Last week in the show I carried an interview with Shane Oliver from AMP with some dire predictions about the Australian property market. Well almost immediately I received a stinging email from Simon Pressley at Brisbane based Propertyology and this week we give him the right of reply.
Kevin: Last week in the show, I carried an interview with Shane Oliver from AMP with some dire predictions about the Australian property market.
Almost immediately, I received this stinging comment from Simon Pressley in Brisbane-based Propertyology. I quote: “If there’s one thing which really irks me most about property markets, it’s the long list of headline-chasing commentators who, each time they come to the public with a property opinion piece, do little more than demonstrate their limited knowledge on the complexities of the property markets.” Wow.
He joins me. Simon Pressley, you’re a bit fired up about this, aren’t you?
Simon: I certainly am, Kevin. Look, fired up – it’s not personal. I’m passionate about property. I’m very confident about property. It’s my business, but I do get fired up when we get broad-brush statements from generalizers about a very specific component of the economy.
Kevin: Well, you’re not the only one. In fact, my phone went crazy after we carried that piece and also what followed on with Macquarie Bank and so on.
Simon, do you think the problem is that some commentators, and even investors, look at the property market as they would the share market?
Simon: I think that’s probably where it stems from. They’re not necessarily doing that consciously, but share markets behave a lot differently to property markets. A lot of the things that influence share markets also influence property markets, but we don’t see a property value decline by 10% in two hours as a stock in a company could.
I think that too often the generalizers – and I say this respectfully, economists are generalizers – are implying that Australia is one big property market. Now, there are 550 independent local government bodies within this country. That’s the equivalent of 550 different stocks on the stock exchange.
Kevin: Gee, it makes it very confusing, though, doesn’t it, for investors? How can we really work out what’s happening when we get so much conflicting comment?
Simon: For someone who’s reading something, or watching the news, or reading a magazine, first, as an independent consumer, ask yourself what’s the motive and what are the qualifications behind the person who’s releasing this information? Do they have a vested interest?
Economists don’t have a vested interest, but are they specialists in the topic they’re talking about? If they’re talking about Australia’s broader economy, yes. If they’re talking about a specific segment of the economy, such as the property economy, are they specialists in that? No more than the GP would be a specialist as a heart surgeon. They are different.
Kevin: Let’s get down to a few specifics, though, if we could. Is an easing population growth rate a cause for concern?
Simon: If it’s a significant decline in population, yes, but that’s not what the latest data has indicated. The latest data shows Australia’s population growth rate of 1.4% over the last 12 months. That is slightly lower than the 1.5% national average over the last ten years, so it’s easing, but it’s nothing dramatic.
If we had a national property index, one might form the argument, as an economist would, that property values broadly might ease, but Sydney and Melbourne, for example, their population growth rates have increased. When we talk about that on a national level, that doesn’t mean that every town or city has declined.
Kevin: Are we at risk of oversupply? That’s been indicated. In other words, supply outstripping demand. Is that a concern?
Simon: We’ve been saying for about two years that we are in a construction boom. The mining construction boom, as that eased off, the residential construction boom picked up. Again, there are some cities that will suffer for a couple of years of oversupply and there are others where supply is quite normal.
Australia’s three biggest cities – Sydney, Melbourne, and Brisbane – do have some concerns at different levels about oversupply for the next couple of years, but there are other cities where supply is quite normal.
Kevin: Simon, what are the critical factors that we should consider when we’re looking at the market overall? How important are employment and household incomes? Do they really give us a bit of a clue about an area?
Simon: As a market analyst, I don’t place a heck of a lot of relevance on household incomes because which household are we talking about out of the 9.6 million households in this country?
Employment is certainly a significant factor, and there will always be some cities that are creating fantastic levels of jobs and others that are not attracting, depending on the industries that drive each of these individual economies.
But something that an investor can and should do is understand the different industries that drive each city and what’s the outlook for each of those industries? If you really want to understand property markets, you need to understand local economies.
Kevin: The bottom line, though, I guess, is that if you’re going to invest in anything like property, you really have to do your homework, cut your way through all the commentary and really work it out for yourself, Simon. There are no shortcuts, are there?
Simon: There are no shortcuts, and it’s important for anyone who is ever looking to invest to recognize that property markets are extremely complex, just as complex as share markets are. A lot of people who invest in property say, “I’m doing this because I don’t understand share markets.” I’d put it to those same people that you actually don’t understand property markets. You might understand your neighborhood, but that’s not understanding the markets.
Kevin: Yes, great advice from Propertyology’s Simon Pressley.
Simon, always great talking to you, mate. Thank you. Keep up the passion. I love it. Talk to you again soon.
Simon: Thank you, Kevin. Have a great day.