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The Finance Show With Joe
Welcome to the Finance Show with Joe hosted by It’s Simple founder, Joseph Daoud. We chat about the financial issues facing ordinary Australians from managing the cost-of-living to investment strategies in order to help you make more informed financial decisions.
Join us as we discuss finance, mortgages and home buying in Australia!
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The Finance Show With Joe
S2E6: The Conspiracy Theory on Property Prices
Is there a conspiracy around property prices? Probably not, but its certainly starting to feel that way. Anyway, what this episode about other than conspiracies? The boys provide a market update for May/June in which Joe explains that banks and lenders are loosening lending laws to help borrowers during the cost of living crisis. Alongside this, borrowers are consolidating their debt in droves. You've got three guesses as to why.
Follow us for more property news and mortgage advice!
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Welcome to the finance show with Joe. I'm Joe. That's just some schmo, it's true.
Speaker 1:And today we're just going to give you guys a general market update on what we're currently seeing in the market, what we're currently seeing in finance and what we're seeing in property. Yeah yeah, this is a weird podcast because, like, mark was supposed to be asking me questions but he wanted me to do the intro, just to see how bad I could stuff this up. We could shoot it again. I could do the intro. No, no, no, I'm enjoying this. I'm enjoying this. So what are we seeing in the market right now? What are we?
Speaker 2:seeing in the market. How's work going. How's work going? What are you seeing? I?
Speaker 1:haven since March. Going well huh, look, we're at a stage in our business where, like, we are hitting some serious numbers, where we're settling a serious amount of deals every single month and we're helping a lot of people. I think month of May I'll have to double check my numbers, but I think just me on my own submitted $22 million in new loans, which is a huge amount for any broker.
Speaker 2:I thought nobody had any money.
Speaker 1:Nobody does.
Speaker 2:That's the crazy thing, okay.
Speaker 1:Now, the types of deals we're submitting or the types of loans we're submitting are very different to what we were saying three years ago.
Speaker 2:Okay, I'm assuming less purchases.
Speaker 1:Let me explain. It's such a weird dynamic of what we're seeing right now. It's it's the oddest thing in the world. Firstly, the banks are doing all that they can legally to loosen up their own lending laws. So previously, midwives, nurses, um, anyone that worked in a hospital but wasn't a doctor they weren't applicable for the Medeco loans. Oh, okay, interesting, that seems weird. So Medeco loans are when you could purchase for up to 90% or 95% without lender's mortgage insurance. Now, lender's mortgage insurance doesn't protect you, the buyer. It protects the lender because your deposit's so small and they have to make sure that if you default, they're protected. Previously I said midwives and nurses. They weren't allowed to be a part of this, but now they are.
Speaker 2:Well, that's good, because if anyone's going to benefit from that, it's definitely the midwives and nurses. Their salaries are much smaller than the doctors, but you'd actually be surprised I know some of them do quite well.
Speaker 1:Well, after COVID, so many of them are working overtime because nobody wants to get into the industry and a lot of the nurses are actually moving into cosmetics. They're moving into Botox and collagen, all those things.
Speaker 2:Yeah, yeah, does that count, yeah?
Speaker 1:it does, because you're still a registered nurse.
Speaker 2:Yeah no, that makes sense.
Speaker 1:But at the end of the day, like you're seeing looser lending laws, so they're trying to re-engage the market, they're trying to increase their loan book size, stimulate it.
Speaker 1:That's exactly right. And you're seeing St George. I love St George. I love St George with all my heart. As a bank, okay, but previously, when we were using them as one of our main lenders, it used to take five weeks for them to pick up an application. Just pick up an application. How long did it take us? You guys wasn't long at all. So Michael's family loan, I think that was like. I think we submitted it on a Thursday. We got it approved, like the next Wednesday.
Speaker 2:Something like that.
Speaker 1:Yeah, because we went to Macquarie first and they were just being annoying. They were being very annoying, unresponsive, yes, and then St George all of a sudden was just like bang, so they're hungry. So what we're seeing in the market? First of all, to hit on, michael's first point was no one does have any money. Yeah, that is correct, because we're seeing a lot of debt consolidation right now. What is debt?
Speaker 2:consolidation. So like I get what it means by the name consolidating debt in some capacity, but like what does it really mean?
Speaker 1:Okay, let's say I've got a home, yeah, and my home's worth $500,000 and my home loan is $300,000. I have a credit card that I've maxed out because everything's expensive and my kids wanted a bunch of things. So I've maxed out a $5,000 credit card and the interest repayments on that are 21% Huge. On. I maxed out a $5,000 credit card and the interest repayments on that are 21% Huge. On top of that I've got a car loan because I've recently given birth to a new kid.
Speaker 2:Need a bigger car.
Speaker 1:Need a bigger car and I need something that doesn't break down. I need something reliable. So I've got a car loan. And, last of all, I got a personal loan because I wanted to go on a holiday, because everything is too expensive and I just wanted to live a little. Okay, expensive and I just wanted to live a little. Okay, people do this all the time. Let's say, in total in debt, that's about five. Let's say that's $50,000.
Speaker 1:Car loan, credit card, personal loan Okay, but they're all in different interest rates. Well, when it's when it's not a home, the interest rates are often much higher. So, credit cards 21%. Personal loan you're looking anywhere between 15 and 20%. And then car loan anywhere between 7%, if you come to it. It's simple, shameless plug 7% to 20%, depending on what your credit score is. So your payments can be so much over the next few years, or you could just roll it all up and debt consolidate it into your home loan. So what we're seeing right now is number one people have opened so many personal loan accounts and so many credit cards because it's not as regulated as a home loan is and they needed quick access to money, is that?
Speaker 2:because they were in trouble or because they wanted to keep spending, or is it both Both?
Speaker 1:And something we're really starting to see and I really want to focus in on this is we're seeing a lot of gambling debts that we need to pay out.
Speaker 2:So you and.
Speaker 1:I have spoken about this before. I think Australia is the number one gambling country in the world per capita.
Speaker 2:Oh, we love it.
Speaker 1:We love it so much Like so much money is made on sports bets, so much money is made on TAB, like all these sports betting companies. Basically I'm regulated here it is. It's insane. So we're seeing like we're seeing so many people approach us and be like hey, I got into a little bit of trouble. What happened? I had a sports bet account. Well, most of the time, we can't actually refinance that.
Speaker 2:Okay.
Speaker 1:We need to like put you on a ban for at least three to six months and then we can refinance it afterwards. These are the things that we're seeing, so that's the first part of it. We're seeing a lot of debt consolidation, but on the other side, we are still seeing purchases. We're still seeing people buy, but they're not buying in the traditional methods that we were seeing previously. We're not seeing people buy a property on their own. We're seeing siblings like yourself link up three siblings together to purchase one property.
Speaker 2:Because that wasn't always the case. You weren't able to do that right for for a bit you were always able to do it, but it was just.
Speaker 1:There wasn't a necessity to do it previously. There was not not really much incentive.
Speaker 1:Yeah, yeah because later on down the track, michael recently engaged. Okay, your sister I don't know if she's seeing anyone your brother, I'm staying out of that. One. Three different parties, but each person might end up getting married. And then there's another person that's involved and then all of a sudden there's three siblings. Each person is only 33% share, but then how much does the wife own or how much does the husband own? Like it just gets a bit muddy. But because of building approvals and we've discussed this, so we've discussed it at length.
Speaker 2:Yeah, people have cash sitting aside and they're saying I need to do something, I need to get in the market now, otherwise I am going to miss out and do you reckon that that's that's happening, because people are buying properties that they can build, like townhouses or duplexes and stuff on, to try and mitigate these issues. Is that on the rise as well?
Speaker 1:100. So, uh, the new south wales state government, for example, um, they're trying to increase low to medium density um, all across, and especially across near train stations. I think they, chris mince, is our state premier yeah, yeah he's made massive headway. He's like balmain like what are you guys doing? We need this land, we need to be able to build. We need developers to come in here because you're so close to the city.
Speaker 2:It's too good.
Speaker 1:It's great, it's a great location, but Nimbys.
Speaker 2:And they've just caused so many issues.
Speaker 1:Balmain's on the North Shore yeah, no, it's in the West Balmain's, like next to the Anzac Bridge. What were you thinking of? I the Anzac.
Speaker 2:Bridge. What were you thinking of? I don't know what I was thinking of.
Speaker 1:This guy hasn't had enough coffee today. I have not. We're seeing siblings group together to make purchases in Sydney. We're seeing single individuals who want to be investors purchasing in regional parts of Australia or interstate. So we're looking at Brisbane and Perth mainly because Melbourne's slightly on par with Sydney. But you don't get as much growth in Melbourne as you do in Sydney.
Speaker 2:Yeah, it's only slightly below Sydney, but that shouldn't confuse you into thinking that it's a cheap city.
Speaker 1:Melbourne's super expensive.
Speaker 2:It's just not Sydney expensive.
Speaker 1:So what we're seeing our buyers approach us with. They come to us and they go hey, I've got this deposit, where can I buy it? And I can have a positively geared property. They don't want to spend extra money. And we're seeing Perth and Brisbane, okay. So I've got on my notes here just a couple of properties that we've recently helped people buy. So in Brisbane we had an $840,000 jewel ock property that had 7% rental yield. Sell for $840,000. Jewel ock means that it's got a house, possibly with a granny flat on it. And then rental yield is the rental income divided by what the total property value is. Is the rental income divided by what the total property value is, 7% rental yield. So 7% of $840,000, which is going to be about $58,800. I think I got that right for once. Yeah, somewhere around there. It's going to be about $58,000 to $59,000. For rental income, that's really good because you're covering your debt. That's the big thing, isn't it.
Speaker 1:Yeah, you're covering your debt. That's the big thing, isn't it? Yeah, you're covering your debt that you're purchasing with and then that way, you could see your investment grow over time, especially Brisbane Brisbane's great because we've got the Olympics infrastructure. It's growing.
Speaker 2:There's room to grow.
Speaker 1:Yeah, great weather, it's too hot for me. You need one jacket a year, that's it, and that's for July and August, and then after that you're back in shorts.
Speaker 2:I've got too many jackets. I can't commit to that. I'm a jacket man.
Speaker 1:So we're seeing a lot of people go regional for Brisbane.
Speaker 2:Yeah.
Speaker 1:And then we're seeing people go for Perth because Perth we're seeing 8% rental yield. So you're looking at a $750,000 property, dual lock again, or jewel key, where you're getting two properties for the price of one, similar to a duplex, but sometimes subdivided, sometimes not. So you know, on a $750,000 property, $52,000 rental yield, it's good money.
Speaker 1:Yeah, it's good money and people are taking advantage of this, and what we really like to see is these investors come to the market and we're able to help them, but they are struggling to be able to compete with the big dogs out there, because you've got a lot of people that they just built up value in their property and land from the 1980s to now.
Speaker 2:Yeah, I mean, that's the big issue that everyone's facing, and it's not just renters or whatever, or first-time buyers.
Speaker 1:It's other investors. You're even seeing private equity groups buy property now which is insane. I think that is the one that we really need to start focusing on as a government. But affordability is all the way down because interest rates are so high too.
Speaker 2:Yeah.
Speaker 1:I didn't mention this in the last episode, so we're talking about winners and losers of the Australian budget, and losers we didn't include people that were trying to participate in the first home guarantee. I've had it, I've mentioned it many times on this episode, what the first home guarantee is. But to relay that information again, the first home guarantee is when you're purchasing a property your first property, of course, with a 5% deposit Now this scheme was brought in because property became so expensive.
Speaker 2:Yes.
Speaker 1:Rent became so expensive it became harder to save. Okay, you know what you save for a year and you get a 5% deposit. You're going to be able to buy a $500,000 property, a $600,000 property.
Speaker 2:I think it was a maximum of $800,000.
Speaker 1:That's since increased. I think it's up to $950,000 now. I mean it would have to increase because property prices have. So that increased. I think in 2023. Yeah, but they tested it first on Australian citizens, then they launched it to Australian permanent residents and then they allowed siblings to participate with each other. But the price cap that's where I got confused with the siblings purchasing.
Speaker 2:I think that is.
Speaker 1:They price capped it at about $950,000.
Speaker 2:Okay.
Speaker 1:But where I see the loser is there's income thresholds. So it's $125,000 for a single borrower and then for combined borrowers. So two people buying together it's $180,000, I believe it's either $180,000 or $200,000. No, it's $180,000. That sounds more correct to me. If you're purchasing a property and you're earning $125,000 a year owner-occupied, if you're purchasing a property and you're earning $125,000 a year owner-occupied, you've got a 5% deposit. You're going to be capped at about a $690,000 loan.
Speaker 2:Okay, which is good in a sense, but not for Sydney. I was going to say you'd be hard-pressed to find an apartment in a decent location for that. You can find an apartment for it.
Speaker 1:But where You're looking at the lower end of the market in ride paramata all along victoria road. So all along there you might be able to get something paramata wouldn't be too bad rides, not too bad.
Speaker 2:I was thinking of going. Well, wasn't gonna buy and ride, but anyway, sorry to interrupt.
Speaker 1:They're high density units, yeah and they don't Sorry to interrupt. They're high density units and they don't perform as well as land does.
Speaker 2:Oh, no, no, no, it's not an investment. Well, it is an investment, but don't expect it to grow like a house will yeah, you're not getting huge capital gains, you're getting very minor capital gains, that's right.
Speaker 1:So that's the first issue, Like there's such a price threshold. And then the second issue is if you've been earning that $125,000 and you go $125,001, like that's how much you earned for the last year you are no longer applicable for the scheme. Really, it's just that dollar will actually that will knock you out, and I think that that is an unfair way to be able to assess people.
Speaker 2:They should do it like a uni essay. Way to be able to assess people. They should do it like a uni essay 10% each way.
Speaker 1:Standard deviation yeah so oh man, I was not expecting standard deviation in today's episode, but in saying that, we're seeing many first-home buyers being disadvantaged, as both single borrowers and as couples, mainly in Sydney. So Melbourne, you could still find good property. Brisbane we always talk about Brisbane, and Perth and Adelaide.
Speaker 2:Brisbane, of the big three cities in Australia right now, is the one with the most opportunities and the most chances for capital growth without it being stupid.
Speaker 1:That's right.
Speaker 2:Sydney and Melbourne have gone well into stupid territory. Not people want to live in darwin or adelaide and perth. Perth is weird. Perth is like perth is fine, but no one. No one is like I'm moving to perth. I've never heard anyone say that.
Speaker 1:I've heard like four people say it and I know a lot of people nah really nah, but no. No, but they're like they. They met someone and they've that the partner was from perth and then that's why they moved over.
Speaker 2:Yeah but that's because they met someone from perth who came to sydney and they're like maybe we'll go back to perth. It's always perth. People bring dragon sydney signers over weird ad lib.
Speaker 1:So we not ad lib, but weird. Uh, story time from me. So I was in new york 2021, and we're at an Australian cafe and there was an Australian waiter who had been working there for two weeks. He was from Perth. I go how old are you? He goes I'm 19. And I go. Okay, had you ever been to Sydney before? And he goes no, this is the first place I've ever visited and I moved here and I go. So you went from Perth, which is smaller than Wollongong, to New York City. It's really small in Wollongong. It's smaller than Wollongong or about the same size. Like I'm pretty sure Wollongong has a higher population than Perth. I did not know that. Like 80%, 82%, certain you know how I like my weird statistics. That's a weird number to be Like I'm at 81% with that one, 81% certainty.
Speaker 2:I'm about 81.5%. Sure you're wrong? No, I'm just joking, I have no idea.
Speaker 1:We've got 18 and a half going either way 18.
Speaker 2:and a half percent. So he moved to New York.
Speaker 1:He moved to New York City.
Speaker 2:I guess that's a typical American story where they're like from a small town I'm a small town girl moving to the big city.
Speaker 1:But he's from Perth. It's not like he went from Arkansas, he went from Perth to New York. It's just like. That's like getting smacked in the face with a baseball bat. Yeah, that is just another level. That's like watching the movie Speed on repeat. I don't know, man, like there's like Keanu Reeves is running around and Sandra Bullock and you know there's a bus that's going 99 miles an hour. It can't go under.
Speaker 2:I'm pretty sure that movie was called the Bus that Couldn't Slow Down.
Speaker 1:But what were we talking about? Going back to everything, so first time buyers.
Speaker 2:First time buyers. This episode's unhinged.
Speaker 1:No, we're really noticing that they're at a massive disadvantage in Australia and they're not being able to access the property that they want.
Speaker 2:Yeah, or even like the property that would be like with a reasonable level of sacrifice.
Speaker 1:That's right.
Speaker 2:The only stuff you can get. You have the privilege of being able to drive 90 minutes to the city.
Speaker 1:That's right. So massive disadvantage there. Um, we're seeing I I said it to you previously we're seeing people, uh, tap into well you know, join up with their siblings or join up with friends to purchase and then we're also seeing and this is the big one we're seeing, and I mentioned this before but the land bankers, the people that own property previously, are just getting equity out and just buying whatever they can.
Speaker 2:Yeah, and it's just going and going and going. They're churning it like crazy yeah people are terrified to go to auctions because it's not like they have no money. But they don't have the money that these land bankers have.
Speaker 1:They have an insane backlog and it's this is the first time I've seen like late stage capitalism.
Speaker 2:Yeah, if people were talking about it a couple of years ago, I feel like we can firmly say that we're like, we're there.
Speaker 1:We're there so for our listeners. I just want to explain late stage capitalism. If we all started on like a fair like Even footing. Even footing all the same, like start line line, and then it was a hundred meter dash and somebody wins. No one's going to be like overly upset at the winner, okay.
Speaker 2:Well, it's fair competition. It's fair competition. They were the fastest.
Speaker 1:That's right. But now we're not seeing that. We're seeing people that purchased land from 50 years ago. That land has grown exponentially so they would have had a $100,000 mortgage. Now, all of a sudden they've got a $5 million property with a $100,000 mortgage. Yeah, and they didn't do anything. They didn't do anything and it's just really disabling first-time buyers and by not increasing that income threshold, the first-time buyers are at a disadvantage. The land bankers they're refinancing, they're churning, they're making the money. They're fine. I don't mind as a business owner, because that keeps me busy.
Speaker 2:Yeah.
Speaker 1:Okay, and guess what? I don't mind people acquiring more wealth. I don't mind people being able to purchase more. I don't hate that as well. I love initiative. Okay, I love people working hard initiative. You know using the tax system in their own benefit. You know really looking for places where they can find value and really increase their property portfolio. What I don't like is when someone who is a first home buyer trying to make it and they can't because HEX is indexed at 7% or whatever it's indexed at now I think it's 4% this year, so HEX is going to be indexed at 4%. Their rent is $700 a week, or between $500 and $700 a week. They might not have come from a wealthy household, so they don't have much in a house deposit. And then they're getting told hey, go work hard, but if you earn over $125,000 a year you can't be a part of this scheme. That's just what I don't like.
Speaker 2:Like, give them a little bit of a leg up, a little bit of a better leg up. Yeah, it's. Yeah. I am not the economist of the two of us, so I wouldn't really know how to solve a lot of these things. I've seen things thrown around about capital gains, discounts and stuff like that, but I only kind of know what that means.
Speaker 1:So capital gains discount is um? Are you talking about negative gearing?
Speaker 2:there's negative yeah, negative gearing and stuff and that like again, I've just seen these phrases thrown around like I'm busy with my own shit. I'm not, I'm not just. It's too exhausting to keep up with all this stuff constantly.
Speaker 1:It is, and that's that's the issue the young, the youth. They're disengaged and a lot of them want to get out of rent and control their own lives, like when you purchase your property. That's when you start controlling your life, because you don't have a landlord that's going to increase your rent by $50.
Speaker 2:Or be really weird on your inspection. That too.
Speaker 1:You're not going to receive that. You can kind of control your own destiny and you also can have your property appreciated in value. But because we're approving less dwellings we've harped on about that before and because we're seeing less activity in the market, we're seeing a lot more property developers and builders go bankrupt Because of all these items. We're just seeing people at a disadvantage and I just want to see activity return in the market for first-time buyers.
Speaker 2:Yeah, and it's that wealth gap that's really starting to become apparent, because in America that wealth gap has already been pretty big for a while, like if there's ever been the closest thing to a true capitalist state, it's the US, and that's thanks to the Cold War, because there had to be an opposition to communism.
Speaker 1:I've got a strange conspiracy theory. Yeah, okay, and this is like all the way strange, and we'll finish on this note yeah all right. Okay. I strongly believe that Australia wants to push for a lower divorce rate and a lower breakup rate, so they're purposefully keeping property prices high so that people have to purchase as a nucleus, as a couple together, to be able to purchase a property.
Speaker 2:I do know leaning to like helping that point is because fertility rates are dropping in the developed world across the board, not just Australia, hence why immigration numbers are up, because we're not having kids. But we're not having kids because no one can afford it.
Speaker 1:I'm like bullish on that theory that the Australian government wants the family nucleuses to stay intact. They don't want people divorcing, they don't want people breaking up and they want people to be purchasing property at an earlier age and then getting married at an earlier age. And it's just a running. It's a theory I have. It's a running theory.
Speaker 2:But none of the policies seem to be helping that. Because, yeah, like I said, the big reason why no one's doing any of those things because I can't afford any of those things yeah, engagement rings are expensive.
Speaker 1:So, on that note, um, we hope you all enjoyed our market update. Uh, there's a lot of debt consolidation, there's a lot of investment opportunity, but there's also a lot of disadvantages right now. And our biggest thing is we want to help people. So if you need any help with your home loan or any help with your finances, contact us at wwwitsitbullcomau. My name's joe that's some schmo. His name is michael and we'll see you on the next episode. See you, guys.
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