A discussion about consumer sentiment, investing trends, property investment, Newcastle property... and coffee!
Special Guest: Dene Kilpatrick, Accountant, Managing Director of Visionary Advisors.
We ask Dene...
- How confident are your clients feeling about the economy?
- Have people's attitude to investing changed much in the past 6-12 months?
- What asset classes are people tending to invest in now, and why do you think this is the case?
- When it comes to investing in property, how are your clients feeling about this and has this changed of late and why?
- If you had $800k to invest in property in Newcastle, where would you invest and why?
- What keeps you busy when you are not working?
- Favourite coffee shop?
Disclaimer: Any information or advice in this recording is general in nature. Individuals should seek advice from their own accountant and/or financial planner before committing to investment decisions.
Full Transcript
(0:01 - 0:16) Welcome to 90 Seconds with Niva, hosted by Nigel Watts. G'day. Hello, Dene Kilpatrick. Welcome. Dene, for anyone who doesn't know, is an accountant, wealth advisor and all-round great guy. Welcome to 90 Seconds with Niva.
(0:16 - 0:50) Thank you, Nigel. So, first question for you today, Dene, is how confident are your clients feeling about the economy right now? Well, it's interesting. They actually relate it in different ways.
So, when they talk about the economy, they'll talk about it from the perspective of filling up $100 in a bag of groceries through the supermarket and how that bag is only half full now. And it'll be the luxury items such as, you know, going for a holiday, an Asian holiday, where it might have cost them $12,000 before. It's going to cost them $20,000 now.
(0:50 - 1:11) And when we're doing the financial projections, particularly for those pre-retirement individuals, they're factoring a good 10% to 20% in their costs moving forward. And I think that's the telling point, that individuals are now becoming slower to make a decision. And that's probably the test of how they're feeling about the economy.
(1:12 - 1:14) Okay. Very interesting. Thank you.
(1:15 - 1:27) And have you found your clients' attitude to investing has changed in the past 6-12 months? Noting what you've said there, it sounds like it probably has. Yeah. Look, it has, particularly with, say, property.
(1:29 - 2:08) A couple of years ago, an individual, if they wanted to buy a property, they'd come in and say, well, how do we structure it and how do we finance it and what's it going to look like, how do we achieve it? But now they're actually being more discerning about their projected cash flows and how it's going to fit into their living costs. And there used to be this old adage, and I can remember it from 20 years ago, that it was a third, a third, a third. And that is, you buy an $800,000 property, you generally pay about $800,000 worth of interest over the life of the loan and then you pay another $800,000 in tax over the life of the loan until you pay the loan out.
(2:08 - 2:35) So, in other words, you earn $2.4 million, you pay $800,000 in tax, you pay $800,000 in interest and you're left with $800,000 property the way you've got the capital growth. Individuals are becoming aware of that now when they're trying to factor that into their cash flows and whether it's going to fit into the weekly expenditure plans that they've got. And I think that's what's making them more discerning and what is slowing the decisions down in the last 6 months.
(2:35 - 2:56) Yeah, interesting. So, if they're a bit more discerning with property, what other asset classes are they considering at the moment? Well... Because that's a hard one to answer because it's a very broad... Your clients are probably a very broad base. Well, it is, but what I have noticed is cash is the biggest asset class that's being used presently.
(2:58 - 3:07) So, individuals who are trying to preserve their cash flow are tucking away money for a rainy day if they can. If they possibly can. Yep. For those individuals who have got larger balances of money, then cash is actually returning pretty well. I'm fortunate that I've got retiree clients who have got in excess of a million dollars. Yes. And where 2 or 3 years ago, we had to chase yield through the stock market because you had a million dollars and you're only getting less than 1% in a deposit. Yep. So, if you're earning $10,000 a year on a million dollar deposit, you can't pay the bills.
But if you can get a 5% to 10% yield in the stock market, then that's where the money was going to. Yep. However, now the asset class, the cash asset class is returning between 4% and 7%. And individuals are now more comfortable, particularly if they've got a balance over a million dollars. And they're not that anxious about placing their money into other investments. They're happy to leave it in cash.
Are you seeing younger people more interested in property than the retirees? Well, that's a super difficult question because the numbers around saving up for a deposit for someone who's under 30 is extremely difficult. In fact, there was some data that came out recently that I think it was something like 47 years to save up for a deposit if you're in Sydney where the median price is $1.8 million. Now, that to me just blows my mind.
Whereas individuals who are in their 40s who are empty nesters who are trying to create enough wealth so they've got that capital sum for when they're 65, they're the ones who are really looking at the property scenario. Yeah. Okay. And they're not just looking at random properties. What they're looking at is accumulating using a property strategy. So, they're wanting a property that's going to give them enough yield.
(5:05 - 5:21) So, then in three, four, five years' time, they can use that equity so they can go again because the way they see it is they want two or three properties by the time they retire at age 65. Now, that's in that demographic of about 40 to 50 years old. Okay.
(5:24 - 5:59) And for me, for the investor clients I'm seeing at the moment, the new norm seems to be the $750,000 to $800,000 for a property whereas years ago, it was more around the $500,000 to $600,000. So, to put you on the spot, if you had $800,000 to spend on a Newcastle property, which suburbs would you invest in? Well, if I could broadly say, I'd buy anywhere near the railway line, near a railway station. To answer the question directly, I think Cardiff is providing some opportunities, particularly for mums and dads with young families who are trying to get into the property market.
(5:59 - 6:29) There's some stellar properties there who have got these decent-sized backyards and decent-sized rooms, and it's a nice place to raise a family. But if I was an investor trying to get towards that railway line, the suburb I'd try to get into, but I think it might be too late for $800,000, is Broadmeadow. The reason I like Broadmeadow is because it's slated for where the light rail is going to pick up and come through to the Hunter Stadium and then pick up Lake Macquarie and the university.
(6:30 - 6:52) They've got the basketball stadium development that they're getting the DA for through council. There's a Woolworths that's got a DA through council or being pushed through council at the moment. I think that area between Turton Road and the Nineways is an amazing place for an investment opportunity.
(6:52 - 7:10) And then if you take a drive up Brunker Road and see how much development's going up there, I just think it's a great spot. But I think with $800,000, oh, gee whiz, you'd be tough to get something in there now. It would be a small two bedder, a small two bedder there, which is hard from a yield perspective there.
(7:10 - 7:24) Well, thank you for those insights. So people out there, listeners can get a bit of insight into you. What do you do outside of work that keeps you busy? Well, the total opposite to what I do at work.
(7:24 - 7:38) I think we lead a sedentary lifestyle where we're sitting down, we're using our brain. And unfortunately, I can't switch my brain off of a weekend, so I've actually got to keep my body active. So I do something that's physical instead of sedentary.
And so at the moment, I've got a tiling project that I do. But I enjoy bushwalking and being active with my wife and the dog and whatever takes my fancy around the yard, to be honest, Nigel. Through Glenrock? Yeah, I do. Yeah, no, Glenrock. I've actually walked the Great North Walk. I've done bits of legs of it.
(7:58 - 8:09) So I might early Saturday morning jump on the train and go to a track head, walk all day, and then pick up a train the other side and then come home again. Cool. And last question for you, Dene.
(8:09 - 8:24) Now, your office is a stone's throw from one of the best cafe strips in Newcastle, being Beaumont Street and Hamilton. So I'm expecting a biased answer here, but let's have it. What's your favorite coffee shop? Well, it's biased, but it's a bit different to Beaumont Street.
I use Side Pocket Espresso over at Mayfield. It's a fabulous little coffee shop. Amy and her team over there, they've got a really good culture, and I just love the coffee, Nigel.
(8:35 - 8:39) I'll have to try it out. Thank you, Dene, and thank you for spending 90 seconds with Niva.
