Forces Affecting Australian Property Prices

The Australian property market had a very interesting 2019 with some crazy downs and ups. We are here today to give you a little bit of an update on where the Australian property market is at.

Where We Are At Globally – 0:55

The Levers The Government is Pulling That Affect Property Prices – 2:27

The APRA Changes Years Ago May Help Us Now – 4:36

What’s Happening In The SE Queensland Market – 6:26

What’s Causing Sydney and Melbourne To Be So Expensive – 8:13

What’s Happening In Brisbane – 10:45

How To Differentiate Brisbane To Perth/Darwin – 13:43

What Brisbane Offers as An Investor That Sydney and Melbourne Don’t – 16:00

There Are So Many Factors in Play – 17:40

What May Happen After This Mid-Cycle Slow Down – 19:27

Transcription:

Ryan 0:00
the australian property market had a very interesting 2019 with some downs and then some crazy ops and we’re now well into 2020 and he said i want to talk about some of the data behind the australian property market what is kind of happening at the moment and give you a little bit of an update so hi i’m ryan from onproperty joined by ben everingham buyer’s agent from pumped on property to share

Ben 0:24
some of the data i’m like super excited about geeking out on this one because i’ve been reading like the cool thing about taking some time off over the break was getting some time to really sink my teeth into that stuff so i thought it would be cool if we talk about global australia and then the market that we’re interested in which is southeast queensland

Ryan 0:42
yeah let’s do that and then as you talk about it because you’ve done the data research not me maybe let people know as well like what sort of stuff you’re reading so they want to do further research they can so let’s start with global and where we’re at globally

Ben 0:56
sure so obviously there’s pros and cons to the global market right now probably more cons than pros brexit just occurred the Coronavirus is going to have a big impact later this year on australia’s gdp or output as well as china’s are as well as a spill on effect throughout the entire world it’s also an election year obviously this year in america as well which does create some sort of instability especially if trump doesn’t get back in so you know they’re the they’re the big things that people are talking about right now in terms of what that actually means that you and i as investors here in australia is one of my clients ray said to me who’s in corporate banking at the moment i’m just getting on with my own personal investment strategy but he said i’m adding cash flow as a higher priority and i’m making sure that i’ve got buffers in case you know things get really rocky but it’s that time of the cycle according to phil anderson fred harrison ray dalio where things should get shaky in 2020 they have been saying that for five years now that this would be the year and 2021 would be the year what happens as a result of that is stock markets normally get a bit shaky business and consumer sentiment gets a bit shaky property prices around the world can go a bit flat for a while you know we’ll talk about some of the things the australian government’s pulling as levers to counter that dough and they’ve been pulling for half a year now already well that’s kind of what we saw the big turnaround

Ryan 2:23
last year so if you weren’t following the market closely last year the market declined basically for the first half of the year if not a little bit more but that decline was slowing each and every month and the government you know reduce the interest rates multiple times multiple times and then that has caused a real push in property prices and a real surge especially in melbourne and sydney

Ben 2:48
so ray dalio is the most successful hedge fund manager of all time year on year for 40 years and he basically said there’s four levers that governments can pull one of them being reducing the reserve bank rate or the fed bank rate to make interest rates to borrowed money cheaper according to my clients and the people that i follow analysts wise they’re expecting interest rates in 2020 the job at least twice to a cash rate for australia point two five or 1% which is insane like that could mean two and a half percent interest rates for owner occupiers maybe 3% interest rates for investors that’s going to bring a wave of people in the other thing that they’re doing is helicopter money you would have heard about the 10,001st time buyers that have to buy before the first of april that’s the government throwing money out of the helicopter to get things re stimulated you’ve got the building boost all around australia which is another version of that the government committed in 2020 to increasing their spend on infrastructure by 10% next year by 15% from 2019 levels that’s another thing they can do and next year they’re talking about quantities quantitative easing which is another lever that governments can pull as well so

Ryan 4:01
losing is printing money

Ben 4:03
effectively bringing more money into circulation which reduces the value of money and it artificially increases the value of assets

Ryan 4:11
compared to money yeah

Ben 4:12
so lots of things you’ll see government’s doing at the moment and at this particular time in the global cycle they can still do it next time we come to this position unfortunately there won’t be too many of these leaders left but historically at this point this is going to be a couple of sketchy years for stock markets around the world according to ray dalio phil anderson fred harrison you know the beautiful thing about australia is i think the australian government saw how vulnerable the australian property market was three years ago four years ago when they started to make those afro changes

Ryan 4:44
you know when they made it really hard to borrow money they made it increasingly hard especially for investors to borrow money they made it harder for international investors to get into the market as well which put a dampener on the market

Ben 4:56
you know i’ve got it just an example of how hard it is right now for internationally investors to buy compared to three years ago three years ago they reckon somewhere between 65 and 90% of properties in sydney and melbourne were being sold to international investors i’ve got a client in london right now who’s a solicitor earning 400,000 pounds a year

Ryan 5:17
in china that’s a lot

Ben 5:18
that’s a hell of a lot of money and as he goes 700k he’s got 250 grand in the bank the borrowing capacity for him right now in australia was $500,000 that was it that was it like that’s his maximum capacity and he’s an australian resident living over there not even an international i’ve got another bloke living in mongolia at the moment and korea these guys are earning insane money with great deposits can buy at the very very bottom in the brisbane market which is sort of 400k mark so you know this is good stuff like this is protective stuff that the australian government’s done in the australian government has always been more aggressive in that type of policy they forced the sydney market to decline by 15% the melbourne market to come back by 12 and a half just in time but things could have been a lot worse if they are still bubbling away and we’re going into this period but as you’ve seen like sydney has gone off again sighs melbourne and it’s kind of like how far they can run until they hit a double top type thing

Ryan 6:17
yeah and so it’s really interesting what’s happening at the moment in the australian market and whether or not it’s going to continue what do you think about local talking about southeast queensland then we’ll talk more about you out there as investors and how this applies to you because ultimately you’ve got all of these global forces of play you’ve got national forces of play state forces things happening in the city and on the suburb level infrastructure all of that but at the end of the day you’re not buying an entire country or the entire world you’re buying one property probably in one suburb and so you’re focused on your financial freedom or whatever your financial goals are and sometimes people just get paralyzed by what’s happening globally and what’s happening nationally and it’s important to recognize those things but then it’s also really important to have a personal plan despite those things

Ben 7:12
you know i love that man i was talking with a client in south korea this morning and we’re talking about this like any he mentioned bubbly and i said well you know since the last gfc sydney and melbourne and now between 70 and 150% more expensive depending on which suburb brisbane is cheaper to buy in when you factor in inflation than it was 13 years ago perhaps cheaper to buy than it was 14 almost 15 years ago darwin’s lost 45% of its value in the last seven years like when we talk about a bubble you know sydney and melbourne prices at 11 or 12 times annual income that feels like bubbly and unfortunately prices are gonna rise there by 10% this year as well but when you look at brisbane or perth like three and a half times the annual income to buy the average home in perth yeah four and a half times the average annual household income to own a property outright in brizzy that’s just beautiful long term stuff in our domain consistent with the rest of the world

Ryan 8:11
yeah it’s what’s causing sydney and melbourne to be so expensive campaign i

Ben 8:16
named brisbane and you know how i’ve like sort of stopped drinking and then every now and then i tried to do it and then i feel anxious for a month it’s like yeah i do you know man like cuz you get the wrong end of the stick after i’ve drunk but like i drunk one last time la this year and i’m like that’s me like good for this year it just was not worth the pain and i think that i had fomo on the day it was super bowl day it’s my brother’s favorite day i was in sydney i was like everyone was getting on the beers i was strong for the first hour and then i’m like fuck it i’m just gonna drink and i immediately regretted it the next three weeks but like

i know three weeks of pain

for one night of gains yeah it’s not it’s not i see the bees so good i’m like such a good time on the test day

Ryan 9:06
it’s such an australian cultural thing as well to drink anyway we digress

Ben 9:10
you know i fomo you find out hard and that’s what people in sydney doing a lot of people are going and melbourne to prices declined by 15% so they’re cheap but they’re not factoring into account the 65 70% growth that occurred in the seven years leading up to that point taking a little bit off the top is completely normal money’s become cheap sentiment like i was watching the today show and sunrise when i was in sydney at my dad’s place it was just on in the background and head of core logics jumping on there you know and talking about how excited they are for the australian property market in 2020 and that’s like reaching a million people every morning and those types of guides are out there saying this stuff like sq m researchers saying that sydney is going to do 15% growth before the end of next year melbourne being 10% like what I’ve learned about property is it is not logic based at all the same as Bitcoin wasn’t the same as me drinking for the Superbowl was in its emotion and people follow the crowd, unfortunately to their own detriment, I think in Sydney and Melbourne at the moment, like if you’re a 30 year investor, they’re great investments. If you’re a 10 year investor, I think there’s probably more sensible places to play. Place your money right now.

Ryan 10:23
Yeah, so let’s move on from that. So it’s important to know that you got the global economy, you got the Australian economy and the Australian market is

Ben 10:30
sitting on full blown rocks right now, by the way, we’re at like this mad quarry on the sunny coast. And Ryan’s, like, literally standing on

Ryan 10:38
my feet might be what we go through to bring you videos. But yeah, you have to understand that they try and properly market, each city, each state, each area is very individualized and very different. And so you’ve been investing in the southeast Queensland market yourself for a number of years helping clients for a number of years, your specialty area, talk about what’s happening in Brisbane. Now given that, you know, it’s had a pretty flat run for,

Ben 11:06
what, 13 years now you’re saying, you know, core logic says that it’s cheaper to buy than it was 13 years ago. What’s happened in Brizzy is in the last 10 years, the suburbs within five K’s of the city have gone up in line with those of Sydney and Melbourne. And then it’s like someone drew a line. And nothing further than about six kilometers has increased in value at all. So it’s this anomaly right now you’ve got a suburb here, right where a brand new home with some good views is selling for $1.8 million to suburbs away or three kilometers you can buy here for 550k with the same view. It’s just this weird city. You’ve got 8000 Australians last year in terms of Australian residents left Sydney, the only 8000 8000 Australians left Sydney The only reason so many grew not many 8000 until you realize that 28,000 Australians moved to Brisbane.

Ryan 11:59
Okay, like overall,

Ben 12:02
why just Austin’s low, Sydney was minus 8000 Australians and why that’s important is because Sydney is getting same as Melbourne, the bulk shore of international people moving there. But Australians are leaving Sydney and Melbourne right now in droves. And they’re coming into southeast Queensland. Now, this happens about once every 15 years where prices in Sydney and Melbourne become unaffordable for rent and buying. And people just get the shifts with it. And that wasn’t an option five years ago for a lot of people because they’re super hadn’t got back to current levels and incomes in Sydney and Melbourne about five years ago with 20 30% more than they are in Brisbane. But all of a sudden incomes in Brisbane are higher than Melbourne and just under Sydney now, that price is at 25 cents 30 cents in the dollar for houses and 50 cents in the dollar for rent. And people are going Why wouldn’t I? Why not consider it your domain? Like why not consider it.

Ryan 12:58
And definitely having lived in Queensland now living back into me.

Ben 13:03
That’s a busy man.

Ryan 13:04
Busy, it’s expensive. And so you can understand why people are doing that.

Ben 13:09
So long term trend in Brisbane has been 9% plus growth per year for 50 years short term trend has been really bad. And if you have a short term bias where you look at the short term trend, it goes you know, Sydney is good. It’s done. Well. Brisbane bad it’s done that. Yeah. But if you understand the long term picture, and if you understand how cycles work and where population moves, where infrastructure is going, and where historically has done much better in the second half. I’m so excited about Brisbane, I don’t know how to convey how excited I am for the next seven years.

Ryan 13:42
How do you compare Brisbane and which hasn’t really grown to somewhere like Perth or somewhere like Darwin, which has declined? Like they’re not just cycles per se, because they’re obviously more heavily related to the mining and resources sectors and stuff like that. Or oversupply in those areas. Like what happened in Darwin? Yeah. So how do you how do you differentiate and show that Brisbane isn’t just another Darwin or isn’t just another

Ben 14:14
good point man like Brisbane 2.3 million people today. The Australian Bureau of stats says that Brisbane will be the exact same size as Sydney and Melbourne today in about 27 years time so 5 million people. That’s a significant global city like the International Monetary Fund puts Brisbane as one of the top 200 cities globally that will produce over 80% of the world’s GDP in the next 50 years. 25% of Australia’s population job and income growth will go into Sydney into Melbourne and into Brisbane. So they’re capturing 75% of the long term growth according to the abs in the next 25 years. When Darwin produces a drop in the ocean and Perth is expected to get about 8% but you know what people don’t recognize it. Perth, for example, perhaps dropped like 28% in the last six years, is that it went up by 140%. In the seven years before that,

Ryan 15:08
yeah, so I don’t think anyone ever talks about the growth that Perth had before its

Ben 15:12
decline. If you’ve been in Perth for 15 years, you’d still be 120% up. You know what I mean? Like, people forget that, like, they things move in flows. And same with Darwin, like Darwin grew by 100% in a short period of time. The problem with Darwin was it was so heavily reliant on one industry, and they oversupply the shit out of it, especially in units to the point where it’s only just balancing now. Yeah, and yields are coming up like a 12% vacancy rate to about a 6%, which is crazily oversupplied. So the reason Perth and Darwin aren’t turning is because there’s still capacity which has to be absorbed, but both markets are still losing population.

Ryan 15:50
So Perth and Darwin have both had big growth Vioxx capacities bikes, as well, whereas Brisbane, just flat,

Ben 16:00
you know, and Brisbane is actually outperformed Sydney and Melbourne, when you look at the average for 50 years, including the flat period now, and that on a long term trend guy like I’m looking at, where I can invest the dollar and make the highest return in the medium term plus long term. The other thing about Brizzy that’s attractive is I can buy 10 K’s from the city, I can buy walking distance to the beach for under 500k on the beach or 600k in the city, I can then add a secondary dwelling or granny flat. You know, if I earn a couple of those houses, I could be getting between five and 7% yields but still get this incredibly long term positive outlook for growth. You know, if I go and invest a million dollars in Sydney, I’m 30 case in the city, which historically hasn’t performed anywhere near as well as the beach or closer to the city. And even with a granny flat I’m still only looking at three and a half percent yields which are not prepared to like bet my money that in the next 10 years, Sydney is going to grow in value by 50 grand a year, which is what I needed to to cover the costs on my negatively good advice when interest rates get back to six or 7%. But you know, people that are 20 grand a year out of pocket on their city properties will be 50 or 70 grand a year out of pocket. And I don’t want to be in that position. And you know, I want to buy Sydney and Melbourne but I need to wait for the prices to redirect or incomes to get to a place where it’s about five to seven times the annual salary to own something not 11 to 12 times. It’s shocking cash flow. Yeah. I don’t know. Like I’m geeking out man, like I’m just into the shoot at the moment. I guess my brain just wants to summarize everything and have

Ryan 17:38
it out with a neat little bow. But I feel like you can’t do that.

Ben 17:40
Because there’s no like one way of doing no,

Ryan 17:43
and because there’s so many factors in play as well, because the global economy can affect the Australian economy, which can affect different cities differently depending on what the government does with interest rates or with monetary policy can also affect different cities and things like that. And we’re not saying that Sydney and Melbourne are bad investments, because obviously people are making money there. And people are doing well in Sydney and Melbourne. So it’s not about that at all. It’s just kind of, I guess, looking at the data, like we’re obviously like the look of Brisbane, and that quite clearly comes through in our analysis of the data, but you need to go and do the analysis yourself. See what sq m saying see what core logic saying see what ht w saying, see what the is shrapnel saying like this is where I’m just pulling information. I got a text message this morning from one of my corporate banking clients in Hong Kong. And he’s like,

Ben 18:38
snapshot of like the China effect and 9% of Australia’s, you know, like GDP effectively is tied up in either education, Chinese students, tourism from Chinese travelers, or, you know, products that we import effectively or export out of Australia to China in terms of commodities, or meat or fruit and veggies and for all of that stuff to be uncomplete hot like lockdown right now. Like I talked to another client yesterday. And I’ll be Davi he’s a pilot, he just said China airways is literally text message all of its pilots and said, You don’t have a job anymore. But you know what I mean a text message, this is how brutal it is right now all of that stuff is going to have a knock on effect in six months, 12 months, 18 months, 24 months. But what I think about China personally, is that once they manage what’s going on right now and the world gets its head around it to which we will you know, it’s not the first time we’ve ever gone through a flu. China is going to throw petrol on the fire of the Chinese economy like we have never ever seen in history. And it gives me goosebumps because it is gonna start the biggest second half of soccer that we’ve ever seen as well. And unfortunately that’s going to have a knock on effect in 710 years from now but like I’m I’m I know that these are trends. Yeah, like I’m not playing the trend i’m not getting caught up on the short term i’m playing 30 years in brisbane if i buy for 500k house in a granny flat and i get 650 bucks a week of rent and in 30 years time that 500k investments 1.5 mil and i’m getting 1500 bucks a week of income gives a shit you know what happens in between that because the in between is going to look real lumpy you know it’s always going to be a virus it’s always going to be trade tensions there’s always going to be new president there’s always going to be a bad time to buy on a bad time to sell or a good time and i’m buying a market because it’s distressed right now in brisbane and it hasn’t grown and i’m forecasting that the world will get better at some point in the future than it is looking like right now

Ryan 20:45
yeah so yeah well i think they haven’t there is some data and some interesting insights on the australian property market at the moment and kind of the forces that are at play take this as one little piece of information

Ben 20:59
in itself stuff

Ryan 21:01
yeah like a little piece of your pie in order to make your decision as to what you do in investing and i think it’s really important that we talk about how this affects you as an investor and what you can do individually because of all of this stuff and despite all this stuff as well so we’ll talk about that in the next video so go ahead and check out that one click over here to go ahead and watch it otherwise until next time stay positive

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