May 16, 2024 • 27 mins
In this episode of current market insights we catch up on missed time and welcome Ciaran back onto the podcast after a brief illness, discussed the ongoing accusations surrounding NetStrata, brought some data to the foreign buyer surge that has been ongoing across the market, and wrap up with our regular Market Wrap.
Thanks for joining us and as always, reach out to ciaran@harrispartners.com.au if you have a question you want answered on the show!
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Episode Transcript
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Speaker 1 (00:00):
All done, all silent, going, going, going, go on son.
Speaker 2 (00:06):
Congratulations.
Welcome to the Current MarketInsights podcast brought to you
by Harris Partners Real Estate.
Each episode, we chat with realestate author and industry
leader, peter O'Malley, todiscuss the current property
market conditions and provideinsights to assist you on your
property journey.
Speaker 3 (00:30):
Hello and welcome to another edition of Current
Market Insights.
I'm your host, kieran O'Brien,and with me, as always, is my
co-host, mr Peter O'Malley.
Peter hello.
Good evening, kieran, great tosee you.
Yeah, great to see you, peter.
It's been a couple of weeksbetween episodes.
As you know, peter, I've beenout a little bit unwell for the
last few weeks, so it's nice toget back into the studio.
Speaker 1 (00:51):
Yeah, indeed, Look.
Sorry to hear that's takenplace for you.
Kieran, Do you mind telling theaudience what happened?
I think it's a lesson for all.
Speaker 3 (00:58):
Yeah, look, I was away doing a fun run actually
and got a bit of a scratch on myarm.
That quite quickly turned intoa septic infection which had me
in the hospital for quite awhile and, you know, receiving
antibiotics and all thetreatment that comes with that.
And yeah, it's only been acouple of weeks, but I tell you
(01:20):
what it was a pretty harrowingfew days, that's for sure.
Speaker 1 (01:25):
Yeah, and last time we spoke we haven't seen you
since you got out of hospital.
You were transferred from onehospital to Westmead.
How long were you there for?
Speaker 3 (01:33):
I was in Westmead for four or five days, I think.
Honestly, it all just kind ofblended into one.
But I will say, you knowhaven't been in the hospital
there before, but a really greatexperience, great team.
You know haven't been in thehospital there before, but a
really great experience, greatteam.
You know really greatfacilities and certainly you
know shout out to any of them ifthey are listening.
I really really appreciatedtheir help.
Speaker 1 (01:56):
So an innocuous scratch on the arm ended up
being a week in hospital, andobviously you're still a long
way from A1 at the moment.
Speaker 3 (02:01):
Yeah, it's almost two weeks altogether.
But such an innocuous scratch,I didn't even notice it, you
know, so small.
I just thought it was a patchof dry skin on my elbow and, you
know, within 48 hours I was,you know, shaking in my bed and
trying to get the hospital toadmit me so I could get some
treatment.
Speaker 1 (02:19):
Absolutely frightening.
Speaker 3 (02:21):
Oh look, first time it's ever happened to me and
certainly a bit of a wake-upcall, that's for sure.
Yep, great to have you back onboard.
Yeah, great to be back, even ifI am a little bit under the
weather, and I certainlyapologize to our listeners if my
conversation rambles because myhead's still not quite in it,
but I wanted to have a chattoday, peter.
There's been a little bithappened since we last spoke and
(02:41):
I think probably the mostimportant event in terms of what
we like to talk about wouldhave to be the ongoings with
Netstrata and some of theinformation that's coming out
about their practices inbusiness.
So I thought we might juststart off if you could give our
listeners a bit of a recap ofwhat's kind of happened in that
(03:01):
space and what are theimplications for people that may
be in buildings that aremanaged by this company.
Speaker 1 (03:07):
Yeah.
So the ABC have done anin-depth investigation into
Netstrata because I guess theywere tipped off by an insider or
something similar and whatthey've discovered is that, in
contravention of the legislation, net Strata are accused we must
say at this stage, but they areaccused or it's alleged that
(03:29):
they had a wholly ownedinsurance subsidiary that they
were sending all of their Stratainsurance work to and it wasn't
disclosed to the people whowere paying it.
Furthermore, the ABC reportalleges that they were receiving
commissions or rebates orkickbacks from tradies that they
(03:49):
had works done on theirbuilding.
Now the reason that'sproblematic is that the owner's
corp, when they employ a stratamanager, do so on the basis that
you're employed on our behalfto go and source the best
tradespeople.
So when they take a kickback, arebate or any sort of incentive
from those tradespeople, what'sactually happening is that the
(04:10):
strata management firm are beingpaid twice, once by the owner's
committee to manage thebuilding and once by the
tradespeople as a thank you forgetting the work.
So that's completelyunacceptable because you can't
have two masters on oppositesides of the fence, because
you're clearly conflicted.
So that's a pretty seriousaccusation against them as well.
This is interesting because youmay remember, at the beginning
(04:32):
of the year, in our real estatereport in January and then a
subsequent podcast that we didon it, we mentioned that
insurance premiums are going up20% year on year at the moment,
primarily because a lot ofinsurers are dropping out of the
space, so it is getting harderto get strata insurance as it is
, and this issue won't giveowners, corporations and title
(04:54):
holders in strata titlebuildings any sense of comfort,
that's for sure.
Interestingly unsolicited, oneof my clients stopped me down
Darling Street during the weekand wanted to have an in-depth
chat about what's going on withthe strata in the building that
he's in, and basically becausestrata has gone up 20% year on
year but there's no more workbeing done by the strata manager
(05:18):
.
He pointed out to the stratamanager that the cost for
finding insurance has now becomeexponential, buried in the
costs and and and that should,you know, be tweaked in terms of
the the commission rate thatthe strata manager takes for
sourcing an insurance player,and the strata manager had no
intention of reducing that rate.
(05:39):
So there's now actually youcould call it a conflict of
interest of sorts where thestrata manager benefits from
more expensive strata insurancepremiums, which is alarming, and
clearly, if we keep going downthis path, as the ABC report
suggests, the government willhave to intervene, and intervene
(06:00):
quickly, because this is goingsomewhere very nasty, very
quickly, and it's been a segmentof the real estate industry
that's been overlooked for avery long time, but now, with
the state government having sucha propensity for strata living
in the inner city, these issueshave to be cleaned up very
quickly.
Speaker 3 (06:21):
So you've raised a whole bunch of things there.
I think that we can sort ofunpack a little bit.
So we've got a Strata agencywho allegedly are using a
kickback system or a brokeragemodel to get buildings to insure
with a company that they ownwithout disclosing that
information, that information.
(06:47):
Would it be fair to say that ifNetstrata had been open and
transparent with their buildingsin the first place about this
being a subsidiary of theircompany, that we really wouldn't
be talking about it now,regardless of the fees charged
on top?
Speaker 1 (06:57):
I think that sets up an evident conflict of interest.
Why it's not disclosed For anowner's corporation to go and
employ a strata manager and thestrata manager says yeah, we've
gone to the market and youwouldn't believe it.
It just so happens that thebest insurance firm for your
building is the insurance firmthat we own.
(07:18):
It's a wholly owned subsidiary.
It must be pointed out that theABC report alleges that the
insurance that insurance firmwere charging was three times
the accepted rate or the marketrate.
I can't confirm that orotherwise, but that's what's
alleged in the report.
So if that is found to be true,that's a massive issue.
Speaker 3 (07:41):
So I think I had a quick read of the report earlier
.
I think it said that thebrokerage fee charged by
Netstrata was three times thestandard.
So the actual insurance amountmay have been the same or
comparable to another supplier,but the actual fee that they got
for brokering that insurancedeal was something like three or
four times higher than whatshould have been charged.
(08:02):
And that's how they were, youknow know, obtaining quite a lot
of this money.
Speaker 1 (08:06):
Uh, I wonder.
Three times better off.
So I I didn't read the article.
I watched the news, the newsreport.
Speaker 3 (08:13):
Uh, on it it does say interestingly, this is one of
the few articles I've ever seen.
Actually, that says uh, there'sinformation in this article
that's unique to the web versiononly okay, so yeah, that that
you know.
Quite an interesting take there.
But I wonder you know someonewho lives in a Strata building
and who was on the Stratacommittee for my building does
(08:34):
some responsibility not restwith these owners and those on
the committees to requestmultiple quotes for things like
insurance?
I know we did when we went torenew and all of them were
horrible, as we've talked about.
You know, know strata insurancecosts are going up, but does
there, you know, not to absolvenet strata of any of these
accusations?
But is there not someresponsibility that should fall
(08:56):
back on the owners here to?
I think?
Speaker 1 (08:58):
there should always be.
But when someone is floutinglegislation if it's easy to say
in hindsight in all facets oflife, legislation was being
flaunted here and we should havebeen more vigilant.
But at the end of the day, therules are in place so that you
can operate with some certaintyand you've got a framework to
fall back on when people areoperating outside the accepted
(09:21):
norms or operating outside thelegislation.
So the the people in questionare clearly on the hook.
Now, as this investigationtakes place, I believe an
independent auditor has beenassigned to go through
everything and prove or disprovethe claims.
Even if the claims aredisproved and Nedstrata are
(09:42):
proven to be operating withinthe legislation, I think this is
a big wake-up call.
We saw it early in the year.
As I say, kieran, we werehearing um ad nauseum from
strata title owners and fromowner uh managing owners
committees that they justcouldn't get the strata
insurance that they were lookingfor.
Um, so it's unsurprising that,uh, we've sprung a major leak
(10:05):
like this issue here.
Speaker 3 (10:08):
I think it's a really good thing for the industry.
I will say my dealings withthis company they have form in
this space.
I know when trying to get somestrata reports done for clients
in the past.
One of the common bits offeedback I get from the
inspectors is when you'redealing with net strata they
charge a fee that's above thelegislated amount and even the
(10:31):
inspectors say we wish youdidn't have to pay this fee and
we've been fighting it for quitea long time.
But these guys appear to haveform on just trying to push the
envelope as much as they can.
Speaker 1 (10:42):
Yeah well, a strata manager is tasked with a lot of
responsibility.
They're effectively managingfunds in trust on behalf of
consumers, and it just seemslike the money flow that was
going past them was too tempting.
I know that the rank and fileproperty managers are faced with
the same temptations where anowner pays them to manage their
(11:05):
property, but the relationshipthat the property managers have
with the tradespeople alwaysneeds to be above board.
You can't be Property managershand out a lot of work, kieran,
to plumbers, electricians,roofers, et cetera, et cetera
all sorts of tradespeople andtheir actions and the way they
(11:26):
divvy that work out and get thequotes needs to be on reproach.
So it's, it's a any anywherewhere there's an area of
conflict of interest that'll betoo tempting for someone at at
some point in time.
Speaker 3 (11:37):
And my only the only surprising thing about where we
are now is strata is it hasn'tcome up earlier yeah, I must
admit I'm a bit surprised, and Isurprised and this is a bit
cynical of me, but I'm notsurprised that the director of
this company is also thepresident of the association
that manages Strata Corporations, and I feel like these people
(11:59):
position themselves to ensurethat they're always at the
forefront of knowledge, so theycan push the envelope a little
bit further.
Speaker 1 (12:05):
So he has stepped down now, hasn't he?
Speaker 3 (12:07):
I think so, yeah, yeah, pending In light of this,
Pending this investigation andthe look that it casts yeah,
that's it.
It certainly doesn't look toogood for them, but I can only
hope.
I don't know about you, but I'ma big fan of cleaning up the
industry.
We talk on the podcast quite alot about just real estate
needing enforcement in certainareas, and I think this is
another one that will be verygood for clients in the long run
(12:28):
when this all comes out in thewash.
Speaker 1 (12:30):
It will be painful in the short term, though.
Speaker 3 (12:33):
Certainly will.
Moving on, peter, I really wantto jump on to a slightly
different topic now, one thatyou and I have actually talked
about a lot on the podcast,which is the you know, cashed up
international buyers cominginto Sydney, but I read that
there's a bit of an articlebeing put out trying to quantify
some of the impact that that'shad on the market.
(12:54):
I thought we might get a senseof what that looks like.
Speaker 1 (12:56):
Yeah, look some great data.
So quote, unquote the latesttreasury statistics from the
Register of Foreign Ownership ofResidential Real Estate
confirmed 1,955 homes werebought by Chinese investors with
an estimated $2.5 billion invalue.
The data revealed Hong Konginvestors purchased more than
(13:18):
400 homes with an estimatedresidential real estate value of
$300 million.
So Hong Kong is effectively apart of China.
So I'm not sure why they'veitemised those out.
So you're actually talking2,355 homes there have been
purchased by Chinese investorsin just nine months in Australia
(13:38):
, is it?
Speaker 3 (13:39):
just on that.
Are they breaking them outbecause Hong Kong has a lot of
expats, perhaps to indicate thatit could just be Australian
foreign purchasing?
Does that make sense?
Speaker 1 (13:52):
No, it clearly says Chinese investors and Hong Kong
investors.
Kieran, yeah, One of the pointsthat we touched on when we did
speak about overseas investorsin the past was Vietnamese
buying in Australia was up, sothey've been credited with
securing 259 properties in ninemonths in Australia at a total
(14:12):
value of $300 million.
And how we got on to thisoverseas buying thing was the
cheap currency.
We think here, and we quiterightly think here in Sydney and
Australia, that our realestate's fairly expensive when
you're earning the Australiandollar.
But when you're running on someof these currencies the
(14:33):
Singaporean dollar, earning USdollar, the Great British Pound,
et cetera those currencies areperforming really, really well
against the Australian dollarand when those people land here
or come here to buy real estate,they're finding it quite
affordable.
Speaker 3 (14:49):
Yeah, look, it certainly makes sense.
I mean, if you're earning theUSD, you effectively get 30% for
free, and if you're on thepound, I mean, you get even more
.
So it's not surprising that alot of foreign money is coming
here.
It is.
You know, we always talk abouthow Sydney property in
particular is a safe haven forinvestment because historically
(15:10):
it's always trending in theupward direction.
Speaker 1 (15:13):
Yeah, look, london has been the recipient of this
sort of hot money on and offover the decades and I don't
think since probably the 80sthat Australia has seen it
outside of Chinese investors tothe degree that we're now seeing
it.
But yes, if you follow high-endLondon real estate you've got
Russian money pouring through it.
(15:34):
Real estate agents have gotreally high obligations to
report suspect money that mightbe flowing through the real
estate market there.
But yeah, money from all overEurope flows through high-end
London real estate market.
I know that for a fact frommany agents that I've spoken to
that do business there andclearly it's not all clean money
(15:55):
.
There was actually a BBC program, a fascinating watch, where
they had Russian individualsimpersonate themselves as
wealthy Russians trying to parkdodgy money and they went around
and looked at all of theseproperties with real estate
agents and the poor old realestate agents didn't know they
were being recorded andbasically this impersonator was
(16:18):
incriminating the agents, sayingI've got some dirty money I
need to park quickly and someagents didn't want anything to
do with it.
But clearly some fell for theeasy money and were like I'll
help you hide the money, I won'tsay anything and it was all on
camera as part of a BBCinvestigation.
So, yeah, australia's been abit naive about how certain
(16:40):
things work in internationalmarkets and this data really
proves to us factually now as tohow much money is coming into
the country where we werepreviously reporting on it
anecdotally.
So it's a great article andgreat numbers to see.
Speaker 3 (16:55):
Yeah, certainly this is purely anecdotal, but I have
always said that anyone workingin real estate should first have
a job in retail, because youjust assume everyone's a mystery
shopper and that's the best wayto operate.
If you think someone is testingyou, then you'll always do the
right thing.
To close up this topic, I didhave a bit of a look at some of
(17:21):
the data from 21 22, which wasobviously quite a big year, uh,
in terms of prices in sydney,and the, the investment review
board reported less than threebillion in foreign purchasing in
that year.
So to me it's really quiteinteresting that we're seeing I
think you know, if you add itall up, we're seeing more than
five billion dollars come in ina nine month period, compared
with less less than three inwhat was a boom year.
(17:42):
That's right.
Speaker 1 (17:43):
So you call that $7 billion in rough numbers, if my
maths is correct, close to eight, yeah, annualised.
That's pretty epic, isn't it?
Speaker 3 (17:54):
That's massive.
Yeah, massive.
I mean that's effectively twoand a half times what we saw
during the boom and that justshows that either currency is
tanking here relative and thereis a big uptick, or people it's
continuing uncertainty, cost ofliving crisis all over the world
.
Maybe people are just lookingfor a safer avenue.
Speaker 1 (18:15):
The government have.
Whilst we've got really highimmigration, as we know Well,
the government have, whilstwe've got really high
immigration, as we know, thegovernment have chased a
different type of immigrant inrecent times and they've gone
for skilled labour.
More millionaires came toAustralia in 2023, kieran than
any other country.
Speaker 3 (18:34):
Yeah.
Speaker 1 (18:35):
So it was a destination for the wealthy.
Last year, it would have beenalso subtly enhanced by the fact
that New Zealand finally putsome policy in place that really
blocked international moneyflow, because New Zealand was
experiencing exactly the samething but, being a much smaller
market than Australia, that wasfurther manipulated.
(18:55):
It's worth pointing out thatthe New Zealand real estate
market, for the first time inquite some time, is on its knees
at the moment, as foreigndemand has evaporated and
they're now merely operating onthe domestic level.
So if we do want to block thisinternational money as a country
, that's fine, but we do alsoneed to acknowledge the role it
(19:17):
plays in pushing prices up.
If we look at the rest of thelist as to where these foreign
investors came from, 272 homeswent to Taiwanese, totalling
$300 million.
354 went to Indians, totalling$200 million.
174 properties totalling $100million.
(19:39):
Million went to Singaporeans.
The Nepalese absorbed 250dwellings totaling 300 million.
Uk, which obviously used to bethe number one country that
people would come to Australiafrom, was 170 homes totaling 200
million, and Malaysia was 93homes totalling $200 million and
(20:00):
Malaysia was 93 homes totalling$100 million.
The majority of those peoplewould be chasing higher-end real
estate.
I suspect too.
The buyer's agent, simon Cowan,said in this article that I
read international investors arenot impacting the lower end of
the market.
Australia is a populardestination for international
(20:21):
investors, but these overseasbuyers are not impacting the
market in the lower end of themarket.
Speaker 3 (20:27):
In his opinion, which I tend to agree with, I find
that and again, maybe I'm alittle bit cynical, but I find
that interesting from him, giventhat if you look at the numbers
from just a raw dataperspective, of all those
countries you listed, there wasonly three or four that appeared
to have a, if you average itout, an average purchase price
(20:49):
over a million dollars.
So that I don't know to to you,but to me that says that
there's a lot of countriesparticularly china, I think was
a big one where they're buyingwith an average cost of less
than a million, which tells methat maybe they're just buying
investment apartments orwhatever, whereas I think
Vietnam had the highest, fromwhat you mentioned, where they
were, by the sounds of it, abouta million won as an average
(21:12):
purchase price.
So does that, I guess, in someways kind of tie into what
you're saying about the skilledoccupation list, where we're
getting experts from some ofthese countries that are buying
in average homes in Sydney, andthen you've got other countries
that are just purely investing?
Speaker 1 (21:27):
Oh, what I would say.
And unless we had the data infront of us, we'd never really
know Kieran.
But what I would say is the topend of the market is nowhere
near as heavily traded as themainstream market, so it doesn't
take much for the top end salesto be distorted, if that makes
sense.
Speaker 3 (21:48):
Yeah, of course.
Speaker 1 (21:49):
If you you know in Balmain, for example, in the
last 12 months not Balmain,postcode 2041.
In postcode 2041, you mighthave seen what four or five
properties sell over $10 millionin the last 12 months.
So if you get three or fourinternational buyers that arrive
(22:10):
in town and quickly gobble up anumber of listings or trade off
market at the high end, they'regoing to quickly distort the
numbers as to what's going onwith the market overall yeah, of
course, of course, and Icertainly uh, we can't fully
analyze the data because wedon't have it all but it uh,
yeah, to me it's just aninteresting sort of trend that
(22:30):
it seems to be the article goeson to say mr cohen's associate
at cohen handler, isabel lucas,said there was currently a big
influx of international buyersattracted to the Bellevue Hill
market.
Well, a big influx of buyers inBellevue Hill might be five
Chinese or Hong Kong buyers thatarrive and want to do business.
That's a big influx for them,whereas you throw five buyers
(22:52):
into the Dromoyne apartmentmarket and you'll barely notice
a ripple.
Yeah, of course.
Speaker 3 (22:59):
Now.
Really good recap there, Peter.
I think we've been talkingabout it for a long time now and
it's good to see that there issome concrete data to back up
what we've talked about.
As we move towards a closetonight, Peter, I thought we
might do a bit of a market wrap.
It's become my favourite partof the podcast.
To be honest, I really liketracking the trend line and
(23:19):
getting a sense of where we'regoing in property, and I always
love it as a measure of tryingto predict where we're going to
be in a week or two's time.
Speaker 1 (23:26):
Yeah, well, look, sqm researchers numbers show that
listings dropped during Apriland that has continued through
May.
And we knew that April was atricky month with, for all of
the reasons that we've discussedin the past, so tight stock
levels I think have helped themarket to hold up Kieran.
So last Saturday, for example,on SQM researchers' numbers,
(23:50):
there was 806 auctions scheduled.
Now that's after a couple ofweeks prior to that, where the
auction numbers were around the$1,100, $1,200 and the clearance
rate sort of fell back to 50%.
But on those relatively tighterauction numbers the auction
clearance rate jumped to 55%last Saturday.
(24:12):
Of the sales that were recorded,215 sold prior to the auction,
25 sold after the auction on theSunday or the Monday and 226
sold under the hammer.
So there's some improvingclearance rates.
I am noticing not across theboard, not universally, but
(24:34):
there is a number of propertiesthat are repriced downwards to
attract more interest,properties that are repriced
downwards to attract moreinterest.
Some of those sale pricesbounce back up when competitive
bidding gets going and somedon't.
So essentially the market'spretty wild at the moment.
It's not easy getting a cleanread on it because every sale
(24:55):
seems to conflict with whathappened with the last.
Speaker 3 (24:58):
Yeah, it's really interesting.
Just tracking back a few months, we were talking about 1,500,
1,600 properties going under thehammer and now we're talking
about half of that.
And you actually predicted, I'msure, last time we spoke that
if the stock came back slightlythat we might see a bump in
clearance rates again.
So I'm glad that has come true,Given I've been off for a
(25:20):
couple of weeks.
Just very quickly then.
Have you got any sense onwhat's happening in the rental
space at the moment.
Speaker 1 (25:27):
Look only that it's undertaking its typical seasonal
downturn.
So landlords who arenegotiating lease renewals or
they're on the market need to bereally careful that they're not
caught up in the hype of thetime about the rental market.
Yes, the rental market is in asystemically long-term upward
(25:48):
trend.
But even in systemic upwardtrends there are periods where
the market will eitherconsolidate or dip before it
goes again.
And that tends to happen withthe rental market in winter, as
people are less inclined to makea unforced change at that time
of year and certainly have ahigher desire to make a change
(26:11):
in the warmer months when itties in with the new calendar
year.
So we've been leasing ourproperties steadily.
We're not seeing massive growthon the year-on-year rents that
those properties are achievingand we're definitely not seeing
massive crowds turn up to openhouses.
It's more steady demand.
(26:32):
Make no mistake.
Next January, next February,all the crowds will be there and
that's when the media can goout and get their stock footage
to talk about the wild nature ofthe Sydney property market.
But that's not quite how it'splaying here and now, in May
2024.
Speaker 3 (26:48):
Yeah, it makes sense, Peter.
Really good chat tonight andI'm glad to be back in the seat
and having a bit of a discussionwith you.
Speaker 1 (26:56):
Yeah, great to have you back here and good luck with
the rest of your recovery.
Speaker 3 (26:59):
Yeah, thank you, peter, and thanks to everyone
for listening to Current MarketInsights.
We look forward to talking withyou next time.
Speaker 2 (27:04):
Thanks for joining us on the Current Market Insights
podcast Brought to you by HarrisPartners Real Estate, the
podcast providing real estateinsights you won't find anywhere
else.
All done, all silent, going, going, going, go on son.
Speaker 2 (00:06):
Congratulations.
Welcome to the Current MarketInsights podcast brought to you
by Harris Partners Real Estate.
Each episode, we chat with realestate author and industry
leader, peter O'Malley, todiscuss the current property
market conditions and provideinsights to assist you on your
property journey.
Speaker 3 (00:30):
Hello and welcome to another edition of Current
Market Insights.
I'm your host, kieran O'Brien,and with me, as always, is my
co-host, mr Peter O'Malley.
Peter hello.
Good evening, kieran, great tosee you.
Yeah, great to see you, peter.
It's been a couple of weeksbetween episodes.
As you know, peter, I've beenout a little bit unwell for the
last few weeks, so it's nice toget back into the studio.
Speaker 1 (00:51):
Yeah, indeed, Look.
Sorry to hear that's takenplace for you.
Kieran, Do you mind telling theaudience what happened?
I think it's a lesson for all.
Speaker 3 (00:58):
Yeah, look, I was away doing a fun run actually
and got a bit of a scratch on myarm.
That quite quickly turned intoa septic infection which had me
in the hospital for quite awhile and, you know, receiving
antibiotics and all thetreatment that comes with that.
And yeah, it's only been acouple of weeks, but I tell you
(01:20):
what it was a pretty harrowingfew days, that's for sure.
Speaker 1 (01:25):
Yeah, and last time we spoke we haven't seen you
since you got out of hospital.
You were transferred from onehospital to Westmead.
How long were you there for?
Speaker 3 (01:33):
I was in Westmead for four or five days, I think.
Honestly, it all just kind ofblended into one.
But I will say, you knowhaven't been in the hospital
there before, but a really greatexperience, great team.
You know haven't been in thehospital there before, but a
really great experience, greatteam.
You know really greatfacilities and certainly you
know shout out to any of them ifthey are listening.
I really really appreciatedtheir help.
Speaker 1 (01:56):
So an innocuous scratch on the arm ended up
being a week in hospital, andobviously you're still a long
way from A1 at the moment.
Speaker 3 (02:01):
Yeah, it's almost two weeks altogether.
But such an innocuous scratch,I didn't even notice it, you
know, so small.
I just thought it was a patchof dry skin on my elbow and, you
know, within 48 hours I was,you know, shaking in my bed and
trying to get the hospital toadmit me so I could get some
treatment.
Speaker 1 (02:19):
Absolutely frightening.
Speaker 3 (02:21):
Oh look, first time it's ever happened to me and
certainly a bit of a wake-upcall, that's for sure.
Yep, great to have you back onboard.
Yeah, great to be back, even ifI am a little bit under the
weather, and I certainlyapologize to our listeners if my
conversation rambles because myhead's still not quite in it,
but I wanted to have a chattoday, peter.
There's been a little bithappened since we last spoke and
(02:41):
I think probably the mostimportant event in terms of what
we like to talk about wouldhave to be the ongoings with
Netstrata and some of theinformation that's coming out
about their practices inbusiness.
So I thought we might juststart off if you could give our
listeners a bit of a recap ofwhat's kind of happened in that
(03:01):
space and what are theimplications for people that may
be in buildings that aremanaged by this company.
Speaker 1 (03:07):
Yeah.
So the ABC have done anin-depth investigation into
Netstrata because I guess theywere tipped off by an insider or
something similar and whatthey've discovered is that, in
contravention of the legislation, net Strata are accused we must
say at this stage, but they areaccused or it's alleged that
(03:29):
they had a wholly ownedinsurance subsidiary that they
were sending all of their Stratainsurance work to and it wasn't
disclosed to the people whowere paying it.
Furthermore, the ABC reportalleges that they were receiving
commissions or rebates orkickbacks from tradies that they
(03:49):
had works done on theirbuilding.
Now the reason that'sproblematic is that the owner's
corp, when they employ a stratamanager, do so on the basis that
you're employed on our behalfto go and source the best
tradespeople.
So when they take a kickback, arebate or any sort of incentive
from those tradespeople, what'sactually happening is that the
(04:10):
strata management firm are beingpaid twice, once by the owner's
committee to manage thebuilding and once by the
tradespeople as a thank you forgetting the work.
So that's completelyunacceptable because you can't
have two masters on oppositesides of the fence, because
you're clearly conflicted.
So that's a pretty seriousaccusation against them as well.
This is interesting because youmay remember, at the beginning
(04:32):
of the year, in our real estatereport in January and then a
subsequent podcast that we didon it, we mentioned that
insurance premiums are going up20% year on year at the moment,
primarily because a lot ofinsurers are dropping out of the
space, so it is getting harderto get strata insurance as it is
, and this issue won't giveowners, corporations and title
(04:54):
holders in strata titlebuildings any sense of comfort,
that's for sure.
Interestingly unsolicited, oneof my clients stopped me down
Darling Street during the weekand wanted to have an in-depth
chat about what's going on withthe strata in the building that
he's in, and basically becausestrata has gone up 20% year on
year but there's no more workbeing done by the strata manager
(05:18):
.
He pointed out to the stratamanager that the cost for
finding insurance has now becomeexponential, buried in the
costs and and and that should,you know, be tweaked in terms of
the the commission rate thatthe strata manager takes for
sourcing an insurance player,and the strata manager had no
intention of reducing that rate.
(05:39):
So there's now actually youcould call it a conflict of
interest of sorts where thestrata manager benefits from
more expensive strata insurancepremiums, which is alarming, and
clearly, if we keep going downthis path, as the ABC report
suggests, the government willhave to intervene, and intervene
(06:00):
quickly, because this is goingsomewhere very nasty, very
quickly, and it's been a segmentof the real estate industry
that's been overlooked for avery long time, but now, with
the state government having sucha propensity for strata living
in the inner city, these issueshave to be cleaned up very
quickly.
Speaker 3 (06:21):
So you've raised a whole bunch of things there.
I think that we can sort ofunpack a little bit.
So we've got a Strata agencywho allegedly are using a
kickback system or a brokeragemodel to get buildings to insure
with a company that they ownwithout disclosing that
information, that information.
(06:47):
Would it be fair to say that ifNetstrata had been open and
transparent with their buildingsin the first place about this
being a subsidiary of theircompany, that we really wouldn't
be talking about it now,regardless of the fees charged
on top?
Speaker 1 (06:57):
I think that sets up an evident conflict of interest.
Why it's not disclosed For anowner's corporation to go and
employ a strata manager and thestrata manager says yeah, we've
gone to the market and youwouldn't believe it.
It just so happens that thebest insurance firm for your
building is the insurance firmthat we own.
(07:18):
It's a wholly owned subsidiary.
It must be pointed out that theABC report alleges that the
insurance that insurance firmwere charging was three times
the accepted rate or the marketrate.
I can't confirm that orotherwise, but that's what's
alleged in the report.
So if that is found to be true,that's a massive issue.
Speaker 3 (07:41):
So I think I had a quick read of the report earlier
.
I think it said that thebrokerage fee charged by
Netstrata was three times thestandard.
So the actual insurance amountmay have been the same or
comparable to another supplier,but the actual fee that they got
for brokering that insurancedeal was something like three or
four times higher than whatshould have been charged.
(08:02):
And that's how they were, youknow know, obtaining quite a lot
of this money.
Speaker 1 (08:06):
Uh, I wonder.
Three times better off.
So I I didn't read the article.
I watched the news, the newsreport.
Speaker 3 (08:13):
Uh, on it it does say interestingly, this is one of
the few articles I've ever seen.
Actually, that says uh, there'sinformation in this article
that's unique to the web versiononly okay, so yeah, that that
you know.
Quite an interesting take there.
But I wonder you know someonewho lives in a Strata building
and who was on the Stratacommittee for my building does
(08:34):
some responsibility not restwith these owners and those on
the committees to requestmultiple quotes for things like
insurance?
I know we did when we went torenew and all of them were
horrible, as we've talked about.
You know, know strata insurancecosts are going up, but does
there, you know, not to absolvenet strata of any of these
accusations?
But is there not someresponsibility that should fall
(08:56):
back on the owners here to?
I think?
Speaker 1 (08:58):
there should always be.
But when someone is floutinglegislation if it's easy to say
in hindsight in all facets oflife, legislation was being
flaunted here and we should havebeen more vigilant.
But at the end of the day, therules are in place so that you
can operate with some certaintyand you've got a framework to
fall back on when people areoperating outside the accepted
(09:21):
norms or operating outside thelegislation.
So the the people in questionare clearly on the hook.
Now, as this investigationtakes place, I believe an
independent auditor has beenassigned to go through
everything and prove or disprovethe claims.
Even if the claims aredisproved and Nedstrata are
(09:42):
proven to be operating withinthe legislation, I think this is
a big wake-up call.
We saw it early in the year.
As I say, kieran, we werehearing um ad nauseum from
strata title owners and fromowner uh managing owners
committees that they justcouldn't get the strata
insurance that they were lookingfor.
Um, so it's unsurprising that,uh, we've sprung a major leak
(10:05):
like this issue here.
Speaker 3 (10:08):
I think it's a really good thing for the industry.
I will say my dealings withthis company they have form in
this space.
I know when trying to get somestrata reports done for clients
in the past.
One of the common bits offeedback I get from the
inspectors is when you'redealing with net strata they
charge a fee that's above thelegislated amount and even the
(10:31):
inspectors say we wish youdidn't have to pay this fee and
we've been fighting it for quitea long time.
But these guys appear to haveform on just trying to push the
envelope as much as they can.
Speaker 1 (10:42):
Yeah well, a strata manager is tasked with a lot of
responsibility.
They're effectively managingfunds in trust on behalf of
consumers, and it just seemslike the money flow that was
going past them was too tempting.
I know that the rank and fileproperty managers are faced with
the same temptations where anowner pays them to manage their
(11:05):
property, but the relationshipthat the property managers have
with the tradespeople alwaysneeds to be above board.
You can't be Property managershand out a lot of work, kieran,
to plumbers, electricians,roofers, et cetera, et cetera
all sorts of tradespeople andtheir actions and the way they
(11:26):
divvy that work out and get thequotes needs to be on reproach.
So it's, it's a any anywherewhere there's an area of
conflict of interest that'll betoo tempting for someone at at
some point in time.
Speaker 3 (11:37):
And my only the only surprising thing about where we
are now is strata is it hasn'tcome up earlier yeah, I must
admit I'm a bit surprised, and Isurprised and this is a bit
cynical of me, but I'm notsurprised that the director of
this company is also thepresident of the association
that manages Strata Corporations, and I feel like these people
(11:59):
position themselves to ensurethat they're always at the
forefront of knowledge, so theycan push the envelope a little
bit further.
Speaker 1 (12:05):
So he has stepped down now, hasn't he?
Speaker 3 (12:07):
I think so, yeah, yeah, pending In light of this,
Pending this investigation andthe look that it casts yeah,
that's it.
It certainly doesn't look toogood for them, but I can only
hope.
I don't know about you, but I'ma big fan of cleaning up the
industry.
We talk on the podcast quite alot about just real estate
needing enforcement in certainareas, and I think this is
another one that will be verygood for clients in the long run
(12:28):
when this all comes out in thewash.
Speaker 1 (12:30):
It will be painful in the short term, though.
Speaker 3 (12:33):
Certainly will.
Moving on, peter, I really wantto jump on to a slightly
different topic now, one thatyou and I have actually talked
about a lot on the podcast,which is the you know, cashed up
international buyers cominginto Sydney, but I read that
there's a bit of an articlebeing put out trying to quantify
some of the impact that that'shad on the market.
(12:54):
I thought we might get a senseof what that looks like.
Speaker 1 (12:56):
Yeah, look some great data.
So quote, unquote the latesttreasury statistics from the
Register of Foreign Ownership ofResidential Real Estate
confirmed 1,955 homes werebought by Chinese investors with
an estimated $2.5 billion invalue.
The data revealed Hong Konginvestors purchased more than
(13:18):
400 homes with an estimatedresidential real estate value of
$300 million.
So Hong Kong is effectively apart of China.
So I'm not sure why they'veitemised those out.
So you're actually talking2,355 homes there have been
purchased by Chinese investorsin just nine months in Australia
(13:38):
, is it?
Speaker 3 (13:39):
just on that.
Are they breaking them outbecause Hong Kong has a lot of
expats, perhaps to indicate thatit could just be Australian
foreign purchasing?
Does that make sense?
Speaker 1 (13:52):
No, it clearly says Chinese investors and Hong Kong
investors.
Kieran, yeah, One of the pointsthat we touched on when we did
speak about overseas investorsin the past was Vietnamese
buying in Australia was up, sothey've been credited with
securing 259 properties in ninemonths in Australia at a total
(14:12):
value of $300 million.
And how we got on to thisoverseas buying thing was the
cheap currency.
We think here, and we quiterightly think here in Sydney and
Australia, that our realestate's fairly expensive when
you're earning the Australiandollar.
But when you're running on someof these currencies the
(14:33):
Singaporean dollar, earning USdollar, the Great British Pound,
et cetera those currencies areperforming really, really well
against the Australian dollarand when those people land here
or come here to buy real estate,they're finding it quite
affordable.
Speaker 3 (14:49):
Yeah, look, it certainly makes sense.
I mean, if you're earning theUSD, you effectively get 30% for
free, and if you're on thepound, I mean, you get even more
.
So it's not surprising that alot of foreign money is coming
here.
It is.
You know, we always talk abouthow Sydney property in
particular is a safe haven forinvestment because historically
(15:10):
it's always trending in theupward direction.
Speaker 1 (15:13):
Yeah, look, london has been the recipient of this
sort of hot money on and offover the decades and I don't
think since probably the 80sthat Australia has seen it
outside of Chinese investors tothe degree that we're now seeing
it.
But yes, if you follow high-endLondon real estate you've got
Russian money pouring through it.
(15:34):
Real estate agents have gotreally high obligations to
report suspect money that mightbe flowing through the real
estate market there.
But yeah, money from all overEurope flows through high-end
London real estate market.
I know that for a fact frommany agents that I've spoken to
that do business there andclearly it's not all clean money
(15:55):
.
There was actually a BBC program, a fascinating watch, where
they had Russian individualsimpersonate themselves as
wealthy Russians trying to parkdodgy money and they went around
and looked at all of theseproperties with real estate
agents and the poor old realestate agents didn't know they
were being recorded andbasically this impersonator was
(16:18):
incriminating the agents, sayingI've got some dirty money I
need to park quickly and someagents didn't want anything to
do with it.
But clearly some fell for theeasy money and were like I'll
help you hide the money, I won'tsay anything and it was all on
camera as part of a BBCinvestigation.
So, yeah, australia's been abit naive about how certain
(16:40):
things work in internationalmarkets and this data really
proves to us factually now as tohow much money is coming into
the country where we werepreviously reporting on it
anecdotally.
So it's a great article andgreat numbers to see.
Speaker 3 (16:55):
Yeah, certainly this is purely anecdotal, but I have
always said that anyone workingin real estate should first have
a job in retail, because youjust assume everyone's a mystery
shopper and that's the best wayto operate.
If you think someone is testingyou, then you'll always do the
right thing.
To close up this topic, I didhave a bit of a look at some of
(17:21):
the data from 21 22, which wasobviously quite a big year, uh,
in terms of prices in sydney,and the, the investment review
board reported less than threebillion in foreign purchasing in
that year.
So to me it's really quiteinteresting that we're seeing I
think you know, if you add itall up, we're seeing more than
five billion dollars come in ina nine month period, compared
with less less than three inwhat was a boom year.
(17:42):
That's right.
Speaker 1 (17:43):
So you call that $7 billion in rough numbers, if my
maths is correct, close to eight, yeah, annualised.
That's pretty epic, isn't it?
Speaker 3 (17:54):
That's massive.
Yeah, massive.
I mean that's effectively twoand a half times what we saw
during the boom and that justshows that either currency is
tanking here relative and thereis a big uptick, or people it's
continuing uncertainty, cost ofliving crisis all over the world
.
Maybe people are just lookingfor a safer avenue.
Speaker 1 (18:15):
The government have.
Whilst we've got really highimmigration, as we know Well,
the government have, whilstwe've got really high
immigration, as we know, thegovernment have chased a
different type of immigrant inrecent times and they've gone
for skilled labour.
More millionaires came toAustralia in 2023, kieran than
any other country.
Speaker 3 (18:34):
Yeah.
Speaker 1 (18:35):
So it was a destination for the wealthy.
Last year, it would have beenalso subtly enhanced by the fact
that New Zealand finally putsome policy in place that really
blocked international moneyflow, because New Zealand was
experiencing exactly the samething but, being a much smaller
market than Australia, that wasfurther manipulated.
(18:55):
It's worth pointing out thatthe New Zealand real estate
market, for the first time inquite some time, is on its knees
at the moment, as foreigndemand has evaporated and
they're now merely operating onthe domestic level.
So if we do want to block thisinternational money as a country
, that's fine, but we do alsoneed to acknowledge the role it
(19:17):
plays in pushing prices up.
If we look at the rest of thelist as to where these foreign
investors came from, 272 homeswent to Taiwanese, totalling
$300 million.
354 went to Indians, totalling$200 million.
174 properties totalling $100million.
(19:39):
Million went to Singaporeans.
The Nepalese absorbed 250dwellings totaling 300 million.
Uk, which obviously used to bethe number one country that
people would come to Australiafrom, was 170 homes totaling 200
million, and Malaysia was 93homes totalling $200 million and
(20:00):
Malaysia was 93 homes totalling$100 million.
The majority of those peoplewould be chasing higher-end real
estate.
I suspect too.
The buyer's agent, simon Cowan,said in this article that I
read international investors arenot impacting the lower end of
the market.
Australia is a populardestination for international
(20:21):
investors, but these overseasbuyers are not impacting the
market in the lower end of themarket.
Speaker 3 (20:27):
In his opinion, which I tend to agree with, I find
that and again, maybe I'm alittle bit cynical, but I find
that interesting from him, giventhat if you look at the numbers
from just a raw dataperspective, of all those
countries you listed, there wasonly three or four that appeared
to have a, if you average itout, an average purchase price
(20:49):
over a million dollars.
So that I don't know to to you,but to me that says that
there's a lot of countriesparticularly china, I think was
a big one where they're buyingwith an average cost of less
than a million, which tells methat maybe they're just buying
investment apartments orwhatever, whereas I think
Vietnam had the highest, fromwhat you mentioned, where they
were, by the sounds of it, abouta million won as an average
(21:12):
purchase price.
So does that, I guess, in someways kind of tie into what
you're saying about the skilledoccupation list, where we're
getting experts from some ofthese countries that are buying
in average homes in Sydney, andthen you've got other countries
that are just purely investing?
Speaker 1 (21:27):
Oh, what I would say.
And unless we had the data infront of us, we'd never really
know Kieran.
But what I would say is the topend of the market is nowhere
near as heavily traded as themainstream market, so it doesn't
take much for the top end salesto be distorted, if that makes
sense.
Speaker 3 (21:48):
Yeah, of course.
Speaker 1 (21:49):
If you you know in Balmain, for example, in the
last 12 months not Balmain,postcode 2041.
In postcode 2041, you mighthave seen what four or five
properties sell over $10 millionin the last 12 months.
So if you get three or fourinternational buyers that arrive
(22:10):
in town and quickly gobble up anumber of listings or trade off
market at the high end, they'regoing to quickly distort the
numbers as to what's going onwith the market overall yeah, of
course, of course, and Icertainly uh, we can't fully
analyze the data because wedon't have it all but it uh,
yeah, to me it's just aninteresting sort of trend that
(22:30):
it seems to be the article goeson to say mr cohen's associate
at cohen handler, isabel lucas,said there was currently a big
influx of international buyersattracted to the Bellevue Hill
market.
Well, a big influx of buyers inBellevue Hill might be five
Chinese or Hong Kong buyers thatarrive and want to do business.
That's a big influx for them,whereas you throw five buyers
(22:52):
into the Dromoyne apartmentmarket and you'll barely notice
a ripple.
Yeah, of course.
Speaker 3 (22:59):
Now.
Really good recap there, Peter.
I think we've been talkingabout it for a long time now and
it's good to see that there issome concrete data to back up
what we've talked about.
As we move towards a closetonight, Peter, I thought we
might do a bit of a market wrap.
It's become my favourite partof the podcast.
To be honest, I really liketracking the trend line and
(23:19):
getting a sense of where we'regoing in property, and I always
love it as a measure of tryingto predict where we're going to
be in a week or two's time.
Speaker 1 (23:26):
Yeah, well, look, sqm researchers numbers show that
listings dropped during Apriland that has continued through
May.
And we knew that April was atricky month with, for all of
the reasons that we've discussedin the past, so tight stock
levels I think have helped themarket to hold up Kieran.
So last Saturday, for example,on SQM researchers' numbers,
(23:50):
there was 806 auctions scheduled.
Now that's after a couple ofweeks prior to that, where the
auction numbers were around the$1,100, $1,200 and the clearance
rate sort of fell back to 50%.
But on those relatively tighterauction numbers the auction
clearance rate jumped to 55%last Saturday.
(24:12):
Of the sales that were recorded,215 sold prior to the auction,
25 sold after the auction on theSunday or the Monday and 226
sold under the hammer.
So there's some improvingclearance rates.
I am noticing not across theboard, not universally, but
(24:34):
there is a number of propertiesthat are repriced downwards to
attract more interest,properties that are repriced
downwards to attract moreinterest.
Some of those sale pricesbounce back up when competitive
bidding gets going and somedon't.
So essentially the market'spretty wild at the moment.
It's not easy getting a cleanread on it because every sale
(24:55):
seems to conflict with whathappened with the last.
Speaker 3 (24:58):
Yeah, it's really interesting.
Just tracking back a few months, we were talking about 1,500,
1,600 properties going under thehammer and now we're talking
about half of that.
And you actually predicted, I'msure, last time we spoke that
if the stock came back slightlythat we might see a bump in
clearance rates again.
So I'm glad that has come true,Given I've been off for a
(25:20):
couple of weeks.
Just very quickly then.
Have you got any sense onwhat's happening in the rental
space at the moment.
Speaker 1 (25:27):
Look only that it's undertaking its typical seasonal
downturn.
So landlords who arenegotiating lease renewals or
they're on the market need to bereally careful that they're not
caught up in the hype of thetime about the rental market.
Yes, the rental market is in asystemically long-term upward
(25:48):
trend.
But even in systemic upwardtrends there are periods where
the market will eitherconsolidate or dip before it
goes again.
And that tends to happen withthe rental market in winter, as
people are less inclined to makea unforced change at that time
of year and certainly have ahigher desire to make a change
(26:11):
in the warmer months when itties in with the new calendar
year.
So we've been leasing ourproperties steadily.
We're not seeing massive growthon the year-on-year rents that
those properties are achievingand we're definitely not seeing
massive crowds turn up to openhouses.
It's more steady demand.
(26:32):
Make no mistake.
Next January, next February,all the crowds will be there and
that's when the media can goout and get their stock footage
to talk about the wild nature ofthe Sydney property market.
But that's not quite how it'splaying here and now, in May
2024.
Speaker 3 (26:48):
Yeah, it makes sense, Peter.
Really good chat tonight andI'm glad to be back in the seat
and having a bit of a discussionwith you.
Speaker 1 (26:56):
Yeah, great to have you back here and good luck with
the rest of your recovery.
Speaker 3 (26:59):
Yeah, thank you, peter, and thanks to everyone
for listening to Current MarketInsights.
We look forward to talking withyou next time.
Speaker 2 (27:04):
Thanks for joining us on the Current Market Insights
podcast Brought to you by HarrisPartners Real Estate, the
podcast providing real estateinsights you won't find anywhere
else.
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