Patience is a virtue especially if you want to buy property next year. Patrick Bright has some advice about what he sees will be the trends next year and where he will be investing.
Kevin: The advice coming from Patrick Bright at EPS Property Search is that if you are an investor looking to get into the market next year, be patient; take your time; do your research.
Good day, Patrick. How are you doing?
Patrick: Well. Thanks, Kevin.
Kevin: Do you think people are going to jump in a bit too much? Are they getting a bit over their researching do you think, Patrick?
Patrick: That’s what I’ve been noticing a lot lately. People are frustrated. They’re over-looking. People do make what I call the fed-up purchase, and that’s going to end up being probably a suboptimal purchase because they’ve been looking for a while, the market’s tight on stock, they’re missing out a lot, and that increases the chances of an impatient buy.
Kevin: What makes a suboptimal purchase, Patrick?
Patrick: I think something that’s really not going to meet the brief. They start making compromises. They can’t get what they want. They keep getting outbid. You have to stick to your guns. That’s the important thing. Once you set criteria, you need to find that sort of property and obviously buy it at the right money to make the whole thing work.
I think another thing that’s going to become a bit of a challenge for people is financing. The banks are going to be tightening up on investor lending, and I think that’s going to be a bit more of a challenge. They’ve been doing that slowly. They’re looking for more owner-occupiers.
Finding a market to invest in: where do we go in 2017? Where are things heading? Who to trust? I think that’s becoming harder and harder.
Kevin: It’s interesting to hear you talk about the banks cutting back on investor lending. I read the other day that ANZ bank had pulled back on their book for investors by about $2 billion. That’s a big adjustment. Is that an indication that they’re a bit concerned about the property market do you think, Patrick?
Patrick: I think it’s just them rebalancing their books as having a decent amount of owner-occupier loans versus investor loans. I think that’s because of the APRA changes that started a couple years ago and all the banks have been having to head that direction.
Kevin: What are the big opportunities you see for investors? What advice would you have for those wanting to get into the market in 2017?
Patrick: I think the start is don’t be influenced. I’m seeing a little bit of a resurgence of the celebrity endorsement or the sporting star endorsement. Spruikers use them all the time and they pay them tens of thousands of dollars to get their face on a project. Don’t be influenced by that. That’s something pretty important to know.
Other opportunities: I think people need to decide what sort of an investor they are. Are they a speculator or an investor? I think a lot of people actually think they’re investing but they’re really speculating. For example, buying off the plan is clearly speculation. It’s not investing. So you need to decide what your risk profile is and whether that’s something that you want to do.
There are always opportunities out there. You need to narrow that down, work out what your budget is, and then work out what market you can play in. If you work out your risk tolerance – do I want to be an investor or a speculator? What price point can I play in with my investments?
Kevin: You mentioned earlier there about that frustration of going to auctions and being outbid. I know that’s been something we’ve heard a lot about, particularly in that Sydney market. What’s on average the number of properties that you’re finding people have to either get involved in or start to negotiate with before they can actually secure one, Patrick?
Patrick: I’m hearing from people; some people are telling me that they’ve been to half a dozen or more before they’ve secured something. I personally normally probably buy around about a third of what I would go to auction on roughly over the years, but I think over the last 12 or 18 months, it’s been closer to probably 20%.
It’s just gotten tighter because the stock’s tighter and people are bidding it up. We go with a well-researched, sensible limit, and we either buy at our limit or we don’t. So if people are prepared to pay a little premium or even just above fair money, they’re going to own it over us.
Kevin: I’ve just completed doing a series in the other show we do, Real Estate Uncut – that’s the show for agents – and in talking to a number of the market leaders around Australia, there’s a lot of concern about a drop-off in stock in 2017. Do you think that’s on the horizon, in other words, less choice for buyers?
Patrick: I hope that doesn’t continue. It’s not uncommon to see a lack of stock for a quarter, maybe two quarters, but we’ve now been having back-to-back quarters for about 18 months with a decided lack of stock.
I know in the lower North Shore, I’ve been speaking to a couple of sales agents from the larger agencies who have staff who track all sales to know their market share and things like that. They were saying to me that just the lower North Shore of Sydney, for example, was down 47% for the first six months of this year on transactions on the three-year average.
Kevin: Wow. They’re quite staggering figures, aren’t they?
Patrick: They are. We’re seeing sales agents leaving the industry already. That’s started. You have to imagine you have the same amount of people fighting over 47% less stock to sell, so somebody’s missing out. Some agents are just doing less but still enough, and some aren’t doing enough to even stay around.
I think 2017 will see more of that. If the stock doesn’t free up and we get more transactions, then I think that’ll get tighter. I was playing at a charity golf day the other day and people were ask what you do and you talk about real estate and they go, “You guys have been having a ball the last couple of years.” I said, “Well, you don’t understand, nobody in real estate who I know is actually doing a heck of a lot better than what they were three years ago”
Most people I’m speaking to – successful agents who have been around a decade or more – we’re all generally working harder for similar or less money. It’s just because there’s less stock to transact.
I know for our business, as well, we’re out there working as hard as ever but we’re not actually doing a whole lot more transactions as a buyer’s agent simply because there’s not enough stock to buy and we can’t fulfill the clients’ needs as easily as we would if there were more stock. So nobody really in the industry is thrilled about the situation.
Kevin: Patrick, if you were looking for a property for yourself to put into your own portfolio, where would you be looking? What sort of property would you buy?
Patrick: Because I’m a long-term buy-and-hold investor and I am not a speculator, I’m going to buy something that has good fundamentals and is going to have good fundamentals in the years to come. I’m looking for something that’s going to be generally a capital city-based property, something that has good multiple infrastructure options for transport, something that has a view, a good floor plan, ideally a nice outlook – things like those that are a bit unique in the market. That’s what I’m chasing, that sort of stock, personally to add to my portfolio.
I have a 10+ year outlook on everything I buy, so my view is that if the market shut down tomorrow and I could not sell it, would I be happy to own this for the next 20 years? If I don’t answer yes to that question, then I’m questioning why I’m buying it.
Kevin: Would it be a unit or a house?
Patrick: An apartment. I have some houses that I bought over a decade ago, but the last decade, I’ve focused pretty much on apartments because that’s where the market’s been heading. We’re going to see more of that.
You look at the Baby Boomers who are downsizing to apartments from their bigger houses, generally they want a three-bedder, or you’re seeing a lot of one-bedders as well where they can have that “lock and leave” Sydney base and they can buy that out-of-town weekender or semi-permanent base and then they have the Sydney pad, or they make Sydney their base usually with a bigger apartment and they make the tree-change or sea-change type out-of-town investment that they use, as well.
I’m always looking for what’s going to be in demand not only now but 10 or 20 years out from today. It’s hard to pick 20 years out, but certainly not hard to pick at least a decade out.
Kevin: Patrick Bright from EPS Property Search. Thanks so much for your time, Patrick.
Patrick: Pleasure, Kevin.