August 19, 2025 • 24 mins
Immigration numbers were meant to float lower this year but a surprise pick up in numbers over the last few months coincides with a tightening of the rental vacancy rates across the market. For renters it means any short-term easing in pressure is now off the table, but for property investors it signals a return to rising rental income.
Pete Wargent of the AllenWargent Property Buyers joins Associate Editor - Wealth, James Kirby in this episode.
In today's episode, we cover
- The 'you can rent anything market' returns
- Investors respond to stronger outlook for rental returns
- The gap between residential and office vacancy rates tells a WFH story
- Should older property investors change their habits?
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 (00:12):
Hello, and welcome to the Australians Money Puzzled podcast. I'm
James Kirkby. Welcome aboard everybody.
Speaker 2 (00:18):
You know.
Speaker 1 (00:18):
We were told to expect immigration levels would cool this
year and basically the numbers would not be quite so
attractive for property investors. But this actually has not happened.
The reverse has happened. Investors are going back into the market.
Rental prices are going up. It's a major factor. And
to discuss this with me is Pete Warden of the
(00:39):
Alan Warden Group.
Speaker 2 (00:40):
Hi, Pete, it's good to be back on. Lots of
talk about in the housing market as always.
Speaker 1 (00:45):
Well there is and you just caught me by surprise
really because I had thought the unemployment rate obviously nationally
is moving up, but also the vacancy rates in property
we had thought we're moving a back up. That is,
they were one percent and they were starting to go
up higher, and that would mean that the sort of
intense focus on shortage of rental accommodation was there, and
(01:10):
that meant for investors this notion that they could rent
anything to anyone anytime might be fading and it wasn't
quite as good as it used to be. But tell
me what you've been noticing in the recent stats on
rentals and what it means for everyone.
Speaker 2 (01:25):
I think everybody sort of knows that the government's target
of one point two million homes over five years isn't
going to be achieved. But when you look at the
ABS figures for immigration, so every month they put out
these arrivals and departures figures, and the expectation had been
that immigration would gradually slow back down towards sort of
the norms. But if you strip out the short term arrivals,
(01:48):
because we've always got people coming and going for holidays
and so on. But if you look at the permanent
and long term immigration on a net basis is back up.
Over the past five months, it's been accelerating to a
back up to about or just shy of four hundred
and fifty k, which is huge. So yeah, Now a
part of this is it's not just arrivals, it's also
(02:09):
fewer people leaving. And I think if you look around
the world, New Zealand's unemployment rate is above five percent
and rising back in sort of our old neck of
the woods. The UK's got rising unemployment rate over there.
Canada's actually six point nine percent and they're having to
cut back on immigration. So I think for Ozzi's who
(02:30):
prospectively might have looked to travel overseas well, fewer people
are going, and against all the expectation, immigration has now
been accelerating again. The national planning levels for international students
have been increased for twenty twenty six from two hundred
and seventy five thousand this year to two hundred and
ninety five thousand for next year, so that's going to
(02:50):
add to demand as well. So it seems like things
will get worse before they get better. In the rental market,
we've got rental vacancy rates of back near record lows
now around one percent.
Speaker 1 (03:01):
Just to explain to listeners, they have come back down Basically,
the lower it is, the tighter it is, the lester
is to rent. And you're saying it's back down at
the one percent levels now, is it?
Speaker 2 (03:11):
Yeah? I mean they used to say back in the
olden days that a balanced rental market had a rental
vacancy rate of about three percent. I think the way
things are measured in Australia anyway, I'd say probably around
two percent is probably more of a balanced market. But
in five of the capital cities. Now we've got rental
vacancies below one percent and they're falling again in Sydney.
(03:32):
So I suppose you've only really got Melbourne where things
are sort of getting a bit easier for tenants at
the moment. I think this has some real knock on implications.
I mean, not least for inflation. I guess you know
we have We'll talk about this, no doubt in a
moment when we talk about rate cards. But asking rents
are now rising again. There tends to be a bit
of a lug for that to flow through to the
(03:54):
whole housing market. But that's one of the factors which
sort of suggests that inflation might not be quite done yet.
Speaker 1 (03:59):
So that's really interesting. Are they asking rents rising nationwide?
Speaker 2 (04:05):
Yes, pretty much everywhere. I think if you look in
some parts of the country, things have been a bit slower,
sort of Tasmania, I sat. But like a lot of
these things, there's a big Sydney Melbourne whiting and if
asking rents a rising in Sydney and Melbourne, then that
tends to suggest if is going up.
Speaker 1 (04:23):
So in terms of the factors that really have changed,
the changing factor, the surprise factor is the bump in immigration.
Speaker 2 (04:28):
Basically, yes, demand is picked.
Speaker 1 (04:30):
Up, which, as you say, people had thought was too soften.
But in fact, as you say, and it's very interesting
that you put it in context, rising on employment levels
in some of the sort of source countries would support
the notion that they would keep coming if they can.
I can also add to this that the rentals that
(04:52):
would be paid in Australia. People might find this hard
to believe, but it's true the rentals that would be
paid by those immigrants in the cities coming from New Zealand,
coming from London, coming from Dublin, they are lower than
they are used to and so they actually quite happily
will pay these levels. I'm quite aware of this because
(05:14):
second generation nieces and nephews the levels they pay. Also,
my daughter shares a house with a whole bunch of
New Zealanders. They think this that the rents are terribly
reasonable compared to Auckland. So the point I'm making is
that you've got this bump, a surprise bump in immigration
though that particular immigration cohort is quite willing to pay
the prices that we have. And then on top of that,
(05:35):
as you say that many people may not have noticed this,
that the asking rents are going up, the rental vacancy
rates are going down.
Speaker 2 (05:43):
That all put.
Speaker 1 (05:44):
Together basically tells you that there's a sort of like
a second wind here in terms of property of the
property the man that basically people will be able to
rent anything basically once again, and that confidence can be
there for investors.
Speaker 2 (05:58):
Yes, I think so. I mean, I think it's quite
seasonal in Australia these days because we've got so many
international students now, what's seven hundred thousand or so, So
it comes and goes with the university term times, and
of course the warmer summer months are very popular for
visitor arrivals. A lot of people come for Christmas as well.
But I think though in economics, every shortage is ultimately
(06:20):
will be followed by a glut. It might be two
or three years down the track, and I think, you know,
the darkest hours before the dawn. I think in real
time you're seeing a lot more marginal development projects are
now increasingly passing feasibility and getting green ticks. I think
new home sales are what nearly are the three year high.
We were talking a week or so ago. Cba is
(06:41):
Keen to lend on things like prefab housing, and I
think other banks will come into the sector. Build to
rent in Australia's still quite a nascent sector, but there's
a thirty billion odd pipeline there and I think there's
about nearly forty thousand now units either built or planned
or under construction.
Speaker 1 (06:57):
So you see this as a medium term bomp if
you like, in in immigration and consequently a medium term
tightening in rental vacancy riads. But perhaps structurally things are
getting are changing longer term in terms of the initiatives
in the economy to build more.
Speaker 2 (07:17):
I think so really it tends to be driven. It's
a cycle really. As interest rates come down, developers get
more confidence to build more. People are buying new again now,
so I think a lot of the supply, particularly built
to rent, is going to be focused around Melbourne. I
think medium density supply just seems to be Melbourne seems
more amenable to that and land prices are a bit
(07:39):
lower than in Sydney. But yeah, I think in particular,
investors tend to amplify the cycles now and they're coming
back into the market, so I think we've got a
building boom ahead. In fact, the pipeline is already quite reasonable,
but building times have been very slow in recent years,
and I think we'll get a marked increase in supply,
but it might not be until maybe twenty two, only seven,
(08:00):
and we really start to see that because it's just
taking so long to get these projects delivered.
Speaker 1 (08:06):
Is there evidence of the investors coming back into the
market to and where are they coming in?
Speaker 2 (08:10):
Yeah, the ABS puts out they actually shifted from a
monthly to quarterly figures and lending volumes are up two
percent in the Dune quarter, so that but that actually
came off the back of a couple of softer quarters,
but that was really driven by a three and a
half percent increase in investor lending. So when you look
at the cohorts that are coming in, it's actually a
(08:31):
lot of higher income household so APRA's got the lending
assessment buffer in place at the moment, so there's a
three percentage points lending assessment buffer, which is pretty odd
when you think about it. Interest rates are expected to
fall and yet people are being stress tested on a
six percent mortgage right they're being stress tested at nine
an interest rate. They're effectively never going to.
Speaker 1 (08:52):
Pay drop still doesn't it. I mean it does cascade
down so that it doesn't change, but it does. It
used to be assessed are nine for six, You'll be
assessed on eight for a five, isn't that right?
Speaker 2 (09:07):
Yeah, that's it. So we used to have a smaller buffer.
Of course, there used to be two percentage points. Now
it's three. So what it's doing is locking a lot
of lower income households out of the market completely and
creating a bit of inequality. So the government is trying
to counteract this with this low deposit, the deposit guarantee,
which kicks in on one January twenty twenty six. So
(09:29):
you've got, on the one hand, you've got the market
regulator trying to really keep a tight noose on lending standards,
and then on the other hand, the government saying, well,
you know, stick in a five percent deposit, will guarantee
the rest and off you go. So things pulling in
two different directions.
Speaker 1 (09:44):
We will take a short break and we'll be back
in a minute because there's some very interesting things that
wants to develop with pe Books. Back in a moment.
Hello and welcome back to The Australian's Money Puzzle podcast.
(10:05):
I'm James Kirby, I'm talking to Pete Warden of Alan Warden.
Always good to talk to Pete about the market, and
I think a very distinct inside with an economic grasp
of property on top of a knowledge of working knowledge
on day to day on property. One of the things
that you were alluding to just to cover off for
anyone who wasn't quite across it. So you know, folks,
there's a buffer right which isn't advertised. So if you
(10:27):
see a mortgage, if a mortgage rate on the window
of the bank is six percent, when you go in
to apply for that mortgage, day will assess you on
your ability to pay that rate plus three, which is nine.
If rates are dropping, as we know they are, let's
say they settle around five. When you go into the bank,
you'll be looking for the five percent mortgage, they will
assess you on plus three. They will assess you on
(10:49):
your capacity to pay eight. And the point that Pete
was making said it was very good, which was basically
that the government regulators are imposing this quite quite severe
buffer to keep things stable. But the government, that is
the alban Easy government in Canberra is constantly coming up
(11:09):
with ways to try and improve affordability for people. The
big one is the first home guarantee, which is now universal,
And there's all sorts of other schemes around the place.
But we end up with this curious situation, Pete, that
there's all sorts of schemes helping people buy into a
market where the vacancy rate we've just said is one
(11:29):
to two percent, And just to put that into perspective,
you might explain to people what it means one to
two percent, like what industrial property, what's office property? For instance.
Speaker 2 (11:40):
Yes, the residential rental vacancy, right, it doesn't necessarily mean
that once two percent of properties are anty. In fact,
on the census night, you might find that maybe ten
percent of dwellings don't have somebody in them. But for
something to be registered as a rental vacancy, it needs
to be an investment property that's on the market and
how it's been vacant for a number of weeks. So
(12:02):
you know, if you were to look at rental vacancy
rates in other countries, if you're looking at Manhattan, it'd
be way higher because of the way in which things
are measured there. Also, I don't think rental vacancy rates
I think they tend to be understated when you get
a building boom, because if a big tower block goes up,
and maybe you might just see an adverse saying properties
for rent, but it doesn't pick up that there's three
(12:23):
hundred in the block, you know, So I would say
it's an indicator and you look at the direction of
travel more so than the numbers sometimes, but very tight
and residential. I think with the working from home trend,
office vacancy rates are well, they're basically at a thirty
year high. We've seen so many articles over the recent
years saying the office market's about to pick up, but yeah,
(12:45):
basically fifteen percent Melbourne CBD eighteen percent vacancy rate for
office space, so it's almost one empty.
Speaker 1 (12:52):
When I was a baby property reporter, fifteen percent was
a deep crisis. I mean, fifteen percent was what you
would see in a full bloe recession. And this is
a sort of natural level at the moment, isn't it,
which tells us everything you need to know about working
from home? There it is in the office vacancy rates
fifteen percent worse than that in certain corridors where there
(13:14):
were office only like say saying Killer Road in Melbourne,
and then I see shopping retails actually improving that it's
been in the order of ten and it's dropping lower
than that in some of the cities. So that's sort
of coming back with the office isn't coming back, which
tells us the office as we know it isn't coming back,
and that is full office, everyone coming in nine to
five on the train or in the car every day
(13:35):
that is finished. Does it have a bearing in property
for property investors in terms of the world we know
the residential side, I.
Speaker 2 (13:44):
Think it does. I mean there's still a gradual pull
back to the office, but in a lot of cases
it's only maybe two or three days a week or
four days a week. So I think a fair amount
of the housing market demand is gradually centralizing again. But yeah,
for the office space, it seems like the A grade
office stock is renting quite easily, and if you go
(14:04):
to a place like Barangarou fantastic, But it's that BC
and D grade stock. As he said, people don't really
want it so much and they don't need it so much,
and there's some quite significant implications for office rents asset values.
We talked a lot previously about the potential for offices
to be converted into apartments, but it's just not really happening.
(14:25):
I think in practice it's much harder for that to
be undertaken than in theory, and in a lot of
cases you end up completely gutting the building and more
or less starting from scratch, So it's not the same everywhere.
Speaker 1 (14:37):
For the property investor, I wonder is that it is
part of the outcome of this that the one bedroom
apartment is weaker even than it used to be as
a property asset, because people need space because they're going
to work from home.
Speaker 2 (14:49):
Possibly, I think certainly one of the outcomes of COVID
is that people wanted more space, and I think even
if you've got sort of a one plus one type
of unit set up, that does give you more options
than just a one bedroom units. And a lot of
people are also converting space into like a home office,
and it's certainly been one of the outcomes of the pandemic.
So yeah, I think it's still still a work in progress.
(15:11):
A lot of the big banks and big employers are
trying to get people back into the office with mixed
race of success. I think at the moment, though, the
unemployment rate is what four point two percent. The balance
of power is quite with the employee at the moment,
but that won't always be the case. If we get back,
like a lot of those other countries, towards five or
six percent unemployment, then the balance of power shifts back
(15:33):
to the employer. So we'll see how that plays out.
Speaker 1 (15:35):
So you clearly are of the opinion that it's the
stick rather than the currot that will work here. So
and I don't disagree with you. I think if we
walk up tomorrow morning and the unemployment rate was fifteen
percent and everybody was terrified about the future of their jobs,
and the company they were working for said, we will
(15:56):
We're going to have to make some serious cuts. Part
of it will be, you know, tendance in the office.
I think they will be falling over each other. I
think they would be. I think they'll be crushed in
the corridors going in. I might be wrong, that might
show a bias that I you know that it's that
has always been the case in my life that when
a severe recession hits, behavior changes. People start to dress
(16:17):
more smartly, they turn up more punctually, they go in,
they get involved because they're worried and does that mean
will that translated into or move back to the office.
I think so, I really do, but it would take
a severe joke in unemployment and we have nothing like that.
I mean, you're saying, you know, four percent is worse
than three Yeah, sure, but four percent, three percent, you know,
they are not anything to worry about. With countries like
(16:39):
say Spain, where on employment traid it is ten to
twenty percent, always completely different type of thing. I wonder
what they'll work from home and there are if only
we had someone to tell us, we'll take a short
break and we'll do some really good questions that I
have been keeping for Pete. Hello and welcome back to
(17:00):
The Australian's Money Puzzle podcast James Kirby with Pete Warden
of the Alan Warden Group. I have a question from
Adam which I think is really interesting and the context here, Pete,
is that on the show we have moved gradually from
posing the question whether Victoria is at a discount as
such for property investors and is the best value to
(17:21):
a point in recent shows where the guests have clearly
moved to the point that they are saying confirmed Victoria
is the best value state for interstate investors orrning investors.
Just now that the price is the starting prices are
so much lower state than Sydney, for instance, Brisbane, where
the gap has completely narrowed and its recent performance has
(17:44):
been so weak that history would suggest reversion to the
mean that Melbourne will outperform the other cities in the
next three to five years. This is something that we're
putting forward basically as a strong contention and a consensus
at least among guests in the show. So this leads
to questions here one from Adam. You have talked with
a few people about the potential for house prices in
Melbourne asid has recently underperformed. Is there a good way
(18:07):
to get exposure to this market without having to purchase
and enter our house. I'm from New South Wales and
while this is possible, it would be a big undertaking
all problem that one. That's why they say property is
a lumpy acid and a liquid acid. You can buy
a bit of a house, unfortunately, Adam, not even a
(18:28):
bit of an apartment. What do you think, Pete?
Speaker 2 (18:31):
Oh, look, there are ways to get exposure to the
housing market. There's things like fractional investing, there's real estate
investment trusts. You could even use options if you wanted
to get really funky. But I think a lot of
these ideas they forego the use of leverage, which is
really the point of investing in residential property in the
first place. Though, if you can't afford a house, take
a look at units in Melbourne. I think actually our
(18:54):
mutual friend Sir Williamster in pro Solution talked about this
maybe a few weeks back on the Money Puzzle, especially
villa unit it's in Melbourne, So I would say just
check out unit prices in some of the well located
suburbs like Elwood or Saint Kilda or Puran. Now there's
been basically no performance even in nominal terms for a
decade or a decade and a half in many cases,
(19:16):
but just very much like Brisbane previously there was maybe
a dozen years of flat prices, then we saw sixty
percent increase in three years in Brisbane, and maybe Melbourne
does something similar. I think if you look at boutique,
well established unit blocks, you're effectively buying below replacement cost.
I think one betters maybe start around three hundred k
for something half decent. Two betters maybe five hundred. So
(19:39):
it depends on your budget. I've just had one caveat,
and that's do your due diligence and read the body
corporate at the strata minutes because they're not always cleaned.
You don't want to pick up any problems in that regard.
So if the budget doesn't stretch to a house, maybe
think about a villa unit or even just a unit.
Speaker 1 (19:54):
Yeah, prety good villa junits. If only they were cool.
You see, they don't have to They have everything except
the cool. And I am of the opinion that we
greatly underestimate the cool factor in property markets among a
certain age group. Okay, now, as always done of this
as advice, As you know, folks, it's information only. And
one of the questions from John. A group of friends
(20:15):
catch up at the weekend. Most of us have one
or more investment properties, and they're mostly positively geared, and
we have small mortgages on them. Okay, we've all been
told to take money out of super to pay out
the mortgages on these investment properties when we get to retirement.
(20:37):
But when we challenge this, the only explanation we can
find is that it's the done thing to do. Could
you ask one of your guests what are the pros
and cons of paying out your investment loan mortgage? That's interesting,
So let's talk in conceptual terms. If a person owned
an investment property obviously held outside of super, and they
(20:58):
were positively geared, which is unusual, would they have much
of a mortgage to pay out anyway?
Speaker 2 (21:02):
What do you think, Peter, Yeah, it sounds like they're
modestly leveraged. Well, let's just carvey out the living daylights
out of it. So first, are you confident you've made
use of your superannuation allowances? And I think in particularly
are you confident you'll actually have enough income in retirement
because properly does have holding costs, so you should probably
just cover off on those points with an advisor first.
(21:23):
But assuming you have, then yeah, if you've got quality
property investments with moderate debt which aren't causing you headaches,
then sure, why not? Lots of people and increasingly so
carry mortgage debt into retirement. In fact, I'm planning to
do exactly that myself. That's really good.
Speaker 1 (21:39):
If you don't mind John the question, maybe I slightly
reframe and see because this is what I was going
to see in terms of his quandary, it's about your mindset,
even your mind you want to be an active investor
and stay an active investor, then why would you change
your ways so abruptly on a certain deed because you've retired?
(22:01):
And I think you were alluding to that too, Pete,
that everyone thinks differently about this, but certainly the traditional
notions of that you stop everything for some reason at
retirement are over. And similarly the idea that you stop
investing in the method or a manner that you used
to why should you or you know, sixty forty for instance,
that was always you know, that whole thing in investment balance,
(22:22):
and why would you change that once you moved into
retirement because you don't know how long you're going to live.
Another great guest on the show had made the point
that I tried to get him to say, well, if
I'm estimating for a retirement, how long do I do
it for? And he refused to do it. He just said,
it's such a long time, you just don't know, and
if it's thirty years, then it might as well do
it into perpetuity. Brings up that whole issue, you know,
(22:42):
And so a long way around back to your question, John,
would be you and any of your group depending on
your view. But if you intend to remain an active
investor in the foreseeable future, why would you change your ways?
What do you think, Pete on that principle.
Speaker 2 (22:58):
Yeah, exactly that side. The argument goes, why rush to
pay down debt on appreciating assets When the debt gets
inflated away over time, rents generally increase, you're going to
get the capital growth on top. I mean dusting off
the old actuararial tables. If a sixty five year old
man in Australia could expect to live for another twenty years,
this is abs stats. I mean in the average age
(23:19):
of death for that group would be approximately eighty five.
So that's a long time for debt to be inflated
away and to experience maybe moderately leveraged investment in return.
So why rush to pay it back just because you're retired?
I think one other thing, before you actually retire, it
might be worth sitting down with a mortgage broker and
just seeing whether you can take out a line of
(23:39):
credit or similar as it sounds like you've got a
relatively low level of gearing because once you retire, that
could be a lot harder to.
Speaker 1 (23:45):
Do, that's right, because a different attitude, of course, because
you don't have the salary, which is what they look for,
isn't it. And apparently you can have a lot of assets.
But if you don't have a salary, can't tick the box.
The box can't give you the loan an issue for
another day. Hey, thanks very much, Pete. Great to talk
to you again.
Speaker 2 (24:05):
Always a pleasure. Thanks James, and.
Speaker 1 (24:07):
That was Pete Warden from Alan Wardens. Let's have some
more correspondence of good questions there. The show gets better
if we have better questions, so keep them rolling. The
money puzzle at the Australian dot com dot au. Talk
to you soon.
Hello, and welcome to the Australians Money Puzzled podcast. I'm
James Kirkby. Welcome aboard everybody.
Speaker 2 (00:18):
You know.
Speaker 1 (00:18):
We were told to expect immigration levels would cool this
year and basically the numbers would not be quite so
attractive for property investors. But this actually has not happened.
The reverse has happened. Investors are going back into the market.
Rental prices are going up. It's a major factor. And
to discuss this with me is Pete Warden of the
(00:39):
Alan Warden Group.
Speaker 2 (00:40):
Hi, Pete, it's good to be back on. Lots of
talk about in the housing market as always.
Speaker 1 (00:45):
Well there is and you just caught me by surprise
really because I had thought the unemployment rate obviously nationally
is moving up, but also the vacancy rates in property
we had thought we're moving a back up. That is,
they were one percent and they were starting to go
up higher, and that would mean that the sort of
intense focus on shortage of rental accommodation was there, and
(01:10):
that meant for investors this notion that they could rent
anything to anyone anytime might be fading and it wasn't
quite as good as it used to be. But tell
me what you've been noticing in the recent stats on
rentals and what it means for everyone.
Speaker 2 (01:25):
I think everybody sort of knows that the government's target
of one point two million homes over five years isn't
going to be achieved. But when you look at the
ABS figures for immigration, so every month they put out
these arrivals and departures figures, and the expectation had been
that immigration would gradually slow back down towards sort of
the norms. But if you strip out the short term arrivals,
(01:48):
because we've always got people coming and going for holidays
and so on. But if you look at the permanent
and long term immigration on a net basis is back up.
Over the past five months, it's been accelerating to a
back up to about or just shy of four hundred
and fifty k, which is huge. So yeah, Now a
part of this is it's not just arrivals, it's also
(02:09):
fewer people leaving. And I think if you look around
the world, New Zealand's unemployment rate is above five percent
and rising back in sort of our old neck of
the woods. The UK's got rising unemployment rate over there.
Canada's actually six point nine percent and they're having to
cut back on immigration. So I think for Ozzi's who
(02:30):
prospectively might have looked to travel overseas well, fewer people
are going, and against all the expectation, immigration has now
been accelerating again. The national planning levels for international students
have been increased for twenty twenty six from two hundred
and seventy five thousand this year to two hundred and
ninety five thousand for next year, so that's going to
(02:50):
add to demand as well. So it seems like things
will get worse before they get better. In the rental market,
we've got rental vacancy rates of back near record lows
now around one percent.
Speaker 1 (03:01):
Just to explain to listeners, they have come back down Basically,
the lower it is, the tighter it is, the lester
is to rent. And you're saying it's back down at
the one percent levels now, is it?
Speaker 2 (03:11):
Yeah? I mean they used to say back in the
olden days that a balanced rental market had a rental
vacancy rate of about three percent. I think the way
things are measured in Australia anyway, I'd say probably around
two percent is probably more of a balanced market. But
in five of the capital cities. Now we've got rental
vacancies below one percent and they're falling again in Sydney.
(03:32):
So I suppose you've only really got Melbourne where things
are sort of getting a bit easier for tenants at
the moment. I think this has some real knock on implications.
I mean, not least for inflation. I guess you know
we have We'll talk about this, no doubt in a
moment when we talk about rate cards. But asking rents
are now rising again. There tends to be a bit
of a lug for that to flow through to the
(03:54):
whole housing market. But that's one of the factors which
sort of suggests that inflation might not be quite done yet.
Speaker 1 (03:59):
So that's really interesting. Are they asking rents rising nationwide?
Speaker 2 (04:05):
Yes, pretty much everywhere. I think if you look in
some parts of the country, things have been a bit slower,
sort of Tasmania, I sat. But like a lot of
these things, there's a big Sydney Melbourne whiting and if
asking rents a rising in Sydney and Melbourne, then that
tends to suggest if is going up.
Speaker 1 (04:23):
So in terms of the factors that really have changed,
the changing factor, the surprise factor is the bump in immigration.
Speaker 2 (04:28):
Basically, yes, demand is picked.
Speaker 1 (04:30):
Up, which, as you say, people had thought was too soften.
But in fact, as you say, and it's very interesting
that you put it in context, rising on employment levels
in some of the sort of source countries would support
the notion that they would keep coming if they can.
I can also add to this that the rentals that
(04:52):
would be paid in Australia. People might find this hard
to believe, but it's true the rentals that would be
paid by those immigrants in the cities coming from New Zealand,
coming from London, coming from Dublin, they are lower than
they are used to and so they actually quite happily
will pay these levels. I'm quite aware of this because
(05:14):
second generation nieces and nephews the levels they pay. Also,
my daughter shares a house with a whole bunch of
New Zealanders. They think this that the rents are terribly
reasonable compared to Auckland. So the point I'm making is
that you've got this bump, a surprise bump in immigration
though that particular immigration cohort is quite willing to pay
the prices that we have. And then on top of that,
(05:35):
as you say that many people may not have noticed this,
that the asking rents are going up, the rental vacancy
rates are going down.
Speaker 2 (05:43):
That all put.
Speaker 1 (05:44):
Together basically tells you that there's a sort of like
a second wind here in terms of property of the
property the man that basically people will be able to
rent anything basically once again, and that confidence can be
there for investors.
Speaker 2 (05:58):
Yes, I think so. I mean, I think it's quite
seasonal in Australia these days because we've got so many
international students now, what's seven hundred thousand or so, So
it comes and goes with the university term times, and
of course the warmer summer months are very popular for
visitor arrivals. A lot of people come for Christmas as well.
But I think though in economics, every shortage is ultimately
(06:20):
will be followed by a glut. It might be two
or three years down the track, and I think, you know,
the darkest hours before the dawn. I think in real
time you're seeing a lot more marginal development projects are
now increasingly passing feasibility and getting green ticks. I think
new home sales are what nearly are the three year high.
We were talking a week or so ago. Cba is
(06:41):
Keen to lend on things like prefab housing, and I
think other banks will come into the sector. Build to
rent in Australia's still quite a nascent sector, but there's
a thirty billion odd pipeline there and I think there's
about nearly forty thousand now units either built or planned
or under construction.
Speaker 1 (06:57):
So you see this as a medium term bomp if
you like, in in immigration and consequently a medium term
tightening in rental vacancy riads. But perhaps structurally things are
getting are changing longer term in terms of the initiatives
in the economy to build more.
Speaker 2 (07:17):
I think so really it tends to be driven. It's
a cycle really. As interest rates come down, developers get
more confidence to build more. People are buying new again now,
so I think a lot of the supply, particularly built
to rent, is going to be focused around Melbourne. I
think medium density supply just seems to be Melbourne seems
more amenable to that and land prices are a bit
(07:39):
lower than in Sydney. But yeah, I think in particular,
investors tend to amplify the cycles now and they're coming
back into the market, so I think we've got a
building boom ahead. In fact, the pipeline is already quite reasonable,
but building times have been very slow in recent years,
and I think we'll get a marked increase in supply,
but it might not be until maybe twenty two, only seven,
(08:00):
and we really start to see that because it's just
taking so long to get these projects delivered.
Speaker 1 (08:06):
Is there evidence of the investors coming back into the
market to and where are they coming in?
Speaker 2 (08:10):
Yeah, the ABS puts out they actually shifted from a
monthly to quarterly figures and lending volumes are up two
percent in the Dune quarter, so that but that actually
came off the back of a couple of softer quarters,
but that was really driven by a three and a
half percent increase in investor lending. So when you look
at the cohorts that are coming in, it's actually a
(08:31):
lot of higher income household so APRA's got the lending
assessment buffer in place at the moment, so there's a
three percentage points lending assessment buffer, which is pretty odd
when you think about it. Interest rates are expected to
fall and yet people are being stress tested on a
six percent mortgage right they're being stress tested at nine
an interest rate. They're effectively never going to.
Speaker 1 (08:52):
Pay drop still doesn't it. I mean it does cascade
down so that it doesn't change, but it does. It
used to be assessed are nine for six, You'll be
assessed on eight for a five, isn't that right?
Speaker 2 (09:07):
Yeah, that's it. So we used to have a smaller buffer.
Of course, there used to be two percentage points. Now
it's three. So what it's doing is locking a lot
of lower income households out of the market completely and
creating a bit of inequality. So the government is trying
to counteract this with this low deposit, the deposit guarantee,
which kicks in on one January twenty twenty six. So
(09:29):
you've got, on the one hand, you've got the market
regulator trying to really keep a tight noose on lending standards,
and then on the other hand, the government saying, well,
you know, stick in a five percent deposit, will guarantee
the rest and off you go. So things pulling in
two different directions.
Speaker 1 (09:44):
We will take a short break and we'll be back
in a minute because there's some very interesting things that
wants to develop with pe Books. Back in a moment.
Hello and welcome back to The Australian's Money Puzzle podcast.
(10:05):
I'm James Kirby, I'm talking to Pete Warden of Alan Warden.
Always good to talk to Pete about the market, and
I think a very distinct inside with an economic grasp
of property on top of a knowledge of working knowledge
on day to day on property. One of the things
that you were alluding to just to cover off for
anyone who wasn't quite across it. So you know, folks,
there's a buffer right which isn't advertised. So if you
(10:27):
see a mortgage, if a mortgage rate on the window
of the bank is six percent, when you go in
to apply for that mortgage, day will assess you on
your ability to pay that rate plus three, which is nine.
If rates are dropping, as we know they are, let's
say they settle around five. When you go into the bank,
you'll be looking for the five percent mortgage, they will
assess you on plus three. They will assess you on
(10:49):
your capacity to pay eight. And the point that Pete
was making said it was very good, which was basically
that the government regulators are imposing this quite quite severe
buffer to keep things stable. But the government, that is
the alban Easy government in Canberra is constantly coming up
(11:09):
with ways to try and improve affordability for people. The
big one is the first home guarantee, which is now universal,
And there's all sorts of other schemes around the place.
But we end up with this curious situation, Pete, that
there's all sorts of schemes helping people buy into a
market where the vacancy rate we've just said is one
(11:29):
to two percent, And just to put that into perspective,
you might explain to people what it means one to
two percent, like what industrial property, what's office property? For instance.
Speaker 2 (11:40):
Yes, the residential rental vacancy, right, it doesn't necessarily mean
that once two percent of properties are anty. In fact,
on the census night, you might find that maybe ten
percent of dwellings don't have somebody in them. But for
something to be registered as a rental vacancy, it needs
to be an investment property that's on the market and
how it's been vacant for a number of weeks. So
(12:02):
you know, if you were to look at rental vacancy
rates in other countries, if you're looking at Manhattan, it'd
be way higher because of the way in which things
are measured there. Also, I don't think rental vacancy rates
I think they tend to be understated when you get
a building boom, because if a big tower block goes up,
and maybe you might just see an adverse saying properties
for rent, but it doesn't pick up that there's three
(12:23):
hundred in the block, you know, So I would say
it's an indicator and you look at the direction of
travel more so than the numbers sometimes, but very tight
and residential. I think with the working from home trend,
office vacancy rates are well, they're basically at a thirty
year high. We've seen so many articles over the recent
years saying the office market's about to pick up, but yeah,
(12:45):
basically fifteen percent Melbourne CBD eighteen percent vacancy rate for
office space, so it's almost one empty.
Speaker 1 (12:52):
When I was a baby property reporter, fifteen percent was
a deep crisis. I mean, fifteen percent was what you
would see in a full bloe recession. And this is
a sort of natural level at the moment, isn't it,
which tells us everything you need to know about working
from home? There it is in the office vacancy rates
fifteen percent worse than that in certain corridors where there
(13:14):
were office only like say saying Killer Road in Melbourne,
and then I see shopping retails actually improving that it's
been in the order of ten and it's dropping lower
than that in some of the cities. So that's sort
of coming back with the office isn't coming back, which
tells us the office as we know it isn't coming back,
and that is full office, everyone coming in nine to
five on the train or in the car every day
(13:35):
that is finished. Does it have a bearing in property
for property investors in terms of the world we know
the residential side, I.
Speaker 2 (13:44):
Think it does. I mean there's still a gradual pull
back to the office, but in a lot of cases
it's only maybe two or three days a week or
four days a week. So I think a fair amount
of the housing market demand is gradually centralizing again. But yeah,
for the office space, it seems like the A grade
office stock is renting quite easily, and if you go
(14:04):
to a place like Barangarou fantastic, But it's that BC
and D grade stock. As he said, people don't really
want it so much and they don't need it so much,
and there's some quite significant implications for office rents asset values.
We talked a lot previously about the potential for offices
to be converted into apartments, but it's just not really happening.
(14:25):
I think in practice it's much harder for that to
be undertaken than in theory, and in a lot of
cases you end up completely gutting the building and more
or less starting from scratch, So it's not the same everywhere.
Speaker 1 (14:37):
For the property investor, I wonder is that it is
part of the outcome of this that the one bedroom
apartment is weaker even than it used to be as
a property asset, because people need space because they're going
to work from home.
Speaker 2 (14:49):
Possibly, I think certainly one of the outcomes of COVID
is that people wanted more space, and I think even
if you've got sort of a one plus one type
of unit set up, that does give you more options
than just a one bedroom units. And a lot of
people are also converting space into like a home office,
and it's certainly been one of the outcomes of the pandemic.
So yeah, I think it's still still a work in progress.
(15:11):
A lot of the big banks and big employers are
trying to get people back into the office with mixed
race of success. I think at the moment, though, the
unemployment rate is what four point two percent. The balance
of power is quite with the employee at the moment,
but that won't always be the case. If we get back,
like a lot of those other countries, towards five or
six percent unemployment, then the balance of power shifts back
(15:33):
to the employer. So we'll see how that plays out.
Speaker 1 (15:35):
So you clearly are of the opinion that it's the
stick rather than the currot that will work here. So
and I don't disagree with you. I think if we
walk up tomorrow morning and the unemployment rate was fifteen
percent and everybody was terrified about the future of their jobs,
and the company they were working for said, we will
(15:56):
We're going to have to make some serious cuts. Part
of it will be, you know, tendance in the office.
I think they will be falling over each other. I
think they would be. I think they'll be crushed in
the corridors going in. I might be wrong, that might
show a bias that I you know that it's that
has always been the case in my life that when
a severe recession hits, behavior changes. People start to dress
(16:17):
more smartly, they turn up more punctually, they go in,
they get involved because they're worried and does that mean
will that translated into or move back to the office.
I think so, I really do, but it would take
a severe joke in unemployment and we have nothing like that.
I mean, you're saying, you know, four percent is worse
than three Yeah, sure, but four percent, three percent, you know,
they are not anything to worry about. With countries like
(16:39):
say Spain, where on employment traid it is ten to
twenty percent, always completely different type of thing. I wonder
what they'll work from home and there are if only
we had someone to tell us, we'll take a short
break and we'll do some really good questions that I
have been keeping for Pete. Hello and welcome back to
(17:00):
The Australian's Money Puzzle podcast James Kirby with Pete Warden
of the Alan Warden Group. I have a question from
Adam which I think is really interesting and the context here, Pete,
is that on the show we have moved gradually from
posing the question whether Victoria is at a discount as
such for property investors and is the best value to
(17:21):
a point in recent shows where the guests have clearly
moved to the point that they are saying confirmed Victoria
is the best value state for interstate investors orrning investors.
Just now that the price is the starting prices are
so much lower state than Sydney, for instance, Brisbane, where
the gap has completely narrowed and its recent performance has
(17:44):
been so weak that history would suggest reversion to the
mean that Melbourne will outperform the other cities in the
next three to five years. This is something that we're
putting forward basically as a strong contention and a consensus
at least among guests in the show. So this leads
to questions here one from Adam. You have talked with
a few people about the potential for house prices in
Melbourne asid has recently underperformed. Is there a good way
(18:07):
to get exposure to this market without having to purchase
and enter our house. I'm from New South Wales and
while this is possible, it would be a big undertaking
all problem that one. That's why they say property is
a lumpy acid and a liquid acid. You can buy
a bit of a house, unfortunately, Adam, not even a
(18:28):
bit of an apartment. What do you think, Pete?
Speaker 2 (18:31):
Oh, look, there are ways to get exposure to the
housing market. There's things like fractional investing, there's real estate
investment trusts. You could even use options if you wanted
to get really funky. But I think a lot of
these ideas they forego the use of leverage, which is
really the point of investing in residential property in the
first place. Though, if you can't afford a house, take
a look at units in Melbourne. I think actually our
(18:54):
mutual friend Sir Williamster in pro Solution talked about this
maybe a few weeks back on the Money Puzzle, especially
villa unit it's in Melbourne, So I would say just
check out unit prices in some of the well located
suburbs like Elwood or Saint Kilda or Puran. Now there's
been basically no performance even in nominal terms for a
decade or a decade and a half in many cases,
(19:16):
but just very much like Brisbane previously there was maybe
a dozen years of flat prices, then we saw sixty
percent increase in three years in Brisbane, and maybe Melbourne
does something similar. I think if you look at boutique,
well established unit blocks, you're effectively buying below replacement cost.
I think one betters maybe start around three hundred k
for something half decent. Two betters maybe five hundred. So
(19:39):
it depends on your budget. I've just had one caveat,
and that's do your due diligence and read the body
corporate at the strata minutes because they're not always cleaned.
You don't want to pick up any problems in that regard.
So if the budget doesn't stretch to a house, maybe
think about a villa unit or even just a unit.
Speaker 1 (19:54):
Yeah, prety good villa junits. If only they were cool.
You see, they don't have to They have everything except
the cool. And I am of the opinion that we
greatly underestimate the cool factor in property markets among a
certain age group. Okay, now, as always done of this
as advice, As you know, folks, it's information only. And
one of the questions from John. A group of friends
(20:15):
catch up at the weekend. Most of us have one
or more investment properties, and they're mostly positively geared, and
we have small mortgages on them. Okay, we've all been
told to take money out of super to pay out
the mortgages on these investment properties when we get to retirement.
(20:37):
But when we challenge this, the only explanation we can
find is that it's the done thing to do. Could
you ask one of your guests what are the pros
and cons of paying out your investment loan mortgage? That's interesting,
So let's talk in conceptual terms. If a person owned
an investment property obviously held outside of super, and they
(20:58):
were positively geared, which is unusual, would they have much
of a mortgage to pay out anyway?
Speaker 2 (21:02):
What do you think, Peter, Yeah, it sounds like they're
modestly leveraged. Well, let's just carvey out the living daylights
out of it. So first, are you confident you've made
use of your superannuation allowances? And I think in particularly
are you confident you'll actually have enough income in retirement
because properly does have holding costs, so you should probably
just cover off on those points with an advisor first.
(21:23):
But assuming you have, then yeah, if you've got quality
property investments with moderate debt which aren't causing you headaches,
then sure, why not? Lots of people and increasingly so
carry mortgage debt into retirement. In fact, I'm planning to
do exactly that myself. That's really good.
Speaker 1 (21:39):
If you don't mind John the question, maybe I slightly
reframe and see because this is what I was going
to see in terms of his quandary, it's about your mindset,
even your mind you want to be an active investor
and stay an active investor, then why would you change
your ways so abruptly on a certain deed because you've retired?
(22:01):
And I think you were alluding to that too, Pete,
that everyone thinks differently about this, but certainly the traditional
notions of that you stop everything for some reason at
retirement are over. And similarly the idea that you stop
investing in the method or a manner that you used
to why should you or you know, sixty forty for instance,
that was always you know, that whole thing in investment balance,
(22:22):
and why would you change that once you moved into
retirement because you don't know how long you're going to live.
Another great guest on the show had made the point
that I tried to get him to say, well, if
I'm estimating for a retirement, how long do I do
it for? And he refused to do it. He just said,
it's such a long time, you just don't know, and
if it's thirty years, then it might as well do
it into perpetuity. Brings up that whole issue, you know,
(22:42):
And so a long way around back to your question, John,
would be you and any of your group depending on
your view. But if you intend to remain an active
investor in the foreseeable future, why would you change your ways?
What do you think, Pete on that principle.
Speaker 2 (22:58):
Yeah, exactly that side. The argument goes, why rush to
pay down debt on appreciating assets When the debt gets
inflated away over time, rents generally increase, you're going to
get the capital growth on top. I mean dusting off
the old actuararial tables. If a sixty five year old
man in Australia could expect to live for another twenty years,
this is abs stats. I mean in the average age
(23:19):
of death for that group would be approximately eighty five.
So that's a long time for debt to be inflated
away and to experience maybe moderately leveraged investment in return.
So why rush to pay it back just because you're retired?
I think one other thing, before you actually retire, it
might be worth sitting down with a mortgage broker and
just seeing whether you can take out a line of
(23:39):
credit or similar as it sounds like you've got a
relatively low level of gearing because once you retire, that
could be a lot harder to.
Speaker 1 (23:45):
Do, that's right, because a different attitude, of course, because
you don't have the salary, which is what they look for,
isn't it. And apparently you can have a lot of assets.
But if you don't have a salary, can't tick the box.
The box can't give you the loan an issue for
another day. Hey, thanks very much, Pete. Great to talk
to you again.
Speaker 2 (24:05):
Always a pleasure. Thanks James, and.
Speaker 1 (24:07):
That was Pete Warden from Alan Wardens. Let's have some
more correspondence of good questions there. The show gets better
if we have better questions, so keep them rolling. The
money puzzle at the Australian dot com dot au. Talk
to you soon.
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