestants or something.
You're not alone.
Thankfully he was the smarter of us too and said we're not doing that. Yeah. Anyway, So Ben says, it made me wonder if this is actually put into the house price statistics. So he's having to think about this. Major takes a rundown house, does it up, flips it, and obviously the property value has gone up quite a bit. So he says, does this then impact property markets? He hasn't got much work to do with Mayde reckons this is going to fix up the floorboards, fix the garden, repaint,
clean it anyway, they flip it. I guess Benn's wondering, is it a big issue or is it just a tiny problem if people are coming into these suburbs doing up the market and then you might see property prices have jumped.
Yeah, So he raises a really poignant point around measuring median house price.
Now, a meetian is the midpoint.
So if you've got five property sales, then you know the midpoint is the third sale of those five, right, And so that's how the market is reported on through totality and through other research area. So if you've got a suburb where there's a new development going in a thirty year old subdivision that's already there, you will see
that suburb reporting really strong price growth. But the reality is there hasn't really been any price growth at all all that's basically happened is the more expensive properties have been sold, and so that's artificially manipulating the median price in that particular area.
The older properties would still be worth less. The're not going to trade up to those higher prices.
Right, yes, but over time the land value of those older properties would have potentially enjoyed the fact that all this extra investment has been put into this new area. But it just goes to show you that the susceptibility of the data that we work with more generally when we're educating people around property is that data is it's a good indicator, but it's certainly not a great indicator. So that's just one thing we need to understand about
how we report property data. It's not ideal, but it's the mechanisms that we use onto the question of buying worshouse in the bestreet and doing it up. I love that idea for the first time by I love that idea for anyone who's trying to get on the property ladder. More broadly, I think it's an excellent way if you do your numbers correctly, that you can potentially harvest equity and.
Bring that property back up to its original quality.
So I like that in terms of flipping property and trading property, there are some costs and challenges around that, and in a lot of cases, I think flippers don't necessarily do their numbers correctly in their due diligence well, and so a lot of them can potentially spend six to twelve months and break even and jot it down as a learning experience.
But I would say that the other thing that they also need.
To be aware of, and this is the whole political thing that we're getting into here now, is that the governments are definitely looking at negative gearing and capital gains tax exemptions. Those conversations aren't going away, so that the moment you get a fifty percent exemption based on holding
theirsset for twelve months a longer. So if you're going to flipping and you're going to flip that property inside six months, then you're paying one hundred percent of your marginal tax rate in tax on that particular property in terms of the profits that it makes. So you've got to then decide whether it's worth going into the business of doing this or whether it's you know, this is just a one off thing that I'm going to do.
And that's a game.
Where I would say, go and speak to your accountant about your ideas in this particular space and try and get an account And Neo's had some experience in this area might also be helpful for you because it sounds sexy. You know, when I watched the block and that's all summarized into a thirty minute or a sixty minute episode, you don't know what's going on in the background.
You don't know how much work's gone into.
It, or what cost blowouts they've had and all of those profits. I mean, at the end of the day, they're selling it to a national audience, so that you know, and we've seen you know, there's plenty of articles on the research in terms of how all those properties performed after that first sale. The reality is that those properties were bought at extended prices, and it does they weren't really you know, fair market value at that time.
Well, this will test my husband if he's listening to the podcast. Honey, you're right about that one.
But if it's across the road to your point, Julian, I'll just finish off that, like, if you can get easy and quick access to it, and you're prepared to do elbow grease and that type thing, but take a longer term view and then rent that out.
That could be a sensible thing, right, do you know what I mean? Like, like, here's the tips. Paint, do your.
Flooring, don't do anything structural, and make sure you work on a dollar in for two dollars back. And if the numbers don't stack up, just off that. Some people do a one for three, but I think if it's one for two. But be prepared that this is not investing. This is active investing. Like it's not passive investing. You're going to have to put the elbow grease in because if you get too many trades in, there's going to be no profit at the end of the end of the outcome.
One dollar in two dollars back. Okay, I'll use That's a nice mat truck to use. Ben Kingsley, thank you so much for joining us on the Money Puzzle. It's been a pleasure.
Yeah, thank you very much for the opportunity.
Ben Kingsley from in Power. Well, then you can also catch him at the Property Couch podcast. We'll be back Friday for another episode of the Money Puzzle.