No one in real estate likes the recent media headlines: “Investor Exodus”; “Pivot to New Builds” or “Cold Feet and Cooling Prices”. Of course journalists need a bit of sensationalism to get news story clicks, but every salesperson has seen the obvious pullback in investor enquiry these past few weeks.
So does this latest Labor Budget spell the demise of our landlord client base? What will your rent roll look like in 5 years time?
Australia is fairly unique having “mum and dad” investors provide the vast majority of homes to our rental population. In the USA it’s institutional money and for much of Europe and Asia tenants live in public housing. Australia’s governments are backing away from public housing at rapid rate: recent stats from Propertyology show it’s shrunk from 26% of supply to just 9% over the last 50 years!
Private landlords play a critical role in Australian housing.
But after constant kicks from politicians over the past 5 years (limited tenant eviction rights; pets allowed; rent increase restrictions etc etc) you could understand investors feeling unwanted. They already pay higher interest rates, capital gains and land taxes and even more council rates, simply because they’re not owner-occupiers. Now Albo and Chalmers want more CGT and are trimming their tax deductions.
Here’s my insight for the future of property investors: (I’ve been a landlord myself since 1987; have run residential agencies for more than 30 years – working for landlords of 1000’s of rental properties; and spend most of my day speaking with the owners of rent rolls.)
- investors love bricks and mortar: 2.3 million Aussies own a rental property and the stats show most buy near their own home; the majority own just one and they like that they can drive past it. It’s tangible and they enjoy the control they have.
- shares and managed funds can impress with their returns, but generations of Australians equate a rental property with future financial security. You won’t feel giddy watching zig zagging price graphs like the stockmarket!
- money in the bank won’t get me there; investors know they need to take risks if they’re going to build assets and enjoy retirement. Property is secure.
- you can leverage a property investment: A $1m house will only cost you $250k because the banks love housing too.
- steady, predictable cashflow: yes, commercial property returns can be higher, but have you seen how long some office and retail tenancies can stay vacant?!
- I won’t be writing Albo a thank you letter, but negative gearing isn’t dead, just delayed. The changed tax rules will typically allow your new landlords to carry forward their losses and offset them against a profit turned once rents exceed expenses. It’s not as good but it’s still a financial benefit.
- property investors chase capital gains: Residential rental returns are rubbish – always have been – so the real aim is asset growth. And investors know it will come again. I’ve seen at least 8 cycles in my real estate career where people were calling the death of home prices. Every dip in values draws a new crowd of doomsayers who, coincidentally, have something else to sell investors. But property keeps rolling onwards and upwards over the long term.
- rents are going to keep rising until there’s a seismic shift in new housing supply: if this budget discourages some new investors for a while that’s going to tighten the vacancy rate even further. Your rent roll might not grow but rents (and your fees) will.
Are your landlords thrilled with this latest attack on property investment? Nope. But while a third of Australians need a rental home it’s up to those mums and dads to provide them. This government might demonise them, but there’s absolutely no plan to replace landlords with hundreds of thousands of publicly funded homes.
And those landlords need an agent to manage their properties, navigate the increasingly complex tenancy laws, and minimise their costs while they wait for future capital gains. Rent rolls and property managers have a long, secure future in Australia.
Since the budget I’ve had a big lift in buyer enquiry from agencies wanting to grow PM income to counter the drop in sales comms. If you’d like a confidential chat about your rent roll or an appraisal of its current price, I’d love to help. I’m on 0423 332 022 or rob@honeycombe.com.au