Aussie Home Loans chairman John Symond has claimed the housing market has the potential for 10-15% growth over the next three years. We talk to John about that and find out what he bases that on.
Kevin: Aussie Home Loans chairman John Symond has claimed that the housing market has the potential for 10 to 15% growth over the next few years, and he also dispels the myth about the housing bubble. He joins me.
Hi, John. Thanks again for your time.
John: Great, Kevin.
Kevin: No bubble on the horizon, John?
John: I don’t see a bubble. That doesn’t mean that you won’t have pockets of areas, Kevin, where you might have a temporary oversupply of apartments, because there are a lot of new developments down the eastern seaboard – Sydney, Melbourne, Brisbane. But, in terms of a bubble, a bubble means really the whole real estate market collapses, and I’m definitely firmly of the view that that’s just not on the cards.
Kevin: Yes. You’re on record – as I said in the opening there – for saying that the market has potential for growth. What do you base that on, John?
John: Population is important. Generally, Sydney and Melbourne are the two cities that values have really spiked, but Kevin, the real reason for that is supply and demand and population growth. It’s the only two cities that you have significant population growth and a shortage of supplies – Sydney, especially.
Sydney falls behind 20,000 to 30,000 homes and apartments each year to meet the population increase, so it gets down to supply and demand. The same thing for Melbourne, to a lesser extent, but still significant for parts of South East Queensland.
When you have the lowest interest rates since Captain Cook sailed into Botany Bay and employment is still very solid, housing is going to remain very popular, Kevin.
Kevin: You mentioned there about oversupply, and I know there’s been a lot of talk about oversupply, particularly in the Brisbane market and inner-city apartments and so on. Are there any other parts of Australia that you’re concerned about in terms of oversupply? How real is it, John?
John: The real oversupply is part of Sydney and Melbourne. Now, Melbourne has had a couple of splashes of oversupply over the last five years, around Docklands. That market took a hit temporarily. Some prices came off – anything from 10% to 20% – until those apartments were taken up.
We used to see it in Surfers Paradise. But I think developers more careful, lenders are more careful, but that won’t stop some oversupply in sub-suburbs or part of a city. Sydney is exposed. If we get half of the new supply of apartments in Sydney over the next couple of years, we will definitely have an oversupply of apartments in, again, part of Sydney.
People come up to me every day in the street and say, “What do you think of the real estate market?” Well, if you take Brisbane, there would be at least six or seven different real estate markets in Brisbane – first-home buyers, apartments, new housing, holiday housing. Which part of the real estate market are you asking the question about?
But generally, while these interest rates are going to stay low for a lot longer, Kevin – longer than what we all thought because globally the world is in a low-interest-rate environment. So as long as employment stays healthy, people are going to be able to meet their repayments.
In fact, I was reading some data yesterday where the average – not all; average – mortgage owner is nearly three years ahead of their mortgage payments. Now, this doesn’t apply to people who’ve just bought a property the last 12 or 18 months. But people who’ve had a property for five years, six, seven years and more, they’re at least three years ahead because they’re being cautious. They’re still making the same monthly repayments when interest rates were 7% versus 4%.
Kevin: Yes. John, continuing to talk about this potential for an oversupply and how much building is going on – particularly inner-city apartments – what impact do you think it’s going to have when the banks renege on some of their loans for people who have committed to an off-the-plan purchase. What is that going to do to that market and to some of the developers in particular?
John: Well, the biggest single factor, it’s not people putting up that 10% and regulators changed the rules going back 18 months ago. I think that fear is settled down. I’m confident that banks and other lenders, if someone has got a good job, they put up their 10%, they’re bona fide, I’m confident they will get set. The risk is the end value when the building is completed.
Now, if the market is strong, you haven’t got a problem. If you’re in an area where there’s another 500 apartments trying to be sold nearby, well, that’s going to impact the values. This is why buying off-the-plan is a bit of a gamble, because you’re taking a risk on the end value, which might be two or three years away.
Investors need them to be rented. Not only is there the potential for the value to soften and be lower than what your contract was agreed on, you’re relying on renting it out. If you have hundreds of apartments being bought by investors wanting to rent them out, well, then you’re going to maybe have a problem finding a tenant.
This is why I say to people you can make money on buying off the plan, but in a lot of ways it’s like going off to the casino. Because you can’t control what’s going to happen in two or three years’ time. Even if Australia performs well, we are very dependent on the global economy. If there’s a negative event offshore, we’re going to feel the effects.
So it has a lot more risk to it, but that’s not saying people have made a lot of money buying off the plan, as well. But I’m saying for normal, everyday moms and dads or small investors, buying off the plan has a lot more risk. You need a lot more professional advice, and make sure you know what you’re getting into because it’s risky.
Kevin: Very good advice. John, I want to thank you for giving us your time, too. Always great talking to you, John Symond. Thank you so much.
John: Thank you, Kevin.