Reflections And Predictions: What’s In Store For The Property Market?
Well, what an opportunistic market we are living in. With our companies combined investing experience of over 45 years, we have not seen a more opportunistic time than now to capitalise of the growth markets that are presenting right now!
So, where do we expect the market to head in the next 1-2 years?
Melbourne
Melbourne had a solid 4-year run (not record breaking) but solid. Melbourne is finding the bottom of its market which will be found in the coming 4-14 months where it will likely stay for a few years. The yield across the board is now sitting at a dismal 2.8 per cent gross. This is going to present headwinds for investors in this market over the coming three years.
With auction clearance rates now at the 50% mark, we expect the next 2 years to show minimal capital growth. Population growth is strong, and the economy is progressing nicely. We are expecting a growth range between -1 to 3 per cent in the next 2 years, depending on property type. The next three to five years are going to be very suburb-specific for growth.
Pure Property Investment (PPI) has limited its attention to the Melbourne market as we see it is now fully priced and cash flow is very limited.
Sydney
It’s been a game of consolidation for Sydney, with investors who jumped into the market in late 2017/2018 being the worst effect in both poor cash flow and negative capital growth, Sydney is presenting as a market which will see further slippage (likely to be within -3 to 3 per cent capital growth over the coming few years). We called the top of the Sydney market back in July 2017 and history will show that we were just about perfect with our prediction.
The APRA restrictions have had their desired effect within the market and we are now seeing a distinct drawback from investor activity. With soft yields and 80 to 90 per cent capital growth over the past five years, Sydney now has a well-earned break on the sidelines. The talk of a bubble bursting or a crash however are most certainly not what the data dictates.
Sydney still has the lowest unemployment in the country along with a continued housing shortage deficit projected into the next 15 years. With a population predicted to be close to 8 million by 2045, and Sydney now being well and truly cemented as a global city, the high prices are here to stay. Sorry to be the bearer of bad news, but for those not in the market, the rent vesting strategy may well be a much more prominent strategy.
Brisbane
Our data suggests that Brisbane will continue to show a nice period of sustained growth into the coming 4 years and we are expecting capital growth of between 11 to 22 per cent (suburb and property dependent in that time)
Its limiting factor in the past has been state government commitment to large-scale infrastructure projects, however, with the re-election of the Annastacia Palaszczuk Labor government and with some sound economic news coming from the broader Queensland market, we expect to see a consistent growth market across the free-standing housing South-East Queensland regions.
Interstate migration has reached its highest level in over 15 years and the fear of oversupply if quickly abating. The free-standing housing markets in the north, West and East look very tempting indeed.
Hobart
The sometimes-forgotten Hobart market has proven to be a fantastic investment area for our clients over the past 3 years with over 40 per cent capital growth and over 6 per cent gross rental yield for some of the investments we have made across this market in the past 3-4 years, the return has been sensational.
The Hobart jobs market has been firing of late with an 8.4 per cent increase in jobs over the last 12 months. Hobart clearly is leading the country in jobs creation data with Melbourne coming in a distant second, producing a 3.5 per cent increase.
There can often be a lag of 12 to 18 months before what’s occurring on the jobs front to direct property value increases, and we expect 2018 to provide a strong and consistent value growth along with low vacancy rates and strong rental yields.
Whilst we have enjoyed the spoils of picking this market early, we are now focusing our attention to other markets within TAS in the sub $300,000 price points with some excellent data showing some surrogate markets are now lighting up.
Adelaide
We are quite neutral on the long-term capital growth within the broader Adelaide market, with some of the large-scale manufacturing plants closing over the short term.
The announcement of the $50 billion submarine project and frigates contracts will provide a great boost with an additional 3,000 – 6,000 or so high-paying jobs flowing from this. However, this project has a 15-year horizon and as such we don’t see the benefits coming in until around 2019 to 2022. We expect the next 2-3 years to be better than average for Adelaide, in the 6-13 per cent range. Avoid the attached dwellings as the supply relative to demand still looks a bit overzealous.
Perth
We appear to be close to the bottom of the cycle in Perth, and the economy is showing signs of ‘green shoots’ which is giving us some confidence in the middle ring detached markets. We don’t expect this market to ‘boom’ in the coming 2-3 years, but most certainly show signs of growth between 5-8 per cent.
Keep a close eye on vacancy rates in the areas would may be considering along with the supply data and days on market data as Perth is currently very suburb specific.
Darwin
Similar to Perth, we see the bottom has been found within the Darwin market and the income/vacancy rate data is starting to look somewhat attractive. Yields are strong and growth, but supply in the attached dwelling space is well above our comfort level and as such, the middle/inner ring housing markets are our pick.
Canberra
Canberra continues to deliver investors a solid and stable return, with the past 3 years delivering over 20 per cent capital growth and the jobs market looking solid along with the shortage in supply.
We expect the next few years to provide investors an annual 4 per cent to 6 per cent return on the capital growth front, and rental yield looks to be consistent between the 4 per cent mark.
All in all, the past few years were above-average year across the Australian housing market. Our clients have enjoyed some excellent results and we are very confident in the long-term story for much of the Australian property markets.
The factors, which investors need to be more cognisant of into the coming three years, is cash flow. I’m not saying go out and buy regional properties with over 7 per cent yield, but to simply ensure that you are fully aware of your personal income versus expedites BEFORE you buy your next investment.
The banks are calculating serviceability on a much high level and this will prove to be a headwind for investors if they are not clear on their personal finances. Understanding cash flow in your investment properties factoring in a higher interest rate will ensure that you have a strong buffer in place.
Now is the time to reflect on the year that was and set your investment objectives to ensure that you make the next 12 months the most successfully and opportunistic we have seen in over a decade.
Happy hunting!
What’s The Secret to Making Money In Property?
So What’s The Secret to Making Money In Property?
As a professional property investor and the managing director of an investment property buyer’s agency, I’m always challenged by my clients and peers alike with the timeless question, ‘where’s the next hot spot”?
My answer is always (to their dismay) “it depends”. It depends on a myriad of aspects. These range from:
- What’s your objective?
- What’s your time frame?
- What’s your current equity/ cash position?
- What’s your risk profile?
The reason why each of these elements are so important is the fact that each response will demand a slight modification on the property type/ location/ price point/ deposit amount/ hold period which should be applied.
Now that being said, there are some undeniable facts with property investing which cannot be ignored. These facts pertain to raw historic data and translates to profit made in property and loss made in property.
The first point which I am always staunch in my views is that capital city properties are much less likely to resell at a loss as compared to regional town properties. (6.9% of capital city properties sold at a loss as of March 2016 as compared to 13.1% of regional town properties) that’s almost a 100% increase in likelihood that a regional city property will sell at a loss. Worth noting.
The second point is also an unequivocal fact. Across the combined capital cities, properties that sold at a loss as of March 2016 were owned for an average of 5.4 years as compared to properties which sold at a profit being held for an average of 10.1 years and further more properties which sold at double the amount or more were held for an average of 17.2 years.
Now looking deeper into each of the capital cities over the past 10 years, each city has shown some distinctly different trends and these trends do dictate where we are sourcing property and why focusing on the east coast we have observed the trends below.
Sydney as an example, post the early 2000’s boom saw property selling at a loss of upwards of 20% between 2004-2006 which was a testament to investors buying at the peak and exiting (being forced or otherwise) when the market was on a flat or slightly downwards growth cycle. Sydney has since seen the best performance of profit making property up to early since 2010 to 2016 with almost 97% of all property transactions making a profit. We do however see history repeating its self in the coming 3-5 years in the Sydney market with price growth and wage growth being on a disproportionate trajectory.
Melbourne has remained relatively stable over the past 10 years with total loss making property hovering around the 5-7% mark, however the inner city Melbourne market is showing signs of an upward trajectory in loss marking property which we see is a direct result of the current oversupply of units and medium density properties coming to the market in the short/ medium term.
Brisbane has been an interesting case over the past 5 years with a huge spike in loss making property between 2010 and 2013 peaking at around 17%. But the signs are positive for the coming 3-5 years within the middle/ outer ring suburbs with a strengthening economy, employment signs looking more positive and a comparatively low base with strong yields there are better times ahead.
The morale of the story, invest based on facts. The facts state that there is almost a 100% greater likelihood that you will make a profit if you invest within a capital city, there is a very strong likelihood that if you hold for a period of 10 years+ you will be making a profit and if you hold for 17 years+ you will double your money.
Now these are obviously averages and my companies job as an investment property buyer’s agency is to beat the averages. But ultimately the facts are undeniable.
Is Aussie real estate undergoing the Manhattan effect?
During late 2015 Sydney’s inner ring house price rose above $1.5m and the middle ring above $1m, which made the real estate within 20 kilometres of the CBD too expensive for 90 per cent of Australians based on their ability to service loans anywhere beneath the nationally recognised 30 per cent of household income.
According to Corelogic RP Data we are seeing a clear Manhattan effect, with Sydney’s exclusive inner ring affordable only for household earners above the $250,000 mark to service a typical 30 pre cent loan.
An even more damning statistic from Sydney’s once-affordable outer ring shows that most households need to earn a minimum of $100,000 to avoid mortgage stress.
My position, and that of many property investors, is that as Sydney – and to a lesser extent, Melbourne – becomes more expensive young families will consider more affordable suburbs/cities in nearby Brisbane and potentially large regional NSW towns, including regional coastal towns.
Corelogic RP Data shows the gross household income required for the following cities (August/September 2015):
Melbourne
Inner ring: $160,000
Middle ring: $121,000
Outer ring: $76,000
Sydney
Inner ring: $284,000
Middle ring: $187,000
Outer ring: $104,000
Brisbane
Inner ring: $116,000
Middle ring: $86,000
Outer ring: $64,000
These distinct price restrictions are going to have a prolonged effect on Gen Y investors. I’m not predicting that we will have a generation of property ‘non-investors’, in fact, quite the opposite. What I am predicting and what we are already seeing signs of, however, is something I have written about in a previous opinion piece: the rise of the ‘rentvestors’.
This property investment trend is presenting definitive data that first-time buyers are getting a foot in the door earlier than ever. Research conducted by Domain shows that the average Gen Y investor buys their first investment property at the age of 25, compared to Gen X at 35 and Baby Boomers at 45.
These young investors are really focusing on buying small and buying at entry level price points that show good cash flow and, more importantly, long-term capital growth projections. Today, 16 per cent of Gen Y investors already own two or more properties, compared to 17 per cent of Gen X and Baby Boomers.
A very real trend we are noticing, which is backed by data, shows that in 2009 the combined Brisbane median price point was $400,000. At the same time the combined Sydney median price point was $490,000.
Fast-forward to 2016 and we see a very different story, where the combined Brisbane median price point is $490,000 and the combined Sydney median price point is near the $900,000 mark.
Now, we are not predicting a mass exodus of Gen Y from Sydney. After all, Sydney has the strongest economy in the country and looks like providing strong growth in the foreseeable future. What we do see is a continuing trend of savvy rentvestors going where they see value and putting their savings to work in areas that show some distinct mid- to long-term growth.
How to make money on the way in rather than the way out?
We recently sourced an excellent duplex purchase in SE Brisbane with a purchase price of $405,000. As part of the settlement process the client had to have the property valued by his bank to secure his loan. The property received a bank valuation of $440,000! Needless to say the client was ecstatic with the result and has effectively made $35,000 in equity on the way in (minus closing costs).
This prompts the discussion of how do you set yourself up to find those proverbial “needle in a hay stack” properties which can potentially provide you with instant equity rather than relying on the capital growth of a market to drive up your equity position.
Pure Property Investment (PPI) works of a stringent criteria to give our clients the best chance of sourcing properties that may be overlooked by the average investor and provide the greatest chance of an under market value purchase. The initial step is to refine your research to focus on only one or two Local government areas (LGA’s). Rather than being a jack of all trades l, we find a much higher rate of success focusing our attention on a small number of LGA’s. Once your LGAs have been decided upon, it’s time to really start your “deep dive research”. To give you the best chance to truly understanding the value of all types of properties and where the highest level of demand lies in your chosen investment areas you need to know your data. This should be focused on but not limited to:
LGA and individual suburb median house prices for 2,3,4,5 bedroom houses (including trends over the past 1,3,5 and 10 years)
Minimum subdivision regulations for both land size and densities (if you are looking at potential development sites)
Demographic breakdowns of the predominant resident types i.e. age groups, average earnings, ratio of owners to renters
Access and proximity to local schools, rail, arterial roads, parks, flood mapping
Current and future employment opportunities (these details can typically be sourced through local, state and federal websites
On top of this list, nothing beats local knowledge and a strong network of both real estate agents and property managers to gain insight into the desired and non-desired areas along with the aspects which might not be obvious to the naked eye (problem areas for tenants, youth unemployment, poor local schools, and new development approvals).
Now I know this looks like a very time consuming process (and it is). But if you truly want to put yourself in the best position possible to buy those under market value properties, having a comprehensive research backing and local area knowledge is absolutely vital in giving yourself the best chance to grab a bargain.