Can You Trust Property Analysts Predictions?
A lot of property predictions in 2016 were downright wrong. We talk about the impact of this and what you can do as an investor to make better decisions.
Ryan: A lot of investors make purchasing decisions based on the predictions of property analysts. So, they will look at what the analysts say a market is likely to do. This might be things like [API 00:02:56] data or SQM research or just maybe hotspots in a magazine. But what we found in 2016, was a lot of analysts got markets completely wrong, leading investors to make wrong decisions. So, we just want to talk about this with you guys, make you a bit aware of this, and give you some ideas on how you can actually make more educated decisions yourself.
So, today I have with me Ben Everingham, my buyers’ agent of choice from Pumped on Property to talk with us about this today. So, hey Ben, thanks for coming on.
Ben: Good day Ryan, thanks for having me.
Ryan: No worries. So, we found out about this through an Australian Financial Review article, which I will link at onproperty.com.au\411 for this episode number. But you want to talk quickly about what the analysts did predict for 2016, where they got it wrong, and why this was such a big deal for investors?
Ben: Yeah, so, almost regardless of the analyst in Australia in 2016, and obviously you’ve got to remember a lot of their predictions for 2016 would have been made in 2015, predicted that particularly the Sydney and Melbourne markets would sit flat or even potentially have backwards growth. And some of the analysts said the backwards growth would be minimal, 1%. Others said it could be quite significant, and obviously, some form of crash. And so, that meant that a massive amount of investors, myself included, stayed out of those Sydney and Melbourne marketplaces and put money in other marketplaces.
And I suppose looking back now with the crystal ball, which is always easy, it has a 20/20 vision once you’ve done it … Sydney performed at again, depending on the data source, what, between 10% and 16%. And Melbourne did between 10% and 15% last year. So people like myself, and a huge amount of other investors that didn’t go into those markets, lost a massive opportunity to create really strong income there.
Ryan: Yeah, and I remember thinking the same thing myself, and seeing the analyst predictions about it and saying, “Sydney markets peaked, it’s going crazy.” I was getting emails from people saying, “I don’t want to invest in Sydney anymore, because it’s just gone insane.” I’ve got family and stuff in Sydney, you know, friends who have been buying, and I know the hype that’s been going on there. And I thought this market must need to crash.
It’s just grown so much, and I remember going through the boom of like, I can’t remember what year it was, maybe 2007 or something … Oh no, I can’t remember. Maybe it was 2003. But anyway, I remember next door to us sold. And then a year later, the people resold it for a hundred grand less. So, I remember the boom and bust of that time period. Sorry I can’t remember the dates. But yeah.
And so, I started tracking this DSI data just on a couple of suburbs. They can provide you with email updates. And the DSI data is a pretty good indicator of demand in the area. And demand was just staying super high. Vendor discounts … so that’s how much they discount below the asking price, was like minus, or maybe around 1%, which is super low. And every month I just kept saying … I kept expecting the report to say, yep, like here we go, the Sydney market is like declining in demand. But it never happened.
Ben: It never happened and personally I look back now at that opportunity. And it’s definitely made me think about some things differently, I suppose. In one way, the way that I interpret that data from the analysts for myself as an investor personally. And also the reliability of that data as a crystal ball or as a strong indicator for what’s actually going on.
Ryan: Yeah, and I think we all need to do the same thing, is take these predictions with a grain of salt. I think we rely so heavily on them being accurate, because we’ve got these big companies like RP Data, there’s banks looking into this stuff, you know.
They’ve got so many people that are way, way smarter than you or I looking into this stuff and making predictions. And so we assume that, yeah, they’re going to be accurate, because they’re looking at all the factors. But the truth is, at this point in time, it seems like very few people can accurately predict the Australian property market. And even if there’s some people who can, you don’t know who they are.
Ben: I’ve got a really, really good mate of mine that’s been living in London for the last six years. And he just got back to Australia three months ago, and we caught up. He’s an accountant that’s been working in the big hedge funds over there.
And he came back and said that Sydney prices were more expensive than inner city London. And that was super concerning to me, because the average income in those areas in inner city London is on average, three, five, ten times higher than the average income in Sydney.
Ben: And so, I can understand why people like myself … I don’t have a crystal ball, and I think a marketplace might be at a point … and I obviously got it completely wrong as did everyone else. I’m not an analyst, so I don’t pretend to be. But I what I suppose I did learn, is that sometimes the fundamentals or the logic behind a marketplace … like, for example, the average income in Sydney is now … versus property prices, I think historically it’s been anywhere between 4% and 5% has been … Let’s say you’re running a hundred grand a year, and you buy a 500 grand property.
That’s a five times your annual average income to repay the house off. Where now it’s upwards of 7% to 11% in some suburbs. And that’s kind of concerning when things get so out of whack. But then, logic isn’t driving most marketplaces. People aren’t … it’s kind of like you’ve got that into account as well.
Ryan: Yeah, and I think what we want to say is not that, well, we think the Sydney market and the Melbourne market is a great place to invest, ’cause we can’t make those predictions either. But what we just want to make you guys aware of is that, well, there were these predictions for the market that a lot of people including Ben, made decisions not to invest there because of that. And they missed out because the analysts were wrong. And so, when you’re looking at these analysts report, when you’re looking at these hotspots, take them with a grain of salt.
And instead, I feel like it’s a better idea to actually choose your markets, and then individually look at the suburbs that you think are good. And analyze those suburbs in detail, looking at things like the capital growth trends, looking at things like the DSI data, vacancy rates in the area, looking at all of these different factors that you like to look at when researching an area.
I feel like that’s a better thing to do as an investor. ‘Cause at least you know your own data, and you know why you’re looking at each of these individual things, rather than just some random company, or some random guy has said, “Yeah, I think this is going to grow 5% or 15%,” and you don’t know why. And you can’t understand the data behind it.
Ben: Yeah, and a lot of those guys don’t want to release the logic or the algorithm behind the data, because obviously it’s part of their competitive advantage. So, we blindly follow some of this stuff, and as you said, it’s one indicator out of about 24 high-level indicators that we’ve talked about before. That before you even look at a single property, you really need to understand. And DSI, as you said, is a big part of that as well.
Another interesting thing that we were talking about before we shot this, was this concept of averages in marketplaces. And that’s what we base our decisions on. But, as I was saying before, the average growth rate Brisbane-wide last year was 3%. There’s certain suburbs that increased in value by 2% last year, 1% went backwards, and there’s other suburbs that went up by 15%. And that’s the same with Sydney and Melbourne.
And so, you’ve got to be careful with these averages over a larger marketplace as well. And as you said really, really drill down to that suburb level. Because there is absolute golden opportunity sometimes sitting as a neighboring suburb to a suburb that’s just exploded. And that flow-on effect, ripple effect is super, super true. I’ve got countless examples of that happening over time as well.
Ryan: Yeah, and just because Sydney went up over 15%, doesn’t mean every suburb in Sydney went up over 15%, doesn’t mean every house in Sydney went up that much. And there were some that did a lot more, some that did a lot less. And so, obviously, picking your suburbs within an area, as well as picking the correct property, is going to play a super important role in your investment. As well as, I think, taking a long-term view. Wouldn’t you agree?
Ben: Absolutely. I think anybody that you or I are seriously looking to work with should be looking at properties, unless they’re a professional developer or someone looking to flip properties ’cause they have some unique skillset … You know, a ten year investment strategy is a safer way, I suppose, to ride the waves, the peaks and troughs that come over that 10 year period. And not being too concerned about, well, it’s gone up by 15%, but now it sits flat for two years. Or it goes up by another 15%. It’s just what’s that 10 year growth rate, because that’s the average over time.
And when I look at my personal portfolio now, I’m looking at 15 to 30 years for every single thing that I hold. I don’t even look at the data anymore on a year-to-year basis from a growth perspective. I just track things like vacancy rates, and average vendor discounts, and DSI, because I find that’s a more reliable indicator for me to manage the property properly after I’ve bought it.
Ryan: Yeah, and I think if you have a long-term goal of what you want to achieve, and you know, maybe it’s financial freedom in the next 10 years, or whatever it may be, then you can more accurately say, “Okay, I just need to buy one property this year that’s going to move me towards that goal. What’s a suburb that I look at the indicators and I think this is going to be a good suburb to move me towards my goal?” So, rather than getting caught up in the hype of analyst expectations, actually sit down, set your goals, and say, “Is this property going to move me towards your goal.” And then make decisions based off that.
And so, if you guys want help researching individual suburbs, then I do have a course on that, which you can check out at onproperty.com.au\suburb, and I go through … it’s about 20 or so different data points that you can look at for a suburb with an easy-to-follow checklist as well. Teach you how to understand what those data points mean.
Or if you’re actually looking for someone to help you find a good area, you don’t know how to do it, or don’t want to do it yourself, then Ben is a buyers’ agent and finds great properties in great suburbs for people. He does … I love it, because you do such similar research to me. Like you have such a similar research method to me. And you do a similar thing to me in the fact that you would choose good suburbs for your customers. Do you want to talk about how you choose your suburbs, just really quickly?
Ben: Yeah, I remember when you created that course, and I looked at it, because you shared it with me. And I was like, wow, like these 20 guide points are basically what we would be looking at at a higher level.
There’s probably some more specific local stuff, but that’s only because we’ve got access to some of those paid tools. But in terms of those data points in suburbs, at a higher level we’re looking at annual average capital growth rates, predicted capital growth rates, how the suburb’s done in the last three months, the last 12 months, how it’s done the last three years. We look at those average days on markets, and the trends over time, supply versus demand, and DSI scores.
And then we get really, really granular. Once we gone through those high-level indicators, what we do as a business once we’ve identified a suburb is, we map every single sale in the suburb over the last two years by price point. So, we can begin to identify the premium areas in a suburb, and then target the cheapest property in the premium areas with the most potential. We look at owner occupiers, we look at those demographics. We look at the number of renovations.
That really, really, really, granular stuff that sometimes only being on the ground and buying a significant amount of property in an area, you can find.
But on top of that, I suppose, what I’ve found to be most important is, when you start looking at sales history data and you go a three bedroom, one bathroom un-renovated home in the suburbs worth 400K … or let’s call it 500K. A four bed, two bath completely renovated, beautiful home in this suburb is worth $800,000.
That’s what I like to identify, where the value in the marketplace lies. Not that … the suburb’s going to do most of the heavy lifting, but if you can also identify the right product type in that suburb, you’re a hell of a long way ahead of the average investor, because they’re not thinking about how that product type can also help them grow over time as well.
Ryan: Yeah, and so you guys are looking … if you guys want to get access to Ben and his team’s expertise in different suburbs and things like that, then he is a buyers’ agent and can actually help you buy properties. He’s also offering you guys a free strategy session with himself to just go through your property strategy, see where you want to be in the future, and what steps you can take to get towards that.
So, if you’re interested in sitting down with Ben, talking about your strategy for the future, and seeing if it’s a good fit to work with him or not, go to onproperty.com.au\session, and you can book a free strategy session with Ben.
So, thanks again so much for coming on today, Ben. Everyone out there be careful of the analyst’s predictions. Do your own research, and until next time, stay positive.