Inspire & Inform Show

Inspire & Inform Show – Episode 2

Welcome to Episode 2 of The Inspire & Inform Show where it is our mission to bring people & property together towards their better future. This week Andrew & Colin unpack the reasons behind the government’s massive spend to stimulate the property market & the potential impact that this may have on property prices.

Please see below for the full transcript of this video

Transcript:

Andrew
Okay, we’re on.

Colin
Wow. Well, welcome to Inspire & Inform everybody. Good evening. My name is Colin and joining me tonight is Andrew Koleda, one of our founding team members as well. He’s our senior strategist and mentor who will take us through the bulk of our presentation. I’ll just put a few commentaries out there. But just wanting to also recap the last week or so I’ve been getting a lot of questions, but only from first homebuyers about the new scheme. So we’re going to touch a little bit on that the $668 million additional support from the government to stimulate the housing, but also want to cover off very quickly how you can benefit. I’ve got a number of clients from different states

That have asked me a number of questions. So I’m going to share the love. I’m going to show you some details, but how much you can actually benefit from it.

And, and also talking about how property is important to the Australian economy, I want to quickly share about what happens when you have different, I guess, cycles, but also the different industries that are impacted by the property industry. Going to quickly share about the impact on housing prices, based on a number of events that’s happened and Andrew will take you through that, how it impacts the building approvals. And also just very quickly what what we think is going to happen in the next few years. Um, as I said, I, I’ve been working with a lot of first home buyers this week. In fact, I’ve just secured a an opportunity with a client who bought a property in the northwest for about $745,000. So that

client of mine was eligible for the first time on a grant at a stamp duty savings which equated to about $9,000. We’re certainly looking at the homebuilders scheme as well right now. So, Andrew, if you don’t mind flicking it to that presentation, just to give you a bit of an idea. I guess before I want to continue, I want to just share with you a quick story. It’s a story of a pessimist and an optimist. So they both went out for dinner and they both ordered a glass of wine. And so the the optimist said, you know, this is a glass half full how fantastic it is. The pessimist said, Oh my god, you know, this is not enough. It’s a glass half empty. Anyway, they argued for hours and along came and opportunist and grab both the glasses of wine and drank it. So the listen to the story is, you know, are you pessimists optimist, or are you more of an opportunist?

I’ve been encouraging a lot of my clients to seize the opportunity to look at the opportunity now that presents itself not just put all your focus on it. But to certain understand what are some benefits opportunities you can certainly take hold off right now. So, as we have on the slide, there is the homebuilders scheme at the moment that the government’s announced on the fourth of June, so literally six days ago, I’m still getting my head around it. But I think there’s some really good opportunities there.

For those that don’t know that there’s also the first home supersaver and that’s on top of the home builder scheme, and the first home loan deposit scheme, this the first home owners grant as well that you can take advantage of. I’m not going to go too much in detail about this, but I just wanted to make a note here that in all these states that I’ve shown you the figures for the homebuilders scheme applies to all states. So if you’re in New South Wales, Victoria, Queensland, Western Australia, South Australia, ACT to Tasmania

You can certainly take advantage of that which is from the Commonwealth Government.

The homeowners grant varies from state to state and New South Wales 10,000 Victoria 10 to 20,000 just you may be wondering why but 20,000 really is for properties for first home owners specifically if you purchase properties in regional Victoria, still a very good grant Queensland 15,000 Western Australia 10 South Australia 15 ACT Unfortunately, they don’t have a first home owners grant they’ve replaced it with stamp duty savings, Tasmania 20,000. And then you’ve got the first home loan deposit scheme as well. That’s a scheme that’s put together by the government A number of years ago, basically to help you save your money through your your super fund and which you can contribute up to $30,000 that you can utilize for that as well.

So that’s, that’s the first home Super Saver. I’m not gonna go too much into that. But the first home loan deposit scheme is a really, you know, is a scheme where the government allows you to save on your Lenders Mortgage Insurance. So I’ve just put up to $10,000 obviously depends on the price, purchase price of the property, and stamp duty saving this kind of did my head in really had to work out what are some potential stamp duty savings. But what I’ve noticed is quite significant. You know, you could save a New South Wales up to $24,000, obviously, you’re got to meet certain criterias. And if you are keen to find out a little bit more about those criterias I mean, you could easily Google it. But certainly feel free to have a chat with us about that as well. So look, I’ve just put a very quick screenshot on the potential total benefit from each state in terms of what you could get out of this whole additional support to the stimulus.

And, and also with all the current grants and schemes available as well. But the question is why? Why is the government at the moment, you know, putting together additional support to stimulate housing, and I’d like to throw this question to Andrew, who take us through the next part of it. But I just want to just just say, you know, there’s opportunities out there, ready for the taking.

Andrew
Thank Thanks very much, Colin, and Hello, Ken, thanks for joining us.

Yeah. Reflection around some of the media that’s been going on this week. And there’s obviously been a lot of talk about, I guess, the stimulation stimulation that the federal government is providing into the property side of things

Ken, Colin can come back to you in a sec about about your question.

But I guess what I really wanted to focus on and I guess you

A little bit more around. Why is the government actually doing doing this? And what are they looking to achieve? What’s the logic and the rationale behind these incentives, and there’s so many better now as Colin has identified as being effectively stacked on top of each other. In terms of government incentive, it’s never been a better time for first home buyers to enter the market. And I really wanted to sort of have a think about what we’re looking at what the government’s looking to achieve.

So one of the reasons that

Colin
if you don’t mind, I’ll just pause you there.

Because you mentioned about first home buyers, people will be the Home Builders scheme also applies to non first home buyers just wanted to make clear, in case you’re not a first time buyer, you are also entitled to the home builder. Obviously there’s certain criterias you need to meet which we can go through in detail in the strategy session with us but just wanted to clarify that

Andrew
Do you want to tackle Kens question around getting access to the home builder grant.

Colin
Yeah, look, there’s there’s quite a lot of criterias you’ve got to meet look, I’m not gonna go into too much detail. But essentially the the the criteria is you have to be a individual you cannot be a company or trust, you have to be 18 years or older. You have to be an Australian citizen. And there is also a couple of income gaps, you caps you have to meet. So if you’re an individual, you’ve got to be earning up to $125,000, financial year 18 and 19. In order to qualify, or if you’re a couple, you have to be earning up to $200,000. Also, because the scheme was announced on the fourth of June, you have to have entered into a building contract. It could be house & land, it could be townhouse, it could be units and apartments off the plan as well. I’ve just clarified. But yeah, you you have to enter the contract between the fourth of June this year and it

ends on the 31st of December. So that’s New Year’s Eve when it’ll end.

And there’s a whole bunch of details about, you know how much the property has to be worth in terms of its value, and how much renovation if you’re going to do renovation, how much it needs to be contracted between. But also one of the key things I’ve learned so far, which is quite in the fine print is your construction must commence within three months of the contract, date you’ve got to make sure that if you, you want to qualify for the scheme, when you sign the contract, you’ve got three months before you start construction. That’s a really important point. And there’s a bunch of details that are yet to be released. But more details will will come out shortly.

Andrew
Thanks. Thanks for calling. Again. If you have any more questions or specific set of circumstances, obviously call them and I happy to help you out. So just going back to I’m going to be I guess more birdseye, bit higher, higher view. Why is the government offering

of this stimulus. It’s because of I guess the significant impacts that the property market and all of its associated businesses and things that are related to property have on the economy. And I know this is a little bit small.

But basically, this criteria how to access this. Okay, Ken, we will come back to you on that one? I’m not too sure. Do you have anything on that maybe wanted to come back to him?

Colin
Well I don’t know the question.

Maybe we cab go through this and we can have Q and A’s?

Andrew
So yeah, just going on the Australian economy and how properties impact what property what role property plays, in it

basically accounts for about 1.1 million jobs, one in four wages rely on the property industry directly or indirectly. So there’s a lot of indirect industries that are related to property right from

White goods stimulated by new builds through to architects, engineers construction, of course. So a lot of Australians are actually impacted by the property industry. In fact, it accounts for about 11 and a half percent of Australia’s economic activity either directly or indirectly. And so this is one of the reasons that the federal government in these COVID related times and and obviously, you know, we’ve just recently entered into our first recession in a long time is really targeting the property market and all of its associated entities to really stimulate the Australian economy. And it’s a quite a big lever for them to do so. And this is one of the reasons despite predictions by some, some of the pessimists that Colin referred to earlier. We haven’t seen any of the panic selling, that that

A lot of people are predicting.

So just a little bit of an indication of why they’re targeting property outside of the size of it. They know that stimulating new builds and targeting the first homebuyer market has worked in the past. So it’s a trick that the government have used in the past when we’ve seen uncertain economic times. And as you can see here,

the first homeowner boost was introduced in 2008, the middle of the GFC to try and stimulate the property market for the same result that they’re looking to achieve here. And I tried, I was trying to, I guess, dig down a little bit deeper rather than rely on I guess, broader Australian data I targeted. I found a really interesting chart showing a little bit more specifically in Queensland, how government incentives have influenced the number of first home buyers in the Queensland

market and you can see

here in about 2001 $7,000 New Home Boost was introduced. And we can see the amount of first time buyers rise as the boost reduced to 3.5 thousand. We continue to see declines. And then again in here in 2008 in line with

the first homeowner boost, we see a massive uptick in first time buyers in the Queensland market. So the government knows that providing stimulus into the property market has a reaction from first homebuyers, and these are really important people to put for them to target and that’s one of the reasons why they introduced these incentives.

Colin
Actually. Go back two slides. What’s really interesting, I was just looking at in a little bit more detail, but you’re right, just to echo what Andrew is saying. They

Need to stimulate the economy, mainly because if you look at the number of jobs, not surprisingly, health and social assistance, in terms of the industry is got the most number of jobs within the industry. But the property industry come second. And as Andrew said, you know, we need to get the ball going in terms of economy, and what better way to stimulate that to then to provide all these schemes and incentives within the property industry because it affects more than just architects and white goods, supplies. It affects sparkies and plumbers and tradies, a lot of these people are being affected at the moment if there’s no stimulus in it. But what’s also really interesting is I don’t know if you built too much on this, but the property industry is one of the biggest industries by by domestic by GDP in Australia from 2013 to 14. Do you want to maybe make a comment on that, Andrew? It’s very interesting, isn’t it?

Andrew
So he’s talking the 11.5% of economic activity.

Colin
Correct.

Andrew
Yeah, that’s Yeah. So it’s actually actually quite surprising. I think direct property was about 5% of your previous presentation. But what does it actually get? What does it it doesn’t actually account for all those associated entities that are basically related to property as we try to cover. So 11.5% of GDP is actually the largest percentage by industry. It’s Australia’s biggest industry. And so in order to create an impact, that’s why the federal government’s actually targeting.

Colin
Yeah, that’s right. That’s interesting, though. It’s it’s 2013 and 14. I wonder if we can find some new statistics about what’s going to happen in the near future. But I would imagine property industry will still constitute a bulk of the GDP within Australia, Andrew, what do you think?

Andrew
It really goes to speak about Australia’s, I guess, affinity with property. You know, it’s been proven over the past how property has performed. And it’s still, you know, a massive part of Australians psyche, that homeownership aspiration. And it really goes to show that property in Australia is a little bit different to other places in the world, just due to that relationship. And that’s why, you know, it accounts for 11.5% of, I guess GDP.

Colin
Just gotta love Australia, man. I mean, I migrant you know, 20 years ago, and I genuinely saw Australia to be the lucky country. I mean, the, you know, the government provides so many incentives and opportunities for for Australians and I’m just so glad and grateful for you know, the the government continues to prop up the property industry. I mean, it’s it’s 11 point 5% of the GDP. So it’s not surprising, but it is a large country. Why aren’t we lucky to be living in Australia at the moment, Andrew?

Andrew
Yeah. even outside of GDP, you know, the biggest the biggest focus from the government during this Covid times has been around jobs and retaining jobs that that stat of 1.1 million jobs. That’s massive.

Colin
Yeah, that’s massive. That’s massive. While in in a country if 25 million that’s, you know, nearly one one 20th of the population that’s that’s in the property industry. incredible. Yeah, exactly. Anyway, I digress.

Andrew
Just kind of wanted to shift across to how that actually impacts and how some of these incentives. Sure it’s a fantastic ideal by the government to try and stimulate new builds and, and then correlate that across to jobs. But one of the interesting things I’ve noticed throughout the media and just even just walking around my local area here in Zetland, it seems, at first glance that the property in terms of construction, particularly industry has been relatively or, you know, untouched or has not fared as bad as some other areas of our economy. And the reason for that, and so walking around Zetland, that’s, you know, a mecca of apartments are getting built around where I live, and it’s been a hive of activity throughout these Covid times. And one of the observations I guess, I’ve made anecdotally and sort of heard of branded around in the media is that the construction industry hasn’t been affected quite as much as some of our other areas such as hospitality or tourism, etc. And the interesting observation I actually take out of that is a lot of these construction projects, particularly the larger ones, they have quite a large lead up time and obviously quite a long build time. And the activity that we’re seeing in the construction industry is very much a continuation of projects that have already taken underway, or we’re already in flow prior to Covd hitting.

And I guess so the way I look at that is I look at that as a little bit of a lagging indicator of what’s actually going on in the construction construction industry.

a leading indicator I would look to would be new building approvals. And as we can see by this chart, we’ve obviously had a little bit of a battle more than a little bit, quite a large reduction in the amount of building approvals. And so what this actually means is, you know, we often talk about in the property industry, prices are a function of Demand versus supply.

And what we what we see is when we see a reduction in building approvals, we’re going to see a reduction in our supply, but maybe not immediately. Because you think about the process of a building construction, that of any significance. You know, the developer needs to go and find the land, then they need to get their plan approved through Council. And then they need to obviously do the build the projects, and then it’s finally, you know, a available or finally released to the market and people move in.

And the time between all of these things happening might be a couple of years. So one of the interesting things is we may not see, I guess the reduction or impact of reduced supply immediately, but over the next few years, I think that the amount of Building approvals that have been put in place today will start to be evident in a few years time in terms of reduction in supply.

And so that’s why we need to be really conscious as property investors about being forward thinking, rather than just simply taking what the media tells us today as being gospel.

And one of the interesting things that I think that we’ll see, and I’ll just switch to maybe a couple of predictions around that in the next few years, you know, demand and consumer confidence is likely to improve faster than building completions.

So what I mean by that is, if we take what was the point I’m trying to argue here, if we see a reduction in supply over the next few years, I think that the evidence is pointing towards, I guess, the Covid pandemic affecting Australia, maybe a little bit less than some other countries around the world.

We have some fairly strong, I guess, taps that we can turn on fairly quickly in order to boost our economy and get our economy a little bit further towards the pre COVID situation. And one of those taps is migration, which has obviously been shut off. Australia historically had a very strong intake of international migration to help boost our population, which has led to obviously, some of the price growth that we’ve seen in the property market of past years or been very strong factor. And that’s a tap we can turn off instantly overnight. It’s not going to be something we might see next week, but over the over the preceding, you know, six months towards the end of the year. I think that given how Australia has dealt with the Covid pandemic, I think it’s quite a possibility that we can see that tap turned on particularly when it comes to international students as well.

Obviously, we’ve seen a much faster lifting and restrictionsthan originally predicted. You know, when the pandemic hit everything was gearing towards this magical six months which, which obviously comes up in September. And I think that we were preparing for the worst case scenario which hasn’t been rationalized was a realized and due to the due to all of this support that’s been made available not just by these incentivesin place by you know, your the grants etc that we’ve just coverd, but also by the federal government leveraging banks and encouraging and I’m not too sure what the backroom conversations were like, but encouraging banks to provide these interest free, sorry, yeah, interest freeze over the six months to help our customers get through and the fact that our banking system here in Austalia It is comparatively so much more secure than potentially other places in the world.

I guess. And this coupled with the fact that the bank is probably not probably literally Australia’s biggest property investors. It’s not it’s simply just not in their interest to allow people to begin having fire sales and panic sales. Particularly when you know, a lot of Australians have leverage that 80-90% of the property value. The banks arguably have the most to lose if if there was a some panic sales and some istress in the Australian property market.

So all these things combined, I think we were likely to see over the short to medium term imbalance between demand and supply with some capital appreciation flowing from that, yeah.

Colin
To make it clear we’re not promoting for you to hold your interest or delay. It’s just what what Andrew is trying to say is the banks are being put in a position by the government to relax that and to also help boost the economy.

But just going back to your point, Andrew as well about the migration, I don’t know if you saw the news yesterday, we’ve got two new COVID cases. Unfortunately, they’re both in New South Wales, and they’re not community transmitted. But we are living in a very, very, very, very, very lucky country in the sense that we’ve managed the COVID and pandemic situation really well. So I suppose it won’t surprise me that people from around the world our international friends would want to migrate to Australia at some point and therefore, kickstart maybe not in a V shape, but maybe in a U shape as they open up the migration, you know, capabilities for Australia, I think you’re going to start to see demand, pick up again for properties. Just Yeah, just wanted to make a comment on that. Andrew

Andrew
I was really rounding rounding out what I wanted to say. And personally over the past week, as I’ve sort of been having these thoughts, I really wanted to share that I found that a useful tool to look at it, or useful framework to look at, I guess what’s going on through this lens. And I’ve used it even, you know, to try and help with my own mindset to remind myself why I invested in property in the first place.

Ive used it as a mechanism to try and I guess, maintain that confidence of the decisions that I’ve made in terms of my property investment journey.

Despite some of the headlines and some of the media that’s been out there, I think that it’s useful. We can get very much caught up in the minutiae around do I qualify for this incentive that incentive? Or does it apply to me?

If it dosent then maybe I wont buy property or whatever it may be? I think it’s really useful to remind ourselves hey, in Australia property property market historically has been quite a sound investment and has continued to go up and what why that is on the back of, obviously an imbalance with between demand and supply. You know, we can’t build houses fast enough to to cover for the demand. And I’ve been really reflecting on this week.

I think I think that’s probably all in terms of our presentation.

Colin
for questions and answers, Andrew,

Andrew
Ken?

I think I think you misunderstood my question. I’m not asking about the criteria. I’m asking how do they access this? so how The $25,000 is going to be paid for those that qualify

Colin
No, because we have not got details out of that yet. I mean, if you go to the treasury.gov.au it only outlines the criteria at the moment. So the finer details is in terms of how it’s paid at the moment. I certainly wouldn’t. I mean, if you’re talking to a bank or broker or lender, I certainly wouldn’t use the 25,000 as funds to complete I would use that as a bonus upon completion that you’d get it from the government you know, so so I

Andrew
I think that this would be the likely the way that this might go just given they cant dish out $25,000 and what if you don’t go ahead with the construction etc. Yeah, very much like the jobkeeper thing. My best guess would be paid in arrears.

Colin
Yeah. Yeah. I’d imagine that’ll be the case as well.

Yes.

Any other questions? We can finish up?

Andrew
No, I think I think we’re good then we’re actually going to be on time tonight.

Colin
So yeah, thank you so much for that, Andrew. I mean, certainly feel free to give us a call or email us if you are keen to have a free 45 minute strategy session. I think Andrew will put it up. But there’s also a number of good resources that you can look at with on our website. Go to inspire Realty, com slash free. And there’s generally two things you can do. One is if you’re already looking for property and you found something that you’d like to invest in, whether that’s an investment or that’s your first home, one of the things we can do for you is to help you do a bit of an analysis. We do a what we call like a comparative market analysis, it’s generally about a 10 to 15 page document. So, you know, we’ll have a little conversation with you. And if you want to know what are the comparable sales in the area, and what are the comparable listings in the area, just to give you a bit of a peace of mind that you are, you know, investing or you’re paying fair price for the property, fill in your details, and we’ll get back to you and certainly provide that free CMA on a property that you nominate to us.

And the other thing, which I highly encourage you to do is to have a conversation with us. We’ve got this, you know, I guess program that we can take you through, it’s a property analysis. You know, whether you’re a new investor or you’re a seasoned investor, it’s always good to kind of look at the bigger picture, looking at where you’re at and looking at where you want to be, and position yourself in in between that. So that’s a free 45 minute session, and we can certainly share with you a little bit more of our services, and look at how we can help you as well to continue to strategize or plan finance, manage and consolidate your property portfolio.

Andrew
Yeah, I just wanted to just add just on the comparative market analysis, I mean, a lot of people that we speak to, it’s fairly easy to have a look at different properties on real estate or domain or whatever it may be. And quite quite often, where a lot of people struggle with is actually defining what is comparable property to theirs, to get a real feel of what that you know, what they can go and make in terms of an offer or bid at aution, etc. So I think that that resources, very valuable for people, completely free and if you’re thinking about making purchase or you’ve got an eye on a property anywhere in Australia, very happy to, you know, work that out for you and provide you with a report and some of our thoughts on that as a potential investment or first home

Colin
Free.

Andrew
Thank you very much. Have a good evening everyone.

Colin
See you later everybody. Have a good night.

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