17 Nov Are great property investors born or made? + “Anything is possible when you don’t know what you’re doing”.
Were you told from a very young age that if you want to succeed at something, you must put in time, hard work and importantly, practice. Successful property investors are not born with a “How to” manual and they certainly don’t rely on luck. Michael Yardney shares what he has learnt from working with these top people over the years.
REA, or as it is better known realestate.com.au, has been tracking demand for Australian property since about 2013. They have been looking at the number of people wanting to buy a property and contrast that to the supply of properties and they are starting to get some really interesting results. We discuss that with Nerida Connisbee who is that group’s Chief Economist.
We get an update on foreign buyers and their influence on the Australian property market from the head of Juwai in Australia – Gavin Norris. Juwai, of course, is the number one Chinese international property portal.
Our feature guest is Charles Tarbey, CEO, founder and owner of Century 21 Australasia. He tells us how he was able to buy his first house – in Sydney – at the tender age of 18. As he says “anything is possible when you don’t know what you’re doing”.
We talk affordability with the Victorian Chief Executive Officer of the Urban Development Institute of Australia, Danni Addison who says “the government needs to have a courageous conversation with the community about this burning issue”.
What we can learn from tracking demand – Nerida Connisbee
Kevin: I’m joined now by Nerida Connisbee who is from the REA group, Chief Economist, of course, with RealEstate.com.au.
Nerida, thanks again for your time.
Nerida: Thanks for having me.
Kevin: Tell me about the Group Property Demand Index. What’s that about?
Nerida: What we’ve been doing is tracking demand for property in the Australian market since about 2013. Basically, how we track it is we look at the number of people looking to buy a property and contrast that to the supply of properties. We’re starting to get some really interesting results, and probably the most interesting is Sydney and Melbourne are now at record levels in terms of demand.
Kevin: That, of course, begs me to ask the question about supply and demand. There’s a lot of talk about an oversupply or a lack of demand for some of the inner-city areas around Brisbane as an example. Does the index show that?
Nerida: It does. It’s interesting; Queensland sits on about the Australian average for apartment demand and also for housing demand. I think what’s happening is that although Queensland is sitting in that position, it’s really places like the Gold Coast and Sunshine Coast that are really propping up that apartment demand. I think most people would be pretty nervous at the moment with Brisbane CBD, and I think the strength of other markets is really offsetting that.
Kevin: What was the number one most-in-demand suburb around Australia?
Nerida: The number one most-in-demand suburb is a suburb called Warrandyte in the northeast of Melbourne. It’s an outer-suburban area, a pretty leafy area. It’s an area that has a fairly large diversity of homes from fairly low-cost homes to high-cost luxury homes. That was the number one for housing.
For apartments, it was Manly in Sydney – beachside, very popular not just with people from Australia but also globally, as well.
Kevin: I see that the South Australian market made the top ten list. Did that surprise you?
Nerida: It did surprise me. On average, South Australia sits between Queensland and WA, so it’s not a high-demand market. But certainly, there was a suburb, the suburb of Norwood, that came in in the top ten for houses. I think the fact that Adelaide is pretty affordable from a national perspective was part of it, but also, that’s a really great suburb in Adelaide, as well, so I think you’d have a lot of local people wanting to buy there as well.
Kevin: Fair enough. You mentioned earlier about Sydney and Melbourne and how they’re still high in demand. Do you see them remaining hot for some time to come?
Nerida: The Index certainly shows that they will remain hot. We’re seeing rapid increase in interest. What was interesting, though, was apartment demand in Melbourne was on the Australian average, so the fact that there have been so many apartments built in Melbourne is really moderating those demand levels. But if we look at houses, we’re seeing a very different situation.
Kevin: There’s a report out – that we’ll be talking about in the show, too – from one particular commentator who says that unit prices around Australia are going to drop by anything up to 15% to 20% over the next couple of years. What’s your take on that?
Nerida: I think it’s simplistic to look at the apartment market in Australia as one market. If we have a look at places like Brisbane CBD or Melbourne CBD, the reality is that we’re seeing a large amount of development, and it’s quite possible that we will see a drop in prices.
If we look at Sydney, though, Sydney is still seeing very high demand for apartments. We’re seeing relatively little development from a national perspective and also a historical perspective, so I think the situation in Sydney will be quite different.
Overall, I’d be surprised if we saw as high a drop nationally of 15% in apartments, but I do think that perhaps we may see some apartment types in some locations dropping.
Kevin: Nerida Connisbee is my guest, Chief Economist at the REA group. Let’s move to affordability for a moment, because I’m keen to know from you whether affordability is the big driver. What makes properties popular?
Nerida: Affordability does seem to be a big driver at the moment. We have a look at suburbs that are moving up in popularity. They do seem to be those that are more affordable. Particularly Tasmania featured quite strongly in those suburbs. Places like Bellerive, Hobart move quite quickly up our list of popularity. So affordability is a huge driver.
Not so much in Sydney. Sydney is a little bit different at the moment. The suburbs that are getting more popular aren’t necessarily affordable, but we are seeing a bit of a movement to the central coast in Sydney because of how expensive Sydney is.
Kevin: How much of this is driven by monetary policy? Is that actually what’s distorting the market – rate cuts leading to an acceleration in prices? Is this what’s making the problem of affordability even worse?
Nerida: Yes, definitely. I think if you look at what is happening with monetary policy, the Reserve Bank felt comfortable cutting rates – the two rate cuts that we saw this year – because they thought prices are moderating – and look, at that time, data suggested that prices were moderating, so they made the two cuts. But certainly, when we look at our Index, demand really surged following those two cuts.
Our Index surged in terms of demand, but we also saw quite strong price growth, particularly in Sydney and Melbourne. It’s a really difficult one, because historically, we have been reliant on monetary policy to drive the economy, but at the moment, it does seem to be messing around with the housing market.
Kevin: Jobs, too, are also a big driver of where people can live, aren’t they? I know affordability is important. If affordability is that important, are we seeing a loss of people out of Sydney because it is so unaffordable?
Nerida: Yes, we are. Sydney does attract the most overseas migrants in Australia, but it’s been losing quite a lot of people over the past decade. Part of that would have been jobs during the mining boom, so Sydney would have lost quite a few people to WA and Queensland as a result of that. But certainly at the moment, they’re still losing people, and I think affordability has a lot to do with that.
The fact that Sydney is so unaffordable is going to be a brake on economic growth. If you can’t get the right sort of people, if you can’t get a diversity of different types of people living in your city, then it does really lead to problems with economic growth.
Kevin: Bernard Salt, of course, wrote an article a couple of weekends ago, and we spoke to him on the show last week about the cost of avocado on toast. Is it that simple?
Nerida: No, it’s not. If you have a look at the rate of growth in house prices, particularly in places like Sydney and Melbourne, cutting a few breakfasts isn’t going to cut it in terms of keeping up with price growth. If you have a look at how the ratio of household income to prices changed, particularly since the time when baby boomers were in the market, that ratio has really, really increased.
Sydney is the second most unaffordable city in the world, after Hong Kong, and unlike Hong Kong, we don’t have the huge social housing backup that Hong Kong does. It’s quite simplistic to say that if younger people just stopped spending on fun stuff, they’d be able to afford a home, when the reality is no, they wouldn’t be. It’s not that simple.
But the other thing is that people will have to become more used to living in higher density. I think that is definitely case. As our cities grow, as more people want to live in inner areas, we do have to get used to living in higher-density apartments or housing.
Kevin: Land supply is, of course, a big problem. We saw the federal Treasurer come out and encourage state governments and local councils to release more land. Would that help?
Nerida: It would help. There are lots of things that governments can do, things like streamlining the planning process, making it easier for developers to do what they do best is a key factor, releasing land. There are lots of things local government can do, and I think one of the things being done in Sydney at the moment is the amalgamation of councils. That is a key thing. If you can get bigger councils, they can start to put in better planning procedures and make them far more streamlined.
Changes to planning, release of land, better infrastructure, all these things lead to greater affordability.
Kevin: Nerida, great talking to you. Nerida Connisbee, Chief Economist at the REA group. Thank you for your time.
Nerida: Thanks for having me on.
Where have all the Chinese gone? – Gavin Norris
Kevin: I’m delighted to say that I’m joined now by the head of Juwai in Australia. Juwai, of course, is the number one Chinese international property portal, with more than 2 million visitors from China and other countries and showcasing 2.5 million listings from 89 countries. This is a very big website. Of course, we’re interested in what’s happening with foreign buyers into Australia, as well. Gavin Norris joins me, head of Australia for Juwai.
Gavin, thanks for your time.
Gavin: Thanks, Kevin. Thanks for having me.
Kevin: It’s great that the Juwai has someone on the ground now in Australia, because you’re obviously feeding back and giving us information about what’s driving the market for foreign buyers. What’s the fascination with Australia and New Zealand for overseas right now?
Gavin: Yes. Good question. It definitely is a fascination. When you look at the traffic through Juwai, obviously, as you said, we’re a portal from Chinese consumers looking at international property. When they come to our site, about 40% of traffic goes to U.S. A whopping 30% to 35% actually comes to Oz and New Zealand, so we have a huge share of eyes.
What they’re attracted to…, we often run surveys and ask inquiries do come through why they’re looking to invest in countries such as Oz. Their main drivers when looking at overseas investment, typically, is safety and quality of lifestyle as well as infrastructure, but safety is a key driver.
Then their key motivation on top of that is education – and quality education as you’ll often hear around the traps. That is a key motivator for the Chinese, and that’s very true as far as our consumers.
When you look at safety and you look at the education options down here, that’s why we end up as such an attractive proposition for the Chinese.
Kevin: It’s a huge area of growth for Australian property to look at overseas buyers, particularly from China, and we’ll talk about how big that can be. But firstly, let’s just deal with the emotional debate that happens in Australia with foreign buyers and jacking up prices.
The point I’d make is about the research from the Property Council that tells us every new apartment bought by a foreign buyer enables four new apartments for local buyers. How do you react to that statement, and how true is it?
Gavin: Yes, true. The Australian government did a bit of research when that was all coming to hand about 18 months ago. Sure, foreign buyers are an important part of the market but still a very small part of the whole buying market across Australia. Indeed, Chinese are the largest portion of that foreign buyer market. Of course, they’re only typically able to buy off the plan rather than second-hand assets.
They are I think an important element but not the be all and end all of driving new construction and new supply, which cities like Sydney, Melbourne, Brisbane do cry out for and have been crying out for for some time. So I think they’re integral.
When you go one step further than that, coming back to why they’re actually buying in Australia, it’s not typically as a main driver for investment. They’re all here largely for other reasons and other purposes, and the main one being education.
Real estate just ends up being a consideration along the way to sending their children to universities, secondary schools, and ever more so into private schools. Their long-term driver is a value to the economy.
They’re a small part still – we would want to over-play that – but important drivers of bringing sustainable revenue into the parts of the economy where we need the most.
Kevin: Gavin, the restrictions on foreign buyers that have been bought into play in recent times, has that played much of a dampener on the interest from foreign buyers?
Gavin: No, not from what we can see. A few interesting events that occurred more recently were the stamp duty increases and the land tax increases around midyear for the Eastern states.
The growth rate that we’re seeing early in the year before that was introduced was quite strong. When that was announced, growth was still positive but slowed down while the changes were surfaced and people absorbed what they meant. Now, they’re in place, largely, growth rates are back to where they were earlier in the year.
Those kind of thing are just a blip on the radar as far as what we’re seeing as Chinese demand for Australian property, again, playing towards their longer-term objectives here. When they’re looking at ten-year horizons for education and other purposes, those kind of restrictions or changes in the investment dynamics are a much smaller consideration as part of that plan.
Kevin: How much foreign money is invested in Australia?
Gavin: We can look at what comes through our website, for example. I f you look at what we saw as inquiry value for Australian property through our website over the last 12 months, we had almost $6 billion (U.S. dollars, that is) in inquiry across Australian real estate. That’s a huge sum. A fair sum goes to Melbourne. For every three inquiries, we get for the city of Melbourne, we have two to Sydney. It’s about the same ratio from Sydney to Brisbane. So, substantial amounts.
Kevin: What are your predictions for what’s going to happen in 2017 with Chinese buyers?
Gavin: I don’t think there’s any reason to say that it won’t be a stronger year than what we’ve experienced this year. A lot of their demand is driven by what’s happening in China. Anyone who tells you that the Chinese presence globally, not just Australia as far as investment goes, and not only just in real estate but commercial assets as well is going to be a “Here today, gone tomorrow” story, it’s definitely not true.
The main thing is just the evolution of Chinese capital in second-, third-, fourth-tier cities and their waking up to the possibility of investing overseas and spending their investment, too, including assets in places like Australia.
As they wake up to the opportunities, the second wave of capital will come. We’ve seen that in the institutional space where the large insurance groups have been here, the large developers, Greenland [6:49 inaudible], but now, we’re talking about other smaller funds – still large in our terms – and Chinese institutions coming to town. It’s much the same when you’re talking about the mom and dad purchases, as well.
We just see growth continuing to accelerate to the large numbers that are forecast. I think the numbers expected will end up with doubling the kind of investment that we’re seeing today in the next ten years.
Kevin: Wow. It’s amazing. Where do Chinese buyers like to buy, and how much do they spend?
Gavin: Again, as I’ve touched on before, it’s regions and locations that play up to their motivation, so safe areas with good amenity and, candidly, a good touch of Chinese community with a backbone of education and other options for them.
As I said before, Melbourne is our largest market, which surprises some people. Sydney, second. Brisbane, third. Then Adelaide, Gold Coast, Canberra, Perth, these more secondary gateway cities are definitely increasing at a rapid rate as the Chinese consumer gets a little bit more savvy about where they place their capital. Affordability is a key factor as to why we see some more attraction to Melbourne over Sydney.
Kevin: I saw a repot recently where I think Juwai predicted that Canberra may have a chance of being the next hotspot.
Gavin: We think so. Obviously, Canberra airport is opening itself up to the international markets with flights to New Zealand and Singapore. We see that all over the world, particularly in areas like Miami in the U.S. where if that happens, Chinese investment flows soon after. So we expect strong growth out of these areas that offer all those benefits that I touched before, provide great access, have great universities, and Canberra’s got some of Australia’s best obviously.
Canberra, Sydney, Melbourne, we’re just an easy trip away and not too far as far as time zone goes, as far as many of the cities within China. It’s bit of a perfect hit. With the affordability metrics you get out of Canberra versus Sydney, it makes a lot of sense that we’ll see a strong growth there.
To answer the other half of your question – what price point are they looking at – our typical purchaser isn’t the billionaire Chinese person coming out; it’s an investment range around about $700,000 to $900,000 (Aussie). They are at more the mid-market range than the top-end, the average consumer.
Kevin: Yes. Gavin Norris from Juwai. Thank you so much for your time. Great talking to you, mate.
Gavin: Thanks, Kevin.
We are not born with a ‘how to’ manual – Michael Yardney
Kevin: A question I’ve always wanted to ask is are great property investors born or made? Well, let’s ask one. Michael Yardney, who I consider to be a great property investor and an advisor joins me.
Good day, Michael.
Michael: Hello, Kevin. That’s an interesting question, isn’t it?
Kevin: Well, I know you were born, but were you born a great property investor?
Michael: No one is born with a how-to manual about doing money or other things in life, either, but I found that there are some innate qualities in some people that make them more likely to be successful. But you see successful people in business, property, shares become that way from all sorts of backgrounds, so I believe anyone can be – if they follow the right rules and develop the right habits, Kevin.
Kevin: I guess when you’re successful in life, it means you’re going to be successful at most things, but as you just alluded to there –and I think it’s a great point – there are common traits some of these people have, Michael. Is that what you’re finding?
Michael: I think that’s right. But what you said is right; you will find it in any area – in business or property. A small group of people will do consistently well and the vast majority won’t. Often, the way you do one thing is the way you do everything, so there are some underlying traits, Kevin.
I think one of them is that they have smart, rich thinking habits. It comes back in many ways to their mentality and how they think about things, but it also has a lot to do with your life’s experiences along the way. Every property investor who’s now successful who I’ve come across has had lots of little failures along the way, but all they’ve done is get up one more time and have another go at it.
Kevin: I quite often think of great sportspeople or people who are fantastic at anything, whether it be as a surgeon or a mechanic, one thing that they do have in common is that they might not have been born that way but they certainly did a lot of training, put in a lot of hours.
Michael: Sure. I remember many years ago there was a famous book by Malcolm Gladwell called Outliers, who noted that in most occupations where you needed complex cognitive and motor skills – whether it was performing surgery, whether it was being a musician, playing tennis – you needed a lot of training.
I think the key to that is over time, you learn to eliminate the noise. You need to be able to chunk down on information that’s usable, because there’s so much information out there, but you also need to know how to screen out the irrelevant options to you and only concentrate on the right things.
The way you do that is by doing it, and unfortunately, successful people will recognize that they have to fail to become successful, and that doesn’t put them off, while some people are scared of failing and they don’t have a go. That puts them off, and then they’re right; they won’t be successful.
Kevin: I think that is the first roadblock, not doing it for the fear of maybe failing.
Michael: That’s definitely one of them. So how do you know what to do when there are so many strategies out there?
I think one of the other challenges I see is that people are in a real hurry to get there. They want to do it quickly, and they’re lured by the things that are in my inbox and your inbox every day: “You can buy ten properties in ten years, you can buy five properties in three years, you can buy property with no money down.” I guess it’s our greed glands working overtime when you get those things.
One issue is understanding what’s realistic, and the other is becoming good at things by doing them over again. Rather than jumping from one shiny toy to the next, like the average investor does, the successful investors I see do the same thing over again: they set their goals, they map their course, and they keep doing what’s working, refining their skills along the way.
They stick to tried-and-true strategies, tested strategies. They know that way how to navigate the speedbumps along the way. And it means that their success then depends more on themselves, and on their skills that they’ve refined through familiarity, by doing it over and over again, rather than the marketplace.
Successful investors seem to do well in good times, Kevin, and they do well in reasonably bad times, while the average investor does reasonable in good times and they don’t do well in bad times. It seems to be that successful investors have something internal that makes them work, not the marketplace that drives them.
Kevin: Yes, consistency. You touched on that. Consistency is the key, doing it over and over. The way to become an expert at anything is to do it 100 times, rather than 100 things once.
Michael: That’s exactly right. That’s how you know when you are an expert, when you can repeat it, when you can do it over again, and when you get a consistent result. By doing it that way, it becomes boring, and that’s why some people look for other excitement, Kevin. I often recommend they go bungee jumping or they go trail bike riding. They should make their property investment boring so that the rest of their life is exciting.
Kevin: Very good advice. Michael Yardney, thank you so much for your time.
Michael: My pleasure, Kevin.
Anything is possible when you don’t know what you are doing – Charles Tarbey
Kevin: My special guest this week in the show is Charles Tarbey, who is the CEO, founder and owner of Century 21.
Charles, thank you very much for your time.
Charles: Thank you, Kevin.
Kevin: You and I have spoken on many occasions about the skills of agents and what’s happening in the market. This time, I’d like to know a little bit more about Charles Tarbey. Tell me about your property investment journey. When did it start for you, Charles?
Charles: Wow. Actually, Kevin, it started before I got into real estate or as I was getting into real estate – at 18 years of age or the end of my 17th year. I was putting away a few dollars each week, and I managed to buy a house out of Sydney but still in the Sydney metro when I was 18 years of age.
The timing was perfect, not that I knew anything about timing at that stage. Within 24 months, the market had kicked on and I was able to actually sell that time and capital gains-free because it was my principal place of residence. That allowed me to open my first real estate office at the very tender age of 21.
I always tell people that I live by the philosophy that anything is possible when you don’t know what you’re doing, because Kevin, if I knew what I was doing, I would have probably talked myself out of it.
Kevin: Never, Charles. What was the branding above the door on that first office?
Charles: Interestingly enough, it was the name of the suburb, Penrith Real Estate out in the west of Sydney. In those days, it was a big thing if you own the name of the suburb because people would ring Yellow Pages, and bang, you’d get most of the leads for that town. Nowadays, it’s all Internet search-based. You could put “Penrith real estate” in there and you’d get 50 agents’ names come up, so it’s a very different scenario.
Kevin: Yes, of, the Internet wouldn’t have been around in those days, either.
Charles: It was not around. In fact, I was one of the first people to have a facsimile machine in 1977, 1978. The only problem was that people I was doing business with didn’t have one, so I couldn’t send them anything.
Kevin: They wouldn’t have had mobile phones in those days, either, would they?
Charles: That was the other thing, too. I was fortunate enough to get one of the first mobile phones in my car. They were very slick design. You couldn’t obviously take them out of your car. The prefix number was 007. When you’re leaving messages for people and they’d say, “What’s your number?” and I’d say, “007,” they’d say, “Look, mate. Just tell me what your number really is.”
Kevin: That probably would have been the old Telecom Traveler, was it?
Charles: It was. It’s fantastic. There wasn’t a traffic light I didn’t pull up at with the phone to my ear and not turn left side of my ear and not going to lift and see somebody with a shoe to their ear.
Kevin: Charles, In fact, I was exactly the same. I think I used to stand at the side of the car with the door open with the phone up just so people could see I had a mobile phone. Boy, those were the days. You might also remember carbon paper. Remember we used to use carbon paper on contracts.
Charles: Kalamazoo, that was the big thing.
Kevin: We used to call them strip lists in those days where all the properties were all on one strip list. Anyway, enough reminiscing. That first property, did you hold that for long?
Charles: No, I sold it. When I had chance to buy this real estate office, I sold the property. The market was good, and I used that equity to acquire that office. Within a couple of years, I started then buying… Penrith in those days was very underdeveloped, and I was able to buy a block of land here or there and get a local builder put a spec home on it for me. I started doing that two or three times a year to bolster my assets and my cashflow. Eventually, I started keeping one or two of the ones I was building and selling, and that was how I started building my portfolio in real estate.
Kevin: That’s interesting. Where did the learning about property come from? Did it come from your family?
Charles: It’s a big thing owning a real estate in a lot of families, but no, it came from the fact that when you are out there buying and selling properties or actually selling properties for builders to investors, you start to see a pattern, and you can pick up on that pattern fairly quickly. If you act on it, it’s a good pattern to get involved in – if you’re not too ambitious. You have to be very careful with it.
Kevin: Let’s talk about strategy for a minute. Have you always used the same kind of strategy? If so, what is it, or has it changed?
Charles: No. It’s changed over the years, because I was able to purchase different types of properties in the equity I had, and some of them can be dangerous. For example, I have a commercial strata in each capital city where my corporate offices are located. That strategy is fine because I’m the tenant. I can purchase the property and I can live in that property.
But in the last few years, if you’re a commercial floor owner or strata floor owner, that strategy could have devastated you. You could have been completely out the backdoor because commercial space got very, very hard to lease and you had to offer significant incentives to tenants. When you’re the tenant yourself, it’s so much better.
When you look at it nowadays, with interest rates so low, you can go into city of Sydney, for example, if you can find a $5 million strata or a 500 square-meter floor. If you borrow $5 million at today’s interest rates, it’s still $100,000 cheaper than renting it.
The strategy changed, but people have to be very careful about getting into a marketplace that they’re not engaged in all of the time.
Kevin: Have you got a mixed portfolio, residential and commercial?
Charles: I do. It’s a bit embarrassing to say this, Kevin, but I own a golf course at south of Sydney, in a place called Kangaroo Valley. It’s a lovely 18-hole Jack Newton-designed course.
Kevin: I remember this now. Yes.
Charles: It’s not the sort of investment you would normally buy. But having a passion for golf at the same time and a passion for real estate, I’ve been able to build villas around the golf course progressively, and the rental return on those villas becomes a convincing platform. Golf courses as a standalone are probably a disaster, so I prefer to call it a hotel with a golf course rather than the other way around.
Kevin: Did you buy it as a golf course, or did you buy it because you knew you were going to develop it?
Charles: It was a golf course sitting there, 12 holes, shut down, got into trouble. I bought it on a whim. It’s probably the worst investment I’ve ever made – I’ve had it for 19 years – but it’s the most beautiful thing I’ve got in terms of real estate investment.
Kevin: I was going to ask you maybe a little bit later into the interview what was the worst investment? You’ve probably given it to us now.
Charles: I’ve given you the worst and best at the same time. No, it’s a business now. It certainly is property, but it’s a business, and it trades successfully as a business. It’s been 19 years since I bought it, interestingly enough. All those years later, it’s something that I have pride in.
I was telling somebody the other day – and this is something interesting, too, Kevin – that owning a property is not just for the sake of owning property. With that particular property, I now feel a responsibility to that property in that in 30 years’ time, who’s going to be enjoying that property? Whatever I do to that property today will either reflect on people’s enjoyment or disappointment in time to come.
In buying properties like that, it’s not just about making money. I have now a responsibility to make that property a substantial property that people can enjoy for many, many years to come, and that means it’s going to cost me more. I’m going to have to build a better clubhouse down there and things of that nature. That may not necessarily be great for my return but in the overall scheme of things, I’m hoping, it’ll turn out to be one of the most beautiful golf courses in country New South Wales.
Kevin: If that was your worst deal, what’s your best one?
Charles: Buying Century 21 Australia, that would be when you look at it from that perspective.
Kevin: Best property deal.
Charles: I think buying my family home is my best deal. Again, this brings into play not just a growth in asset or capital gain. It’s very hard to put your own property on a balance sheet because if you sell it, you have to go and move somewhere else. But there comes a time in people’s lives where if they buy a home and a decent home and look after it, they will probably sell it and scale down. The better your property now, the more capital growth you can have tax-free down the track.
My property, I bought 31 years ago, the house I’m in now – just almost 32 years; my daughter was just a few months old when I moved in. I paid money for it that people thought was ridiculous, but I saw something in that property. Today, my home sits in suburban Glenbrook, Lower Blue Mountains – and I mean suburban. It’s a building block area. My house sits on five 800-square meter blocks in suburbia. Realistically, when I downsize in the future or do something else, there is a potential massive upside, capital gain-free.
Kevin: You could almost put a golf course on there – but you’ve already got one.
Charles: I’d upset my neighbors if I start chipping golf balls very badly, Kevin.
Kevin: Help me now with a bit of advice for property investors. How do they go about picking the best suburb to invest in, Charles?
Charles: That’s an easy one. That’s probably how I learned to buy property. The first property I brought was in an area that most people wouldn’t buy. It was one of those areas where people talk badly about. There’s plenty of suburbs across Australia where you hear a lot of negative news about.
I remember a property in Mount Druitt – which was considered one of those down-market areas – selling last year for $1 million. It broke through the million-dollar barrier. Just recently, a $1.5 million sale in Sunnybank.
Kevin: Is this Sunnybank in Brisbane?
Charles: Yes. Now, you go backwards to Sunnybank ten years ago or maybe even less.
People have this tendency to follow the hot suburbs, and my advice is that’s the last place you go. My advice is to buy properties in between the hot suburbs, in between them, where the postcode may not be exactly a hot suburb, but it doesn’t take long for gentrification or the process of expansion to take place in suburbs to make what seems like an average suburb in between two good suburbs become a great suburb.
Kevin: Yes. Good advice. Tell me, would you invest in property outside of Australia?
Charles: No. I say that only because I don’t have total control over my property investments but if you’re in the same country, you have some control. You’re aware of what’s going on in that culture. You’re aware of what’s going on in that government. You have a fighting chance to move a property on if you need to.
Changing laws especially in countries that don’t have the same structure that we have of government here, the same Torrens title, of the same unique ownership of property that we have in this country would scare me.
We don’t have title insurance in Australia because our title system is so young. But anywhere around the world you go and buy real estate, in most cases, you need title insurance because you don’t know somebody’s going to turn up from three generations ago and claim ownership of that property.
I think I would stay very much in Australia, and I think all capital cities in Australia will always have potential. They’ll always have their ups and down cycles but they’ll always have potential for growth.
Kevin: Tell me, Charles, is this a good time to be buying property to renovate and flip?
Charles: No, because it’s too hard to buy a property to start with in some areas. It’s too difficult to even get into the market place in some areas. Some people are buying properties to knock down, to rebuild, let alone renovate, and that’s what you’re competing against right now in most places. If there’s a shortage of stock in certain areas and an average home that you could maybe renovate, people are buying them to knock the house down, Kevin.
Kevin: Charles, great talking to you, mate. Thank you very much.
Charles: Thank you very much.
Kevin: I admire your work. Every time we see a Century 21 sign, we’ll think of you, Charles.
Charles: Good on you, my boy. Thanks for the opportunity.
Housing affordability vs over crowding – Danni Addison
Kevin: My next guest is Danni Addison. Danni is the Victorian Chief Executive Officer of the Urban Development Institute of Australia. We’re talking about affordability – seems to be something we’re talking a lot about.
Danni, welcome to the show.
Danni: Hi. How are you, Kevin?
Kevin: Good. Thank you. Now, in response to Treasurer Scott Morrison’s statements this week about combatting housing affordability issues, you said that the government needs to have a courageous conversation with the community. What do you mean by that?
Danni: That’s right. I think the most courageous conversation the government does need to have with the community is really the one around density. We see it time and time again, in particular in Melbourne and in Sydney, in our major capital cities, this real fear of density and the real misunderstanding of what a more dense city would look like and would feel like for the people who already live in it.
It’s one that is difficult because there is a lot of community resistance around density but it’s one that is simply inevitable just due to the population growth that we’re experiencing, especially here in Melbourne.
Kevin: To make properties more affordable, we need to make the cities denser. Do you think we run the risk of overcrowding?
Danni: Not if it’s done in the right way. The key to it is really understanding how our city works and where the spine of infrastructure and also jobs are located throughout the city and where those real hubs of activity can be, not just in the central CBD districts but out in the suburbs and on the peripheral to the city.
Planning isn’t about looking at a city in terms of what its CBD can offer, but it’s about looking at where people move, where the jobs are located, and the transport infrastructure that’s needed to support that, and then where is the most appropriate place for the housing that we need to deliver for such a growing population.
Kevin: Danni, we’ve seen a lot of research that said that about 50% of Australians will never own a property. I sometimes wonder whether they actually want to and whether some people are happy to rent for the rest of their lives.
Danni: Kevin, I think it’s all about choice. I rent but I’m also looking to buy my first property at some point in my life. Whether or not I live in that property will be a bit dependent on what kind of property I end up buying. I think we are starting to think differently about the role property plays in our lives, but it is still a real key part of building wealth and building individual and family wealth in Australia.
There’s a study that’s been done, the Household, Income, and Labour Dynamics in Australia study, the HILDA study. In 2016, they found that the least expensive homes in Australia had experienced a price rise of 108% between 2011 and 2014, which tells us that even the most affordable properties have become far less affordable for the average Australian.
It’s about government has got a role to play in advocating that wages keep up, income growth keeps up with the cost of living in this country but also there is enough housing and new stock coming into the market to make sure that home ownership is an attainable dream for Australians as opposed to it just being something that the wealthy few can afford to get into.
Kevin: Of course, a lot of blame for unaffordable prices in Australia has been laid squarely at the feet of foreign buyers or foreign investors. Yet to balance that up, there have been reports that we need foreign investment because it’s foreign investment who are restricted to buying new properties off the plan… I think I saw a report the other day that said that for every foreign buyer who buys a unit, it creates another four units for local buyers to buy.
Danni: That’s right. I believe it’s the Property Council of Australia who’s done that report, which is a very interesting piece of work and a really good one done by them. It comes down to the economics of development as a business and the requirement for many projects or for all projects that have a component of funding that comes from our big four banks in particular to reach a certain high amount of presale before construction funding is granted. You have to essentially presell everything before it come out of the ground.
A lot of the time over recent years, that tipping point between selling enough to selling enough to get funding to go ahead, that little gap there has been met by the overseas investor market, so it has had an impact – the restraint placed on domestic finance from the banks placed on those purchases – on the ability for developers to presell a project and therefore start building.
Kevin: Yes. Do you think the attitudes of Australians need to change when it comes to expectations of owning their own home and even what goes into the home or the size of the home?
Danni: I think it will change inevitably, whether or not it needs to. I think there will be so many different views out there that I’d hate to post that there, but the reality is that it will change because home ownership is increasingly unattainable. The younger generations are looking at property ownership as a wealth-creating sector but not necessarily as the marker of the family status that it used to be – owning your home, having your family, all that sort of stuff.
I think people are more willing to trade-off on location and amenity and other things like that than the backyard, but there is still a huge demand for the Australian dream and the house and the land packages. Melbourne’s green fields in particular really tell that story about how strong the demand is still for that suburban lifestyle.
Kevin: Danni, LJ Hooker CEO Grant Harrod has said that abolishing stamp duty would go a long way to increasingly affordability for Australians. Would you agree to that?
Danni: Yes. Look, I do agree with that but it isn’t a simple solution. A broad-based land tax is definitely a more equitable solution but it would be a difficult transition for the everyday homeowner to make.
What stamp duty does at this point is place a barrier to filling a home or to purchasing a home. We see this is being particularly important in the downsize of market, and it’s the market that we haven’t really seen come through yet. As our baby-boomer section of the population gets older and their kids move out and they want to downsize, a big barrier to doing that is often stamp duty and the price it’ll cost them to simply sell the family home and purchase a new different form of dwelling that better suits their needs.
We find that people stay in their houses a lot longer than maybe they would like to, and this definitely has an impact on the amount of supply that could be available in the boarder suburban areas for families as opposed to older couples or older single people.
It’s intriguing in a demographic sense. It’s definitely a very active barrier, and it could be addressed by state governments. But state governments rely very heavily on their stamp duty revenue, so I don’t anticipate that it will be a quick solution.
Kevin: What’s your view on First-Home Owner’s Grants? Does it actually fuel the growth in properties, or is that actually a genuine way to help young buyers get in?
Danni: I think it is a genuine way to help young buyers get in, especially at that point in their lives. It’s often the difference between someone being able to and not being able to buy their first home. In a market where prices are increasingly so rapidly, the sooner people are able to get into the market, it does have a big impact on what that property could be worth to them down the track.
There are definitely varying views on it from economic point of view but it definitely does have a good impact on the first-home buyer market as it is, and if and when it’s removed, it does have a detrimental impact on the ability of young people to buy into the market.
Kevin: Danni, great sharing your views. Thank you very much for spending some time with us today.
Danni: Good. Thank you.