04 Feb Nhan Nguyen – Australian Property Market 2016
Our guest today: Nhan Nguyen from Advanced Property Strategies.
Kevin: And a further look at the 2015 market, looking into 2016, this year, Nhan Nguyen joins me from Advanced Property Strategies.
Good day, Nhan.
Nhan: Hey, Kevin.
Kevin: Mate, are your strategies going to be different in 2016 from what they were last year?
Nhan: Look, I think that I’m a conservative developer investor. My strategies won’t necessarily change. I might be a little bit more conservative because the run has been a lot longer than I anticipated, but I think now I’m just looking for something unique. I think exit strategy is going to be very important this year, just like any other year.
Kevin: Are you looking only at Southeast Queensland, or are you going to be looking all around Australia?
Nhan: My preference is mainly Southeast Queensland. However, I do have properties in North Queensland. Pretty much, I’ll be focusing in Southeast Queensland, yes.
Kevin: Many of the people we’ve been talking to over the last few weeks are saying there are some glimmers of hope about the Brisbane market, that it’s likely to be one of the improvers of 2016. Do you agree with that?
Nhan: Look, I think it will be quite steady. I’ve been quite surprised last year with APRA, what the effects of that were. I know their intentions were to slow down the bigger capital cities from the boom-or-bust cycle that they were concerned about. I’m really surprised that the Brisbane/Southeast Queensland market has continued to bubble along at the rate that it has.
Kevin: One of the questions I’m really enjoying asking all of our experts are the indicators, the signs that you look for that the market may be shifting, changing, and it’s time to invest. Can you give us a bit of a guide as to what you’ll be looking at this year?
Nhan: Yes. Indicators are very, very important. I’m laughing because that’s what we always look for. One of them is clearance rates. I know in December, in New South Wales, clearance rates had dropped considerably from three or six months ago. Victoria has slowed down a little bit. Queensland had dropped a little bit, but relative to the rest of the clearance rates in Queensland, it hasn’t dropped much at all. Clearance rates is definitely a big indicator that I’m always looking for at auctions.
The other indicator I often look at is building approvals. You can find that on the Australian Bureau of Statistics – seeing how many building approvals are actually going through and builds are actually starting.
I can go through a few more indicators if you want.
Kevin: Please. But just on that building approvals, is there a tipping point? Do you look for where buildings are going to go up, or is it a bit like “Build it and they will come”?
Nhan: That is part of the theory behind it. I think building approvals also overlaps with what people are demanding. Let’s say, owner occupiers, if they’re wanting to build their own homes, to get out of the ground. It’s just more so looking at the trend. Is the trend going up, or is the trend going down?
Obviously, if the trend is going up, there’s more demand for buildings. If the trend is going down, there’s less demand. We’re looking at indicators of supply and demand, and more so, oversupply is probably more what I’m leading towards.
Another one is development approvals – finding out where the concentration of development approvals is. There are actually a lot of units coming out of the ground, you may have heard and you’re probably aware of, especially within one or two kilometers of CBD, that’s where a lot of high rises are often coming out of the ground. When you have, let’s say, 2000 or 4000-square meters, you can put hundreds and hundreds of units on there, and sometimes, the unit market is the first to be oversupplied.
Kevin: What are some of the other indicators? You said you’d be able to run through a few.
Nhan: Another one is exit strategy, and also sales rates for developments. A lot of valuers out there talk to a lot of developers and are looking at sales rates. If sales rates are going up or sales rates are going down, that’s another source of information that you have to really study intimately.
Some developers have really good sales channels, and if those sales channels dry up due to various reasons, whether the market has changed or finance has changed, that’s definitely another indicator.
Postcode restrictions. If you look at the GFC, finance really determines the market. If finance is hard to get, then people cannot buy, and therefore, sales are slowed down. There’s a reason for postcode restrictions with certain suburbs and certain towns.
Kevin: Where would you get that information from, Nhan?
Nhan: Oftentimes, they’re published via finance brokers. You can go through finance brokers. They have various newsletters issued from time to time. That would be my definite suggestion there. Talk to your bank or local banker. They have a list. They can basically tell you which postcodes to steer away from.
What happens there is the banks reduce the amount of lending possible for a particular project. Instead of lending there to 80% or 90%, they’ll cut it down to, let’s say, 70%, and that will change the dynamics of the lending situation there.
Kevin: Nhan, what about aspirational buyers – that is people who have started to buy up so that we see the medians start to creep up, and also an increase in wages? Is that an indicator for you, too?
Nhan: That is an indicator. More so in the background, that’s an indicator. Another indicator that will reflect part of that is what the Reserve Bank thinks about interest rates. I, personally, think that interest rates this year will come down a little bit further just based on all the feedback that has been mentioned out there.
I think wages is an indicator; however, it’s more so about people’s sentiment. Sometimes people’s wages are low but if they’re really, really gung ho on property, they’ll go and buy property either way whether they believe they can afford it or not. It’s more so about confidence and sentiment in the market, just like the share market.
Kevin: Just to sum it up for us, Nhan, what do you think we’ll be saying about the 2016 market at this time next year?
Nhan: Look, I think the 2016 market will be full of surprises. I’ve found that when I did my predictions at the end of 2012, I was completely wrong. I found oftentimes – I was reading a book recently by a billionaire who founded PayPal – the predictions are generally reflective of the person doing the prediction. My prediction at the end of 2012 was that the market was going to be flat for another five years, and I was completely wrong. It was just what was happening at that point in time.
I think 2016 is going to be a clear year. What I mean by that is in 2015, the APRA came in. It gave the market what we call a soft landing, as opposed to a handbrake with the GFC, and so it will adjust. If the market slows down, it won’t be much. It’ll just be incremental to allow the market to naturally adjust rather than a handbrake fall off the edge of a cliff.
Kevin: Always great talking to you, Nhan Nguyen from Advanced Property Strategies. All the best for this year, mate, and we look forward to talking to you during 2016. Thanks, mate.
Nhan: Thanks so much.