Don’t chase ‘hotspots’ + Good things in small spaces + FIRB figures need explanation

Highlights from this week:

  • Are FIRB figures a good guide?
  • Getting creative in the bedroom
  • Common finance misunderstandings
  • Why chasing hotspots is not smart
  • Borrowers wise up to the banks


Getting creative in the bedroom – Adrian Ramsay

Kevin:  One of the challenges we find in real estate as we have a requirement to put things in smaller places is just how can we creatively use these small living areas? I was fascinated to read the feature in the latest Your Investment Property magazine, which came out about a week ago. It was an article around my next guest, the CEO of Adrian Ramsay Design house. Adrian Ramsay is in fact the CEO of his own company.
Good day, Adrian. How are you doing?
Adrian:  Good day, mate. Yes, really well, Kevin.
Kevin:  Yes. Good article in Your Investment Property magazine about the bedroom.
What are some of the key things that you find in getting good things in small spaces?
Adrian:  I think that you have to look at the whole space. for starters. One of the key things there is keeping a color pallet that actually transitions comfortably. Not necessarily exactly the same, but just keeps it a gentle transition. Because what happens is your eye doesn’t have to adjust to a sudden change.
That doesn’t mean you don’t use feature walls or something in your coloring, but like if you were chopping your floor up into three or four different surfaces, you’re more likely to run into problems than if you keep it consistent. Or if you have hallways and living rooms, if you’re keeping the shades tonal as they run down through those, your eye extends down the line.
Obviously, light is always a huge one, and the other one is getting variation in your ceiling heights. Something I learned from looking at Frank Lloyd Wright’s work years ago now was just the way he would steal a bit from one room and put it into another room in the form of like a bulkhead. So he might add some space into the living room and take it out of the bedroom, but only 300 mm from the ceiling down or something like that.
You’re more likely to do that one the opposite way around, by the way. You’re more likely to add the 300 mm into the bedroom because it’s going to be the smaller room, and then make it a bulkhead in the other room.
And in doing that, it extends the ceiling in one part and it reduces it in the other. But it doesn’t actually change the volume from wall to wall. It changes the effect of the volume in the room.
Kevin:  Yes, you deal with bulkheads, I think, in step one of the article. But they can also occupy a lot of space, can’t they?
Adrian:  They can. You have to be really careful with them. Often, they become service ducts and stuff like that, and suddenly you have plumbers or electricians or air conditioning guys designating what size they’re going to be. So, you have to be very mindful of where you position them and how you position them.
I’ve often used them as a way to, say, take power off a power point to put lighting above a bed when I don’t want to rip off wallboard, I don’t want to chase into walls, and I don’t want to chase into ceilings. Because in a lot of apartments, the ceiling is actually the floor below. It’s just got a spray coat over it. It doesn’t have battens and there’s no extra space.
So, I’ll often use something to bring myself up the wall with a small buildout on the wall, but then a low bulkhead in the ceiling so that I can spread the lighting around.
Kevin:  Yes. The article is just fantastic because it gives you so many great ideas on what you can do inside a very small space. And I have to say that there’s some really creative furniture that’s come out that allows us to put a lot into a very small space, Adrian.
Adrian:  Totally agree; there is. The furniture market has really met this, and one of the things that I see has happened there is (a) we have a lot more urban, inner city living, so the furniture market has… In Australia, different from overseas. Take somewhere like Europe; they’ve always had small spaces.
You have to remember that in Australia, we have the second biggest homes in the world outside of America, so if you’re looking at that and you go “Europe have shoe-horned themselves into tiny spaces and the Japanese have done the same,” and then when you look here, this new urban density living that we do in cities with apartments and stuff is actually relatively new to us. It’s been a holiday home before, it’s been an investment property, but now we are going into our urban density as city dwellers more and more.
And because of that, the furniture market has responded to it by going “How has Europe dealt with that before?” And other big cities. And then they get clever about it: storage solutions, the way the pieces are made modular so that they can fit into lift-shafts, all of those things.
Kevin:  Yes, you have to bear all that in mind. I noticed, too, that wallpaper is making a bit of a comeback, and I’m really pleased about that because you can get so much feature into a wall with design and with color, can’t you?
Adrian:  Yes, I totally agree. Wallpaper has been a cold climate off the back of Europe and also Melbourne, Victoria, Tazzie, those kinds of places, and places like New Zealand. At one stage, it meant you didn’t have to finish the wall behind it, so it was cheaper for the plasterer. He’d just bang up a bit of plasterwork and then he’d put wallpaper over it.
And I think that mainly the trend has been off the back of the show The Block. Those guys are obviously working in New South Wales or in Victoria, and with that, what they tend to do is they’re using it as a feature thing. And even up here in Queensland where we tend to paint things white, there’s a big call for wallpaper. We’re using it more and more and more.
And when we’re designing a whole structure – not just a redesign or a remodel but if we’re designing a new home for somebody – then when we get through the actual design phase of the bones of the house, then we’re doing the interior, we’re going “Those walls need to be plastered for this and these walls need to be plastered for that,” and we’re featuring wallpaper in our design brief right from the time that we start drawing from the slab.
Kevin:  Yes. Now, the renovation that’s featured in Your Investment Property magazine – which, as I said, is out right now – your budget for that was $200,000 and the total spend was $220,000. Is that quite normal, the 10% over? Is that how you would do it?
Adrian:  I have a process that I developed over the years, which I call design magic, and I say, “Look, there are things that you’re going to be looking for that you want extra.” If you have a budget of $200,000, start out that you’re going to spend $180,000.
Kevin:  I was going to say $180,000, yes.
Adrian:  Bring your budget back, and once you’ve done that, then you have the opportunity to actually go “I have that extra piece.” I say to clients “You’re not going to keep that money; we’re still going to spend it. Don’t think that you’re going to the Bahamas; that money is actually going to get spent in here, but it’s going to be when you ask us for something extra.”
Our budget over-runs in that particular one was we spent an additional $24,000 removing the asbestos from the place. They came with a $200,000 budget, we trimmed it, and then we trimmed it back at the time to about $190,000.
And then I said to them, “Look, when this is being renovated, we have asbestos in these different areas, and I know that for you guys in particular, you had feared about how much asbestos is in it.” Now, we had asbestos ceilings, asbestos in most of the walls, and don’t forget in that case, we were actually doing a four-bedroom apartment as well, so a big apartment.
And so I got onto the guys and we got the builder to getting various different quotes. And our asbestos removal quotes ranged from about $40,000 to about $18,000. We went with the guys at about $24,000, so that was our biggest budget over-run, but it wasn’t actually something that we’d ever budgeted to do.
Kevin:  Just very quickly – we’re going to have to move – in removing asbestos, is it more expensive to do it in an apartment block than it would be on a single house?
Adrian:  Oh, yes.
Kevin:  Yes, I thought it might be.
Adrian:  There are a lot of complications, especially because by the time you’re doing an apartment block, you have to air monitor the whole space. We shorted out the entire building a couple of times with the amount of water that we were using, and you have to be water vac-ing it, everybody is going in and out through a sealed space, and there are guys sitting there with monitors. So, the cost of doing it over a regular house…
And also in a case like this, every ceiling was asbestos as a spray-on, so it had to be scraped off the ceilings and made damp for the guys in the space suits when they were bagging it and removing it from there. And asbestos removal costs have gone up considerably.
Kevin:  Yes, those asbestos ceilings, they were great in their time but horrific to rectify nowadays.
Adrian:  Yes, just awful.
Kevin:  Mate, great talking to you. Thank you so much for your time.
Adrian Ramsay has been my guest, he’s the CEO for Adrian Ramsay Design House, and you can read all about his renovation in the latest edition of Your Investment Property magazine, which is our right now. It’s the July issue. It comes out in June. I don’t know why they do that, but that’s what they do anyway, Adrian. They like to be one step ahead of us.
Adrian:  Get a jump on the month. Maybe they’re trying to get the profits in before the end of the financial year.
Kevin:  That’s a good idea. Mate, great talking to you. Thanks for your time, Adrian.
Adrian:  Awesome, Kevin. Thank you. Take care, mate.

Geeting the facts on finance – Cate Bakos

Kevin:  Joining me once again, Cate Bakos. Cate is a buyer’s agent out of Melbourne. A couple of weeks ago, we talked about the four incorrect assumptions that investors can make. I want to swing this across… Cate is back with me again.
Good morning, Cate.
Cate:  Good morning, Kevin.
Kevin:  I want to talk about finance now, because there are some finance misunderstandings that I’ve come across as well, and I’d love to get your tilt on these. People get equity confused with savings.
Cate:  Yes. This is a significant point, but it’s a really short and sharp point for me to make. There is a big difference. When you have equity available to you for investment purposes or for whatever, it’s really just an easier way than saving the old-fashioned way where you’re putting money aside until you have a substantial enough deposit. You can use that equity as a deposit, but the key thing is that you’re still borrowing it.
So, when people say “I have equity and I have $1 million borrowing capacity, so I have $1 million plus the equity,” the equity needs to form part of that borrowing capacity because they’re borrowing it, they’re not [1:02 inaudible]
Kevin:  Yes, very important. What about P&I as opposed to interest-only? Because P&I at a lower rate is sometimes thought to be better than interest-only at a higher rate. What’s your take on that?
Cate:  It’s a really topical discussion right now, because obviously, we’ve had a lending clampdown on interest-only that was instigated by APRA some time ago now. But a lot of people are asking me this question, and sometimes when we run the numbers, the P&I option might win. It really does depend on the differential, but there are critical things to bear in mind. You have to factor in your cashflow, obviously, and there are tax deductions to calculate.
Now, I never let tax deductibility be a reason to do something, but it’s definitely a benefit. So, when you’re deciding between interest-only lending or principal and interest, you have to be looking at what else that principal could be doing for you. And if you could offset it against a principal place of residence and achieve your goals that way and it still stacks up for you to do so, then the interest-only option might be the one to go for.
You also have to bear in mind how it impacts your future borrowing capacity, because interest-only will be for a period of time, and then when that fixed term lapses, you’ll then face the prospect of P&I over a shorter period, so your payments will be pushed up as well.
So, it does require sitting down and running the numbers, and if you’re unable to do so, you need to talk to your banker or broker about giving you that information so that you can see it for yourself.
Kevin:  Yes, I think it’s an important point that you actually discuss it with your banker or your broker, because everyone’s situation is different, isn’t it, Cate?
Cate:  It absolutely is, and future planning comes into it, where you might be with your income. There’s a lot to take into consideration, and it shouldn’t be taken lightly.
Kevin:  I want to deal with another one now, Cate. This is a big one, I think, and that is that past approval borrowing as a capacity and the conditions that apply to that approval don’t last long-term and they need to be renewed or reviewed, don’t they?
Cate:  Yes. This is one that I couldn’t agree harder on. We’re in a really turbulent time when we consider lending pre-approval and the rate of change in policy and how tough it is out there for a lot of borrowers.
So to assume that your borrowing capacity has lapsed but you’re in a safe place because your situation hasn’t changed is really naïve and really dangerous, because the lenders are changing their policy at quite a rapid rate, and for some people who did service a particular loan comfortably, they can go back to the lender and find that that amount has reduced because the lenders have really clamped down on all kinds of things, including discretionary spending, and they’re paying very careful attention to it.
Kevin:  Yes, and this applies very much to anyone who’s, say, bidding at an auction, as an example, or buying in any situation where you don’t have a finance clause. Another instance in here could be – and I’d love to talk to you about this – buying off the plan, because when you buy off the plan, it’s possible that you won’t be settling for anything up to a year, and with finance-only, that approval sitting in place for three months, it should be renewed before you go to settle.
Cate:  A really interesting point, Kevin, and it’s a frightening one when you think about it. Off-the-plan purchases can sometimes span for years, and you can look at sunset dates, but there is no pre-approval that will eclipse a sunset date that’s a year or two.
People need to have contingencies for all kinds of things, whether there’s market movement and the price drops, whether lending scrutiny continues and they find themselves unable to settle the purchase themselves. They really need to think carefully about plan B if they’re taking that risky step.
Kevin:  Yes, that’s a great topic, and we’ve demystified a few more of those finance misunderstandings for you. Cate Bakos has been my guest. Cate is a buyer’s agent out of Melbourne.
Cate, thanks again for your time.
Cate:  Thank you, Kevin.

Are FIRB figues a good guide? – George Chmiel

Kevin:  My next guest is Georg Chmiel. Georg is the director for I want to focus very much on the most recent Foreign Investment Review Board report, which covers the period up to the end of the financial year last year, the end of June. It shows a very clear picture about what’s happening with foreign investment in view of some of the recent changes that have occurred to investment in Australia.
Georg, were there any surprises in this report? Because it does actually reflect that investment may have just slowed down from China?
Georg:  There were a couple of surprises, especially in the reaction to the report by various media outlets. I was reading headlines like “China crackdown sees property investment fall by 65%,” referencing the study.
Now, first and foremost, the total investment into Australia has dropped from $250 billion to $200 billion. Of that, residential property is a small share. So, all the other investments stayed pretty stable – so investment in non-real estate and investment in commercial real estate.
When it comes to residential, we are talking about approvals. We’re not talking about actual purchases that the report covers. And there was a fee introduced for lodging an application to obtain FIRB approval. And this has actually distorted the result, because people in the past lodged multiple applications for approval – the same person multiple applications – and with the fee, that has slowed down.
So, even the FIRB says – and I quote from the report – “This suggests that the resulting reduction in approval may not imply a corresponding reduction in actual investment in residential real estate.”
So, long story short, on the one side, we have the press who obviously say China is slowing down its investment into Australia. On the other side, there’s actually far more to this story. Yes, there have been capital controls put in place on the Chinese side to streamline the investments overseas. However, this hasn’t really slowed down overseas investments.
The second bit is that there have been some factors being put in place – like stamp duty increases, certain regulations on the side of Australia – and that has led to a certain change in terms of the investment pattern. But I would not want to say that there is a dramatic drop in purchases.
Kevin:  Yes, and we’d hope that wouldn’t be the case, because if we look a little deeper into the figures, about 88% of investment approvals in residential property are actually for new development, and we need new development. We need increased housing stock. We’re not even meeting the current demands, Georg.
Georg:  I completely agree. The ultimate aim of everyone living in Australia is to live the Australian dream – to own a home, be it an apartment or a house. This is for the people in Australia. The focus for foreign investors is only on the new properties.
There were certain legislation introduced that actually make complete sense. One is a cap for foreigners to invest into a property to 50%. So, 50% of the units in an apartment block can go to foreigners. Why is this important? It’s very important for people coming to the country – I migrated myself – to get integrated. Not live in isolation in a foreign community but become a real Australian.
The second bit of legislation that was introduced was around vacancy, a penalty for leaving properties vacant. Again, this makes perfect sense. And the last one is I think it’s very important to get these foreign investments into Australia because there’s also additional investment and infrastructure investment following, and that actually helps everyone, the foreigners as well as the locals.
Kevin:  Georg, just turning our focus to commercial property for a moment, I noticed that commercial real estate investment dropped by just a touch over 10%, from $50 billion down to $44 billion. How much of that has to do with the new China-Australia free trade agreement?
Georg:  There might be a link to it, but I don’t have any data to say it has a lot to do with it. There could be many factors. There are always variations from year to year, so the investment in service assets has more than doubled, the investment in mineral exploration has come down by roughly 40%. So, there are year-on-year changes.
I think that the big trend is pretty stable in commercial investments, but the key determining factor was really the big variation in residential real estate, which got everybody a bit excited.
Kevin:  I notice in that free trade agreement that Chinese investors no longer need to request investment approval before purchasing developed commercial property worth less than just a touch over $1 billion. I just wondered whether that had something to do with it.
Georg:  It probably would have something to do with it, but there wasn’t much context given.
Kevin:  So, what does the future hold? What sort of properties are Chinese investors looking for? What are you seeing through Juwai?
Georg:  It depends a bit on the usage. There’s the education segment. Obviously, that targets predominantly the apartment market. There’s a certain retirement segment, which is more towards apartments and also detached houses or townhouse categories, and there’s the investment segment, which goes across apartments as well as houses.
Most of the new building approvals and the big growth in the building approvals has been in the apartments. And even Australians are preferring more and more apartments. It swung back a bit to landed properties a couple of years ago, and it seems to go back because the type of apartments are getting far more sophisticated, far more luxurious, and so on, and they’re hassle-free for people who want to downsize.
Kevin:  It’s always interesting to follow it, Georg, and I appreciate you giving us that update. Georg Chmiel has been my guest. Georg is the director of Juwai, which is the number one Chinese international real estate website.
Georg, thank you so much for your time.
Georg:  Thank you, Kevin.

Borrowers wise up to the banks – Siobhan Hayden

Kevin:  With so much talk about what’s happened through the Royal Commission with the banks, many people are wondering how they can go about getting a better home loan. What’s their relationship with the bank? What’s it going to be like going forward? Joining me to talk about this is Siobhan Hayden. Siobhan is the CEO of HashChing.
Siobhan, thanks again for your time.
Siobhan:  Thanks for having me, Kevin. Nice to chat.
Kevin:  There have been some revelations coming out of the Royal Commission, haven’t there? People are very concerned about what the banks have done.
Siobhan:  Definitely. I suppose it’s quite disappointing to see such large institutions that people have traditionally put a lot of trust in really breaking that trust.
Kevin:  Do you think that’s irreparable, or is it going to drive more people to not be as loyal to their bank? Because there has been a lot of loyalty in the past.
Siobhan:  I think you definitely have the traditional view of loyalty to big banks, but that is costing people a lot of money. That loyalty is sometimes misplaced. And I think we’re also seeing an emergence in the last five to ten years – with the advent of social media and phones and consumers’ voices – that consumers do put themselves at the middle of a transaction far more than we ever did, and we care more about how we’re treated and what services were offered.
So, I think we’re getting more and more groundswell of consumers wanting to get a better outcome for themselves and think that they should be able to do that.
Kevin:  Is it driving change? Are there more people who are actually getting proactive about shopping around for a better loan?
Siobhan:  We’re definitely seeing it. The cash rate, as you know, in August of 2016 was sitting at 1.5%. It hasn’t changed in that time, but what customers have been seeing is basically out-of-term rate hikes on their existing variable rates, whereas new customers are being offered enticing interest rates to come and join the bank.
So, we’re seeing a trend, particularly with customers… Over 25% of our customers are on rates less than 3.7%. Whereas a year ago, 4% was enticing, now it’s getting even better.
Kevin:  It’s an interesting view that because the rate hasn’t changed from the RBA, most people think “Oh, the rate that I have now is probably the best rate I can get,” when in fact, as you just said, many of the banks are offering much better rates to newer customers.
Siobhan:  That’s right. Look, there are two real options: customers can get on the phone and talk to their bank, and I would recommend they do that. Not always do we have the right terminology to demonstrate we’re quite committed to changing banks, so if you can’t talk to your broker to negotiate a better rate, or of course, look at the option of refinancing.
Kevin:  What sort of language should you use with the bank when you’re talking to them?
Siobhan:  Definitely talking about what rates are available in the market – so, you need to know what other options are there – that you’ve been offered a great rate already by an alternative bank, and that you’re willing to move today or tomorrow if you don’t get some relief on the current existing rate that you’re repaying.
Asking for a mortgage discharge form is always a good way to say that you’re willing and prepared to move.
Kevin:  What’s a mortgage discharge form?
Siobhan:  It’s a form to say that you’d like to discharge your mortgage to obviously refinance a move to a new bank.
Kevin:  That would be a trigger for them, then they’d want to know where you’re going and what you’re doing?
Siobhan:  Yes, and they would also be aware that you’ve spoken to another bank that has asked you to get a mortgage discharge form for you to then move to them.
So, I think you need to be a bit fore-armed. We look at our health plan every 12 months; I think looking at your home loan rate every 24 months makes good sense. It doesn’t mean you need to do anything or move or refinance, but it does mean you know you’re in a good position.
Kevin:  For those uncomfortable with being that confrontational with the bank– and there would be many people like that – the alternative is a broker, HashChing as an example.
Siobhan:  We’re an absolute broker advocate, and brokers are supporting customers nearly 60% of the time around Australia with new residential lending. So, definitely partner with a broker.
Obviously, we have great broker partners at HashChing, both rated and reviewed, so customers can definitely come to us and find a local broker in their area.
But definitely get the professional to lift a phone and do that work for you.
Kevin:  Tell me how HashChing works.
Siobhan:  HashChing allows customers to come to our site. They can look at the options on deals that we have, which are all broker-introduced home loan deals. And once they’ve added their basic information and their mobile number and what they’re looking to do, we instantly partner them with a local broker in their area that they can then have personalized service to complete the transaction.
Kevin:  As I said, for those who are uncomfortable and want to stay at that arm’s length, if they were to do that, is that going to affect their credit rating?
Siobhan:  No. The broker working with you will first look at your financial aspirations and goals, work out where you’re at currently with your income, expenses, and your current repayments, and then ensure that you are moving to something that will make it a better outcome for you and your family.
It doesn’t necessarily mean you’re going to refinance, but it does mean that you’ll get a bit of a mental health check that you’re actually in a good position.
Kevin:  Because if I were to shop around and maybe go to one of the other banks, the moment I make an application or an inquiry with them, that is recorded on my credit file, isn’t it?
Siobhan:  It definitely is if you make a formal application. A number of ours are actually committed to doing the research firstly. So, you need to know before you make the application that you are moving to something that will be better for you and your family financially down the track.
Kevin:  That is very much why so many people are now using brokers, because you don’t have to make that commitment there across all those home loans and can give you that advantage, can’t they?
Siobhan:  Absolutely. It’s not uncommon to see a customer who comes to HashChing and says “My bank said I couldn’t borrow.” So, they think because one bank has said no, every bank will say no. That’s completely not correct.
And brokers are well positioned across nearly 30 different lenders to provide a good review of the market and what is actually possible for that particular customer.
Kevin:  Yes. HashChing, we’ll put a link inside this interview so that you can get to them. Siobhan Hayden is the CEO for HashChing. She’s been my guest.
Siobhan, thanks very much for your time.
Siobhan:  Thanks for having me, Kevin. Have a great day.

Why chasing hotspots is not smart – Veronica Morgan

Kevin:  One of the most common questions I’m asked is about location. “What’s the best location? How do you find a good one?” Well, there’s no one better to ask than someone who hosted a show called Location, Location, Location Australia. I’m talking about Veronica Morgan. She joins me.
Good day, Veronica.
Veronica:  Hello, Kevin. How are you?
Kevin:  Wonderful. It’s great to be talking to you again. If anyone knows about location, it has to be you.
Veronica:  You’d think so, wouldn’t you?
Kevin:  You’d hope so. How do you go about choosing a good suburb?
Veronica:  Very good question, and it is the question that everybody seems to want to know the answer to. So, as is typical with any question that I answer, there’s no short answer. We first start by saying “Well, are you an investor or an owner-occupier?” Now, investors and owner-occupiers often make very different decisions about where they want to buy, but obviously, an investor isn’t as wedded to an area that is suiting their particular needs or their particular lifestyle requirements.
But the question that everyone wants to know is where’s the next hotspot?  And that is the big area of danger that I find. In fact, interestingly, lately I’ve been doing a lot of research into various data sources and various advisory services trying to help people predict what’s going to be the next hot spot, what’s going to be the next area or location to move within the next, say, 12 to 18 months, and all I can say is that I absolutely get very alarmed by the drive for this sort of information because I like to avoid risk.
Whenever I’m talking to somebody about choosing a good location, I say let’s think about the long game. Let’s really try to get out of this hotspot type of mentality, this idea that “I want immediate growth.” Let’s look for areas in which we’re going to have sustained, consistent growth.
Because the thing is that a flipper, for instance, they need to get their timing spot on and they also need to know those areas where there’s going to be a rapid rise in the short term, but most of us aren’t flippers.
Therefore, the first thing that I talk about is I want people to really understand that there is an enormous amount of risk in chasing short-term gains in property.
Kevin:  And like you, I’ve followed a lot of the people who do make these predictions, and it’s a bit like throwing a dart at a dartboard in some cases because they don’t always hit the bullseye, do they?
Veronica:  No, and who’s bearing the brunt of that? Who’s actually suffering from that? It’s the people who follow their advice, not them.
Kevin:  That’s right. What other things would you recommend?
Veronica:  Really, where you buy determines when you buy. Where I’m coming from there is that when you’re buying in areas that are subject to or sensitive to property cycles… And we also have to understand that the whole of Australia doesn’t follow one cycle. So, you have to understand the local dynamics for starters, but where you buy determines when you buy.
So, if you’re buying in a very cyclical market… Say Perth, for instance. The analysts are saying that Perth finally hit the bottom. Well, that’s the trough, one very long downward trend. Obviously, if you’re going to buy in an area that goes down and then it holds a bit and then it goes up again, when you buy is critical to actually making money as an investor.
Whereas if you buy in a blue-chip area, they don’t have cycles in quite the same way. Obviously, the safest – and as a result, the most expensive – blue-chip areas are those inner suburbs of Sydney and Melbourne, because their growth cycle over time – or the pattern, if you like – doesn’t have the same look to it of peaks and troughs. What it does is it tends to flatten off in slow periods, and then it’ll grow again and then it’ll flatten off.
So, understanding the actual underlying historical trends, getting into the data, and looking at the past and saying “Well, how much of that past is likely to replicate itself in the future?” And that comes down to what’s underpinning that market.
So, in a cyclical market, there are usually big things that drive it – like in Perth, for instance, where it’s mining – that might have very little to do with the actual individual houses, but it impacts on people’s earning potential, it impacts on population, and it impacts all those big things that really underpin a market.
Whereas in Sydney and Melbourne you have large populations, high incomes, high employment, and all those lifestyle markers that underpin a solid market.
Kevin:  In summary, Veronica, your top three tips for picking a good location.
Veronica:  Okay. I think the first pick is that if you’re looking at an affordable location purely because you can’t afford a less risky location, then you have to question whether you should be investing in property at all.
The second tip is when you’re looking at a blue-chip location, however, it’s unfortunately going to cost you money on a monthly basis. Yield is a function of risk, and unfortunately these solid areas with very good foundations underpinning their long-term growth aren’t going to deliver the yield that a lot of people want. But they have to understand that yield equals risk.
And thirdly, not every property in these low-risk suburbs are low-risk properties. It’s really important that you drill down, because the finer detail and the real success of an investment is understanding the local dynamics and buying the type of property that locals want in the right price bracket and all those sorts of things. So, you have to really tap into that local understanding.
Kevin:  Yes, and just those three points alone, Veronica, summarize beautifully why it’s so difficult to pick a suburb and say that it’s the next hotspot, because they just vary so much, even street by street and property by property.
Veronica:  They do, absolutely.
Kevin:  Great talking to you. Veronica Morgan has been my guest. Veronica, thank you so much. If you want to reach out to Veronica, her website is
Thanks, Veronica.
Veronica:  Thank you.

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