President of the Real Estate Agents Buyers Association thinks that successful investors will need to curb any short term thinking next year because they will need to start thinking about where the best returns will be in the next 10 years not just next year and the year after. He tells us where and what he will be investing in next year and why.
Kevin: Not getting sidelined by short-term thinking is going to be one of the big obstacles that property investors will have to look at next year. That’s according to Rich Harvey, who is the president of REBAA – the Real Estate Buyer’s Agents Association of Australia – and his website is PropertyBuyer.com.au.
Rich, welcome to the show. Why do you think that’s going to be a challenge for property buyers?
Rich: Thanks, Kevin. Great to be on the show again.
I think this year has been quite a challenging year, and next year will be probably an even greater challenge. We’ve had really significant price rises in the Sydney and Melbourne market. The rest of the country is coming along in different phases. The challenge for investors is knowing where they’re going to get the best return for their dollar, not just next year but for the next 10 years.
That’s why I talk about short-term thinking. Some people get very hung up about a statistic that might come out from a property provider and latch onto that one statistic and then make a decision only based on very short-term thinking.
Kevin: There is a lot of information available now for buyers and sellers, I guess. Has that made it a bit more difficult trying to work through what you should be paying attention to, Rich?
Rich: Absolutely. There’s just so much noise out there in the media from different providers. CoreLogic will put out a report saying there’s been a substantial drop in prices in Melbourne, and so everyone runs from the Melbourne market, or Sydney’s due to have a crash. They’re just sensational headlines.
You have to look at the underlying factors that drive the two big behemoth markets, and if you can’t afford those markets, there are plenty of other markets that investors and home buyers can get into around the country.
Kevin: One of the big mistakes we’ve seen during 2016 is that people tend to think that it’s one property market as opposed to a whole lot of different ones.
Kevin: Have you got a preference? Would you be investing in a house or a unit?
Rich: Great question. The answer to that question is it depends. I think generally going forward, houses will probably track at a faster appreciation rate than apartments. However, if you’re buying an apartment in an area where 95% of the stock is apartments – like for example, if you’re in Sydney and you’re buying in Elizabeth Bay or Potts Point or Kirribilli, you’re not going to be able to afford a $6 million or $7 million house in that area, so apartments will probably do equally as well in those really tightly held inner city areas.
Don’t fall for the fallacy that land always appreciates, because you can easily go and buy a house out in the sticks – suburbs out at Longreach or Mount Isa – and do pretty poorly over time, as well. It all depends on the underlying drivers of supply and demand in the market that you’re looking at.
Kevin: Do you think that we could be at risk? You talked there about units or apartments. Particularly inner city, we’ve heard a lot of stories about oversupply. Do you subscribe to that?
Rich: No. Great question. I actually addressed that in my last newsletter, as well. A lot of people are asking me questions, “Rich, is the market oversupplied?” I think there’ll be little pockets of oversupply, and that doesn’t diminish the whole market.
An example, again back in the Sydney market, if you’re looking at places like Parramatta, or Homebush, Blacktown, Liverpool, Auburn, Zetland, Mascot, those areas will potentially have a small oversupply. In fact, SQM is suggesting that we might have an oversupply of only 4000 dwellings next year and about 9000 dwellings in 2018.
But you have to consider that Sydney’s population is 4.9 million. So that oversupply is a very temporary blip in a long-term trend of undersupply. We’ve had almost a decade of undersupply and a lot of the growth has been catch-up. Going forward we’re going to hopefully get a more balanced market, and I think then regulations are tightening up now and I think you’ll get to a position where we’re going to be undersupplied yet again in, say, 2019 or 2020.
Kevin: How do you feel about the regional markets around Australia? Once again, I’m not asking you to put them all into the one box but compare regional to cap city markets.
Rich: I think there are some good opportunities in some of the regional markets. Again, you have to exercise a lot of caution in those regional areas. Just because they’re attractive to visit doesn’t always mean they’re going to go up. But I think as long as they have a stable economy and really good growth drivers going forward.
There’s small regional and large regional. What I mean by the small regional, it might be like a Mudgee or an Orange, or if you’re in Queensland, it might be some of the smaller areas. The larger regionals are places like Sunshine Coast or Newcastle or Wollongong. They’re much safer bets in my view because they have a bigger population base and a more diversified job market, and that’s going to help drive the property market in those areas.
Just be really careful of mining towns. That would be my one tip. Again, sure, commodity prices are potentially recovering in some sectors, but it’s just such a volatile market.
Kevin: Speaking of mining towns and mining markets, what’s your feeling about the West Australian market for 2017?
Rich: I still think it’s going to be pretty lackluster. I think the time to buy in the Perth market is not now. I think it’s probably going to be another 12 to 24 months before you could start to look at that one. And the same for Darwin. They’re the two markets that I would say are still suffering.
If you want to be super countercyclical and go in two years early, then go for it, but for my money, I wouldn’t be putting it there at the moment. Just too much tied to the resources sector to really go forward.
Kevin: Of course, in some of those markets – and you made that point just now about being countercyclical – there are some great buying opportunities, provided you’re going to get in there for the long haul, Rich.
Rich: You have to make sure if you are countercyclical, you have to know it’s not going to have a dead-cat bounce and just stay down. For my money, I like to be more conservative and know that I’m going to be investing in a town that’s going to have a very, very long future. So Sydney, Melbourne, and Brisbane are the three key markets that really attract most of my personal investment strategy because I know that all of those markets have a very, very long-term future. Yes, there might be some small corrections along the way but they certainly rebound with a bang and like I was saying, particularly in Sydney, and gone off.
I don’t see it slowing down much next year. In fact, everyone’s saying Sydney is going to grind to a halt. Well, I think we’re going to have pretty reasonable growth next year because we have a constriction in supply.
Kevin: That probably answers my next question. My final question to you is if you were looking for a property for yourself right now, where would you be looking and what price range would you look in?
Rich: Again, it depends on your individual strategy. For me, I look for value-adding strategy. I’m still looking in western parts of Sydney. Anything to do with the Badgerys Creek area, that’s really going off really well. I love to buy in blue-chip suburbs where I can do a small reno. I love to try and do things where I can do a duplex. I also like the positive cash flow.
I really like the Brisbane market, particularly around the Logan Shire. We’re doing quite a bit up there in adding granny flats where we can buy houses and get around 6% yield but adding the flat, we get 8%.
Newcastle, I’m also pretty keen on because I think that market has some strong legs and getting really good rental returns, as well.
Kevin: Good talking to you, Rich Harvey. Thanks for your time.
Rich: My pleasure. Thank you, Kevin.