Our guest today: Damian Collins from Momentum Wealth.
Kevin: As we continue to look at what’s going to be happening with property in 2016, joining me now from Western Australia, Damian Collins from Momentum Wealth.
Damian, thanks for your time.
Damian: Pleasure, Kevin.
Kevin: A common question we’re asking all of our commentators this week, next week, and even the week after is what are we going to be saying about the property market this time next year, Damian?
Damian: Well, I think in terms of the Perth market, by the time we get into this time next year, about early 2017, we’re going to be saying, “We’ve just seen the seeds of recovery.” The market probably in the first half of the year to be fairly similar to what it was in 2015 – fairly flat and a tough rental market.
But towards the end of the year, we’ll start to see the signs of recovery as the rental vacancy has peaked and started to drop back, and a bit more confidence back in the West Australian market, and early stages of, hopefully, a reasonable up cycle – not anything significant, but a reasonable up cycle over the following years ahead.
Kevin: Just tracking long-term – let’s talk specifically Perth – how does it fare? Is that a market that goes with huge swings, or is it fairly consistent?
Damian: It is more volatile, Kevin, than the other cities around Australia, and it’s definitely more tied into the mining sector. The other thing you see also is Perth operates in a different cycle to Sydney and Melbourne. What we saw in 2001 to 2003, particularly in Sydney and to some extent in Melbourne, they had big run ups. Perth really was just an average market. Then Perth caught up in the three years post that.
Obviously, what we’re seeing through 2015 in Sydney and Melbourne is a pretty strong run up. When you look at the relative value of what you can get dollar for dollar, they seem more overpriced; Perth seems a little bit underpriced.
Again, I’m not expecting anything near what we’ve seen in Sydney and Melbourne in terms of run up, but the fundamentals are looking pretty good. As we get towards the end of 2016, we’ll start to see the early shoots of a recovery in the market.
Kevin: Based on what you said earlier in our chat, there might be some good buying opportunities in Perth during 2016?
Damian: Well, that’s definitely what we’re telling clients. If you want to get wealthy in 2016, pretty much in property anywhere in Australia, I don’t think we’re likely to see a lot of it, but even certainly in Perth, it’s not about expecting a lot of capital growth. But what it means is that you can really pick the eyes of the market.
We’ve been buying some great opportunities for clients through 2015 and now into early 2016 – development sites that people can lock away and rent for a period of time, but when the timing is right for them, they can potentially build anywhere from duplexes right up to 10 or 20 apartments. That’s a way of really speeding up your capital growth and creating your own growth, not relying on the market.
For a lot of our clients there, that’s the strategy they like. We think 2016 is certainly going to be a great opportunity to pick the eyes out of the best opportunities in that space where you can develop those properties in the future.
Kevin: Yes, looking back on 2015, it certainly wasn’t a good year for Perth. Were you terribly surprised by that or disappointed by what happened in Perth?
Damian: Look, our thoughts were always that it was going to be a fairly static market and rental vacancies were going to rise. We certainly weren’t predicting growth of any significance. In fact, it did come back a little bit. It’s always hard to predict exactly to the exact percentage where it’s going to go, but prices either stagnated or came back marginally. Some at the top end came back a little bit more.
I guess it wasn’t particularly surprising. The big thing is confidence. Even though mining has cut some jobs, still the unemployment rate is quite low in Perth. But the psyche of the town is very much “Oh, mining is in a downturn.” We see it in commodity prices, and so that impacts people’s outlook.
But for me, the long-term story is commodities are still strong. China needs it. India is coming up. There are a billion people in the Asian region who are going to come out of poverty into the middle class. They need all those resources.
Again, the long-term fundamentals are good, but yes, it is a market that people need to appreciate is a bit more volatile than some other cities around the country.
Kevin: That’s a pretty good summary. Damian. I want to thank you for joining us on the show. Happy new year, too. I haven’t been able to say that to you yet.
Damian Collins from Momentum Wealth, thanks for your time, mate.
Damian: Same to you, Kev.