Hey, Custodians, Welcome to October.
Let’s start with the RBA surprised who me today by keeping things lower than what I thought. I thought they could have gone a lot more aggressive on the increase. It just shows how we fit on a different cycle. Remember that whatever's happening, it doesn't matter because it's all temporary.
Let's take our minds back to 2019 when the world was pretty much at negative rates, going up is inevitable, but no excuse to panick.
You may remember that I spoke to Tim Lawless last week and said “Hey, Tim, at the bottom end we're not seeing any distress and we're certainly not seeing market values go down”. And bam! The Reserve Bank itself brought up this graph here showing the three markets: the high-end, the middle and the low markets. It’s very interesting: the high-end market in the Capital Cities is going down by 3, 4, 5%; the middle market is just going down by maybe 1 or 2%, and I'll talk about that in a second.
But the low-end market, such as Custodian Homes, has gone up 7% in the same time that the other markets have actually dropped.
Step 4 of the “7 Steps to Wea;th”: buy for affordability.
I just want to unpack that for a little bit because a lot of the market has been home buyers moving into the market and they're still looking for opportunities because they're getting squeezed out on rentals. And it's not just the Capital Cities, it's the regions as well.
If I just focus on the Reserve Bank's work in the regional markets, the lower end in the regional markets is actually going up above 15%. An original market is parts of Adelaide that we're in, parts of Perth that we're in, and certainly parts of southeast Queensland, in fact, half of the Gold Coast and a lot of that Ipswich, logan area is regarded as a regional market.
That's our sweet spot. This is the opportunity, and the opportunity is really in grasping the rentals, because this graph shows the dire straits rentals are in. So the black line shows the rental drop in the last twelve months: That is how many rental properties have gone off the market in the last twelve months.
Where did they go?
First home buyers and this recently introduced new homebuyer's grant bought them all. That's right! Both you and I know we can only build around about 50 or 60,000 detached houses and maybe 100.000 attached houses. That’s a total of 160,000. So everybody taking advantage of these grants ended up taking a lot of rental properties off the market.
And I know this because we've had a lot of Custodian clients who have sold their properties in the last few years as they retired in their 70’s and even 80’s; they've sold their properties and many times they've sold them to their tenants. I had many of my tenants say“look, I love the property, I've been here for 5 - 10 years, etc…. Can I buy the property? Because I need to buy something with those rents squeezing me out.”
I have to say, sorry, I'm not a seller.
Here's a really good number. There are over 1,100 suburbs now with a median house price of $1 million or more, and that grew significantly in the last twelve months. So that's happening now, and the data that's coming out is showing that, yes, the million-dollar market, the $1.1 - $1.2 million, came off by 2 to 3%, but certainly not like the middle end, the $2- $5 million market, that's come off 7 to 8%. The key point here though, and really where I want to get you focused is: don't worry about interest rates, that's temporary.
It'll come up, it will find a place. But then it has to come down right around the world; in the US and Europe, everyone is saying it and doing it; it will happen.
The real issue is housing crisis affordability and the fact that we have no rental homes right around the country and, really interestingly, the Minister came out and said we’re going to bring forward our 100 grants to allow people to buy with a 5% deposit so that we can get the housing market up and running again because we’ve opened up the borders.
Then you have employers saying that we can't bring people in because we've got nowhere to put them. We can't even find accommodation. It's a mess. But like I've said before, like every crisis, in every mess, there's an opportunity. In every crisis there's an opportunity. And the solution is front and centre.
Granny Flats to the rescue.
I had 3 or 4 of my staff send me this press article, text me and say, did you say that? We've heard you say that a million times: Granny flats for the rescue. That's the custodian model. Remember, we only build on about 40% to 50% of our site coverage, so we've got lots of land, and enough space for granny flats:Multi tenancy is absolutely the future.
What am I doing right now?
I'm designing 7 new homes. I'm building 7 new homes and I'm going to be buying another 4. I'm buying as much as I can. When do I buy? I buy whenever I have borrowing capacity. That's simply it. And if you look at the graphs, our rental vacancy is nationally less than 1% residentially. But then you look at the percentage of how much rents have gone up over the last twelve months, that's not going to stop.
So rents in Brisbane have gone up 20+ %. That's not going to stop my rent in Pimpama, just recently one of my houses went from $480 to $600. The actual rental value was $630 and I gave them a 5% discount because the same tenant stayed there.
That's the ball game today. I'm getting as much as I possibly can in this land market, because what I see isn't just the opportunity to get growing returns from rental because of the shortage and the massive population boost that we're getting, but also now governments realising we've got all this land - let's increase the density. And that's the song we've been singing forever in a day.
Housing is the world's biggest asset.
I want to leave you with this last point. And it’s not just in Australia, housing is the world's biggest asset. And now we've got all these pension funds who are now putting their money into housing; Blackstone and some big corporations in America are doing detached housing. All really interesting, because Australian superannuation companies have managed around over $3 trillion, and most of their money goes into US equities and overseas equities. Because, it’s a fact that if you bought the ASX 200, which is the value of the stock exchange, in 2007, it is pretty much the same as what it is today.
It's literally had no capital growth for the last 15-16 years. In absolute real terms, it would be like you buying a house for $300,000 and today it's still worth $300,000. So, what I actually think is happening, is that a lot of these funds are going to get into our business and that's going to drive the market up; it will drive the value of property. Don't miss out.
Your earning years
You know, there's always a lot going on outside, but the main game is what's going inside (in your heart). And what's inside for me is I have a finite amount of time to build wealth. That is my earning years.
We have had hundreds and hundreds of clients who have retired now using Custodian. Not one client said to me, I wish I did less.
They all said“you know what, I should have done more whilst I could” Do what I do. If you have borrowing capacity, buy a property today, tomorrow, the next day, whenever you can, because you will get to a stage where you do not have borrowing capacity. Then the game is over for you in relation to
accumulation and what we're seeing is an amazing time.
After the world shutting down for nearly two years, we've now have record population growth, and this will happen this decade. We've got the lowest housing supply, in fact, the biggest housing crisis we've ever seen. And this transformation of density of our land means we get a double kick on our asset.
Make the most of it all.