15 Dec 2016 Hotspots – Michael Yardney
In putting the show together for this week, I asked Michael Yardney, from Metropole Property Strategists, if he could detail what he thinks are going to be the property “hotspots” in 2016. Those who work with Michael, will know his response to that question. Not quite what I expected and you might be surprised as well.
Kevin: Always around this time of year, many people want to know what’s going to happen next year. As we head into 2016, a good topic – and it’s a topic we’re asked to address – is about hot spots. We’ve got a particular feeling about that. Michael Yardney from Metropole Property Strategists joins me.
Michael: Hello, Kevin.
Kevin: Do they exist, firstly?
Michael: Well, Kevin, every year people try and find the hot spots for the next year. You’re right. Around this time of the year, you’ll see lots of articles about that.
I found it interesting looking back at some of the previous ones online and in the magazines, and those areas that were so-called hot spots have actually performed pretty poorly over the last little while. Many of the outer suburbs, the regional suburbs, the mining towns, which were flavor of the month for a short time, were not hot spots at all.
Maybe we should look at what is likely to drive our property markets over the next year.
Kevin: Interesting. I was talking to Dr. Andrew Wilson from Domain about this just recently, and his comment was that by the time it’s identified as a hot spot, it’s already finished. It’s over. It’s gone.
Michael: Well, it’s all so short-lived. What I think investors should be looking at is more long term. Yes, I know the concept that it would be nice to time the market, but I’ve found it’s harder and harder to do at the moment. There are too many factors.
Kevin: What are those property markets going to look like, and what’s going to drive them next year?
Michael: I think the drivers next year are going to be Australia’s economy. That’s slowing, and how that pans out and how the Reserve Bank is going to respond with interest rates will clearly be a major impact on our property markets.
Another big factor over the next 12 months is APRA’s regulation targeting investors and now even more recently owner-occupiers. This is going to slow demand down. Particularly for investors who are marginal and having difficulty getting loans, or investors with very large property portfolios who are rent-reliant, they’re going to have more difficulty getting finance, and I think that’s going to slow the market down a bit next year.
Michael: Population growth was one of the big drivers. You’re right, Kevin. But that’s slowing a little bit, and where it’s going to is mainly going to be the two big capital cities, Melbourne and Sydney, where growth in service industries is creating the biggest jobs.
Interest rates are going to be an interesting factor. I think they’re going to remain low. If you put me in a corner and said, “What’s going to happen?” I’d say, “They’re probably going to drop once or twice more over the next year because our economy is faltering a bit.”
Kevin: It’s one thing to have lower interest rates by the RBA, but it’s just a matter of whether the banks pass it on, Michael.
Michael: Exactly right. I think we’re going to get a two-tier system where businesses are going to be getting the lower interest rates but the banks and home-owners are not as much. But that’s interestingly leading to business confidence. They’re feeling more confident now that we seem to have a stable federal government and stable state governments, and business confidence translates to more investment, to more jobs.
That’s also creating consumer confidence. Consumer confidence is the highest since Malcolm Turnbull was elected. In fact, it’s the highest it’s been in two years recently, so consumers are happy because they’re getting more jobs because unemployment is under control.
I think the combination of these factors means 2016 won’t be as good for house price growth as 2015 was, but we’re not going into reverse. We’re not going backwards. The strong Melbourne and Sydney markets have probably dropped from fifth gear to third or fourth gear, Kevin.
Kevin: Interesting. So steady as she goes, 2016, Michael?
Michael: Probably a little bit slower than it went last year. It also means that you’re going to have to be very careful with property selection, because capital growth isn’t going to cover up mistakes.
I think, as always, it’s really going to be demographics – how we live, where we want to live. The sort of people who have got a bit more income are the ones that are going to push up property values, because I see as our economy is bumbling along, there’s going to be very little wages growth in many of the manufacturing and blue-collar areas. I think the high end of the market is probably also going to suffer a little bit, Kevin, because you don’t need those big trophy homes in Sydney, and Melbourne, and Brisbane when the economy is faltering a bit.
But there are lots of people who are still getting married, getting divorced, having babies – maybe not in that order, Kevin – and what’s going to end up happening is they’ve still got to live somewhere. They’re still going to move. They still have jobs, and they’re still buying or renting properties, Kevin.
Kevin: Always good talking to you, Michael Yardney from Metropole Property Strategists. Michael, thank you for your time.
Michael: My pleasure, Kevin.
Kevin: Don’t forget you can get a copy of Michael’s new book, too. There’s a link on our homepage at RealEstateTalk.com.au.
Michael, we’ll talk to you again next week. Thank you.
Michael: My pleasure, Kevin.