July 8, 2025 • 26 mins
Rates are falling, demand is strong and rental vacancy levels remain at rock bottom: No wonder auction clearance rates across Australia are returning to normal. What happens next? It's looking like we are at the start of a rebound.
Louis Christopher, managing director of the SQM Research Group joins Associate Editor - Wealth, James Kirby in this episode.
In today's show, we cover:
- Why property experts believe a recovery in the property market is underway
- Will Melbourne come to the party?
- Brisbane's Olympic run-up
- New super tax casts a cloud on SMSF property investment
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:09):
Hello and welcome to the Australians Money Puzzle podcast. I'm
James Kirby. Welcome aboard everybody. Now, so far this year
has been all about the share markets, which really have
been running hot for some time, and property really having
something of a soft period, certainly in the first few
months of the calendar year twenty twenty five. But in
recent weeks we are seeing signs that the Australian property
(00:33):
market may be ready to rebound, especially in the larger cities.
My guest today is Louis Christopher of the SQM Research Group,
and he is on the record saying the horse is
about to bolt. The horse is about to bolt. Discuss
how are you, Louis, Yeah, nice to.
Speaker 2 (00:51):
Be with you once again, James and your audience. Yes,
I did starke that over the weakend imagine media mast head.
And the reason why I stated is because it's becoming
quite apparent now that auction clearance rates are firming in
Sydney and Melbourne. At least they've been firming really since
(01:11):
the month of May, and I believe they will continue
to firm as we get into the second half of
twenty twenty five.
Speaker 1 (01:19):
Now, just tell our listeners what those rates, those auction
clearance rates being the percentage that are sold on the
weekend when they go up for sale, Like what's healthy?
Where are they at? What's healthy and where have they been.
Speaker 2 (01:35):
Well well, James, There's different methodologies out there. There's a
number of providers that provide including s Q and Research,
and we generally have a more conservative methodology employed for
these auction clearance rates. But in a nutshell, it's meant
to represent the proportion of properties which are sold versus
the number of properties scheduled for auction for the PEERI concern.
(02:00):
Usually the monitoring period is for the past week through
to the weekend, and preliminary measurements of clearance rates for
the past weeks through the last weekend suggests the clearance
rates were hovering in the sixty to seventy percent our
mark for Sydney and Melbourne. Now our more conservative measure
(02:22):
has clearence rates hovering now just by in the fifty
percent range. And historically when we've seen clearance rates on
our measurements hit fifty percent and rising, it's generally meant
that the housing market is starting to show acceleration. In
other words, housing prices are rising.
Speaker 1 (02:43):
Okay, so, so you've seen the signs of improved temple
and just as supposed to put it into context, the
Cautality groups long time core logic, they say that national
hall prices are of five point eight percent year to deed,
that's not bad, just above the long term average. So
looking at it a bit more closely, Louis, I assume
(03:04):
what's really changing is that Sydney and Melbourne are coming
to the party.
Speaker 2 (03:08):
That is correct, James, Yes, I believe housing prices are
now rising again in Sydney and Melbourne. They have been
rising essentially since the start of the year, but I
think the rate of growth has started to accelerate, particularly
since the last rate cut.
Speaker 1 (03:26):
Okay, so if we've got average or so so far
this year, and we know that the big cities were
soft for some time, I mean, could we actually have
a better than average year across property prices residential prices nationwide?
Speaker 2 (03:43):
Our forecast for calendar year twenty twenty five is that
capital city housing prices will rise somewhere between six to
ten percent. We had that forecast out from the start
of the year and we're feeling more and more confident
at that. Our forecast is actually going to come in.
Speaker 1 (04:00):
So this swing factor is interest rates? Is it really
is that this outstanding issue that's changed.
Speaker 2 (04:06):
It's a combination of two factors in our view, James, Yes,
interest rates definitely having an impact upon borrowing power and
purchasing power, especially for first home buyers. Second, too, that
we're still recording very strong population growth rates, so underlying
demand for accommodation across the country continues to increase, and
(04:31):
that's up against real constraints on the supply side. So
for this calendar year, we're likely to only build somewhere
around one hundred and fifty thousand new dwellings for the
calendar year, that's the likely number. But the population is
likely to expand by probably just under five hundred thousand
(04:51):
people for the calendar year. And clearly those two don't match.
Speaker 1 (04:55):
Well, they don't match well. Yeah, I see. The other
thing that struck me that the question over the whole
thing was that properly stock at auction is at a
five year low. So we are at that point perhaps
where the market is getting better. Most people don't realize
it yet when they do realize that the property stock
will flood in.
Speaker 2 (05:17):
Look, I think on our numbers, James, we're actually recording
better listing counts than that, especially for Sydney and Melbourne,
so we're not recording record lows and listings for Sydney Melbourne.
We have been recording record lows for listings in Perth
and in Adelaide, but for Sydney Melbourne we're actually back
to more normal long term averages after a period of
(05:40):
being at near record lows.
Speaker 1 (05:43):
Okay, so that is what you would expect with the
market starting to improve that people would also what I'm
really driving at, is there any risk of overhang that
there will be properly stock will come on and soften
these numbers.
Speaker 2 (05:55):
Not likely, James, As mentioned before, where we've been suffering
a multi year supply constraint which has been driven by
a host of factors. And when I look at the
building approval numbers, which is a leading indicator of new activity,
there's been a little bit of a pickup, but it's
not enough to suggest we're going to have an oversupply
situation in the housing market. Now, We've still got an
(06:19):
undersupply situation in housing market. One great example of that's
what's been happening in the rental market. We as a
research house, are still recording rental vacancy rates under two
percent for most of the nation, and that is a
signal that basically the rental market, he's still favoring landlords
over tenants, and it's obviously suggestive of a market which
(06:42):
is in shortage.
Speaker 1 (06:45):
So Louis I mean the thing about for investors, the
yields have been improving post covered those years. They're improved
for the first time in a long time. What's the
picture now for investors in terms of rented yields.
Speaker 2 (07:00):
Yes, rental yields increased over the period twenty twenty two
through to about twenty twenty four inclusive. And the primary
reason why we had an increase in rental yields was
the rise in interest rates per se, So investors were
demanding a higher return for their properties to compensate themselves
(07:25):
for the higher interest rate environment. And how they were
demanding that was effectively they were less in the market.
So rental a rising while housing prices weren't doing that
much at all, and that pushes up rental yields. Now,
of late, we've seen the stabilization and rental yields for
most parts of the country where housing prices are rising
(07:45):
at the same rate that rents are, and that has
meant a stabilization of rental yields. What this has meant
over all, though, is yes, rental yields are stabilized, but
there's still above long term averages and so there is
a bit of an enticement. Now we're getting interest right
cuts for investors the take advantage of these above long
(08:06):
term average rental yields and coming to the marketplace.
Speaker 1 (08:10):
Yeah, so in many ways it sounds like it sounds
like pretty good conditions for the confident investor. That you've
got riates on coming down, you've got stable rental use,
you've got stable price growth both running more or less
long term averager even better. But of course the tempo
is approved, as you say, as you mentioned at the start,
the clearance rates kind of prove that. All right, we'll
(08:30):
take a show break and we will come back and
look at it from the investor point of view, and
we look at it in terms of where the action
may be, and we'll also cover the issue of apartment losses,
which have been a big issue on the show in
recent times. Back in the moment, one of the things,
(08:54):
louis when we were talking in the first segment. It
does sound good, but on closer inspections this market's quite
patchy still. You've had strong markets in Brisbane, Perth Athlete
soft market, Sydney and Melbourne. You've had very good numbers
on houses standardone houses, but some very soft markets in
apartments in the big cities, particularly Melbourne. What's the outlook
(09:18):
do you think for that picture? Do we get a
continuation of that?
Speaker 2 (09:21):
Yes, Melbourne's been a very interesting market on the apartment side.
So we've definitely seen underperformance on apartment prices for the
last four to five years now in Melbourne. And I've
noted there's been a number of groups of contact our office,
for example, who think it's a great time to maybe
(09:42):
buy it because rental yields are higher in Melbourne. But
I think we need to consider, well, why have Melbourne
units been underperforming to begin with? What has actually driven that?
And to an extent, Melbourne's actually had some success increasing
the supply side of high density apartments over the last
(10:02):
three years, much better than say what's been happening on
the supply side in Sydney and in Brisbane and Adelaide
and pur Melbourne's had some success in getting some more
dwellings built now that might be one of the reasons
for it, and so on the flip side. That's a
positive thing for rent it's no question about that. But
it has been so great for investors. Will this continue
(10:25):
going forward in tones of relatively good supply in the
Melbourne market, I'm not so sure. I'm not so sure.
And I note that the rental yields were recording in
the Melbourne UNI market are the heis they've ever been
since we started records in two thousand and nine. So
when you look at the straight out fundamentals in terms
of the data the rental yields, it's suggesting that Melbourne
(10:48):
units could be a goodbye right now. I'm unsure where
it is. I'm not putting my hat on to say
you must buy where you should buy Melbourne units right now.
I think there's still challenges with the state economy, with
local councils in Melbourne, and with the state government in
terms of taxation surrounding property investing. But nevertheless, the facts
(11:08):
are the facts. If you were to buy in Melbourne now,
you'll be getting in the historically high yield.
Speaker 1 (11:14):
What are those years compared to what a person might expect.
I'm assuming they used to be two and three percent.
What are they now?
Speaker 2 (11:24):
Yes, Melbourne units, the average gross rental yield as a
July twenty twenty five was four point eight percent. Now
the long term marriage we've got it is about four
point two percent, so we're about six hundred bases points
above the long term average.
Speaker 1 (11:46):
Do they like years for country towns? Aren't they accepted
to city of five million? I mean, from a face
value would seem to be a really good investment scenario.
But you did mention concerns, particularly around state taxes.
Speaker 2 (11:59):
Yeah, that's right, I mean things you know. I think
I'm a strong believer that the housing markets across not
just Australia, but across the world that develops world, have
become increasingly efficient. In other words, the markets quickly pricing
what is known in the marketplace, all the pros and
(12:19):
cons to invest in. And yes, as mentioned, I think
these elevated yields in Melbourne units have occurred because we've
seen a better supply response and we've also seen a
situation where investors have been a little bit more cautious
about buying into the Victorian state economy.
Speaker 1 (12:41):
Yeah, yeah, I wonder is that. So I suppose the
Bellion dollar question is whether it's structural, whether the moment
becomes this city where there's got good years and poor
growth because of the supply.
Speaker 2 (12:51):
Potentially it could that's definitely factor in all less we
must we must note population growth still running strong, and
it's still running strong for the state of Victoria. So
absorption rates for new stock are relatively high in Victoria,
and so there is the possibility, and probably it's more
(13:14):
than the possibility that we will actually see rental yields
fall from here, especially with the rate cuts, and so
that would mean prices would be rising for Melbourne units.
And I think we will see price rises for Melbourne
units in the second half of this year.
Speaker 1 (13:33):
Okay, that's really interesting. So in terms of bargain hunting,
it would seem to be the place to do so,
but you're still skeptical. It's interest if you have people
on the show who openly say this is a bargain.
This is a city of five million people.
Speaker 2 (13:47):
Probably fair to say, James, we're cautious. But I think overall,
for the overall housing market for our largest cities, we're
becoming more and more bullish given the rate cuts, given
what we're seeing in auction clearance rates overall.
Speaker 1 (14:00):
Okay, well, what I have you want? It's your if
you could. If I said to you, I want you
to buy an investment property and if you like, and
you have to do it in the next month, I
want you to think in terms of regions, where would
you be looking.
Speaker 2 (14:13):
Ah, I've been stating for a number of years now,
ever since the announcement of the twenty thirty two Winter
Olympics that we have that I have a view that
Brisbane's likely to outperform other capital cities over that period
through to the opening of the Olympics. And I retain
(14:34):
that few that doesn't mean it's going to outperform in
all periods, but for the entire period it is likely
to outperform. And I think for this year Brisbane's likely
to record perhaps slower capital growth or capital growth that's
in line with Sydney and Melbourne, but the expectation is
still there. Brisbane is going to outperform through to the
(14:56):
twenty thirty two Winter Olympics. And the reason why I
say that it's not so much the infrastructure that's going
into the winter Olympics, so not the Winter Olympics, the
Summer Olympics. It's the strong overall population, right, You wouldn't
want to do Winter Olympics in prison, that's sure.
Speaker 1 (15:14):
You're ord enough to remember the run up to the
Cydny Olympics, I imagine, and the extraordinary property market in Sydney.
Speaker 2 (15:20):
Well, that's right, and that run up to the summer
the two thousand Summer Olympics, between essentially nineteen ninety three
to the two thousand city did actually outperform most other
capital cities over that time.
Speaker 1 (15:34):
Yes, yes it did, and I suppose to be fair
to everyone listening, it's also worth having a look what
happened after two thousand where Sydney underperformed for a while
because you had that amazing pull forward. But from an
investment point of view, there's plenty of time in it. Okay,
really interesting answer, Louie, Thank you very much. We have
some really good questions and they're actually quite focused on
property and property investments, so we will be back in
(15:54):
a minute. Hello, Welcome back to the Australian's Money Puzzle podcast,
James Covey with Louis Christopher from SQM Research. Louis one
of the voices independent voices on the property market. And
(16:15):
that's why I love having him on the show, because
he's not selling, he is examining, and that gives us
a great sort of independent view on helicopter view of
the market. Nathan says on the performance of apartments, in
line with the wider discussion you raised around tax reform,
do you think the treasure may consider tax incentives for
(16:36):
people to buy apartments as opposed to houses as one
measure to combat the housing crisis. That's a really interesting idea.
There is no rules on all these grants, on all
these incentives stretching from first home super saver, first home
buyer guarantee, shared equity. They don't ever frenzy between the two.
(17:00):
Do they do it as I'm as I know they don't.
Speaker 2 (17:04):
No, they don't. And James, I have a personal fundamental
issue with taxes, which I think are to property taxes
which I think are too high to begin with and
discourage new property development. Being overlaid with subsidies sounds awfully
inefficient to meet, James.
Speaker 1 (17:21):
Right, you're saying, yeah, yeah, you've got high taxes and
then you put in lots of incentives, which is.
Speaker 2 (17:26):
Like, yeah, that's exactly right. When you see a new
dwelling out there, whether it be a new home or
a new apartment, you can assume, depending on the state,
that thirty to forty percent of the cost of that
new dwelling is being driven by taxes. It's all. It's
you know, thirty to forty percent of the cost of
that dwelling is taxes. Why is it so high? And
(17:50):
I'm talking about a combination of local taxes, state taxes,
federal taxes. That's what that's basically what's baked into the
cost of every new home you see, and it just
seems to be way too high to meet.
Speaker 1 (18:06):
A stamp duty the outstanding tax.
Speaker 2 (18:09):
Stamp duty yep, stamp duty would be one as you know,
like rates as well, the cost of you know, local
council approving a development and everything that they want in
return to get a development up. On average, you know,
thirty to forty percent of the cost of a new
dwelling has been driven by taxes. And that's what in
(18:30):
my view, we've got to try and aim for over
the long term, real taxation reform so we can get
those costs down. And if we were to do that,
I think we would see an increase in supply from developers. Now,
there's a few other things we need to do, and
I think when it comes to builders and developers, you've
got to have a bit of a carrot and a
stick approach towards that industry. The stick being it, if
(18:53):
they do not build quality buildings, they really need to
be punished. But the carrot also being that, Okay, if
I can build quality, let's get that bride given point
down and that should increase the supply side for the country.
Speaker 1 (19:08):
Okay, Well, yes, no sign of any of that coming through.
There is a big tax, big tax get together later
in the year, which everyone has high hopes for. I
don't know certainly from what the attempts so far in
the top property area for both federal labor and in
the States, I wouldn't be holding my bread.
Speaker 2 (19:26):
I would to day the jains. I'm merely studying what
should happen, But what will happen will either not a factor?
Speaker 1 (19:33):
Yes, all right, Bruce and Paul say on realized gains,
Bruce says, I strongly disagree with both the taxing of
unrealized gains and not indexing this new supertax. However, some
people have raised the issue of council rates as an
example of present day taxing of unrealized gains. You were
not impressed with this in comparison. Could you please elaborate
(19:53):
what was your main objection? Okay, So the predominant narrative
right on the supertax is that it's never been done
with for unrealized gains in such a fashion core to
the taxing. Putting it into the tax system is not
a good thing, and if it unworsted, it might expand
if you like. And then people say, well, you know,
on property, you've got unrealized gain taxes, you've got counseled rich,
(20:14):
you've got land tax I would just say, yes, you do.
But they are very much based on intrinsic value of property,
which is where the valuation has lifted from A to B.
The property is standing there, it's bricks and mortar. It's
pretty reliable. In the new supertax, a person could buy bitcoin,
(20:35):
they could buy a gold miner, they could buy a
startup that the price of that could quadruple. They would
be hit with a tax bill for that quadrupling in
entirely theoretical paper gains. The following year the thing falls
by fifty percent, and you see the problems. It's very illogical,
(20:56):
inefficient to put mildly tax. It's going on unrealized gains,
and all sorts of unexpected and unintended consequences will occur.
We're already seeing them in this super tax. It's hitting
people are starting to realize. It'll hit frank dividends, it'll
hit narratives and super it'll hit private pension payments. Because
it's unrealized gains, it's a very broad, crude measure of
(21:20):
how people's finances are changing. Do you think Louis.
Speaker 2 (21:25):
James couldn't have said it better myself? Look, I think
when it comes to the new super tax proposal, I've
generally taken a view that look, it's understandable why the
rate would be increased to thirty percent for those who
are sitting on over three million dollars. I've had three
issues with it. The issue, as you've rightly pointed out,
the paper games, which I think will be very inefficient.
(21:47):
And then the other issue I have, which has been
raised more and more in the media, is the fact
that the three million dollars is not going to be indexed,
not initially anyway, And so that means that over the
long term, assuming that three mens dolls is not adjusted,
you will see the average income earn or the average
supervaluation balance being impacted by this additional tax.
Speaker 1 (22:10):
Will it keep the serf managed super funds away from
property investment?
Speaker 2 (22:14):
Yeah, it could, It could absolutely.
Speaker 1 (22:16):
Because it's so liquid. It's kind of a sitting dock
for on realized gains tax, isn't it.
Speaker 2 (22:22):
It is it is now that said though, look, it's
pretty easy to get evaluation these days on a residential
property in particular, so and those valuations are reasonably reliable
and they generally tend to be fairly stable, So you know,
that's probably one thing in a positive and you know,
I take your take on board what you said that
(22:42):
your comment surrounding, for example, be coin and things which
are more volatile, and I agree with you one hundred percent.
Speaker 1 (22:47):
It's interesting that property people are being relatively quiet in
relation to this super tax.
Speaker 2 (22:54):
So far.
Speaker 1 (22:55):
Most of the complaints and protests are from for fairly
obvious corners, if one managers Jeff Wilson, a self managed
super funds association peter Burg as people like that very
much out on front. But the property. The property sector
has been fairly quiet about it. But I would have
thought that if this gets in and as you say,
it's not indexed, and everyone's calling for it to be indexed,
(23:16):
I mean, the ACTU is calling for it to be indexed,
but the government seem to be set in their ways
that they won't index it, then mathematically more people will
be caught very quickly. And in property terms, three million
is not a gigantic number anymore.
Speaker 2 (23:30):
No, that's exactly. Three million dollars is not a gigantic number.
But the proportion of self managed super fund investors who
are invested in properly compared to all buys and all
line owners is actually quite small relative to say your
suburban advisor or fund manager, where you know a lot
of their fund is made up of a superannuation investors.
Speaker 1 (23:55):
Yes, well, of course, call a chicken and egg there.
I mean, the super funds would be much more keen
on property if there was a bit of if there
was a bit of a market, and if the banks
would offer some loans. At the moment they have to
pay the highest loans in the market, the highest lending
rates in the market, and there's a constant threat over
the whole area of borrowing for property in Super, and
(24:17):
it never goes away. It comes and goes and people,
you know, every year it's sort of under threat. So
you've got the fact that it may not be allowed forever.
You've got the fact that there isn't much of a market,
so you've got to pay top donor for borrowing inside Super,
and your negative gearing isn't as good. So I suppose
in a way there's a sort of explanation why super
self managed Super isn't as big in property as we
(24:38):
might reasonably expect. We'll see. I wonder got feeling I
think they'll indexes as a sort of a as a
sort of a sp basically to increasingly loud protests. But
then they'll push ahead on on realliance. What do you think.
Speaker 2 (24:53):
I think there'll be a compromise some way, James, and
the compromise, the logical compromise would be indexation with three
other things free.
Speaker 1 (25:00):
Right. But we'll see. If someone said to me the
other day, everything gets indexed in the end, and I said, no,
it doesn't actually not. So there's a division. Two ninety
three super Text, the high income Supertext. It started with
no indexing and it's running for twelve years. It's ever
been indexed, so don't assume that this will happen. We'll see. Hey, Louie,
thank you very much for being on the show. Terrific
to have you, Great to get that helicopter view on
(25:22):
the investment property market.
Speaker 2 (25:24):
Great to be with you and your audience once again, James, terrific.
Speaker 1 (25:27):
That was Louis Christopher of the SQM group. And let's
see if Louie's got it right and the market is turning,
we will be keeping a very close eye on it
the weeks ahead. Let's have some more correspondence the Money
Puzzle at the Australian dot com dot au. Talk to
you soon.
Hello and welcome to the Australians Money Puzzle podcast. I'm
James Kirby. Welcome aboard everybody. Now, so far this year
has been all about the share markets, which really have
been running hot for some time, and property really having
something of a soft period, certainly in the first few
months of the calendar year twenty twenty five. But in
recent weeks we are seeing signs that the Australian property
(00:33):
market may be ready to rebound, especially in the larger cities.
My guest today is Louis Christopher of the SQM Research Group,
and he is on the record saying the horse is
about to bolt. The horse is about to bolt. Discuss
how are you, Louis, Yeah, nice to.
Speaker 2 (00:51):
Be with you once again, James and your audience. Yes,
I did starke that over the weakend imagine media mast head.
And the reason why I stated is because it's becoming
quite apparent now that auction clearance rates are firming in
Sydney and Melbourne. At least they've been firming really since
(01:11):
the month of May, and I believe they will continue
to firm as we get into the second half of
twenty twenty five.
Speaker 1 (01:19):
Now, just tell our listeners what those rates, those auction
clearance rates being the percentage that are sold on the
weekend when they go up for sale, Like what's healthy?
Where are they at? What's healthy and where have they been.
Speaker 2 (01:35):
Well well, James, There's different methodologies out there. There's a
number of providers that provide including s Q and Research,
and we generally have a more conservative methodology employed for
these auction clearance rates. But in a nutshell, it's meant
to represent the proportion of properties which are sold versus
the number of properties scheduled for auction for the PEERI concern.
(02:00):
Usually the monitoring period is for the past week through
to the weekend, and preliminary measurements of clearance rates for
the past weeks through the last weekend suggests the clearance
rates were hovering in the sixty to seventy percent our
mark for Sydney and Melbourne. Now our more conservative measure
(02:22):
has clearence rates hovering now just by in the fifty
percent range. And historically when we've seen clearance rates on
our measurements hit fifty percent and rising, it's generally meant
that the housing market is starting to show acceleration. In
other words, housing prices are rising.
Speaker 1 (02:43):
Okay, so, so you've seen the signs of improved temple
and just as supposed to put it into context, the
Cautality groups long time core logic, they say that national
hall prices are of five point eight percent year to deed,
that's not bad, just above the long term average. So
looking at it a bit more closely, Louis, I assume
(03:04):
what's really changing is that Sydney and Melbourne are coming
to the party.
Speaker 2 (03:08):
That is correct, James, Yes, I believe housing prices are
now rising again in Sydney and Melbourne. They have been
rising essentially since the start of the year, but I
think the rate of growth has started to accelerate, particularly
since the last rate cut.
Speaker 1 (03:26):
Okay, so if we've got average or so so far
this year, and we know that the big cities were
soft for some time, I mean, could we actually have
a better than average year across property prices residential prices nationwide?
Speaker 2 (03:43):
Our forecast for calendar year twenty twenty five is that
capital city housing prices will rise somewhere between six to
ten percent. We had that forecast out from the start
of the year and we're feeling more and more confident
at that. Our forecast is actually going to come in.
Speaker 1 (04:00):
So this swing factor is interest rates? Is it really
is that this outstanding issue that's changed.
Speaker 2 (04:06):
It's a combination of two factors in our view, James, Yes,
interest rates definitely having an impact upon borrowing power and
purchasing power, especially for first home buyers. Second, too, that
we're still recording very strong population growth rates, so underlying
demand for accommodation across the country continues to increase, and
(04:31):
that's up against real constraints on the supply side. So
for this calendar year, we're likely to only build somewhere
around one hundred and fifty thousand new dwellings for the
calendar year, that's the likely number. But the population is
likely to expand by probably just under five hundred thousand
(04:51):
people for the calendar year. And clearly those two don't match.
Speaker 1 (04:55):
Well, they don't match well. Yeah, I see. The other
thing that struck me that the question over the whole
thing was that properly stock at auction is at a
five year low. So we are at that point perhaps
where the market is getting better. Most people don't realize
it yet when they do realize that the property stock
will flood in.
Speaker 2 (05:17):
Look, I think on our numbers, James, we're actually recording
better listing counts than that, especially for Sydney and Melbourne,
so we're not recording record lows and listings for Sydney Melbourne.
We have been recording record lows for listings in Perth
and in Adelaide, but for Sydney Melbourne we're actually back
to more normal long term averages after a period of
(05:40):
being at near record lows.
Speaker 1 (05:43):
Okay, so that is what you would expect with the
market starting to improve that people would also what I'm
really driving at, is there any risk of overhang that
there will be properly stock will come on and soften
these numbers.
Speaker 2 (05:55):
Not likely, James, As mentioned before, where we've been suffering
a multi year supply constraint which has been driven by
a host of factors. And when I look at the
building approval numbers, which is a leading indicator of new activity,
there's been a little bit of a pickup, but it's
not enough to suggest we're going to have an oversupply
situation in the housing market. Now, We've still got an
(06:19):
undersupply situation in housing market. One great example of that's
what's been happening in the rental market. We as a
research house, are still recording rental vacancy rates under two
percent for most of the nation, and that is a
signal that basically the rental market, he's still favoring landlords
over tenants, and it's obviously suggestive of a market which
(06:42):
is in shortage.
Speaker 1 (06:45):
So Louis I mean the thing about for investors, the
yields have been improving post covered those years. They're improved
for the first time in a long time. What's the
picture now for investors in terms of rented yields.
Speaker 2 (07:00):
Yes, rental yields increased over the period twenty twenty two
through to about twenty twenty four inclusive. And the primary
reason why we had an increase in rental yields was
the rise in interest rates per se, So investors were
demanding a higher return for their properties to compensate themselves
(07:25):
for the higher interest rate environment. And how they were
demanding that was effectively they were less in the market.
So rental a rising while housing prices weren't doing that
much at all, and that pushes up rental yields. Now,
of late, we've seen the stabilization and rental yields for
most parts of the country where housing prices are rising
(07:45):
at the same rate that rents are, and that has
meant a stabilization of rental yields. What this has meant
over all, though, is yes, rental yields are stabilized, but
there's still above long term averages and so there is
a bit of an enticement. Now we're getting interest right
cuts for investors the take advantage of these above long
(08:06):
term average rental yields and coming to the marketplace.
Speaker 1 (08:10):
Yeah, so in many ways it sounds like it sounds
like pretty good conditions for the confident investor. That you've
got riates on coming down, you've got stable rental use,
you've got stable price growth both running more or less
long term averager even better. But of course the tempo
is approved, as you say, as you mentioned at the start,
the clearance rates kind of prove that. All right, we'll
(08:30):
take a show break and we will come back and
look at it from the investor point of view, and
we look at it in terms of where the action
may be, and we'll also cover the issue of apartment losses,
which have been a big issue on the show in
recent times. Back in the moment, one of the things,
(08:54):
louis when we were talking in the first segment. It
does sound good, but on closer inspections this market's quite
patchy still. You've had strong markets in Brisbane, Perth Athlete
soft market, Sydney and Melbourne. You've had very good numbers
on houses standardone houses, but some very soft markets in
apartments in the big cities, particularly Melbourne. What's the outlook
(09:18):
do you think for that picture? Do we get a
continuation of that?
Speaker 2 (09:21):
Yes, Melbourne's been a very interesting market on the apartment side.
So we've definitely seen underperformance on apartment prices for the
last four to five years now in Melbourne. And I've
noted there's been a number of groups of contact our office,
for example, who think it's a great time to maybe
(09:42):
buy it because rental yields are higher in Melbourne. But
I think we need to consider, well, why have Melbourne
units been underperforming to begin with? What has actually driven that?
And to an extent, Melbourne's actually had some success increasing
the supply side of high density apartments over the last
(10:02):
three years, much better than say what's been happening on
the supply side in Sydney and in Brisbane and Adelaide
and pur Melbourne's had some success in getting some more
dwellings built now that might be one of the reasons
for it, and so on the flip side. That's a
positive thing for rent it's no question about that. But
it has been so great for investors. Will this continue
(10:25):
going forward in tones of relatively good supply in the
Melbourne market, I'm not so sure. I'm not so sure.
And I note that the rental yields were recording in
the Melbourne UNI market are the heis they've ever been
since we started records in two thousand and nine. So
when you look at the straight out fundamentals in terms
of the data the rental yields, it's suggesting that Melbourne
(10:48):
units could be a goodbye right now. I'm unsure where
it is. I'm not putting my hat on to say
you must buy where you should buy Melbourne units right now.
I think there's still challenges with the state economy, with
local councils in Melbourne, and with the state government in
terms of taxation surrounding property investing. But nevertheless, the facts
(11:08):
are the facts. If you were to buy in Melbourne now,
you'll be getting in the historically high yield.
Speaker 1 (11:14):
What are those years compared to what a person might expect.
I'm assuming they used to be two and three percent.
What are they now?
Speaker 2 (11:24):
Yes, Melbourne units, the average gross rental yield as a
July twenty twenty five was four point eight percent. Now
the long term marriage we've got it is about four
point two percent, so we're about six hundred bases points
above the long term average.
Speaker 1 (11:46):
Do they like years for country towns? Aren't they accepted
to city of five million? I mean, from a face
value would seem to be a really good investment scenario.
But you did mention concerns, particularly around state taxes.
Speaker 2 (11:59):
Yeah, that's right, I mean things you know. I think
I'm a strong believer that the housing markets across not
just Australia, but across the world that develops world, have
become increasingly efficient. In other words, the markets quickly pricing
what is known in the marketplace, all the pros and
(12:19):
cons to invest in. And yes, as mentioned, I think
these elevated yields in Melbourne units have occurred because we've
seen a better supply response and we've also seen a
situation where investors have been a little bit more cautious
about buying into the Victorian state economy.
Speaker 1 (12:41):
Yeah, yeah, I wonder is that. So I suppose the
Bellion dollar question is whether it's structural, whether the moment
becomes this city where there's got good years and poor
growth because of the supply.
Speaker 2 (12:51):
Potentially it could that's definitely factor in all less we
must we must note population growth still running strong, and
it's still running strong for the state of Victoria. So
absorption rates for new stock are relatively high in Victoria,
and so there is the possibility, and probably it's more
(13:14):
than the possibility that we will actually see rental yields
fall from here, especially with the rate cuts, and so
that would mean prices would be rising for Melbourne units.
And I think we will see price rises for Melbourne
units in the second half of this year.
Speaker 1 (13:33):
Okay, that's really interesting. So in terms of bargain hunting,
it would seem to be the place to do so,
but you're still skeptical. It's interest if you have people
on the show who openly say this is a bargain.
This is a city of five million people.
Speaker 2 (13:47):
Probably fair to say, James, we're cautious. But I think overall,
for the overall housing market for our largest cities, we're
becoming more and more bullish given the rate cuts, given
what we're seeing in auction clearance rates overall.
Speaker 1 (14:00):
Okay, well, what I have you want? It's your if
you could. If I said to you, I want you
to buy an investment property and if you like, and
you have to do it in the next month, I
want you to think in terms of regions, where would
you be looking.
Speaker 2 (14:13):
Ah, I've been stating for a number of years now,
ever since the announcement of the twenty thirty two Winter
Olympics that we have that I have a view that
Brisbane's likely to outperform other capital cities over that period
through to the opening of the Olympics. And I retain
(14:34):
that few that doesn't mean it's going to outperform in
all periods, but for the entire period it is likely
to outperform. And I think for this year Brisbane's likely
to record perhaps slower capital growth or capital growth that's
in line with Sydney and Melbourne, but the expectation is
still there. Brisbane is going to outperform through to the
(14:56):
twenty thirty two Winter Olympics. And the reason why I
say that it's not so much the infrastructure that's going
into the winter Olympics, so not the Winter Olympics, the
Summer Olympics. It's the strong overall population, right, You wouldn't
want to do Winter Olympics in prison, that's sure.
Speaker 1 (15:14):
You're ord enough to remember the run up to the
Cydny Olympics, I imagine, and the extraordinary property market in Sydney.
Speaker 2 (15:20):
Well, that's right, and that run up to the summer
the two thousand Summer Olympics, between essentially nineteen ninety three
to the two thousand city did actually outperform most other
capital cities over that time.
Speaker 1 (15:34):
Yes, yes it did, and I suppose to be fair
to everyone listening, it's also worth having a look what
happened after two thousand where Sydney underperformed for a while
because you had that amazing pull forward. But from an
investment point of view, there's plenty of time in it. Okay,
really interesting answer, Louie, Thank you very much. We have
some really good questions and they're actually quite focused on
property and property investments, so we will be back in
(15:54):
a minute. Hello, Welcome back to the Australian's Money Puzzle podcast,
James Covey with Louis Christopher from SQM Research. Louis one
of the voices independent voices on the property market. And
(16:15):
that's why I love having him on the show, because
he's not selling, he is examining, and that gives us
a great sort of independent view on helicopter view of
the market. Nathan says on the performance of apartments, in
line with the wider discussion you raised around tax reform,
do you think the treasure may consider tax incentives for
(16:36):
people to buy apartments as opposed to houses as one
measure to combat the housing crisis. That's a really interesting idea.
There is no rules on all these grants, on all
these incentives stretching from first home super saver, first home
buyer guarantee, shared equity. They don't ever frenzy between the two.
(17:00):
Do they do it as I'm as I know they don't.
Speaker 2 (17:04):
No, they don't. And James, I have a personal fundamental
issue with taxes, which I think are to property taxes
which I think are too high to begin with and
discourage new property development. Being overlaid with subsidies sounds awfully
inefficient to meet, James.
Speaker 1 (17:21):
Right, you're saying, yeah, yeah, you've got high taxes and
then you put in lots of incentives, which is.
Speaker 2 (17:26):
Like, yeah, that's exactly right. When you see a new
dwelling out there, whether it be a new home or
a new apartment, you can assume, depending on the state,
that thirty to forty percent of the cost of that
new dwelling is being driven by taxes. It's all. It's
you know, thirty to forty percent of the cost of
that dwelling is taxes. Why is it so high? And
(17:50):
I'm talking about a combination of local taxes, state taxes,
federal taxes. That's what that's basically what's baked into the
cost of every new home you see, and it just
seems to be way too high to meet.
Speaker 1 (18:06):
A stamp duty the outstanding tax.
Speaker 2 (18:09):
Stamp duty yep, stamp duty would be one as you know,
like rates as well, the cost of you know, local
council approving a development and everything that they want in
return to get a development up. On average, you know,
thirty to forty percent of the cost of a new
dwelling has been driven by taxes. And that's what in
(18:30):
my view, we've got to try and aim for over
the long term, real taxation reform so we can get
those costs down. And if we were to do that,
I think we would see an increase in supply from developers. Now,
there's a few other things we need to do, and
I think when it comes to builders and developers, you've
got to have a bit of a carrot and a
stick approach towards that industry. The stick being it, if
(18:53):
they do not build quality buildings, they really need to
be punished. But the carrot also being that, Okay, if
I can build quality, let's get that bride given point
down and that should increase the supply side for the country.
Speaker 1 (19:08):
Okay, Well, yes, no sign of any of that coming through.
There is a big tax, big tax get together later
in the year, which everyone has high hopes for. I
don't know certainly from what the attempts so far in
the top property area for both federal labor and in
the States, I wouldn't be holding my bread.
Speaker 2 (19:26):
I would to day the jains. I'm merely studying what
should happen, But what will happen will either not a factor?
Speaker 1 (19:33):
Yes, all right, Bruce and Paul say on realized gains,
Bruce says, I strongly disagree with both the taxing of
unrealized gains and not indexing this new supertax. However, some
people have raised the issue of council rates as an
example of present day taxing of unrealized gains. You were
not impressed with this in comparison. Could you please elaborate
(19:53):
what was your main objection? Okay, So the predominant narrative
right on the supertax is that it's never been done
with for unrealized gains in such a fashion core to
the taxing. Putting it into the tax system is not
a good thing, and if it unworsted, it might expand
if you like. And then people say, well, you know,
on property, you've got unrealized gain taxes, you've got counseled rich,
(20:14):
you've got land tax I would just say, yes, you do.
But they are very much based on intrinsic value of property,
which is where the valuation has lifted from A to B.
The property is standing there, it's bricks and mortar. It's
pretty reliable. In the new supertax, a person could buy bitcoin,
(20:35):
they could buy a gold miner, they could buy a
startup that the price of that could quadruple. They would
be hit with a tax bill for that quadrupling in
entirely theoretical paper gains. The following year the thing falls
by fifty percent, and you see the problems. It's very illogical,
(20:56):
inefficient to put mildly tax. It's going on unrealized gains,
and all sorts of unexpected and unintended consequences will occur.
We're already seeing them in this super tax. It's hitting
people are starting to realize. It'll hit frank dividends, it'll
hit narratives and super it'll hit private pension payments. Because
it's unrealized gains, it's a very broad, crude measure of
(21:20):
how people's finances are changing. Do you think Louis.
Speaker 2 (21:25):
James couldn't have said it better myself? Look, I think
when it comes to the new super tax proposal, I've
generally taken a view that look, it's understandable why the
rate would be increased to thirty percent for those who
are sitting on over three million dollars. I've had three
issues with it. The issue, as you've rightly pointed out,
the paper games, which I think will be very inefficient.
(21:47):
And then the other issue I have, which has been
raised more and more in the media, is the fact
that the three million dollars is not going to be indexed,
not initially anyway, And so that means that over the
long term, assuming that three mens dolls is not adjusted,
you will see the average income earn or the average
supervaluation balance being impacted by this additional tax.
Speaker 1 (22:10):
Will it keep the serf managed super funds away from
property investment?
Speaker 2 (22:14):
Yeah, it could, It could absolutely.
Speaker 1 (22:16):
Because it's so liquid. It's kind of a sitting dock
for on realized gains tax, isn't it.
Speaker 2 (22:22):
It is it is now that said though, look, it's
pretty easy to get evaluation these days on a residential
property in particular, so and those valuations are reasonably reliable
and they generally tend to be fairly stable, So you know,
that's probably one thing in a positive and you know,
I take your take on board what you said that
(22:42):
your comment surrounding, for example, be coin and things which
are more volatile, and I agree with you one hundred percent.
Speaker 1 (22:47):
It's interesting that property people are being relatively quiet in
relation to this super tax.
Speaker 2 (22:54):
So far.
Speaker 1 (22:55):
Most of the complaints and protests are from for fairly
obvious corners, if one managers Jeff Wilson, a self managed
super funds association peter Burg as people like that very
much out on front. But the property. The property sector
has been fairly quiet about it. But I would have
thought that if this gets in and as you say,
it's not indexed, and everyone's calling for it to be indexed,
(23:16):
I mean, the ACTU is calling for it to be indexed,
but the government seem to be set in their ways
that they won't index it, then mathematically more people will
be caught very quickly. And in property terms, three million
is not a gigantic number anymore.
Speaker 2 (23:30):
No, that's exactly. Three million dollars is not a gigantic number.
But the proportion of self managed super fund investors who
are invested in properly compared to all buys and all
line owners is actually quite small relative to say your
suburban advisor or fund manager, where you know a lot
of their fund is made up of a superannuation investors.
Speaker 1 (23:55):
Yes, well, of course, call a chicken and egg there.
I mean, the super funds would be much more keen
on property if there was a bit of if there
was a bit of a market, and if the banks
would offer some loans. At the moment they have to
pay the highest loans in the market, the highest lending
rates in the market, and there's a constant threat over
the whole area of borrowing for property in Super, and
(24:17):
it never goes away. It comes and goes and people,
you know, every year it's sort of under threat. So
you've got the fact that it may not be allowed forever.
You've got the fact that there isn't much of a market,
so you've got to pay top donor for borrowing inside Super,
and your negative gearing isn't as good. So I suppose
in a way there's a sort of explanation why super
self managed Super isn't as big in property as we
(24:38):
might reasonably expect. We'll see. I wonder got feeling I
think they'll indexes as a sort of a as a
sort of a sp basically to increasingly loud protests. But
then they'll push ahead on on realliance. What do you think.
Speaker 2 (24:53):
I think there'll be a compromise some way, James, and
the compromise, the logical compromise would be indexation with three
other things free.
Speaker 1 (25:00):
Right. But we'll see. If someone said to me the
other day, everything gets indexed in the end, and I said, no,
it doesn't actually not. So there's a division. Two ninety
three super Text, the high income Supertext. It started with
no indexing and it's running for twelve years. It's ever
been indexed, so don't assume that this will happen. We'll see. Hey, Louie,
thank you very much for being on the show. Terrific
to have you, Great to get that helicopter view on
(25:22):
the investment property market.
Speaker 2 (25:24):
Great to be with you and your audience once again, James, terrific.
Speaker 1 (25:27):
That was Louis Christopher of the SQM group. And let's
see if Louie's got it right and the market is turning,
we will be keeping a very close eye on it
the weeks ahead. Let's have some more correspondence the Money
Puzzle at the Australian dot com dot au. Talk to
you soon.
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