With record high auction clearance rates and properties continuing to sell well above reserve price expectations in Sydney, investors are asking the question – Where is the next Sydney? That is the question we pose of Margaret Lomas, from Destiny Financial Solutions.
Kevin: W shile we’ve heard about the incredible highs happening out of Sydney, and there is evidence now, as you’ve heard in the show, that the Sydney market could be slowing just a little bit, but record high auction clearance rates and the question on a lot of investors’ lips is “Where is the next Sydney?”
One of Australia’s prominent property experts, Margaret Lomas from Destiny Financial Solutions, is going to be answering that and a number of other questions at the 2015 Property Buyer Expo. It’s on at the end of this month, the end of October.
Margaret joins us. Hi, Margaret. Nice to be talking to you again.
Margaret: Thank you.
Kevin: I’m looking forward to seeing you at the Expo, as well. It’s on in Sydney, isn’t it? Sydney Showgrounds.
Margaret: Absolutely, and it’s going to be in October. Hopefully, everybody in Sydney is going to be able to get themselves along there and have a little look.
Kevin: October 30 to November 1, so make sure.
Margaret, that’s the question. Where is the next Sydney?
Margaret: Look, that’s always a good question on everybody’s lips. But before we talk about where to go to next, let’s have a look at what’s actually been happening in Sydney. Keeping in mind that between 2003 and 2010, when every other capital city doubled in value, Sydney only went up by 17%. In some respects, the recent boom has been a little bit of a catch up, first of all, and then it overshot the mark.
If you look back over in history, it’s not unusual for this to happen to big centers like Sydney, and what will happen now is that there will be a decided flattening. It’s just gotten too overheated. It’s gotten out of the range of most people or the average homebuyer, and so we have no other way to go than flat from here.
I don’t believe we’ll necessarily lose value, although having said that, I think people who came in in the last closing part of that window because of the frenzied may have paid too much for their property and they think they’ve lost a little bit, but the market in general will probably just plateau.
Then when we take a slice at history, a ten-year reading, we’ll see that this massive boom hasn’t really done much more than what most capital cities do in any 10- or 15-year period.
Kevin: I think it’s important, too, isn’t it, to learn about buying well on a consistent basis as opposed to chasing the crowds, Margaret?
Margaret: Exactly. The thing about it is that most property investors are in it for the long term. If you’re buying and selling to get those gains, you’re not only paying capital gains tax every time you sell and losing a fair amount of money in that, but the tax office may eventually consider you a property trader, and then they’ll treat you differently. They’ll treat you as if you’re in the business of buying and selling property, and then your capital gains discounts go out the window, you pay tax on a quarterly basis, and a whole pile of other things, as well.
We have to remember that most property investors do keep their property for probably 10 to 15 years, and most property investors are doing this to be able to create a retirement income for themselves. What they’re really after is consistent growth year in, year out that they can then leverage against to buy more property. The way you get that is to understand what drives growth and to not chase the big booms, but to just chase that consistent growth.
Kevin: Yes, and of course, there’s an excellent series that I recorded with Margaret some time ago about those growth drivers. They’re still as reliable as ever, Margaret?
Margaret: Look, let’s look at them again. What we’re mainly after is an area that looks like it’s going to have pressure sustainably for a period of time. To get that kind of pressure, we need a couple of things to be happening, but we need all of them to be happening at the same time.
I don’t like it when people run out and buy in an area because they think there’s a new hospital and they see that as infrastructure, or they think there’s a new road and they see that as transport upgrades.
There are a lot of things that have to be happening – starting, of course, with population growth. But it’s important to understand that the population has to be growing within the right demographic. If the population is growing because everybody is retiring there, that isn’t a demographic that traditionally drives sustainable growth; an aging population usually has the reverse effect.
We need that population to be growing within that family demographic, and when we have families coming into an area, what we also see happening is normally they don’t move too much. They move to an area, pop their kinds into the local schools, and from there, they like to stay in that one area so that they’re not disrupting the kids throughout their schooling life.
Families become important. On top of that, we then need no new land in the area. If we have all of these families coming in but all they can do is buy the established housing, obviously, we’re going to get a pressure in that housing. When they upgrade, they upgrade within that area to another home, but we still see pressure on existing houses.
In order to keep the families in the area for a long period of time, we have to have the right kinds of services and infrastructure. We need good schools, we need hospitals and health precincts, we also need sporting facilities because these days parents are always putting their kids into all kinds of sports, and we also need plenty of family and community services available.
The last little piece of the puzzle is that rising median household income. When the median household income is increasing faster than inflation, then we also have an area that’s becoming more affluent, so they can afford to keep upgrading, they can afford to keep putting pressure on prices, so we see those properties grow.
Kevin: If you go to the website, RealEstateTalk.com.au, in the search box, just put in Margaret Lomas. A more extended version of an explanation by Margaret of all of those growth drivers will be there for you, as well.
Margaret, just before you go, we look forward to seeing you at the Property Buyers Expo, as well.
Margaret: Your listeners can get some free tickets to that. All they have to do is to go to the ticket page of the Property Buyer show and type in the code “destiny,” and they’ll get some free tickets.
Kevin: There you go. Well done. That’s a gift from Margaret, so thank you, Margaret.
Margaret: You’re welcome.
Kevin: That’s very nice. Just go to the Property Buyer Expo website –PropertyBuyerexpo.com.au – and make sure in the coupon box there you put in the word “destiny,” and those tickets will be available for you. Thank you, Margaret.
Margaret: You’re welcome. Thanks for having me today.