Amy Mylius from Cate Bakos Buyers Advocates, takes us through some areas she sees buyers falter in their due diligence.
Star of Selling Houses Australia, Andrew Winter, is frustrated about the many and varied rules that are applied to buying and selling real estate in Australia and he says they are treating you and I like idiots.
With low interest rates and burgeoning property prices, the result has been that we are borrowing more. Bessie Hassan sees this as a big problem.
We share a fabulous and inspirational story about a 30 something young person who has come to terms with her bad relationship with money management and turned it around as she is saving a deposit for her first property purchase. You might be surprised at how Emily Power is doing it.
Even though the property market does move in cycles, so many people choose to ignore the signs and the lessons we can learn from observing what has happened. Michael Yardney shares some of his ‘quieter moment’ lessons with us. Things he has learned from his experience of many years of successful investing.
Who would have thought that Brisbane and Hobart would be picked as the potential big improvers this year? Hear why Simon Pressley from Propertyology is investing in those two areas right now.
Kevin: I was talking to Amy Mylius recently. Amy is a buyer’s advocate with a very good friend of ours, Cate Bakos, at Cate Bakos Property in Melbourne. We were talking about due diligence. Amy is featured in the latest edition of Australian Property Investor magazine. We recorded a Skype interview, and I wanted to take a particular part of that and just talk to you about it, Amy.
Firstly, welcome to the show, thank you for your time.
Amy: Thanks for having me.
Kevin: It’s always a pleasure. We were talking about the mistakes that people make when they attempt to do their own comparable sales, or CMA analysis, which is a very important part of the due diligence process. I wonder if you’d quickly take me through those.
Amy: Yes, absolutely. What I find is sometimes people make the mistake of not comparing like with like properties, so comparing apples with oranges. They might take a property that they think is going to sell for a similar price to another one but has completely different attributes, such as a townhouse that is on a small piece of land, quite new and shiny, versus a house that is on a larger block that might need a full renovation. Both houses might be selling for the same kind of price in the area but for different reasons, and it’s very hard to extrapolate those reasons based on those sale prices alone.
Also, when they have a look in a suburb, they might compare a property on one side of the suburb to a property on the other side of the suburb that has completely different attributes and demands. It might be two kilometers away from the station rather than walking distance, and it might be a completely different kind of demographic who are looking there, such as families in one part of the suburb versus young professionals in another part.
Not comparing with one sale is really important, as well. We find that buyers sometimes grasp onto one sale that they’ve seen that they think is quite relevant, but we don’t always know the reasons behind that sale price. The property could have sold for a massive price because two buyers got carried away at auction, or it might have sold at a really discounted price because the agent lost their key buyers a day prior to the auction. Unless you know that information, it’s very hard to create a trend just out of one property sale.
Not applying a range is a mistake that people make, as well. It’s very hard to pinpoint an exact sale price of a property to a dollar figure. It’s not a science, and it’s completely based on a lot of different variables, so I always say to people to give yourself a bit of a range and also apply a little bit of a stretch price, as well, because if properties have been selling for around $700,000 in your area and the growth has been strong lately, you need to apply a bit of a premium to be competitive, as well.
Kevin: That’s an interesting comment, Amy. What’s your experience about how much of a premium should be added now if we’re looking at a recent sale within the last two to three months?
Amy: It depends on how strong the capital growth has been in that area, and it also depends on whether someone is an investor or a home buyer, as well. We say to investors that up to a 3% stretch we feel is quite fair in a moving market, and up to 5% for home buyers, as well.
I always think that if we are going to auction, we need to be competitive, otherwise you can waste a lot of time and money and energy into pursuing properties and being the underbidder each time, as well.
Kevin: Of course, these competitive market analyses are nothing new, but they’re becoming more and more important. Quite often, you’re going to turn up to an open home and you’ll find that an agent will give you one. I’d be interested to hear from you, Amy, about what we should be looking at or what we should be placing importance on if in fact an agent does give us a CMA. What should we be wary about there?
Amy: Absolutely. We always need to understand what the agent’s motivation is. They are there to get the best price for their vendors, and sometimes that does mean picking and choosing from the comparable sales that they think will best support their property. It’s often properties that have sold for slightly less, if not quite a lot less than their anticipated sale price. Sometimes they only choose properties from their own company sales, as well, and I see that quite often.
Even if they’re good comparable sales, they’re not necessarily representative of the entire market. They might also pick and choose comparable sales that will have attributes that aren’t necessarily related to this property. So it might be on significantly smaller land or might need a renovation, but it’s not so evident in the little printout they give to you, as well.
Kevin: Very good advice, Amy. Thank you so much for your time. Amy Mylius from Cate Bakos Property in Melbourne.
Thanks, Amy. We’ll talk to you again soon.
Amy: Thanks, Kevin. See you later.
Kevin: A man I love having him on the show because he is always so much fun, Andrew Winter. Love his show, too, Selling Houses Australia.
Andrew: Good morning, Kevin, how are you?
Kevin: Good, nice to be talking to you, and you’ve done it again. How many series are you into now with Selling Houses Australia?
Andrew: We will start hopefully filming season ten later this year.
Kevin: That’s brilliant. Now let’s talk about the weird rules in real estate. I know you’re a bit fired up about some of these.
Andrew: I do get fired up.
Kevin: I saw another one created in New South Wales making real estate agents now have to record any building inspections and make them then available to any purchaser. Have you heard about that one?
Andrew: Yes, I’ve heard about that one. Of course, down there they can’t use the word “Offers over,” either. It does make me tear my hair out – luckily enough I still have some – but this is the whole sort of craziness.
I do think we have to have legislation relation to real estate, of course. That’s one of the reasons so many overseas investors love buying in Australia, because of our solid title legislation, because everything is protected, which is great. You need due diligence periods, you need cooling off, you need deposits, you need trust accounts.
All of that is absolutely vital to a successful real estate market, but then I think what we’re seeing now is that we just want to make rules for the sake of it, and I think part of the problem with a lot of these rules is that we’re giving the public absolutely no credibility for having an ounce of a brain, and we’re also making things so litigious that it’s almost… How some of these rules could ever be policed, and when somebody actually does something wrong, what really happens? Which, to me, is a pointless law. Does that make sense?
Kevin: I have to talk about a very pointless one in just a moment, but can you give me a couple of examples of what you’re talking about?
Andrew: One of my absolute beasts is this stupid Queensland-only Queensland rule about not being able to discuss price when you decide to take your property to auction.
Kevin: We’re going to disagree on this one, but that’s okay, that’s very good.
Andrew: I’ll tell you exactly why it is. I have no problem with whether you choose to disclose the price or not. If that’s the way you want to go, fine. Sometimes it works, sometimes it doesn’t. However, that’s the point for me: it’s choice. There should be nobody who says…
If I’m a seller, if I want to price guide my property at auction, I should be allowed to. If I want $1 million and I want to say, “Price guide is $500,000,” guess what, everyone is going to turn up and give me $600,000. The market will sort it out.
I throw my arms up in despair, because the other problem is it makes Queensland look stupid.
Kevin: I take your point and I don’t totally disagree with what you’ve just said, but let me put it back to you in another way. With price guiding like that, a lot of that is done by agents who want to simply lowball, to suck people in, to get buyers in, to say, “Look, you’re going to buy it for $500,000.” They go, they do their building inspections, all their planning, then they turn up on the day of the auction to find that the reserve is $1 million. That is not fair.
Andrew: No, it’s not fair, but it’s free market. I don’t think you should be legislating against things like that. I think that’s why you’re thinking that everybody is that stupid, that they don’t know that that house at $500,000 offers is really going to be worth $800,000 or $900,000. I genuinely don’t believe that, and I think that this is all a sort of kneejerk reaction, mollycoddling a market that doesn’t need it. I think this is the point to me. We can agree or disagree about the principle of it, but I still think a seller has a choice.
When their agent chooses to list at a lowball figure, surely the seller is going to have an opinion on that, and the seller should have control over where they pitch it. Sometimes, if you lowball it, the seller can do well from it. Other times, the seller will do disastrously from it and the agent will look very silly.
When I tell anybody interstate or overseas that rule, they look at you as if I lost my mind. My concern is that Queensland is supposed to be an international player in the property market and right now we look like someone from kindy. It’s such a joke policy, because it actually is just saying that everybody who buys and sells property is so stupid they can’t discuss…
Imagine going to buy your family sedan, which is an expensive item. You go to the dealer, “I like that one, how much is it?” “I can’t discuss prices with you.” “Well, can you give me a guide?” “No.” “What if I offered $500?” “I’ll put the offer, but I can’t sell you that’s going to be close.” Then, you see, you start to chuckle. You have to admit it’s absolutely insane.
It’s not that I disagree or agree with non-pricing strategy. It’s quite a unique thing; it’s very Australian. Virtually no one else does it anywhere else in the modern market, only Australia, but sometimes it can work.
Kevin: Auction of property is very strange in America. They simply don’t understand it.
Andrew: No, and in the UK, they only do it for certain types of property, but what I love – and I’m going to be very UK biased – is they put a price guide on there really low and sometimes it goes for 50 or 60% more than the price guide and the buyers go, “Well, I thought it might go for more.”
That’s what free market is. If you want to start controlling the market, we won’t have the property market we have. I’m worried that we’ll start taking more steps along those lines, banning offers over, banning certain wording. “You can’t do this, you can’t do this,” you think “Well, really?” It’s just getting a little bit crazy for me.
Kevin: One of the other things that I’m really concerned about is this exaggeration of what can happen when you list with a certain agent. Let me give you an example. I don’t know how you feel about this because we haven’t discussed it yet, but I’m talking about websites like – and I’m going to mention them – OpenAgent, where they actually freely advertise that “If you come with us, we’ll put you in touch with the best agent in your area, and look what you can do; you can actually get $100,000 over your reserve.” I think that is really bad.
Andrew: I actually don’t know how…Usually when you advertise any product and you make any claim, that claim has to be backed up with evidence. Unless they very cleverly have found a property… Let’s be honest, you could have found a Sydney seller in the last 12 months who possibly had used that service, that their reserve or price guide was $1.1 million and they got $1.2 million.
Kevin: I actually put it to them when I had them on the show, “Look, in that particular case, would you accept the fact that it probably had nothing to do with the agent, but it had everything to do with the fact that you had a low reserve?”
Andrew: Yes, exactly.
Kevin: They denied that. But the other thing that really annoys me is they say they’re going to put you in touch with the best agents in your area, but they don’t; they actually put you in touch with the agent who has agreed to pay them a 20% referral fee.
Andrew: Okay, there you go. We’re going to be singing from the same hymn sheet on this one. My problem with any service that directs you to people… And I’m going to use a name now. Let’s say for example Trip Advisor because it’s so huge. When I look at reviews on there, the people who have reviewed get no kickback, no benefit whatsoever, just because they want to share their good or bad experience.
The problem with any of these sorts of sites or their component element is what’s actually happening is that if there are ten agents in your town and only eight of them have agreed to sign up with this company, the other two agents might be the ones for you. You’re not going to hear from them. It’s not unbiased.
I know that it obviously doesn’t cost the customer anything, but somebody has to make money. That’s how they’re making money. To me, if you ever want to buy advice, you really should be buying advice and paying yourself.
This is the trouble with buildings and pest inspection. I kind of really want to buy one myself so that I can speak to the inspector, possibly be around when they go and have a look, and make sure that I’m happy with that inspector, that he or she seems to be looking at it from my point of view. Perhaps for example I’m planning to knock down one half of the house and extend it, they’ll say “Look, this part of the house is terrible” “Don’t worry, just can you focus on that bit we’re keeping?” Or something along those lines.
I know it’s not always preferable or you think it isn’t preferable… It’s like using a proper, licensed buyer’s agent. You know how they get their fee, therefore the houses or properties that they’re going to show you, there’s no bias.
Kevin: That’s right, exactly.
Andrew: It doesn’t matter whether you buy that one, that one, or that one. They hope to sell you one of them, but they’ll only get a fee from the one that works best for you, so the system works for the customer. But when you’re not actually paying for a service, I don’t know how it can quite work for you.
Kevin: Good on you, Andrew. Andrew Winter from Selling Houses Australia, a great show. Make sure you check it out.
Kevin: Consumer advocate Bessie Hassan from Finder.com.au joins me to talk about an alarming piece of research that’s come out that talks about how Australians are borrowing more in their housing debt. No doubt this is on the back of cheaper home loans.
Bessie, this is a bit of a concern, isn’t it?
Bessie: It is a bit of a concern. We’re seeing people overextending themselves, actually. With interest rates at an all-time low, people are perhaps getting a little carried away and taking out more than they can afford in the long run. The key here is to always factor in a buffer. We always recommend a buffer of 2% to 3% to allow for any future rate rises if and when they do happen.
Kevin: Yes. We’ll talk more about that buffer in a moment, because I think that’s the key point we want to get through in this message. But I see here that housing debt per Australian adult has actually doubled over the last 11 years, and when you think about property prices, if you look at what’s happened to property, it’s more than doubled over that same period, though, hasn’t it?
Bessie: That’s correct. Increasing property prices have pushed up loan sizes, but this is growing much faster than inflation. Inflation would have only increased by about 34% in the same 11-year period. Instead we’ve seen property skyrocket in value by a whopping 136%. Now that’s particularly property debt that I’m referring to.
Kevin: Yes. We want to get some tips here on managing our debt a lot better, but you mentioned there about the buffer, and I think this is a key thing. Explain to me how that buffer works and how we can factor that into our borrowing.
Bessie: Absolutely. With interest rates at historic lows at the moment, borrowers really do need to be cautious. Take into account that while interest rates are super low at this stage, they are probably going to rise, and all signs are pointing to a rate rise in the future. This means that during the life of your mortgage, which is usually a 30-year mortgage, you will probably have to encounter at least a few rate rises.
With that in mind, you should have a buffer of 2% to 3%. So if rates are currently hovering around the 5% mark, when you are doing your finances, when you are taking out that mortgage, ensure that you would be able to pay it back if rates were to be around the 7% or 8% mark.
Kevin: Yes, and when times are good, too, you should be looking at things like lump-sum payments, making fortnightly or even weekly payments, to get the principal down as fast as you can.
Bessie: Exactly. Simply put, a decrease in how much you owe is probably the simplest way to cut down risk.
Bessie: You can pay off your mortgage sooner by doing things such as that – making fortnightly or weekly repayments or lump-sum repayments. Also having an offset account is a great option for those looking to repay their loan sooner. It’s like a regular transaction account but directly linked to your mortgage account, of course, which offsets the amount of interest that you’re paying against the overall loan.
Also, small change counts. So if you do come across that bonus or unexpected funds coming your way, put them on to the mortgage. It might look like a small amount, but in theory, anything that you can put towards it now will help to alleviate any financial pressures down the track when the rates do go up
Kevin: Yes. I mentioned, too, earlier making fortnightly or even weekly payments. You don’t have to be that extensive if you can’t afford it. Even rounding it up – and you were hinting there at rounding up and putting in lump sums – but even if you can only make an extra $10, $15, or even $20 a week as an additional payment, it’s all going to help.
Bessie: That’s right. Over the life of your loan, you probably could save thousands of dollars. Take fortnightly for example, if you do make fortnightly payments you end up making that one additional payment per year, which helps to decrease your balance, which then reduces the amount of the interest that can be charged to your loan account. So it really is a win-win. By doing so, as well, you can probably cut down your loan term by an average of five or six years.
Kevin: Consumer advocate from Finder.com.au, Bessie Hassan. Thanks for talking to us, Bessie.
Bessie: Thank you.
Kevin: You might have heard about a story that revolves around a young lady in her 30s receiving pocket money from her parents. She’s a property reporter with Domain, Emily Powers, the young lady concerned, and Emily joins me now.
Good morning, Emily. How are you?
Emily: I’m good. Good morning. I’m well. How are you?
Kevin: I’m very well. Tell me what’s happening here. Is this how you’re getting into the property market?
Emily: This is. This is how I’m wiping old debts and getting into the property market.
Kevin: Well, good on you, I say.
Emily: Thank you. Now, this pocket money is from my own salary, and I’ll tell you how it works. Each fortnight, my salary goes into a bank account that only my parents know the Internet banking passwords to, and from that, they fling me $400 a fortnight out of that as my salary. And I live on that.
Now, I don’t live at home; I rent. So out of that bulk salary comes my rent, my bills, health insurance, car repayments, all those sorts of major things. And with $200 of that a week, I buy my groceries, I put petrol in my car, I pay for my public transport, any toiletries or incidentals, and if there’s a little bit left over, I will have takeaway coffees, maybe a night out with my friends, which I did last night, for example. We had a $10 bowl of noodles and I had a $5 ice cream afterwards. That’s my big night out. Because I’m saving for a home.
I was a fashion writer before I worked in real estate, and through a series of events in my life – I had an ovarian tumor, needed treatment, there was a big medical bill, then became a fashion writer – and already having a medical debt in my 20s, I started unbridled spending on my credit card. I felt I had to keep up appearances. I wanted to look the part of the fashion writer.
I clocked up $14,000 in credit card debt over five years. It got to mid last year and I said to my parents, “I’m so far behind the 8-ball in terms of having a property. Not only am I in debt, but I can’t possibly start saving until I turn my habits around and my balance sheet around.”
Kevin: Was it last year this all started, Emily?
Emily: Yes, it was – in August last year I started. It was my dad’s idea, too.
Kevin: So, roughly eight months down the track so far?
Emily: Yes. That’s right.
Kevin: And how’s it going for you?
Emily: You might be surprised to hear I don’t know how much is in the account. I have no idea how much I’ve saved, because I don’t want to know. I had such an unhealthy relationship with money for so long, I decided that I don’t need to know what’s in that bank account; I just need to focus on developing good, frugal habits around that $200 a week that I have.
I said to folks that I only want to know when there’s enough for an apartment deposit. I’m aiming to save $50,000 in two years.
Kevin: $50,000 in two years.
Emily: I’m about a quarter of the way through, I suppose, if you do the math. I’m on the way. And I’ve wiped my credit card debt. It’s gone.
Kevin: Well, you’re well and truly on the way if you’re a quarter of the way through, and I think we calculated roughly six to eight months you’ve been doing it.
Kevin: You’d better hit Fairfax up for a pay increase, too.
Emily: I don’t know if that’s going to be possible. But I’ll keep working hard. I’ll put my head down and my bum up and hope.
Kevin: We’ll put in a good word for you. Can I ask you, also, have you inspired any of your friends to do the same thing?
Emily: No. I have to admit I haven’t. They all think I’m a little bit crazy, although some of them are in admiration of me but feel that it would just be a bit too hard for them to do. Reactions to this method have been mixed on social media. A lot of people have slammed me, called me immature and an embarrassment to myself.
Kevin: Really? Some people are so unfair, aren’t they?
Emily: But while I haven’t taken it on board, I’ve certainly listened to the criticisms, because there’s no doubt that I did have a terrible relationship with money and I’m in this position through my own fault. Others, however, have been in admiration and decided to look forensically at their own finances.
I think money is a very uncomfortable conversation to have. If by me speaking out about it encourages another young person who has credit card debts – and we all know that there are many of us who do – if it encourages them to talk to somebody they trust, whether it’s a parent, a grandparent, or go and see a financial planner and turn things around for themselves, then it’s all been worth it if just one person decides to turn themselves around.
Kevin: Emily, we saw you on The Project, of course, and I understand you got a very funny text from your grandfather after that.
Emily: Yes, I did. Gorgi Coghlan, one of the panelists, asked me whether any sugar daddies could get in touch with me if they felt they could improve my financial balance sheet, and I said, “Yeah, why not? Give me a call.” My grandfather who’s such a card – he’s 90 – texted me afterwards and said, “Emily, I saw you on the show. Well done. There could be some sugar daddies out there. Just be careful. Chat later.”
Kevin: Good on him.
Emily: Yes. I have my family in support of me. It was my father’s idea, and that conversation in August last year where I’d hidden from them everything that I’d been doing financially, and to pour it out on the table and have him come up with a solution that is working so well for me…
Kevin: I think you’re an inspiration, Emily. I really do. Just before I let you go, have you decided what you want to buy? I know you said an apartment; is it going to be a new one?
Emily: No, I’ve decided not to go off the plan. I’d like to buy something older and add a little bit of value to it – something around the inner ring Melbourne suburbs, maybe Carnegie. It’s too expensive for me to buy in close, but somewhere with a little village shopping strip, an older apartment and I’ll attempt to do it up a little bit, as well, add some value hopefully. So part of that $50,000 I want to save could be some money I could dip into to add improvements. That’s the plan.
Kevin: Well, good on you. We’ll touch base again and see how you’re getting on. Emily, all the best and thank you for giving us some time this morning.
Emily: Please do. I’d love to update everyone how I’m going and hear from others who might be on the same path.
Kevin: One of the things we have learned is that the market moves in different cycles – not only cycles in time but even cycles around the country. Different markets move at different paces. You look at the Sydney market, and boy, hasn’t that boomed? You shouldn’t get disenchanted thinking that you might have missed it.
I’m going to ask that question of Michael Yardney, because I know you’re a sophisticated investor, Michael.
Michael: That’s a nice word. Thank you, Kevin.
Kevin: I can say it; probably, you can’t. But you’ve been investing for quite a long time now. What are the lessons you’ve learned from sitting back and looking at these cycles?
Michael: There have been lots of lessons, because when I first started investing, I didn’t even understand the concept of property cycles. I just bought and I bought close to where I lived or bought close to where I went to school. I was lucky. What happened was the Gough Whitlam government came in. We had massive inflation. Property values doubled in five years, not just mine; I just happened to be at the right place at the right time.
Kevin, one of the worst things that can happen to a beginning investor is to get it right the first time because you think you’re smarter than you are.
Kevin: There’s a great lesson in that, too. The other thing I think we’ve seen, too, is that while booms don’t last forever, neither do busts.
Michael: Sure, they don’t. Interestingly, one of the lessons I learned along the way is that property markets act irrationally. When I started to learn about cycles, I started to study them and I started to look at the four phases of the cycle and what’s going on.
I guess the lesson I’ve learned in the last years as we’ve dug deeper and researched more is property markets aren’t only driven by fundamentals; they’re often driven by the irrational and erratic behavior of an unstable crowd of other investors.
The lesson is never get carried away too much by those booms that you mentioned, Kevin, and never get too disenchanted by the property slump.
Can I give you an example of what’s currently happening?
Kevin: Yes, please do.
Michael: Sydney was the hottest property market in Australia for a number of years, and at the end of last year, APRA came in, restricted some lending criteria, talked about a bubble that’s going to burst, created concern. The media created concern. People in New South Wales started to second-guess themselves and question, “Is it too late?”
So the Sydney market stalled at the end of last year and has dropped back a little bit this year not because of the lack of fundamentals – because Sydney is creating more jobs, has huge population growth, and does not have the oversupply that Melbourne and Brisbane have. It’s not the fundamentals that have held back the market; it’s consumer crowd confidence that has slowed it – and it’s starting to pick up again.
The lesson is booms don’t last forever. Be prepared, don’t be surprised and don’t overreact when the market changes phase.
Kevin: In the same way, I guess you have to be very aware and beware of doomsayers.
Michael: There’s a conga line of doomsayers who come from overseas each year and tell us that we’re going to have a market crash. The latest one was Jonathan Templar who predicted property values are going to drop because of what happened in Moranbah.
Last year, I remember you interviewed Harry Dent, and he predicted then that by the middle of last year, property values were going to fall because of what was happening in China. There is one after the other. It goes way to back to Steven Keen who had to walk from Canberra to Kosciuszko with a t-shirt saying, “Ask me how wrong I was about property prices.”
Often, they have an agenda of selling a book or selling courses. But these are powerful emotions and one the media uses to grab our attention. I think, sadly, some people miss out on the opportunity to develop their own financial independence because they listen to those messages. They listen to the messages of people who want to deflate the financial dreams of their fellow Australians.
Kevin: And there are a number of them around. You mentioned earlier one thing that you’ve done. Probably you did it purely by accident at the start. That is you developed a system. How important is that, especially in the cycles?
Michael: Kevin, I didn’t have a system to start with. I bought emotionally like everybody else, and it took me a while to do it. But I think sophisticated investors do follow a system because what it does it take the emotion out of decisions. It also ensures they don’t speculate. Look, it may be boring, but it makes it profitable.
To be honest, almost anyone can make money during a property boom because the market covers up the mistakes. But many investors without a system are going to find themselves in financial trouble when the market turns, as it did in the regional towns or mining towns. I remember Warren Buffet’s great saying, “You only find out who is swimming naked when the tide goes out.”
Again, I think you have to have the right system for the right area for the right sort of property. You have to understand what the end game is. If you do have a system, then you’re more likely to have consistent profits, you’re more likely to reduce your risks, and you’re more likely to have an exciting life.
Kevin: You said, a few moments ago, that in a property boom, anyone can get rich. How important is it to be aware that you don’t go chasing those fast-money-type schemes?
Michael: That’s a good question because most of us want to get rich. Only this morning, I got an e-mail from Kelly who I actually suggested she doesn’t buy just yet – she waits until she builds up a little bit income, more savings, and more serviceability.
She thanked me for it because she said, “I keep reading the front of those property magazines and I read about people who got 20 or 24 properties, they bought 10 properties in 10 years,” and she feels she has missed out. I think we’ve also heard the downside to a lot of those stories when they’ve actually bought the wrong properties.
To me, it’s not how many properties you have; you really have to own the correct assets and try not get influenced, to get swayed, by the latest “get rich quick” artist with a great story about how you can join them and become stupendously wealthy overnight.
I know their stories are compelling, I can understand they can be hard to resist, but I think they pander to those people who want to give up their day jobs and get involved in property full-time, suddenly become a developer, suddenly flip properties, renovate full-time. Patience is an investment virtue, Kevin.
Kevin: Therein lies the problem, too, because for a lot of people, they do go chasing those “get rich quick” schemes and they get anxious about missing the cycle and so on instead of looking at it as a business. This is the business of property.
Michael: It is. You’re in the business of property. During the last boom, many investors forgot that age-old adage of the fundamentals of buying the best property they can afford in proven locations. They went for glamorous things, and now they’re the casualties of that.
Kevin: Earlier in the show, too, I was talking to someone about the importance of having a buffer. It’s very important if you’re looking at this as a business, too, that you need to set it up to make sure you can move through these cycles.
Michael: It gets back to what we were saying a bit earlier that the boom-and-bust cycle will continue to occur. Every year, there will be unknown X factors coming out of the blue to make your best-laid plans look a bit shaky. That’s the importance of having financial buffers to see you through, to help you ride the property cycle. That means the roller coaster ride won’t be as dramatic.
Kevin: Bottom line for us, Michael?
Michael: Cycles are inevitable in any investment market, and our property markets, they’re behaving normally. They’re working their way through the cycles. Kevin, I think with lower inflation and lower interest rates, the cycles won’t be as dramatic moving forward – so we won’t have as high highs or as low lows – but that doesn’t mean there aren’t opportunities out there for property investors.
I think the message is well-located properties in the capital cities are going to do well, but remember, of course, each state is at its own stage of the property cycle, so you don’t really have to try and pick the cycle; just stick to a strategy and when your finances are ready, when you are able to do it, get to the next property, don’t try to be too smart.
Kevin: The bottom line: be selective and think long-term. My guest has been Michael Yardney from Metropole Property Strategists.
Michael, thanks again for your time.
Michael: My pleasure, Kevin.
Kevin: There was an interesting comparison I saw recently where Simon Pressley, who we’ve had on the show before from Propertyology, was making a comparison between the Brisbane market in Queensland and Hobart in Tasmania, talking about the similar areas and picking both of them, actually, as somewhat hot spots for this year. Simon joins me.
Simon, thanks for your time.
Simon: Always a pleasure, Kevin.
Kevin: Interesting to see. I’ve never really seen anyone make that kind of comparison before between Brisbane and Hobart. I think that Hobart market, in particular, is one that I’ve been waiting for almost a decade to see improve. Why are you picking Hobart? Brisbane, to me, is a bit of a standout, but I can’t understand Hobart.
Simon: Great question. I’ll probably surprise you and all listeners, Kevin. Propertyology has been investing in property in Hobart for two years. We obviously keep our trade secrets close to our chest, but we always have a keen interest in property economics, because we only work for investors, and property shelter. Wherever there are going to be improving economies that are sustained, logic suggests there will be more shelter.
For a couple of years, we’ve been quite excited about the outlook for Tasmania’s economy albeit very conscious that the recent past has had some challenges. It fits very well. The industries that drive Tasmania’s economy are really starting to prosper from the Asian Century, which is a money trail we’ve been following for some time.
We gave Hobart the green light in terms of macro level research and started investing there two years ago. Affordability is one thing – and Hobart has always been more affordable than other capital cities – but it’s economic makeup that excites us the most.
Clients who we got in there, say, 18 months ago have already achieved in the vicinity of 15% growth. Outside of Sydney and Melbourne, I suggest there are very few places anywhere in Australia that have achieved that. Hobart very rarely gets the headlines because it’s Tasmania, it’s that little forgotten island that not many people think of.
Kevin: You’re talking about great growth there, 15% over a couple of years. Are there particular areas in Hobart that are improving better than others? Is it down by the water or are there some suburbs that are standout?
Simon: We’re not suburb-specific. We’re street-specific. One of the luxuries that people have in Hobart is it’s water everywhere, really. On the mainland here, it’s rare for us to have a property with a water view, isn’t it? But in Tasmania, it’s everywhere, and they sort of take that for granted.
No particular suburbs. As I said, we’re street-specific. We always place a lot of value on buying properties in close proximity to jobs. We take a keen interest in zoning changes, traffic congestion. There are fundamentals we follow in every city, not just Hobart.
Kevin: Those barometers that you’re talking about are fairly longstanding. They’re nothing new. You touched earlier on some of the things, the economy of that area. What has changed there to pique your attention?
Simon: Probably the reason people don’t consider Hobart is for so long, it’s unemployment rate was so high, but when unemployment rates are reported, it’s generally, “Tasmania is doing this; Queensland is doing that” which is not really useful for a property investor, because we want to know about the city. Hobart’s unemployment rate hasn’t been that bad, and now it’s actually below the national average.
Its main industries are really starting to prosper. In no particular order here: tourism is going off the Richter scale. The number of international and domestic visitors going not just to Hobart but to Tasmania broadly is the fastest rise of growth in all of Australia for its visitor numbers. That directly affects jobs in cafes, hotels, restaurants – the retail and accommodation sector, basically – so it’s off the planet.
The Chinese president made a formal visit to Hobart about 15 months ago now. It’s the first time that a Chinese president has ever visited Tasmania. All the images from the two or three days he spent there were beamed back to their homeland for 1.3 billion people every single day. Every meeting he went to was beamed back there, so that has directly affected the tourism market.
Its advanced manufacturing sector has a wonderful opportunity. The agricultural products on Tasmania are world class, whether it’s beef, cheese, or various beverages. The manufacturing sector is growing, which creates jobs, which creates demand for accommodation. The third main industry is its international student market. Hobart is unofficially “university city,” and the universities are expanding, largely to tap into the Asian market.
Kevin: Let’s have a look at Brisbane because you mentioned the two cities Hobart and Brisbane as the two areas that you are pretty excited about. The indicators there for Hobart or for Tasmania tourism, Chinese interest, manufacturing, and students, have they also applied in Queensland or in Brisbane, or are there different measures there for you?
Simon: We are less certain about Brisbane’s economy. We’ve felt for some time that Queensland has a lot of potential in its economy. But for a variety of reasons, its confidence isn’t as good as what it’s been in, say, Victoria and New South Wales, and we’re still waiting for the signs that that’s going to happen. We think investing in Brisbane is not a bad decision; pound for pound, though, I would buy a property in Hobart over Brisbane every day of the week.
I’m not just saying that; I’ve done that. Two years ago, I purchased in Hobart for my own portfolio. Brisbane is more affordable than Sydney and Melbourne, yes, but it’s always been that way, so in isolation, that shouldn’t be a reason for any investor to buy in Brisbane. The job market in Brisbane has been improving, but it’s still patchy. When we follow the job’s numbers, one month, it’s good growth and the next month, it’s come backwards a bit. We’re just not getting that consistency there.
Kevin: I want to get your opinion on the Gold and Sunshine Coasts. Before I do that, I want to take you out to the Ipswich area, which is having phenomenal growth, and we’ve talked about that in the past. Is that an area where you would tend to look because of what’s happening out there? There are going to be some big improvements in employment, as well.
Simon: Yes, I think on the employment front and the general confidence front, Ipswich has it over Brisbane, I feel, at the moment. Its job growth is better. They’ve always had a very proactive, very energetic mayor out there, Paul Pisasale. He’s a real go-getter. So there are a number of good things on the job front for Ipswich.
Tempering that, though, is the supply sort of things. There’s a heck of a lot of land on the outskirts of Ipswich, always has been and it’s very developable land, as well. The big Queensland developers have land-banked that for some time, so they control supply.
Ipswich certainly, definitely will go okay. But it’s a market where supply will probably always be a little bit ahead of demand. When the dynamics happen in that order, you tend to get growth but not spectacular growth like we’ve seen, say, in Melbourne and Sydney.
Kevin: Gold and SunshineCoasts, what’s your view on what’s happening there?
Simon: The Gold Coast, we’ve been bullish on for probably 18 months now. Its economy is arguably one of the best in Australia at the moment, and as far forward as we can forecast, it looks like continuing to be that way.
It’s not all related to the Commonwealth Games, although there are some big projects that are being built for the Games. Of course, as we get close to the Games, it’ll be great for tourism trade, as well. But there have been a number of very significant infrastructure projects for the Gold Coast, which has created lots of jobs and improved amenities.
People do need to be mindful, though, that mayor Tom Tate is a developer by trade and you always need to keep your eye on the building approval volumes on the Gold Coast, especially in the apartment market. It’s not in oversupply now, but it certainly has the potential to be that way in the coming years.
The Sunshine Coast, it’s a lifestyle location. It will go okay, but we’ve never been greatly excited about the SunshineCoast. A beautiful part of the world to live, but whatever broader Australian property markets will do, Sunshine Coast typically follows that sort of trend, nothing unspectacular.
Kevin: Simon Pressley, thank you very much for that update and that inside information on the Hobart market. Simon Pressley, of course, from Propertyology.
Thanks for your time, Simon.
Simon: Any time, Kevin.