TEITR 418 Adam Schwab

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Veronica: [00:00:00] In this episode, we tackle one of the more polarizing takes in the Australian property conversation, and we do it with someone who isn't a property insider, but has plenty to say about the system's perverse incentives. Adam Schwab is best known for building luxury escapes into the global success story that it is, But he is also an unfiltered commentator on corporate behavior inflation and what he sees as the structural failings driving Australia's housing mess, his vocal contrarian. We do like that and not afraid to call property the devil. Which makes him exactly the kind of guest worth interrogating. Here we dig into why someone outside the property industry feels compelled to sound the alarm where his arguments align with economic reality and where they may fall apart.

Veronica: Under scrutiny, we explore his critiques of the RBA inflation management and government market interventions, like the 5% deposit schemes, and what these policies actually do to prices, incentives, and long-term affordability. For listeners who appreciate robust debate, this one promises to be lively. We have no doubt.

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Veronica: [00:01:00] Our guest today is Adam Schwab. A founder who's built a billion dollar global business while maintaining a parallel career as a financial journalist and corporate governance commentator. He also cohos the Contrarians podcast where his contrarian takes on markets. Policy and economics have earned him the reputation of cutting against the narrative. Together these threads make him provocative, outsider to interrogate some of the most entrenched assumptions in Australia's property landscape. We are very [00:02:00] much looking forward to this conversation. Thank you for joining us, Adam, and welcome to the elephant in the room.

Adam: Thanks. That was a amazing intro. I don't think I've had a intro that long.~ ~

CB: ~um, um,~ Adam, thanks for coming on. I mean, ~um, ~you know, I have looked at some of your content and, and you know, it's not that I don't disagree with it. ~Um, uh, ~and I think. You know, just let's start there.

CB: With property being the devil, I mean, why, why do you think that? I mean, '~ uh,~ 'cause you know, there's definitely a side you can take.

Adam: actually, I was probably being provocative. I actually don't really think it's the devil, but I think there's some elements to property that are. Certainly very troubling in Australia especially, and Australia's not the only jurisdiction, but if you look at our property prices and when you look at prices in absolute terms, forget that it's, it's relative to incomes, which is really how you, judge property prices.

Adam: I think outside of Hong Kong and Monaco, like tax havens maybe to buy and remember, tax havens are different. 'cause tax havens inevitably lead the higher property prices because that's where the tax gets capitalized. We're the highest in the world and Sydney is absolutely the highest in the world. So you've got the most expensive property.

Adam: Now I've been calling a property bust for 20 years, so if you'd ignored me, you'd done very well. Obviously investing in property, but that [00:03:00] doesn't mean that. The valuations we're seeing are sustainable in the long term. So when I say it's the devil, I think it's all a matter of timing. I think property can be incredible investment, and we have invested in property in our very first business.

Adam: We bought a bunch of apartments as part of that where we had very little capital, and we were able to parlay that into a great windfall. So at the right time in the right conditions, property is an incredible investment. I just haven't seen those conditions for probably 15 years. That said, you would've made a fortune ignoring me for 15 years.

Veronica: I would like to sort of prize open something there about, you know, we do, that's the, that's the common metric, you know, property related to,~ uh,~ incomes. However, roughly 5% of our property changes hands every year. So that's, that's really what determines the price or the value, if you like. ~Um, ~and the rest of it doesn't change hands, which means that sort of. It comes down to how much equity you've already got in property that allows you then to continue to trade the market. So I guess that's one of the problems with the system in that it's very difficult for new people to get in, [00:04:00] but if you only look at it as a metric of incomes,~ um,~ that does forget that really important factor though, doesn't it?

Veronica: That. People say, oh look in Sydney's unaffordable, because how could anyone possibly afford, how could any first home buyer possibly afford a $2 million house, for example? But most people buying $2 million houses aren't first home buyers, or they're in some way funded by existing property holdings. So that's sort of, you call it a Ponzi scheme 'cause of all that, I guess you could as well.

Veronica: But, that's an important part of it, don't you think?

Adam: less of a Ponzi. ~Uh, ~you actually made some. A bunch of really interesting observations there. ~Um, ~lemme try and pick a few. You talked about price and value and you use them interchangeably, and I think that's the core of the problem here. Price and value aren't the same thing that, as Benjamin Graham said in the short term, the markets a voting machine.

Adam: The long term, it's a waiting machine. We've had a lot of voting machine dynamics around the property market, essentially. Okay, you, you're right. And the income isn't the only metric can use. Another one is, is look at the gross yield or the net yield even, better. So look at what yield am I getting as I can rent a property or I can buy a property.

Adam: And yeah, there's definitely benefits to buying a property. There's also [00:05:00] detriments 'cause you properties depreciate a lot. So it's the land that depreciates the, it's the destroying the depreciate as you guys obviously very well know, so. If you call that sort of a draw,~ uh,~ in that you've got some benefits and some detri, some you don't get booted out, and the laws generally favor tenants over over owners.

Adam: Well, that's changed a little bit in Victoria lately. I think if you boil down to rental yields, like you're getting a gross yield of what, two, 2.5% in most cities. Yeah. Regions. Maybe you can get a bit more here and there, but let's say you're getting a 2% gross yield, you're probably getting a barely 0.1% net yield depending on the, the state of the, of the property That's what you gotta base the va. The value of an asset is the present value of future cash flows And as, as I said, the, the problem with bubbles is it makes morons look smart. and your point on 5% of property changing hands is the point to make. You can have 5% of the population being morons and continually bidding up the price of this asset. And then you've got more on banks lending to them who are basically insolvent and you've got this perpetual. Stupidity

Veronica: Flywheel.

Adam: going, yeah, but it's a ridiculous, it's a [00:06:00] moron flywheel. So this continues over and over again.

Adam: So that's essentially the problem we've had for 15 years in that we've, so we've lost so much touch with rationality that people just forget about any kind of rational metrics. Let's ignore rents because that rent sold to me is, is what you earn from property. Let's forget about rents. Let's just say, oh, someone else is willing to pay $4 million for a one bedroom in, darling point.

Adam: So that's what it's worth. Well, that's not what it's worth. That's what some moron's willing to pay. There's a

Adam: big

Veronica: we are not, we are not all investors, like, you know, 70% are owner occupiers, so the yield doesn't matter to them. You know, the

Adam: No, but it does matter because you can rent or you can buy, like it's, you are assuming that there's some other great value in buying and

Adam: Yeah, but other assets have capital growth. So you're, you're, you're, you're not getting the cash and, and putting it on your bed and levy.

Adam: You can invest in the share market. You invest in gold, you can invest in crypto, whatever you invest in, in, the business. There's lots of different stuff that you can invest in. the absolute best thing about property. And Paul Ro wrote this in his book like 25 years ago, and I, it sticks with me this day, and it's a great point, is that property is a great force saving mechanism for. A lot of people. ~Uh, ~so [00:07:00] in that respect, I really like it. And if you can invest in a market that's paying a gross yield of five or 6%, it can be a bit less than a bank, but whatever you're gonna get some benefits from, from the inflation adjusted growth. And if it essentially, property has pretty much tracked M two money supply over the last 20 years.

Adam: So as we've printed more and more money, that money gets capitalized in property and we talk about. Government spending later as well. So the reason why property, why I've been wrong and property has been a good investment 15 or 20 years is because we've had this inflationary environment of assets, the great moderation post GFC, and that's capitalized in in asset prices, especially houses, especially residential houses. So that's why it's been a decent investment, although. Certainly crypto's outperformed that. Gold's outperformed it materially, like gold's almost doubled property, even Sydney property. So there's been a lot of assets that have been better than property. So you actually would've had a much better financial result if you in 2000. Seven, you'd bought gold and levered up gold with the same leverage you had in property. That's easy said than done. But ~uh, ~but like, it's different. So when you say, oh, you can, only 30% of people are [00:08:00] renting or 30% of people are investing, well, doesn't really matter because you can rent or buy. It doesn't actually, you can rent a similarish kind of place.

Adam: You can live in. Doesn't mean that it is or isn't undervalued, but for reasons that I just said, property could continue to be overvalued forever. Like it's not. It's not, it's not unthinkable.

CB: Yeah, I mean the, if I guess the whole rent versus buy thing, I think if there's this real liquid. Rental market, you can get longer leases. You know, there's all, if you get kicked out, that's fine. I can move somewhere else. If you didn't have school zones, if you didn't have, you know, want community and want to have stability with your neighbors.

CB: And so it's kind of like the system's structurally broken from a rental point of view. And then that forces, and that's been really, the valve's been lifted on that post COVID, you know, and it's gonna get worse. Right? 'cause a lot of new investors are going. Where the old investors aren't investors. They used to buy the capital cities, now they're buying Townsville or Bendigo or et cetera.

CB: And so it's just getting harder and harder to rent. I think the bigger thing that,~ um,~ as an entrepreneur yourself, right? You've built a business, you've taken [00:09:00] risk, you've employed staff, you've ~um, ~you know, you've grown the economy. I guess, how do you think that just the failings of having a very expensive property market is really gonna buy Australia in the bum longer term?

Adam: Oh, that's a good, great question. Lemme just talk about the renting versus buying thing. Just quickly just show how out of whack it is. So we're, we're renovating our place. ~Uh, ~so we're renting as well as obviously renovate and renting a place called Middle Park in, in Melbourne, which is a pretty nice suburb.

Adam: ~Um, ~and we're paying $3,000 a week rental, which is certainly not cheap, but it's not. When you think about how much people are paying imputed mortgages, actually it's actually not that much, but, so look, we're paying 150 grand a year, and that's for everything. ~Um, ~versus the, I think the, well, the house next door sold for like 7 million bucks. Maybe it's a little bit better, better than our house, but rough call, our house would sell court roughly the same. And let's say, let's assume a 5% expected yield you get in the bank roughly, you maybe get a little bit less, but let's assume 5%. So you can take that 7 million bucks and pop it in the bank and you get three 50 grand a year. Or you [00:10:00] could rent it to me and you get 150 less the costs. And bear in mind there's like 10 grand rates. There's all the other stuff there. So there's maintenance all the time. 'cause this place is falling apart. So you're probably getting a net of after property management and all that kind of stuff.

Adam: Maybe best case, a hundred K. And that's not really including property depreciation. That's been bit generous, say a hundred k. That's 250 K difference a year after tax. This is not, or okay, it's not quite a tax 'cause you've got capital gains. It's not principle, but caught two 50 k after most tax,~ uh,~ by renting.

Adam: That's a massive difference. What can you do with that two 50 KA

Veronica: I guess I would argue though the person who owns a house you are living in, it's unlikely that they bought that with the intention of just holding it as an investment property. There. There's very few investors are buying that type of asset now. They probably owned it for a long time. ~Um, ~they may well have lived in it before.

Veronica: They may, maybe they've moved overseas and so they wanna live whatever their reasons are for having it. We are finding, and you probably found this when you were trying to. Find something to [00:11:00] rent that type of property is diminishing in terms of its availability for exactly all of those reasons. They're not the sort of property. So the reason somebody would hold that and, whether you're in Melbourne or not, land tax on, on a property that like that would be sizable. ~Um. ~The reasons for that being in the market is not investment reasons. They would've a bunch of other reasons, you know, for having that particular asset.

Veronica: But if you compared it, say you had a three bedroom apartment that was bought with that pure intention, and you would see a bunch of different metrics. I agree with you though, you'd, if you're buying an apart any property just for yield, well you are a moron. Personally, I mean, I'll use your word there, right?

Veronica: So I think that, and we don't,~ uh,~ encourage that, anyway, we can go on about that. We don't need to go on about that. All our audience knows what we think about that sort of thing. But that's cherry picking a really bad example.

CB: yeah. That's funny that it's like the, you know, at particularly your end, right? Like that renting versus owning and it doesn't defies belief, right? When you think about it, you're like, why wouldn't I? Just rent that, you know, $7 million house versus [00:12:00] own it, and it's just the availability of those $7 million house is getting tighter and tighter

Adam: Yeah, no, you're,~ ~

Adam: ~um, Uh, ~think you're right. My house is an unusual example for sure. ~Uh, ~but my point was that there is, even if you're looking at a two bedroom house, it's still significantly cheaper to rent than buy, and there's some disadvantages of renting. But, so what you're essentially saying, and there's some truth in that, that, okay, well break even off the property and we'll use as inflation hedge, which I have some sympathy for, but I think they're also better inflation hedges than property.

CB: I think you're right that there's a lot of people that don't really think about rent. Versus buying, right? And then they'll go and sign up to it, particularly in Melbourne or Brisbane. They've got sell off the plant apartment, or, you know, first home buyers are getting stitched up by this all the time.

CB: It's like, hang on a sec. Interest is dead. Money rent's dead money. You know, if this asset doesn't, when you add in all the costs on top of interest,~ uh,~ and it's easy to rent those things, right? Because there's heaps of apartments. If you get kicked outta one, you just go around to another. It's not a. So unless this thing goes up in value, then you're actually gonna be, you know, you're just tying yourself up.

CB: You might be paying stamp duty, you might pay selling [00:13:00] costs, you've got maintenance, you've got building issues. ~Um, ~and I think, you know, a lot of people just don't consider the viable alternative. Okay, well I'm just gonna rent and I'm gonna put my money else. So whether that goes in a property or shares or you start a business, et cetera, a lot of people aren't doing that mass.

CB: They're, like you say, they're just being more on, they're following just what the system they're going on. But, um,~ um,~ I mean the bigger issue, which I think. You're in a well place to answer is that sort of the danger of just this ever, you know, increasing property values and just our wealth just constantly flowing back into resi, back into resi.

CB: ~Um, ~you know, you do well in business, you put it back into resi, you know, like, so what's that really gonna cause us down the line where, you know, we're basically gonna re really reduce a lot of risk in our economy, right? And it's gonna productivity issues and you might have more, right? Obviously.

Adam: Yeah, I think that's a really good point. So my, my view is housing is an unproductive asset, and people might take the counter view to that, but,~ uh,~ I think overall compared to investing in, business, it's, highly unproductive. So you're not creating, you're not improving productivity in the economy.

Adam: So you're not cr effectively what, causes economic growth improve. Which is two things. [00:14:00] Improved productivity and increased population growth. So, ~uh, ~take out population growth. On one side, you're not gonna get improved productivity by building houses. It's the opposite of that. You're sucking capital out, you're crowding out capital and putting it in unproductive assets.

Adam: So I think you're totally right. Like it's not productive. And Australia's sort of survived on the back of increased government spending. Really loose monetary policies and a lot of luck with things like iron ore and coal prices going through the roof for the last 20 years. But take out that extraordinary luck we've had, we've got a bit of a Dutch disease at the moment, but take out extraordinary luck.

Adam: And we've got governments, both state and federal level who are addicted to running deficits, are addicted to paying bribing voters with young people and future generations savings because this debt has to be repaid in somewhere, either gets inflated or repaid, either way destroys living standards. and a big reason for that is the way the tax system, and again, this is an argument in favor of buying property, is the tax system is so biased in favor of property, especially principal residents, but even not even investment as well, that, uh,~ uh,~ gerrymanders investment into an unproductive asset away from productive assets, which is just insane.

CB: well, that's right. I mean, they will lend [00:15:00] 95%. You walk into a bank with a job, even on probation, they'll lend you 95%, your 5% deposit that you've saved are, which could have gone into a business, right? You could have started, you know, maybe invested in your career, maybe got into business with a may, maybe started something, you know, like.

CB: You go, oh, no, no, no, I don't wanna rent. Right? Because renting's not secure and I don't wanna not own, because I don't wanna be get to retirement without owning any property. And that's usually a good ' cause I can leverage it five, you know, 20 times. Why would I try to risk that going in, starting a business and I'm worried about renting, my rent's gone through the roof.

CB: I'd need that security. I've been booted out a few times. Why would I risk starting a business? when I can potentially leverage it 20 times into property, like, and that's. Unfortunately what people think like, well, why would I leave a, you know, a high paying job that I'm, you know, I'm doing really well, I've invested in my career, but I've got a big mortgage.

CB: ~Um, ~if I leave the job, start a business and fail, I don't just lose my job, I lose my house and my family and might get a divorce. And so I think there's like a, there's all these other bet like issues. does it frustrate you, I guess, does it, these are the

Adam: I think [00:16:00] starting business isn't for everyone as well. Like I think if you wanna start a business, you can always use equity in your house if, like, you can sort of withdraw. So I think that itself isn't necessarily the problem. I think alternative probably is, putting money in like an et FA next fund.

Adam: That's probably the alternative to, purchasing a house. What can you do with that equity? like, I think if you look at even as well as property has done, the market has, has out, certainly the market with dividends reinvested, has outperformed property. Gold's absolutely outperformed property obviously. Crypto has, but forget that. ~Um, ~so property is as good as an asset. It's been in the last 20 years has generally been outperformed by the other big asset classes. ~Uh, ~I think your own business is a tricky one because for 90% plus of people, maybe they shouldn't start their own business. 'cause it's hard. And as you said, I felt like, great Chris, it's risky. You can lose everything. It's not for everyone. Obviously the upside's great, but the downside's real. ~Um,~

Adam: but it's sort of.

CB: That potentially should start a business. There's just, it just kills innovation, right? It kills taking risk. the person who's got all the assets that they could, they've got the industry expertise, they've got the knowledge. They're a great, you know, they've, they, they, they [00:17:00] are an entrepreneur, but they've.

CB: They've got stuck in a corporate job earning good income because they can't take the risk of study business. 'cause they've got, they've tied themselves up with a mortgage

Veronica: Isn't the issue more that really it's about what we invest in. I mean, I don't think we should be encouraging too many people to set their own businesses up. I mean, there's a high proportion that fail. I'm in the buyer's agent space. Everybody wants to be their entrepreneur and it's a screwing up the whole industry to be quite frank. So let's talk about what else you could invest in. 'cause I think that's really what would in, you know, investing existing businesses to grow existing businesses. I mean, isn't that really the missed opportunity?

Adam: So there's two questions. There's one is the call, the general economic question, like how much are we as a country suffering from this Dutch disease of just investing our windfalls in property? I think that's totally right. The other question is, what should you invest in the two quite separate questions?

Adam: Interesting. My, co-founder at Luxury Escapees lives in London now. he also was, had similar views to me on property. We both eventually begrudgingly bought properties over the last five or six years, and he,~ um,~ he paid whatever for his place. He, he ended up selling, I know, a million bucks worth of Bitcoin to fund it. So his [00:18:00] place has cost him like 30 million bucks in opportunity cost, 'cause bitcoin's 30 x over that time. So the cost is, can be many multiples if you, the opportunity cost if you. Get outta the wrong asset and into the wrong asset. So that's obviously an extreme case, but even if, just compare, I think look what Warren Buffett says is most people should just simply just buying a market ETF or a market buying an index.

Adam: Don't, don't try and outperform. You're not gonna outperform the index almost certainly. And you with much lower fees, you just buy an ETF and be done. ~Um, ~or, or buy a index fund be done. So that's, I think what the comparison is. And you can lever, you can pretty easily leverage ETFs as well. So buy a leverage.

Adam: ETF got the similar leverage you're getting in property. You'd probably make a better return. ~Um, ~but you don't have the security of having your place, but you're also not having to rebuild it every 30 years. So there's sort of pro pros and cons on both sides. ~Uh, ~the biggest problem with Australia is leaving aside the massive unfairness in our sort of monetary and fi fiscal systems, is there's this great terrible view that unless you own your property and senior kids to private schools, you failed in this country, which is like the worst possible view because both, neither are good.

Adam: ~Um. ~And the last thing we should be judging [00:19:00] people on is owning your house or what school you went to. It should be what you contribute to society in the form of any, all sorts of things in the form of community and charity and business and all that kind of stuff. Not what house you own, but in Australia it's all that matters is what house you own, which, and which suburb you live in and, how much the Reno costs and all this stuff.

Adam: So that's sort of order problem is we've got the wrong priorities in this country, which then leads to politicians favoring housing as an asset over pretty much anything else which leads to this bubble. So it's sort of a cycle of ill effects have led to where we are.

Veronica: It's interesting too 'cause I anecdotally know a lot of people who really dig into the equity of their home in order to pay for those private school fees as well. So then they get even doubly bogged down with, you know, bigger repayments over a longer period of time. But you, talk a lot about inflation and the RBAs role in fueling asset,~ uh,~ bubbles. Where do you think monetary policy has fundamentally misfired.

Adam: where it started really going wrong here is probably probably three or four years post GFC, where I think we went from interest rates of, I'll call it four or 5% down to basically just over zero. Obviously hit [00:20:00] zero,

Veronica: Well, that was COVID. Yeah. Yeah.

Adam: in COVID. But even before COVID were pretty large.

Adam: I think we were like 1.75 or 2% pre COVID. Ridiculously low and unnecessarily low because it, but all, basically what happened is as soon as property prices started stagnating, the RBA would drop rates. And it was if, if the RBA sole role in Glen Stevens and then feel lower running, it was how do we maintain this housing bubble?

Adam: And that was all they cared about. And then, so you saw during COVID, the whole,~ um,~ ridiculousness of inflation is transitory when clearly it wasn't. Then we had everything got outta hand. They had to start hiking rates. We saw rates being hiked to. What to five, five ish, not even 5%, 4.75% or 4.5% or whatever it was.

Adam: And that was considered high. It wasn't high, it was historically low. Yet then this, the first site of, house prices plateauing or dropping suddenly the dropping rates again, which has caused another house bubble. So, so it'll rein favor the house bubble to record level. So you've had 15 years of monetary policy.

Adam: The sole goal has been to pump up house prices. since COVID prices on a, this is probably understanding is 25% up. That's someone who doesn't [00:21:00] own inflation adjusted assets is poorer, which is significant.~ ~

CB: ~um, ~obviously that, wouldn't be the reason they were saying the RBA, right? They were saying, you know, unemployment's a bit too high, you know, our GDP growth, you know, not really taking off. It was plateauing, right. ~Um. ~Obviously, but you've got GDP per capital, right? Like, you know, like we can't import more people.

CB: We, you know, if we wanna keep growing the economy, we're already so, like, you know, and obviously it was a global problem, right? Every country around the world had low interest rates and there's issues with, you know, exchange rates as well. So like, it would've been really hard for them to just sort of have a much higher rate as well.

CB: And, you know, they're obviously, they're judged on such short term basis. The politicians,~ um,~ and their votes are, are driven by often property prices as well, plus so, so. Do you think that they should have just had a much higher rate through that period?

Adam: Well, the RBA there, there's obviously the treasury secretary is on the board, but the RBA monetary board is meant to be separate from the government. Like it hasn't been, 'cause Charmers has had the his foot on that throat, which is why we had 75 bips of cuts and which has actually gonna cost labor. So this could cost labor government, we saw it cost Joe Biden government in the states having high inflation and [00:22:00] inflation's now 3.8%. 3.3% core. This is huge inflation. This is prices doubling every 18 years. This is significant inflation that is gonna absolutely smash the lower middle classes. The upper class is fine 'cause they own assets, they're inflation adjusted. But we live in a world where all the RBA cares about is maintaining this property bubble and the slightest chance of property prices going down.

Adam: They'll drop rates and this is what exactly what we saw in the last year and. We've seen the impact of it. The impact is really quick inflation and it happens straight away. And inflation in both goods and services as well as asset prices we've seen. And then you've got ridiculous policies, and there's been 17 years of this since Kevin Rudd first brought in the first homeowners. Grant, which all that does is is this is famously called the First Vendors grant, and I'd said in 2008 when Rudd announced this policy, I said, all this will do is increase property prices and took everybody else like five years to catch on. Now people know that's what happens, yet they still do it like this is outrageous.

Adam: The point where we're, we're allowing people to buy properties on 5% deposit, no insurance, like it's so irresponsible for these people who are basically entering a life, a [00:23:00] lifelong debt. ~Uh, ~Uh, relationship now a result of entering the property market at its highest on the basis of government incentives.

Veronica: Well it, the first incentive was I think in 2003, maybe 2002. 'cause I was actually selling real estate back then. And ~uh, ~it was set, it was $7,000. Yeah, it was before Rudd. It was $7,000. And I remember first home buyers holding off until July one. And then there was one particular property. It was a classic,~ uh,~ these people wouldn't make an offer 'cause they wanted get their seven grand. ~Uh, ~they waited, so, did everybody else, and they had to pay 20 grand more a few weeks later. ~Um, ~

Adam: I think Rudd may have doubled it. That's right. I think he

Veronica: Yeah, yeah, so this is, you know, the impact It was obvious that it basically just pushed up prices from day one. But yes, politically it's so fabulous, isn't it? It's like we are giving first home buyers something because we've keep screwing up. ~Um, ~but you know, it's funny 'cause a lot of people,~ uh,~ Alan Kohler, you know. Wrote the what? His monthly essay around,~ um,~ house prices pinned it. Oh, it was, it was the capital gains tax and the, um, the negative gearing that Howard, well, [00:24:00] the change to capital gains tax that Howard brought in. 2001, 2000 whenever it was.

Veronica: And at that exact point is when prices started taking off. You could argue if you're gonna pin it down to one thing, maybe it was the first home, first home buyer Incentive we also have it at the same time. I mean, there's obviously a lot of things that have conspired to continue this, crazy growth.

Veronica: and we can see, or let's not call it crazy. It's wonderful if you're in the market. Um.~ Um.~

Adam: Well, I actually challenge you on that. I think there's this. Great myth that high prices are great, and it's certainly great if you're an investor with multiple properties, no doubt, because your asset is going up. But unless you own at least one investment property, I'd argue that high prices are bad.

Adam: So.

Veronica: I was being actually a bit facetious there. I will say,~ um,~ we, we talk a lot about the social consequences of. This continued growth, but it's, it's a runaway train. I mean, do we just have to accept it because governments are now coming out with shared equity schemes. Like there's more and more,~ um,~ ways to help people get in because we are not [00:25:00] gonna deal with prices.

Veronica: All we have to do is deal with helping you get in some way.

Adam: I think at the end of the day. Policy is also a vote, a voting machine, weighing machine. So I think in the end, bad policy eventually gets where you'd hope gets flushed outta the system. But you're right, it's been a bad policy for 23 years now. So who knows how that, I think when I talk about high house price being bad, clearly it's very bad for that social contract, which you talk about. I think it's also bad if you own a house. If I own a house, it's. $5 million and the house goes to $7 million. Well, big deal. I've gotta buy a new house in the same market anyway. I'm paying more stamp due. I'm paying more everything. I'm paying more like everything's percentage based, more Asian fees, and then my kids can't afford to buy in.

Adam: So like how is high house prices helping anybody but investors? It's all, it helps.

CB: Well, I think there's been, if, if you have done quite well, right? You get to your sixties, your kids have moved out,~ um,~ you know, you've got into the housing market, right? Not the apartment market. Right? you know, you've bought with something that's quite scarce, you know, inflation's written your debt away.

CB: ~Um, ~you know, and then you, finally get to that point and you want it to sort of live a different life. You can take that money out, right? You can cash in, you can put it all in the bank. You [00:26:00] can rent, you could travel. Like there is a tangible wealth there that. Is actually being built. You could downsize to a much

Adam: Well, the problem is when you downsize, like a lot of people downsize from a house to a townhouse or an apartment, they're paying basically the same. Maybe you downsize from an $8 million house to a $6 million apartment, or I think more. people should be doing reverse mortgages, but nobody ever does or very rarely do.

Adam: I think that actually does make sense. ~Um,~

Adam: but the other problem is.

CB: the last thing we want though? Right? Like, because. ~ um,~ what we'll see, and, and this is happening, so reverse mortgages, the government's even got a reverse mortgage. Like they've got a, and at it's super ridiculous rates. It's like super, so. The governments have got their own.

CB: Then there's all these new lenders coming in. 'cause this is my sort of space. And what you'll always do is just slow down people downsizing. 'cause like I don't need that equity. I can just pull it out. And that'll just reduce the turnover rate of property, right? And so more and more people will stay in their homes.

CB: Listings will get tighter. So instead of 5% of, like you said, morons having to buy in, it now drops to 4% because our turnover rate. And It actually, if anything, it actually supply will decrease. 'cause it's not actual amount of dwellings, it's amount of [00:27:00] listings. reverse mortgage is a.

Veronica: problems in aged care because then people have less money to actually fund their own aged care. So there's, there's knock on effects of reverse mortgages.

Adam: But you can only reverse mortgage up to a certain point. They're relatively strict rules

Adam: on how much you can reverse. ~ ~

CB: ~um, ~they were, they got tight, all the banks pulled out of it, right? ~Uh, ~Brian Harts killed it at Westpac and they all pulled out like, this is not, and now they're like, hang on a sec. We need to keep increasing credit growth. Actually, we can't do these things.

CB: Oh, why don't we go back full circle and start offering these reers. Now the banks aren't doing, non-banks are doing it and self-manage super fund loans are in here. And I think that's a. It's one of those things, right. Naturally will come. So with 40 year loans, I mean, they're already started the last few years there'll be, there's

Adam: Oh, I think 40 50 loans are way worse than reverse mortgage. Reverse mortgage is a wages to get equity outta the house. Effectively spending inheritance earlier, call it what, what it is versus 40 or 50 li year loans, which are a horrendous lifetime of a jail of debt for someone for their entire life.

Adam: That there's nothing worse than the Trump 50 year loan suggestion. ~Um, ~especially for young people after making houses that are unaccessible. We we're gonna, we're gotta lump [00:28:00] your 50 years of debt and triple the price of the property. Like that's, the worst thing. ~Um, ~I'm much more bullish on reverse mortgages than you guys for various reasons.

Adam: Like, that's it, it's kind of a side issue. I don't think it's even worth sort of dwelling on. ~Um, ~but more my point was like, even if my pri my property goes from 5 million to 10 million or whatever, like, it sounds like I've won the lottery. Well, my kids can't afford to buy a house, so what's the point?

Adam: Like I gotta sell it and give to them to let other, you want your kids living with you for your whole life. So I'm just not sure anybody benefits a, from higher property o other than the the investor class.

Veronica: Yeah, I agree. On that one. You know, you argue that government centers, we talked about that, you know, the 5% deposit scheme that has been increased in its,~ uh, um,~ availability, shall we say,~ um,~ um, make things worse rather than better. And we've already talked about that, but like, what's your, I guess, you know, we get the economic logic behind that view.

Veronica: We've, spoken about it here, but what's the counter argument you think that policy,~ uh, uh, ~makers are ignoring?

Adam: As in what argument are they making to justify the schemes?

Veronica: like other than pure votes, like, I mean.

Adam: That that's, no, that's exactly what it's, there's, there's no, there's no economic [00:29:00] or fairness rationale behind this policy isn't like, it's helping vendors and making it harder for young people to avoid, to get out of that debt. Like there's, there's, I can't see a single possible good reason to have this policy other than selfishly getting votes at the expense of young people.

Veronica: oh, I have to add something here, that the taxpayer is gonna fund the shortfall for people who do default on their loans and the property's worth.

Adam: It.~ ~

Veronica: ~Um, ~but also, you know, there is a lot of, and there has been for. Long time incentives to get first home buyers into brand new properties as well, which statistically is evidence abounding about the riskiest asset you can buy in in terms of property, highest proportion of loss, making resales, all that sort of stuff.

Veronica: So we're actually got a government in my mind that seems to have no awareness of the riskiness of property. And so there's no sort of caveats or No, no, guardrails on the type of asset that people are buying. You know, that can reduce their insurance risk effectively. So I, that bothers me. It just seems to be completely, they blind [00:30:00] to it.

CB: Well, I think they've, the good thing is they're not doing just new property. Right? So that's the, they used to do that. They used, that would've been worse. Right? And then you would've all these first time buyers stitch, start buying new apartments, buying new townhouses, and then funding our development industry, creating jobs, which is great.

CB: But then stitching up the people leased afford making a property loss. The big issue with this 5% is they've just expanded the scheme to basically anyone. And that it means that when you're someone who's got access to intergenerational wealth, who's got on a high income is likely to be okay financially.

CB: It's just getting a massive kick up rather than the person who's probably on a key worker job. You know, there's no family wealth. They're, they're struggling. ~Um, ~and saving a 20% deposit and playing LMI would've been really hard for them and Renting's really hard and they've got kids so like it was targeted I feel, to the right.

CB: Segment and then they've just said, hang on a sec. This is great for property prices. Let's just let it loose. ~um, ~you know, and, and you're right, that money just transfers straight into the investor that bought the apartment that wasn't performing that well, is now getting a better price so he can cash out but [00:31:00] that they're all votes, right?

CB: They're all votes. The people, whether you're buying or whether you own property,~ um,~ property prices going up is still in your mind. Good thing, right?

Adam: If you saw, I'm sure you guys would've, maybe three weeks ago, APA announced the tightening rules and the banks got annoyed and the rules essentially regarded, like the income ratios I think they were talking about predominantly. ~Um, ~which whatever like could be that has made like. The biggest issue isn't so much the income ratio. Like ultimately, funny enough, I went, when I went to get a mortgage for Reno, I was doing like, I, I really struggled to get a mortgage and my income's pretty low. And obviously we, we have dividends or whatever here because tax wise doesn't make sense to get paid a big salary and the banks didn't care about that.

Adam: All they care about is my income. So I, I actually found it hard to get a loan on a really low LVR. Which is fine. So that's up to the banks. ~Um, ~but if I was earning a million bucks a year as a lawyer like I used to be, I could get a massive loan. I could borrow 3 million or 4 million, whatever it is,~ uh,~ and no, questions asked.

Adam: 'cause they assume that I have a job, my same job forever yet. That's a hugely a risky lend because ultimately I lose my job and I can't repay the property. The bigger problem is what April should have been demanding is, effectively higher [00:32:00] or lower LV, so you can buy a maximum for 50 or 60% lvs. Instead, we've got the government doing the exact opposite. So a a in the federal government are doing the exactly the opposite, what they should be doing, and worrying about the wrong thing. Worrying about a wage which can go tomorrow, people get fired. Economy turns around while not caring about lvs, which is the most important thing, removing that buffer that people could have.

CB: What's your thoughts on that? Unfortunately. Economy still has to run, right? So you've got banking system, that's property,~ um,~ you've got a property system, you know, ~um, ~just people with build builders, trades, you know, et cetera. ~Um, ~you know, developers, there's so many people that are invested in the property market,~ um,~ who, and you know, our economy's not that big really in terms of the diversity.

CB: ~Um, ~and then we've got. You know, the,~ uh,~ private schools,~ um,~ a lot of consumer and retails build off more people. Right. You know, if you wanna sell more Woolies, you need more people. Right. So what's, what's your thoughts about the Australian economy when you break it down? I mean, even your business is sort of wrapped up in this as well, right?

CB: More people taking luxury holidays is, is a good thing if there's more people here. ~Um, ~what's your thoughts on that? Like, we're just stuck on a [00:33:00] system of just keep importing more people and then that's good because we'll keep building more houses, which supports that, which keeps lending more money. So like.

CB: There's not a viable option because it's so hard to just shift an economy,~ um,~ at all really.

Adam: I'm generally pro-immigration, preferably skilled, but, I'm historically in pro-immigration, which does lead to obviously higher JP per capita. But higher property prices inevitably 'cause you, you getting more demand. But I'm less like, clearly there are issues on the supply side of property, like the council restrictiveness and so there, there clearly are issues there and I hate the whole Nimbyism stuff and so that I take that as rare.

Adam: But I think the main issue with housing is willingness for banks to lend. And if banks didn't lend so much, we wouldn't have this housing bubble. Housing bubbles. And if you look at the Austrian school of economics, it's really clear and school economics been right for a hundred years and that bubbles are caused by excess debt. And that's all that causes ever causes bubbles. Like otherwise, equity's not gonna cause a bubble. It's debt that causes a bubble and debt's what's caused our housing bubble. And debt continues to inflate this housing bubble. And you see this with interest rates and all this other stuff. And the problem around this economy is [00:34:00] all the banks, 'cause you talk about,~ uh,~ completely leveraged to residential housing. You've got banks that could very well be insolvent. And we know that the fractionalized banking works that you have runs on banks, and we saw at Silicon Valley Bank a couple years ago in the US and we saw it with the Australian banking system, and they got GFC almost going under and the taxpayers Had to save a bunch of these banks.

Adam: Macquarie had to get saved and a bunch of bank. We saw it in 1993 with Westpac almost going under. we've had 30 years of multiple near bank collapses. Yet everybody assumes our banking systems sort of solid for centuries when inevitably away back. So I'm not saying the banks will collapse tomorrow, it could be 50 years, but eventually these highly leveraged to residential property banks almost can't survive 'cause they've leveraged to a bubble like asset.

CB: ~Uh, ~definitely disagree on this one. So the,~ um,~ I mean, I started as broker back in 2013. So I was a financial advisor before. ~Um, ~and you know, when I joined, when I. Started doing like borrowing capacities on clients. You know, I was like, what the hell? I can leverage this client at 12, 14 times. I can get interest only for 15 years.

CB: ~Um, ~I split it up across different banks, I [00:35:00] can take it further. That bank doesn't check that. Like, there it was, it was huge issues. Like I just couldn't believe. And you can leverage up, say six to eight times on homes and maybe 10 to 15 times on investment. ~Um, ~and so APR came in 2015 to 2020 and said, Hey, you. And they tied up all their borrowing capacities and basically every year since then, lending's been getting tied up. ~Um, ~and so now like you can only probably grow about five times your income. Like there was this real issue in the last two years with trust lending.

CB: The banks have all been shut down over the last couple of months on that. 'cause that was becoming a real issue,~ um,~ where people could just keep on lending. Basically, if you had the deposit, you could just, and even people were doing dodgy stuff around that. But generally speaking, our lending's getting tight.

CB: I mean, over in the UK it was, say, four and a half times your income and, you know, we were just so much higher. But I don't know, I, I just don't think there's, and when you look at the LVR, right, so like the housing markets worth 12 trillion. The debt in the system, say two and a half trillion. So the, you know, if they have a, and, and the arrears rate's like under 2%.

CB: So like, [00:36:00] you can't say that we've got this really highly leveraged housing market because the reality is it's only leveraged in a small number of buyers that have bought in recent years. Most people have got ridiculous equity. So if they get into financial problems, they just sell,~ um,~ because they've got equity,~ um,~ they didn't buy in the last two, three years.

CB: And so the banks haven't got this. Margin call because whenever finance someone struggles, they're like, I've lost my job, can't afford my mortgage. ~Um, ~in arrears I'll just sell. ~Um, ~so what's, what's your sort of thought

Adam: I agree with, I agree with you on. One at the first point that clearly the absolute cowboy days of pro GFC have, have thankfully been past us. So it's, it's not that bad. That doesn't mean it's not bad, it just means it's less bad. So yes, I do agree with you, but it can still, but I think so your scenario of people losing, essentially losing jobs and having to sell their house.

Adam: Yep, that happens. And you can, you've probably got some equity there, so you're not gonna be on the street. You can, but that causes significant drop in property prices across the board if that's happening. And we haven't seen unemployment above like 4% in like a decade. So let's say we had unemployment of [00:37:00] 10% or 11%, which is not like, I think depression was at 30%.

Adam: Let's say we went to 10% unemployment, genuine unemployment. Then you've got house prices potentially down 20, 30, 40%. Suddenly you've got bank balance sheets being smashed.

CB: What would interest rates be though in that scenario?

Adam: Who knows, like it happens if inflation peaks up and they can't drop interest rates. So like you could have stagflation like in the seventies.

Adam: So we've lived in this great moderation of 25 years. We've been able to just drop rates and be able to be pumping up property prices as much as we can. But there is a world where. You can't do that. And where unemployment spikes up and where house prices are adjust from 13 times income to six times or five times income, suddenly everybody's price has been, house has been hit cut in half.

Adam: I'm not saying this is likely to happen, but it, I'm not saying it's, there's a non-zero chance this happens and then suddenly you've got banks with, far more liabilities and assets on their books and they're insolvent. So like the notion that's impossible. It's clearly not right. Really. It's unlikely.

Adam: Sure. But everybody thought that GFC was never gonna happen in 2007. I was short the market in 2000. I was short the stock market and people were laughing at me and then it dropped 40%. So it's, you're wrong till you're [00:38:00] right is the problem. And as I said, in bubble periods, that prices set by the margin on war on.

CB: yeah. Is the biggest danger though. Betting on that scenario, that's not likely. You know, like if you think about,~ um,~ Martin North, good friend of ours, right? one of the, you know, very well known property bear in Australia. ~Um, ~and you know, just recently he's, he came on here, we've, we've, I've been on his podcast like seven, eight years or whatever.

CB: ~Um, ~and you know, he kind. Waved his little,~ uh,~ white sort of flag and said, look, you know, I just, just didn't misunderstood how invested the government is, how whenever things are looking like and all the cards are gonna fall down. ~Um, ~and you know, you think about everyone who's been listening to Martin, and this is Martin.

CB: If you're listening to this, it's nothing towards you. But everyone's been listening to Martin for the last 10 years, right? Who have delayed their property decisions, delayed, their life decisions, have, you know, and have, have basically jumped off, have really hurt themselves, right? Because. They basically have it and they've just avoided and then they've ended up gonna having to buy a house anyway, right?

CB: Because they're, they're having kids, they can't rent and they end up having to enter, they just enter at a later point for a much higher price. And so is there a danger you know, 'cause there's always a, a [00:39:00] contrarian argument of, you know, scenario 1, 2, 3, 4, if that happens. with property you can't just like sit on the fence.

CB: And just play a little bit and hedge it. It's just like you're either gotta be in with a big mortgage and, and with all your cash or you gotta be out. It's, it's, it's like you can't short and get in at the same time.

Adam: ~Uh, ~I think, I'm not saying that every bank's gonna. Be destroyed tomorrow. I'm saying there's a chance this could happen. ~Uh, ~and ultimately I think like Martin could well be proven right in, in 1, 2, 3, 4, 5 years, like the, the famous saying, the market stays irrational longer. You can say solvent. So I'm not stressing every go and short the property market.

Adam: I own a property, so it's not, I mean, I'm actually and property overseas as well. So it's not as if I'm like saying never invest in property. It's the worst thing in the world. I, I'm saying I think it's a huge bubble and it's problematic for our, our society. But I'm not saying that it's gonna. Collapse in half tomorrow, because ultimately it says, stays irrational. I've been, can be proven right, right or wrong. So like, I'm not saying like no one should buy properties ever, and it's the worst thing in the world and blah, blah, blah. Like, I think there's a lot of people who made great money. I think if the government continues printing money and [00:40:00] M two continues to increase, then property, property does.

Adam: Okay. I think gold property does better, but I think property does. Okay. So I'm not sitting here as like a permit property. Like it can never, you never do well from property. I'm saying property is a generational highs and this is a bad thing.

Henry: I'm on a personal mission to help more people make better property decisions. You know, most people don't realize that they can cost themselves hundreds of thousands of dollars over the medium to long term when they make property decisions without all of the information that they need. And what I do is help people with tricky real estate problems, which offer masqueraders simple questions like, should I sell my investment property because the interest re payments are hurting, or should I buy before I sell?

Henry: Or the other way around. You could connect with me and access all of the tools that I've created to help you make better property decisions at Veronica Morgan dot com au. And there you'll find resources for first home buyers, details about my buyer's agent mentoring program. You could connect with my Sydney based property management and buyer's agency teams, Australia wide vendor advocacy.

Henry: Or ask me for introduction to the small [00:41:00] group of buyer agents that I would personally recommend across the country. That's Veronica Morgan dot com au. If you're considering a property move, which is buying your first time, upgrading, renovating, or investing, the team here at Alcove would love to help you think through your decision and get the finance right.

Henry: Please go to cove.com au to reach out.

CB: we a hundred percent like agree. We, we can see that there's issues. It's just when you've got people, Australians making decisions with their own lives, right? Like so, you know, they've, they've got jobs, they've got families and they're just getting this, they get, unfortunately, the alternative strategy of not buying and renting and buying other assets classes is just really hard to, to justify and you kind of have to just.

CB: I'm not gonna do that because I don't believe in it. And then, okay. The, the second strategy of just saving, renting, you know, putting it into an ETF,~ um,~ and if, if property gets a certain type of, even a small return, unfortunately, just 'cause of the leverage in the system, they, they, it's very hard to outrun.

CB: ~Um, ~and I think this just causes [00:42:00] massive issues. And I do think.

Adam: I think where you're right is in the, the ability to easily use leverage,~ uh,~ and that that's where property can win. ~Uh, ~but if you look at shares gold. Crypto have all significantly outperformed. And I'm not saying, I'm not saying invest in crypto. I've, I've never bought crypto in my life, but all those three asset classes have significantly outperformed property in the last 20 years, notwithstanding the dream run properties had.

Adam: So, and this is after, this is on a net basis. This is after your property costs and after your dividends with shares and everything. So it's, the problem is, and where I. I agree with you is for a lot of people it's not practical. It's not practical to lever up gold. It's not practical. You don't wanna lever up crypto, it's too risky.

Adam: And yeah, it's actually a bit easier to lever up an ETF 'cause you get two and three Xs. But like there is a safety around property in that it's not mar, you're not being margin called. It's a great form of force saving if you can buy in a not super, like a not overly bubbly suburb. It's less bad.

Adam: So there's, there's definitely pockets. Like if you were buy Melbourne now, for example, it is actually maybe not that bad compared to buying in Sydney. 'cause Melbourne prices is so much less than Sydney. ~Uh, ~so there's probably places you can buy and [00:43:00] not be completely ripped off. But then it's hard to, I find it hard to justify Sydney pricing.

Adam: Like it just, it completely irrational to, I don't live in Sydney, but it's completely, it's completely irrational, really hard to justify versus a, and you guys know much more about the disease, but versus even a, just a Melbourne for

Adam: me, which

Veronica: I know, I know you're renting in middle class,~ uh,~ middle Park. I'm not sure if you own your middle park and that's where you're renovating, but, ~um. ~I don't know, middle Park, Albert Park, pretty much Sydney Prices, they're pretty, pretty XY part of Melbourne there. ~Um, ~very lovely part of Melbourne. I think, you know, when we sort of have these conversations and you're comparing property and performance to gold and Bitcoin and, crypto and,~ um,~ shares, we, it's hard not to bring back in that we live in property and you know, so therefore there's just so many other issues. That we need to consider and there is that, well, a shelter, we need to live somewhere. Like we did talk about the trade off. You could rent somewhere cheaper than, than buying. That's one thing, but there's status, there's that sense of security that you have when you've got kids. You know, I, we see it a lot when people that. ~Um, ~it's like the rent ERs [00:44:00] that don't have kids. Suddenly when they get, kids, their whole attitude changes as to why property becomes important. There's so much, and that's sort of tied into our national psyche as well, in terms of how we, like you said, you know, we, where do you live and what, what school do your kids go to? But, you know, even if you're gonna take out that, pure snobbery there's intrinsic value in property that it's very difficult to tease that out. ~Um. ~I live in Sydney. You know, like to me Sydney property prices just are Sydney property prices. I don't see them as expensive, but you know, obviously the relativity is, is quite insane.

Veronica: And I do talk to a lot of people about if you can actually afford to buy into Sydney now, you know, we've decoupled from the rest of the country. And so like, do you wanna miss out on that opportunity? So it is definitely a market. So you've gotta have these conversations. At the same time you're sort of thinking about investment fundamentals and talking from that lens. And then you're also thinking. this, and that's where the value comes in. You know what I mean? That's the, that's the, in you talk about value versus price. I mean, there's value in those other things as well. So how do you price the

Adam: [00:45:00] you're right, you're right to a point. I think like if you're paying, I use my example, $250,000 a year. That's a lot of intrinsic value. You need like two 50 k after tax is a lot of money. if I can do this for, five or six years, I'm saving up post like pre-tax 2 million marks.

Adam: That's the, that's a lot of earnings,~ uh,~ that I can then use to invest in a property at that time or something else. ~Um, ~but yeah, there's clearly, there's, there's benefit in not being booted out. As a renter, there's benefit in effectively being able to do stuff like you. You can't do stuff to your house if you're a renter.

Adam: On the flip side, and there's obviously benefit in in principal capital gains tax exemption, which is the biggest one. But on flip side properties, like how many horror property stories have you heard where someone's got termites and you have to rebuild a house and gotta spend a four, so. There's, good and bad.

Adam: Like there's, I'll pay $15,000 in, in rates a year. Like, that's not body court. That's actual rates to accounts or for taking my rubbish away. That's a lot of, that's a lot of cash. That's after tax. That's 30 grand before tax. So like, yes, there's definitely benefits of, of owning a property, but there's, there's detriments as well.

Adam: ~Uh, ~

Veronica: But again, there, so you, you assigning monetary value to those things. 'cause you know, you can, the rates are a [00:46:00] fact, but it, it's the stuff that you can't put a pin, a price on that makes the argument difficult. You

Adam: everything's got, everything's got a price. Like you can say, oh, you want to,~ uh,~ avoid being booted out. We'll take a longer lease and pay a premium to the owner. Every o like, you'll be able, you'll be able to, everybody's got a price. If I give the owner a 50% Kiger on rent, they'll, they'll, they'll agree to a five year lease for sure.

Adam: Maybe in takes a 20, but like. You can negotiate that. You can negotiate stuff or every, everything's got a price in this world. So the question is what that price is. So you can pro, you can, most of those risks can be negotiated. No, very few people do. Initially, we, my first business, our first business was we sublease departments and rented them out to backpackers and corporates. And we would, that was our business. We would take risks and part and absorb those risks and make a margin. So we, we sort of under, we rented 200 properties. We bought a bunch of, we understand, you said I wasn't in the property. I'm, I'm not now, but I was. As much as anyone, sort of when I was 26, 27,~ um,~ and we bought six properties with 5% down.

Adam: Like we understand that we made a million bucks and that was a lot for 28 year [00:47:00] olds. ~Um, ~so that was a different, that was when property was a lot less expensive than it is now. ~Uh, ~I'm not sure you could do that now.

CB: Adam, I want to hit with a property Dumbo, but just, you've got a business,~ um,~ you got a lot of staff. ~Um, ~Lot of talent to grow businesses. Right. ~Um, ~what's your thoughts on, you know, we, we, we we're competing for global talent. Right. You know, like you know, whether it's tech or whether it's, whatever it might be, right.

CB: It might, that might not be in Australia. Right. And we do want that to talent, you know, like you said, qualified to move to Australia. Do you think that. Just the issues with a high property price right. Doesn't make it attractive. Right. You know, hard to rent. So are you seeing issues in terms of that? I mean, obviously the prices around property have actually gone up a lot of places around the world.

CB: This isn't just an Australian problem. You could easily go look at global property values and, and it's, it's similar story to be honest. So, I mean, but do you think that's an issue that Australia's just maybe gotta be careful on, right, because if talent can't afford to live here. Then they won't move here.

CB: And so I, I think we've gotta be a little bit concerned

CB: about that

Adam: I'm not sure that's like ultimately, 'cause we [00:48:00] talked about the rental market like.

Adam: People who

CB: owning. They, they want to sort of move

CB: here and they'll kind of wanna

CB: own,

Adam: don't think people are thinking about that, to be honest. I think,~ uh,~ I think in the short term, you think, can I get a rental? Like, and rentals are pretty relatively cheap, certainly compared to

CB: particularly in Melbourne. Yeah.

Adam: Well, compared to New York, London, like it's cheap. Like people say rentals are high and it's easy for me to say my privileged position. But real globally speaking, our rents are super cheap to the, so the global cities, Tokyo, Hong Kong, Singapore, Melbourne, sorry, Singapore, London, New York we're really cheap.

Adam: ~Um, ~and transport's cheap. And like London, you pay 50 bucks a day to. Get the track. So we we're, I think in that sense, that's not, I think the issue with immigration is government policy doesn't necessarily favor immigrate like certainty. Like, great for, if you're a uni student, great. If you're a hairdresser, not great if you're, if I wanna bring in a technologist.

Adam: So we focus on bringing in the wrong types of migrants,~ uh,~ which would be focusing on skilled migrants and less on, less skilled migrants, less beholden to the university sector. That's a whole nother argument. ~Um, ~I don't think. Property prices are necessarily a barrier there in the short term anyway.

Adam: I think most people, like, I think we're still a really popular destination. I think a lot of [00:49:00] people would love to move here. I think the issue isn't, is more legal in getting in.

CB: For us a story, we could just have a bit of a laugh at the end.

Adam: Oh, I think it's just like I've been saying not to buy property for 20 years and then look where, where that would've gotten everybody. So I think the, like people, when people remind me of that. So Adam, you've been saying property's been, I, I actually started writing a book. I wrote two chapters in probably 2000.

Adam: I wrote a book on the. GFC in 2009 that published and I was writing a follow up, which was Australia's impending property crash. That was 2014. So thankfully I never finished it. 'cause it would, would've, I wouldn't have looked great, had that published. ~Um, ~but as I said, like the market stays irrational longer than I can stay solvent.

Adam: So I'm not shorting the property market. I own a property. So like I, I sort of speak against my own interests in this sense.

Veronica: And you're invest. Because you're renovating it.

Adam: Yeah, absolutely. And it'd be a chunk of my net wealth,~ uh,~ at the end of this. ~Um, ~but ultimately I'm lucky enough to have a business that spins off cash and all that kind of stuff.

Adam: But both me and JS have been property bears forever. We both bought properties in different cities,~ uh,~ and like my property's done very well, but at the time I thought I overpaid a couple million bucks [00:50:00] for this. And that's, that's the price they have to pay for, for whatever, like it's. Wasn't that impactful.

Adam: ~Uh, ~or at the time, it wasn't that impactful to me. And it's probably whatever in price since then, but doesn't, I still think it was overvalued versus what I paid for it, even though it was doubled since then. But ultimately,~ um,~ again, I've, I've been wrong for a long time and hopefully for everyone's sake, including mine, I stay wrong.~ ~

CB: ~um,~ one of the other issues right now is that you can't, I mean. The big tech stocks, are they overvalued? Is gold overvalued? Is crypto overvalued? Like, is it, you know, like, ~um, ~it is just the, the story right now, just due to that inflation of the money supply has not just gone into resi, it's gone into lots of other.

Adam: I'm not a buyer of the sea market either for that matter. So, so at the moment, despite what I've just told you,~ um,~ I think you're right. I think most assets are in bubble territory, if not all. ~Um, ~gold. I, I said I thought I liked gold a couple years ago, and that's now doubled since that's sort of gone. ~Um, ~so yeah, it's hard to find. So I think, yeah, ironically Melbourne property, it probably isn't that bad in the scheme. Like Sydney s Gold Coast is probably not great, but ~um, ~but yeah, they're probably pockets that aren't that bad. And look, if you can get a yield of 4% gross, it's [00:51:00] not terrible. Like, it's not amazing, but it's not terrible.

CB: Adam, it's been a good chat.

Veronica: Lovely chat. Really appreciate you coming on and,~ uh,~ I love a lively chat and I know our listeners will too. So thank you again for your time today.

Adam: Thanks for having me, guys. Been

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