THE 5% DEPOSIT TRAP 🗞️ Real Estate Market Wrap

00:00 - Who takes responsibility if young buyers go into negative equity?
01:38 - Why the people they thought would celebrate these reforms are now some of the loudest critics.
03:00 - Investors aren't buying because of negative gearing.
05:10 - Bad news is better than uncertainty.
08:48 - Can 75,000 homes in 10 years solve the housing crisis?
10:02 - The real reason everyone is upset.

After 11 auctions today, 7 SOLD (which was surprising to me). Investors were actively bidding.

Transcript

Negative Equity And Accountability

SPEAKER_00 0:00

Can someone tell me if we go into negative equity and the people that are gonna go into negative equity are gonna be the first home buyers who use the five percent deposit scheme at 95%? They're the ones, right? Because they've borrowed so much. I've got to say to you, if that were to happen, who in the government is gonna take responsibility for encouraging seducing people to borrow a million dollars and go buy a property for a million and fifty using five percent deposits, and if those properties are worth, say, nine hundred thousand, who's gonna take responsibility from the government? One of

Good Intentions That Sparked Backlash

SPEAKER_00 0:55

the unintended consequences, and the reason I'm sharing this with you is I have a view, and I don't have a monopoly on the truth, but I have a view, and that view is that I believe that fundamentally Albo, Chalmers, and the government they're not bad people. I think that philosophically what they get is they truly believed, they truly believed that they were going to be making a major change that was gonna be better for the people of Australia. I truly believe that in their heart they're not bad. They believe in it. But what they didn't anticipate is they were gonna get pushback from the people that they thought were gonna be putting the government on their shoulders, say, you saved us, the young people of Australia, but in fact, it backfired. It backfired for many reasons with young people. It backfired because they underestimated that young people would not walk away and say, Hey, why do they keep to preserving their benefits and you're taking them away from us? They underestimated the young people that were entrepreneur types, the tech startups, they would not have ever thought to themselves there would be photos of Albos sitting next to them as their business partner that we've seen all over social media. They would never have accounted for that. They honestly thought to themselves they were going to be seen as the heroes, but in fact, everyone at the moment is unhappy.

Auction Reality And Investor Behaviour

SPEAKER_00 3:00

So 7 out of 11. Now, I've got to say, not only was 7 out of 11, but there were properties that I actually even had investors bidding on. I'm gonna say that again. There were investors bidding on properties, and in fact, I asked an investor that was bidding on a property, had the budget not made a difference? And he said, no. And listen to what he said to me. He said, I don't even like negative gearing. Why would I keep a property long term to be losing money on it? And that is what, of course, negative gearing is that every year you're losing money and the government will help subsidize your losers. He says, I don't buy property long term to lose money. He goes, I normally go from negative gear to positive gear within two years. So um and I gotta tell you, I share a very similar view. I'm not, you know, I've bought him investment properties in the past, and I've got to tell you, I don't buy for negative gearing, right? I mean, I in the end, I bought property because I had bloody terminal cancer and I wanted some yule coming to provide money for my kids because they were saying that it was gonna be uh straight to Rookwood Cemetery for me, all right? And that hasn't happened. So I've got to say to you, I was so pleasantly surprised. And let me tell you something else. Let me tell you something very clear. It goes to show to me that the majority of the real estate marketplaces work with principal place of residence people, people buying homes to live in, because they're getting married, or they're separating, so they're selling, or they're having a new kid coming into the family, so they need more space, or they're sick and tired of living in one suburb and they want to move to another, or they want to change their lifestyle and move towards the water, or they want to move towards the country. The list goes on at the end of the day. Let's be very, very clear. In my auction business, investors don't have much of a big play, right? Very little, and that stands to reason because the majority of auction properties are not suited to first-time buyers anyway, right? The lower price point properties, so it's not like these people are going to be competing against investors. Anyway, all I've got to say to you is um it goes to show to me that the marketplace sometimes copes better with bad news than not having clarity. And I think now that people know this is where we stand, right? They started to move forward, or at least that happened today. But I've got to also let you know that I'm thinking to myself, my mate Phil Tarran, who's uh the editor of REB, he said, Tom, I'm letting you know this might go down as one of the pink that disasters. And actually I thought to myself, nah, this could be worse than that. And this comes from someone that was brought up in an area not too far from where I'm doing this transmission from. I'm

Is Labor Trying To Lower Prices

SPEAKER_00 6:19

in Bankstown at the moment. I just finished an auction in George's Hall. And you need to know, I was brought up in the Canterbury Bankstown area. My parents told me that Golf Whitman from the Labour government was our hero. Because he stood for the working party, working people, right? And I have to say to you, I voted for Labour more than I voted for Liberal, and I hope that one day I'm given enough strong reasons to be open to vote for Labour again. But I've gotta tell you, they're not supporting the workers, the working party. I don't think they're bad people, but I think that fundamentally what actually happened is that And let me say something that no one's really saying. I have a view that the government wants the whole real estate marketplace to decrease in value. And when they use the term intergenerational equality, essentially what they're saying is to take down the price of houses. This is just the view that I have. I don't have a monopoly on the truth, but when you look at the whole jigsaw puzzle, that's all you see. And here's where I think it's all wrong. To think to yourself that by changing a few tax laws, negative gearing, capital gains, and trust, that that in fact was gonna take the market down. No man. You need to understand people want to live in this country. They're not lining up in other countries as much as they are lining up in Australia. So when

Why Affordability Won’t Improve Quickly

SPEAKER_00 8:10

people turn around, and I know that it is harder to buy a home in Australia than it was 30, 40 years ago. A simple ratio called the income, household income to median value ratio can work that out. That's a metric. And we know that Australia is very high, close to around 12 times household income to own a home. It used to be more like four or five. But please don't forget the Australian average is highly, highly influenced by Sydney, which uh runs at, I think, 13 or 14 to 1. There's other places, Australia's not the dearest place, by the way. You've got, you know, Vancouver, Hong Kong, um Switzerland. Anyway, I'm babbling on. What's my point? Of course it's dear. This is a great country. Everything in life that's good costs more. We've got to accept that, right? We've got to accept that. But all I've got to say to you is that I am not convinced whatsoever, whatsoever, that the government's budget reforms are actually gonna make it easier for young people to buy homes. Understood. I'm not convinced. And the reason why is that, you know, listen, I'm not an economist, but in my master's degree, I did a lot of finance, right? I'm one of the few people at NISCorp that used to actually present to Rupert Murdoch because I have your brand that understands numbers, right? You know, I've got to say to you, there's no way in the world that these 75,000 houses in 10 years is solving your housing housing problem in Australia. And there's only two reasons I'm upset. I'm not a I'm I'm I want young I want my daughters to have a house. What I'm upset about is the manner that it went. The manner was, and this is what everyone's upset about. By the way, everyone is upset. Even the Greens are upset. You know why they're upset? They're upset because they think that Labor did go hard enough with their changes. Tenants are upset because they're worried their rents are about to go up. First home buyers are upset when you're worried about going into negative equity. The rent investors are upset because they can't do it. Like everyone's upset. Homeowners are upset because what's actually happening is now is they think that I'm going to become poorer. The value of my house is going to go down. Right? Ange, all I've got to say to you is that there could have been a different way to go about this. Anyway, Gene, I'm babbling on, but all I can say to you is that today, seven out of eleven, including investors, says to me that people needed some sort of clarity. Bad news out of the way.

Bigger Headwinds And Closing Hopes

SPEAKER_00 11:10

Don't get me wrong, we've still got a lot of headwinds. We've got headwinds. And not so much the budget, interest rates, the war, inflation, they're far a bigger thing. Like these price drops that we've had, by the way. You saw uh one I put up on the East and Sudden was 26%. That's nothing to do with the budget. This happened back in September, October, November, December. It's been going on. We've already had price drops. Most of Sydney Melbourne have dropped 10, 15, 20% already. You've already, you know. Um, so all I've got to say, thank you, thanks a lot, John. Thanks for those kind comments. All I've got to say to you, ladies and gentlemen, is I've got my foe that's already come in here. But I really hope that things work out. I really hope that tenants don't end up getting slugged by 30%. I really hope first time buyers don't go into negative equity.