23 Jul Sydney in for a ‘soft landing’ – John McGrath
Property guru John McGrath says he has great confidence in the South East Queensland property market. We find out why, what he sees as the drivers of growth and interestingly he adds that he thinks the Sydney market is in for a soft landing. But what about the regions and the other parts of the country that are struggling?
Kevin: Recently, I attended a function in Brisbane, and the guest speaker was John McGrath from the McGrath Organization. John always gives some really good insight as to what’s happening around Australia, and John joins me now to talk about his presentation and what he’s seeing in the market.
John, thanks for your time.
John: Thanks, Kevin. Good morning.
Kevin: Good. John, in your presentation to the crowd – and quite an impressive group it was, too; thank you for having me along – you mentioned that in your opinion, southeast Queensland is under-valued, that it’s still good value for money.
John: Yes, and it’s interesting, Kevin, because often the locals are the last ones to find out because it comes too close to home. But if you look at the east coast of Australia right now where Sydney and Melbourne have really de-coupled from the rest of the country in terms of their pricing… And I’ve always seen Brisbane and South East Queensland as equally great real estate and equally great lifestyle, of course, as all your listeners would agree.
The pricing disparity between the two markets or the three markets is too great at the moment. I think that Sydney and Melbourne are due for a slowdown and they’ll plateau at this sort of level, and I think we’ll see South East Queensland start to catch up over the next few years.
Kevin: What shape will that plateauing take in Sydney and Melbourne, John?
John: Kevin, I think we’re in for a soft landing. A lot of people have talked about bubbles and markets coming back dramatically; I don’t see that happening. I think there’s enough demand and with low interest rates, that’ll be a nice soft buffer. But I think we’ll see prices stabilizing around these levels. Sure, there’s a possibility of a small correction of a few percentage points. That generally does happen when a market comes to the end of its cycle.
So yes, we might see a 2%, 3% or 4% rise from here. We might see a 2%, 3% or 4% correction from here. But I think the sort of values that we’re seeing in Sydney and Melbourne are about where it will rest for a while.
Kevin: You gave some great examples about the disparity in prices or the values between, say, South East Queensland or the Brisbane market and, say, the Sydney market. Let’s talk about those for a minute. The square meterage, you’re talking around $9000 a square meter in Brisbane compared to anything up to $50,000 or $90,000 per square meter.
John: It’s interesting, Kevin, because we’ve been fortunate to have sold a few on the river recently, some really beautiful properties around that $9,000 to $10,000 a square meter for prime residential riverside apartment living.
The equivalent – and Sydney Harbor would be the obvious equivalent, or even Bondi Beach – they’re certainly fetching $25,000 to $35,000 a square meter, and as you mentioned, they’ve gone above $50,000. In fact, the record sale price in Sydney recently almost hit $100,000 a square meter, which was next to the Opera House, or certainly just up the road from the Opera House.
When I look at great living up in Brisbane for $9000 or $10,000 a square meter, or even if we look at the Gold Coast on the beachfront for $9000 or $12,000 a square meter also, and then I think the equivalent in Sydney and Melbourne, which could be two, three, or even four times the dollar amount per square meter, it just feels for me, there has to be a catch-up happening shortly.
Kevin: John, let’s take a national perspective for a minute. The regions: I think you predicted in your presentation that New South Wales regional areas are probably going to do fairly well. Would you have that view in most of the regions around Australia?
John: Yes, I think particularly, Kevin, the regional towns that are on the coasts and are fairly close to the big cities. In Melbourne, you might have Geelong or the MorningtonPeninsula. In Sydney, you have areas like the South Coast just below Sydney, Wollongong, and you have the Central Coast, and even areas like Newcastle.
I think areas that have reasonable – within two hours – proximity of the big cities… Because a lot of people that will be looking to move to those areas still have to access the big cities, and if it’s the Baby Boomers, they want to be close to their kids and grandkids.
I think anywhere within two hours of the major cities will really benefit from the current trend we’re calling telecommuting, where a lot of people no longer have to actually go every day to work in the big cities. They can actually work remotely from better lifestyle locations we referenced yesterday or last week in the session. We talked about SunshineCoast as a great example.
In fact, I was sitting next to a lady at the breakfast and she had been living all her life in Brisbane, and she’s moved up to Sunshine Coast and she’ll travel a couple of times a week and the rest of the time, she’ll just work online by the Internet. I think that’ll become a really popular trend that will benefit the lifestyle regionals.
Kevin: Talking about trends, I know you did talk a lot about trends in your presentation. It’s one of the key things you look at to work out where the market is headed. Let’s talk for a moment, if we could, about overseas investors. What’s your take on what’s happening on how we’re treating them, John?
John: I was really disappointed, Kevin, when we saw the main states on the East Coast of Australia all put up a stop sign and they all raised their stamp duties significantly. Basically, they doubled the entry price in terms of stamp duty for overseas investors. I think it’s very short-sighted and I think it’s a knee-jerk reaction.
Of course, a lot of people in Sydney were talking about the market getting too hot for the locals to get in. Really, in my opinion, it wasn’t overseas buyers who were doing that; the market was just running very, very hot. An extremely small percentage of those properties overall were being sold to overseas buyers; most of it was local money.
I think, really, we should be, as a nation and as an economy, encouraging overseas investment into us, not saying to people “We don’t want your money.” In fact, Canada – who had been a great recipient of a lot of overseas investment – put up a similar stop sign in the last few years, and their market has been damaged significantly because the overseas markets all withdrew.
I think the Asian region will still find Australia very popular and I think they will come back, but I think, though, they might actually wait until the stamp duty tariffs come off because I don’t think it’s proven very popular today.
But overall, I think Australia is a great destination for other people in the world looking for a safe currency, a great lifestyle, and of course, those who are in the Asian region, close proximity.
Kevin: Just looking back a little while, too, John, we’re all in great fear of what the impact would be of the Global Financial Crisis. I think you made the point that the banks held us in very good stead. Do you see the Baby Boomers coming through as maybe the next thing that might actually soften any impact for the Australian market?
John: I don’t think so, Kevin. Baby Boomers are certainly going to be a major influence going forward because they’re very wealthy, there’s a lot of them, and they actually see property and they’ve known property all their life and through their parents’ generations as a very safe haven for their investment dollars.
I think one of the reasons that investment profile has gone up recently is because Baby Boomers are wanting to put a good percentage of their superannuation and their money they set aside for investment into bricks and mortar. It’s a very safe asset for them.
I think, if anything, we’ll find that the Baby Boomers will continue to be very popular advocates of property and they’ll be investing heavily right through, and hopefully, their kids, Gen X and Gen Y, will do the same.
Kevin: You mentioned in your presentation about the Manhattan Effect. What is that, John?
John: Kevin, all around the world, big cities – again, like Brisbane, Sydney, and Melbourne – you’re finding the trend that people want to live closer and closer into the CBD and close to the harbors, the beaches, the river ways, and so forth.
Whilst there was a period in our development where people seemed to be moving away from the cities and going out to the suburbs, there seems to be a returning back, especially for the big cities, of people wanting to be close to the action, partly, I think driven by commuting, which becomes harder and harder as you get bigger and bigger cities. It’s just the gridlock becomes incredible and travel time becomes onerous for people. And I think partly because the infrastructure, the available living inside the inner city ring is becoming better and better.
You look at some of the apartments around the rivers of Brisbane and on the beaches up and down the coast; it’s really world-class living now, and I think a lot of people are saying “We used to think that it would be nice to live 25 kilometers out and have 400 or 500 square meters, but now we’d like to have 150 square meters in close to the city, a café underneath, and the ability to walk down to the cinemas and the operas and a whole range of lifestyle activities.”
I think definitely in the big cities, we’re going to see a continuing return of people wanting to live in and around the city. Then that, of course, will be complemented by the trend that we just talked about before where people might have a getaway or a second place somewhat just outside of the city, areas like Gold Coast and Sunshine Coast.
Kevin: John, great talking to you. John McGrath, thank you very much for your time.
John: Thanks, Kevin.