Jimmy Thomson 00:00
We're going off to the coast in the podcast this week, because there's been a couple of reports about coastal properties and what's happening and my column in the Fin Review next week will be about what to look out for, if you do buy into coastal property. But, we can't avoid Mascot Towers...
Sue Williams 00:25
No, that's right. It seems to be everywhere, still.
Jimmy Thomson 00:28
Our podcast with David Chandler last week; it's one of the highest-rating podcasts we've ever done.
Sue Williams 00:35
Okay. I mean, Mascot Towers captured everybody's attention and the fact that there may be a solution in the offing...
Jimmy Thomson 00:41
So we'll have a chat about that. We'll talk about heading down the coast with our buckets and spades and that will probably give us more than enough to talk about. I'm Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.
Sue Williams 00:55
And I'm Sue Williams and I write about property for Domain.
Jimmy Thomson 00:58
And this is the Flat Chat Wrap. So what's happening in property prices, Sue?
Sue Williams 01:16
There was a report late last month in the Sydney Morning Herald, about coastal property prices, and about how they kind of went up hugely during COVID, as we remember, and then they sank a little bit...
Jimmy Thomson 01:28
Quite a lot, I think.
Sue Williams 01:29
And they plateaued and now they've been rising again. So while in Sydney, the rate of price growth has been lessening... I mean, prices are still growing, but by less every day, with coastal properties, the prices seem to be getting even stronger. But at the same time, you can still pick up some real bargains along the way; that's the message.
Jimmy Thomson 01:49
Well, the issue is quite complicated, because according to that report, and from what we've seen ourselves, the demand for properties has gone back a bit, because of hybrid work.
Sue Williams 02:01
People having to go back to work.
Jimmy Thomson 02:02
Yes. But there's also an increase in the amount of property available. So generally speaking, that should indicate falling prices, but it's not. It's kind of plateaued.
Sue Williams 02:14
That's right. It's interesting with the back to work thing, because during COVID, I know a couple of people; one person relocated to Adelaide, because she thought she might as well live in the Adelaide Hills, which is very nice and incredibly cheap and she could still work remotely for Sydney. But now she's been called back to the office, for two days a week, so it's become a bit of a problem. Now she's selling up and having to get back into the market in Sydney, which is actually really quite hard, once you've left. And another friend went over to Tasmania to do the same thing. So it is very, very difficult for people who relocated as a result of COVID. Some are making it work. I mean, for instance, my brother bought a place during COVID in Port Macquarie and then he relocated there and actually, he and his wife find that they absolutely love it. He travels a lot for his work anyway; he just travels a bit further. That's right. He drives the six hours to Sydney regularly. He doesn't seem to mind all that driving. But for most people... I mean, I couldn't drive six hours.
Jimmy Thomson 03:15
Is it six, or four? I think it's six to Lithgow.
Sue Williams 03:19
He tends to have to go via country towns, because he does a lot of work there. Obviously, Port Macquarie, you can fly there, too. That would be very expensive, if you were coming down regularly. So some people have actually relocated and loved it. Some people are bouncing back to the cities and leaving those properties vacant, or trying to hang on to them as holiday homes, I think, as well. It's difficult, because they're finding themselves quite stretched, with the rising cost of living and interest rates still quite high. But I think everybody is hoping that interest rates will be going down a bit later on this year and suddenly everything will kind of level out again.
Jimmy Thomson 03:43
A 40-minute flight. I got caught out recently, because I honestly believed that it was only in Sydney that apartments could ban Airbnb, or other short -term rentals; they could pass bylaws. But anywhere in New South Wales, an apartment block can pass a bylaw, saying we don't want short-term rentals. In some of these towns; I know it's a big issue down in Kiama, where we were talking to a real estate agent, who was just spluttering about how ridiculous it was that some buildings were passing anti-Airbnb bylaws, because from the real estate agents point of view, it was cutting down the potential value of the property. But you can imagine people who have decided to retire in a town like Kiama, finding that half their neighbours change every weekend. They don't know what the bylaws are and even if they did know, they wouldn't care. So you've got to be quite careful, I think.
Sue Williams 05:02
Absolutely. It's interesting; I did a story for Prestige Domain in the AFR the other day, about how there are new business models springing up. Say in Byron Bay, because you can only Airbnb a place for a certain number of nights...
Jimmy Thomson 05:15
Is 80 nights the limit there, or is it 90?
Sue Williams 05:17
I'm not sure, but they are quite stringent. I guess that council has probably been the most proactive out of everywhere, in limiting Airbnb and similar short-term platform lets. This new business model is starting, where they're getting hotels now. Investors can buy a room in the hotel, and then that becomes their kind of Airbnb. It's run as a proper hotel. So this new kind of hybrid is coming up, where people can buy apartments and rent them out as a holiday rental, but it's actually part of a hotel. So therefore, it's not subject to the same limitations as local council regulations. It's interesting, the different ways people are getting around it. And, that's probably a really good model, because it's actually going to be properly managed and it's on its own; it's not nestled among loads of other houses, or anything. So it's probably a really healthy development.
Jimmy Thomson 06:20
I mean, well, if for no other reason, than you know what you're getting into. I mean, it's quite possible that you could buy into an apartment block somewhere on the coast, the Central Coast, or wherever, and think that you're either going to avoid Airbnb, or even worse, that you're going to do it; you're going to put your apartment on Airbnb, and you'll only go there when you want to go. The rest of the time, it's going to generate money for you, and then you find out when you get there, that the locals have decided that they're going to ban it, which would be awkward. I think that once short-term lets are in a building to any significant extent, it's very hard to change it, because bylaws can be blocked by 25% of owners. So if you've got 25% in a building that's already on Airbnb, then that's not going to change anytime soon. Theoretically, you can find this out, because people are supposed to tell the strata scheme 21-days before they go on to short-term letting; they're supposed to tell the strata scheme that they are going on to short-term letting. Now, I'm getting the feeling that that law, that rule, is just ignored by people. You've also got the the other thing that we are encountering, where your strata manager out in the country might not work by the same rules as the strata managers in the city. Just getting a hold of the strata roll seems to be for some companies like 'well, why would you want it? It's private, and you don't need it and we'll do everything for you,' which is kind of like that thing that going into the country is like going back 20 years in time. And it certainly seems to apply to strata.
Sue Williams 06:48
And at the same time, there are some people who are doing short -term rentals with coastal properties and then they're finding it's more trouble than it's worth, because the may live in Sydney, and have a place on the Central Coast, or they may live in Melbourne and have a place on the Mornington Peninsula. It's quite a journey to get there between visitors, to get it serviced and obviously, there's lots of other companies who can service it for you, but that takes a big chunk out of your profits. A friend of mine who's been doing it has now decided to abandon it, because it's just so much hassle to organise different visitors and make sure the sheets are changed and clean; the place is up to scratch. She said it's just not worth the stress anymore.
Jimmy Thomson 08:57
And I mean, there are these companies, but as you said, you discovered this yourself; you did a report months and months ago, about how if you're going to get into Airbnb, you really need to have a minimum of four-or-five properties, to make it worthwhile. Or, be in an area where the profits from Airbnb far outweigh the costs, because there are companies that will come in and do all that stuff for you and they're very efficient and they'll manage it and they'll advise you and they'll get your registration sorted it out for you. But then you've got to look at how much am I going to earn and how much is it going to cost and is it really worth it? The other aspect of that is tax, because the tax office is now looking at people who are claiming the costs of their holiday rental and they're saying "well hang on, you were in there for three weeks over Christmas and you were in there for two weeks over Easter." And these, apart from being your peak times for earning, you cannot claim that proportion of costs of the rental, because it wasn't available for rent. Once the tax office gets onto these things, they go through places like a dose of salts and you suddenly find that that idyllic thing of "I'm going to have a property down the coast, or up the coast and I'm going to be there for maybe, six-or-seven weeks a year... We'll take the family up there and the rest of the time, it will be on short-term holiday let." It's not viable; just not viable.
Sue Williams 10:29
Sometimes, it's far better to invest in a property and put it out for residential rent, because then you'll get a return all the time and you'll feel good, because you're providing some housing.
Jimmy Thomson 10:39
Much-needed.
Sue Williams 10:39
Yes, exactly.
Jimmy Thomson 10:42
Okay. When we come back, we're going to look at Mascot Towers and some of the-would you call it a backlash, Sue?
Sue Williams 10:51
Yes.
Jimmy Thomson 10:53
Okay, that's after this. A lot of people listened to our podcast last week, where David Chandler spoke about the rescue plan he's kind of wrangled, I suppose, for Mascot Tower. The controversy continues to rumble on. I got a very abusive post on a Flat Chat forum, from somebody purporting to be the chairperson of Mascot Towers strata committee, basically accusing me of either taking money to get the podcast in, or paying money, or something. It was a 'rah, rah' piece for for the government and why didn't we put the other point of view? My view was, well, it was a podcast, and we had an interview with him and what was I supposed to do? Like, send them the interview and say "please comment?"
Sue Williams 12:00
It was breaking news, wasn't it?
Jimmy Thomson 12:01
It was. We had to get it out there and funnily enough, I said "this is your chance to comment, but you've decided to use that space to insult me and attack us."
Sue Williams 12:14
But you can understand what a terrible time everyone's had. It's over four-and-a-half years, since they were evacuated from Mascot Towers. Many people have just been renting other places; the government's provided emergency help for the rents. But they've got those nice apartments (with cracks in), which they can't go into. Their lives have been on hold, they don't know what's happening. It's incredibly stressful. So you can understand why some of them are really angry and upset and distressed. I talked to a few this week for a story in the Sydney Morning Herald, about how they feel about the deal. I mean, there are people who feel that it's not a great deal, in lots of ways. And as David said last week, nobody's going to be really thrilled with it, but hopefully, it will see an end to this terrible saga.
Jimmy Thomson 13:05
It's the least worst.
Sue Williams 13:06
Yes, that's right. But there are some people who are saying yes, it's okay, because we get the chance to walk away from Mascot Towers debt-free and start our lives again, because their mortgage debts and their strata levy debts will be wiped out. They will get something for their apartments; not very much. There are a number of groups which are not really benefiting in the same way. So for people who owe a lot on their mortgages, and owe a lot on their strata fees, it could be said to be quite a good deal. But for those who've paid out their mortgages, and who have dedicatedly paid every strata bill they've had; for them, it's really not such a good deal at all, because they feel they're being punished, for having done the right thing for many years. I spoke to an elderly couple, who don't have a mortgage anymore, and dutifully paid their strata levies, which went up at one point, to $40,000. They paid all that; they raided their super in order to pay that and now they're being presented with this solution, where they will only get a small proportion of the value of their apartment back, and they don't have any debts to be cancelled. I talked to others in similar positions, who've paid off most of their mortgages, so they don't really stand to gain very much at all. Then there's also the investors, who will get nothing.
Jimmy Thomson 14:28
Only the residents. They don't even get their debts paid off; they don't get their mortgages paid off. I mean, David Chandler; I quote him at length in my column in the Fin Review this week, where he says well look, they're investors. It's like stocks and shares; sometimes they go up, sometimes they go down, but in terms of property, you've also got negative gearing and the tax breaks on capital gains. He is less sympathetic towards them, but I mean, that really is a poison chalice that was handed to him for this project, which was basically, because he has a lot of credit in the community... People trust him, they believe him, they can see he's done terrific work... The government has kind of in a way, plundered that and said "right, you go out and sell this idea." Originally, the idea was the collective sale of the whole building to a developer, which would have been a very different scenario. People would have got something close to the current value of their property. But that was knocked out by the Supreme Court, so they had to come up with this plan to sell the apartments individually, as a collective. Do you think there's any chance that they won't get the 75% approval? Because they need to have, for this deal to go through, 75% of the owners individually...
Sue Williams 16:02
According to their unit entitlements, have to agree.
Jimmy Thomson 16:06
Do you think 25%, 26% of people will go "this is just not worth it?"
Sue Williams 16:14
It's very hard, because there's two clear groups, the leavers and the stayers and there are some people who don't want to sell, but at the same time, if you're a stayer, you face a really uncertain future, because you don't get your debts wiped out. So you still have to pay your mortgage. The rent assistance by the government runs out in June; it's going to be stopped. And the building will be bought if the 75% win and you don't really know what the consortium plans to do, or even really who they are. We know Lannock, the strata finance company is one of them, but we don't really know who the others are. We assume they plan to remediate the building, but then that may take many years. You've got to get development approvals, lots and lots of engineer reports and then the work actually has to be done. So your apartment will be sitting empty for a long, long time and you'll still be paying levies and the levies may be huge, because of the building work. So it's really uncertain. I mean, you may in the end win out, because maybe the apartments will then be worth a lot of money, but you may not. It's really hard to judge and I think a lot of the owners are saying well, we haven't been told yet what we're likely to get. We don't know what kind of price the consortium wants to pay. The government will only agree if there is 75%.
Jimmy Thomson 17:35
The government has agreed with the lenders, that if the lenders forgive 60% of the debt, then they will make up the rest. So the government will put money in to clear the mortgages and loans and things like that. There's not going to be any winners.
Sue Williams 17:57
No, but there will be some people who will make more than others.
Jimmy Thomson 18:01
I mean, you'd think, if you were able to do the calculation, that if you were one of these people who had paid all their strata levies and had paid off their mortgage, and weren't going to get any benefit at all, or very little benefit at all from this collective sale, you might think "well, I might just hang in there." It's a huge gamble though, isn't it?
Sue Williams 18:24
It is a huge gamble. The couple I spoke to yesterday, they're both very elderly, they're both suffering ill-health, and they say it's a result of the stress that they've been under. The woman's on antidepressants; the man has Parkinson's, that he said came on as a result of all the stress and strain. So they'd be living under even more stress and strain, for the next 5-10 years. They might not even see the end of it. That's right, so what do they do? They had the penthouse, so they had the most expensive apartment on the top, which was worth a lot of money and they'll probably just get a fraction of that. And they were saying "it won't be enough to buy another place to live in. We'd have to go into the country, maybe." It's really difficult and this other group, this group of disaffected people, who really won't see much benefit, they reckon out of the 131 apartments in Mascot Towers, they make up about... There's about 41 of them, who will miss out on most of the benefits, so that's a big chunk. And if they do get organised; I mean, they're not really organised at the moment, they only know a few of the people. If they do get organised, I guess they could mount a campaign for the no-vote.
Jimmy Thomson 19:40
I think the reason the alleged chairperson of Mascot was so angry was that the strata committee was kind of bypassed in all this.
Sue Williams 19:53
That's right.
Jimmy Thomson 19:54
But you know, that's strata law. That's the reality of strata; you can have your committee and you can have your meetings, but at the end of the day, the owners as a group can just say "well, we don't agree with that. We want this other thing." So you can understand why David Chandler and the New South Wales Government said "let's just get to the heart of the matter."
Sue Williams 20:15
Yes. And he had those meetings with people face-to-face. And it's difficult, because the strata committee took the legal actions and there may be some people who feel that they were misguided, or they had bad legal advice, or they shouldn't have done some of the things they did. And so some people will be saying "yes, great! Deal with us instead," whereas others will be saying "well, they were our voted collective representative, so really, they're the ones that you should be dealing with."
Jimmy Thomson 20:43
There's no simple solution. And you get a sense that they know that there are buildings around that are in trouble; some of them are sitting empty.
Sue Williams 20:43
The whole situation; I mean, it's just a perfect storm. Everything that could go wrong, has gone wrong. And now, all credit to David Chandler for trying to put things right, but maybe the New South Wales Government could afford to be a little bit more generous. Some of these people are saying "we'll get probably about a third of what our apartments are worth... How about if we get half of what they're worth? Maybe we'll be satisfied with that." That's not too greedy, is it? I mean, just getting half means that they do stand a chance to rebuild their lives, whereas a third is pretty difficult. That's the problem, I think. If there's a precedent set here, those other buildings could say "we want the same deal."
Jimmy Thomson 21:34
And then the government won't have enough money. There is a finite amount of money that the government has, and if they don't spend it on schools and things like that, then that's a whole other issue. But they do seem to be spending quite a lot on digging tunnels.
Sue Williams 21:53
They've stopped that. There was going to be a tunnel to Lithgow. They got a little way with that. We saw all the work on the roads when I was going up there so often and now that's all halted.
Jimmy Thomson 22:04
No. The vote is in February. So it'll be interesting to see how it goes. The roadworks are still there. You're still getting forced into one lane. One of these 'be careful what you wish for' moments, isn't it? The road works to make the road easier are now making it a lot more difficult. Right. Well, I think we haven't heard the last of Mascot Towers. You've got a story coming up in the Sydney Morning Herald about what we called 'the backlash,' the people who are not happy. I've heard that the Daily Telegraph is doing something as well and I'm sure TV is going to be all over this. We'll keep you all posted, safe to say. Right Sue, another busy day on the pod. Thank you once again for your contribution. And thank you all for listening. We'll talk to you again soon. Thanks for listening to the Flat Chat Wrap podcast. You'll find links to the stories and other references on our website flatchat.com.au. And if you haven't already done so, you can subscribe to this podcast completely free on Apple podcasts, Google podcasts, Spotify, or your favourite pod-catcher. Just search for Flat Chat Wrap with a W, click on subscribe, and you'll get this podcast every week without even trying. Thanks again. Talk to you again next week.