Warren Buffett’s theory plays out – Harris and Bateman

Who was it who said ‘Be fearful when others are greedy and greedy when others are fearful’.  It was Warren Buffett of course.  Well you could apply that theory to what is happening in some of our capital city markets right now according to Luke Harris and Matt Bateman.  They explain how.
Kevin:   We’ve heard a lot, haven’t we, about the downturn in Sydney and Melbourne, how it’s … not so much a downturn, but I guess a bit of a slowdown. There would have to be some tremendous opportunities for you to capitalise on any slowdown anywhere, but particularly in Sydney and Melbourne. Joining me to talk about this, the Property Mentors themselves, Matt Bateman and Luke Harris. Gentlemen, welcome to the show.
Speaker 2:   Thanks, Kevin.
Speaker 3:   Thanks, Kevin.
Kevin:   You’re seeing a lot of opportunities that you’re talking to people about the opportunities for Sydney and Melbourne and capitalising.
Speaker 2:   Yeah, definitely, but I think we’ve got to be really mindful and put this into a context. A lot of the media is really talking about the median house downturn, and realistically what we are seeing in the market is the top end of the market’s probably led the decline in prices which has really put a drag on the overall median prices, so we’ve got to be really careful to understand that Sydney’s not one market, it’s actually made up of many, many, many sub-markets, and not all of them are actually slowing down.
Kevin:   What a great point, and I think this is something that we misquote often, I know a certain part of the media do, and that is that the median is really only an indicator of where people are buying, and you make the great point there that if the top end is coming back a little bit, it doesn’t mean values are dropping. It just means that people are looking for more affordable properties.
Speaker 3:   A hundred percent, and I think one of the key things that people look at is that in the media, they’re often picking one piece of data, and of course if you’re looking at one piece of data on its own, you can make a story of that, but if you’re looking at the overall market and you’re looking at all of the data considered together, then that can give you a completely different picture altogether, so really it depends on what data you’re actually using to decide whether that market’s actually slowing down or actually not slowing down.
Kevin:   So what are you finding? Can you point us in the right direction? Let’s deal with Sydney first. Where are some of the opportunities emerging?
Speaker 2:   Yeah, I think we’ve got to take a bit of an overview of I guess property investing and time frames for investing. One of the biggest mistakes we see with investors is that they’re really focusing on where’s the next hot spot or where is the biggest I guess opportunity right now without necessarily taking into account all of the long-term macro play. If we look at both Sydney and Melbourne, they’re both very similarly populated at the moment and they’ve both got probably world-leading population growth relative to all the advanced economies around the world, so what we’ve got to understand is that both Melbourne and Sydney are tipped to sort of be populations of eight million people or more in the not too distant future, so really the short-term focus is really not what we probably spend a lot of our time with our members on. We’re really looking at is how long you are intending to own this property for. Yeah, sure, if it’s a 20 or 30-year play, that’s great. What can we do now in the micro level, so what can we do right now to find some of those opportunities.
Kevin:   Yeah, so what you’re really saying is look past those hot spots, and I’ve never been a great believer in hot spots anyway because by the time you find out they are, they’re not anymore, but you’ve really got to look at the long-term plays, is that what you’re saying?
Speaker 3:   Exactly, and look, I learnt this when I was in my early 20s. I read it somewhere and it might have even been on your show a while back. I learnt this and it was basically if you’re reading it in the media, you’re already 90 days too late. It’s already happened, so you’re looking at data that’s three months old, so I think our focus for investing is always long-term. Now, there’s some people that are investing and they’ve got a particular age or a financial position where they can’t wait long-term. If you’re in your 60s, potentially you don’t have time to wait for the next market recovery, but at the end of the day, for most investors, they just need to buy property and hold onto it.
Kevin:   Okay. I need a bit of an insight, guys, so where are you focusing on now in Sydney and Melbourne?
Speaker 2:   Yep, so in terms of Sydney and Melbourne, we’re really looking at I guess those areas that are strongly supported by economic activity, jobs, where there’s obviously still a short fall I guess in supply, so obviously parts of Sydney have gone through very strong construction booms over the last few years, and obviously those areas are the ones that are really sort of I guess leading the downturn. When you look at those suburbs that are sort of more positioned sort of probably middle ring, not in those high activity centres, still have really strong underlying demand, have people who are living in that area that are attracted to the jobs, the schools, the amenity of the area, have good income and can still service loans, they’re the areas we’re really focused on.
Speaker 2:   The biggest problem at the moment we’re finding is going to be can you service a loan, particularly in the wake of the Banking Royal Commission, and we’ve still got findings yet to be handed down and recommendations yet to be implemented. Obviously it’s the credit cycle and the tightening of the credit which is really going to drive either prices up, down, or have them stay where they are at the moment, so I don’t want to give you one suburb because it sort of defeats the purpose of understanding how to become an advanced investor. What we’re saying is that there’s a whole bunch of data that you need to understand and measure to be able to go out and pick these areas.
Kevin:   Yep. Good talking to you guys. Thank you for your insight. Luke Harris and Matt Bateman from thepropertymentors.com.au. Thanks for your time, guys.
Speaker 3:   Thanks, Kevin.

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