Learn from Sydney’s checkered past – Simon Pressley

Sydney’s property market has had peaks and troughs before, with the latest price downturn a sign the nation’s biggest capital city isn’t ‘safe as houses’.  We discuss research and analysis of Sydney’s property market history over the past 30 years to reveal a story of three booms, four downturns, and findings that are quite contrary to popular opinion.  Simon Pressley has the details.
Kevin:   Well, no one would certainly argue with the fact that the Sydney market has really taken us on a bit of a rollercoaster ride. It’s interesting to look back. Over the last 30 years, what are some of the lessons we’ve learned from the Sydney market, in particular, that we can probably take out and learn about what might happen in other markets around the world, around Australia? Joining me to talk about that, Simon Pressley from Propertyology.
Kevin:   Hello again, Simon.
Simon:   Hello, Kevin.
Kevin:   I know you’ve been looking at this. Quite fascinating. You’ve come up with eight key learnings out of looking at what’s happened in Sydney over the last 30 years. Walk us through those, Simon.
Simon:   Yeah. Our first thing we know is that the median house price in Sydney 30 years ago was $155,000.
Kevin:   Oh, goodness.
Simon:   Today it’s about $900,000. That’s enormous growth, isn’t it? With Sydney having such a significant downturn, it’s probably worth reminding ourselves, perhaps, where that phrase safe as houses comes from. 155,000 to 900,000 is spectacular growth We could talk about any location in Australia as a case study and there would be a similar amount of growth. So that’s one key thing.
Kevin:   Yeah. Just on that point. It just shows this baby boomer generation that’s coming through, they’re the ones who’ve actually had that wealth. Because if you look at someone 30 years ago who purchased a property in Sydney for the median then of 150-odd or whatever you said, they’ve now got huge equity. Even if they didn’t ever pay down that loan. They’ve still got a huge amount of equity.
Simon:   Yeah. The same benefits will be applicable, to you know, to Gen Xers, and Gen Ys, and Gen whatever else. The key learning from that is get in the game quickly and benefit, over time, from compounding. I’ve got no doubt that 30 years from now we’ll be talking … Every location in Australia will be worth five, maybe 10, times more than what it was when you bought that property.
Kevin:   Yeah. Don’t wait for the market to crash, just get in.
Simon:   No you won’t.. Yeah, absolutely.
Kevin:   Okay. Number two?
Simon:   Number two is downturns and booms. Over the 30 years, Sydney had two genuine booms. 1999 to 2004. Now that period there, just as Australia brought in GST and a few other big economic reforms, that’s the most prosperous period in Australian history. Sydney certainly didn’t miss out on that, either. Really, really big boom. Biggest boom ever, ’99 to 2004.
Simon:   The only other boom it had was the one just finished that started at the end of 2012 and finished mid-2017. There was a one year boom in there, 2010, for those that can recall. That was the stimulus package in the response to the GFC. So, 30 years. Two and a bit booms over 30 years. Four downturns either side of the booms, including the downturn that it’s in now.
Simon:   Now, whether we talk about Sydney or any location in Australia, it’s important that people are mindful that property booms do not come around very often. Downturns … the downturn that Sydney is in now, median house price is back to sort of early 2016 values today, so we’ve gone back three years on the median house price in this current downturn. Number of people are forecasting that Sydney might experience up to 10% price declines in 2019 calendar year, as it did last year. If it did that, Sydney values would be back to early 2015 values by the end of 2019.
Kevin:   Highlights the fact that it’s a long-term play, isn’t it?
Simon:   It does. What we’ve heard a lot, and it’s a valid point, is, “Oh, yeah. Sydney’s lost about 15% value so far in the downturn, but it grew by 70 beforehand.” True. That’s relevant to those who already owned a property in Sydney before the growth started. If you bought one of those properties in, say, 2015, ’16, or ’17, it’s going to be a different equation, isn’t it? There’s actually been 250,000 properties transacted in Sydney over the last three years, 250,000. That’s equivalent to all of Canberra and all of Hobart combined, so a lot of dwellings. All of those 250,000 dwellings over that three-year period of time are, in some cases, worth the same, in most cases are worth quite a bit less than what they paid for.
Kevin:   Well, thank you for that reality check. What’s the next one?
Simon:   The next one is population growth. The last two years of population data from ABS, are officially the two strongest years for population growth in Sydney’s history. But it’s also on the back of a massive downturn. We’ve spoken before about population growth does have some influence on property prices, but it is by no means the biggest influence on property prices.
Simon:   Now, we said that during the Sydney boom, and no one wanted to listen, because prices were going up. Like, “Oh, no, no. It’s all this population stuff that’s causing it.” Well, the population growth is still just as strong now as what it was during the boom, but property prices are going backwards.
Simon:   Supply is part of that, and probably a really valuable lesson for people to understand the importance of monitoring building approvals. They’re leading indicators for what amount of supply will hit a market in in coming years.
Simon:   Another key learning is infrastructure. Like population growth, it does have an influence on property prices, but it is no gold brick to property markets. It’s not as easy as saying they’re building a hospital, you know, that location’s going to boom. The infrastructure investment in Sydney today has never been stronger. Never been stronger, but yet the market’s in a downturn. So infrastructure’s important, but it needs to be looked at in the context of all other fundamentals of a property market.
Kevin:   I might have lost track. Where are we up to now?
Simon:   Growth cycles.
Kevin:   Yep.
Simon:   Growth cycles is another key thing. There’s only been two booms in 30 years, and that’s pretty much the same in every location in Australia. So what’s important there for anyone looking invest in property, don’t buy when a market’s been booming for a couple years. We talk about that a lot, but in practise, do people actually do that? I’d argue not. But they wait till there’s been a couple of years of strong growth, and then jump in. Just have some empathy for those who did that in Sydney in, say, 2016, and how they might be feeling now.
Simon:   It’s better to be into a market a couple of years too early, than to get into it when the growth cycle has already been going strong for a period of time.
Kevin:   Just on that point, do you think it’s that too many people think too short-term? Like we said already in this interview, all these points are pointing to the fact that this is a long-term situation if you’re into property investment.
Simon:   I think they get caught up too much in the moment, whether it’s a boom or a downturn. Right now, because Sydney and Melbourne are in a downturn, there’ll be a lot of people just can’t get past thinking about the doom and gloom. Downturns are usually very, very short-lived. But, booms, we know … Again, looking from the evidence, booms usually last between two and four years, and they don’t come around often. So when they do come around, to benefit from that boom, you need to be in the market before it starts.
Simon:   The key to doing that is to start looking at locations that haven’t had a boom for a long, long period of time. That doesn’t mean they’re necessarily going to have one next year, but you’d be better doing that … buying in a market that hasn’t had a boom for a long time … than jumping into one that’s booming now. If you get into a market that hasn’t boomed for a long period of time, well, when that boom does occur, you will get 100% of whatever that cycle produces.
Kevin:   And next?
Simon:   Next thing is big is not better. Just because Sydney’s the biggest city, Melbourne’s the second biggest city … We can go back as far as, property data will take us. It doesn’t make it the best performed property market. We know that Sydney’s had many really strong years, and many really poor years, and lots of very average years. We can say the same about every single market in Australia. It’s where you buy and when you buy in those markets that’s important. Don’t allow the population mass to dictate your decision as to where you should or shouldn’t invest in.
Kevin:   Yeah. Don’t follow the herd. That’s a message. I mean, it’s so easy to just go to where everyone’s talking about the success, which was Sydney. But once again, we’ve got to highlight the fact of what you pointed out several years ago, and that is the growth in Hobart.
Simon:   Hobart and many parts of regional Australia. In this report we’re producing, Kevin, one of the charts that’s in there shows the performance of the eight capital cities over this massive few decades. It also shows how that compares to a dozen or so non-capital city locations. There’s some of those non-capital city locations has performed better than all the capital cities. But the key is, is they’ve all done different things at different times. They’ve all grown significantly over the 30-year period. That’s the key thing. Capital city is just a term. It doesn’t imply any better capital growth. It’s where you buy and when you buy that’s important.
Kevin:   Well, according to my counting, we’ve probably got a couple more to go. Gee, this is really very telling stuff, Simon. Thanks for sharing. This is Simon Pressley from Propertyology. What’s next, Simon?
Simon:   The second last thing is cash is king. There are a lot of people, so given we’re using Sydney’s case study, there’s a lot of people at the moment that are feeling somewhat uncomfortable, partly because of the asset value itself losing value. But also because of what’s happening with the cash flow. There are large parts of Sydney where the basic annual cost for an investor to hold a property is somewhere between 20 and $40,000. We’re not talking luxury homes. We’re just talking basic dwellings in our most expensive city.
Simon:   Markets can swing quickly, and we’ve seen that here. Personal budgets can swing quickly, as well. If something happens to your personal income and you’re having to fork out a lot of money on that one asset, sometimes you’ve only got one thing to do, and that is to sell. No one likes selling in a downturn, so always respect the cash flow.
Simon:   Our last thing is not having all your eggs in one basket. Again, we sort of cautioned people during the Sydney boom, “Why would you put so much money into one expensive asset when you can break that up into smaller components? Multiple assets across multiple states.” You’ll not only get better cash flow, better for your household budget, but you got exposure in multiple markets, which means taking advantage of more opportunities. If there is a downturn, the odds of it happening in three completely different cities at the same time is very, very low.
Kevin:   Gee, some great points in there. Simon Pressley with the learnings that he’s picked up from analysing what’s happened in the Sydney market over the last 30 years. Some great input there. Simon Pressley from Propertyology. That’s for your time, mate.
Simon:   My pleasure.

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