23 Nov Our first look at 2018 – Simon Pressley
At this time of year, we always like to look back on the lessons from the year almost gone and try to predict what will happen in the year ahead with property prices. That’s the mission we gave to Simon Pressley and we find out what he thinks today in the show.
Kevin: It is always around this time of the year that we start to look back at the year that’s just gone and look ahead towards what’s going to happen in 2018. I’m reminded of a conversation I had quite a long time ago with my next guest, who at that point tipped that Hobart was going to be the big winner. Everyone scoffed at him and said “You have to be kidding.” Well, now everyone is saying Hobart is the big winner, but they probably just missed the boat. That’s why I always enjoy talking to Simon Presley from Propertyology.
Good day, Simon.
Simon: Good day, Kevin.
Kevin: You were the first cab out of the rank, weren’t you?
Simon: We were. It was this time last year when we made the bold prediction that Hobart would be the best performing capital city in 2017, but it was actually earlier than that we started investing there. It was 2014, when it was flat and it was described as a basket case market, but we backed our analysis of it’s an economy that’s improving, and it’s certainly done that well and truly – and continues to do that.
Kevin: It’s been acknowledged in many sources that that’s probably been one of the big winners of the year. Were there any other winners? And also, what were the losers of 2017?
Simon: Melbourne and Sydney, Kevin, had their fifth consecutive year of strong price growth – Melbourne 12% and Sydney 10%, so the tables were reversed there. There are still a few months of data left in this calendar year. Looks like Hobart is going to end the year with we’d estimate 16% or 17% price growth for the calendar year. If it does that, it’ll be the single best performing capital city market in 10 years.
Adelaide and Canberra both had solid years. I think that 4% to 8% growth per year, if it could be guaranteed that every year, we’re not going to be complaining. So, they were solid. Brisbane was underwhelming at about 3%, and Perth and Darwin both had their third year of – albeit small – price declines.
Kevin: How did regional Australia perform?
Simon: Every year, there are always various regional cities that perform well, and 2017 was no exception. New South Wales had the bulk of them, on the back of the New South Wales state economy, but Newcastle 12% growth, Wollongong 15% – that’s a fantastic year. Lower profile New South Wales locations: Maitland 6%, Bathurst 6%, Dubbo 5%, Orange, 4%. They’re good years; they’re better than four out of eight capital cities. Australia’s tomato capital, Guyra in the northern inland, 16% growth, would you mind?
Victoria: Colac really showing Australia’s agricultural and food processing economy doing well. Colac had 19.6% growth in the last 12 months.
Queensland: an underrated rural community called Goondiwindi had 20% price growth in the last 12 months. Of the bigger regional cities in Queensland, Gold Coast 7.8% and Sunshine Coast 5.7% beat the state’s capital.
South Australia: Port Augusta had 13.2%. That’s boom figures. Well done for Port Augusta in South Australia.
Nothing in WA had positive growth, but Broome and Busselton – both lifestyle markets – were neutral, which was better than Perth’s minus 4%.
And in Tasmania, Launceston, Burnie, and Devonport, as yet none of them have shown that they’re benefiting from the improved Tasmanian economy but maybe they’re locations to watch in future years.
Kevin: That turns us into the conversation now about next year, 2018. How do you reckon Sydney and Melbourne are going to go?
Simon: I think here and now, Kevin, Sydney is already dead flat, and I think data over the next few months will support that. I really think it’s just become out of reach. Property prices in Sydney combined with an increasing amount of negative press. All in all, I think Sydney will be flat in 2018, and it may well remain that way for several years, unless the Reserve Bank surprises us with some interest rate reductions.
Melbourne is solid at the minute, and we think it might remain that way for the first half of 2018, but it is showing signs of starting to cool on these APRA credit tightening policies. These APRA credit tightening policies are intended to really take the heat out of Sydney and Melbourne’s market. We definitely think that will happen in 2018.
Also in Melbourne, 2018 for us is always the year that will determine what sort of impacts the car manufacturing closures would have on that market. I reckon by the end of 2018, Melbourne will be flat.
But five out of eight capital cities, we feel that the outlook for the next three years is better than what it was for the last three years. Adelaide and Brisbane have the potential to commence their growth cycle, more so than the likes of Darwin and Perth.
Regional Australia is really something that doesn’t get spoken about, Kevin. I think people really need to cast their eyes on parts of regional Australia.
Kevin: Yes, I tend to agree with you, mate. What about the capital cities? What do you reckon is going to be the best performing capital city in 2018?
Simon: Great question. How could I overlook that? Hobart has the potential… It’s continuing to accelerate, the data we measure there. It has the potential to push through 20% price growth in the 2018 calendar year, but it’s going to be mid-teens at the lowest, I think. And I think it’s the only capital city that has the potential for double-digit price growth in 2018.
I think this time next year, Kevin, we’ll be sitting saying, “Wow, Hobart was out on its own, and then there’s a cluster of four or five cities that were potentially half the rate of growth of what Hobart has done.”
Kevin: Take me back into the regions again. What do you think is going to happen in regional Australia in 2018?
Simon: Regional Australia, the industries that really support the economy, mining has shown some sustained improvement, but that’s not to say people should rush out and buy into mining towns; we certainly wouldn’t. But there are a number of regional cities throughout Australia, Kevin, that play the role of a mini capital city that support more remote mining communities.
In Victoria, Ballarat is showing some green shoots there. Central Queensland: Rockhampton, Townsville, Mackay, they’re not going to boom immediately, but their outlook for the next three years is the best outlook it’s probably had in a good decade.
Kevin: Yes, because those areas had a pretty rough 2017, didn’t they?
Simon: A really rough time. But it’s not just mining. It’s agriculture. We keep hearing that term that Australia is Asia’s food bowl – Asia’s rising middle class. We’re very bullish about the outlook for Australia’s future for the agricultural sector.
And right throughout regional Australia where there are communities that have a combination of some specific agricultural products combined with factories that process the raw materials into some kind of packaged goods – whether it’s abattoirs or whether it’s wine – this is where the jobs are, in the food factories. And already throughout Australia, there are regional locations that are doing that.
And tourism: we are in the middle of a tourism boom. There were 20 million people who visited Australia last year, and just China alone, tourism analysts are saying that they believe that Chinese visitors are going to increase threefold over the next five, six years.
We’re talking $37 billion in infrastructure projects for regional Australia that are tourism-related. So, that’s regional airports expanding, that’s new hotels, theme parks, sports stadiums, dozens of them scattered right throughout Australia. They’re going to create jobs during construction, which is great for these regional cities, and when it’s finished, it’s going to attract more and more visitors, tourism trade. So, wonderful opportunities in regional Australia.
Kevin: Simon, before I let you go, I’m keen to get your opinion on the impact of the moves to regulate the market with taxes and rates. Are they having any sort of an impact on the market conditions? And are they likely to next year, do you think?
Simon: They’re definitely having an impact. We’ve seen that impact right throughout 2017. Just the talk of it in the media every day has served its purpose. Not that we thought it was a good purpose, but it served what APRA intended, which was to curb people borrowing money for property.
But it has not just affected fewer investment transactions; it has also dampened the mood of a lot of Australians, a lot of people who want to be first-home buyers or upsizers or downsizers who probably haven’t done it just because of the negativity.
APRA really missed the mark with that. It really should have been targeted at Sydney – that’s what they were concerned about – but it was the broad brush right across Australia. There is talk that they might loosen that in 2018, so let’s hope they do so.
Kevin: Let’s hope so. Just before I let you go, just one more comment, if I may. I’m keen to hear from you about property prices, and we’re talking here about regional areas and cap city areas. Do you think property prices in some of the regional areas being more affordable is impacting how we live and where we choose to live?
Simon: Absolutely, and will continue to do that. A combination of an aging population, so if, say for example, a baby boomer retires, they might have lived most of their life in a capital city but don’t have the investment capital that they’d like, a very tangible option is to sell the expensive family home in a capital city, move to a more affordable, regional location. Wonderful beaches up and down the coast and tree changes inland that people will move to.
The younger generation are making themselves more mobile. They’re more prepared to pay $350,000 for their first home and a nice lifestyle somewhere in regional Australia rather than end up with a one-bedroom cupboard in a capital city and not much of a lifestyle. I just think it’s a sign of things to come for the next generation, really.
Kevin: Always good talking to you. Simon Pressley from Propertyology. You can visit their site, of course, Propertyology.com.au. Simon, thanks for your time.
Simon: Thank you, Kevin. Have a great day, mate.