With sentiment down in Sydney and Melbourne could now actually be a good time to invest in property? In this episode we look at some data provided by Propertyology and discuss whether or not now may be a good time to invest.
Book a Free Strategy Session – https://onproperty.com.au/session
Propertyology Article – https://www.propertyology.com.au/property-market-outlook-boom-conditions/
0:00 – Introduction
0:50 – Beware of what general consensus says
2:40 – Removing Sydney, Melbourne and Darwin from your mind
5:55 – Underlying positive fundamentals of the property market
7:45 – Early signs of wage growth and Australia going into surplus
10:14 – Housing supply is tight in 5/8 capital cities
11:58 – Population growth continues
17:00 – Most economists estimating stable or reducing interest rates
18:15 – The mid-cycle slowdown
19:14 – Is now a good time to invest in property?
21:55 – The next 18 months are going to be huge for Ben
22:50 – The fundamentals are more important now than ever before
23:36 – Finance and APRA guidelines could effect the market significantly
Creating a Property Strategy For 2019 – https://www.youtube.com/watch?v=mFTQN7dz2F0
A lot of people have been asking us the question lightly, is now a good time to invest in property? Obviously with Sydney and Melbourne being on the decline, people a bit more wary of getting into the market. So today I’ve got with me Ben Everingham from pumped on property. How’s it going, Ben? Awesome. How you doing? Very good. And Ben has shared with me this article from property log where they look at some of the fundamentals of the Australian market at the moment and so what we’re going to do in this episode is kind of talk through some of these data points to give you guys a bigger and broader picture of what’s actually going on rather than just the headlines of like will Sydney’s decreased, Melbourne’s decrease. And so it’s all doom and gloom. So we’re gonna load you guys up with data today to give you a bit of outlook on the market that. Yeah, it’s just a broader picture.
Yeah. I really liked this article, Ryan, and I’m grateful for Simon, obviously putting it together so that we could share it today with everybody. Um, at the very top of this article, Simon starts off with this concept of being aware of what the consensus says, which is Kinda like what Warren Buffet said in the past, which is, you know, be fearful when others are greedy and greedy when others are fearful because there’s a lot of negative sentiment right now. A lot of people are thinking about an election. It’s a little bit harder to get money. The fact that Sydney and Melbourne prices are going down and so that’s sort of washing through the market or has been for the last couple of years and a lot of people that might be thinking about doing something. You’ve been sitting on the sidelines. So in terms of this consensus, he points to a few things, you know, over the last 10 years that have, I suppose had an effect on where consensus has been in sort of a bit of a myth busting thing.
No, he’s kind of talking about how, where consensus was in the past and how it didn’t actually line up with results and how consensus today is probably down. But that doesn’t necessarily mean it’s going to line up with results and me and ben both believe it’s really important that you do your own research, that you look into the data to make a decision, but also have a property investing strategy that kind of can work in almost any market and so you want to protect yourself there, but we also do believe in market trends and investing wisely. And so that’s why we kind of want to go through this data today. So we will leave a link up to the article down below so you can go ahead and check it out and read through it yourself if you want to. Let’s go through these, what they’re calling the fundamentals of a potential boom. So just to give you guys kind of a framework, they’re saying step one, just remove Sydney, Melbourne, and Darwin from your mind as I think it’s going to be years before we see new growth cycles in these three cities. What do you think about that then?
I completely agree with what Simon said there. If you look at Herron, todd, what month in review report? It’s also forecasting the same thing, call logic, Spain saying the same thing now for the last almost 18 months about these markets. I’m feeling this and who has the bigger picture, 18 year cycle that we’ve talked about before. Also says that we’re in that mid cycle, slow down point where we get a correction in these bigger capital city markets that have done very, very well out of the last recession or depression. So completely agree there and as I’ve been talking about on camera for about two years, I think anybody could say that coming. That was actually looking at those sources we just talked about. And then step two, they say remember that large parts of Australia has seen very little little price growth since way back in 2007 potentially indicating that they’re overdue for some growth.
Yeah. I look at somewhere like Brisbane for example, in Brisbane, if you look at the data over the last 10 years, has done actually less than one percent growth per year. Where Sydney over that same period of time has grown by an average of seven to eight percent per year. So you know, again, it’s not everywhere in Australia. I’ve got an email from a client this morning or just a subscriber to our youtube channels and he basically said Australian property market. Hahaha you mean a series of markets within a market and that’s, you know, that sounds stupid, but Sydney and Melbourne and Darwin don’t directly reflect the value in maybe, you know, Adelaide potentially Perth in a couple of years in Brisbane now. And so it’s important to realize that Australia, it’s not just one property market that all moves, moves in sync that each individual city or region or wherever it may be has different like it is growing or declining differently.
Yeah. So I like to buy the place that hasn’t gone through its growth cycle yet, you know, that’s kind of like buying at the bottom and as an investor who has a much longer term strategy because I don’t care. And I think you’re the same Ryan. Too much about what happens year to year with anything. I’m looking at things from a longer term perspective. I still get scared. I still feel fear. I still hate when a current affair comes out with a, you know, the whole world’s gonna fall over type article like they did last year. We kept orbiting around the sun and currently it didn’t fall over, um, but you know what I mean, like it’s just a, we all, we all get caught up in those things, but there’s a longer term investor with a bigger picture strategy. If you can also overlay buying at the bottom, you can do so much better than averages over time. And I liked the idea that buying at the bottom or towards the bottom also reduces your risk from a negative standpoint. So buying at the bottom, obviously it gives you the most potential for growth, but if you haven’t already seen excessive growth, then there’s also less chance of a price decline as well. So I like the fact that it gives you more potential upside but also reduces your risk going backwards as well. And so we’re well then we’ll just move on to step three, which is talking about these
fundamentals, so it will just go through them. The first two points are about Australia creating an additional 300,000 extra jobs in the last two years or in two consecutive years. That said,
that’s crazy, man. Lucky you about that now, but that’s right.
Thousand plus jobs per year for two consecutive years.
It’s, it’s crazy. That’s assignments it has. That’s big and I completely agree with him. I think you’ve got to be careful about the way that the government at the moment is, you know, taking that job box. Because if you look at the abs daughter, it means somebody in employment at least one hour per week. They’re not, they’re not 300,000 full time high paying, high income jobs in the last
extra 300,000 jobs. Does this include, do they ignore jobs that go away that might not exist?
Not Anymore. Look, there’s a whole lot of data up for interpretation there. And what I do know is there’s an election year and that big number looks big to voters. Um, it looks like things are heading in the right direction, but whichever way they’re cutting the data, it’s still a positive thing that, you know, we’re close to full employment in Australia and things are taken in the right direction from that perspective.
Okay. And then they’re also talking about our unemployment rate has consistently been falling for some time now and is a very low five percent.
Yeah. So when unemployment rates are low and when interest rates at a low, it genuinely harder for people to get an get into really hard times. If you look at the times in the past where property prices have really dropped, it’s generally when unemployment rates are higher, interest rates are very high as well. So you know, interesting daughter as well.
Yeah, well that kind of lines up with the next thing with pressure continually building on the supply of labor. This finally early signs of wage growth. And then saying history tells us the biggest property booms generally have strong wage growth. So obviously people being able to buy property is reliant. It’s kind of on two things. It’s kind of on their wage and how much they earn as well as how much money they can borrow, which is banks lending criteria as well as interest rates at the time.
Absolutely. And I think, you know, the next thing he talks about, which I was surprised by because I thought it was not due to occur til 20, 21, but apparently the federal budget will fall into surplus many that Australia as you know from at least from a government perspective heading in a more positive direction financially. Yup. And so that’s been what since before the GFC, was it that, that’s happening? That’s it. That’s a lot. That’s the first time that that’s happened given like post gfc environment. So that’s, you know, 10, 11, 12 years now almost. Yeah. I know. I know that the Howard government got us into an incredible position as a country before the last year, which is one of the reasons why we came out of it so well. And you know, I love the fact that Australia conservative with their money management and we have, you know, worked through some of that debt. Now again, they can say it will fall into surplus, it could just be for one quarter out of a year, we still might be in huge amounts of debt, but compared to a lot of the other developing countries in the world in developed countries, Australia sitting in an incredible position which most governments around the world would love to have.
Yep. And then they go on to have a positive quote from the Reserve Bank, Governor Phillip Lowe, um, which I don’t know if I count that as data to really go to the bank off, but I guess that’s another positive sign
said three and half percent inflation in the last 12 months. You know, the cool thing about inflation, man,
no, they’re saying the economy’s performed well, which has grown by three and a half percent and inflation has been low and stable at around two percent.
Ah, sorry. Yeah, I misread that side of the past year. The economy’s grind by three and a half percent, which is well above. I think what our predicting. I thought that was more around two to two point five, maybe two point seven, five percent. And then inflation me Dang stable once inflation starts, that’s why just start to increase in property prices go again. So hopefully some of that growth turns into some inflation over the next few years.
Yup. The next data point is that housing supplies quite tight in five out of eight capital cities and a very high proportion of non capital city locations as well. And they’re saying it’s likely to tighten further. So obviously supply and demand if there’s not enough supply and there’s more demand than they could push prices up.
Yeah. So we know that Sydney and Melbourne looked like that going into ivy supply for particularly from a unit perspective over the next couple of years and Darwin’s there, which is according to supply and demand fundamentals. Partially some of the reasons why those markets are reducing in value now that other market places like Brisbane, South Australia, Canberra, outside of units, across some of those markets look like they’re in a good position which is tightening, which again puts upward pressure on rents.
Yup. And this is actually because I’m looking for a rental in Sydney at the moment. This is the first time I’ve ever looked for a rental and prices are dropping. There’s so many units on the market that you see them next week. The $20 cheaper per week. Even one I saw today has dropped again. So yeah, I’m definitely seeing the prices dropping on units in Sydney at the moment.
It’s a beautiful thing. Unless you bought in the last 24 months.
Yeah, probably not great for those investors, but for me as renting, it’s pretty cool. Um, next one is a vacancy rates are low and continually tightening. So this kind of lines lines up with the limited housing supply because obviously there’s limited supply then there’s less properties that are going to be vacant as well. And me and Ben always talk about when you’re investing in an area you want to look for an area with low vacancy rates, definitely under two percent, ideally even lower than that.
Um, I liked the next one too, which is everyone knows that we’ve been onto a winner in Australia over the last few years with population growth. Um, you know, they’re expecting it to grow by 350,000 people in the next 12 months. Now anybody who’s not on the population growth bandwagon in Australia, unfortunately none of us is stopping the train. Like if you look at the government’s vision, um, for in our lifetime, we’re talking about 60 million Australians now. You know, whether you like it, whether you don’t, whether you liked the way that the government is doing things, you know, regardless this population is just going to continue to flood in and you know, if they stopped the tap for four years because certain politics or politicians don’t like it, the tap will turn on in a big way again as soon as that political party gets out. So you know, it’s part of the future prosperity and growth predictions for Australia. And it’s part of the reason why property prices in Australia have been what they have been for so long. And if you look back at America or parts of Europe, countries in Europe, parts of Asia, when population is growing in such a strong way, it’s very, very, very difficult for, you know, prices to really, really, really directing a big way based on history.
Yeah. And a lot of these data points that we’re looking at today, a very broad for Australia as a whole and as we talked about at the start of this episode, when you’re investing in property in Australia doesn’t just move as one market. It all moves individually. So you still need to do all your own suburb research. You need to do all your own market research, you need to look into this stuff. We’re not saying this because it’s like, well anyway, you invest in Australia is going to be great. Any suburb, any property is going to be great. This is just some data to have an outlook on the market that isn’t all negative.
That’s exactly it. And what I will just say then is it’s difficult to have a really, really, really big drop in prices in the current state of the current cycle. Um, at different stages of the cycle, no matter how many people they pumped into this country, prices are going to get wiped out. So you know, to learn more about that stuff. Check out Phil Anderson and Fred Harrison’s what?
Yep. So then they go on to talk about the worldwide tourism boom. Has No end in sight. Just trying to work out if this is actually okay. So tourism, the income from tourism is growing slightly.
The terrorism has slightly. That’s correct.
I’m using big numbers like 42 and a half billion in Australia, which sounds really big, but then they’re saying it’s going to expand. I’m with 20 to 30 new tourism projects worth a combined 44 billion, but that doesn’t. The projects are worth $44 million, but it doesn’t actually talk about how much money is that going to bring into the country. So I don’t know, I probably move.
That’s just the infrastructure side of the tourism projects as opposed to the actual revenue side, which is the $42,000,000,000. Last year I was looking at the front page of the sunny coast paper, which I don’t even know why I think I was sitting in a doctor yesterday with Lisa high grading the paper, but they said that tourism in south east Queensland was up 18 percent year on year. That can’t be a bad thing and I suppose as we get to this stage of the cycle where some people have recovered from the last year of say some people’s businesses have been doing well for awhile. Some people got some spare cash because they’ve been paying down debt. They start thinking about domestic and international tourism again, which is why those things are starting to move again.
Yup. And we’ll probably just skim through the last ones I’m talking about. Free trade agreements are going to bring in extra revenue and extra jobs. Um, will demand for commodities such as iron ore. I’m called gold copper or that sort of stuff. It looks like that’s growing as well.
I think we’re really, really close to the startup and mining boom. Again, in Australia, resources been I think within three to four years will be right in the thick of that I’m already seeing it from clients living all over Australia and the world that it in that sector and how many new projects are coming on, how much research and discoveries going on, how many new jobs are being created. Um, it looks like it’s starting to come back a little bit, which is positive. Um, the Australian dollar is predicted to go down quite dramatically in the next year, which means our resources become dirt cheap to the rest of the world again, and that probably will put the gas on them as well.
Okay. And then that tolkien about the international student market continues to expand and that it’s up 17 percent last year,
you know, it’s just the revenue and thinks heading in the right direction. Again, with the falling Aussie dollar, it means that it’s cheaper for international paper to buy a property in Australia or to send naked for education.
Yup. And then they’re talking about the rollout of the federal government’s 10 year, $290,000,000,000 defense force manufacturing contracts, which means more jobs. They say most economists on anticipating any increase in the RBA cash rate until at least the mid 20 slash 20. So there’s some chance of interest cuts in 2019 or at least interest rates kind of staying stable.
I think they’re going to cut him personally. I saying that early last year as well. Um, I just feel like it’s on the cards that get cut, but obviously if the value of money in America going up, that starts to try traded discrepancy, which, which isn’t a nice one for Australia. So it’s, it’s challenging to answer money policy right now. Um,
the same. The global economies in much better shape now than it was five or 10 years ago. Yeah,
it was in a recession. Dead Easy Guy. The third or fourth worst one in the last hundred years. Of course it’s any better. There’s property prices in America down 50 percent. The stock market took a 50, 60 percent baiting. You know, says we’re in a better position than we were without a doubt.
Okay. So I don’t know if I would pay much attention to that one, especially given the indicators that we may be heading into like another global recession. So I don’t know about that. Um,
you know, take everything with a grain of salt. Of course. It’s just nice for the first time in 18 months they say some positive sentiment and some positive news based on some data points. You know, we might be heading into the mid cycle slowdown down point over the next couple of years. I think in Australia we’re already there and you know, time will tell type thing. You know, we’re not saying it’s going to be burned markets, we’re not saying it’s going to be a bust market that we’re going into either, you know, quality properties in the right markets are probably going to be able to be purchased in the next 18 to 24 months at prices that we won’t see it again for the next, you know, six or seven years after that. So you know, I just think from that side, if you are a longterm investor that likes to take advantage of timing and the right markets, then while sentiment is so low, it could be a time to start educating yourself a little bit more than just sitting on the fence and going bearing the hands head for two years and losing five to 15 percent growth in the right suburbs.
Yeah, and I think this is obviously an article that just talks about the good stuff and the same. Well this video is based off that article, so we’re just talking about these positive things. There’s obviously other indicators as well, but what this video is doing to talk about is at the right time to buy a property is most of the stuff out there. It’s just completely negative and saying that no now’s not the right time. I guess what we want to shine light on is that there are good things happening, that there are going to be opportunities in this market to purchase properties at a good price to buy properties that are good deals in the right markets within Australia. Assuming that you’re investing with the correct strategy that lines up with what you want to achieve and assuming that you do your research before investing as well. I think research now into the markets that you’re gonna buy in is more important than it probably has been in the past. It’s super intense important
because that rising tide lifts all boats and therefore anybody could have bought something in Sydney six years ago and made almost double their money over that period of time and so people bought crappy one bedroom unit so people bought on main roads and everything went up or people bought really far from the city and in a market where everything’s going up by 10 percent a year. Plus you can. The is very forgiving. But in a market like this where things aren’t going up in the same way, you’ve got to be strategic and come back to those fundamentals that Ryan and I’ve talked in the past. Then an example of, you know, looking at markets within markets is, you know, we have obviously been saying for a couple of years, Ryan, that Sydney and Melbourne didn’t look great, but Brisbane looked interesting and then if you looked at Brisbane over the last two years, you’d go, well it’s grown by two, three percent over that period of time according to the average.
Then if you look at some suburbs within that, some suburbs have gone backwards by 10 percent. Some suburbs have gone up over the same period of time by 20 percent. So individually investors with the right strategy in picking suburbs based on fundamentals and local demand can still can still and have still done very, very well and you know, averages adjust that there are big picture but they made little to you and I because we know that, you know, averages in Sydney, you’re going to be hard this year because I think every going to go backwards unfortunately. But you know, averages in the right markets at the right time that are at the bottom of the cycle can be well above what you see on TV.
Yeah. So when it comes to the question, is now a good time to invest in property? What would you say, Ben?
Um, I wouldn’t say it’s a great time for everyone, but for me personally as someone who unfortunately is a bit of a voucher, I’m a, I would consider myself a bear. I like to invest when things aren’t great, when sentiments not great to me, like the next 18 months. Again, it’d be huge. I was literally planning over the weekend, my acquisition over the next two years and it’s, it’s time for me to come back into the marketplace after sitting on the sidelines for awhile. I think for me, um, you know, I’m setting myself up for what I believe is going to be an incredible seven year run in south east Queensland and I’m positioning myself like I always do now for high quality assets in the right suburbs with longterm potential for growth and great cash flow rather than just the good old days of, you know, buying anything, hoping that it performs in the future.
Yeah. So we have drummed on about this for years now, talking about those fundamentals of how to purchase a property, what markets to look in, what suburbs to look in, what properties within those suburbs to buy, and we’ve done so many videos on those fundamentals, so many are available for free on youtube or a podcast or written format. So you guys can go ahead and check them out. I guess what we’re saying is that now can be a good time to buy if you have your fundamentals in place and if you’re doing the correct research and buying in the correct markets, it’s not, you know, 2012 in Sydney where you can just basically buy anything and that’s gonna go up in value over the next four years. It’s really do fundamentals invest correctly. And if you do that then you can have success in, in the property market,
in a lot of what’s going to happen over the next 12 to 18 months has to do with finance. And that’s the last thing that they talked about in this article is effectively the balance of control. Right now. Because the business environment, people are making money, low unemployment rates, low interest rates, um, you know, the, the big thing that people are waiting to see right now I suppose is what opera is going to do. And from talking to my mortgage broker, I’m Aaron who’s been in the game for 20 years. He said Ben changes were actually already implemented in November, December to soft and lending policy. But from my experience of being in this game for 10 years, it takes nine months for those changes to actually come through to average sentiment. So you know, if it was November 2018 where things started to soften and money was easier to get and money is going to get easier to get.
Like it’s, it’s very, very, very difficult right now because they wanted to slow down the market and they’ve done that. You know, it depends how quickly they continue to soften things. But mark my words, three to five years from today, there’ll be giving out money like it is going out of fashion and you don’t want to be taking all of that easy money when they’re giving it out. Because you’ve already missed the bottom of the market and a lot of the rise into these markets that haven’t done well. So you know, a lot of it has to do with money and right now the banks have money. There’s not many people defaulting on their loans and you know, a lot of their internal processes have been tightened up. Obviously this week. The findings of the Royal Commission come out, you know, not as many loans are as bad as they thought they were after going through this process is my interpretation of the data.
But like any market, some people will be stressed out and some people have overpaid and some of those people when interest rates go up or they flicked a principal and interest will hurt. You know, there are other things that we’re dealing with at the moment and I just think when we get back to responsible, normal lending conditions, you know, you don’t want to be buying when everyone else is rushing back into the market at that time. You don’t want to be waiting for Queensland or Adelaide to get a 10 percent growth year before everyone else in Australia like they did in Hobart or Sydney or Melbourne comes running in. You really want to be there before that happens to take advantage of that 15 to 20 percent that the market doesn’t price in Europe.
So. So that finishes today’s episode talking about whether or not it’s a good time to buy. Don’t be completely scared out of the market, but obviously go in with your eyes wide open as to what is actually happening, both the good and the bad. So we wish you the absolute best in your property investment journey in 2019. Whether you decide to sit on the sidelines and not invest or if you decide to jump into the market, we wish you the absolute best and we hope that you have success in that. While you’re here guys, go ahead and check out the video that me and Ben did on setting a property strategy for 2019. So if you want to get clear on your strategy and how you want to invest in the year, check that out. Links will be in the description down below and until next time, stay positive.