Post-Budget Property Sentiment: What Data Really Shows

The I did something or the I wish I'd done something. And I think the answer is pretty clear. I did something. So be on that side of life, not just from property investing, put property to the side for a moment, just life. And that's the person that gets ahead in life.

Nerd alert! Property Nerds, the home for data-driven property investors, where we uncover Australia's hot and cold markets, latest headlines and trends. We're back for another episode of the Property Nerds podcast. And today we're talking predictions around the budget time, what's happening so far. We're only three to four months in post-budget.

But in that three to four months, what predictions have come true so far? What predictions are in the hot seat of will they, will they not? Have they, have they not? And the ones that are like, you know what? Stay tuned.

It's still in there. It's just a matter of soon, when, not a matter of if. Got Jack on the show here with me from the Property Nerds, from Fouracre Financial and the Property Nerds. Arjun here from InvestorKit Buyers Agency, Buyers Agency of the Year. Now, if you're looking at this journey, Jack, of the predictions we made, what were some of the predictions you made on the budget event when you saw that all happen?

We released that first episode. What were some of the predictions that you made? I think it was the next day. The next day, yeah. We sat down and just like, so the most obvious one that I don't think anyone was seeing or talking about, and I think it's just because I have a bit of knowledge about some lenders, how they negative gear trust debt and why and things like that.

What a lot of lenders did, they didn't, they just switched off negative gearing, right, altogether. They didn't account for the fact that you can still negative gear that interest against the rental income alone. Yeah. But the calculators weren't set up to do that. And some were in the trust lending space, but the major banks and all the first, second tier non-banks, it just wasn't set up.

It was just simply put the trust debt in or put the negative gear debt in, and that'll offset against all income, rental income, PYG income and everything. So that was the one that I thought was just common sense and took them three months to basically realize that. And I've had some chats with a couple of the BDMs in different banks, and they're all doing it the same way. Literally, they're like, yeah, yeah, so you can still negative gear, it's just against the rental income. So we just changed the calculator to adjust for that.

So you were right on that one. There was a knee-jerk reaction by some people, and then bam, it came back and we're like, oh, I think we went a bit too hard here because you can gear, it's deferred, but also you can gear against other properties producing an income. So when we saw immediately borrowing powers affected by about 30%, you could probably say it's about 15% now. There you go. So that little shift there.

Just that one shift, yeah. And you know what's crazy is not many people are talking about that. Like people are just going, borrowing capacities are down 20, 30%, but you're like, hold on a minute, it's not going to be the case if it's there. So that's a big one. In terms of going back to that prediction time, when we also spoke about another thing, I said, and so did you, the banks will find more and more ways to change it, not just the gearing, more and more ways because they have shareholders, they have profits to hit.

They need to have profits that come through marginal volume. And we've spoken about this in previous episodes. In this case, they need volume because margin is fought by competition. So volume is the game you win. So in the volume game for these major banks and businesses, we said that they would release some new policies that find ways.

New policies are showing. Well, I said that 40-year loan terms will start to become more prevalent. Yeah, boom. There you go. AMP just last week came out.

Like, because we saw 40-year loan terms with Liberty, Pepper, things like that. Now you've got some good rates on them. Yeah. Because before the rates weren't that great on 40-year loan terms. Now you're seeing 6.

54, 6. 6. Yeah. And this is purely to bring back serviceability because the AMPs, Macquarie, NAB, like these lenders are being affected the most, right? The ones that are still buying, the investors that are still buying, they're going to non-bank lenders more and more.

And the, yeah, the bigger banks, they're going to start to try to win back that market share. Oh, 100%. Longer loan terms is one way they can do it. And, you know, I think it was a couple of weeks ago as well that we saw Pepper come out and they're doing 98% LVR loans, 95% on investment. And they're doing it on alt docs.

So they were doing it on products where self-employed people have low document loans and they're giving high loan to value ratios. So you'd be capped at 80% in a normal scenario. So they're going above 80 to 90. They might even go above 90 on alt docs like that. So, and they previously had a max loan amount of two and a half mil at 80%.

They've upped that to five mil. Yeah. So they're aggressive. They want to lend. It's yeah, it's crazy.

So I think there'll be more and more of that. And, you know, that was another prediction that was pretty obvious. You know, another one that we had back then, and this is the thing was, this is crazy. I know it's like, it feels like it was years ago. Kind of feels like a COVID war story we're talking about, but it's funny that it was three or four months ago.

Do you remember how many accountants and finance and buyers, Asian professionals came out like trusts are dead. Don't invest in trusts anymore. They're gone. But the thing is, we didn't say trusts were dead. We said trust from a lending perspective is different to trust from an accounting perspective.

Trust from a lending perspective. I want you to jump into that for me and where many people are still taking up trust. We're seeing it. But trust from an accounting perspective, just to jump into that for a little bit, all these benefits that people are saying are gone and shifting and changing. Firstly, they're still in consultation mode.

2028 is a long way away. Then there'll be a buffer mode. Then there'll be a transition mode. So there's still lots of steps to go, law, consultation, buffer, transition. But people don't recognize in a high interest rate environment, almost no one is actually using the benefits that they're trying to shut off.

Because when you're distributing from this person to that person to this person, you don't distribute losses. You distribute income. How many people are buying property today and actually getting a genuine income on property? You're not. So all the whiteboard videos, all the craziness, everything, they're there.

The trust, people, if you're doing those videos to explain that trust is shifting in the way income splitting and things work, great. But if you're doing those videos or predictions and things where everyone's like, trust are dead. No, they're not dead. You're seeing lending applications for trust all the time. Because from a lending view, trust is different than what a budget and accounting view is.

Slightly more flexible on trust lending than companies, only slightly. But in the sense of what's changed, they're just taxing you more. Like 30% more tax as a flat rate. But if you had a significant amount to contribute, a significant amount to distribute, say it was a massive capital gain or you've got a commercial property, very little debt, and you've got a lot to distribute, you might already be above that 30% flat tax rate anyway. But the flexibility to distribute is what you're doing it for.

Yeah, and so that's capped at a certain level. Because I mean, if you're getting a high number, you're already, no matter how many you distribute, you're getting pumped with the big number anyway. So you're only going to get that little incremental benefit on that number. And that's the core shut off. But the main thing is that's not lending.

That's positive cash flow distribution. You're not positive today. That's right. So like all the assets you're buying today, even for the next three years, you won't be positive. So if you're not positive on resi, you're not even positive on commercial if you take an equity loan for it.

And I know what you're saying about accountants that are going heavily now into companies. And I wonder, I can understand their point of view. It's just I don't understand why they're so just tunnel vision down that route. I want to get an accountant on here and just drill them because maybe there's something we're missing, right? But I think what it comes down to is that the companies don't get indexation.

They get the flat tax rate. Which is actually worse for you in some calculations. When you don't get the indexation? Yeah, of course. It's like a straight number.

That's a massive number. But you can actually work that number down with indexation. I think why accountants like it is because it's more complicated with the advice on the back end of it. So you sell an asset, you've got a big capital gain, it's retained in the company. You don't have to send that money out from the company and pay income tax on the individual.

You can just retain it and roll it into another investment. Yeah, but then that might sit in another company. There's Part-time here, lost my job there, doing this on a thing. Like, there's shifts happening all over, but the unemployment data is not capturing it cleanly. I think the main thing is that if true prosperity comes through personally, APRA, well done, 8-9% rates, but I cannot see that level of prosperity coming into this world just yet, because we're not focused on private, we're focused on all this public stuff, right?

3% buffer was put in place when rates were at 2%, so they were assessing at 5%. Now we're at 6. 5%. There's no way we're getting up to 9. 5%.

This needs to be adjusted. I think this is a trigger point in, if the sentiment keeps going the way it is, this is a potential trigger point outside of the RBA to start thinking like, okay, borrowing power's coming back, they're starting to loosen up, and people will start coming back. I love that you said the word yet at the end of it, because I still am a believer. I'm a believer that this could change. If they don't change it, look, okay, it is what it is.

I'll have to eat 20 Weet-Bix. I think you do that anyway, mate, with the way you train, you do that anyway. What else has come up in the predictions? The last one, I'd say it's half true, because you look at rental income shading, you've got two things to do with rental income. They have a property investment expense section, where you have general repairs and maintenance, and you put a monthly expense, roughly about 10% of the rent, right?

Then they have shaded rental income. Say you're getting $1,000 a week, they shade it to 80%, they'll only take 800 for the assessment. Now, this is common knowledge, they do that for vacancy. They shade the rent to adjust for vacancy. I said, one of the ways that they could bring back serviceability, all the lenders out there, I know you're fans of the show, take note, why not reduce the shading based on the vacancy rates in that postcode?

Brilliant. It's real data. Thank you. Brilliant. It's real data.

They've all got postcode tools. They use this for risk management, they can manage or use it for vacancy. Vacancy rate less than 1%, just have tiered, right? If it's in this tier, we shade it to 80%. If it's in this tier, 90%.

This tier, 100%. I think that's a really good way that the bigger banks who have the postcode tools can do this at scale. Mate, plug into InvestorKit's data source. Jack Fouracre, head of pricing, risk management, and analytics. The biggest banks, the easiest.

The data's out there. It's like your city tips. They can go straight to the postcode and say, what's the vacancy period? What's our comfortable shading on this? That's another way that I think it's a bit of a long shot, but banks are already doing shaded to 90%.

Why not 95? Why not 100? You're not going to have a vacancy on a three to four bedroom house who's had the same tenant for two years, and when they finish their lease, they're actually going to get their rent increased. There's not going to be vacancy, and if it's vacant, you've got three weeks to advertise a property, and it might be vacant for a week, but it's on a higher rent now. I just don't...

I'm with you. I'm with you. It makes total sense. From that policy perspective, this is the world that the banks will probably live in as interest rates and as government policies have shifted sentiment. They'll probably have to live in this tinker and tweaks mode for a bit.

They should get onto that if they want their business to set back up. I know I speak to all the highest people in all the highest... When I'm having these conversations, the banks know this. They know that this is just sentiment. We're doing these little tweaks to try and bring it back to a certain point, but they know that they don't want to change it too much because they know when it turns, they don't want to be too aggressive on the policy changes.

They want to just be reasonable, bring it back to a point where it's reasonable, maybe slightly under the initial 30% drop, but they know that the sentiment, it's purely sentiment, and they know that it's going to come back. I mean, REA economists just last week at the time of this recording said that our forecast for 2027 prices are a gain of between 5% to 7%. So, I mean, that's normal markets. So, they're basically saying a bit of craziness, next year back to normal. So, can you imagine how you'll feel if you had an opportunity to buy something during this craziness and you looked back and you went, oh, it's normal gains again, which by the way, normal gains aren't small gains.

And just so you know. That's $50,000, $60,000 gone. When negative gearing comes back, they're not going to- Oh, is that another prediction? Let's go. Throw it in there.

This is a two to three year prediction. I'm with you. But when it does come back, the people that purchase from May 12th, and you know I remember that date so well because that's my birthday. Yeah. So, why did you have to do that on my birthday?

But from May 12th to the next election cycle and negative gearing coming back. May 2028. Remember that month. Yeah. Well, I think that for all the people that didn't have negative gearing benefits, I don't think they're going to grandfather that.

I think they'll just say, look, it's back. Yeah. Yeah. I mean, interestingly enough, even if you bought now, you still get it in July 27. Yeah.

There you go. So, if July 28, it's quote, back by then, take a few months of lag. Yeah. When everyone submits, everyone should, okay, I'm calling you now. Do not submit your tax returns in July 2028.

Delay your tax returns. Wait till they've come back in. Disclaimer. Disclaimer. Disclaimer.

Not financial advice. Just telling you what I'm doing. I am not going to submit tax returns rapidly in July 2028. We'll wait a few months because if someone comes back in and changes it, no guarantees. Yeah.

But I think you can delay it until like March, March or April for businesses and stuff till the year after. Yeah. But whatever happens, the main thing is that, yeah, there's more of a chance of this not being like just not being around and coming back in again. But like, here's the thing. I'll play devil's advocate.

Doesn't come back. It's gone forever. Interest rates falling by 1. 5%, which is just taking a six and a half mortgage down to five. Yeah.

Not unreasonable at all. No. Long-term rates are four and a half, five. Yeah. So you come back to long-term.

If you go back to March of 2026, that is the biggest month in investigative history, Feb and March 2026. I was like, what the hell is going on? Obviously, we've broken that record for purchases and things because the smart investors are back. They're going crazy. I think our biggest purchase month in investigative history was July 2026.

Greatest month ever in purchases. Nice. But that's a sign. It means the smart ones are like trying to take advantage, right? But if you go back to the month biggest before that, which was March and Feb, during that time, negative gearing was on.

It's still on technically until 27, then 28, you won't find out until it's off because that's the year you do returns and it won't be there or maybe it'll be there. But during that time in Feb and March, negative gearing being on is the equivalent to 1. 5% interest rate reduction. So even if it doesn't come back, if the economy just normalizes to normal rate cycles, it is the equivalent of you investing today and getting negative gearing. So like, and I haven't even factored in rents rising to the brilliant treasury $2 modeling, but rents are going to pick up too.

So now you got rents coming up. 10% this financial year. Yeah. Next prediction. We're writing them down.

Someone got a 10% financial year, 26, 27, Jack Fouracre, rent prediction. Noted. AI, Claude, please note. So that's your negative gearing right there. You can come in different shapes and sizes.

So you can either wait for it to come back in with a double whammy and then start going, you'll be like, I missed out. And just compete with everyone. Exactly. Or you can just assume the worst case, say it never comes back. It will come back in other ways.

Rents rising is the same cashflow equation. The borrowing capacity shifting and then the yields shifting because the rent's rising. But the main thing is interest rates coming down are 1. 5% back to normal is the equivalent of you still having negative gearing. So that's your cashflow situation completely changed, but you don't want to wait for that to happen to start investing.

If you can only do one or two now, that's fine. Just making the move now, you'll look back and thank yourself. And then when you can do more, when rates improve, because it's a servicing function, a cashflow function, all good. Go for it. That's it.

That's the prediction. So we got, look, most of them are right, Jack. What you're basically just saying is some haven't happened yet. Within three months. Within three months as well.

That's a big thing. One more quarter.