Michael Yardney has looked back on last year and talks about the lessons from that year that can help improve the outcomes of 2017.
Kevin: It doesn’t matter how long you’ve been involved in property investment, there are always lessons to be learned. Let’s try and look back on last year, 2016. What can we take away from there that we can bring into this year? Although we’re pretty well into the year, still, let’s hark back. Michael Yardney joins me to do just that.
Good morning, Michael.
Michael: Good morning, Kevin.
Kevin: What are the lessons that we can take forward? What did you pick up out of 2016?
Michael: One of the big lessons – the reminders, I guess, Kevin – was that property is a game of finance. Last year, many investors found their borrowing capacity decreased considerably as the banks increased their serviceability criteria, and this is going to happen even more in 2017. APRA and ASIC are both making it harder for the banks, and there are some new regulations coming out, so it is going to be even more difficult for rental-dependent property investors.
So remember that property is a game of finance, get the right people on your team, have the right finance structures in place, and have the right sorts of properties – the sort that the banks like to lend against, Kevin.
Kevin: Okay. Next one?
Michael: I think the other lesson that came out of the last year was how fragmented our property markets are, and even though we have got the same interest rates, the same tax environment, and the same federal government, Sydney and Melbourne in particular were defying the constant predictions of a looming property crash. It really has a lot to do with their economic growth, their population growth related to the jobs that are being created, and the wages growth. Conversely, Perth and Darwin are struggling due to the resources downturn.
So remember, our property markets are fragmented, and even within the states, there are still good patches and patches that I’d be avoiding.
Kevin: One of the things I found too, Michael – and I talk to a lot of people as you know about the property market – is really, when it’s all boiled down, no one really knows what’s going to happen, do they?
Michael: That’s a really good lesson from last year, Kevin, because at the beginning of the year, a lot of people make predictions, and there were one or two who are pretty well on the money but a lot of the larger research houses despite all their homework and research got it wrong, because there are always X factors coming in. That’s happening from external, like Brexit and Donald Trump in America, and from internal things like interest rates dropping even more.
So what you have to do is take into account what you’re reading and hearing from the experts, but remember that there are always going to be changes that despite the best predictions are going to mess up your plans.
Kevin: Can we talk about negative gearing? We saw a bit of an attack on that last year, and there’s still talk about it even now. Is it likely to change?
Michael: It’s going to be on the agenda as the Budget comes up. It is every year. It was last year and the year before. I don’t think the government really wants to tinker with negative gearing, but it’s being forced to find money somewhere and it’s forced to placate a group of people. The other big issue is affordable housing, so they’re talking about how to make housing more affordable, but that’s not going to be by getting rid of negative gearing.
Negative gearing is a political football, but with about 1.2 million investors using that as a tax deduction and with 70% of people owning their own home, the government doesn’t want to make housing values drop to make it more affordable for a small group of people. I see the government probably not making any major changes that are going to affect us, at least this year.
Kevin: We mentioned already that there’s a lot of uncertainty in the market and no one really knows what’s going to happen. That actually just breeds all those doomsayers – those people who it’s so easy for them to say the market is going to crash – and we saw a continuation of that last year, didn’t we?
Michael: We did, and that’s a good lesson to bring into this year, because while there have only been one or two of them, they will be out again talking about a property market crash.
Will the property markets correct? Of course, they will – they always do – and if they do, it will be a minor correction in capital cities and particularly of investment-grade properties or quality homes. But fear is a powerful emotion and the media loves using fear to grab our attention, to grab the clicks, to make us buy the newspapers.
I never really understood the motivation behind all those people who want property values to drop. I don’t know; maybe it’s jealousy, Kevin.
Kevin: Maybe. Have you noticed that the smart investors actually change their system at all? Have they changed it or tinkered with it?
Michael: I think one of the lessons from last year is that those people who have a system stopped the emotions getting into play, so therefore they made their decisions based on a strategic discussion as opposed to emotions or speculation.
I think this year as our markets remain fragmented and some areas are still going to be suffering, those with a system are going to be ahead of the pack.
Kevin: We did see a lot of the price increases – particularly in Sydney and Melbourne – off the back of that fear of missing out that you and I have spoken about. Is that something we’ve taken into this year as well?
Michael: I think that’s a good lesson, Kevin, that some people are going to miss out again, because some people are waiting for the market to correct. Some people are waiting for everything to be right. Some people are waiting for that property that is going to work perfectly for them.
That doesn’t mean you should take advantage of any opportunity or every opportunity. You heard me say before that I’ve made more money by saying no to things than yes to things. But having said that, there’s no 100% exactly right, correct investment, so you have to know where you want to head, have a strategy behind it, and then don’t miss out, Kevin; take action.
That’s a big lesson, because those who are sitting on the sidelines are missing out on one of the biggest booms that has occurred in the last decade, particularly in Melbourne and Sydney. But the other capital cities are catching up too, Kevin.
Kevin: They are indeed, Michael. On that note, we’ll say thank you, some great lessons out of last year that we can look at for this year.
Thank you for your time, Michael Yardney.
Michael: My pleasure, Kevin.