Could dogs guard retail landlords from online raiders?

James Kirby is on holiday, so Alan Kohler invites Elizabeth Redman into The Money Cafe to discuss the week’s financial issues, including:
  • Dollar
  • Media hysteria over reserve bank rate hints around the world
  • What’s happening in property?
  • No sign of a broad correction yet
  • Should you be able to take flights to Gold Coast as a tax deduction?
  • Half hour city: a realistic aim?
  • Could amazon kill the retail landlord, and could pets insulate landlords from amazon?
  • Shops are over!
  • Investing directly in property vs in an etf?

You can hear previous episodes of The Money Cafe here or Subscribe to the series on iTunes.


Hello, I’m Alan Kohler publisher of The Constant Investor and joining me today for our Money Café chat is Elizabeth Redman, property reporter with The Australian, filling in for James Kirby who is over in Ireland.  G’day Elizabeth.

Hi Alan, great to be here.

It’s great to have you, and Elizabeth everybody, in case you don’t know, Elizabeth was one of the original staff reporters on the Business Spectator.

I was.

And went to become our correspondent in New York for a period of time and has recently come back, six months ago and is now property reporter on The Australian in Melbourne and doing great.

Thanks, Alan.

In honour of Kirby’s visit to Limerick, his home town, I have a limerick for you.  There once was a fellow named Kirby who was nice and never acerbic, he went off to Ireland leaving Australia, the fire land, in a rush as if he was in the Kentucky Derby!  Isn’t that sick, it’s so terrible.

That’s quite a poem.

Well do they do limericks in Limerick?

I’m sure.

I’m sure they do.

I’m sure that they would.

Anyway, there you are.  Now Elizabeth, let’s just start with the Australian dollar which is topical since it’s gone above 80 cents this morning.  I don’t know, being a property reporter, you’d be all over that – would you?

[Laughs] Well I was probably a little bit more closely when I was living overseas.

You would have been, of course.

Carefully, watching it but over here, what do you think about the Australian dollar going for 80 cents.

Well, it went above 80 cents at about 5 o’clock this morning on account of the Federal Reserve came out with its monetary policy statement, having finished its July meeting deciding not to increase interest rates.  Now, it wasn’t so much the failure to increase interest rates that sent the US dollar but it did go down because the statement was what they would call dovish not hawkish and led the markets to adjust their thinking about when interest rates in the US would go up and by how much and so on.  That has, I think been pushed out a little bit – the next rate hike has been pushed out a little bit on account of the language in the statement.  There’s not much point going into in detail what it is but the fact is the markets now think there’s a slightly lower chance of an interest rate increase in the near future in the US and so the US dollar fell quite a bit.  That pushed the Australian dollar above 80 cents for the first time in a couple of years, two and a half years I think.  That’s a bit of a moment, would you say?

Do you think that the Fed will keep very cautious because they’ve been so cautious for a very long time.  Do you think that this could keep happening, this kind of delay?

Well, it’s interesting.  I think it’s worth reflecting on another of our topics today which is Philip Lowe’s speech yesterday to the Anika Foundation in Sydney, I think it was.  Anyway, he was talking and one of the things he said was that low wages growth is causing a challenge for central banks everywhere and that’s really what’s going on in the US.  I mean the US economy looks okay, it’s not booming, but depending on which measure you look at the US economy is fine.  But inflation remains very low on account of wages growth is very low and the central bankers including the Federal Reserve and Phil Lowe now are saying they’ve got no idea why.  They don’t really know what’s going on and they’re perplexed about it.

I’m sure you have an idea though.  I’m sure partly it’s robots, surely – automation and a trend to technology and all of those kind of influences that mean that maybe you can’t expect wages to rise like they did in the past.

Yeah.  What the Federal Reserve in its most recent monetary policy statement attributed low wages growth to is low productivity growth.

Yeah.

That kind of makes sense.  You’d think that if hourly output is low, then hourly wages should be low, that would make sense.  However what doesn’t make sense is low productivity.

Right.

We’ve got robots, we’ve got innovations coming out of our ears, we’ve got all this stuff going on to make businesses more efficient and so on.

So we should be more productive.

Well, you would think so.  That’s the thing that’s got everyone stumped:  why productivity growth has fallen and keeps falling despite the fourth industrial revolution taking place.  So I do have some thoughts about which will probably take us more time than we’ve got.  But it is the case that because that’s stumping the central banks and in particular, the Fed, they are being more cautious.  As you say, I mean every time they open their mouths they’re a bit more cautious than they were last time because the things aren’t unfolding as they would have thought.  I mean you were over there reporting on the Fed.

I was.

What did you think about how they behaved?

Well I was very excited to go there and report on rate rises and I don’t think there was a rate rise in the time I was there actually and every month or however often the statement came out…

I think there was one, I’d say.

I think I got on the plane like a day before.

Oh really, okay.

Yeah.  [Laughs] So I was coming home for a visit for Christmas and I just missed reporting on this long anticipated rate rise.

Yeah right.

Just missed out, but also a couple of years ago, Alan, when I was reporting on the RBA they were flat at 2.5% or something for almost all the time I was doing that. I feel like I jinxed it a little bit.  But anyway, they have been so cautious and something that would happen in conferences after their statements is that reporters would say to Janet Yellen, “Well what data do you want?  You keep saying that you’re being data driven when you make a decision about whether to raise rates”.  And then they would kind of reel off all this data suggesting that the economy looks okay.  What do you want to see?  You know, the unemployment is really low, like what are you hoping for?  And she would just keep saying,
“No, no we want to be really careful, we want to be really cautious.  We just really want everything to look strong before we make this decision.”

Yeah, well they’re a bit shy now.  The central banks, and in particular the Fed is scared to say anything because they realise that whatever they say will have a massive impact on the markets, because the markets are so focussed on what they say now almost to the exclusion of what they do, and probably take it mostly out of context.  It’s interest the Reserve Bank of Australia came out with its minutes last week  and had a discussion in the minutes about what the neutral interest rate is now and it’s clear reading the minutes that what they were saying is that the neutral interest rate is now lower than it used to be. 

They’re kind of going, it’s about 3.5%, well it used to be 4.5 or 5%.  They were kind of intending to say that the neutral interest rate has fallen.  In fact what the markets did was go, that’s 2% more than interest rates are now, therefore interest rates are going up!  Right?  The dollar had shot up and everyone had a bit of a flurry about it and then the poor old reserve bank had to come out a couple of days later and have another speech and saying, actually everybody, that’s not what we were saying, we were saying that the neutral rate has come down.

So markets not only tend be all over everything the central banks say, they often get it wrong.

Well see, if you don’t say much, then one word of difference, if you’re not saying very much different is going to be the thing that people will focus on because they’re so interested in any clues about what you might do, which I think is what happened last week that, you know, everyone went, “Oh well okay, I guess we’re going to 3.5% now”, when they were just intending to have this academic discussion about is the neutral interest rate lower.

Yeah.  Anyway I’m looking forward to asking you about what’s going on in the property market.

Okay.

This is what I want to know!  What’s happening?  Firstly is the market still going up or is it going down?  Tell us!

Well, the first thing that happens is if I say to anyone the ‘property market’ they say to me, “Well ,there’s different markets” and I say, “I know, I know, I know – but what we’re all interested in is the east coast capitals, what’s happening in Sydney and what’s happening in Melbourne.

Exactly.

Because you’ve been so hot, price growth is something like north of 75% in Sydney over five years and north of 55% in Melbourne over the same time frame.  They got to what we think is probably the peak over the first two months of this year and we got to a stage where Sydney dwelling prices were up around 19% in a year.  Everyone said this is unsustainable, we don’t know how long this can keep going, but it can’t keep going forever because buyers just get exhausted.  It’s just not possible, and also because the bank regulator, APRA, has said, we need to actually be a bit more cautious about this and try and restrict who banks are lending money to so that we don’t end up with a whole bunch of people who borrowed money when they can’t really afford because that would be dangerous.

So we’re at a stage now where housing prices have been growing a bit more slowly, they’re still going up but just not quite at the speed that they were before.

So we’re not seeing a correction yet?

Not yet, not yet.  It depends who you talk to about what we might see over the next couple of years.  If you talk to some vendor’s agents they will say prices will just go up a bit more slowly.  If you talk to some buyer’s agents they will tell you prices might fall a couple of percent.

What a surprise!

Exactly, exactly!  So it is possible that they could go down a little bit but they have come up so much; we’ve had such a bull run over the last five years.  There is also consensus that the market cooling wouldn’t be the worst thing, it would just be healthy and it would go back to normal.

Well, there you are.  There’s a few things going on in the market.  We’ve got the ongoing argument about negative gearing which doesn’t seem to go away.

And particularly it’s been topical this week because Treasurer, Scott Morrison, said in the budget that he wanted to put a few limits around negative gearing and he’s just this week released some draft laws.  The idea is to…

I missed that.  Really?

Yeah.

There you go.

The idea is that at the moment if you own an investment property and you have to travel to go and see your investment property or do some repairs that you can claim the cost of your flights as a tax deduction.  Scott Morrison said, “No more, we’re going to clamp down on this.”  And the other things is…

What stop flights entirely?

Yeah.

But that’s terrible.

Do you think so?

I do.

Do you have an investment property on the Gold Coast or something?

No. [laughs]  I have…

How do you think it should work?

I have investment properties that I have to drive to and I don’t claim petrol for that but I think that flying to your investment property is a legitimate expense.

I think that it’s a lot to ask other tax payers to cover you to say I shouldn’t have to pay tax on these flights.

What about one a year, would you accept that?

I mean if the kind of thing that, you know, what if you made a limit of one a year and you could see how it worked and then keep going.  That would be fine.  But what they’ve decided to do is they’ve said no more flights.  You can still have negative gearing, right?  You can still claim the interest deductions.

Yeah, I know but you can’t…

They’re not quitting negative gearing.  It’s just…

Can you drive there?

Well you’re allowed to drive.  You can’t claim the cost of travel as a deduction.

Right.  Well, I think that’s an outrage!

Okay!  [Laughs]  You can tell I don’t own any investment properties, that’s why I’m not particularly outraged.

No, you couldn’t care less!  Suffer you say!  Suck it up!

I think it’s incredible though that this has been happening; people have been flying to the Gold Coast for a nice weekend and seeing their investment property and claiming it as a tax deduction.  I don’t know, maybe I’m going to get some…

You find that incredible?

I’m going to get some…

You’re obviously not a student of human nature.

…some  angry letters maybe from your readers.

No everyone’s going to be on your side, they’re going to be angry at me, I’m sure.

Okay.

Now, on your list is nimbyism.

Yes.

Now what are you talking about there?  This is not in my backyard.

Not in my backyard.  I went to a conference last week and I heard the Federal Assistant Minister for Cities, Angus Taylor, speak to a conference in Melbourne last week and he was talking about the idea of the 30 minute city.  The idea is that you should be able to live somewhere and go to your job and go and do your shopping and go to the doctor and anything you do should be a 30 minute trip.  To achieve that in somewhere like Sydney in particular, or in Melbourne or any big city, the idea is that we need people to be living close to their jobs.  He said we need more jobs in suburban areas but we also need more housing in suburban areas where there are jobs.  He didn’t say it, but maybe there’s a hospital or a university in a suburban area.  We need more housing in those areas and that means more density and he was essentially making the point that Australians need to get ready for more density in the suburbs and get used to that idea rather than having this attitude of I don’t want more density in my backyard.

Than having houses in their backyard, literally.  No really.

Having apartment blocks, yeah.

Well no but also the battle axe blocks with the houses in the backyard of which there’s a fair bit going on.  I think there’s a lot of strata-titling of houses, backyards are disappearing.  That’s true.  Yeah, well there you go.  I think he’s dead right of course.

Okay.

But the other thing they need to spend money on is transport.

Yes, infrastructure.

Well, transport specifically to enable people to get from regional towns in half an hour.

Yes.

To the city which shouldn’t be too hard.

So I don’t think you will laugh at me for this opinion but a couple of people have, right?  So I live in the inner city and I don’t feel particularly enthusiastic about moving to the outer suburbs or to outside of Melbourne and commuting in.  But if I had a self-driving car, I would be very happy to go and live further out and get in my self-driving car and come into the city and do my job and then go home.

Would you?

See, you’re laughing.

No I’m not laughing.

People have said to me that’s ridiculous.

Why is that a good idea?  Why would you like a self-driving car?  Just so you could work…

Because then I could work in the car, I could read, you know, I could do my work in the car.  It would be fine.  I wouldn’t have to wait around for a train that was delay.  I would have productive time, I could live further out where it’s cheaper.

Well, if you’re driving your car you can listen to The Money Café Podcast and that would be productive.

Okay, well there’s an idea.

Yeah so, okay, that’s an alternative to trains and I guess it’s more convenient because you get a self-driving car from the house to the job, that’s true.

Yeah.

But look, even living in the inner city is no guarantee of half an hour.  I know someone, a friend of mine lives in Richmond, works in South Melbourne.  Now it’s a bit inconvenient but he takes an hour to get to work.

Yeah, okay.

From Richmond to South Melbourne, which is inner-city.

Yes, that’s a lot isn’t it?

That’s tough.  It’s a tram and then walking and all this sort of stuff.  How are first home buyers going?  They have more or less been priced out of the market but now that the market’s slowing down a bit, are we beginning to see the return of first home buyers or not?

A little bit, and something that has been helping that is that Victoria and New South Wales have just introduced some stamp duty concessions for first home buyers on properties that are worth up to $600,000 in Victoria and $650,000 in New South Wales, you don’t have to pay any stamp duty.  Then for the next $150,000 on top of that there are stamp duty concessions.  I’ve heard from quite a few agents that this is encouraging first home buyers who were thinking buying a property the last few months to hold off and they’ve been quite active since the start of July since their concessions came in.  It’s really admirable that the state governments want to help people get into the market sooner.  It’s quite encouraging that if you’ve saved a certain amount of money and you don’t think you’re quite there that you can buy a house. 

Also obviously the other thing that happened is that the potential for prices to rise, right?

Yeah, of course.

Because you’ve got more money to spend, so you could offer more money to get the house that you want and then prices get pushed up in that kind of $6-800,000 range.

Exactly.

Not all great news but…

Well that of course is going to happen.

Yeah.

So all those sort of concessions, whether they’re grants or stamp duty concessions, it seems to me are only just going to push house prices up some more because first home buyers are able to spend more.  But anyway, that’s better than cutting them out, I guess.

Well I mean they need somewhere to live – we all need somewhere to live but the question is if there’s a better way of achieving that it doesn’t make it more expensive.

Yes.

I spoke to a first home buyer in Western Sydney and he and his group of friends had bought houses in row.  There were eight houses in a row and someone was selling this new development and they all got together and said “Okay, we’ll take all your houses, but you have to give us a low deposit, you have to let us buy it for 5%”.  And he just wanted to get the deals out and he said, yeah, sure.

So that’s great.  What a good idea, buying in bulk!  That’s fantastic.

Yeah, the Costco approach to housing.

That’s magnificent.  But all these people are going to live near each other?

Well they’re actually going to invest; they’re going to rent the properties out.

They’re going to rent them out, right.  They’re investors.

Yeah, so they’ve got a toe in the market, but they’re not all going to live in a row.

So do they qualify as first home buyers if they’re buying it for investment?

So I think to qualify as a first home buyer I think you have to go and live in your place for a year. 

Right so are they going to do that?

I think no.  I don’t think they’ll get the money, but they’re just really happy that they could not pay too much up front, right, rather than having to save a bigger deposit.

So the main thing they did was drive a good bargain.

Good bargain.

Good on them.

Yeah.

That’s right.  What is the collective wisdom in The Australian’s property department think about the arrival of Amazon and what’s that going to do to retail shops and shopping malls.  What do we think?

Yes.  If you measure the index of property trusts it’s down pretty substantially over the past – or there was one stock in particular that I was looking at, one of the retail analysts was down something like 20% over the last year and the others are kind of down as well.  Part of that is worries about Amazon.  Part of that is just investors feeling worried that people aren’t going to spend as much in shopping centres anymore because they can have things delivered to their house really easily.  Also part of that is worries about weak wages growth, you know, which we were talking about before.   Just investors feeling worried that people aren’t going to shop, whether that’s online or in person, because their wages aren’t growing fast enough.

With all of these things happening that means that if you own a shopping centre maybe you have to think harder about how to get people to come in.  Have a concert or have more cafes.  Often something that they try and do is have shops that sell things that you can’t buy online, so vets.

A what sorry?

Like vets.

Oh vets.

If you have to take your dog to the vet you can’t do that on Amazon.

No indeed you can’t.  You probably can’t buy a dog online either, or can you?

I haven’t heard of it.

Open the mail up and there’s a dog!  No, I don’t think that’s going to work.

In a parcel, from Amazon.

Yeah.

Yeah, there are some worries about retail properties. 

I wouldn’t touch them with a barge pole.

You’ve got a stronger opinion!

Well there’s plenty of good things to invest in.  Why would you invest in shops?  Honestly, you’d have to be mad!  I think it’s over.  Fair dinkum I think it’s over.

Shops are over?

Yeah.

Do you ever go to a shop?

Not very often.

We’re in a café right now. 

I got to cafes, sure.  I mean look I’m a bloke, so blokes tend to not enjoy shopping.  But, no, I think it’s only heading down from here.  Now that brings us to our question for today, which has come from Jose, who says:  From an investing point of view when you consider all the ongoing costs, is it better to invest in property directly or through a property ETF.  Do you have a view about that Elizabeth?

So I think if your listeners are thinking about where to invest something to think about is diversification.  If you’ve got a certain amount of money to spend and you could buy a house in Sydney, you could buy one house in Sydney or you could put that money into a property ETF and someone will manage it for you and that will give you exposure to some office buildings in different places.  You know, some shops that you’ve said you don’t feel very positive about, probably some warehouses.  Warehouses might be a bit more positive because Amazon is going to need warehouses.

Warehouses, absolutely.

Yeah.

We love warehouses!                                                                                                                 

You will have a range of investments in different areas and different types of property and that might be something to think about.  Having said that, if you’d asked the question a year ago, like obviously if you’d bought a house in Sydney your investment would have done very well over the past year.

Definitely. There’s no residential ETFs that I’m aware of.

No.  I had a look at a couple that track the different REITs like the listed property trusts.

And the thing is, it’s very difficult to invest in commercial property to rent.  You’ve got to buy a shop with is going to be quite expensive. 

Then you’ve just got a shop, you haven’t got different ones.

Unless you’re rich.  You can’t really invest directly in offices or warehouse or factories.  You have to buy through ETFs or REITs in that case for commercial property and for residential property you probably have to buy direct because there’s no real alternative.

Something that might exist in the future in Australia and doesn’t yet is the possibility of investing in apartments.  We don’t really have this here, but we have it in the US where super funds will own a whole apartment building and rent out the whole apartment building rather than a whole heap of mum and dads owning the apartments. 

Right.

One day in the future there might be some kind of vehicle for you to invest in a whole heap of apartments but not yet.

Not yet.  I think we should leave it there for today, Elizabeth.

Okay.

It’s been fantastic.

It’s been great.

Great to catch up with you again.

And good to see you, thanks for having me.

Don’t forget everybody, you can subscribe to The Money Café on Apple Podcasts or your app of choice.  While you’re there it’s really helpful if you can leave a review or a rating because it helps the listeners find our show.  Until next week I’m Alan Kohler, publisher of The Constant Investor.

And I’m Elizabeth Redman, property reporter at The Australian.

See you soon.

See you.