The stairway to heaven for wine lovers

Tony Hayek first became interested in wine as a student at Newcastle University. Living adjacent to one of Australia’s best known wine growing regions, the Hunter Valley, for a while he dated a woman who worked in the industry and taught him what she knew.

He has been hooked ever since.

“Over the next 25 years, I collected wine in drinkable quantities,” he says. “As I became wealthier, I started buying wine in batches of six — I’d drink one or two and put the others away — but I didn’t really have anywhere to store them so it capped out at 300 or 400 bottles.”

In his former home, he turned a workshop under the house into a wine cellar of sorts. It wasn’t temperature controlled but it allowed him to enjoy his wine when and where he wanted. But when he and his wife Toni had the chance to build their dream home in Sydney’s north west in 2017, plans for a cellar were a bit basic.

“The builder engaged a cabinetmaker to put together a plan for a wine cellar but it was a bit boring — mostly just shelving,” Hayek says.

Instead, the couple hired kitchen and bathroom design specialists, Studio Minosa.

“They did this magnificent design,” Hayek says. “I was still recovering from the cost of building when the Minosa quote came in at $150,000 so I initially put it on the backburner. Finally, I bit the bullet and we got it done in 2020.”

As a result, Hayek says much of his time at home during the pandemic was spent below ground.

Tony Hayek’s cellar design by Studio Minosa is more than just a place to store his wine collection.

“It’s my ‘pinch myself’ room,” he says. “Every time I walk in there, I can’t believe it’s in my house. I spent a lot of my COVID time researching wine. That was how I stocked my cellar and it went from 400 to 800 bottles. I want to know what’s in my cellar and have a relationship with it.”

While Tania MacPhee, managing director of MacPhee’s wine cellaring specialists, says wine cellars were becoming more popular prior to the pandemic, demand grew even further during lockdown when people used their untapped travel funds to create wine spaces they could enjoy.

“We started as an off-site wine storage business 22 years ago. Since then, the market has absolutely shifted,” she says. “Where wine cellars back then were predominately functional spaces in the basement or garage, today, wine enthusiasts are wanting to proudly display their wine collections, making them a feature of their home.”

She says the demand for purpose-built cellars has been driven by an educated audience who travel regularly and appreciate the value of a good drop. For those who have invested heavily, it’s important to keep wines in optimum conditions.

The challenge is maintaining an even temperature range to avoid wine “spoiling”, which alters its taste, smell and the consumer’s overall enjoyment. In wine making regions in Europe, the ideal temperature range around 12 to 14 degrees may be achievable without refrigeration due to their cellars being two metres below the earth, but MacPhee says it’s virtually impossible to guarantee in Australia where our cellar spaces are often beside a garage and under a concrete slab, acting as a hot box in summer — and a freezer in winter. “It’s the fluctuation in temperature that is detrimental to wine.”

“While a basement might seem cool at 26 degrees compared with hot Summer temperatures outside, it’s still not cool enough for wine,” she says.

For those who don’t have the space for a full cellar, or would rather have their wines on display, MacPhee says ‘wine walls’ are a popular choice.

“People are going to beautiful restaurants where they have these wine walls where guests can see individual bottles of wine,” she says. “And they want to recreate that in their homes.”

Wine walls are typically two or three metres wide and at least 600mm deep, she says.

Wine walls can be installed in living spaces for easy access and display. Image: MacPhee’s wine cellar specialists

“Depending on the location of the wine cellar relative to the rest of the home, $20,000 is the starting point for a very basic climate controlled space with insulation,” she says. “A wine wall with bespoke cabinetry can cost between $80,000 and $100,000 or more.”

“All wine needs to be cellared at the same temperature but when it comes to drinking, it is only then that individual wine varietals should be served at different temperatures”, MacPhee says. Some wine fridges provide two temperatures, in two separate zones. There’s even an under bench wine cabinet which is designed for the kitchen.

“It has multiple temperatures all in one zone, where you can place champagne at the bottom at six degrees, then Aromatic whites on the shelf above at 8 degrees, then it gradually goes up to 18 degrees for your heavy bodied reds.” she says. “We call it the ‘instant gratification wine cabinet’.”

General manager at Gaggenau, Robert Warner says wine lovers are investing in larger quantities of high quality wines so it simply makes sense that they are looking for accessible storage options at home.

“If you are buying a $100 bottle of wine and then you decide to buy the whole case, that’s $1200,” he says. “Do you want to risk it going off in a year or two because you haven’t stored it properly?”

He admits there is more to it than having your favourite drop within easy reach and ready to drink.

“There’s a bit of theatre to it,” he says. “It’s a lifestyle and interaction with like-minded people. Luxury living is about being personalised while still feeling connected with other people.”

For months, I have been one of the few commentators openly stating what the data was already showing: property prices had begun to fall.

The latest figures confirm it. Cotality’s June 1 Home Value Index showed Sydney values down 0.9 per cent in May and Melbourne down 0.8 per cent. ANZ has cut its national capital city forecast to 2.8 per cent growth this year, down from 4.8 per cent in April. CBA has also downgraded its outlook.

So the Federal Budget arrived at the worst possible time, with the wrong prescription, to treat a problem it fundamentally misunderstands.

Treasurer Jim Chalmers has suggested that making it easier for first-home buyers to get a fair crack at auctions is a good thing. The reality is more complicated.

Driving property prices down does not simply hand a discount to first-home buyers. It affects the 1.4 million Australians employed by the property sector, the 67 per cent of household wealth tied to housing, and the state government revenues that fund schools, hospitals and roads.

The government had a choice: tackle supply constraints, link migration growth to housing completions and reduce spending, or increase taxes on property investors. It chose the latter.

Property is an economic pillar

Property is not simply another investment class. It contributes about 10.6 per cent of GDP directly, up to 15 per cent when flow-on effects are included, and employs more than 1.4 million Australians. It also generates more tax revenue than mining and underpins consumer confidence through the wealth effect.

Against that backdrop, the Budget removed negative gearing from established residential properties purchased after Budget night and replaced the 50 per cent capital gains tax discount with cost-base indexation and a 30 per cent minimum tax from July 1, 2027.

The government calls this fairness. I call it a misdiagnosis.

The grandfathering trap

The policy is also internally contradictory.

Properties purchased before Budget night are grandfathered, allowing existing investors to retain full negative gearing and capital gains tax benefits until they sell. The logical response is simple: hold.

That means fewer properties coming onto the market, fewer rental listings and reduced transaction volumes.

The result is likely to be higher rents, reduced stamp duty revenue and further inflationary pressure at a time when the Reserve Bank remains focused on bringing inflation under control.

The government is attempting to fight inflation with one hand while fuelling it with the other.

Who really owns investment properties?

What is often lost in this debate is who Australia’s property investors actually are.

According to ATO data, 71 per cent of investors own just one investment property. They are not wealthy property moguls.

They are teachers, nurses, police officers and small business owners who have purchased an investment property as part of their retirement strategy.

For many Australians, property remains the most tangible and trusted pathway to building long-term wealth.

Removing the incentives that supported that investment does not hurt a billionaire developer. It hurts ordinary Australians trying to secure their financial future.

Investors aren’t the affordability problem

It is true that housing affordability has deteriorated significantly over the past two decades. However, negative gearing is not the primary cause.

Research by economists Ross Kendall and Peter Tulip found planning and zoning restrictions significantly increase housing costs.

Their work showed zoning lifted detached house prices well above marginal construction costs in Sydney, Melbourne, Brisbane and Perth.

Low interest rates, strong population growth, chronic under-supply and restricted access to development-ready land have all played a much larger role in pushing prices higher.

Punishing private investors does nothing to address these structural issues.

The Build-to-Rent advantage

At the same time the government is reducing incentives for Australian investors, it has created a more attractive tax environment for foreign institutional capital through Build-to-Rent projects.

Under current arrangements, foreign institutional investors can access a 15 per cent withholding tax rate through Managed Investment Trusts, accelerated depreciation benefits and exemptions from the new negative gearing restrictions.

State governments have added further concessions, including land tax reductions and exemptions from foreign investor surcharges.

Australian mum-and-dad investors receive none of these advantages.

The cumulative effect is striking. Foreign institutions can access a range of tax benefits unavailable to Australian private investors, while local investors lose concessions they have relied upon for decades.

This is not solving the housing crisis. It risks transferring ownership of Australia’s rental housing stock from local investors to offshore institutions.

Why state governments should worry

There are already signs these changes are affecting the credit cycle.

Major banks are removing negative gearing benefits from serviceability calculations for investment loans.

As market conditions soften, lenders become more cautious and investors find it harder to secure finance.

That matters because property transactions are a major source of state government revenue.

In NSW alone, transfer duty generates more than $12 billion annually. If transaction volumes fall significantly, the impact on state budgets will be substantial.

The consequences extend beyond stamp duty to GST collections, payroll tax receipts and land tax revenue.

The 95 per cent loan trap

There is another aspect of the Budget that concerns me.

The government has expanded first-home buyer deposit guarantee schemes, allowing eligible purchasers to buy with a five per cent deposit backed by the Commonwealth.

The intention is admirable. The timing may not be.

If prices in Sydney and Melbourne fall further, buyers entering the market with 95 per cent loan-to-value mortgages could quickly find themselves in negative equity.

They become trapped. They cannot sell without crystallising a loss, while the taxpayer guarantees the loan and the bank remains protected.

That is not wealth creation. It is a debt obligation.

After three decades working with debt and investment, I would never encourage my own children to borrow at a 95 per cent loan-to-value ratio.

A policy built on politics

The government had an opportunity to address the housing crisis by encouraging supply, reforming planning systems and reducing development costs.

Instead, it chose Robin Hood politics.

The optics may be appealing, but the economics are not.

Australians may ultimately pay the price through higher rents, weaker investment and a future in which an increasing share of the nation’s housing stock is owned by offshore institutions rather than local investors.

Paul Miron is the Co-Founder & Fund Manager of Msquared Capital.