Population growth and migration will play a major role in the property market over the next few years.
Sameer Chopra, Head of Research at CBRE, talks to Sean Aylmer about the cities he predicts will see the strongest growth, and what this means for house prices, rents and vacancies.
CBRE is a supporter of Fear and Greed.
This is general information only. You should seek professional advice before making investment decisions.
Find out more: https://fearandgreed.com.au
See omnystudio.com/listener for privacy information.
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Sean Aylmer: Welcome to the Fear & Greed Daily Interview. I’m Sean Aylmer.
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Sean Aylmer: The residential property market has been a hard one to predict.
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Sean Aylmer: After soaring during the pandemic, we’ve seen a correction over
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Sean Aylmer: the last 12 months or so, or a little less,
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Sean Aylmer: as interest rates rise, but the dip seems to have
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Sean Aylmer: bottomed out with capital cities climbing again. Instead of focusing
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Sean Aylmer: too much on where we’ve come from, I wanted to
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Sean Aylmer: get an idea of where we’re going. In particular, the
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Sean Aylmer: impact of population growth with migration booming. What’s this mean
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Sean Aylmer: for property prices, for investors, and for the types of
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Sean Aylmer: properties we are living in? CBRE is the global leader
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Sean Aylmer: in commercial real estate services and investment, and also a
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Sean Aylmer: supporter of this podcast. Sameer Chopra is the Head of
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Sean Aylmer: Research at CBRE. Sameer, welcome to Fear & Greed.
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Sameer Chopra: Thanks, Sean. Hope you’re well.
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Sean Aylmer: Let’s start with the big one up front. What’s going
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Sean Aylmer: to happen to property prices, particularly house prices?
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Sameer Chopra: Yeah. Look, Sean, what I’d say is we’ve got this
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Sameer Chopra: very big supply- demand mismatch in Australia, and it’s also
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Sameer Chopra: a global issue, and you’ve got interest rates rising on
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Sameer Chopra: the other side, but the fundamentals right now just absolutely
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Sameer Chopra: trump what’s going on in interest rates, just the chronic
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Sameer Chopra: shortage that’s happening.
We’re also seeing rents accelerate, and in
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Sameer Chopra: my opinion, rents will remain elevated and will keep growing
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Sameer Chopra: over the next few months, quarters, and years. And in
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Sameer Chopra: fact, high interest rates are actually pushing downward pressure on
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Sameer Chopra: supply. There’s going to be less supply coming to the
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Sameer Chopra: market than what many have expected. So, I’m pretty optimistic,
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Sameer Chopra: but I think what I’d say is, certain suburbs and
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Sameer Chopra: certain precincts will absolutely outperform and others will be more
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Sameer Chopra: modest in their growth. And so, it’s important for people
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Sameer Chopra: to really dive down and get really, really granular on
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Sameer Chopra: where’s the best opportunities.
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Sean Aylmer: Okay. Well, I mean, we’ll jump into that, but just
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Sean Aylmer: before that, you said something there fairly clearly, supply- demand
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Sean Aylmer: will trump interest rates. Well, supply and demand are trumping interest
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Sean Aylmer: rates right now.
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Sameer Chopra: Yeah. Look, supply and demand are trumping interest rates, and it’s
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Sameer Chopra: going to be in our view for the last six
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Sameer Chopra: months that this is going to eventuate because yes, cost
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Sameer Chopra: of borrowing has increased, but at the same time, most
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Sameer Chopra: buyers come into property with existing equity on hand kind
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Sameer Chopra: of thing. So, they’re not facing the full brunt of
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Sameer Chopra: interest rate increases. And at some point, when vacancy in
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Sameer Chopra: markets drops below one- and- a- half per cent, values and
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Sameer Chopra: rents start to increase at an accelerated pace. So, if
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Sameer Chopra: there was a lot of vacancy in the market, if there
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Sameer Chopra: was like five, 6% vacancy, then yes, interest rates would trump.
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Sameer Chopra: But when you drop below one- and- a- half percent,
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Sameer Chopra: the fundamentals really start to kick in. And then, if
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Sameer Chopra: vacancy drops below half a percent, then absolutely fundamentals become red- hot.
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Sameer Chopra: And that’s where we’re headed, I think that’s where we’re headed.
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Sameer Chopra: Vacancy’s going to continue to plummet from current levels.
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Sean Aylmer: So, just before we get into the more granular information,
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Sean Aylmer: is this a migration story? Is that why that’s going
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Sean Aylmer: to happen?
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Sameer Chopra: Yeah. Look, Australia’s slated to have 975,000 people coming to
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Sameer Chopra: our shores in the three- year period to 2024. And
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Sameer Chopra: Australia’s population growth will be about 14% in this decade.
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Sameer Chopra: That is the highest population growth of any major economy
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Sameer Chopra: in the world. And the way to visualise this for
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Sameer Chopra: the audience that’s Sydney based, I’d say we need to
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Sameer Chopra: create a whole new Eastern Suburbs by the end of
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Sameer Chopra: this decade. You need to create a whole new Eastern
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Sameer Chopra: Suburbs by the end of this decade.
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Sean Aylmer: Wow.
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Sameer Chopra: That’s the volume of population growth that is going to
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Sameer Chopra: happen in Australia. And the more people you add into
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Sameer Chopra: the mix, the more stock you need. In Australia alone,
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Sameer Chopra: we need 408,000 homes by 2025, and we do not
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Sameer Chopra: have 408,000 homes being prepared by 2025. So, population growth is
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Sameer Chopra: absolutely super important and immigration’s fueling it.
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Sean Aylmer: Okay. So, let’s break it down a bit. Units versus
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Sean Aylmer: houses, what’s the outlook for the two sides? And then
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Sean Aylmer: after that we might go metro versus regional.
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Sameer Chopra: Yeah. Look, I’d start off by saying, when the population
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Sameer Chopra: growth is largely driven by migrants, most of the demand
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Sameer Chopra: tends to be for units because people come in, they
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Sameer Chopra: land in our major metros … By the way, Sydney gets
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Sameer Chopra: about 35% of inbound migration. Melbourne gets about 30%. So,
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Sameer Chopra: these two cities will feel it and they’ll feel it
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Sameer Chopra: in the apartment market because when migrants first come in,
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Sameer Chopra: they want to move into an apartment. They normally stay
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Sameer Chopra: in the same place for about three years before they
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Sameer Chopra: figure out what they want to do in the next
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Sameer Chopra: phase of their life.
Most of them tend to rent
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Sameer Chopra: as well, by the way. So, apartment rentals, particularly in
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Sameer Chopra: the inner areas, will do really, really well. Not just
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Sameer Chopra: migration, but you’ve also got more students who are now
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Sameer Chopra: going to be living in Australia, not just studying online.
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Sameer Chopra: And then, you’ve got this whole Airbnb market as well.
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Sameer Chopra: Collectively, they’re all going to put pressure on the apartment
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Sameer Chopra: market and it’s all going to be in the inner
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Sameer Chopra: areas of the major metros with Sydney and Melbourne feeling
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Sameer Chopra: the brunt of it, and then Perth and Brisbane as well.
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Sean Aylmer: Stay with me, Sameer, we’ll be back in a minute.
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Sean Aylmer: I’m speaking to Sameer Chopra, Head of Research at CBRE.
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Sean Aylmer: Does it flow out to the middle circle of those cities?
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Sean Aylmer: Do the regions get much of an impact? I mean,
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Sean Aylmer: I suppose some of the major regional centers with universities
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Sean Aylmer: and that, may get a boost.
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Sameer Chopra: Yeah, Sean, they absolutely will, because there’ll be some Australian
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Sameer Chopra: citizens that’ll migrate out sort of thing. So, we get
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Sameer Chopra: this net migration from the southern states up to Queensland,
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Sameer Chopra: for example. So, population does spread out over time. But
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Sameer Chopra: what we find is when there’s a shock to the
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Sameer Chopra: system and the shock is being felt in inner city
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Sameer Chopra: areas, that those areas the rent growth is at two
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Sameer Chopra: times the level of the rent growth in the outer
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Sameer Chopra: areas.
So, everyone benefits. Rising tide will float all the
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Sameer Chopra: boats, but some of them are going to be on
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Sameer Chopra: a tidal wave. And we find it’s almost two times
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Sameer Chopra: faster rent growth in the inner city areas. And you
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Sameer Chopra: can see that, right? In the CBDs right now, rent
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Sameer Chopra: growth in the last 12 months has been about 20%.
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Sameer Chopra: And if you get away from the inner city area,
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Sameer Chopra: rent growth has been more modest, like six to 10%
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Sameer Chopra: range. And we think that’ll persist because we’re still in
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Sameer Chopra: that shock phase. So, we think this will persist for
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Sameer Chopra: the next 24 months as a minimum, where things continue
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Sameer Chopra: to get tighter.
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Sean Aylmer: Do we need to rethink the way we do housing
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Sean Aylmer: in our cities? What you are talking about … I mean,
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Sean Aylmer: two years I suppose is a short timeframe in the
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Sean Aylmer: construction sector, but still, if we’re going to get this
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Sean Aylmer: migration flows and people are looking for apartments and that, do
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Sean Aylmer: we need more higher density living?
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Sameer Chopra: We do need more high density living. I also think
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Sameer Chopra: there’s a strong case for bigger apartments, because more people
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Sameer Chopra: are going to need to contribute towards the rent. So,
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Sameer Chopra: the rent for an apartment, couples will need to contribute
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Sameer Chopra: to it, and maybe two couples who are sharing an
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Sameer Chopra: apartment need to contribute to make the rent more affordable
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Sameer Chopra: and palatable. But just to give you a sense around,
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Sameer Chopra: where’s this growth? Remember I was saying Australia population growth, 14%?
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Sameer Chopra: Sydney CBD and Parramatta and the Hills District, we think
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Sameer Chopra: will grow at two times the rate of Sutherland Shire
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Sameer Chopra: and Eastern Suburbs. Melbourne City and Southwest Melbourne, Southwest Melbourne’s
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Sameer Chopra: really interesting. We think Southwest Melbourne will grow at two
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Sameer Chopra: times the pace of Eastern Suburbs in Melbourne. And in Brisbane,
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Sameer Chopra: it’s pretty spread out. But again, in Brisbane CBD and inner Brisbane,
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Sameer Chopra: and even Southeast Brisbane, will grow at double the rate
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Sameer Chopra: of West Brisbane. So, this is what I mean is,
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Sameer Chopra: you need more apartments in the right places. And the
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Sameer Chopra: right places is typically near the CBD. And then, there’s
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Sameer Chopra: some pockets like in Brisbane, you can go Southeast, in Melbourne,
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Sameer Chopra: we would say go Southwest as well, because you’ve got
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Sameer Chopra: good opportunities in that market. Canberra is very clustered around
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Sameer Chopra: the city. inner North Shore and inner South Canberra. That’s where the growth is in the ACT.
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Sean Aylmer: Is there much of a role for government in all
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Sean Aylmer: this? Obviously, we have a debate going on at the
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Sean Aylmer: moment between the government where the greens are heavily involved
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Sean Aylmer: in terms of funding public housing, but this is much
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Sean Aylmer: more than public housing. What role should the government play?
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Sameer Chopra: I think the government’s role in this to help fast
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Sameer Chopra: track some of these projects where they make sense, particularly
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Sameer Chopra: close to transport networks, because the government wants to sweat
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Sameer Chopra: the infrastructure as well, and that’s sensible. So, we should
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Sameer Chopra: fast track projects where necessary that are close to infrastructure
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Sameer Chopra: and transport hubs. The other place where government can play
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Sameer Chopra: a role is, financing is becoming really challenging right now
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Sameer Chopra: with the recent rate hikes that we’ve had, is how
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Sameer Chopra: do we ensure that financing is available for projects? And
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Sameer Chopra: then the third part of this is, construction materials are super
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Sameer Chopra: expensive right now. The cost of construction has gone up
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Sameer Chopra: by 25 to 30%. Labour is inflating at almost 20%, not quite,
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Sameer Chopra: but close to 20%, right now in some areas of construction. So,
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Sameer Chopra: I think the role that government can play is, “How
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Sameer Chopra: can we help lubricate this part of the supply chain
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Sameer Chopra: to make sure that there’s still affordable housing? Or, you
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Sameer Chopra: don’t need to get massive, massive rent growth to try
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Sameer Chopra: and justify projects.” I think that’s the role of government.
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Sean Aylmer: I dare say, Sameer, we’re going to be talking about
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Sean Aylmer: housing for the next couple of years really, no matter what.
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Sameer Chopra: Yeah. Look, and there’ll be different ways of playing this.
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Sameer Chopra: Affordability is one of these issues, Sean. And if you
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Sameer Chopra: look at ’22, so last year, there was only two pockets
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Sameer Chopra: of Australia where a two- bedroom apartment was $ 750 a week,
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Sameer Chopra: and that was Sydney CBD and the lower North Shore
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Sameer Chopra: of Sydney. And if you scroll out to 2026, I
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Sameer Chopra: have Sydney CBD, we have Eastern Suburbs, inner West, lower
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Sameer Chopra: North Shore, the northern beaches, St. George, upper North Shore,
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Sameer Chopra: all with median rents that are above $750. And then
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Sameer Chopra: Melbourne CBD, Brisbane CBD, inner Brisbane, there’ll be a large
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Sameer Chopra: pocket of Australia where the average two bedroom unit is
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Sameer Chopra: going to be over $750 a week. This is not
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Sameer Chopra: an Aussie issue, by the way. This is a global issue.
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Sameer Chopra: We face similar things and we see the same things
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Sameer Chopra: in Berlin, we see it in London, we see it
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Sameer Chopra: in Singapore, we see it in Toronto. People want to
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Sameer Chopra: live in these wonderful cities and we’ve had this inward
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Sameer Chopra: migration into these cities everywhere in the world, and there
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Sameer Chopra: hasn’t been enough stock built in the last 20 years. So,
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Sameer Chopra: it is definitely an issue in Australia, but it’s also
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Sameer Chopra: an issue in many, many, many markets around the world.
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Sameer Chopra: We’re seeing 20% type rent growths in many markets outside
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Sameer Chopra: of Australia.
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Sean Aylmer: Sameer, thank you for talking to Fear & Greed.
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Sameer Chopra: Thanks, Sean. Take care.
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Sean Aylmer: That was Sameer Chopra, Head of Research at CBRE. This
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Sean Aylmer: is the Fear & Greed Daily Interview. Remember, you should get
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Sean Aylmer: professional advice before making any investment decisions. Join us every
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Sean Aylmer: morning for the full episode of Fear & Greed, Australia’s most
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Sean Aylmer: popular business podcast. I’m Sean Aylmer. Enjoy your day.