11 Feb Property market surprises 2016 – Paul Nugent
Paul Nugent from Wakelin Property Advisory says we are in for some pleasant surprises with the market this year.
Kevin: With his view on what the market is going to look like in 2016, I’m joined now by Paul Nugent, who’s a director at Wakelin Property Advisory.
Hi, Paul. Thanks for your time.
Paul: Thanks very much, Kevin.
Kevin: What do you think we’re going to be saying about the property market this time next year?
Paul: I think we’ll probably be most pleasantly surprised by how resilient the market has been and that we probably won’t be getting the downturn that many have predicted.
Kevin: Yes, there have been some pretty dire predictions. Were there any big property surprises in 2015 for you?
Paul: I think there were several, to be honest with you. Firstly, it was that the government and APRA were unusually strict in tightening up lending policies. In the past, we’ve had a lot of jawboning, but this year, they actually came through, and I think that’s had some quite beneficial consequences.
The other interesting area has been where they’ve had an unusually strong response to overseas buyers breaking laws. That’s probably, once again, been a positive for the overall market as we finish the year.
Realistically, I think we thought that the market would show some good growth and some strength this year, but I think the level of growth in both the Sydney and Melbourne markets in particular has been far greater than anticipated.
Kevin: You mentioned overseas buyers there. Have the restrictions that the government placed on them been any sort of a dampener? Has it slowed that part of the market down a bit, Paul?
Paul: Yes, Kevin, I think it has, most certainly. The second half of the year has been very different to the first half of the year, where we saw people rampantly buying whatever suited them and flouting the laws.
There’s been quite a realignment, and that’s principally happened in two sectors of the market: the top end of the market and also, particularly in the Melbourne situation, in the prized eastern, middle eastern suburbs in the school belts, where many overseas buyers have been paying what we would suggest are fairly hefty premiums to acquire residential properties.
Kevin: Paul, what are the markets that you’re going to be watching in 2016?
Paul: There will be the usual ones. It’ll be the inner suburban markets. It’ll be interesting to see what happens in Sydney, to see if prices actually go backwards or whether they just level off. I think Brisbane and Melbourne are probably looking as though they’re going to show a bit of growth next year, particularly in the first half of the year. That would be my prediction.
Kevin: You mentioned Brisbane and Melbourne there. Brisbane is probably long overdue for some price increases. Do you see it growing as rapidly as some of those southern markets, Sydney and Melbourne?
Paul: I don’t think Brisbane will ever perform in the same way that Sydney and Melbourne do, and that’s just off the back of population growth and demographics.
Kevin: What advice would you have for someone wanting to start a property portfolio in 2016?
Paul: The very best thing that one could do is establish their budget upfront. It’s most important that people get the go-ahead from their lending institution and sort out that budget because the budget is going to dictate the quality of the asset they can buy.
Now, in doing that and establishing those parameters, it’s then a matter of scouring the market and buying the very best property that one can within the financial range that is available – not going out on a limb, not trying to find hot spots in the market, and most certainly – most certainly – steering clear of the new multi-unit high rise sectors.
Kevin: You mentioned a couple of things there – one, the high rise – but the thing you haven’t mentioned for me, and I want to ask you about this, is affordability and particularly some of the regional markets around Australia. Are they good propositions for someone to get started as an investor?
Paul: Not necessarily as an investor. In fact, off the back of the changing tide in the mining boom, we’ve seen many regional areas in Western Australia come right off the boil and we’ve seen prices go backwards at a great rate of knots.
I think if one’s wanting to get into the market as an owner-occupier and it suits one to be in a regional area, by all means, affordability is a very attractive factor in choosing a location. From an investment point of view, they still worry me because properties in regional areas as investments tend to be yield-driven rather than capital growth-driven.
I think that the essence of getting property investment right is buying something that has strong capital growth, and it’s not as likely to happen in a regional area. However, having said that, if it’s one’s first foray into the market and it gets someone started, perhaps one should consider it as part of the cornerstone but with a view to getting into a strong capital growth market down the track.
Kevin: Paul, great advice and thank you very much for your time. Paul Nugent has been my guest, director of Wakelin Property Advisory.
Paul: Thank you so much, Kevin. All the best.