2015 so far | Signs of a Spruiker | Depreciation and property | Tasmanian housing market | Get the best deals | Bias in investing

2015 so far | Signs of a Spruiker | Depreciation and property | Tasmanian housing market | Get the best deals | Bias in investing


Last week we asked what is standing between you and property investing success.

Michael Yardney introduced you to the concept that there are a number of biases that can significantly impact your investment decisions. Today we look at a few more that may be holding you back from reaching your investment goals and dreams

There is good news for the Tasmanian market and Hobart in particular, from Louis Christopher but he balances that with some sobering figures from the west.

Dr Andrew Wilson reflects on the first 2 months of 2015 and says that lower interest rates have boosted investor confidence and dispels a common myth that investors only chase capital gains and good returns.

Brad Beer explains what depreciation is all about and how you can unlock thousands of dollars in your investment. What properties can benefit and when you should be getting one done. Is it ever too late if you have never done one? Brad has the answer.

Margaret Lomas details how she “keeps the bastards honest”. Of course we are talking about spruikers. What are the signs? Hear Margaret speak passionately about what she is doing.

We answer a common question about how to find the best deals. We talk to deal maker – Nhan Nguyen and he gives us some examples.




Nhan Nguyen

Kevin:  One of the most common questions we’re asked is, “How do we find deals?” I got an email the other day, “Where do I look? How do I go about it?” Nhan Nguyen and I talk about this quite often. Nhan is from AdvancedPropertyStrategies.com. He joins me.

Good day, Nhan.

Nhan:  Good day, Kevin.

Kevin:  That question – ways to find deals – how do you go about it, Nhan? I know this is how you make your living.

Nhan:  There are many, many ways to do it. A couple of key ways that I focus on is looking for properties that have owners with problems, not necessarily properties that have problems. Yes, you may have looked at renovators’ delights and properties that are half falling down that people want to get rid of it. Well, that’s one way, but I like to find property owners with problems, where you can come in and come up with a solution.

A couple of examples could be a deceased estate where someone’s passed away, passed it down to half a dozen or so siblings, and they just want to get rid of it. A motivated seller is another one. It could be a divorce situation where people just want to get rid of their assets to move on. Bank repossession is another common one where banks have auctions just to get their money back. At that point in time, there really is no negotiation other than, “Okay, are we going to cover the bank debt?”

Looking at motivated sellers, and talking to agents and telling them, “I’m looking for a motivated seller, someone who will happily give us a discount on the property.” That’s definitely one of the ways that I look for properties.

Kevin:  Those scenarios you gave us there, the last thing that I’d want to do is find them at the same time as everyone else, which is about the time when they give it some publicity. How do you go about finding it before it hits the market?

Nhan:  That’s quite critical. It’s building up a relationship with agents. I call it “getting onto the agents’ hot lists.” You have got to build up relationships with agents. Love them or hate them, I’ve worked with agents for many, many years, and some of them you would never want to talk to again, but some of them have really got a good skill of giving you good deals.

Agents are like anything; they’re people, so you have to respect them, build a relationship with them, and tell them what you’re looking for. You need to look at their properties, give them honest feedback. They may like it, they may not like it, but I always give them feedback. I might say, “It’s a bit overpriced, mate. This would be my price if you were to be able to move it,” and they appreciate that feedback.

Getting onto the agents’ hot list is quite critical, going to open homes, putting in offers, and agents, even though they come and they go, there will be a handful of them who will stick around for decades, and those are the ones you need to build the relationships with.

Kevin:  That raises another question, I guess, and that is how best to work with real estate agents. You’ve given us a couple of ideas here, and it’s all about communication or keeping in touch with them. Any other tips you’ve got in that vein?

Nhan:  Yes, I’ve got a handful of tips. One of the things I often do is I put in a lot of offers, and they’re often quite low, or they’re quite long. What I mean by long is there might be a six- or 12-month settlement – or longer – because I might need approval to be in the council so that I de-risk the project.

Having said that, I’ll warn them, my offers are going to be low. If you’re going to do something that’s going to be a discounted property or a long settlement, definitely let them know that your offers are going to be sharp so that they’re not annoying or angry at you when you lob in the offer.

The other part is you’ll find agents who want to work with you because they can see what you’re up to. You’re wanting to see if you can do a buy-and-sell transaction. For example, I bought a block of land where I wasn’t the most money at the time, but I said to them, “I’m going to cut this into eight or nine blocks, and if and when I do, I’ll give you the first opportunity to sell it once it’s developed.” So this agent was not only looking at one round of comms; he was looking at two or three rounds of commission. In that instance, you’ll want to work with them in a long-term environment.

Having said that, there are other agents you would only buy through because they’re happy to take discounted offers, and other agents that you would only want to sell through because they only like to sell at top dollar.

There are different variations to the theme, but you have to find your angle and the agent’s angle to work together with them.

Kevin:  Yes, and it’s all about communication. Just listening to you there, you’re obviously very frank with them. You have a business plan in place. If you explain it to them, some will go with you, some won’t, and I guess you’ve just got to accept that that’s going to be the case.

Nhan, I want to thank you for joining us and giving us that advice. Nhan, of course, is from AdvancedPropertyStrategies.com. Thanks for your time, mate.

Nhan:  My pleasure, Kevin. Any time.


Michael Yardney

Kevin:  Over the last couple of weeks, I’ve been talking to Michael Yardney from Metropole Property Strategists about the psychology of success. Fascinating, this subject, because sometimes between a person and success could be themselves. They could be right in the middle of it, holding it back.

Michael:  That’s right, Kevin. Over the last couple of sessions, we introduced the concept that there are a number of biases that can significantly impact our investment decisions. Some of them are fairly common ones, such as being biased towards overwhelming negativity or positivity, like we spoke about in our last session, but others are not as clear-cut to us. Let’s go through a couple more, Kevin.

Kevin:  Yes, please.

Michael:  One that psychologists like describing is called the status quo bias. This describes our tendency to stick with what we know whether or not it’s actually the best course of action. It could be as simple as being the same brand generic groceries or as complex as just sticking to holding onto that underperforming property.

People partly do this because they want to avoid costs, even when it’s apparent that the costs are going to offset a larger gain in the long term. Psychologists call this loss aversion; it explains why so many Australians are willing to stick their money in a plain old bank account earning minimal interest today, rather than taking what they perceive is the risk of property investment.

I’ve found most investment decisions have got an alternative. One is to remain as it is, to do nothing, while the other is to actually do something. Psychologists have shown that most of us disproportionately stick with the status quo – in other words, doing nothing – rather than the potential risk in our minds of doing something, even though in my mind, it’s sometimes pretty obvious that you actually have to change, do something.

Kevin:  Yes. You know the old saying, Michael, about the best way never to make a mistake is never do anything, or never even get out of bed.

Michael:  That’s exactly right. They’re worried about making a mistake, and so in the process of doing that, they’re making a bigger one, aren’t they?

Kevin:  Indeed they are. What about the difference between being a success and being a survivor?

Michael:  Well, the misconception is that you should focus on successful people, so a lot of people keep reading magazine articles, books about people who’ve survived, who have done really well, when in fact I’d be suggesting that the differences between success and failure are sometimes invisible if all you do is keeping reading about successes.

If you’re looking at other people’s successes, you could be missing out on all those important lessons for getting ahead from those who got it wrong. If you spend your life only learning from survivors, buying books about successful people, reading property investment success stories, your knowledge of the world happens to be strongly biased, but it’s also enormously incomplete.

The trick when you’re looking for advice is not only to learn what to do, but also to learn what not to do from those who have had some failures.

Kevin:  Exactly. What’s it called? The university of hard knocks – talking to people who’ve had a failure.

Michael:  We’ve been there, haven’t we, mate?

Kevin:  We sure have, indeed. What about jumping on the bandwagon?

Michael:  That’s one I think we all would recognize as the psychological phenomenon when people do something primarily because other people are doing it. The bandwagon effect has got wide implications, but it’s commonly seen during those strong property markets when the media stirs up a frenzy, and it’s one of the factors that leads to property bubbles.

The tendency of people to align themselves and their behaviors and beliefs with others is sometimes called the herd mentality. But we know the herd’s usually wrong. Most property investors, they never build a substantial portfolio. So it pays to remember that just because everyone else is doing it doesn’t mean you’ve got to follow the crowd.

In fact, smart investors tend to invest counter-cyclically. Remember what Warren Buffett said: “Be fearful when others are greedy, and be greedy when others are fearful.”

Kevin:  Some of us think we’ve got more control than others, don’t we?

Michael:  Following on from that bandwagon bias, restraint bias is the tendency for us to over-estimate our ability to control impulsive behavior. Will that extra chocolate really make a difference if you’re watching your weight? Maybe you should just spend another hour on the Internet, or maybe you’re going to actually do something more productive.

Our lives are full of temptations, and some of us are better at resisting than others. Psychologists say that the very people who think they’re most restrained are most likely to be impulsive. Can I give you an example of this?

Kevin:  Please do, yes.

Michael:  Only yesterday, I was speaking with an investor who has built a substantial property portfolio, and he was doing it for the long term, but now as he’s starting to change his life and retiring, he was going to sell up his properties.

He had the intention, he had the plan of a long-term investment, but now the fear of having debt, even though it’s good debt and appreciating debt, he hasn’t got the self-control to stick with his plan, even though he knows it’s the right thing. But then once we spoke about it, he realized how biased he is and that he was doing it the wrong way.

Kevin:  Great story. Just to round this interview out, I reckon probably one of the most dangerous biases is not recognizing that you have a bias in the first place.

Michael:  That’s a good one. You’re right. Arguably it is the most damaging bias, because we all have blind spots, which means we’re not likely to recognize these psychological influences on ourselves. We think we’re objective when we’re not. So if you think that this session isn’t about you…

Kevin:  You’re wrong.

Michael:  It really is. That’s right.

Kevin:  And on that note, Michael, I think we might say farewell for today. We’ll catch you next week; might talk more about this next week in the show, too.

Michael:  My pleasure, Kevin.

Kevin:  Michael Yardney from Metropole Property Strategists.


Louis Christopher

Kevin:  Interesting that figures released by SQM Research recently have revealed that the number of residential vacancies fell nationally in January 2015. Louis Christopher from SQM Research joins us.

Louis, what does this mean?

Louis:  Kevin, during the month, basically, we saw renters return to the market. Seasonally, we always see that. During December or in the lead up to Christmas, you tend to see new tenants stay away – for example, students going back to their homes and things like that.

So there’s a lot of seasonality in these results. Overall though, vacancies did fall, although it’s a bit of a mixed bag. For example, we’re seeing a very tight vacancy rate in Hobart, while in Perth and Darwin – which, of course, are most exposed to the mining downturn – we’re seeing a blowout in vacancies there.

Kevin:  We’ll talk about Hobart in just a moment. If you don’t mind, I want to go a little bit more in depth on that one. But just those other two markets – Perth and Darwin?

Louis:  Yes. Perth, which we have a vacancy rate on our numbers of 2.6%, and that’s up from 1.9% recorded this time last year. In Darwin, we have a vacancy rate of 3.3%, which is up from 1.5% recorded this time last year.

Now, those numbers themselves – 3.3% and 2.6% – don’t sound too bad, but it’s the relative movement, the increase in vacancies, which is putting downward pressure on rents, Kevin. To give you an idea of what Perth rents have done, on our numbers, rents for houses have fallen 7% in the last 12 months, and units are down 4.7%. Rents in Darwin have fallen 11% just in the last 12 months, and units are down 3.4%.

Kevin:  Can you put all this down to the mining?

Louis:  Yes, I think it mostly has to do with mining. So all those fly-in, fly-outs we heard about back in 2010 and 2011 boosting up prices, a lot of those jobs are now gone, and that’s been affecting the Perth market in particular. It’s also been affecting some regional mining towns –Karratha and Port Hedland, for example. Those markets are getting smashed right now because of this mining downturn.

Kevin:  I guess that’s even more alarming given that it’s over the last 12 months. I suppose you wouldn’t be so worried if this was just month-on-month, because that would be fairly seasonal?

Louis:  Yes, that would be seasonal, but we’re definitely seeing a year-on-year deterioration in the rental market, particularly for those two cities and definitely any regional town that’s been exposed to mining.

Kevin:  The Hobart story is interesting. Tell me a little bit more about that, Louis. What are you seeing there?

Louis:  For any avid property investor or follower of the property market, most would be aware that the Hobart market had a pretty significant downturn between 2010 through to about 2012, where house prices corrected by about 8% to 9%, and the rental market also corrected.

In the last 12 months, we’re seeing a pickup in the rental market. We’ve seen a big fall in vacancy rates and a rise in rent, so rents in Hobart for units are now up to $280 a week. That’s a rise of 8.6% compared to this time last year.

We put down the recovery to the Hobart market to two factors. Firstly, the fall in interest rates has definitely helped that market. Secondly, we’ve seen a pickup in that local economy predominantly because of the fall in the Australian dollar. That’s helped the local tourism market in Tasmania, and it’s also helped a little bit with their agricultural-based market as well.

Kevin:  Would you say there’s still a lot more upside in that Hobart market?

Louis:  Absolutely. As mentioned, the rents for units are running at $280 to $320 a week for a standard house in Hobart. That’s basically one-third of the amount that you see in Sydney, not that we’ll ever see Sydney prices in Hobart. I don’t think we will. But I think we’re going to see an ongoing recovery in the Hobart markets so long as the Australian dollar stays low.

Kevin:  That’s good news there about the Hobart market. Joining us once again is Louis Christopher from SQM research.

Louis, thanks for your time.

Louis:  Thank you, Kevin.


Margaret Lomas

Kevin:  About the time this program is due to go out on Saturday, February 28, there will be the Sydney Property Intensive 2015, which is happening that features six property investment professionals, basically put together by Margaret Lomas to keep the bastards honest. They are your words, Margaret, so I’ll use them.

Margaret:  They are my words. I wasn’t actually going to say that, though, Kevin.

What happened is one time that I was doing the show on Your Money, Your Call, I started chatting with some of my guests afterwards. We always talk about the fact that every time the property market is looking good – which, of course, it is in many states at the moment – we always talk about the fact that then what happens is the spruikers start coming out of the woodwork.

When people are enthusiastic about a property market, whether they’re thinking for the first time or the next time about buying another property or their first property, then they start to become a little bit vulnerable, and I think the spruikers know that. They take advantage of that. They come out, they start offering these expensive courses, and they start selling property with big commissions.

We just decided that we had whinged about it long enough and it was time that we actually put our money where our mouth is, and put together a day where people can come and know that that’s not going to happen to them.

Kevin:  As I said at the start, it’s on today, Saturday, February 28 in Sydney, but don’t despair because it’s coming up on April 18 in Melbourne, and I believe you’re also going to be in Brisbane, as well?

Margaret:  Yes, absolutely. We don’t have a Brisbane date yet, and of course, we’re looking for expressions of interest there, but the important thing to know about this is that in both Sydney and Melbourne, we have good markets. The Sydney market is cooling, but I still think there are some areas in Sydney that will go on to still deliver some pretty good growth, particularly in some of those southwestern suburbs.

Melbourne, of course, has been really quiet, but we see the December quarter figure shows that Melbourne’s already started on its move. If we just cut out that CBD apartment and living where we have tower after tower being built, we have got a lot of great suburbs in Melbourne – down towards the southeast just out to the west around Sunshine – where I think we’re going to see some great growth in 2015.

At our Melbourne Property Intensive, we’re going to be talking about not only the Melbourne market and what’s happening in Melbourne and where the best properties are to buy, we’re going to talk about the growth drivers, but we’re also going to be trying to improve everybody’s bottom line. We think we can do that by a significant amount of money just with the strategies we’ll be talking about.

Kevin:  As distinct from the spruikers, there is nothing to buy at the intensive, Margaret?

Margaret:  No, absolutely not. We say that we have nothing to sell except our expertise, and we don’t mean that we are selling our expertise, but we mean you’re getting it that day. You come along and you’re going to have access to us.

We’re keeping the numbers small, too, Kevin, because I think if you have these massive big crowds, then people can’t get to you to ask the right questions. We’re trying to keep it reasonably intimate, and all you’re going to get is some really good quality strategic information that is going to help you make 2015 better and help you to find those markets.

It’s a bit confusing at the moment as to where we should be looking next, what’s really happening in Sydney, is Melbourne going to take off, and of course, we believe there are some good opportunities in Melbourne, but where are they? That’s what we would like to talk about on the day.

Kevin:  That’s what you’ll be getting. That Melbourne Intensive, as I said, is on April 18. Just go to the website YourPropertyTeam.com.au. There are six speakers apart from you, Margaret. You’re always a regular on our show, and we also talk to Dr. Andrew Wilson from the Domain Group and Brad Beer from BMT, who are both going to be on stage, as well.

Margaret:  Yes, indeed. Of course, Property Success team member Ian Rodrigues who is fabulous with all that property tax. Lisa Montgomery, who’s a finance guru – and of course, we all know about her finance expertise – is going to be there, as well. And let’s not forget those really important strata and legal lessons that Michael Teys can give to people.

A lot of people get into strata living these days, yet they don’t realize how dangerous that can be and how many traps there are when you’re buying a strata property. Michael is going to talk about what those typical traps are and how to make sure that they don’t happen to you this year.

Kevin:  We’ve had Michael on the show, too. He’s always great value. All six people are fantastic. That’s the Melbourne Intensive 2015, April 18. You can find all the details on the website YourPropertyTeam.com.au.

As usual, Margaret, all power to you. Keep up the good work.

Margaret:  Thank you, we will. We’re going to get out there and we’re going to get those bastards, won’t we?

Kevin:  Margaret Lomas from Destiny Financial Solutions and also the star of Your Money, Your Call on Sky TV. Thanks, Margaret.

Margaret:  Thank you.


Brad Beer

Kevin:  Brad Beer is a director of BMT Tax Depreciation, with over 15 years experience in the property depreciation, building, and construction industry. Because of Brad’s substantial knowledge and specialist experience in property tax depreciation and construction cost consulting, he’s regularly called on to comment on these issues and is, in fact, one of our experts at Real Estate Talk.

Brad, I thought we might just quickly talk about what is property depreciation?

Brad:  Property depreciation is a tax deduction that’s available to any property investor. What it means is when you’ve got an investment property, it will help you to pay less tax.

Kevin:  How do I as an investor know how much depreciation I can get?

Brad:  How much depreciation you’ll get will relate to the type of property you have. As a quantity surveyor, we work out those numbers and tell you exactly how much deductions there might be. Usually, our standard residential property is $5000 to $10,000 per year is pretty average.

Kevin:  This needs to be done in a special schedule. How do I go about organizing that?

Brad:  Basically, a quantity surveyor who specializes in depreciation will talk to you about your property, see what deductions may be there, inspect your property, look at what is in there, and work at exactly what deduction might be able to be claimed, and give that report to your accountant to help you make those deductions.

Kevin:  That’s something that BMT specializes in as tax depreciation experts. Can anyone do this for me?

Brad:  The reason you want to get a quantity surveyor involved is because it will have the relationship to the cost of construction, a quantity surveyor is the guy who estimates construction costs, but also a specialist in depreciation will make sure that you get everything you can out of the property.

Kevin:  That’s the role of a quantity surveyor?

Brad:  That’s one of the roles of the quantity surveyor. That’s the one we play at BMT. Traditionally, a quantity surveyor estimates construction cost of buildings, so we get all the plans, specifications, things on buildings to say how much concrete, how much steel, how much should it cost. Part of that comes across to the depreciation because it relates to the cost of construction of a building.

Kevin:  Now, can this be done in the event of a new building? Can it be done before the building is constructed, or does it need to be done afterwards?

Brad:  You can’t start making the clients until you actually have the property as an investment property making income for you. Normally, when you do that is when it’s actually completed and you settle on it. You might want to get some estimate of what reductions might be there before you actually take a hold of the property or when you’re making a decision to buy the property, but you actually effectively make the deductions once you take a hold of the property and use it as an investment property.

Kevin:  As a property investor, if I’m holding a number of properties or even one for that matter – it doesn’t matter – and I’ve never had the depreciation schedule done, is it ever too late?

Brad:  It’s not too late. You can easily go back and amend at least a couple of years of your tax returns if you’ve been missing out on some of the deductions. If it’s really old and you’ve owned it for a really long time – ten plus years – it may be hard to make it viable to get enough deductions out of it to make it worth it. But we’ll have a look at that and ask you some questions about your property or your properties prior to you going ahead and doing anything.

Kevin:  So it’s worthwhile having an assessment done at that level. What would be the indicative cost of something like that?

Brad:  That part is free. We’ll talk to you about your property, we’ll talk to you about what deductions might be there based on what you’re already doing, based on what sort of property it is, and we’ll just go ahead and work it out at how much it can be if we think it’s worth it.

Kevin:  Finally, before we leave you at this point, Brad, can you just tell me what the process is involved in preparing a depreciation schedule?

Brad:  Yes, definitely. Kevin, the process is basically, we’ll talk to you about your property to make sure it’s worth it to start with. Once we do that, we go out, we do an inspection of your property, contact your property manager, talk to your tenant, go through, measure up, estimate how much is this building cost, what items do we need that we can claim as the deduction?

We’ll bring it back, we’ll put it in to the program that works the numbers out and spits out basically a report that tells you exactly how much to claim every year in this depreciation to talk to your accountant, so he can plug that number into tax return and get you some more cash.

Kevin:  Look, there are so many points that I want to cover with you, I’d love you to come back at another time, Brad, if you could. I want to talk about how long does one of these depreciation schedules actually run for, how often should it be updated, and how does it differ from a valuation?

My guest is Brad Beer from BMT Tax Depreciation. They are the quantity surveyors who specialize in tax depreciation. The website is BMTQS.com.au.

Brad, thanks again for your time.

Brad:  Thank you, Kevin.


Dr Andrew Wilson

Kevin:  We’re at the end of the second month into the year and it’s probably a good time to actually have a look back at the first two months and where we’re headed for 2015.

Dr. Andrew Wilson, who is the chief economist with the Domain Group, joins me.

Andrew, low interest rates, good investor numbers coming through. Are these good signs for 2015?

Andrew:  Kevin, 2015 is starting off generally where 2014 ended. Of course, lower interest rates are positive, particularly for mortgage holders, and I think we’ll find lower interest rates are positive particularly for investors. Investors will be encouraged by lower interest rates to become more active in various capital city marketplaces.

There’s a bit of a furfee that goes around that investors just chase capital gains. Investors look for security out of the medium to longer term. We have a small investor model in this country that is very resilient and very robust. Of course, we do have investors at the margin that do chase capital gains, but by and large, even in flat periods of process growth, we still have a 30% to 40% of activity coming from investors.

There is talk that with lower interest rates encouraging more investors into the market – as it will because lower interest rates or mortgages means lower rates for deposits, which make the housing market even more attractive for investors.

But the talk about having more investors in the market is now creating, I guess, even more activity in that conversation about banks moderating investor activity by introducing macroprudential controls over investor lending. I think this is very short-sighted and potentially dangerous in terms of that law of unintended consequences, which can occur.

The Sydney market really is the only market that continues to be very strong in terms of prices growth, and even though it has strong prices growth, it’s really not showing any clear signs – or any signs, really – of overbalancing. Vacancy rates remain low, rental growth is continuing, and investors are reaping the benefits of what is a balanced and strong market around in Sydney.

You can’t have a one-size-fits-all mechanism designed to counter what is perceived to be over-activity in the Sydney market and then restricting activity and other capital city markets, which are crying out for more healthy market activity.

Kevin:  Yes, there is some concern amongst investors about what you touched on there – those macroprudential controls or just even discussion about them. But, the question I have for you, Andrew, is it the banks who’ll be doing this?

Andrew:  APRA do it. They’re the regulatory body for our financial system. This was something that was introduced into New Zealand last year when there was a perception of over-investment.

We really have this scary story of housing bubbles and collapses of markets, and the reality doesn’t reflect that particular scary story. We have a very resilient, robust housing having market in this country. It typically follows what happens with the business cycle.

I believe that going forward now, we’re going to see much more moderate outcomes in terms of housing market activity. The peaks and troughs won’t be as severe as they have been over the last two or three decades, and that does reflect this adjustment process that’s happening in the economy now, which is a medium- to long-term process. They’re moving away from those big mining booms, which have driven our economy into something else, which we probably still haven’t quite worked out what that will be down the track.

It does mean lower interest rates, it does mean lower growth, it does mean lower incomes and profits growth, as well, lower inflation, and that means lower price and growth in our housing markets. But I still think that it will be more of a consistent model and the underlying trend will remain upwards, but that is I think a good thing for the industry because it provides more certainty going forward.

Kevin:  Certainly, the numbers coming out of Sydney in that continued growth have been quite scary, I guess –  scary for some, not so much for others, I guess, if you got into the market soon enough. Do you see that slowing down at all, Andrew?

Andrew:  Eventually, it will slow down, Kevin, because income growth… There’s really no room to move any more on interest rates. Even though we’re seeing interest rates fall, they’re just marginal cuts in interest rates and the affordability upside to that is very minimal compared to the strong affordability improvement we had over 2011 through 2013 through sharp drops in interest rates.

Interest rates are at all-time lows now. There’s not just that energy that’s being released to create more house-price growth, so at the end of the day, it will be about incomes, it will be about profits, which means it’s about economic performance. With incomes growth rising at about 3%, that’s what the underlying growth of house prices will be, even in Sydney.

Once that supply-demand imbalance starts to work its way through the system, we’ll get more moderate growth in Sydney. But because there is such a shortage of property in Sydney, because the local economy is so strong, I think that Sydney will remain the strongest market of all the capitals, certainly over the shorter to medium term, but that 3% to 4% per-quarter growth that it’s being recording over the last year. I think will start to track down towards 2%. Then depending on how the economy pans out. It will remain about a percent or two above the inflation rate in my opinion going forward over the medium term.

Kevin:  Good talking to you, Andrew. Dr. Andrew Wilson, chief economist with the Domain Group. Thanks for your time, Andrew.

Andrew:  My pleasure, Kevin.

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