SPEAKER_01 0:05

Welcome to Brick to the Future. Cam McClellan here with Michael Berristwood, Boz. Thanks for joining us. Okay, Cam, great to be here. We've got a cracking one today. Talking through the true costs of investing versus waiting, I want to get a waiting to invest. I want to get into it, but uh I often uh look back to different points in time and I can't imagine another point in time in recent years since I hate to say the C-word, but since COVID landed, where the phones have been hotter and emails have been coming in from clients saying what the hell's going on with the property market. It seems like that same bit of hysteria at the moment with uh the budget rollout and you know wars going on and those sort of things. Uh run us through what uh the feedback's been like but uh and what we want to unpack today.

SPEAKER_00 0:48

Yeah, there's a lot of uncertainty out there, no doubt. Uh you know, uh phones ringing hot, as you say, with people wanting to know what does it mean for me and what does it mean for the property market. Uh trying to decipher all this information and a lot to process all at once. So we're gonna give you the uh the rapid fire here. Before we get into it, uh with the benefit of hindsight, Cam, would you have bought a property in 2007? 20 years ago?

SPEAKER_01 1:11

So what I could have bought a property for in 2007 versus today, absolutely would love to have bought as much property as possible.

SPEAKER_00 1:17

Okay. What if I told you that in the 12 months after you bought that property, there'd be a global financial crisis where some companies, big investment banks would go broke and share markets would be down about 40 percent.

SPEAKER_01 1:31

That so basically the biggest financial crisis the world's seen for Since the Depression. Since the depression. That wouldn't that wouldn't have been a great thing. I probably would say no, I won't invest in 2007 then.

SPEAKER_00 1:41

Okay, not just the GFC, but what if we had uh a period of time where the banks would lend to investors and they would rebalance their loan books, uh basically reducing the percentage of interest-only loans, which are critical to investors? If not that, two years after that, global pandemic called COVID, and if not that, uh 14 consecutive interest rate rises where you know the holding cost for property would increase dramatically. If you knew that those things were gonna happen in the first 20 years after you bought that property, what is the likelihood that you would have actually bought back in 2007?

SPEAKER_01 2:16

So you're telling me if if you said to me in 2007, uh buy a property now, but what's gonna happen next year is there's gonna be a global financial crisis where the the world implodes financially, then we're gonna have restricted lending in Australia, a Royal Commission into the financial uh industry, um, then we're gonna have uh APRA changing the rent lending regulations on us everyday Australians and the banks, and then we're gonna have a a world pandemic where everyone's locked down for insane amounts of time. Um it's a rosy picture of positivity that we take, isn't it, Rafa? It's very easy to look back in hindsight and say I'd buy as much property as possible. Uh yeah, absolutely.

SPEAKER_00 2:53

The thing is, certainty is a myth, right? There's always gonna be uncertainty, there's always gonna be changing landscapes in the marketplace. But what we want to unpack today is what is the hidden financial cost of waiting? Uh, what does the actual budget mean and why will prices grow as a result? Historical examples, easy for us to talk about it, but actually delve into what happened with these historical examples and specifically why does informed decision making matter and how do sophisticated investors approach these kinds of circumstances?

SPEAKER_01 3:26

Because you everyone knows that they need to invest. There's not going to be enough superannuation, there's not going to be the pension. So the answer is people know they have to invest, but they don't want to make an expensive mistake.

SPEAKER_00 3:37

Yeah. Yeah. And what derails them? Well, it's really easy, right? It's um and we're not immune to it. You you read these headlines and you think, right, well, hang on. Uh the media are being driven, you know, by uh by fear and and uncertainty, analysis, paralysis. If you're uncertain, you click on the next article to try and get more informed about what's happening. The more you consume, the more confused you get, and the more clicks that they make they get and the more money the media make. That's a really important one to us understand. We talk to clients. And the first meeting we have with them and have done so for 20 years on what the media cycle looks like and how they can uh build some resistance against that.

SPEAKER_01 4:13

Now, during COVID, obviously having a a few hours to spare, um, you and I bounced the book together, which is uh you know investing in the new normal, where we unpacked basically everything from 1987, which was the negative gearing changes going forward. And we looked at supply, demand, and affordability through those times and unpacked every one of those events right up to the ones we were just mucking around and talking about before. The key factors haven't changed when you're assessing uh a current crisis. The whole concept of that book was understanding that crisis will continue to happen, but how to cut out the media headline and focus on those key things that drive property prices. So if we uh consider that when it comes to waiting, and uh I think a lot of people underestimate what the compound cost of investing and waiting is and the compounding loss of opportunity and capital gain is. So talk us through compound interest, compound growth, compound uh deposit requirements, uh so people understand if you're waiting because of you're waiting for the perfect time to invest, um, it's a daily amount that it's stacking up to uh cost you additionally.

SPEAKER_00 5:22

It's crazy. I talked about 20 years ago in 2007, I'll go back another 10 years before that. Uh as you know, we've got clients that uh got talked out of buying a property in South Melbourne by their accountant for $198,000 in 1998 because the market was hot. So if we just consider that property, median house price in South Melbourne, probably $2 million. Okay? So a $1.8 million cost.

SPEAKER_01 5:50

Let's say let's say accountants are not licensed to give financial advice, and we have an Australian financial services license. Um projections are not guaranteed, so you know we people need to be um sure of that. But um taking advice from an accountant on investment opportunities is not advisable.

SPEAKER_00 6:08

Well, th there's a cost to begin with. Where do you go for your advice? Who do you listen to? How do you get certainty in uncertain times? That's the first part. If we think financially, there's a $1.8 million cost to that, but what if you had just taken the equity from that one property and bought something in 2007 and taken the equity from that property and bought something in COVID and you had three properties today? We're talking six to seven million dollars worth of loss. Right. Right. And and so it's really important to understand that the successful investors don't buy with a crystal ball. Such a thing doesn't exist. But if you buy when you can and you mitigate your risk and you ensure that you've got high levels of rental demand, so you've always got rent coming in, and you maximize your tax benefits by investing in assets where you know the government is going to be on your side moving forward, it's a really great way to mitigate risk. And if you play the long game, then absolutely you're gonna be millions of dollars better off over a 15 to 20 year time frame.

SPEAKER_01 7:06

Now I'll give you um the cost of deposit um missed out on. So um we're the only investment advisory firm in Australia um with property that gets their client results uh verified independently to ASIC disclosure standards, and since 2006 to current, we've beaten the eight capital city markets by 61 percent, which is uh it's impressive. But look, um past performance is not an indication of future performance, but our track record over a very long period of time with all of our clients' results transparently, we've done really well for them. I mean that's something we're really proud of. Our clients' portfolios are going up at the moment on average at around properties about uh ten thousand dollars a month. So just to keep up if you're requiring a deposit, just to keep up with the market, you've got to save two thousand dollars a month just to keep up with the market growth, let alone save your deposit on top of that. So getting in as fast as you can uh obviously saves you additional deposits. So the compounding effect of your deposit requirement, if you wait, increases and increases.

SPEAKER_00 8:08

Yeah, and especially given that the affordable end of the market is uh you know outperforms other market segments uh and and has done consistently, especially in the last five to six years as interest rates have risen and uh replacement costs for building has gone up and all those kind of things, uh, then it's literally a daily cost that it's waiting, it's costing you by waiting.

SPEAKER_01 8:29

We've got two things that um a big uncertain factor is why people would hesitate and wait at this point in time. We've got a global uncertainty with obviously um global unrest, and we've got a a local federal uncertainty with the budget rollouts. Now, most people out there at the moment are just talking about the changes and trying to get some fucking clickbait on what the changes are. I don't want to get bogged down in that too much, but just really quickly give us a snapshot of what the changes are, and we've got another series that we've uh rolled out which can um people can listen to, which goes into the depth of what those changes mean to the housing market. But it's important people under need to understand the changes, but more importantly, what they mean to the housing market in the short space of time, and then I want to relate that back with you onto specific past events that have happened historically and how they line up with what will happen immediately after this.

SPEAKER_00 9:19

It's amazing how history repeats, isn't it? It is. Yeah, okay, so simple snapshot on the budget changes. Firstly, uh moving forward after budget night, negative gearing is no longer in place for uh investors that buy established property. If you invest in new property, you still get all the standard uh tax benefits in terms of negative gearing and depreciation. Uh, you also still get access to uh the 50% capital gains tax discount uh if you've invested in new property. If you invest in established property moving forward, then uh there's a change to the way that capital gains tax is calculated. It will end up costing you a lot more in capital gains tax, uh, and it basically shifts to cost-based indexation, which means that it's looking at the total gain that you've received minus the impact of inflation over that period of time. Uh the complexity is for the accountants to work out, the takeaway message is you'll be paying more in CGT. Okay. What that's going to drive is uh increased investor appetite for investment in new property. Yep. And with that increased competition, it's really important to understand what that's going to mean. A lot of the uh politicians' mantra about this is it's about um what's that term, intergenerational fairness. Uh what a load of crap. Uh it is going to do nothing to bring prices down. It's only going to increase prices, especially at the affordable end of the market where people are trying to get in. Why? Because with that increased investor competition at the affordable end for new property, uh, land prices will increase. Land supply is constrained. Uh, the volume of title land has dropped by about 75% over the last nine months, and that will continue to happen because with inflation and cost pressures as a result of the Middle East crisis, uh land development is only getting more and more expensive and developers will be holding off bringing new supply to market.

SPEAKER_01 11:18

Even if they could bring supply to market, the government have got the urban growth boundary which limit the amount of developable land in specific areas. And if the government immediately took the red tape off that, which they have never been able to do ever, um we don't have the labour force to build. So that there's no chance that we can keep up with the current uh supply on demand, let alone the the migration coming in.

SPEAKER_00 11:41

Spot on. They've got a vested interest in making sure they constrain that supply, but that's a whole nother hour which we can get into at another topic.

SPEAKER_01 11:49

I reckon it's the key. I reckon just like the executive sorry, because you love this bit. Yeah, well, one quick one. So I I like to unpack why the government are doing things with the budget change. The reason they're not doing this to make affordable housing for everyday Australians. That's the biggest load of shit they've put out there, and it frustrates me. They're doing it because they get paid more on new property getting billed from the farmer to the developer, from the developer to the person who subdivides and sells it off to the mum and dad or the investor, to all the labour and the taxes that they get from that, from all the white goods and the curtains and carpets and every all the building construction industry. They get taxes along the all along the way from that, which is why the more prices increase along that supply line, the more tax the government takes. That's why they've cut it out from established properties and from shares, and they've made that less attractive to invest in because they don't make enough money from that.

SPEAKER_00 12:42

So, really high level, if you buy an established property, it's unproductive for the economy because you're just paying stamp duty on the property. Yep. If you invest in a new property, then you've got stamp duty on the land, you've got GST on the house, you've got GST on all the stuff that goes in a house that people need to kit it out with beds, furniture, white goods, etc.

SPEAKER_01 13:01

Yep.

SPEAKER_00 13:02

Uh so they're clipping the ticket much more start to finish before you even consider you know planning approvals and costs and all the things that go into bringing land to be uh in a position that they can build on.

SPEAKER_01 13:13

And a really raw number, uh stamp duty on a million-dollar property, 50 grand thereabouts, uh 40 to 45 percent of the cost of a new house is taxes. Uh million-dollar house, they're looking at the best part of half a million bucks. So they make about 10 times the amount on a new property than they do an established house. So the more the new properties go up in price, which is why they won't exceed land supply, they'll keep that pressure on because they want property prices to go up, because it is the number one thing underpinning the economy. So anyway, just wanted to sidetrack.

SPEAKER_00 13:45

It's a tax grab, great summary.

SPEAKER_01 13:47

All right, so now that we've gone through that, how does the current situation where we are right now relate to past historical events and how can people understand why the property prices will go up immediately?

SPEAKER_00 14:00

The reason we're so passionate about this is because when people make emotionally based uh impulsive decisions as a reaction to certain market conditions, they miss out big time. Uh we talked about COVID. Uh unpack that. Uh let's say that uh you're one of the um the few people that didn't see the opportunity with COVID that we'd explained. Uh the people that did listen to us have made a mozza. The hundreds of people who believe it or not, there are there are capital cities around Australia now that have median house prices upwards of a million bucks that you could buy under $500,000 uh in 2020, 2021. Okay. So we knew that in response, and we wrote about it in the investing in the new normal, as you said. Prior to it occurring. Right. You know, uh we don't have a crystal ball, we've just seen history. But when you look at the way that governments respond to economic crises, the number one thing that they do is overdose on overseas migration. The fastest way to regrow the economy is to bring in workers from overseas who are paying tax and contributing to the uh the reconstruction of the economy post to downturn.

SPEAKER_01 15:07

What do they need when these people come in? Oh, they need to live somewhere.

SPEAKER_00 15:10

Oh, they need housing bingo. Right. Uh and they and they know that that supply is constrained. We've learned that, you know, in 2024 they brought out the five-year plan with the housing accord to build 1.2 million homes over those five years. Only 18 months in, they're already tracking about 25 to 30 percent behind that target. Trevor Burrus, Jr.

SPEAKER_01 15:31

But they've uh exceeded their migration target by far more than 25 percent.

SPEAKER_00 15:36

Supply and demand is in our favour. The other one that we've learned uh even more recently was uh you know when interest rates started to go up, uh, and that was coupled with the Queensland government proposing a new land tax scenario. Uh so without getting into the complexities of it, basically they were going to look at your overall portfolio uh and the land value that you had, excluding your own home, work out the uh amount of land tax that would be payable, and proportion that depending on what the value of land was in Queensland, which would effectively aim to push you into a higher bracket and you'd pay more land tax. Uh the phones lit up within 24 hours of that proposal uh coming to market. We helped everyone understand, okay, just uh take a chill pill for a second. If you're feeling this way and wanting to sell because you don't want to be paying more land tax, do you think there are some other people out there that might be thinking the same? In the 18 months from when they announced that proposal to when they actually repealed the proposal, so nothing changed, 170,000 properties, investment properties, were sold. Imagine if you sold a property in Queensland in 2022 as an emotional reaction to something that didn't actually come to market. And then look at the pricing now in Queensland compared to them. You're three to hundreds, three to four hundred thousand dollars worse off from a growth perspective. We've had some clients that came on board in 2021 and making $700 a day because they actually stayed the course and took the equity out from that growth and bought into other markets like Perth that had grown before the demand was going in there. So the cost can be phenomenal. The second part is that because of this supply being sucked out of the market with all of these investors irrationally selling, rents have gone up by far more than what the land tax would have cost anyway.

SPEAKER_01 17:25

I think you've nailed it with which one word really rings true, and that's uh when it comes down to irrational. People make the biggest mistake when they think emotionally about investment, not mathematically. So if you're in the current situation and knowing that and you sort of become a little bit immune to it once you've been through so many market cycles and so many so many uncertain times, um, but talk us through the things that people should be looking at to make an informed decision so they know they're making uh a smart investment decision rather than expensive mistake.

SPEAKER_00 17:55

Yeah, okay, but down to three key things supply, demand, and affordability. It's a rational process where you're focusing on the actual fundamentals that drive market growth. Okay. Um no amount of headlines or government policy can impact the fundamental problem that the government needs to continue to grow the economy and continue to grow the tax base. That means overseas migration is here to stay. It means that we are under-supplied on housing, and as a result of those two things, the supply and demand imbalance will remain and prices will grow as a result, both for land and for building, so it's never going to be as uh affordable to get into the market as what it is today. You can sit here today and look back and go, oh, I really should have done something 12 months ago. I didn't. I'll wait for the prices to drop because I don't want to be paying more. You'll be in exactly the same position as what you are now. You'll be in exactly the same position in 12 months' time if you do that than what you are in today versus 12 months ago. It's an old adage. Yeah, Steve used to talk to us about it, you know, 25 years ago.

SPEAKER_01 19:02

This is the guy who taught us to invest uh really probably 30, 40 years ago now when he started uh getting in area.

SPEAKER_00 19:07

Time in the market versus timing in the market, Cameron. Yeah, that's uh that's what he would say. No one's got a crystal ball, uh, but understand that if you're taking a long-term view, you're going to have these periods of growth and you're going to have these periods of uncertainty. But when you have these periods of uncertainty, if you understand how to take advantage of them, there is amazing opportunity out there. And hopefully, the fundamentals that we have shared with you today and the fundamentals that continue to drive the property market are what you can focus on and leave that white noise behind so that you can benefit.

SPEAKER_01 19:38

So again, past performance is no indication of future performance, but if people want to know how our clients have used the same strategy you're outlining, supply-demand affordability, to over the last 2006 to current, beat the eight capital city markets growth by 61%. Uh email through hello at opencorp.com.au and we can uh outline something for you.