Our guest today: Pete Wargent – author of the book “Take a Financial Leap”.
Kevin: With his view on what’s happening with the market in 2016, Pete Wargent joins me. Pete, of course, is very active on the Internet with his predictions about what’s happening with property, not only in Australia but worldwide.
Hi, Pete. How are you?
Pete: Good. Thanks, Kevin.
Kevin: Good to be talking to you again, Pete. What do you think we’ll be saying about the property market this time next year? What do you think 2016 is going to hold?
Pete: I think during some of this year’s exuberance, I believe a significant number of investors would have bought off-the-plan properties with only small deposits to hand. I think 2016 could be a year when APRA’s tightening measures towards investor lending could cause problems for some of those off-the-plan buyers who will end up with a deposit shortfall at settlement. There could be some fallout from that.
I think that 2016 will also be the year the media latches on that going forward, it’ll be the immigration of international students rather than arrivals on 457 visas that are actually driving Australia’s immigration and population growth.
Enrollments and grants for students are starting to ratchet up, so with hundreds of thousands of student arrivals over the next few years mainly headed for Sydney and Melbourne, that’s going to create a lot of demand for rental property close to the city centers just at the same time that APRA is hosing down the investor sector.
Finally, I think 2016 could be a year to expect the unexpected. A lot of market commentary revolves around the notion that “This can’t happen or that can’t happen.” But I’ve been in Britain this month and a lot of things that weren’t supposed to happen have happened, particularly in the investor space.
Back in Australia, we’ve seen APRA introduce macro prudential measures this year. I wouldn’t be surprised if there are more tweaks in 2016 in the wake of [1:43 inaudible] resulting in tighter capital requirements and lower loan-to-value ratios. In terms of what this means for investors in 2016, they’re likely to require substantial deposits.
Kevin: You mentioned there APRA, and there have been some reports that the moves by APRA have really played into the hands of the bank and that it’s almost given them an open checkbook to increase rates whenever they feel like it because of these macro prudential controls. What’s your view on that?
Pete: I think what we’ll find in 2016 is investor lending will continue to slow. The banks will actually be looking to push owner-occupier lending harder to compensate for the slowdown in investor lending. There will be a bit of a switch in the market, but that may be no bad thing. I think the investor market – in certain areas, anyway – was getting a bit overheated.
Kevin: What are the markets you’ll be looking at in Australia in 2016, Pete?
Pete: Well, 2015 was another huge year for Sydney. I think in 2016, all eyes will be on Queensland to see how the Brisbane market fares in particular. I think investors should be wary of some of those inner city suburbs where apartments are being overbuilt. Look at the middle ring suburbs, properties that are strong land value content, an owner-occupier feel, transport links, and reasonable yields.
Kevin: Are you a bit concerned about an oversupply of units in the inner city of Brisbane?
Pete: Yes, certainly. There are a number of former industrial suburbs. There has been a lot of re-zoning, record high building approvals this year, so there are a lot of apartments to buy in some of those inner suburbs, which I’ve think we talked about on this show before.
Kevin: What about some of the regional markets around Australia, Pete? Are any standing out for you?
Pete: From a high-level point of view, just looking at the economy, we’re going to see probably another weak period for the Aussie dollar. So if you’re looking at regional markets, I’d be looking at places like the Gold Coast that will benefit from the lower dollar. I think that would be on area in particular which could see some upside.
Kevin: Pete, thank you so much for your time. I look forward to working with you again in 2016. Pete Wargent, of course, and the book “Take a Financial Leap” – your new book – that’s out by, is it Big Sky Publishing?
Pete: Big Sky Publishing.
Kevin: Whereabouts can we get that one, Pete?
Pete: At all good bookstores.
Kevin: Excellent. “Take a Financial Leap,” Pete Wargent.
Pete, we’ll talk to you again soon. Thanks, mate.
Pete: Pleasure, Kevin.