{"id":6286,"date":"2015-11-06T12:00:42","date_gmt":"2015-11-06T01:00:42","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=6286"},"modified":"2015-11-06T12:00:42","modified_gmt":"2015-11-06T01:00:42","slug":"you-should-follow-the-path-less-travelled-australias-housing-market-peak-why-all-rate-increases-are-not-bad-news-does-size-really-matter-why-developers-buy-their-own-stock","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/you-should-follow-the-path-less-travelled-australias-housing-market-peak-why-all-rate-increases-are-not-bad-news-does-size-really-matter-why-developers-buy-their-own-stock\/","title":{"rendered":"Signs the market is peaking."},"content":{"rendered":"

Cate Bakos<\/strong> tells us why all rate increases are not bad news.
\nWe hear from Damien Collins<\/strong> in Western Australia why you should not just follow the sheep but instead blaze your own investment trail or at least follow the path less travelled.
\nThere are mounting signs that Australia\u2019s housing market may be moving through the peak of the cycle. Michael Yardney<\/strong><\/span><\/a> <\/span>outlines the factors that are hinting at a market peak.
\nThere has been a lot of discussion about the impact of foreign buyers on the Australian market, well the brains behind the most respected website catering to that market has some interesting insights and we ask our finance expert, Andrew Mirams<\/span><\/a><\/span>,<\/strong> if size really matters to the banks.
\nRounding out our show this week an interesting story about developers buying their own stock and why that should be a concern to you and I.
\n <\/p>\n

Transcripts:<\/h4>\n

Andrew Mirams<\/a><\/h3>\n

Kevin<\/b>:\u00a0 It\u2019s important to make sure that any property investment you make provides capital growth and consistent, attractive rental yields. That\u2019s according to Andrew Mirams from Intuitive Finance, who joins us.
\nGood day, Andrew.
\nAndrew<\/b>:\u00a0 Good day, Kevin. Thanks for having me.
\nKevin<\/b>:\u00a0 That\u2019s a pleasure, mate. Are you telling me that to the banks, size does matter?
\nAndrew<\/b>:\u00a0 Absolutely. I guess the key in today\u2019s market with the amount of new property investment and the new projects coming onto the market, this probably does affect more of the newer projects than the old or existing properties, but absolutely, square meterage of a property definitely does matter.
\nAs a rule, generally, at 50+ square meters, it\u2019s viewed as a pretty standard deal. Under that, down to 40 square meters, we can certainly finance. Anything under that becomes really, really difficult just based on the pure size.
\nKevin<\/b>:\u00a0 Yes, , I remember when the benchmark was 50 and it was difficult to get lend on anything under 50 square meters. But once you get down to 40 and even under, it\u2019s almost like a motel room really, isn\u2019t it?
\nAndrew<\/b>:\u00a0 It is basically a studio. Yes, it\u2019s basically a bed and everything all in the same room. There\u2019s not a whole lot there. The reason they don\u2019t like it is because of the marketability. There is a very small market for those properties. Obviously, the bigger units \u2013 a one- or two-bedroom unit, and then you move up to your houses \u2013 there\u2019s a much bigger concentration of people wanting to buy those.
\nA studio apartment or a student accommodation \u2013 which generally attract these smaller sized properties \u2013 are very segmented and very specific. The bank will always look at their worst-case scenario and what\u2019s their exit clause should the client not be able to meet their repayments. There\u2019s just a small market, and small apartments tend to be very difficult to be able to sell should they have to.
\nKevin<\/b>:\u00a0 One of the attractions, of course, for those small apartments will be the price, making it very, very affordable, but then you have to look past that and, as you pointed out, how marketable are they? Is that, in two senses, basically, whether you can resell it or even whether you can let it?
\nAndrew<\/b>:\u00a0 Absolutely. Letting, they generally get a pretty reasonable return \u2013 they\u2019re smaller units \u2013 but the issue, yes, is the salability and things like that. With the smaller units, the smaller type style, you\u2019re right, they attract an entry level. But often, those entry level people don\u2019t have their full 20% deposit and need to mortgage insure it. The mortgage insurers just won\u2019t go near anything under 40 square meters, and often we have issues at anything less than 50 square meters if people are looking to borrow more than the 80%.
\nKevin<\/b>:\u00a0 Yes, generally, those smaller apartments are used for either student accommodation or serviced apartments, and the income from those is not really all that good. Also, the costs of running them \u2013 the management fees because they\u2019re cleaned so regularly and turned over so much \u2013 Andrew, that\u2019s another consideration.
\nAndrew<\/b>:\u00a0 Absolutely. They also have management in there so you\u2019re paying for people to maintain the properties. Often, there will be lifts and other style of things that all are high maintenance. It might be a small apartment that gets an okay rental but with your overheads and things like that, that has a definite knock on it and affects the price and its saleability and why the banks don\u2019t really like them too much.
\nKevin<\/b>:\u00a0 There you go: property size and use does matter to the banks. That good advice coming from Andrew Mirams at Intuitive Finance.
\nAndrew, thanks again for your time.
\nAndrew<\/b>:\u00a0 My pleasure, Kevin.
\n <\/p>\n

Cate Bakos<\/h3>\n

Kevin<\/b>:\u00a0 Well, we\u2019re hearing all the time \u2013 aren\u2019t we? \u2013 about rate rises. If it\u2019s not the RBA, it\u2019s the banks going individually. But there is a silver lining behind every cloud. That\u2019s according to Cate Bakos from Cate Bakos Property, buyer\u2019s agent in Melbourne.
\nGood day, Cate.
\nCate<\/b>:\u00a0 Hi Kevin. How are you going?
\nKevin<\/b>:\u00a0 Wonderful. I read your blog and I think you are exactly right. Tell me the thinking behind this when you say that rate rises are not all bad news.
\nCate<\/b>:\u00a0 First and foremost, we have rate rises for a reason. A lot of people are pretty sensitive about the idea of banks having a money grab and trying to seize high profits, but we originally found that we had rates going up in response to the banks being forced to hold capital.
\nObviously, we do want our banks to remain strong, but the rational decision behind enforcing this change was because the RBA and APRA, in particular, were quite concerned about our property market heating up. We\u2019ve had a lot of investment activity, and at the time that they made the decision to make a change, we had some record numbers of investment lines out there.
\nThat was certainly having an affect in the marketplace, not just for first-home buyers but we saw some dramatically increasing values in lots of markets and some of our homebuyers who were missing out at auction were complaining that investors were driving some of the markets up, and I don\u2019t contest that.
\nKevin<\/b>:\u00a0 You make a very good point there when you talk about the health of the banking industry. The last thing we\u2019d want is to have happen in Australia what happened in America.
\nCate<\/b>:\u00a0 Absolutely. We had really strong banks right throughout the GFC, and I think we have to recognize that while we have some big lenders that are writing some enormous profits, we have a really healthy banking atmosphere out there. I think unless you\u2019ve experienced some of the hardship that those who have had banks collapse overseas have experienced, we really need to pay some respect to how the lenders in Australia have handled our tougher times.
\nKevin<\/b>:\u00a0 That\u2019s certainly a sensible look at what\u2019s going on with the banks, increasing interest rates, and so on, but now let\u2019s have a look at the opportunities that you rightly point out are there.
\nCate<\/b>:\u00a0 Yes, I think that we\u2019ve gotten a little bit carried away with being sensitive to rate increases when, in fact, the real negative effects that investors have experienced in the last few months have actually been restrictions on what they can borrow. For lots of investors, it\u2019s been restrictions on being able to borrow altogether. The opportunity for an investor who has equity or is an experienced, sophisticated investor who has lines of credit already established is that they can go out into a market where they have less investor competition now.
\nAs we know, some of the great sayings out there exist. \u201cBe greedy when others are fearful and fearful when others are greedy.\u201d It\u2019s a saying that I particularly like because if you are positioned to pounce into the market at the right time and avoid some really strong competition, you can sometimes have a fantastic buy under those conditions.
\nKevin<\/b>:\u00a0 Yes. Of course, with what is happening with the banks, there will be a number of people who are getting a little bit scared, and as you say, that creates those opportunities for savvy investors, Cate.
\nCate<\/b>:\u00a0 That\u2019s right. Absolutely true.
\nKevin<\/b>:\u00a0 Cate, thanks very much for your time. Cate Bakos, of course, is a buyer\u2019s agent from Melbourne, Cate Bakos Property.
\nCate, thanks for your time.
\nCate<\/b>:\u00a0 Thank you so much, Kevin.
\n <\/p>\n

Michael Yardney<\/a><\/h3>\n

Kevin:<\/b>\u00a0 There\u2019s a lot of news about what the market is up to. We\u2019re seeing reports of downturn in the Sydney market. Auction clearance rates are certainly falling in both Sydney and Melbourne, which are the two benchmark areas, of course. So, what is going on?
\nMichael Yardney<\/span><\/a> <\/span>from Metropole Property Strategists<\/span><\/a><\/span>.\u00a0Michael, how are you reading all of these signs out of the market at present?
\nMichael:<\/b>\u00a0 There are lots of messages aren\u2019t there, Kevin?
\nClearly we\u2019ve reached the mature of the stage of the property cycle, and the growth that Melbourne and Sydney proeprty markets<\/a> experienced over the last couple of years \u2013 double-digit growth \u2013 was unsustainable in the long term.
\nThe markets in Melbourne and Sydney have gone from fifth gear to maybe third or fourth gear. They\u2019re not in reverse.
\nThe rest of Australia\u2019s markets are fragmented, and we can have a talk about each of them as we go on. It\u2019s going to be different next year than it was this year, Kevin.
\nKevin:<\/b>\u00a0 It\u2019s never the same, Michael. What sort of research are you using to help you determine this? What are you reading?
\nMichael:<\/b>\u00a0 What we\u2019re looking at is a combination of things.
\nSome are lagging indicators \u2013 things that have happened in the past \u2013 and some are forward or leading indicators \u2013 things that will give us an indication of what\u2019s happening in the future.
\nOne of the things you mentioned was auction clearance rates. They\u2019re particularly interesting in Melbourne and Sydney where there\u2019s quite a depth to the auction markets.
\nThey seem to have peaked around April\/May this year when in Sydney, auction clearance rates were consistently in the 80s, and in Melbourne, they were in the 70s. Now they\u2019ve gone down to what I think people would consider a normal market than a booming market, but it is a sign that the exuberance in the market is slowing. Kevin, that\u2019s a good thing.
\nKevin:\u00a0 <\/b>I saw a report recently that listings are on the increase, as well. Is that having an impact?
\nMichael:<\/b>\u00a0 It\u2019s a combination of the time of the year when more people think they should be putting their properties on the market because they\u2019ve heard that spring is the best time to sell.
\nI\u2019m not sure I agree with that. The other thing in these high-performing markets is that people see the houses around them going up in value, so a lot of people considering getting in, taking advantage of that, and moving up \u2013 upgrading their homes.
\nI think there is a sense in Sydney that the market may be nearing its peak. Yes, there\u2019s lots more properties on the market in Sydney \u2013 there\u2019s actually 4% more than there was this time last year, close to 5% more \u2013 as more people are trying to get in before it\u2019s a little bit too late.
\nInterestingly, in other markets that are not performing as strongly, there\u2019s 20% less properties for sale in Perth, 12% less in Darwin, and 5% less in Brisbane, which is one of the reasons those markets are not performing the same as the Sydney markets.
\nKevin:<\/b>\u00a0 I don\u2019t want to necessarily sidetrack you from our conversation, Michael, but you made a comment there about spring not necessarily being the time to sell. You don\u2019t think that\u2019s the case?
\nMichael:<\/b>\u00a0 A lot of people do, but as we just saw in the Sydney market, there are lots more properties for sale. If you\u2019re a purchaser that gives you more choices, and if you\u2019re a vendor or seller, in fact, you probably have more competition.
\nI wouldn\u2019t be necessarily trying to time the best time to sell my property on the market, Kevin. I\u2019d be doing it when it suits me.
\nKevin:<\/b>\u00a0 That\u2019s good advice. Back to our topic, investment demand is moderating; does that have a lot to do with the tougher lending criteria?
\nMichael:<\/b>\u00a0 Yes, it has. Before we get onto that, if I could also mention that when we look at listings and how many properties, we also look at another statistic that you can get from websites like CoreLogic RP Data that show the month of supply on the market. In other words, how long it would take the average properties to sell.
\nIf that\u2019s rising, as it currently is in Sydney, it would be a suggestion that the market isn\u2019t as strong, there isn\u2019t as much depth to it. But in Sydney, it\u2019s taking two and a half months to sell the average property.
\nIf you go to Perth, Kevin, it\u2019s seven months, and much the same in Darwin.
\nSo the research we\u2019re doing is looking at listings, how many people are in the market, and how long it\u2019s taken to sell. Then, as you said, investor demand is moderating. APRA\u2019s tightening of the screws is working, and investors are finding it a little bit harder to get finance.
\nDefinitely one of the things that we\u2019re suggesting is saying that we\u2019re reaching the peak. By the peak, it doesn\u2019t mean now it\u2019s going to fall over the edge and keep dropping; it means it\u2019s not going to rise as fast in the future.
\nKevin:<\/b>\u00a0 What\u2019s going to happen to rents, Michael?
\nMichael:\u00a0 <\/b>Interestingly, despite all the new properties and apartments being built, rental vacancy rates haven\u2019t gone up much.
\nIt\u2019s been keeping in sync with the supply of properties. But rents have been on the low side for a while now. In fact, according to CoreLogic, our rental growth has been the lowest it has been for about 20 years.
\nI think that\u2019s going to start pulling some other investors out of the market, those chasing yields, because it\u2019s going to be harder for them to service their loans because rental yields are low considering that properties have gone up in value but rents haven\u2019t.
\nKevin:<\/b>\u00a0 Bottom line, Michael?
\nMichael:<\/b>\u00a0 Bottom line is you can\u2019t just buy any property.
\nThe property markets are moving through one stage to the next. They are fragmented as each state is in its own stage of the cycle. Do your homework carefully. It\u2019s still a good time to buy, but don\u2019t count on as strong capital growth next year as we have over the last couple of years.
\nKevin:<\/b>\u00a0 Michael, good talking to you. Thank you for your time.
\nMichael Yardney<\/a> from Metropole Property Strategists<\/span><\/a>.<\/span> Don\u2019t forgot Michael\u2019s blog site: PropertyUpdate.com.au<\/a>
\nThanks, Michael.
\nMichael:<\/b> My pleasure, Kevin.
\n <\/p>\n

Damian Collins<\/span><\/a><\/span><\/span><\/h3>\n

Kevin<\/b>:\u00a0 At a time when there are stark differences in the performance of various property markets around Australia, investors need to remain very level-headed. Many people, in fact, are too easily swayed and they just simply follow what everyone else is doing \u2013 a bit like herd mentality.
\nDamian Collins from Momentum Wealth in WA joins us.
\nHi Damian.
\nDamian<\/b>:\u00a0 Hi Kevin. How are you going?
\nKevin<\/b>:\u00a0 Good mate. Do you see this quite often, people just willing to follow what everyone else is doing instead of trying to plot their own course?
\nDamian<\/b>:\u00a0 Definitely, we do see that, Kevin. It\u2019s been a human trait that\u2019s been around for a long, long time, and I don\u2019t see it changing anytime soon. What we\u2019re seeing, as you would know, in Sydney and Melbourne over the last 12 months, 18 months, particularly in Sydney, is when everyone else is getting in, the rest of the herd jump in.
\nYou see on the other side of the scale, good buying opportunities in other locations and because no one else is buying, people think it must not be a good time. We\u2019ve end up seeing the weight <\/b>of money go perhaps into overheated markets. We saw it in the Pilbara in Western Australia years ago when people were paying $1.3 million for properties, and now sadly some of those are worth less than half that and their rents are down 70%.
\nKevin<\/b>:\u00a0 Yes. It\u2019s a bit like comfort in numbers, but there must be a strategy to all of this. How can we overcome that and be sure that we\u2019re moving in the right direction, Damian?
\nDamian<\/b>:\u00a0 Really, you have to go back to fundamentals and not look at what\u2019s happening in the paper and what\u2019s happening next week. It\u2019s looking over a five- or ten-year horizon. There\u2019s always the thing I refer to as mean reversion. It basically means if a market outperforms too long and too much in too short a time, it inevitably comes back to the norm.
\nWe\u2019ve seen that before. When Sydney had its last big run up in 2001 to 2003, for the seven years thereafter, it barely did capital growth at the rate of inflation. We also saw the same in the Perth market \u2013 overshot 2003 to 2007, then had a long period there where it underperformed. The Pilbara, as I was saying before, a similar sort of thing.
\nMean reversion: property can still grow strongly, but if it has a big period of short-term outperformance, it comes back. You have to look and say, \u201cWhere\u2019s the market been?\u201d If it\u2019s had a big, strong run-up already, the likelihood is that it\u2019s far less likely to do that in the near future rather than the more likely. Yet most people think \u201cIt\u2019s gone up so much so quickly; it\u2019s going to keep doing it.\u201d Well, it doesn\u2019t work that way.
\nKevin<\/b>:\u00a0 The market is cyclical, of course, but you certainly have to become a student of it. I think that\u2019s even more so nowadays, Damian. I remember 10 to 20 years ago, investing in property and it was pretty forgiving, really. If you made a mistake, you could always pick it up somewhere else, but nowadays the losses can be quite enormous, as you mentioned earlier.
\nDamian<\/b>:\u00a0 Definitely, Kevin. We\u2019re not in that environment that we were in the 1980s and even into the 1990s where your inflation was much higher, wage growth was much higher. Property prices would inevitably go up 8% and sometimes more on average per year.
\nThe likelihood of all properties going up 8% per annum into perpetuity is far less likely just because our wage growth is 3% and inflation is at two and a bit percent now. People just can\u2019t keep paying that 8% growth rate. What you\u2019ll see is, I think, average property prices in most cities be close to that 4% to 5%, but within those cities, you still might find pockets and individual properties that do towards that 7% or 8%.
\nBut you\u2019re exactly right. The market\u2019s not forgiving anymore. It\u2019s not always going to continue to outperform and grow strongly, so it\u2019s really about property selection, due diligence, homework, and finding that location that\u2019s got the best potentials for the next five to ten years.
\nKevin<\/b>:\u00a0 I think it can be all summed up in a line I think you used in a blog sometime ago: \u201cDon\u2019t be a sheep; be a shepherd.\u201d
\nDamian<\/b>:\u00a0 Yes, definitely. Unfortunately, you\u2019ll find 90% of investors follow the herd and are the sheep. It\u2019s not just the property market, Kevin. I\u2019ve seen it in the share markets. Warren Buffet\u00a0 \u2013 one of the most successful investors in the world \u2013 buys counter-cyclically.
\nThat\u2019s how you make good money in property. You still have to have an area that has good long-term fundamentals \u2013 don\u2019t just buy because it\u2019s cheap \u2013 but if you buy the right area at the right time in the cycle, there is plenty of profit still to be made.
\nKevin<\/b>:\u00a0 Damian, thanks so much for your time, mate.
\nDamian<\/b>:\u00a0 Pleasure, Kevin.
\n <\/p>\n

Jo Chivers<\/h3>\n

Kevin:\u00a0 <\/b>Inside the latest Australian Property Investor<\/i> magazine, there\u2019s a great story written by Kieran Clair called \u201cKeep and Reap.\u201d Basically, it deals with small developers potentially keeping some of the stock for themselves.
\nJo Chivers, who is the CEO of project management company Property Bloom, has a view on this.
\nGood day, Jo. How are you doing?
\nJo:<\/b>\u00a0 Hi, Kevin. I\u2019m well, thank you. I love that title: \u201cKeep and Reap.\u201d I think it\u2019s fantastic. It says it all, really.
\nKevin:\u00a0 <\/b>Yes, it does. I\u2019ll get you to explain it in a little bit more detail, but basically, it\u2019s where a developer can develop a complex and then maybe hold onto a couple themselves. It\u2019s nothing new, but it\u2019s a very good strategy.
\nJo:<\/b>\u00a0 Yes, that\u2019s right. We found that with out clients, Kevin, that when they do build and develop property they do like to hold on. Really, a lot of their purpose and objective behind developing property is to boost and grow their portfolio, so yes, most of our clients are building to hold.
\nKevin:<\/b>\u00a0 How do banks feel about this?
\nJo:<\/b>\u00a0 The banks are fine, but it depends on the size of the development, of course. If it\u2019s a large development the banks do want presales, so that\u2019s definitely something you need to consider with something probably over four units. We tend to work under that threshold because it\u2019s easier for people to finance. We\u2019re mainly dealing with dual occupancies and three- or four-unit sites. Generally speaking, the banks won\u2019t ask for presales on that size development.
\nKevin:<\/b>\u00a0 I can understand why it\u2019s a good thing for developers, because they\u2019re obviously selling out their own development but they\u2019re also giving themselves a bit of a portfolio. What about the other buys in the complex? Let\u2019s have a look at that. Don\u2019t you think it gives a false indication of interest if they don\u2019t know that, in fact, the developer is holding some of the stock themselves?
\nJo:<\/b>\u00a0 Yes, I think in a big development, where you are doing a big strata development of maybe 10 or more units, that would probably be a concern for people buying in. They will look at the holdings. They\u2019ll do their strata report and searches, and they\u2019ll see who is on the strata management committee. That may deter some buyers. Yes, that\u2019s a good point to raise.
\nKevin:<\/b>\u00a0 Buying off the plan, though, you probably wouldn\u2019t necessarily know who the other purchasers are, would you?
\nJo:<\/b>\u00a0 That\u2019s correct, actually. A lot of the larger developers who are building that size development will actually hold on, because they\u2019ll want to reap some of the rewards of future capital growth. So it is a bit tricky when you\u2019re buying off the plan.
\nKevin:<\/b>\u00a0 I can understand, too, if you\u2019re buying into a complex, and you do the searches, as you indicated, Jo \u2013 and you should always do that \u2013 this is an established development and you find that the developer is holding two or three of the lots, you\u2019re also giving up a bit of control to the developer in terms of what can happen in the body corporate?
\nJo:<\/b>\u00a0 Yes, to a degree. But you have to remember that the developer is going to want things to go smoothly, as well. At the end of the day, the people who have bought in are his clients or purchasers.
\nI haven\u2019t had any experience where the developer has overridden certain things. I\u2019ve bought off the plan myself and been that situation where the developer has held the majority of the units when they were completed. We didn\u2019t have any trouble, so I guess it does come down to what would be the issues are could come up, that could be raised? Really, everyone is in the same boat. Everyone wants the complex to be well kept, that kind of thing. I don\u2019t think it would be such an issue.
\nKevin:<\/b>\u00a0 It think that\u2019s a good point, too. You\u2019re very right in saying that the developer would want it to be successfully run, they want the development to continue to look good, so they will maintain it. So that point is quite well made.
\nWhat about if, further down the track, the developer decides to sell off those lots at less than what he purchased them for? That\u2019s going to depreciate the value of all the other lots, too, isn\u2019t it?
\nJo:<\/b>\u00a0 Yes, and that can happen depending on what the market is doing. Everyone is talking about an oversupply of units coming onto the Sydney market in a couple of years, when they\u2019re all finished. That is an issue. You always have that in the back of your mind when you\u2019re buying into big, massive complexes.
\nI tend to like small, boutique developments. If I\u2019m purchasing myself, I always go for very small, boutique developments where hopefully that won\u2019t become an issue.
\nBut that\u2019s a very valid point, particularly when there\u2019s an oversupply in the market. In that case, when that happens, if you can hold on, because otherwise you\u2019ll end up selling at a loss and you might kick yourself. At the end of the day, if they\u2019re well located\u2026 This happened in Sydney, in the Darlinghurst area in 2003. There was a massive oversupply, but if you held that unit now you\u2019d be enjoying some fantastic capital growth.
\nIt\u2019s definitely something to consider, what\u2019s happening in the area, if there\u2019s a lot of building work going on, you\u2019d need to come back to location, location, location. Have you bought into a really good location that\u2019s going to have future growth? If you can, buy into the smaller complexes, because I think the bigger the complexes the higher the risk of that happening and people having fire sales.
\nKevin:<\/b>\u00a0 It\u2019s always good talking to you, Jo Chivers. You make so much sense. Jo, of course, the CEO of property management company, Property Bloom.
\nThanks for your time, Jo.
\nJo:<\/b>\u00a0 You\u2019re welcome, Kevin. Thank you.
\n <\/p>\n

Simon Henry<\/h3>\n

Kevin:<\/b>\u00a0 Simon Henry, who is the co-CEO for Juwai.com, joins me.
\nSimon, welcome to the show.
\nSimon:<\/b>\u00a0 Good morning, Kevin.
\nKevin:<\/b>\u00a0 Congratulations. Juwai.com was named recently as the most influential international property site in China. What does that mean to your company?
\nSimon:<\/b>\u00a0 It was a sensational award, the fact that we were recognized by one of the peak commerce bodies in mainland China in 2014. Two weeks ago, we won the follow up award to that one, so we actually received it two years in a row.
\nFor us, it really brings credibility to what we\u2019re doing and what we\u2019re achieving, to really promote the world opportunity to Chinese property buyers and investors.
\nKevin:<\/b>\u00a0 Of course, when we think of foreign ownership, there\u2019s so much talk about Chinese buyers into the Australian market, but really the Chinese impact on the Australian market is fairly low if you look at some of the other countries who are buying into Australia.
\nSimon:<\/b>\u00a0 Absolutely. The Chinese, while their dollar value of investment over the last couple of years has been quite high, they still rank outside the top five in terms of total land ownership in Australia. If you take, say, every hundred acres of property owned by foreign investors, the Chinese own only 4%.
\nThe Chinese are definitely buying new projects and developments and houses, and that\u2019s adding to the supply. It\u2019s creating massive amounts of jobs, and it also means a lot more industry is being supported by Chinese tourists and students coming to Australia. It\u2019s a good thing.
\nKevin:<\/b>\u00a0 When we talk about Chinese buying in Australia, or buying units and apartments as you just said, are they buying them to hold into a portfolio, or are they buying them as an investment to put tenants in?
\nSimon:<\/b>\u00a0 This is one of the beautiful things about Juwai. We have a product called Juwai IQ, which we launched today. It\u2019s the first time we\u2019ve got really hard information on the motivations behind Chinese buyers.<\/p>\n

    \n
  • The number one reason they buy property internationally is for investment. They\u2019re already property rich in China, Hong Kong, or Singapore, and are looking to diversify their portfolio.<\/li>\n
  • The second is to buy a property for their kids to live in while they study.<\/li>\n
  • The third is to emigrate overseas.<\/li>\n
  • The fourth is for lifestyle. They\u2019re the trophy homes and harbor homes that you see.<\/li>\n<\/ul>\n

    The data really does support a diversified portfolio approach to international property.
    \nKevin:<\/b>\u00a0 We hear a lot of stories, particularly out of Sydney, about foreign buyers who are buying units in an apartment block, locking them up and not even turning the power on. What\u2019s the reasoning behind that? Why are they doing that?
    \nSimon:<\/b>\u00a0 This is actually quite interesting. We saw this report out of mainland China for the same practice happening in mainland China, and we asked the question why is it happening? The psyche of the mainland Chinese is that if you buy a property and have a tenant live in it, it becomes a secondhand property and loses some of its value.
    \nWe\u2019ve been doing a lot of education over the last couple of years about the benefits of property management and leasing properties back. We\u2019re starting to see a lot of enquiry now for once they purchase the property to actually hand it over to an estate agent to help manage the property moving forward.
    \nKevin:<\/b>\u00a0 What is it that attracts so many Chinese to the Australian market? Is it the lifestyle or areas like the Great Barrier Reef?
    \nSimon:<\/b>\u00a0 Australia definitely has a good brand reputation amongst Chinese communities globally. Australia is obviously a destination where they think food, they think education, they think travel, they think tourism. The proximity to mainland China is fantastic, and the time zones are relatively the same.
    \nIt\u2019s a very easy transition to go from mainland China to Australia as one of their destinations of choice when they travel overseas. Australia still lags behind the United States, but it\u2019s catching up.
    \nKevin:<\/b>\u00a0 Is Australia seen as a desirable area for Chinese developers?
    \nSimon:<\/b>\u00a0 Absolutely. We have a number of very large Chinese developers who are now starting to buy blocks of land and parcels to develop projects in Australia. Contrary to common belief, these projects are intended for domestic supply, not for international supply. They\u2019re moving in to build developments and then selling them to locals.
    \nKevin:<\/b>\u00a0 Just to round this out, what are the top cities in Australia for Chinese investment?
    \nSimon:<\/b>\u00a0 Looking at our data for Q2 2015, Melbourne is actually the number one destination, followed by Sydney, Brisbane, Gold Coast, and then Perth.
    \nKevin:<\/b>\u00a0 What\u2019s driving that investment into Melbourne? Is it a price point?
    \nSimon:<\/b>\u00a0 Melbourne has a lot of new project developments being built at the moment, and they\u2019re very aggressively marketing their projects and properties in mainland China. It is about brand reputation and city familiarity, so the Melbourne developers are doing a great job of marketing their product.
    \nKevin:\u00a0 <\/b>Great talking to you. Simon Henry, who is the co-CEO for Juwai.com.
    \nThanks for your time.
    \nSimon:<\/b>\u00a0 Thank you Kevin.
    \n 
    \n 
    \n 
    \n <\/p>\n","protected":false},"excerpt":{"rendered":"

    Cate Bakos tells us why all rate increases are not bad news. We hear from Damien Collins in Western Australia why you should not just follow the sheep but instead blaze your own investment trail or at least follow the path less travelled. 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