Right now, I’m getting a lot of questions about where the property market is headed and what the current COVID-affected climate will mean for property.
When the economy opens once more, and there’s more inventory, will prices take a dive, steady off, or keep climbing? And what is the best strategy for the next 12 months?
If you’ve been sitting on your hands waiting to act, watch the replay of my recent Matter Of Fact Webinar below and post your questions in the comments!
I’m hosting a free 1-hour webinar to fill you in on the current state of play and what you need to know about where things are headed in property.
No bull … just matter of fact!
Ian Ugarte (00:00:00):
All right. We’re on. So, welcome everyone. I can see quite a number of you on, which is great, and I think you can see my screen here. I’m sitting with a green screen and this is one of the micro apartments. It’s a part of our new branding that’s coming out. We’re actually launching next week. That’s Invida. Invida means, so viva or vida, so vida, vida means life in Spanish. All of you who know me pretty well know that I have a Spanish heritage and that, for me, in life is what we ended up calling this business. I’ll talk a little bit about it at the back end of all of this, but essentially this is about bringing life back to investment, bringing life back into housing and bringing life back into the people that are living in our housing as well.
So I’ll get to talk to you today. It’s just sort of an update about what’s happened in the marketplace over the last 19, 20 months since 2020, about February or March last year when all of this Matter of Fact started. Now, I think the last Matter of Fact that I ran was late last year, I think it was December last year, and we haven’t run one this year. And I thought, “Oh, well, I’ve got some time on my hands.” Long story behind that one, but essentially, I’ve got my time that I can do in certain blocks and sporadics. And so we spoke with the team and I spoke a couple of weeks ago and we said, “Oh, we should do another Matter of Fact,” do an update to what’s happening in the economy or happening in the market, what’s happening in property and get you an understanding of, and safety and feeling about, where you’re at and what you want to do.
Now, for some of you, you might say after this, “Oh, I’m never investing ever again.” For some of you, you might say, “Wow, I’m actually quite excited about the investment strategy.” As always, none of this is advice. And I will start sharing my screen pretty soon. So why don’t I do that right now? I’ll share. I think this will do it. Let’s see. I’ll bring this up and I’ll come to here. Okay. So you should be able to see my front screen there. I’ll give you all about three hours to read this full, small, fine print about essentially this is me and you having a bit of a chat. I don’t need you to go away and start investing off what I say.
Essentially, what I’m saying is that what you’re going to be hearing in the next hour and a half, possibly an hour and a half, see how we go for time and how many questions you’ve got, is that we’re now at a point where if you’ve made decisions based off what I’m about to say to you, then you’re a bit cray-cray. What I would be saying to you is that you need to get advice and have some direction from those people around you that are qualified professionals in the different areas of financial acumen that you want to do for your property investing or investing in general as well.
As always, firstly, I just want to acknowledge the original custodians of the land of where you’re meeting, hopefully, and the original custodians of the land where I’m meeting. Now, currently, I am in Nelson in New Zealand. I have been here for the last three months and looking forward to coming home. At the moment, I will not be coming home until I don’t have to quarantine. A lot has changed for me in the last four or five months and I’m at a different place right now. And obviously, the land where I’m meeting right here is the land of the Maori. And the Maori, I pay respects to their land and acknowledge them as well. I also want to welcome anyone from any indigenous culture anywhere that’s with us today and pay my respects to elders past, present, future, and emerging. So I always like to start my presentations with acknowledgement of the land that I’m meeting on.
So I want to just take a step back here just to give you a basis of where I am at the moment and why I’m here. I think with me, and just check how many are on, yep, that’s about right, for those of you who don’t know what’s happened to me over the last four months or so, we’ve announced this publicly. Some of you may have seen my social media posts around it as well. My former partner and partner in business for more than 20 years, 23, 24 years it was, we have separated and we’ve moved on to other areas of our life. Christine exits the business later this month, sorry, later next month. And all amicable, our children are happy, everything’s rosy, and I’m pretty proud of how we’ve handled ourselves. It has been very difficult at times, but as you could understand with the… I won’t tell you how many entities and how many properties, but it was a very complex separation of financials.
Obviously, there’s obviously goes alongside that the ability and the need for everyone to have their say. I’m really proud of how we’ve done that. And as I said, it never is easy. We’ve had a number of people around us comment on how we ran that as well. Have a number of other people that have commented post that on their discomfort of where I’m at right now too, and that’s okay. I don’t have a problem with people airing and voicing how they feel. For me, it may seem like to the rest of the world that I’ve moved on very quickly. Christine and I had a longer separation than what most people would realize, and it was always amicable. And so we’ve always worked together and we continue to work together and we continue to do some really good stuff together as well, helping other people achieve their goals financially in housing and personally.
So we’re at a point now where I’ve got a new partner and I’m happy to say I’m madly and wildly in love. Holly’s my new partner. I’ve known her for about three years. So it’s not something that started three years ago. It only started a few months ago, but we’ve had contact for the last three years so through different circumstances. So what happened was I moved over to New Zealand to be with Holly and then they shut down borders, and so here I am still, testing the relationship quite happily and it’s working out quite nicely. So we will be back in Australia. I’ve put it out to the universe to get me back on Australia by D-Day, the 11th of the 11th. Let’s hope that New Zealand can get their cases down. I think we’re down to 15 cases or 13 cases today, so it’s looking pretty good for me to be able to get back to Australia.
All right, let’s look at some of the things that we’ve been speaking about since the beginning. Now, those of you who had followed me from the first Matter of Fact, which we ran really early in 2020, I think it was February, 2020 we ran our first Matter of Fact, and the first Matter of Fact that we ran was simply about saying to everyone, “Can we all just take a breath for a second here? Because there’s a lot of people saying a lot of things about market declines and the end of the world, and what’s going on with that?” Now, I’d love for you to all say, for those of you who’ve watched most of the Matter of Facts, maybe just punch into the chat box some of the things that you heard me say, rather than me saying it to you, some of the things that you heard me say in early 2020. When everyone was running around with their head cut off, what was Ian and his team saying about that?
Julia says I talked about a V-shape return. A V-shape return is obviously a decline and a split back up. V-shape can also be a tick return. So not only is it a V, it Vs down and then ticks up even higher and stronger, which is what I had said in a V-shape return. So, thank you. “Brisbane to explode in prices,” Richard says. And lo and behold, Brisbane has exploded more than any other state in the country, well, more than any other city in the country. And that was based around what had happened previous 10 to 12 years in Brisbane and that there was pent-up demand and pent-up need for it to grow. Especially, it helped enormously that Melbourne had its COVID cases and gone into lockdown. It helped that Sydney had some of its smaller, minor issues going on as well to the stage where in the first quarter of this year, 2021, migration concerns from out of Victoria and out of New South Wales, combined they had 7,000 people net loss. WA had gained second most at 868, and Queensland, specifically Southeast Queensland, gained 7,268 people in one quarter. So whilst other parts of Australia were losing out, Queensland was gaining. And you could say, “Where am I at comfort-wise to where I want to be living?” Effectively, what people were saying was, “I’m stuck in lockdown in Victoria. I want to get out of Victoria. I want to get out of Sydney. I was going to go in 10 years’ time.” So not only those people that didn’t come, came, and those people that were coming in the next year, 10 years, came early as well. And as well as that, people that look at coming in the next 10 years bought as well.
So we had 30, 40, $50,000 increase in prices from one to the other. Now, how do I know that? We have a buyer’s agency, and we’ll talk about this just quickly at the end about Invida. Our buyer’s agency really had choice in the middle of last year. Up till about September, we had choice. And I knew that we wanted to get in and get deals done for clients. We had a couple of clients pull out on deals on the basis of fear. I said to them, “The decision is completely yours. If I had a contract on that property at the rates that you’re going to get in return, I’d actually be pretty comfortable with it, but you need to go get some advice.” Two of them pulled out and I think they’re going to regret that. They already regret doing that.
For a couple of you that are online right now, they feel it was a lazy option for us to buy the property for them and convert it for them. It took us four weeks, and cashflow on that is a little bit under $20,000 for a property that they’ve never seen. So I don’t know where you want to be, but think about $20,000 or four or $500 coming into your bank account every week based on the fact that it was a lazy investment. And these two aren’t lazy investors, they just couldn’t do it any other way. Well, they chose to do it that way at the time.
Now, I think from the aspect of predictions as well, now, Pablo has said a couple of things, “Economic patterns and predictability,” is what I talked about. “Watch out for regional properties,” which I talked about and it’s taken off. I would be backing off on regional now. Regional has done what I think it needs to do for the short period of time it does over the 20 year cycle. And the 16 or the 18 year cycle is probably what we are looking forward to now. I’ve changed my view on what I think and when I think it’s going to happen based on what I’ll talk about today.
Now, you all know that I am looking constantly and consistently at markets and marketplaces. And from that basis, I will change where I think… I actually think quite strongly more than ever that the dip that’s going to happen is going to probably be a really big dip, bigger than, I would suggest, 2008. I’d liken it maybe to ’91, but ultimately, it’s going to be a big one. And the reason it’s going to be a big one is because we’re seeing a lot of people doing a lot of things that they shouldn’t be doing right now. I did predict early 2025. I’m actually going to say that it’s probably going to shift to mid to late 2025.
On the 18 year cycle, Phil Anderson, the economist that lives in the UK, who is an Australian, he’s predicting 2026. I suppose, as an economist, that we should go with what he says, especially with his track record. So for me, my safety mechanism is that early 2025, I’ll be holding onto cash and I’ll probably be buying early 2026 or at least 2027 when the market will be down. Warren Buffett says, “Buy when people are fearful and sell when people are confident.” It’s not the exact wording that he says, but that’s the way I like to word it.
Now, let’s look at here. What’s going on with our markets? We’ve got the three local government areas. Now, what I want to talk about today is what is going to be the destruction of our marketplace? Because we’ve seen what I predicted, which was going to be a 20 to 30% increase in national prices in properties. So we’re just under 20% at the moment nationally. And in the areas that I said that were going to grow like Brisbane, we’ve had in excess of 25%. Southeast Queensland in general has had about 25% increase from the Gold Coast all the way up to, you could almost say Hervey Bay, but let’s keep it at Gympie, or that Noosa area has had some huge increases. WA strong as well. The south has had a bit of a hit and you’ll see a couple of the figures as we go through tonight what that looks like.
But effectively, we’ve got here loan deferral rates. So we’ve now got the banks now saying to their customers, “Hey, we realize you’re back in lockdown again in some of these areas, and we’re going to reach out and say, ‘If you need to defer your payments, we’re happy to do that.'” Banks, again, they don’t want to see people go under. Banks don’t like seeing people going under. It’s bad publicity. It’s bad for their image. It’s just a horrible process. And that whole industry of mortgaging possessions, it’s either a cutthroat, “I want to make my money,” industry, or it’s heartbreaking for those people that work in industry to watch young families, older families, well-established families being chucked out of homes. And so they don’t want to see people going under.
Now, the three local government areas that have been affected the most are the ones that are going into a delinquency rate that seems to be quite high. So the highest mortgage delinquency rate is Chullora, 1.37%, and neighboring suburbs of Punchbowl and Roselands and Belmore are in the top 10 areas of mortgage stress as well. So when you’ve got mortgage stress, you’ve already got delinquency. So delinquency is basically, if you’re a juvenile delinquent you’re actually breaking the rules. So essentially, delinquency rates are those people that have stopped paying their mortgage because they just can’t afford it. So then you’ve got all that Western Suburbs, Inner Western Suburb area and Outer Western Suburbs area that’s also suffering as well. So I think that’s a really interesting look at what’s happening in Sydney in particular when it comes to those rates.
So now one in six Australian mortgage holders are suffering from mortgage stress. Now, this is Roy Morgan and looking into the research here. Now, this is an interesting research study that says that we’re actually better off right now and we’re quite safe. My issue is what’s going to happen? Now, a lot of people decided that when JobKeeper and JobSeeker stopped that the whole world was going to end. Again, I said, “It’s going to be okay. We just have to think about it in different ways, and employment will get better as long as we get out into the open.”
Now, JobKeeper and JobSeeker would have continued until we did have the ability to be out of lockdowns. It’ll be interesting to see how the vaccine passports work. Most of Europe at the moment have Q codes for you to be able to get into restaurants. Effectively, to get into a restaurant, you have to have the vaccine on your Q code or you have had to had tests within the last few days, 72 hours, or you can do an instant test on site, which is 10 to 15 minute tests. I think it’s an antigen test, I think they call it, and it’s at your cost to do that test, not the restaurant’s cost. So there’s a number of different ways that people are using in Europe the ability to be able to move in and out and into different places according to vaccinations.
Now, I won’t give you my view on vaccinations, but when you’ve got choices and you’ve got choices to make, what choices do you make according to where you want to be and how you want to be? So right now, what’s my opportunity to get back to Australia? Well, it might be that I have to vaccinate to get back to Australia. Would I do it? Well, Holly’s a nurse. She actually wants me to vaccinate because she’s concerned about me getting COVID and having a problem. I’m looking at it and going, “Well, what does the risk outweigh?” and all of that. So a little bit of research into the vaccines themselves and how they run.
There’s a lot of information out there about the live vaccine, they’re actually injecting you with COVID. But when you start looking into the technology of it, you’ve got to start looking at it. So if I was vaccinated and I am microchipped and they are following me around and they’re trying to control me, good luck to them. I don’t know what they’re going to find out about me if they put a microchip into me, if you believe that sort of stuff. I’m not saying I do believe it. I’m not. So I’m just saying that it’s interesting to do the research from a neutral perspective, to go out and see what it’s at. Fisby, I’m in Nelson in New Zealand at the moment right now. A beautiful place. Thankfully, it’s getting warmer. It reminds me much like my parent’s town in Spain, in Suances where my dad grew up on the beach. And because you can stand on the beach and see snow in the mountains. It’s a very, very beautiful spot.
Okay. So we look at this here and we’ve got that one is six mortgage holders, so 677, 000 people, are at risk or extremely at risk of mortgage stress in three months to May 2021. Now, I look at that and say, that is a pretty enormous number, 677,000 people, that we’ll look at it and say, okay, what if just 10% of them, that’s 67,000, let’s say that 100,000 people default. You times that by the average mortgage of 500 and you’re starting to look at some pretty big numbers of defaults, and that’s never a good thing for banks. So according to Roy Morgan, at-risk mortgage holders have home loan repayments which exceed a certain percentage of household income. Effectively, those people that have mortgage repayments, whether it be their own home plus investment properties, are finding themselves short of the money that they need every week. Now, most of those would probably be on interest payments only, not principal and interest.
And so the next point that we make here, which is in conflict to the first two points, is that the Roy Morgan data shows in the Australian housing market that mortgage stress is that near record lows in mid-2021. So mortgage stress is at the lowest point that it’s almost ever been in 2021, yet we’re still seeing one in six people under mortgage stress. So that goes to show that whatever they’ve put in place in safety and securities and measurements may be working, but is it because it’s government backed? And is the government backing throwing these figures a little bit? Because remember that there was some government backing on some mortgages and some loans around the place.
Now, over two in three mortgages are dependent on more than one income. So effectively, if one person in a relationship loses a job, that means that two out of three mortgages are now at risk of going into delinquency or into default. Now that’s, to me, a really high stress position for Australia, and it’s hoped that economic support, both federal and state governments, may once again go a way from alleviating the mortgage stress. So to me, it’s really, really quite interesting.
Can you advise how to pay mortgage faster? Yeah, yeah. So this is a really complex way to do this. The way to pay your mortgage faster is that you just pay more money and it’ll get down quicker. There’s a number of different ways you can do it. Obviously, you can pay them off. You can pay it off weekly, you can pay it off fortnightly. Paying it off fortnightly, so essentially paying the same amount as you would pay or half the amount that you would pay in a month, pay it fortnightly, that will automatically start to lower your interest, and it’ll knock about six or seven years off your mortgage if you do it that way. If you can do it weekly, then it helps a little bit better, not much, but it helps a little bit more.
Effectively, what you should be doing is paying down your bad debt, so your personal debt. The debt in your own home is what you want to pay down as fast as you can. And I’m about making sure that you use money for reinvestment. So if I pay down my property, my own home, and I then go off and I buy something and redraw equity out of my property, I’m happy and comfortable with that as long as my investment pays for the interest or the principal interest on my own home, so my own home doesn’t look so bad. There’s also a way of paying down your debt quicker by using your mortgage account. And your mortgage broker sets this up for you by putting all of your income coming into the account where your mortgage is and then being able to pay bills and stuff out of that account. What that does is it reduces the interest and you get more paid off your principal because your interest is being reduced as well.
Anyway, let’s move on to other stuff. We look at, come back here, property listings. So this is the thing, this is one of the factors that has led me to look at it and say, “Why have I now said I think the down’s going to be in early 2025, but now I’ve shifted to mid-2025?” And so for me, this is one of the reasons. We have an overextended marketplace that is under supplied and there’s a lot of buyers out there. I know this because we compete against buyers, cash buyers, every day in our buyer’s agency. Now, Jen does an amazing job in our buyer’s agency to get properties over the line, and that’s because of the relationships that we’ve built with agents all over the country. Now, so we’re looking at property listings being down, okay? So we’ve got a historic low of property listings in 2021.
PART 1 OF 4 ENDS [00:25:04]
Ian Ugarte (00:25:00):
… historic low of property listings in 2021. And they fell by 3.3%. Now in June, there were 19.7% fewer active listings compared to June last year. So, we’ve got 20% less listings this time last year. Now remember, this time last year we could buy whatever, whenever, and there weren’t too many listings out there, but right now we’ve got 20% less listings than a year ago. When you’ve got 20% less listings on the marketplace, people go “Oh, because the market’s so bad and there’s nothing to buy.” Well, actually, the problem is there is nothing to buy, and there’s more buyers than there is sellers, which is pushing prices up. Again, we’ve seen changes from one month to the next of up to 30, 40, $50,000 in price point. Where we used to be able to buy something for 450 to 500, we’re now paying 600, 650, a year later.
So, the capital cities are experiencing greater drop than regional markets. Obviously, regional’s starting to come off and it’s one of the signs that they say, maybe consider if you are doing regional, that you do have the ability and functionality to be able to increase or manufacture growth on those properties, because you’ll get a better outcome. Now, a fall in active listings in June highlights the overall shortage of properties for sale, with insufficient new listings being added to meet market demand. So, we really have to be careful about where we’re going and what we’re doing here too, as well.
Just looking at the chat box. One second. Yeah, Jenny is killing it. Yeah, Cyril. Yeah, we should stop people being able to buy into Queensland. Why would you do that? We live in an open, free market, and if you want to start, stop, start creating restrictions on people like being able to buy somewhere in Australia, then maybe you can start consider full-blown communism, because that’s effectively what you’re talking about. We live in a capitalist free market, and I’m sorry that people are struggling in Queensland but people are struggling all over the place, not just in Queensland. And so, that might be your view of point for Queensland but know that I know the whole market, all the way across the country. It doesn’t matter whether you’re in Queensland or WA or anywhere else, people struggle, and we need to look at that in a different aspect.
So, I think that we’ve got some stuff happening. We’ve got some stuff moving in that there’s places going on. Now, further on from delinquency rates, so delinquency from prime RMBS. So, RMBS is residential mortgage backed security, so effectively housing, right? Now, the residential mortgage backed securities are those first-tier lenders, so we’re talking CBA, the Big Four, and those banks that have standard lending policies. So, delinquency rates from them went from 1.24% in December 2020, compared with 1.43% in June ’20. So, we’ve had a lowering, so a lower amount of people going into stress, and we’re now at 1.52% in December ’19.
So for me, I’m looking at that and thinking, okay, well, we do have some movement as far as what’s happening in the marketplace right now. We have people being higher delinquency rates. And now if you go outside of the RMBS, we now have got delinquency rates going from 3.95% to 3.49%. So, we’ve got higher rates of delinquency outside of RMBS because they’re riskier clients that are looking for low doc, similar loans, and they’re the ones that most risk not paying. The December ’20 delinquency rates rose compared with December ’19, so we’ve got 3.34% in there.
The Australian economy, housing market, are recovering from the coronavirus-induced downturn, and they’re forecasting GDP at 3.8%. Now, 3.8% over a year for a forecast for 2021; remember, we [inaudible 00:29:24] had a recession in 2020 over two quarters, and they were huge recessions. It’s interesting that our GDP growth is going up by 3.8%, and that’s a good, strong sign of the economy and another reason that I’m saying that I’m deferring for six months before the big fall happens. Again, don’t base anything of what you do on what I say. You need to do your own market research, right?
Michelle, yeah; maybe we should separate Queensland and WA and create their own countries so that we can’t… we have to create rules where you can’t buy in the other country, so like some of Europe is. So… That’s a big call, Carol. There’ll be a lot of houses becoming available due to home owners dying in the near future. What are we dying of, Carol? Are we dying of COVID? I think that was the point of what they’re saying with the vaccine; that you still get it but you don’t get it as bad. Anyway. So, I think that we will see rises of mortgage delinquencies. There is a reason that I say that, and the reason that I think that… I want to know if my mate Steve’s on. If he is, can you text me, Steve? So that I might be able to open up and talk to you.
So look, I think from the aspect of where we’re going right now, it’s a little bit about where I thought we were going to be. So, it’s interesting when you start… now, this $17.2 billion will come up a fair bit, a few times in our presentation here. And we look at that and say, “Okay…” Okay, I’m going to stop it right now. If you want to start interacting in the chat box, I’ll actually just close the webinar down. This is not about shutting people down, Cyril and Craig. It’s not about… I’m okay with opinions, but don’t shut people down.
Effectively, Craig is saying that most people buying in Queensland are buying as homeowners, not investors, and I am absolute agreeance with that. I know that because we buy a lot in Queensland for clients, and there are a lot of southerners which do this every 10 years; they come up, they buy site unseen, or they do come up and… but most of them can’t buy site seen at the moment because they can’t get up there, and we are losing out to first home buyers or home buyers who are relocating. So, a lot of people say that investors are doing this to the marketplace. Currently right now in Queensland, it’s actually people that are wanting to move to Queensland that are buying them, buying up the most.
Look, let’s not go down about the vaccine and people dying from the vaccine and all that sort of stuff. I’m not here to talk about vaccinations, I’m here to talk about markets. I agree that COVID has affected our marketplace in different ways, different to what most people said that was going to happen. I was one of probably three people; myself, Terry Ryder, and the guy from Propertyology, whatever his name is. We’re the only ones saying we were going in an upward direction. Everyone else was calling, “Oh, the sky’s falling.” And I won’t mention their names, but I don’t hear them saying, “Oh, we got it all wrong.” But I’m just here saying, I think this is we’re at.
So I look at this and go, “All right. So, where’s the problem in the marketplace?” Now, the interesting thing about this is that we’ve got a total of $17.2 billion in mortgages refinanced in July, okay? So, we’re just talking in one month of refinancing, and that was an increase of almost $1 billion dollars. So, $978 million or 6% from the previous month, in seasonally adjusted figures. So to me, it’s a combination of a few things that are going on here. So, we’ve got a lot of stress coming from investment properties; people refinancing to get a better rate, where their banks are saying, “No, sorry. This is the interest you’re paying, so that’s where you’re staying,” so they’re refinancing out. You’ve got more conservative mortgages in risk of default in suburbs like in the west of Sydney, and that would be similar to other metropolitan areas. So, if you start looking at similar areas in Melbourne, similar areas in Perth.
So, we’ve got… we don’t get to see their official default figures. Now, 1.49%, it isn’t a huge delinquency rate when it comes to people losing out. Now, one thing that I noted, oh, maybe 15 years ago… Remember, I’ve been in for 30 years investing. One thing that I noted about 15 years ago was that I started to look at, where do most of the defaults occur that do the most damage to the marketplace? And the place that I noticed it most was when I went back and I started looking at the ’88 to ’91 period and the recovery of ’91. I also felt it in 2007 and ’08, and noticed that in a couple of property deals that we’ve been doing, where, as an example, one week we had buyers at about 1.7, $1.8 million, the GFC hit and we ended up selling a property for 1.55.
And when you’ve been in the game for long enough, you develop a sixth sense to know when you need to let something go rather than trying to hold on, and so we let that one go. We scratched a little bit of money out of it, but not the 2 or $300,000 that we were supposed to make out of one of those deals. Now that deal, at the time of 2008, 1.5, 1.7 is a marketplace that effectively puts you into the financial markets. Those people that work in the financial markets that have good mortgages and are in good suburbs are the ones that buy, at the time, between the 1 to $3 million mark. Right now, I would say that from the $1.8 million to the $4 million mark is where I see the marketplace affected the most.
Okay, so here’s my point. When you see the market drop across the country nationally that might say 10% drop, it’s actually in suburbs like Doonside, Packenham, North Perth, Elizabeth in South Australia, Rocklea in Brisbane. Those sort of suburbs have not much of a drop in price point in their median price; it’s the suburbs that are high-end that have their huge price drops. So, now we’re talking Toorak, we’re talking Inner City of Perth, we’re talking Paddington in Brisbane, we’re talking Rose Bay type areas in Sydney. When you look at those marketplaces, that’s where the delinquency happens the most, and I’ll tell you why.
The reason that it happens the most in that area is, there’s a rule in my head that says that those people that are in financial markets are the ones that stress about money the most, and when they see markets change and move in a particular way, they’re the first to sell, which means there’s a glut on the market of those type of properties, which means people that would’ve been looking for a while will start to buy. Then people that have been looking for a while that couldn’t get good value are now lifting a little bit and buying those properties that used to be worth $3.6 million, and they can pick them up for $2 million. And so, you have this huge drop in prices in that segment of the market of 20% and 30%. You only have to go to those suburbs like Palm Beach or Avoca in Sydney Central Coast, and see that properties that are on the beach front that were selling for 7, $8 million are now selling… well, when the drop happens, will sell for 4 or $5 million.
Okay, so with all of that taken into consideration, the next slide… I hope it is the next slide… shows you the default rate or delinquency rate across marketplaces. Now, I want you to notice this and take this in, because this is really, really important on the data of what you need to look at. We’ve got, over here in Doonside, all this Western Sydney area, 1.49%, 2%, 2%, 2%, 2%. And you go out onto the coast and now we’ve got 8.1%, 8.86%, 8.65%, 8.64%. That’s a huge delinquency rate when you start looking at marketplaces, and why does that happen? Well, it happens for a number of different reasons. Most of these people out here are keeping up with the Joneses, and they’re on an income and they’re really tight, and they’ve got Alexis and they’ve got a Tesla and they’ve got all of that money that’s on lease, plus the mortgage that they’ve got. One of them loses a job, and we’ve had some losses, and in the financial…
If you live at Rooty Hill, Wetherill Park, Doonside or Penrith, the chances of you losing your job is a lot less than those people out on the coast. Why? I’m generalizing here, okay? So, don’t think that I’m being disrespectful. They’re the people out in the west that are the essential for us to do. They’re the mechanics, they’re the plumbers, they’re the nurse. All these people that actually work in the services that provide something for the people out on the coast, right? So now you say, okay, we’re now at a point where these people on the coast are losing their jobs. They’re now going into default and delinquency because they’ve got not just the home loan, they’ve got the personal loans, they’ve got the leases, they’ve got probably the TV that was… they could have put up with a $1,200 TV but instead they bought the $8,000 one, and that’s probably on a package from Harvey Norman or from Good Guys or whatever, right? And they’re paying it off over time.
Now, it’s interesting to see when you look down the left-hand side, and I know this is New South Wales base, but this is the same around the country. It doesn’t matter how you look at this, this is the same around the country. You look at it and say, “Okay. Dover Heights, Kirribilli, Gordon, Bellevue, Darling Point, Bayview, Woollahra…” You can not buy in those areas for under $2 million If you want to buy a house in those areas, you’re over $2 million.
Dominic is saying, “Is there a possible property bubble to burst in Australia?” Now, you obviously haven’t been listening to me talk for a long while. All I can say to you is that there’s an 18-year cycle. You need to research that 18-year cycle. It’s due to hit in 2026. I think it’s going to be six months earlier than 2026 for Australia. I don’t believe in property bubble bursting because the last property bubble burst was 10%… well, the real property bubble burst. 2008 wasn’t really a bubble burst. But the last property bubble burst was 1988, which gave us the 1991 recession. And in that property bubble burst, properties across the country dropped by 10%, remembering that these ones out on the coast and all the high-end areas of every metropolitan area, are the ones that drop by 30% of price, while those ones out west didn’t drop at all. Okay?
So you can go on about a property bubble burst. Everyone was talking about it last year. And again, I’m going to toot my horn as hard as I fricking can, because the reason I can toot it was because what I said was… and it’s all recorded. You can go back. All these Matter Of Fact webinars are all, are on our website, and you can watch each and every one of them. And you can say, “Yeah, he got it right, he got it right.” I will say I got a couple things wrong. I thought that the Builder Bonus or the Builder whatever they called it. It’ll come to my head. The $25,000 builder’s bonus that they gave you, that they gave people; I didn’t think it was going to work, and it did. People took it up like crazy, right?
So, I think we’ve just got to respect that I don’t believe in the bubble burst. The only time we’ve seen bubble bursting is America, where they had their market bubble burst. We’ve seen it in Tokyo. That’s happened. Tokyo never really recovered. The US recovered within 18 months. So, I’ve got a mate of mine that did really well out of that US bubble burst, which really can make it… Please email us earlier to alarm us for the bubble. I don’t know what that means, but anyway, let’s move on.
So, let’s look at this now. So, estimated that around $500 billion worth of outstanding home loans, contain misstatements about incomes, assets, debts and/or expenses. So in a survey done, 41% of people surveyed showed that they lied about their income or lied about how much their costs of living were, to be able to get the loan. So, the bank’s annual survey of around 900 people who took out a mortgage over the past year showed that 41% submitted loan applications that were not completely accurate; so-called “liar loans”, a record high in the seven- year study that has been done by UBS, and that’s up from 38%. So, it’s a 3% increase since last year.
Of those who overstated income, 36% did so by more than a quarter. So think about this: they’re earning $75,000 and they said that they earned $100,000. And likewise, 39% of those understating living cost did so by more than 15%. So, those people that said their living costs were $50,000, reduce that down to about a $37,500. So, you start to look at that and say, “Well, why are people lying?” It’s very hard to get loans at the moment, and you have to do whatever you have to do. Remember, they were supposed to back off and give us a free or available to money by March this year, and it still hasn’t happened? Well, I don’t think even they expected the property market to do what I said was going to do.
And again, I just think that, I think that this is just another cycle. The question be is, will there be a collapse in the monetary system? Which, if you look at another cycle; every 300 years or so there is a breakdown… or, 200 to 300 years. Might have to go back and get my research, right? But there is data out there to say that every 200 to 300,000 years, there is… Not 300,000. 200 to 300 years, there is a breakdown of mechanism of a currency that leads the world. Now currently, at the moment the US dollar leads. And then you’ve got to ask yourself the question, what’s going to happen? People are going to go out and buy gold again? Or platinum. So, just a matter of looking at where you’re going from there. All right. So, let’s go back this way.
All right. So now, it’s interesting to see… Just let me see what my next data is. Yeah. It’s interesting to see, how long does it take for a mortgagee in possession to do its cycle? Okay. Let’s start placing out where you stop paying your mortgage. If you stop paying your mortgage this month, they will send you a reminder at the end of the month and say, “Hey, you didn’t pay your mortgage. And we’re just wondering, is there a problem? Or, do we have to do something?” ” Oh, look. Yeah, I’ve had a bad month. I’m just wondering, is there a way where we could just maybe half the payment this month and I’ll catch up next month?” Or, “I’ve just lost my job. Can we take it easy?” And the bank will go, “Yeah, look, okay…”
So, let’s… firstly in context to this. So, this is a person that is of full mind, because mortgage in possessions for those that have lost the plot. This is not the cycle. This is for people who may have an investment property, their own home and they’re paying their mortgages, and they lose a job and a tenant moves out. Or they can’t fix a problem with a house that they own as an investment property, which means they’ve got no income coming in and they haven’t got enough money to be able to fix the house. It’s that sort of scenario that I’m talking about, okay? So the bank contacts them, they work out a deal, or they go interest only, or whatever it is that the bank wants to do, because they want to try and help people out because they don’t want to see people go into default. They really couldn’t care about the people, but they care about their image.
Okay. So, we’re now at a place where we’re two months in, and then the second monthly payment doesn’t happen. The bank says, “Hey, listen. We had a deal. We talked about it. You haven’t actually kept your part of the deal. Where we at? Okay, let’s renegotiate. All right, what we’ll do is we’ll add it to the end of the mortgage.” Okay, we’re now three months in, no more payment. “Okay. We need to send you out a formal letter, and the formal letter will say that you have to pay your mortgage. We’re now going to hit your credit rating.” Month four comes about, still no payment, so a second letter gets sent out. A third letter gets sent out, and then of course, we’re now into a process of saying, right our… what we have to do. So, there are several different places of requirements that have to be issued for this default.
Remember, these people are still living in the house. So, by the time they actually get to a point where there’s a legal letter sent to them of demand, you’re probably seven or eight months in. Then there’s a process to go through the court system to say, where am I… I’m looking up here. I should be looking here. We’re now a year in, to where the legal proceedings get to a point where we’re now saying, “Okay, we’re foreclosing on you, and we’re going to go through that process. The sheriff then has to deliver a letter, and those people that are smart and understand the system don’t receive the sheriff letters, or they send a 13-year-old out to receive it, and then that’s null and void. So, the whole process has to happen because that person receiving wasn’t older than 15 years old. So, there’s a whole set of systems.
Now, you’re talking 18 months to possibly two years before they’re forced to move out of their property. Then the process of selling that property is now another six months to nine months, and then they put it on the market. So, we’re looking at a three-year, maybe four-year process before all of these deferred properties that have gone mortgagee in possession actually hit the market. So, you look at it… Cyril, you’re asking a lot of questions that are really basic questions, and this is not somewhere that I’ll answer them. I don’t know how to help you out here, but let’s keep to the topic.
So, if we’re at three to four years before all of these properties that have had mortgagee in possession start hitting the market, essentially adding more properties to the market. More properties on the market with less buyers now means that we’re in a place where we’ve got an oversupply, and oversupply means properties stagnate or they go down in price. So, the entire process of getting to the place of 6 to 12 months is actually an 18-month process, and up to three… and basically three years before those properties hit the market.
All right. So, what does that mean? We’re in 2021, we’re nearly 2022. Okay? So we’re in nearly 2022, I’m starting to see some factors. And Steve and I were talking about this recently. We’re starting to see some factors that show that the first pain points are appearing. Now, if the pain points are appearing now, then in other areas… then delinquency rates in housing is going to probably start early next year. And because we’ve already shown that there are people that if they, one of them loses their job, they haven’t got enough money to pay. And there’s a lot of negative gearers out there still, losing money on property and then-
PART 2 OF 4 ENDS [00:50:04]
Ian Ugarte (00:50:00):
And there’s a lot of negative gearers out there still losing money on property, and they’re not positive gear. If we say 2022 to mid 2022, even late 2022, there’s a lot of people that are starting doing to go into delinquency. We’re now looking 2025 to 2026 and maybe into 2026, where we will see the glut in the market in the drop in the market prices. Now, how do I think about this? Well, firstly, let’s look at the car market. Now, I’ve got two electric cars, one of them, which I only received, I’ve driven my, my team have driven my cars more than I have since I bought the latest one and lucky them. I bought one probably about 15 months ago and it’s dropped in price. I can sell it secondhand for about 10% less than what I paid for it. What does that mean? Well, firstly, I bought a car that’s holding its value because of what it is, but more importantly, we don’t have as many cars coming into the country. We’ve lost Ford, we’ve lost Holden in the country and they’re not importing as many because they can’t get as many into the country because COVID and whatever’s happened. That meant the second-hand car market has taken off. My cars lost 10%, an average car in its first year will lose about 45% of its price. So if we buy something for a hundred thousand dollars, you’re selling it for $55,000 about a year later. They’re holding their value more now because of the under supply of cars that are new cars are in the marketplace. Added to that, people are wanting to be safe and secure. I can’t technically justify buying a new car.
Although I bought two in recent times, it’s only the third ever. I’ve only ever bought three brand new cars in my time because I just don’t see any value in buying them. But people are now looking at their spending habits, remembering that in the first quarter of COVID lockdowns in March to June last year, people were saving 16% more than what they’d saved in the previous quarter. So now they’re all watching, making sure they had some money left in the bank and making sure that we’re doing okay. Sarah, you’ve got some opinions I’m not sure about. So why do I see, just what’s my next slide, why do I see that I think that the markets are going to tank and what’s the signs that people are going to start getting into hurt territory.
Steve, well I’ll talk about my experience. Tow truck drivers in the middle of lockdown should be a business that’s not busy. Okay? So because no one’s on the road, things don’t break down which means there’s nothing to tow. Now, ironically, the tow truck market is busier than it’s ever been. I’m wondering if anyone in the chat box can work out why it’s busy right now. I’m just going to take a drink while someone punches in what they think the answer is. Let’s see what the chat box says. Road rage, flat batteries. No. Marcus got it.
Yep. Quite a few of you got. Repossessions. So if I have a mortgage to my own home, an investment property that’s negative gear. I’ve got personal loans and those buy now pay later set ups and I’ve got a lease on my car and I don’t have enough money to pay for stuff. What am I going to pay for first? My own home mortgage is the first one I’m going to pay for. The second thing I’ll pay for is my investment property if I can afford it, but definitely all these other ones I’m going to stop paying. So now are we going into default on buy now pay later, we’re going to default on those $5,000 overnight loans. We’re going to default on our leases. Now in our lease, what’s the security? The security is the car itself.
So if tow truck drivers are now busier than ever on repossessions, it’s only a matter of time before those repossessions start going into delinquency on mortgage home rates. So there’s a couple of signs that are showing, we’re getting to that point where I thought we would be about now. I thought we would be further along than where we are now, which is why I’ve moved my date from beginning 2025 to mid ’25. So in July 2021, total housing rose 6% when it comes to external refinancing. So 6% increase to get to that $17.2 billion. Owner occupied rose by 4.9% and investor housing rose by 8.3% of loans. So that’s interesting that we’re still going up in the amount of money that’s being lent out. Seasonally adjusted turns the value of loan commitments, a total of 14.2% for total fixed personal loans.
So these personal loans can be for TVs, those overnight loans, it can be for spending on the property that may take a personal loan to spend on whatever they want to. Personal investment rose by 92.8%. Now I think personal investment, the category for that is where they, I’m just trying to think of the actual term that they use for those. I don’t want to use a brand name but I might have to. Is it Wallet Wizard? Or whatever it is, those people that approve loans overnight. And if you don’t pay them off in time, they start hitting you some really harsh interest rates on the end. They’re the ones that’ll leave- So places like that, Peter [inaudible 00:56:34] , there’s actually a name for them and I spoke about it recently in media how dangerous they are.
So we go, all right, road vehicles 2.9% increase in leases. So we’ve got increases across the board with all of them. And so, payday lenders is what we’re talking about. Cash rates. Brian said, cash rates are expected to stay at 0.1 until early 2024, actual interest rates. So people like Brian and Lisa, who are in my mentoring program, they’re factoring 6-8% as far as what their fees those are showing qnd that’s a good thing. If you commit to paying 6-8% on mortgage rates and you can make the numbers work, then you’ve got some space in there.
Well done Kerri. I agree. Seril stop typing and just start listening, please. That would be awesome. All right. So let’s look at the next slide. Now I find this really interesting. So the light blue is homeowners refinancing and the dark blue is investors refinancing. Have a look at this, this refinancing percentage for investors. Now that could be for a number of reasons. I personally think it’s for better rates and/or for those people that have come off fixed interest terms. So interest only, and then now at the point of the interest only finishing. So what they’re doing is refinancing and getting two, three, or four years of extra interest only period. Again, another reason that there’s going to be defaults happening in the future because people are simply just putting off what they can or they’re refinancing to pay for their cost today. And they’re basically living a reverse mortgage.
Now, some of them are really at a point where they might be refinancing to invest, but are they re-investing for the reasons and the purposes of helping themselves out in investing and are they’re doing their research, and are they just buying another crappy four bedroom, two bathroom house and land package. Now we move it. We’ve moved into that area, and the reason we’ve moved into that area is cause I’m sick to death of people being sold crap, and I’d rather sell them something that’s at least going to give them some cash flow so that they can support themselves and get into a better place moving forward.
Okay. So I just thought that was a really interesting look at the marketplace. Now this is New South Wales, so the value of new home loan commitments, we can see the spikes on the right-hand side here, New South Wales 6.1%, Queensland 9.1%, ACT 6%, Northern Territory 27.2%. You might think that that’s an extraordinary increase but remember that the Northern Territory itself was at four or five o’clock when COVID hit in the property cycle, and it’s only just hitting six or seven o’clock.
So property cycles happen in different places at different times and Northern Territory was down there. So Northern territory has certainly swung around to where it needs to be to move up. And it will move quickly too. Interestingly the south of, take Perth out of the way, sorry take WA out of the way for South Australia, Victoria, Tasmania, all had a fall in new home loan commitment. So the total of Australia fell by 1%, but here’s where we’re at. Now, this one here is lending indicators as far as total housing. And we’ve see it flattening out up here. External refinancing is going in an upward trend still, but we’ve got the refinancing excluding in here starting to flatten out.
So again, here’s that $17.2 billion rise, 6% in July, the head of finance at IBM who says that the value of financing between his lenders was 60% higher in July 2021, which again is making me scared because those people, why are they refinancing? To me they’re refinancing to go to get out of their fixed home loans and get a better interest rate and are staying to interest only. So investor loan commitments have seen an unbroken period of growth since October 2020, and almost doubled in value compared to a year ago. Now in here somewhere, we’ve had the highest investment loans for home loans since 2015. So we’ve actually, sorry, 2015 was slightly higher than where we are right now, where investor loans are at an almost all time high. And that again, starts to scare me from that basis here.
Now let’s look at the construction industry. So we’ve got a lack of development sites in a few areas. South Australia, New South Wales in particular, don’t have enough development sites. Which means that from a construction perspective we are starting to look at something that says, from the constructions, where are we at? So we have the biggest impediment for new housing development in the country. Quarter one was a lack of development sites, particularly in South Australia. Seril, I don’t agree with you on that one there, you should probably just type less and listen more. Housing affordability was also a big issue in South Australia, New South Wales. WA still doesn’t have enough development sites going on themselves. And so I think that the construction lending is something that needs to be looked at as well.
Housing approvals by state. So now I’m starting to look at what’s happened in the last nine months. We’re having problems with build prices, stacking up. We’re having problems with increases in material costs. We’ve got issues with increase in labor costs because everyone’s so busy in the construction industry. And can we continue to stay and ramp like this? Well if you start looking at this, my issue is we’re now starting to see a drop in construction approvals. What does it mean? Well, there’ll be a lot of construction companies that have ramped up, which are going to fall flat, and builders in general are not the greatest cashflow kings in the world. And the shortage of materials are pushing prices up at the moment, but then we’re going to have an evening out or a supply that’s going to go back to what it used to but our prices are up. I think it’s important. There’s a question here about locking off fixed rates. I have a really strong opinion about locking off interest rates. And that’s based on my experience of 30 years. I’ve only ever fixed two loans and both times I lost out. The argument would say that were the lowest we’ve ever been. The banks employ economists that, that earn three, four, five hundred thousand dollars a year to predict what’s going to happen in the future.
Although most of the time they get it wrong and the plumber gets it right. Based on that, they are betting against you of what the market’s going to do as far as interest rates are concerned. So if you’re fixing an interest rate right now, banks are not basing that on the fact that they get to lose. They’re going to gain. I promised myself on the second that I lost out on that I would never fix it another loan ever again in my life. Because when you look at the ebbs and flows of what happens, for me, I just thought I’d never do it again. And I don’t think I will. I keep to my word unless something extraordinary happens. Interesting that in New Zealand, speaking to Holly and her place here, they actually come back to you every year. And you basically got to renegotiate how you’re going to be paying your home loan in most of the New Zealand home loans. It’s very interesting how they do it over here.
Okay. So approvals are dropping off. So we look at it from that aspect and saying, okay we’ve now got approvals dropping off. We now have a point of saying what’s going to happen in six months, nine months time to the housing industry market we do have right now. If I want to find a builder, build something for me right now, it’s five to six months before I can get them on site and they’re doing nine month builds. So you’re talking a year of before we get to anything. Fixing loans could be considered as insurance if loan payment is to become not affordable, if they were to rise in the future. Yeah, I agree totally, Peter. If people want to know what they’re going to be paying in the future, that’s fine, fix them off. But what I can say is that banks don’t lose. And that’s really quite simplistic.
So what I’ll do here is before I answer any questions I just wanted to take you through the new business, Invida. And it’s not really a new business, it’s a new business name. And because we’ve always done this, we just wanted to formalize this. Part of what we’re doing at the moment in the business is, what’s the way, Alison who does all their marketing who’s just amazing. She lives in the US she’s an Australian, lives in the US and works for us full time. She said before I moved to New Zealand, actually the day before we moved to New Zealand, we had a big team meeting and saying, they’re locking down and Holly and I need to get out of the country. If I’m to get out of the country, I have to leave tomorrow. So what does that mean for me in the business? I can run the business from here. I’ve been able to run this webinar. The internet connection is pretty good as long as the kids are off the computers, which they are. And I can contact with my team. Now I can say that I miss my daughters enormously, and I miss being in the office with my team. As much as we’re in lockdown and we only got to see each other once or twice a week, I am really missing them. And I do really want to get back. Alison and the team, Alison particularly working from the US probably was the one that had the most input to me being over here. And she said and the team said, “Ian we need to stop you working in the business”.
So we need to make you redundant in the business so that you can be the visionary you’ve always been and start letting us do more. And I went how awesome. I’ve been waiting a long time, firstly, to have a short break which was about two to three weeks where people thought I disappeared off the face of the earth. I’m still here. But secondly, the thing that I love about my team is that they’re autonomous. And the thing that I love about my team is that they listened to the things that I have in my mind. And it’s, I’m not going to say on download information, but I think about things that are outside the square. And I say, how can I make this work? And how can I implement it? And, and Alison said, as far as Richard Branson is concerned, Richard Branson doesn’t concentrate on flying a Virgin plane. He concentrates on the vision of flying to the moon.
And that’s what I’m doing right now. I’m resetting my business to a point where Invida is essentially taking me out of the business and that I’m not the front face anymore. I’ve had my time in the limelight and I still can affect people in a positive way. And for me, I can say that at this point in time I’m enjoying myself. I dare say that I’m going to get itchy at some point. I’m essentially a househusband here and I’m enjoying it a lot, but I still do miss being back at home. Okay. So what does that mean from the perspective of Indiva? Well, we’ve had the ability in our business to do a few things. We’ve got a buyer’s agency, we buy properties for people that are existing and convert them.
We’ve got existing properties that people own. We convert them. And a lot of people don’t know, but we do do purpose-built. So we find the land and we organize the builder and we do co-living properties on that land. And we have two basic products in the new builds. One basic product is what we call the three bed model, and then we’ve got the solid co-living model. So there’s two different [inaudible 01:10:15].
Sorry, I’m reading a couple of things here. As borders open, overseas travel start again, considering real estate pricing and supply at the moment, what change will that cause to the market in your opinion? Again, borders opening up. Are going to, all right. Let’s look at the world and who was managing to be able to keep out COVID the most up until Delta, Australia and New Zealand. And so if Australia still had no COVID and New Zealand had no COVID and you were trying to get into a country. You’d look at it and go, what’s my best country to come into? I can either go to Hobbiton, New Zealand, or I can go to a proper country. Sorry to all the Kiwi’s that are on there listening to what I just said.
Apart from the fact that MIQ or the quarantine system in New Zealand is shut down to anyone other than expats coming back, I dare say that you’ve got a lot of pent up demand. Remember that everyone said that the world was falling a year ago or more than a year ago because immigration was stopped, people were going back home because they’re on 149 visas and COVID and people were losing jobs because of lockdown. Well, lo and behold, people came back. There’s still a whole bunch of expats. So I just mentioned Alison in the US, she’s been trying to get back for about nine months now, and they keep on canceling her flights. Flights returning to Australia right now will only allow 20 people on there. So once first class business class is sold with the spaces that they’ve got between social distancing, is basically only 20 people on a flight and the rest is cargo. And they’re making their money on cargo.
So you’re not getting enough people back right now, so there’s pent up demand so that when they do open the borders you’ve got people that were approved to come to Australia that are sitting overseas waiting [inaudible 01:12:20]. They’ve got people that have put applications in because we’ve handled COVID well, depending on how you want to look at that, plus you’ve got the expats that are trying to get back into the country as well. And there’s no place like home. And when you look at countries in the world, New Zealand and Australia would have to arguably be said to be a place that you would want to be.
The quarantine system here can’t handle the way they want to and at some point in time New Zealand’s just going to have to bite the bullet and say, “We’re just going to have to let COVID in”. They seem to be handling it to get it down so far but this is the second lockdown that’s happened in New Zealand. You only have to look at what’s happened in Victoria and New South Wales where once you’ve been locked down for a certain amount of time, the second one, maybe people start going, “Okay, this one will do it”. The third one they’re going, “Screw this. I’m out. I’m gone shopping or I’m doing this or I’m doing that”. And they just start to violate the rules. So I think what we’ll see is an increased demand short-term to what’s happening in the housing market. Again, that gives me another reason to extend to late 2025 and onwards from there. Okay.
Invida, I just want to take you through some numbers on that. Standard room is somewhere between, call it 22 to 35 square meters up to 40 square meters sometimes depending on the property. These are new builds that we’re doing now, effectively maximizing our returns for investors. So if you’re going to go out there and you don’t want to learn how to do what we do and you just want the end product then Invida’s where you want to go to. I’ve got a great team. Bianca and the team can help you out there. Bianca, I will say, will probably take over my business and run my business. She’s doing an awesome job right now. She’s the bees knees. She sometimes does too much.
So an example here of a property there that was converted. You’ve got Matt and Vicki that were getting 670, now getting 1350. This one here for 10 now getting 930. So these were conversions, new builds, and so this is a conversion where we took an existing property and we turned it into a market. Now just takes four weeks to convert. This one here was a total cost of 770. And I think the cashflow on this one is about $25,000 on the property. Gross yield of 10.27%.
PART 3 OF 4 ENDS [01:15:04]
Ian Ugarte (01:15:00):
Gross yield of 10.27%. $1,580 a week getting in on this one. Filled with essential workers and locals. Great, great people in there. As all our properties have. We don’t do low-socio. This one ended up with $35,000, on an 80% loan. That’s not a bad outcome.
What we, essentially do, is a strategy call. You then sit down with the team. You then make sure you’ve got your financials and legals ready to go. We’ve got an education part of it, so that you understand, it’s not a deep education, it’s not a full education course program, in property investing. It’s just, basically, this is what investing is about. Then, you move ahead and you’re into the green light of investing. All you need to do is to go to Invida.com.au. Make sure you’re putting, I-N-V-I-D-A-.-C-O-M-.-A-U, make sure you put the .com.au in. You can see our page, and you can talk to one of our team members, about whether this is right for you. There’s no obligation for you to commit to anything, if you want to talk to my team. So talk to my team. They can tell you quite quickly. You need somewhere, you probably need a $100,000 of equity and serviceability, as a minimum. Preferable that you have $300,000. Which gives you choice, to do whatever you want. Let’s pop in some questions, from anyone, if you want to. What time is it now? We’re now an hour 15, into this presentation, and we’ll see what goes from there. If you do have some questions, you can pop them in the question box. What I might do is I’ll just go to, “Everyone”. I’ll just put that website in there. Invida.com.au. This website is brand new. It’s got a holding page at the moment. Next week, we’ve got our full page, our full website opening up, which will be available, which will have all the different bits and pieces coming in.
“What is your recommendation for first home buyers?” Maurizio’s asked. I suggest that as a first home buyer, that you are buying a property that can be, what we call adaptable, in which Invida is about our adaptable housing. You need a property that can suit a first homeowner. That can rent out part of the property. Then they can have kids, and take over the whole property. Then, as downsizers, basically the kids leaving the property, and they move on, and you can start renting out parts of it, as well. But, that property can also be used as a house and granny flat. Can be used as a NDIS house. Can be used as a multi-generational house. There’s seven different uses of that property. The best, and highest use, is to be able to use it as co-living property. As a first home buyer, that’s the property you should be doing. Your first investment into properties should be something like that, because that will give you the step-up, to getting something more, and getting better outcomes, as well.
“Can you talk about the cash rate, in relation to employment levels, and how it will affect property prices come 2025? Do you see the RBA reducing rates further, if the property market shows weakness?” If the RBA reduces rates any further, they’ll actually be giving us money. I can’t see them reducing any further. They don’t have any more, bang for their buck, out of reducing interest rates. We have a really nice outcome from the basis of, right now, employment is strong. How long will it take for employment to start to drop off, if at all?
What I urge you all to do is go back to 1918, and have a look at what happened in 1918, as far as the pandemic, and what happened in the roaring ’20s. If the roaring ’20s had an impact back then, and history repeats itself, then you need to start looking at data, as much as you can pull. Remember, it’s over a 102 years ago, that the pandemics were apart. When you look at 18 year cycles, you’ll say where they line up. What’s happened back then, and what’s happening now. I’m pretty confident that I can see what’s happening now, was in-line, with what happened back then, as well. It’s not for me to pull that data and give it to you. It’s for me to say, that there’s stuff out there, that you could be looking at, and getting your head around. To get a basis of your own strength and opinion.
For anyone who knows me, and anyone who has been taught by me. I’m all for you, empowering yourself to make decisions. I’m all for you, not relying on someone to say, you should buy here, because I’m going to get a kickback, right? You might say that Invida is a kickback business. We get paid. We don’t get paid by you, we get paid by, well, we’ve got a membership fee, but we get paid by the builder. Now, why am I happy to do that? Because, I know that the builder that we’ve chosen, is using my designs, and I’m also making sure that they’re ticking the boxes. So that you’re not getting it wrong.
“If the property was paid off, what would be the net return? $770,000 total cost example.” The net return, we had a farmer that bought one of those properties and bought it cash. Their net return was about $50,000. To be safe, let’s say $40,000, is what your net return would be, if you’re paying cash, for one of those properties. If you could buy a property for $850,000 cash, you would get $40,000 to $50,000 net. If that makes sense.
“Will there be a replay of this webinar?” I don’t organize that stuff now. I just turn up and talk. I’ve got my slides and I talk to my slides. Invida replaces what we used to call, Do It For You. Do It For You, was the system of how we would, either work on an existing property that you owned, on an existing property that we bought, or a new house and land to-type package.
“How about in the South of WA? Will there be a service in that area?” Yeah. We’re looking at the whole of Australia. New South Wales, depending on whether the New South Wales state government took my advice, and they will implement the policy that I put in front of them. It’ll be interesting to see.
“Thanks, David. Awesome to know that. Do you think it looks good?”
“Are there properties in the $500,000 range?” There are properties in the $500,000 range. They’re not the returns of the more expensive properties, but they’re still pretty good. Look, I’m talking round figures, don’t hold it to me, because my team will want to take my head off. But, for a $500,000, $550,000, you’re probably going to get about $13,000, net-to-positive cashflow. That’s after all costs, on the 80% loan. We were 8% to 11% returns. We’re now 7%. Because of price increases in the purchase price and build cost, of properties. We’re now at a 7% to 11% return, is what we’re offering our clients. Now, remembering 7% is above industry standard, by a long way, with what we do, and safe and secure, as well.
All right. Looks like our questions have dried up, and if that’s the case, I might move on to remember I’m two hours ahead of you here, and it’s not too late, it’s 9.30. But, for someone who gets up at four o’clock every morning, it’s not early.
“Is your 2025/26 forecast mainly based on mortgage stress-related data, or are there other wider economic factors?” Yeah, lots of factors that come into choices like that. I suggest you do some research on the 18 year cycle. Adding in property cycle. Then start thinking about, there’s lots of stuff. There’s the tall buildings. One of the Matter of Facts I talked about was the tall building. Let me just stop sharing my screen. One of the factors that I put in there in one of the Matter of Facts was the tall building cycle. That there is correlation between tall buildings being built and finished, and markets dropping out. You might think it’s crazy. But, when you actually start looking into the reason behind it, you start to get a better understanding of, “Oh yeah, that makes a little bit of sense. I can sort of make sense of that thinking as well”.
“Do you think the central coast and Sydney will continue to increase in price?” I think you’ll see some increases in prices, wherever there’s a shortage of listings on the marketplace. If you’re short of listings, and you haven’t got enough buyers, then you’ve got a marketplace that’s in demand. Whenever demand outstrips supply, there’s only one direction it can go, and that’s in an upward direction, because people are competing. There’s more people competing, for less product. It’s inevitable that prices will go in upward direction. What you need to be looking at is, days on market. So, if the days on market, start to extend, then that’s when the market prices are going to drop. Again, there are many factors that drop into all of this, Jonathan, it’s just not as simple as saying, it’s just based on this, there’s everything that moves into it, in different areas.
“You say you’ll have a lot of cash in hand at 2026. Does it imply you may sell some property at higher price before the end of 2025, and buyback low in 2026?” Well, let’s just say that we, just by default, not that I expected this, sometimes you got to ask the universe, why did you put that in front of me?
With the consolidation of the financials for Christine and I going our own ways. I’ve got a friend and I’ve always been of the belief that if you do go your own ways, it’s best to split, it’s best to sell and split cash, than what it is to split properties, by changing directorships and all that sort of stuff. For us, we sold a lot of stuff and we’ve paid the tax on it. That has meant, we do have a portfolio that is easily split, in most of the portfolio. So that is, we buy a property, we subdivide it, and we build a duplex on one, and a duplex on another. Well, that property is now sitting in one trust, but we can then separate them. Half can go to Christine and half can go to me. Or, we might have a set of six villas, where three go to me, and three, because they’re already in separate trusts. You know, that sort of stuff, we kept them separated. But the rest of that, we sold and we cashed up. I would have sold properties, probably late 2024, but probably now 2025. The properties I would sell, are those properties that are, “Uhh whatever”. The properties I would keep, are the ones that I want to die with. The ones that are giving me cashflow, or the ones that I want to pass on to my children. They’re the ones I would keep. Remember, you don’t have to sell. If you’re keeping a property for 10 years, it doesn’t matter what the market does. As long as you’ve got cashflow coming in on it, then you don’t have to concern yourself about what property prices do.
It’s similar to owning shares, in the share market. You don’t care what a share price does, if you’re not ever going to sell those shares. Well, you’re not going to sell in the next 10 years, because if you’re not concerned about what the share price is worth, as long as those shares are returning your dividend every year. So that is, you’re getting money on those shares. You don’t care. So, property is exactly the same. If you’re keeping properties, statistically in Australia, property prices double every seven to 10 years. So, if you’re going to keep your property, in Australia for seven to 10 years, don’t worry about whether it’s going up or down at year 1, 2, 3, or 4, because you know that it’s going to be worth double, in 10 years time. In which case, as long as you’ve got positive cashflow coming from that property, you’ve got a return on your investment, or a dividend on your property. Which means that you can afford to keep it, regardless of whether the property market goes upwards, sidewards or downwards. It doesn’t really matter. If you’re keeping long-term.
So, for those ones that you are going to keep for life, don’t worry about it. Don’t sell them. But, if those ones sitting near you going, “Uhh, you know, I could probably get a better return on money”.
Now, I’ve got a different view of an opinion to Steve McKnight. Steve McKnight would look at my property, at his properties and go, “Right now if I took my money out, at current value, what am I getting on my rate of return, and if it’s not enough I’m selling and I’m going to buy something else, that’s going to be a better return”. So, understand that.
Now, Melana has asked about regional. Regional doubles every seven to 10 years, but it’s a different type of cycle. So, in regional, you need to keep a property for 20 years to get four time factor, and I’ll explain this to you. If I buy a property in a metropolitan area for a $1 million today, in 10 years time I expect it to be worth $2 million. 10 years from then, I expect it to be worth $4 million. The same can be said for regional. That in 20 years time, if I bought a property in regional, it would be worth $1 million today, I’d buy it for $1 million. In 20 years time, it will be worth $4 million. But, there’ll be two periods of cycles where it will be, an 18 month to three year cycle, where you will see a spike and a drop, and a spike and a drop, to get you to that $4 million price, right? Over 20 years, you’ll get a 4 time factor, in regional, and it’ll happen in a short burst, and it just happened.
The last, I said three years ago, start buying regional. The last three years, two and a half years, and it’s going to top out at three years, regional has been great to be buying it. You’ll find, that if you continue to buy in regional, that you will be part of the next 20 year cycle, which means that you could maybe have to wait up to three years, before you see the doubling, of the doubling.
Okay. “Is now the right time to buy first home to live in?” That’s going to be dependent on your certain circumstances and who you are, where you are, and what you want to do. Maybe worth, Sophie, speaking to the Invida team. Because, if you buy the right property, where you can live in part of it, I don’t know if you’ve got any kids, but certainly if you’re a single, or a couple buying your first home, you want to buy something that’s going to have a return on investment. So that you could live at home for free, essentially, and someone else could be paying off your house.
“Do you think the central coast and Sydney will continue?” I answered that question. Sorry. I’m answering it again.
I love this next question, when it starts with, and I haven’t read it yet.
“Sorry, if this question is too intrusive. You mentioned you have raised cash and you’ll be holding a lot of cash by 2026. Does that mean you personally are holding back to doing purchase for the first three years? That is, property prices are not going up for the next three years.” No, I’ll still be investing. I base all of my investing on the fact that I can put $1 million into a deal, and I can pull out $1.25 to $1.5 million. If I spent $1 million. I’m using that as round figures, right, and get cashflow from it. I was talking to Holly about it today, about where do we start mixing and matching, and making things work. Really, realistically, I’d love to go and live in Spain for a year, where my parents grew up. I’ve probably got 50 or 60 cousins, uncles, and aunties, that live in the north of Spain. I’d love to go and live there for a year. I’d love to take my family over there for a period of time, so that they can have their holiday. When I say that, my family, I mean my four daughters.
The Internet’s done so much for the world. You’ve got this ability to be able to work from anywhere. You only need a little bit of an internet connection, to be able to communicate. Now, you may not be able to run zoom webinars from a really shitty connection in the middle of Peru, but certainly you’ll always find a place that have something that can run a zoom. Here in Nelson, I rented before lockdown. I rented an office space in the town, and I had the green screen set up in there. I had the right connection that I needed in there, but I’ve managed to make this one at home work. I’ve had to grab one of the kids and just run wire all the way around them, and tie them to a pole outside to get more connection, and bandwidth. I’m joking. But, it’s working.
I really think that having that ability to be able to travel and most of you may not know Kareena. Kareena was my understudy before COVID. Before COVID, she had this awakening, which I had had probably 10 years earlier. You can’t make people have their awakening. It comes at some point in time. Her awakening was, “Why am I still going when I don’t have to be here?”, She’d had enough. She had enough cashflow to not to continue to work, but for some reason as westerners, we get within in our head that we need to continue working. She got on a plane, started traveling. She was going to travel for three months. COVID hit, she was in Peru at the time, and now she’s still there. She’s working at a charity, learning Spanish, in a Spanish school, which is a charity that looks after animals. I really envy what she’s done. I really envy how she’s actually living her life, and making the best of the moments that she’s got. To the point where maybe I’ve done this a little bit backwards, but I’m now at a point where I’m thinking, what haven’t I, the simplest and easy way to say how my life is right now, is that I’m living my thirties, now. Because, I missed my thirties, working 20 hours a day. These bags, they don’t just happen.
“On investment loan, interest only, or interest plus principle?” If you’re an investor in property and you’re going to continue to invest, there’s no use paying off any principal, because you’re to be refinancing at some point in time, to invest in the next property. So for me, if you’re looking at consolidating and getting rid of your debt, so that you’ve got cash flow, because there is no debt, then you’ve go principal and interest. If you’re looking at refinancing, at any point in the future, for that property, interest only, because all you’re doing is paying the principal, so that you can redraw at the end, anyway. So, cash in your account is better than cash in their account, is the way I look at it.
All right. We’re at 9.38. How did it? That was like 20 minutes that disappeared. Me talking about nothing really.
“Is the Queensland couple doing it for you, part of Invida?” I presume you’re asking about Joel and Bianca. Yeah. They’re Invida. Not Invidia. I-N-V-I-D-A it is, you’ve got too many i’s in there. Yes. They’re my team. That are looking after everything.
Okay. I think it’s time for me to call it.
“Are all properties furnished?” Anna. All co-living properties, we do as furnished. There’s none that we don’t put furniture in.
“You really don’t like us dyslexic.” I need to talk to you Brian, by the way. So I might give you a call tomorrow, or give me a call tomorrow.
Thanks everyone. I really appreciate the ability to be able to jump on. It’s been a long time coming, this Matter of Fact there’s been a lot of stuff that’s happened in between that stopped me from doing it. As I said, I wanted to keep people in the place of where, I’m thinking, and how you can think. If you’ve got the opportunity and you think you want to invest and you want to do it as safe and secure way, we’ve got very, very, very, very good, happy customers. That have happened since Do It For You, started. So, just go to Invida.com.au and you’ll be able to read that one-pager for now. It’ll be expanded website next week. Lots of thank yous coming through. I appreciate it. I guess it’s awesome to be able to be here.
There’s something that I’m working on personally, myself, that I hope that after the next, 18 months or so, it’s already been in process for the last 18 months, and I hope the next 18 months or so, has the same, and bigger outcome, and I’m talking about me personally, as a person. I hope to be able to continue to do these. This is pretty amazing. Thank you everyone. Have a great night. Have a good Friday night. Let’s hope that the Bunnies win the premiership this year. I’m not really caring about AFL. Don’t care. As long as the Bunnies win.
See you guys. Bye.