Josh Masters says that Sydney and Melbourne markets are likely to slow down in 2017 – but by how much and what are going to be the areas to invest in next year? He tells us.
Kevin: 2017 could just be the year that we see Sydney and Melbourne markets slow down. That’s according to Josh Masters, who joins me.
Josh, you don’t have a continuing confidence in those two cap city markets?
Josh: Look, I think there has been a lot of growth. Over the last four years, we’ve seen extensive growth over both those capital cities, but it is really unprecedented to this level. While there are some predictions from SQM: Louis Christopher came out and said we’re probably going to see another 8%, 9%, 10%, 11% come into these markets
I think that may be true on the back of low interest rates, but it’s going to be very patchy, and I think it’s going to be really focused on the affordable points in those marketplaces, because people just can’t keep paying these sort of prices.
Even though interest rates are at current lows, wages growth hasn’t really done anything for some time, so there is only so much that we can pay out, and they are looking for value right now.
Kevin: What do you see as some of the other challenges for property investors who want to continue to grow their portfolio next year?
Josh: I think overall, it’s going to be very patchy across Australia. Investors are going to have to be very savvy with where they’re putting their money, obviously. The West Coast is still suffering a bit on the downturn from mining, Perth and Darwin.
Brisbane has been one of those cities that we’ve all been watching very avidly, hoping that we’re going to see some growth, but again, we’re really only seeing growth in the owner-occupier market in the housing market, which has been quite consistent and quite popular. I actually think the owner-occupier space is probably a key area for us moving forward into next year.
We’ve also seen some of the smaller cities coming up: Canberra, Hobart doing exceptionally well coming off from the bottom. Even though they are very small markets, so there is a higher element of risk there as opposed to your larger metros, for those people who are willing to get into those markets, they may be able to cherry-pick some of the growth that will happen in Australia in the next 12 months.
Kevin: What do you think will be the standout states? We’ve seen WA and Northern Territory really struggle in 2016. What do you think will be their story at the end of 2017?
Josh: I always liken the market to an ocean liner. You can invest in the stock market and it’s like sitting on a jet ski – you zip up and down – but the ocean liner is the property market. It takes a long time to get going, and it takes a long time to slow down.
It’s the same with Perth and Darwin. Even though we’re looking at quite high vacancy rates there, high unemployment, the market is not doing very well. It’s going to take some time to turn around, and we certainly haven’t hit bottom.
So, I don’t foresee those states doing much better in the next 12 months. Fingers crossed, we will see them bottom out, but I don’t see an uptick in those western states.
Kevin: What do you think about the type of investment property people should be looking at? It’s very simple to say between units and houses, but do you have a preference?
Josh: I get that question asked often, Kevin. I think people throw them all into the barrel and say, “It must be a house or a unit.” It really depends. For example, if you go to the outer areas of Sydney, I’d be looking at a house, because I’m aiming for investors. The predominant market out there is housing, and that’s what renters want.
However, if I come into the inner city, the inner 10-kilometer radius, I’m going to be looking for affordability, something that renters want to get into at a reasonable price, and it has to be units. I just can’t afford to get into houses at that level.
I don’t think the house or unit conversation is that relevant for investors these days. It really depends on what their affordability is and what is attracting investors in that particular marketplace where they’re looking.
Kevin: I’m talking to Josh Masters from BuySide.com.au.
Were there any surprises for you during 2016 – things that you didn’t see coming, or anything that stood out for you that we learned from?
Josh: I think we’d all have to stand back and say that we didn’t expect Sydney and Melbourne to continue the way they have, but that really has been on the back of this low interest rate environment. People simply have more money in their pockets to spend on mortgages, which obviously Australians love to do.
From a professional point of view, one of the things that we have seen is on the rental market – and we do predominantly focus on investments. The rental market in Brisbane and Melbourne inner CBD areas, as we know, high unit supply, oversupply coming into the marketplaces.
We really saw that affect the rental market even out to a 10-kilometer radius, attracting a lot of renters into the inner CBD areas because they could get a lot of stock there at a very affordable price, and it’s really affected the vacancy rates all the way out to that 10-kilometer radius.
We’ve seen vacancy rates – especially in Brisbane – go from 2% to 3% across the board within that circle. I think that was really unexpected, because we were looking at good, solid townhouses that were performing well, and now they’re looking at three- to four-week vacancy rates.
It does really hammer home how much unit oversupply can affect particular markets. Now we’re starting to see a little bit popping up in Sydney as well, in the Hills District and working down to Parramatta, especially in Mascot and the Zetland area, as well.
Kevin: Fast forward to this time next year, 2017 at the end, at Christmas time, if we’re talking again, what do you think you’ll be saying about the year that has just gone, Josh?
Josh: Even though we’ve had the low interest rate environment, I really think Sydney and Melbourne will be topping out coming into 2017. I think there will be some discounts on inner city apartments coming.
We all know the oversupply issue is there. It is becoming more predominant coming into 2017 and especially 2018 when a lot of that stock will be released. So, I think we will see some discounting in that area.
Personally, for me, I think the outperformers will be those owner-occupied stock in the affordable states. Brisbane is definitely on the cards for us. We’re seeing some really good interest coming there from the affordability point of view and especially from the owner-occupier market. And potentially Canberra and Hobart moving forward, although they are the smaller states.
Kevin: Any particular areas, say, in Brisbane that you’ll be looking at?
Josh: Definitely. We’re particularly focused on that 5- to 10-kilometer radius. We are looking in the north and south side. To give you some of the juicy suburbs, Stafford Heights we’re very keen on, and Kedron. Down in the south side, we’re looking at Tarragindi – very popular down there – Holland Park West, even to Camp Hill, those places that have great owner-occupier stock that is still affordable for people from Sydney and Melbourne looking at those areas. They love that sort of stuff.
Even out towards that south-southwestern corridor, out towards Ipswich, there is some great value happening out there and very high yields, so it is very attractive for investors right now.
Kevin: Good to spend some time with you, Josh. All the best for what’s left of 2016 and into 2017. I look forward to talking to you then.
Josh: My pleasure, Kevin. Thank you.
Kevin: Josh Masters from BuySide.com.au. Thanks again, mate. Talk to you next year.
Josh: Sounds good, Kevin. Thanks.