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This is a Momentum Media production. Nerd alert! Property nerds. The home for data-driven property investors, where we uncover Australia's hot and cold markets, latest headlines and trends. That's right, latest headlines, trends, hot, cold markets, a lot to talk about today.
I'm your host, Arjun Paliwal of the Property Nerds podcast, and I'm here with my co-host, Lee. How are you, Lee? I'm good. How are you? Very good, thank you, Lee.
And when it comes to property investing and trends, I think a lot of this month, and in particular last month as well, has been more than ever about finding those X-factor scenarios for borrowing capacity, looking at the changes happening in the finance world we're in. Of course, it's getting closer and closer to a period where people are more proactive than ever or are forced to be proactive simply because of what we're seeing, right? And I think that's clearly, we talked about this in the last episode, sparked a refinance book. And that has two things that we talked about. One is it means that people aren't in prison, like people say they are, because a lot of people are moving.
Mobility and refinance shows that. But the second thing is it also showcases that people are proactive, but probably now needing to be more proactive than ever, because it doesn't seem to be fading away in the last 10 months. When you look at it, 11 months of rate rises. Yeah, so 10 rate increases, another one for March announced, which I'm sure you guys are all been following and are aware of, for another 0. 25, bringing the cash rate to 3.
60%. Look, I reckon mentally, most people have come to terms with we are going to see continual rate increases. There's talks about potentially another one or two more cash rate increases for this year in the coming months. And yeah, it is what it is. So people are getting on with what they can do.
On that note, we're seeing predictions start to show the other side of what we've been seeing, right? We've seen the sharpest now increase of rates, but now we're having predictions on the other direction. Do you want to talk about some of the predictions you've been reading and hearing about in your bank conversations? So Westpac made a prediction just recently that we will have two more rate hikes forecast by May 2023. And then before, this is all before the RBA pauses in 2024, when they deem cuts to be necessary.
So they suspect a minimum of four rate cuts in 2024 of about 25 basis points each time. So that's 1% in total, you know, cut on the cash rate. And this is what their predictions are for 2024. So if we're sitting at 3. 6 at the moment, maybe another 2.
25s, you know, for April and May, and then another 1% off that in 2024 is kind of what they're predicting. Now on the whole rates topic, I know we take a small segment of that each podcast to go through, but we want to make it very clear that we're not here just to be handing on interest rates and nor have we ever done that in the past because interest rates are just one factor to everything that we look at when it comes to housing and finance analysis. However, from a data perspective, the weighting obviously plays a key part when it comes to the cost of money and the accessibility of money, which in turn impact house prices or have a impact in the picture of house prices, which is why varying results and not everything declined. Some did, some did by more and some didn't. So I guess from a perspective of looking at rates, I want to take a small pause just to be able to say and break down what these predictions may have in mind, which is rate rises slowing and then in turn falling.
But what is the sequence of events that makes these predictions potentially come true? Because that's more important than anything. I think one thing that the Australian public is now very much aware of and hates on is actually predictions coming from all angles and it must be opposite happening. We talk about going back to the RBA governor talking about 2024, no rate rises until then. Well, that was obviously looking at that, right?
Banks saying 30, 40% price declines in COVID and the opposite happens. And then people saying rates ending, rates rising more, lots more pain and then not as much pain or not as much rate rises or falls as many people thought. I guess the main thing here is predictions aside, why don't we take a moment to break down the chain of events that may lead to that prediction. So when you're focusing on predictions, don't focus on what the end outcome of that prediction is. Being Westpac said this, so therefore we must do X.
Focus on the chain of events that must happen for a certain prediction to come and play. And I'll start sharing a couple of them. So firstly, 7. 8% inflation rate came down to 7. 4.
Coming back to the core target band, like the range, 2 to 3% as a focus by the RBA is what they're trying to bring it down to. Hence engineering or hopefully engineering an inflation rate reduction by charging up interest rates as quickly as possible. Now seeing that first reduction from 7. 8 to 7. 4 is a step in the right direction, but obviously too early to call overarching because there are things that play in the inflation basket, things like rents, which are increasing heavily.
And with rents increasing heavily, they are a force as a headwind in one direction to combat rising costs for investors, but they're also a force and a headwind in the other way for renters who are then paying more, which then contribute to higher inflation. So it's a catch here. On one side, it's saving investors from higher costs and the other side, it's contributing to what creates the higher costs. So this is something to realize. Now the next thing in the chain of events that we're starting to notice is that we track job advertisements heavily and job advertisements have a correlation with unemployment rates.
The stronger job advertisements increase, we tend to see unemployment rates decrease, which we saw rapid increases in job advertisements over the last few years. However, now we're seeing a turn in job advertisements and job advertisements are lowering, which is usually a sign of business confidence and of course what unemployment rates will eventually do. The next statistic is we're seeing job applications per advertisement increase. I can just share that from our current business, right? In our current business, the last time we had an associate buyer's agent role, we had between I think 10 and 15 applications.
Now we've got over 40 plus in the most recent batch and it's only been one week and it's a South Australia specific role. Before it was pretty broad. So you can see how much the job applications per advertisement are picking up from our micro case. Now the next thing here is that as migrants also keep coming in, they don't all come in with a job secured. Life's not that easy.
Not everyone's coming off a plane and going, woohoo, let's go Sydney, six figures baby, here we come, money, let's make it happen. That's not what's happening. People are coming off and they will have to search in this heightened environment of competition. Then we're seeing some larger players start to change their, I guess, workforces both overseas and now potentially locally. And then eventually what happens is that as fixed rates start to roll off, not saying, I've said in the past that I don't think it's catastrophe everywhere, but as fixed rates start to roll off, as people are now making those changes, those choices, yes, consumption is still relatively very high, but that should also slow.
So what you're seeing is chain of events. As an analyzer of data and as someone who researches for a living, I want to share with you listeners, do not get caught up in the predictions, get interested and analytical with the chain of events. And that should then force your thinking of how you adapt to markets. And so that way you aren't going gung ho because a prediction said something or you aren't going the opposite because a prediction said something, you're much more balanced and neutral and you watch out for chain of events. But in saying that, I don't want the rates to be the all or nothing for your portfolios because the true success is a portfolio success comes from three things, buying a lot of property, holding it for a long time, and three, eventually having little to no debt that creates income.
As simple as the forms, that's what it equals. And that does not happen from over analysis, that happens from action taking, doesn't it? Well, I would say my point of view is always very simple. And it's that if you have the means to be able to buy now, I'm talking about investors today. Yeah, that's higher rates.
But if you can get in the market now, you'll always be better off doing so now rather than waiting for another six months. Are you in agreeance with that? Yeah, totally. Because that's the approach we took, right? Yes, a couple purchased five properties in 2022.
And that had nothing to do with timing the market or cycles or things like that. It had simply to do with a plan. It had simply to do with the ability. Leverage as well, policies, all that kind of stuff. And the buffers.
It was all of those put together. I had buffers, I have a plan, and I have capability and capacity. And that's what it should come down to. Now, speaking of buffers, policies, right now, this is a offer of support and offer of help for investors out there who are listening to the show and thinking of a couple of things. One, improving your current financial position from interest rates and costs.
Two, is if you are looking to grow Now, the next tip that you had, Lee, was around where people may not be looking to purchase more property, but servicing is a little bit tight for them. And this is where they're in a situation where I'm trying to refinance, but I am stuck. And at the same time, I want a better rate because I don't like where I'm at now. I want to refinance, but I'm stuck because people are telling me I can't refinance. You've been able to find some solutions.
Could you talk to us about this term dollar for dollar refinancing? Yeah, so a lender we've got access to will provide dollar for dollar refinancing for both owner, arc and investment properties without completing a borrowing capacity test, which means they essentially won't assess whether your income on normal circumstances can service the debt. So there's no, you know, verification, full verification of income, assessment buffers applied to the new loan taken out, etc. The absolute main things that this lender would want to see is obviously a lower interest rate that you're taking on. They would want to make sure you're taking on the same repayment type, meaning if you're currently on P&I, obviously it would be a principal and interest type repayment loan or interest only if you are on interest only and decent credit score.
And generally they want to see that your loan's been there for 12 months or more. But in saying that, they just look at the loan at hand that you're refinancing. And that's really it. They will not want to ask if you've got employment, of course. They want to know it will have some sort of capacity to be repaid, but there's not that full borrowing capacity test involved.
It's more about staying clean on how you manage the property and the repayments to then allow for a move versus, you know, you can't just move if you have a whole bunch of missed repayments. No way. Yeah. So you've got to have a decent credit. This will be highly beneficial for people who have continued to grow their portfolio and their loan to value ratios have gone down as property values have gone up.
Right. Because the lower the loan to value ratio, the better the interest rate that they'll honor you. It's all based off tiered interest rate system. So that's how that works. But yeah, we're getting a lot of success off that, especially because they've just recently brought in that option for investors, not just owner occupiers.
Now, there's two other points you wanted to mention today around one core area, and that is getting a second wind on your borrowing, meaning the ability to go, hey, look, you might be stuck, but here's how you can borrow that little bit more to unlock an extra purchase or maybe even two extra purchases. What are some of the things you've been seeing around loan terms, assessment rates and even loan structures? Well, the first part on loan terms. So there are lenders which offer varying loan terms, example, 40 years instead of your standard 30 year loan term. And so this is to help reduce repayments over the life of the loan alongside approve your assessment rate criteria.
So obviously, if you're having the same type loan over 40 years opposed to 30 years, it's going to reduce what your repayment amount per month would be, therefore assisting with borrowing capacity. But the same lender, instead of doing a standard three and a half assessment buffer on whatever the rate you might be getting is, they'll look at your actual loan repayment. So meaning even if you're paying interest only repayments, they'll look at your actual loan repayment amount and put a 25 percent buffer on that. So actually, it's very helpful to increase your borrowing capacity. So we're talking assessment rates there and essentially getting one that's more suited to reality than what's the hyperinflated buffer would be.
Because the hyperinflated buffer is crazy. I mean, a hyperinflated buffer like that, it's essentially saying, hey, we know you're on six to seven percent rates, but we're going to work it out of 10. Firstly, it gives me two feelings. One is you're completely stopping the flow of credit in this economy, which means you're going to have to pull back rates faster than what you think you would. Number two is that you're epically protecting all of us at the same time.
So it's like kind of two sides there, right? Because now we're like every mortgage that's been taken out is someone who's able to service it at eight to 10 percent rates, which shows you like, hey, hats off to you for being able to buy a place in this environment on assessments of eight to 10. You should feel so confident about your financial position because that's what literally everyone's being serviced on. And that's a great acknowledgement to you, the borrower, whilst limiting to many. It's an acknowledgement to those who have either refinanced or purchased property recently to say you can service eight to 10 percent rates.
I think it has been a healthy approach until late because of where we're currently sitting at with interest rates, because, again, of that conservative approach, like you definitely can afford what you're buying from the banks. Like, obviously, the bank's super conservative. So in real life terms, repayments will be manageable. And I totally think they should bring that back down. Like, it just doesn't make sense in the current environment.
Now, where we're at, it makes sense to bring down. And the fact that so obviously costs of living has gone up a little bit and they increased household living expenses or him, we like to call it the other month, which increases the minimum expense required for your household to be factored in by the lender. Plus, we've got the assessment buffer, the higher rates. So, I mean, there's got to be some give way on one of those three things. Now, I guess the other part to improving your service is something we've collaborated on a lot of late.
And I'm talking a lot more. I think it's been the most inquiries we've had in this space than ever before. Yeah. And this is the world of self-managed super funds. And I guess what people are from what we're hearing, we're seeing two things.
Number one, people want to take more control. Ever since COVID, we've seen this desire for control of their own future happen a lot more than ever before. But the second thing is around the second wind, again, talking about that extra purchase or two. Correct. Could you explain more about self-managed super fund lending and why people are considering this and what's coming up a lot more?
So quite often, an existing investor may get capped out on their borrowing capacity through their personal name or perhaps trust lending, which needs to be guaranteed by them personally. So an option that has been coming up regularly in discussions with me and my clients is essentially looking at the option of buying through your SMSF. And the reason for that is essentially you do get a second wind in your borrowing capacity as your borrowing capacity through the SMSF is looked at in complete isolation from your personal assets or liabilities held. So literally, they would just be looking at what super contributions are you making annually? What is the proposed rental income on the property that you're going to buy?
And that's essentially how serviceability would be worked out, obviously, including any additional incomes on existing SMSF properties and loan repayments on those existing SMSF properties. But if you're brand new to SMSF lending, it could be a great option if you either have individually or combined a total of 180K plus in superannuation. This could be an option that you're eligible for. And like I mentioned, it would be in a separate structure through your SMSF. Hence, it helps with that second wind.
Now, it's a great point, Lee, and SMSF lending, it is a core part. But I guess the main thing people should just be focused on is that, you know, it does require higher interest rates. I don't require, but they charge higher interest rates. Just be more mindful that, you know, whilst you've got the money and the ability to do so, it doesn't always mean it's the best thing. And this is where financial planners and us tag team a lot, accountants tag team a lot with us to make it more holistic.
So if you want to talk about the SMSF side of things and you haven't set one up or you've recently set one up and you'd like to go through this, you know, Lee's quite confident that we'll be able to find a solution for lending. So don't stress too much on that. I'd say more about do you have that 150 to 180 minimum? Have you had a chance to set it up? And if you don't have a contact or the right team around you to set it up, even just reach out to me.
It's investigate. com. au for a free consultation with our team. And we'll walk you through the process of SMSF, walk you through the contacts and relationships like financial planners and accountants to have on your team to make sure you're holistically reviewing it with the right setup and compliance. And then, of course, Lee and I collaborate to execute the asset.
So big thing that's happening on that front. Now, Lee, you've had the recent ABS lending indicators come out. Did you want to talk to us about what's happening on the finance front from January's data and what you're noticing? Yes, obviously, two months delayed with us being in March currently. So in January 2023 for total housing, this fell by 5.
3 percent to 22. 1 billion after a fall of 4. 3 percent in December. And so that was 35 percent lower compared to a year ago for total housing. So we're clearly saying, hey, 35 percent lower is the sign of two things, in my opinion, a shift in borrowing capacity, the ability to lend.
Secondly, also fatigue. There was a big boom in January last year that was coming towards a bit of a slowdown for some locations and continued for many. So a lot of activity, a lot of finance reduction there. But interest rates, the big culprit. What are 20 pages and some go up to 50 to 100 plus pages depending on what it is.
So super pumped. I want to say a big thank you. I'm very excited about what 2022 had for us and 2023 has more epic research coming your way and more tools as well. So stay tuned. I'm very sure of it.
Yeah, that's the shout out on that one. Very awesome news. Well, this month's report or white paper topic is Australia's infrastructure boom. So if you haven't taken a look at the website yet, you need to go to investigit. com.
au forward slash white papers. That's where you can access all the free white papers and the most recent one there is the one we're going to discuss today. So did you want to talk a little about that report and I can dive into some questions? Totally. So I guess the main thing is there is a lot happening in Australia when it comes to infrastructure and from a population level, we could be at 50 million by 2060 or 2066.
Now that is no small change. And I guess to keep up with this population, we need a hell of a lot more infrastructure. When it comes to the budget, the recent budget was huge with over $18 billion committed over the next 10 years, just from a federal perspective. And then when you look at it just over the next four or five years of what's in progress planned, you know, already just completed recently, 2021 to 2025 has over $215 billion of major infrastructure. This is huge.
I'm talking it's bigger or as big as some of the days that you'd have to go back to when cities were being created. That's how big it is and monumental it is. The spend happening now is as if, you know, Australia is being reborn again. That's the kind of spend that we're seeing. But I thought that was why we wanted a deep dive into the topic of infrastructure simply because it was at the scale and we picked this up saying, hold on a minute, something's happening.
Right. So on that note, that is why we picked out this month and what we've really analyzed. So why would you say infrastructure analysis is important for investors? Okay. So coming back to the first point, and this is where research has a flaw and also an upside once you can understand the chain of events.
And that's the key part. When it comes to the chain of events, this is where property has so many influencing factors. Infrastructure has money and money that goes into it is usually for the purpose of materials and or jobs. Materials in most cases source locally, therefore also impact us from a perspective of other jobs that create those materials. But then you have the direct jobs that go into planning, project, construction, and post-construction to actually use the infrastructure or use that provided facility.
And so the main factor here is economic prosperity, job creation, and from economic prosperity and job creation, there are also flow on effects depending on what type of infrastructure it is that impact lifestyle, social, recreation. These sorts of things can have flow on impacts, not just from what jobs it creates and what prosperity it creates, but the likeness for someone's desire to live there, visit there, spend there so much more depending on the type. Now, what does all that money mean or prosperity mean? It means that people have a greater ability, capability, and desire to want to transact, whether it be in the rental market or the buying market, to have the support of all those infrastructures around them. So that's the chain of events explanation.
But in simple terms, and this is the sad part, it doesn't have a clear correlation. It's not an instant singular thing that you can rely on. And that's the thing with property. Nothing is very instant and singular point that you can rely on. Yes, we have some micro data pieces where you can do that, but on a macro piece of infrastructure, sometimes infrastructure can unlock a lot of zoning and create a lot of supply.
Sometimes infrastructure has a lot of people excited about the jobs on the way in or the prospects of that project coming, and they get very active in a local market due to speculation around what it will do, and that's pre. Sometimes infrastructure in the during phases gets people excited, and sometimes infrastructure in the post phases has little to no jobs on the post, and it creates no further prosperity. So as a result, it is too messy for investors to rely on it in isolation to create a meaningful investment decision. But a successful investment decision relies on a total picture being successful or very prosperous. And a total picture should definitely involve a lot of infrastructure to make sure that that part of the picture is performing well.
So that's my thoughts on why it's important for investors. Awesome. And so when looking at infrastructure, what mistakes do investors make when looking at the data? Yeah, I guess the first mistake is a recap of that last point, which is they look at it in isolation and they give too much impact to it without understanding the type of infrastructure, the diversity of infrastructure in the city, and then, of course, the pre versus post jobs. You know, renewable energy has been a huge upside for the country, and it's likely to continue to be when it comes to the dollar spending and job creation.
But it can't be the only thing that economy has. Right. And if it is the only thing that economy has, then you've got to look at the jobs are likely to be top heavy in construction. And how many people does it take to operate a wind farm afterwards? Like four, five, six?
I'm not sure. But I have no idea. Yeah, it wouldn't be a lot. Right. But I guess the main thing is the main thing there is that infrastructure types and diversity.
The main thing is singular sort of correlation. And then the final thing is getting too excited with the bees, the bees being the billions spends big dollars, big thinking, big talks. I think the first thought is everyone's like big capital growth that comes to mind, isn't it? Reminds me of Dr. Evil from Austin Powers, like 10 billion dollars and a little pinky thing to your face.
And unfortunately, it's not like that, like 10 billions of dollars of spend might create something phenomenal, but at the same time, it might not do much. So I guess the key thing is we've got to look at it holistically and look at it from all sorts. That's that's a core part. But this is where when we go into the report here in this white paper, which you can find out, by the way, on investigate. com.
au on our research tab, it's totally free for the download. We wrote down a few benefits. So benefit one was obviously creating jobs, supporting local businesses during construction as well as on operation. We went through a few jobs and few projects and went through them. We even highlight some of the top 10 education infrastructure projects as an example of sampling some things that showcase a lot of post job impact and prosperity post job from students, money, things like that.
Benefit two was improving connectivity and the accessibility of regional areas. As we know, we have probably some of the worst in the world in Australia for when it comes to population skew and where it sits across that diversity being quite weak. It should be much more spread than what we have today. And this talks about some of the game changing infrastructure projects like the West Connects, like the metro tunnels, like the metro connections and road connections from different parts of major cities and even fast rail or other things like inland rails to improve connectivity. So these are some of the things in play to shout out benefit three, increasing the attractiveness of smaller cities and livability of regional areas.
This is coming back to that population distribution. This is not just about the connectivity from road, rail or projects like that. This is now talking about lifestyle, precincts, stadiums, exhibitions, sports. What brings connectivity and livability better than an epic sports culture, an epic stadium and live events? These sorts of things make a huge difference to a town's popularity.
Other benefits that we've talked about in this report, even medical infrastructure, I guess, was another point to things that expand livability. But clean energy, more diverse power networks. These are a huge topic on the spending in Australia right now. And these were some of the four core components. We go into each state in this report, some of the core standouts looking at centers changes, significant projects, value of constructions in pipelines spread across sectors.
We look at government funding. We look at per capita spend. And these sorts of things you can expect on a state by state level when you download this report. So from a perspective of infrastructure, that is the core, you know, I guess, key thing to expect when you're looking at this report and what you should take out when reviewing it. We obviously haven't seen much on infrastructure, like investment infrastructure like this before.
Why is it not being talked about in the current environment? Yeah, this is human nature one on one, right? It's very easy to look at the short term, the metrics right now and play what is happening. And look, we're kind of guilty of that, too, right? Every episode, we've been kind of keeping users and readers and listeners updated on interest rates.
What happens if we'd stop talking about that all the time? Now, sure, we could do that. But at the same time, we want to be as holistic and informed across many avenues, the goods, the bads, the truth. And that's what true research is about, not favoritism on just the good stuff. We want to talk about it all.
And that's what we try and do here. But the truth is, many people fall to the trap of that singular metrics or isolated metrics and focusing on the short term. If interest rates were aside, do you know what we would have right now?
