Our annual property update – Simon Pressley

We asked Simon Pressley to give a mid-year report on the property market and in this update we look at each part of the country, what the stats show is happening and what is likely to be ahead.
Transcript:
Kevin:  At the end of the financial year as we kick into another financial year midway through this year, let’s have a look around Australia at what’s happening with the property markets? Our midyear market wrap with Simon Pressley from Propertyology.
Good day, Simon. How are you doing?
Simon:  Yes, really well, Kevin. The year is flying past.
Kevin:  Yes, isn’t it ever? Halfway through the year already. Incredible.
Let’s have a quick look around Australia. Do you want to pick, say, Sydney to start with?
Simon:  Yes. Over the last 12 months, it was just released in the last couple of days by CoreLogic, the dwelling value in greater Sydney has declined by 4.5%. I don’t think there would be too many people who would be greatly surprised by that. Whilst none of us like to see property markets declining, this sort of thing has probably been on the horizon for a couple of years in our big city.
There are parts of Sydney that have seen greater than that 4.5%, more between 7% and 8% where a combination of affordability or too much supply has had a bigger impact than the broader city.
Kevin:  It’s hardly a crash. Would you call it more a correction?
Simon:  You could call it a correction. I’m not totally easy with that word. It’s probably just more of a reflection of those who could afford to buy in Sydney had done so well before 2018, and there are very few buyers in Sydney who either can afford it or have the confidence to do so. That’s probably more of a reflection of what it is. But that’s creating some opportunities elsewhere.
Roughly 20,000 people left Sydney last year and migrated somewhere else, I’d suggest largely because of affordability. To date, Queensland has been the biggest beneficiary of that, but that doesn’t necessarily mean all of Brisbane. A large chunk of those 20,000 people leaving Sydney are seeking housing affordability also, which increases demand in places like South East Queensland.
Kevin:  Yes. We’ll deal with the regional markets separately, I think. Let’s take Brisbane as an example. South East Queensland, you’ve got the Gold Coast, Sunshine Coast as well. What’s your view on that in terms of what’s been going on, and where do you see it headed in the future?
Simon:  Yes, Brisbane… Most of the capital cities, actually, have had that 1% to 3% price growth over the last 12 months, which isn’t spectacular but is still heading in the right direction.
I think what investors need to be mindful of is each capital city has its own unique cycle. Sydney, Melbourne, and Canberra, their growth cycles are finished. Canberra hasn’t declined but its growth cycle is certainly over, and Melbourne has started to decline. Hobart is well and truly in the middle of its cycle; it’s been well publicized how well that market has done. But the other cities, Kevin, are yet to commence their growth cycle.
Perth appears to be stabilizing. Darwin has some horrendous problems there. We might get back on the show and talk about that at a later date, but it’s in all sorts of trouble. Adelaide and Brisbane, their growth cycle hasn’t commenced. I’d love to say that those two are going to boom. I don’t feel that way. But the positive thing is the growth cycles are ahead of us. It’s not doom and gloom everywhere.
Kevin:  You’re talking there about Brisbane. What about Gold Coast and Sunshine Coast while we’re staying in South East Queensland?
Simon:  Both Gold Coast and Sunshine Coast have actually performed better over the last four or five years than Queensland’s capital city, and that’s a direct reflection of their economy. There have been more infrastructure projects on both coasts. Part of the Gold Coast infrastructure projects have been related to the Commonwealth Games. There are no Commonwealth Games in the Sunshine Coast, but there just are more projects and it’s probably done a little bit more to promote its tourism than what Brisbane has.
I think that both the Coasts, their outlook is still healthy without being spectacular. I don’t foresee a boom on the horizon anywhere in South East Queensland. That’s not to say it doesn’t have really good fundamentals; a boom could happen, but booms happen for a reason, and the reasons that cause a boom aren’t evident at the moment.
Kevin:  The Melbourne market, we’ll skip down there. That’s still a very healthy market and predicted to be the biggest market in Australia.
Simon:  It is definitely a really big market. We’ve now had, however, seven consecutive months of price declines in Melbourne. They’re mild declines, so again, we’re not talking crash, it’s not doom and gloom, but it’s running out of steam.
And I think it’s important for someone looking to invest to recognize that when a growth cycle ends, it’s usually several years before the next growth cycle starts. So, if you’re an investor, always appreciate that Australia is a massive country, it’s always a good time to invest; the question is not when but where. And it’s never a good time, I feel, to invest in a market when a growth cycle has just finished, because you could be sitting on an asset that remains flat for many years.
Kevin:  You mentioned Darwin – and that is subject for another conversation, I guess – and Perth. It’s good to see Perth starting to emerge.
What about Adelaide? How do you feel about it?
Simon:  Look, Adelaide has always been that quiet market that never gets a lot of attention but it just chugs along and consistently does okay, doesn’t it? I can’t recall the last time Adelaide had a significant period of property price declines, and you have to go back a long way when Adelaide had a really strong couple of years as well. But it’s a very stable market.
We know that earlier this year, there was a change of government. I think it was 15 or 16 years or something that south Australia had the one state government. So, Adelaide is a “watch” for us. We have no reason that its continued mild price growth won’t continue for some time. Whether that actually gains pace, a lot is going to depend on some initiatives of the new state government.
Kevin:  What about some of the regions? I know you and I have spoken many times about how strong some of those regional markets are when you compare them with, say, the cap city markets. And it was an interesting conversation you and I had in a recent video where you looked at greater Sydney compared to, say, Ararat in Victoria.
Some of those regional areas are really quite healthy in terms of growth and return.
Simon:  Absolutely, there are. The regions will never get the positive attention that they deserve. Unfortunately, the only time the broader property media tend to talk about a regional market is when it has performed poorly. But there are a lot more city councils in regional Australia than there are in capital city markets.
If you’re looking to invest in 2018 or 2019, I’d suggest you take your focus away from all eight capital cities and start to understand the fundamentals of each of the regional markets. That doesn’t mean that every regional market is a good one, but it never means that every capital city is a good one either, does it, Kevin?
Kevin:  No, it doesn’t. That’s right.
Simon:  Learn the fundamentals. The affordability is the most exciting thing. Regional markets have always been affordable, so just picking it because it’s affordable doesn’t necessarily mean it’s a good decision. But develop an understanding of the individual economic profile of all those regional locations, and then you’ll get a greater appreciation of the wonderful opportunities.
We’ve been active in a number of regional markets, helping our investors for a good few years now. We anticipated that there will be a period of time when capital cities broadly will be underwhelming, and we’re here now.
Kevin:  Let’s move away from the markets and talk about some of the influences on the market. APRA has played a big part in that, and the economy as well, Simon.
Simon:  It has, and I’m not going to shy away from it; I’ve become increasingly angry with APRA. I know it’s well intended. It’s a reaction to some concerns that legislators had about Australia’s most expensive market and the big mortgages in Sydney. So, it was well intended but poorly executed. The changes affect the whole of Australia at a time when large parts of Australia actually needed a bit of a hand up. Instead, they got a big piece of four-by-two whacked around the ears.
If people around Australia other than Sydney and Melbourne have been saying for a few years “Where’s my growth? When are we going to get it?” well, the APRA intervention certainly did nothing to help that.
Well intended, but at the end of the day, money makes the world go around. Whether it’s the salaries that we earn or the money that we borrow, one way or the other, it still gets spent, and it’s that spending that creates confidence, creates jobs, creates wage growth. So, when you really tighten credit, the wage growth that we want, it’ll have the opposite effect in my opinion.
Investors need to be aware banks are still approving loans, though. They are profit-making machines, the biggest profit-making machines of all companies on the ASX and will always be that way. So, they want to lend money.
It just means if you are motivated and proactive about your financial future and you want to invest, instead of giving five or six bits of paper, you might need to give 15 or 16 bits of paper. But if you’re creditworthy, you will be approved.
Kevin:  Yes. Simon, a very interesting wrap there on the national property market. The takeaway for me was a comment you made earlier in this interview about the opportunities to invest in property. It’s not so much when but actually where you should be investing.
Simon:  Yes. Australia is an extremely diverse country. There are always opportunities. The world’s most famous investor Warren Buffet has many good quotes. One of them is “A time to be fearful is when everyone else is greedy, and the time to be greedy is when everyone else is fearful.”
So, here and now when there’s a lot of doom and gloom in the property media – that’s mostly on the back of what’s happening in Sydney and Melbourne – it’s actually the best time to be investing. It’s not the timing; it’s the location. Get that right and take advantage.
Kevin:  Yes, a great message. Thank you. Simon Pressley from Propertyology. Thanks again for your time.
Simon:  Thanks, Kevin.

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