Is It Time to Invest in Melbourne?

Jason · 00:00Welcome to episode 189 of The Numbers Game. I'm Jase. I'm here with Nick and Marty. How are we, fellas?

Marty · 00:07Going well, Jase. Uh, I was at a fantastic Deb, my niece's Deb, on, uh, Friday night and, uh, it was great to see the Yarra Valley at one venue. Uh, there was no, um, drinking at the venue at all because it was a school function.

Marty · 00:22Now, previous years there was, and what I didn't realize when there was drinking. Actually, Barneys were breaking out and people were having fights and everything. Amazing. Like I'm going, just the spirit of the Yarra Valley in one room and a bit of alcohol. So everything was very, very nice, plain and simple and no fighting.

Marty · 00:41So I was disappointed. I was looking for some action, but I had a great night. My niece looked beautiful and her, uh, partner, Dylan, it was, uh, it's lovely to see the young kids grab some confidence and, uh, do some dances. They did really, really well. So, had a good night. Jase, how are you? Oh, Nick. Nick, how are you?

Marty · 00:59I've

Marty · 01:00jumped to Jase. Caught me by surprise. Nick, you go.

Jason · 01:02Tell us about your golf.

Nick · 01:06Um, well, what, the, the story I just told or?

Jason · 01:09No, no, it's, how's golf?

Nick · 01:11Oh, apart from the story I just told, Yeah, it was just another day of golf. It was quite cold in the morning, got a bit warmer. Um, but yeah, it was a, it was a great game.

Nick · 01:20Uh, I'll just leave it at that. I feel very lucky to be able to play the game and, um, lucky, you know, it's, uh, just feeling lucky today.

Marty · 01:28Have you found your honey?

Nick · 01:33No, no. Well. Yeah, well, it's a difficult question. Um, yeah, I put it this way. I know who's got it. Oh, that's good. If

Marty · 01:42people weren't listening to previous episodes, uh, Nick bought some inclusive, very exclusive honey into the office and it all went missing. Inclusive it. We have to be

Nick · 01:52inclusive these days, you know.

Nick · 01:53That's right. It's inclusive honey as

Marty · 01:55well as exclusive. It all wet AWOL. So we're trying to put the pieces

Marty · 02:00together. So all good. Jase, how are you?

Jason · 02:02Man, I'm good. To be honest, like there's so much happening right now. I don't know. I've got nothing of value to add apart from, you know, here we are sitting on 189 episodes.

Jason · 02:11I usually go real early on the countdown towards, um, one of our milestones. But, um, just want to say how lucky we are to, to be able to get together. Put 189 apps out to the world. Um, still have amazing people coming back and listening to us, you know, week in, week out, um, often twice a week and people. Mike, you know, Luke Mace that came on a few weeks ago.

Jason · 02:33If you haven't listened to the Luke Mace episode, this is your opportunity to go back and, you know, dive through some of the archives cause there is gold in there. I missed a few episodes where Tommy, our producer came on and listening to them as an outsider or, you know, from someone who wasn't on the show, um, incredible value.

Jason · 02:50Uh, I'm, you know, really. Yeah, I'm going to say lucky again, but yeah, love, love being on the show with you guys to talk about things like this. So at one 89, we're on the road to 200. Thank you to everyone who

Jason · 03:00listens and tunes in. Um, we do want to keep growing though. So this is also my shout out to you before we dive into the episode to say, tell your friends, tell your family, share a link, tell people to get amongst it because, uh, yeah, we're, we're not done at one 89.

Jason · 03:14We're going to be here 200 and beyond, but, uh, yeah. Keep us growing. Speaking of growing, um, there is growth in house prices, prices all over the country, Nick, except maybe one place. What's, what's happening?

Nick · 03:27Well, there is growth everywhere. In crude, including our, um. battered state, uh, Victoria, um, battered by one individual.

Nick · 03:38And you know, who has recently been rewarded for that. Joseph,

Jason · 03:42did you see that? Again, I just don't know how angry I can get and keep it under control, but that has gobsmacked me that we can honor someone who, Left our state in such a shambles and give them the top honor at King's birthday. Uh, honors, uh, our, our

Jason · 04:00friend, our non friend Dan Andrews, um, who has now left for, I mean, from, from my side, I mean, he's made accounting and state taxes, one of the most complicated things that we've got in Victoria when it comes to the amount of different taxes, people now come to me and go, is this tax deductible as land tax deductible?

Jason · 04:17Do I have to really pay this much? It's gone double what it was last year. And then there's developer tax and payroll. Old tax and every other tax. And then there's stamp duty when you buy a property and something when you sell a property. And yeah, I won't, I won't go into it, but there was actually a video that did the rounds on Instagram and Facebook and it's that Jimmy Reese comedian.

Jason · 04:37Yes. And he's talking to Jason, who, you know, who's, who's his alter ego, and he, it's this. couple of minute video where he talks about taxes and it's done in a tongue in cheek way, but the fact that the video goes for over two minutes while he reels through all the different taxes that we get hit with, like it kind of hits home just how like much we get kind of screwed, to be honest.

Jason · 04:59But

Jason · 05:00anyway, if you haven't seen that, look up Jimmy Rees and look at his tax video. It's quite funny.

Nick · 05:04It's pretty sad. And look, I'll, um, first thing I'll say is, um, I'm, I'm here to give out. State a little bit of a, um, a little bit of promotion. It in no way, is it got anything to do with the government? I'm just talking about the state in general, but before I talk about that, I, I think of one of the key rules of investing and, you know, this is one of Marty Vitikovic's favorite, favorite rules, um, being a big, uh, Warren Buffett and Charlie Munger fan, but one of the key rules is, or one of the key phrases that you'll hear.

Nick · 05:43is when it comes to investing, be fearful when others are greedy and greedy when others are fearful. So Marty, what does that, what does that mean when I say that? What does that mean to you?

Marty · 05:55Oh, to me immediately you're looking at, uh, You're sort of

Marty · 06:00going against the norm in regards to when share prices are high, they might be coming down and, you know, the super investors aren't buying, uh, when they're low and discounted and everyone's scared stiff and 50 percent at discount to what the actual performance of the business is, that's when they go in and buy, and that's the same.

Marty · 06:20with property as well. You know, don't buy the, the, you know, the rage of excitement when property prices are expanding so quickly and get FOMO. You come in when prices are good and cheap in comparison to what the rest of the market might be doing. So that's to me, you know, buy the, you know, buy the fear, sell the greed.

Nick · 06:41Great answer. And I guess where I'm going with all this is, is it time that we start thinking about investing in Victoria or is that time around the corner? Now, it's no secret that Victoria is being absolutely battered, uh, in recent times, as far as,

Nick · 07:00um, property goes, uh, Victoria has more than 16 property taxes in place at the moment in comparison to most other states sitting in around three Property taxes.

Nick · 07:12So the big issue in this state at the moment is land tax. Obviously everyone's got property insurance that's gone up. Everyone nationally has got interest rates that have gone up. Everyone's got uh, rental reforms, although not as many as Victoria. Um, everyone's got land taxes on them, not everyone, but they haven't gone up to the same rate as Victoria.

Nick · 07:31that Victoria has. And that is what's causing major issues at the moment for most landlords. Um, there's an article in the AFR that I read this morning. It said landlord, one landlord said, you know, I don't have four assets. I have four debts. Um, I'm fed up. I'm selling them all. Um, so it's had a massive impact on, on growth.

Nick · 07:51In this state, and I think we're now at this point in time where we can look at all of the things that the government bought in, when I say

Nick · 08:00things, taxes and the rental reforms and go, you know what, it actually had a significant impact. And you've only got to look at the growth rates. Last four years, Sydney's grown by 24%, uh, Brisbane by 39%.

Nick · 08:13Adelaide, 40%, Perth, 37%, and then you've got Melbourne in the last four years which has grown by just a measly 12%. We are the only state that hasn't grown beyond inflation. So if you own a property in Melbourne, you're actually going backwards. That's what that means. Um, hence the gentleman in the AFR this morning saying I have four debts, not four assets.

Nick · 08:40So what's, what are you thinking Marty? I can tell you're thinking deeply.

Marty · 08:45I'm just thinking, you said 16 different taxes in Victoria compared to three elsewhere. Yeah.

Nick · 08:50And a lot of that would be obviously taxes on individual, individual taxes on developers as well.

Jason · 08:56Windfall gains, absentee owner surcharge,

Jason · 09:00vacant residential land tax.

Jason · 09:02Um, and then even the land tax rate in Victoria is down to 50, 000 in value or higher, whereas, um. I was talking to some people who, who made the decision to invest in Queensland and the value there is land of 600, 000 or more per property.

Marty · 09:20Significant difference. Yeah. What I'm thinking immediately is people say time in the market, but yes, that's definitely the case, but sometimes it's timing the market.

Marty · 09:31And again, if you want to be a little bit more specific, you got to look at different cycles. Um, because I go, I think it's actually not a bad time to buy a home in Victoria over the next six to seven months, because I guarantee when rates come down and you get more restrictions lifted around property, then we've got huge under supply, high migration, and we'll kick just as, you know, the cycles always demonstrate that they

Marty · 10:00will.

Marty · 10:00And, and you've got to take it into context. Like you look at WA back in, I remember back in 2003, Victorian property market was going really well from 2001 to 2004 and, um, sort of no one was really looking at Perth at that time, but they virtually tripled their average price home from, I think it was around about 146 to around 473 between 2003 and 2008.

Marty · 10:27And I think Perth has gone on another, you know, Surge just just recently because there was um, yeah It's not a bad place to buy and it's coming off a lower rate But sydney did nothing for nine years went up a percent in nine years during the 2010s to 2020 so Again, you you do have to try and work out Where is the opportunity in the market and do, do get advice around it.

Marty · 10:54And I think Melbourne, if you're a homeowner, um, definitely investors are jumping ship

Marty · 11:00one in four, uh, properties listed at investors at the moment, and rightly so given, you know, given what the hell is going on with land tax and various other things. But, uh, as a homeowner and a first. home buyer, we're going to get another upward swing.

Marty · 11:15Definitely.

Nick · 11:16It'll happen. Well, it has to happen. The first catalyst for that will be, um, interest rate decreases. So that, that will happen without any other external factors. You know, people will be able to borrow more and what will happen then is they will buy more for the property and what's happened.

Nick · 11:33To date, in recent years, is that may or may not happen in places like Sydney and Brisbane because there's been so much of a jump already. Um, Melbourne's tipped to be, uh, the biggest city in Australia. Most people know that, um, by the year 2034. Yeah. 10 years. Yep. So that'll come, that'll come really quick, you know, so, um, the other thing that's happening or that's not happening is

Nick · 12:00planning approvals.

Nick · 12:01The government is so far behind with planning approvals that there's no quick fix here. So you're not about to see a heap of properties built in Melbourne at any given time. Even when things turn, it's going to take a long time to fix the supply issue. So. If you look at where most of our supplies come from on the, um, in recent times, um, house and land packages, Melbourne has a pretty big urban sprawl because it's quite flat, Sydney doesn't have, um, doesn't have that advantage.

Nick · 12:32Um, you look at units and, uh, and, uh, apartments. You've only got to look in the city to see there's not many cranes up. Things have come right back. So even when things get better and people do start to want to invest again, the properties are not going to be there. The other issue you've got at the moment.

Nick · 12:48Is the diminishing number of landlords. So Marty, you said every four to one or something, or investors selling. What happens when investors sell in this market,

Nick · 13:00first homeowners are buying those properties because it's generally, I'm going to say B grade without being judgmental, but it's, it's. It's B grade property, not A grade property.

Nick · 13:08So that's what first homeowners can afford. So what does that then cause? The tightening of the rental market. So what are we seeing now? We're seeing rents in Melbourne start to skyrocket because there's just no supply. Right? So I think at some stage, you've got to look at what's happening elsewhere in the country, and you've got to start to think about getting back into Victoria.

Nick · 13:29Don't read a headline around land tax and go, Oh, Victoria's land taxes are way too high. Uh, Actually work out what it means for you. As someone coming in as an investor spending 700k on an investment property, look at the yields, look at the land tax and work out what that actually means for you. Don't, don't get driven by a headline that says, oh, land tax is expensive.

Nick · 13:50Mr. And Mrs. Smith had a 2 million house and we're paying 20, 000 in land tax. Well, that's Mr. And Mrs. Smith. They had a 2 million house that was untenanted hypothetically.

Nick · 14:00So Just get a really good understanding of what those numbers mean for you. And Marty, you touched on Perth and I just wanted to, wanted to point out what is happening in Perth.

Nick · 14:11Cause there's a lot of people that have gone to Perth, um, purely from a yield point of view, decent, um, decent purchase prices, decent yield. Perth made a lot, a lot of sense. Close to

Jason · 14:21Bali, quick flight back to Bali.

Nick · 14:23Close to Bali. Um, But in my opinion, Perth is just about overcooked and let me just rattle some, um, some suburbs off here.

Nick · 14:34Um, and this is performance over the last 12 months, um, Armidale in Perth over the last 12 months has gone up 44. 2%. It's gone up 125 percent since COVID. Um, Camillo, I don't know where these areas are, but there's still staggering numbers, 44 percent up 118 percent since COVID. Brookdale up 40 percent in the last 12 months, 120

Nick · 15:00percent since COVID.

Nick · 15:01Now. Economics tells you and just historical stats tell you that when things go up that much, they don't keep going up. It doesn't matter where they are or what kind of asset they are, you know, unless it's a, you know, a tech or an AI business, you know, we're seeing some of that stuff at the moment. But I look at that and I would say at the moment, I would not go near Perth.

Nick · 15:23It's done too much for me. Um, Brisbane may be the same, but Brisbane's probably got a little bit to go. It's got far more fundamentals, uh, underlying fund fundamentals in Perth. Um, and Sydney, well, we know what, we know what's happened in Sydney. Marty, you mentioned it didn't move for some time. Now it's moved quite a lot.

Nick · 15:41So I think as an investor. Although I get it's very difficult, but you need to put Melbourne back on your radar. And I'm not saying you're going by back in Melbourne tomorrow. Um, it's going to take time. There's still some, you know, it's still sorting itself out. Um, it may have a little

Nick · 16:00bit more to go as far as, um, not a decline, but a slow growth compared to some other States.

Nick · 16:06Um, You know, but you look at um, areas like Mornington Peninsula, like I was down there last week and there are so many homes on the market, so many homes and they're holiday homes um, that people can't afford to hold anymore because of land tax. Now For that issue to fix itself, not only those properties have to be sold, but you've also got to think about the other end.

Nick · 16:30There has to be buyers willing to buy them. So there's still a, there's still a bit of water to go under the bridge as it all sorts itself out. But when you look at Melbourne, you look at the underlying fundamentals, you look at the lack of supply, that's not going to get better any day. Uh, better any soon.

Nick · 16:45Um, or better soon. And then you also look at the fact that, uh, interest rates are going to start to come down. Rents are going up. So your yields or your cash flows are going to get better. Uh, Oxford Economics recently, um,

Nick · 17:00predicted 21 percent growth in Melbourne over the next three years. Based on historically what it, what it hasn't done.

Nick · 17:06So a little bit of a, um, positive, trying to shine a little bit of a positive light on our state. Um, I think it's been kicked around and it's been kicked around, uh, for good reasons, but I also think it's taken, it's taken a lot of the, um, negativity away from some other states as well. Uh, New South Wales.

Nick · 17:28Uh, made changes this week as we're according to their land tax rules, um, which is going to, um, cost, uh, landlords or investors another 1. 5 billion in tax over the next four years. So, you know, don't, don't think that other states aren't going to try and catch up. Queensland tried to introduce something, um, and then they pulled it.

Nick · 17:48They'll try again. Um, but don't, don't be looking at Victoria. When the herd comes back in and prices skyrocket again, which is what most people will do.

Jason · 17:58That's a, that's a fantastic point. Like

Jason · 18:00you've just stacked up some of the fundamentals. Um, the number of homes that it was reported Melbourne needs is an additional 2 million homes.

Jason · 18:07So we've got a shortage supply and you've got demand. You just told me also that Melbourne's going to be the biggest city in Australia in 10 years. What does the supply and demand issue do? It drives price increases in prices. So, um, I love that mindset too, that you're going, for all the people that are discounting or avoiding Victoria going, oh well, too many taxes, let's get out of here and go put our money somewhere else.

Jason · 18:30There is no guarantee that those states aren't going to catch up and copy Victoria because what are one thing governments love doing? It's adding more taxes. What's one thing governments don't do? They take taxes away. So, you know, there might be other states where taxes are lower or different rates at the moment, but just give it time if the, you know, they start to get more popular.

Jason · 18:49And interestingly, Nick, on your Mornington Peninsula, um, so it's actually had that article open on my phone. Um, you know, the, the listings are up 14. 4 percent over the last 12

Jason · 19:00months in Mornington Peninsula. The median home value is down 10. 5%. Um, or 101, 000 down on the median home price since the peak in March 2022, which was 960, 964.

Jason · 19:17So it's down 10 percent since that figure in March 2022. And they kind of stating, obviously increased land tax bills, rising costs associated with owning a second property has meant that, uh, more of these properties are going back on the market. 80 percent of purchases for this, uh, real estate agent that was interviewed said that 80 percent of the sales over that period of the last two to four years was made up of people buying a holiday home.

Jason · 19:45So now that now they're only seeing 15 to 20 percent of purchases making up people looking for a holiday home or a second home. Um, and they're being sold to own occupiers that are moving down to Mornington Peninsula and snapping up a property that they want to live in where there's going to be less

Jason · 20:00taxes on that property because it's their, it's their home.

Jason · 20:02Interesting.

Marty · 20:03You got to get out of reactive phase as a, like with, with investors. Uh, again, It's FOMO, right? Like they, they think about Perth, they think about Brisbane. I got to get in before it's too late. You've kind of missed the boat and, and this is what tends to happen. And then they'll buy it the high cycle.

Marty · 20:21I don't think it would go backwards so much, but again, they're not getting the expectations that they're hoping for. So it's the same with investors in Melbourne before you sell out. You really want to sit down and work on how you can save money on those mortgage debts. If you need to, you know, at least see what you're going to, what you're going to be able to save before reacting.

Marty · 20:42The other thing, if you are going to sell an investment property, get professional advice as to how to utilize it. That capital that you're going to get out of that sale effectively too. Do I put it in an offset? Do I reduce my mortgage debt and get better interest rates because I've got more equity? Do I put

Marty · 21:00some in superannuation?

Marty · 21:01Like you need a plan of attack for that capital, um, if it is something you're going to sell. But I agree with, with Nick. I think the next, um, the next 12 months is going to be a great time to buy in Melbourne. And, um, And don't miss out just, just because there's bad news out there. Think about how you can utilize that to advantage.

Nick · 21:21Understand the numbers. And Marty, I love what you said there, because this is the other thing I was going to bring up. I think as an investor, uh, you need to hold, you need to hold for at least the next two or three years. You need to make sure that you're not selling at the moment. If you don't have to, obviously, if you've got other drivers that mean you need to sell such as retirement, you need money for retirement.

Nick · 21:43Um, to, to go into your super or you just simply actually can't afford it. But I think there'd be a lot of investors out there that probably could afford it, but are throwing their hands in the air and saying, Oh, Victoria's stuff. So I'm, I'm, I'm out if you're, if you're selling now,

Nick · 22:00it's the worst time to sell.

Nick · 22:01If you can wait another two to three years, if you look at the Oxford study, you might get another 20%. Now, if that's a 700, 000 property, 20 percent of that is how much, Jase? 140, 000. Now, I've just done the numbers, right? I've done the numbers on the land tax, and Jase, I hope I've done this right. Hit me. A 700, 000 property in Melbourne.

Nick · 22:21Get you 0. 4 percent um, in land tax. So about 2, 850 a year is what you'd pay in land tax. Sound about right?

Jason · 22:30Starts at 4 on that, that range. Yep.

Nick · 22:33Yep, so 700, 000 will get you an investment property in Melbourne. Now, if you borrow 700, 000 to buy for 700, 000, hypothetically, we get half a percent in interest rate drops next year.

Nick · 22:45Which it's, we're pretty confident that we will. That saves you 3, 500, so that gets rid of the land tax. Hypothetically, your, your rental income goes up 55 a week. I've got a property in Melbourne's north

Nick · 23:00that the agent actually suggested to me that we put the rent up 100 a week. This was in the last month.

Nick · 23:07Now where we landed was 60 a week. So that's another 3, 500 a year. That gets rid of that 2850 in land tax. So, it's just understanding the numbers. And if you look at the cycle that Melbourne's in now, if you can afford to hold for the next 3 to 5 years, I think you're going to do yourself a massive favour.

Nick · 23:30Remember interest rate reductions, As much as, you know, they're taking time, they are going to come, rent is going up. Make sure you're talking to your agent about, uh, market rent and what should it be. Understand when your property lease is due to be re signed by the tenant. And make sure you're challenging your, um, your agent on, you know, what the rental is and is there any, any way to increase it.

Nick · 23:55I think a lot of agents or property management groups, um, quite

Nick · 24:00lazy. Um, I've got a, I've got a very good one myself and when the lease is up, they come to me with a market analysis, what the medium rent, what the medium rent is in the area, uh, what the vacancy rates are and a suggestion as to what we should put our rent up to.

Nick · 24:15So understand your numbers and don't get, don't get caught up with this whole land tax thing. It's 0. 04 percent of the property value. If we get another 21 percent in the next three years, And you're a landlord and you're selling because of that, but you can afford to hold it. That is completely the wrong decision.

Jason · 24:34Yeah. One, one of our client, one of our clients, I was on the phone doing mutual client between both of us. Um, he sold his property a couple of years ago for around 700, 000. Um, he was advised if he could hold onto it to hold onto that property. And he just looked it up and it had just sold recently for a million dollars, uh, two to two and a half years after he sold it.

Jason · 24:56Yep. So again, circumstances and

Jason · 25:00circumstances, the decision was made. I'm sure he's probably not at peace with it. Um, and if he's listening and knows who he is, uh, thank you for sharing that story with me. 'cause it's given me a nugget of gold to share here. But again, in a short period of time, um, 700,000 to 1 million.

Jason · 25:14Um, again, that's, that's ridiculous growth, um, but vacancy rates are about 1 percent Australia wide. So, you know, you, you've got hot demand for a property. If you can get into the game and get it, even if it's not just for your own property, for you to live in as a main residence, but if you are at a point where you've been contemplating is now the time to buy an investment property, well, when you've got hot demand for people who need homes to live in.

Jason · 25:40And the rental market is strong. I think you could, uh, pretty much read between the lines of what, uh, us guys at the numbers game are putting down for you to pick up on. So, uh, Nico, thank you for sharing, mate. That's been an absolute banger. Uh, I myself have been guilty of kind of throwing a bit of shade at, at Victoria or Melbourne because of the

Jason · 26:00negativity around taxes.

Jason · 26:01You know, what I do as a job. So, uh, I spent my life, uh, getting deep into tax realm and I never stopped to flip the other way around. And a lot of my clients are talking about. Getting out of Victoria and going to States. So you've given me some great talking points to get them to reset, relax, listen to this episode of, of what you've just talked us through here.

Jason · 26:20and to make, you know, some more informed decisions. So I appreciate you sharing Nick

Marty · 26:25and until next time. Time in the market and timing the market here at The Numbers Game. Game over.

Jason · 26:33This podcast is for educational and informational purposes only. The conversations are of a general nature and do not qualify as financial or tax advice.

Jason · 26:41We recommend before you make any financial decisions, you consult a licensed professional. Individuals on the podcast may hold positions in the companies discussed. ---